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BUSINESS COMBINATIONS
 12 Months Ended
Dec. 31, 2017
Business Combinations [Abstract]  
BUSINESS COMBINATIONS
BUSINESS COMBINATIONS
The Elizabeth Arden Acquisition
On the Elizabeth Arden Acquisition Date, the Company completed 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.
In North America, Elizabeth Arden’s principal customers include prestige retailers, the mass retail channel, specialty stores, department stores and other retailers, distributors, e-commerce sites, as well as direct sales to consumers via its Elizabeth Arden 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 $1.8 billion senior secured term loan facility (the "2016 Term Loan Facility" and such agreement being the "2016 Term Loan Agreement"); (ii) $35 million of borrowings under a 5-year $400 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 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. Refer to Note 11, "Long Term Debt" for further details related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions.

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

For the twelve months ended December 31, 2017, the Company incurred $50 million of acquisition and integration costs in its consolidated statement of operations and comprehensive (loss) income related to the Elizabeth Arden Acquisition, which consisted of $49.2 million of integration costs and $0.8 million of acquisition costs. The integration costs consisted of non-restructuring costs related to integrating Elizabeth Arden's operations into the Company's business, including professional fees, lease termination costs and employee related costs. The acquisition costs primarily included legal fees directly attributable to the Elizabeth Arden Acquisition.

Purchase Price of the Elizabeth Arden Acquisition
The components of the purchase price for the Elizabeth Arden Acquisition were as follows:
 
As of
September 7, 2016
Purchase price of Elizabeth Arden common stock (1)
$
431.5

Repayment of Elizabeth Arden senior notes (2)
350.0

Repayment of Elizabeth Arden revolving credit facility, including accrued interest (3)
142.5

Repayment of Elizabeth Arden second lien credit facility, including accrued interest (3)
25.0

Repurchase of Elizabeth Arden preferred stock (4)
55.0

Payment of accrued interest and call premium on Elizabeth Arden Senior Notes (5)
27.4

Payment of Elizabeth Arden dividends payable at Elizabeth Arden Acquisition Date (6) 
2.9

Total Purchase Price
$
1,034.3

(1)
All of Elizabeth Arden’s then issued and outstanding common stock was canceled and extinguished on the Elizabeth Arden Acquisition Date and converted into the right to receive $14 in cash per share, without interest, less any required withholding taxes, that was paid by Products Corporation upon the completion of the Elizabeth Arden Acquisition. The $431.5 million purchase price for Elizabeth Arden common stock included the settlement of all then outstanding Elizabeth Arden stock options and all then outstanding Elizabeth Arden restricted share units at the Elizabeth Arden Acquisition Date for a total cash payment of $11.1 million.
(2)
The purchase price included the repurchase of the entire $350 million aggregate principal amount then outstanding of Elizabeth Arden’s 7.375% senior notes due 2021 (the "Elizabeth Arden Old Senior Notes").
(3)
The purchase price included the repayment of the entire $142 million aggregate principal amount of borrowings then outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden’s $300 million revolving credit facility and the entire $25 million aggregate principal amount of borrowings then outstanding as of the Elizabeth Arden Acquisition Date under Elizabeth Arden's second lien credit facility, each of which facilities were terminated as of the Elizabeth Arden Acquisition Date.
(4)
The purchase price included $55 million that was paid to retire the entire $55 million liquidation preference of all of the then issued and outstanding 50,000 shares of Elizabeth Arden preferred stock, par value $0.01 per share (the "Elizabeth Arden Preferred Stock"), which amount included a $5 million change of control premium.
(5)
Interest on the Elizabeth Arden Old Senior Notes accrued at a rate of 7.375% per annum and was payable semi-annually on March 15 and September 15 of every year. The approximately $12.3 million of accrued and unpaid interest was calculated based on 176 days of accrued interest as of the Elizabeth Arden Acquisition Date. Pursuant to the terms of the indenture governing the Elizabeth Arden Old Senior Notes, upon a change in control, such notes were repurchased at a price equal to 103.69% of their principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of such repurchase. The repurchase of the Elizabeth Arden Old Senior Notes was consummated on October 7, 2016.
(6)
The purchase price included the payment of approximately $2.9 million in accrued dividends payable at the Elizabeth Arden Acquisition Date to the holders of the then outstanding Elizabeth Arden Preferred Stock.

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 previously-disclosed estimated fair value (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, both as previously reported and as adjusted by the measurement period adjustments.
 
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, 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, which 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 consolidated statement of operations and comprehensive (loss) income in 2017 related to the amortization of the acquired trade names from the Elizabeth Arden Acquisition Date through December 31, 2016.

(d) The Measurement Period Adjustments to accrued expenses related to changes in estimated payments for acquisition-related costs.

(e) The Measurement Period Adjustments to other long-term liabilities 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.

Goodwill of $234 million represents the excess of the purchase price paid by Products Corporation for the Elizabeth Arden Acquisition over the fair value of the identifiable net assets acquired by Products Corporation in the Elizabeth Arden Acquisition. Factors contributing to the purchase price resulting in the recognition of goodwill include estimated annualized synergies and cost reductions, expanded category mix, channel diversification and a broader geographic footprint.

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)
 
 
 
As 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 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 years ended December 31, 2016 and 2015, 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
 
 
Year Ended December 31,
 
 
2016
 
2015
Net sales
 
$
2,858.9

 
$
2,863.5

Loss from continuing operations, before income taxes
 
(57.1
)
 
(74.6
)


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 million increase in the fair value of acquired inventory at the Elizabeth Arden Acquisition Date, the Company recognized a $20.7 million increase in its cost of sales during 2016 in its consolidated financial statements. The pro forma adjustments include an adjustment to reverse the $20.7 million recognized in the year ended December 31, 2016 within cost of sales because it does not have a recurring impact;

(ii) the elimination of $68.0 million of acquisition and integration costs recognized by the Company and Elizabeth Arden in connection with consummating the Elizabeth Arden Acquisition during 2016;

(iii) a $1.4 million pro forma decrease in depreciation as a result of the fair value adjustments to property and equipment for the twelve months ended December 31, 2016;

(iv) a $5.6 million pro forma increase in amortization expense of acquired finite-lived intangible assets recorded in connection with the Elizabeth Arden Acquisition for the twelve months ended December 31, 2016; 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. Refer to Note 11, "Long Term Debt" for further details related to financing the Elizabeth Arden Acquisition and related debt restructuring transactions.
 
 
Year Ended December 31,
($ in millions)
 
2016
 
2015
Interest Expense
 
 
 
 
Pro forma interest on 2016 Senior Credit Facilities and 6.25% Senior Notes
 
$
121.9

 
$
106.4

Reversal of Elizabeth Arden’s historical interest expense
 
(19.5
)
 
(26.2
)
Company historical interest expense, as reflected in the historical consolidated financial statements
 
(75.9
)
 
(50.9
)
Total adjustment for pro forma interest expense
 
$
26.5

 
$
29.3

Debt issuance costs
 
 
 
 
Pro forma amortization of debt issuance costs
 
$
8.1

 
$
8.1

Company historical amortization of debt issuance costs, as reflected in the historical consolidated financial statements
 
(3.3
)
 
(4.4
)
Reversal of Elizabeth Arden’s historical amortization of debt issuance costs
 
(1.3
)
 
(1.5
)
Total adjustment for pro forma amortization of debt issuance costs
 
$
3.5

 
$
2.2



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.

The Cutex International Acquisition
On May 31, 2016 (the "Cutex International Acquisition Date"), the Company completed the acquisition of Cutex International from Coty Inc. (the "Cutex International Acquisition") for total cash consideration of $29.1 million. Following the Company's October 2015 acquisition of the Cutex business and related assets in the U.S. from Cutex Brands, LLC (the "Cutex U.S. Acquisition" and together with the Cutex International Acquisition, the "Cutex Acquisitions"), combined with other Cutex businesses that the Company acquired in 1998, the Cutex International Acquisition completed the Company's global consolidation of the Cutex brand. Cutex International's results of operations are included in the Company’s Consolidated Financial Statements commencing on the Cutex International Acquisition Date. Pro forma results of operations have not been presented, as the impact of the Cutex International Acquisition on the Company’s consolidated financial results is not material.
The Company accounted for the Cutex International Acquisition as a business combination in the second quarter of 2016. The table below summarizes the allocation of the total consideration paid:
 
Amounts Recognized as of May 31, 2016
Inventory
$
0.8

Purchased Intangible Assets (a)
17.2

Goodwill
11.1

        Total consideration transferred
$
29.1


(a) Purchased intangible assets include customer networks fair valued at $11.9 million and intellectual property fair valued at $0.8 million, which are amortized over useful lives of 15 and 10 years, respectively, and indefinite lived trade names fair valued at $4.5 million.
As part of the Cutex International Acquisition, the Company reacquired the Cutex trade name from Coty under an assignment of a license agreement, which had previously provided Coty with an exclusive right to manufacture, market and sell Cutex branded products for an initial term and perpetual automatic 20-year renewals. Based on the terms and conditions of the existing license agreement and other factors, the Cutex trade name was assigned an indefinite-life and, therefore, will not be amortized.
In determining the estimated fair values of net assets acquired and resulting goodwill related to the Cutex International Acquisition, the Company considered, among other factors, the analysis of Cutex International'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. Factors contributing to the purchase price resulting in the recognition of goodwill include the anticipated benefits that the Company expects to achieve through the expansion of its nail product portfolio. Neither the intangible assets nor goodwill acquired in the Cutex International Acquisition are deductible for income tax purposes.