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REVLON INC /DE/ - Quarter Report: 2019 September (Form 10-Q)

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 September 30, 2019
 
 
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
 
Registrant; State of Incorporation; Address and Telephone Number
 
 
 
IRS Employer Identification No.
1-11178
 
Revlon, Inc.
 
 
 
13-3662955
 
 
Delaware
 
 
 
 
 
 
 
 
 
 
 
 
 
One New York Plaza
 
 
 
 
 
 
New York, New York 10004
 
 
 
 
 
 
212-527-4000
 
 
 
 
 
 
 
 
 
 
 
33-59560
 
Revlon Consumer Products Corporation
 
 
 
13-3662953
 
 
Delaware
 
 
 
 
 
 
 
 
 
 
 
 
 
One New York Plaza
 
 
 
 
 
 
New York, New York 10004
 
 
 
 
 
 
212-527-4000
 
 
 
 
 
 
 
 
 
 
 
Securities registered pursuant to Section 12(b) or 12(g) of the Act:
 
 
 
 
 
 
 
 
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Revlon, Inc.
 
Class A Common Stock
 
REV
 
New York Stock Exchange
Revlon Consumer Products Corporation
 
None
 
N/A
 
N/A


Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Revlon, Inc.
Yes x
No ¨
Revlon Consumer Products Corporation
Yes ¨   
No x   


Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ¨


Indicate by check mark whether each 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
 
Non-accelerated filer
 
Smaller Reporting Company
 
Emerging Growth Company
Revlon, Inc.
Yes ¨ No x
 
Yes x No ¨
 
Yes ¨ No x
 
Yes x No ¨
 
Yes ¨ No x
Revlon Consumer Products Corporation
Yes ¨ No x
 
Yes ¨ No x
 
Yes x No ¨
 
Yes x No ¨
 
Yes ¨ No x
If an emerging growth company, indicate by check mark if the registrants have 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 each registrant is a shell company (as defined in Rule 12b-2 of the Act).
Revlon, Inc.
Yes ¨  
No x   
Revlon Consumer Products Corporation
Yes ¨  
No x   


Number of shares of common stock outstanding as of September 30, 2019:
Revlon, Inc. Class A Common Stock:
53,035,412
Revlon Consumer Products Corporation Common Stock:
5,260

At such date, (i) 46,223,321 shares of Revlon, Inc. Class A Common Stock were beneficially owned by MacAndrews & Forbes Incorporated and certain of its affiliates; and (ii) all shares of Revlon Consumer Products Corporation Common Stock were held by Revlon, Inc.

Revlon Consumer Products Corporation meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format applicable to Revlon Consumer Products Corporation.




REVLON, INC. AND SUBSIDIARIES
REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
INDEX

PART I - Financial Information
Item 1.
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II - Other Information
Item 1.
Item 1A.
Item 5.
Item 6.
 
 
 
 
 



3
Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements of Revlon, Inc. and Subsidiaries

REVLON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
60.7

 
$
87.3

Trade receivables, less allowance for doubtful accounts of $12.4 and $15.6 as of September 30, 2019 and December 31, 2018, respectively
454.9

 
431.3

Inventories
522.0

 
523.2

Prepaid expenses and other assets
155.9

 
152.0

Total current assets
1,193.5

 
1,193.8

Property, plant and equipment, net of accumulated depreciation of $474.9 and $425.2 as of September 30, 2019 and December 31, 2018, respectively
413.7

 
354.5

Deferred income taxes
159.3

 
131.8

Goodwill
673.4

 
673.9

Intangible assets, net of accumulated amortization of $217.7 and $187.3 as of September 30, 2019 and December 31, 2018, respectively
496.7

 
532.0

Other assets
122.9

 
130.8

Total assets
$
3,059.5

 
$
3,016.8

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
5.1

 
$
9.3

Current portion of long-term debt
363.5

 
348.1

Accounts payable
322.3

 
332.1

Accrued expenses and other current liabilities
368.3

 
430.9

Total current liabilities
1,059.2

 
1,120.4

Long-term debt
2,906.6

 
2,727.7

Long-term pension and other post-retirement plan liabilities
162.0

 
169.0

Other long-term liabilities
159.2

 
56.5

Stockholders’ deficiency:
 
 
 
Class A Common Stock, par value $0.01 per share: 900,000,000 shares authorized; 56,800,236 and 55,556,466 shares issued as of September 30, 2019 and December 31, 2018, respectively
0.5

 
0.5

Additional paid-in capital
1,071.5

 
1,063.8

Treasury stock, at cost: 1,624,719 and 1,533,320 shares of Class A Common Stock as of September 30, 2019 and December 31, 2018, respectively
(33.5
)
 
(31.9
)
Accumulated deficit
(2,038.5
)
 
(1,855.0
)
Accumulated other comprehensive loss
(227.5
)
 
(234.2
)
Total stockholders’ deficiency
(1,227.5
)
 
(1,056.8
)
Total liabilities and stockholders’ deficiency
$
3,059.5

 
$
3,016.8





See Accompanying Notes to Unaudited Consolidated Financial Statements


4
Table of Contents

REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(dollars in millions, except share and per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net sales
$
596.8

 
$
655.4

 
$
1,720.2

 
$
1,822.9

Cost of sales
269.0

 
305.0

 
750.7

 
807.2

      Gross profit
327.8

 
350.4

 
969.5

 
1,015.7

Selling, general and administrative expenses
308.1

 
340.8

 
973.2

 
1,087.1

Acquisition and integration costs
0.1

 
3.4

 
0.7

 
12.0

Restructuring charges and other, net
2.9

 
3.9

 
11.6

 
13.9

Loss on disposal of minority investment
—

 
—

 
—

 
20.1

      Operating income (loss)
16.7

 
2.3

 
(16.0
)
 
(117.4
)
Other expenses:
 
 
 
 
 
 
 
   Interest expense
50.2

 
46.4

 
145.7

 
129.1

   Amortization of debt issuance costs
3.7

 
3.8

 
10.4

 
9.1

   Foreign currency losses, net
7.6

 
1.1

 
9.0

 
10.7

   Miscellaneous, net
1.7

 
0.4

 
7.6

 
0.6

      Other expenses
63.2

 
51.7

 
172.7

 
149.5

Loss from continuing operations before income taxes
(46.5
)
 
(49.4
)
 
(188.7
)
 
(266.9
)
Benefit from income taxes
(2.1
)
 
(38.7
)
 
(3.2
)
 
(43.1
)
Loss from continuing operations, net of taxes
(44.4
)
 
(10.7
)
 
(185.5
)
 
(223.8
)
(Loss) income from discontinued operations, net of taxes
(0.3
)
 
(0.4
)
 
2.0

 
(0.1
)
Net loss
$
(44.7
)
 
$
(11.1
)
 
$
(183.5
)
 
$
(223.9
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
   Foreign currency translation adjustments
(1.8
)
 
(4.9
)
 
(0.5
)
 
(12.3
)
   Amortization of pension related costs, net of tax(a)(b)
2.3

 
2.3

 
7.2

 
6.5

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

 
—

 
—

 
0.7

Other comprehensive income (loss), net
0.5

 
(2.6
)
 
6.7

 
(5.1
)
Total comprehensive loss
$
(44.2
)
 
$
(13.7
)
 
$
(176.8
)
 
$
(229.0
)
 
 
 
 
 
 
 
 
Basic (loss) earnings per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.84
)
 
$
(0.20
)
 
$
(3.50
)
 
$
(4.24
)
Discontinued operations
—

 
(0.01
)
 
0.04

 
—

Net loss
$
(0.84
)
 
$
(0.21
)
 
$
(3.46
)
 
$
(4.24
)
 
 
 
 
 
 
 
 
Diluted (loss) earnings per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.84
)
 
$
(0.20
)
 
$
(3.50
)
 
$
(4.24
)
Discontinued operations
—

 
(0.01
)
 
0.04

 
—

Net loss
$
(0.84
)
 
$
(0.21
)
 
$
(3.46
)
 
$
(4.24
)
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
      Basic
53,129,004

 
52,834,879

 
53,057,154

 
52,777,883

      Diluted
53,129,004

 
52,834,879

 
53,057,154

 
52,777,883


(a) 
Net of tax expense of $0.3 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and net of tax expense of $0.9 million and $0.8 million for the nine months ended September 30, 2019 and 2018, respectively.
(b) 
This amount is included in the computation of net periodic benefit costs (income). See Note 11, "Pension and Post-Retirement Benefits," for additional information regarding net periodic benefit costs (income).
(c) Net of tax benefit of nil for the three months ended September 30, 2018 and $0.5 million for the nine months ended September 30, 2018.




See Accompanying Notes to Unaudited Consolidated Financial Statements

5
Table of Contents

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, 2019
$
0.5

 
$
1,063.8

 
$
(31.9
)
 
$
(1,855.0
)
 
$
(234.2
)
 
$
(1,056.8
)
Treasury stock acquired, at cost (a)
—

 
—

 
(1.6
)
 
—

 
—

 
(1.6
)
Stock-based compensation amortization
—

 
0.4

 
—

 
—

 
—

 
0.4

Net loss
—

 
—

 
—

 
(75.1
)
 
—

 
(75.1
)
Other comprehensive income, net (b)    
—

 
—

 
—

 
—

 
0.9

 
0.9

Balance, March 31, 2019
0.5

 
1,064.2

 
(33.5
)
 
(1,930.1
)
 
(233.3
)
 
(1,132.2
)
Treasury stock acquired, at cost (a)
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation amortization
—

 
3.4

 
—

 
—

 
—

 
3.4

Net loss
—

 
—

 
—

 
(63.7
)
 
—

 
(63.7
)
Other comprehensive income, net (b)
—

 
—

 
—

 
—

 
5.3

 
5.3

Balance, June 30, 2019
0.5

 
1,067.6

 
(33.5
)
 
(1,993.8
)
 
(228.0
)
 
(1,187.2
)
Treasury stock acquired, at cost (a)
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation amortization
—

 
3.9

 
—

 
—

 
—

 
3.9

Net loss
—

 
—

 
—

 
(44.7
)
 
—

 
(44.7
)
Other comprehensive income, net (b)
—

 
—

 
—

 
—

 
0.5

 
0.5

Balance, September 30, 2019
$
0.5

 
$
1,071.5

 
$
(33.5
)
 
$
(2,038.5
)
 
$
(227.5
)
 
$
(1,227.5
)
 
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
)
Treasury stock acquired, at cost (a)
—

 
—

 
(0.6
)
 
—

 
—

 
(0.6
)
Stock-based compensation amortization
—

 
0.8

 
—

 
—

 
—

 
0.8

Net loss
—

 
—

 
—

 
(122.5
)
 
—

 
(122.5
)
Other comprehensive loss, net (b)
—

 
—

 
—

 
—

 
(2.7
)
 
(2.7
)
Balance, June 30, 2018
0.5

 
1,048.5

 
(25.2
)
 
(1,773.6
)
 
(230.9
)
 
(980.7
)
Treasury stock acquired, at cost (a)
—

 
—

 
(0.1
)
 
—

 
—

 
(0.1
)
Stock-based compensation amortization
—

 
6.3

 
—

 
—

 
—

 
6.3

Net loss
—

 
—

 
—

 
(11.1
)
 
—

 
(11.1
)
Other comprehensive loss, net (b)
—

 
—

 
—

 
—

 
(2.6
)
 
(2.6
)
Balance, September 30, 2018
$
0.5

 
$
1,054.8

 
$
(25.3
)
 
$
(1,784.7
)
 
$
(233.5
)
 
$
(988.2
)

(a)
Pursuant to the share withholding provisions of the Fourth Amended and Restated Revlon, Inc. Stock Plan (as amended, the "Stock Plan"), the Company withheld an aggregate of nil and 5,493 shares of Revlon Class A Common Stock during the three months ended September 30, 2019 and 2018, respectively, and 85,607 and 167,297 shares of Revlon Class A Common Stock during the nine months ended September 30, 2019 and 2018, respectively, to satisfy certain minimum statutory tax withholding requirements related to the vesting of restricted shares and restricted stock units for certain senior executives and employees. These withheld shares were recorded as treasury stock using the cost method, at a weighted-average price per share of nil and $15.60 during the three months ended September 30, 2019 and 2018, respectively, and $18.86 and $21.42 during the nine months ended September 30, 2019 and 2018, respectively, 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 nil and $0.1 million during the three months ended September 30, 2019 and 2018, respectively, and $1.6 million and $3.6 million during the nine months ended September 30, 2019 and 2018, respectively.

(b)
See Note 14, "Accumulated Other Comprehensive Loss," regarding the changes in the accumulated balances for each component of other comprehensive loss during the three and nine months ended September 30, 2019 and 2018, respectively.

See Accompanying Notes to Unaudited Consolidated Financial Statements

6
Table of Contents

REVLON, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Nine Months Ended September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(183.5
)
 
$
(223.9
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
   Depreciation and amortization
124.6

 
119.4

   Foreign currency losses from re-measurement
9.0

 
10.7

   Amortization of debt discount
1.2

 
0.9

   Stock-based compensation amortization
7.7

 
14.8

   Benefit from deferred income taxes
(19.0
)
 
(61.5
)
   Amortization of debt issuance costs
10.4

 
9.1

   Non-cash loss on disposal of minority investment
—

 
18.6

 Loss on sale of certain assets
0.2

 
0.6

   Pension and other post-retirement cost
6.3

 
2.0

   Change in assets and liabilities:
 
 
 
      Increase in trade receivables
(30.5
)
 
(7.0
)
      Increase in inventories
(4.9
)
 
(100.3
)
      Increase in prepaid expenses and other current assets
(5.5
)
 
(60.5
)
      Increase in accounts payable
9.1

 
39.3

      Decrease in accrued expenses and other current liabilities
(81.0
)
 
(1.6
)
      Pension and other post-retirement plan contributions
(7.8
)
 
(6.1
)
      Purchases of permanent displays
(28.4
)
 
(57.0
)
      Other, net
25.3

 
5.8

Net cash used in operating activities
(166.8
)
 
(296.7
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(20.0
)
 
(41.6
)
Net cash used in investing activities
(20.0
)
 
(41.6
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net (decrease) increase in short-term borrowings and overdraft
(22.4
)
 
2.3

Net borrowings under the Amended 2016 Revolving Credit Facility
13.4

 
251.3

Net borrowings under the 2019 Term Loan Facility
200.0

 
—

Net borrowings under the 2018 Foreign Asset-Based Term Loan
—

 
89.4

Repayments under the 2016 Term Loan Facility
(13.5
)
 
(13.5
)
Payment of financing costs
(13.4
)
 
(9.4
)
Tax withholdings related to net share settlements of restricted stock units and awards
(1.6
)
 
(3.6
)
Other financing activities
(0.9
)
 
0.1

Net cash provided by financing activities
161.6

 
316.6

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1.4
)
 
(3.2
)
   Net decrease in cash, cash equivalents and restricted cash
(26.6
)
 
(24.9
)
   Cash, cash equivalents and restricted cash at beginning of period (a)
87.5

 
87.4

   Cash, cash equivalents and restricted cash at end of period (a)
$
60.9

 
$
62.5

Supplemental schedule of cash flow information:(b)
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
157.9

 
$
131.4

Income taxes, net of refunds
6.9

 
11.7


(a) These amounts include restricted cash of $0.2 million and $0.7 million as of September 30, 2019 and 2018, respectively, and $0.2 million and $0.3 million as of December 31, 2018 and 2017, respectively, which represent cash on deposit in lieu of a mandatory prepayment under the 2018 Foreign Asset-Based Term Facility, and cash on deposit to support outstanding undrawn letters of credit, which were included within other assets in the Company's consolidated balance sheets.
(b) See Note 5, "Leases," for supplemental disclosure of non-cash financing and investing activities in relation to the lease liabilities arising from obtaining right-of-use assets following the implementation of ASC Topic 842, Leases.



See Accompanying Notes to Unaudited Consolidated Financial Statements

7
Table of Contents


REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share and per share amounts)
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
60.7

 
$
87.3

Trade receivables, less allowance for doubtful accounts of $12.4 and $15.6 as of September 30, 2019 and December 31, 2018, respectively
454.9

 
431.3

Inventories
522.0

 
523.2

Prepaid expenses and other assets
151.9

 
148.0

Receivable from Revlon, Inc.
158.3

 
151.7

Total current assets
1,347.8

 
1,341.5

Property, plant and equipment, net of accumulated depreciation of $474.9 and $425.2 as of September 30, 2019 and December 31, 2018, respectively
413.7

 
354.5

Deferred income taxes
141.2

 
114.8

Goodwill
673.4

 
673.9

Intangible assets, net of accumulated amortization of $217.7 and $187.3 as of September 30, 2019 and December 31, 2018, respectively
496.7

 
532.0

Other assets
122.9

 
130.8

Total assets
$
3,195.7

 
$
3,147.5

 
 
 
 
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
5.1

 
$
9.3

Current portion of long-term debt
363.5

 
348.1

Accounts payable
322.3

 
332.1

Accrued expenses and other current liabilities
371.6

 
434.7

Total current liabilities
1,062.5

 
1,124.2

Long-term debt
2,906.6

 
2,727.7

Long-term pension and other post-retirement plan liabilities
162.0

 
169.0

Other long-term liabilities
162.6

 
59.7

Stockholder's deficiency:
 
 
 
Products Corporation Preferred stock, par value $1.00 per share; 1,000 shares authorized; 546 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
54.6

 
54.6

Products Corporation Common Stock, par value $1.00 per share; 10,000 shares authorized; 5,260 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
—

 
—

Additional paid-in capital
996.0

 
988.4

Accumulated deficit
(1,921.1
)
 
(1,741.9
)
Accumulated other comprehensive loss
(227.5
)
 
(234.2
)
Total stockholder's deficiency
(1,098.0
)
 
(933.1
)
Total liabilities and stockholder's deficiency
$
3,195.7

 
$
3,147.5





See Accompanying Notes to Unaudited Consolidated Financial Statements


8
Table of Contents

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(dollars in millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net sales
$
596.8

 
$
655.4

 
$
1,720.2

 
$
1,822.9

Cost of sales
269.0

 
305.0

 
750.7

 
807.2

      Gross profit
327.8

 
350.4

 
969.5

 
1,015.7

Selling, general and administrative expenses
306.3

 
339.1

 
968.1

 
1,082.1

Acquisition and integration costs
0.1

 
3.4

 
0.7

 
12.0

Restructuring charges and other, net
2.9

 
3.9

 
11.6

 
13.9

Loss on disposal of minority investment
—

 
—

 
—

 
20.1

      Operating income (loss)
18.5

 
4.0

 
(10.9
)
 
(112.4
)
Other expenses:
 
 
 
 
 
 
 
   Interest expense
50.2

 
46.4

 
145.7

 
129.1

   Amortization of debt issuance costs
3.7

 
3.8

 
10.4

 
9.1

   Foreign currency losses, net
7.6

 
1.1

 
9.0

 
10.7

   Miscellaneous, net
1.7

 
0.4

 
7.6

 
0.6

      Other expenses
63.2

 
51.7

 
172.7

 
149.5

Loss from continuing operations before income taxes
(44.7
)
 
(47.7
)
 
(183.6
)
 
(261.9
)
Provision (benefit) from income taxes
(1.8
)
 
(38.2
)
 
(2.4
)
 
(42.0
)
Loss from continuing operations, net of taxes
(42.9
)
 
(9.5
)
 
(181.2
)
 
(219.9
)
(Loss) income from discontinued operations, net of taxes
(0.3
)
 
(0.4
)
 
2.0

 
(0.1
)
Net loss
$
(43.2
)
 
$
(9.9
)
 
$
(179.2
)
 
$
(220.0
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
   Foreign currency translation adjustments
(1.8
)
 
(4.9
)
 
(0.5
)
 
(12.3
)
   Amortization of pension related costs, net of tax(a)(b)
2.3

 
2.3

 
7.2

 
6.5

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

 
—

 
—

 
0.7

Other comprehensive income (loss), net
0.5

 
(2.6
)
 
6.7

 
(5.1
)
Total comprehensive loss
$
(42.7
)
 
$
(12.5
)
 
$
(172.5
)
 
$
(225.1
)
 
 
 
 
 
 
 
 

(a) 
Net of tax expense of $0.3 million and $0.3 million for the three months ended September 30, 2019 and 2018, respectively, and net of tax expense of $0.9 million and $0.8 million for the nine months ended September 30, 2019 and 2018, respectively.
(b) 
This amount is included in the computation of net periodic benefit costs (income). See Note 11, "Pension and Post-Retirement Benefits," for additional information regarding net periodic benefit costs (income).
(c) Net of tax benefit of nil for the three months ended September 30, 2018 and $0.5 million for the nine months ended September 30, 2018.





See Accompanying Notes to Unaudited Consolidated Financial Statements


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Table of Contents

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
(dollars in millions)
 
Preferred Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholder's Deficiency
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
$
54.6

 
$
988.4

 
$
(1,741.9
)
 
$
(234.2
)
 
$
(933.1
)
Stock-based compensation amortization
—

 
0.4

 
—

 
—

 
0.4

Net loss
—

 
—

 
(73.5
)
 
—

 
(73.5
)
Other comprehensive income, net (a)
—

 
—

 
—

 
0.9

 
0.9

Balance, March 31, 2019
54.6

 
988.8

 
(1,815.4
)
 
(233.3
)
 
(1,005.3
)
Stock-based compensation amortization
—

 
3.4

 
—

 
—

 
3.4

Net loss
—

 
—

 
(62.5
)
 
—

 
(62.5
)
Other comprehensive income, net (a)
—

 
—

 
—

 
5.3

 
5.3

Balance, June 30, 2019
54.6

 
992.2

 
(1,877.9
)
 
(228.0
)
 
(1,059.1
)
Stock-based compensation amortization
—

 
3.8

 
—

 
—

 
3.8

Net loss
—

 
—

 
(43.2
)
 
—

 
(43.2
)
Other comprehensive income, net (a)
—

 
—

 
—

 
0.5

 
0.5

Balance, September 30, 2019
$
54.6

 
$
996.0

 
$
(1,921.1
)
 
$
(227.5
)
 
$
(1,098.0
)

 
Preferred Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total Stockholder's Deficiency
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2018
$
54.6

 
$
971.2

 
$
(1,452.8
)
 
$
(228.4
)
 
$
(655.4
)
Stock-based compensation amortization
—

 
7.7

 
—

 
—

 
7.7

Net loss
—

 
—

 
(89.0
)
 
—

 
(89.0
)
Other comprehensive income, net (a)
—

 
—

 
—

 
0.2

 
0.2

Balance, March 31, 2018
54.6

 
978.9

 
(1,541.8
)
 
(228.2
)
 
(736.5
)
Stock-based compensation amortization
—

 
0.8

 
—

 
—

 
0.8

Net loss
—

 
—

 
(121.1
)
 
—

 
(121.1
)
Other comprehensive loss, net (a)
—

 
—

 
—

 
(2.7
)
 
(2.7
)
Balance, June 30, 2018
54.6

 
979.7

 
(1,662.9
)
 
(230.9
)
 
(859.5
)
Stock-based compensation amortization
—

 
6.3

 
—

 
—

 
6.3

Net loss
—

 
—

 
(9.9
)
 
—

 
(9.9
)
Other comprehensive loss, net (a)
—

 
—

 
—

 
(2.6
)
 
(2.6
)
Balance, September 30, 2018
$
54.6

 
$
986.0

 
$
(1,672.8
)
 
$
(233.5
)
 
$
(865.7
)

(a)
See Note 14, "Accumulated Other Comprehensive Loss," regarding the changes in the accumulated balances for each component of other comprehensive loss during the three and nine months ended September 30, 2019 and 2018, respectively.




See Accompanying Notes to Unaudited Consolidated Financial Statements


10
Table of Contents

REVLON CONSUMER PRODUCTS CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
 
Nine Months Ended September 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(179.2
)
 
$
(220.0
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
   Depreciation and amortization
124.6

 
119.4

   Foreign currency losses from re-measurement
9.0

 
10.7

   Amortization of debt discount
1.2

 
0.9

   Stock-based compensation amortization
7.7

 
14.8

  Benefit from deferred income taxes
(17.8
)
 
(60.3
)
   Amortization of debt issuance costs
10.4

 
9.1

   Non-cash loss on disposal of minority investment
—

 
18.6

 Loss on sale of certain assets
0.2

 
0.6

   Pension and other post-retirement cost
6.3

 
2.0

   Change in assets and liabilities:
 
 
 
      Increase in trade receivables
(30.5
)
 
(7.0
)
      Increase in inventories
(4.9
)
 
(100.3
)
      Increase in prepaid expenses and other current assets
(12.2
)
 
(69.0
)
      Increase in accounts payable
9.1

 
39.3

      (Decrease) increase in accrued expenses and other current liabilities
(79.8
)
 
1.8

      Pension and other post-retirement plan contributions
(7.8
)
 
(6.1
)
      Purchases of permanent displays
(28.4
)
 
(57.0
)
      Other, net
25.3

 
5.8

Net cash used in operating activities
(166.8
)
 
(296.7
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(20.0
)
 
(41.6
)
Net cash used in investing activities
(20.0
)
 
(41.6
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net (decrease) increase in short-term borrowings and overdraft
(22.4
)
 
2.3

Net borrowings under the Amended 2016 Revolving Credit Facility
13.4

 
251.3

Net borrowings under the 2019 Term Loan Facility
200.0

 
—

Net borrowings under the 2018 Foreign Asset-Based Term Loan
—

 
89.4

Repayments under the 2016 Term Loan Facility
(13.5
)
 
(13.5
)
Payment of financing costs
(13.4
)
 
(9.4
)
Tax withholdings related to net share settlements of restricted stock units and awards
(1.6
)
 
(3.6
)
Other financing activities
(0.9
)
 
0.1

Net cash provided by financing activities
161.6

 
316.6

Effect of exchange rate changes on cash, cash equivalents and restricted cash
(1.4
)
 
(3.2
)
   Net decrease in cash, cash equivalents and restricted cash
(26.6
)
 
(24.9
)
   Cash, cash equivalents and restricted cash at beginning of period (a)
87.5

 
87.4

   Cash, cash equivalents and restricted cash at end of period (a)
$
60.9

 
$
62.5

Supplemental schedule of cash flow information:(b)
 
 
 
   Cash paid during the period for:
 
 
 
Interest
$
157.9

 
$
131.4

Income taxes, net of refunds
6.9

 
11.7


(a) These amounts include restricted cash of $0.2 million and $0.7 million as of September 30, 2019 and 2018, respectively, and $0.2 million and $0.3 million as of December 31, 2018 and 2017, respectively, which represent cash on deposit in lieu of a mandatory prepayment under the 2018 Foreign Asset-Based Term Facility, and cash on deposit to support outstanding undrawn letters of credit, which were included within other assets in the Company's consolidated balance sheets.
(b) See Note 5, "Leases," for supplemental disclosure of non-cash financing and investing activities in relation to the lease liabilities arising from obtaining right-of-use assets following the implementation of ASC Topic 842, Leases.



See Accompanying Notes to Unaudited Consolidated Financial Statements

11
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)



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 beneficially owned by Ronald O. Perelman. Mr. Perelman is Chairman of Revlon's and Products Corporation's Board of Directors.
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.
The Company operates in four reporting segments: Revlon; Elizabeth Arden; Portfolio; and Fragrances.
The accompanying Consolidated Financial Statements are unaudited. In management's opinion, all adjustments necessary for a fair presentation of the Company's financial information have been made. The Unaudited Consolidated Financial Statements include the Company's accounts after the elimination of all material intercompany balances and transactions.
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 audited consolidated financial statements and related notes contained in, respectively, Revlon's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and Products Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (collectively, the “Company’s 2018 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 Evaluated and/or Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02" or "ASC 842"), which requires lessees to recognize a right-of-use asset and a related lease liability on the balance sheet for all leases, with the exception of short-term leases. The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to certain adjustments, such as initial direct costs. Leases will continue to be classified as either operating or finance leases in the income statement. This guidance is effective for annual periods beginning after December 15, 2018, with early adoption permitted. The Company adopted ASU No. 2016-02 beginning as of January 1, 2019, using a modified retrospective approach and applying the standard’s transition provisions at the effective date of January 1, 2019. In addition, the Company elected to apply the package of practical expedients identified under ASC 842. See Note 5, "Leases," for additional disclosures provided as a result of this ASU.

In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which gives entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") to retained earnings. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Entities are required to make additional disclosures, regardless of whether they elect to reclassify stranded amounts of tax effects. The Company has elected not to adopt this amendment and will include required financial statement disclosures, as applicable. No impact is expected to the Company’s results of operations and/or financial condition.

12
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)



Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15, "Internal Use Software (Subtopic 350-40) - Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract," which requires a customer in a cloud computing hosting arrangement that is a service contract to follow the existing guidance in ASC 350-40 on internal-use software to determine which implementation costs are to be deferred and recognized as an asset and which costs are to be expensed as incurred. The new guidance: (i) specifies the financial statement presentation of capitalized implementation costs and the related amortization; (ii) will require entities to disclose the nature of hosting arrangements that are service contracts and the amount of implementation costs capitalized, amortized and impaired in each reporting period; and (iii) provides disclosures about significant judgments made when applying the guidance. Implementation costs that are recognized as an asset under the new guidance would be expensed over the term of the hosting arrangement. The term of the hosting arrangement would be the non-cancellable period of the arrangement and certain periods covered by options to renew the arrangement. The Company currently presents the capitalized cost of acquired software as a component of property, plant and equipment in its consolidated financial statements. This guidance is effective for annual periods beginning after December 15, 2019, with early adoption permitted, and may be applied either retrospectively or prospectively to all implementation costs incurred after adoption. The Company will adopt ASU No. 2018-15 prospectively, beginning as of January 1, 2020, and expects that this new guidance will not have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” This new guidance removes certain disclosures that are not considered cost beneficial, clarifies certain required disclosures and requires certain additional disclosures. This guidance is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The Company will adopt this guidance (on a retrospective basis for certain new additional disclosures), beginning as of January 1, 2021. While the Company is currently assessing the impact of this new pronouncement, the new guidance, which only affects disclosure items, is not expected to have a material impact on the Company’s results of operations, financial condition and/or financial statement disclosures.
 
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which was subsequently amended in November 2018 through ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses." ASU No. 2016-13 will require entities to estimate lifetime expected credit losses for trade and other receivables, net investments in leases, financing receivables, debt securities and other instruments, which will result in earlier recognition of credit losses. Further, the new credit loss model will affect how entities in all industries estimate their allowance for losses for receivables that are current with respect to their payment terms. ASU No. 2018-19 further clarifies that receivables arising from operating leases are not within the scope of Subtopic 326. Instead, impairment from receivables of operating leases should be accounted for in accordance with Topic 842, Leases. In October 2019, after considering comments received, the FASB affirmed a proposal to defer the effective date of ASU No. 2016-13 for certain companies. Consequently, the FASB is expected to issue a final ASU in November 2019, which will result in the new guidance on credit losses for smaller reporting companies ("SRC") to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This guidance will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., a modified-retrospective approach). Under the above-mentioned deferral, the Company expects to adopt ASU No. 2016-03, and the related ASU No. 2018-19 amendments, beginning as of January 1, 2023 and is in the process of assessing the impact, if any, that this new guidance is expected to have on the Company’s results of operations, financial condition and/or financial statement disclosures.


2. RESTRUCTURING CHARGES

2018 Optimization Restructuring Program

In November 2018, the Company announced that it was implementing the 2018 Optimization Restructuring Program (the "2018 Optimization Program") designed to streamline the Company’s operations, reporting structures and business processes, with the objective of maximizing productivity and improving profitability, cash flows and liquidity. In connection with implementing the 2018 Optimization Program, the Company expects to recognize approximately $30 million to $40 million of total pre-tax restructuring and related charges, consisting of employee-related costs, such as severance, pension and other termination costs, as well as other related charges. The Company also expects to incur approximately $10 million of additional capital expenditures. The Company expects the 2018 Optimization Program to be substantially completed by December 31, 2019.

13
Table of Contents
COMBINED 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 2018 Optimization Restructuring Charges incurred through September 30, 2019 is presented in the following table:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits
 
Other Costs
 
Total Restructuring Charges
 
Inventory Adjustments(a)
 
Other Related Charges(b)
 
Total Restructuring and Related Charges
Charges incurred through December 31, 2018
$
4.5

 
$
—

 
$
4.5

 
$
—

 
$
1.2

 
$
5.7

Charges incurred during the nine months ended September 30, 2019
12.0

 
0.5

 
12.5

 
4.2

 
11.4

 
28.1

Cumulative charges incurred through September 30, 2019
$
16.5

 
$
0.5

 
$
17.0

 
$
4.2

 
$
12.6

 
$
33.8

(a) Inventory adjustments are recorded within cost of sales in the Company’s Consolidated Statement of Operations and Comprehensive Loss.
(b) Other related charges are recorded within SG&A in the Company’s Consolidated Statement of Operations and Comprehensive Loss.

A summary of the 2018 Optimization Restructuring Charges incurred through September 30, 2019 by reportable segment is presented in the following table:
 
 
Charges incurred during the nine months ended September 30, 2019
 
Cumulative charges incurred through September 30, 2019
Revlon
 
$
5.7

 
$
7.6

Elizabeth Arden
 
2.5

 
3.4

Portfolio
 
2.3

 
3.3

Fragrances
 
2.0

 
2.7

     Total
 
$
12.5

 
$
17.0


The Company expects that approximately 85% of these restructuring and related charges will be paid in cash, of which approximately $15.8 million were paid through September 30, 2019. Substantially all of the remaining balance is expected to be paid by the end of 2019, with any residual amount to be paid in 2020.

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 was designed to reduce the Company’s cost of goods sold and SG&A expenses. The EA Integration Restructuring Program was substantially completed by December 31, 2018 and the Company expects to incur limited further charges under this program, primarily related to its exit from certain leased spaces. In connection with implementing the EA Integration Restructuring Program, the Company recognized $82.6 million of total pre-tax restructuring charges (the "EA Integration Restructuring Charges"), consisting of: (i) $72.6 million of employee-related costs, including severance, retention and other contractual termination benefits; (ii) $5.1 million of lease termination costs; and (iii) $4.9 million of other related charges. The Company expects that cash payments will total $80 million to $85 million in connection with the EA Integration Restructuring Charges, of which $72.0 million were paid through September 30, 2019. The remaining balance is expected to be substantially paid by the end of 2020.

14
Table of Contents
COMBINED 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 EA Integration Restructuring Charges incurred through September 30, 2019 is presented in the following table:
 
Restructuring Charges and Other, Net
 
 
 
 
 
 
 
Employee Severance and Other Personnel Benefits(a)
 
Lease Termination and Other Costs(b)
 
Total Restructuring Charges
 
Inventory Adjustments(c)
 
Other Related Charges(d)
 
Total Restructuring and Related Charges
Charges incurred through December 31, 2018
$
72.2

 
$
5.1

 
$
77.3

 
$
1.9

 
$
3.0

 
$
82.2

Charges incurred during the nine months ended September 30, 2019
0.4

 
—


0.4

 
—

 
—

 
0.4

Cumulative charges incurred through September 30, 2019
$
72.6

 
$
5.1

 
$
77.7

 
$
1.9

 
$
3.0

 
$
82.6

(a) Includes reversal of previously accrued restructuring charges during the three months ended September 30, 2019.
(b) Lease termination liabilities related to certain exited office space were adjusted following the implementation of ASC 842. See Note 5, "Leases," for additional information.
(c) Inventory adjustments are recorded within cost of sales in the Company’s Consolidated Statement of Operations and Comprehensive Loss.
(d) Other related charges are recorded within SG&A in the Company’s Consolidated Statement of Operations and Comprehensive Loss.
A summary of the EA Integration Restructuring Charges incurred through September 30, 2019 by reportable segment is presented in the following table:
 
 
Charges incurred during the nine months ended September 30, 2019
 
Cumulative charges incurred through September 30, 2019
Revlon
 
$
—

 
$
32.9

Elizabeth Arden
 
0.4

 
13.7

Portfolio
 
—

 
13.1

Fragrances
 
—

 
18.0

     Total
 
$
0.4

 
$
77.7


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, 2019
 
Expense, Net
 
Foreign Currency Translation
 

Cash
 

Non-cash
 
Liability Balance at September 30, 2019
2018 Optimization Program:(a)
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
$
3.7

 
$
12.0

 
$
—

 
$
(6.8
)
 
$
—

 
$
8.9

Other
1.2

 
16.1

 
—

 
(8.2
)
 
—

 
9.1

Total 2018 Optimization Program
4.9

 
28.1

 
—

 
(15.0
)
 
—

 
18.0

 
 
 
 
 
 
 
 
 
 
 
 
EA Integration Restructuring Program:
 
 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
13.8

 
0.4

 
(0.4
)
 
(7.7
)
 
—

 
6.1

Other(b)
4.2

 
—

 
—

 
(0.4
)
 
(3.5
)
 
0.3

Total EA Integration Restructuring Program
18.0

 
0.4

 
(0.4
)
 
(8.1
)
 
(3.5
)
 
6.4

 

 
 
 
 
 
 
 
 
 

Other individually immaterial actions:(c)

 
 
 
 
 
 
 
 
 
 
Employee severance and other personnel benefits
4.6

 
(1.4
)
 
—

 
(1.8
)
 
(1.1
)
 
0.3

Other
0.8

 
0.3

 
—

 
(0.4
)
 


 
0.7

Total other individually immaterial actions
5.4

 
(1.1
)
 
—

 
(2.2
)
 
(1.1
)
 
1.0

Total restructuring reserve
$
28.3

 
$
27.4

 
$
(0.4
)
 
$
(25.3
)
 
$
(4.6
)
 
$
25.4


(a) $15.6 million relates to other restructuring-related charges that were reflected within SG&A and cost of sales in the Company’s September 30, 2019 Consolidated Statement of Operations and Comprehensive Loss.

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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


(b) Non-cash utilization relates to approximately $3.5 million of lease termination liabilities related to certain exited office space that were adjusted following the implementation of ASC 842. See Note 5, "Leases," for additional information.
(c) Consists primarily of the Company's other individually and collectively immaterial restructuring initiatives, including those in Denmark, Norway and Sweden.

As of September 30, 2019 and 2018, all of the restructuring reserve balances were included within accrued expenses and other current liabilities in the Company's Consolidated Balance Sheets.


3. DISCONTINUED OPERATIONS

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. 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 September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net sales
$
—

 
$
—

 
$
—

 
$
—

(Loss) income from discontinued operations, before taxes
(0.3
)
 
(0.4
)
 
2.0

 
(0.1
)
Provision for income taxes
—

 
—

 
—

 
—

(Loss) income from discontinued operations, net of taxes
(0.3
)
 
(0.4
)
 
2.0

 
(0.1
)

As of September 30, 2019 and December 31, 2018, assets and liabilities of the China discontinued operations included in the Consolidated Balance Sheets consisted of the following:
 
September 30,
 
December 31,
 
2019
 
2018
Cash and cash equivalents
$
1.0

 
$
1.1

Trade receivables, net
—

 
0.2

Total current assets
1.0

 
1.3

Total assets
$
1.0

 
$
1.3

 
 
 
 
Accounts payable
$
—

 
$
0.5

Accrued expenses and other
1.2

 
3.3

Total current liabilities
1.2

 
3.8

Total liabilities
$
1.2

 
$
3.8



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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


4. INVENTORIES

As of September 30, 2019 and December 31, 2018, the Company's inventory balances consisted of the following:
 
September 30,
 
December 31,
 
2019
 
2018
Raw materials and supplies
$
130.0

 
$
143.5

Work-in-process
8.8

 
5.6

Finished goods
383.2

 
374.1

 
$
522.0

 
$
523.2



5. LEASES

Products Corporation leases facilities for executive offices, warehousing, research and development and sales operations and leases various types of equipment under operating and finance lease agreements. The majority of Products Corporation’s real estate leases, in terms of total undiscounted payments, are located in the U.S.
As disclosed in Note 1, in February 2016, the FASB issued ASU No. 2016-02, which requires that a lessee recognize, for both finance leases and operating leases, a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying leased asset for the lease term. The lease liability is equal to the present value of the lease payments and the ROU asset is based on the lease liability, subject to certain adjustments, such as pre-payments, initial direct costs, lease incentives and accrued rent.
The Company adopted ASU No. 2016-02 beginning as of January 1, 2019, using a modified retrospective approach and applying the standard’s transition provisions at the effective date of January 1, 2019. The comparative information has not been restated and continues to be reported under the lease accounting standard in effect for those periods. Refer to Note 20, "Contingencies," in the Company's 2018 Form 10-K for detail of its minimum rental commitments at December 31, 2018 under legacy ASC 840, "Leases".
The standard had a material impact on the Company’s unaudited consolidated balance sheets but did not have an impact on the Company’s unaudited statements of operations and comprehensive loss and cash flows.
As of January 1, 2019, the Company's adoption of ASU No. 2016-02 resulted in:
•
the recognition of ROU assets for operating leases and finance leases of approximately $109.3 million and $1.5 million, respectively;
•
the recognition of lease liabilities for operating leases and finance leases of approximately $123.4 million and $1.4 million, respectively; and
•
a decrease of approximately $11.3 million in accrued rent (of which $10.7 million was recorded in other long-term liabilities and $0.6 million was recorded in accrued expenses and other current liabilities), a decrease of approximately $3.5 million in lease termination liabilities and a decrease of approximately $0.7 million in prepaid rent, due to adjustments to balances previously recorded on the unaudited condensed consolidated balance sheets upon transition from the legacy ASC 840 to ASC 842.

Upon adoption of ASU No. 2016-02, the Company elected the available practical expedients allowed by the guidance under:
•
ASC 842-10-15-37, by not separating lease components from non-lease components and instead accounting for all components as a single lease component for all of its classes of underlying assets, i.e., for any type of equipment leases and real estate leases; and
•
ASC 842-10-65-1, by not reassessing at the transition date: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases.


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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


The Company determines if an arrangement is a lease at inception, considering whether the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration. Operating leases are included in operating lease ROU assets, recorded within “Property, Plant and Equipment”, and operating lease liabilities are recorded within either "Accrued expenses and other current liabilities" and/or "Other long-term liabilities" in the Company’s unaudited consolidated balance sheets. Finance leases are included in finance lease ROU assets recorded within “Property, Plant and Equipment”, and finance lease liabilities are recorded within either "Accrued expenses and other current liabilities" and/or "Other long-term liabilities" in the Company’s unaudited consolidated balance sheets.
As most of the Company’s leases do not provide the lease implicit rates, the Company uses its incremental borrowing rates as the discount rate, adjusted as applicable, based on the information available at the lease commencement dates to determine the present value of lease payments. The Company may use the lease implicit rate, when readily determinable, as the discount rate to determine the present value of lease payments. As of January 1, 2019, the Company used an average discount rate of approximately 16%, based on an estimate of the Company's incremental borrowing rates.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the applicable lease term.
At lease commencement, for initial measurement, variable lease payments that do not depend on an index or rate, if any, are excluded from lease payments. Subsequent to initial measurement, these variable payments are recognized when the event determining the amount of the variable consideration to be paid occurs. Leases with an initial lease term of 12 months or less are not included in the lease liability or ROU asset.
The following table includes disclosure related to the new ASC 842 lease standard, after application of the aforementioned practical expedients and short-term lease considerations:
 
 
Nine Months Ended
 
 
September 30, 2019
Lease Cost:
 
 
Finance Lease Cost:
 
 
    Amortization of ROU assets
 
$
0.2

    Interest on lease liabilities
 
0.1

Operating Lease Cost
 
31.4

Total Lease Cost
 
31.7

 
 
 
Other Information:
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
    Operating cash flows from finance leases
 
0.1

    Operating cash flows from operating leases
 
30.6

    Financing cash flows from finance leases
 
0.7

 
 
 
ROU assets for finance leases
 
$
1.2

ROU assets for operating leases
 
93.9

Amortization on ROU assets for finance leases
 
0.2

Amortization on ROU assets for operating leases
 
16.7

 
 
 
Weighted-average remaining lease term - finance leases
 
3.2 years

Weighted-average remaining lease term - operating leases
 
6.3 years

 
 
 
Weighted-average discount rate - finance leases
 
16.0
%
Weighted-average discount rate - operating leases
 
15.8
%


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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Maturities of lease liabilities as of September 30, 2019 were as follows:
 
Operating Leases
 
Finance Leases
October 2019 through December 2019
$
9.3

 
$
0.2

2020
33.1

 
0.6

2021
29.6

 
0.5

2022
23.1

 
0.3

2023
18.9

 
—

Thereafter
60.3

 
—

Total undiscounted cash flows
$
174.3

 
$
1.6

 
 
 
 
Present value:


 


Short-term lease liability
$
13.9

 
$
0.7

Long-term lease liability
92.3

 
0.5

Total lease liability
$
106.2

 
$
1.2

Difference between undiscounted cash flows and discounted cash flows
$
68.1

 
$
0.4



6. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The following table presents the changes in goodwill by segment during the nine months ended September 30, 2019:
 
Revlon
 
Portfolio
 
Elizabeth Arden
 
Fragrances
 
Total
Balance at January 1, 2019
$
265.0

 
$
171.2

 
$
116.9

 
$
120.8

 
$
673.9

Foreign currency translation adjustment
(0.3
)
 
(0.2
)
 
—

 
—

 
(0.5
)
Balance at September 30, 2019
$
264.7

 
$
171.0

 
$
116.9

 
$
120.8

 
$
673.4

 
 
 
 
 
 
 
 
 
 
Cumulative goodwill impairment charges(a)


 


 


 


 
$
(55.2
)
(a) Amount refers to cumulative goodwill impairment charges related to impairments recognized in 2015, 2017 and 2018; no impairment charges were recognized during the nine months ended September 30, 2019.


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(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 September 30, 2019 and December 31, 2018:
 
September 30, 2019
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted-Average Useful Life (in Years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks and licenses
$
271.1

 
$
(106.6
)
 
$
164.5

 
13
Customer relationships
247.6

 
(93.0
)
 
154.6

 
12
Patents and internally-developed intellectual property
21.1

 
(11.5
)
 
9.6

 
5
Distribution rights
31.0

 
(5.3
)
 
25.7

 
15
Other
1.3

 
(1.3
)
 
—

 
0
Total finite-lived intangible assets
$
572.1

 
$
(217.7
)
 
$
354.4

 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade names
$
142.3

 
N/A

 
$
142.3

 
 
Total indefinite-lived intangible assets
$
142.3

 
N/A

 
$
142.3

 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
714.4

 
$
(217.7
)
 
$
496.7

 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted-Average Useful Life (in Years)
Finite-lived intangible assets:
 
 
 
 
 
 
 
Trademarks and licenses
$
272.3

 
$
(94.3
)
 
$
178.0

 
13
Customer relationships
248.6

 
(77.9
)
 
170.7

 
12
Patents and internally-developed intellectual property
20.9

 
(10.1
)
 
10.8

 
6
Distribution rights
31.0

 
(4.0
)
 
27.0

 
16
Other
1.3

 
(1.0
)
 
0.3

 
1
Total finite-lived intangible assets
$
574.1

 
$
(187.3
)
 
$
386.8

 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
Trade names
$
145.2

 
N/A

 
$
145.2

 
 
Total indefinite-lived intangible assets
$
145.2

 
N/A

 
$
145.2

 
 
 
 
 
 
 
 
 
 
Total intangible assets
$
719.3

 
$
(187.3
)
 
$
532.0

 
 

Amortization expense for finite-lived intangible assets was $8.3 million and $10.1 million for the three months ended September 30, 2019 and 2018, respectively, and $31.9 million and $30.3 million for the nine months ended September 30, 2019 and 2018, respectively. Amortization during the first three months of 2019 was affected by the accelerated amortization of the Pure Ice intangible assets as a result of the revision of the brand’s intangible assets useful lives following the termination of a business relationship with its principal customer in 2018.


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(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 September 30, 2019:
 
Estimated Amortization Expense
2019
$
8.7

2020
34.1

2021
33.2

2022
32.3

2023
30.7

Thereafter
215.4

Total
$
354.4



7. ACCRUED EXPENSES AND OTHER

As of September 30, 2019 and December 31, 2018, the Company's accrued expenses and other current liabilities consisted of the following:
 
September 30,
 
December 31,
 
2019
 
2018
Sales returns and allowances
$
87.9

 
$
97.7

Advertising and promotional costs
76.8

 
76.2

Compensation and related benefits
32.7

 
55.9

Taxes (a)
24.4

 
30.9

Restructuring reserve
15.2

 
26.4

Interest
20.2

 
33.8

Other (b)
111.1

 
110.0

Total
$
368.3

 
$
430.9

(a) Accrued Taxes for Products Corporation as of September 30, 2019 and December 31, 2018 were $27.8 million and $34.6 million, respectively.
(b) Accrued Other for Products Corporation as of September 30, 2019 and December 31, 2018 were $111.0 million and $110.1 million, respectively.



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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


8. LONG-TERM DEBT

As of September 30, 2019 and December 31, 2018, the Company's debt balances consisted of the following:
 
September 30,
 
December 31,
 
2019
 
2018
2019 Term Loan Facility due 2023, net of discounts and debt issuance costs (a)
188.4

 
$
—

2018 Foreign Asset-Based Term Facility due 2021, net of discounts and debt issuance costs (b)
79.5

 
82.7

Amended 2016 Revolving Credit Facility due 2021, net of debt issuance costs (c)
345.4

 
330.0

2016 Term Loan Facility: 2016 Term Loan due 2023, net of discounts and debt issuance costs (d)
1,716.3

 
1,724.6

5.75% Senior Notes due 2021, net of debt issuance costs (e) 
497.7

 
496.6

6.25% Senior Notes due 2024, net of debt issuance costs (f)
442.4

 
441.4

Spanish Government Loan due 2025
0.4

 
0.5

 
$
3,270.1

 
$
3,075.8

Less current portion(*)
(363.5
)
 
(348.1
)
 
$
2,906.6

 
$
2,727.7

 
 
 
 
Short-term borrowings (g)
$
5.1

 
$
9.3

(*) At September 30, 2019, the Company classified $363.5 million as its current portion of long-term debt, comprised primarily of $345.4 million of net borrowings under the Amended 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, 2018, the Company classified $348.1 million as its current portion of long-term debt, comprised primarily of $330 million of net borrowings under the Amended 2016 Revolving Credit Facility, net of debt issuance costs, and $18 million of amortization payments on the 2016 Term Loan Facility.
(a) See "Current Year Debt Transactions" below in this Note 8 for additional details regarding the 2019 Term Loan Facility.
(b) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2018 Form 10-K for certain details regarding the euro-denominated senior secured asset-based term loan facility in an aggregate principal amount of €77 million that various foreign subsidiaries of Products Corporation entered into in July 2018 (the “2018 Foreign Asset-Based Term Facility”).
(c) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the Company's Form 10-K for certain details regarding Products Corporation's Amended 2016 Revolving Credit Facility. In April 2018, Products Corporation amended the Amended 2016 Revolving Credit Facility Agreement, as detailed below, to, among other things, add a new $41.5 million senior secured first in, last out "Tranche B," while the original $400 million tranche under such facility became a senior secured last in, first out "Tranche A." Tranche A matures on the earlier of: (x) September 7, 2021; 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. Tranche B matures on April 17, 2020. Total borrowings at face amount under Tranche A and Tranche B under the Amended 2016 Revolving Credit Facility at September 30, 2019 were $307.5 million (excluding $11.3 million of outstanding undrawn letters of credit) and $40.9 million, respectively (the 2016 Term Loan Facility and the Amended 2016 Revolving Credit Facility are collectively referred to as the "2016 Senior Credit Facilities" and the applicable agreements being the “2016 Credit Agreements”).
(d) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2018 Form 10-K for certain details regarding Products Corporation's 2016 Term Loan that matures on the earlier of: (x) September 7, 2023; and (y) 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 September 30, 2019 was $1,746 million.
(e) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2018 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 September 30, 2019 was $500 million.
(f) See Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2018 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 September 30, 2019 was $450 million.

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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


(g) There were no borrowings at September 30, 2019 under the 2019 Senior Line of Credit Facility between Products Corporation and MacAndrews & Forbes Group, LLC, a related party, discussed below.

Current Year Debt Transactions

2019 Term Loan Facility
Principal and Maturity: On August 6, 2019, Products Corporation entered into a senior secured term loan facility among certain affiliated funds, investment vehicles or accounts managed or advised by Ares Management LLC, as lender, in an initial aggregate principal amount of $200 million (the “2019 Term Loan Facility” and such agreement being the “2019 Term Loan Agreement”), and Wilmington Trust, National Association (“Wilmington Trust”), as administrative and collateral agent. Net proceeds from the 2019 Term Loan Facility, which will be used for general corporate purposes, were approximately $188 million, after taking into account approximately $12 million of related fees and expenses. The 2019 Term Loan Facility will mature on the earliest of: (x) the fourth anniversary of the Closing Date; (y) the 180th day prior to the maturity of Products Corporation’s existing 2016 Term Loan Facility, if any loans under the 2016 Term Loan Facility remain outstanding and have not been replaced or refinanced by such date; and (z) the date of any springing maturity of the 2016 Term Loan Facility (i.e., the 91st day prior to the maturity of the 5.75% Senior Notes due February 15, 2021 if any 5.75% Senior Notes remain outstanding by such date).
Guarantees and Security: Products Corporation and its restricted subsidiaries under the 2019 Term Loan Facility (collectively, the “Restricted Group”) are subject to the covenants under the 2019 Term Loan Agreement. The 2019 Term Loan Facility is guaranteed by each existing and future direct or indirect wholly-owned domestic restricted subsidiary of Products Corporation (subject to various exceptions), as well as by Revlon, on a limited recourse basis, and Elizabeth Arden (U.K.) Ltd., Revlon Canada Inc. and Elizabeth Arden (Canada) Limited. The obligations of Revlon, Products Corporation and the subsidiary guarantors under the 2019 Term Loan Facility are secured by pledges of the equity of Products Corporation and the equity of the Restricted Group held by Products Corporation and each subsidiary guarantor (subject to customary exceptions, including equity of first-tier foreign subsidiaries in excess of 66% of the voting equity interests of such entity) and by substantially all tangible and intangible personal and real property of Products Corporation and the subsidiary guarantors (subject to customary exclusions). The 2019 Term Loan Facility and the existing 2016 Term Loan Facility share the same guarantors and collateral, except that the 2019 Term Loan Facility is also secured by a first-priority lien on certain intellectual property of the American Crew business (the “Additional Collateral”) and is guaranteed by the entities established to hold such Additional Collateral. Pursuant to a first lien pari passu intercreditor agreement, dated August 6, 2019, among Revlon, Products Corporation, the subsidiary guarantors, Wilmington Trust and Citibank, N.A. (acting as administrative agent and collateral agent for the 2016 Term Loan Facility), the liens on the shared collateral securing the 2019 Term Loan Facility rank pari passu in priority with the liens on the shared collateral securing the 2016 Term Loan Facility.
License Agreement: In connection with the pledge of such Additional Collateral, Products Corporation entered into intercompany arrangements pursuant to which the Additional Collateral was contributed to a newly-formed subsidiary, Beautyge I, which then further contributed the Additional Collateral to its new wholly-owned subsidiary, Beautyge II, LLC. Products Corporation entered into a license and royalty arrangement on arm’s length terms with Beautyge II, LLC to provide for the Company’s continued use of the Additional Collateral during the term of the 2019 Term Loan Facility.
Interest and Fees: Interest accrues on the 2019 Term Loan Facility at a rate per annum of one-month adjusted LIBOR (which has a floor of 0%) plus a margin of 9.50%. Products Corporation is also obligated to pay customary fees and expenses in connection with the 2019 Term Loan Facility. 
Affirmative and Negative Covenants: The 2019 Term Loan Agreement contains certain affirmative and negative covenants that, among other things, limit the Restricted Group’s ability to: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated or junior lien debt; (vii) enter into certain transactions with their affiliates; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The 2019 Term Loan Agreement also contains additional covenants: (i) restricting the activities of the entities established to hold the Additional Collateral; (ii) limiting the incurrence of secured debt by the Restricted Group to an aggregate principal amount of $50 million (excluding the Amended 2016 Revolving Credit Facility and any refinancing of the 5.75% Senior Notes due 2021); (iii) restricting the transfer by the Restricted Group of material intellectual property to non-guarantor restricted subsidiaries or other affiliates; and (iv) limiting investments by Products Corporation and its subsidiary guarantors in any non-guarantor subsidiary to an outstanding amount of $50 million plus $10 million for ordinary course investments consistent with past practice. These negative covenants are subject to various exceptions, including an “available

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amount basket” based on 50% of Products Corporation’s cumulative consolidated net income from October 1, 2016, subject to Products Corporation’s compliance with a 5.0 to 1.0 ratio of Products Corporation’s net debt to Consolidated EBITDA (as defined in the 2019 Term Loan Agreement), except such compliance is not required when such baskets are used to make investments.
Financial Covenants: The 2019 Term Loan Agreement contains financial covenants. First, Products Corporation cannot permit at any time both (x) the aggregate principal amount of secured and structurally senior debt to exceed $2.5 billion and (y) the ratio of Products Corporation's net secured and structurally senior debt to Consolidated EBITDA to be greater than 5.0 to 1.0, subject to a one-time equity cure right. Second, Products Corporation’s Consolidated EBITDA cannot be less than $250 million for any test period ending on or after March 31, 2021.
Prepayments: The 2019 Term Loan Facility is subject to mandatory prepayments from: (i) the net proceeds from the issuance by Products Corporation or any of its restricted subsidiaries of certain additional debt; (ii) commencing with the excess cash flow calculation with respect to fiscal year ending December 31, 2020, 50% of excess cash flow, with step-downs to 25% and 0% upon achievement of certain first lien leverage ratios and reduced by voluntary prepayments of the 2019 Term Loan Facility, the 2016 Term Loan Facility and revolving loans under the Amended 2016 Revolving Credit Facility (to the extent commitments thereunder are permanently reduced); and (iii) asset sale proceeds of certain non-ordinary course asset sales or other dispositions of property that have not been reinvested to the extent in excess of certain minimum amounts (subject to an aggregate reinvestment cap of $50 million). Products Corporation may voluntarily prepay the 2019 Term Loan Facility at any time. All voluntary prepayments, certain mandatory prepayments and repayments upon acceleration after an event of default of the 2019 Term Loan Facility must be accompanied by a fee (the “Applicable Premium”) in an amount equal to: (i) prior to January 1, 2021, a make-whole amount with respect to interest payments through December 31, 2020 plus 10% of the aggregate principal amount prepaid, repaid or required to be repaid; (ii) on and after January 1, 2021, but prior to January 1, 2022, 10% of the aggregate principal amount prepaid, repaid or required to be repaid; (iii) on and after January 1, 2022, but prior to January 1, 2023, 7.5% of the aggregate principal amount prepaid, repaid or required to be repaid; or (iv) thereafter, 5% of the aggregate principal amount prepaid, repaid or required to be repaid. A 5% exit fee is also payable upon the final scheduled maturity of the 2019 Term Loan Facility or if the loans thereunder are accelerated upon an event of default. The 2019 Term Loan Agreement also contains certain customary representations, warranties and events of default.

Events of Default: The 2019 Term Loan Agreement includes customary events of default, including a cross default provision making it an event of default under the 2019 Term Loan Agreement if there is an event of default under Products Corporation’s existing 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement, the Amended 2019 Senior Line of Credit Agreement or the indentures for Products Corporation’s 5.75% Senior Notes or 6.25% Senior Notes. In addition, the lenders under the 2019 Term Loan Agreement may declare all outstanding loans under the 2019 Term Loan Agreement to be due and payable immediately upon an event of default. Under such circumstances, the lenders under the 2016 Credit Agreements, the Amended 2019 Senior Line of Credit Agreement and the 2018 Foreign Asset-Based Term Agreement may also declare all outstanding loans under such facilities to be due and payable immediately as a result of similar cross default provisions, and upon non-payment of any accelerated principal amount, the trustees or noteholders for the 5.75% Senior Notes and 6.25% Senior Notes may declare all outstanding notes to be due and payable immediately as a result of similar cross-acceleration provisions, subject to certain exceptions and limitations described in the relevant instruments.

Fees and expenses incurred in connection with consummating the 2019 Term Loan Agreement of approximately $12 million were capitalized and are being amortized to interest expense over the term of the 2019 Term Loan Agreement using the effective interest method. The aggregate principal amount outstanding under the 2019 Term Loan Facility Agreement at September 30, 2019 was $200 million.

2019 Senior Line of Credit Agreement

In June 2019, Products Corporation entered into a 2019 Senior Unsecured Line of Credit Agreement (the "2019 Senior Line of Credit Agreement") providing Products Corporation with a $30 million senior unsecured line of credit (the "2019 Senior Line of Credit Facility") from MacAndrews & Forbes Group, LLC, a subsidiary of Revlon’s majority stockholder. The 2019 Senior Line of Credit Facility allows Products Corporation to request loans thereunder and to use the proceeds of such loans for working capital and other general corporate purposes until the facility matures on December 31, 2019. See Note 20, “Subsequent Events,” regarding the extension of the maturity of the 2019 Senior Line of Credit Agreement to December 31, 2020. As of September 30, 2019, there were no borrowings outstanding under this facility.

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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Any loans outstanding under the 2019 Senior Line of Credit Facility shall bear interest at an annual rate of 8%, which is payable quarterly in arrears in cash. Products Corporation may, at its option, prepay any borrowings under the 2019 Senior Line of Credit Facility, in whole or in part (together with accrued and unpaid interest), at any time prior to maturity, without premium or penalty.  Products Corporation is required to repay any outstanding loans under the 2019 Senior Line of Credit Facility, together with accrued interest thereon, if for any reason Products Corporation or any of its subsidiaries has available unrestricted cash that Products Corporation determines, in its reasonable judgment, is not required to run their operations in the ordinary course of business, provided that such repayment would not result in material adverse tax consequences.
The 2019 Senior Line of Credit Agreement includes customary events of default, including a cross default provision making it an event of default under the 2019 Senior Line of Credit Agreement if there exists and continues an event default under Products Corporation’s existing bank term loan and revolver credit agreements, the 2018 Foreign Asset-Based Term Agreement or the indentures for Products Corporation’s 5.75% Senior Notes or 6.25% Senior Notes. If any such event of default occurs, MacAndrews & Forbes Group, LLC may declare all outstanding loans under the 2019 Senior Line of Credit Facility to be due and payable immediately. For the three and nine months ended September 30, 2019, there were no borrowings or repayments under this facility.

March 2019 Amendment to 2016 Revolving Credit Facility

On March 6, 2019, Products Corporation, Revlon and certain of their subsidiaries entered into Amendment No. 2 (“Amendment No. 2”) to the 2016 Revolving Credit Agreement (as amended by Amendment No. 2, the “Amended 2016 Revolving Credit Agreement”) in respect of the 2016 Revolving Credit Facility (as in effect after Amendment No. 2, the “Amended 2016 Revolving Credit Facility”). Pursuant to the terms of Amendment No. 2, the maturity date applicable to the $41.5 million senior secured first in, last out Tranche B of the Amended 2016 Revolving Credit Facility was extended from April 17, 2019 to April 17, 2020. Prior to Amendment No. 2, the Amended 2016 Revolving Credit Agreement provided that the “Liquidity Amount” (defined in the Amended 2016 Revolving Credit Agreement as the sum of each borrowing base less the sum of (x) the aggregate outstanding extensions of credit under the Amended 2016 Revolving Credit Facility, and (y) any availability reserve in effect on such date) may exceed the aggregate commitments under the Amended 2016 Revolving Credit Facility by up to 5%. Amendment No. 2 limited the Liquidity Amount to no more than the aggregate commitments under the Amended 2016 Revolving Credit Facility. Prior to Amendment No. 2, under the Amended 2016 Revolving Credit Agreement, a “Liquidity Event Period” generally occurs if Products Corporation’s Liquidity Amount fell below the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility. Amendment No. 2 changed these thresholds to $50 million and 15%, respectively, only for purposes of triggering certain notification obligations of Products Corporation, increased borrowing base reporting frequency and the ability of the administrative agent to apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility. After entering into Amendment No. 2, in March 2019 Products Corporation’s availability under the Amended 2016 Revolving Credit Facility was $37.3 million, which was less than the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility, which at such date equated to $41.3 million. Accordingly, effective beginning in March 2019 Products Corporation is required to maintain a consolidated fixed charge coverage ratio ("FCCR") of a minimum of 1.0 to 1.0 (which it currently satisfies), the administrative agent may apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility, which the administrative agent began applying in March 2019, and Products Corporation is required to provide the administrative agent with weekly borrowing base certificates. Products Corporation will be required to: (i) maintain such 1.0 to 1.0 minimum FCCR until such time that availability under the Amended 2016 Revolving Credit Facility equals or exceeds the greater of $35 million and 10% of the maximum availability under such facility for at least 20 consecutive business days; and (ii) Products Corporation will continue to provide the administrative agent with weekly borrowing base certificates and the administrative agent may continue to apply amounts collected in controlled accounts as set forth above until such time that availability under such facility equals or exceeds the greater of $50 million and 15% of the maximum availability under such facility for at least 20 consecutive business days. Amendment No. 2 also adjusts, among other things, the “payment conditions” required to make unlimited restricted payments.


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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Covenants

Products Corporation was in compliance with all applicable covenants under the 2016 Credit Agreements, the 2019 Term Loan Agreement, the 2018 Foreign Asset-Based Term Agreement and the 2019 Senior Line of Credit Agreement as of September 30, 2019. At September 30, 2019, the aggregate principal amounts outstanding and availability under Products Corporation’s various revolving credit facilities were as follows:
 
Commitment
 
Borrowing Base
 
Aggregate principal amount outstanding at September 30, 2019
 
Availability at September 30, 2019 (a)
Tranche A of the Amended 2016 Revolving Credit Facility
$
400.0

 
$
400.0

 
$
307.5

 
$
81.2

Tranche B of the Amended 2016 Revolving Credit Facility
41.5

 
40.9

 
40.9

 
—

Total Tranche A & B of the Amended 2016 Revolving Credit Facility(a)
$
441.5

 
$
440.9

 
$
348.4

 
$
81.2

2019 Senior Line of Credit Facility
$
30.0

 
N/A

 
$
—

 
$
30.0

(a) Availability as of September 30, 2019 is based upon the borrowing base then in effect of $440.9 million, less $11.3 million of outstanding undrawn letters of credit and $348.4 million then drawn. As Products Corporation’s consolidated fixed charge coverage ratio was greater than 1.0 to 1.0 as of September 30, 2019, all of the $81.2 million of availability under the Amended 2016 Revolving Credit Facility was available as of such date.

The Company’s foreign subsidiaries held $57.3 million out of the Company's total $60.7 million in cash and cash equivalents as of September 30, 2019. While the cash held by the Company’s foreign subsidiaries is primarily used to fund their operations, the Company regularly assesses its global cash needs and the available sources of cash to fund these needs, which regularly includes repatriating foreign-held cash to settle historical intercompany loans and other intercompany payables. The Company believes that it has and will have sufficient liquidity to meet its cash needs for at least the next 12 months based upon the cash generated by its operations, cash on hand, availability under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings, along with the option to further settle historical intercompany loans and payables with certain foreign subsidiaries. The Company also expects to generate additional liquidity from cost reductions resulting from the implementation of the 2018 Optimization Program, which was initiated during the fourth quarter of 2018, and cost reductions generated from other cost control initiatives.
 
 
 
 

9. 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.
As of September 30, 2019 and December 31, 2018, the Company did not have any financial assets and liabilities that were required to be measured at fair value.


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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


As of September 30, 2019, 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:
 
September 30, 2019
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion(a)
$
—

 
$
2,633.7

 
$
—

 
$
2,633.7

 
$
3,270.1


As of December 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:
 
December 31, 2018
 
Fair Value
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Carrying Value
Liabilities:
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion(a)
$
—

 
$
2,259.5

 
$
—

 
$
2,259.5

 
$
3,075.8

(a) 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.
10. 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 $11.3 million and $10.1 million (including amounts available under credit agreements in effect at that time) were maintained as of both September 30, 2019 and December 31, 2018, respectively. Included in these amounts are approximately $8.2 million and $7.3 million in standby letters of credit that support Products Corporation’s self-insurance programs, in each case as outstanding as of September 30, 2019 and December 31, 2018, respectively. The estimated liability under such programs is accrued by Products Corporation.

Derivative Financial Instruments

The Company may, from time to time, use derivative financial instruments, primarily FX Contracts, to manage foreign currency exchange risk by reducing the effects of fluctuations in foreign currency exchange rates on the Company’s net cash flows. The Company does not hold or issue financial instruments for speculative or trading purposes.

Foreign Currency Forward Exchange Contracts

The FX Contracts may, from time to time, be 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 nine months ended September 30, 2019. The U.S. Dollar notional amounts of the FX Contracts outstanding at each of September 30, 2019 and December 31, 2018 were nil.

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%, expired in May 2018. In connection with

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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


entering into the 2016 Term Loan Facility, the 2013 Interest Rate 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 3-month LIBOR interest rate payments initially related to the $400 million notional amount under the Old Acquisition Term Loan over the 3-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 received from the counterparty a floating interest rate based on the higher of the 3-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 fixed the interest rate on such notional amount at 5.5709% through May 2018).
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 of such swap were 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, were fully amortized into earnings over the remaining term of the 2013 Interest Rate Swap, which expired in May 2018. 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 was nil at each of September 30, 2019 and December 31, 2018. 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.

Quantitative Information – Derivative Financial Instruments

As of September 30, 2019 and December 31, 2018, the Company did not have any derivative financial instruments.
 
 
 
 
 
 
 
 
 
 
The effects of the Company's derivative financial instruments on its Unaudited Consolidated Statements of Operations and Comprehensive Loss 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 September 30,
 
Nine Months Ended September 30,
2019
 
2018
 
2019
 
2018
Derivative financial instruments:
 
 
 
 
 
 
 
 
2013 Interest Rate Swap
 
Interest Expense
 
$
—

 
$
—

 
$
—

 
$
(1.2
)
FX Contracts
 
Foreign currency gain, net
 
—

 
—

 
—

 
0.2

2013 Interest Rate Swap
 
Miscellaneous, net
 
—

 
—

 
—

 
0.2


 
Amount of Gain Recognized in Other Comprehensive Loss
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Derivatives previously designated as hedging instruments:
 
 
 
 
 
 
 
2013 Interest Rate Swap, net of tax (a)
$
—

 
$
—

 
$
—

 
$
0.7

(a) Net of tax benefits of nil and $0.5 million for the three and nine months ended September 30, 2018, respectively.

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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)




11. PENSION AND POST-RETIREMENT BENEFITS

Net Periodic Benefit Cost
The components of net periodic benefit costs for the Company's pension and the other post-retirement benefit plans for the three months ended September 30, 2019 and 2018, respectively, were as follows:
 


Pension Plans
 
Other
Post-Retirement Benefit Plans
 
Three Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
0.4


$
0.5

 
$
—


$
—

Interest cost
5.1


4.6

 
0.1


0.1

Expected return on plan assets
(6.0
)

(6.9
)
 
—


—

Amortization of actuarial loss
2.5


2.4

 
0.1


0.1

Curtailment gain
—


—

 
—


—

Total net periodic benefit costs prior to allocation
$
2.0


$
0.6

 
$
0.2


$
0.2

Portion allocated to Revlon Holdings
—


—

 
—


—

Total net periodic benefit costs
$
2.0


$
0.6

 
$
0.2


$
0.2

In the three months ended September 30, 2019, the Company recognized net periodic benefit cost of $2.2 million, compared to net periodic benefit cost of $0.8 million in the three months ended September 30, 2018, primarily due to lower expected return on plan assets and higher interest cost.

The components of net periodic benefit costs for the Company's pension and the other post-retirement benefit plans for the nine months ended September 30, 2019 and 2018, respectively, were as follows:
 
Pension Plans
 
Other
Post-Retirement Benefit Plans
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
1.4

 
$
1.5

 
$
—

 
$
—

Interest cost
15.0

 
13.9

 
0.3

 
0.3

Expected return on plan assets
(18.0
)
 
(20.8
)
 
—

 
—

Amortization of actuarial loss
7.5

 
6.9

 
0.2

 
0.3

Total net periodic benefit costs prior to allocation
$
5.9

 
$
1.5

 
$
0.5

 
$
0.6

Portion allocated to Revlon Holdings
(0.1
)
 
(0.1
)
 
—

 
—

Total net periodic benefit costs
$
5.8

 
$
1.4

 
$
0.5

 
$
0.6

In the nine months ended September 30, 2019, the Company recognized net periodic benefit cost of $6.3 million, compared to net periodic benefit cost of $2.0 million in the nine months ended September 30, 2018, primarily due to lower expected return on plan assets and higher interest cost.


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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Net periodic benefit costs are reflected in the Company's Unaudited Consolidated Financial Statements as follows for the periods presented:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net periodic benefit costs:
 
 
 
 
 
 
 
Selling, general and administrative expense
$
0.5

 
$
0.5

 
$
1.4

 
$
1.5

Miscellaneous, net
1.7

 
0.3

 
4.9

 
0.5

Total net periodic benefit costs
$
2.2

 
$
0.8

 
$
6.3

 
$
2.0


The Company expects that it will have net periodic benefit cost of approximately $8.3 million for its pension and other post-retirement benefit plans for all of 2019, compared with net periodic benefit cost of $2.6 million in 2018.
Contributions:
The Company’s intent is to fund at least the minimum contributions required to meet applicable federal employee benefit laws and local laws, or to directly pay benefit payments where appropriate. During the third quarter of 2019, $3.2 million and $0.2 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During the nine months ended of 2019, $7.3 million and $0.5 million were contributed to the Company’s pension plans and other post-retirement benefit plans, respectively. During 2019, the Company expects to contribute approximately $12 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 13, "Pension and Post-Retirement Benefits," to the Consolidated Financial Statements in the Company's 2018 Form 10-K.


12. STOCK COMPENSATION PLAN AND OTHER INCENTIVE PROGRAMS
Revlon maintains the Fourth Amended and Restated Revlon, Inc. Stock Plan (the "Stock Plan"), which provides for awards of stock options, stock appreciation rights, restricted or unrestricted stock and restricted stock units ("RSUs") to eligible employees and directors of Revlon and its affiliates, including Products Corporation. An aggregate of 6,565,000 shares were reserved for issuance as Awards under the Stock Plan, of which there remained approximately 1.7 million shares available for grant as of September 30, 2019. In July 2014, the Stock Plan was amended to renew the Stock Plan for a 7-year renewal term expiring on April 14, 2021.

Revlon 2019 Transaction Incentive Program

On August 16, 2019, it was disclosed that MacAndrews & Forbes and Revlon have determined to explore strategic transactions involving Revlon and third parties. In light of this, the Compensation Committee of Revlon’s Board of Directors approved a Revlon 2019 Transaction Incentive Program (the “2019 TIP”) that enables the Company to award cash-based and RSU-based retention grants and transaction bonus awards, as well as providing for the accelerated vesting of time-based RSUs and restricted shares following a termination without cause or due to death or disability. On September 5, 2019, Revlon’s Board approved amendments to the Stock Plan: (1) to allow the Compensation Committee to delegate to Revlon’s Chief Executive Officer the authority to grant RSUs to the Company’s employees, other than its officers who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (i.e., the Company’s Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer & Controller); (2) to allow for accelerated vesting of equity awards upon a termination without cause; (3) to change the minimum vesting period for specified equity awards from 3 years to 2 years; and (4) to increase by 250,000 shares the number of shares of Revlon common stock that are not subject to the Stock Plan’s minimum vesting requirements. The Company’s President and Chief Executive Officer declined an award under the retention program and will receive a transaction bonus only if the Company completes a transaction.


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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Effective as of September 5, 2019, the Company granted a total of 206,812 time-based RSUs under the 2019 TIP which are scheduled to vest in equivalent amounts on each of December 31, 2020 and December 31, 2021, subject to continued employment (the “TIP RSUs”). The TIP RSUs vest in full upon an involuntary termination, other than if due to cause; provided that if a change of control occurs or a brand or business segment is sold and (i) the impacted grantee accepts an offer of employment from the buyer, then: (A) if the buyer assumes the TIP RSUs, the grantee will continue to vest in the assumed awards (with the grantee having the continued right to accelerated vesting upon an involuntary termination, other than if due to cause); and (B) if the buyer does not assume the TIP RSUs, the grantee’s TIP RSUs will vest upon closing the change of control; and (ii) the impacted grantee declines an offer of employment from the buyer for substantially comparable total compensation and benefits, the grantee will forfeit their unvested TIP RSUs (collectively, the “Special Vesting Rules”).

The 2019 TIP also provides for the following cash-based awards payable to certain employees, subject to continued employment through the respective vesting dates:
•$6.8 million payable in two equal installments as of December 31, 2020 and December 31, 2021; and
•$2.5 million payable in one installment as of December 31, 2020.
Such cash-based awards follow the same acceleration rules disclosed above following a termination without cause or due to death or disability.

Long-Term Incentive Program

The Company's LTIP RSUs consist of time-based RSUs and performance-based RSUs. Time-based RSUs are scheduled to vest ratably over a 3-year service period, while performance-based RSUs are scheduled to vest based on the achievement of certain Company performance metrics and cliff-vest at the completion of a 3-year performance period.

The fair value of the LTIP and TIP RSUs is determined based on the NYSE closing share price on the grant date.

In connection with the announcement of the 2019 TIP, in August 2019 the Company also approved applying the Special Vesting Rules to outstanding, pre-existing LTIP RSUs, except that accelerated vesting will apply only to any tranche of outstanding, pre-existing LTIP RSUs scheduled to vest in the 12-month period following termination, with any future tranches being forfeited. Prior to the approval of these Special Vesting Rules, while the outstanding, pre-existing LTIP RSUs would generally have accelerated vesting upon a change of control, they did not feature accelerated vesting for termination and, in such cases, they were entirely forfeited upon termination. As of September 30, 2019, there were no acceleration of vesting for pre-existing LTIP RSUs under the above-mentioned provisions.

During the three months ended September 30, 2019, the Company granted nil time-based and performance-based RSU awards under the Stock Plan (the "2019 LTIP RSUs").

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(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


During the nine months ended September 30, 2019, the activity related to time-based and performance-based RSUs previously granted to eligible employees and the grant date fair value per share related to these RSUs were as follows under the LTIP and TIP plans, respectively:
 
Time-Based LTIP
 
Performance-Based LTIP
 
RSUs (000's)
 
Weighted-Average Grant Date Fair Value per RSU
 
RSUs (000's)
 
Weighted-Average Grant Date Fair Value per RSU
Outstanding as of December 31, 2018
 
 
 
 
 
 
 
LTIP RSUs:
 
 
 
 
 
 
 
2018
434.7

 
$
19.11

 
434.7

 
$
19.11

2017 (a)
156.4

 
19.70

 
156.4

 
19.70

Total LTIP RSUs Outstanding as of December 31, 2018
591.1

 
 
 
591.1

 
 
Granted
 
 
 
 
 
 
 
2019 TIP RSUs Granted (b)
206.8

 
16.44

 
n/a
 
 
LTIP RSUs Granted:
 
 
 
 
 
 
 
2019
446.0

 
22.55

 
446.1

 
22.55

Total LTIP RSUs Granted
446.0

 

 
446.1

 

Vested
 
 
 
 
 
 
 
2019 TIP RSUs Vested (b)
—

 
—

 
n/a
 
 
LTIP RSUs Vested:
 
 
 
 
 
 
 
2019
—

 
—

 
—

 
—

2018
(132.8
)
 
19.06

 
—

 
—

2017 (a)
(67.4
)
 
19.70

 
—

 
—

Total LTIP RSUs Vested
(200.2
)
 
 
 
—

 
 
Forfeited/Canceled
 
 
 
 
 
 
 
2019 TIP RSUs Forfeited/Canceled (b)
—

 
 
 
n/a
 
 
LTIP RSUs Forfeited/Canceled:
 
 
 
 
 
 
 
2019
(2.2
)
 
22.55

 
(2.2
)
 
22.55

2018
(45.5
)
 
19.70

 
(51.4
)
 
19.70

2017 (a)
(28.1
)
 
19.70

 
(34.6
)
 
19.70

Total LTIP RSUs Forfeited/Canceled
(75.8
)
 
 
 
(88.2
)
 
 
Outstanding as of September 30, 2019
 
 
 
 
 
 
 
2019 TIP RSUs (b)
206.8

 
16.44

 
n/a
 
 
LTIP RSUs:
 
 
 
 
 
 
 
2019
443.8

 
22.55

 
443.9

 
22.55

2018
256.4

 
19.04

 
383.3

 
19.04

2017 (a)
60.9

 
19.70

 
121.8

 
19.70

Total LTIP RSUs
761.1

 
 
 
949.0

 
 
Total LTIP and TIP RSUs Outstanding as of September 30, 2019
967.9

 
 
 
949.0

 
 
(a) The 2017 time-based and performance-based LTIP RSUs are recognized over a 2-year service and performance periods, respectively.
(b) The 2019 TIP provides for RSU awards that are only time-based.


32
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COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Time-Based LTIP RSUs
The Company recognized a net adjustment to compensation expense related to the time-based LTIP RSUs of $3.0 million for the nine months ended September 30, 2019. As of September 30, 2019, the Company had $12.7 million of total deferred compensation expense related to non-vested, time-based LTIP RSUs. The cost is recognized over the vesting period of the awards, as described above. One tranche of time-based LTIP RSUs vested during the nine months ended September 30, 2019.

Performance-based LTIP RSUs
The Company recognized a net adjustment to compensation expense related to the performance-based LTIP RSUs of $2.4 million for the nine months ended September 30, 2019. As of September 30, 2019, the Company had $14.2 million of total deferred compensation expense related to non-vested, performance-based LTIP RSUs. The cost is recognized over the service period of the awards, as described above. No performance-based LTIP RSUs vested during the nine months ended September 30, 2019.


13. 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., the limitation on the deductibility of interest, valuation allowances and other items. The Company’s tax provision changes quarterly based on various factors including, but not limited to, the geographical level and mix of earnings; enacted tax legislation; foreign, state and local income taxes; tax audit settlements and the interaction of various global tax strategies.

For the three and nine months ended September 30, 2019, the Company concluded that the use of the cut-off method was more appropriate than the annual effective tax rate method, because the annual effective tax rate method would not be reliable due to its sensitivity to minimal changes in forecasted annual pre-tax earnings.
The Company recorded a benefit from income taxes of $2.1 million (Products Corporation - $1.8 million) for the three months ended September 30, 2019 and a benefit from incomes taxes of $38.7 million (Products Corporation - $38.2 million) for the three months ended September 30, 2018, respectively. The $36.6 million decrease (Products Corporation - $36.4 million) in the benefit from income taxes, of which $34.3 million was non-cash, was primarily due to: (i) the decreased loss from continuing operations before income taxes; (ii) the mix and level of earnings; (iii) the impact of the 2017 Tax Act mainly due to an adjustment in the third quarter of 2018 related to a new U.S. Treasury regulation issued in September 2018.
The Company recorded a benefit from income taxes of $3.2 million (Products Corporation - $2.4 million) for the nine months ended September 30, 2019 and a benefit from income taxes of $43.1 million (Products Corporation - $42.0 million) for the nine months ended September 30, 2018, respectively. The $39.9 million decrease (Products Corporation - $39.6 million) in the benefit from income taxes, of which $34.3 million was non-cash, was primarily due to: (i) the decreased loss from continuing operations before income taxes; (ii) the mix and level of earnings; (iii) the impact of the 2017 Tax Act mainly due to an adjustment in the third quarter of 2018 related to a new U.S. Treasury regulation issued in September 2018. For a further discussion, see Note 15, "Income Taxes," to the Consolidated Financial Statements in the Company's 2018 Form 10-K and Item 1A. “Risk Factors-Uncertainties in the interpretation and application of the U.S. income tax provisions could have a material impact on the Company's financial condition, results of operations and/or cash flows” in the Company's 2018 Form 10-K.
The Company's effective tax rate for the three months and nine months ended September 30, 2019 was lower than the federal statutory rate of 21%, primarily due to the valuation allowance related to the limitation on the deductibility of interest and the U.S. tax on the Company's foreign earnings.
The Company expects that its tax provision and effective tax rate in any individual quarter and year-to-date period will vary and may not be indicative of the Company's tax provision and effective tax rate for the full year.
The Company concluded that, based on its evaluation of objective verifiable evidence, it does not require a valuation allowance on its federal deferred tax assets, other than those associated with the limitation on the deductibility of interest. The Company does have a valuation allowance on deferred tax assets associated with its activity in certain U.S. states and foreign jurisdictions. These conclusions regarding the establishment of valuation allowances on the Company's deferred tax assets for the nine months ended September 30, 2019 are consistent with the Company's conclusions on such matters as of the year ended December 31, 2018. However, if the Company does not generate sufficient taxable income in future periods, its deferred tax assets may not be realizable on a more-likely-than-not basis, which would result in the Company having to establish an additional valuation allowance against

33
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COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


its deferred tax assets. The Company will continue to assess all available evidence, both negative and positive, to determine whether such additional valuation allowance is warranted.
For a further discussion, see Note 15, "Income Taxes," to the Consolidated Financial Statements in the Company's 2018 Form 10-K and Item 1A. “Risk Factors-Uncertainties in the interpretation and application of the U.S. income tax provisions could have a material impact on the Company's financial condition, results of operations and/or cash flows” in the Company's 2018 Form 10-K.

 
 
 
 
 
 
14. ACCUMULATED OTHER COMPREHENSIVE LOSS

A roll-forward of the Company's accumulated other comprehensive loss as of September 30, 2019 is as follows:
 
Foreign Currency Translation
 
Actuarial (Loss) Gain on Post-retirement Benefits
 
Other
 
Accumulated Other Comprehensive Loss
Balance at January 1, 2019
$
(24.4
)
 
$
(209.5
)
 
$
(0.3
)
 
$
(234.2
)
Foreign currency translation adjustment
(0.5
)
 
—

 
—

 
(0.5
)
Amortization of pension related costs, net of tax of $(0.9) million(a)
—

 
7.2

 
—

 
7.2

Other comprehensive (loss) income
$
(0.5
)

$
7.2


$
—


$
6.7

Balance at September 30, 2019
$
(24.9
)
 
$
(202.3
)
 
$
(0.3
)
 
$
(227.5
)
(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 11, "Pension and Post-retirement Benefits," for further discussion of the Company’s pension and other post-retirement plans.

For the three and nine months ended September 30, 2019, the Company did not have any activity related to financial instruments. As the 2013 Interest Rate Swap expired in May 2018 and had been fully amortized into earnings as of June 30, 2018, there was no activity related to the 2013 Interest Rate Swap for the three months ended September 30, 2018. The following is a roll-forward of the amounts reclassified out of accumulated other comprehensive loss into earnings during the nine months ended September 30, 2018 related to the 2013 Interest Rate Swap:
 
 
2013
Interest Rate Swap
Beginning accumulated losses at December 31, 2017
 
$
(0.7
)
Reclassifications into earnings (net of $0.5 million tax benefit)(a)
 
0.7

Ending accumulated losses at September 30, 2018
 
$
—

(a) Reclassified to interest expense.


15. 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 "Chief 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 Chief Executive Officer.

34
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COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


As of September 30, 2019, 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 and specialty cosmetic stores in the U.S. and internationally under brands such as Revlon in color cosmetics; Revlon ColorSilk and Revlon Professional in hair color; and Revlon in beauty tools.
•
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 website, 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; American Crew in men's grooming products (which are also sold direct-to-consumer on its americancrew.com website); CND in nail polishes, gel nail color and nail enhancements; Cutex nail care products; Pure Ice in nail polishes; 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 (which are also sold direct-to-consumer on its juicycouturebeauty.com website), Britney Spears, Elizabeth Taylor, Curve, John Varvatos, Christina Aguilera, Giorgio Beverly Hills, Ed Hardy, Charlie, Lucky Brand, Paul Sebastian, Alfred Sung, Jennifer Aniston, Mariah Carey, Halston, Geoffrey Beene, La Perla, White Shoulders, AllSaints  and Wildfox.
The Company's management evaluates segment profit for each of the Company's reportable segments. The Company allocates corporate expenses to each reportable segment to arrive at segment profit, and these expenses are included in the internal measure of segment operating performance. The Company defines segment profit as income from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt and miscellaneous expenses. Segment profit also excludes the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance. 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 Chief Executive Officer or included in these Unaudited Consolidated Financial Statements.

35
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COMBINED 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 for Revlon and Product's Corporation by reportable segment for the periods presented.

Revlon, Inc.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Segment Net Sales:
 
 
 
 
 
 
 
Revlon
$
217.3

 
$
249.5

 
$
716.1

 
$
736.9

Elizabeth Arden
123.2

 
122.1

 
352.0

 
333.9

Portfolio
118.2

 
138.4

 
354.1

 
420.5

Fragrances
138.1

 
145.4

 
298.0

 
331.6

Total
$
596.8

 
$
655.4

 
$
1,720.2

 
$
1,822.9

 
 
 
 
 
 
 
 
Segment Profit:
 
 
 
 
 
 
 
Revlon
$
7.3

 
$
36.8

 
$
58.5

 
$
75.6

Elizabeth Arden
12.5

 
6.6

 
17.1

 
2.3

Portfolio
14.4

 
2.1

 
25.0

 
(5.8
)
Fragrances
34.2

 
26.9

 
53.6

 
41.2

Total
$
68.4

 
$
72.4

 
$
154.2

 
$
113.3

 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
Total Segment Profit
$
68.4

 
$
72.4

 
$
154.2

 
$
113.3

Less:
 
 
 
 
 
 
 
Depreciation and amortization
38.9

 
40.1

 
124.6

 
119.4

Non-cash stock compensation expense
3.9

 
6.3

 
7.7

 
14.8

Non-Operating items:


 


 
 
 


Restructuring and related charges
5.4

 
3.8

 
27.4

 
14.8

Acquisition and integration costs
0.1

 
3.4

 
0.7

 
12.0

Loss on disposal of minority investment
—

 
—

 
—

 
20.1

Oxford ERP system disruption-related charges
—

 
16.5

 
—

 
49.6

Financial control remediation actions and related charges
3.4

 
—

 
9.8

 
—

Operating income (loss)
16.7

 
2.3

 
(16.0
)
 
(117.4
)
Less:
 
 


 
 
 
 
Interest Expense
50.2

 
46.4

 
145.7

 
129.1

Amortization of debt issuance costs
3.7

 
3.8

 
10.4

 
9.1

Foreign currency losses, net
7.6

 
1.1

 
9.0

 
10.7

Miscellaneous, net
1.7

 
0.4

 
7.6

 
0.6

Loss from continuing operations before income taxes
$
(46.5
)
 
$
(49.4
)
 
$
(188.7
)
 
$
(266.9
)




36
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Segment Net Sales:
 
 
 
 
 
 
 
Revlon
$
217.3

 
$
249.5

 
$
716.1

 
$
736.9

Elizabeth Arden
123.2

 
122.1

 
352.0

 
333.9

Portfolio
118.2

 
138.4

 
354.1

 
420.5

Fragrances
138.1

 
145.4

 
298.0

 
331.6

Total
$
596.8

 
$
655.4

 
$
1,720.2

 
$
1,822.9

 
 
 
 
 
 
 
 
Segment Profit:
 
 
 
 
 
 
 
Revlon
$
7.9

 
$
37.4

 
$
60.6

 
$
77.6

Elizabeth Arden
13.0

 
6.9

 
18.2

 
3.2

Portfolio
14.7

 
2.5

 
26.0

 
(4.6
)
Fragrances
34.6

 
27.3

 
54.5

 
42.1

Total
$
70.2

 
$
74.1

 
$
159.3

 
$
118.3

 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
Total Segment Profit
$
70.2

 
$
74.1

 
$
159.3

 
$
118.3

Less:
 
 
 
 
 
 
 
Depreciation and amortization
38.9

 
40.1

 
124.6

 
119.4

Non-cash stock compensation expense
3.9

 
6.3

 
7.7

 
14.8

Non-Operating items:
 
 
 
 
 
 
 
Restructuring and related charges
5.4

 
3.8

 
27.4

 
14.8

Acquisition and integration costs
0.1

 
3.4

 
0.7

 
12.0

Loss on disposal of minority investment
—

 
—

 
—

 
20.1

Oxford ERP system disruption-related charges
—

 
16.5

 
—

 
49.6

Financial control remediation actions and related charges
3.4

 
—

 
9.8

 
—

Operating loss
18.5

 
4.0

 
(10.9
)
 
(112.4
)
Less:
 
 
 
 
 
 
 
Interest Expense
50.2

 
46.4

 
145.7

 
129.1

Amortization of debt issuance costs
3.7

 
3.8

 
10.4

 
9.1

Foreign currency losses, net
7.6

 
1.1

 
9.0

 
10.7

Miscellaneous, net
1.7

 
0.4

 
7.6

 
0.6

Loss from continuing operations before income taxes
$
(44.7
)
 
$
(47.7
)
 
$
(183.6
)
 
$
(261.9
)

As of September 30, 2019, the Company had operations established in approximately 25 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.

37
Table of Contents
COMBINED 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 September 30, 2019
 
Nine Months Ended September 30, 2019
 
Revlon
 
Elizabeth Arden
 
Portfolio
 
Fragrances
 
Total
 
Revlon
 
Elizabeth Arden
 
Portfolio
 
Fragrances
 
Total
Geographic Area:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   North America
$
100.0

 
$
29.5

 
$
71.4

 
$
98.6

 
$
299.5

 
$
367.9

 
$
83.9

 
$
214.5

 
$
198.4

 
$
864.7

   EMEA*
49.8

 
53.5

 
38.5

 
28.3

 
170.1

 
157.8

 
148.1

 
111.4

 
73.1

 
490.4

   Asia
29.8

 
30.7

 
1.0

 
2.9

 
64.4

 
77.8

 
97.0

 
3.2

 
9.6

 
187.6

   Latin America*
17.4

 
1.8

 
4.4

 
2.7

 
26.3

 
52.3

 
6.0

 
15.8

 
6.1

 
80.2

   Pacific*
20.3

 
7.7

 
2.9

 
5.6

 
36.5

 
60.3

 
17.0

 
9.2

 
10.8

 
97.3

 
$
217.3

 
$
123.2

 
$
118.2

 
$
138.1

 
$
596.8

 
$
716.1

 
$
352.0

 
$
354.1

 
$
298.0

 
$
1,720.2


 
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
 
Revlon
 
Elizabeth Arden
 
Portfolio
 
Fragrances
 
Total
 
Revlon
 
Elizabeth Arden
 
Portfolio
 
Fragrances
 
Total
Geographic Area:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   North America
$
123.1

 
$
40.3

 
$
88.1

 
$
99.3

 
$
350.8

 
$
388.2

 
$
96.2

 
$
264.8

 
$
216.9

 
$
966.1

   EMEA*
57.9

 
48.3

 
40.5

 
33.2

 
179.9

 
166.5

 
141.4

 
126.0

 
81.6

 
515.5

   Asia
28.6

 
23.2

 
1.1

 
3.4

 
56.3

 
78.5

 
71.6

 
3.1

 
9.9

 
163.1

   Latin America*
19.9

 
3.2

 
6.0

 
3.4

 
32.5

 
49.3

 
7.9

 
16.8

 
10.5

 
84.5

   Pacific*
20.0

 
7.1

 
2.7

 
6.1

 
35.9

 
54.4

 
16.8

 
9.8

 
12.7

 
93.7

 
$
249.5

 
$
122.1

 
$
138.4

 
$
145.4

 
$
655.4

 
$
736.9

 
$
333.9

 
$
420.5

 
$
331.6

 
$
1,822.9


* The EMEA region includes Europe, the Middle East, Africa and the Company's international Travel Retail business; the Latin America region includes Mexico; and the Pacific region includes Australia and New Zealand.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019

2018
Classes of similar products:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Net sales:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Color cosmetics
$
173.6

 
29%
 
$
216.4

 
33%
 
$
569.9

 
33%
 
$
631.1

 
35%
Fragrance
183.7

 
31%
 
191.7

 
29%
 
411.1

 
24%
 
448.5

 
25%
Hair care
120.5

 
20%
 
129.6

 
20%
 
379.0

 
22%
 
391.0

 
21%
Beauty care
43.6

 
7%
 
49.7

 
8%
 
132.7

 
8%
 
147.5

 
8%
Skin care
75.4

 
13%
 
68.0

 
10%
 
227.5

 
13%
 
204.8

 
11%
 
$
596.8

 
 
 
$
655.4

 
 
 
$
1,720.2

 
 
 
$
1,822.9

 
 

The following table presents the Company's long-lived assets by geographic area as of September 30, 2019 and December 31, 2018:
 
September 30, 2019
 
December 31, 2018
Long-lived assets, net:
 
 
 
 
 
 
 
United States
$
1,430.8

 
84%
 
$
1,416.2

 
84%
International
275.9

 
16%
 
275.0

 
16%
 
$
1,706.7

 
 
$
1,691.2

 
 

38
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


16. REVLON, INC. BASIC AND DILUTED EARNINGS PER COMMON SHARE
Shares used in calculating Revlon's basic loss per share are computed using the weighted-average number of Revlon's common shares outstanding during each period. Shares used in diluted loss per share include the dilutive effect of unvested restricted stock, RSUs, TIP RSUs and LTIP RSUs under the Company’s Stock Plan using the treasury stock method. For the nine months ended September 30, 2019, Revlon's diluted loss per share equals basic loss per share, as the assumed vesting of restricted stock, RSUs, TIP RSUs and LTIP RSUs would have an anti-dilutive effect. As of September 30, 2019 and 2018, there were no outstanding stock options under the Company's Stock Plan. See Note 12, "Stock Compensation Plan," for information on the LTIP and TIP RSUs.

Following are the components of Revlon's basic and diluted loss per common share for the periods presented:
 
Three months ended September 30,
 
Nine months ended September 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Loss from continuing operations, net of taxes
$
(44.4
)
 
$
(10.7
)
 
$
(185.5
)
 
$
(223.8
)
(Loss) income from discontinued operations, net of taxes
(0.3
)
 
(0.4
)
 
2.0

 
(0.1
)
Net loss
$
(44.7
)
 
$
(11.1
)
 
$
(183.5
)
 
$
(223.9
)
Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding – Basic
53,129,004

 
52,834,879

 
53,057,154

 
52,777,883

Effect of dilutive restricted stock
—

 
—

 
—

 
—

Weighted-average common shares outstanding – Diluted
53,129,004

 
52,834,879

 
53,057,154

 
52,777,883

Basic loss per common share:
 
 
 
 
 
 
 
Continuing operations
$
(0.84
)
 
$
(0.20
)
 
$
(3.50
)
 
$
(4.24
)
Discontinued operations
—

 
(0.01
)
 
0.04

 
—

Net loss per common share
$
(0.84
)
 
$
(0.21
)
 
$
(3.46
)
 
$
(4.24
)
Diluted loss per common share:


 
 
 
 
 
 
Continuing operations
$
(0.84
)
 
$
(0.20
)
 
$
(3.50
)
 
$
(4.24
)
Discontinued operations
—

 
(0.01
)
 
0.04

 
—

Net loss per common share
$
(0.84
)
 
$
(0.21
)
 
$
(3.46
)
 
$
(4.24
)
 
 
 
 
 
 
 
 
Unvested restricted stock and RSUs under the Stock Plan(a)
314,478

 
197,667

 
406,854

 
165,961

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


17. CONTINGENCIES
The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.



39
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COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


18. RELATED PARTY TRANSACTIONS
Reimbursement Agreements
Revlon, Products Corporation and 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 nine months ended September 30, 2019 and 2018 was $0.3 million expense and $0.4 million income, respectively. As of September 30, 2019 and December 31, 2018, a receivable balance of nil and $0.3 million, respectively, from MacAndrews & Forbes were included in the Company's Consolidated Balance Sheet for transactions subject to the Reimbursement Agreements.

2019 Senior Line of Credit Facility

See Note 8, "Long-term Debt" and Note 20, “Subsequent Events,” regarding the 2019 Senior Line of Credit Agreement between Products Corporation and MacAndrews & Forbes Group, LLC.

Other

During the nine months ended September 30, 2019 and 2018, 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 $19.8 million and $16.9 million of coupon redemptions for the Company's retail customers for the nine months ended September 30, 2019 and 2018, respectively, for which the Company incurred fees of approximately $0.5 million and $0.2 million for each of the nine months ended September 30, 2019 and 2018, and other similar advertising, coupon redemption and raw material supply services, for which the Company had net payables aggregating to approximately $0.5 million and $0.2 million for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019 and December 31, 2018, a payable balance of approximately $5.3 million and nil, respectively, were included in the Company's Consolidated Balance Sheet for the aforementioned coupon redemption services. 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 or received were at least as favorable as those available from unaffiliated parties.



40
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COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


19. PRODUCTS CORPORATION AND SUBSIDIARIES GUARANTOR FINANCIAL INFORMATION

Products Corporation's 5.75% Senior Notes and 6.25% Senior Notes are fully and unconditionally guaranteed on a senior basis by certain of Products Corporation’s direct and indirect wholly-owned domestic subsidiaries (the "5.75% Senior Notes Guarantors" and the "6.25% Senior Notes Guarantors," respectively, and together the "Guarantor Subsidiaries").

The following Condensed Consolidating Unaudited Financial Statements present the financial information as of September 30, 2019 and December 31, 2018, and for each of the three and nine months ended September 30, 2019 and 2018 for (i) Products Corporation on a stand-alone basis; (ii) the Guarantor Subsidiaries on a stand-alone basis; (iii) the subsidiaries of Products Corporation that do not guarantee Products Corporation's 5.75% Senior Notes and 6.25% Senior Notes (the "Non-Guarantor Subsidiaries") on a stand-alone basis; and (iv) Products Corporation, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries on a consolidated basis. The Condensed Consolidating Unaudited Financial Statements are presented on the equity method, under which the investments in subsidiaries are recorded at cost and adjusted to the applicable share of the subsidiary's cumulative results of operations, capital contributions, distributions and other equity changes. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

Products Corporation and Subsidiaries Condensed Consolidating Balance Sheets
As of September 30, 2019
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1.2

 
$
3.2

 
$
56.3

 
$
—

 
$
60.7

Trade receivables, less allowances for doubtful accounts
85.6

 
130.1

 
239.2

 
—

 
454.9

Inventories
152.4

 
182.9

 
186.7

 
—

 
522.0

Prepaid expenses and other
234.2

 
27.4

 
48.6

 
—

 
310.2

Intercompany receivables
2,690.4

 
2,601.9

 
377.3

 
(5,669.6
)
 
—

Investment in subsidiaries
1,570.0

 
14.5

 
—

 
(1,584.5
)
 
—

Property, plant and equipment, net
212.5

 
94.1

 
107.1

 
—

 
413.7

Deferred income taxes
178.1

 
(20.4
)
 
(16.5
)
 
—

 
141.2

Goodwill
160.0

 
263.9

 
249.5

 
—

 
673.4

Intangible assets, net
13.3

 
353.3

 
130.1

 
—

 
496.7

Other assets
68.6

 
19.8

 
34.5

 
—

 
122.9

      Total assets
$
5,366.3

 
$
3,670.7

 
$
1,412.8

 
$
(7,254.1
)
 
$
3,195.7

LIABILITIES AND STOCKHOLDER’S DEFICIENCY
Short-term borrowings
$
—

 
$
—

 
$
5.1

 
$
—

 
$
5.1

Current portion of long-term debt
363.4

 
—

 
0.1

 
—

 
363.5

Accounts payable
150.4

 
79.4

 
92.5

 
—

 
322.3

Accrued expenses and other
139.2

 
69.4

 
163.0

 
—

 
371.6

Intercompany payables
2,717.3

 
2,464.1

 
488.3

 
(5,669.7
)
 
—

Long-term debt
2,826.8

 
—

 
79.8

 
—

 
2,906.6

Other long-term liabilities
251.7

 
36.7

 
36.2

 
—

 
324.6

      Total liabilities
6,448.8

 
2,649.6

 
865.0

 
(5,669.7
)
 
4,293.7

Stockholder’s deficiency
(1,082.5
)
 
1,021.1

 
547.8

 
(1,584.4
)
 
(1,098.0
)
Total liabilities and stockholder’s deficiency
$
5,366.3

 
$
3,670.7

 
$
1,412.8

 
$
(7,254.1
)
 
$
3,195.7




41
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Balance Sheets
As of December 31, 2018
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
 
 
 
 
 
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
7.3

 
$
6.6

 
$
73.4

 
$
—

 
$
87.3

Trade receivables, less allowances for doubtful accounts
89.7

 
103.5

 
238.1

 
—

 
431.3

Inventories
150.7

 
196.5

 
176.0

 
—

 
523.2

Prepaid expenses and other
214.7

 
25.0

 
60.0

 
—

 
299.7

Intercompany receivables
2,225.4

 
2,177.2

 
266.1

 
(4,668.7
)
 
—

Investment in subsidiaries
1,627.4

 
30.4

 
—

 
(1,657.8
)
 
—

Property, plant and equipment, net
197.1

 
57.5

 
99.9

 
—

 
354.5

Deferred income taxes
105.9

 
(6.9
)
 
15.8

 
—

 
114.8

Goodwill
159.9

 
263.9

 
250.1

 
—

 
673.9

Intangible assets, net
21.2

 
412.2

 
98.6

 
—

 
532.0

Other assets
71.8

 
23.4

 
35.6

 
—

 
130.8

      Total assets
$
4,871.1

 
$
3,289.3

 
$
1,313.6

 
$
(6,326.5
)
 
$
3,147.5

LIABILITIES AND STOCKHOLDER’S DEFICIENCY
Short-term borrowings
$
—

 
$
—

 
$
9.3

 
$
—

 
$
9.3

Current portion of long-term debt
348.0

 
—

 
0.1

 
—

 
348.1

Accounts payable
148.8

 
88.6

 
94.7

 
—

 
332.1

Accrued expenses and other
152.6

 
87.0

 
195.1

 
—

 
434.7

Intercompany payables
2,226.8

 
2,028.9

 
413.0

 
(4,668.7
)
 
—

Long-term debt
2,644.6

 
—

 
83.1

 
—

 
2,727.7

Other long-term liabilities
153.4

 
11.2

 
64.1

 
—

 
228.7

      Total liabilities
5,674.2

 
2,215.7

 
859.4

 
(4,668.7
)
 
4,080.6

Stockholder’s deficiency
(803.1
)
 
1,073.6

 
454.2

 
(1,657.8
)
 
(933.1
)
Total liabilities and stockholder’s deficiency
$
4,871.1

 
$
3,289.3

 
$
1,313.6

 
$
(6,326.5
)
 
$
3,147.5



42
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
Three Months Ended September 30, 2019
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
$
118.4

 
$
174.8

 
$
303.9

 
$
(0.3
)
 
$
596.8

Cost of sales
64.9

 
88.1

 
116.3

 
(0.3
)
 
269.0

Gross profit
53.5

 
86.7

 
187.6

 
—

 
327.8

Selling, general and administrative expenses
90.5

 
82.1

 
133.7

 
—

 
306.3

Acquisition and integration costs
0.1

 
—

 
—

 
—

 
0.1

Restructuring charges and other, net
1.0

 
0.5

 
1.4

 
—

 
2.9

Operating (loss) income
(38.1
)
 
4.1

 
52.5

 
—

 
18.5

Other (income) expense:
 
 
 
 
 
 
 
 
 
Intercompany interest, net
(1.1
)
 
0.6

 
0.5

 
—

 
—

Interest expense
48.5

 
—

 
1.7

 
—

 
50.2

Amortization of debt issuance costs
3.7

 
—

 
—

 
—

 
3.7

Foreign currency losses (gains), net
0.9

 
(0.1
)
 
6.8

 
—

 
7.6

Miscellaneous, net
(8.4
)
 
(10.0
)
 
20.1

 
—

 
1.7

Other expense (income), net
43.6

 
(9.5
)
 
29.1

 
—

 
63.2

(Loss) income from continuing operations before income taxes
(81.7
)
 
13.6

 
23.4

 
—

 
(44.7
)
(Benefit from) provision for income taxes
(31.4
)
 
18.9

 
10.7

 
—

 
(1.8
)
(Loss) income from continuing operations, net of taxes
(50.3
)
 
(5.3
)
 
12.7

 
—

 
(42.9
)
Loss from discontinued operations, net of taxes
—

 
—

 
(0.3
)
 
—

 
(0.3
)
Equity in income (loss) of subsidiaries
30.8

 
0.1

 
—

 
(30.9
)
 
—

Net (loss) income
$
(19.5
)
 
$
(5.2
)
 
$
12.4

 
$
(30.9
)
 
$
(43.2
)
Other comprehensive income (loss)
0.5

 
3.9

 
(1.9
)
 
(2.0
)
 
0.5

Total comprehensive (loss) income
$
(19.0
)
 
$
(1.3
)
 
$
10.5

 
$
(32.9
)
 
$
(42.7
)

43
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
Three Months Ended September 30, 2018
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
$
149.3

 
$
196.5

 
$
308.5

 
$
1.1

 
$
655.4

Cost of sales
77.2

 
104.4

 
122.3

 
1.1

 
305.0

Gross profit
72.1

 
92.1

 
186.2

 
—

 
350.4

Selling, general and administrative expenses
99.6

 
98.0

 
141.5

 
—

 
339.1

Acquisition and integration costs
2.2

 
0.4

 
0.8

 
—

 
3.4

Restructuring charges and other, net
0.7

 
2.0

 
1.2

 
—

 
3.9

Operating (loss) income
(30.4
)
 
(8.3
)
 
42.7

 
—

 
4.0

Other (income) expense:
 
 
 
 
 
 
 
 
 
Intercompany interest, net
(0.8
)
 
0.6

 
0.2

 
—

 
—

Interest expense
44.7

 
—

 
1.7

 
—

 
46.4

Amortization of debt issuance costs
3.8

 
—

 
—

 
—

 
3.8

Foreign currency losses, net
0.5

 
—

 
0.6

 
—

 
1.1

Miscellaneous, net
(4.7
)
 
(16.1
)
 
21.2

 
—

 
0.4

Other expense (income), net
43.5

 
(15.5
)
 
23.7

 
—

 
51.7

(Loss) income from continuing operations before income taxes
(73.9
)
 
7.2

 
19.0

 
—

 
(47.7
)
(Benefit from) provision for income taxes
(41.5
)
 
1.4

 
1.9

 
—

 
(38.2
)
Loss from continuing operations, net of taxes
(32.4
)
 
5.8

 
17.1

 
—

 
(9.5
)
Loss from discontinued operations, net of taxes
—

 
—

 
(0.4
)
 
—

 
(0.4
)
Equity in (loss) income of subsidiaries
22.5

 
6.4

 
—

 
(28.9
)
 
—

Net (loss) income
$
(9.9
)
 
$
12.2

 
$
16.7

 
$
(28.9
)
 
$
(9.9
)
Other comprehensive (loss) income
(2.6
)
 
(0.5
)
 
(0.3
)
 
0.8

 
(2.6
)
Total comprehensive (loss) income
$
(12.5
)
 
$
11.7

 
$
16.4

 
$
(28.1
)
 
$
(12.5
)


44
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
Nine Months Ended September 30, 2019
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
$
429.4

 
$
428.9

 
$
865.4

 
$
(3.5
)
 
$
1,720.2

Cost of sales
205.1

 
217.3

 
331.8

 
(3.5
)
 
750.7

Gross profit
224.3

 
211.6

 
533.6

 
—

 
969.5

Selling, general and administrative expenses
329.5

 
238.7

 
399.9

 
—

 
968.1

Acquisition and integration costs
0.6

 
0.1

 
—

 
—

 
0.7

Restructuring charges and other, net
3.4

 
3.4

 
4.8

 
—

 
11.6

Operating (loss) income
(109.2
)
 
(30.6
)
 
128.9

 
—

 
(10.9
)
Other (income) expense:
 
 
 
 
 
 
 
 
 
Intercompany interest, net
(3.5
)
 
2.0

 
1.5

 
—

 
—

Interest expense
140.5

 
—

 
5.2

 
—

 
145.7

Amortization of debt issuance costs
10.4

 
—

 
—

 
—

 
10.4

Foreign currency losses, net
1.2

 
0.2

 
7.6

 
—

 
9.0

Miscellaneous, net
(26.4
)
 
(36.2
)
 
70.2

 
—

 
7.6

Other expense (income), net
122.2

 
(34.0
)
 
84.5

 
—

 
172.7

(Loss) income from continuing operations before income taxes
(231.4
)
 
3.4

 
44.4

 
—

 
(183.6
)
(Benefit from) provision for income taxes
(36.8
)
 
19.3

 
15.1

 
—

 
(2.4
)
(Loss) income from continuing operations, net of taxes
(194.6
)
 
(15.9
)
 
29.3

 
—

 
(181.2
)
Income from discontinued operations, net of taxes
—

 
—

 
2.0

 
—

 
2.0

Equity in income (loss) of subsidiaries
39.3

 
11.8

 
—

 
(51.1
)
 
—

Net (loss) income
$
(155.3
)
 
$
(4.1
)
 
$
31.3

 
$
(51.1
)
 
$
(179.2
)
Other comprehensive income (loss)
6.7

 
2.7

 
(1.8
)
 
(0.9
)
 
6.7

Total comprehensive (loss) income
$
(148.6
)
 
$
(1.4
)
 
$
29.5

 
$
(52.0
)
 
$
(172.5
)


45
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Statement of Operations and Comprehensive (Loss) Income
Nine Months Ended September 30, 2018
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net Sales
$
478.3

 
$
485.3

 
$
860.8

 
$
(1.5
)
 
$
1,822.9

Cost of sales
231.9

 
239.4

 
337.4

 
(1.5
)
 
807.2

Gross profit
246.4

 
245.9

 
523.4

 
—

 
1,015.7

Selling, general and administrative expenses
326.6

 
314.0

 
441.5

 
—

 
1,082.1

Acquisition and integration costs
7.8

 
1.4

 
2.8

 
—

 
12.0

Restructuring charges and other, net
5.1

 
2.2

 
6.6

 
—

 
13.9

Loss on disposal of minority investment
20.1

 
—

 
—

 
—

 
20.1

Operating income
(113.2
)
 
(71.7
)
 
72.5

 
—

 
(112.4
)
Other (income) expenses:
 
 
 
 
 
 
 
 
 
Intercompany interest, net
(4.7
)
 
1.8

 
2.9

 
—

 
—

Interest expense
127.0

 
—

 
2.1

 
—

 
129.1

Amortization of debt issuance costs
9.1

 
—

 
—

 
—

 
9.1

Foreign currency losses, net
2.5

 
0.4

 
7.8

 
—

 
10.7

Miscellaneous, net
(15.0
)
 
(41.8
)
 
57.4

 
—

 
0.6

Other expense (income), net
118.9

 
(39.6
)
 
70.2

 
—

 
149.5

(Loss) income from continuing operations before income taxes
(232.1
)
 
(32.1
)
 
2.3

 
—

 
(261.9
)
(Benefit from) provision for income taxes
(49.7
)
 
6.5

 
1.2

 
—

 
(42.0
)
(Loss) income from continuing operations, net of taxes
(182.4
)
 
(38.6
)
 
1.1

 
—

 
(219.9
)
Loss from discontinued operations, net of taxes
—

 
—

 
(0.1
)
 
—

 
(0.1
)
Equity in (loss) income of subsidiaries
(37.6
)
 
1.6

 
—

 
36.0

 
—

Net (loss) income
$
(220.0
)
 
$
(37.0
)
 
$
1.0

 
$
36.0

 
$
(220.0
)
Other comprehensive (loss) income
(5.1
)
 
(3.3
)
 
(9.3
)
 
12.6

 
(5.1
)
Total comprehensive (loss) income
$
(225.1
)
 
$
(40.3
)
 
$
(8.3
)
 
$
48.6

 
$
(225.1
)


46
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2019
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash (used in) provided by operating activities
$
(169.1
)
 
$
5.6

 
$
(3.3
)
 
$
—

 
$
(166.8
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash used in investing activities
(10.9
)
 
(2.0
)
 
(7.1
)
 
—

 
(20.0
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net decrease in short-term borrowings and overdraft
(11.5
)
 
(7.2
)
 
(3.7
)
 
—

 
(22.4
)
Net borrowings under the Amended 2016 Revolving Credit Facility
13.4

 
—

 
—

 
—

 
13.4

Net borrowings under the 2019 Term Loan Facility
200.0

 
—

 
—

 
—

 
200.0

Repayments under the 2016 Term Loan Facility
(13.5
)
 
—

 
—

 
—

 
(13.5
)
Payment of financing costs
(12.2
)
 
—

 
(1.2
)
 
—

 
(13.4
)
Tax withholdings related to net share settlements of restricted stock units and awards
(1.6
)
 
—

 
—

 
—

 
(1.6
)
Other financing activities
(0.6
)
 
(0.1
)
 
(0.2
)
 
—

 
(0.9
)
Net cash provided by (used in) financing activities
174.0

 
(7.3
)
 
(5.1
)
 
—

 
161.6

Effect of exchange rate changes on cash, cash equivalents and restricted cash
—

 
0.4

 
(1.8
)
 
—

 
(1.4
)
Net decrease in cash, cash equivalents and restricted cash
(6.0
)
 
(3.3
)
 
(17.3
)
 
—

 
(26.6
)
Cash, cash equivalents and restricted cash at beginning of period
$
7.2

 
$
6.6

 
$
73.7

 
$
—

 
$
87.5

Cash, cash equivalents and restricted cash at end of period
$
1.2

 
$
3.3

 
$
56.4

 
$
—

 
$
60.9


47
Table of Contents
COMBINED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(except where otherwise noted, all tabular amounts in millions, except share and per share amounts)


Products Corporation and Subsidiaries Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2018
 
Products Corporation
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
$
(196.0
)
 
$
(0.5
)
 
$
(100.2
)
 
$
—

 
$
(296.7
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net cash used in investing activities
(24.4
)
 
(5.0
)
 
(12.2
)
 
—

 
(41.6
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
Net decrease (increase) in short-term borrowings and overdraft
(3.6
)
 
7.3

 
(1.4
)
 
—

 
2.3

Net borrowings under the Amended 2016 Revolving Credit Facility
251.3

 
—

 
—

 
—

 
251.3

Net borrowings under the 2018 Foreign Asset-Based Term Loan
—

 
—

 
89.4

 
—

 
89.4

Repayments under the 2016 Term Loan Facility
(13.5
)
 
—

 
—

 
—

 
(13.5
)
Payments of financing costs
(4.7
)
 
—

 
(4.7
)
 
—

 
(9.4
)
Tax withholdings related to net share settlements of restricted stock units and awards
(3.6
)
 
—

 
—

 
—

 
(3.6
)
Other financing activities
0.3

 
—

 
(0.2
)
 
—

 
0.1

Net cash provided by financing activities
226.2

 
7.3

 
83.1

 
—

 
316.6

Effect of exchange rate changes on cash, cash equivalents and restricted cash
—

 
(0.1
)
 
(3.1
)
 
—

 
(3.2
)
Net increase (decrease) in cash, cash equivalents and restricted cash
5.8

 
1.7

 
(32.4
)
 
—

 
(24.9
)
Cash, cash equivalents and restricted cash at beginning of period
$
0.3

 
$
5.3

 
$
81.8

 
$
—

 
87.4

Cash, cash equivalents and restricted cash at end of period
$
6.1

 
$
7.0

 
$
49.4

 
$
—

 
$
62.5




48
Table of Contents
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)

20. SUBSEQUENT EVENTS

Extension of the Maturity of the 2019 Senior Line of Credit

On November 7, 2019, Products Corporation and MacAndrews & Forbes Group, LLC, Revlon’s majority stockholder, entered into the Amended and Restated 2019 Senior Unsecured Line of Credit Agreement (the “Amended 2019 Line of Credit Agreement”) to extend the maturity of the 2019 Senior Line of Credit Agreement entered into on June 27, 2019 by 1-year, expiring December 31, 2020. As of September 30, 2019 and as of the November 7, 2019 extension date, there were no borrowings outstanding under this facility. As of September 30, 2019, MacAndrews & Forbes Group, LLC and its affiliates beneficially owned 46,223,321 shares of Revlon’s Class A common stock, representing approximately 87.2% of Revlon’s outstanding shares of voting capital stock as of such date.



49
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



Item 2. Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

The Company operates in four brand-centric reporting segments that are aligned with its organizational structure based on four global brand teams: Revlon; Elizabeth Arden; Portfolio; and Fragrances. The Company manufactures, markets and sells an extensive array of beauty and personal care products worldwide, including color cosmetics; fragrances; skin care; hair color, hair care and hair treatments; beauty tools; men's grooming products; anti-perspirant deodorants; and other beauty care products.

The Company remains focused on its 3 key strategic pillars to drive its future success and growth. First, strengthening its iconic brands through innovation and relevant product portfolios; second, building its capabilities to better communicate and connect with its consumers through media channels where they spend the most time; and third, ensuring availability of its product where consumers shop, both in-store and increasingly online. On August 16, 2019, it was disclosed that MacAndrews & Forbes and Revlon have determined to explore strategic transactions involving Revlon and third parties (the “Strategic Review”). 

For additional information regarding the Company's business, see "Part 1, Item 1 - Business" in the Company's 2018 Form 10-K.

Certain capitalized terms used in this Form 10-Q are defined throughout this Item 2.

Overview of Net Sales and Earnings Results
Consolidated net sales in the third quarter of 2019 were $596.8 million, a $58.6 million decrease, or 8.9%, compared to $655.4 million in the third quarter of 2018. Excluding the $12.1 million unfavorable impact of foreign currency fluctuations (referred to herein as "FX," "XFX" or on an "XFX basis"), consolidated net sales decreased by $46.5 million, or 7.1%, during the third quarter of 2019. The XFX net sales decrease in the third quarter of 2019 was primarily due to: a $27.8 million, or 11.1%, decrease in Revlon segment net sales, a $17.2 million, or 12.4%, decrease in Portfolio segment net sales and a $5.6 million, or 3.9%, decrease in Fragrances segment net sales; partially offset by a $4.1 million, or 3.4%, increase in Elizabeth Arden segment net sales.

Consolidated net sales in the first nine months of 2019 were $1,720.2 million, a $102.7 million decrease, or 5.6%, compared to $1,822.9 million in the first nine months of 2018. Excluding the $48.8 million unfavorable FX impact, consolidated net sales decreased by $53.7 million, or 2.9%, during the first nine months of 2019. The XFX net sales decrease in the first nine months of 2019 was primarily due to: a $54.2 million, or 12.9%, decrease in Portfolio segment net sales; a $28.0 million, or 8.4%, decrease in Fragrances segment net sales and a $1.3 million, or 0.2%, decrease in Revlon segment net sales; partially offset by a $29.8 million, or 8.9%, increase in Elizabeth Arden segment net sales.

Consolidated loss from continuing operations, net of taxes, in the third quarter of 2019 was $44.4 million, compared to $10.7 million in the third quarter of 2018. The $33.7 million increase in consolidated loss from continuing operations, net of taxes, in the third quarter of 2019 was primarily due to:
•
a $36.6 million decrease in the benefit from income taxes, of which $34.3 million was non-cash, primarily due to: (i) the decreased loss from continuing operations before income taxes; (ii) the mix and level of earnings; (iii) the impact of the 2017 Tax Act mainly due to an adjustment in the third quarter of 2018 related to a new U.S. Treasury regulation issued in September 2018;
•
$22.6 million of lower gross profit, primarily due to lower net sales;
•
$6.5 million of unfavorable variance in foreign currency, resulting from $7.6 million in foreign currency losses during the third quarter of 2019, compared to $1.1 million in foreign currency losses during the third quarter of 2018; and
•
a $3.8 million increase in interest expense, primarily due to higher average interest rates and higher debt balances primarily from the 2019 Term Loan Facility entered into in August 2019;

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



with the foregoing partially offset by:
•
$32.7 million of lower SG&A expenses, primarily driven by cost reductions related to the Company's cost optimization initiatives and lower incentive compensation; and
•
$3.3 million of lower acquisition and integration costs.
Consolidated loss from continuing operations, net of taxes, in the first nine months of 2019 was $185.5 million, compared to $223.8 million in the first nine months of 2018. The $38.3 million decrease in consolidated loss from continuing operations, net of taxes, in the first nine months of 2019 was primarily due to:
•
$113.9 million of lower SG&A expenses, primarily driven by lower brand support expenses as a result of planned lower activity in the first nine months of 2019 and lower general and administrative expenses, primarily driven by cost reductions related to the Company's cost optimization initiatives and lower incentive compensation;
•
$20.1 million of lower loss on disposal of minority investment; and
•
$11.3 million of lower acquisition and integration costs;
with the foregoing partially offset by:
•
$46.2 million of lower gross profit, primarily due to lower net sales;
•
a $39.9 million decrease in the benefit from income taxes, of which $34.3 million was non-cash, primarily due to: (i) the decreased loss from continuing operations before income taxes; (ii) the mix and level of earnings; (iii) the impact of the 2017 Tax Act mainly due to an adjustment in the third quarter of 2018 related to a new U.S. Treasury regulation issued in September 2018; and
•
a $16.6 million increase in interest expense, primarily due to higher average interest rates and higher borrowings under the Amended 2016 Revolving Credit Facility and higher indebtedness resulting from entering into the 2019 Term Loan Facility in August 2019 and the 2018 Foreign Asset-Based Term Facility in July 2018.

During 2018, the Company's ERP launch impacted the Company's ability to manufacture certain quantities of finished goods and fulfill shipments to retail customers in the U.S. and internationally and resulted in lost net sales and in the Company incurring incremental charges, mainly related to actions that the Company implemented to remediate the decline in customer service levels. Difficulties in implementing the Company’s new ERP system also impacted its internal control over financial reporting ("ICFR") and resulted in a material weakness in its ICFR as described in the Company’s 2018 Form 10-K. See Part I, Item 4, “Controls and Procedures,” in this Form 10-Q for a discussion of the Company’s adoption of a plan designed to improve its internal controls to remediate this material weakness in its ICFR and for a summary of the actions taken by the Company to implement such plan.


Recent Debt Transactions

2019 Term Loan Facility
Principal and Maturity: On August 6, 2019, Products Corporation entered into a senior secured term loan facility among certain affiliated funds, investment vehicles or accounts managed or advised by Ares Management LLC, as lender, in an initial aggregate principal amount of $200 million (the “2019 Term Loan Facility” and such agreement being the “2019 Term Loan Agreement”), and Wilmington Trust, National Association (“Wilmington Trust”), as administrative and collateral agent. Net proceeds from the 2019 Term Loan Facility, which will be used for general corporate purposes, were approximately $188 million, after taking into account approximately $12 million of related fees and expenses. The 2019 Term Loan Facility will mature on the earliest of: (x) the fourth anniversary of the Closing Date; (y) the 180th day prior to the maturity of Products Corporation’s existing 2016 Term Loan Facility, if any loans under the 2016 Term Loan Facility remain outstanding and have not been replaced or refinanced by such date; and (z) the date of any springing maturity of the 2016 Term Loan Facility (i.e., the 91st day prior to the maturity of the 5.75% Senior Notes due February 15, 2021 if any 5.75% Senior Notes remain outstanding by such date). See “Financial Condition, Liquidity and Capital Resources - 2019 Term Loan Facility” for additional details regarding the 2019 Term Loan Facility.

51
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



2019 Senior Line of Credit Agreement
In June 2019, Products Corporation entered into a 2019 Senior Unsecured Line of Credit Agreement (the "2019 Senior Line of Credit Agreement") providing Products Corporation with a $30 million senior unsecured line of credit (the "2019 Senior Line of Credit Facility") from MacAndrews & Forbes Group, LLC, a subsidiary of Revlon’s majority stockholder. The 2019 Senior Line of Credit Facility allows Products Corporation to request loans thereunder and to use the proceeds of such loans for working capital and other general corporate purposes until the facility matures on December 31, 2019. See Part II, Item 5, “Other Information,” regarding the extension of the maturity of the 2019 Senior Line of Credit Agreement to December 31, 2020. As of September 30, 2019, there were no borrowings outstanding under this facility. See also Part II, Item 5. Other Information, “Extension of the Maturity of the 2019 Senior Line of Credit,” regarding the Amended 2019 Senior Line of Credit Agreement.
Any loans outstanding under the 2019 Senior Line of Credit Facility shall bear interest at an annual rate of 8%, which is payable quarterly in arrears in cash. Products Corporation may, at its option, prepay any borrowings under the 2019 Senior Line of Credit Facility, in whole or in part (together with accrued and unpaid interest), at any time prior to maturity, without premium or penalty.  Products Corporation is required to repay any outstanding loans under the 2019 Senior Line of Credit Facility, together with accrued interest thereon, if for any reason Products Corporation or any of its subsidiaries has available unrestricted cash that Products Corporation determines, in its reasonable judgment, is not required to run their operations in the ordinary course of business, provided that such repayment would not result in material adverse tax consequences.
The 2019 Senior Line of Credit Agreement includes customary events of default, including a cross default provision making it an event of default under the 2019 Senior Line of Credit Agreement if there exists and continues an event default under Products Corporation’s existing bank term loan and revolver credit agreements, the 2018 Foreign Asset-Based Term Agreement or the indentures for Products Corporation’s 5.75% Senior Notes or 6.25% Senior Notes. If any such event of default occurs, MacAndrews & Forbes Group, LLC may declare all outstanding loans under the 2019 Senior Line of Credit Facility to be due and payable immediately. For the three and nine months ended September 30, 2019, there were no borrowings outstanding or repayments under this facility.

March 2019 Amendment to the 2016 Revolving Credit Facility
On March 6, 2019, Products Corporation, Revlon and certain of their subsidiaries entered into Amendment No. 2 (“Amendment No. 2”) to the 2016 Revolving Credit Agreement (as amended by Amendment No. 2, the “Amended 2016 Revolving Credit Agreement”) in respect of the 2016 Revolving Credit Facility (as in effect after Amendment No. 2, the “Amended 2016 Revolving Credit Facility”). Pursuant to the terms of Amendment No. 2, the maturity date applicable to the $41.5 million senior secured first in, last out Tranche B of the Amended 2016 Revolving Credit Facility was extended from April 17, 2019 to April 17, 2020. The Amended 2016 Revolving Credit Agreement provided that the “Liquidity Amount” (defined in the Amended 2016 Revolving Credit Agreement as the sum of each borrowing base less the sum of (x) the aggregate outstanding extensions of credit under the Amended 2016 Revolving Credit Facility, and (y) any availability reserve in effect on such date) may exceed the aggregate commitments under the Amended 2016 Revolving Credit Facility by up to 5%. Amendment No. 2 limits the Liquidity Amount to no more than the aggregate commitments under the Amended 2016 Revolving Credit Facility. Under the Amended 2016 Revolving Credit Agreement, a “Liquidity Event Period” generally occurred if Products Corporation’s Liquidity Amount fell below the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility. Amendment No. 2 changes these thresholds to $50 million and 15%, respectively, only for purposes of triggering certain notification obligations of Products Corporation, increased borrowing base reporting frequency and the ability of the administrative agent to apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility. After entering into Amendment No. 2, in March 2019 Products Corporation’s availability under the Amended 2016 Revolving Credit Facility was $37.3 million, which was less than the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility, which at such date equated to $41.3 million. Accordingly, effective beginning in March 2019 Products Corporation is required to maintain a FCCR of a minimum of 1.0 to 1.0 (which it currently satisfies), the administrative agent may apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility, which the administrative agent began applying in March 2019, and Products Corporation is required to provide the administrative agent with weekly borrowing base certificates. Products Corporation will be required to: (i) maintain such 1.0 to 1.0 minimum FCCR until such time that availability under the Amended 2016 Revolving Credit Facility equals or exceeds the greater of $35 million and 10% of the maximum availability under such facility for at least 20 consecutive business days; and (ii) Products Corporation will continue to provide the administrative agent with weekly borrowing base certificates and the administrative agent may continue to apply amounts collected in controlled accounts as set forth above in each case until such time that availability under such facility is equal or exceeds the greater of $50 million and 15% of the maximum availability under such facility for at least 20 consecutive business days. Amendment No. 2 also adjusts, among other things, the “payment conditions” required to make unlimited restricted payments.

52
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)





Operating Segments

The Company operates in four reporting segments: Revlon; Elizabeth Arden; Portfolio; and Fragrances:
•
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 and specialty cosmetic stores in the U.S. and internationally under brands such as Revlon in color cosmetics; Revlon ColorSilk and Revlon Professional in hair color; and Revlon in beauty tools.
•
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 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; American Crew in men's grooming products (which are also sold direct-to-consumer on its americancrew.com website); CND in nail polishes, gel nail color and nail enhancements; Cutex in nail care products; Pure Ice in nail polishes; 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 (which are also sold direct-to-consumer on its juicycouturebeauty.com website), Britney Spears, Elizabeth Taylor, Curve, John Varvatos, Christina Aguilera, Giorgio Beverly Hills, Ed Hardy, Charlie, Lucky Brand, Paul Sebastian, Alfred Sung, Jennifer Aniston, Mariah Carey, Halston, Geoffrey Beene, La Perla, White Shoulders, AllSaints and Wildfox.


Results of Operations — Revlon, Inc.

Consolidated Net Sales:
Third quarter results:
Consolidated net sales in the third quarter of 2019 were $596.8 million, a $58.6 million, or 8.9%, decrease, compared to $655.4 million in the third quarter of 2018. Excluding the $12.1 million unfavorable FX impact, consolidated net sales decreased by $46.5 million, or 7.1%, during the third quarter of 2019. The XFX net sales decrease in the third quarter of 2019 was primarily due to: a $27.8 million, or 11.1%, decrease in Revlon segment net sales, a $17.2 million, or 12.4%, decrease in Portfolio segment net sales and a $5.6 million, or 3.9%, decrease in Fragrances segment net sales; partially offset by a $4.1 million, or 3.4%, increase in Elizabeth Arden segment net sales.


53
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



Year-to-date results:
Consolidated net sales in the first nine months of 2019 were $1,720.2 million, a $102.7 million, or 5.6%, decrease compared to $1,822.9 million in the first nine months of 2018. Excluding the $48.8 million unfavorable FX impact, consolidated net sales decreased by $53.7 million, or 2.9%, during the first nine months of 2019. The XFX net sales decrease in the first nine months of 2019 was due primarily to: a $54.2 million, or 12.9%, decrease in Portfolio segment net sales, a $28.0 million, or 8.4%, decrease in Fragrances segment net sales and a $1.3 million, or 0.2%, decrease in Revlon segment net sales; partially offset by a $29.8 million, or 8.9%, increase in Elizabeth Arden segment net sales.
See "Segment Results" below for further information on net sales by segment.

Segment Results:
The Company's management evaluates segment profit for each of the Company's reportable segments. The Company allocates corporate expenses to each reportable segment to arrive at segment profit, as these expenses are included in the internal measure of segment operating performance. The Company defines segment profit as income from continuing operations before interest, taxes, depreciation, amortization, stock-based compensation expense, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt and miscellaneous expenses. Segment profit also excludes the impact of certain items that are not directly attributable to the segments' underlying operating performance. The Company does not have any material inter-segment sales. For a reconciliation of segment profit to loss from continuing operations before income taxes, see Note 15, "Segment Data and Related Information," to the Unaudited Consolidated Financial Statements in this Form 10-Q.
The following tables provide a comparative summary of the Company's segment results for the periods presented.
 
Net Sales
 
Segment Profit
 
Three Months Ended September 30,
 
Change
 
XFX Change (a)
 
Three Months Ended September 30,
 
Change
 
XFX Change (a)
 
2019
 
2018
 
$
 
%
 
$
 
%
 
2019
 
2018
 
$
 
%
 
$
 
%
Revlon
$
217.3

 
$
249.5

 
$
(32.2
)
 
(12.9
)%
 
$
(27.8
)
 
(11.1
)%
 
$
7.3

 
$
36.8

 
$
(29.5
)
 
(80.2
)%
 
$
(29.0
)
 
(78.8
)%
Elizabeth Arden
123.2

 
122.1

 
1.1

 
0.9
 %
 
4.1

 
3.4
 %
 
12.5

 
6.6

 
5.9

 
89.4
 %
 
6.5

 
98.5
 %
Portfolio
118.2

 
138.4

 
(20.2
)
 
(14.6
)%
 
(17.2
)
 
(12.4
)%
 
14.4

 
2.1

 
12.3

 
N.M.

 
12.8

 
N.M.

Fragrances
138.1

 
145.4

 
(7.3
)
 
(5.0
)%
 
(5.6
)
 
(3.9
)%
 
34.2

 
26.9

 
7.3

 
27.1
 %
 
7.7

 
28.6
 %
Total
$
596.8

 
$
655.4

 
$
(58.6
)
 
(8.9
)%
 
$
(46.5
)
 
(7.1
)%
 
$
68.4

 
$
72.4

 
$
(4.0
)
 
(5.5
)%
 
$
(2.0
)
 
(2.8
)%
 
Net Sales
 
Segment Profit
 
Nine Months Ended September 30,
 
Change
 
XFX Change (a)
 
Nine Months Ended September 30,
 
Change
 
XFX Change (a)
 
2019
 
2018
 
$
 
%
 
$
 
%
 
2019
 
2018
 
$
 
%
 
$
 
%
Revlon
$
716.1

 
$
736.9

 
$
(20.8
)
 
(2.8
)%
 
$
(1.3
)
 
(0.2
)%
 
$
58.5

 
$
75.6

 
$
(17.1
)
 
(22.6
)%
 
$
(14.4
)
 
(19.0
)%
Elizabeth Arden
352.0

 
333.9

 
18.1

 
5.4
 %
 
29.8

 
8.9
 %
 
17.1

 
2.3

 
14.8

 
N.M.

 
16.5

 
N.M.

Portfolio
354.1

 
420.5

 
(66.4
)
 
(15.8
)%
 
(54.2
)
 
(12.9
)%
 
25.0

 
(5.8
)
 
30.8

 
N.M.

 
31.4

 
N.M.

Fragrances
298.0

 
331.6

 
(33.6
)
 
(10.1
)%
 
(28.0
)
 
(8.4
)%
 
53.6

 
41.2

 
12.4

 
30.1
 %
 
13.1

 
31.8
 %
Total
$
1,720.2

 
$
1,822.9

 
$
(102.7
)
 
(5.6
)%
 
$
(53.7
)
 
(2.9
)%
 
$
154.2

 
$
113.3

 
$
40.9

 
36.1
 %
 
$
46.6

 
41.1
 %
(a) XFX excludes the impact of foreign currency fluctuations.
N.M. - Not meaningful
Revlon Segment
Third quarter results:
Revlon segment net sales in the third quarter of 2019 were $217.3 million, a $32.2 million, or 12.9%, decrease, compared to $249.5 million in the third quarter of 2018. Excluding the $4.4 million unfavorable FX impact, total Revlon segment net sales in the third quarter of 2019 decreased by $27.8 million, or 11.1%, compared to the third quarter of 2018. This decrease was primarily driven by lower net sales of Revlon color cosmetics in the mass retail channel, due to overall category declines, as well as lower net sales of Revlon ColorSilk hair color and Revlon-branded beauty tools, primarily in North America.

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



Revlon segment profit in the third quarter of 2019 was $7.3 million, a $29.5 million, or 80.2%, decrease, compared to $36.8 million in the third quarter of 2018. Excluding the $0.6 million unfavorable FX impact, Revlon segment profit in the third quarter of 2019 decreased by $29.0 million, or 78.8%, compared to the third quarter of 2018. This decrease was primarily driven by the Revlon segment's lower net sales described above and lower gross profit margin.
Year-to-date results:
Revlon segment net sales in the first nine months of 2019 were $716.1 million, a $20.8 million, or 2.8%, decrease, compared to $736.9 million in the first nine months of 2018. Excluding the $19.5 million unfavorable FX impact, total Revlon segment net sales in the first nine months of 2019 decreased by $1.3 million, or 0.2%, compared to the first nine months of 2018. This decrease was primarily driven by lower net sales of Revlon color cosmetics, as well as lower net sales of Revlon-branded beauty tools and Revlon ColorSilk hair color, primarily in North America, partially offset by increases in net sales of Revlon-branded hair care and professional products.
Revlon segment profit in the first nine months of 2019 was $58.5 million, a $17.1 million, or 22.6%, decrease, compared to $75.6 million in the first nine months of 2018. Excluding the $2.7 million unfavorable FX impact, Revlon segment profit in the first nine months of 2019 decreased by $14.4 million, or 19.0%, compared to the first nine months of 2018. This decrease was primarily driven by the Revlon segment's lower net sales described above and lower gross profit margin, partially offset by lower brand support expenses.
Elizabeth Arden Segment
Third quarter results:
Elizabeth Arden segment net sales in the third quarter of 2019 were $123.2 million, a $1.1 million, or 0.9%, increase, compared to $122.1 million in the third quarter of 2018. Excluding the $3.0 million unfavorable FX impact, Elizabeth Arden net sales in the third quarter of 2019 increased by $4.1 million, or 3.4%, compared to the third quarter of 2018. This increase was primarily driven by higher net sales of Elizabeth Arden Ceramide and Prevage skin care products, as well as higher net sales of certain Elizabeth Arden-branded fragrances, primarily internationally, partially offset by lower net sales of Elizabeth Arden-branded color cosmetics and certain other skin care products, primarily in North America.

Elizabeth Arden segment profit in the third quarter of 2019 was $12.5 million, a $5.9 million, or 89.4%, increase, compared to $6.6 million in third quarter of 2018. Excluding the $0.7 million unfavorable FX impact, Elizabeth Arden segment profit in the third quarter of 2019 increased by $6.5 million, or 98.5%, compared to the third quarter of 2018. This increase was primarily driven by the Elizabeth Arden segment's higher net sales described above, as well as improved gross profit margin.
Year-to-date results:
Elizabeth Arden segment net sales in the first nine months of 2019 were $352.0 million, an $18.1 million, or 5.4%, increase, compared to $333.9 million in the first nine months of 2018. Excluding the $11.7 million unfavorable FX impact, Elizabeth Arden segment net sales in the first nine months of 2019 increased by $29.8 million, or 8.9%, compared to the first nine months of 2018. This increase was primarily driven by higher net sales of Ceramide and Prevage skin care products and of certain Elizabeth Arden-branded fragrances, primarily internationally, partially offset by lower net sales of Elizabeth Arden-branded color cosmetics and certain other skin care products.

Elizabeth Arden segment profit in the first nine months of 2019 was $17.1 million, a $14.8 million increase, compared to $2.3 million in the first nine months of 2018. Excluding the $1.8 million unfavorable FX impact, Elizabeth Arden segment profit in the first nine months of 2019 increased by $16.5 million compared to the first nine months of 2018. This increase was primarily driven by the Elizabeth Arden segment's higher net sales described above.
Portfolio Segment
Third quarter results:
Portfolio segment net sales in the third quarter of 2019 were $118.2 million, a $20.2 million, or 14.6%, decrease, compared to $138.4 million in the third quarter of 2018. Excluding the $3.0 million unfavorable FX impact, total Portfolio segment net sales in the third quarter of 2019 decreased by $17.2 million, or 12.4%, compared to the third quarter of 2018. This decrease was driven primarily by the Portfolio segment's lower net sales of Almay color cosmetics, CND nail products, Pure Ice and SinfulColors color cosmetics, as well as lower net sales of local and regional brands, primarily in North America. These decreases were partially offset by higher net sales of Cutex nail care products internationally.

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



Portfolio segment profit in the third quarter of 2019 was $14.4 million, a $12.3 million increase compared to $2.1 million in the third quarter of 2018. Excluding the $0.5 million unfavorable FX impact, Portfolio segment profit in the third quarter of 2019 increased by $12.8 million, compared to the third quarter of 2018. This increase was primarily driven by the Portfolio segment's lower brand support expenses and distribution expenses, partially offset by the impact of the lower net sales, as described above.
Year-to-date results:
Portfolio segment net sales in the first nine months of 2019 were $354.1 million, a $66.4 million, or 15.8%, decrease, compared to $420.5 million in the first nine months of 2018. Excluding the $12.2 million unfavorable FX impact, total Portfolio segment net sales in the first nine months of 2019 decreased by $54.2 million, or 12.9%, compared to the first nine months of 2018. This decrease was driven primarily by the Portfolio segment's lower net sales of CND nail products, Almay, Pure Ice and SinfulColors color cosmetics, as well as lower net sales of local and regional brands. These decreases were partially offset by higher net sales of Cutex nail care products, American Crew men's grooming products and Mitchum anti-perspirant deodorants.
Portfolio segment profit in the first nine months of 2019 was $25.0 million, a $30.8 million increase compared to a $5.8 million segment loss in the first nine months of 2018. Excluding the $0.6 million unfavorable FX impact, Portfolio segment profit in the first nine months of 2019 increased by $31.4 million compared to the first nine months of 2018. This increase was primarily driven by the Portfolio segment's lower brand support expenses and distribution expenses, partially offset by lower net sales, as described above, and lower gross profit margin.
Fragrances Segment
Third quarter results:
Fragrances segment net sales in the third quarter of 2019 were $138.1 million, a $7.3 million, or 5%, decrease, compared to $145.4 million in the third quarter of 2018. Excluding the $1.7 million unfavorable FX impact, total Fragrances segment net sales in the third quarter of 2019 decreased by $5.6 million, or 3.9%, compared to the third quarter of 2018. This decrease was driven primarily by lower net sales due to the ongoing overall weakness in the mass retail channel, including certain retail store closures, partially offset by higher net sales attributable to certain product launches in 2019 in North America.
Fragrances segment profit in the third quarter of 2019 was $34.2 million, a $7.3 million, or 27.1%, increase, compared to $26.9 million in the third quarter of 2018. Excluding the $0.4 million unfavorable FX impact, Fragrances segment profit in the third quarter of 2019 increased by $7.7 million, or 28.6%, compared to the third quarter of 2018. This increase was primarily driven by the Fragrances segment's lower brand support expenses and distribution costs, as well as improved gross profit margin, partially offset by the segment's lower net sales.
Year-to-date results:
Fragrances segment net sales in the first nine months of 2019 were $298.0 million, a $33.6 million, or 10.1%, decrease, compared to $331.6 million in the first nine months of 2018. Excluding the $5.6 million unfavorable FX impact, total Fragrances segment net sales in the first nine months of 2019 decreased by $28.0 million, or 8.4%, compared to the first nine months of 2018. This decrease was driven primarily by lower net sales in the Fragrances segment due to the ongoing overall weakness in the mass retail channel, including certain retail store closures in North America, partially offset by higher net sales attributable to new products launches in 2019, primarily internationally.
Fragrances segment profit in the first nine months of 2019 was $53.6 million, a $12.4 million, or 30.1%, increase, compared to $41.2 million in the first nine months of 2018. Excluding the $0.7 million unfavorable FX impact, Fragrances segment profit in the first nine months of 2019 increased by $13.1 million, or 31.8%, compared to the first nine months of 2018. This increase was primarily driven by the Fragrances segment's lower brand support expenses and distribution costs, partially offset by the impact of the segment's lower net sales.

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



Geographic Results:

The following tables provide a comparative summary of the Company's North America and International net sales for the periods presented:
 
Three Months Ended September 30,


Change
 
XFX Change (a)
 
2019
 
2018
 
$
 
%
 
$
 
%
Revlon
 
 
 
 
 
 
 
 
 
 
 
North America
$
100.0

 
$
123.1

 
$
(23.1
)
 
(18.8
)%
 
$
(23.1
)
 
(18.8
)%
International
117.3

 
126.4

 
(9.1
)
 
(7.2
)%
 
(4.7
)
 
(3.7
)%
Elizabeth Arden

 
 
 
 
 
 
 

 
 
North America
$
29.5


$
40.3

 
$
(10.8
)
 
(26.8
)%
 
$
(10.7
)
 
(26.6
)%
International
93.7


81.8

 
11.9

 
14.5
 %
 
14.8

 
18.1
 %
Portfolio

 
 
 
 
 
 
 

 
 
North America
$
71.4


$
88.1

 
$
(16.7
)
 
(19.0
)%
 
$
(16.7
)
 
(19.0
)%
International
46.8


50.3

 
(3.5
)
 
(7.0
)%
 
(0.5
)
 
(1.0
)%
Fragrance

 
 
 
 
 
 
 

 
 
North America
$
98.6


$
99.3

 
$
(0.7
)
 
(0.7
)%
 
$
(0.6
)
 
(0.6
)%
International
39.5


46.1

 
(6.6
)
 
(14.3
)%
 
(5.0
)
 
(10.8
)%
        Total Net Sales
$
596.8

 
$
655.4

 
$
(58.6
)
 
(8.9
)%
 
$
(46.5
)
 
(7.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30,


Change
 
XFX Change (a)
 
2019
 
2018
 
$
 
%
 
$
 
%
Revlon
 
 
 
 
 
 
 
 
 
 
 
North America
$
367.9

 
$
388.2

 
$
(20.3
)
 
(5.2
)%
 
$
(19.5
)
 
(5.0
)%
International
348.2

 
348.7

 
(0.5
)
 
(0.1
)%
 
18.2

 
5.2
 %
Elizabeth Arden
 
 
 
 
 
 
 
 
 
 
 
North America
$
83.9

 
$
96.2

 
$
(12.3
)
 
(12.8
)%
 
$
(11.5
)
 
(12.0
)%
International
268.1

 
237.7

 
30.4

 
12.8
 %
 
41.3

 
17.4
 %
Portfolio
 
 
 
 
 
 
 
 
 
 
 
North America
$
214.5

 
$
264.8

 
$
(50.3
)
 
(19.0
)%
 
$
(49.9
)
 
(18.8
)%
International
139.6

 
155.7

 
(16.1
)
 
(10.3
)%
 
(4.3
)
 
(2.8
)%
Fragrances
 
 
 
 
 
 
 
 
 
 
 
North America
$
198.4

 
$
216.9

 
$
(18.5
)
 
(8.5
)%
 
$
(18.3
)
 
(8.4
)%
International
99.6

 
114.7

 
(15.1
)
 
(13.2
)%
 
(9.7
)
 
(8.5
)%
        Total Net Sales
$
1,720.2

 
$
1,822.9

 
$
(102.7
)
 
(5.6
)%
 
$
(53.7
)
 
(2.9
)%
(a) XFX excludes the impact of foreign currency fluctuations.

Revlon Segment

Third quarter results:

North America

In North America, Revlon segment net sales in the third quarter of 2019 decreased by $23.1 million, or 18.8%, to $100.0 million, compared to $123.1 million in the third quarter of 2018. This decrease was primarily due to the Revlon segment's lower net sales of Revlon color cosmetics, as well as lower net sales of Revlon-branded beauty tools and Revlon ColorSilk hair color, within the U.S. mass retail channel.


57
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



International

Internationally, Revlon segment net sales in the third quarter of 2019 decreased by $9.1 million, or 7.2%, to $117.3 million, compared to $126.4 million in the third quarter of 2018. Excluding the $4.4 million unfavorable FX impact, Revlon segment International net sales in the third quarter of 2019 decreased by $4.7 million, or 3.7%, compared to the third quarter of 2018. This decrease was driven by the Revlon segment's lower net sales of Revlon ColorSilk hair color and Revlon color cosmetics, within the Company's EMEA and Latin America regions.

Year-to-date results:

North America

In North America, Revlon segment net sales in the first nine months of 2019 decreased by $20.3 million, or 5.2%, to $367.9 million, compared to $388.2 million in the first nine months of 2018. Excluding the $0.8 million unfavorable FX impact, Revlon segment net sales in North America in the first nine months of 2019 decreased by $19.5 million, or 5%, compared to the first nine months of 2018. This decrease was primarily due to the Revlon segment's lower net sales of Revlon color cosmetics, as well as lower net sales of Revlon-branded beauty tools and Revlon ColorSilk hair color, partially offset by higher net sales of Revlon-branded hair care products within the U.S. mass retail channel.

International

Internationally, Revlon segment net sales in the first nine months of 2019 decreased by $0.5 million, or 0.1%, to $348.2 million, compared to $348.7 million in the first nine months of 2018. Excluding the $18.7 million unfavorable FX impact, Revlon segment International net sales in the first nine months of 2019 increased by $18.2 million, or 5.2%, compared to the first nine months of 2018. This increase was driven primarily by the Revlon segment's higher net sales of Revlon color cosmetics, primarily within the Company's Pacific and Latin America regions, due mainly to improved service levels at the Oxford, N.C. facility, and higher net sales of Revlon-branded hair-care professional products, following new product launches in Europe.

Elizabeth Arden Segment

Third quarter results:

North America

In North America, Elizabeth Arden segment net sales in the third quarter of 2019 decreased by $10.8 million, or 26.8%, to $29.5 million, compared to $40.3 million in the third quarter of 2018. Excluding the $0.1 million unfavorable FX impact, Elizabeth Arden segment net sales in North America in the third quarter of 2019 decreased by $10.7 million, or 26.6%, compared to the third quarter of 2018. This decrease was primarily due to the Elizabeth Arden segment's decrease in net sales driven by certain retail store closures, partially offset by the segment's higher net sales of Ceramide skin care products.

International

Internationally, Elizabeth Arden segment net sales in the third quarter of 2019 increased by $11.9 million, or 14.5%, to $93.7 million, compared to $81.8 million in the third quarter of 2018. Excluding the $2.9 million unfavorable FX impact, Elizabeth Arden segment International net sales in the third quarter of 2019 increased by $14.8 million, or 18.1%, compared to the third quarter of 2018. This increase was driven primarily by the Elizabeth Arden segment's higher net sales of Ceramide and Prevage skin care products, and of certain Elizabeth Arden-branded fragrance brands, within the Company's Asia region, particularly in China, and in the Travel Retail business.


58
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



Year-to-date results:

North America

In North America, Elizabeth Arden segment net sales in the first nine months of 2019 decreased by $12.3 million, or 12.8%, to $83.9 million, compared to $96.2 million in the first nine months of 2018. Excluding the $0.8 million unfavorable FX impact, Elizabeth Arden segment net sales in North America in the first nine months of 2019 decreased by $11.5 million, or 12%, compared to the first nine months of 2018. This decrease was driven primarily by the Elizabeth Arden segment's lower net sales of certain other Elizabeth Arden-branded skin care and color cosmetics products resulting from certain retail store closures, partially offset primarily by higher net sales of the segment's Ceramide skin care brand.

International

Internationally, Elizabeth Arden segment net sales in the first nine months of 2019 increased by $30.4 million, or 12.8%, to $268.1 million, compared to $237.7 million in the first nine months of 2018. Excluding the $10.9 million unfavorable FX impact, Elizabeth Arden segment International net sales in the first nine months of 2019 increased by $41.3 million, or 17.4%, compared to the first nine months of 2018. This increase was driven primarily by higher net sales of the Elizabeth Arden segment's Ceramide and Prevage skin care products, primarily within the Company's Asia region, particularly in China, and in the Travel Retail business, as well as higher net sales of certain Elizabeth Arden fragrance brands. These increases were partially offset by lower net sales of Elizabeth Arden-branded color cosmetics products.

Portfolio Segment

Third quarter results:

North America

In North America, Portfolio segment net sales in the third quarter of 2019 decreased by $16.7 million, or 19%, to $71.4 million, compared to $88.1 million in the third quarter of 2018. This decrease was primarily driven by the Portfolio segment's lower net sales of Almay and Pure Ice color cosmetics, Mitchum anti-perspirant deodorants and CND nail products, mainly due to declines in the mass retail channel, as well as lower net sales of local and regional brands.

International

Internationally, Portfolio segment net sales in the third quarter of 2019 decreased by $3.5 million, or 7%, to $46.8 million, compared to $50.3 million in the third quarter of 2018. Excluding the $3.0 million unfavorable FX impact, Portfolio segment International net sales decreased by $0.5 million, or 1%, in the third quarter of 2019, compared to the third quarter of 2018. This decrease was primarily driven by the Portfolio segment's lower net sales of CND nail care products, primarily in the Company's EMEA region, as well as lower net sales of local and regional brands. These decreases were partially offset by the segment's higher net sales of Mitchum anti-perspirant deodorants and of Cutex nail care products, primarily in the EMEA region.
Year-to-date results:
North America

In North America, Portfolio segment net sales in the first nine months of 2019 decreased by $50.3 million, or 19%, to $214.5 million, as compared to $264.8 million in the first nine months of 2018. Excluding the $0.4 million unfavorable FX impact, Portfolio segment net sales in North America in the first nine months of 2019 decreased by $49.9 million, or 18.8%, compared to the first nine months of 2018. This decrease was driven primarily by the Portfolio segment's lower net sales of Almay color cosmetics and of CND nail products, as well as lower net sales of Pure Ice and SinfulColors color cosmetics, local and regional brands and Mitchum anti-perspirant deodorants. These decreases were partially offset by higher net sales of American Crew men's grooming products.


59
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



International

Internationally, Portfolio segment net sales in the first nine months of 2019 decreased by $16.1 million, or 10.3%, to $139.6 million, compared to $155.7 million in the first nine months of 2018. Excluding the $11.8 million unfavorable FX impact, Portfolio segment International net sales decreased by $4.3 million, or 2.8%, in the first nine months of 2019, compared to the first nine months of 2018. This decrease was driven primarily by the Portfolio segment's lower net sales of local and regional brands and of CND nail products, primarily in the Company's EMEA region, partially offset by higher net sales of Mitchum anti-perspirant deodorants in the EMEA region, and higher net sales of Cutex nail care products primarily in Latin America.

Fragrances Segment

Third quarter results:

North America

In North America, Fragrances segment net sales in the third quarter of 2019 decreased by $0.7 million, or 0.7%, to $98.6 million, as compared to $99.3 million in the third quarter of 2018. Excluding the $0.1 million unfavorable FX impact, Fragrances segment North America net sales decreased by $0.6 million, or 0.6%, in the third quarter of 2019, compared to the third quarter of 2018, primarily driven by the segment's lower net sales in the mass retail channel, as well as certain retail store closures in the prestige channel, partially offset by the effect of certain product launches.

International

Internationally, Fragrances segment net sales in the third quarter of 2019 decreased by $6.6 million, or 14.3%, to $39.5 million, compared to $46.1 million in the third quarter of 2018. Excluding the $1.6 million unfavorable FX impact, Fragrances segment International net sales decreased by $5.0 million, or 10.8%, in the third quarter of 2019, compared to the third quarter of 2018, primarily due to the Fragrances segment's lower net sales of certain licensed fragrance brands in the mass retail channel.
Year-to-date results:
North America

In North America, Fragrances segment net sales in the first nine months of 2019 decreased by $18.5 million, or 8.5%, to $198.4 million, as compared to $216.9 million in the first nine months of 2018. Excluding the $0.2 million unfavorable FX impact, Fragrances segment net sales in North America in the first nine months of 2019 decreased by $18.3 million, or 8.4%, compared to the first nine months of 2018. This decrease was primarily driven by the Fragrances segment's lower net sales due to weakness in the mass retail channel, as well as certain retail store closures in the prestige channel.

International

Internationally, Fragrances segment net sales in the first nine months of 2019 decreased by $15.1 million, or 13.2%, to $99.6 million, compared to $114.7 million in the first nine months of 2018. Excluding the $5.4 million unfavorable FX impact, Fragrances segment International net sales decreased by $9.7 million, or 8.5%, in the first nine months of 2019, compared to the first nine months of 2018, primarily due to the Fragrances segment's lower net sales of certain licensed fragrance brands primarily in the mass retail channel, partially offset by new product launches in the Company's EMEA region.

Gross profit:
The table below shows the Company's gross profit and gross margin for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018

Change
Gross profit
$
327.8

 
$
350.4

 
$
(22.6
)
 
$
969.5

 
$
1,015.7

 
$
(46.2
)
Percentage of net sales
54.9
%
 
53.5
%
 
1.4
%
 
56.4
%
 
55.7
%
 
0.7
%


60
Table of Contents
REVLON, INC AND SUBSIDIARIES
COMBINED MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(all tabular amounts in millions, except share and per share amounts)



Third quarter results:

Gross profit decreased by $22.6 million in the third quarter of 2019, as compared to the third quarter of 2018. Unfavorable sales volume decreased gross profit in the third quarter of 2019 by approximately $21 million, compared to the third quarter of 2018, with no impact on gross margin. Gross profit as a percentage of net sales (i.e., gross margin) in the third quarter of 2019 increased by 1.4% compared to the third quarter of 2018. The drivers of the gross margin in the third quarter of 2019, as compared to the third quarter of 2018, primarily included:

•
the impact of additional costs related to the service level disruptions at the Company's Oxford, N.C. manufacturing facility in the third quarter of 2018, which did not occur in the third quarter of 2019, resulting in increased gross margin by approximately 5 percentage points;
•
cost reductions and savings associated with the Company's cost optimization initiatives, which increased gross margin by approximately 3.2 percentage points; and
•
lower inventory obsolescence reserves, which increased gross margin by 1.2 percentage points;
with the foregoing offset primarily by:
•higher sales allowances and returns, which decreased gross margin by approximately 6 percentage points; and
•unfavorable FX impacts, which decreased gross margin by 2.1 percentage points.

Year-to-date results:

Gross profit decreased by $46.2 million in the first nine months of 2019, as compared to the first nine months of 2018. Unfavorable sales volume decreased gross profit in the first nine months of 2019 by approximately $26 million, compared to the first nine months of 2018, with no impact on gross margin. Gross profit as a percentage of net sales (i.e., gross margin) in the first nine months of 2019 increased by 0.7 percentage points, as compared to the first nine months of 2018. The drivers of the increase in gross margin in the first nine months of 2019, as compared to the first nine months of 2018, primarily included:

•
the impact of additional costs related to the service level disruptions at the Company's Oxford, N.C. manufacturing facility in the first nine months of 2018, which did not occur in the first nine months of 2019, resulting in increased gross margin of 4.3 percentage points; and
•
lower inventory obsolescence reserves, which increased gross margin by 0.4 percentage points;
with the foregoing partially offset primarily by:
•unfavorable FX impacts, which decreased gross margin by 3.1 percentage points; and
•the impact of tariffs, which decreased gross margin by approximately 1 percentage point.

SG&A expenses:
The table below shows the Company's SG&A expenses for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
SG&A expenses
$
308.1

 
$
340.8

 
$
(32.7
)
 
$
973.2

 
$
1,087.1

 
$
(113.9
)

SG&A expenses decreased by $32.7 million in the third quarter of 2019, compared to the third quarter of 2018, primarily driven by:
•
lower general and administrative expenses of approximately $24 million, driven by lower costs in the third quarter of 2019 primarily associated with the Company's cost optimization initiatives and lower incentive compensation;
•
favorable FX impact of approximately $5 million; and
•
lower distribution expenses of approximately $3 million, driven by the net sales decline.


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



SG&A expenses decreased by $113.9 million in the first nine months of 2019, compared to the first nine months of 2018, primarily driven by:
•
a decrease of approximately $48 million in brand support expenses, driven by planned lower activity in the first nine months of 2019, primarily in North America and within the Portfolio segment and, to a lesser extent, the Revlon and Fragrances segments;
•
lower general and administrative expenses of approximately $41 million, primarily associated with the Company's cost optimization initiatives and lower incentive compensation in the first nine months of 2019 and higher costs in the first nine months of 2018 associated with the departure of certain executives; and
•
favorable FX impact of approximately $23 million.

Acquisition and Integration Costs:
The table below shows the Company's acquisition and integration costs for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
     Acquisition Costs
$
—

 
$
—

 
$
—

 
$
—

 
$
0.1

 
$
(0.1
)
     Integration Costs
0.1

 
3.4

 
(3.3
)
 
0.7

 
11.9

 
(11.2
)
Total acquisition and integration costs
$
0.1

 
$
3.4

 
$
(3.3
)
 
$
0.7

 
$
12.0

 
$
(11.3
)

The Company incurred $0.1 million and $3.4 million of acquisition and integration costs in the third quarter of 2019 and 2018, respectively, primarily related to the Company's integration of Elizabeth Arden's operations into the Company's business, including professional fees and employee-related costs.
The Company incurred $0.7 million and $12 million of acquisition and integration costs in the first nine months of 2019 and 2018, respectively, primarily related to the Company's integration of Elizabeth Arden's operations into the Company's business, including professional fees and employee-related costs.

Restructuring charges and other, net:
The table below shows the Company's restructuring charges and other, net for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Restructuring charges and other, net
$
2.9

 
$
3.9

 
$
(1.0
)
 
$
11.6

 
$
13.9

 
$
(2.3
)

Restructuring charges and other, net decreased $1 million and $2.3 million during the three and nine months ended September 30, 2019, respectively, compared to the prior periods of 2018, primarily due to adjustments to previously accrued charges in connection with the Company's restructuring programs. A discussion of the Company's restructuring charges in relation to its restructuring initiatives follows.
2018 Optimization Program
During 2018, the Company announced a new 2018 Optimization Program designed to streamline the Company’s operations, reporting structures and business processes, with the objective of maximizing productivity and improving profitability, cash flows and liquidity. During the third quarter of 2019, the Company recorded $5.9 million of restructuring and related charges under the 2018 Optimization Program consisting of: (i) $3.7 million of severance, personnel benefits and other restructuring costs; and (ii) $2.2 million of other restructuring-related charges that were recorded within SG&A and cost of sales. During the first nine months of 2019, the Company recorded $28.1 million of restructuring and related charges under the 2018 Optimization Program consisting of: (i) $12.5 million of severance, personnel benefits and other restructuring costs; and (ii) $15.6 million of other restructuring-related charges that were recorded within SG&A and cost of sales. The Company expects to recognize approximately $30 million to $40 million of total pre-tax restructuring and related charges under the 2018 Optimization Program, consisting of employee-related costs, such as severance, pension and other termination costs, as well as other related charges and approximately $10 million of additional capital expenditures. The Company expects that approximately 85% of these restructuring and related charges will

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



be paid in cash, of which approximately $15.8 million were paid through September 30, 2019. Substantially all of the remaining balance is expected to be paid by the end of 2019, with any residual amount to be paid in 2020. The Company currently projects that the 2018 Optimization Program will result in between $90 million and $95 million of in-year cost reductions during 2019, of which approximately $65 million had been realized as of September 30, 2019, and annualized cost reductions in the range of approximately $125 million to $150 million by the end of 2019.  Approximately half of the annualized cost reductions are expected to be realized within cost of sales and the remainder in selling, general and administrative expenses.
  
EA Integration Restructuring Program
The EA Integration Restructuring Program was substantially completed by December 31, 2018 and the Company expects to incur limited further charges under this program, primarily related to its exit from certain leased spaces. During the three and nine months ended September 30, 2019, the Company recorded $0.4 million related to restructuring and related actions under the EA Integration Restructuring Program. As of September 30, 2019, the Company had recognized a total of $82.6 million of pre-tax restructuring and related charges consisting of: (i) $72.6 million of employee-related costs, including severance, retention and other contractual termination benefits; (ii) $5.1 million of lease termination costs; and (iii) $4.9 million of other related charges. The Company expects that cash payments will total $80 million to $85 million in connection with the EA Integration Restructuring Charges, of which $72 million were paid through September 30, 2019, with substantially all of the remaining balance expected to be paid by the end of 2020.
For further information on EA Integration Restructuring Program, the 2018 Optimization Program and on the Company's other restructuring initiatives, see Note 2, "Restructuring Charges," to the Unaudited Consolidated Financial Statements in this Form 10-Q.
During the three and nine months ended 2018, the Company recorded $3.9 million and $13.9 million, respectively, of charges primarily related to the EA Integration Restructuring Program.

Interest expense:
The table below shows the Company's interest expense for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Interest expense
$
50.2

 
$
46.4

 
$
3.8

 
$
145.7

 
$
129.1

 
$
16.6

The $3.8 million increase in interest expense in the third quarter of 2019, as compared to the third quarter of 2018, was primarily due to higher average interest rates and higher debt balances primarily from the 2019 Term Loan Facility entered into in August 2019.
The $16.6 million increase in interest expense in nine months ended September 30, 2019, as compared to the nine months ended September 30, 2018, was primarily due to higher average interest rates and higher debt balances resulting from the 2019 Term Loan Facility entered into in August 2019, the 2018 Foreign Asset-Based Term Facility entered into during the third quarter of 2018, as well as higher borrowings under the Amended 2016 Revolving Credit Facility.
Please refer to "Financial Condition, Liquidity and Capital Resources - Long-Term Debt Instruments" in Item 2 of this Form 10-Q for further information.

Foreign currency losses (gains), net:
The table below shows the Company's foreign currency losses, net for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Foreign currency losses, net
$
7.6

 
$
1.1

 
$
6.5

 
$
9.0

 
$
10.7

 
$
(1.7
)
The $7.6 million in foreign currency losses, net, during the third quarter of 2019, compared to $1.1 million in foreign currency losses, net, during the third quarter of 2018, was primarily driven by the net unfavorable impact of the revaluation of certain U.S. Dollar denominated intercompany payables and foreign currency denominated receivables.


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



The $9 million in foreign currency losses, net, during the nine months ended September 30, 2019, compared to $10.7 million in foreign currency losses, net, during the nine months ended September 30, 2018, was primarily driven by the net favorable impact of the revaluation of certain U.S. Dollar denominated intercompany payables and foreign currency denominated receivables.

Provision for income taxes:
The table below shows the Company's benefit from income taxes for the periods presented:
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
 
2019
 
2018
 
Change
 
2019
 
2018
 
Change
Benefit from income taxes
$
(2.1
)
 
$
(38.7
)
 
$
36.6

 
$
(3.2
)
 
$
(43.1
)
 
$
39.9

For the three and nine months ended September 30, 2019, the Company used the cut-off method to calculate the interim effective tax rate for all jurisdictions, because the annual rate method would not be reliable due to its sensitivity to minimal changes in forecasted annual pre-tax earnings. For the three and nine months ended September 30, 2018, the tax rate at the end of the period was calculated using an estimate of the annual effective tax rate expected to be applicable for the full fiscal year.
The Company recorded a benefit from income taxes of $2.1 million for the three months ended September 30, 2019 and a benefit from incomes taxes of $38.7 million for the three months ended September 30, 2018, respectively. The $36.6 million decrease in the Company's benefit from income taxes, of which $34.3 million was non-cash, was primarily due to: (i) the decreased loss from continuing operations before income taxes; (ii) the mix and level of earnings; (iii) the impact of the 2017 Tax Act mainly due to an adjustment in the third quarter of 2018 related to a new U.S. Treasury regulation issued in September 2018.
The Company recorded a benefit from income taxes of $3.2 million for the nine months ended September 30, 2019 and a benefit from income taxes of $43.1 million for the nine months ended September 30, 2018. The $39.9 million decrease in the benefit from income taxes, of which $34.3 million was non-cash, was primarily due to: (i) the decreased loss from continuing operations before income taxes; (ii) the mix and level of earnings; (iii) the impact of the 2017 Tax Act mainly due to an adjustment in the third quarter of 2018 related to a new U.S. Treasury regulation issued in September 2018. For a further discussion, see Note 13, "Income Taxes," to the Unaudited Consolidated Financial Statements in this Form 10-Q, as well as Note 15, "Income Taxes," to the Consolidated Financial Statements in the Company's 2018 Form 10-K and Item 1A. “Risk Factors-Uncertainties in the interpretation and application of the U.S. income tax provisions could have a material impact on the Company's financial condition, results of operations and/or cash flows” in the Company's 2018 Form 10-K.
The Company's effective tax rate for the three months and nine months ended September 30, 2019 was lower than the federal statutory rate of 21%, primarily due to the valuation allowance related to the limitation on the deductibility of interest and the U.S. tax on the Company's foreign earnings.
The Company expects that its tax provision and effective tax rate in any individual quarter and year-to-date period will vary and may not be indicative of the Company's tax provision and effective tax rate for the full year.
The Company concluded that, based on its evaluation of objective verifiable evidence, it does not require a valuation allowance on its federal deferred tax assets, other than those associated with the limitation on the deductibility of interest. The Company does have a valuation allowance on deferred tax assets associated with its activity in certain U.S. states and foreign jurisdictions. These conclusions regarding the establishment of valuation allowances on the Company's deferred tax assets as of the nine months ended September 30, 2019 are consistent with the Company's conclusions on such matters as of the year ended December 31, 2018. However, if the Company does not generate sufficient taxable income in future periods, its deferred tax assets may not be realizable on a more-likely-than-not basis, which would result in the Company having to establish an additional valuation allowance against its deferred tax assets. The Company will continue to assess all available evidence, both negative and positive, to determine whether such additional valuation allowance is warranted.
For a further discussion, see Note 13, "Income Taxes," to the Unaudited Consolidated Financial Statements in this Form 10-Q, as well as Note 15, "Income Taxes," to the Consolidated Financial Statements in the Company's 2018 Form 10-K and Item 1A. “Risk Factors-Uncertainties in the interpretation and application of the U.S. income tax provisions could have a material impact on the Company's financial condition, results of operations and/or cash flows” in the Company's 2018 Form 10-K.


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



Results of Operations — Products Corporation

The condensed consolidated statements of income of Products Corporation are essentially identical to the condensed consolidated statements of income of Revlon, Inc. except for the following:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net loss - Revlon, Inc.
$
(44.7
)
 
$
(11.1
)
 
$
(183.5
)
 
$
(223.9
)
Selling, general and administrative expenses - public company's costs
1.8

 
1.7

 
5.1

 
5.0

Provision for income taxes
(0.3
)
 
(0.5
)
 
(0.8
)
 
(1.1
)
Net loss - Products Corporation
$
(43.2
)
 
$
(9.9
)
 
$
(179.2
)
 
$
(220.0
)

Refer to Revlon’s “Management Discussion and Analysis of Financial Condition and Results of Operations” herein.



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



Financial Condition, Liquidity and Capital Resources
At September 30, 2019, the Company had a liquidity position of $166.8 million, consisting of: (i) $60.7 million of unrestricted cash and cash equivalents; (ii) $81.2 million in available borrowing capacity under Products Corporation's Amended 2016 Revolving Credit Facility (which had $348.4 million drawn at such date); (iii) $30 million in available borrowing capacity under the 2019 Senior Line of Credit Facility, which had no borrowings at such date; and less (iv) $5.1 million of outstanding checks. Under the Amended 2016 Revolving Credit Facility, as Products Corporation’s consolidated fixed charge coverage ratio ("FCCR") was greater than 1.0 to 1.0 as of September 30, 2019, all of the $81.2 million of availability under the Amended 2016 Revolving Credit Facility was available as of such date. See “Part 1, Item 2. Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations--Recent Debt Transactions” for a discussion of the Company’s credit facilities and amendments entered into during 2019.

2019 Term Loan Facility
Principal and Maturity: On August 6, 2019, Products Corporation entered into the 2019 Term Loan Facility, which is a senior secured term loan facility among certain affiliated funds, investment vehicles or accounts managed or advised by Ares Management LLC, as lender, in an initial aggregate principal amount of $200 million, and Wilmington Trust, as administrative and collateral agent. Net proceeds from the 2019 Term Loan Facility, which will be used for general corporate purposes, were approximately $188 million, after taking into account approximately $12 million of related fees and expenses. The 2019 Term Loan Facility will mature on the earliest of: (x) the fourth anniversary of the Closing Date; (y) the 180th day prior to the maturity of Products Corporation’s existing 2016 Term Loan Facility, if any loans under the 2016 Term Loan Facility remain outstanding and have not been replaced or refinanced by such date; and (z) the date of any springing maturity of the 2016 Term Loan Facility (i.e., the 91st day prior to the maturity of the 5.75% Senior Notes due February 15, 2021 if any 5.75% Senior Notes remain outstanding by such date).

Guarantees and Security: Products Corporation and its restricted subsidiaries under the 2019 Term Loan Facility (collectively, the “Restricted Group”) are subject to the covenants under the 2019 Term Loan Agreement. The 2019 Term Loan Facility is guaranteed by each existing and future direct or indirect wholly-owned domestic restricted subsidiary of Products Corporation (subject to various exceptions), as well as by Revlon, on a limited recourse basis, and Elizabeth Arden (U.K.) Ltd., Revlon Canada Inc. and Elizabeth Arden (Canada) Limited. The obligations of Revlon, Products Corporation and the subsidiary guarantors under the 2019 Term Loan Facility are secured by pledges of the equity of Products Corporation and the equity of the Restricted Group held by Products Corporation and each subsidiary guarantor (subject to customary exceptions, including equity of first-tier foreign subsidiaries in excess of 66% of the voting equity interests of such entity) and by substantially all tangible and intangible personal and real property of Products Corporation and the subsidiary guarantors (subject to customary exclusions). The 2019 Term Loan Facility and the existing 2016 Term Loan Facility share the same guarantors and collateral, except that the 2019 Term Loan Facility is also secured by a first-priority lien on certain intellectual property of the American Crew business (the “Additional Collateral”) and is guaranteed by the entities established to hold such Additional Collateral. Pursuant to a first lien pari passu intercreditor agreement, dated August 6, 2019, among Revlon, Products Corporation, the subsidiary guarantors, Wilmington Trust and Citibank, N.A. (acting as administrative agent and collateral agent for the 2016 Term Loan Facility), the liens on the shared collateral securing the 2019 Term Loan Facility rank pari passu in priority with the liens on the shared collateral securing the 2016 Term Loan Facility.

License Agreement: In connection with the pledge of such Additional Collateral, Products Corporation entered into intercompany arrangements pursuant to which the Additional Collateral was contributed to a newly-formed subsidiary, Beautyge I, which then further contributed the Additional Collateral to its new wholly-owned subsidiary, Beautyge II, LLC. Products Corporation entered into a license and royalty arrangement on arm’s length terms with Beautyge II, LLC to provide for the Company’s continued use of the Additional Collateral during the term of the 2019 Term Loan Facility.

Interest and Fees: Interest accrues on the 2019 Term Loan Facility at a rate per annum of one-month adjusted LIBOR (which has a floor of 0%) plus a margin of 9.50%. Products Corporation is also obligated to pay customary fees and expenses in connection with the 2019 Term Loan Facility.

Affirmative and Negative Covenants: The 2019 Term Loan Agreement contains certain affirmative and negative covenants that, among other things, limit the Restricted Group’s ability to: (i) incur additional debt; (ii) incur liens; (iii) sell, transfer or dispose of assets; (iv) make investments; (v) make dividends and distributions on, or repurchases of, equity; (vi) make prepayments of contractually subordinated or junior lien debt; (vii) enter into certain transactions with their affiliates; (viii) enter into sale-leaseback transactions; (ix) change their lines of business; (x) restrict dividends from their subsidiaries or restrict liens; (xi) change their fiscal year; and (xii) modify the terms of certain debt. The 2019 Term Loan Agreement also contains additional covenants: (i) restricting the activities of the entities established to hold the Additional Collateral; (ii) limiting the incurrence of secured debt by the Restricted Group to an aggregate principal amount of $50 million (excluding the Amended 2016 Revolving Credit Facility and any refinancing of the 5.75% Senior Notes due 2021); (iii) restricting the transfer by the Restricted Group of material intellectual property to non-guarantor restricted subsidiaries or other affiliates; and (iv) limiting investments by Products Corporation and its subsidiary guarantors in any non-guarantor subsidiary to an outstanding amount of $50 million plus $10 million for ordinary course investments consistent with past practice. These negative covenants are subject to various exceptions, including an “available amount basket” based on 50% of Products Corporation’s cumulative consolidated net income from October 1, 2016, subject to Products Corporation’s compliance with a 5.0 to 1.0 ratio of Products Corporation’s net debt to Consolidated EBITDA (as defined in the 2019 Term Loan Agreement), except such compliance is not required when such baskets are used to make investments.

Financial Covenants: The 2019 Term Loan Agreement contains financial covenants. First, Products Corporation cannot permit at any time both (x) the aggregate principal amount of secured and structurally senior debt to exceed $2.5 billion and (y) the ratio of Products Corporation's net secured and structurally senior debt to Consolidated EBITDA to be greater than 5.0 to 1.0, subject to a one-time equity cure right. Second, Products Corporation’s Consolidated EBITDA cannot be less than $250 million for any test period ending on or after March 31, 2021.

Prepayments: The 2019 Term Loan Facility is subject to mandatory prepayments from: (i) the net proceeds from the issuance by Products Corporation or any of its restricted subsidiaries of certain additional debt; (ii) commencing with the excess cash flow calculation with respect to fiscal year ending December 31, 2020, 50% of excess cash flow, with step-downs to 25% and 0% upon achievement of certain first lien leverage ratios and reduced by voluntary prepayments of the 2019 Term Loan Facility, the 2016 Term Loan Facility and revolving loans under the Amended 2016 Revolving Credit Facility (to the extent commitments thereunder are permanently reduced); and (iii) asset sale proceeds of certain non-ordinary course asset sales or other dispositions of property that have not been reinvested to the extent in excess of certain minimum amounts (subject to an aggregate reinvestment cap of $50 million). Products Corporation may voluntarily prepay the 2019 Term Loan Facility at any time. All voluntary prepayments, certain mandatory prepayments and repayments upon acceleration after an event of default of the 2019 Term Loan Facility must be accompanied by a fee (the “Applicable Premium”) in an amount equal to: (i) prior to January 1, 2021, a make-whole amount with respect to interest payments through December 31, 2020 plus 10% of the aggregate principal amount prepaid, repaid or required to be repaid; (ii) on and after January 1, 2021, but prior to January 1, 2022, 10% of the aggregate principal amount prepaid, repaid or required to be repaid; (iii) on and after January 1, 2022, but prior to January 1, 2023, 7.5% of the aggregate principal amount prepaid, repaid or required to be repaid; or (iv) thereafter, 5% of the aggregate principal amount prepaid, repaid or required to be repaid. A 5% exit fee is also payable upon the final scheduled maturity of the 2019 Term Loan Facility or if the loans thereunder are accelerated upon an event of default. The 2019 Term Loan Agreement also contains certain customary representations, warranties and events of default.

Events of Default: The 2019 Term Loan Agreement includes customary events of default, including a cross default provision making it an event of default under the 2019 Term Loan Agreement if there is an event of default under Products Corporation’s existing 2016 Credit Agreements, the 2018 Foreign Asset-Based Term Agreement, the Amended 2019 Senior Line of Credit Agreement or the indentures for Products Corporation’s 5.75% Senior Notes or 6.25% Senior Notes. In addition, the lenders under the 2019 Term Loan Agreement may declare all outstanding loans under the 2019 Term Loan Agreement to be due and payable immediately upon an event of default. Under such circumstances, the lenders under the 2016 Credit Agreements, the Amended 2019 Senior Line of Credit Agreement and the 2018 Foreign Asset-Based Term Agreement may also declare all outstanding loans under such facilities to be due and payable immediately as a result of similar cross default provisions, and upon non-payment of any accelerated principal amount, the trustees or noteholders for the 5.75% Senior Notes and 6.25% Senior Notes may declare all outstanding notes to be due and payable immediately as a result of similar cross-acceleration provisions, subject to certain exceptions and limitations described in the relevant instruments.

Fees and expenses incurred in connection with consummating the 2019 Term Loan Agreement of approximately $12 million were capitalized and are being amortized to interest expense over the term of the 2019 Term Loan Agreement using the effective interest method. The aggregate principal amount outstanding under the 2019 Term Loan Facility Agreement at September 30, 2019 was $200 million.

2019 Senior Line of Credit Facility

In June 2019, Products Corporation entered into a 2019 Senior Unsecured Line of Credit Agreement (the "2019 Senior Line of Credit Agreement") providing Products Corporation with a $30 million senior unsecured line of credit (the "2019 Senior Line of Credit Facility") from MacAndrews & Forbes Group, LLC, a subsidiary of Revlon’s majority stockholder. The 2019 Senior Line of Credit Facility allows Products Corporation to request loans thereunder and to use the proceeds of such loans for working capital and other general corporate purposes until the facility matures on December 31, 2019. As of September 30, 2019, there were no borrowings outstanding under this facility. See also Part II, Item 5. Other Information, “Extension of the Maturity of the 2019 Senior Line of Credit,” regarding the Amended 2019 Senior Line of Credit Agreement.
Any loans outstanding under the 2019 Senior Line of Credit Facility shall bear interest at an annual rate of 8%, which is payable quarterly in arrears in cash. Products Corporation may, at its option, prepay any borrowings under the 2019 Senior Line of Credit Facility, in whole or in part (together with accrued and unpaid interest), at any time prior to maturity, without premium or penalty.  Products Corporation is required to repay any outstanding loans under the 2019 Senior Line of Credit Facility, together with accrued interest thereon, if for any reason Products Corporation or any of its subsidiaries has available unrestricted cash that Products Corporation determines, in its reasonable judgment, is not required to run their operations in the ordinary course of business, provided that such repayment would not result in material adverse tax consequences.
The 2019 Senior Line of Credit Agreement includes customary events of default, including a cross default provision making it an event of default under the 2019 Senior Line of Credit Agreement if there exists and continues an event default under Products Corporation’s existing bank term loan and revolver credit agreements, the 2018 Foreign Asset-Based Term Agreement or the indentures for Products Corporation’s 5.75% Senior Notes or 6.25% Senior Notes. If any such event of default occurs, MacAndrews & Forbes Group, LLC may declare all outstanding loans under the 2019 Senior Line of Credit Facility to be due and payable immediately. For the three and nine months ended September 30, 2019, there were no borrowings or repayments under this facility.

Amendment No. 2 to the Amended 2016 Revolving Credit Agreement

On March 6, 2019, Products Corporation, Revlon and certain of their subsidiaries entered into Amendment No. 2 to the Amended 2016 Revolving Credit Agreement in respect of the Amended 2016 Revolving Credit Facility. Pursuant to the terms of Amendment No. 2, the maturity date applicable to the $41.5 million senior secured first in, last out Tranche B of the Amended 2016 Revolving Credit Facility was extended from April 17, 2019 to April 17, 2020. The Amended 2016 Revolving Credit Agreement provided that the “Liquidity Amount” (defined in the Amended 2016 Revolving Credit Agreement as the sum of each borrowing base less the sum of (x) the aggregate outstanding extensions of credit under the Amended 2016 Revolving Credit Facility, and (y) any availability reserve in effect on such date) may exceed the aggregate commitments under the Amended 2016 Revolving Credit Facility by up to 5%. Amendment No. 2 limits the Liquidity Amount to no more than the aggregate commitments under the Amended 2016 Revolving Credit Facility. Under the Amended 2016 Revolving Credit Agreement, a “Liquidity Event Period” generally occurred if Products Corporation’s Liquidity Amount fell below the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility. Amendment No. 2 changes these thresholds to $50 million and 15%, respectively, only for purposes of triggering certain notification obligations of Products Corporation, increased borrowing base reporting frequency and the ability of the administrative agent to apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility. After entering into Amendment No. 2, in March 2019 Products Corporation’s availability under the Amended 2016 Revolving Credit Facility was $37.3 million, which was less than the greater of $35 million and 10% of the maximum availability under the Amended 2016 Revolving Credit Facility, which at such date equated to $41.3 million. Accordingly, effective beginning in March 2019 Products Corporation is required to maintain a FCCR of a minimum of 1.0 to 1.0 (which it currently satisfies), the administrative agent may apply amounts collected in controlled accounts for the repayment of loans under the Amended 2016 Revolving Credit Facility, which the administrative agent began applying in March 2019, and Products Corporation is required to provide the administrative agent with weekly borrowing base certificates. Products Corporation will be required to: (i) maintain such 1.0 to 1.0 minimum FCCR until such time that availability under the Amended 2016 Revolving Credit Facility equals or exceeds the greater of $35 million and 10% of the maximum availability under such facility for at least 20 consecutive business days; and (ii) Products Corporation will continue to provide the administrative agent with weekly borrowing base certificates and the administrative agent may continue to apply amounts collected in controlled accounts as set forth above in each case until such time that availability under such facility is equal or exceeds the greater of $50 million and 15% of the maximum availability under such facility for at least 20 consecutive business days. Amendment No. 2 also adjusts, among other things, the “payment conditions” required to make unlimited restricted payments.

The Company’s foreign operations held $57.3 million out of its total $60.7 million in cash and cash equivalents as of September 30, 2019. While the cash held by the Company’s foreign subsidiaries is primarily used to fund their operations, the Company regularly assesses its global cash needs and the available sources of cash to fund these needs, which regularly includes repatriating foreign-held cash to settle historical intercompany loans and other intercompany payables. The Company believes that it has and will have sufficient liquidity to meet its cash needs for at least the next 12 months based upon the cash generated by its operations, cash on hand, availability under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings, along with the option to further settle historical intercompany loans and payables with certain foreign subsidiaries. The Company also expects to generate additional liquidity from cost reductions resulting from the implementation of the 2018 Optimization Program, which was initiated during the fourth quarter of 2018, and cost reductions generated from other cost control initiatives. See “Part 1, Item 2. Combined Management’s Discussion and Analysis of Financial Condition and Results of Operations--Recent Debt Transactions--2019 Term Loan Facility,” “2019 Term Loan Facility” above in “Financial Condition, Liquidity and Capital Resources” and the Company’s 2018 Form 10-K, Item 1A. Risk Factors -“Restrictions and covenants in Products Corporation’s various debt instruments limit its ability to take certain actions and impose consequences in the event of failure to comply.” During the first nine months of 2019, as part of continuing to effectively manage its working capital needs, the Company continued to repatriate funds to the U.S. using tax-effective methods, such as through the settlement of historical loans and payables due from certain foreign subsidiaries.

In December 2017, the U.S. government enacted the Tax Act, which made broad and complex changes to the U.S. tax code, including a one-time transition tax on certain non-U.S. earnings, the current U.S. taxation of certain foreign earnings in 2018 and following years and limitations on tax deductions for interest expense in 2018 and following years. The Company was not subject to the one-time transition tax due to its deficit in foreign earnings as of the applicable measurement dates. Additionally, the Company determined that the limitation on interest deductibility did not impact the Company's 2018 federal cash taxes due to its net operating loss position. Further, as a result of the Company’s anticipated net operating loss carryover to 2019, the Company expects that the Tax Act will not have a material impact on the Company's cash taxes or liquidity in 2019. As of December 31, 2018, the Company's accounting for the Tax Act was complete. For a further discussion, see Note 13, "Income Taxes," to the Unaudited Consolidated Financial Statements in this Form 10-Q, as well as Note 15, "Income Taxes," to the Consolidated Financial Statements in the Company's 2018 Form 10-K and Item 1A. “Risk Factors - Uncertainties in the interpretation and application of the U.S. income tax provisions could have a material impact on the Company's financial condition, results of operations and/or cash flows" in the Company's 2018 Form 10-K.

Changes in Cash Flows
As of September 30, 2019, the Company had cash, cash equivalents and restricted cash of $60.9 million, compared with $87.4 million at December 31, 2018. The following table summarizes the Company’s cash flows from operating, investing and financing activities for the periods presented:
 
Nine Months Ended September 30,
 
2019
 
2018
Net cash used in operating activities
$
(166.8
)
 
$
(296.7
)
Net cash used in investing activities
(20.0
)
 
(41.6
)
Net cash provided by financing activities
161.6

 
316.6

Effect of exchange rate changes on cash and cash equivalents
(1.4
)
 
(3.2
)
   Net decrease in cash, cash equivalents and restricted cash
(26.6
)
 
(24.9
)
Cash, cash equivalents and restricted cash at beginning of period
87.5

 
87.4

Cash, cash equivalents and restricted cash at end of period
$
60.9

 
$
62.5


Operating Activities
Net cash used in operating activities was $166.8 million and $296.7 million for the nine months ended September 30, 2019 and 2018, respectively. The decrease in cash used in operating activities for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, was primarily driven by favorable working capital changes compared to the prior year period, as well as a lower net loss, also as a result of the charges incurred in the prior year period related to the effect of the Oxford, N.C. facility disruption.

Investing Activities
Net cash used in investing activities was $20 million and $41.6 million for the nine months ended September 30, 2019 and 2018, respectively, which was entirely comprised of capital expenditures. The variance in capital expenditures was affected, among other things, by approximately $11.2 million for Elizabeth Arden integration-related investments in the prior year period.

Financing Activities
Net cash provided by financing activities was $161.6 million and $316.6 million for the nine months ended September 30, 2019 and 2018, respectively.
Net cash provided by financing activities for the nine months ended September 30, 2019 primarily included:
•
$200 million of borrowings under the 2019 Term Loan Facility;
•
$13.4 million of borrowings under the Amended 2016 Revolving Credit Facility;
with the foregoing partially offset by:
•
$22.4 million of decreases in short-term borrowings and overdraft;
•
$13.5 million of repayments under the 2016 Term Loan Facility; and
•
$13.4 million of payment of financing costs incurred in connection with consummating the 2019 Term Loan Facility in August 2019 and Amendment No. 2 to the Amended 2016 Revolving Credit Facility in March 2019.
Net cash provided by financing activities for the nine months ended September 30, 2018 primarily included:
•
$251.3 million of borrowings under the 2016 Revolving Credit Facility; and
•
$89.4 million of borrowings under the Asset-Based Term Facility;
with the foregoing partially offset by:
•
$13.5 million of repayments under the 2016 Term Loan Facility.

Long-Term Debt Instruments
See Note 8, "Long Term Debt," for information regarding Products Corporation’s 2016 Term Loan Facility, Amended 2016 Revolving Credit Facility, 2019 Term Loan Facility, 2018 Foreign Asset-Based Term Facility, Amended 2019 Senior Line of Credit Facility, 5.75% Senior Notes and 6.25% Senior Notes. For further detail regarding Products Corporation's long-term debt instruments, see Note 10, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2018 Form 10-K, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources," in the Company's 2018 Form 10-K.

Covenants
Products Corporation was in compliance with all applicable covenants under the 2016 Credit Agreements, the 2019 Term Loan Agreement, the 2018 Foreign Asset-Based Term Agreement and the 2019 Senior Line of Credit Agreement as of September 30, 2019. As of September 30, 2019, the aggregate principal amounts outstanding and availability under Products Corporation’s various revolving credit facilities were as follows:
 
Commitment
 
Borrowing Base
 
Aggregate principal amount outstanding at September 30, 2019
 
Availability at September 30, 2019 (a)
Tranche A of the Amended 2016 Revolving Credit Facility
$
400.0

 
$
400.0

 
$
307.5

 
$
81.2

Tranche B of the Amended 2016 Revolving Credit Facility
41.5

 
40.9

 
40.9

 
—

Total Tranche A & B of the Amended 2016 Revolving Credit Facility(a)
$
441.5

 
$
440.9

 
$
348.4

 
$
81.2

2019 Senior Line of Credit Facility
$
30.0

 
N/A

 
$
—

 
$
30.0

(a) Availability at September 30, 2019 is based upon the borrowing base then in effect of $440.9 million, less $11.3 million of outstanding undrawn letters of credit and $348.4 million then drawn. As Products Corporation’s consolidated fixed charge coverage ratio was greater than 1.0 to 1.0 as of September 30, 2019, all of the $81.2 million of availability under the Amended 2016 Revolving Credit Facility was available as of such date.

Products Corporation was in compliance with all applicable covenants under its Senior Notes Indentures as of September 30, 2019, with there being $500 million and $450 million in aggregate principal amount outstanding under the 5.75% Senior Notes and 6.25% Senior Notes, respectively, as of September 30, 2019.

Sources and Uses
The Company’s principal sources of funds are expected to be operating revenues, cash on hand and funds that may be available from time to time for borrowing under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings. The 2016 Credit Agreements, the 2019 Term Loan Agreement, the Senior Notes Indentures and the 2018 Foreign Asset-Based Term Agreement contain certain provisions that by their terms limit Products Corporation's and its subsidiaries’ ability to, among other things, incur additional debt, subject to certain exceptions.
The Company’s principal uses of funds are expected to be the payment of operating expenses, including payments in connection with the purchase of permanent wall displays; capital expenditure requirements; debt service payments and costs; cash tax payments; pension and other post-retirement benefit plan contributions; payments in connection with the Company’s restructuring programs, such as the EA Integration Restructuring Program and the 2018 Optimization Program; severance not otherwise included in the Company’s restructuring programs; business and/or brand acquisitions (including, without limitation, through licensing transactions), if any; debt and/or equity repurchases, if any; costs related to litigation; and payments in connection with discontinuing non-core business lines and/or exiting and/or entering certain territories and/or channels of trade.

The Company’s cash contributions to its pension and post-retirement benefit plans in the first nine months of 2019 were $7.8 million.

The Company expects that cash contributions to its pension and post-retirement benefit plans will total approximately $12 million for 2019. The Company’s cash taxes paid in the first nine months of 2019 were $6.9 million. The Company expects to pay cash taxes totaling approximately $15 million to $20 million during 2019. For a further discussion, see Note 13, "Income Taxes," to the Unaudited Consolidated Financial Statements in this Form 10-Q, as well as Note 15, "Income Taxes," to the Consolidated Financial Statements in the Company's 2018 Form 10-K and Item 1A. “Risk Factors - Uncertainties in the interpretation and application of the U.S. income tax provisions could have a material impact on the Company's financial condition, results of operations and/or cash flows" in the Company's 2018 Form 10-K.

The Company’s purchases of permanent wall displays and capital expenditures in the first nine months of 2019 were $28.4 million and $20 million, respectively. The Company expects that purchases of permanent wall displays will total approximately $50 million to $60 million during 2019 and expects that capital expenditures will total approximately $30 million to $40 million during 2019.

The Company has undertaken, and continues to assess, refine and implement, a number of programs to efficiently manage its working capital, including, among other things, initiatives intended to optimize inventory levels over time; centralized procurement to secure discounts and efficiencies; prudent management of trade receivables and accounts payable; and controls on general and administrative spending. In the ordinary course of business, the Company’s source or use of cash from operating activities may vary on a quarterly basis as a result of a number of factors, including the timing of working capital flows.

Continuing to execute the Company’s business initiatives could include taking advantage of additional opportunities to reposition, repackage or reformulate one or more brands or product lines, launching additional new products, acquiring businesses or brands (including, without limitation, through licensing transactions), divesting or discontinuing non-core business lines (which may include exiting certain territories), further refining the Company’s approach to retail merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational size and structure, including actions related to the 2018 Optimization Program. Any of these actions, the intended purpose of which would be to create value through improving the Company's financial performance, could result in the Company making investments and/or recognizing charges related to executing against such opportunities. Any such activities may be funded with operating revenues, cash on hand, funds that may be available from time to time under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility, other permissible borrowings and/or other permitted additional sources of capital, which actions could increase the Company’s total debt.

The Company may also, from time-to-time, seek to retire or purchase its outstanding debt obligations and/or equity in open market purchases, block trades, privately negotiated purchase transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions. Any such retirement or purchase of debt and/or equity may be funded with operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material.

The Company expects that operating revenues, cash on hand and funds that may be available from time-to-time for borrowing under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings will be sufficient to enable the Company to pay its operating expenses for 2019, including payments in connection with the purchase of permanent wall displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs, such as the EA Integration Restructuring Program and the 2018 Optimization Program, severance not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade. The Company also expects to generate additional liquidity from cost reductions resulting from the implementation of the 2018 Optimization Program.

There can be no assurance that available funds will be sufficient to meet the Company’s cash requirements on a consolidated basis, as, among other things, the Company’s liquidity can be impacted by a number of factors, including its level of sales, costs and expenditures, as well as accounts receivable and inventory, which serve as the principal variables impacting the amount of liquidity available under Products Corporation’s Amended 2016 Revolving Credit Facility and the 2018 Foreign Asset-Based Term Facility. For example, subject to certain exceptions, loans under the 2018 Foreign Asset-Based Term Facility must be prepaid to the extent that outstanding loans exceed the borrowing base, consisting of accounts receivable and inventory.

If the Company’s anticipated level of revenues is not achieved because of, among other things, decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products in one or more of the Company's segments; adverse changes in tariffs, foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors and/or decreased performance by third-party suppliers, whether due to shortages of raw materials or otherwise; changes in consumer purchasing habits, including with respect to retailer preferences and/or sales channels, such as due to any further consumption declines that the Company has experienced; inventory management by the Company's customers; space reconfigurations or reductions in display space by the Company's customers; retail store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; or less than anticipated results from the Company’s existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company’s expenses, including, without limitation, for the purchase of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs (such as the EA Integration Restructuring Program and the 2018 Optimization Program), severance not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the anticipated level of expenses, the Company’s current sources of funds may be insufficient to meet the Company’s cash requirements.

Any such developments, if significant, could reduce the Company’s revenues and operating income and could adversely affect Products Corporation’s ability to comply with certain financial and/or other covenants under the 2016 Credit Agreements, the 2019 Term Loan Agreement, the Senior Notes Indentures and/or the 2018 Foreign Asset-Based Term Agreement and in such event the Company could be required to take measures, including, among other things, reducing discretionary spending. (For further discussion of certain risks associated with the Company's business and indebtedness, see Item 1A. "Risk Factors" in the Company’s 2018 Form 10-K.)

Derivative Financial Instruments
Foreign Currency Forward Exchange Contracts
Products Corporation enters into foreign currency forward exchange and option contracts ("FX Contracts") from time-to-time primarily for the purpose of hedging anticipated inventory purchases and certain intercompany payments denominated in currencies other than the local currencies of the Company’s foreign and domestic operations and generally have maturities of less than one year. The FX Contracts in the Company's hedging program matured in December 2018. The Company did not enter into any FX Contracts during nine months ended September 30, 2019. The U.S. Dollar notional amounts of the FX Contracts outstanding at each of September 30, 2019 and December 31, 2018 were nil.

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 the Old Acquisition Term Loan. The 2013 Interest Rate Swap expired in May 2018. Refer to Note 10, "Financial Instruments," in this Form 10-Q for more information on this interest rate swap transaction.
Credit Risk
Exposure to credit risk in the event of nonperformance by any of the counterparties to the Company's outstanding hedging instruments is limited to the gross fair value of the derivative instruments in asset positions, which totaled nil as of September 30, 2019 and December 31, 2018. The Company has from time to time in the past attempted 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. If applicable, the Company also periodically monitors any changes in the credit ratings of its counterparties. Given the credit standing of the counterparties that the Company has used from time to time to provide its derivative instruments, the Company believes the risk of loss arising from any non-performance by its counterparties under the derivative instruments that it has entered into from time to time would be remote.

Off-Balance Sheet Transactions

The Company does not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


Discussion of Critical Accounting Policies

For a discussion of the Company's critical accounting policies, see the Company's 2018 Form 10-K.

Effect of Recently Issued Accounting Pronouncements

See discussion of recent accounting pronouncements in Note 1, "Description of Business and Summary of Significant Accounting Policies," to the Unaudited Consolidated Financial Statements in this Form 10-Q.



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(all tabular amounts in millions, except share and per share amounts)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable as a smaller reporting company.


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Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the fiscal period covered by this Form 10-Q. Based upon such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that as a result of the material weakness described in "Management's Annual Report on Internal Control Over Financial Reporting," under Item 9A. “Controls and Procedures” of the Company’s 2018 Form 10-K, the Company's disclosure controls and procedures were not effective as of the end of the period covered by this Form 10-Q.
Given the material weakness, the Company performed additional procedures to determine that the Company’s Unaudited Consolidated Financial Statements included in this Form 10-Q were prepared in accordance with U.S. GAAP and fairly present in all material respects the Company's financial condition, results of operations and cash flow for the periods presented. As a result, management, including the Company's Chief Executive Officer and Chief Financial Officer, concluded that the Company’s Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were prepared in accordance with U.S. GAAP and fairly present in all material respects the Company’s financial condition, results of operations and cash flow for the periods presented.
(b) Changes in Internal Control over Financial Reporting (“ICFR”). As disclosed in Part II, Item 9A. “Controls and Procedures” in the Company’s 2018 Form 10-K, the Company identified a material weakness in internal control over financial reporting related to the following deficiencies:
(i)
the Company did not perform an effective continuous risk assessment process that adequately identified and assessed risks affecting the Company's internal controls over financial reporting associated with the implementation of its new ERP system in the U.S.;
(ii)
the Company did not maintain a sufficient number of knowledgeable, trained personnel in the U.S. operations impacted by the ERP system implementation and in various other operations across the Company who understood and were held accountable for their assigned responsibilities for the design, implementation and operation of internal controls over financial reporting; and
(iii)
as a result, the Company did not design, implement and consistently operate effective process-level controls to ensure that it appropriately (a) recorded and accounted for inventory, accounts receivable, net sales and cost of goods sold, (b) reconciled balance sheet accounts, (c) reviewed and approved the complete population of manual journal entries and (d) used complete and accurate information in performing manual controls.
The Company adopted a plan designed to improve its internal controls to remediate the aforementioned material weakness beginning Q1 2019 and through the date of filing this Form 10-Q has taken certain actions within each of the following areas: (i) implemented enhancements to company-wide risk assessment processes; (ii) enhanced the review and sign-off procedures for IT implementations; (iii) enhanced staff and continued to train staff responsible for internal control over financial reporting; (iv) enhanced the Company’s process and control documentation; (v) implemented new processes and controls relative to the execution and oversight of inventory, accounts receivable, net sales and cost of goods sold; (vi) enhanced and continued to reinforce policies around account reconciliations and manual journal entries; (vii) identified and clearly communicated individual employee responsibilities; and (viii) continued to implement new controls and new reporting tools to ensure the completeness and accuracy of information used in performing manual controls. These actions are ongoing and the Company is also continuing to evaluate additional controls and procedures that may be required to remediate the material weakness.

The Company believes that the actions being taken to improve the design and operating effectiveness of its internal controls
will effectively remediate the material weakness. However, the material weakness in the Company’s internal control over financial reporting will not be considered remediated until the internal controls that are remediated operate for a sufficient period of time and management concludes, through testing, that these internal controls are operating effectively.


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For further information regarding the Company’s material weakness, see Part I, Item 1A. “Risk Factors - Difficulties in implementing the Company’s new ERP system have disrupted the Company's business operations and have caused a material weakness in the Company’s internal control over financial reporting. If the Company is unable to remediate the material weakness in its internal control over financial reporting, it may negatively impact the Company’s ability to prepare its future financial statements in conformity with U.S. GAAP. If the Company experiences ongoing disruptions with such implementation and/or is unable to remediate the material weakness in the future, such events could have a material adverse effect on the Company's business, prospects, results of operations, financial condition and/or cash flows” in the Company's 2018 Form 10-K and Part II, Item 9A. “Controls and Procedures” in the Company's 2018 Form 10-K.




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Forward-Looking Statements
This Quarterly Report on Form 10-Q for the period ended September 30, 2019, as well as the Company's other public documents and statements, may contain forward-looking statements that involve risks and uncertainties, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on the beliefs, expectations, estimates, projections, assumptions, forecasts, plans, anticipations, targets, outlooks, initiatives, visions, objectives, strategies, opportunities, drivers, focus and intents of the Company’s management. While the Company believes that its estimates and assumptions are reasonable, the Company cautions that it is very difficult to predict the impact of known and unknown factors, and, of course, it is impossible for the Company to anticipate all factors that could affect its results. The Company's actual results may differ materially from those discussed in such forward-looking statements. Such statements include, without limitation, the Company's expectations, plans and estimates (whether qualitative or quantitative) as to:
(i)
the Company's future financial performance and/or sales growth;
(ii)
the effect on sales of decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products in one or more of the Company's segments; adverse changes in tariffs, foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company’s products as a result of increased competitive activities by the Company’s competitors and/or decreased performance by third-party suppliers, whether due to shortages of raw materials or otherwise, changes in consumer purchasing habits, including with respect to retailer preferences and/or among sales channels, such as due to the continuing consumption declines in core beauty categories in the mass retail channel in North America; inventory management by the Company's customers; inventory de-stocking by certain retail customers; space reconfigurations or reductions in display space by the Company's customers; retail store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; changes in pricing, marketing, advertising and/or promotional strategies by the Company's customers; less than anticipated results from the Company’s existing or new products or from its advertising, promotional, pricing and/or marketing plans; or if the Company’s expenses, including, without limitation, for the purchase of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs (such as the EA Integration Restructuring Program and the 2018 Optimization Program), severance not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise, exceed the anticipated level of expenses;
(iii)
the Company's belief that continuing to execute its business initiatives could include taking advantage of additional opportunities to reposition, repackage or reformulate one or more brands or product lines, launching additional new products, acquiring businesses or brands (including through licensing transactions, if any), divesting or discontinuing non-core business lines (which may include exiting certain territories), further refining its approach to retail merchandising and/or taking further actions to optimize its manufacturing, sourcing and organizational size and structure, any of which, the intended purpose would be to create value through improving the Company's financial performance, could result in the Company making investments and/or recognizing charges related to executing against such opportunities, which activities may be funded with operating revenues, cash on hand, funds available under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility, other permissible borrowings and/or other permitted additional sources of capital, which actions could increase the Company's total debt;
(iv)
the Company’s plans to remain focused on its 3 key strategic pillars to drive its future success and growth, including (1) strengthening its iconic brands through innovation and relevant product portfolios; (2) building its capabilities to better communicate and connect with its consumers through media channels where they spend the most time; and (3) ensuring availability of its product where consumers shop, both in-store and increasingly online;
(v)
the effect of restructuring activities, restructuring costs and charges, the timing of restructuring payments and the benefits from such activities, including, without limitation: (A) in connection with implementing the EA Integration Restructuring Program: (1) consolidating offices, eliminating certain duplicative activities and streamlining back-office support (which are designed to reduce the Company's SG&A expenses); and (2) recognizing $82.6 million of the EA Integration Restructuring Charges (all of which are expected to be cash payments), consisting of: (x) $72.6 million of employee-related costs, including severance, retention and other contractual termination benefits; (y) $5.1 million of lease termination costs; and (z) $4.9 million of other related charges; (B) the Company's 2018 Optimization Program designed to streamline the Company’s operations, reporting structures and business processes, with the objective of maximizing productivity and improving profitability, cash flows and liquidity, with the major initiatives underlying such program including: (1) optimizing its global supply chain and realizing manufacturing efficiencies and rationalizing its global warehouse network and office locations to drive greater efficiency, lower its cost base and enhance its speed-to-market capabilities for new innovations; (2) enhancing in-market execution and optimizing its commercial and organizational structures to create more efficient global and regional capabilities; and (3) reducing overhead costs and streamlining functions and workflows by leveraging technology and shared services and standardizing and simplifying its business processes, leading to greater agility and faster decision-making; (C) the Company’s expectations regarding the amount and timing of the charges and payments related to the 2018 Optimization Program, including that: (1) it will recognize approximately $30 million to $40 million of total pre-tax restructuring and related charges, consisting of employee-related costs, such as severance, pension and other termination costs, as well as related third party expenses; (2) it will incur approximately $10 million of additional capital expenditures; (3) of the restructuring charges, it recorded pre-tax restructuring charges of $28.1 million in the nine months ended September 30, 2019, related to the 2018 Optimization Program, with substantially all of the balance to be recognized in 2019; and (4) approximately 85% of the restructuring charges are to be paid in cash, with approximately $15.8 million paid through September 30, 2019, and substantially all of the remaining balance is expected to be paid by the end of 2019, with any residual amount to be paid in 2020; (D) the Company’s expectation that the actions to be implemented under the 2018 Optimization Program will be substantially completed by December 31, 2019; and (E) the Company's projections that the 2018 Optimization Program will result in between $90 million and $95 million of in-year cost reductions during 2019, of which approximately $65 million had been realized as of September 30, 2019, that the annualized cost reductions will be in the range of approximately $125 million to $150 million by the end of 2019 and that approximately half of the annualized cost reductions are expected to be realized within cost of sales and the remainder in selling, general and administrative expenses;
(vi)
the Company’s expectation that operating revenues, cash on hand and funds that may be available from time to time for borrowing under Products Corporation's Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings will be sufficient to enable the Company to cover its operating expenses for 2019, including the cash requirements referred to in item (viii) below, and the Company's belief that (a) it has and will have sufficient liquidity to meet its cash needs for at least the next 12 months based upon the cash generated by its operations, cash on hand, availability under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings, along with the option to further settle intercompany loans and payables with certain foreign subsidiaries, and that such cash resources will be further enhanced as the Company implements its 2018 Optimization Program and cost reductions generated from other cost control initiatives and (b) restrictions and/or taxes on repatriation of foreign earnings will not have a material effect on the Company's liquidity during such period;
(vii)
the Company’s expected principal sources of funds, including operating revenues, cash on hand and funds available for borrowing under Products Corporation's Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and other permissible borrowings, as well as the availability of funds from the Company taking certain measures, including, among other things, reducing discretionary spending and the Company’s expectation to generate additional liquidity from cost reductions resulting from the implementation of the 2018 Optimization Program and from other cost reduction initiatives;
(viii)
the Company's expected principal uses of funds, including amounts required for payment of operating expenses including in connection with the purchase of permanent wall displays; capital expenditure requirements; debt service payments and costs; cash tax payments; pension and other post-retirement benefit plan contributions; payments in connection with the Company’s restructuring programs, such as the EA Integration Restructuring Program and the 2018 Optimization Program; severance not otherwise included in the Company’s restructuring programs; business and/or brand acquisitions (including, without limitation, through licensing transactions), if any; debt and/or equity repurchases, if any; costs related to litigation; and payments in connection with discontinuing non-core business lines and/or exiting and/or entering certain territories and/or channels of trade (including, without limitation, that the Company may also, from time-to-time, seek to retire or purchase its outstanding debt obligations and/or equity in open market purchases, block trades, privately negotiated purchase transactions or otherwise and may seek to refinance some or all of its indebtedness based upon market conditions and that any such retirement or purchase of debt and/or equity may be funded with operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material); and its estimates of the amount and timing of such operating and other expenses;
(ix)
matters concerning the impact on the Company from changes in interest rates and foreign exchange rates;
(x)
the Company's expectation to efficiently manage its working capital, including, among other things, initiatives intended to optimize inventory levels over time; centralized procurement to secure discounts and efficiencies; prudent management of trade receivables, accounts payable and controls on general and administrative spending; and the Company’s belief that in the ordinary course of business, its source or use of cash from operating activities may vary on a quarterly basis as a result of a number of factors, including the timing of working capital flows;
(xi)
the Company’s expectations regarding its future net periodic benefit cost for its U.S. and international defined benefit plans;
(xii)
the Company's expectation that its tax provision and effective tax rate in any individual quarter and year-to-date period will vary and may not be indicative of the Company's tax provision and effective tax rate for the full year and, with respect to the Tax Act, the Company’s expectation that the Tax Act’s limitation on interest deductibility will not impact the Company’s 2019 federal cash taxes due to its net operating loss carryover position, and that the Tax Act will not have a material impact on its cash taxes or liquidity in 2019, as well as the Company's expectations regarding whether it will be required to establish additional valuation allowances on its deferred tax assets;
(xiii)
the Company's belief 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, but that 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;
(xiv)
the Company’s expectations regarding its implementation of the remediation plan to address the material weakness that it identified in its internal control over financial reporting, as described in Item 4. “Controls and Procedures” of this Form 10-Q; and
(xv)
the Company’s plans to explore strategic transactions pursuant to the Strategic Review.

Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language such as "estimates," "objectives," "visions," "projects," "forecasts," "focus," "drive towards," "plans," "targets," "strategies," "opportunities," "assumptions," "drivers," "believes," "intends," "outlooks," "initiatives," "expects," "scheduled to," "anticipates," "seeks," "may," "will" or "should" or the negative of those terms, or other variations of those terms or comparable language, or by discussions of strategies, targets, long-range plans, models or intentions. Forward-looking statements speak only as of the date they are made, and except for the Company's ongoing obligations under the U.S. federal securities laws, the Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
Investors are advised, however, to consult any additional disclosures the Company made or may make in the Company's 2018 Form 10-K and in its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, in each case filed with the SEC in 2019 and 2018 (which, among other places, can be found on the SEC's website at http://www.sec.gov, as well as on the Company's corporate website at www.revloninc.com). Except as expressly set forth in this Form 10-Q, the information available from time-to-time on such websites shall not be deemed incorporated by reference into this Form 10-Q. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. (See also Item 1A. "Risk Factors" in the Company's 2018 Form 10-K for further discussion of risks associated with the Company's business). In addition to factors that may be described in the Company's filings with the SEC, including this filing, the following factors, among others, could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by the Company:
(i)
unanticipated circumstances or results affecting the Company's financial performance and or sales growth, including: greater than anticipated levels of consumers choosing to purchase their beauty products through e-commerce and other social media channels and/or greater than anticipated declines in the brick-and-mortar retail channel, or either of those conditions occurring at a rate faster than anticipated; the Company’s inability to address the pace and impact of the new commercial landscape, such as its inability to enhance its e-commerce and social media capabilities and/or increase its penetration of e-commerce and social media channels; the Company’s inability to drive a successful long-term omni-channel strategy and significantly increase its e-commerce penetration; difficulties, delays and/or the Company's inability to (in whole or in part) develop and implement effective content to enhance its online retail position, improve its consumer engagement across social media platforms and/or transform its technology and data to support efficient management of its digital infrastructure; the Company incurring greater than anticipated levels of expenses and/or debt to facilitate the foregoing objectives, which could result in, among other things, less than anticipated revenues and/or profitability; decreased consumer spending in response to weak economic conditions or weakness in the consumption of beauty products in one or more of the Company's segments; adverse changes in tariffs, foreign currency exchange rates, foreign currency controls and/or government-mandated pricing controls; decreased sales of the Company's products as a result of increased competitive activities by the Company's competitors; decreased performance by third-party suppliers, whether due to shortages of raw materials or otherwise; and/or supply disruptions at the Company’s manufacturing facilities; changes in consumer preferences, such as reduced consumer demand for the Company's color cosmetics and other current products, including new product launches; changes in consumer purchasing habits, including with respect to retailer preferences and/or among sales channels, such as due to the continuing consumption declines in core beauty categories in the mass retail channel in North America; lower than expected customer acceptance or consumer acceptance of, or less than anticipated results from, the Company’s existing or new products; higher than expected retail store closures in the brick-and-mortar channels where the Company sells its products, as consumers continue to shift purchases to online and e-commerce channels; higher than expected purchases of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs (such as the EA Integration Restructuring Program and the 2018 Optimization Program), severance not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise or lower than expected results from the Company’s advertising, promotional, pricing and/or marketing plans; decreased sales of the Company’s existing or new products; actions by the Company’s customers, such as greater than expected inventory management and/or de-stocking, and greater than anticipated space reconfigurations or reductions in display space and/or product discontinuances or a greater than expected impact from pricing, marketing, advertising and/or promotional strategies by the Company's customers; and changes in the competitive environment and actions by the Company's competitors, including, among other things, business combinations, technological breakthroughs, implementation of new pricing strategies, new product offerings, increased advertising, promotional and marketing spending and advertising, promotional and/or marketing successes by competitors;
(ii)
in addition to the items discussed in (i) above, the effects of and changes in economic conditions (such as volatility in the financial markets, inflation, increasing interest rates, monetary conditions and foreign currency fluctuations, tariffs, foreign currency controls and/or government-mandated pricing controls, as well as in trade, monetary, fiscal and tax policies in international markets) and political conditions (such as military actions and terrorist activities);
(iii)
unanticipated costs or difficulties or delays in completing projects associated with continuing to execute the Company’s business initiatives or lower than expected revenues or the inability to create value through improving the Company's financial performance as a result of such initiatives, including lower than expected sales, or higher than expected costs, including as may arise from any additional repositioning, repackaging or reformulating of one or more brands or product lines, launching of new product lines, including higher than expected expenses, including for sales returns, for launching its new products, acquiring businesses or brands (including through licensing transactions, if any), divesting or discontinuing non-core business lines (which may include exiting certain territories or converting the Company's go-to-trade structure in certain countries to other business models), further refining its approach to retail merchandising and/or difficulties, delays or increased costs in connection with taking further actions to optimize the Company’s manufacturing, sourcing, supply chain or organizational size and structure (including difficulties or delays in and/or the Company’s inability to optimally implement the EA Integration Restructuring Program and/or the 2018 Optimization Program and/or less than expected benefits from such programs and/or more than expected costs in implementing such programs, which could cause the Company not to realize the projected cost reductions), as well as the unavailability of cash generated by operations, cash on hand and/or funds under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility, other permissible borrowings and/or from other permissible additional sources of capital to fund such potential activities, as well as the unavailability of funds due to potential mandatory repayment obligations under the 2018 Foreign Asset-Based Term Facility;
(iv)
difficulties, delays in or less than expected results from the Company’s efforts to execute on its 3 key strategic pillars to drive its future success and growth, including, without limitation: (1) less than effective new product development and innovation, less than expected acceptance of its new products and innovations by the Company’s consumers and/or customers in one or more of its segments and/or less than expected levels of execution vis-à-vis its new product launches with its customers in one or more of its segments or regions; (2) less than expected levels of advertising, promotional and/or marketing activities for its new product launches, less than expected acceptance of its advertising, promotional, pricing and/or marketing plans and/or brand communication by consumers and/or customers in one or more of its segments, less than expected investment in advertising, promotional and/or marketing activities or greater than expected competitive investment; and/or (3) difficulties or disruptions impacting the Company’s ability to ensure availability of its product where consumers shop, both in-store and increasingly online;
(v)
difficulties, delays or unanticipated costs or charges or less than expected cost reductions and other benefits resulting from the Company's restructuring activities, such as in connection with the 2018 Optimization Program: (1) difficulties with, delays in or the Company’s inability to successfully complete the actions underlying the 2018 Optimization Program, in whole or in part, which could result in less than expected operating and financial benefits from such actions, such as difficulties with, delays in or the Company’s inability to generate reductions in its cost base and/or overhead costs; (2) higher than anticipated restructuring charges and/or payments and/or changes in the expected timing of such charges and/or payments; (3) delays in completing the actions underlying the 2018 Optimization Program, which could reduce and/or defer the benefits expected to be realized from such activities, such as providing an additional source of liquidity; and/or (4) less than anticipated annualized cost reductions from the 2018 Optimization Program and/or changes in the timing of realizing such cost reductions, such as due to less than anticipated resources to fund such activities and/or more than expected costs to achieve the expected cost reductions;
(vi)
lower than expected operating revenues, cash on hand and/or funds available under the Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and/or other permissible borrowings or generated from cost reductions related to the 2018 Optimization Program and/or other cost control initiatives; higher than anticipated operating expenses, such as referred to in clause (viii) below; and/or less than anticipated cash generated by the Company's operations or unanticipated restrictions or taxes on repatriation of foreign earnings;
(vii)
the unavailability of funds under Products Corporation's Amended 2016 Revolving Credit Facility, the Amended 2019 Senior Line of Credit Facility and/or other permissible borrowings; the unavailability of funds under the 2018 Foreign Asset-Based Term Facility, such as due to reductions in the applicable borrowing base that could require certain mandatory prepayments; the unavailability of funds from difficulties, delays in or the Company's inability to take other measures, such as reducing discretionary spending and/or less than expected liquidity from cost reductions resulting from the implementation of the 2018 Optimization Program and from other cost reduction initiatives;
(viii)
higher than expected operating expenses, such as higher than expected purchases of permanent displays, capital expenditures, debt service payments and costs, cash tax payments, pension and other post-retirement plan contributions, payments in connection with the Company’s restructuring programs (such as the EA Integration Restructuring Program and the 2018 Optimization Program), severance not otherwise included in the Company’s restructuring programs, business and/or brand acquisitions (including, without limitation, through licensing transactions), if any, debt and/or equity repurchases, if any, costs related to litigation, discontinuing non-core business lines and/or entering and/or exiting certain territories and/or channels of trade, advertising, promotional and marketing activities or for sales returns related to any reduction of space by the Company's customers, product discontinuances or otherwise;
(ix)
unexpected significant impacts on the Company from changes in interest rates or foreign exchange rates;
(x)
difficulties, delays or the inability of the Company to efficiently manage its cash and working capital;
(xi)
lower than expected returns on pension plan assets and/or lower discount rates, which could result in higher than expected cash contributions, higher net periodic benefit costs and/or less than expected net periodic benefit income;
(xii)
unexpected significant variances in the Company's tax provision, effective tax rate and/or unrecognized tax benefits, whether due to the enactment of the Tax Act or otherwise, such as due to the issuance of unfavorable guidance, interpretations, technical clarifications and/or technical corrections legislation by the U.S. Congress, the U.S. Treasury Department or the IRS, unexpected changes in foreign, state or local tax regimes in response to the Tax Act, and/or changes in estimates that may impact the calculation of the Company's tax provisions, as well as changes in circumstances that could adversely impact the Company's expectations regarding the establishment of additional valuation allowances on its deferred tax assets;
(xiii)
unanticipated adverse effects on the Company’s business, prospects, results of operations, financial condition and/or cash flows as a result of unexpected developments with respect to the Company's legal proceedings;
(xiv)
difficulties or delays that could affect the Company's ability to effectively implement the remediation plan, in whole or in part, to address the material weakness that it identified in its internal control over financial reporting, as described in Item 4. "Controls and Procedures" of this Form 10-Q; and/or
(xv)
difficulties or delays that could affect the Company's ability to consummate one or more transactions pursuant to the Strategic Review, such as due to the Company’s respective businesses experiencing disruptions due to transaction-related uncertainty or other factors.

Factors other than those listed above could also cause the Company's results to differ materially from expected results. This discussion is provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

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Website Availability of Reports, Corporate Governance Information and Other Financial Information
The Company maintains a comprehensive corporate governance program, including Corporate Governance Guidelines for Revlon’s Board of Directors, Revlon’s Board Guidelines for Assessing Director Independence and charters for Revlon’s Audit Committee and Compensation Committee. Revlon maintains a corporate investor relations website, www.revloninc.com, where stockholders and other interested persons may review, without charge, among other things, Revlon's corporate governance materials and certain SEC filings (such as Revlon's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, annual reports, Section 16 reports reflecting certain changes in the stock ownership of Revlon’s directors and Section 16 officers, and certain other documents filed with the SEC), each of which are generally available on the same business day as the filing date with the SEC on the SEC’s website http://www.sec.gov. Products Corporation's SEC filings are also available on the SEC's website http://www.sec.gov. In addition, under the section of the website entitled, "Corporate Governance," Revlon posts printable copies of the latest versions of its Corporate Governance Guidelines, Board Guidelines for Assessing Director Independence and charters for Revlon's Audit Committee and Compensation Committee, as well as the Company's Code of Conduct and Business Ethics, which includes the Company's Code of Ethics for Senior Financial Officers, and the Audit Committee Pre-Approval Policy. From time-to-time, the Company may post on www.revloninc.com certain presentations that may include material information regarding its business, financial condition and/or results of operations. The business and financial materials and any other statement or disclosure on, or made available through, the websites referenced herein shall not be deemed incorporated by reference into this report.



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(all tabular amounts in millions, except share and per share amounts)

PART II - OTHER INFORMATION

Item 1. Legal Proceedings
The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.


Item 1A. Risk Factors

In addition to the other information in this report, investors should consider carefully the risk factors discussed in Part I, Item 1A. "Risk Factors" in the Company's 2018 Form 10-K.


Item 5. Other Information

Extension of the Maturity of the 2019 Senior Line of Credit

On November 7, 2019, Products Corporation and MacAndrews & Forbes Group, LLC, Revlon’s majority stockholder, entered into the Amended and Restated 2019 Senior Unsecured Line of Credit Agreement (the “Amended 2019 Line of Credit Agreement”) to extend the maturity of the 2019 Senior Line of Credit Agreement entered into on June 27, 2019 by 1-year, expiring December 31, 2020. As of September 30, 2019 and as of the November 7, 2019 extension date, there were no borrowings outstanding under this facility. As of September 30, 2019, MacAndrews & Forbes Group, LLC and its affiliates beneficially owned 46,223,321 shares of Revlon’s Class A common stock, representing approximately 87.2% of Revlon’s outstanding shares of voting capital stock as of such date. The foregoing description of the Amended 2019 Line of Credit Agreement is qualified in its entirety by reference to the full text of such agreement, a copy of which is incorporated by reference into this Form 10-Q as Exhibit 4.1.

Appointment of Mitra Hormozi, Esq. as a Revlon Director

Effective November 7, 2019, Revlon’s Board of Directors appointed Mitra Hormozi, Esq. to serve as a member of Revlon’s Board of Directors. Ms. Hormozi previously served as the Company’s Executive Vice President and General Counsel from April 2015 to July 2019, responsible for overseeing the Company’s worldwide legal affairs. Ms. Hormozi also acted as the Company’s Interim Chief Human Resources Officer from October 2018 to February 2019. Prior to joining the Company in April 2015, Ms. Hormozi was a litigation partner at two major law firms from 2011 to 2015 and previously served as Deputy Chief of Staff to then New York State Attorney General, Andrew Cuomo. Ms. Hormozi also served as an Assistant United States Attorney prosecuting high-profile complex racketeering cases in the Eastern District of New York. Since December 2018, Ms. Hormozi has served as a director of Athene Holding Ltd. (including one or more of its U.S. subsidiaries), which is a NYSE-listed company that offers and reinsures retirement savings products. With her background, Ms. Hormozi has extensive experience in both the public and private sectors of the legal field, as well as senior executive and business experience, governmental experience, public company board experience, combined with in-depth knowledge of the Company. Ms. Hormozi also currently sits on The New York State Commission on Legislative, Judicial, & Executive Compensation. Ms. Hormozi received a Bachelor of Arts in history from the University of Michigan and a Juris Doctor from the New York University School of Law.

In November 2019, the Company and Ms. Hormozi entered into a consulting agreement (the “Consulting Agreement”), pursuant to which Ms. Hormozi will assist in transitioning oversight of the Company’s worldwide legal affairs to her successor. In exchange for performing these advisory services, the Company will pay Ms. Hormozi a fee of $250,000 per year and she will continue to remain eligible to be paid her 2019 annual bonus award and vest in her outstanding LTIP awards, in each case on a pro-rated basis and subject to the Company’s achievement of its applicable performance objectives (supplemental to the Board’s compensation program for non-employee directors). The term of the Consulting Agreement expires on December 31, 2020, subject to earlier termination by either party on at least 30 days’ notice, among other standard termination rights. The foregoing description of the Consulting Agreement is qualified in its entirety by reference to the full text of such agreement, a copy of which is incorporated by reference into this Form 10-Q as Exhibit 10.2.


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Item 6. Exhibits
4.1
Amended and Restated Senior Unsecured Line of Credit Agreement, dated as of November 7, 2019, between Products Corporation, as borrower, and MacAndrews & Forbes Group, LLC, as lender (incorporated by reference to Exhibit 4.1 to RCPC’s Current Report on Form 10-Q filed with the SEC on November 8, 2019).
4.2
4.3
4.4
4.5
4.6
4.7
*10.1
*10.2
*31.1
*31.2
**32.1
**32.2
 
 
*101.INS
XBRL Instance Document
*101.SCH
XBRL Taxonomy Extension Schema
*101.CAL
XBRL Taxonomy Extension Calculation Linkbase
*101.DEF
XBRL Taxonomy Extension Definition Linkbase
*101.LAB
XBRL Taxonomy Extension Label Linkbase
*101.PRE
XBRL Taxonomy Extension Presentation Linkbase
*Filed herewith.
**Furnished herewith.

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S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 8, 2019

Revlon, Inc.
(Registrant)
 
 
 
 
 
By: /s/ Debra Perelman
 
By: /s/ Victoria Dolan
 
By: /s/ Pamela Bucher
Debra Perelman
 
Victoria Dolan
 
Pamela Bucher
President, Chief Executive Officer &
 
Chief Financial Officer
 
Vice President,
Director
 
 
 
Chief Accounting Officer
 
 
 
 
& Controller
 
 
 
 
 
Revlon Consumer Products Corporation
(Registrant)
 
 
 
 
 
By: /s/ Debra Perelman
 
By: /s/ Victoria Dolan
 
By: /s/ Pamela Bucher
Debra Perelman
 
Victoria Dolan
 
Pamela Bucher
President, Chief Executive Officer &
 
Chief Financial Officer
 
Vice President,
Director
 
 
 
Chief Accounting Officer
 
 
 
 
& Controller




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