Document



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

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2018

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

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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

As of March 31, 2018, 52,799,048 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.






REVLON, INC. AND SUBSIDIARIES
INDEX

PART I - Financial Information
Item 1.
Financial Statements
 
Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017
 
Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months Ended March 31, 2018 and 2017
 
Unaudited Consolidated Statement of Stockholders' Deficiency for the Three Months Ended March 31, 2018
 
Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017
 
Notes to Unaudited Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
 
 
 
PART II - Other Information
Item 1.
Legal Proceedings
Item 1A.
Risk Factors
Item 5.
Other Information
Item 6.
Exhibits
 
Signatures






1



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements


REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)
 
March 31, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
55.7

 
$
87.1

Trade receivables, less allowance for doubtful accounts of $13.0 and $13.5 as of March 31, 2018 and December 31, 2017, respectively
381.1

 
444.8

Inventories
515.5

 
497.9

Prepaid expenses and other assets
162.0

 
113.4

Total current assets
1,114.3

 
1,143.2

Property, plant and equipment, net of accumulated depreciation of $394.2 and $385.5 as of March 31, 2018 and December 31, 2017, respectively
371.6

 
372.7

Deferred income taxes
156.8

 
138.0

Goodwill
692.8

 
692.5

Intangible assets, net of accumulated amortization of $141.7 and $130.9 as of March 31, 2018 and December 31, 2017, respectively
584.7

 
592.1

Other assets
121.9

 
118.4

Total assets
$
3,042.1

 
$
3,056.9

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
10.8

 
$
12.4

Current portion of long-term debt
254.3

 
170.2

Accounts payable
345.4

 
336.9

Accrued expenses and other current liabilities
398.5

 
412.8

Total current liabilities
1,009.0

 
932.3

Long-term debt
2,651.5

 
2,653.7

Long-term pension and other post-retirement plan liabilities
170.1

 
172.8

Other long-term liabilities
67.2

 
68.5

Stockholders’ deficiency:
 
 
 
Class A Common Stock, par value $0.01 per share; 900,000,000 shares authorized; 54,625,867 and 54,556,100 shares issued as of March 31, 2018 and December 31, 2017, respectively
0.5

 
0.5

Additional paid-in capital
1,047.7

 
1,040.0

Treasury stock, at cost: 1,251,111 and 1,114,528 shares of Class A Common Stock as of March 31, 2018 and December 31, 2017, respectively
(24.6
)
 
(21.7
)
Accumulated deficit
(1,651.1
)
 
(1,560.8
)
Accumulated other comprehensive loss
(228.2
)
 
(228.4
)
Total stockholders’ deficiency
(855.7
)
 
(770.4
)
Total liabilities and stockholders’ deficiency
$
3,042.1

 
$
3,056.9





See Accompanying Notes to Unaudited Consolidated Financial Statements






REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(dollars in millions, except share and per share amounts)
 
Three Months Ended March 31,
 
2018
 
2017
 
 
 
(as adjusted) (*)

Net sales
$
560.7

 
$
594.9

Cost of sales
242.6

 
265.5

      Gross profit
318.1

 
329.4

Selling, general and administrative expenses
371.7

 
353.8

Acquisition and integration costs
4.0

 
17.5

Restructuring charges and other, net
4.1

 
1.2

      Operating loss
(61.7
)
 
(43.1
)
Other expenses:
 
 
 
   Interest expense
39.9

 
35.0

   Amortization of debt issuance costs
2.3

 
2.2

   Foreign currency gains
(10.6
)
 
(4.3
)
   Miscellaneous, net

 
0.6

      Other expenses
31.6

 
33.5

Loss from continuing operations before income taxes
(93.3
)
 
(76.6
)
Benefit from income taxes
(1.6
)
 
(38.9
)
Loss from continuing operations, net of taxes
(91.7
)
 
(37.7
)
Income from discontinued operations, net of taxes
1.4

 
0.3

Net loss
$
(90.3
)
 
$
(37.4
)
Other comprehensive income:
 
 
 
   Foreign currency translation adjustments, net of tax (a)
(2.5
)
 
4.7

   Amortization of pension related costs, net of tax (b)(c)
2.1

 
2.0

Pension curtailment, net of tax(d)

 
2.6

Reclassification into earnings of accumulated losses from the de-designated 2013 Interest Rate Swap, net of tax(e)
0.6

 
0.6

Other comprehensive income, net
0.2

 
9.9

Total comprehensive loss
$
(90.1
)
 
$
(27.5
)
 
 
 
 
Basic (loss) earnings per common share:
 
 
 
Continuing operations
$
(1.74
)
 
$
(0.72
)
Discontinued operations
0.03

 
0.01

Net loss
$
(1.71
)
 
$
(0.71
)
 
 
 
 
Diluted (loss) earnings per common share:
 
 
 
Continuing operations
$
(1.74
)
 
$
(0.72
)
Discontinued operations
0.03

 
0.01

Net loss
$
(1.71
)
 
$
(0.71
)
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
      Basic
52,673,672

 
52,529,826

      Diluted
52,673,672

 
52,529,826

     
(*) 
Adjusted as a result of the adoption of certain accounting pronouncements during the three months ended March 31, 2018. See Note 1, "Description of Business and Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements," for details of these adjustments.
(a) 
Net of tax expense of nil and $1.0 million for the three months ended March 31, 2018 and 2017, respectively.
(b) 
Net of tax expense of $0.3 million and $0.4 million for the three months ended March 31, 2018 and 2017, respectively.
(c) 
This amount is included in the computation of net periodic benefit costs (income). See Note 10, "Pension and Post-Retirement Benefits," for additional information regarding net periodic benefit costs (income).
(d) 
Net of tax expense of $0.3 million for the three months ended March 31, 2017.
(e) 
Net of tax benefit of $0.2 million and $0.4 million for the three months ended March 31, 2018 and 2017, respectively.


See Accompanying Notes to Unaudited Consolidated Financial Statements


3



REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
(dollars in millions, except share and per share amounts)
 
Common Stock
 
Additional Paid-In Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholders’ Deficiency
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
$
0.5

 
$
1,040.0

 
$
(21.7
)
 
$
(1,560.8
)
 
$
(228.4
)
 
$
(770.4
)
Treasury stock acquired, at cost (a)

 

 
(2.9
)
 

 

 
(2.9
)
Stock-based compensation amortization

 
7.7

 

 

 

 
7.7

Net loss

 

 

 
(90.3
)
 

 
(90.3
)
Other comprehensive income, net (b)

 

 

 

 
0.2

 
0.2

Balance, March 31, 2018
$
0.5

 
$
1,047.7

 
$
(24.6
)
 
$
(1,651.1
)
 
$
(228.2
)
 
$
(855.7
)

(a)
Pursuant to the share withholding provisions of the Fourth Amended and Restated Revlon, Inc. Stock Plan (the "Stock Plan"), the Company withheld an aggregate of 136,583 shares of Revlon Class A Common Stock during the three months ended March 31, 2018 to satisfy certain minimum statutory tax withholding requirements related to the vesting of restricted shares for certain senior executives. These withheld shares were recorded as treasury stock using the cost method, at a weighted-average price per share of $21.30 during the three months ended March 31, 2018, based on the closing price of Revlon Class A Common Stock as reported on the New York Stock Exchange (the "NYSE") consolidated tape on each respective vesting date, for a total of $2.9 million. See Note 15, "Stock Compensation Plan" to the Consolidated Financial Statements in Revlon's Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 15, 2018 (the "2017 Form 10-K"), for details regarding restricted stock awards under the Stock Plan.

(b)
See Note 12, "Accumulated Other Comprehensive Loss," regarding the changes in the accumulated balances for each component of other comprehensive loss during the three months ended March 31, 2018.




See Accompanying Notes to Unaudited Consolidated Financial Statements


4



REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Three Months Ended March 31,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(90.3
)
 
$
(37.4
)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
   Depreciation and amortization
38.7

 
37.1

   Foreign currency gains from re-measurement
(10.5
)
 
(4.7
)
   Amortization of debt discount
0.3

 
0.3

   Stock-based compensation amortization
7.7

 
1.7

   Benefit from deferred income taxes
(18.5
)
 
(38.1
)
   Amortization of debt issuance costs
2.3

 
2.2

 Loss on sale of certain assets
0.1

 
0.4

   Pension and other post-retirement cost (income)
0.6

 
(0.1
)
   Change in assets and liabilities:
 
 
 
      Decrease in trade receivables
67.6

 
52.0

      Increase in inventories
(14.6
)
 
(24.9
)
      Increase in prepaid expenses and other current assets
(46.3
)
 
(19.9
)
      Increase in accounts payable
2.3

 
5.6

      Decrease in accrued expenses and other current liabilities
(24.1
)
 
(45.9
)
      Pension and other post-retirement plan contributions
(1.8
)
 
(1.9
)
      Purchases of permanent displays
(14.2
)
 
(10.2
)
      Other, net
3.4

 
(1.8
)
Net cash used in operating activities
(97.3
)
 
(85.6
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(13.7
)
 
(15.4
)
Net cash used in investing activities
(13.7
)
 
(15.4
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net increase (decrease) in short-term borrowings and overdraft
1.0

 
(3.4
)
Net borrowings under the 2016 Revolving Credit Facility
83.8

 
40.9

Repayments under the 2016 Term Loan Facility

(4.5
)
 
(4.5
)
Payment of financing costs

 
(0.8
)
Tax withholdings related to net share settlements of restricted stock units and awards

(2.9
)
 
(1.4
)
Other financing activities
(0.2
)
 
(0.4
)
Net cash provided by financing activities
77.2

 
30.4

Effect of exchange rate changes on cash and cash equivalents
2.9

 
5.3

   Net decrease in cash, cash equivalents and restricted cash
(30.9
)
 
(65.3
)
   Cash, cash equivalents and restricted cash at beginning of period (1)
87.4

 
186.8

   Cash, cash equivalents and restricted cash at end of period (1)
$
56.5

 
$
121.5

Supplemental schedule of cash flow information:
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
53.6

 
$
49.4

Income taxes, net of refunds
2.6

 
2.4


(1) The amounts for cash and cash equivalents shown above include restricted cash of $0.8 million and $0.4 million as of March 31, 2018 and 2017, respectively, and $0.3 million and $0.4 million as of December 31, 2017 and 2016, respectively, which represent cash on deposit to support the Company's outstanding undrawn letters of credit and were included within other assets in the Company's consolidated balance sheets.



See Accompanying Notes to Unaudited Consolidated Financial Statements

5

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

Item 1. Financial Statements

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 is a leading global beauty company with an iconic portfolio of brands that develops, manufactures, markets, distributes and sells an extensive array of 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.
Effective January 1, 2018, the Company implemented the brand-centric organizational structure previously announced in the Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on January 17, 2017. The new structure is built around four global brand teams: Revlon; Elizabeth Arden; Portfolio; and Fragrances, designed to improve financial performance, build brand equity and successfully compete in a digitally-driven landscape. These four global brand teams represent the Company's four new reporting segments. As a result, prior period information for certain amounts has been reclassified to conform with the current period's presentation. For further information refer to Note 13, "Segment Data and Related Information."
The accompanying Consolidated Financial Statements are unaudited. In management's opinion, all adjustments necessary for a fair presentation have been made. The Unaudited Consolidated Financial Statements include the Company's accounts after the elimination of all material intercompany balances and transactions. Certain prior year amounts have been reclassified to conform to the current year presentation.
The preparation of the Company's Unaudited Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the Unaudited Consolidated Financial Statements in the period they are determined to be necessary. Significant estimates made in the accompanying Unaudited Consolidated Financial Statements include, but are not limited to: allowances for doubtful accounts; inventory valuation reserves; expected sales returns and allowances; trade support costs; certain assumptions related to the valuation of acquired intangible and long-lived assets and the recoverability of goodwill, intangible and long-lived assets; income taxes, including deferred tax valuation allowances and reserves for estimated tax liabilities; restructuring costs; and certain estimates and assumptions used in the calculation of the net periodic benefit (income) costs and the projected benefit obligations for the Company’s pension and other post-retirement plans, including the expected long-term return on pension plan assets and the discount rate used to value the Company’s pension benefit obligations. The Unaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes contained in Revlon's 2017 Form 10-K.
The Company's results of operations and financial position for interim periods are not necessarily indicative of those to be expected for the full year.

Recently Adopted Accounting Pronouncements

Revenue Recognition

In May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers." This new standard replaced most existing revenue recognition guidance in U.S. GAAP and codified guidance under FASB Topic 606. The underlying principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services.
The Company adopted ASU No. 2014-09 as of January 1, 2018 using the modified retrospective method. Results for the reporting period beginning after January 1, 2018 are presented under Topic 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance. However, given the nature of the Company's products and the terms and conditions applicable to sales to its customers, the timing and amount of revenue recognized based on the underlying principles of ASU No. 2014-09 are consistent with the Company's revenue recognition policy under previous guidance.

6

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

In accordance with the new guidance, the Company recognizes revenue at an amount that reflects the consideration that the Company expects to be entitled to receive in exchange for transferring goods or services to its customers. The Company's policy is to record revenue when control of the goods transfers to the customer. Net sales are comprised of gross revenues from sales of products less expected product returns, trade discounts and customer allowances, which include costs associated with off-invoice mark-downs and other price reductions, as well as trade promotions and coupons.
The Company allows customers to return their unsold products if and when they meet certain Company-established criteria as set forth in the Company's trade terms. The Company regularly reviews and revises, when deemed necessary, its estimates of sales returns based primarily upon the historical rate of actual product returns, planned product discontinuances, new product launches and estimates of customer inventory and promotional sales. For returned products that the Company expects to resell at a profit, the Company records, in addition to sales returns as a reduction to sales and cost of sales and an increase to accrued liabilities for the amount expected to be refunded to the customer, an increase to the asset account used to reflect the Company's right to recover products. The amount of the asset account is valued based upon the former carrying amount of the product (i.e., inventory), less any expected costs to recover the products. As the estimated product returns that are expected to be resold at a profit do not comprise a significant amount of the Company's net sales or assets, the Company does not separately report these amounts.
The Company's revenues are also net of certain marketing arrangements with its retail customers. Pursuant to its trade terms with these retail customers, the Company reimburses them for a portion of their advertising costs, which provide advertising benefits to the Company. These arrangements are in the form of marketing development funds and/or cooperative advertising and are used by the Company to drive sales. The advertising programs follow an annual schedule of planned events that is continually updated based on the Company's needs and contractual terms. As these marketing expenditures cannot be directly linked to product sales, the Company records these expenses as a reduction of revenue at the higher of actual spend or estimated costs based on a reserve rate methodology. This did not result in any impact to the Company's financial statements in any of the periods presented.
In limited instances when products are sold under consignment arrangements, the Company does not recognize revenue until control over such products has transferred to the end consumer.
Other revenues, primarily royalties, do not comprise a material amount of the Company's net sales.
The Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue. As this policy election is in line with the Company's previous accounting practices, the treatment of shipping and handling activities under Topic 606 did not have any impact on the Company's results of operations, financial condition and/or financial statement disclosures.
As a result, the adoption of the new guidance under ASU No. 2014-09 did not have a material impact on the Company's revenues, results of operations or financial condition. The Company has expanded its financial statement disclosures as required by this new standard. See Note 13, "Segment Data and Related Information" for additional disclosures provided as a result of this ASU.

Other

In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which changes the way that employers present net periodic pension cost ("NPPC") and net periodic postretirement benefit cost ("NPPBC") within the income statement. The amendment requires an employer to present the service cost component of NPPC and NPPBC in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. The other components of NPPC and NPPBC would be presented separately from this line item and below any subtotal of operating income; companies will need to disclose the line items used to present these other components of NPPC and NPPBC, if not separately presented in the statement of operations. In addition, only the service cost component would be eligible for capitalization in assets. The Company adopted ASU No. 2017-07 as of January 1, 2018 and while the adoption did not have a material impact on the Company's results of operations, financial condition and/or financial statement disclosures, it did result in $0.6 million of net periodic benefit income, previously reported in cost of sales and selling, general and administrative ("SG&A") expenses in the Company's Unaudited Consolidated Statement of Operations and Comprehensive (Loss) Income for the first quarter of 2017, being reclassified below operating income in the miscellaneous, net line item. See Note 10, "Pension and Post-Retirement Benefits" for more information.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Receipts and Cash Payments," which aims to standardize how certain transactions are classified within the Statement of Cash Flows, including, among other items, debt prepayment and extinguishment costs and contingent consideration payments made after a business combination. The Company adopted ASU No. 2016-15 as of January 1, 2018 and as the guidance is in line with the Company's previous accounting practices,

7

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

the adoption of this new guidance did not have any impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
In January 2017, the FASB issued ASU No. 2017-01, "Clarifying the Definition of a Business," which further clarifies the definition of a business in an effort to assist entities in evaluating whether a set of transferred assets constitutes a business. Under this new guidance, if substantially all of the fair value of gross assets acquired is concentrated in a single asset or similar asset group, the set of transferred assets would not meet the definition of a business and no further evaluation is necessary. If this threshold is not met, the entity would then evaluate whether the set of transferred assets and activities meets the requirement of a business including, at a minimum, an input and a process that together have the ability to create an output. The Company adopted ASU No. 2017-01 as of January 1, 2018 and while the adoption of this new guidance did not have any impact on the Company’s results of operations, financial condition and/or financial statement disclosures, future transactions will be evaluated under this new guidance.

Recently Issued Accounting Pronouncements

In February 2018, the FASB issued ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which will permit entities to reclassify to retained earnings tax effects stranded in accumulated other comprehensive income as a result of tax reform related to the U.S. Tax Cuts and Jobs Act of 2017 (the "Tax Act"). This new guidance can be applied retrospectively and provides entities with the option to reclassify the amounts. The new guidance is effective for annual and quarterly periods beginning after December 15, 2018, with early adoption permitted, and requires entities to make new disclosures regardless of whether they elect to reclassify tax effects. The Company is in the process of evaluating whether this new guidance will have a material impact on its results of operations, financial condition and/or financial statement disclosures.


2. RESTRUCTURING CHARGES

EA Integration Restructuring Program

In December 2016, in connection with integrating the Elizabeth Arden and Revlon organizations, the Company began the process of implementing certain integration activities, including consolidating offices, eliminating certain duplicative activities and streamlining back-office support (the "EA Integration Restructuring Program"). The EA Integration Restructuring Program is designed to reduce the Company’s cost of goods sold and SG&A expenses. As a result of the EA Integration Restructuring Program, the Company expects to eliminate approximately 425 positions worldwide.
In connection with implementing the EA Integration Restructuring Program, the Company expects to recognize approximately $90 million to $95 million of total pre-tax restructuring charges (the "EA Integration Restructuring Charges"), consisting of: (i) approximately $65 million to $70 million of employee-related costs, including severance, retention and other contractual termination benefits; (ii) approximately $15 million of lease termination costs; and (iii) approximately $10 million of other related charges.
A summary of the restructuring and related charges incurred through March 31, 2018 in connection with the EA Integration Restructuring Program is presented in the following table:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits
 
Lease Termination and Other Costs(a)
 
Total Restructuring Charges
 
Inventory Adjustments(b)
 
Other Related Charges(c)
 
Total Restructuring and Related Charges
Charges incurred through December 31, 2017
$
62.8

 
$
5.0

 
$
67.8

 
$
1.4

 
$
3.0

 
$
72.2

Charges incurred during the three months ended March 31, 2018
5.2


(1.8
)
 
3.4

 
1.1

 

 
4.5

Cumulative charges incurred through March 31, 2018
$
68.0

 
$
3.2

 
$
71.2

 
$
2.5

 
$
3.0

 
$
76.7


(a) Primarily represents the reversal of lease termination costs related to certain re-occupied office space.
(b) Inventory adjustments are recorded within cost of sales in the Company’s consolidated statement of operations and comprehensive (loss) income.
(c) Other related charges are recorded within SG&A in the Company’s consolidated statement of operations and comprehensive (loss) income.

8

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

A summary of the restructuring charges incurred through March 31, 2018 in connection with the EA Integration Restructuring Program by reportable segment is presented in the following table:
 
 
Charges incurred during the three months ended March 31, 2018
 
Cumulative charges incurred through March 31, 2018
Revlon
 
$
4.2

 
$
28.8

Elizabeth Arden
 
(1.2
)
 
11.6

Portfolio
 
0.7

 
14.1

Fragrances
 
(0.3
)
 
16.7

     Total
 
$
3.4

 
$
71.2


The Company expects that cash payments will total $90 million to $95 million in connection with the EA Integration Restructuring Charges, of which $48 million were paid through March 31, 2018. The remaining balance is expected to be substantially paid by the end of 2020.

Restructuring Reserve

The liability balance and related activity for each of the Company's restructuring programs are presented in the following table:
 
 
 
 
 
 
 
Utilized, Net
 
 
Liability
Balance at January 1, 2018
 
Expense (Income), Net
 
Foreign Currency Translation
 

Cash
 

Non-cash
 
Liability Balance at March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
EA Integration Restructuring Program:(a)
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
$
25.8

 
$
5.2

 
$
0.2

 
$
(5.5
)
 
$

 
$
25.7

Other
3.9

 
(0.7
)
 

 

 

 
3.2

December 2013 Program:(b)
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
1.1

 

 

 

 

 
1.1

Other individually immaterial actions:(c)

 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
1.4

 
0.7

 

 
(0.8
)
 

 
1.3

Other
1.7

 

 

 

 

 
1.7

Total restructuring reserve
$
33.9

 
$
5.2

 
$
0.2

 
$
(6.3
)
 
$

 
$
33.0


(a) Includes $1.1 million in charges related to inventory adjustments and other restructuring-related charges that were reflected within cost of sales and SG&A, respectively, in the Company’s March 31, 2018 Unaudited Consolidated Statement of Operations and Comprehensive (Loss) Income.
(b) In December 2013, the Company announced restructuring actions that primarily included exiting its direct manufacturing, warehousing and sales business operations in mainland China within the Revlon segment (the "December 2013 Program"). The December 2013 Program resulted in the elimination of approximately 1,100 positions in 2014, primarily in China.
(c) Consists primarily of: (i) costs related to the program that Elizabeth Arden commenced prior to the Company’s acquisition of Elizabeth Arden, Inc. (“Elizabeth Arden” and the “Elizabeth Arden Acquisition”) on September 7, 2016 (the “Elizabeth Arden Acquisition Date”), to further align their organizational structure and distribution arrangements for the purpose of improving their go-to-trade capabilities and execution and to streamline their organization (the "Elizabeth Arden 2016 Business Transformation Program"); and (ii) costs related to the Company's September 2015 restructuring actions taken to drive certain organizational efficiencies, including reducing general and administrative expenses, within the Company's Revlon and Portfolio segments (the "2015 Efficiency Program"). Actions under the 2015 Efficiency Program were substantially completed by the end of 2017. Total restructuring and related charges incurred for the 2015 Efficiency Program were $7.6 million, of which $7.2 million resulted in cash payments.
At March 31, 2018 and December 31, 2017, all of the restructuring reserve balances were included within accrued expenses and other in the Company's Consolidated Balance Sheets.



9

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

3. DISCONTINUED OPERATIONS

With the implementation of the December 2013 Program, the results of the China discontinued operations, which relate entirely to the Revlon segment, are included within income from discontinued operations, net of taxes. The summary comparative financial results of discontinued operations were as follows for the periods presented:
 
Three Months Ended March 31,
 
2018
 
2017
Net sales
$

 
$

Income from discontinued operations, before taxes
1.4

 
0.3

Provision for income taxes

 

Income from discontinued operations, net of taxes
1.4

 
0.3


As of March 31, 2018 and December 31, 2017, assets and liabilities of the China discontinued operations included in the Consolidated Balance Sheets consisted of the following:
 
March 31,
 
December 31,
 
2018
 
2017
Cash and cash equivalents
$
1.3

 
$
1.3

Trade receivables, net
0.2

 
0.2

Total current assets
1.5

 
1.5

Total assets
$
1.5

 
$
1.5

 
 
 
 
Accounts payable
$
0.5

 
$
0.5

Accrued expenses and other
3.6

 
3.5

Total current liabilities
4.1

 
4.0

Total liabilities
$
4.1

 
$
4.0



4. INVENTORIES

As of March 31, 2018 and December 31, 2017, the Company's inventory balances consisted of the following:
 
March 31,
 
December 31,
 
2018
 
2017
Raw materials and supplies
$
134.4

 
$
123.4

Work-in-process
26.9

 
22.0

Finished goods
354.2

 
352.5

 
$
515.5

 
$
497.9



5. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

Effective January 1, 2018, the Company implemented its brand-centric organizational structure which is built around four global brand teams: Revlon; Elizabeth Arden; Portfolio; and Fragrances, which also represent the Company's reporting segments. Concurrent with the change in reporting segments, goodwill was reassigned to the affected reporting units that have been identified within each reporting segment using a relative fair value allocation approach as outlined in ASC 350, Intangibles - Goodwill and Other.


10

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

The following table presents the amount of goodwill that has been reassigned to each of the Company's reportable segments, following the relative fair value allocation approach, as well as any changes in goodwill by segment during the three months ended March 31, 2018:
 
Revlon
 
Portfolio
 
Elizabeth Arden
 
Fragrances
 
Total
Balance at December 31, 2017
$
265.3

 
$
189.5

 
$
116.9

 
$
120.8

 
$
692.5

Foreign currency translation adjustment
0.2

 
0.1

 

 

 
0.3

Balance at March 31, 2018
$
265.5

 
$
189.6

 
$
116.9

 
$
120.8

 
$
692.8

 
 
 
 
 
 
 
 
 
 
Cumulative goodwill impairment charges(a)


 


 


 


 
$
37.2

(a) Cumulative goodwill impairment charges relate to impairments recognized in 2015 and 2017; no impairment charges were recognized during the first quarter of 2018.

11

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

Intangible Assets, Net

The following tables present details of the Company's total intangible assets as of March 31, 2018 and December 31, 2017:
 
March 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted-Average Useful Life (in Years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks and licenses
$
272.5

 
$
(77.0
)
 
$
195.5

 
13
Customer relationships
251.2

 
(52.6
)
 
198.6

 
13
Patents and internally-developed IP
20.8

 
(8.7
)
 
12.1

 
6
Distribution rights
31.0

 
(2.7
)
 
28.3

 
16
Other
1.3

 
(0.7
)
 
0.6

 
1
Total finite-lived intangible assets
$
576.8

 
$
(141.7
)
 
$
435.1

 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade names
$
149.6

 
N/A

 
$
149.6

 
 
Total indefinite-lived intangible assets
$
149.6

 
N/A

 
$
149.6

 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
726.4

 
$
(141.7
)
 
$
584.7

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted-Average Useful Life (in Years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks and licenses
$
271.4

 
$
(72.8
)
 
$
198.6

 
13
Customer relationships
250.6

 
(46.8
)
 
203.8

 
13
Patents and internally-developed IP
20.8

 
(8.4
)
 
12.4

 
7
Distribution rights
31.0

 
(2.3
)
 
28.7

 
17
Other
1.3

 
(0.6
)
 
0.7

 
2
Total finite-lived intangible assets
$
575.1

 
$
(130.9
)
 
$
444.2

 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade names
$
147.9

 
N/A

 
$
147.9

 
 
Total indefinite-lived intangible assets
$
147.9

 
N/A

 
$
147.9

 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
723.0

 
$
(130.9
)
 
$
592.1

 
 
Amortization expense for finite-lived intangible assets was $10 million and $11.9 million for the three months ended March 31, 2018 and 2017, respectively.


12

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

The following table reflects the estimated future amortization expense for each period presented, a portion of which is subject to exchange rate fluctuations, for the Company's finite-lived intangible assets as of March 31, 2018:
 
Estimated Amortization Expense
2018
$
30.7

2019
37.9

2020
37.1

2021
36.1

2022
34.7

Thereafter
258.6

Total
$
435.1



6. ACCRUED EXPENSES AND OTHER

As of March 31, 2018 and December 31, 2017, the Company's accrued expenses and other current liabilities consisted of the following:
 
March 31, 2018
 
December 31, 2017
Compensation and related benefits
$
48.5

 
$
59.6

Advertising and promotional costs
86.4

 
84.0

Sales returns and allowances
73.3

 
61.7

Taxes
46.1

 
48.4

Restructuring reserve
31.5

 
33.3

Interest
9.6

 
23.8

Other
103.1

 
102.0

 
$
398.5

 
$
412.8



7. LONG-TERM DEBT

As of March 31, 2018 and December 31, 2017, the Company's debt balances consisted of the following:
 
March 31, 2018
 
December 31, 2017
2016 Term Loan Facility: 2016 Term Loan due 2023, net of discounts and debt issuance costs(a)
$
1,733.0

 
$
1,735.9

2016 Revolving Credit Facility due 2021, net of debt issuance costs(b) 
236.2

 
152.1

5.75% Senior Notes due 2021, net of debt issuance costs(c)
495.5

 
495.1

6.25% Senior Notes due 2024, net of debt issuance costs(d)
440.5

 
440.3

Spanish Government Loan due 2025
0.6

 
0.5

 
$
2,905.8

 
$
2,823.9

Less current portion(*)
(254.3
)
 
(170.2
)
 
$
2,651.5

 
$
2,653.7

(*) At March 31, 2018, the Company classified $254.3 million as its current portion of long-term debt, comprised primarily of $236.2 million of net borrowings under the 2016 Revolving Credit Facility, net of debt issuance costs, and $18 million of amortization payments on the 2016 Term Loan Facility scheduled to be paid over the next four calendar quarters. At December 31, 2017, the Company classified $170.2 million as its current portion of long-term debt, comprised primarily of $152.1 million of net borrowings under the 2016 Revolving Credit Facility, net of debt issuance costs, and $18.1 million of amortization payments on the 2016 Term Loan Facility.
(a) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Revlon's 2017 Form 10-K for certain details regarding Products Corporation's 2016 Term Loan that matures on the earlier of: (x) the seventh anniversary of the Elizabeth Arden Acquisition Date; and (y)

13

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes due 2021 if, on that date (and solely for so long as), (i) any of Products Corporation's 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200 million. The aggregate principal amount outstanding under the 2016 Term Loan Facility at March 31, 2018 was $1,773 million.
(b) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Revlon's 2017 Form 10-K for certain details regarding Products Corporation's 2016 Revolving Credit Facility, which matures on the earlier of: (x) the fifth anniversary of the Elizabeth Arden Acquisition Date; and (y) the 91st day prior to the maturity of Products Corporation’s 5.75% Senior Notes if, on that date (and solely for so long as), (i) any of Products Corporation’s 5.75% Senior Notes remain outstanding and (ii) Products Corporation’s available liquidity does not exceed the aggregate principal amount of the then outstanding 5.75% Senior Notes by at least $200 million. Total borrowings at face amount under the 2016 Revolving Credit Facility at March 31, 2018 were $240.8 million (excluding $9.9 million of outstanding undrawn letters of credit) (the 2016 Term Loan Facility and the 2016 Revolving Credit Facility, as amended, are collectively referred to as the “2016 Senior Credit Facilities”). On April 17, 2018, Products Corporation amended the 2016 Revolving Credit Facility agreement as detailed in Note 17, "Subsequent Events."
(c) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Revlon's 2017 Form 10-K for certain details regarding Products Corporation's 5.75% Senior Notes that mature on February 15, 2021. The aggregate principal amount outstanding under the 5.75% Senior Notes at March 31, 2018 was $500 million.
(d) See Note 11, "Long-Term Debt," to the Consolidated Financial Statements in Revlon's 2017 Form 10-K for certain details regarding Products Corporation's 6.25% Senior Notes that mature on August 1, 2024. The aggregate principal amount outstanding under the 6.25% Senior Notes at March 31, 2018 was $450 million.

Covenants

Products Corporation was in compliance with all applicable covenants under the 2016 Senior Credit Facilities as of March 31, 2018. At March 31, 2018, the aggregate principal amounts outstanding under the 2016 Term Loan Facility and the 2016 Revolving Credit Facility were $1,773 million and $240.8 million, respectively. At March 31, 2018, availability under the $400 million 2016 Revolving Credit Facility was $55 million, based upon the calculated borrowing base of $329.9 million, less $9.9 million of outstanding undrawn letters of credit, $24.2 million in outstanding checks and $240.8 million then drawn on the 2016 Revolving Credit Facility. On April 17, 2018, Products Corporation amended the 2016 Revolving Credit Facility agreement, which resulted in an increase to the borrowing capacity under the 2016 Revolving Credit Facility. See Note 17, "Subsequent Events" for additional information.
Products Corporation was in compliance with all applicable covenants under its Senior Notes Indentures as of March 31, 2018.


8. FAIR VALUE MEASUREMENTS

Assets and liabilities are required to be categorized into three levels of fair value based upon the assumptions used to value the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3, if applicable, generally would require significant management judgment. The three levels for categorizing the fair value measurement of assets and liabilities are as follows:
Level 1: Fair valuing the asset or liability using observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2: Fair valuing the asset or liability using inputs other than quoted prices that are observable for the applicable asset or liability, either directly or indirectly, such as quoted prices for similar (as opposed to identical) assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
Level 3: Fair valuing the asset or liability using unobservable inputs that reflect the Company’s own assumptions regarding the applicable asset or liability.

14

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

As of March 31, 2018, the fair values of the Company’s financial assets and liabilities that were required to be measured at fair value are categorized in the table below:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)     
$
0.6

 
$

 
$
0.6

 
$

Total assets at fair value
$
0.6

 
$

 
$
0.6

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
1.1

 
$

 
$
1.1

 
$

2013 Interest Rate Swap(b)
0.1

 

 
0.1

 

Total liabilities at fair value
$
1.2

 
$

 
$
1.2

 
$


As of December 31, 2017, the fair values of the Company’s financial assets and liabilities that were required to be measured at fair value are categorized in the table below:
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)     
$
0.6

 
$

 
$
0.6

 
$

Total assets at fair value
$
0.6

 
$

 
$
0.6

 
$

Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
FX Contracts(a)    
$
1.9

 
$

 
$
1.9

 
$

2013 Interest Rate Swap(b)
0.9

 

 
0.9

 

Total liabilities at fair value
$
2.8

 
$

 
$
2.8

 
$


(a) The fair value of the Company’s foreign currency forward exchange contracts ("FX Contracts") was measured based on observable market transactions for similar transactions in actively quoted markets of spot and forward rates on the respective dates. See Note 9, "Financial Instruments."
(b) The fair value of Products Corporation's 2013 Interest Rate Swap (as hereinafter defined), which expires in May 2018, was measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve on the respective dates. See Note 9, "Financial Instruments."

As of March 31, 2018, the fair value and carrying value of the Company’s long-term debt, including the current portion of long-term debt, are categorized in the table below:
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
$

 
$
2,281.3

 
$

 
$
2,281.3

 
$
2,905.8


As of December 31, 2017, the fair value and carrying value of the Company’s long-term debt, including the current portion of long-term debt, are categorized in the table below:
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
$

 
$
2,131.5

 
$

 
$
2,131.5

 
$
2,823.9


15

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

The fair value of the Company's long-term debt, including the current portion of long-term debt, is based on quoted market prices for similar issuances and maturities.
The carrying amounts of the Company's cash and cash equivalents, trade receivables, notes receivable, accounts payable and short-term borrowings approximate their respective fair values.


9. FINANCIAL INSTRUMENTS

Letters of Credit

Products Corporation maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which $9.9 million and $10.1 million (including amounts available under credit agreements in effect at that time) were maintained at March 31, 2018 and December 31, 2017, respectively. Included in these amounts are approximately $7.1 million and $7.3 million in standby letters of credit that support Products Corporation’s self-insurance programs as of March 31, 2018 and December 31, 2017, respectively. The estimated liability under such programs is accrued by Products Corporation.

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily: (i) FX Contracts, intended for the purpose of managing foreign currency exchange risk by reducing the effects of fluctuations in foreign currency exchange rates on the Company’s net cash flows; and (ii) interest rate hedging transactions, such as the 2013 Interest Rate Swap, intended for the purpose of managing interest rate risk associated with Products Corporation’s variable rate indebtedness. The Company does not hold or issue financial instruments for speculative or trading purposes.
Foreign Currency Forward Exchange Contracts
The FX Contracts are entered into primarily to hedge the anticipated net cash flows resulting from inventory purchases and intercompany payments denominated in currencies other than the local currencies of the Company’s foreign and domestic operations and generally have maturities of less than one year. The Company did not enter into any FX contracts during the three months ended March 31, 2018. The U.S. Dollar notional amounts of the FX Contracts outstanding at March 31, 2018 and December 31, 2017 were nil and $147.1 million, respectively.
Interest Rate Swap Transaction
In November 2013, Products Corporation executed a forward-starting floating-to-fixed interest rate swap transaction (the "2013 Interest Rate Swap") that, at its inception, was based on a notional amount of $400 million in respect of indebtedness under Products Corporation’s 2013 bank term loan, that was incurred in connection with completing the October 2013 acquisition of The Colomer Group (the "Old Acquisition Term Loan" and the "Colomer Acquisition," respectively). The 2013 Interest Rate Swap, which initially had a floor of 1.00% that in December 2016 was amended to 0.75%, expires in May 2018. In connection with entering into the 2016 Term Loan Facility, the 2013 Interest Swap was carried over to apply to a notional amount of $400 million in respect of indebtedness under such loan for the remaining balance of the term of such swap. The Company initially designated the 2013 Interest Rate Swap as a cash flow hedge of the variability of the forecasted three-month LIBOR interest rate payments initially related to the $400 million notional amount under the Old Acquisition Term Loan over the three-year term of the 2013 Interest Rate Swap (and subsequently to the $400 million notional amount under the 2016 Term Loan Facility. Under the terms of the 2013 Interest Rate Swap, Products Corporation receives from the counterparty a floating interest rate based on the higher of the three-month U.S. Dollar LIBOR or the floor percentage in effect, while paying a fixed interest rate payment to the counterparty equal to 2.0709% (which, with respect to the 2016 Term Loan Facility, effectively fixes the interest rate on such notional amount at 5.5709% through May 2018). At March 31, 2018, the fair value of the 2013 Interest Rate Swap was a liability of $0.1 million and the accumulated loss recorded in accumulated other comprehensive loss was $0.1 million, net of tax.
As a result of completely refinancing the Old Acquisition Term Loan with a portion of the proceeds from Product's Corporation's consummation of the 2016 Senior Credit Facilities and the issuance of its 6.25% Senior Notes in connection with consummating the Elizabeth Arden Acquisition, the critical terms of the 2013 Interest Rate Swap no longer matched the terms of the underlying debt under the 2016 Term Loan Facility. At the refinancing date, which was the same as the September 7, 2016 Elizabeth Arden Acquisition Date (the "De-designation Date"), the 2013 Interest Rate Swap was determined to no longer be highly effective and the Company discontinued hedge accounting for the 2013 Interest Rate Swap. Following the de-designation of the 2013 Interest Rate Swap, changes in fair value have been accounted for as a component of other non-operating expenses. Accumulated deferred losses of $6.3 million, or $3.9 million net of tax, at the De-designation Date, that were previously recorded as a component of accumulated other comprehensive loss, will be fully amortized into earnings over the remaining term of the 2013 Interest Rate Swap, which expires in May 2018. At March 31, 2018, $0.2 million, or $0.1 million net of tax, remains as a component of

16

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

accumulated other comprehensive loss related to the 2013 Interest Rate Swap, all of which will be amortized into earnings over the next fiscal quarter. See "Quantitative Information – Derivative Financial Instruments" below for additional information on the balance sheet balances related to this swap.
Credit Risk
Exposure to credit risk in the event of nonperformance by any of the counterparties to the Company's derivative instruments is limited to the gross fair value of these derivative instruments in asset positions, which totaled $0.6 million at both March 31, 2018 and December 31, 2017. The Company attempts to minimize exposure to credit risk by generally entering into derivative contracts with counterparties that have investment-grade credit ratings and are major financial institutions. The Company also periodically monitors any changes in the credit ratings of its counterparties. Given the current credit standing of the Company's counterparties to its derivative instruments, the Company believes that the risk of loss under these derivative instruments arising from any non-performance by any of the counterparties is remote.

Quantitative Information – Derivative Financial Instruments

As of March 31, 2018 and December 31, 2017, the fair values of the Company's derivative financial instruments in its Consolidated Balance Sheets were as follows:
 
Fair Values of Derivative Instruments
 
Assets
 
Liabilities
 
Balance Sheet
 
March 31,
2018
 
December 31,
2017
 
Balance Sheet
 
March 31,
2018
 
December 31,
2017
 
Classification
 
Fair Value
 
Fair Value
 
Classification
 
Fair Value
 
Fair Value
Derivative financial instruments:
 
 
 
 
 
 
 
 
FX Contracts(a)   
Prepaid expenses and other
 
$
0.6

 
$
0.6

 
Accrued Expenses and other
 
$
1.1

 
$
1.9

2013 Interest Rate Swap(b)
Prepaid expenses and other
 

 

 
Accrued expenses and other
 
0.1

 
0.9


(a) The fair values of the FX Contracts at March 31, 2018 and December 31, 2017 were measured based on observable market transactions of spot and forward rates at March 31, 2018 and December 31, 2017, respectively.
(b) The fair values of the 2013 Interest Rate Swap at March 31, 2018 and December 31, 2017 were measured based on the implied forward rates from the U.S. Dollar three-month LIBOR yield curve at March 31, 2018 and December 31, 2017, respectively.
The effects of the Company's derivative financial instruments on its Unaudited Consolidated Statements of Operations and Comprehensive (Loss) Income were as follows for the periods presented:
Derivative Instruments
 
Statement of Operations Classification
 
Amount of Gain (Loss) Recognized in Net (Loss) Income
 
Three Months Ended March 31,
 
2018
 
2017
Derivative financial instruments:
 
 
 
 
2013 Interest Rate Swap
 
Interest Expense
 
$
(0.8
)
 
$
(1.0
)
FX Contracts
 
Foreign currency gain (loss), net
 
0.1

 
(0.4
)
2013 Interest Rate Swap
 
Miscellaneous, net
 
0.2

 
0.2



17

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

 
Amount of Gain (Loss) Recognized in Other Comprehensive (Loss) Income
Three Months Ended March 31,
2018
 
2017
Derivatives previously designated as hedging instruments:
 
 
 
2013 Interest Rate Swap, net of tax (a)
$
0.6

 
$
0.6

(a) Net of tax benefit of $0.2 million and $0.4 million for the three months ended March 31, 2018 and 2017, respectively.


10. PENSION AND POST-RETIREMENT BENEFITS

The components of net periodic benefit costs (income) for the Company's pension and the other post-retirement benefit plans were as follows for the periods presented:
 


Pension Plans
 
Other
Post-Retirement
Benefit Plans
 
Three months ended March 31,
 
2018
 
2017
 
2018
 
2017
Net periodic benefit costs (income):
 
 
 
 
 
 
 
Service cost
$
0.5


$
0.5

 
$


$

Interest cost
4.6


4.8

 
0.1


0.1

Expected return on plan assets
(7.0
)

(7.1
)
 



Amortization of actuarial loss
2.3


2.4

 
0.1


0.1

Curtailment gain(a)


(0.8
)
 



Total net periodic benefit costs (income) prior to allocation
$
0.4


$
(0.2
)
 
$
0.2


$
0.2

Portion allocated to Revlon Holdings


(0.1
)
 



Total net periodic benefit costs (income)
$
0.4


$
(0.3
)
 
$
0.2


$
0.2

(a) As a result of the Elizabeth Arden Acquisition, the Company recognized $0.8 million in curtailment gains related to a foreign non-qualified defined benefit plan of Elizabeth Arden for the three months ended March 31, 2017.
In the three months ended March 31, 2018, the Company recognized net periodic benefit cost of $0.6 million compared to net periodic benefit income of $0.1 million in the three months ended March 31, 2017, primarily due to the curtailment gain recognized in 2017.
Net periodic benefit costs (income) are reflected in the Company's Consolidated Financial Statements as follows:
 
Three months ended March 31,
 
2018
 
2017
Net periodic benefit costs (income):
 
 
 
Cost of sales
$

 
$

Selling, general and administrative expense
0.5

 
0.5

Miscellaneous, net
0.1

 
0.6

Total net periodic benefit costs (income)(a)
$
0.6

 
$
(0.1
)
(a) As a result of the Company's adoption of ASU No. 2017-07 in the first quarter of 2018, the Company presents the service cost component of NPPC and NPPBC in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period (i.e., in cost of sales and SG&A) and presents the other components of NPPC and NPPBC below operating income, in miscellaneous, net.
The Company expects that it will have net periodic benefit cost of approximately $2.4 million for its pension and other post-retirement benefit plans for all of 2018, compared with net periodic benefit cost of $1.5 million in 2017.

18

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

During the first quarter of 2018, $1.6 million and $0.2 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During 2018, the Company expects to contribute approximately $10 million in the aggregate to its pension and other post-retirement benefit plans.
Relevant aspects of the qualified defined benefit pension plans, non-qualified pension plans and other post-retirement benefit plans sponsored by Products Corporation are disclosed in Note 14, "Pension and Post-Retirement Benefits," to the Consolidated Financial Statements in Revlon's 2017 Form 10-K.


11. INCOME TAXES

The Company's provision for income taxes represents federal, foreign, state and local income taxes. The Company's effective tax rate differs from the applicable federal statutory rate due to the effect of state and local income taxes, tax rates and income in foreign jurisdictions, foreign earnings taxable in the U.S., non-deductible expenses and other items. The Company’s tax provision changes quarterly based on various factors including, but not limited to, the geographical mix of earnings; enacted tax legislation; foreign, state and local income taxes; tax audit settlements and the interaction of various global tax strategies.
The Company recorded a benefit from income taxes of $1.6 million for the first quarter of 2018 and a benefit from income taxes of $38.9 million in the first quarter of 2017. The $37.3 million reduction in the benefit from income taxes was primarily due to the mix and level of earnings, as well as changes resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), including the reduction of the U.S. federal income tax rate (which provided for less of a benefit on the Company's year to date loss), the limitation on interest deductions (which resulted in a deferred deduction on which the Company has a full valuation allowance), the U.S. tax on the Company's foreign earnings under the GILTI provisions of the Tax Act, and a reduced deduction for executive compensation under Section 162(m) of the Internal Revenue Code ("Section 162(m)"), partially offset by a reduction in the liability that had been established in prior periods pursuant to Accounting Principles Board 23, "Indefinite Reinvestment Assertion" ("APB 23").
The Company's effective tax rate for the three months ended March 31, 2018 was lower than the federal statutory rate of 21% as a result of nondeductible expenses for interest and executive compensation, as well as the U.S. taxation of the Company's foreign earnings under the GILTI provisions of the Tax Act, partially offset by the reduction in liability under APB 23.
The Company's effective tax rate for the three months ended March 31, 2017 was higher than the federal statutory rate of 35% as a result of foreign dividends and earnings taxable in the U.S. and state and local taxes, as well as the effect of certain favorable discrete items.
On December 22, 2017, with the enactment of the Tax Act, the U.S. government enacted comprehensive tax reform that made broad and complex changes to the U.S. tax code that affected the Company by, among other things:
reducing the U.S. federal corporate tax rate;
requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries;
imposing a new limitation on the deductibility of interest;
a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries;
a new provision designed to tax global intangible low-taxed income ("GILTI");
increased limitations on the deductibility of certain executive compensation; and
changes to net operating loss carry-forward periods and annual utilization.
In accordance with the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cut and Jobs Act ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act, the Company has recorded provisional adjustments in cases where the Company was able to make reasonable estimates of the effects of elements of the Tax Act for which its analysis is not yet complete. The Company has not recorded any adjustments for elements of the Tax Act for which the Company was not yet able to make reasonable estimates of the impact of those elements, and has continued accounting for such elements under ASC 740, Income Taxes ("ASC 740"), on the basis of the tax laws in effect before the Tax Act, in accordance with the guidance provided by SAB 118.
As a result of the enactment of the Tax Act, in the year ended December 31, 2017 the Company reduced the carrying value of its federal deferred tax assets to reflect the reduction from 35% to 21% in the U.S. federal income tax rate. As a result, the Company recorded a one-time, non-cash charge of $47.9 million in the year ended December 31, 2017. No adjustment was made to this provisional amount during the first quarter of 2018. In addition, the Company estimated that it had a net deficit in its non-U.S. earnings subject to the transition tax as of the applicable measurement dates, so in the year ended December 31, 2017 the Company did not record a liability for the transition tax. No adjustment was made to this provisional amount during the first quarter of 2018.

19

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

While the Company continues to assess the impact on its financial statements of the following elements of the Tax Act, it did record a provisional amount for the impact of these items in the first quarter of 2018:
Limitation on the deductibility of interest: Starting in 2018, the Tax Act limits the Company's deduction for interest to:
interest income plus 30% of taxable income before interest, tax, depreciation and amortization for years through 2021; and
interest income plus 30% of taxable income before interest and taxes for years 2022 and thereafter.

While any reduction in deductible interest in any year can be carried forward indefinitely and added to the potential interest deduction in subsequent years, the Company has concluded that it is more likely than not that it will not be able to realize a benefit for this carry-forward interest deduction in future years, so it has established a full valuation allowance for the associated deferred tax asset.
GILTI: The Tax Act creates a new requirement that certain income earned by controlled foreign corporations ("CFC") must be included currently in the taxable income of the CFC's U.S. shareholder. GILTI is the excess of the shareholder’s "net CFC tested income" over the net deemed tangible income return, which is currently defined as the excess of: (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. The Company became subject to the GILTI provisions beginning in 2018.
Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either: (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the "period cost method"); or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the "deferred method"). The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing the Company's global income to determine whether the Company expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. For purposes of the provisional calculations through the first quarter of 2018, the Company has used the period cost method. The Company will continue to assess the appropriateness of this method during the period allowed for under SAB 118.
Executive Compensation Limitation: The Tax Act expands the definition of covered employee under Section 162(m) and provides that the status as a covered employee continues for all subsequent tax years, including years after the death of the individual, and, among other modifications, repeals the exception for performance-based compensation and commissions from the $1 million deduction limitation, subject to certain transitional "grandfathering" provisions. The Tax Act's transitional guidance allows certain payments made under written and binding agreements entered into prior to November 2, 2017 to be treated as if they were made under the provisions of Section 162(m) that were in effect prior to enactment of the Tax Act. While the Company is in the process of gathering information on existing compensation arrangements for covered employees, as well as assessing the impact of transitional guidance on the realizability of existing deferred tax assets related to compensation arrangements of its covered employees, the tax provision for the first quarter of 2018 included a provisional estimate of the impact of Section 162(m), as adjusted in the Tax Act.
APB 23 Indefinite Reinvestment Assertion: The Company is in the process of assessing the impact of the Tax Act on its indefinite reinvestment assertion and any associated impact on its financial statements. Based on the analysis to date, the Company has concluded that a provisional adjustment can be made to reduce the liability that was established under APB 23 in prior periods. As the Company concludes its analysis, changes to this provisional adjustment may be appropriate.
Net Operating Loss Carry-forward rules: The Company had $519.3 million of federal net operating loss carry-forwards as of December 31, 2017. These carry-forwards have a life of up to 20 years and can be used to reduce the Company's federal taxable income to zero, potentially eliminating any federal income tax liability for the periods in which they are used. If the Company incurs federal net operating losses in 2018 or subsequent years, such losses would have an unlimited carry-forward period, but they would only be available to offset 80% of the Company's taxable income in any given year.
While the Company has calculated and recorded provisional adjustments for the above items, there are certain aspects of the Tax Act for which the Company's accounting is incomplete, and for which no provisional adjustments have been recorded. The provisional amounts included in tax expense and the associated balance sheet accounts (and related disclosures), as well as the amounts that have not been recorded, are subject to modification within the measurement period provided for in SAB 118.



20

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

12. ACCUMULATED OTHER COMPREHENSIVE LOSS

A roll-forward of the Company's accumulated other comprehensive loss as of March 31, 2018 is as follows:
 
Foreign Currency Translation
 
Actuarial (Loss) Gain on Post-retirement Benefits
 
Deferred Gain (Loss) - Hedging
 
Other
 
Accumulated Other Comprehensive Loss
Balance at January 1, 2018
$
(15.0
)
 
$
(212.4
)
 
$
(0.7
)
 
$
(0.3
)
 
$
(228.4
)
Currency translation adjustment
(2.5
)
 
 
 
 
 
 
 
(2.5
)
Amortization of pension related costs, net of tax of $(0.3) million(a)
 
 
2.1

 
 
 
 
 
2.1

Amortization of deferred losses related to the de-designated 2013 Interest Rate Swap, net of tax of $0.2 million(b)
 
 
 
 
0.6

 
 
 
0.6

Other comprehensive (loss) income
$
(2.5
)

$
2.1


$
0.6


$


$
0.2

Balance at March 31, 2018
$
(17.5
)
 
$
(210.3
)
 
$
(0.1
)
 
$
(0.3
)
 
$
(228.2
)
(a) Amounts represent the change in accumulated other comprehensive loss as a result of the amortization of actuarial losses (gains) arising during each year related to the Company’s pension and other post-retirement plans. See Note 10, "Pension and Post-retirement Benefits," for further discussion of the Company’s pension and other post-retirement plans.
(b) Represents the after-tax effective portion of the changes in fair value of Products Corporation’s 2013 Interest Rate Swap, net of amounts reclassified into earnings. See Note 9, "Financial Instruments," for further discussion of the 2013 Interest Rate Swap.
As shown above, other comprehensive income includes changes in the fair value of the 2013 Interest Rate Swap prior to the De-designation Date. The following is a roll-forward of the amounts reclassified out of accumulated other comprehensive loss into earnings during the three months ended March 31, 2018:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2017

 
$
(0.7
)
Reclassifications into earnings (net of $0.2 million tax benefit)(a)    

 
0.6

Ending accumulated losses at March 31, 2018

 
$
(0.1
)
(a) Reclassified to interest expense.
The following is a roll-forward of the amounts reclassified out of accumulated other comprehensive loss into earnings during the three months ended March 31, 2017:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2016

 
$
(3.0
)
Reclassifications into earnings (net of $0.4 million tax benefit)(a)    

 
0.6

Ending accumulated losses at March 31, 2017

 
$
(2.4
)
(a) Reclassified to interest expense.


13. SEGMENT DATA AND RELATED INFORMATION
Operating Segments
Operating segments include components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (the Company's "Principal Executive Officer") in deciding how to allocate resources and in assessing the Company's performance. As a result of the similarities in the procurement, manufacturing and distribution processes for the Company’s products, much of the information provided in the Unaudited Consolidated Financial Statements and provided in the segment table below is similar to, or the same as, that reviewed on a regular basis by the Company's Principal Executive Officer. As noted in Note 1, "Description of Business and Summary of Significant Accounting Policies,"

21

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

effective January 1, 2018, the Company operates in four new brand-centric reporting segments, in line with its new organizational structure that is operated based on four global brand teams. As a result, segment financial data for the first quarter of 2017 has been recast from what was presented in previous filings and presented under the new organizational structure.
At March 31, 2018, the Company’s operations are organized into the following reportable segments:
Revlon - The Revlon segment is comprised of the Company's flagship Revlon brands. Revlon segment products are primarily marketed, distributed and sold in the mass retail channel, large volume retailers, chain drug and food stores, chemist shops, hypermarkets, general merchandise stores, e-commerce sites, television shopping, department stores, professional hair and nail salons, one-stop shopping beauty retailers, specialty cosmetic stores and perfumeries in the U.S. and internationally under brands such as Revlon in color cosmetics; Revlon ColorSilk and Revlon Professional in hair color; Revlon in beauty tools; and Revlon in nail color.
Elizabeth Arden - The Elizabeth Arden segment is comprised of the Company's Elizabeth Arden branded products. The Elizabeth Arden segment markets, distributes and sells fragrances, skin care and color cosmetics primarily to prestige retailers, department and specialty stores, perfumeries, boutiques, e-commerce sites, the mass retail channel, travel retailers and distributors, as well as direct sales to consumers via its Elizabeth Arden branded retail stores and ElizabethArden.com e-commerce business, in the U.S. and internationally, under brands such as Elizabeth Arden Ceramide, Prevage, Eight Hour, SUPERSTART, Visible Difference and Skin Illuminating in the Elizabeth Arden skin care brands; and Elizabeth Arden White Tea, Elizabeth Arden Red Door, Elizabeth Arden 5th Avenue and Elizabeth Arden Green Tea in Elizabeth Arden fragrances.
Portfolio - The Company’s Portfolio segment markets, distributes and sells a comprehensive line of premium, specialty and mass products primarily to the mass retail channel, hair and nail salons and professional salon distributors in the U.S. and internationally and large volume retailers, specialty and department stores under brands such as Almay and SinfulColors in color cosmetics; CND in nail polishes and nail enhancements, including CND Shellac and CND Vinylux nail polishes; Cutex nail care products; Pure Ice in nail polishes; American Crew in men’s grooming products; and Mitchum in anti-perspirant deodorants. The Portfolio 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.; and a body care line under the Natural Honey brand and hair color line under the Llongueras brand (licensed from a third party) that are both sold in the mass retail channel, large volume retailers and other retailers, primarily in Spain.
Fragrances - The Fragrances segment includes the development, marketing and distribution of certain owned and licensed fragrances as well as the distribution of prestige fragrance brands owned by third parties. These products are typically sold to retailers in the U.S. and internationally, including prestige retailers, specialty stores, e-commerce sites, the mass retail channel, travel retailers and other international retailers. The owned and licensed fragrances include brands such as Juicy Couture, John Varvatos, All Saints, La Perla, Wildfox, Charlie, Curve, Elizabeth Taylor, Britney Spears, Christina Aguilera, Shawn Mendes, Halston, Ed Hardy, Geoffrey Beene, Alfred Sung, Giorgio Beverly Hills, Lucky Brand, Paul Sebastian, White Shoulders and Jennifer Aniston.
The Company's management evaluates segment profit for each of the Company's reportable segments. Effective January 1, 2018, the Company allocates corporate expenses to each reportable segment to arrive at segment profit as these expenses are now included in the internal measure of segment operating performance. The Company defines segment profit as income from continuing operations before interest, taxes, depreciation, amortization, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt and miscellaneous expenses. Segment profit also excludes the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance, which includes the impacts of: (i) restructuring and related charges; (ii) acquisition and integration costs; (iii) deferred compensation costs; (iv) costs of sales resulting from a fair value adjustment to inventory acquired in the Elizabeth Arden Acquisition; and (v) charges related to the Elizabeth Arden 2016 Business Transformation Program. Such items are shown below in the table reconciling segment profit to consolidated income from continuing operations before income taxes. The Company does not have any material inter-segment sales.
The accounting policies for each of the reportable segments are the same as those described in Note 1, "Description of Business and Summary of Significant Accounting Policies." The Company's assets and liabilities are managed centrally and are reported internally in the same manner as the Unaudited Consolidated Financial Statements; thus, no additional information regarding assets and liabilities of the Company’s reportable segments is produced for the Company's Principal Executive Officer or included in these Unaudited Consolidated Financial Statements.

22

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

The following table is a comparative summary of the Company’s net sales and segment profit by reportable segment for the periods presented. Prior period amounts have been restated to reflect the current period's presentation:
 
Three months ended March 31,
 
2018
 
2017
Segment Net Sales:
 
 
 
Revlon
$
229.1

 
$
243.8

Elizabeth Arden
105.7

 
95.7

Portfolio
134.5

 
146.6

Fragrances
91.4

 
108.8

Total
$
560.7

 
$
594.9

 
 
 
 
Segment Profit:
 
 
 
Revlon
$
2.3

 
$
21.8

Elizabeth Arden
1.5

 
(0.4
)
Portfolio
(2.8
)
 
1.5

Fragrances
3.2

 
8.7

Total
$
4.2

 
$
31.6

 
 
 
 
Reconciliation:
 
 
 
Total Segment Profit
$
4.2

 
$
31.6

Less:
 
 
 
Depreciation and amortization
38.7

 
37.1

Non-cash stock compensation expense
7.7

 
1.7

Non-Operating items:
 
 
 
Restructuring and related charges
5.5

 
1.1

Acquisition and integration costs
4.0

 
17.5

Overhead under-absorption
10.0

 

Elizabeth Arden 2016 Business Transformation Program

 
0.4

Elizabeth Arden inventory purchase accounting adjustment, cost of sales

 
16.0

Deferred compensation

 
0.9

Operating loss
(61.7
)
 
(43.1
)
Less:
 
 
 
Interest Expense
39.9

 
35.0

Amortization of debt issuance costs
2.3

 
2.2

Foreign currency gains, net
(10.6
)
 
(4.3
)
Miscellaneous, net

 
0.6

Loss from continuing operations before income taxes
$
(93.3
)
 
$
(76.6
)

As of March 31, 2018, the Company had operations established in 27 countries outside of the U.S. and its products are sold throughout the world. Generally, net sales by geographic area are presented by attributing revenues from external customers on the basis of where the products are sold.

23

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

The following tables present the Company's segment net sales by geography and total net sales by classes of similar products for the periods presented:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
 
Revlon
 
Elizabeth Arden
 
Portfolio
 
Fragrances
 
Total
Geographic Area:
 
 
 
 
 
 
 
 
 
 
Net Sales
 
 
 
 
 
 
 
 
 
 
North America
 
$
116.2

 
$
28.9

 
$
81.9

 
$
56.4

 
$
283.4

EMEA *
 
54.0

 
46.3

 
43.2

 
24.7

 
168.2

Asia
 
25.6

 
23.3

 
1.0

 
2.8

 
52.7

Latin America *
 
13.9

 
2.2

 
5.3

 
4.1

 
25.5

Pacific *
 
19.4

 
5.0

 
3.1

 
3.4

 
30.9

 
 
$
229.1

 
$
105.7

 
$
134.5

 
$
91.4

 
$
560.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
 
 
Revlon
 
Elizabeth Arden
 
Portfolio
 
Fragrances
 
Total
Geographic Area:
 
 
 
 
 
 
 
 
 
 
Net Sales
 
 
 
 
 
 
 
 
 
 
North America
 
$
134.2

 
$
33.5

 
$
86.7

 
$
67.2

 
$
321.6

EMEA
 
50.4

 
38.5

 
47.6

 
30.6

 
167.1

Asia
 
25.4

 
17.1

 
1.9

 
4.1

 
48.5

Latin America
 
15.4

 
2.2

 
7.6

 
3.7

 
28.9

Pacific
 
18.4

 
4.4

 
2.8

 
3.2

 
28.8

 
 
$
243.8

 
$
95.7

 
$
146.6

 
$
108.8

 
$
594.9


* The EMEA region includes Europe, Middle East and Africa; the Latin America region includes Mexico; and the Pacific region includes Australia and New Zealand.
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
2018
 
2017
Classes of similar products:
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
Color cosmetics
$
199.1

 
36%
 
$
224.3

 
38%
Fragrance
124.3

 
22%
 
142.3

 
24%
Hair care
125.7

 
22%
 
127.2

 
21%
Beauty care
44.7

 
8%
 
48.0

 
8%
Skin care
66.9

 
12%
 
53.1

 
9%
 
$
560.7

 
 
 
$
594.9

 
 

The following table presents the Company's long-lived assets by geographic area as of March 31, 2018 and December 31, 2017:
 
March 31, 2018
 
December 31, 2017
Long-lived assets, net:
 
 
 
 
 
 
United States
$
1,470.9

 
83%
 
$
1,480.1

 
83%
International
300.1

 
17%
 
295.6

 
17%
 
$
1,771.0

 
 
$
1,775.7

 
 

24

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


14. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Shares used in basic (loss) earnings per share are computed using the weighted-average number of common shares outstanding during each period. Shares used in diluted (loss) earnings per share include the dilutive effect of unvested restricted stock under the Company’s Stock Plan using the treasury stock method. For the three months ended March 31, 2018, diluted loss per share equals basic loss per share as the assumed vesting of restricted stock would have an anti-dilutive effect. At March 31, 2018 and 2017, there were no outstanding stock options under the Company's Stock Plan.

Following are the components of basic and diluted (loss) earnings per common share for the periods presented:
 
Three months ended March 31,
 
2018
 
2017
Numerator:
 
 
 
Loss from continuing operations, net of taxes
$
(91.7
)
 
$
(37.7
)
Income from discontinued operations, net of taxes
1.4

 
0.3

Net loss
$
(90.3
)
 
$
(37.4
)
Denominator:
 
 
 
Weighted-average common shares outstanding – Basic
52,673,672

 
52,529,826

Effect of dilutive restricted stock

 

Weighted-average common shares outstanding – Diluted
52,673,672

 
52,529,826

Basic (loss) earnings per common share:
 
 
 
Continuing operations
$
(1.74
)
 
$
(0.72
)
Discontinued operations
0.03

 
0.01

Net loss per common share
$
(1.71
)
 
$
(0.71
)
Diluted (loss) earnings per common share:
 
 
 
Continuing operations
$
(1.74
)
 
$
(0.72
)
Discontinued operations
0.03

 
0.01

Net loss per common share
$
(1.71
)
 
$
(0.71
)
 
 
 
 
Unvested restricted stock awards under the Stock Plan(a)
104,411

 
111,136

(a) 
These are outstanding common stock equivalents that were not included in the computation of diluted earnings per common share because their inclusion would have had an anti-dilutive effect.


15. CONTINGENCIES
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.
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

25

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

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 motion was heard on March 29, 2018 and the parties await a decision. 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 is involved in various other 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.


16. RELATED PARTY TRANSACTIONS
Reimbursement Agreements
Revlon, Products Corporation and MacAndrews & Forbes Inc. (a wholly-owned subsidiary of MacAndrews & Forbes) have entered into reimbursement agreements (the "Reimbursement Agreements") pursuant to which: (i) MacAndrews & Forbes is obligated to provide (directly or through its affiliates) certain professional and administrative services, including, without limitation, employees, to the Company, and to purchase services from third-party providers, such as insurance, legal, accounting and air transportation services, on behalf of the Company, to the extent requested by Products Corporation; and (ii) Products Corporation is obligated to provide certain professional and administrative services, including, without limitation, employees, to MacAndrews & Forbes and to purchase services from third-party providers, such as insurance, legal and accounting services, on behalf of MacAndrews & Forbes, to the extent requested by MacAndrews & Forbes, provided that in each case the performance of such services does not cause an unreasonable burden to MacAndrews & Forbes or Products Corporation, as the case may be.
The Company reimburses MacAndrews & Forbes for the allocable costs of the services that MacAndrews & Forbes purchases for or provides to the Company and for the reasonable out-of-pocket expenses that MacAndrews & Forbes incurs in connection with the provision of such services. MacAndrews & Forbes reimburses Products Corporation for the allocable costs of the services that Products Corporation purchases for or provides to MacAndrews & Forbes and for the reasonable out-of-pocket expenses incurred by Products Corporation in connection with the purchase or provision of such services. Each of the Company, on the one hand, and MacAndrews & Forbes, on the other, has agreed to indemnify the other party for losses arising out of the services provided by it under the Reimbursement Agreements, other than losses resulting from its willful misconduct or gross negligence.
The Reimbursement Agreements may be terminated by either party on 90 days' notice. The Company does not intend to request services under the Reimbursement Agreements unless their costs would be at least as favorable to the Company as could be obtained from unaffiliated third parties.
The Company participates in MacAndrews & Forbes' directors and officers liability insurance program (the "D&O Insurance Program"), as well as its other insurance coverages, such as property damage, business interruption, liability and other coverages, which cover the Company, as well as MacAndrews & Forbes and its subsidiaries. The limits of coverage for certain of the policies are available on an aggregate basis for losses to any or all of the participating companies and their respective directors and officers. The Company reimburses MacAndrews & Forbes from time-to-time for their allocable portion of the premiums for such coverage or the Company pays the insurers directly, which premiums the Company believes are more favorable than the premiums that the Company would pay were it to secure stand-alone coverage. Any amounts paid by the Company directly to MacAndrews & Forbes in respect of premiums are included in the amounts paid under the Reimbursement Agreements.
The net activity related to services purchased under the Reimbursement Agreements during the three months ended March 31, 2018 and 2017 was $0.1 million and $3.9 million, respectively. The purchases during the first quarter of 2017 primarily included partial payments made by the Company to MacAndrews & Forbes for premiums related to the Company's allocable portion of the

26

REVLON, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)

5-year renewal of the D&O Insurance Program for the period from January 31, 2017 through January 2020. As of March 31, 2018 and December 31, 2017 a payable balance of $0.1 million and $0.3 million, respectively, to MacAndrews & Forbes was included in the Company's Consolidated Balance Sheet for transactions subject to the Reimbursement Agreements.

Other
During the three months ended March 31, 2018 and 2017, the Company engaged several companies in which MacAndrews & Forbes had a controlling interest to provide the Company with various ordinary course business services. These services included processing approximately $7.4 million and $12 million of coupon redemptions for the Company's retail customers for the three months ended March 31, 2018 and 2017, respectively, for which the Company paid fees of approximately $0.1 million for each of the three months ended March 31, 2018 and 2017, and other similar advertising, coupon redemption and raw material supply services, for which the Company paid fees aggregating to approximately $0.1 million for each of the three months ended March 31, 2018 and 2017. The Company believes that its engagement of each of these affiliates was on arm's length terms, taking into account each firm's expertise in its respective field, and that the fees paid were at least as favorable as those available from unaffiliated parties.


17. SUBSEQUENT EVENTS
April 2018 Amendment to 2016 Revolving Credit Facility
On April 17, 2018 (the “Revolver Amendment Date”), Products Corporation entered into an amendment and restatement to the Original 2016 Revolving Credit Agreement with Citibank, N.A., acting as administrative agent, collateral agent, issuing lender, local fronting lender and swingline lender and the other issuing lenders (the "Revolver Amendment," and the Original 2016 Revolving Credit Agreement as amended by the Revolver Amendment, the "2016 Revolving Credit Agreement," and together with the 2016 Term Loan Agreement being the "2016 Credit Agreements"). Pursuant to the Revolver Amendment, a new $41.5 million senior secured first in, last out tranche (the "Tranche B") was established under the 2016 Revolving Credit Agreement and the existing $400 million tranche under the Original 2016 Revolving Credit Facility (and as in effect after the Revolver Amendment, the "2016 Revolving Credit Facility," and together with the 2016 Term Loan Facility, being the "2016 Senior Credit Facilities") became a senior secured last in, first out tranche (the "Tranche A," and together with the Tranche B, the "Tranches").
The Revolver Amendment provided for the availability and repayment terms of each Tranche, as well as terms governing the payment priorities between the Tranches. Other amendments to the Original 2016 Revolving Credit Facility under the Revolver Amendment included (i) an increase of $15 million to the cap on amounts eligible for inclusion in the borrowing base relating to certain assets located in jurisdictions other than the U.S., Puerto Rico, Canada, and the U.K.; (ii) a reduction to the amount of additional debt generally permitted to be incurred; (iii) a reduction in the amount of incremental debt under 2016 Term Loan Agreement permitted to be incurred pursuant to the 2016 Revolving Credit Agreement; (iv) the removal of temporary increases to the borrowing base between August 15th and October 31st of each year; (v) an increase to threshold conditions in respect of the ability to make certain dividends and distributions on equity during the term of the Tranche B; and (vi) an amendment to the calculation of the financial covenant.
As a result of the Revolver Amendment, the borrowing base under the 2016 Revolving Credit Facility was increased to approximately $385 million, compared to a borrowing base of approximately $330 million at March 31, 2018, and provided the Company with an additional $36 million