NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ in millions, except per share data)
(Unaudited)
1
. DESCRIPTION OF BUSINESS
Coty Inc. and its subsidiaries (collectively, the “Company” or “Coty”) manufacture, market, sell and distribute branded beauty products, including fragrances, color cosmetics, hair care products and skin & body related products throughout the world. Coty is a global beauty company with a rich entrepreneurial history and an iconic portfolio of brands.
The Company operates on a fiscal year basis with a year-end of June 30. Unless otherwise noted, any reference to a year preceded by the word “fiscal” refers to the fiscal year ended June 30 of that year. For example, references to “fiscal
2019
” refer to the fiscal year ending
June 30, 2019
. When used in this Quarterly Report on Form 10-Q, the term “includes” and “including” means, unless the context otherwise indicates, including without limitation.
The Company’s sales generally increase during the second fiscal quarter as a result of increased demand associated with the holiday season. Financial performance, working capital requirements, sales, cash flows and borrowings generally experience variability during the three to six months preceding the holiday season. Product innovations, new product launches and the size and timing of orders from the Company’s customers may also result in variability. The Company also generally experiences an increase in sales during its fourth fiscal quarter in its Professional Beauty segment as a result of higher demand prior to the summer holiday season.
2
. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim Condensed Consolidated Financial Statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and include the Company’s consolidated domestic and international subsidiaries. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited interim Condensed Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the Company’s Consolidated Financial Statements as of and for the year ended
June 30, 2018
. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in the Condensed Consolidated Financial Statements. The results of operations for the
three and nine months ended March 31, 2019
are not necessarily indicative of the results of operations to be expected for the full fiscal year ending
June 30, 2019
. All dollar amounts (other than per share amounts) in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.
Restricted Cash
Restricted cash represents funds that are not readily available for general purpose cash needs due to contractual limitations. Restricted cash is classified as a current or long-term asset based on the timing and nature of when or how the cash is expected to be used or when the restrictions are expected to lapse. As of
March 31, 2019
and
June 30, 2018
, the Company had restricted cash of
$36.1
and
$30.6
, respectively, included in Restricted cash in the Condensed Consolidated Balance Sheets. The Restricted cash balance as of
March 31, 2019
primarily provides collateral for certain bank guarantees on rent, customs and duty accounts and also consists of collections on factored receivables that remain unremitted to the factor as of
March 31, 2019
. Restricted cash is included as a component of Cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, the market value of inventory, the fair value of acquired assets and liabilities associated with acquisitions, pension benefit costs, the assessment of goodwill, other intangible assets and long-lived assets for impairment, income taxes and the fair value of redeemable noncontrolling interests. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the Condensed Consolidated Financial Statements in future periods.
Tax Information
The effective income tax rate for the
three months ended March 31, 2019 and 2018
was
0.0%
and
(7.9)%
, respectively, and
(0.1)%
and
(211.8)%
for the
nine months ended March 31, 2019 and 2018
, respectively. The negative effective tax rate in the three months ended March 31, 2018 and the
nine months ended March 31, 2019
results from reporting losses before income taxes and a provision for income taxes. The negative effective tax rate in the nine months ended March 31, 2018 results from reporting income before taxes and a benefit for income taxes. The change in effective tax rate for the
three months ended March 31, 2019
, as compared to the prior period, is primarily due to the impact of the Tax Act (as described below) in the prior period. The change in effective tax rate for the
nine months ended March 31, 2019
, as compared to the prior year period, is primarily due to the resolution of foreign uncertain tax positions of approximately
$43.0
in the prior period.
The effective income tax rates vary from the U.S. federal statutory rate of
21%
due to the effect of (i) jurisdictions with different statutory rates, (ii) adjustments to the Company’s unrealized tax benefits (“UTBs”) and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes.
On December 22, 2017, “H.R.1”, formerly known as the “Tax Cuts and Jobs Act” (“Tax Act”) was enacted. The Tax Act significantly revises the U.S. corporate income tax system by, amongst other things, reducing the federal tax rate on U.S. earnings to
21%
, implementing a modified territorial tax system and imposing a one-time deemed repatriation tax on historical earnings generated by foreign subsidiaries that have not been repatriated to the U.S.
On December 22, 2017, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the Tax Act for companies to complete the accounting under ASC 740. The Company recorded its initial estimate of the impact of the Tax Act in fiscal 2018. This estimate was a charge of approximately
$41.0
as a result of utilizing tax attributes (e.g., net operating losses and foreign tax credits) to fully offset the cash impact of the one-time deemed repatriation tax. During the second quarter of fiscal 2019, the Company finalized its calculation of the impact of the Tax Act and no additional adjustments were required.
The Tax Act requires a U.S. shareholder of a foreign corporation to include in income its global intangible low-taxed income (“GILTI”). In general, GILTI is described as the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. As a result of recently released Financial Accounting Standards Board (“FASB”) guidance, an entity may choose to recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or an entity can elect to treat GILTI as a period cost and include it in the tax expense of the year it is incurred. As such, the Company has elected to treat the tax on GILTI as a tax expense in the year it is incurred rather than recognizing deferred taxes. The Company has estimated the impact from GILTI for fiscal 2019 to be immaterial. Additionally, the Tax Act created the Base Erosion Anti-Abuse Tax (“BEAT”), a new minimum tax on taxable income adjusted for certain base erosion payments. The Company does not presently expect that it will be subject to the minimum tax imposed by the BEAT provisions for fiscal 2019.
As of
March 31, 2019
and
June 30, 2018
, the gross amount of UTBs was
$303.4
and
$303.6
, respectively. As of
March 31, 2019
, the total amount of UTBs that, if recognized, would impact the effective income tax rate is
$118.7
. As of
March 31, 2019
and
June 30, 2018
, the liability associated with UTBs, including accrued interest and penalties, was
$134.9
and
$135.4
, respectively, which was recorded in Income and other taxes payable and Other non-current liabilities in the Condensed Consolidated Balance Sheets. The total interest and penalties recorded in the Condensed Consolidated Statements of Operations related to UTBs was
$0.6
and
$(0.2)
for the
three months ended March 31, 2019 and 2018
, respectively, and
$3.2
and
$1.9
for the
nine months ended March 31, 2019 and 2018
, respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of
March 31, 2019
and
June 30, 2018
was
$16.1
and
$13.1
, respectively. On the basis of the information available as of
March 31, 2019
, it is reasonably possible that a decrease of up to
$23.2
in UTBs may occur within 12 months as a result of projected resolutions of global tax examinations and a potential lapse of the applicable statutes of limitations.
Factoring of Receivables
On March 19, 2019, the Company entered into an Uncommitted Receivables Purchase Agreement (the “Receivables Purchase Agreement”) with a financial institution, with an aggregate facility limit of
$150.0
. Eligible trade receivables are purchased by the financial institution for cash at net invoice value less a factoring fee. Pursuant to Receivables Purchase Agreement, the Company acts as collections agent for the financial institution and is responsible for the collection, and remittance to the financial institution, of all customer payments related to trade receivables factored under this arrangement. For certain customer receivables factored, the Company will retain a recourse obligation of up to
10 percent
of the respective invoice’s net invoice value, payable to the financial institution if the customer’s payment is not received by the contractual due date.
The Company accounts for trade receivable transfers under the Receivables Purchase Agreement as sales and derecognizes the sold receivables from the Condensed Consolidated Balance Sheets. The fair value of sold receivables approximated their
book value due to their short-term nature. The Company estimated that the fair value of its servicing responsibilities was not material. Cash received from the selling of receivables under the Receivables Purchase Agreement are presented as a change in trade receivables within the operating activities section of the Condensed Consolidated Statements of Cash Flows.
During the
three and nine months ended March 31, 2019
, total trade receivables factored under the Receivables Purchase Agreement, net of collections, was
$109.1
, which reflects the timing of certain trade receivables factored late in the third quarter. Gross trade receivables factored under the Receivables Purchase Agreement during the
three and nine months ended March 31, 2019
totaled
$134.6
.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which implements a common revenue model that will enhance comparability across industries and require enhanced disclosures. The Company adopted this new standard on July 1, 2018. See Note
3
—
Revenue Recognition
for more information on the effects of the adoption of this standard.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,
which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted the standard in the first quarter of fiscal 2019 using the modified retrospective transition method and recognized tax expense, as an adjustment to the July 1, 2018 accumulated deficit balance of
$7.6
and
$120.8
that were previously deferred in Prepaid expenses and other current assets and Other noncurrent assets, respectively. The recognition of this tax expense was partially offset by a previously unrecognized deferred tax asset of
$15.8
, resulting in a cumulative-effect adjustment of
$112.6
as an increase to the July 1, 2018 accumulated deficit balance.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business,
which provides an updated model for determining if acquired assets and liabilities constitute a business. In a business combination, the acquired assets and liabilities are recognized at fair value and goodwill could be recognized. In an asset acquisition, the assets are allocated value based on relative fair value and no goodwill is recognized. The ASU narrows the definition of a business. The Company adopted the standard in the first quarter of fiscal 2019 on a prospective basis. The adoption of this guidance did not have an impact on the Company’s Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles
—
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. The Company early adopted the ASU during the first quarter of fiscal 2019. As of July 1, 2018, the adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In March 2017, the FASB issued ASU No. 2017-07,
Compensation
—
Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
(“ASU No. 2017-07”), which requires employers to report the service cost component of net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by the underlying employees during the period. The other components of net periodic benefit cost are required to be reported separately and outside of operating income. In addition, only the service cost component would be eligible for capitalization in assets. The new guidance also allows a practical expedient that permits employers to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company adopted this standard during the first quarter of fiscal 2019 and retrospectively applied it to each prior period presented. In doing so, as a practical expedient, the Company used the prior comparative period Employee Benefit Plans footnote (see Note
12
).
The following table presents our results under our historical method of accounting and as adjusted to reflect our adoption of ASU No. 2017-07:
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|
|
|
|
|
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|
Three Months Ended
March 31, 2018
|
|
Nine Months Ended
March 31, 2018
|
|
As Previously Reported
|
|
Effect of Adoption of ASU No. 2017-07
|
|
As Adjusted
|
|
As Previously Reported
|
|
Effect of Adoption of ASU No. 2017-07
|
|
As Adjusted
|
Cost of sales
|
$
|
812.4
|
|
|
$
|
(0.1
|
)
|
|
$
|
812.3
|
|
|
$
|
2,711.7
|
|
|
$
|
(0.3
|
)
|
|
$
|
2,711.4
|
|
Selling, general and administrative expenses
|
1,252.3
|
|
|
(0.7
|
)
|
|
1,251.6
|
|
|
3,764.0
|
|
|
(2.1
|
)
|
|
3,761.9
|
|
Operating income
|
19.9
|
|
|
0.8
|
|
|
20.7
|
|
|
223.0
|
|
|
2.4
|
|
|
225.4
|
|
Other expense, net
|
3.0
|
|
|
0.8
|
|
|
3.8
|
|
|
10.1
|
|
|
2.4
|
|
|
12.5
|
|
Net income
|
(60.1
|
)
|
|
—
|
|
|
(60.1
|
)
|
|
42.4
|
|
|
—
|
|
|
42.4
|
|
In May 2017, the FASB issued ASU No. 2017-09,
Compensation
—
Stock Compensation (Topic 718): Scope of Modification Accounting,
which narrows the scope of changes in grant terms that would require modification accounting. The Company adopted this standard during the first quarter of fiscal 2019 on a prospective basis. The adoption did not have an effect on the Company’s Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-15,
Intangibles
—
Goodwill and Other
—
Internal-Use Software (Subtopic 350-40)
, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted the standard in the first quarter of fiscal 2019 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-14,
Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans
, which modified the disclosure requirements by removing, modifying and clarifying disclosures related to defined benefit plans. The amendment will be effective for the Company in fiscal 2021 with early adoption permitted. The Company is evaluating the impact this guidance will have on the Company’s Condensed Consolidated Financial Statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement
, which modified the disclosure requirements by removing, modifying and adding disclosures related to fair value measurements. The amendment will be effective for the Company in fiscal 2021 with early adoption permitted. The Company is evaluating the impact this guidance will have on the Company’s Condensed Consolidated Financial Statements and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU No. 2016-13”),
which requires that a financial asset (or a group of financial assets) measured at an amortized cost basis be presented at the net amount expected to be collected. This approach to estimating credit losses applies to most financial assets measured at amortized cost and certain other instruments, including but not limited to, trade and other receivables. In November 2018, the FASB issued ASU No. 2018-19,
Codification Improvements to Topic 326, Financial Instruments-Credit Losses
, which clarifies the scope of the guidance in ASU No. 2016-13. The amendment will be effective for the Company in fiscal 2021 with early adoption permitted. The Company is evaluating the impact this guidance will have on the Company’s Condensed Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Lessees and lessors have the option to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
Additionally, in December 2018, the FASB issued ASU No. 2018-20,
Leases (Topic 842): Narrow-Scope Improvements for Lessors
, which provides lessors the election to consider certain sales and similar taxes as lessee costs and exclude them from consideration in the contract, requires lessors to exclude certain lessor costs paid directly to third parties from expenses and related revenues, and requires the allocation of certain variable payments to the lease and nonlease components when changes in facts and circumstances related to the payments occur.
The new leasing guidance will be effective for the Company in fiscal 2020 with early adoption permitted. The Company has an implementation team in place that is performing a comprehensive evaluation of the impact the standard will have on the Company’s Condensed Consolidated Financial Statements and related disclosures. The evaluation includes assessing the Company’s lease portfolio, the implementation of new software to meet reporting requirements and the impact to business processes. Based on the current status of the evaluation, management believes the adoption of the new standard will have a significant impact on the Condensed Consolidated Balance Sheets. The Company expects to finalize its evaluation and assessment as required by the new leases standard and quantify the balance sheet impact upon adoption at July 1, 2019 during the fourth quarter of fiscal 2019. Upon adoption, the Company’s lease liability will be based on the present value of such payments and the related right-of-use asset will be based on the lease liability, adjusted for initial direct costs, prepaid lease payments and lease incentives received. The Company plans to adopt the new standard when it becomes effective in the fiscal 2020 first quarter using the modified retrospective transition approach for leases that exist at adoption and will not restate the prior comparative periods.
3
. REVENUE RECOGNITION
Adoption of ASC 606, Revenue from Contracts with Customers
On July 1, 2018, the Company adopted ASC 606,
Revenue from Contracts with Customers
and all related amendments (the “New Revenue Standard”) using the modified retrospective method applied to those contracts which were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605,
Revenue Recognition
.
The Company recorded a net increase to its accumulated deficit as of July 1, 2018 (as presented below) due to the cumulative impact of adopting the New Revenue Standard, with the impact primarily related to the timing of accrual for certain customer incentives and markdowns at the time of sell-in and reclassification of certain marketing fixtures expense as a reduction of gross revenue.
The cumulative effects of the revenue accounting changes on the Company's Condensed Consolidated Balance Sheet as of July 1, 2018 were as follows:
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June 30, 2018
|
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Adjustments
|
|
July 1, 2018
|
ASSETS
|
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|
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|
|
Property and equipment, net
|
$
|
1,680.8
|
|
|
$
|
(6.2
|
)
|
|
$
|
1,674.6
|
|
Deferred income taxes
|
107.4
|
|
|
0.6
|
|
|
108.0
|
|
Other noncurrent assets
|
299.5
|
|
|
6.9
|
|
|
306.4
|
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|
LIABILITIES AND EQUITY
|
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Current liabilities:
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Accrued expenses and other current liabilities
|
$
|
1,844.4
|
|
|
$
|
20.7
|
|
|
$
|
1,865.1
|
|
Deferred income taxes
|
842.5
|
|
|
(1.2
|
)
|
|
841.3
|
|
Accumulated deficit
|
(626.2
|
)
|
|
(18.2
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)
|
|
(644.4
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)
|
The following table summarizes the impacts of adopting the New Revenue Standard on the Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2019
:
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As reported (New Revenue Standard)
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Current period adjustments
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As adjusted (previous revenue standard)
|
Net revenues
|
$
|
1,990.6
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$
|
25.6
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$
|
2,016.2
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Selling, general and administrative expenses
|
1,070.5
|
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|
1.0
|
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|
1,071.5
|
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Net (loss) income
|
(4.0
|
)
|
|
18.4
|
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|
14.4
|
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Net (loss) income attributable to Coty Inc.
|
(12.1
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)
|
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18.6
|
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|
6.5
|
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|
Net (loss) income attributable to Coty Inc. per common share:
|
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Basic
|
$
|
(0.02
|
)
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
Diluted
|
(0.02
|
)
|
|
0.03
|
|
|
0.01
|
|
The following table summarizes the impacts of adopting the New Revenue Standard on the Condensed Consolidated Statements of Operations for the
Nine Months Ended March 31, 2019
:
|
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As reported (New Revenue Standard)
|
|
Current period adjustments
|
|
As adjusted (previous revenue standard)
|
Net revenues
|
$
|
6,533.1
|
|
|
$
|
8.9
|
|
|
$
|
6,542.0
|
|
Selling, general and administrative expenses
|
3,476.8
|
|
|
2.3
|
|
|
3,479.1
|
|
Net (loss) income
|
(970.1
|
)
|
|
5.0
|
|
|
(965.1
|
)
|
Net (loss) income attributable to Coty Inc.
|
(984.8
|
)
|
|
5.0
|
|
|
(979.8
|
)
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|
|
Net (loss) income attributable to Coty Inc. per common share:
|
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Basic
|
$
|
(1.31
|
)
|
|
$
|
0.01
|
|
|
$
|
(1.30
|
)
|
Diluted
|
(1.31
|
)
|
|
0.01
|
|
|
(1.30
|
)
|
Revenue Recognition Accounting Policy
For periods after July 1, 2018, revenue is recognized at a point in time and/or over time when control of the promised goods or services is transferred to the Company’s customers, which usually occurs upon delivery. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or services. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company’s revenue contracts principally represent a performance obligation to sell its beauty products to trade customers and are satisfied when control of promised goods and services is transferred to the customers.
Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns (estimated based on an analysis of historical experience and position in product life cycle) and various trade spending activities. Trade spending activities represent variable consideration promised to the customer and primarily relate to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers. The costs of trade spend activities are estimated using the expected value method considering all reasonably available information, including contract terms with the customer, the Company’s historical experience and its current expectations of the scope of the activities, and is reflected in the transaction price when sales are recorded.
The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.
The Company’s sales return accrual reflects seasonal fluctuations, including those related to the holiday season in its second quarter. This accrual is a subjective critical estimate that has a direct impact on reported net revenues, and is calculated based on history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that the Company has considered, and will continue to consider, include the financial condition of our customers, store closings by retailers, changes in the retail environment, and our decision to continue to support new and existing brands.
The Company accounts for certain customer store fixtures as other assets. Such fixtures are amortized using the straight-line method over the period of
3
to
5
years as a reduction of revenue.
For the presentation of the Company’s revenues disaggregated by segment and product category see Note
4
—
Segment Reporting
.
4
. SEGMENT REPORTING
The Company’s organizational structure is category focused, putting the consumers first, by specifically targeting how and where they shop and what and why they purchase. Operating and reportable segments (referred to as “segments”) reflect the way the Company is managed and for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company has designated its Chief Executive Officer as the CODM.
The Company has the following
three
divisions which represent its operating segments and reportable segments:
Luxury — primarily focused on prestige fragrances, premium skin care and premium color cosmetics;
Consumer Beauty — primarily focused on color cosmetics, retail hair coloring and styling products, mass fragrance, mass skin care and body care;
Professional Beauty — primarily focused on hair and nail care products for professionals.
Certain revenues and shared costs and the results of corporate initiatives are managed outside of the
three
segments by Corporate. The items within Corporate relate to corporate-based responsibilities and decisions and are not used by the CODM to measure the underlying performance of the segments. Corporate primarily includes restructuring and realignment costs, costs related to acquisition activities and certain other expense items not attributable to ongoing operating activities of the segments.
With the adoption of ASU No. 2017-07 (see Note
2
—
Summary of Significant Accounting Policies
), the non-service cost components of net periodic benefit cost have been removed from consolidated operating expenses and included in consolidated other expense, net. For segment reporting, however, all components of net periodic benefit cost are included in segment operating results as these components continue to comprise the basis on which the CODM analyzes segment results. In order to reconcile the total of segment operating income (loss) to consolidated operating income (loss), reclassification adjustments related to the non-service costs components have been included in Corporate in the table below.
With the exception of goodwill and acquired intangible assets, the Company does not identify or monitor assets by segment. The Company does not present assets by reportable segment since various assets are shared between reportable segments. The allocation of goodwill and acquired intangible assets by segment is presented in Note
9
—
Goodwill and Other Intangible Assets, net
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
SEGMENT DATA
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Net revenues:
|
|
|
|
|
|
|
|
Luxury
|
$
|
729.2
|
|
|
$
|
752.5
|
|
|
$
|
2,539.6
|
|
|
$
|
2,468.1
|
|
Consumer Beauty
|
840.3
|
|
|
1,021.7
|
|
|
2,636.9
|
|
|
3,203.7
|
|
Professional Beauty
|
421.1
|
|
|
448.5
|
|
|
1,356.6
|
|
|
1,426.8
|
|
Total
|
$
|
1,990.6
|
|
|
$
|
2,222.7
|
|
|
$
|
6,533.1
|
|
|
$
|
7,098.6
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Luxury
|
$
|
87.7
|
|
|
$
|
59.4
|
|
|
$
|
250.0
|
|
|
$
|
201.2
|
|
Consumer Beauty
|
24.1
|
|
|
64.2
|
|
|
(901.4
|
)
|
|
225.4
|
|
Professional Beauty
|
30.7
|
|
|
11.4
|
|
|
109.5
|
|
|
83.2
|
|
Corporate
|
(57.0
|
)
|
|
(114.3
|
)
|
|
(197.9
|
)
|
|
(284.4
|
)
|
Total
|
$
|
85.5
|
|
|
$
|
20.7
|
|
|
$
|
(739.8
|
)
|
|
$
|
225.4
|
|
Reconciliation:
|
|
|
|
|
|
|
|
Operating income (loss)
|
$
|
85.5
|
|
|
$
|
20.7
|
|
|
$
|
(739.8
|
)
|
|
$
|
225.4
|
|
Interest expense, net
|
72.0
|
|
|
72.6
|
|
|
204.4
|
|
|
199.3
|
|
Other expense, net
|
17.5
|
|
|
3.8
|
|
|
25.0
|
|
|
12.5
|
|
(Loss) income before income taxes
|
$
|
(4.0
|
)
|
|
$
|
(55.7
|
)
|
|
$
|
(969.2
|
)
|
|
$
|
13.6
|
|
Presented below are the percentage of revenues associated with the Company’s product categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
PRODUCT CATEGORY
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Fragrance
|
36.6
|
%
|
|
36.2
|
%
|
|
40.6
|
%
|
|
38.3
|
%
|
Color Cosmetics
|
27.7
|
|
|
26.1
|
|
|
25.6
|
|
|
26.2
|
|
Hair Care
|
25.7
|
|
|
25.4
|
|
|
24.7
|
|
|
24.6
|
|
Skin & Body Care
|
10.0
|
|
|
12.3
|
|
|
9.1
|
|
|
10.9
|
|
Total Coty Inc.
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
5
. BUSINESS COMBINATIONS
Burberry Beauty Business Acquisition
On October 2, 2017, the Company acquired the exclusive global license rights and other related assets for the Burberry Limited (“Burberry”) luxury fragrances, cosmetics and skincare business (the “Burberry Beauty Business”). The Burberry Beauty Business acquisition further strengthens the Company’s position in the global beauty industry. Total purchase consideration, after post-closing adjustments, was
£191.7 million
, the equivalent of
$256.3
, at the time of closing. Included in the purchase price was cash consideration of
£183.3 million
, the equivalent of
$245.1
, at the time of closing, in addition to
£8.4 million
, the equivalent of
$11.2
, of estimated contingent consideration, at the time of closing.
The aggregate future contingent consideration payments will range from
zero
to
£16.7 million
and will be payable on a quarterly basis to Burberry as certain items of inventory transferred to the Company at the acquisition date are subsequently used or sold. The amount of the contingent consideration recorded was estimated as of the acquisition date and is subject to change based on the related inventory usage. The fair value of the contingent consideration was determined by estimating the future inventory usage and corresponding payments over a four-year period, with the contingent payments being made in each of the respective years. The estimate of the portion of contingent consideration payable within twelve months from the
March 31, 2019
balance sheet date is recorded in Accrued expenses and other current liabilities and the remainder is recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet. From the date of acquisition through the end of the
third
quarter of fiscal 2019, the Company made
£3.5 million
in contingent payments.
The Company has finalized the valuation of assets acquired and liabilities assumed for the Burberry Beauty Business acquisition. The Company recognized certain measurement period adjustments as disclosed below during the three months ended September 30, 2018. The measurement period for the Burberry Beauty Business acquisition closed on October 1, 2018.
The following table summarizes the allocation of the purchase price to the net assets of the Burberry Beauty Business as of the October 2, 2017 acquisition date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
fair value as previously reported
(a)
|
|
Measurement period adjustments
(b)
|
|
Final fair value as adjusted
|
|
Estimated
useful life
(in years)
|
Inventories
|
$
|
47.9
|
|
|
$
|
—
|
|
|
$
|
47.9
|
|
|
|
Property, plant and equipment
|
5.8
|
|
|
—
|
|
|
5.8
|
|
|
1 - 3
|
License and distribution rights
|
177.8
|
|
|
6.7
|
|
|
184.5
|
|
|
3 - 15
|
Goodwill
|
34.9
|
|
|
(9.4
|
)
|
|
25.5
|
|
|
Indefinite
|
Net other liabilities
|
(10.1
|
)
|
|
2.7
|
|
|
(7.4
|
)
|
|
|
Total purchase price
|
$
|
256.3
|
|
|
$
|
—
|
|
|
$
|
256.3
|
|
|
|
|
|
(a)
|
As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
|
|
|
(b)
|
The Company recorded measurement period adjustments in the first quarter of fiscal 2019. The measurement period adjustments related to an increase in the value of the License and distribution rights due to changes in assumptions that were used at the date of acquisition for valuation purposes. The measurement period adjustment related to the decrease in net other liabilities acquired was a result of obtaining new facts and circumstances about acquired accrued expenses that existed as of the acquisition date. All measurement period adjustments were offset against Goodwill.
|
Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating the Burberry Beauty Business products into the Company’s existing sales channels. Goodwill of
$12.9
,
$6.8
and
$5.8
is allocated to the Luxury, Consumer Beauty and Professional Beauty segments, respectively. The allocation of goodwill to the segments were due to the reduction in corporate and regional overhead allocated to these segments due to the addition of the Burberry Beauty Business.
6
. ACQUISITION-RELATED COSTS
Acquisition-related costs, which are expensed as incurred, represent non-restructuring costs directly related to acquiring and integrating an entity, for both completed and contemplated acquisitions. These costs can include finder’s fees, legal, accounting, valuation, other professional or consulting fees, including fees related to transitional services, and other internal costs which can include compensation related expenses for dedicated internal resources. The Company recognized acquisition-related costs of
$0.0
and
$2.6
for the
three months ended March 31, 2019 and 2018
, respectively and
$0.0
and
$63.7
for the
nine months ended March 31, 2019 and 2018
, respectively, which have been recorded in Acquisition-related costs in the Condensed Consolidated Statements of Operations. Acquisition-related costs incurred during the
three and nine months ended
March 31, 2018
were primarily related to the acquisition of The Procter & Gamble Company’s (“P&G”) beauty business (the “P&G Beauty Business”).
7
. RESTRUCTURING COSTS
Restructuring costs for the
three and nine months ended March 31, 2019 and 2018
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Global Integration Activities
|
$
|
2.6
|
|
|
$
|
33.3
|
|
|
$
|
31.3
|
|
|
$
|
58.2
|
|
2018 Restructuring Actions
|
4.5
|
|
|
8.6
|
|
|
13.3
|
|
|
20.5
|
|
Other Restructuring
|
(0.4
|
)
|
|
0.8
|
|
|
(0.9
|
)
|
|
(3.1
|
)
|
Total
|
$
|
6.7
|
|
|
$
|
42.7
|
|
|
$
|
43.7
|
|
|
$
|
75.6
|
|
Global Integration Activities
In connection with the acquisition of the P&G Beauty Business, the Company has and expects to continue to incur restructuring and related costs aimed at integrating and optimizing the combined organization (“Global Integration Activities”).
Of the expected costs, the Company has incurred cumulative restructuring charges of
$502.0
related to approved initiatives through
March 31, 2019
, which have been recorded in Corporate. The following table presents aggregate restructuring charges for the program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Benefits
|
|
Third-Party Contract Terminations
|
|
Fixed Asset Write-offs
|
|
Other Exit Costs
|
|
Total
|
Fiscal 2017
|
$
|
333.9
|
|
|
$
|
22.4
|
|
|
$
|
4.6
|
|
|
$
|
3.3
|
|
|
$
|
364.2
|
|
Fiscal 2018
|
67.5
|
|
|
19.3
|
|
|
14.3
|
|
|
5.4
|
|
|
106.5
|
|
Fiscal 2019
|
0.3
|
|
|
1.5
|
|
|
27.8
|
|
|
1.7
|
|
|
31.3
|
|
Cumulative through March 31, 2019
|
$
|
401.7
|
|
|
$
|
43.2
|
|
|
$
|
46.7
|
|
|
$
|
10.4
|
|
|
$
|
502.0
|
|
Over the next two fiscal years, the Company expects to incur approximately
$25.0
of additional restructuring charges pertaining to the approved actions, primarily related to contract terminations, employee termination benefits and other related exit costs.
The related liability balance and activity for the Global Integration Activities restructuring costs are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
Employee
Benefits
|
|
Third-Party
Contract
Terminations
|
|
Fixed Asset Write-offs
|
|
Other
Exit
Costs
|
|
Total
Program
Costs
|
Balance—July 1, 2018
|
$
|
203.0
|
|
|
$
|
17.0
|
|
|
$
|
—
|
|
|
$
|
3.1
|
|
|
$
|
223.1
|
|
Restructuring charges
|
7.8
|
|
|
1.6
|
|
|
27.8
|
|
|
1.9
|
|
|
39.1
|
|
Payments
|
(130.3
|
)
|
|
(7.1
|
)
|
|
—
|
|
|
(3.2
|
)
|
|
(140.6
|
)
|
Changes in estimates
|
(7.5
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
(7.8
|
)
|
Non-cash utilization
|
—
|
|
|
—
|
|
|
(27.8
|
)
|
|
—
|
|
|
(27.8
|
)
|
Effect of exchange rates
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.6
|
)
|
Balance—March 31, 2019
|
$
|
69.4
|
|
|
$
|
11.4
|
|
|
$
|
—
|
|
|
$
|
1.6
|
|
|
$
|
82.4
|
|
The Company currently estimates that the total remaining accrual of
$82.4
will result in cash expenditures of approximately
$25.7
,
$47.3
and
$9.4
in fiscal 2019, 2020 and thereafter, respectively.
2018 Restructuring Actions
During fiscal 2018, the Company began evaluating initiatives to reduce fixed costs and enable further investment in the business (the “2018 Restructuring Actions”).
Of the expected costs, the Company incurred cumulative restructuring charges of
$81.7
related to approved initiatives through
March 31, 2019
, primarily related to role eliminations in Europe and North America, which have been recorded in Corporate. The following table presents aggregate restructuring charges for the program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Employee Benefits
|
|
Third-Party Contract Terminations
|
|
Fixed Asset Write-offs
|
|
Other Exit Costs
|
|
Total
|
Fiscal 2018
|
$
|
63.5
|
|
|
$
|
0.2
|
|
|
$
|
1.3
|
|
|
$
|
3.4
|
|
|
$
|
68.4
|
|
Fiscal 2019
|
12.1
|
|
|
(0.1
|
)
|
|
—
|
|
|
1.3
|
|
|
13.3
|
|
Cumulative through March 31, 2019
|
$
|
75.6
|
|
|
$
|
0.1
|
|
|
$
|
1.3
|
|
|
$
|
4.7
|
|
|
$
|
81.7
|
|
Over the next three fiscal years, the Company expects to incur approximately
$9.0
of additional restructuring charges pertaining to the approved actions, primarily related to employee termination benefits.
The related liability balance and activity of restructuring costs for the 2018 Restructuring Actions are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
Employee
Benefits
|
|
Third-Party
Contract
Terminations
|
|
Other Exit Costs
|
|
Total
Program
Costs
|
Balance—July 1, 2018
|
$
|
48.0
|
|
|
$
|
0.2
|
|
|
$
|
3.3
|
|
|
$
|
51.5
|
|
Restructuring charges
|
13.6
|
|
|
—
|
|
|
1.3
|
|
|
14.9
|
|
Payments
|
(43.2
|
)
|
|
—
|
|
|
(2.8
|
)
|
|
(46.0
|
)
|
Changes in estimates
|
(1.5
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
(1.6
|
)
|
Effect of exchange rates
|
(0.5
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
(0.7
|
)
|
Balance—March 31, 2019
|
$
|
16.4
|
|
|
$
|
0.1
|
|
|
$
|
1.6
|
|
|
$
|
18.1
|
|
The Company currently estimates that the total remaining accrual of
$18.1
will result in cash expenditures of approximately
$7.5
,
$10.5
and
$0.1
in fiscal 2019, 2020 and thereafter, respectively.
Other Restructuring
In connection with the acquisition of the Burberry Beauty Business, the Company recorded the reversal of
$(0.1)
of restructuring costs relating to third-party contract terminations during the
nine months ended March 31, 2019
. The related liability balances were
$1.0
and
$3.9
at
March 31, 2019
and
June 30, 2018
, respectively. The Company currently estimates that the total remaining accrual of
$1.0
will result in cash expenditure in fiscal 2020.
The Company executed a number of other legacy restructuring activities in prior years, which are substantially completed. The Company recognized (income) expenses, net, of
$(0.6)
and
$(4.7)
during the
nine months ended March 31, 2019 and 2018
, respectively. The related liability balances were
$5.6
and
$9.4
at
March 31, 2019
and
June 30, 2018
, respectively. The Company currently estimates that the total remaining accrual of
$5.6
will result in cash expenditures of
$1.2
,
$2.4
and
$2.0
in fiscal 2019, 2020 and 2021, respectively.
In connection with the acquisition of the P&G Beauty Business, the Company assumed restructuring liabilities of approximately
$21.7
at October 1, 2016. The Company recognized (income) expenses, net, of
$(0.2)
and
$1.6
during the
nine months ended March 31, 2019 and 2018
, respectively. The related liability balances were
$3.6
and
$7.0
at
March 31, 2019
and
June 30, 2018
, respectively. The Company estimates that the remaining accrual of
$3.6
at
March 31, 2019
will result in cash expenditures of
$0.4
,
$2.7
and
$0.5
in fiscal
2019
,
2020
and thereafter, respectively.
8
. INVENTORIES
Inventories as of
March 31, 2019
and
June 30, 2018
are presented below:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
June 30,
2018
|
Raw materials
|
$
|
265.6
|
|
|
$
|
278.6
|
|
Work-in-process
|
15.1
|
|
|
21.8
|
|
Finished goods
|
902.8
|
|
|
848.5
|
|
Total inventories
|
$
|
1,183.5
|
|
|
$
|
1,148.9
|
|
9
. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Assessment for Impairments
The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually as of May 1, or more frequently, if certain events or circumstances warrant. There were
no
impairments of goodwill at the Company’s reporting units in fiscal 2018.
In the course of evaluating the results for the second quarter of fiscal 2019, the Company noted the cash flows associated with its Consumer Beauty reporting unit were adversely impacted by negative category trends and market share losses in the color cosmetics, hair color and mass fragrance categories mainly impacting the CoverGirl, Rimmel, Max Factor, Bourjois and Clairol trademarks; additional shelf-spaces losses for CoverGirl, Clairol, and Max Factor; expected increased costs in the short-term to offset the lower service levels caused by supply chain disruptions; and lower than expected net revenues and profitability for Younique. Additionally, the Company considered the impact of a
75
basis point increase in the discount rate, which adversely affected the fair value of the reporting unit. Management concluded that these adverse factors represented indicators of impairment that warranted an interim impairment test for goodwill and certain other intangible assets in the Consumer Beauty reporting unit. As a result, in the second quarter of fiscal 2019, the Company recognized asset impairment charges of
$930.3
, of which
$832.5
related to goodwill,
$90.8
related to indefinite-lived other intangible assets (mainly related to the CoverGirl and Clairol trademarks) and
$7.0
related to finite-lived other intangible assets, as described below and recorded in Asset impairment charges in the Condensed Consolidated Statements of Operations.
Additionally, the Company identified indicators of impairment related to the philosophy trademark that is part of the Luxury reporting unit and recorded an asset impairment charge of
$22.8
for the second quarter of fiscal 2019. In addition to the impact of a 75 basis point increase in the discount rate for the trademark, the Company considered the impact of the business indicators of lower than expected net revenue growth in the U.S. and a decrease in the level of expected profitability of the trademark.
Goodwill
Goodwill as of
March 31, 2019
and
June 30, 2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luxury
|
|
Consumer Beauty
|
|
Professional Beauty
|
|
Total
|
Gross balance at June 30, 2018
|
$
|
3,366.6
|
|
|
$
|
4,927.5
|
|
|
$
|
953.8
|
|
|
$
|
9,247.9
|
|
Accumulated impairments
|
(403.7
|
)
|
|
(237.1
|
)
|
|
—
|
|
|
(640.8
|
)
|
Net balance at June 30, 2018
|
$
|
2,962.9
|
|
|
$
|
4,690.4
|
|
|
$
|
953.8
|
|
|
$
|
8,607.1
|
|
|
|
|
|
|
|
|
|
Changes during the period ended March 31, 2019:
|
|
|
|
|
|
|
|
Measurement period adjustments
(a)
|
$
|
(10.5
|
)
|
|
$
|
0.6
|
|
|
$
|
0.5
|
|
|
$
|
(9.4
|
)
|
Foreign currency translation
|
(50.5
|
)
|
|
(86.3
|
)
|
|
(9.6
|
)
|
|
(146.4
|
)
|
Impairment charges
|
—
|
|
|
(832.5
|
)
|
|
—
|
|
|
(832.5
|
)
|
|
|
|
|
|
|
|
|
Gross balance at March 31, 2019
|
$
|
3,305.6
|
|
|
$
|
4,841.8
|
|
|
$
|
944.7
|
|
|
$
|
9,092.1
|
|
Accumulated impairments
|
(403.7
|
)
|
|
(1,069.6
|
)
|
|
—
|
|
|
(1,473.3
|
)
|
Net balance at March 31, 2019
|
$
|
2,901.9
|
|
|
$
|
3,772.2
|
|
|
$
|
944.7
|
|
|
$
|
7,618.8
|
|
(a)
Includes measurement period adjustments in connection with the Burberry Beauty Business acquisition (Refer to Note
5
—
Business Combinations
).
Other Intangible Assets, net
Other intangible assets, net as of
March 31, 2019
and
June 30, 2018
are presented below:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
June 30,
2018
|
Indefinite-lived other intangible assets
|
$
|
3,043.7
|
|
|
$
|
3,186.2
|
|
Finite-lived other intangible assets, net
|
4,747.6
|
|
|
5,098.2
|
|
Total Other intangible assets, net
|
$
|
7,791.3
|
|
|
$
|
8,284.4
|
|
The changes in the carrying amount of indefinite-lived other intangible assets are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Luxury
|
|
Consumer Beauty
|
|
Professional Beauty
|
|
Total
|
Gross balance at June 30, 2018
|
$
|
414.6
|
|
|
$
|
1,703.1
|
|
|
$
|
1,266.3
|
|
|
$
|
3,384.0
|
|
Accumulated impairments
|
(118.8
|
)
|
|
(75.9
|
)
|
|
(3.1
|
)
|
|
(197.8
|
)
|
Net balance at June 30, 2018
|
$
|
295.8
|
|
|
$
|
1,627.2
|
|
|
$
|
1,263.2
|
|
|
$
|
3,186.2
|
|
|
|
|
|
|
|
|
|
Changes during the period ended March 31, 2019:
|
|
|
|
|
|
|
|
Foreign currency translation
|
$
|
(10.5
|
)
|
|
$
|
(13.2
|
)
|
|
$
|
(5.2
|
)
|
|
$
|
(28.9
|
)
|
Impairment charges
|
(22.8
|
)
|
|
(90.8
|
)
|
|
—
|
|
|
(113.6
|
)
|
|
|
|
|
|
|
|
|
Gross balance at March 31, 2019
|
$
|
404.1
|
|
|
$
|
1,689.9
|
|
|
$
|
1,261.1
|
|
|
$
|
3,355.1
|
|
Accumulated impairments
|
(141.6
|
)
|
|
(166.7
|
)
|
|
(3.1
|
)
|
|
(311.4
|
)
|
Net balance at March 31, 2019
|
$
|
262.5
|
|
|
$
|
1,523.2
|
|
|
$
|
1,258.0
|
|
|
$
|
3,043.7
|
|
Intangible assets subject to amortization are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Accumulated Amortization
|
|
Accumulated Impairment
|
|
Net
|
June 30, 2018
|
|
|
|
|
|
|
|
License agreements
|
$
|
3,362.7
|
|
|
$
|
(792.9
|
)
|
|
$
|
—
|
|
|
$
|
2,569.8
|
|
Customer relationships
|
1,960.5
|
|
|
(508.7
|
)
|
|
(5.5
|
)
|
|
1,446.3
|
|
Trademarks
|
1,002.1
|
|
|
(185.5
|
)
|
|
(0.4
|
)
|
|
816.2
|
|
Product formulations and technology
|
361.2
|
|
|
(95.3
|
)
|
|
—
|
|
|
265.9
|
|
Total
|
$
|
6,686.5
|
|
|
$
|
(1,582.4
|
)
|
|
$
|
(5.9
|
)
|
|
$
|
5,098.2
|
|
March 31, 2019
|
|
|
|
|
|
|
|
License agreements
(a)
|
$
|
3,215.1
|
|
|
$
|
(839.0
|
)
|
|
$
|
(19.6
|
)
|
|
$
|
2,356.5
|
|
Customer relationships
(a)
|
1,943.1
|
|
|
(603.3
|
)
|
|
(5.5
|
)
|
|
1,334.3
|
|
Trademarks
(b)
|
1,037.8
|
|
|
(218.0
|
)
|
|
(0.4
|
)
|
|
819.4
|
|
Product formulations and technology
|
356.8
|
|
|
(119.4
|
)
|
|
—
|
|
|
237.4
|
|
Total
|
$
|
6,552.8
|
|
|
$
|
(1,779.7
|
)
|
|
$
|
(25.5
|
)
|
|
$
|
4,747.6
|
|
(a)
Includes measurement period adjustments during the
nine months ended March 31, 2019
in connection with the Burberry Beauty Business acquisition (Refer to Note
5
—
Business Combinations
).
(b)
Includes an acquired trademark of
$40.8
.
In July 2018, the Company acquired a trademark associated with a preexisting license. As a result of the acquisition, the preexisting license was effectively terminated, and accordingly the Company recorded
$12.6
of Asset impairment charges in the Condensed Consolidated Statement of Operations related to the license agreement.
Amortization expense was
$86.7
and
$92.8
for the
three months ended March 31, 2019 and 2018
, respectively and
$267.7
and
$260.6
for the
nine months ended March 31, 2019 and 2018
, respectively.
10
. DEBT
The Company’s debt balances consisted of the following as of
March 31, 2019
and
June 30, 2018
, respectively:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
June 30,
2018
|
Short-term debt
|
$
|
8.5
|
|
|
$
|
9.2
|
|
2018 Coty Credit Agreement
|
|
|
|
2018 Coty Revolving Credit Facility due April 2023
|
814.2
|
|
|
368.1
|
|
2018 Coty Term A Facility due April 2023
|
3,162.6
|
|
|
3,371.5
|
|
2018 Coty Term B Facility due April 2025
|
2,337.1
|
|
|
2,390.5
|
|
Senior Unsecured Notes
|
|
|
|
2026 Dollar Notes due April 2026
|
550.0
|
|
|
550.0
|
|
2023 Euro Notes due April 2023
|
617.8
|
|
|
640.9
|
|
2026 Euro Notes due April 2026
|
280.8
|
|
|
291.4
|
|
Other long-term debt and capital lease obligations
|
1.3
|
|
|
1.6
|
|
Total debt
|
7,772.3
|
|
|
7,623.2
|
|
Less: Short-term debt and current portion of long-term debt
|
(196.7
|
)
|
|
(218.9
|
)
|
Total Long-term debt
|
7,575.6
|
|
|
7,404.3
|
|
Less: Unamortized debt issuance costs
(a)
|
(73.5
|
)
|
|
(86.2
|
)
|
Less: Discount on Long-term debt
|
(11.2
|
)
|
|
(12.7
|
)
|
Total Long-term debt, net
|
$
|
7,490.9
|
|
|
$
|
7,305.4
|
|
(a)
Consists of unamortized debt issuance costs of
$26.4
and
$31.4
for the 2018 Coty Revolving Credit Facility,
$24.6
and
$29.2
for the 2018 Coty Term A Facility and
$9.7
and
$10.9
for the 2018 Coty Term B Facility,
$7.4
and
$8.3
for the 2026 Dollar and Euro Notes and
$5.4
and
$6.4
for the 2023 Euro Notes as of
March 31, 2019
and
June 30, 2018
, respectively.
On April 5, 2018, the Company issued senior unsecured notes in a private offering and entered into a new credit agreement (the “2018 Coty Credit Agreement”). The net proceeds of the offering of the notes, together with borrowings under the 2018 Coty Credit Agreement, were used to repay in full and refinance the indebtedness outstanding under the Company’s previously existing long-term debt agreements and to pay accrued interest, related premiums, fees and expenses in connection therewith. Future borrowings under the 2018 Coty Credit Agreement could be used for corporate purposes.
Offering of Senior Unsecured Notes
On April 5, 2018 the Company issued, at par,
$550.0
of
6.50%
senior unsecured notes due 2026 (the “2026 Dollar Notes”),
€550.0 million
of
4.00%
senior unsecured notes due 2023 (the “2023 Euro Notes”) and
€250.0 million
of
4.75%
senior unsecured notes due 2026 (the “2026 Euro Notes” and, together with the 2023 Euro Notes, the “Euro Notes,” and the Euro Notes together with the 2026 Dollar Notes, the “Senior Unsecured Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. persons outside the United States pursuant to Regulation S under the Securities Act.
The Senior Unsecured Notes are senior unsecured debt obligations of the Company and will be
pari passu
in right of payment with all of the Company’s existing and future senior indebtedness (including the 2018 Credit Facilities described below). The Senior Unsecured Notes are guaranteed, jointly and severally, on a senior basis by the Guarantors (as later defined). The Senior Unsecured Notes are senior unsecured obligations of the Company and are effectively junior to all existing and future secured indebtedness of the Company to the extent of the value of the collateral securing such secured indebtedness. The related guarantees are senior unsecured obligations of each Guarantor and are effectively junior to all existing and future secured indebtedness of such Guarantor to the extent of the value of the collateral securing such indebtedness.
The 2026 Dollar Notes will mature on April 15, 2026. The 2026 Dollar Notes will bear interest at a rate of
6.50%
per annum. Interest on the 2026 Dollar Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2018.
The 2023 Euro Notes will mature on April 15, 2023 and the 2026 Euro Notes will mature on April 15, 2026. The 2023 Euro Notes will bear interest at a rate of
4.00%
per annum, and the 2026 Euro Notes will bear interest at a rate of
4.75%
per annum. Interest on the Euro Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2018.
Upon the occurrence of certain change of control triggering events with respect to a series of Senior Unsecured Notes, the Company will be required to offer to repurchase all or part of the Senior Unsecured Notes of such series at
101%
of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the purchase date applicable to such Senior Unsecured Notes.
The Senior Unsecured Notes contain customary covenants that place restrictions in certain circumstances on, among other things, incurrence of liens, entry into sale or leaseback transactions, sales of assets and certain merger or consolidation transactions. The Senior Unsecured Notes also provide for customary events of default.
2018 Coty Credit Agreement
On April 5, 2018, the Company entered into the 2018 Coty Credit Agreement which amended and restated the prior Coty Credit Agreement. The 2018 Coty Credit Agreement provides for (a) the incurrence by the Company of (1) a senior secured term A facility in an aggregate principal amount of (i)
$1,000.0
denominated in U.S. dollars and (ii)
€2,035.0 million
denominated in euros (the “2018 Coty Term A Facility”) and (2) a senior secured term B facility in an aggregate principal amount of (i)
$1,400.0
denominated in U.S. dollars and (ii)
€850.0 million
denominated in euros (the “2018 Coty Term B Facility”) and (b) the incurrence by the Company and Coty B.V., a Dutch subsidiary of the Company (the “Dutch Borrower” and, together with the Company, the “Borrowers”), of a senior secured revolving facility in an aggregate principal amount of
$3,250.0
denominated in U.S. dollars, specified alternative currencies or other currencies freely convertible into U.S. dollars and readily available in the London interbank market (the “2018 Coty Revolving Credit Facility”) (the 2018 Coty Term A Facility, together with the 2018 Coty Term B Facility and the 2018 Coty Revolving Credit Facility, the “2018 Coty Credit Facilities”). Initial borrowings under the 2018 Coty Term Loan B Facility were issued at a
0.250%
discount.
The 2018 Coty Credit Agreement provides that with respect to the 2018 Coty Revolving Credit Facility, up to
$150.0
is available for letters of credit and up to
$150.0
is available for swing line loans. The 2018 Coty Credit Agreement also permits, subject to certain terms and conditions, the incurrence of incremental facilities thereunder in an aggregate amount of (i)
$1,700.0
plus (ii) an unlimited amount if the First Lien Net Leverage Ratio (as defined in the 2018 Coty Credit Agreement), at the time of incurrence of such incremental facilities and after giving effect thereto on a pro forma basis, is less than or equal to
3.00
to 1.00.
The obligations of the Company under the 2018 Coty Credit Agreement are guaranteed by the material wholly-owned subsidiaries of the Company organized in the U.S., subject to certain exceptions (the “Guarantors”) and the obligations of the Company and the Guarantors under the 2018 Coty Credit Agreement are secured by a perfected first priority lien (subject to permitted liens) on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions. The Dutch Borrower does not guarantee the obligations of the Company under the 2018 Coty Credit Agreement or grant any liens on its assets to secure any obligations under the 2018 Coty Credit Agreement.
Scheduled Amortization
The Company makes quarterly payments of
1.25%
and
0.25%
, which began on September 30, 2018, of the initial aggregate principal amounts of the 2018 Coty Term A Facility and the 2018 Coty Term B Facility, respectively. The remaining balance of the initial aggregate principal amounts of the 2018 Coty Term A Facility and the 2018 Coty Term B Facility will be payable on the maturity date for each facility, respectively.
Interest
The 2018 Coty Credit Agreement facilities will bear interest at rates equal to, at the Company’s option, either:
|
|
•
|
LIBOR of the applicable qualified currency, of which the Company can elect the applicable one, two, three, six or twelve month rate, plus the applicable margin; or
|
|
|
•
|
Alternate base rate (“ABR”) plus the applicable margin.
|
In the case of the 2018 Coty Revolving Credit Facility and the 2018 Coty Term A Facility, the applicable margin means the lesser of a percentage per annum to be determined in accordance with the leverage-based pricing grid and the debt rating-based grid below:
|
|
|
|
|
|
|
|
Pricing Tier
|
|
Total Net Leverage Ratio:
|
|
LIBOR plus:
|
|
Alternative Base Rate Margin:
|
1.0
|
|
Greater than or equal to 4.75:1
|
|
2.000%
|
|
1.000%
|
2.0
|
|
Less than 4.75:1 but greater than or equal to 4.00:1
|
|
1.750%
|
|
0.750%
|
3.0
|
|
Less than 4.00:1 but greater than or equal to 2.75:1
|
|
1.500%
|
|
0.500%
|
4.0
|
|
Less than 2.75:1 but greater than or equal to 2.00:1
|
|
1.250%
|
|
0.250%
|
5.0
|
|
Less than 2.00:1 but greater than or equal to 1.50:1
|
|
1.125%
|
|
0.125%
|
6.0
|
|
Less than 1.50:1
|
|
1.000%
|
|
—%
|
|
|
|
|
|
|
|
|
Pricing Tier
|
|
Debt Ratings S&P/Moody’s:
|
|
LIBOR plus:
|
|
Alternative Base Rate Margin:
|
5.0
|
|
Less than BB+/Ba1
|
|
2.000%
|
|
1.000%
|
4.0
|
|
BB+/Ba1
|
|
1.750%
|
|
0.750%
|
3.0
|
|
BBB-/Baa3
|
|
1.500%
|
|
0.500%
|
2.0
|
|
BBB/Baa2
|
|
1.250%
|
|
0.250%
|
1.0
|
|
BBB+/Baa1 or higher
|
|
1.125%
|
|
0.125%
|
In the case of the USD portion of the 2018 Coty Term B Facility, the applicable margin means
2.25%
per annum, in the case of LIBOR loans, and
1.25%
per annum, in the case of ABR loans. In the case of the Euro portion of the 2018 Coty Term B Facility, the applicable margin means
2.50%
per annum, in the case of EURIBOR loans.
In no event will LIBOR be deemed to be less than
0.00%
per annum.
Fair Value of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
June 30, 2018
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
2018 Coty Credit Agreement
|
$
|
6,313.9
|
|
|
$
|
6,090.2
|
|
|
$
|
6,130.1
|
|
|
$
|
6,070.8
|
|
Senior Unsecured Notes
|
1,448.6
|
|
|
1,437.0
|
|
|
1,482.3
|
|
|
1,449.9
|
|
The Company uses the market approach to value the 2018 Coty Credit Agreement and the Senior Unsecured Notes. The Company obtains fair values from independent pricing services to determine the fair value of these debt instruments. Based on the assumptions used to value these liabilities at fair value, these debt instruments are categorized a Level 2 in the fair value hierarchy.
Debt Maturities Schedule
Aggregate maturities of the Company’s long-term debt, including the current portion of long-term debt and excluding capital lease obligations as of
March 31, 2019
, are presented below:
|
|
|
|
|
Fiscal Year Ending June 30,
|
|
2019, remaining
|
$
|
47.0
|
|
2020
|
187.8
|
|
2021
|
187.8
|
|
2022
|
187.8
|
|
2023
|
4,084.2
|
|
Thereafter
|
3,067.9
|
|
Total
|
$
|
7,762.5
|
|
Covenants
The 2018 Coty Credit Agreement contains affirmative and negative covenants. The negative covenants include, among other things, limitations on debt, liens, dispositions, investments, fundamental changes, restricted payments and affiliate transactions. With certain exceptions as described below, the 2018 Coty Credit Agreement includes a financial covenant that requires us to maintain a Total Net Leverage Ratio (as defined below), equal to or less than the ratios shown below for each respective test period.
|
|
|
Quarterly Test Period Ending
|
Total Net Leverage Ratio
(a)
|
March 31, 2019 through June 30, 2019
|
5.25 to 1.00
|
September 30, 2019 through December 31, 2019
|
5.00 to 1.00
|
March 31, 2020 through June 30, 2020
|
4.75 to 1.00
|
September 30, 2020 through December 31, 2020
|
4.50 to 1.00
|
March 31, 2021 through June 30, 2021
|
4.25 to 1.00
|
September 30, 2021 through June 30, 2023
|
4.00 to 1.00
|
(a)
Total Net Leverage Ratio means, as of any date of determination, the ratio of: (a) (i) Total Indebtedness minus (ii) unrestricted cash and Cash Equivalents of the Parent Borrower and its Restricted Subsidiaries as determined in accordance with GAAP to (b) Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the most recently ended Test Period (each of the defined terms, including Adjusted EBITDA, used within the definition of Total Net Leverage Ratio have the meanings ascribed to them within the 2018 Coty Credit Agreement). Adjusted EBITDA as defined in the 2018 Coty Credit Agreement includes certain add backs related to cost savings, operating expense reductions and future unrealized synergies subject to certain limits and conditions as specified in the 2018 Coty Credit Agreement.
In the
four
fiscal quarters following the closing of any Material Acquisition (as defined in the 2018 Coty Credit Agreement), including the fiscal quarter in which such Material Acquisition occurs, the maximum Total Net Leverage Ratio shall be the lesser of (i)
5.95
to 1.00 and (ii)
1.00
higher than the otherwise applicable maximum Total Net Leverage Ratio for such quarter (as set forth in the table above). Immediately after any such
four
fiscal quarter period, there shall be at least
two
consecutive fiscal quarters during which our Total Net Leverage Ratio is no greater than the maximum Total Net Leverage Ratio that would otherwise have been required in the absence of such Material Acquisition, regardless of whether any additional Material Acquisitions are consummated during such period.
As of
March 31, 2019
, the Company was in compliance with all covenants contained within the Debt Agreements.
11
. INTEREST EXPENSE, NET
Interest expense, net for the
three and nine months ended March 31, 2019 and 2018
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Interest expense
|
$
|
76.8
|
|
|
$
|
75.5
|
|
|
$
|
223.3
|
|
|
$
|
212.5
|
|
Foreign exchange gains, net of derivative contracts
|
(0.3
|
)
|
|
0.6
|
|
|
(4.1
|
)
|
|
(5.3
|
)
|
Interest income
|
(4.5
|
)
|
|
(3.5
|
)
|
|
(14.8
|
)
|
|
(7.9
|
)
|
Total interest expense, net
|
$
|
72.0
|
|
|
$
|
72.6
|
|
|
$
|
204.4
|
|
|
$
|
199.3
|
|
12
. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost for pension plans and other post-employment benefit plans recognized in the Condensed Consolidated Statements of Operations are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Pension Plans
|
|
Other Post-
Employment Benefits
|
|
|
|
U.S.
|
|
International
|
|
|
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8.5
|
|
|
$
|
9.8
|
|
|
$
|
0.3
|
|
|
$
|
0.5
|
|
|
$
|
8.8
|
|
|
$
|
10.3
|
|
Interest cost
|
0.2
|
|
|
0.2
|
|
|
3.3
|
|
|
3.1
|
|
|
0.5
|
|
|
0.6
|
|
|
4.0
|
|
|
3.9
|
|
Expected return on plan assets
|
—
|
|
|
—
|
|
|
(2.1
|
)
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
(2.1
|
)
|
|
(1.8
|
)
|
Amortization of prior service cost (credit)
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
(1.5
|
)
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|
(1.4
|
)
|
Amortization of net (gain) loss
|
(0.2
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
0.1
|
|
Net periodic benefit cost (credit)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9.8
|
|
|
$
|
11.4
|
|
|
$
|
(0.7
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
9.1
|
|
|
$
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 31,
|
|
Pension Plans
|
|
Other Post-
Employment Benefits
|
|
|
|
U.S.
|
|
International
|
|
|
Total
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25.3
|
|
|
$
|
29.4
|
|
|
$
|
0.9
|
|
|
$
|
1.5
|
|
|
$
|
26.2
|
|
|
$
|
30.9
|
|
Interest cost
|
0.6
|
|
|
0.5
|
|
|
9.9
|
|
|
9.3
|
|
|
1.5
|
|
|
1.8
|
|
|
12.0
|
|
|
11.6
|
|
Expected return on plan assets
|
—
|
|
|
—
|
|
|
(6.3
|
)
|
|
(5.6
|
)
|
|
—
|
|
|
—
|
|
|
(6.3
|
)
|
|
(5.6
|
)
|
Amortization of prior service cost (credit)
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.2
|
|
|
(4.5
|
)
|
|
(4.2
|
)
|
|
(4.2
|
)
|
|
(4.0
|
)
|
Amortization of net (gain) loss
|
(0.6
|
)
|
|
(0.5
|
)
|
|
0.2
|
|
|
1.0
|
|
|
—
|
|
|
(0.1
|
)
|
|
(0.4
|
)
|
|
0.4
|
|
Net periodic benefit cost (credit)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29.4
|
|
|
$
|
34.3
|
|
|
$
|
(2.1
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
27.3
|
|
|
$
|
33.3
|
|
13
. DERIVATIVE INSTRUMENTS
Foreign Exchange Risk
The Company is exposed to foreign currency exchange fluctuations through its global operations. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in foreign exchange rates by creating offsetting positions through the use of derivative instruments and also by designating foreign currency denominated borrowings as hedges of net investments in foreign subsidiaries. The Company expects that through hedging, any gain or loss on the derivative instruments would generally offset the expected increase or decrease in the value of the underlying forecasted transactions. The Company entered into derivatives for which hedge accounting treatment has been applied which the Company anticipates realizing in the Consolidated Statements of Operations through fiscal 2020.
Interest Rate Risk
The Company is exposed to interest rate fluctuations related to its variable rate debt instruments. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in the variable interest rates by entering into offsetting positions through the use of derivative instruments, such as interest rate swap contracts. The interest rate swap contracts result in recognizing a fixed interest rate for the portion of the Company’s variable rate debt that was hedged. This will reduce the negative and positive impacts of changes in the variable rates over the term of the contracts. Hedge effectiveness of interest rate swap contracts is based on a long-haul hypothetical derivative methodology and includes all changes in value.
During August 2018, the Company extended the maturity of the interest rate swap portfolio through 2021 by replacing its original swap contracts with swap contracts having longer maturities to manage the medium term exposure to interest rate increases. The Company received
$43.2
for settlement of the original swap contracts. As the forecasted interest expense under the original swap agreements is still probable, the related accumulated other comprehensive income (loss) (“AOCI/(L)”) will be amortized in line with the timing of the forecasted transactions. As of
March 31, 2019
and
June 30, 2018
, the Company had interest rate swap contracts designated as effective hedges in the notional amount of
$2,000.0
.
Derivative and non-derivative financial instruments which are designated as hedging instruments:
The accumulated gain on foreign currency borrowings classified as net investment hedges in the foreign currency translation adjustment component of AOCI/(L) was
$264.1
and
$115.0
as of
March 31, 2019
and
June 30, 2018
, respectively.
The amount of gains and losses recognized in Other comprehensive income (loss) (“OCI”) in the Condensed Consolidated Balance Sheets related to the Company’s derivative and non-derivative financial instruments which are designated as hedging instruments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in OCI
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Foreign exchange forward contracts
|
$
|
(0.2
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
0.2
|
|
|
$
|
(0.4
|
)
|
Interest rate swap contracts
|
(11.4
|
)
|
|
11.2
|
|
|
(27.3
|
)
|
|
22.7
|
|
Net investment hedge
|
70.5
|
|
|
(23.7
|
)
|
|
149.1
|
|
|
(56.7
|
)
|
The accumulated gain on derivative instruments classified as cash flow hedges in AOCI/(L), net of tax, was
$3.0
and
$31.7
as of
March 31, 2019
and
June 30, 2018
, respectively. The estimated net gain related to these effective hedges that is expected to be reclassified from AOCI/(L) into earnings, net of tax, within the next twelve months is
$5.5
. As of
March 31, 2019
, all of the Company’s remaining foreign currency forward contracts designated as hedges were highly effective.
The amount of gains and losses reclassified from AOCI/(L) to the Condensed Consolidated Statements of Operations related to the Company’s derivative financial instruments which are designated as hedging instruments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
Classification of Gain (Loss) Reclassified from AOCI/(L)
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
Net revenues
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
Cost of sales
|
0.1
|
|
|
0.2
|
|
|
0.1
|
|
|
0.7
|
|
Interest rate swap contracts:
|
|
|
|
|
|
|
|
Interest expense
|
$
|
2.7
|
|
|
$
|
(2.2
|
)
|
|
$
|
10.4
|
|
|
$
|
(3.1
|
)
|
Derivatives not designated as hedging:
The amount of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
Classification of Gain (Loss) Recognized in Operations
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Selling, general and administrative expenses
|
$
|
—
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.1
|
|
|
$
|
(1.1
|
)
|
Interest expense, net
|
(4.1
|
)
|
|
(7.0
|
)
|
|
(5.7
|
)
|
|
6.1
|
|
Other expense, net
|
—
|
|
|
(0.3
|
)
|
|
1.4
|
|
|
(0.3
|
)
|
14
. EQUITY
Common Stock
As of
March 31, 2019
, the Company’s common stock consisted of Class A Common Stock with a par value of
$0.01
per share. The holders of Class A Common Stock are entitled to
one
vote per share. As of
March 31, 2019
, total authorized shares of Class A Common Stock was
1,000.0 million
and total outstanding shares of Class A Common Stock was
751.4 million
.
As of
March 31, 2019
, the Company’s largest stockholder was JAB Cosmetics B.V. (“JABC”), which owned approximately
40%
of Coty’s Class A shares. Both JABC and the shares of the Company held by Cottage Holdco B.V., a wholly-owned subsidiary of JABC, are indirectly controlled by Lucresca SE, Agnaten SE and JAB Holdings B.V. (“JAB”). During the
three and nine months ended March 31, 2019
, JABC acquired
nil
and
10.8 million
shares of Class A Common Stock, respectively, in open market purchases on the New York Stock Exchange. On April 30, 2019, Cottage Holdco B.V. completed a tender offer transaction (the “Offer”), acquiring
150 million
of outstanding Class A shares of the Company at a price of
$11.65
per share and as a result, is the Company’s largest stockholder. Immediately after completion of this tender offer
transaction, JABC indirectly controls approximately
60%
of Coty’s Class A shares. The Company did not receive any proceeds from these stock purchases conducted by JABC.
Preferred Stock
As of
March 31, 2019
, total authorized shares of preferred stock are
20.0 million
. There are
two
classes of Preferred Stock outstanding as of
March 31, 2019
, Series A Preferred Stock and Series A-1 Preferred Stock, both with a par value of
$0.01
per share.
On January 15, 2019, the Company cancelled
3,067,554
shares of its Series A Preferred Stock that were forfeited during the six months ended December 31, 2018, reducing the total authorized number of shares of Series A Preferred Stock from
6,319,641
to
3,252,087
.
On February 4, 2019, the Company authorized, designated and issued
6,925,341
shares of Series A-1 Preferred Stock.
As of
March 31, 2019
, total authorized shares of Series A Preferred Stock and Series A-1 Preferred Stock are
3.3 million
and
6.9 million
, respectively, total issued shares of Series A Preferred Stock and Series A-1 Preferred Stock are
1.9 million
and
6.9 million
, respectively, and total outstanding shares of Series A Preferred Stock and Series A-1 Preferred Stock are
1.5 million
and
6.9 million
, respectively. The Series A Preferred Stock and Series A-1 Preferred Stock are not entitled to receive any dividends and have
no
voting rights except as required by law.
Of the
1.5 million
outstanding shares of Series A Preferred Stock,
1.0 million
shares vested on March 27, 2017,
0.3 million
shares vest on February 16, 2022 and
0.2 million
shares vest on November 16, 2022. Of the
6.9 million
outstanding shares of Series A-1 Preferred Stock,
4.1 million
shares vest on November 12, 2021,
1.4 million
shares vest on November 12, 2022 and
1.4 million
shares vest on November 12, 2023. As of
March 31, 2019
, the Company classified
$0.7
of Preferred Stock as equity, and
$1.7
as a liability recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet.
Treasury Stock - Share Repurchase Program
On February 3, 2016, the Board authorized the Company to repurchase up to
$500.0
of its Class A Common Stock (the “Incremental Repurchase Program”). Until October 1, 2018, repurchases were subject to certain restrictions imposed by the tax matters agreement, dated October 1, 2016, as amended, between the Company and P&G entered into in connection with the P&G Beauty Business acquisition. Following October 1, 2018, repurchases may be made from time to time at the Company’s discretion, based on ongoing assessments of the capital needs of the business, the market price of its Class A Common Stock, available cash, the Company’s deleveraging strategy and general market conditions. For the
three and nine months ended March 31, 2019
, the Company did
not
repurchase any shares of its Class A Common Stock. As of
March 31, 2019
, the Company had authority for
$396.8
remaining under the Incremental Repurchase Program.
Dividend
s
The following dividends were declared during the
nine months ended March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend Type
|
|
Dividend Per Share
|
|
Holders of Record Date
|
|
Dividend Value
|
|
Dividend Payment Date
|
|
Dividends Paid
|
|
Dividends Payable
(a)
|
Fiscal 2019
|
August 21, 2018
|
|
Quarterly
|
|
$
|
0.125
|
|
|
August 31, 2018
|
|
$
|
94.6
|
|
|
September 14, 2018
|
|
$
|
93.8
|
|
|
$
|
0.8
|
|
November 7, 2018
|
|
Quarterly
|
|
$
|
0.125
|
|
|
November 30, 2018
|
|
$
|
95.1
|
|
|
December 14, 2018
|
|
$
|
93.9
|
|
|
$
|
1.2
|
|
February 8, 2019
|
|
Quarterly
|
|
$
|
0.125
|
|
|
February 28, 2019
|
|
$
|
95.1
|
|
|
March 15, 2019
|
|
$
|
93.9
|
|
|
$
|
1.2
|
|
Fiscal 2019
|
|
|
|
$
|
0.375
|
|
|
|
|
$
|
284.8
|
|
|
|
|
$
|
281.6
|
|
|
$
|
3.2
|
|
|
|
(a)
|
The dividend payable is the value of the remaining dividends payable upon settlement of the RSUs and phantom units outstanding as of the Holders of Record Date.
|
In addition to the activity noted in the table above, the Company made a payment of
$1.2
for the previously accrued dividends on RSUs that vested during the
nine months ended March 31, 2019
. Total dividends paid during the
nine months ended March 31, 2019
was
$282.8
, which was recorded as a decrease to additional paid-in capital (“APIC”) in the Condensed Consolidated Balance Sheet as of
March 31, 2019
.
The Company recorded an additional decrease to APIC in the Condensed Consolidated Balance Sheet as of
March 31, 2019
of
$0.5
, consisting of
$3.2
dividends payable on dividends declared during the
nine months ended March 31, 2019
offset by
$1.2
dividends paid for previously accrued dividends on vested RSUs and
$1.5
of dividends no longer expected to vest as a result of forfeitures of outstanding RSUs. Total dividends recorded to APIC in the Condensed Consolidated Balance Sheet as of
March 31, 2019
is
$(283.3)
. Total accrued dividends on unvested RSUs and phantom units of
$2.0
and
$4.5
are included in
Accrued expenses and other current liabilities
and
Other noncurrent liabilities
, respectively, in the Condensed Consolidated Balance Sheet as of
March 31, 2019
.
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
|
|
Gain (loss) on Cash Flow Hedges
|
|
Gain on Net Investment Hedge
|
|
Other Foreign Currency Translation Adjustments
|
|
Pension and Other Post-Employment Benefit Plans
(a)
|
|
Total
|
Balance—July 1, 2018
|
$
|
31.7
|
|
|
$
|
115.0
|
|
|
$
|
(44.3
|
)
|
|
$
|
56.4
|
|
|
$
|
158.8
|
|
Other comprehensive (loss) income before reclassifications
|
(20.8
|
)
|
|
149.1
|
|
|
(276.7
|
)
|
|
—
|
|
|
(148.4
|
)
|
Net amounts reclassified from AOCI/(L)
|
(7.9
|
)
|
|
—
|
|
|
—
|
|
|
(4.0
|
)
|
|
(11.9
|
)
|
Net current-period other comprehensive (loss) income
|
(28.7
|
)
|
|
149.1
|
|
|
(276.7
|
)
|
|
(4.0
|
)
|
|
(160.3
|
)
|
Balance—March 31, 2019
|
$
|
3.0
|
|
|
$
|
264.1
|
|
|
$
|
(321.0
|
)
|
|
$
|
52.4
|
|
|
$
|
(1.5
|
)
|
(a)
For the
nine months ended March 31, 2019
, net amounts reclassified from AOCI/(L) related to pensions and other post-employment benefit plans included amortization of prior service credits and actuarial gains of
$4.6
, net of tax of
$0.6
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustments
|
|
|
|
|
|
Gain on Cash Flow Hedges
|
|
Loss on Net Investment Hedges
|
|
Other Foreign Currency Translation Adjustments
|
|
Pension and Other Post-Employment Benefit Plans
|
|
Total
|
Balance—July 1, 2017
|
$
|
12.6
|
|
|
$
|
(23.7
|
)
|
|
$
|
(20.8
|
)
|
|
$
|
36.3
|
|
|
$
|
4.4
|
|
Other comprehensive income (loss) before reclassifications
|
15.5
|
|
|
(56.7
|
)
|
|
574.9
|
|
|
(0.7
|
)
|
|
533.0
|
|
Net amounts reclassified from AOCI/(L)
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.3
|
)
|
Net current-period other comprehensive income (loss)
|
14.2
|
|
|
(56.7
|
)
|
|
574.9
|
|
|
(0.7
|
)
|
|
531.7
|
|
Balance—March 31, 2018
|
$
|
26.8
|
|
|
$
|
(80.4
|
)
|
|
$
|
554.1
|
|
|
$
|
35.6
|
|
|
$
|
536.1
|
|
15
. SHARE-BASED COMPENSATION PLANS
Share-based compensation expense is recognized on a straight-line basis over the requisite service period. Total share-based compensation is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Equity plan expense
|
$
|
(0.5
|
)
|
|
$
|
8.7
|
|
|
$
|
10.3
|
|
|
$
|
25.8
|
|
Liability plan (income) expense
|
—
|
|
|
1.2
|
|
|
(2.6
|
)
|
|
0.3
|
|
Fringe expense
|
—
|
|
|
1.1
|
|
|
0.5
|
|
|
2.9
|
|
Total share-based compensation expense
|
$
|
(0.5
|
)
|
|
$
|
11.0
|
|
|
$
|
8.2
|
|
|
$
|
29.0
|
|
The share-based compensation expense (income) for the
three and nine months ended March 31, 2019
of
$(0.5)
and
$8.2
, respectively, includes
$8.5
and
$26.0
expense for the respective periods offset by
$(9.0)
and
$(17.8)
income for the respective periods primarily due to significant executive forfeitures of share-based compensation instruments and the impact of actual forfeitures on the change in estimated forfeiture rates during the period.
As of
March 31, 2019
, the total unrecognized share-based compensation expense related to unvested stock options, Series A and A-1 Preferred Stock and restricted and other share awards is
$55.0
,
$8.3
and
$87.6
, respectively. The unrecognized
share-based compensation expense related to unvested stock options, Series A and A-1 Preferred stock and restricted and other share awards is expected to be recognized over a weighted-average period of
4.49
,
4.56
and
3.74
years, respectively.
Restricted Share Units and Other Share Awards
On October 1, 2018, the Company’s Board of Directors approved a modification of the vesting schedules for certain RSUs granted during fiscal 2017, 2018 and 2019 to improve the Company’s ability to retain the affected employees, from
five
year cliff vesting to graded vesting where
60%
of each award granted vests after
three
years,
20%
of each award granted vests after
four
years and
20%
of each award granted vests after
five
years.
Five hundred sixty
employees held outstanding awards subject to the October 1, 2018 modification. During the
three and nine months ended March 31, 2019
, the incremental stock based compensation expense resulting from the modification was offset by income from actual and expected forfeitures in the modified awards.
The Company granted approximately
0.7 million
and
6.8 million
RSUs and other share awards during the
three and nine months ended March 31, 2019
, respectively, with a weighted-average grant date fair value per share of
$11.31
, which vest, as granted, on the third through fifth anniversary of the grant date. The Fiscal 2019 Annual Equity Long Term Incentive Plan (“ELTIP”) RSUs, of which
5.0 million
RSUs were awarded on September 4, 2018, was modified as noted above. The RSUs granted are accompanied by dividend equivalent rights and, as such, were valued at the closing market price of the Company’s Class A Common Stock on the date of grant. The Company recognized share-based compensation expense of
$2.2
and
$6.2
for the
three months ended March 31, 2019 and 2018
, respectively, and
$9.9
and
$18.7
for the
nine months ended March 31, 2019 and 2018
, respectively.
Series A Preferred Stock and Series A-1 Preferred Stock
The Company granted
no
shares of Series A Preferred Stock and
6.9 million
shares of Series A-1 Preferred Stock during the
three and nine months ended March 31, 2019
. The Company recognized share-based compensation (income) expense of
$(0.4)
and
$1.4
for the
three months ended March 31, 2019 and 2018
, respectively, and
$(4.6)
and
$1.0
for the
nine months ended March 31, 2019 and 2018
, respectively.
Non-Qualified Stock Options
The Company granted
16.3 million
and
18.6 million
non-qualified stock options during the
three and nine months ended March 31, 2019
, respectively. Of the
16.3 million
stock options,
2.6 million
vest on the fifth anniversary of the grant date and
13.7 million
vest on a graded vesting schedule where
60%
of each award granted vests after
three
years,
20%
of each award granted vests after
four
years and
20%
of each award granted vests after
five
years. The Company recognized share-based compensation expense of
$(2.3)
and
$3.4
for the
three months ended March 31, 2019 and 2018
, respectively, and
$2.9
and
$9.3
for the
nine months ended March 31, 2019 and 2018
, respectively.
16
. NET (LOSS) INCOME ATTRIBUTABLE TO COTY INC. PER COMMON SHARE
Reconciliation between the numerators and denominators of the basic and diluted income per share (“EPS”) computations is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Nine Months Ended
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
(in millions, except per share data)
|
Net (loss) income attributable to Coty Inc.
|
$
|
(12.1
|
)
|
|
$
|
(77.0
|
)
|
|
$
|
(984.8
|
)
|
|
$
|
12.5
|
|
Weighted-average common shares outstanding—Basic
|
751.4
|
|
|
750.1
|
|
|
751.1
|
|
|
749.4
|
|
Effect of dilutive stock options and Series A Preferred Stock
(a)
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
Effect of restricted stock and RSUs
(b)
|
—
|
|
|
—
|
|
|
—
|
|
|
2.4
|
|
Weighted-average common shares outstanding—Diluted
|
751.4
|
|
|
750.1
|
|
|
751.1
|
|
|
753.1
|
|
Net (loss) income attributable to Coty Inc. per common share:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.02
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(1.31
|
)
|
|
$
|
0.02
|
|
Diluted
|
(0.02
|
)
|
|
(0.10
|
)
|
|
(1.31
|
)
|
|
0.02
|
|
|
|
(a)
|
For the
three and nine months ended March 31, 2019
and the
three months ended March 31, 2018
, outstanding stock options and Series A Preferred Stock with purchase or conversion rights to purchase shares of common stock were excluded in the computation of diluted loss per share due to the net loss incurred during the period. For the
nine months ended March 31, 2018
, outstanding stock options and Series A Preferred Stock with purchase or conversion rights to purchase
14.6 million
shares of common stock were excluded in the computation of diluted EPS as their inclusion would be anti-dilutive.
|
|
|
(b)
|
For the
three and nine months ended March 31, 2019
and the
three months ended March 31, 2018
, RSUs were excluded in the computation of diluted loss per share due to the net loss incurred during the period. For the
nine months ended March 31, 2018
,
2.7 million
of outstanding RSUs were excluded in the computation of diluted EPS as their inclusion would be anti-dilutive.
|
17
. MANDATORILY REDEEMABLE FINANCIAL INTERESTS AND REDEEMABLE NONCONTROLLING INTERESTS
Mandatorily Redeemable Financial Interest
United Arab Emirates subsidiary
The Company is required under a shareholders agreement (the “U.A.E. Shareholders Agreement”) to purchase all of the shares held by the noncontrolling interest holder equal to
25%
of a certain subsidiary in the United Arab Emirates (the “U.A.E. subsidiary”) at the termination of the agreement. The Company has determined such shares to be a mandatorily redeemable financial instrument (“MRFI”) that is recorded as a liability. The liability is calculated based upon a pre-determined formula in accordance with the U.A.E. Shareholders Agreement. As of
March 31, 2019
and
June 30, 2018
, the liability amounted to
$7.7
and
$8.2
, of which
$6.3
and
$6.7
, respectively, was recorded in Other noncurrent liabilities and
$1.4
and
$1.5
, respectively, was recorded in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet.
Southeast Asian subsidiary
On May 23, 2017, the Company entered into the Sale of Shares and Termination Deed (the “Termination Agreement”) to purchase the remaining
49%
noncontrolling interest from the noncontrolling interest holder of a certain Southeast Asian subsidiary for a purchase price of
$45.0
. Additionally, all remaining retained earnings will be paid out as dividends prior to the purchase. As a result of the Termination Agreement, the noncontrolling interest balance is recorded as an MRFI. The MRFI balance will be accreted to the redemption value until the effective date of the purchase with changes in the balance being reflected in Other expense, net in the Condensed Consolidated Statements of Operations.
As of
March 31, 2019
and
June 30, 2018
, the MRFI liability amounted to
$52.6
and
$45.1
, respectively, which was recorded in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheet.
Redeemable Noncontrolling Interests
Younique
As of June 30, 2018, the Younique membership holders had a
40.6%
membership interest in Foundation, which holds
100%
of the units of Younique. During the
nine months ended March 31, 2019
, additional shares of Foundation were issued to employees of Younique under a stock ownership program, incentive stock grants were granted and shares were forfeited under the program, resulting in a net impact of a
0.1%
increase to the noncontrolling interest ownership percentage. The cumulative impact of the additional shares for the
nine months ended March 31, 2019
was recorded as an increase to redeemable noncontrolling interests (“RNCI”) of
$1.7
and a decrease in APIC of
$1.7
.
The Company accounts for the
40.7%
noncontrolling interest portion of Foundation as RNCI due to the noncontrolling interest holder’s right to put their shares to the Company in certain circumstances. While Foundation is a majority-owned consolidated subsidiary, the Company records income tax expense based on the Company’s
59.3%
membership interest in Foundation due to its treatment as a partnership for U.S. income tax purposes. Accordingly, Foundation’s net income attributable to RNCI is equal to the
40.7%
noncontrolling interest of Foundation’s net income excluding a provision for income taxes. The Company recognized
$369.7
and
$597.7
as the RNCI balances as of
March 31, 2019
and
June 30, 2018
, respectively.
Subsidiary in the Middle East
As of
March 31, 2019
, the noncontrolling interest holder in the Company’s subsidiary in the Middle East (“Middle East Subsidiary”) had a
25%
ownership share. The Company adjusts the RNCI to redemption value at the end of each reporting period with changes recognized as adjustments to APIC. The Company recognized
$80.4
and
$63.6
as the RNCI balances as of
March 31, 2019
and
June 30, 2018
, respectively.
18
. COMMITMENTS AND CONTINGENCIES
Legal Matters
The Company is involved, from time to time, in various litigation, regulatory, administrative and other legal proceedings, including consumer class or collective actions, personal injury (including asbestos related claims), intellectual property, competition and advertising claims litigation, among others (collectively, “Legal Proceedings”). While the Company cannot predict any final outcomes relating thereto, management believes that the outcome of current Legal Proceedings will not have a material effect upon its business, prospects, financial condition, results of operations, cash flows or the trading price of the Company’s securities. However, management’s assessment of the Company’s current Legal Proceedings is ongoing, and could change in light of the discovery of additional facts with respect to Legal Proceedings not presently known to the Company, further legal analysis, or determinations by judges, arbitrators, juries or other finders of fact or deciders of law which are not in accord with management’s evaluation of the probable liability or outcome of such Legal Proceedings. From time to time, the Company is in discussions with regulators, including discussions initiated by the Company, about actual or potential violations of law in order to remediate or mitigate associated legal or compliance risks and liabilities or penalties. As the outcomes of such proceedings are unpredictable, the Company can give no assurance that the results of any such proceedings will not materially affect its reputation, business, prospects, financial condition, results of operations, cash flows or the trading price of its securities.
Certain Litigation
.
Two
purported stockholder class action lawsuits concerning the Offer and the Schedule 14D-9 have been filed by putative stockholders against the Company and the directors of the Company in the U.S. District Court for the District of Delaware. The first case, which was filed on April 3, 2019, is captioned Lawrence Phillips, on behalf of himself and all others similarly situated, vs. the Company, Peter Harf, Pierre Laubies, Sabine Chalmers, Joachim Faber, Olivier Goudet, Anna-Lena Kamenetzky, Erhard Schoewel, Robert Singer and Paul S. Michaels, Case No. 1:19-cv-00628. The second case, which was filed on April 9, 2019, is captioned Robert Rumsey, individually and on behalf of all others similarly situated, v. the Company, Peter Harf, Pierre Laubies, Sabine Chalmers, Joachim Faber, Olivier Goudet, Anna-Lena Kamenetzky, Erhard Schoewel, Robert Singer and Paul S. Michaels, Case No. 1:19-cv-00650. The plaintiffs allege that the Company’s Schedule 14D-9 omits certain information, including, among other things, certain financial data and certain analyses underlying the opinion of Centerview Partners LLC. Plaintiffs assert claims under the federal securities laws and seek, among other things, injunctive and/or monetary relief. The Company believes that plaintiffs’ allegations lack merit and intends to contest them vigorously.
A third purported stockholder class action lawsuit concerning the Offer and the Schedule 14D-9 was filed against the directors of the Company, JAB Holding Company, S.à.r.l., JAB Cosmetics B.V., and Cottage Holdco B.V. in the Court of Chancery of the State of Delaware. The Company is not named as a defendant. The case, which was filed on May 6, 2019, is captioned Massachusetts Laborers’ Pension Fund, on behalf of itself and all similarly situated holders of Coty Inc., v. Peter Harf, Pierre Laubies, Sabine Chalmers, Joachim Faber, Olivier Goudet, Anna-Lena Kamenetzky, Erhard Schoewel, Robert Singer, Paul S. Michaels, JAB Holding Company, S.à.r.l., JAB Cosmetics B.V., and Cottage Holdco B.V., Case No. 2019-0336-
CB. The plaintiff alleges that the directors and the JAB Defendants breached their fiduciary duties to the Company’s stockholders and seeks, among other things, monetary relief.
Other Matters
. In connection with the Offer, several putative stockholders served on the Company demands to inspect certain books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law. Each demand seeks to inspect documents as part of a purported investigation of possible breaches of fiduciary duty by the Board in connection with the Offer.
Brazilian Tax Assessments
In connection with a local tax audit of one of the Company’s subsidiaries in Brazil, the Company was notified of tax assessments issued in March 2018. The assessments relate to local sales tax credits, which the Treasury Office of the State of Goiás considers improperly registered for the 2016-2017 tax periods. The Company is currently seeking a favorable administrative decision on the tax enforcement action filed by the Treasury Office of the State of Goiás. These tax assessments, including estimated interest and penalties, through
March 31, 2019
amount to a total of
R$249.0 million
(approximately
$63.8
). The Company believes it has meritorious defenses and it has not recognized a loss for these assessments as the Company does not believe a loss is probable.
19
. SUBSEQUENT EVENTS
Quarterly Dividend
On
May 8, 2019
, the Company announced a quarterly cash dividend of
$0.125
per share on its Common Stock, RSUs and phantom units. The dividend will be payable on
June 28, 2019
to holders of record of Common Stock as of
June 6, 2019
.
Stock Dividend Reinvestment Program
On May 8, 2019, the Board approved a stock dividend reinvestment program giving shareholders the option to receive their full dividend in cash or to receive their dividend in
50%
cash /
50%
common stock. Shareholders will be able to make this election on a quarterly basis, beginning with the third quarter 2019 dividend payment.