GOODWILL AND INTANGIBLE ASSETS, NET

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

In accordance with ASC Topic 350, “Intangibles – Goodwill and Other,” the Company performs its annual impairment test during the fourth quarter of each year. The Company also reviews goodwill for impairment whenever events or changes in circumstances indicate that the carrying value of its goodwill may not be recoverable. After the close of each interim quarter, management assesses whether there exists any indicators of impairment requiring the Company to perform an interim goodwill impairment analysis.

During the second quarter, as a result of the continued global supply chain disruptions resulting from the COVID-19 pandemic and other macroeconomic factors, the Company determined that indicators of potential impairment existed requiring the Company to perform an interim goodwill impairment analysis. These indicators included a deterioration in the general economic conditions, inflation, adverse developments in equity and credit markets, deterioration in some of the economic channels in which the Company operates, the recent trading values of the Company's capital stock and the corresponding decline in the Company’s market capitalization.

As a result, for the second quarter of 2022 the Company examined and performed quantitative interim goodwill impairment assessments for five of its reporting units, namely: (i) Revlon; (ii) Elizabeth Arden Skin and Color; (iii) Elizabeth Arden; (iv) Fragrances; and (v) Professional Portfolio. The Mass Portfolio reporting unit's goodwill was written down to nil during the first quarter of 2020. In performing these assessments, the Company used the simplified approach allowed under ASU No. 2017-04, "Simplifying the Test for Goodwill Impairment."

Based upon such assessments, the Company determined that it was more likely than not that the fair values of each of its reporting units exceeded their respective carrying amounts for the second quarter of 2022.

The aforementioned fair values were primarily determined using a weighted average market and income approach. The income approach requires several assumptions including those regarding future sales growth, EBITDA (earnings before interest, taxes, depreciation and amortization) margins, and capital expenditures, which are the basis for the information used in the discounted cash flow model. The weighted-average cost of capital used in the income approach ranged from 9.5% to 12.0%, with a perpetual growth rate of 2%. For the market approach, the Company considered the market comparable method based upon total enterprise value multiples of other comparable publicly-traded companies.

The key assumptions used to determine the estimated fair value of the reporting units included the expected success of the Company's future new product launches, the Company's achievement of its expansion plans, the Company's realization of its cost reduction initiatives and other efficiency efforts, as well as assumptions related to overcoming supply chain disruptions resulting from the COVID-19 pandemic and other macroeconomic factors. If such plans and assumptions do not materialize as anticipated, or if there are further challenges in the business environment in which the Company's reporting units operate, a resulting change in actual results from the Company's key assumptions could have a negative impact on the estimated fair values of the reporting units, which could require the Company to recognize impairment charges in future reporting periods.

For the third quarter of 2022 interim assessment, the Company, in accordance with ASC 350, performed qualitative analyses for five of its reporting units, as described above. Based upon such assessment, the Company determined that it was more likely than not that the fair value of each of its previously mentioned reporting units exceeded their respective carrying amounts as of September 30, 2022. Consequently, no impairment charges were recognized related to the carrying value of the Company's goodwill as a result of the third quarter of 2022 qualitative interim impairment assessment.

The following table presents the changes in goodwill by segment for the nine months ended September 30, 2022:



	Revlon		Portfolio		Elizabeth Arden		Fragrances		Total




Balance at January 1, 2022	$	265.0	$	87.8	$	89.3	$	120.7	$	562.8
Foreign currency translation adjustment	(0.7)		(0.3)		(0.2)		(0.4)		(1.6)


Balance at September 30, 2022	$	264.3	$	87.5	$	89.1	$	120.3	$	561.2

Cumulative goodwill impairment charges(a)									$	(166.2)

(a) Amount refers to cumulative impairment charges recognized in 2020 and prior years. No impairment charges were recorded during the nine months ended September 30, 2022.

Intangibles

In connection with the interim impairment assessment for the second quarter of 2022, the Company also reviewed indefinite-lived intangible assets, consisting of certain trade names, in accordance with ASC Topic 350.

As a result of the continued global supply chain disruptions resulting from the COVID-19 pandemic and other macroeconomic factors discussed above, and in conjunction with the Company's performance of its interim impairment testing of goodwill and indefinite-lived intangibles for the second quarter of 2022, the Company reviewed its finite-lived intangible assets for impairment, in accordance with ASC Topic 360. In performing such review, the Company makes judgments about the recoverability of its purchased finite-lived intangible assets whenever events or changes in circumstances indicate that an impairment to its finite-lived intangible assets may exist. The Company also considers several indicators of impairment, including, among other factors, the following: (i) whether there exists any significant adverse change in the extent or manner in which a long-lived asset and/or asset group is being used; (ii) whether there exists any projection or forecast demonstrating losses associated with the use of a long-lived asset and/or asset group; and (iii) whether there exists a current expectation that, more likely than not, a long-lived asset and/or asset group will be sold or otherwise disposed of significantly before the end of its previously-estimated useful life. The carrying amount of a finite-lived intangible asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the finite-lived intangible asset and/or asset group and the impairment loss is measured as the amount by which the carrying amount of the finite-lived intangible asset exceeds its fair value.

Based upon such assessment and as a result of the continuing effects of the COVID-19 pandemic on the Company and related macroeconomic factors, the Company recognized $5.6 million and $18.7 million of non-cash impairment charges related to certain indefinite-lived and finite-lived intangible assets, respectively, within the Company's Mass Portfolio reporting unit during the second quarter of 2022. The fair values of the Company's indefinite-lived intangible assets were determined based on the relief from royalty method. The recoverability of the Company's finite-lived intangible assets were determined based on the undiscounted cash flows method and fair value was determined based on the multi-period excess earnings method. The inputs and assumptions utilized in the impairment analyses are classified as Level 3 inputs in the fair value hierarchy as defined in ASC Topic 820, “Fair Value Measurements.” These impairment charges were included as a separate component of operating income within the "Impairment charges" caption on the Company's Unaudited Consolidated Statement of Operations and Comprehensive Loss for the nine months ended September 30, 2022.

No impairment charges were recognized related to the carrying value of any of the Company's indefinite-lived and finite-lived intangible assets as a result of the third quarter of 2022 qualitative interim impairment assessment. Consequently, total non-cash impairment charges recorded on the Company's intangible assets were $24.3 million for the nine months ended September 30, 2022.

A summary of the impairment charge by segment is included in the following tables:








	Nine Months Ended September 30, 2022
	Revlon		Portfolio		Elizabeth Arden		Fragrances		Total
Finite-lived intangible assets	$	—	$	18.7	$	—	$	—	$	18.7
Indefinite-lived intangible assets	$	—	$	5.6	$	—	$	—	$	5.6
Total Intangibles Impairment	$	—	$	24.3	$	—	$	—	$	24.3

In connection with recognizing these intangible assets impairment charges for the three and nine months ended September 30, 2022, the Company recognized a tax benefit of approximately $0.2 million.

The following tables present details of the Company's total intangible assets as of September 30, 2022 and December 31, 2021:


	September 30, 2022
	Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount		Weighted-Average Useful Life (in Years)
Finite-lived intangible assets:
Trademarks and licenses	$	267.2	$	(149.9)	$	(5.3)	$	112.0	11
Customer relationships	243.3		(131.1)		(10.9)		101.3		9
Patents and internally-developed intellectual property	24.3		(18.2)		(2.5)		3.6		5
Distribution rights	31.0		(10.5)		—		20.5		12
Other	1.3		(1.3)		—		—		0
Total finite-lived intangible assets	$	567.1	$	(311.0)	$	(18.7)	$	237.4
Indefinite-lived intangible assets:
Trade names (a)	$	103.6	N/A		$	(5.6)	$	98.0
Total indefinite-lived intangible assets	$	103.6	N/A		$	(5.6)	$	98.0
Total intangible assets	$	670.7	$	(311.0)	$	(24.3)	$	335.4
	December 31, 2021
	Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount		Weighted-Average Useful Life (in Years)
Finite-lived intangible assets:
Trademarks and licenses	$	270.8	$	(142.9)	$	—	$	127.9	12
Customer relationships	247.2		(122.7)		—		124.5		10
Patents and internally-developed intellectual property	23.8		(17.4)		—		6.4		5
Distribution rights	31.0		(9.2)		—		21.8		13
Other	1.3		(1.3)		—		—		0
Total finite-lived intangible assets	$	574.1	$	(293.5)	$	—	$	280.6
Indefinite-lived intangible assets:
Trade names (a)	$	111.6	N/A				$	111.6
Total indefinite-lived intangible assets	$	111.6	N/A		$	—	$	111.6
Total intangible assets	$	685.7	$	(293.5)	$	—	$	392.2

(a) Indefinite-lived trade names carrying amount includes accumulated impairment of $33.1 million from 2020.

Amortization expense for finite-lived intangible assets was $7.6 million and $9.1 million for the three months ended September 30, 2022 and 2021, respectively and $24.0 million and $26.1 million for the nine months ended September 30, 2022 and 2021, respectively.