Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements

Fair Value Measurements

(9) Fair Value Measurements

Assets and liabilities are required to be categorized into three levels of fair value based upon the assumptions used to price 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, 2011, the fair values of the Company's financial assets and liabilities, namely its FX Contracts (as hereinafter defined) and Revlon, Inc.'s Series A Preferred Stock, par value $0.01 per share ("Preferred Stock"), are categorized in the table below:

	Total		Level 1		Level 2		Level 3
Assets:
Derivatives:
FX Contracts(a)	$	1.5	$	—	$	1.5	$	—
Total assets at fair value	$	1.5	$	—	$	1.5	$	—
Liabilities:
Derivatives:
FX Contracts(a)	$	0.2	$	—	$	0.2	$	—
Redeemable Preferred Stock (Change of Control Amount)(b)		0.2		—		—		0.2
Total liabilities at fair value	$	0.4	$	—	$	0.2	$	0.2

As of December 31, 2010, the fair values of the Company's financial assets and liabilities, namely its FX Contracts and Preferred Stock, are categorized in the table below:

	Total		Level 1		Level 2		Level 3
Assets
Derivatives:
FX Contracts(a)	$	0.2	$	—	$	0.2	$	—
Total assets at fair value	$	0.2	$	—	$	0.2	$	—
Liabilities
Derivatives:
FX Contracts(a)	$	2.1	$	—	$	2.1	$	—
Redeemable Preferred Stock (Change of Control Amount)(b)		0.2		—		—		0.2
Total liabilities at fair value	$	2.3	$	—	$	2.1	$	0.2

^(a)  The fair value of the Company's FX Contracts was measured based on observable market transactions of spot and forward rates at September 30, 2011 and December 31, 2010. (See Note 10, "Financial Instruments," in this Form 10-Q.)

^(b)  In October 2009, Revlon, Inc. consummated its voluntary exchange offer (as amended, the "Exchange Offer") in which, among other things, Revlon, Inc. issued to stockholders (other than MacAndrews & Forbes) 9,336,905 shares of its Preferred Stock in exchange for the same number of shares of Class A Common Stock tendered in the Exchange Offer. Upon consummation of the Exchange Offer, Revlon, Inc. initially recorded the Preferred Stock as a long-term liability at a fair value of $47.9 million, which was comprised of two components:

_• Liquidation Preference:    Upon initial valuation of the Preferred Stock, the total amount to be paid by Revlon, Inc. at maturity is approximately $48.6 million, which represents the $5.21 liquidation preference for each of the 9,336,905 shares of Preferred Stock issued in the Exchange Offer (the "Liquidation Preference"). The Liquidation Preference was initially measured at fair value based on the yield to maturity of the $48.6 million portion of the Senior Subordinated Term Loan (as hereinafter defined) that was contributed to Revlon, Inc. by MacAndrews & Forbes (the "Contributed Loan"), adjusted for an estimated average subordination premium for subordinated note issues. The Liquidation Preference is subsequently measured at the present value of the amount to be paid at maturity, accruing interest cost using the rate implicit at the issuance date since both the amount to be paid and the maturity date are fixed.

_• Change of Control Amount:    Holders of the Preferred Stock are entitled to receive upon a change of control transaction (as defined in the certificate of designation of the Preferred Stock) through October 8, 2012, a pro rata portion of the equity value received in such transaction, capped at an amount that would provide aggregate cash payments of $12.00 per share over the term of the Preferred Stock. If the equity value received in the change of control transaction is greater than or equal to $12.00 per share, then each holder of Preferred Stock will be entitled to receive an amount equal to $12.00 minus the Liquidation Preference minus any paid and/or accrued and unpaid dividends on the Preferred Stock. If the per share equity value received in the change of control transaction is less than $12.00, then each holder of Preferred Stock is entitled to receive an amount equal to such per share equity value minus the Liquidation Preference minus any paid and/or accrued and unpaid dividends on the Preferred Stock. If the per share equity value received in the change of control transaction does not exceed the Liquidation Preference plus any paid and/or accrued and unpaid dividends, then each holder of the Preferred Stock is not entitled to an additional payment upon any such change of control transaction (the foregoing payments being the "Change of Control Amount"). The fair value of the Change of Control Amount of the Preferred Stock, which is deemed to be a Level 3 liability, is based on the Company's assessment of the likelihood of the occurrence of specified change of control transactions within three years of the consummation of the Exchange Offer. There was no change in the fair value of the Change in Control Amount from the initial valuation performed upon the October 2009 consummation of the Exchange Offer through September 30, 2011.