Attached files
| file | filename |
|---|---|
| EX-31.1 - EXHIBIT 31.1 - COTY INC. | exhibit311certification-ce.htm |
| EX-32.2 - EXHIBIT 32.2 - COTY INC. | exhibit322certification-cf.htm |
| EX-31.2 - EXHIBIT 31.2 - COTY INC. | exhibit312certification-cf.htm |
| EX-21.1 - EXHIBIT 21.1 - COTY INC. | exhibit211subsidiarylistas.htm |
| EX-32.1 - EXHIBIT 32.1 - COTY INC. | exhibit321certification-ce.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016 | ||||
OR | ||||
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||
FOR THE TRANSITION PERIOD FROM TO | ||||
COMMISSION FILE NUMBER | ||||
COTY INC.
(Exact name of registrant as specified in its charter)
Delaware | 13-3823358 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
350 Fifth Avenue, New York, NY | 10118 | |
(Address of principal executive offices) | (Zip Code) | |
(212) 389-7300
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý | Accelerated filer ¨ | ||
Non-accelerated filer ¨ | Smaller reporting company ¨ | ||
(Do not check if a smaller reporting company) | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
At April 29, 2016, 77,024,731 shares of the registrant’s Class A Common Stock, $0.01 par value, and 262,062,370 shares of the registrant’s Class B Common Stock, $0.01 par value, were outstanding.
COTY INC.
INDEX TO FORM 10-Q
Page | ||
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net revenues | $ | 950.7 | $ | 933.8 | $ | 3,273.5 | $ | 3,375.7 | |||||||
Cost of sales | 369.0 | 351.8 | 1,280.4 | 1,342.9 | |||||||||||
Gross profit | 581.7 | 582.0 | 1,993.1 | 2,032.8 | |||||||||||
Selling, general and administrative expenses | 494.2 | 445.0 | 1,493.9 | 1,500.5 | |||||||||||
Amortization expense | 20.9 | 18.1 | 59.0 | 55.5 | |||||||||||
Restructuring costs | 6.6 | 3.9 | 79.3 | 56.4 | |||||||||||
Acquisition-related costs | 37.0 | 0.3 | 98.3 | 1.9 | |||||||||||
Asset impairment charges | — | — | 5.5 | — | |||||||||||
Operating income | 23.0 | 114.7 | 257.1 | 418.5 | |||||||||||
Interest expense, net | 25.1 | 17.6 | 55.7 | 56.3 | |||||||||||
Loss on early extinguishment of debt | — | — | 3.1 | 88.8 | |||||||||||
Other expense (income), net | 6.6 | (0.5 | ) | 30.4 | (0.2 | ) | |||||||||
(Loss) income before income taxes | (8.7 | ) | 97.6 | 167.9 | 273.6 | ||||||||||
Provision (benefit) for income taxes | 11.6 | 15.4 | (42.5 | ) | 39.8 | ||||||||||
Net (loss) income | (20.3 | ) | 82.2 | 210.4 | 233.8 | ||||||||||
Net income attributable to noncontrolling interests | 2.4 | 2.9 | 12.1 | 14.0 | |||||||||||
Net income attributable to redeemable noncontrolling interests | 4.1 | 3.8 | 10.4 | 8.3 | |||||||||||
Net (loss) income attributable to Coty Inc. | $ | (26.8 | ) | $ | 75.5 | $ | 187.9 | $ | 211.5 | ||||||
Net (loss) income attributable to Coty Inc. per common share: | |||||||||||||||
Basic | $ | (0.08 | ) | $ | 0.22 | $ | 0.54 | $ | 0.60 | ||||||
Diluted | (0.08 | ) | 0.21 | 0.53 | 0.59 | ||||||||||
Weighted-average common shares outstanding: | |||||||||||||||
Basic | 337.9 | 344.7 | 347.8 | 350.9 | |||||||||||
Diluted | 337.9 | 354.8 | 356.9 | 360.7 | |||||||||||
Cash dividend declared per common share | $ | — | $ | — | $ | 0.25 | $ | 0.20 | |||||||
See notes to Condensed Consolidated Financial Statements.
1
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net (loss) income | $ | (20.3 | ) | $ | 82.2 | $ | 210.4 | $ | 233.8 | ||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation adjustment | 57.4 | (126.8 | ) | 38.6 | (260.8 | ) | |||||||||
Net unrealized derivative (losses) gains on cash flow hedges, net of taxes of $1.0 and $(0.9), and $0.3 and $(3.3) during the three and nine months ended, respectively | (21.9 | ) | 3.9 | (14.6 | ) | 18.5 | |||||||||
Pension and other post-employment benefits (losses), net of tax of nil and nil, and nil and $0.1 during the three and nine months ended, respectively | — | — | 0.2 | (0.2 | ) | ||||||||||
Total other comprehensive income (loss), net of tax | 35.5 | (122.9 | ) | 24.2 | (242.5 | ) | |||||||||
Comprehensive income (loss) | 15.2 | (40.7 | ) | 234.6 | (8.7 | ) | |||||||||
Comprehensive income attributable to noncontrolling interests: | |||||||||||||||
Net income | 2.4 | 2.9 | 12.1 | 14.0 | |||||||||||
Foreign currency translation adjustment | 1.2 | (0.4 | ) | 0.9 | (1.0 | ) | |||||||||
Total comprehensive income attributable to noncontrolling interests | 3.6 | 2.5 | 13.0 | 13.0 | |||||||||||
Comprehensive income attributable to redeemable noncontrolling interests: | |||||||||||||||
Net income | 4.1 | 3.8 | 10.4 | 8.3 | |||||||||||
Foreign currency translation adjustment | 0.2 | — | 0.2 | (0.3 | ) | ||||||||||
Total comprehensive income attributable to redeemable noncontrolling interests | 4.3 | 3.8 | 10.6 | 8.0 | |||||||||||
Comprehensive income (loss) attributable to Coty Inc. | $ | 7.3 | $ | (47.0 | ) | $ | 211.0 | $ | (29.7 | ) | |||||
See notes to Condensed Consolidated Financial Statements.
2
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
March 31, 2016 | June 30, 2015 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 366.6 | $ | 341.3 | |||
Trade receivables—less allowances of $20.2 and $19.6, respectively | 661.5 | 679.6 | |||||
Inventories | 579.1 | 557.8 | |||||
Prepaid expenses and other current assets | 198.9 | 191.0 | |||||
Deferred income taxes | 93.0 | 86.7 | |||||
Total current assets | 1,899.1 | 1,856.4 | |||||
Property and equipment, net | 605.7 | 500.2 | |||||
Goodwill | 2,096.0 | 1,530.7 | |||||
Other intangible assets, net | 2,158.0 | 1,913.6 | |||||
Deferred income taxes | 13.6 | 10.4 | |||||
Other noncurrent assets | 252.5 | 207.6 | |||||
TOTAL ASSETS | $ | 7,024.9 | $ | 6,018.9 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 796.8 | $ | 748.4 | |||
Accrued expenses and other current liabilities | 771.8 | 719.2 | |||||
Short-term debt and current portion of long-term debt | 133.5 | 28.8 | |||||
Income and other taxes payable | 18.3 | 22.4 | |||||
Deferred income taxes | 9.8 | 7.4 | |||||
Total current liabilities | 1,730.2 | 1,526.2 | |||||
Long-term debt, net | 3,997.0 | 2,605.9 | |||||
Pension and other post-employment benefits | 207.2 | 206.5 | |||||
Deferred income taxes | 380.2 | 352.6 | |||||
Other noncurrent liabilities | 176.3 | 256.7 | |||||
Total liabilities | 6,490.9 | 4,947.9 | |||||
COMMITMENTS AND CONTINGENCIES (Note 17) | |||||||
REDEEMABLE NONCONTROLLING INTERESTS | 79.0 | 86.3 | |||||
EQUITY: | |||||||
Preferred Stock, $0.01 par value; 20.0 shares authorized, 1.9 issued and 1.7 and 1.9 outstanding, respectively, at March 31, 2016 and June 30, 2015 | — | — | |||||
Class A Common Stock, $0.01 par value; 800.0 shares authorized, 137.9 and 134.0 issued, respectively, and 76.8 and 98.8 outstanding, respectively, at March 31, 2016 and June 30, 2015 | 1.4 | 1.3 | |||||
Class B Common Stock, $0.01 par value; 262.0 shares authorized, issued and outstanding, respectively, at March 31, 2016 and June 30, 2015 | 2.6 | 2.6 | |||||
Additional paid-in capital | 2,034.8 | 2,044.4 | |||||
Accumulated deficit | (6.0 | ) | (193.9 | ) | |||
Accumulated other comprehensive loss | (250.9 | ) | (274.0 | ) | |||
Treasury stock—at cost, shares: 61.1 and 35.2 at March 31, 2016 and June 30, 2015, respectively | (1,338.5 | ) | (610.6 | ) | |||
Total Coty Inc. stockholders’ equity | 443.4 | 969.8 | |||||
Noncontrolling interests | 11.6 | 14.9 | |||||
Total equity | 455.0 | 984.7 | |||||
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | $ | 7,024.9 | $ | 6,018.9 | |||
See notes to Condensed Consolidated Financial Statements.
3
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTERESTS
For the Nine Months Ended March 31, 2016
(In millions, except per share data)
(Unaudited)
Preferred Stock | Class A Common Stock | Class B Common Stock | Additional Paid-in | (Accumulated | Accumulated Other Comprehensive | Treasury Stock | Total Coty Inc. Stockholders’ | Noncontrolling | Total | Redeemable Noncontrolling | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit) | Loss | Shares | Amount | Equity | Interests | Equity | Interests | |||||||||||||||||||||||||||||||||||||||||
BALANCE—July 1, 2015 | 1.9 | $ | — | 134.0 | $ | 1.3 | 262.0 | $ | 2.6 | $ | 2,044.4 | $ | (193.9 | ) | $ | (274.0 | ) | 35.2 | $ | (610.6 | ) | $ | 969.8 | $ | 14.9 | $ | 984.7 | $ | 86.3 | ||||||||||||||||||||||||||
Cancellation of Preferred Stock | (0.2 | ) | — | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Purchase of Class A Common Stock | 25.9 | (727.9 | ) | (727.9 | ) | (727.9 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of Class A Common Stock from liability to APIC | 13.8 | 13.8 | 13.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of employee stock options and restricted stock units and related tax benefits | 3.9 | 0.1 | 36.7 | 36.8 | 36.8 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Series A Preferred Share based compensation expense | 1.1 | 1.1 | 1.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | 17.3 | 17.3 | 17.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends ($0.25 per common share) | (89.7 | ) | (89.7 | ) | (89.7 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 187.9 | 187.9 | 12.1 | 200.0 | 10.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | 23.1 | 23.1 | 0.9 | 24.0 | 0.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Distribution to noncontrolling interests, net | (16.3 | ) | (16.3 | ) | (6.6 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | 11.3 | 11.3 | 11.3 | (11.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE—March 31, 2016 | 1.7 | $ | — | 137.9 | $ | 1.4 | 262.0 | $ | 2.6 | $ | 2,034.8 | $ | (6.0 | ) | $ | (250.9 | ) | 61.1 | $ | (1,338.5 | ) | $ | 443.4 | $ | 11.6 | $ | 455.0 | $ | 79.0 | ||||||||||||||||||||||||||
See notes to Condensed Consolidated Financial Statements.
4
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTERESTS
For the Nine Months Ended March 31, 2015
(In millions, except per share data)
(Unaudited)
Class A Common Stock | Class B Common Stock | Additional Paid-in | (Accumulated | Accumulated Other Comprehensive | Treasury Stock | Total Coty Inc. Stockholders’ | Noncontrolling | Total | Redeemable Noncontrolling | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit) | Loss | Shares | Amount | Equity | Interests | Equity | Interests | ||||||||||||||||||||||||||||||||||||
BALANCE—July 1, 2014 | 125.1 | $ | 1.2 | 263.7 | $ | 2.6 | $ | 1,926.9 | $ | (426.4 | ) | $ | (85.1 | ) | 34.9 | $ | (575.4 | ) | $ | 843.8 | $ | 10.6 | $ | 854.4 | $ | 106.2 | ||||||||||||||||||||||
Conversion of Class B to Class A Common Stock | 1.4 | — | (1.4 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Purchase of Class A Common Stock | 13.4 | (263.1 | ) | (263.1 | ) | (263.1 | ) | |||||||||||||||||||||||||||||||||||||||||
Reclassification of Common Stock and stock options to liability | (29.5 | ) | (29.5 | ) | (29.5 | ) | ||||||||||||||||||||||||||||||||||||||||||
Reclassification of Class A Common Stock from liability to APIC | 29.5 | 29.5 | 29.5 | |||||||||||||||||||||||||||||||||||||||||||||
Exercise of former CEO stock options | 1.4 | — | 12.5 | 12.5 | 12.5 | |||||||||||||||||||||||||||||||||||||||||||
Purchase of Class A Common Stock from former CEO | 2.4 | (42.0 | ) | (42.0 | ) | (42.0 | ) | |||||||||||||||||||||||||||||||||||||||||
Exercise of employee stock options and restricted share units | 5.2 | 0.1 | 44.4 | 44.5 | 44.5 | |||||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | 5.9 | 5.9 | 5.9 | |||||||||||||||||||||||||||||||||||||||||||||
Dividends ($0.20 per common share) | (71.6 | ) | (71.6 | ) | (71.6 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net income | 211.5 | 211.5 | 14.0 | 225.5 | 8.3 | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | (241.5 | ) | (241.5 | ) | (1.0 | ) | (242.5 | ) | (0.3 | ) | ||||||||||||||||||||||||||||||||||||||
Distribution to noncontrolling interests, net | 1.8 | 1.8 | (5.0 | ) | ||||||||||||||||||||||||||||||||||||||||||||
Dividend payable to redeemable noncontrolling interest holder | (4.3 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Redeemable noncontrolling interest purchase adjustment | (16.2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | 3.0 | 3.0 | 3.0 | (3.0 | ) | |||||||||||||||||||||||||||||||||||||||||||
BALANCE—March 31, 2015 | 133.1 | $ | 1.3 | 262.3 | $ | 2.6 | $ | 1,921.1 | $ | (214.9 | ) | $ | (326.6 | ) | 50.7 | $ | (880.5 | ) | $ | 503.0 | $ | 25.4 | $ | 528.4 | $ | 85.7 | ||||||||||||||||||||||
5
COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months Ended March 31, | |||||||
2016 | 2015 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 210.4 | $ | 233.8 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 171.0 | 172.6 | |||||
Asset impairment charges | 5.5 | — | |||||
Deferred income taxes | (102.6 | ) | (7.4 | ) | |||
Provision for bad debts | 1.9 | 1.6 | |||||
Provision for pension and other post-employment benefits | 9.3 | 15.7 | |||||
Share-based compensation | 18.4 | 5.9 | |||||
Gain on sale of asset | — | (7.2 | ) | ||||
Loss on early extinguishment of debt | 3.1 | 88.8 | |||||
Foreign exchange effects | (4.9 | ) | 28.3 | ||||
Other | 18.0 | 5.0 | |||||
Change in operating assets and liabilities, net of effects from purchase of acquired companies: | |||||||
Trade receivables | (0.9 | ) | (34.0 | ) | |||
Inventories | 25.0 | 36.7 | |||||
Prepaid expenses and other current assets | 10.9 | 20.1 | |||||
Accounts payable | 50.4 | (82.1 | ) | ||||
Accrued expenses and other current liabilities | 39.9 | (32.0 | ) | ||||
Tax accruals | (31.0 | ) | (42.7 | ) | |||
Other noncurrent assets | 8.8 | 5.3 | |||||
Other noncurrent liabilities | 12.1 | (20.2 | ) | ||||
Net cash provided by operating activities | 445.3 | 388.2 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures | (115.3 | ) | (135.0 | ) | |||
Payment for business combinations, net of cash acquired | (897.3 | ) | (0.6 | ) | |||
Additions of goodwill | — | (30.0 | ) | ||||
Proceeds from sale of asset | 0.2 | 14.4 | |||||
Payments related to loss on foreign currency contracts | (29.6 | ) | — | ||||
Net cash used in investing activities | (1,042.0 | ) | (151.2 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from short-term debt, original maturity more than three months | 17.0 | 637.5 | |||||
Repayments of short-term debt, original maturity more than three months | (22.2 | ) | (631.4 | ) | |||
Net proceeds from short-term debt, original maturity less than three months | 6.1 | 14.0 | |||||
Proceeds from revolving loan facilities | 1,590.0 | 768.5 | |||||
Repayments of revolving loan facilities | (620.0 | ) | (590.5 | ) | |||
Proceeds from term loans | 2,979.6 | 800.0 | |||||
Repayments of term loans | (2,474.7 | ) | (200.0 | ) | |||
Proceeds from issuance of long-term debt | — | 0.9 | |||||
Repayment of Senior Notes | — | (584.6 | ) | ||||
Dividend payment | (89.0 | ) | (71.0 | ) | |||
Net proceeds from issuance of Class A Common Stock and related tax benefits | 36.8 | 44.5 | |||||
Net proceeds from issuance of Class A Common Stock to former CEO | — | 12.5 | |||||
Purchase of Class A Common Stock from former CEO | — | (42.0 | ) | ||||
Payments for purchases of Class A Common Stock held as Treasury Stock | (727.9 | ) | (263.1 | ) | |||
Net proceeds (payments) from foreign currency contracts | 8.9 | (27.5 | ) | ||||
Payment for business combinations – contingent consideration | — | (0.8 | ) | ||||
Payments for mandatorily redeemable noncontrolling interests | (1.7 | ) | — | ||||
Proceeds from noncontrolling interests | — | 1.8 | |||||
Distributions to noncontrolling interests | (15.4 | ) | — | ||||
Purchase of additional noncontrolling interests | — | (14.9 | ) | ||||
6
Distributions to redeemable noncontrolling interests | (8.1 | ) | (5.0 | ) | |||
Payment of deferred financing fees | (56.3 | ) | (11.2 | ) | |||
Other | (1.4 | ) | — | ||||
Net cash provided by (used in) financing activities | 621.7 | (162.3 | ) | ||||
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS | 0.3 | (168.6 | ) | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 25.3 | (93.9 | ) | ||||
CASH AND CASH EQUIVALENTS—Beginning of period | 341.3 | 1,238.0 | |||||
CASH AND CASH EQUIVALENTS—End of period | $ | 366.6 | $ | 1,144.1 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | |||||||
Cash paid during the period for interest | $ | 57.8 | $ | 49.8 | |||
Cash paid during the period for income taxes, net of refunds received | 89.0 | 83.2 | |||||
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES: | |||||||
Accrued capital expenditure additions | $ | 39.5 | $ | 27.3 | |||
Non-cash capital contribution associated with special share purchase transaction | 13.8 | — | |||||
See notes to Condensed Consolidated Financial Statements.
7
COTY INC. & SUBSIDIARIES
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”) engage in the manufacturing, marketing and distribution of fragrances, color cosmetics and skin & body care related products in numerous countries throughout the world.
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 2016” refer to the fiscal year ending June 30, 2016.
The Company’s revenues generally increase during the second fiscal quarter as a result of increased demand associated with the holiday season. Accordingly, the Company’s financial performance, working capital requirements, cash flow and borrowings experience seasonal variability during the three to six months preceding this 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 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, 2015. 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, 2016 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 2016.
Related Parties
As of March 31, 2016, the Company is a majority-owned subsidiary of JAB Cosmetics B.V. (“JABC”). Both JABC and the shares of the Company are indirectly controlled by Lucresca SE, Agnaten SE and JAB Holdings B.V. (“JAB”). The Company does not generally enter into material transactions with related parties other than certain share transactions with JABC and certain executives as described in Note 14.
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, the fair value of share-based compensation, pension and other post-employment benefit costs, the fair value of the Company’s reporting units, and the assessment of goodwill, other intangible assets and long-lived assets for impairment, income taxes, derivatives and redeemable noncontrolling interests when calculating the impact on Earnings Per Share (“EPS”). 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, 2016 and 2015 was (133.3)% and 15.8%, and for the nine months ended March 31, 2016 and 2015 was (25.3)% and 14.5%, respectively. The effective tax rate for the nine months ended March 31, 2016 includes the net impact of the settlement with the Internal Revenue Service (“IRS”) as described below. The effective income tax rate for the nine months ended March 31, 2015 includes the positive impacts of the decrease in the accrual for unrecognized tax benefits, partially offset by the negative impact of a partial valuation allowance established for excess U.S. net deferred tax assets.
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During the first quarter of fiscal 2016, the Company reached final settlement with the IRS in connection with the 2004–2012 examination periods. The settlement primarily relates to the acquisition of the Calvin Klein fragrance business. In connection with the settlement, the Company recognized a tax benefit of approximately $193.9 of which $164.2 was mainly due to the recognition of additional deferred tax assets related to the basis of the Calvin Klein trademark, and approximately $29.7 resulted from the reduction of gross unrecognized tax benefits. Of the $193.9 tax benefit, $113.0 was offset by a valuation allowance due to on-going operating losses in the U.S.
The effective income tax rates vary from the U.S. federal statutory rate of 35% 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.
As of March 31, 2016 and June 30, 2015, the gross amount of UTBs was $194.2 and $342.6, respectively. As of March 31, 2016, the total amount of UTBs that, if recognized, would impact the effective income tax rate is $72.2. As of March 31, 2016 and June 30, 2015, the liability associated with UTBs, including accrued interest and penalties, was $83.9 and $182.9, 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 for the three months ended March 31, 2016 and 2015 was $0.7 and $0.7, and for the nine months ended March 31, 2016 and 2015 was $2.7 and $(2.5), respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of March 31, 2016 and June 30, 2015 was $8.5 and $15.2, respectively. On the basis of the information available as of March 31, 2016, it is reasonably possible that a decrease of up to $4.2 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.
Recently Adopted Accounting Pronouncements
In September 2015, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance related to adjustments within the measurement period for business combinations. The amendment requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendment requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendment also requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company early adopted this amendment during the third quarter of fiscal 2016. There was no impact on the Company’s Condensed Consolidated Financial Statements for three and nine months ended March 31, 2016.
Recently Issued Accounting Pronouncements
In March 2016, the FASB issued authoritative guidance amending several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments will be effective for the Company in fiscal 2018. Early adoption is permitted if the Company adopts all of the amendments within this guidance in the period of adoption. The methods of adopting the guidance vary by amendment. The Company is currently evaluating the impact the amendments will have on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued authoritative guidance clarifying the accounting for a change in a counterparty for derivative instruments designated as hedging instruments. The amendment will be effective for the Company in fiscal 2018 using either a prospective or modified retrospective basis with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued authoritative guidance requiring 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. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This standard will be effective for the Company in fiscal 2020 with early adoption permitted. The Company is currently evaluating the impact the standard will have on the Company’s Consolidated Financial Statements.
In January 2016, the FASB issued authoritative guidance relating to the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The new guidance primarily affects the accounting for equity investments, financial
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liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The accounting for other financial instruments, such as loans, investments in debt securities and financial liabilities is largely unchanged. The amendment will be effective for the Company in fiscal 2019. The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements.
In November 2015, the FASB issued authoritative guidance relating to the classification of deferred taxes. The recently issued guidance will require all deferred income tax liabilities and assets to be classified as non-current. The amendment will be effective for the Company in fiscal 2018 either on a prospective or retrospective accounting basis. The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements.
In April 2015, the FASB issued authoritative guidance on the treatment of debt issuance costs. The guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This amendment will be effective for the Company in fiscal 2017 using a retrospective approach. Additionally, in August 2015, the FASB issued authoritative guidance related to the presentation and subsequent measurement of debt issuance costs related to line-of-credit arrangements. The Company does not expect the adoption of this guidance to have a material impact on the Company’s Consolidated Financial Statements.
In June 2014, the FASB issued authoritative guidance that implements a common revenue model that will enhance comparability across industries and require enhanced disclosures. The new standard introduces a five step principles based process to determine the timing and amount of revenue ultimately expected to be received. This amendment will be effective for the Company in fiscal 2019 with either retrospective or modified retrospective treatment applied. Early adoption is permitted for the Company beginning in fiscal 2018. In March 2016, the FASB issued authoritative guidance amending certain portions of this standard to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued authoritative guidance amending certain portions of this standard to clarify the considerations for identifying performance obligations and to clarify the implementation guidance for revenue recognized from licensing arrangements. The Company is currently evaluating the impact this standard will have on the Company’s Consolidated Financial Statements.
3. SEGMENT REPORTING
Operating segments include components of the enterprise for which separate financial information is available and evaluated regularly by the 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.
During the third quarter of fiscal 2016, the Company acquired 100% of the net assets of a beauty business (the “Brazilian Beauty Business”) from Hypermarcas S.A., a consumer goods company based in Brazil (See Note 4). The Company has concluded that the Brazilian Beauty Business represents a separate operating and reportable segment (the “Brazil Acquisition” segment). The Company anticipates that its operating and reporting segments could change upon completion of the anticipated transaction with The Procter & Gamble Company’s (“P&G”) fine fragrance, color cosmetics, and hair color businesses (the “P&G Beauty Brands”).
The Company’s operating and reportable segments are Fragrances, Color Cosmetics, Skin & Body Care and Brazil Acquisition (also referred to as “segments”). The reportable segments represent the Company’s product groupings other than the Brazil Acquisition segment. The Brazil Acquisition reportable segment represents revenues and expenses generated from multiple product groupings such as skin care, nail care, deodorants, and hair care products which are principally sold within Brazil. 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 a component of share-based compensation expense, restructuring costs, costs related to acquisition activities and certain other expense items not attributable to ongoing operating activities of the segments.
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Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
SEGMENT DATA | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net revenues: | |||||||||||||||
Fragrances | $ | 415.4 | $ | 431.3 | $ | 1,590.5 | $ | 1,763.9 | |||||||
Color Cosmetics | 374.3 | 336.6 | 1,140.0 | 1,021.2 | |||||||||||
Skin & Body Care | 146.7 | 165.9 | 528.7 | 590.6 | |||||||||||
Brazil Acquisition | 14.3 | — | 14.3 | — | |||||||||||
Total | $ | 950.7 | $ | 933.8 | $ | 3,273.5 | $ | 3,375.7 | |||||||
Operating income (loss) | |||||||||||||||
Fragrances | $ | 31.4 | $ | 59.0 | $ | 269.0 | $ | 325.0 | |||||||
Color Cosmetics | 47.8 | 39.3 | 163.9 | 121.8 | |||||||||||
Skin & Body Care | 9.1 | 21.8 | 43.4 | 40.6 | |||||||||||
Brazil Acquisition | (6.6 | ) | — | (6.6 | ) | — | |||||||||
Corporate | (58.7 | ) | (5.4 | ) | (212.6 | ) | (68.9 | ) | |||||||
Total | $ | 23.0 | $ | 114.7 | $ | 257.1 | $ | 418.5 | |||||||
Reconciliation: | |||||||||||||||
Operating income | $ | 23.0 | $ | 114.7 | $ | 257.1 | $ | 418.5 | |||||||
Interest expense, net | 25.1 | 17.6 | 55.7 | 56.3 | |||||||||||
Loss on early extinguishment of debt | — | — | 3.1 | 88.8 | |||||||||||
Other expense (income), net | 6.6 | (0.5 | ) | 30.4 | (0.2 | ) | |||||||||
(Loss) income before income taxes | $ | (8.7 | ) | $ | 97.6 | $ | 167.9 | $ | 273.6 | ||||||
Within the Company’s reportable segments, product categories exceeding 5% of consolidated net revenues are presented below:
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||
PRODUCT CATEGORY | 2016 | 2015 | 2016 | 2015 | |||||||
Fragrances: | |||||||||||
Designer | 34.1 | % | 34.9 | % | 37.4 | % | 38.6 | % | |||
Lifestyle | 6.3 | 6.4 | 6.6 | 7.6 | |||||||
Celebrity | 3.3 | 4.9 | 4.6 | 6.0 | |||||||
Total | 43.7 | % | 46.2 | % | 48.6 | % | 52.2 | % | |||
Color Cosmetics: | |||||||||||
Nail Care | 15.9 | % | 16.8 | % | 14.3 | % | 13.8 | % | |||
Other Color Cosmetics | 23.5 | 19.2 | 20.5 | 16.5 | |||||||
Total | 39.4 | % | 36.0 | % | 34.8 | % | 30.3 | % | |||
Skin & Body Care: | |||||||||||
Body Care | 8.0 | % | 8.9 | % | 10.2 | % | 11.2 | % | |||
Skin Care | 7.4 | 8.9 | 6.0 | 6.3 | |||||||
Total | 15.4 | % | 17.8 | % | 16.2 | % | 17.5 | % | |||
Brazil Acquisition: | |||||||||||
Total | 1.5 | % | — | % | 0.4 | % | — | % | |||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
4. BUSINESS COMBINATIONS
Brazilian Beauty Business Acquisition
On February 1, 2016, the Company completed the acquisition of 100% of the net assets of the Brazilian Beauty Business pursuant to the Shares and Trademarks Sale and Purchase Agreement (the “Share Purchase Agreement”) in order to further
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strengthen its position in the Brazilian beauty and personal care market. The total consideration was $899.0 which included cash consideration paid of R$3,539.0 million, the equivalent of $886.7, and an estimated additional payment of R$48.9 million, the equivalent of $12.3, for working capital adjustments expected to be paid in the fourth quarter of fiscal 2016. Management does not expect material changes to the estimated additional payment.
The Company estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. The valuation of the assets and liabilities is subject to further analysis. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period in fiscal 2017. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.
The following table summarizes the allocation of the preliminary purchase price to the net assets acquired in the Brazilian Beauty Business acquisition as of the February 1, 2016 acquisition date:
Estimated fair value | Estimated useful life (in years) | ||||
Cash and cash equivalents | $ | 7.3 | |||
Inventories | 50.2 | ||||
Property, plant and equipment | 96.7 | ||||
Goodwill | 496.8 | Indefinite | |||
Trademarks - indefinite | 157.1 | Indefinite | |||
Trademarks - finite | 10.0 | 5 - 15 | |||
Customer relationships | 108.2 | 15 - 21 | |||
Product formulations | 11.8 | 3 | |||
Other net working capital | 4.7 | ||||
Net other assets | 2.3 | ||||
Deferred tax liability, net | (46.1 | ) | |||
Total purchase price | $ | 899.0 | |||
Goodwill is not deductible for tax purposes and is attributable to expected synergies resulting from market expansion for the Company’s existing and future products and avoidance of start-up capital expenditures for manufacturing facilities in Brazil. Goodwill of $243.3, $107.2, $84.9 and $61.4 is allocated to the Brazil Acquisition, Fragrances, Color Cosmetics, and Skin & Body Care segments, respectively. The allocation of goodwill to Fragrances, Color Cosmetics, and Skin & Body Care was based on the relative fair values of synergies of selling the Company’s existing brands through the acquired entity as well as the reduction in corporate and regional overhead allocated to these segments due to the addition of the Brazil Acquisition segment.
For both the three and nine months ended March 31, 2016, Net revenues and Net loss of the Brazilian Beauty Business included in the Company’s Condensed Consolidated Statements of Operations from the date of acquisition were $14.3 and $(4.4), respectively.
The Company recognized acquisition-related costs associated with the Brazilian Beauty Business acquisition of $1.7 and $2.3 for the three and nine months ended March 31, 2016, respectively, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
Unaudited Pro Forma Information
The unaudited pro forma financial information in the table below summarizes the combined results of the Company and the Brazilian Beauty Business, as though the companies had been combined on July 1, 2014, and gives pro forma effect to events that are: (1) directly attributable to the transaction, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. The pro forma adjustments include incremental amortization of intangible assets and increased depreciation of property, plant and equipment, based on preliminary values of each asset as well as costs related to financing the acquisition. The unaudited pro forma information also includes non-recurring acquisition-related costs and the amortization of the inventory step-up. Pro forma adjustments were tax-effected at the Company’s statutory rates. The pro forma information is presented for informational purposes only and may not be indicative of the results of operations that would have been achieved if the acquisition had taken place on July 1, 2014 or that may occur in the future, and does not reflect future synergies, integration costs, or other such costs or savings. The pro forma information for three and nine months ended March 31, 2016 and 2015 is as follows:
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Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Pro forma Net revenues | $ | 978.4 | $ | 1,008.2 | $ | 3,456.1 | $ | 3,654.8 | |||||||
Pro forma Net (loss) income | (13.8 | ) | 88.6 | 232.4 | 249.7 | ||||||||||
Pro forma Net (loss) income attributable to Coty Inc. | (20.2 | ) | 81.9 | 209.9 | 227.4 | ||||||||||
Pro forma Net (loss) income attributable to Coty Inc. per common share | |||||||||||||||
Basic | $ | (0.06 | ) | $ | 0.24 | $ | 0.60 | $ | 0.65 | ||||||
Diluted | $ | (0.06 | ) | $ | 0.23 | $ | 0.59 | $ | 0.63 | ||||||
Bourjois Acquisition
On April 1, 2015, the Company completed its purchase of 100% of the net assets of Bourjois from Chanel International B.V. (“CHANEL”) pursuant to the Stock Purchase Agreement, dated as of March 12, 2015, between the Company and CHANEL (the “Stock Purchase Agreement”) for a total purchase price of $376.8.
The Company has finalized the valuation of assets acquired and liabilities assumed for the Bourjois acquisition. For the three and nine months ended March 31, 2016, the Company did not recognize any measurement period adjustments and the measurement period for the Bourjois acquisition is now closed.
Goodwill is deductible for tax purposes and is attributable to expected synergies. Goodwill of $148.7, $11.1, and $35.0 was allocated to the Color Cosmetics, Skin & Body Care, and Fragrances segments, respectively.
The Company recognized acquisition-related costs associated with the Bourjois acquisition of $0.1 and $0.3 for the three months ended March 31, 2016 and 2015, respectively, and $1.2 and $1.9 for the nine months ended March 31, 2016 and 2015, respectively, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
5. ACQUISITION-RELATED COSTS
Acquisition-related costs represent costs directly related to acquiring and integrating an entity, for both completed and contemplated acquisitions and can include finder’s fees, legal, accounting, valuation, other professional or consulting fees, and other internal costs which can include compensation related expenses for dedicated internal resources. The Company recognized acquisition-related costs of $37.0 and $0.3 for the three months ended March 31, 2016 and 2015 and $98.3 and $1.9 for the nine months ended March 31, 2016 and 2015, respectively, which have been recorded in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
6. RESTRUCTURING COSTS
Restructuring costs for the three and nine months ended March 31, 2016 and 2015 are presented below:
Three Months Ended March 31, | Nine Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Acquisition Integration Program | $ | 1.4 | $ | — | $ | 47.0 | $ | — | |||||||
Organizational Redesign | 4.6 | 2.9 | 28.0 | 55.5 | |||||||||||
Productivity Program | 0.6 | 1.5 | 4.2 | 1.5 | |||||||||||
Other | — | (0.5 | ) | 0.1 | (0.6 | ) | |||||||||
Total | $ | 6.6 | $ | 3.9 | $ | 79.3 | $ | 56.4 | |||||||
Acquisition Integration Program
In the first quarter of fiscal 2016, the Company’s Board of Directors (the “Board”) approved an expansion to the Acquisition Integration Program in connection with the acquisition of the Bourjois brand. Actions and cash payments associated with the program were initiated after the acquisition of Bourjois and are expected to be substantially completed by the end of fiscal 2017. The Company anticipates the Acquisition Integration Program will result in pre-tax restructuring and related costs of approximately $67.0, all of which will result in cash payments. The Company incurred $62.3 of restructuring costs life-to-date as of March 31, 2016, which have been recorded in Corporate.
The related liability balance and activity for the Acquisition Integration Program costs are presented below:
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Severance and Employee Benefits | Third-Party Contract Terminations | Other Exit Costs | Total Program Costs | ||||||||||||
Balance—July 1, 2015 | $ | 0.7 | $ | 14.6 | $ | — | $ | 15.3 | |||||||
Restructuring charges | 46.4 | 0.9 | 0.5 | 47.8 | |||||||||||
Payments | (6.7 | ) | (4.9 | ) | (0.3 | ) | (11.9 | ) | |||||||
Changes in estimates | (0.8 | ) | — | — | (0.8 | ) | |||||||||
Effect of exchange rates | 0.2 | (0.3 | ) | 0.1 | — | ||||||||||
Balance—March 31, 2016 | $ | 39.8 | $ | 10.3 | $ | 0.3 | $ | 50.4 | |||||||
The Company currently estimates that the total remaining accrual of $50.4 will result in cash expenditures of approximately $2.7, $35.7 and $12.0 in fiscal 2016, 2017 and 2018 respectively.
Organizational Redesign
During the fourth quarter of fiscal 2014, the Board approved a program associated with a new organizational structure (“Organizational Redesign”) that aims to reinforce the Company’s growth path and strengthen its position as a global leader in beauty. The Company anticipates that the Organizational Redesign will result in pre-tax restructuring and related costs of $145.0 to $180.0, all of which will result in cash payments. The Company anticipates substantial completion of all project activities by the end of fiscal 2017, with the remaining costs primarily charged to Corporate. The Company incurred $99.6 of restructuring costs life-to-date as of March 31, 2016, which have been recorded in Corporate. The Company incurred $15.6 of other business structure realignment costs life-to-date as of March 31, 2016, which have been reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations in Corporate.
The related liability balance and activity for the Organizational Redesign costs are presented below:
Severance and Employee Benefits | Third-Party Contract Terminations | Other Exit Costs | Total Program Costs | ||||||||||||
Balance—July 1, 2015 | $ | 32.0 | $ | — | $ | 0.1 | $ | 32.1 | |||||||
Restructuring charges | 29.5 | 0.8 | 1.1 | 31.4 | |||||||||||
Payments | (20.8 | ) | — | (0.5 | ) | (21.3 | ) | ||||||||
Changes in estimates | (3.4 | ) | — | — | (3.4 | ) | |||||||||
Effect of exchange rates | 0.6 | — | (0.3 | ) | 0.3 | ||||||||||
Balance—March 31, 2016 | $ | 37.9 | $ | 0.8 | $ | 0.4 | $ | 39.1 | |||||||
The Company currently estimates that the total remaining accrual of $39.1 will result in cash expenditures of $14.7, $22.0, $1.7 and $0.7 in fiscal 2016, 2017, 2018 and 2019 respectively.
Productivity Program
During the fourth quarter of fiscal 2013, the Board approved a number of business integration and productivity initiatives aimed at enhancing long-term operating margins (the “Productivity Program”). Such activities primarily relate to integration of supply chain and selling activities within the Skin & Body Care segment, as well as certain commercial organization redesign activities, primarily in Europe and optimization of selected administrative support functions. The Company anticipates that the Productivity Program will result in pre-tax restructuring and related costs of approximately $70.0. The Company anticipates completing the implementation of all project activities by the end of fiscal 2016. The Company incurred $45.8 of restructuring costs life-to-date as of March 31, 2016, which have been recorded in Corporate. The Company incurred $16.2 of other business structure realignment costs life-to-date as of March 31, 2016, which have been reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations in Corporate.
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The related liability balance and activity for the Productivity Program costs which represents severance and employee benefits are presented below:
Severance and Employee Benefits | Total Program Costs | ||||||
Balance—July 1, 2015 | $ | 7.0 | $ | 7.0 | |||
Restructuring charges | 4.6 | 4.6 | |||||
Payments | (5.3 | ) | (5.3 | ) | |||
Changes in estimates | (0.4 | ) | (0.4 | ) | |||
Effect of exchange rates | (0.2 | ) | (0.2 | ) | |||
Balance—March 31, 2016 | $ | 5.7 | $ | 5.7 | |||
The Company currently estimates that the total remaining accrual of $5.7 will result in cash expenditures of approximately $3.5 and $2.2 in fiscal 2016 and 2017, respectively.
7. INVENTORIES
Inventories as of March 31, 2016 and June 30, 2015 are presented below:
March 31, 2016 | June 30, 2015 | ||||||
Raw materials | $ | 151.1 | $ | 160.9 | |||
Work-in-process | 2.6 | 8.4 | |||||
Finished goods | 425.4 | 388.5 | |||||
Total inventories | $ | 579.1 | $ | 557.8 | |||
8. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of March 31, 2016 and June 30, 2015 is presented below:
Fragrances | Color Cosmetics | Skin & Body Care | Brazil Acquisition | Total | |||||||||||||||
Gross balance at June 30, 2015 | $ | 720.8 | $ | 677.3 | $ | 773.4 | $ | — | $ | 2,171.5 | |||||||||
Accumulated impairments | — | — | (640.8 | ) | — | (640.8 | ) | ||||||||||||
Net balance at June 30, 2015 | $ | 720.8 | $ | 677.3 | $ | 132.6 | $ | — | $ | 1,530.7 | |||||||||
Changes during the period ended March 31, 2016: | |||||||||||||||||||
Acquisitions (a)(b) | 114.1 | 89.4 | 63.7 | 243.3 | 510.5 | ||||||||||||||
Foreign currency translation | 11.7 | 8.7 | 6.7 | 27.7 | 54.8 | ||||||||||||||
Gross balance at March 31, 2016 | $ | 846.6 | $ | 775.4 | $ | 843.8 | $ | 271.0 | $ | 2,736.8 | |||||||||
Accumulated impairments | — | — | (640.8 | ) | — | (640.8 | ) | ||||||||||||
Net balance at March 31, 2016 | $ | 846.6 | $ | 775.4 | $ | 203.0 | $ | 271.0 | $ | 2,096.0 | |||||||||
(a) During the nine months ended March 31, 2016, the Company acquired 100% of the net assets of the Brazilian Beauty Business. This transaction was accounted for as a business combination (See Note 4).
(b) During the nine months ended March 31, 2016, the Company acquired 100% of the issued share capital of Beamly Limited (the “digital marketing company”) for a purchase price of $17.9 in a transaction accounted for as a business combination, which resulted in the recognition of $13.7 of goodwill.
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Other Intangible Assets
Other intangible assets, net as of March 31, 2016 and June 30, 2015 are presented below:
March 31, 2016 | June 30, 2015 | ||||||
Indefinite-lived other intangible assets, net | $ | 1,438.3 | $ | 1,274.0 | |||
Finite-lived other intangible assets, net | 719.7 | 639.6 | |||||
Total Other intangible assets, net | $ | 2,158.0 | $ | 1,913.6 | |||
The changes in the carrying amount of indefinite-lived other intangible assets are presented below:
Fragrances | Color Cosmetics | Skin & Body Care | Brazil Acquisition | Total | |||||||||||||||
Gross balance at June 30, 2015 | $ | 20.7 | $ | 997.2 | $ | 453.9 | $ | — | $ | 1,471.8 | |||||||||
Accumulated impairments | — | (9.2 | ) | (188.6 | ) | — | (197.8 | ) | |||||||||||
Net balance at June 30, 2015 | 20.7 | 988.0 | 265.3 | — | 1,274.0 | ||||||||||||||
Changes during the period ended March 31, 2016: | |||||||||||||||||||
Acquisitions (a) | — | — | — | 157.1 | 157.1 | ||||||||||||||
Foreign currency translation | 0.2 | 0.5 | — | 6.5 | 7.2 | ||||||||||||||
Gross balance at March 31, 2016 | 20.9 | 997.7 | 453.9 | 163.6 | 1,636.1 | ||||||||||||||
Accumulated impairments | — | (9.2 | ) | (188.6 | ) | — | (197.8 | ) | |||||||||||
Net balance at March 31, 2016 | $ | 20.9 | $ | 988.5 | $ | 265.3 | $ | 163.6 | $ | 1,438.3 | |||||||||
(a) During the nine months ended March 31, 2016, the Company acquired 100% of the net assets of the Brazilian Beauty Business. This transaction was accounted for as a business combination (See Note 4).
Intangible assets subject to amortization are presented below:
Cost | Accumulated Amortization | Accumulated Impairment | Net | ||||||||||||
June 30, 2015 | |||||||||||||||
License agreements | $ | 800.7 | $ | (501.1 | ) | $ | — | $ | 299.6 | ||||||
Customer relationships | 559.1 | (232.8 | ) | — | 326.3 | ||||||||||
Trademarks | 119.1 | (108.2 | ) | — | 10.9 | ||||||||||
Product formulations | 32.7 | (29.9 | ) | — | 2.8 | ||||||||||
Total | $ | 1,511.6 | $ | (872.0 | ) | $ | — | $ | 639.6 | ||||||
March 31, 2016 | |||||||||||||||
License agreements | $ | 802.5 | |||||||||||||