Document



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

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2017

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

For the transition period from__________________ to _______________

Commission File Number: 1-11178
REVLON, INC.
(Exact name of registrant as specified in its charter)
    
Delaware
13-3662955
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
One New York Plaza, New York, New York
10004
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: 212-527-4000

Securities registered pursuant to Section 12(b) or 12(g) of the Act:
Title of each class
Name of each exchange on which registered
Class A Common Stock
New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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






Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
 
 
 
Accelerated filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
 
Smaller reporting company ¨
 
 
 
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the registrant's Class A Common Stock held by non-affiliates (using the New York Stock Exchange closing price as of June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter) was approximately $225,291,062.

As of December 31, 2017, 52,646,564 shares of Class A Common Stock were outstanding. At such date, 44,573,187 shares of Class A Common Stock were beneficially owned by MacAndrews & Forbes Incorporated and certain of its affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Revlon, Inc.’s definitive Proxy Statement to be delivered to stockholders in connection with its Annual Stockholders' Meeting to be held on or about June 7, 2018 are incorporated by reference into Part III of this Form 10-K.








REVLON, INC. AND SUBSIDIARIES
Form 10-K
For the Year Ended December 31, 2017
Table of Contents

PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine and Safety Disclosures
 
 
 
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
 
 
 
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
 
 
 
PART IV
Item 15.
Exhibits and Financial Statement Schedules
 
Index to Consolidated Financial Statements and Schedules
 
Report of Independent Registered Public Accounting Firm (Consolidated Financial Statements)
 
Report of Independent Registered Public Accounting Firm (Internal Control Over Financial Reporting)
 
Financial Statements
 
Financial Statement Schedule: Schedule II - Valuation and Qualifying Accounts
Item 16.
Form 10-K Summary
 
Signatures
 
 
Certifications
 
 
Exhibits
 
 
 
 





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PART I - FINANCIAL INFORMATION

Item 1. Business

Background
Revlon, Inc. ("Revlon" and together with its subsidiaries, the "Company") conducts its business exclusively through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation ("Products Corporation") and its subsidiaries. Revlon is an indirect majority-owned subsidiary of MacAndrews & Forbes Incorporated (together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman.
The Company was founded over 86 years ago by Charles Revson, who revolutionized the cosmetics industry by introducing nail enamels matched to lipsticks in fashion colors. Today, the Company continues Revson's legacy by producing and marketing innovative products that address consumers' wants and needs for beauty and personal care products.
The Company is a leading global beauty company with an iconic portfolio of brands. The Company develops, manufactures, markets, distributes and sells worldwide an extensive array of beauty and personal care products, including color cosmetics, hair color, hair care and hair treatments, fragrances, skin care, beauty tools, men’s grooming products, anti-perspirant deodorants and other beauty care products across a variety of distribution channels. The Company continues to build a combined organization that is entrepreneurial, agile and boldly creative, with a passion for beauty. The Company has strategic brand builders, developing a diverse portfolio of iconic brands that delight consumers around the world wherever and however they shop for beauty. The Company strives to be an ethical company that values inclusive leadership and is committed to sustainable and responsible growth. 

Financial Information about Operating Segments
The Company operates in four reporting segments: the consumer division ("Consumer"); Elizabeth Arden; the professional division ("Professional"); and Other. The Elizabeth Arden segment consists entirely of the business acquired pursuant to Products Corporation's September 7, 2016 acquisition of Elizabeth Arden, Inc. ("Elizabeth Arden," the "Elizabeth Arden Acquisition" and the "Elizabeth Arden Acquisition Date," respectively). The Professional segment consists entirely of the business acquired pursuant to Products Corporation's October 9, 2013 acquisition of The Colomer Group Participations, S.L., a Spanish company now known as Beautyge Participations, S.L. ("Colomer," the "Colomer Acquisition" and the "Colomer Acquisition Date," respectively).
The Company’s Consumer segment is comprised of products that are marketed, distributed and sold in large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, the Internet/e-commerce, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetic stores and perfumeries in the U.S. and internationally under brands such as Revlon, Almay, SinfulColors and Pure Ice in cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; Cutex in nail care products; and Mitchum in anti-perspirant deodorants. The Consumer segment also includes a skin care line under the Natural Honey brand and hair color line under the Llongueras brand (licensed from a third party) that are sold in large volume retailers and other retailers, primarily in Spain.
The Elizabeth Arden segment markets, distributes and sells fragrances, skin care and color cosmetics to prestige retailers, the mass retail channel, specialty stores, perfumeries, department stores, boutiques, e-commerce, travel retailers and distributors, as well as direct sales to consumers via its Elizabeth Arden branded retail stores and Elizabeth Arden.com e-commerce business under brands such as Skin Illuminating, SUPERSTART, Prevage, Eight Hour, Elizabeth Arden Ceramide and Visible Difference in the Elizabeth Arden skin care brands; Elizabeth Arden Red Door, Elizabeth Arden 5th Avenue, Elizabeth Arden Green Tea and UNTOLD in Elizabeth Arden fragrances; Juicy Couture, John Varvatos, All Saints, La Perla and Wildfox in designer fragrances; and Curve, Elizabeth Taylor, Britney Spears, Christina Aguilera, Shawn Mendes, Halston, Ed Hardy, Geoffrey Beene, Alfred Sung, Giorgio Beverly Hills, Lucky Brand, PS Fine Cologne for Men, White Shoulders and Jennifer Aniston in heritage fragrances.
The Company’s Professional segment markets, distributes and sells professional products primarily to hair and nail salons and professional salon distributors in the U.S. and internationally under brands such as Revlon Professional in hair color, hair care and hair treatments; CND in nail polishes and nail enhancements, including CND Shellac and CND Vinylux nail polishes; and American Crew in men’s grooming products. The Professional segment also includes a multi-cultural hair care line consisting of Creme of Nature hair care products, which are sold in both professional salons and in large volume retailers and other retailers, primarily in the U.S. 
The Other segment includes the operating results related to the development, marketing and distribution of certain licensed fragrances and other beauty products. The results included within the Other segment are not material to the Company’s consolidated results of operations.

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For certain information regarding the Company's segments' performance, foreign and domestic operations and classes of similar products, refer to Note 19, "Segment Data and Related Information," to the Company’s Audited Consolidated Financial Statements in this Form 10-K.


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Products
The following table sets forth the Company's principal brands that are included in its Consumer, Elizabeth Arden and Professional segments by product category:
Segment
 
COSMETICS
 
HAIR
 
MEN'S GROOMING
 
BEAUTY TOOLS
 
FRAGRANCES
 
ANTI-PERSPIRANT DEODORANTS
 
SKIN CARE / BODY CARE
 
 
 
 
 
Owned
Licensed*
 
 
Consumer
 
Revlon
 
Revlon ColorSilk
 
 
 
Revlon
 
Charlie
 
 
Mitchum
 
Gatineau
 
 
Almay
 
Llongueras*
 
 
 
 
 
Jean Naté
 
 
 
 
Natural Honey
 
 
SinfulColors
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pure Ice
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cutex
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Professional
 
CND
 
Revlon Professional
 
American Crew
 
 
 
 
 
 
 
 
 
 
 
 
 
Intercosmo
 
d:fi
 
 
 
 
 
 
 
 
 
 
 
 
 
Orofluido
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UniqOne
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Creme of Nature
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Elizabeth Arden
 
Elizabeth Arden
 
 
 
 
 
 
 
Curve
Elizabeth Taylor
 
 
 
Visible Difference
 
 
 
 
 
 
 
 
 
 
Giorgio Beverly Hills
Britney Spears
 
 
 
SUPERSTART
 
 
 
 
 
 
 
 
 
 
Elizabeth Arden White Tea
Christina Aguilera
 
 
 
Elizabeth Arden Pro
 
 
 
 
 
 
 
 
 
 
Elizabeth Arden 5th Avenue
Jennifer Aniston
 
 
 
Prevage
 
 
 
 
 
 
 
 
 
 
Elizabeth Arden Green Tea
PS Fine Cologne for Men
 
 
 
Eight Hour
 
 
 
 
 
 
 
 
 
 
Elizabeth Arden Red Door
Geoffrey Beene
 
 
 
Elizabeth Arden Ceramide
 
 
 
 
 
 
 
 
 
 
Elizabeth Arden Always Red
Lucky Brand
 
 
 
Skin Illuminating
 
 
 
 
 
 
 
 
 
 
 
Ed Hardy
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alfred Sung
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Juicy Couture
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
John Varvatos
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Halston
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
White Shoulders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wildfox
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mariah Carey
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shawn Mendes
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
All Saints
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
La Perla
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tapout
 
 
 
 
*Licensed from a third party


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The Company operates in four operating segments: Consumer; Elizabeth Arden; Professional; and Other, which also comprise the Company's reportable segments. For certain information regarding the Company's segments and domestic and foreign operations, refer to Note 19, "Segment Data and Related Information," to the Company’s Audited Consolidated Financial Statements in this Form 10-K. A further discussion of the Company's brands by segment appears below.
Consumer Segment:
The Company’s Consumer segment includes cosmetics, hair color and hair care, beauty tools, fragrances, anti-perspirant deodorants and skin care products sold in approximately 150 countries in large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetics stores and perfumeries in the U.S. and internationally.
Cosmetics - The Company manufactures and markets a broad range of cosmetics, including face, lip, eye and nail products. Certain of the Company’s products incorporate patented, patent-pending or proprietary technology into their production, formulation or design. See "Research and Development" for more information.
Revlon: The Company sells a broad range of cosmetics under its flagship Revlon brand, which are designed to fulfill consumer wants and needs and are principally priced in the upper range for large volume retailers. The Revlon brand is comprised of face makeup, including foundation, powder, blush and concealers; lip makeup, including lipstick, lip gloss and lip liner; eye makeup, including mascaras, eyeliners, eye shadows and brow products; and nail color and nail care lines. Revlon products include innovative formulas and attractive colors that appeal to a wide range of consumers. The following are the key brands within the Revlon segment:
Revlon ColorStay offers consumers a full range of products with long-wearing technology;
Revlon PhotoReady products that are offered in face and eye makeup and are designed with innovative photochromatic pigments that bend and reflect light to give a flawless, airbrushed appearance in any light;
Revlon Age Defying, which consists of face makeup for women in the over-35 age bracket, with ingredients to help reduce the appearance of fine lines and wrinkles;
Revlon Ultra HD, which is a liquid-based lip color offered globally;
Revlon Super Lustrous, which is the Company’s flagship wax-based lipcolor and is offered in a wide variety of shades of lipstick and lip gloss; and
Revlon Mascara, which consists of a collection of five mascaras, each with a distinct lash benefit including lash definition, length, volume, magnified volume and length and a high impact all-in-one formula.
Almay: The Company’s Almay brand consists of hypo-allergenic, dermatologist-tested, fragrance-free cosmetics and skin care products. The Almay brand is comprised of face makeup, including foundation, pressed powder, primer and concealer; eye makeup, including eye shadows, mascaras and eyeliners; lip makeup; and makeup removers. Key brands within Almay include Almay Smart Shade in face; Almay One Coat in eye; and Almay Color + Care in lip. The Almay brand also has a significant makeup remover business under the core Almay brand name.
SinfulColors and Pure Ice: In addition to color cosmetics under SinfulColors, the Company’s SinfulColors and Pure Ice brands consist primarily of value-priced nail enamels, available in many bold, vivid and on-trend colors.
Cutex: The Company's Cutex brand consists of a full range of nail care products, including nail polish remover, nail enamels, nail tools and hand and nail care treatments.
Hair - The Company sells both hair color and hair care products throughout the world to large volume retailers and other retailers, primarily under the Company's Revlon ColorSilk franchise, as well as under the premium priced Llongueras brand (licensed from a third party) in Spain. Revlon ColorSilk products provide radiant, long-lasting color that leaves hair nourished, hydrated and ultra-conditioned.
Beauty tools - The Company sells Revlon beauty tools, which include nail, eye and manicure and pedicure grooming tools, eye lash curlers and a full line of makeup brushes under the Revlon brand name.
Fragrances - The Company sells a selection of moderately-priced fragrances in its Consumer segment, including perfumes, eau de toilettes, colognes and body sprays. The Company’s fragrance portfolio within its Consumer segment includes fragrances under globally-recognized brand names such as Charlie and Jean Naté.
Anti-perspirant deodorants - The Company sells Mitchum anti-perspirant deodorant products for men and women, with patented ingredients that provide consumers with up to 48 hours of protection.
Skin care - Within its Consumer segment, the Company sells certain skin care products in the U.S. and internationally under various regional brands, including the Company’s Natural Honey and Gatineau brands.

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Elizabeth Arden Segment:
The Elizabeth Arden segment is comprised of an extensive portfolio, including the following:
Elizabeth Arden: Elizabeth Arden produces skin care, color cosmetics and fragrances under the Elizabeth Arden brand, including Visible DifferenceCeramideSUPERSTARTPrevageEight Hour, Skin Illuminating, White Tea, Red Door and Green Tea.
Heritage, Designer, and Celebrity Fragrances: Elizabeth Arden’s heritage fragrances include a number of core brands, including Britney SpearsChristina Aguilera, Elizabeth TaylorCurveGiorgio Beverly HillsEd HardyJennifer AnistonLucky BrandPS Fine Cologne for MenHalstonGeoffrey BeeneAlfred Sung, White Shoulders and Tapout. Designer fragrance brands include Juicy Couture, John Varvatos, All Saints, La Perla and Wildfox. Celebrity fragrances include Shawn Mendes and Mariah Carey.
Elizabeth Arden also distributes approximately 260 additional prestige fragrance brands owned by third parties. These products are typically sold to retailers in the U.S. and internationally, including prestige retailers and specialty stores and mass retailers, including mid-tier and chain drug retailers, e-commerce sites and other international and travel retailers.

Professional Segment
The Company’s Professional segment includes a comprehensive lineup of products sold to hair and nail salons and professional salon distributors, including hair color, shampoos, conditioners, styling products, nail polishes and nail enhancements. The Professional segment also includes a multi-cultural line of products sold in both professional salons, large volume retailers and other retailers.
Revlon Professional: The Company’s Revlon Professional brand includes hair color, hair care and hair treatment products that are distributed exclusively to professional salons, salon professionals and salon distributors and are sold in more than 85 countries. Revlon Professional is synonymous with innovation, fashion and technology to service the most creative salon professionals and their clients. Revlon Professional salon products include Revlonissimo NMT, Nutri Color Creme, Sensor Perm and Revlon Professional Equave.
American Crew and d:fi: The Company sells men’s shampoos, conditioners, gels and other hair care and men's grooming products for use and sale by professional salons under the American Crew brand name. American Crew is the "Official Supplier to Men" of quality grooming products that provide the ultimate usage experience and enhance a man’s personal image. American Crew is the leading salon brand created specifically for men and is sold in more than 70 countries. The Company also sells unisex hair products under the d:fi brand, which is a value-priced full line of cleansing, conditioning and styling products.
CND: The Company sells nail enhancement systems and nail color and treatment products and services for use by the professional nail salon industry under the CND brand name. CND-branded professional nail, hand and foot care products are sold in more than 85 countries and the Company recently introduced the CND brand into mass retail through CVS stores. CND nail products include:
CND Shellac brand 14+ day nail color system, which delivers 14+ days of flawless wear, superior color and mirror shine with zero dry-time and no nail damage. The CND Shellac system is a true innovation in chip-free, extended-wear nail color; and
CND Vinylux weekly polish, a breakthrough nail polish that uses a patent-pending technology and lasts approximately a week. While ordinary polishes become brittle and deteriorate over time, CND Vinylux dries with exposure to natural light to a flawless finish and strengthens its resistance to chips over time.
The Company also sells professional hair products under brand names such as Orofluido, UniqOne and Intercosmo.
The Company sells multi-cultural hair-care products to professional salons, large volume retailers and other retailers, primarily in the U.S., under the Creme of Nature brand.

Other Segment:
The Company’s Other segment primarily includes the distribution of certain prestige, designer and celebrity fragrances, cosmetics and skin care products.

Marketing
In its Consumer segment, the Company markets its extensive product lines covering a broad range of price points within large volume retailers and e-commerce sites in the U.S. and within large volume retailers and other retailers internationally.

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The Company uses social media and other digital marketing, television, outdoor and print advertising and public relations and influencer marketing, as well as point-of-sale merchandising, including displays and samples, coupons and other trial incentives. The Company coordinates its marketing and advertising campaigns, such as the Revlon brand's new Live Boldly campaign, with in-store promotional and other marketing activities. The Company develops, jointly with retailers, customized, tailored point-of-purchase and other focused marketing programs.
The Company also uses cooperative advertising programs, Company-paid or Company-subsidized demonstrators and coordinates in-store promotions and displays. Other marketing strategies, including trial-size products and couponing, are designed to introduce the Company's newest products to consumers and encourage trial and purchase in-store.
In the Elizabeth Arden segment, the Company’s approach is focused on generating strong retailer and consumer demand across its key brands. The Company emphasizes a competitive marketing mix for each brand and implements plans that are designed to ensure that each brand's positioning is carried through consistently across all consumer touch points. The Company is increasingly leveraging new media, such as social networking and mobile and digital applications, along with traditional consumer reach vehicles, such as television and magazine print advertising, to engage with its consumers through their personally-preferred technologies. The Elizabeth Arden segment’s marketing programs are also integrated with significant cooperative advertising programs that the Company plans and executes with its retailers, often linked with new product innovation and promotions.
In the Professional segment, the Company also markets products through educational seminars on such products' application methods and consumer benefits. In addition, the Company uses professional trade advertising, social media and other digital marketing, displays and samples to communicate to professionals and consumers the quality and performance characteristics of its products. Also, in countries where the Professional segment has operations, the Company's direct sales force provides customers with point of sale communication and merchandising.
The Company believes that its presence in professional salons benefits the marketing and sale of its products in its other segments, as it enables the Company to improve in many of its other product categories, such as hair color, hair care, nail color, nail care and skin care. The Professional business also provides the Company with broader brand, geographic coverage and retail diversification beyond large volume retailers, among others.
Additionally, the Company maintains many brand-specific websites, such as www.revlon.com, www.elizabetharden.com, www.almay.com, www.revloncolorsilk.com, www.revlonprofessional.com, www.americancrew.com, www.cnd.com and www.mitchum.com, devoted to the Revlon, Elizabeth Arden, Almay, Revlon ColorSilk, Revlon Professional, American Crew, CND and Mitchum brands, respectively. Each of these websites feature product and promotional information for the brands and are updated regularly to stay current with the Company's new product launches and other marketing, advertising and promotional campaigns.

Research and Development
The Company believes that it is an industry leader in the development of innovative and technologically-advanced cosmetics and beauty products. The Company's marketing and research and development groups identify consumer needs and shifts in consumer preferences in order to develop new products, introduce line extensions and promotions and redesign or reformulate existing products to satisfy these needs and preferences. The Company's research and development group is comprised of departments specialized in the technologies critical to many of the Company's product lines. The Company also utilizes specialty laboratories and manufacturers in its supply chain for the development of certain new products, such as fragrances and skin care. The Company continues to refine its rigorous process for the ongoing development and evaluation of new product concepts, led by executives in marketing, sales, research and development, and including input from operations, law and finance. This process has created a comprehensive, long-term portfolio strategy that is intended to optimize the Company's ability to regularly launch innovative new product offerings and to effectively manage the Company’s product portfolio.
The Company operates an extensive research and development facility in Edison, New Jersey for products within its Consumer and Elizabeth Arden segments. The Company has research facilities for its Professional segment in the U.S. (in California and Florida), Spain and Mexico. The scientists at these various facilities are responsible for performing all of the Company’s research and development activities for new products, ideas, concepts and packaging. The Company’s package development and engineering function is also part of the greater research and development organization and fosters a strong synergy of package and formula development, which is integral to a product’s success. The research and development group performs extensive safety and quality testing on the Company’s products, including toxicology, microbiology, efficacy and package testing. Additionally, quality control testing is performed at each of the Company’s manufacturing facilities.
As of December 31, 2017, the Company employed approximately 200 people in its research and development activities, including specialists in pharmacology, toxicology, chemistry, microbiology, engineering, biology, dermatology and quality control. In 2017, 2016 and 2015, the Company spent $35.7 million, $37 million and $31.2 million, respectively, on research and development activities.

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Manufacturing and Related Operations and Raw Materials
During 2017, the Company’s products within the Consumer and Professional segments were produced at the Company’s facilities in the U.S. (North Carolina and Florida), South Africa, Spain, Italy and Mexico, and at third-party facilities around the world. Products within the Elizabeth Arden segment were also produced at the Company’s facilities, as well as third-party suppliers and contract manufacturers in the U.S. and Europe.
The Company continually reviews its manufacturing needs against its manufacturing capacities to identify opportunities to reduce costs and to operate more efficiently. The Company purchases raw materials and components throughout the world, and continuously pursues reductions in cost of goods through the global sourcing of raw materials and components from qualified vendors, utilizing its purchasing capacity to optimize cost reductions. The Company’s global sourcing strategy for materials and components from qualified vendors is also designed to ensure that the Company maintains a continuous supply of high quality raw materials and components. The Company believes that alternate sources of raw materials and components exist and does not anticipate any significant shortages of, or difficulty in obtaining, such materials. (See Item 1A. "Risk Factors - The Company depends on its Oxford, North Carolina facility for production of a substantial portion of its products within the Consumer segment. Disruptions at this facility and/or at other Company or third-party facilities at which the Company's products are manufactured for its Consumer, Elizabeth Arden and Professional segments, could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.")

Distribution
The Company's products are sold in approximately 150 countries across six continents. The Company utilizes a dedicated sales force in countries where the Company maintains operations, and also utilizes sales representatives and independent distributors to serve certain territories and retailers. (See Item 1A. "Risk Factors - The Company depends on a limited number of customers for a large portion of its net sales, and the loss of one or more of these customers could reduce the Company's net sales and have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows" and "Competition in the beauty industry could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.")
United States. Net sales in the U.S. accounted for approximately 49% of the Company's 2017 net sales, which were made in multiple channels, including retail, e-commerce sites and specialty cosmetics stores. The Company also sells a broad range of beauty products to U.S. Government military exchanges and commissaries. The Company licenses its Revlon trademark to select manufacturers for complementary beauty-related products and accessories that the Company believes have the potential to extend the Company's brand names and image. The Elizabeth Arden and Red Door trademarks are also licensed to a third party in which the Company has a minority interest for the operation of the Elizabeth Arden Red Door Spa beauty salons and spas through which Elizabeth Arden products are sold and which also enables the Company to leverage the unique Red Door Spa heritage to generate both organic and innovation-driven growth. As of December 31, 2017, 10 of such licenses were in effect for 18 categories of beauty- and fashion-related products and services. Pursuant to such licenses, the Company retains strict control over product design and development, product and service quality, advertising and the use of its trademarks. These licensing arrangements offer opportunities for the Company to generate revenues and cash flow through royalties and renewal fees, some of which are prepaid from time-to-time.
In the Consumer segment, the Company’s retail merchandisers maintain the Company's point-of-sale wall displays intended to ensure that high-selling SKUs are in stock and to ensure the optimal presentation of the Company's products in retailers. The Company’s products within its Professional segment are sold primarily through wholesale beauty supply distributors in the U.S. The Company's products within its Elizabeth Arden segment are sold through prestige retailers, the mass retail channel, perfumeries, boutiques, department and specialty stores, travel retailers and distributors, as well as direct sales to consumers via its Elizabeth Arden branded retail stores and e-commerce business. Elizabeth Arden products are also sold through the Elizabeth Arden Red Door Spa beauty salons and spas. 
Outside of the United States. Net sales outside the U.S. accounted for approximately 51% of the Company's 2017 net sales. The three countries outside the U.S. with the highest net sales were Canada, the U.K. and Australia, which together accounted for approximately 13% of the Company's 2017 net sales. The Company distributes its products within its Consumer segment through large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetics stores and perfumeries. The Company's products within the Elizabeth Arden segment are sold to perfumeries, boutiques, department and specialty stores, travel retailers, e-commerce sites and distributors. The Company’s products within its Professional segment are sold directly to hair and nail salons by the Company's direct sales force in countries where it has operations and through distributors in other countries outside the U.S.

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At December 31, 2017, the Company actively sold its products through wholly-owned subsidiaries established in 27 countries outside of the U.S. and through a large number of independent distributors and licensees elsewhere around the world.

Customers
The Company's principal customers for its Consumer segment include large volume retailers and chain drug stores, including such well-known retailers as Walmart, CVS and Target in the U.S., Shoppers DrugMart in Canada, A.S. Watson & Co. retail chains in Asia Pacific and Europe and Walgreens Boots Alliance in the U.S. and the U.K. Walmart and its affiliates worldwide accounted for approximately 16% of the Company's 2017 consolidated net sales.
The Company's principal customers for its Elizabeth Arden segment include prestige retailers; specialty stores and department stores such as Macy’s, Dillard’s, Ulta, Belk, Sephora, Bloomingdales and Nordstrom; U.S. mass retailers, including large volume and mid-tier retailers and chain drug stores, such as Walmart, Target, Kohl’s, Walgreens, CVS, TJ Maxx and Marshalls; and international retailers, including prestige retailers, specialty stores, department stores, perfumeries and boutiques, such as Boots, Debenhams, Superdrug Stores, The Perfume Shop, Hudson’s Bay, Shoppers Drug Mart, Myer, Douglas and various travel retailers such as Nuance, Heinemann and World Duty Free.
The Company's principal customers for its Professional segment include Beauty Systems Group, Salon Centric and Ulta Salon, Cosmetics & Fragrance, as well as individual hair and nail salons and other distributors to professional salons.
As is customary in the industry, none of the Company’s customers is under an obligation to continue purchasing products from the Company in the future.
The Company expects that Walmart and a small number of other customers will, in the aggregate, continue to account for a large portion of the Company's net sales. (See Item 1A. Risk Factors - "The Company depends on a limited number of customers for a large portion of its net sales, and the loss of one or more of these customers could reduce the Company's net sales and have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.")

Competition
The Company's cosmetics, fragrance, skin care, hair and beauty care products business categories are highly competitive. The Company competes primarily by:
developing quality products with innovative performance features, shades, finishes, components and packaging;
educating consumers, retail customers and salon professionals about the benefits of the Company’s products;
anticipating and responding to changing consumer, retail customer and salon professional demands in a timely manner, including the timing of new product introductions and line extensions;
offering attractively priced products relative to the product benefits provided;
maintaining favorable brand recognition;
generating competitive margins and inventory turns for its customers by providing relevant products and executing effective pricing, incentive and promotional programs and marketing campaigns, as well as social media and influencer marketing activities;
ensuring product availability through effective planning and replenishment collaboration with the Company's customers;
providing strong and effective advertising, marketing, promotion, social media, influencer and merchandising support;
leveraging e-commerce, social media and mobile commerce initiatives and developing an effective omni-channel strategy to optimize the opportunity for consumers to interact with and purchase the Company's products;
maintaining an effective sales force and distributor network; and
obtaining and retaining sufficient retail display and floor space, optimal in-store positioning and effective presentation of its products on-shelf.
The Company competes in selected product categories against numerous multi-national manufacturers in both the Consumer and Professional segments, as well as with expanding private label and store-owned brands in the Consumer segment. In addition to products sold in large volume retailers, distributors, wholesalers, professional salons and demonstrator-assisted retailers, the Company's products also compete with products sold in prestige and department stores, television shopping, door-to-door, specialty stores, one-stop shopping beauty retailers, e-commerce sites, perfumeries and other distribution outlets. The Company's competitors include, among others, L'Oréal S.A., The Procter & Gamble Company, Avon Products, Inc. & New Avon LLC, Coty Inc., Shiseido Co., Johnson & Johnson, Kao Corp., Henkel AG & Co., Mary Kay Inc., Hand & Nail Harmony, Inc., Oriflame Holding AG,

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Markwins International Corporation, Sephora (a division of LVMH Moët Henessy Louis Vuitton SE), Boots UK Limited, e.l.f. Beauty, Inc. and The Estée Lauder Companies Inc. (See Item 1A. "Risk Factors - Competition in the beauty industry could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.")

Patents, Trademarks and Proprietary Technology
The Company considers trademark protection to be very important to its business. The Company’s trademarks are registered in the U.S. and in approximately 150 other countries. Significant trademarks include Revlon, Revlon ColorStay, Revlon PhotoReady, Revlon Super Lustrous, Almay, Almay Smart Shade, SinfulColors, Pure Ice, Mitchum, Charlie, Jean Naté, Cutex, Revlon ColorSilk, Revlon Professional, Intercosmo, Orofluido, UniqOne, American Crew, Creme of Nature, CND, CND Shellac, CND Vinylux, Gatineau and Natural Honey. With the acquisition of Elizabeth Arden, the Company now also owns or has rights to use other significant trademarks for the manufacture, marketing, distribution and sale of numerous fragrance, cosmetic and skin care brands in our Elizabeth Arden segment, including owned marks such as Elizabeth Arden, Elizabeth Arden Red Door, Elizabeth Arden 5th Avenue, Elizabeth Arden Always Red, Elizabeth Arden Green Tea, Visible Difference, Prevage, Eight Hour, SuperStart, Untold, Giorgio Beverly Hills, Curve, Halston and White Diamonds, and licensed trademarks such as Christina Aguilera, Britney Spears, Shawn Mendes, Juicy Couture, Lucky Brand, John Varvatos, All Saints, La Perla, Alfred Sung, Elizabeth Taylor, Geoffrey Beene, Ed Hardy, Jennifer Aniston, Mariah Carey and Wildfox. The Company regularly renews its trademark registrations in the ordinary course of business.
The Company utilizes certain proprietary and/or patented technologies in the formulation, packaging and/or manufacture of a number of the Company’s products, including, among others, Revlon Age Defying cosmetics, Almay Smart Shade makeup, Revlon ColorSilk hair color, the Prevage skin care line, Mitchum anti-perspirant deodorants, CND Shellac nail color systems and CND Vinylux nail polishes. The Company considers its proprietary technology and patent protection to be important to its business.
The Company files patents in the ordinary course of business on certain of the Company’s new technologies. Utility patents in the U.S. are enforceable for at least 20 years and international patents are enforceable for 20 years. The patents that the Company currently has in place expire at various times between 2018 and 2035 and the Company expects to continue to file patent applications on certain of its technologies in the ordinary course of business.

Government Regulation
The Company is subject to regulation by the Federal Trade Commission (the "FTC") and the Food and Drug Administration (the "FDA") in the U.S., as well as various other federal, state, local and foreign regulatory authorities, including those in the European Union (the "EU"), Canada and other countries in which the Company operates. The Company’s Oxford, North Carolina manufacturing facility is registered with the FDA as a drug manufacturing establishment, permitting the manufacture of cosmetics and other beauty-care products that contain over-the-counter drug ingredients, such as sunscreens, anti-perspirant deodorants and anti-dandruff hair-care products. Compliance with federal, state, local and foreign laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not anticipated to have, a material effect on the Company's capital expenditures, earnings or competitive position. Regulations in the U.S., the EU, Canada and in other countries in which the Company operates that are designed to protect consumers or the environment have an increasing influence on the Company's product claims, ingredients and packaging. (See "Risk Factors - The Company’s products are subject to federal, state and international regulations that could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.")

Employees
As of December 31, 2017, the Company employed approximately 7,800 people, of which approximately 20% were covered by collective bargaining agreements. The Company's total employee population includes the impacts of integration initiatives in connection with the EA Integration Restructuring Program (as hereinafter described), including the impacts of insourcing efforts. The Company believes that its employee relations are satisfactory.

Available Information
The public may read and copy any materials that the Company files with the Securities and Exchange Commission ("SEC"), including, without limitation, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information in the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file with the SEC at http://www.sec.gov.

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The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and amendments to those reports are also available free of charge on the Company's Internet website at http://www.revloninc.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.


Item 1A. Risk Factors

In addition to the other information in this report, investors should consider carefully the following risk factors when evaluating the Company’s business. For definitions of certain capitalized terms used in this Form 10-K referring to the Company's debt facilities, see Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources - Long-Term Debt Instruments" of this Form 10-K.

Revlon is a holding company with no business operations of its own and is dependent on its subsidiaries to pay certain expenses and dividends. In addition, shares of the capital stock of Products Corporation, Revlon's wholly-owned operating subsidiary, are pledged by Revlon to secure its obligations under the 2016 Credit Agreements.
Revlon is a holding company with no business operations of its own. Revlon's only material asset is all of the outstanding capital stock of Products Corporation, Revlon's wholly-owned operating subsidiary, through which Revlon conducts its business operations. As such, Revlon's net income has historically consisted predominantly of its equity in the net (loss) income of Products Corporation, which for 2017, 2016 and 2015 was $(178.7) million, $(15.7) million and $62.1 million, respectively (in each case excluding $6.6 million, $9.4 million and $9.0 million, respectively, in expenses primarily related to Revlon being a public holding company). Revlon is dependent on the earnings and cash flow of, and dividends and distributions from, Products Corporation to pay Revlon’s expenses incidental to being a public holding company and to pay any cash dividend or distribution on its Class A Common Stock in each case that may be authorized by Revlon’s Board of Directors.
Products Corporation may not generate sufficient cash flow to pay dividends or distribute funds to Revlon because, for example, Products Corporation may not generate sufficient cash or net income; state laws may restrict or prohibit Products Corporation from issuing dividends or making distributions unless Products Corporation has sufficient surplus or net profits, which Products Corporation may not have; or because contractual restrictions, including negative covenants contained in Products Corporation’s various debt instruments, may prohibit or limit such dividends or distributions.
The terms of Products Corporation's 2016 Credit Agreements and the indentures governing Products Corporation's 6.25% Senior Notes due 2024 (the "6.25% Senior Notes Indenture" and the "6.25% Senior Notes," respectively) and 5.75% Senior Notes due 2021 (the "5.75% Senior Notes Indenture" and the "5.75% Senior Notes," respectively, and, together with the 6.25% Senior Notes Indenture, the "Senior Notes Indentures" and the "Senior Notes," respectively) generally restrict Products Corporation from paying dividends or making distributions to Revlon, except in limited circumstances. For example, Products Corporation is permitted to pay dividends and make distributions to Revlon to enable Revlon to, among other things, maintain its existence and its ownership of Products Corporation, such as paying professional fees (e.g., legal, accounting and insurance fees), regulatory fees (e.g., SEC filing fees and NYSE listing fees), pay certain taxes and other expenses related to being a public holding company and, subject to certain limitations, to pay dividends, if any, on Revlon’s outstanding securities or make distributions in certain circumstances to finance Revlon’s purchase of shares of its Class A Common Stock issued in connection with the delivery of such shares to grantees under the Fourth Amended and Restated Revlon, Inc. Stock Plan. These limitations therefore restrict Revlon's ability to pay dividends on its Class A Common Stock.
All of the shares of Products Corporation’s capital stock held by Revlon are pledged to secure Revlon’s guarantee of Products Corporation's obligations under its 2016 Credit Agreements. A foreclosure upon the shares of Products Corporation's common stock would result in Revlon no longer holding its only material asset, would have a material adverse effect on the holders and price of Revlon’s Class A Common Stock and would be a change of control under Products Corporation’s other debt instruments. (See also Item 1A. Risk Factors - "Shares of Revlon Class A Common Stock and Products Corporation’s capital stock are pledged to secure various of Revlon’s and/or other of the Company’s affiliates’ obligations and foreclosure upon these shares or dispositions of shares could result in the acceleration of debt under Products Corporation's 2016 Credit Agreements and Products Corporation's Senior Notes Indentures and could have other consequences.")

Products Corporation’s substantial indebtedness, including the indebtedness it has incurred in connection with the Elizabeth Arden Acquisition, could adversely affect the Company’s operations and flexibility and Products Corporation’s ability to service its debt.
Products Corporation has a substantial amount of outstanding indebtedness. As of December 31, 2017 the Company’s total indebtedness was $2,897.4 million (or $2,836.3 million net of discounts and debt issuance costs), including: (i) $450 million in aggregate principal amount of its 6.25% Senior Notes; (ii) $500 million in aggregate principal amount of its 5.75% Senior Notes; (iii) $157 million of secured indebtedness under its 2016 Revolving Credit Facility; (iv) $1,777.5 million in aggregate principal

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amount of secured indebtedness under its 2016 Term Loan Facility; and (v) $12.9 million in aggregate principal amount of other indebtedness. In addition, as of such date Products Corporation would have had the ability to incur an additional $193 million under its 2016 Revolving Credit Facility. If the Company is unable to maintain or increase its profitability and cash flow and sustain such results in future periods, it could adversely affect the Company's operations and Products Corporation's ability to service its debt and/or comply with the financial and/or operating covenants under its various debt instruments. (See also Item 1A. Risk Factors - "Restrictions and covenants in Products Corporation’s various debt instruments limit its ability to take certain actions and impose consequences in the event of failure to comply.")
The Company is subject to the risks normally associated with substantial indebtedness, including the risk that the Company’s profitability and cash flow will be insufficient to meet required payments of principal and interest under Products Corporation’s various debt instruments, and the risk that Products Corporation will be unable to refinance existing indebtedness when it becomes due or, if it is unable to comply with the financial or operating covenants under its various debt instruments, to obtain any necessary consents, waivers or amendments or that the terms of any such refinancing and/or consents, waivers or amendments will be less favorable than the current terms of such indebtedness. Products Corporation’s substantial indebtedness could also have the effect of:
limiting the Company’s ability to fund (including by obtaining additional financing) the costs and expenses of executing the Company’s business initiatives (including activities related to the integration of the Elizabeth Arden business), future working capital, capital expenditures, advertising, promotional and/or marketing expenses, new product development costs, purchases and reconfigurations of wall displays, acquisitions, acquisition integration costs, investments, restructuring programs and other general corporate purposes;
requiring the Company to dedicate a substantial portion of its cash flow from operations to payments on Products Corporation’s indebtedness, thereby reducing the availability of the Company’s cash flow necessary for executing the Company’s business initiatives and for other general corporate purposes;
placing the Company at a competitive disadvantage compared to its competitors that have less debt;
exposing the Company to potential events of default (if not cured or waived) under the financial and operating covenants contained in Products Corporation’s various debt instruments;
limiting the Company’s flexibility in responding to changes in its business and the industry in which it operates; and
making the Company more vulnerable in the event of adverse economic conditions or a downturn in its business.
Although agreements governing Products Corporation’s indebtedness, including the 2016 Credit Agreements and the Senior Notes Indentures, limit Products Corporation’s ability to borrow funds, under certain circumstances Products Corporation is allowed to borrow a significant amount of additional money, some of which, in certain circumstances and subject to certain limitations, could be secured indebtedness. To the extent that more debt, whether secured or unsecured, is added to the Company's current debt levels, the risks described above would increase further.

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

The 5.75% Senior Notes mature in 2021, the 2016 Revolving Credit Facility matures no later than 2021, the 2016 Term Loan Facility matures no later than 2023 and the 6.25% Senior Notes mature in 2024. Products Corporation currently anticipates that, in order to pay the principal amount of its outstanding indebtedness upon the occurrence of any event of default, or to repurchase any of the Senior Notes if a change of control occurs, or in the event that Products Corporation’s cash flows from operations are insufficient to allow it to pay the principal amount of its indebtedness by their respective maturity dates, the Company will be required to refinance some or all of Products Corporation’s indebtedness, seek to sell assets or operations, seek to sell additional Revlon equity, seek to sell debt securities of Revlon or Products Corporation and/or seek additional capital contributions or loans from MacAndrews & Forbes or from the Company’s other affiliates and/or third parties. The Company may be unable to take any of these actions due to a variety of commercial or market factors or constraints in Products Corporation’s various debt instruments, including, for example, market conditions being unfavorable for an equity or debt issuance, additional capital contributions or loans not being available from affiliates and/or third parties, or that the transactions may not be permitted under the terms of Products Corporation’s various debt instruments then in effect, including restrictions on the incurrence of additional debt, incurrence of liens, asset dispositions and/or related party transactions included in such debt instruments. Such actions, if ever taken, may not enable the Company to satisfy its cash requirements if the actions do not result in sufficient cost reductions or generate a sufficient amount of additional capital, as the case may be.
None of the Company’s affiliates are required to make any capital contributions, loans or other payments to Products Corporation regarding its obligations on its indebtedness. Products Corporation may not be able to pay the principal amount of its indebtedness using any of the above actions because, under certain circumstances, the 2016 Credit Agreements, the Senior Notes Indentures, any of Products Corporation's other debt instruments and/or the debt instruments of Products Corporation’s subsidiaries

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then in effect may not permit the Company to take such actions. (See also Item 1A. Risk Factors - "Restrictions and covenants in Products Corporation’s various debt instruments limit its ability to take certain actions and impose consequences in the event of failure to comply").
The future state of the credit markets, including any volatility and/or tightening of the credit markets and reduction in credit availability, could adversely impact the Company’s ability to refinance or replace, in whole or in part, Products Corporation’s outstanding indebtedness by their respective maturity dates, which could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

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

The agreements that govern Products Corporation's indebtedness, including the 2016 Credit Agreements and its Senior Notes Indentures, contain a number of significant restrictions and covenants that limit Products Corporation’s ability (subject in each case to certain exceptions) to, among other things:
borrow money;
use assets as security in other borrowings or transactions;
pay dividends on stock or purchase stock;
sell assets and use the proceeds from such sales;
enter into certain transactions with affiliates;
make certain investments;
prepay, redeem or repurchase specified indebtedness; and
permit restrictions on the payment of dividends to Products Corporation by its subsidiaries.
These covenants affect Products Corporation’s operating flexibility by, among other things, restricting its ability to incur indebtedness that could be used to fund the costs of executing the Company’s business initiatives and to grow the Company’s business, as well as to fund general corporate purposes.
Certain breaches under the 2016 Credit Agreements and/or the Senior Notes Indentures would permit the Company’s lenders to accelerate amounts outstanding thereunder. The acceleration of amounts outstanding under the 2016 Senior Credit Facilities and/or the Senior Notes Indentures would in certain circumstances constitute an event of default under the other instruments permitting amounts outstanding under such instruments to be accelerated. In addition, holders of the Senior Notes may require Products Corporation to repurchase their notes in the event of a change of control under the applicable indenture and a change of control would be an event of default under the 2016 Credit Agreements. Products Corporation may not have sufficient funds at the time of any such breach or change of control to repay, in full or in part, amounts outstanding under the 2016 Senior Credit Facilities or to repay, repurchase or redeem, in full or in part, the Senior Notes.
Events beyond the Company’s control could impair the Company’s operating performance, which could affect Products Corporation’s ability to comply with the terms of Products Corporation’s debt instruments. Such events may include decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products; adverse changes in foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company's products as a result of increased competitive activities by the Company’s competitors and/or decreased performance by third-party suppliers; changes in consumer purchasing habits, including with respect to retailer preferences and/or sales channels; inventory management by the Company's customers; space reconfigurations or reductions in display space by the Company's customers; store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; less than anticipated results from the Company's existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company’s expenses, including, without limitation, those related to integrating the Elizabeth Arden business into the Company’s business, as well as those for pension expense under its benefit plans, advertising, promotional and/or marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the Company's anticipated level of expenses.
Under such circumstances, Products Corporation may be unable to comply with the requirements of one or more of its various debt instruments, including any financial covenants in the 2016 Credit Agreements. If Products Corporation is unable to satisfy such requirements at any future time, Products Corporation would need to seek an amendment or waiver of such requirements. The respective lenders under the 2016 Credit Agreements may not consent to any amendment or waiver requests that Products

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Corporation may make in the future, and, if they do consent, they may only do so on terms that are unfavorable to Products Corporation and/or Revlon.
If Products Corporation is unable to obtain any such waiver or amendment, Products Corporation's inability to meet the requirements of the 2016 Credit Agreements would constitute an event of default under such agreements, which, under certain circumstances, would permit the bank lenders to accelerate the 2016 Senior Credit Facilities, and, under certain circumstances, would constitute an event of default under the Senior Notes Indentures. An event of default under the Senior Notes Indentures would permit the respective Notes Trustee or the Requisite Note Holders to accelerate payment of the principal and accrued, but unpaid, interest on the respective Senior Notes.
Products Corporation’s assets and/or cash flows and/or that of Products Corporation’s subsidiaries may not be sufficient to fully repay borrowings under its various debt instruments, either upon maturity or if accelerated upon an event of default or change of control, and if the Company is required to repay, repurchase and/or redeem, in whole or in part, amounts outstanding under its 2016 Senior Credit Facilities and/or its Senior Notes, it may be unable to refinance or restructure the payments on such debt. Further, if the Company is unable to repay, refinance or restructure its indebtedness under the 2016 Senior Credit Facilities, the lenders could proceed against the collateral securing that indebtedness, subject to certain conditions and limitations as set forth in the related intercreditor agreement. As described above, the consequences of complying with the foregoing restrictions, covenants and limitations under the Company’s various debt instruments could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

Limits on Products Corporation's borrowing capacity under the 2016 Revolving Credit Facility may affect the Company's ability to finance its operations.

At December 31, 2017, Products Corporation had $157 million outstanding under the 2016 Revolving Credit Facility. While the 2016 Revolving Credit Facility provides for up to $400 million of commitments, the Company’s ability to borrow funds under such facility is limited by a borrowing base determined relative to the value, from time-to-time, of certain eligible assets.
If the value of the Company's eligible assets is not sufficient to support the full $400 million borrowing base, Products Corporation will not have complete access to the entire commitment available under the 2016 Revolving Credit Facility, but rather would have access to a lesser amount as determined by the borrowing base. As Products Corporation continues to manage its working capital (including its inventory and accounts receivable, which are significant components of the eligible assets comprising the borrowing base), this could reduce the borrowing base under the 2016 Revolving Credit Facility. Further, if Products Corporation borrows funds under such facility, subsequent changes in the value or eligibility of the assets within the borrowing base could require Products Corporation to pay down amounts outstanding under such facility so that there is no amount outstanding in excess of the then-existing borrowing base.
The Company’s ability to borrow under the 2016 Revolving Credit Facility is also conditioned upon its compliance with other covenants in the agreements that govern the 2016 Senior Credit Facilities. Because of these limitations, the Company may not always be able to meet its cash requirements with funds borrowed under the 2016 Revolving Credit Facility, which could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.
At December 31, 2017, the aggregate principal amount outstanding under the 2016 Term Loan Facility was $1,777.5 million, with the Company having a liquidity position of $280.1 million, consisting of $87.1 million of unrestricted cash and cash equivalents (net of any outstanding checks), as well as $193 million in available borrowings under Product Corporation's $400 million 2016 Revolving Credit Facility, based upon the borrowing base of $381.9 million, less $10.1 million of undrawn outstanding letters of credit, $21.8 million of outstanding checks and $157 million outstanding under the 2016 Revolving Credit Facility at such date.
If one or more lenders under the 2016 Revolving Credit Facility are unable to fulfill their commitment to advance funds to Products Corporation under such facility, it would impact the Company’s liquidity and, depending upon the amount involved and the Company’s liquidity requirements, it could have an adverse effect on the Company’s ability to fund its operations, which could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

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

A substantial portion of the Products Corporation's indebtedness is subject to floating interest rates, which makes the Company more vulnerable in the event of adverse economic conditions, increases in prevailing interest rates or a downturn in the Company’s business. The Company has hedged some of its exposure to floating interest rates under its 2016 Term Loan Facility through its existing $400 million floating-to-fixed 2013 Interest Rate Swap. As of December 31, 2017, including the effect of the 2013 Interest Rate Swap, $1,498.6 million of Products Corporation’s total indebtedness, or approximately 53%, was subject to floating interest rates.

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As of December 31, 2017, the entire $1,777.5 million in aggregate principal amount outstanding under the 2016 Term Loan Facility bore interest, at Product Corporation’s option, at a rate per annum of LIBOR (which has a floor of 0.75%) plus a margin of 3.5% or an alternate base rate plus a margin of 2.5%, payable quarterly, at a minimum. As of December 31, 2017, $157 million in aggregate principal amount outstanding under the 2016 Revolving Credit Facility bore interest, at Products Corporation’s, at a rate per annum equal to either: (i) the alternate base rate plus an applicable margin equal to 0.25%, 0.50% or 0.75% depending on the average excess availability (based on the borrowing base as most recently reported by Products Corporation to the administrative agent from time-to-time); or (ii) the Eurocurrency rate plus an applicable margin equal to 1.25%, 1.50% or 1.75% depending on the average excess availability (based on the borrowing base as most recently reported by Products Corporation to the administrative agent from time-to-time). The applicable margin increases as average excess availability under the 2016 Revolving Credit Facility decreases. At December 31, 2017, LIBOR and the alternate base rate for the 2016 Term Loan Facility were 1.569% and 4.5%, respectively.
If any of LIBOR, the prime rate or the federal funds effective rate increases, Products Corporation’s debt service costs will increase to the extent that Products Corporation has elected such rates for its outstanding loans. Based on the amounts outstanding under the 2016 Senior Credit Facilities and other short-term borrowings (which, in the aggregate, are Products Corporation’s only debt currently subject to floating interest rates) as of December 31, 2017, a 1% increase in LIBOR would increase the Company’s annual interest expense by $15.7 million. Increased debt service costs would adversely affect the Company’s cash flows and could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

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 2016 Credit Agreements, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company currently expects that operating revenues, cash on hand, and funds available for borrowing under the 2016 Revolving Credit Facility and other permitted lines of credit will be sufficient to enable the Company to cover its operating expenses for 2018, including cash requirements for the payment of expenses in connection with executing the Company's business initiatives (including integrating the Elizabeth Arden business into the Company's business) and its advertising, promotional, pricing and/or marketing plans, 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 and/or equity repurchases, if any.
However, if the Company's anticipated level of revenue is not achieved because of, for example, decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products; adverse changes in foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company's products as a result of increased competitive activities by the Company's competitors and/or decreased performance by third-party suppliers; changes in consumer purchasing habits, including with respect to retailer preferences and/or sales channels; inventory management by the Company's customers; space reconfigurations or reductions in display space by the Company's customers; store closures in brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; less than anticipated results from the Company's existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company's expenses, including, without limitation, those related to integrating the Elizabeth Arden business into the Company's business, as well as those for pension expense under its benefit plans, for advertising, promotional or marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the anticipated level of expenses, the Company's current sources of funds may be insufficient to meet its cash requirements. In addition, such developments, if significant, could reduce the Company's revenues and could have a material adverse effect on Products Corporation's ability to comply with the terms of the 2016 Credit Agreements. (See also Item 1A. Risk Factors - "Restrictions and covenants in Products Corporation’s various debt instruments limit its ability to take certain actions and impose consequences in the event of failure to comply," which discusses, among other things, the consequences of noncompliance with Products Corporation's debt covenants).
If the Company's operating revenues, cash on hand and/or funds available for borrowing are insufficient to cover the Company's expenses and/or are insufficient to enable Products Corporation to comply with the requirements of the 2016 Credit Agreements, the Company could be required to adopt one or more of the alternatives listed below:
delaying the implementation of or revising certain aspects of the Company's business initiatives;
reducing or delaying purchases of wall displays and/or expenses related to the Company's advertising, promotional and/or marketing activities;
reducing or delaying capital spending;

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implementing new restructuring programs;
refinancing Products Corporation's indebtedness;
selling assets or operations;
seeking additional capital contributions and/or loans from MacAndrews & Forbes, the Company's other affiliates and/or third parties;
selling additional Revlon equity or debt securities or Products Corporation's debt securities; and/or
reducing other discretionary spending.
The Company may not be able to take any of these actions because of a variety of commercial or market factors or constraints in one or more of Products Corporation's various debt instruments, including, for example, market conditions being unfavorable for an equity or a debt issuance, additional capital contributions or loans not being available from affiliates and/or third parties, or that the transactions may not be permitted under the terms of one or more of Products Corporation's various debt instruments then in effect, such as due to restrictions on the incurrence of debt, incurrence of liens, asset dispositions and/or related party transactions. If the Company is required to take any of these actions, it could have a material adverse effect on its business, prospects, results of operations, financial condition and/or cash flows.
Such actions, if ever taken, may not enable the Company to satisfy its cash requirements or enable Products Corporation to comply with the terms of the 2016 Credit Agreements if the actions do not result in sufficient cost reductions or generate a sufficient amount of additional capital, as the case may be. (See also Item 1A. Risk Factors - "Restrictions and covenants in Products Corporation's various debt instruments limit its ability to take certain actions and impose consequences in the event of failure to comply," which discusses, among other things, the consequences of noncompliance with Products Corporation's debt covenants).

The Company may not realize the anticipated synergies, net cost reductions and growth opportunities from the Elizabeth Arden Acquisition. 

The benefits that the Company expects to achieve as a result of the Elizabeth Arden Acquisition will depend, in part, on the ability of the combined company to realize the anticipated synergies, net cost reductions and growth opportunities. The Company’s success in realizing these anticipated synergies, net cost reductions and growth opportunities, and the timing of this realization, largely depends on the successful integration of Elizabeth Arden’s historical business and operations into the Company’s historical business and operations. Even if the Company is successful in effectively integrating Elizabeth Arden’s business and operations into the Company’s business, the Company may not realize the full benefits of the anticipated synergies, net cost reductions and growth opportunities that the Company currently expects, whether due to unanticipated expenses, unavailability of liquidity to fund such expenses, trade conditions or other unforeseen events. Even if such synergy and other benefits are fully realized, they may not be realized within the anticipated time frame. Moreover, the Company expects to incur substantial expenses in connection with integrating Elizabeth Arden’s business into the Company’s business, the amount of which is difficult to estimate accurately and may exceed the Company’s current estimates. Accordingly, the benefits expected from the Elizabeth Arden Acquisition may be offset by costs or delays incurred in integrating the businesses. The projected net cost reductions and synergies related to the Elizabeth Arden Acquisition are based on a number of assumptions relating to the Company’s historical business and Elizabeth Arden’s business, such as achieving certain sales volume increases. Those assumptions may be inaccurate, and, as a result, the Company’s projected net cost reductions and synergies may be inaccurate, and the Company's business, prospects, results of operations, financial condition and/or cash flows could be materially and adversely affected.

In connection with the Elizabeth Arden Acquisition, we have assumed potential liabilities relating to Elizabeth Arden’s business.

In connection with the Elizabeth Arden Acquisition, we have assumed potential liabilities relating to Elizabeth Arden’s business. To the extent we have not identified such liabilities or miscalculated their potential financial impact, these liabilities could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company depends on its Oxford, North Carolina facility for production of a substantial portion of its products within the Consumer segment. Disruptions at this facility and/or at other Company or third-party facilities at which the Company's products are manufactured for its Consumer, Elizabeth Arden and Professional segments could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company produces a substantial portion of its products at its Oxford, North Carolina facility. Significant unscheduled downtime at this facility, or at other Company facilities and/or third-party facilities at which the Company's products are manufactured, whether due to equipment breakdowns, power failures, natural disasters, weather conditions hampering delivery schedules, technology disruptions or other disruptions, including those caused by transitioning manufacturing across these facilities,

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or any other cause could have a material adverse effect on the Company's ability to provide products to its customers, which could have a material adverse effect on the Company's sales, business, prospects, results of operations, financial condition and/or cash flows. Additionally, if product sales exceed the Company's forecasts, internal or third-party production capacities and/or the Company's ability to procure sufficient levels of finished goods, raw materials and/or components from third-party suppliers, the Company could, from time-to-time, not have an adequate supply of products to meet customer demands, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.
Prior to the Elizabeth Arden Acquisition, Elizabeth Arden did not own or operate any manufacturing facilities and relied on third-party manufacturers and component suppliers to source and manufacture substantially all of its owned and licensed products and while certain consolidation has and will continue to occur, as planned, as a result of the Company's integration activities, we will continue to use third-party manufacturers for the Elizabeth Arden segment in the future. Over the past several years, Elizabeth Arden reduced the third-party manufacturers and component and materials suppliers that it uses. Elizabeth Arden also implemented a "turnkey" manufacturing process for substantially all of its products, as a result of which it relies on its third-party manufacturers for certain supply chain functions that it previously handled, such as component and raw materials planning, purchasing and warehousing. The Company's business, prospects, results of operations, financial condition and/or cash flows could be materially adversely affected if Elizabeth Arden experiences any supply chain disruptions caused by this "turnkey" manufacturing process or other supply chain projects, or if its manufacturers or raw material suppliers were to experience problems with product quality, credit or liquidity issues, or disruptions or delays in the manufacturing process or delivery of finished products or the raw materials or components used to make such products.

The Company's financial performance depends on its ability to anticipate and respond to consumer trends and changes in consumer preferences. New product introductions may not be as successful as the Company anticipates, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company has a rigorous process for the continuous development and evaluation of new product concepts, led by executives in marketing, sales, research and development, product development, operations, law and finance. However, consumer preference and spending patterns change rapidly and cannot be predicted with certainty. There can be no assurance that the Company will anticipate and respond to trends for beauty products effectively. Each new product launch, including those resulting from the Company's recently updated product development process, carries risks, as well as the possibility of unexpected consequences, including:
 the acceptance of the Company's new product launches by, and sales of such new products to, the Company's customers may not be as high as the Company anticipates;
the Company's marketing, promotional, advertising and/or pricing strategies for its new products may be less effective than planned and may fail to effectively reach the targeted consumer base or engender the desired consumption of the Company's products by consumers;
the rate of purchases by the Company's consumers may not be as high as the Company anticipates;
the Company's wall displays to showcase its new products may fail to achieve their intended effects;
the Company may experience out-of-stocks and/or product returns exceeding its expectations as a result of the Company's new product launches or space reconfigurations or as a result of reductions in retail display space by the Company's customers;
the Company's net sales may also be impacted by inventory management by its customers or changes in pricing, marketing, advertising and/or promotional strategies by its customers;
the Company may incur costs exceeding its expectations as a result of the continued development and launch of new products, including, for example, unanticipated levels of research and development costs, advertising, promotional and/or marketing expenses, sales return expenses or other costs related to launching new products;
the Company may experience a decrease in sales of certain of the Company's existing products as a result of newly-launched products, the impact of which could be exacerbated by shelf space limitations and/or any shelf space loss. (See also Item 1A. Risk Factors - "Competition in the cosmetics, hair and beauty care products business could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows").
the Company's product pricing strategies for new product launches may not be accepted by its customers and/or its consumers, which may result in the Company's sales being less than it anticipates;
the Company may experience a decrease in sales of certain of the Company's products as a result of counterfeit products and/or products sold outside of their intended territories; and/or
delays or difficulties impacting the Company's ability, or the ability of the Company's suppliers, to timely manufacture, distribute and ship products or raw materials, as the case may be, displays or display walls in connection with launching new

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products, such as due to inclement weather conditions or other delays or difficulties such as those discussed under Item 1A. Risk Factors - "The Company depends on its Oxford, North Carolina facility for production of a substantial portion of the Company's products within the Consumer segment. Disruptions at this facility and/or at other Company or third-party facilities at which the Company's products are manufactured for its Consumer, Elizabeth Arden and Professional segments could affect the Company's business, prospects, results of operations, financial condition and/or cash flows," could have a material adverse effect on the Company's ability to ship and deliver products to meet its customers’ reset deadlines.
Each of the risks referred to above could delay or impede the Company's ability to achieve its sales objectives, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Economic conditions could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows and/or on the financial condition of its customers and suppliers.

Economic conditions in the U.S. and/or other countries where the Company operates have in the past contributed, and may in the future contribute, to high unemployment levels, lower consumer spending and/or reduced credit availability. Such economic conditions have impacted, and could in the future impact, business and consumer confidence, especially in relation to discretionary purchases. These conditions could have an impact on customer and/or consumer purchases of the Company's products, which could result in a reduction of the Company's net sales, operating income and/or cash flows. Additionally, disruptions in the credit and other financial markets and economic conditions could, among other things, impair the financial condition of one or more of the Company's customers or suppliers, thereby increasing the risk of customer bad debts or non-performance by suppliers. These conditions could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The U.K.’s ongoing withdrawal process from the European Union may have a negative effect on global economic conditions, financial markets and on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company is a multinational company with worldwide operations, including material business operations in Europe. In June 2016, a majority of voters in the U.K. elected to withdraw from the European Union in a national referendum. In March 2017, the U.K. government invoked Article 50 of the Treaty on the European Union and the U.K. is scheduled to leave the European Union in March 2019. The "Brexit" process has created significant ongoing uncertainty about the future relationship between the U.K. and the European Union and has given rise to calls for the governments of other European Union member states to consider withdrawal from the European Union. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings may be especially subject to increased market volatility. Lack of clarity about future U.K. laws and regulations as the U.K. determines which European Union laws to replace or replicate as the withdrawal process proceeds, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the U.K., increase costs, depress economic activity, restrict the Company’s access to capital and make regulatory compliance and the distribution, sourcing, manufacturing and sales and marketing of the Company’s products more difficult or costly. If the U.K. and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the U.K. and other European Union member states or among the European economic area overall could be diminished or eliminated. Similar adverse consequences could occur if regions such as Catalonia, where the Company's Spain businesses are headquartered, eventually succeed in withdrawing from their parent country. Approximately 5% of the Company's net sales are in the U.K. and approximately 14% of the Company's net sales are in the remainder of the European Union. Any of these factors could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

The Company depends on a limited number of customers for a large portion of its net sales, and the loss of one or more of these customers could reduce the Company's net sales and have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Walmart and its affiliates worldwide accounted for approximately 16%, 17% and 18% of the Company’s worldwide net sales for 2017, 2016 and 2015, respectively. The Company expects that, for future periods, Walmart and a small number of other customers in the Consumer, Elizabeth Arden and Professional segments will, in the aggregate, continue to account for a large portion of the Company's net sales. The Company may be affected by changes in the policies and demands of its customers relating to service levels, inventory de-stocking, pricing, marketing, advertising and/or promotional strategies or limitations on access to wall display space. As is customary in the consumer products industry, none of the Company's customers is under any obligation to continue purchasing products from the Company in the future.

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The loss of Walmart and/or one or more of the Company's other customers that account for a significant portion of the Company's net sales, or any significant decrease in sales to these customers, including as a result of consolidation among such customers, store closures in response to the growth in retail sales through e-commerce channels, inventory management by these customers, changes in pricing, marketing, advertising and/or promotional strategies by such customers or space reconfigurations by the Company's customers or any significant decrease in the Company's display space, could reduce the Company's net sales and/or operating income and therefore could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Declines in the financial markets may result in increased pension expense and increased cash contributions to the Company's pension plans.

Declines in the U.S. and global financial markets could result in significant declines in the Company's pension plan assets and result in increased pension expense and cash contributions to the Company's pension plans. Interest rate levels will affect the discount rate used to value the Company's year-end pension benefit obligations. One or more of these factors, individually or taken together, could impact future required cash contributions to the Company's pension plans and pension expense. Any one or more of these conditions could reduce the Company's available liquidity, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company may be unable to maintain or increase its sales through the Company's primary retailers, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

A decrease in consumer demand in the U.S. and/or internationally for beauty products, inventory management by the Company's customers, changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers (such as the development and/or continued expansion of private label or their own store-owned brands), a reduction in display space by the Company's customers, store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels and/or a change in consumers’ purchasing habits, such as with respect to retailer preferences and/or sales channels, could result in decreased sales of the Company's products, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Competition in the beauty industry could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The beauty industry is highly competitive. The Company competes primarily by:
developing quality products with innovative performance features, shades, finishes, components and packaging;
educating consumers, retail customers and salon professionals about the benefits of the Company’s products;
anticipating and responding to changing consumer, retail customer and salon professional demands in a timely manner, including as to the timing of new product introductions and line extensions;
offering attractively priced products relative to the product benefits provided;
maintaining favorable brand recognition;
generating competitive margins and inventory turns for the Company’s customers by providing relevant products and executing effective pricing, incentive and promotional programs and marketing and advertising campaigns, as well as social media and influencer marketing activities;
ensuring product availability through effective planning and replenishment collaboration with the Company's customers;
providing strong and effective advertising, promotion, marketing, social media, influencer and merchandising support;
leveraging e-commerce, social media and mobile commerce initiatives and developing an effective omni-channel strategy to optimize the opportunity for consumers to interact with and purchase the Company's products;
maintaining an effective sales force and distribution network; and
obtaining and retaining sufficient display space, optimal in-store positioning and effective presentation of the Company’s products on-shelf.
An increase in or change in the current level of competition that the Company faces could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

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REVLON, INC. AND SUBSIDIARIES




In addition to competing with expanding private label and store-owned brands in the Consumer segment, the Company competes against a number of multi-national manufacturers, some of which are larger and have substantially greater resources than the Company, and which may therefore have the ability to spend more aggressively than the Company on new business acquisitions, research and development activities and advertising, promotional, social media influencer and/or marketing activities and have more flexibility than the Company to respond to changing business and economic conditions. The Company's products in certain of its reporting segments also compete with similar products sold through retailers (including via e-commerce) other than those in which the Company principally competes in those segments.
Additionally, the Company's major customers periodically assess the allocation of display space among competitors and in the course of doing so could elect to reduce the display space allocated to the Company's products, if, for example, the Company's marketing, promotional, advertising and/or pricing strategies for its new and/or existing products are less effective than planned, fail to effectively reach the targeted consumer base, fail to engender the desired consumption of the Company's products by consumers and/or fail to sustain productive levels of consumption dollar share; and/or the rate of purchases by the Company's consumers are not as high as the Company anticipates. Within the Company’s Consumer segment, among the factors used by the Company’s major customers in assessing the allocation of display space is a brand’s share of the color cosmetics category. The Company's color cosmetics brands have experienced, over time, year-over-year declines in their share of the color cosmetics category in the U.S. and it is possible that the Company may continue to experience further share declines. Further declines in the Company's share for one or more of its principal brands, including with respect to the Company’s Almay brand, could, among other things, contribute to a loss of display space and/or decreased revenues. Any significant loss of display space could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Elizabeth Arden depends on various brand licenses and distribution arrangements for a significant portion of its sales, and the loss of one or more of these licenses or distribution arrangements could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Elizabeth Arden’s rights to market and sell certain of its prestige fragrance brands are derived from licenses and other distribution arrangements from unaffiliated third parties and its business is dependent upon the continuation and renewal of such licenses and distribution arrangements on terms favorable to Elizabeth Arden. Each license is for a specific term and may have optional renewal terms. In addition, such licenses and distribution arrangements may be subject to Elizabeth Arden satisfying required minimum royalty payments, minimum advertising and promotional expenditures and satisfying minimum sales requirements. In addition, under certain circumstances, lower net sales may shorten the duration of the applicable license agreement. The loss of one or more of these licenses or other significant distribution arrangements, or a renewal of one or more of these arrangements on less than favorable terms, could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

The success of our Elizabeth Arden segment depends, in part, on the demand for heritage and designer fragrance products. A decrease in demand for such products, or the loss or infringement of any intellectual property rights, could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company's Elizabeth Arden segment has license agreements to manufacture, market and distribute a number of heritage and designer fragrance products, including those of Juicy Couture, John Varvatos, Elizabeth Taylor, Britney Spears, Christina Aguilera, Shawn Mendes, All Saints, La Perla, Ed Hardy, Lucky Brand, Halston, Geoffrey Beene and Wildfox. In 2017, the Company's Elizabeth Arden segment derived approximately 42% of its net sales from heritage and designer fragrance brands. The demand for these products is, to some extent, dependent on the appeal to consumers of the particular designer or talent and the designer’s or talent’s reputation. Elizabeth Arden also cannot assure that the owners of the trademarks that it licenses can or will successfully maintain their intellectual property rights. If other parties infringe on the intellectual property rights that Elizabeth Arden licenses, the value of Elizabeth Arden's brands in the marketplace may be diluted. To the extent that the heritage or designer fragrance category or a particular designer or talent ceases to be appealing to consumers or a designer’s or talent’s reputation is adversely affected, sales of the related products and the value of the brands can decrease materially which could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

The Company's foreign operations are subject to a variety of social, political and economic risks and have been, and are expected to continue to be, affected by foreign currency exchange fluctuations, foreign currency controls and/or government-mandated pricing controls, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows and the value of its foreign assets.

As of December 31, 2017, the Company had operations based in 27 foreign countries and its products were sold in approximately 150 countries. The Company is exposed to risks associated with social, political and economic conditions, including inflation, inherent in operating in foreign countries, including those in Asia (including Japan), Australia, Canada, Eastern Europe

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(including Russia), Mexico, South Africa and South America (including Argentina), which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows. Such risks include hyperinflation, foreign currency devaluation, foreign currency controls, government-mandated pricing controls, currency remittance restrictions, changes in tax laws, changes in consumer purchasing habits (including as to retailer preferences), as well as, to a lesser extent, changes in U.S. laws and regulations relating to foreign trade and investment.
These risks and limitations could affect the ability of the Company's foreign subsidiaries to obtain sufficient capital to conduct their operations in the ordinary course of business. Limitations and the difficulties that certain of the Company's foreign subsidiaries may experience on the free flow of funds to and from these foreign subsidiaries could restrict the Company's ability to respond timely to challenging business conditions or changes in operations, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.
The Company's net sales outside of the U.S. for each of 2017, 2016 and 2015 represented approximately 51%, 45% and 45% of the Company's total consolidated net sales, respectively. Fluctuations in foreign currency exchange rates positively affected the Company's results of operations and the value of the Company's foreign net assets in 2017; however, they may adversely affect the Company's results of operations and the value of the Company's foreign net assets in future periods, which in turn could cause a material adverse effect on the Company's reported net sales and earnings and the comparability of period-to-period results of operations.
Products Corporation enters into foreign currency forward exchange contracts to hedge certain net cash flows denominated in foreign currencies. The foreign currency forward exchange contracts are entered into primarily for the purpose of hedging anticipated inventory purchases and certain intercompany payments denominated in foreign currencies and generally have maturities of less than one year. At December 31, 2017, the notional amount of Products Corporation's foreign currency forward exchange contracts was $147.1 million. These foreign currency forward exchange contracts may not adequately protect the Company against the negative effects of foreign currency fluctuations, which could adversely affect the Company's overall liquidity.

Terrorist attacks, acts of war or military actions and/or other civil unrest may adversely affect the territories in which the Company operates and the Company's business, prospects, results of operations, financial condition and/or cash flows.

On September 11, 2001, the U.S. was the target of terrorist attacks of unprecedented scope. These attacks contributed to major instability in the U.S. and other financial markets and reduced consumer confidence. These terrorist attacks, as well as subsequent terrorist attacks (such as those that have occurred in Berlin, Germany; Nice, France; Orlando, Florida; Istanbul, Turkey; Brussels, Belgium; Paris, France; Benghazi, Libya; Madrid, Spain; and London, England), attempted terrorist attacks, military responses to terrorist attacks, other military actions (such as the ongoing missile launch testing program of the Kim Jong-un regime in North Korea) and/or civil unrest such as that occurring in the Ukraine, Venezuela, Turkey, Syria, Iraq and surrounding areas, may adversely affect prevailing economic conditions, resulting in work stoppages, reduced consumer spending and/or reduced demand for the Company's products. These developments subject the Company's worldwide operations to increased risks and, depending on their magnitude, could reduce the Company's net sales and therefore could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company's products are subject to federal, state and international regulations that could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company is subject to regulation by the FTC and the FDA in the U.S., as well as various other federal, state, local and foreign regulatory authorities, including those in the EU, Canada and other countries in which the Company operates. The Company's Oxford, North Carolina manufacturing facility is registered with the FDA as a drug manufacturing establishment, permitting the manufacture of cosmetics and other beauty-care products that contain over-the-counter drug ingredients, such as sunscreens, anti-perspirant deodorants and anti-dandruff hair-care products. Regulations in the U.S., the EU, Canada and other countries in which the Company operates that are designed to protect consumers or the environment have an increasing influence on the Company's product claims, ingredients and packaging. To the extent federal, state, local and/or foreign regulatory changes occur in the future, they could require the Company to reformulate or discontinue certain of its products or revise its product packaging or labeling, any of which could result in, among other things, increased costs to the Company, delays in product launches, product returns or recalls and lower net sales, and therefore could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

Any violation of the U.S. Foreign Corrupt Practices Act or other similar foreign anti-corruption laws could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

A significant portion of the Company’s revenue is derived from operations outside the U.S. and the Company has significant facilities outside the U.S., which exposes the Company to complex foreign and U.S. regulations inherent in conducting international

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business transactions. The Company is subject to compliance with the U.S. Foreign Corrupt Practices Act ("FCPA") and other similar foreign anti-corruption laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business and other types of improper payments. While the Company’s employees and agents are required to comply with these laws and the Company has developed policies and procedures to facilitate compliance with such laws, there is no assurance that the Company’s policies and procedures will prevent all violations of these laws, despite the Company’s long-standing commitment to conducting its business and achieving its objectives by maintaining the highest level of ethical standards and legal compliance. The SEC and the U.S. Department of Justice, and their foreign counterparts, have increased their enforcement activities with respect to the FCPA and similar foreign anti-corruption laws and any violation of these laws or allegations of such may result in severe criminal and civil sanctions, as well as other substantial costs and penalties, any of which could have a material adverse effect the Company’s business, prospects, results of operations, financial condition and/or cash flows.

Disruptions to the Company's information technology systems could disrupt the Company's business operations which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The operation of the Company's business depends on the Company's information technology systems. The Company relies on its information technology systems to effectively manage, among other things, the Company's business data, communications, supply chain, inventory management, customer order entry and order fulfillment, processing transactions, summarizing and reporting results of operations, human resources benefits and payroll management, compliance with regulatory, legal and tax requirements and other processes and data necessary to manage the Company's business. Disruptions to the Company's information technology systems, including any disruptions to the Company's current systems and/or as a result of transitioning to additional or replacement information technology systems, as the case may be, could disrupt the Company's business and could result in, among other things, transaction errors, processing inefficiencies, loss of data and the loss of sales and customers, which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows. In addition, the Company's information technology systems may be vulnerable to damage or interruption from circumstances beyond the Company's control, including, without limitation, fire, natural disasters, power outages, systems disruptions, system conversions, security breaches, cyber-attacks, viruses and/or human error. In any such event, the Company could be required to make a significant investment to fix or replace its information technology systems, and the Company could experience interruptions in its ability to service its customers. Any such damage or interruption could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.
In addition, as part of our normal business activities, the Company collects and stores certain confidential information, including personal information with respect to customers and employees, as well as information related to intellectual property, and the success of its e-commerce operations depends on the secure transmission of confidential and personal data over public networks, including the use of cashless payments. The Company’s information technology systems, or those of its third-party service providers, may be accessed by unauthorized users such as cyber criminals as a result of a disruption, cyberattack or other security breach. As techniques used by cyber criminals change frequently, a disruption, cyberattack or other security breach of the Company’s information technology systems or infrastructure, or those of its third-party service providers, may go undetected for an extended period and could result in the theft, transfer, unauthorized access to, disclosure, modification, misuse, loss or destruction of Company, employee, representative, customer, vendor and/or other third-party data, including sensitive or confidential data, personal information and/or intellectual property, which could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.

Difficulties in implementing the Company’s new ERP system have disrupted the Company's business operations and ongoing disruptions with such implementation could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company is implementing a new company-wide SAP enterprise resource planning ("ERP") system, which subjects the Company to inherent risks associated with migrating from the Company's legacy systems to a new IT platform, including, without limitation:
the inability to fill customer orders accurately or on a timely basis, or at all;
increased demands on management and staff time to the detriment of other corporate initiatives;
significant capital and operating expenditures;
the inability to process payments to vendors accurately or in a timely manner;
disruption of the Company's internal control structure; and/or

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the inability to fulfill federal, state and local reporting and filing requirements in a timely or accurate manner.
During February 2018, the Company launched the new ERP system in the U.S., which caused its Oxford, N.C. manufacturing facility to experience service level disruptions that have impacted the Company’s ability to manufacture certain quantities of finished goods and fulfill shipments to several large retail customers in the U.S. The Company cannot provide assurances that it will remedy the ERP systems issues in time to fully recover these sales and/or that the ERP implementation will not continue to disrupt the Company's operations and its ability to fulfill customer orders. Also, these ERP-related disruptions have caused the Company to incur expedited shipping fees and other unanticipated expenses in connection with actions that the Company has implemented to remediate the decline in customer service levels, which could continue until the ERP systems issues are resolved. To the extent that these disruptions occur in larger magnitudes or continue to persist over time, it could negatively impact the Company’s competitive position and its relationships with its customers and thus could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The illegal distribution and sale by third parties of counterfeit versions of the Company’s products or the unauthorized diversion by third parties of the Company’s products could have an adverse effect on the Company’s net sales and a negative impact on the Company’s reputation and business.

Third parties may illegally distribute and sell counterfeit versions of the Company’s products. These counterfeit products may be inferior in terms of quality and other characteristics compared to the Company’s authentic products and/or the counterfeit products could pose safety risks that the Company’s authentic products would not otherwise present to consumers. Consumers could confuse counterfeit products with the Company’s authentic products, which could damage or diminish the image, reputation and/or value of the Company’s brands and cause consumers to refrain from purchasing the Company’s products in the future, which could adversely affect the Company’s net sales and have a negative impact on the Company’s reputation.
A substantial portion of the products that the Company sells under its Professional segment are sold to professional salon distributors and/or wholesalers. Products sold to these customers are meant to be used exclusively by salons and individual salon professionals or are sold exclusively to the retail consumers of these salons. Despite the Company’s efforts to prevent diversion of such products from these customers, incidents have occurred and continue to occur whereby the Company’s products are sold to sales outlets other than the intended salons and salon professionals, such as to general merchandise retailers or unapproved outlets. In some instances, these diverted products may be old, damaged or otherwise adulterated, which could damage or diminish the image, reputation and/or value of the Company’s brands. In addition, such diversion may result in lower net sales of the Company’s products if consumers choose to purchase diverted products and/or choose to purchase products manufactured or sold by the Company’s competitors because of any perceived damage or diminishment to the image, reputation and/or value of the Company’s brands.
The Company believes that its trademarks, patents and other intellectual property rights are extremely important to the Company’s success and its competitive position. The Company devotes significant resources to registering and protecting its intellectual property rights and maintaining the positive image of its brands. The Company’s trademark and patent applications may fail to result in issued registrations or provide the scope of coverage sought. Unplanned increases in legal fees and other costs associated with enforcing and/or defending the Company’s trademarks, patents and/or other intellectual property rights could result in higher than expected operating expenses. The Company has been unable to eliminate, and may in the future be unable to eliminate, all counterfeiting activities, unauthorized product diversion and infringement of its trademarks, patents and/or other intellectual property, any of which could adversely affect the Company’s net sales and have a negative impact on the Company’s reputation.

Elizabeth Arden's inability to acquire or license additional brands or secure additional distribution arrangements and arrangements could have an adverse effect on the Company's net sales and a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The success of the Elizabeth Arden business depends in part upon the continued growth of its portfolio of owned, licensed and distributed brands, including expanding its geographic presence to take advantage of opportunities in developed and emerging regions. Efforts to increase sales of the Elizabeth Arden brand and Elizabeth Arden's prestige fragrance portfolio and expand its geographic market presence depend upon a number of factors, including its ability to:
develop Elizabeth Arden's brand portfolio through branding, innovation and execution;
identify and develop new and existing brands with the potential to become successful global brands;
innovate and develop new products that are appealing to consumers;
acquire or license additional brands or secure additional distribution arrangements and our ability to obtain the required financing for these agreements and arrangements;

22

REVLON, INC. AND SUBSIDIARIES




expand Elizabeth Arden's geographic presence to take advantage of opportunities in developed and emerging regions;
continue to expand Elizabeth Arden's distribution channels within existing geographies to increase trade presence, brand recognition and sales;
expand Elizabeth Arden's trade presence through alternative distribution channels, such as through e-commerce channels;
expand margins through sales growth, the development of higher margin products and overhead and supply chain integration and efficiency initiatives;
effectively manage capital investments and working capital to improve the generation of cash flow; and
execute any acquisitions quickly and efficiently and integrate new businesses successfully.
There can be no assurance that the Company can successfully achieve any or all of the above objectives in the manner or time period that it expects. Further, achieving these objectives will require investments, which may result in material short-term costs without generating any current net sales and the Company may not ultimately achieve its net sales objectives associated with such efforts. The future expansion of the Elizabeth Arden segment through acquisitions, new product licenses, e-commerce initiatives or other new product distribution arrangements, if any, will depend upon the ability to identify suitable brands to acquire, license or distribute and to obtain the required financing for these acquisitions, licenses or distribution arrangements or to launch or support the brands associated with these agreements or arrangements. The Company may not be able to identify, negotiate, finance or consummate such acquisitions, licenses or arrangements on terms acceptable to the Company, or at all. In addition, the Company may decide to divest or discontinue certain brands or streamline operations under the Elizabeth Arden business and may incur costs and charges in doing so. The inability to acquire or license additional brands or secure additional distribution arrangements for the Elizabeth Arden segment (such as optimizing its e-commerce sales opportunities) and obtain the required financing for these agreements and arrangements could have an adverse effect on the Company’s net sales and a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.

The Company's success depends, in part, on the quality, efficacy and safety of its products.

The Company's success depends, in part, on the quality, efficacy and safety of its products. If the Company's products are found or alleged to be defective or unsafe, or if they fail to meet customer or consumer standards, the Company's relationships with its customers or consumers could suffer, the appeal of one or more of the Company's brands could be diminished and the Company could lose sales and/or become subject to liability claims, any of which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

The Company’s success largely depends upon its ability to attract, hire and retain its senior management team, other key employees and a highly skilled and diverse workforce, as well as effectively implement succession planning for its senior management team, and, as such, the Company’s inability to do so could adversely affect the Company’s business, prospects, results of operations, financial condition and/or cash flows.

Continuing to execute the Company's business initiatives largely depends on the Company’s ability to attract, hire and retain its senior management team, other key employees and a highly skilled and diverse workforce, as well as effectively implement succession planning for its senior management team. Unexpected levels of employee turnover or the Company’s failure to maintain an adequate succession plan to effectively transition current management leadership positions and/or the Company’s failure to attract, hire and retain its senior management team, other key employees and a highly skilled and diverse workforce could adversely affect the Company’s institutional knowledge base and/or competitive advantage. If the Company is unable to attract, hire and/or retain talented and highly qualified senior management, other key employees and/or a highly skilled and diverse workforce, or if the Company is unable to effectively provide for the succession of its senior management team, it could adversely affect the Company’s business, prospects, results of operations, financial condition and/or cash flows.

Shares of Revlon Class A Common Stock and Products Corporation's capital stock are pledged to secure various of Revlon's and/or other of the Company's affiliates’ obligations and foreclosure upon these shares or dispositions of shares could result in the acceleration of debt under Product Corporation's 2016 Senior Credit Facilities and/or its Senior Notes and could have other consequences.

All of Products Corporation's shares of common stock are pledged to secure Revlon’s guarantee under the 2016 Senior Credit Facilities. MacAndrews & Forbes has advised the Company that it has pledged shares of Revlon’s Class A Common Stock to secure certain obligations of MacAndrews & Forbes. Additional shares of Revlon and shares of common stock of intermediate holding companies between Revlon and MacAndrews & Forbes may from time-to-time be pledged to secure obligations of MacAndrews & Forbes. A default under any of these obligations that are secured by the pledged shares could cause a foreclosure

23

REVLON, INC. AND SUBSIDIARIES




with respect to such shares of Revlon's Class A Common Stock, Products Corporation's common stock or stock of intermediate holding companies between Revlon and MacAndrews & Forbes.
A foreclosure upon any such shares of common stock or dispositions of shares of Revlon’s Class A Common Stock, Products Corporation's common stock or stock of intermediate holding companies between Revlon and MacAndrews & Forbes that are beneficially owned by MacAndrews & Forbes could, in a sufficient amount, constitute a "change of control" under Products Corporation’s 2016 Credit Agreements and the Senior Notes Indentures. A change of control constitutes an event of default under the 2016 Credit Agreements that would permit Products Corporation's lenders to accelerate amounts outstanding under such facilities. In addition, holders of the Senior Notes may require Products Corporation to repurchase their respective notes under those circumstances.
Products Corporation may not have sufficient funds at the time of any such change of control to repay in full or in part the borrowings under the 2016 Senior Credit Facilities and/or to repurchase or redeem some or all of the Senior Notes. (See also 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 2016 Credit Agreements which could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows.")

Changes in tax laws or the examination of the Company's tax positions could increase (or decrease) the Company's tax obligations and effective tax rate, which could materially and adversely affect the Company's financial condition, results of operations and/or cash flows.

Tax laws in the various jurisdictions where the Company conducts business are dynamic and subject to change as new laws are passed and new interpretations of existing law are issued or applied (possibly with a retroactive effect). The Company is subject to taxes in the U.S. and numerous international jurisdictions. The Company records tax expense based on current tax payments and its estimates of future tax payments, which include reserves for estimates of probable settlements of international and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, the Company expects that throughout the year there could be ongoing variability in its quarterly tax rates as taxable events occur and exposures are re-evaluated. Further, the Company's effective tax rate in a given financial statement period may be materially impacted by changes in tax laws, changes in the mix and level of earnings by taxing jurisdiction, changes to existing accounting rules or regulations or changes to the Company's ownership or capital structures. Fluctuations in the Company's tax obligations and effective tax rate could materially adversely affect its financial condition, results of operations and/or cash flows.

U.S. income tax reform efforts could have a material impact on the Company's financial condition, results of operations and/or cash flows.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). The Tax Act makes broad changes to the existing U.S. federal income tax code, including reducing the federal corporate income tax rate from 35% to 21%, imposing limitations on the Company's ability to deduct interest expense for tax purposes and reducing U.S. tax on qualified dividends received from non-U.S. subsidiaries, amongst many other complex provisions. The ultimate impact of such tax reforms may differ from the Company's current estimates due to changes in interpretations and assumptions made by the Company, as well as the issuance of any further regulations or guidance that may alter the operation of the U.S. federal income tax code. Various uncertainties also exist in terms of how U.S. states and any foreign countries within which the Company operates will react to these U.S. federal income tax reforms, which could have a material impact on the Company's financial condition, results of operations and/or cash flows.

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

MacAndrews & Forbes is wholly-owned by Ronald O. Perelman. Mr. Perelman, through MacAndrews & Forbes, beneficially owned approximately 85% of Revlon's outstanding Class A Common Stock on December 31, 2017. As a result, MacAndrews & Forbes is able to control the election of the entire Board of Directors of Revlon and of Products Corporation's Board of Directors (as it is a wholly owned subsidiary of Revlon) and controls the vote on all matters submitted to a vote of Revlon’s and Products Corporation's stockholders, including the approval of mergers, consolidations, sales of some, substantially all or all of the Company's assets, issuances of capital stock and similar transactions.



24

REVLON, INC. AND SUBSIDIARIES




Item 1B. Unresolved Staff Comments

None.


Item 2. Properties

The following table sets forth, as of December 31, 2017, the Company's major manufacturing, research and development and warehouse/distribution facilities by the segment that each facility primarily operates in, all of which are owned by the Company, except where otherwise noted.
Location
 
Segment
 
Use
 
Approximate Floor Space Sq. Ft.
Oxford, North Carolina
 
Consumer
 
Manufacturing, warehousing, distribution and office (a)
 
1,012,000

Jacksonville, Florida
 
Professional
 
Manufacturing, warehousing, distribution and office
 
725,000

Salem, Virginia
 
Elizabeth Arden
 
Warehousing and distribution (leased)
 
482,000

Roanoke, Virginia
 
Elizabeth Arden
 
Warehousing and distribution (leased)
 
400,000

Tarragona, Spain
 
Professional
 
Manufacturing, warehousing, distribution and office
 
300,000

Mississauga, Canada
 
Consumer
 
Warehousing, distribution and office (leased)
 
195,000

Queretaro, Mexico
 
Professional
 
Manufacturing, warehousing, distribution and office
 
128,000

Canberra, Australia
 
Consumer
 
Warehousing and distribution
 
125,000

Edison, New Jersey
 
Consumer
 
Research and development and office (leased)
 
123,000

Rietfontein, South Africa
 
Consumer
 
Warehousing, distribution and office (leased)
 
120,000

Isando, South Africa
 
Consumer
 
Manufacturing, warehousing, distribution and office
 
94,000

Stone, United Kingdom
 
Consumer
 
Warehousing and distribution (leased)
 
92,000

Bologna, Italy
 
Professional
 
Manufacturing, warehousing, distribution and office
 
80,000

(a) 
Property subject to liens under the 2016 Credit Agreements.

In addition to the facilities described above, the Company owns and leases additional facilities in various areas throughout the world, including the lease of the Company's executive offices in New York, New York (approximately 107,000 square feet) and in Cornella, Spain (approximately 90,000 square feet). Management considers the Company's facilities to be well-maintained and satisfactory for the Company's operations, and believes that the Company's facilities and third-party contractual supplier arrangements provide sufficient capacity for its current and expected production requirements.


Item 3. Legal Proceedings
The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period. See Note 21, "Commitments and Contingencies" to the Consolidated Financial Statements in this Form 10-K, for further discussion.
As previously disclosed, following the announcement of the execution of the Elizabeth Arden Merger Agreement, several putative shareholder class action lawsuits and a derivative lawsuit were filed challenging the Merger. In addition to the complaints filed on behalf of plaintiffs Parker, Christiansen, Ross and Stein on July 25, 2016, a lawsuit (Hutson v. Elizabeth Arden, Inc., et al., Case No. CACE-16-013566) (referred to as the "Hutson complaint") was filed in the Seventeenth Judicial Circuit in and for Broward County, Florida (the "Court") against Elizabeth Arden, the members of the board of directors of Elizabeth Arden, Revlon, Products Corporation and Acquisition Sub. In general, the Hutson complaint alleges that: (i) the members of Elizabeth Arden’s board of directors breached their fiduciary duties to Elizabeth Arden’s shareholders with respect to the Merger, by, among other things, approving the Merger pursuant to an unfair process and at an inadequate and unfair price; and (ii) Revlon, Products Corporation and Acquisition Sub aided and abetted the breaches of fiduciary duty by the members of Elizabeth Arden’s board of directors. The plaintiff seeks relief similar to that sought in the Parker case.



REVLON, INC. AND SUBSIDIARIES




By Order dated August 4, 2016, all five cases were consolidated by the Court into a Consolidated Amended Class Action. Thereafter, on August 11, 2016, a Consolidated Amended Class Action Complaint was filed, seeking to enjoin defendants from consummating the Merger and/or from soliciting shareholder votes. To the extent that the Merger was consummated, the Consolidated Amended Class Action Complaint seeks to rescind the Merger or recover rescissory or other compensatory damages, along with costs and fees. The grounds for relief set forth in the Consolidated Amended Class Action Complaint in large part track those grounds as asserted in the five individual complaints, as previously disclosed. Class counsel advised that post-consummation of the Merger they were going to file a Second Consolidated Amended Class Action Complaint. The Second Consolidated Amended Class Action Complaint (which superseded the Consolidated Amended Class Action Complaint) was ultimately filed on or about January 26, 2017. Like the Consolidated Amended Class Action complaint, the grounds for relief set forth in the Second Consolidated Amended Class Action Complaint in large part track those grounds as asserted in the five individual complaints.
The defendants' motions to dismiss the Second Consolidated Amended Class Action Complaint were filed on March 28, 2017. Plaintiffs' response was filed on June 6, 2017 and defendants' replies were filed on July 13, 2017. A hearing on the defendants' motion to dismiss was held on September 19, 2017 and on November 20, 2017, the defendants' motion was granted and the case was dismissed, with leave to amend under limited circumstances. On December 8, 2017, plaintiffs filed a Third Amended Complaint, seeking relief on the same grounds sought in the First and Second Amended Complaints, but alleged as direct, as opposed to derivative, claims. On January 12, 2018, the defendants once again moved to dismiss. The Company anticipates briefing, followed by a hearing that is expected to occur in the next few months. The Company believes the allegations contained in the Third Consolidated Amended Class Action Complaint are without merit and intends to continue to vigorously defend against them. Additional lawsuits arising out of or relating to the Merger Agreement or the Merger may be filed in the future.
The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.


Item 4. Mine and Safety Disclosures

Not applicable.

26

REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)


PART II - OTHER INFORMATION

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  
Revlon’s only class of capital stock outstanding at December 31, 2017 is its Class A Common Stock. MacAndrews & Forbes, which is wholly-owned by Ronald O. Perelman, at December 31, 2017 beneficially owned 44,573,187 shares of Revlon’s Class A Common Stock, with a par value of $0.01 per share (the "Class A Common Stock"). As a result, at December 31, 2017, Mr. Perelman, indirectly through MacAndrews & Forbes, beneficially owned approximately 85% of the issued and outstanding shares of Revlon's Class A Common Stock, which represented approximately 85% of the voting power of Revlon’s capital stock. The remaining 8,073,377 shares of Class A Common Stock that were issued and outstanding at December 31, 2017 were owned by the public.
Revlon's Class A Common Stock is listed and traded on the New York Stock Exchange (the "NYSE"). At December 31, 2017, there were approximately 285 holders of record of Class A Common Stock (which does not include the number of beneficial owners holding indirectly through a broker, bank or other nominee). No cash dividends were declared or paid during 2017 and 2016 by Revlon on its Class A Common Stock. The terms of the 2016 Credit Agreements and the Senior Notes Indentures currently restrict Products Corporation’s ability to pay dividends or make distributions to Revlon, except in limited circumstances, which, in turn, limits Revlon's ability to pay dividends to its stockholders. See "Financial Condition, Liquidity and Capital Resources - Long Term Debt Instruments" and Note 11, "Long-Term Debt," in the Company’s Consolidated Financial Statements in this Form 10-K.
The table below shows the high and low quarterly closing stock prices of Revlon's Class A Common Stock on the NYSE consolidated tape for 2017 and 2016:
 
Year Ended December 31, 2017
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
High
$
35.40

 
$
27.55

 
$
27.50

 
$
24.20

Low
27.85

 
18.60

 
15.95

 
20.65


 
Year Ended December 31, 2016
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
High
$
37.97

 
$
37.20

 
$
37.59

 
$
36.81

Low
24.50

 
30.20

 
30.73

 
27.75


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


Item 6. Selected Financial Data

The Consolidated Statements of Operations Data for each of the years in the 5-year period ended December 31, 2017 and the Consolidated Balance Sheet Data as of December 31, 2017, 2016, 2015, 2014 and 2013 are derived from the Company’s Consolidated Financial Statements, which have been audited by an independent registered public accounting firm. The results of operations related to the Elizabeth Arden Acquisition are included beginning on the Elizabeth Arden Acquisition Date of September 7, 2016. The results of operations related to the acquisition of the CBBeauty Group and certain of its related entities (collectively "CBB" and, such transaction, the "CBB Acquisition") are included beginning on the CBB acquisition date of April 21, 2015 (the "CBB Acquisition Date"). The results of the operations related to the Colomer Acquisition are included beginning on the Colomer Acquisition Date of October 9, 2013. The Selected Consolidated Financial Data should be read in conjunction with the Company's Consolidated Financial Statements and the Notes to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-K.

27

REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)


 
 
Year Ended December 31,
Statement of Operations Data:
 
2017(a)
 
2016(b)
 
2015(c)
 
2014(d)
 
2013(e)
Net sales
 
$
2,693.7

 
$
2,334.0

 
$
1,914.3

 
$
1,941.0

 
$
1,494.7

Gross profit
 
1,542.4

 
1,416.9

 
1,246.5

 
1,272.7

 
949.6

Selling, general and administrative expenses
 
1,467.6

 
1,161.0

 
1,002.5

 
1,009.5

 
731.7

Acquisition and integration costs
 
52.9

 
43.2

 
8.0

 
6.4

 
25.4

Restructuring charges and other, net
 
33.4

 
34.0

 
10.5

 
21.3

 
3.5

Impairment charge
 
10.8

 
23.4

 
9.7

 

 

Operating (loss) income
 
(22.3
)
 
155.3

 
215.8

 
235.5

 
189.0

Interest expense
 
149.8

 
105.2

 
83.3

 
84.4

 
73.8

Interest expense - preferred stock dividend
 

 

 

 

 
5.0

Amortization of debt issuance costs
 
9.1

 
6.8

 
5.7

 
5.5

 
5.2

Loss on early extinguishment of debt, net
 

 
16.9

 

 
2.0

 
29.7

Foreign currency (gains) losses, net
 
(18.5
)
 
18.5

 
15.7

 
25.0

 
3.7

Provision for income taxes
 
21.8

 
25.5

 
51.4

 
77.8

 
46.0

(Loss) income from continuing operations, net of taxes
 
(185.3
)
 
(17.0
)
 
59.3

 
39.6

 
24.6

Income (loss) from discontinued operations, net of taxes
 
2.1

 
(4.9
)
 
(3.2
)
 
1.3

 
(30.4
)
Net (loss) income
 
(183.2
)
 
(21.9
)
 
56.1

 
40.9

 
(5.8
)
 
 
 
 
 
 
 
 
 
 
 
Basic (loss) income per common share:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
(3.52
)
 
(0.33
)
 
1.13

 
0.76

 
0.47

Discontinued operations
 
0.04

 
(0.09
)
 
(0.06
)
 
0.02

 
(0.58
)
Basic net (loss) income per common share
 
$
(3.48
)
 
$
(0.42
)
 
$
1.07

 
$
0.78

 
$
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
Diluted (loss) income per common share:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
(3.52
)
 
(0.33
)
 
1.13

 
0.76

 
0.47

Discontinued operations
 
0.04

 
(0.09
)
 
(0.06
)
 
0.02

 
(0.58
)
Diluted net (loss) income per common share
 
$
(3.48
)
 
$
(0.42
)
 
$
1.07

 
$
0.78

 
$
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding (in millions):
 
 
 
 
 
 
 
 
 
 
Basic
 
52.6

 
52.5

 
52.4

 
52.4

 
52.4

Diluted
 
52.6

 
52.5

 
52.6

 
52.4

 
52.4

 
 
Year Ended December 31,
Balance Sheet Data:
 
2017(a)
 
2016
as adjusted(b)
 
2015
as adjusted(c)
 
2014
as adjusted(d)
 
2013
as adjusted(e)
Total current assets
 
$
1,143.2

 
$
1,123.7

 
$
808.9

 
$
715.4

 
$
734.0

Total non-current assets
 
1,913.7

 
1,899.8

 
1,158.4

 
1,203.8

 
1,253.1

Total assets
 
$
3,056.9

 
$
3,023.5

 
$
1,967.3

 
$
1,919.2

 
$
1,987.1

 
 
 
 
 
 
 
 
 
 
 
Total current liabilities(f)
 
$
932.3

 
$
708.7

 
$
515.0

 
$
464.9

 
$
552.7

Total other non-current liabilities
 
2,895.0

 
2,929.6

 
2,039.8

 
2,098.4

 
2,030.9

Total liabilities
 
$
3,827.3

 
$
3,638.3

 
$
2,554.8

 
$
2,563.3

 
$
2,583.6

 
 
 
 
 
 
 
 
 
 
 
Total indebtedness
 
$
2,836.3

 
$
2,692.0

 
$
1,825.0

 
$
1,845.6

 
$
1,905.8

Total stockholders' deficiency
 
(770.4
)
 
(614.8
)
 
(587.5
)
 
(644.1
)
 
(596.5
)
(a) 
Comparability of results from continuing operations for 2017 are affected by: (1) $52.9 million of acquisition and integration costs incurred during 2017, primarily related to the Elizabeth Arden Acquisition; (2) $33.4 million in restructuring charges and other, net, primarily related

28

REVLON, INC. AND SUBSIDIARIES
(all tabular amounts in millions, except share and per share amounts)


to the EA Integration Restructuring Program (See Note 3, "Restructuring Charges," to the Consolidated Financial Statements in this Form 10-K); and (3) a $10.8 million non-cash impairment charge related to goodwill for the Company's GCB reporting unit (see Note 8, "Goodwill and Intangible Assets, Net," to the Consolidated Financial Statements in this Form 10-K).
(b)
Comparability of results from continuing operations for 2016 are affected by: (1) $43.2 million of acquisition and integration costs incurred during 2016, primarily related to the Elizabeth Arden Acquisition; (2) $34 million in restructuring charges and other, net, primarily related to the EA Integration Restructuring Program (See Note 3, "Restructuring Charges," to the Consolidated Financial Statements in this Form 10-K); (3) a $23.4 million non-cash impairment charge related to goodwill and acquired identifiable intangible assets for the Company's Other reporting unit (see Note 8, "Goodwill and Intangible Assets, Net," to the Consolidated Financial Statements in this Form 10-K); and (4) a $16.9 million aggregate loss on the early extinguishment of debt in connection with Products Corporation entering into the 2016 Senior Credit Facilities and the corresponding complete refinancing and repayment of Products Corporation's Old Term Loan Facility.
(c)
Comparability of results from continuing operations for 2015 are affected by: (1) a $20.7 million pension lump sum settlement charge related to a one-time lump sum payment option offered to certain former employees (See Note 14, "Savings Plan, Pension and Post-Retirement Benefits," to the Consolidated Financial Statements in this Form 10-K); (2) a decrease in the provision for income taxes, primarily driven by a non-cash benefit related to the net reduction of the Company's deferred tax valuation allowance on its net deferred tax assets for certain foreign jurisdictions (See Note 16, "Income Taxes," to the Consolidated Financial Statements in this Form 10-K); (3) $10.5 million in restructuring charges and other, net, primarily related to the 2015 Efficiency Program (See Note 3, "Restructuring Charges" to the Consolidated Financial Statements in this Form 10-K); (4) a $9.7 million non-cash goodwill impairment charge related to goodwill for the Company's Global Color Brands reporting unit (see Note 8, "Goodwill and Intangible Assets, Net," to the Consolidated Financial Statements in this Form 10-K); and (5) $8 million of acquisition and integration costs incurred during 2015 primarily related to costs incurred in connection with the 2015 CBB Acquisition and the 2014 Integration Program.
(d) 
Comparability of results from continuing operations for 2014 are affected by: (1) $21.3 million in restructuring charges and other, net, primarily related to the 2014 Integration Program (See Note 3, "Restructuring Charges," to the Consolidated Financial Statements in this Form 10-K); (2) $6.4 million of acquisition and integration costs incurred during 2014 (see note (d)(3) below) related to the Colomer Acquisition; and (3) a $6 million foreign currency loss recognized in the second quarter of 2014 as a result of the re-measurement of Revlon Venezuela’s monetary assets and liabilities (See Note 1, "Description of Business and Summary of Significant Accounting Policies," to the Consolidated Financial Statements in this Form 10-K).
(e) 
Comparability of results from continuing operations for 2013 are affected by: (1) a $29.7 million aggregate loss on the early extinguishment of debt, primarily in connection with Products Corporation’s issuance in February 2013 of $500 million aggregate principal amount of its 5¾% Senior Notes due February 15, 2021, of which Products Corporation used $491.2 million of the net proceeds (net of underwriters' fees) to repay and redeem all of the $330 million outstanding aggregate principal amount of its previous 9¾% Senior Secured Notes due November 2015 (the "9¾% Senior Secured Notes" and such transaction being the "2013 Senior Notes Refinancing"); (2) a $26.4 million gain from insurance proceeds due to the settlement of the Company's claims for business interruption and property losses as a result of the June 2011 fire at the Company's facility in Venezuela; (3) $25.4 million of acquisition and integration costs incurred in 2013 (see note (c)(2) above) related to the Colomer Acquisition; and (4) $21.4 million in restructuring and related charges, of which $20 million related to the Company's exit of its direct manufacturing, warehousing and sales business operations in mainland China within the Consumer segment in 2013 and was reflected in loss from discontinued operations, net of taxes. (See Note 3, "Restructuring Charges," and Note 4, "Discontinued Operations," to the Consolidated Financial Statements in this Form 10-K).
(f) 
Total current liabilities at December 31, 2013 included $58.4 million related to a loan that was outstanding to various third parties that was prepaid in May 2014 (the "Non-Contributed Loan").

29

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


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Overview

Overview of the Business
Revlon, Inc. ("Revlon" and together with its subsidiaries, the "Company") conducts its business exclusively through its direct wholly-owned operating subsidiary, Revlon Consumer Products Corporation ("Products Corporation"), and its subsidiaries. Revlon is an indirect majority-owned subsidiary of MacAndrews & Forbes Incorporated (together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman.
The Company operates in four segments: the consumer division ("Consumer"); Elizabeth Arden; the professional division ("Professional"); and Other. The Company manufactures, markets and sells an extensive array of beauty and personal care products worldwide, including color cosmetics, fragrances, skin care, hair color, hair care and hair treatments, beauty tools, men's grooming products, anti-perspirant deodorants and other beauty care products.
For additional information regarding our business, see "Part 1, Item 1 - Business" in this Form 10-K.

Overview of Net Sales and Earnings Results
Consolidated net sales in 2017 were $2,693.7 million, a $359.7 million increase, or 15.4%, as compared to $2,334 million in 2016. Excluding the $6.3 million favorable impact of foreign currency fluctuations (referred to herein as "FX", "XFX" or on an "XFX basis"), consolidated net sales increased by $353.4 million, or 15.1%, during 2017. The XFX increase in 2017 was primarily driven by a $509.1 million increase in net sales as a result of the Elizabeth Arden Acquisition completed in September 2016; partially offset by a $101.6 million, or 7.3%, decrease in Consumer segment net sales and a $49.3 million, or 10.3%, decrease in Professional segment net sales.
Consolidated loss from continuing operations, net of taxes, in 2017 was $185.3 million, compared to consolidated loss from continuing operations, net of taxes, of $17 million, in 2016. The $168.3 million increase in consolidated loss from continuing operations, net of taxes, in 2017 was primarily due to:
$306.6 million of higher SG&A expenses, primarily driven by the inclusion of the SG&A expenses within the Elizabeth Arden segment; and
a $44.6 million increase in interest expense incurred during 2017, primarily as a result of higher average debt outstanding and higher weighted average borrowing rates as a result of the debt transactions completed in the third quarter of 2016 in connection with the Elizabeth Arden Acquisition;
with the foregoing partially offset by:
$125.5 million of higher gross profit in 2017, primarily due to the inclusion of gross profit from the Elizabeth Arden segment, partially offset by lower gross profit within the Consumer and Professional segments;
$37 million of favorable variance in foreign currency gains, resulting from $18.5 million in foreign currency gains during 2017, as compared to $18.5 million of foreign currency losses during 2016;
a $16.9 million aggregate loss on the early extinguishment of debt as a result of the debt-related transactions completed in 2016; and
a $3.7 million decrease in the provision for income taxes in 2017, primarily due to the pretax loss from continuing operations in 2017, partially offset by the $47.9 million non-cash expense associated with the impact of the Tax Act.

Discontinued Operations Presentation
As a result of the Company's decision on December 30, 2013 to exit its direct manufacturing, warehousing and sales business operations in mainland China within its Consumer segment effective December 31, 2013, the Company is reporting the results of its former China operations within income (loss) from discontinued operations, net of taxes in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income. Unless otherwise stated, financial results discussed within "Overview" and "Results of Operations" refer only to continuing operations. See Note 4, "Discontinued Operations," to the Consolidated Financial Statements in this Form 10-K for further discussion.



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


Non-cash Impairment Charges
For purposes of the annual goodwill impairment test, the Company's SinfulColors (acquired in 2011) and Pure Ice nail enamel (acquired in 2012) brands are included within the Company's Global Color Brands ("GCB") reporting unit. The shift in consumer behavior challenging the brick-and-mortar retail channel contributed to continued consumption and net sales declines, particularly in the nail category, which has disproportionately impacted GCB's financial results. Accordingly, in conjunction with the Company's annual impairment test, the Company recognized $10.8 million in non-cash impairment charges during the fourth quarter of 2017 related to GCB. These non-cash impairment charges are primarily due to the Company’s expectations regarding the future performance of the GCB reporting unit in relation to the carrying amounts of GCB's goodwill. See Note 8, "Goodwill and Intangible Assets," to the Consolidated Financial Statements in this Form 10-K for further details on this non-cash goodwill impairment charge.


Operating Segments

The Company operates in four reporting segments: the consumer division ("Consumer"); Elizabeth Arden; the Professional division ("Professional"); and Other:
The Consumer segment is comprised of the Company's consumer brands, which primarily include Revlon, Almay, SinfulColors and Pure Ice in color cosmetics; Revlon ColorSilk in women’s hair color; Revlon in beauty tools; and Mitchum in anti-perspirant deodorants. The Company’s principal customers for its consumer products include large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, one-stop shopping beauty retailers, specialty cosmetics stores and perfumeries in the U.S. and internationally. The Consumer segment also includes: (i) a skin care line under the Natural Honey brand; (ii) a hair color line under the Llongueras brand (licensed from a third party) sold to large volume retailers and other retailers, primarily in Spain, which were acquired as part of the Colomer Acquisition; and (iii) Cutex nail care products, which (combined with other Cutex businesses that the Company acquired in 1998) were acquired as part of the October 2015 and May 2016 acquisitions of the Cutex businesses and related assets in the U.S. (the "Cutex U.S. Acquisition") and in certain international territories (the "Cutex International Acquisition" and together with the Cutex U.S. Acquisition, the "Cutex Acquisitions"), respectively.
The Elizabeth Arden segment includes the operating results of the Elizabeth Arden business and related purchase accounting of the Elizabeth Arden Acquisition. Elizabeth Arden is a global prestige beauty products company with an iconic portfolio of prestige fragrance, skin care and cosmetic brands, which includes the Elizabeth Arden skin care brands, color cosmetics and fragrances; designer fragrances such as Juicy Couture, John Varvatos and Wildfox; and heritage fragrances such as Curve, Elizabeth Taylor, Britney Spears and Christina Aguilera.
The Professional segment is comprised primarily of the Company's professional brands, which include Revlon Professional in hair color, hair care and hair treatments; CND-branded products in nail polishes and nail enhancements; and American Crew in men’s grooming products, all of which are sold worldwide to professional salons. The Company’s principal customers for its professional products include hair and nail salons and distributors to professional salons in the U.S. and internationally. The Professional segment also includes a multi-cultural hair care line consisting of Creme of Nature hair care products sold to professional salons, large volume retailers and other retailers, primarily in the U.S.
The Other segment primarily includes the operating results related to the development, marketing and distribution of certain licensed fragrances and other beauty products. The results included within the Other segment are not material to the Company’s consolidated financial results.



31

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


Results of Operations

Consolidated Net Sales:
Year-to-date results:
Consolidated net sales in 2017 were $2,693.7 million, a $359.7 million increase, or 15.4%, compared to $2,334 million in 2016. Excluding the $6.3 million favorable FX impact, consolidated net sales increased by $353.4 million, or 15.1%, during 2017.
Consolidated net sales in 2016 were $2,334 million, a $419.7 million increase, or 21.9%, compared to $1,914.3 million in 2015. Excluding the $43.9 million unfavorable FX impact, consolidated net sales increased on an XFX basis by $463.6 million, or 24.2%, during 2016.
Changes in consumer shopping patterns for beauty products in which consumers have continued to increasingly engage with beauty brands through e-commerce and other social media channels have resulted in slower retail traffic in brick-and-mortar stores in the mass retail channel in North America. This shift in consumer behavior has resulted in continuing declines in the brick-and-mortar retail channel, including store closures. To address the pace and impact of this new commercial landscape, the Company has shifted some of its brand marketing spend toward facilitating increased penetration of e-commerce and social media channels and is focused on the following e-commerce initiatives: (i) developing and implementing effective content to enhance the Company's online retail position; (ii) improving the Company's consumer engagement across social media platforms; and (iii) transforming the Company's technology and data to support efficient management of the Company's digital infrastructure.

See "Segment Results" below for further discussion.

Segment Results:
The Company's management evaluates segment profit, which is defined as income from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt and miscellaneous expenses, for each of the Company's reportable segments. Segment profit also excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the segments' underlying operating performance, which includes the impact of: (i) restructuring and related charges; (ii) acquisition and integration costs; (iii) deferred compensation costs; (iv) charges related to the program that Elizabeth Arden commenced prior to the Elizabeth Arden Acquisition to further align their organizational structure and distribution arrangements for the purpose of improving its go-to-trade capabilities and execution and to streamline their organization (the "Elizabeth Arden 2016 Business Transformation Program"); and (v) costs of sales resulting from a fair value adjustment to inventory acquired in the Elizabeth Arden Acquisition. Unallocated corporate expenses primarily include general and administrative expenses related to the corporate organization. These expenses are recorded in unallocated corporate expenses as these items are centrally directed and controlled and are not included in internal measures of segment operating performance. The Company does not have any material inter-segment sales. For a reconciliation of segment profit to income from continuing operations before income taxes, see Note 19, "Segment Data and Related Information," to the Consolidated Financial Statements in this Form 10-K.
The following tables provide a comparative summary of the Company's segment results for 2017, 2016 and 2015.
 
Net Sales
 
Segment Profit
 
Year Ended December 31,
 
Change
 
XFX Change (a)
 
Year Ended December 31,
 
Change
 
XFX Change (a)
 
2017
 
2016
 
$
 
%
 
$
 
%
 
2017
 
2016
 
$
 
%
 
$
 
%
Consumer
$
1,288.5

 
$
1,389.8

 
$
(101.3
)
 
(7.3
)%
 
$
(101.6
)
 
(7.3
)%
 
$
239.6

 
$
349.2

 
$
(109.6
)
 
(31.4
)%
 
$
(108.7
)
 
(31.1
)%
Elizabeth Arden(b)
952.5

 
441.4

 
511.1

 
115.8
 %
 
509.1

 
115.3
 %
 
114.2

 
68.2

 
46.0

 
67.4
 %
 
45.5

 
66.7
 %
Professional
432.2

 
476.5

 
(44.3
)
 
(9.3
)%
 
(49.3
)
 
(10.3
)%
 
54.9

 
99.4

 
(44.5
)
 
(44.8
)%
 
(45.7
)
 
(46.0
)%
Other
20.5

 
26.3

 
(5.8
)
 
(22.1
)%
 
(4.8
)
 
(18.3
)%
 
(3.7
)
 
(2.7
)
 
(1.0
)
 
(37.0
)%
 
(1.1
)
 
(40.7
)%
Total
$
2,693.7

 
$
2,334.0

 
$
359.7

 
15.4
 %
 
$
353.4

 
15.1
 %
 
$
405.0

 
$
514.1

 
$
(109.1
)
 
(21.2
)%
 
$
(110.0
)
 
(21.4
)%
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales and Segment Profit represent results for the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date through December 31, 2016.

32

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


 
Net Sales
 
Segment Profit
 
Year Ended December 31,
 
Change
 
XFX Change (a)
 
Year Ended December 31,
 
Change
 
XFX Change (a)
 
2016
 
2015
 
$
 
%
 
$
 
%
 
2016
 
2015
 
$
 
%
 
$
 
%
Consumer
$
1,389.8

 
$
1,414.8

 
$
(25.0
)
 
(1.8
)%
 
$
9.7

 
0.7
%
 
$
349.2

 
$
360.2

 
$
(11.0
)
 
(3.1
)%
 
$
(8.3
)
 
(2.3
)%
Elizabeth Arden(b)
441.4

 

 
441.4

 
N.M.

 
441.4

 
N.M.

 
68.2

 

 
68.2

 
N.M.

 
68.2

 
N.M.

Professional
476.5

 
471.1

 
5.4

 
1.1
 %
 
11.1

 
2.4
%
 
99.4

 
103.9

 
(4.5
)
 
(4.3
)%
 
(3.5
)
 
(3.4
)%
Other
26.3

 
28.4

 
(2.1
)
 
(7.4
)%
 
1.4

 
4.9
%
 
(2.7
)
 
1.4

 
(4.1
)
 
(292.9
)%
 
(4.3
)
 
(307.1
)%
Total
$
2,334.0

 
$
1,914.3

 
$
419.7

 
21.9
 %
 
$
463.6

 
24.2
%
 
$
514.1

 
$
465.5

 
$
48.6

 
10.4
 %
 
$
52.1

 
11.2
 %
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales and Segment Profit represent results for the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date through December 31, 2016.
Consumer Segment
Consumer segment net sales in 2017 were $1,288.5 million, a $101.3 million, or 7.3%, decrease, compared to $1,389.8 million in 2016. Excluding the $0.3 million favorable FX impact, total Consumer net sales in 2017 decreased by $101.6 million, or 7.3%, compared to 2016. This decrease was primarily driven by consumption declines as the Consumer segment continues to be impacted by shifts in consumer behavior resulting in continuing declines in core beauty categories in the mass retail channel in North America, which had a negative impact on net sales of Revlon color cosmetics, Almay color cosmetics and SinfulColors color cosmetics, as well as higher sales returns and incentives. These net sales decreases were partially offset by net sales growth internationally for Revlon color cosmetics.
Consumer segment profit in 2017 was $239.6 million, a $109.6 million, or 31.4%, decrease, compared to $349.2 million in 2016. Excluding the $0.9 million unfavorable FX impact, Consumer segment profit in 2017 decreased by $108.7 million, or 31.1%, compared to 2016. This decrease was primarily driven by lower gross profit, primarily as a result of the net sales declines in North America, partially offset by lower brand support expenses.
Consumer segment net sales in 2016 were $1,389.8 million, a $25 million, or 1.8%, decrease, compared to $1,414.8 million in 2015. Excluding the $34.7 million unfavorable FX impact, total Consumer net sales in 2016 increased by $9.7 million, or 0.7%, compared to 2015. This increase was primarily driven by higher net sales of Cutex nail care products from the Company’s global consolidation of the Cutex brand, which was completed with two separate acquisitions that closed for the U.S. in October 2015 and for the U.K., Australia and certain other International territories in May 2016, as well as higher net sales of Revlon beauty tools and Mitchum anti-perspirant deodorant products, partially offset by lower net sales of Almay color cosmetics. Net sales of Revlon color cosmetics were essentially flat, as strong sales growth internationally was offset by lower net sales in North America due to softening trade conditions in core cosmetics categories.
Consumer segment profit in 2016 was $349.2 million, a $11 million, or 3.1%, decrease as compared to $360.2 million in 2015. Excluding the $2.7 million unfavorable FX impact, Consumer segment profit in 2016 decreased by $8.3 million, or 2.3%, compared to 2015. This decrease was partially due to a 2015 gain of $3.5 million related to the sale of a non-core consumer brand. In addition, Consumer segment profit decreased due to the unfavorable impact of FX transaction within cost of sales, partially offset by decreased brand support on lower performing brands.

Elizabeth Arden Segment

The Elizabeth Arden segment is comprised of the operations that the Company acquired in the Elizabeth Arden Acquisition, which closed on the September 7, 2016 Elizabeth Arden Acquisition Date. As such, the results for 2016 reflect only amounts for the partial period of September 7, 2016 through December 31, 2016. Therefore, an analysis of net sales and segment profit for the Elizabeth Arden segment is not included in this Form 10-K, as the Company does not have full comparable prior period net sales or segment profit for the Elizabeth Arden segment.

Professional Segment

Professional segment net sales in 2017 were $432.2 million, a $44.3 million, or 9.3%, decrease, as compared to $476.5 million in 2016. Excluding the $5 million favorable FX impact, total Professional segment net sales in 2017 decreased by $49.3 million, or 10.3%, compared to 2016. This decrease was driven primarily by lower net sales of American Crew men's grooming products and CND nail products, partially offset by higher net sales of Revlon Professional hair products.

33

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



Professional segment profit in 2017 was $54.9 million, a $44.5 million, or 44.8%, decrease, as compared to $99.4 million in 2016. Excluding the $1.2 million favorable FX impact, Professional segment profit in 2017 decreased by $45.7 million, or 46%, compared to 2016. This decrease was primarily driven by lower net sales, partially offset by lower brand support expenses and incentive compensation.

Professional segment net sales in 2016 were $476.5 million, a $5.4 million, or 1.1%, increase, compared to $471.1 million in 2015. Excluding the $5.7 million unfavorable FX impact, total Professional net sales in 2016 increased by $11.1 million compared to 2015. This increase was driven primarily by higher net sales of American Crew men’s grooming products as a result of the Elvis Presley branded marketing campaign (which ended in December 2017) and Revlon Professional hair products. These increases were partially offset by lower net sales of CND nail products.

Professional segment profit in 2016 was $99.4 million, a $4.5 million, or 4.3%, decrease, compared to $103.9 million in 2015, primarily driven by the absence in 2016 of a $3 million gain related to the sale of a non-core professional brand that was completed in 2015. Excluding the $1 million unfavorable FX impact, Professional segment profit in 2016 decreased by $3.5 million, or 3.4%, compared to 2015.

Geographic Results:
The following tables provide a comparative summary of the Company's net sales by region for 2017, 2016 and 2015:
 
Year Ended December 31,


Change
 
XFX Change (a)
 
2017
 
2016
 
$
 
%
 
$
 
%
Consumer
 
 
 
 
 
 
 
 
 
 
 
North America
$
750.8

 
$
882.4

 
$
(131.6
)
 
(14.9
)%
 
$
(132.5
)
 
(15.0
)%
International
537.7

 
507.4

 
30.3

 
6.0
 %
 
30.9

 
6.1
 %
Elizabeth Arden(b)
 
 
 
 
 
 
 
 
 
 
 
North America
$
509.0

 
$
274.8

 
$
234.2

 
85.2
 %
 
$
233.6

 
85.0
 %
International
443.5

 
166.6

 
276.9

 
166.2
 %
 
275.5

 
165.4
 %
Professional
 
 
 
 
 
 
 
 
 
 
 
North America
$
173.5

 
$
223.9

 
$
(50.4
)
 
(22.5
)%
 
$
(50.9
)
 
(22.7
)%
International
258.7

 
252.6

 
6.1

 
2.4
 %
 
1.6

 
0.6
 %
Other
 
 
 
 
 
 
 
 
 
 
 
North America
$

 
$

 
$

 
N.M.

(c) 
$

 
N.M.

International
20.5

 
26.3

 
(5.8
)
 
(22.1
)%
 
(4.8
)
 
(18.3
)%
        Total Net Sales
$
2,693.7

 
$
2,334.0

 
$
359.7

 
15.4
 %
 
$
353.4

 
15.1
 %
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales represent results for the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date through December 31, 2016.
(c) N.M. - Not meaningful


34

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


 
Year Ended December 31,


Change
 
XFX Change (a)
 
2016
 
2015
 
$
 
%
 
$
 
%
Consumer
 
 
 
 
 
 
 
 
 
 
 
North America
$
882.4

 
$
921.3

 
$
(38.9
)
 
(4.2
)%
 
$
(36.9
)
 
(4.0
)%
International
507.4

 
493.5

 
13.9

 
2.8
 %
 
46.6

 
9.4
 %
Elizabeth Arden(b)
 
 
 
 

 

 
 
 

North America
$
274.8

 
$

 
$
274.8

 
N.M.

 
$
274.8

 
N.M.

International
166.6

 

 
166.6

 
N.M.

 
166.6

 
N.M.

Professional
 
 
 
 

 

 
 
 

North America
$
223.9

 
$
216.8

 
$
7.1

 
3.3
 %
 
$
7.9

 
3.6
 %
International
252.6

 
254.3

 
(1.7
)
 
(0.7
)%
 
3.2

 
1.3
 %
Other
 
 
 
 

 

 
 
 

North America
$

 
$

 
$

 
N.M.

(c) 
$

 
N.M.

International
26.3

 
28.4

 
(2.1
)
 
(7.4
)%
 
1.4

 
4.9
 %
        Total Net Sales
$
2,334.0

 
$
1,914.3

 
$
419.7

 
21.9
 %
 
$
463.6

 
24.2
 %
(a) XFX excludes the impact of foreign currency fluctuations.
(b) 2016 Net Sales represent results for the partial period from the September 7, 2016 Elizabeth Arden Acquisition Date through December 31, 2016.
(c) N.M. - Not meaningful

Consumer Segment

North America

In North America, Consumer segment net sales in 2017 decreased by $131.6 million, or 14.9%, to $750.8 million, compared to $882.4 million in 2016. Excluding the $0.9 million favorable FX impact, Consumer segment net sales in North America in 2017 decreased by $132.5 million, or 15%, as compared to 2016. This decrease was primarily due to declines in the U.S. mass retail channel driven by declines in consumption across several beauty categories. The net sales of Revlon color cosmetics, Almay color cosmetics and SinfulColors color cosmetics all declined in 2017 compared to 2016.
Consumer segment net sales in 2016 decreased by $38.9 million, or 4.2%, to $882.4 million, compared to $921.3 million in 2015. Excluding the $2 million unfavorable FX impact, Consumer segment net sales in North America in 2016 decreased by $36.9 million, or 4%, compared to 2015. This decrease was primarily driven by the results of softening trade conditions in core categories, which impacted Revlon color cosmetics and Almay color cosmetics, as well as increased competition impacting Revlon ColorSilk hair color. These decreases were partially offset by incremental net sales in connection with the Company completing the global consolidation of the Cutex nail care brand, as well as higher net sales of Revlon beauty tools.
International

Internationally, Consumer segment net sales in 2017 increased by $30.3 million, or 6%, to $537.7 million, compared to $507.4 million in 2016. Excluding the $0.6 million unfavorable FX impact, Consumer segment International net sales in 2017 increased by $30.9 million, or 6.1%, as compared to 2016. This increase was driven primarily by higher net sales of Revlon color cosmetics. From a geographic perspective, the increase in International net sales was mainly driven by increased net sales in certain distributor territories, as well as throughout the Asia-Pacific region.
Consumer International segment net sales in 2016 increased by $13.9 million, or 2.8%, to $507.4 million, compared to $493.5 million in 2015. Excluding the $32.7 million unfavorable FX impact, Consumer International segment net sales in 2016 increased by $46.6 million, or 9.4%, compared to 2015. This increase was primarily driven by higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, as well as incremental net sales of Cutex nail care products. The increase in International net sales was mainly driven by higher net sales in the U.K. and Mexico.

Elizabeth Arden Segment

The Elizabeth Arden segment is comprised of the operations that the Company acquired in the Elizabeth Arden Acquisition, which closed on the September 7, 2016 Elizabeth Arden Acquisition Date. As such, the results for 2016 reflect only amounts for the partial period of September 7, 2016 through December 31, 2016. Therefore, an analysis of net sales and segment profit for

35

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


the Elizabeth Arden segment is not included in this Form 10-K, as the Company does not have full comparable prior period net sales or segment profit for the Elizabeth Arden segment.

Professional Segment

North America

In North America, Professional segment net sales in 2017 decreased by $50.4 million, or 22.5%, to $173.5 million, as compared to $223.9 million in 2016. Excluding the $0.5 million favorable FX impact, Professional segment net sales in North America in 2017 decreased by $50.9 million, or 22.7%, as compared to 2016. This decrease was primarily driven by declines in net sales of American Crew men's grooming products and CND nail products.

Professional segment net sales in North America in 2016 increased by $7.1 million, or 3.3%, to $223.9 million, compared to $216.8 million in 2015. Excluding the $0.8 million unfavorable FX impact, Professional segment net sales in North America in 2016 increased on an XFX basis by $7.9 million, or 3.6%, compared to 2015. This increase was primarily driven by increased net sales of American Crew men's grooming products as a result of the Elvis Presley branded marketing campaign, as well as Creme of Nature hair products, partially offset by lower net sales of CND nail products.

International

Internationally, Professional segment net sales in 2017 increased by $6.1 million, or 2.4%, to $258.7 million, compared to $252.6 million in 2016. Excluding the $4.5 million favorable FX impact, Professional segment International net sales increased by $1.6 million, or 0.6%, in 2017, as compared to 2016, primarily due to increases in net sales of Revlon Professional hair products, partially offset by lower net sales of CND nail products. From a geographic perspective, the increase in International net sales was mainly driven by increased net sales in France, Russia and Italy.
Internationally, Professional segment net sales in 2016 decreased by $1.7 million, or 0.7%, to $252.6 million, compared to $254.3 million in 2015. Excluding the $4.9 million unfavorable FX impact, Professional segment International net sales increased by $3.2 million, or 1.3%, in 2016, compared to 2015. This increase was primarily due to higher net sales of Revlon Professional hair products, as well as an increase in net sales of American Crew men’s grooming products throughout most of the International region. These increases were partially offset by lower net sales of CND nail products.

Gross profit:
The table below shows the Company's gross profit for 2017, 2016 and 2015:
 
Year Ended December 31,
 
Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
Gross profit
$
1,542.4

 
$
1,416.9

 
$
1,246.5

 
$
125.5

 
$
170.4

Percentage of net sales
57.3
%
 
60.7
%
 
65.1
%
 
(3.4
)%
 
(4.4
)%

Gross profit increased by $125.5 million in 2017, as compared to 2016. Gross profit decreased as a percentage of net sales in 2017 by 3.4 percentage points, as compared to 2016. The drivers of the decrease in gross margin in 2017, as compared to 2016, primarily included:
the inclusion of gross profit for the Elizabeth Arden segment, which decreased gross margin by 2.3 percentage points;
higher sales incentives, which decreased gross margin by 0.5 percentage points;
unfavorable product mix, which decreased gross margin by 0.4 percentage points; and
higher allowances for sales returns, which decreased gross margin by 0.2 percentage points;
with the foregoing partially offset by:
favorable foreign currency fluctuations, which increased gross margin by 0.3 percentage points.
Excluding the impacts of sales volumes in the Elizabeth Arden segment, unfavorable sales volumes decreased gross profit by $89 million in 2017, compared to 2016, with no impact on gross margin.


36

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


Gross profit increased by $170.4 million in 2016, as compared to 2015. Gross margin decreased in 2016 by 4.4 percentage points as compared to 2015. The drivers of the decrease in gross margin in 2016, as compared to 2015, primarily included:
the inclusion of gross profit from the Elizabeth Arden segment, which decreased gross margin by 2.4 percentage points;
unfavorable foreign currency fluctuations, which decreased gross margin by 1.0 percentage point;
higher promotional allowances, which decreased gross margin by 0.6 percentage points;
additional inventory costs as a result of the recognition of an increase in the fair value of inventory acquired in the Elizabeth Arden Acquisition, which decreased gross margin by 0.5 percentage points; and
unfavorable product mix, which decreased gross margin by 0.5 percentage points;
with the foregoing partially offset by:
the favorable impact in 2016 related to the portion of the 2015 pension lump sum settlement charge recorded in the fourth quarter of 2015 within cost of sales, which did not recur in 2016, which increased gross margin by 0.3 percentage points.
Favorable volume increased gross profit by $26 million in 2016, compared to 2015, with no impact on gross margin.

SG&A expenses:
The table below shows the Company's selling, general and administrative ("SG&A") expenses for 2017, 2016 and 2015:
 
Year Ended December 31,
 
Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
SG&A expenses
$
1,467.6

 
$
1,161.0

 
$
1,002.5

 
$
306.6

 
$
158.5

SG&A expenses increased by $306.6 million in 2017, compared to 2016, primarily driven by:
the inclusion of SG&A expenses in the Elizabeth Arden segment as a result of the Elizabeth Arden Acquisition, which contributed $303.7 million to the increase in SG&A expenses; and
higher general and administrative expenses of $9.7 million, primarily due to higher professional services fees related to the Company's digital transformation initiatives;
with the foregoing partially offset by:
a $4.4 million decrease in brand support expenses, primarily within the Consumer Segment, due to the decline in net sales; and
lower incentive compensation expense.
SG&A expenses increased by $158.5 million in 2016, compared to 2015, primarily driven by: