BUSINESS COMBINATIONS

The Elizabeth Arden Acquisition

On September 7, 2016 (the "Elizabeth Arden Acquisition Date"), the Company completed the acquisition of Elizabeth Arden, Inc. ("Elizabeth Arden" and the "Elizabeth Arden Acquisition") for a total cash purchase price of $1,034.3 million pursuant to an agreement and plan of merger (the "Merger Agreement") by and among Revlon, Products Corporation, RR Transaction Corp. ("Acquisition Sub," then a wholly-owned subsidiary of Products Corporation), and Elizabeth Arden. On the Elizabeth Arden Acquisition Date, Elizabeth Arden merged (the “Merger”) with and into Acquisition Sub, with Elizabeth Arden surviving the Merger as a wholly-owned subsidiary of Products Corporation. Elizabeth Arden is a global prestige beauty products company with an iconic portfolio of brands that are highly complementary to the Company's existing brand portfolio and are sold worldwide. In North America, Elizabeth Arden’s principal customers include prestige retailers, specialty stores, the mass retail channel, distributors, department stores and other retailers, as well as direct sales to consumers via its Elizabeth Arden Red Door branded retail stores and ElizabethArden.com e-commerce business. Elizabeth Arden products are also sold through the Elizabeth Arden Red Door Spa beauty salons and spas. Internationally, Elizabeth Arden’s portfolio of owned and licensed brands is sold to perfumeries, boutiques, department stores, travel retailers and distributors.

Products Corporation financed the Elizabeth Arden Acquisition with the proceeds from (i) a 7-year $1,800.0 million senior secured term loan facility (the “2016 Term Loan Facility” and such agreement being the “2016 Term Loan Agreement”); (ii) $35.0 million of borrowings under a 5-year $400.0 million senior secured asset-based revolving credit facility (the “2016 Revolving Credit Facility” and such agreement being the “2016 Revolving Credit Agreement” and such facility, together with the 2016 Term Loan Facility, being the “2016 Senior Credit Facilities” and such agreements being the "2016 Credit Agreements"); (iii) $450.0 million aggregate principal amount of Products Corporation’s 6.25% Senior Notes due 2024 (the “6.25% Senior Notes”); and (iv) approximately $126.7 million of cash on hand.

Elizabeth Arden's results of operations are included in the Company’s Consolidated Financial Statements commencing on the Elizabeth Arden Acquisition Date.

For the nine months ended September 30, 2017, the Company incurred $38.1 million of acquisition and integration costs in its Consolidated Statement of Operations and Comprehensive (Loss) Income related to the Elizabeth Arden Acquisition, which consist of $0.8 million of acquisition costs and $37.3 million of integration costs. The acquisition costs primarily include legal and consulting fees to complete the Elizabeth Arden Acquisition. The integration costs consist of non-restructuring costs related to integrating Elizabeth Arden's operations into the Company's business.

Purchase Price Allocation

The Company accounted for the Elizabeth Arden Acquisition as a business combination during the third quarter of 2016. The Company finalized the allocation of the Elizabeth Arden purchase price to the Elizabeth Arden assets acquired and liabilities assumed in the third quarter of 2017, which resulted in several adjustments to their estimated fair value as previously reported (the "Measurement Period Adjustments"). The table below summarizes the allocation of the total consideration of $1,034.3 million paid on the Elizabeth Arden Acquisition Date.



	Estimated Fair Value as Previously Reported^(a)			Measurement Period Adjustments			Fair Value as Adjusted
Cash	$	41.1		$	—		$	41.1
Accounts Receivable	132.6			—			132.6
Inventories	323.3			—			323.3
Prepaid expenses and other current assets	30.7			—			30.7
Property and equipment	91.2			—			91.2
Deferred taxes, net ^(b)	68.7			10.0			78.7
Intangible assets^(c)	336.8			(15.4		)	321.4
Goodwill	221.7			12.3			234.0
Other assets	16.6			—			16.6
Total assets acquired	$	1,262.7		$	6.9		$	1,269.6
Accounts payable	(116.0		)	—			(116.0		)
Accrued expenses ^(d)	(109.3		)	1.7			(107.6		)
Other long-term liabilities^(e)	(3.1		)	(8.6		)	(11.7		)
Total liabilities assumed	$	(228.4	)	$	(6.9	)	$	(235.3	)
Total consideration transferred	$	1,034.3		$	—		$	1,034.3

^(a) As previously reported in Revlon's 2016 Form 10-K.

^(b) The Measurement Period Adjustments to deferred taxes, net related to net increases in deferred tax assets as a result of the changes to the estimated fair values and remaining useful lives of acquired trade name intangible assets and the recognition of non-qualified benefit plan obligations of Elizabeth Arden, as discussed further below.

^(c)The Measurement Period Adjustments to intangible assets related to a revised approach in the determination of the fair values for the acquired Elizabeth Arden trade names. During the first quarter of 2017, the Company obtained further clarity into the product portfolio acquired through the Elizabeth Arden Acquisition, and, recognizing that each brand has its own distinct profile with its own defining attributes, as well as differing expected useful lives, determined that a revised valuation approach was needed. The Company valued the acquired trade names within the Elizabeth Arden product portfolio, including Visible Difference, Elizabeth Arden Ceramide, Prevage, Eight Hour Cream, Elizabeth Arden Red Door, Elizabeth Arden Green Tea and Elizabeth Arden 5th Avenue. The Company determined the fair values of each acquired trade name using a risk-adjusted discounted cash flow approach, specifically the relief-from-royalty method. The relief-from-royalty method requires identifying the hypothetical cash flows generated by an assumed royalty rate that a third party would pay to license the trade names, and discounting them back to the Elizabeth Arden Acquisition Date. The royalty rate used in the valuation of each acquired trade name was based on a consideration of market rates for similar categories of assets.

The difference between the preliminary valuation of the Elizabeth Arden trade name and the sum of the fair values of the individual trade names within the Elizabeth Arden product portfolio resulted in an increase to goodwill of $15.4 million, which was recorded in the fiscal quarter ended March 31, 2017. As a result of this revised approach, the Company recognized amortization expense of approximately $1.8 million in its Unaudited Consolidated Statement of Operations and Comprehensive (Loss) Income during the first nine months of 2017 related to the amortization of the acquired trade names from the date of acquisition through December 31, 2016.

^(d) The Measurement Period Adjustments to accrued expenses during the nine months ended September 30, 2017 related to changes in estimated payments for acquisition-related costs.

^(e) The Measurement Period Adjustments to other long-term liabilities during the nine months ended September 30, 2017 related to the recognition of the projected benefit obligation of a certain foreign non-qualified benefit plan of Elizabeth Arden.

In determining the fair values of net assets acquired in the Elizabeth Arden Acquisition and resulting goodwill, the Company considered, among other factors, the analyses of Elizabeth Arden's historical financial performance and an estimate of the future performance of the acquired business, as well as the intended use of the acquired assets.

The intangible assets acquired in the Elizabeth Arden Acquisition based on the estimate of the fair values of the identifiable intangible assets are as follows:



	As Previously Reported^(a)							Adjusted
	Estimated Fair Values		Remaining Useful Life at the Elizabeth Arden Acquisition Date (in years)	Measurement Period Adjustments^(b)				Fair Values		Remaining Useful Life at the Elizabeth Arden Acquisition Date (in years)
Trademarks, indefinite-lived	$	142.0	Indefinite	$	(103.0	)		$	39.0	Indefinite
Trademarks, finite-lived	15.0		15	87.6				102.6		5 - 20
Technology	2.5		10	—				2.5		10
Customer relationships	123.0		16	—				123.0		16
License agreements	22.0		19	—				22.0		19
Distribution rights	31.0		18	—				31.0		18
Favorable lease commitments	1.3		3	—				1.3		3
Total acquired intangible assets	$	336.8		$	(15.4	)	^(b)	$	321.4

^(a) As previously reported in Revlon's 2016 Form 10-K.

^(b) The Measurement Period Adjustments to the Elizabeth Arden acquired trade names resulted in a $15.4 million increase to goodwill, which was recorded in the fiscal quarter ended March 31, 2017.

In the fiscal quarter ended March 31, 2017, the Company recorded a $54.8 million deferred tax liability related to the $321.4 million of acquired intangible assets outlined in the above table. This deferred tax liability represents the tax effect of the difference between the $321.4 million assigned fair value of the intangible assets and the $148.6 million tax basis of such assets.

The goodwill and intangible assets acquired in the Elizabeth Arden Acquisition are not expected to be deductible for income tax purposes.

Unaudited Pro Forma Results

The following table presents the Company's pro forma consolidated net sales and income from continuing operations before income taxes for the three and nine months ended September 30, 2016, respectively. The unaudited pro forma results include the historical consolidated statements of operations of the Company and Elizabeth Arden, giving effect to the Elizabeth Arden Acquisition and related financing transactions as if they had occurred at the beginning of the earliest period presented.



	Unaudited Pro Forma Results
	Three Months Ended September 30,			Nine Months Ended September 30,
	2016			2016
Net sales	$	745.1		$	2,058.2
Income (loss) from continuing operations, before income taxes	(1.9		)	(28.8		)

The pro forma results, prepared in accordance with U.S. GAAP, include the following pro forma adjustments related to the Elizabeth Arden Acquisition:

(i) as a result of a $38.0 million increase in the fair value of acquired inventory at the Acquisition Date, the Company recognized a $4.2 million increase in its cost of sales during the three and nine months ended September 30, 2016 in its consolidated financial statements. The pro forma adjustments include an adjustment to reverse the $4.2 million recognized in the third quarter of 2016 within cost of sales because it will not have a recurring impact;

(ii) the elimination of $58.1 million and $64.7 million of acquisition and integration costs recognized by the Company and Elizabeth Arden during the three and nine months ended September 30, 2016, respectively;

(iii) nil and $1.4 million pro forma decrease in depreciation as a result of the fair value adjustments to property and equipment for the three and nine months ended September 30, 2016, respectively;

(iv) a $1.7 million and $4.6 million pro forma increase in amortization expense of acquired finite-lived intangible assets recorded in connection with the Elizabeth Arden Acquisition for the three and nine months ended September 30, 2016, respectively; and

(v) a pro forma increase in interest expense and amortization of debt issuance costs related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions as summarized in the following table:



	Three Months Ended			Nine Months Ended
($ in millions)	September 30, 2016			September 30, 2016
Interest Expense
Pro forma interest on 2016 Senior Credit Facilities and 6.25% Senior Notes	$	29.1		$	86.7
Reversal of Elizabeth Arden’s historical interest expense	(5.6		)	(19.5		)
Company historical interest expense, as reflected in the historical consolidated financial statements	(20.3		)	(45.2		)
Total adjustment for pro forma interest expense	$	3.2		$	22.0
Debt issuance costs
Pro forma amortization of debt issuance costs	$	2.0		$	6.1
Company historical amortization of debt issuance costs, as reflected in the historical consolidated financial statements	(1.1		)	(3.3		)
Reversal of Elizabeth Arden’s historical amortization of debt issuance costs	(0.4		)	(1.3		)
Total adjustment for pro forma amortization of debt issuance costs	$	0.5		$	1.5

The unaudited pro forma results do not include: (1) any incremental revenue generation, synergies or cost reductions that may be achieved as a result of the Elizabeth Arden Acquisition; or (2) the impact of non-operating or non-recurring items directly related to the Elizabeth Arden Acquisition. In addition, the unaudited pro forma results do not purport to project the future consolidated operating results of the combined company.