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

Overview

Overview of the Business

The Company is providing this overview in accordance with the SEC's December 2003 interpretive guidance regarding Management's Discussion and Analysis of Financial Condition and Results of Operations.

Revlon, Inc. (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, Inc. is a direct and indirect majority-owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes Holdings" and together with certain of its affiliates other than the Company, "MacAndrews & Forbes"), a corporation wholly-owned by Ronald O. Perelman.

The Company's vision is to provide glamour, excitement and innovation to consumers through high-quality products at affordable prices. The Company operates in a single segment and manufactures, markets and sells an extensive array of cosmetics, women's hair color, beauty tools, fragrances, skincare, anti-perspirants/deodorants and other beauty care products. The Company is one of the world's leading cosmetics companies in the mass retail channel (as hereinafter defined). The Company believes that its global brand name recognition, product quality and marketing experience have enabled it to create one of the strongest consumer brand franchises in the world.

The Company's products are sold worldwide and marketed under such brand names as Revlon, including the Revlon ColorStay, Revlon Super Lustrous and Revlon Age Defying franchises, as well as the Almay brand, including the Almay Intense i-Color and Almay Smart Shade franchises, in cosmetics; Revlon Colorsilk women's hair color; Revlon beauty tools; Charlie and Jean Natι fragrances; Ultima II and Gatineau skincare; and Mitchum anti-perspirants/deodorants.

The Company's principal customers include large mass volume retailers, chain drug stores and food stores (collectively, the "mass retail channel") in the U.S., as well as certain department stores and other specialty stores, such as perfumeries, outside the U.S. The Company also sells beauty products to U.S. military exchanges and commissaries and has a licensing business pursuant to which the Company licenses certain of its key brand names to third parties for the manufacture and sale of complementary beauty-related products and accessories in exchange for royalties.

The Company was founded by Charles Revson, who revolutionized the cosmetics industry by introducing nail enamels matched to lipsticks in fashion colors over 75 years ago. Today, the Company has leading positions in a number of its principal product categories in the U.S. mass retail channel, including color cosmetics (face, lip, eye and nail categories), women's hair color, beauty tools and anti-perspirants/deodorants. The Company also has leading positions in several product categories in certain foreign countries, including Australia, Canada and South Africa.

Overview of the Company's Strategy

The Company continues to focus on its strategy: (i) building and leveraging its strong brands; (ii) improving the execution of its strategies and plans, and providing for continued improvement in its organizational capability through enabling and developing its employees; (iii) continuing to strengthen its international business; (iv) improving its operating profit margins and cash flow; and (v) improving its capital structure.

Overview of Net Sales and Earnings Results

Consolidated net sales in the first quarter of 2009 were $303.3 million, a decrease of $8.4 million, or 2.7%, compared to $311.7 million in the first quarter of 2008. Excluding the unfavorable impact of foreign currency fluctuations of $20.3 million, consolidated net sales increased by 3.8%. Higher consolidated net sales of Revlon and Almay color cosmetics and Revlon ColorSilk hair color were partially offset by lower net sales of Mitchum anti-perspirant deodorants. Revlon color cosmetics net sales, driven by strong new product introductions, increased 8.9%, excluding foreign currency fluctuations.

In the United States, net sales in the first quarter of 2009 were $191.0 million, an increase of $13.8 million, or 7.8%, compared to $177.2 million in the first quarter of 2008, primarily driven by higher net sales of Revlon and Almay color cosmetics and Revlon ColorSilk hair color.

In the Company's international operations, net sales in the first quarter of 2009 were $112.3 million, a decrease of $22.2 million, or 16.5%, compared to $134.5 million in the first quarter of 2008. Almost all of the decline was due to unfavorable foreign currency fluctuations, which negatively impacted net sales by $20.3 million in the first quarter of 2009. Excluding the impact of foreign currency fluctuations, declines in fragrances and certain beauty care products were partially offset by higher net sales of Revlon color cosmetics, while lower net sales in the Company's Europe and Latin America regions in the first quarter of 2009, compared to the first quarter of 2008, were partially offset by higher net sales in the Company's Asia Pacific region.

Consolidated net income for the first quarter of 2009 was $12.7 million, compared to a net loss of $2.5 million in the first quarter of 2008. Consolidated net income for the first quarter of 2008 included income from discontinued operations of $0.2 million. The improvement in consolidated net income from continuing operations in the first quarter of 2009 compared to the first quarter of 2008 was primarily due to:

• lower interest expense of $8.0 million due to the impact of lower weighted average borrowing rates and lower debt levels;

• a $7.0 million gain in connection with Products Corporation's repurchase of an aggregate principal amount of $23.9 million of its 91/2% Senior Notes, which gain is net of the write-off of the ratable portion of the unamortized debt discount and deferred financing fees on such notes;

• a $7.8 million decrease in income taxes attributable to lower income in foreign jurisdictions, as well as a favorable resolution of tax matters in a foreign jurisdiction; partially offset by

• $6.7 million of higher foreign currency losses;

• $3.9 million of higher pension expenses, comprised of $2.6 million and $1.3 million of higher pension expenses in SG&A and cost of goods, respectively, which were partially offset by lower general and administrative expenses; and

• a $6.0 million gain related to the sale of a non-core trademark in the first quarter of 2008.

Overview of ACNielsen-measured U.S. Mass Retail Dollar Share

According to ACNielsen, the U.S. mass retail color cosmetics category grew 3.2% in the first quarter of 2009, compared to the first quarter of 2008. U.S. mass retail dollar share results, according to ACNielsen, for

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

Revlon and Almay color cosmetics, Revlon Colorsilk hair color, Mitchum
anti-perspirant/deodorant, and Revlon beauty tools, for the first quarter of
2009 are summarized in the table below:


                                                          $ Share %
                                               Three Months Ended
                                                    March 31,             Point
                                               2009           2008       Change

         Revlon Color Cosmetics                   13.2 %        12.5 %       0.7
         Almay                                     5.7           6.1        (0.4 )
         Revlon ColorSilk Hair Color               8.3           8.0         0.3
         Mitchum Anti-perspirant/Deodorant         4.8           5.1        (0.3 )
         Revlon Beauty Tools                      21.2          20.7         0.5

All share and dollar volume data herein for the Company's brands is based upon U.S. mass-retail dollar volume, which is derived from ACNielsen data (an independent research entity). ACNielsen data is an aggregate of the drug channel, Kmart, Target and Food and Combo stores. ACNielsen's data does not reflect sales volume from Wal-Mart, Inc., which is the Company's largest customer, representing approximately 23% of the Company's full year 2008 worldwide net sales, or sales volume from regional mass volume retailers, as well as prestige stores, department stores, door-to-door, Internet, television shopping, specialty stores, perfumeries or other distribution outlets, all of which are channels for cosmetics sales. Such data represents ACNielsen's estimates based upon mass retail sample data gathered by ACNielsen and is therefore subject to some degree of variance and may contain slight rounding differences. From time to time, ACNielsen adjusts its methodology for data collection and reporting, which may result in adjustments to the categories and share data tracked by ACNielsen for both current and prior periods.

Overview of Financing Activities

In the first quarter of 2009, Products Corporation reduced its long-term indebtedness by $38.3 million primarily as a result of the following transactions:

2006 Term Loan Facility: In January 2009, Products Corporation made a required quarterly amortization payment of $2.1 million under its 2006 Bank Term Loan. In February 2009, Products Corporation repaid $16.6 million in principal amount under its 2006 Bank Term Loan satisfying the requirement under the 2006 Term Loan Agreement to repay term loan indebtedness with 50% of its 2008 "excess cash flow" (as defined under such agreement). After giving effect to such repayments, the principal amount outstanding under Products Corporation's 2006 Term Loan Facility was approximately $815 million at March 31, 2009.

9½% Senior Notes: In March 2009, Products Corporation used $16.5 million of cash to repurchase an aggregate principal amount of $23.9 million of its 91/2% Senior Notes due April 1, 2011 (the "91/2% Senior Notes"), and paid an additional $1.2 million of accrued and unpaid interest and fees through the respective dates of the repurchases. As a result of these repurchases, the Company recorded a gain of $7.0 million during the first quarter of 2009, which is net of the write-off of the ratable portion of unamortized debt discount and deferred financing fees. After these repurchases, the repurchased notes were cancelled and there remained outstanding $366.1 million aggregate principal amount of the 91/2% Senior Notes at March 31, 2009.

2006 Revolving Credit Facility: Products Corporation had outstanding borrowings under the 2006 Revolving Credit Facility of $4.0 million at March 31, 2009.

Results of Operations

In the tables, all amounts are in millions and numbers in parenthesis ( ) denote unfavorable variances.

Net sales:

Consolidated net sales in the first quarter of 2009 were $303.3 million, a decrease of $8.4 million, or 2.7%, compared to $311.7 million in the first quarter of 2008. Excluding the unfavorable impact of foreign currency fluctuations of $20.3 million, consolidated net sales increased by 3.8%. Higher consolidated net sales of Revlon and Almay color cosmetics and Revlon ColorSilk hair color were partially offset by lower net sales of Mitchum anti-perspirant deodorants. Revlon color cosmetics net sales increased 8.9%, excluding foreign currency fluctuations, driven by strong new product introductions.

                            Three Months Ended
                                 March 31,                  Change               XFX Change(1)
                             2009          2008          $           %            $          %

    United States         $    191.0      $ 177.2     $  13.8         7.8 %    $  13.8        7.8 %
    Asia Pacific                57.1         64.1        (7.0 )     (10.9 )        3.3        5.1
    Europe                      35.7         49.1       (13.4 )     (27.3 )       (4.6 )     (9.4 )
    Latin America               19.5         21.3        (1.8 )      (8.5 )       (0.6 )     (2.8 )

    Total International   $    112.3      $ 134.5     $ (22.2 )     (16.5 )%   $  (1.9 )     (1.4 )%

    Total Company         $    303.3      $ 311.7     $  (8.4 )      (2.7 )%   $  11.9        3.8 %

(1) XFX excludes the impact of foreign currency fluctuations.

United States

In the United States, net sales in the first quarter 2009 were $191.0 million, an increase of $13.8 million, or 7.8%, compared to $177.2 million in the first quarter of 2008, primarily driven by higher net sales of Revlon and Almay color cosmetics and Revlon ColorSilk hair color.

International

In the Company's international operations, net sales in the first quarter of 2009 were $112.3 million, a decrease of $22.2 million, or 16.5%, compared to $134.5 million in the first quarter of 2008. Almost all of the decline was due to unfavorable foreign currency fluctuations, which negatively impacted net sales by $20.3 million in the first quarter of 2009. Excluding the unfavorable impact of foreign currency fluctuations, declines in fragrances and certain beauty care products were partially offset by higher net sales of Revlon color cosmetics, while lower net sales in the Company's Europe and Latin America regions in the first quarter of 2009, compared to the first quarter of 2008, were partially offset by higher net sales in the Company's Asia Pacific region.

In Asia Pacific, which is comprised of Asia Pacific and Africa, net sales in the first quarter of 2009 decreased 10.9% (while increasing 5.1% excluding the unfavorable impact of foreign currency fluctuations), to $57.1 million, compared to $64.1 million in the first quarter of 2008. The growth in net sales, excluding the unfavorable impact of foreign currency fluctuations, was due primarily to higher shipments of Revlon color cosmetics in China, Australia and South Africa and higher shipments of certain beauty care products in South Africa (which together contributed approximately 7.1 percentage points to the increase in the region's net sales in the first quarter of 2009, compared with the first quarter of 2008), partially offset by lower net sales in certain distributor markets and Japan (which together offset by approximately

2.4 percentage points the increase in the region's net sales in the first quarter of 2009, compared to the first quarter of 2008).

In Europe, which is comprised of Europe, Canada and the Middle East, net sales in the first quarter of 2009 decreased 27.3%, or 9.4% excluding the impact of foreign currency fluctuations, to $35.7 million, compared to $49.1 million in the first quarter of 2008. This decline in net sales was due to lower shipments of beauty care products throughout the region and lower shipments of fragrances in the U.K, partially offset by higher shipments of Revlon color cosmetics throughout the region. Increased sales returns in Canada also negatively impacted net sales in the first quarter of 2009.

In Latin America, which is comprised of Mexico, Central America and South America, net sales in the first quarter of 2009 decreased 8.5%, or 2.8% excluding the impact of foreign currency fluctuations, to $19.5 million, compared to $21.3 million in the first quarter of 2008. This decline in net sales was driven primarily by lower shipments of beauty care products in Mexico and certain distributor markets (which together contributed approximately 16.9 percentage points to the decrease in the region's net sales in the first quarter of 2009, compared to the first quarter of 2008), partially offset by higher net sales in Venezuela and Argentina (which offset by approximately 14.4 percentage points the decrease in the region's net sales in the first quarter of 2009, compared to the first quarter of 2008).

Gross profit:

                                     Three Months Ended March 31,
                                       2009                2008          Change

         Gross profit              $       192.3       $       198.6     $  (6.3 )
         Percentage of net sales            63.4 %              63.7 %      (0.3 )%

The 0.3 percentage point decrease in gross profit as a percentage of net sales for the first quarter of 2009, compared to the first quarter of 2008, was primarily due to:

• higher allowances on color cosmetics, which reduced gross profit as a percentage of net sales by 1.9 percentage points;

• unfavorable foreign currency fluctuations (primarily the strengthening of the U.S. dollar which resulted in higher cost of goods in most international markets on goods purchased from the Company's facility in Oxford, North Carolina), which reduced gross profit as a percentage of net sales by 0.8 percentage points;

• higher pension expenses within cost of goods of $1.3 million, which reduced gross profit as a percentage of net sales by 0.4 percentage points; partially offset by

• favorable manufacturing efficiencies and lower material costs, which increased gross profit as a percentage of net sales by 1.9 percentage points; and

• favorable changes in sales mix, which increased gross profit as a percentage of net sales by 0.8 percentage points.

SG&A expenses:

Three Months Ended March 31, 2009 2008 Change

SG&A expenses $ 160.2 $ 172.8 $ 12.6

The decrease in SG&A expenses for the first quarter of 2009, as compared to the first quarter of 2008, was driven primarily by:

• $9.7 million of favorable impact of foreign currency fluctuations;

• $6.6 million of lower permanent display amortization expenses; partially offset by

• $4.0 million of higher advertising costs, primarily associated with the launches of certain new products; and

• $2.6 million of higher pension expenses, which were partially offset by lower general and administrative expenses.

Restructuring costs and other, net:

Three Months Ended March 31, 2009 2008 Change

Restructuring costs and other, net $ 0.5 $ (6.2 ) $ (6.7 )

During the first quarter of 2009, the Company recorded net charges of $0.5 million to restructuring costs and other, net, of which $0.4 million, $0.4 million and $0.4 million related to charges for employee severance and other employee-related termination costs in each of the U.K., Mexico and Argentina, respectively (together the "2009 Programs") and $0.9 million related to the 2008 Programs. These restructuring charges were partially offset by income of $1.6 million related to the sale of a facility in Argentina. All of the $1.2 million of charges related to the 2009 Programs were cash charges and $0.7 million was paid out in the first quarter of 2009, with the remaining $0.5 million expected to be paid out by the end of 2009.

During the first quarter of 2008, the Company recorded income of $6.2 million to restructuring costs and other, net, primarily due to a net gain of $6.0 million related to the sale of a non-core trademark.

For a further discussion of the Company's 2006 Programs, 2007 Programs and 2008 Programs, see Note 3, "Restructuring Costs and Other, Net," to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on February 25, 2009 (the "2008 Form 10-K").

Other expenses:

Three Months Ended March 31, 2009 2008 Change

Interest expense $ 24.1 $ 32.1 $ 8.0

The decrease in interest expense was due to lower weighted average borrowing rates and lower debt levels during the first quarter of 2009, as compared to first quarter of 2008.

Gain on repurchase of debt:

Three Months Ended March 31, 2009 2008 Change

Gain on repurchase of debt $ (7.0 ) $ - $ 7.0

In March 2009, Products Corporation used $16.5 million of cash to repurchase an aggregate principal amount of $23.9 million of its 91/2% Senior Notes, and paid an additional $1.2 million of accrued and unpaid interest and fees through the respective dates of the repurchases. As a result of these repurchases, the Company recorded a gain of $7.0 million during the first quarter of 2009, which is net of the write-off of the ratable portion of unamortized debt discount and deferred financing fees. After these repurchases, the repurchased notes were cancelled and there remained outstanding $366.1 million aggregate principal amount of the 91/2% Senior Notes at March 31, 2009.

Provision for income taxes:

Three Months Ended March 31, 2009 2008 Change

Provision for income taxes $ (2.0 ) $ 5.8 $ 7.8

The decrease in the tax provision for the first quarter of 2009, as compared to the first quarter of 2008, was attributable to lower income in foreign jurisdictions, as well as the favorable resolution of tax matters in a foreign jurisdiction.

Financial Condition, Liquidity and Capital Resources

Net cash provided by operating activities in the first quarter of 2009 was $17.3 million, as compared to $10.7 million in the first quarter of 2008. This improvement in cash provided in the first quarter of 2009, compared to the first quarter of 2008, was due to a higher net income and lower permanent display spending, partially offset by changes in net working capital.

Net cash provided by investing activities was $0.2 million and $3.9 million for the first quarters of 2009 and 2008, respectively. Net cash provided by investing activities for the first quarter of 2009 included $2.3 million in net proceeds from the sale of certain assets, offset by cash used for capital expenditures of $2.1 million. Net cash provided by investing activities for the first quarter of 2008 included $6.6 million in net proceeds from the sale of a non-core trademark and certain assets, offset by cash used for capital expenditures of $2.7 million.

Net cash used in financing activities was $35.3 million and $5.1 million for the first quarters of 2009 and 2008, respectively. Net cash used in financing activities for the first quarter of 2009 includes debt reduction payments of $35.3 million, which is comprised of the repayment of $18.7 million in principal amount of Products Corporation's 2006 Bank Term Loan and repurchases of $23.9 million in aggregate principal amount of Products Corporation's 91/2% Senior Notes at purchase price of $16.5 million.

Net cash used in financing activities for the first quarter of 2008 included proceeds of $170 million from the MacAndrews & Forbes Senior Subordinated Term Loan, which Products Corporation used to repay in full the $167.4 million remaining aggregate principal amount of its 85/8% Senior Subordinated Notes, which matured on February 1, 2008, and to pay certain related fees and expenses, including the payment to MacAndrews & Forbes of a facility fee of $2.55 million (or 1.5% of the total principal amount of such loan) upon MacAndrews & Forbes funding such loan. In addition, net cash used in financing activities in the 2008 period included $8.5 million of net repayments under Products Corporation's 2006 Revolving Credit Facility (as hereinafter defined).

At March 31, 2009, the Company had a liquidity position (excluding cash in compensating balance accounts), of $147.5 million, consisting of cash and cash equivalents (net of any outstanding checks) of $27.0 million, as well as $120.5 million in available borrowings under the 2006 Revolving Credit Facility.

Long-Term Debt Instruments

For further detail regarding Products Corporation's long-term debt instruments, including Products Corporation's 2006 Bank Credit Agreements, its 91/2% Senior Notes and the MacAndrews & Forbes Senior Subordinated Term Loan Agreement, see Note 9, "Long-Term Debt," to the Consolidated Financial Statements in the Company's 2008 Form 10-K.

2006 Bank Credit Agreements

In January 2009, Products Corporation made a required quarterly amortization payment of $2.1 million under its 2006 Bank Term Loan. In February 2009, Products Corporation repaid $16.6 million in principal amount under its 2006 Bank Term Loan, satisfying the requirement under the 2006 Term Loan Agreement to repay term loan indebtedness with 50% of its 2008 "excess cash flow" (as defined under such agreement). After giving effect to such repayments, the aggregate principal amount outstanding under Products Corporation's 2006 Term Loan Facility was approximately $815 million at March 31, 2009.

Products Corporation was in compliance with all applicable covenants under the 2006 Credit Agreements as of March 31, 2009. At March 31, 2009, the 2006 Term Loan Facility was fully drawn and availability under the $160.0 million 2006 . . .