COTY INC. - FORM 10-Q - November 9, 2017

Attached files

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EX-31.1 - EXHIBIT 31.1 - COTY INC.exhibit311-certificationof.htm
EX-32.2 - EXHIBIT 32.2 - COTY INC.exhibit322-certificationof.htm
EX-32.1 - EXHIBIT 32.1 - COTY INC.exhibit321-certificationof.htm
EX-31.2 - EXHIBIT 31.2 - COTY INC.exhibit312-certificationof.htm
EX-21.1 - EXHIBIT 21.1 - COTY INC.exhibit211-subsidiarylist9.htm
EX-10.3 - EXHIBIT 10.3 - COTY INC.exhibit103-amendmentno1tog.htm
EX-10.2 - EXHIBIT 10.2 - COTY INC.exhibit102-amendmentno3toc.htm
EX-10.1 - EXHIBIT 10.1 - COTY INC.exhibit101-danielramosoffe.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 SEPTEMBER 30, 2017
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 001-35964
 
 
 
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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer   ý
 
Accelerated filer   ¨
 
Non-accelerated filer   ¨
 
(Do not check if a smaller reporting company)
 
 
 
Smaller reporting company   ¨
 
 
 
Emerging growth company   ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

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 November 2, 2017, 749,491,562 shares of the registrant’s Class A 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
September 30,
 
2017
 
2016
Net revenues
$
2,238.3

 
$
1,080.2

Cost of sales
874.3

 
444.8

Gross profit
1,364.0

 
635.4

Selling, general and administrative expenses
1,191.8

 
478.9

Amortization expense
78.2

 
21.2

Restructuring costs
11.2

 
7.4

Acquisition-related costs
54.1

 
81.5

Operating income
28.7

 
46.4

Interest expense, net
66.4

 
40.4

Other expense, net
3.7

 
1.3

(Loss) income before income taxes
(41.4
)
 
4.7

Benefit for income taxes
(25.3
)
 
(5.1
)
Net (loss) income
(16.1
)
 
9.8

Net (loss) income attributable to noncontrolling interests
(2.2
)
 
8.2

Net income attributable to redeemable noncontrolling interests
5.8

 
1.6

Net (loss) income attributable to Coty Inc.
$
(19.7
)
 
$
—

Net (loss) income attributable to Coty Inc. per common share:
 

 
 

Basic
$
(0.03
)
 
$
—

Diluted
(0.03
)
 
—

Weighted-average common shares outstanding:
 

 
 

Basic
748.6

 
336.3

Diluted
748.6

 
336.3


See notes to Condensed Consolidated Financial Statements.


1

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
Three Months Ended
September 30,
 
2017
 
2016
Net (loss) income
$
(16.1
)
 
$
9.8

Other comprehensive income:
 

 
 

Foreign currency translation adjustment
239.1

 
(5.9
)
Net unrealized derivative gains on cash flow hedges, net of taxes of $(0.1) and $0.1 during the three months ended, respectively
(0.1
)
 
8.5

Pension and other post-employment benefits adjustment, net of tax of $0.0 and $(0.8) during the three months ended, respectively
0.7

 
5.2

Total other comprehensive income, net of tax
239.7

 
7.8

Comprehensive income
223.6

 
17.6

Comprehensive (loss) income attributable to noncontrolling interests:
 

 
 

Net (loss) income
(2.2
)
 
8.2

Foreign currency translation adjustment
0.6

 
—

Total comprehensive (loss) income attributable to noncontrolling interests
(1.6
)
 
8.2

Comprehensive income attributable to redeemable noncontrolling interests:
 
Net income
5.8

 
1.6

Foreign currency translation adjustment
—

 
—

Total comprehensive income attributable to redeemable noncontrolling interests
5.8

 
1.6

Comprehensive income attributable to Coty Inc.
$
219.4

 
$
7.8


See notes to Condensed Consolidated Financial Statements.


2

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
 
September 30,
2017
 
June 30,
2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
919.2

 
$
535.4

Restricted cash
25.4

 
35.3

Trade receivables—less allowances of $67.4 and $58.5, respectively
1,609.5

 
1,470.3

Inventories
1,172.0

 
1,052.6

Prepaid expenses and other current assets
523.4

 
487.9

Total current assets
4,249.5

 
3,581.5

Property and equipment, net
1,633.8

 
1,632.1

Goodwill
8,738.0

 
8,555.5

Other intangible assets, net
8,493.9

 
8,425.2

Deferred income taxes
158.2

 
72.6

Other noncurrent assets
299.7

 
281.3

TOTAL ASSETS
$
23,573.1

 
$
22,548.2

LIABILITIES AND EQUITY
 

 
 

Current liabilities:


 


Accounts payable
$
1,768.3

 
$
1,732.1

Accrued expenses and other current liabilities
1,827.6

 
1,796.4

Short-term debt and current portion of long-term debt
223.3

 
209.1

Income and other taxes payable
129.3

 
66.0

Total current liabilities
3,948.5

 
3,803.6

Long-term debt, net
7,541.9

 
6,928.3

Pension and other post-employment benefits
564.1

 
549.2

Deferred income taxes
937.4

 
924.9

Other noncurrent liabilities
565.0

 
473.4

Total liabilities
13,556.9

 
12,679.4

COMMITMENTS AND CONTINGENCIES (Note 17)


 


REDEEMABLE NONCONTROLLING INTERESTS
562.5

 
551.1

EQUITY:
 

 
 

Preferred Stock, $0.01 par value; 20.0 shares authorized, 4.2 issued and outstanding at September 30, 2017 and June 30, 2017
—

 
—

Class A Common Stock, $0.01 par value; 1,000.0 shares authorized, 814.4 and 812.9 issued, respectively, and 749.4 and 747.9 outstanding, respectively, at September 30, 2017 and June 30, 2017
8.1

 
8.1

Additional paid-in capital
11,113.1

 
11,203.2

Accumulated deficit
(470.6
)
 
(459.2
)
Accumulated other comprehensive income
243.5

 
4.4

Treasury stock—at cost, shares: 65.0 at September 30, 2017 and June 30, 2017
(1,441.8
)
 
(1,441.8
)
Total Coty Inc. stockholders’ equity
9,452.3

 
9,314.7

Noncontrolling interests
1.4

 
3.0

Total equity
9,453.7

 
9,317.7

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
$
23,573.1

 
$
22,548.2

See notes to Condensed Consolidated Financial Statements.

3

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTERESTS
For the Three Months Ended September 30, 2017
(In millions, except per share data)
(Unaudited)
 
Preferred Stock
 
Class A
Common Stock
 
Additional
Paid-in Capital
 
(Accumulated Deficit)
 
Accumulated
Other
Comprehensive Income (Loss)
 
Treasury Stock
 
Total Coty Inc.
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Redeemable
Noncontrolling Interests
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
BALANCE as previously reported—July 1, 2017
4.2

 
$
—

 
812.9

 
$
8.1

 
$
11,203.2

 
$
(459.2
)
 
$
4.4

 
65.0

 
$
(1,441.8
)
 
$
9,314.7

 
$
3.0

 
$
9,317.7

 
$
551.1

Adjustment due to the adoption of ASU 2016-09 (see Note 2)


 


 


 


 


 
8.3

 


 


 


 
8.3

 


 
8.3

 


BALANCE as adjusted—July 1, 2017
4.2

 
$
—

 
812.9

 
$
8.1

 
$
11,203.2

 
$
(450.9
)
 
$
4.4

 
65.0

 
$
(1,441.8
)
 
$
9,323.0

 
$
3.0

 
$
9,326.0

 
$
551.1

Exercise of employee stock options and restricted stock units
 
 
 
 
1.5

 
—

 
11.2

 
 
 
 
 
 
 
 
 
11.2

 
 
 
11.2

 
 
Shares withheld for employee taxes
 
 
 
 
 
 
 
 
(3.1
)
 
 
 
 
 
 
 
 
 
(3.1
)
 
 
 
(3.1
)
 
 
Share-based compensation expense
 
 
 
 
 
 
 
 
8.1

 
 
 
 
 
 
 
 
 
8.1

 
 
 
8.1

 
 
Dividends ($0.125 per Common Share)
 
 
 
 
 
 
 
 
(94.3
)
 
 
 
 
 
 
 
 
 
(94.3
)
 
 
 
(94.3
)
 
 
Net (loss) income
 
 
 
 
 
 
 
 
 
 
(19.7
)
 
 
 
 
 
 
 
(19.7
)
 
(2.2
)
 
(21.9
)
 
5.8

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
239.1

 
 
 
 
 
239.1

 
0.6

 
239.7

 
—

Distribution to noncontrolling interests, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
—

 
—

 
(6.4
)
Dilution of redeemable noncontrolling interest due to additional contribution (see Note 16)


 


 


 


 
17.0

 


 


 


 


 
17.0

 


 
17.0

 
(17.0
)
Adjustment of redeemable noncontrolling interests to redemption value
 
 
 
 
 
 
 
 
(29.0
)
 
 
 
 
 
 
 
 
 
(29.0
)
 
 
 
(29.0
)
 
29.0

BALANCE—September 30, 2017
4.2

 
$
—

 
814.4

 
$
8.1

 
$
11,113.1

 
$
(470.6
)
 
$
243.5

 
65.0

 
$
(1,441.8
)
 
$
9,452.3

 
$
1.4

 
$
9,453.7

 
$
562.5


See notes to Condensed Consolidated Financial Statements.

4

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTERESTS
For the Three Months Ended September 30, 2016
(In millions, except per share data)
(Unaudited)
 
Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-in Capital
 
(Accumulated Deficit)
 
Accumulated
Other
Comprehensive Loss
 
Treasury Stock
 
Total Coty Inc.
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Redeemable
Noncontrolling Interests
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
BALANCE—July 1, 2016
1.7

 
—

 
138.7

 
$
1.4

 
262.0

 
$
2.6

 
$
2,038.4

 
$
(37.0
)
 
$
(239.7
)
 
63.6

 
$
(1,405.5
)
 
$
360.2

 
$
6.9

 
$
367.1

 
$
73.3

Conversion of Class B to Class A Common Stock
 
 
 
 
262.0

 
2.6

 
(262.0
)
 
(2.6
)
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

 
 
Purchase of Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.4

 
(36.3
)
 
(36.3
)
 
 
 
(36.3
)
 
 
Exercise of employee stock options and restricted stock units and related tax benefits
 
 
 
 
0.7

 
0.1

 
 

 
 

 
6.1

 
 

 
 

 
 

 
 

 
6.2

 
 

 
6.2

 
 

Share-based compensation expense
 
 
 
 
 

 
 

 
 

 
 

 
2.9

 
 

 
 

 
 

 
 

 
2.9

 
 

 
2.9

 
 

Dividends ($0.275 per common share)
 
 
 
 
 

 
 

 
 

 
 

 
(93.3
)
 
 

 
 

 
 

 
 

 
(93.3
)
 
 

 
(93.3
)
 
 

Net income
 
 
 
 
 

 
 

 
 

 
 

 
 

 
—

 
 

 
 

 
 

 
—

 
8.2

 
8.2

 
1.6

Other comprehensive loss
 
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
7.8

 
 

 
 

 
7.8

 


 
7.8

 


Distribution to noncontrolling interests, net
 
 
 
 
 

 
 

 
 

 
 

 
—

 
 

 
 

 
 

 
 

 
—

 


 
—

 
(1.1
)
Adjustment of redeemable noncontrolling interests to redemption value
 
 
 
 
 

 
 

 
 

 
 

 
3.5

 
 

 
 

 
 

 
 

 
3.5

 
 

 
3.5

 
(3.5
)
BALANCE—September 30, 2016
1.7

 
—

 
401.4

 
$
4.1

 
—

 
$
—

 
$
1,957.6

 
$
(37.0
)
 
$
(231.9
)
 
65.0

 
$
(1,441.8
)
 
$
251.0

 
$
15.1

 
$
266.1

 
$
70.3


See notes to Condensed Consolidated Financial Statements.

5

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended
September 30,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net (loss) income
$
(16.1
)
 
$
9.8

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 

 
 

Depreciation and amortization
168.7

 
59.9

Deferred income taxes
(81.6
)
 
(6.9
)
Provision for bad debts
9.2

 
2.5

Provision for pension and other post-employment benefits
11.1

 
6.5

Share-based compensation
6.9

 
3.1

Other
1.9

 
6.2

Change in operating assets and liabilities, net of effects from purchase of acquired companies:
 

 
 

Trade receivables
(124.0
)
 
(86.9
)
Inventories
(97.5
)
 
(48.7
)
Prepaid expenses and other current assets
(21.0
)
 
(6.1
)
Accounts payable
19.3

 
60.2

Accrued expenses and other current liabilities
22.5

 
4.6

Income and other taxes payable
65.5

 
(18.7
)
Other noncurrent assets
(21.3
)
 
5.5

Other noncurrent liabilities
47.5

 
(6.0
)
Net cash used in operating activities
(8.9
)
 
(15.0
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(111.4
)
 
(86.8
)
Payment for business combinations, net of cash acquired
(7.5
)
 
—

Proceeds from sale of asset
2.9

 
—

Net cash used in investing activities
(116.0
)
 
(86.8
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from short-term debt, original maturity more than three months
—

 
3.2

Repayments of short-term debt, original maturity more than three months
—

 
(3.2
)
Net (repayments) proceeds of short-term debt, original maturity less than three months
(0.5
)
 
(4.8
)
Proceeds from revolving loan facilities
778.4

 
355.0

Repayments of revolving loan facilities
(150.0
)
 
(70.0
)
Repayments of term loans
(40.6
)
 
(27.9
)
Dividend payment
(94.3
)
 
(92.4
)
Net proceeds from issuance of Class A Common Stock and Series A Preferred Stock
11.2

 
6.1

Payments for employee taxes related to net settlement of equity awards (see Note 2)
(3.1
)
 
—

Payments for purchases of Class A Common Stock held as Treasury Stock
—

 
(36.3
)
Net proceeds from foreign currency contracts
(2.3
)
 
1.7

Distributions to noncontrolling interests and redeemable noncontrolling interests
(6.4
)
 
—

Net cash provided by financing activities
492.4

 
131.4

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
6.4

 
1.0

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
373.9

 
30.6

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period
570.7

 
372.4

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period (see Note 2)
$
944.6

 
$
403.0

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 

 
 

Cash paid during the period for interest
$
61.0

 
$
35.3

Cash paid during the period for income taxes, net of refunds received
32.8

 
15.2

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
 

 
 

Accrued capital expenditure additions
$
90.3

 
$
59.4


See notes to Condensed Consolidated Financial Statements.

6

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”) manufacture, market, sell and distribute branded beauty products, including fragrances, color cosmetics, hair care products and skin & body related products. Coty is a global beauty company with a strategic vision to be a new global leader and challenger in the beauty industry.
On October 1, 2016, the Company completed its acquisition of certain assets and liabilities related to The Procter & Gamble Company’s (“P&G”) global fine fragrances, salon professional, cosmetics and retail hair color businesses, along with select hair styling brands (the “P&G Beauty Business”). The P&G Beauty Business manufactures, markets and sells various branded beauty products globally including professional and retail hair care, coloring and styling products, fine fragrances and color cosmetics primarily through salons, mass merchandisers, grocery stores, drug stores, department stores and distributors. Refer to Note 4—Business Combinations.
After the closing of the P&G Beauty Business acquisition, the Company reorganized its business into three new divisions: the Luxury division, primarily focused on prestige fragrances, premium skin care and premium cosmetics; the Consumer Beauty division, primarily focused on mass color cosmetics, retail hair coloring and styling products, mass fragrance, mass skin care and body care; and the Professional Beauty division, primarily focused on hair and nail care products for professionals. In this new organizational structure, each division has full end-to-end responsibility to optimize consumers’ beauty experience in the relevant categories and channels. The three divisions also comprise the Company’s operating and reportable segments.
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 2018” refer to the fiscal year ending June 30, 2018.
The Company’s revenues generally increase during the second fiscal quarter as a result of increased demand associated with the holiday season. Working capital requirements, sales, and cash flows generally experience variability during the three to six months buildup preceding the holiday season due in part to product innovations and new product launches and the size and timing of certain orders from the Company’s customers. The Company also experiences higher sales during its fourth fiscal quarter in its Professional Beauty segment as a result of stronger activity 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, 2017. 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 months ended September 30, 2017 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 2018. All dollar amounts (other than per share amounts) in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.
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.

7

Tax Information
The effective income tax rate for the three months ended September 30, 2017 and 2016 was 61.1% and (108.5)%, respectively. The increase in the effective tax rate as compared to the same period in fiscal 2017 is primarily the result of the relative mix of income and losses within the tax jurisdictions in which the Company operates. The negative effective tax rate for the three months ended September 30, 2016 was primarily the result of ongoing operating losses in the U.S. that did not result in a full tax benefit due to a valuation allowance.
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 September 30, 2017 and June 30, 2017, the gross amount of UTBs was $284.5 and $257.9, respectively. As of September 30, 2017, the total amount of UTBs that, if recognized, would impact the effective income tax rate is $242.2. As of September 30, 2017 and June 30, 2017, the liability associated with UTBs, including accrued interest and penalties, was $196.5 and $154.6, 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 September 30, 2017 and 2016 was $1.1 and $0.1, respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of September 30, 2017 and June 30, 2017 was $13.4 and $11.7, respectively. On the basis of the information available as of September 30, 2017, it is reasonably possible that a decrease of up to $9.5 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
During the first quarter of fiscal 2018, the Company adopted the amended Financial Accounting Standard Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for share-based payment transactions. The adoption of the ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements. The primary impact of the new standard was the recognition of previously unrecognized excess tax benefits as an $8.3 cumulative-effect adjustment to Accumulated deficit as of July 1, 2017 to reflect a modified retrospective application. Prospectively, the excess tax benefits will be recorded as a component of Income tax expense as required, whereas they were previously recorded in Additional paid-in capital (“APIC”). Additionally, the ASU required that $3.1 related to shares withheld for employee taxes to be reported in Cash flows from financing activities for the first quarter of fiscal 2018 with an insignificant impact to prior periods. 
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, which simplifies the measurement of inventories by requiring inventory to be measured at the lower of cost and net realizable value, rather than at the lower of cost or market. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU No. 2015-11 during the first quarter of fiscal 2018. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, amending the classification and presentation of restricted cash on the statement of cash flows. The amendments required that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company early adopted this guidance in the second quarter of fiscal 2017 and applied a retrospective transition method. Accordingly, restricted cash and restricted cash equivalents has been reclassified as a component of Cash, cash equivalents, and restricted cash in the Condensed Consolidated Statement of Cash Flows for all periods presented. As a result, there is a retrospective adjustment of a $25.0 decrease to Net cash used in investing activities and a $25.0 increase to Cash and cash equivalents - End of period for the three months ended September 30, 2016.
Recently Issued Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which provided guidance for improvements to accounting for hedging activities under ASC 815. The amendments better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendment will be effective for the Company in fiscal 2020 with early adoption permitted. The Company is evaluating the impact this guidance will have on the Company’s Consolidated Financial Statements and related disclosures.

8

In May 2014, the FASB issued 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 new standard introduces a five step principles based process to determine the timing and amount of revenue ultimately expected to be recorded. 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. In May 2016, the FASB issued authoritative guidance amending certain portions of the standard to narrow the scope over, or to provide practical expedients, for assessing pending collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. The Company will adopt the standard on July 1, 2018 using the modified retrospective transition method of adoption. The Company’s preliminary evaluation indicated that the adoption of the new standard may result in potential reclassifications of certain costs between Selling, general and administrative expenses, Cost of sales or as a reduction of revenue. The Company continues to finalize its assessment of the final impact of this ASU on the Company’s 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 are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company plans to adopt the standard on July 1, 2019. The Company is in the early stages of its evaluation of the standard and has an implementation team in place that is performing an evaluation of the impact this standard will have on the Company’s Consolidated Financial Statements and related disclosures.

3. SEGMENT REPORTING
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.
In connection with the Company’s acquisition of the P&G Beauty Business, the Company realigned its operations and determined management’s internal and external reporting based on the following three divisions – Luxury, Consumer Beauty and Professional Beauty. The new organizational structure is category focused, putting the consumer first, by specifically targeting how and where they shop and what and why they purchase. Each division has full end-to-end responsibility to optimize consumers’ beauty experience in the relevant categories and channels. The Company has determined that its three divisions are its operating segments and reportable segments:
Luxury — primarily focused on prestige fragrances, premium skin care and premium 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.
As a result of this change in segment reporting, the Company retrospectively revised prior period results, by segment, to conform to current period presentation. Prior to the realignment, the Company operated and managed its business as four operating and reportable segments: Fragrances, Color Cosmetics, Skin & Body Care, and the Brazil Acquisition.
Certain revenues and shared costs and the results of corporate initiatives are being 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 costs, costs related to acquisition activities and certain other expense items not attributable to ongoing operating activities of the segments.
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 8—Goodwill and Other Intangible Assets, net.

9

 
Three Months Ended
September 30,
SEGMENT DATA
2017
 
2016
Net revenues:
 
 
 
Luxury
$
764.4

 
$
449.0

Consumer Beauty
1,043.4

 
571.9

Professional Beauty
430.5

 
59.3

Total
$
2,238.3

 
$
1,080.2

Operating income (loss):
 
 
 
Luxury
$
56.7

 
$
75.7

Consumer Beauty
61.9

 
53.2

Professional Beauty
(1.7
)
 
16.3

Corporate
(88.2
)
 
(98.8
)
Total
$
28.7

 
$
46.4

Reconciliation:
 
 
 
Operating income
$
28.7

 
$
46.4

Interest expense, net
66.4

 
40.4

Other expense, net
3.7

 
1.3

(Loss) income before income taxes
$
(41.4
)
 
$
4.7

Presented below are the percentage of revenues associated with the Company’s product categories:
 
Three Months Ended
September 30,
PRODUCT CATEGORY
2017
 
2016
Fragrance
37.1
%
 
45.6
%
Color Cosmetics
28.9

 
33.6

Hair Care
23.9

 
0.5

Skin & Body Care
10.1

 
20.3

Total Coty Inc.
100.0
%
 
100.0
%

4. BUSINESS COMBINATIONS
P&G Beauty Business Acquisition
On October 1, 2016, the Company acquired the P&G Beauty Business in order to further strengthen the Company’s position in the global beauty industry. The purchase price was $11,570.4 and consisted of $9,628.6 of total equity consideration and $1,941.8 of assumed debt.
The P&G Beauty Business acquisition was completed pursuant to the Transaction Agreement, dated July 8, 2015, by and among the Company, P&G, Galleria Co. (“Galleria”) and Green Acquisition Sub Inc., a wholly-owned subsidiary of the Company (“Merger Sub”). On October 1, 2016, (i) Merger Sub was merged with and into Galleria, with Galleria continuing as the surviving corporation and a direct, wholly-owned subsidiary of the Company (the “Merger”) and (ii) each share of Galleria common stock was converted into the right to receive one share of the Company’s common stock.
The Company issued 409.7 million shares of common stock to the former holders of Galleria common stock, together with cash in lieu of fractional shares. Immediately after consummation of the Merger, approximately 54% of the fully-diluted shares of the Company’s common stock was held by pre-Merger holders of Galleria common stock, and approximately 46% of the fully-diluted shares of the Company’s common stock was held by pre-Merger holders of the Company’s common stock. Coty Inc. is considered to be the acquiring company for accounting purposes.
The Company has finalized the valuation of assets acquired and liabilities assumed for the P&G Beauty Business acquisition. The Company recognized certain measurement period adjustments as disclosed below during the quarter ended September 30, 2017. The measurement period for the P&G Beauty Business acquisition is now closed.
The following table summarizes the allocation of the purchase price to the net assets of the P&G Beauty Business as of the October 1, 2016 acquisition date:

10

 
Estimated
fair value as previously reported (a)
 
Measurement period adjustments (b)
 
Final fair value as adjusted
 
Estimated
useful life
(in years)
Cash and cash equivalents
$
387.6

 
$
—

 
$
387.6

 
 
Inventories
465.5

 
—

 
465.5

 
 
Property, plant and equipment
742.9

 
(16.9
)
 
726.0

 
3 - 40
Goodwill
5,528.4

 
35.5

 
5,563.9

 
Indefinite
Trademarks — indefinite
1,575.0

 
—

 
1,575.0

 
Indefinite
Trademarks — finite
747.7

 
—

 
747.7

 
10 - 30
Customer relationships
1,074.2

 
18.8

 
1,093.0

 
2 - 26
License agreements
2,299.0

 
12.0

 
2,311.0

 
4 - 30
Product formulations
183.8

 
(10.0
)
 
173.8

 
5 - 28
Other net working capital
(23.2
)
 
—

 
(23.2
)
 
 
Net other assets (liabilities)
64.6

 
(33.7
)
 
30.9

 
 
Unfavorable contract liabilities
(130.0
)
 
—

 
(130.0
)
 
 
Pension liabilities
(404.1
)
 
—

 
(404.1
)
 
 
Deferred tax liability, net
(941.0
)
 
(5.7
)
 
(946.7
)
 
 
Total purchase price
$
11,570.4

 
$
—

 
$
11,570.4

 
 
 
 
(a) As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017. The business combination was completed in fiscal 2017.
(b) The Company recorded measurement period adjustments in the first quarter of fiscal 2018. The measurement period adjustments related to Customer relationships, License agreements and Product formulations, collectively, of $20.8, were a result of changes in assumptions that were used at the date of acquisition for valuation purposes including allocation of costs and synergies. The measurement period adjustments related to Property, plant and equipment and Net other assets of ($16.9) and ($33.7), respectively, primarily relate to obtaining new facts and circumstances about acquired assets and liabilities that existed at the acquisition date. The decrease to Deferred tax liability, net was primarily a result of the change of the jurisdictional allocation of the tangible and intangible assets. All measurement period adjustments were offset against Goodwill.
Goodwill is primarily attributable to the anticipated company-specific synergies and economies of scale expected from the operations of the combined company. The synergies include certain cost savings, operating efficiencies, and leverage of the acquired brand recognition to be achieved as a result of the P&G Beauty Business acquisition. Goodwill is not expected to be deductible for tax purposes. Goodwill of $1,889.8, $3,188.1 and $486.0 is allocated to the Luxury, Consumer Beauty and Professional Beauty segments, respectively. The allocation of goodwill to segments was based on the relative fair values of expected future cash flows.
The Company recognized acquisition-related costs of $53.6 and $79.4 during the three months ended September 30, 2017 and 2016, respectively, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
ghd Acquisition
On November 21, 2016, the Company completed the acquisition of 100% of the equity interest of Lion/Gloria Topco Limited which held the net assets of ghd (“ghd”) which stands for “Good Hair Day”, a premium brand in high-end hair styling appliances, pursuant to a sale and purchase agreement. The ghd acquisition further strengthens the Company’s professional hair category and is included in the Professional Beauty segment’s results after the acquisition date. The total cash consideration paid net of acquired cash and cash equivalents was £430.2 million, the equivalent of $531.5, at the time of closing.
The Company estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. The Company is still evaluating the fair value of the assets and liabilities assumed from the ghd acquisition. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.

11

The following table summarizes the estimated allocation of the purchase price to the net assets of ghd as of the November 21, 2016 acquisition date:
 
Estimated
fair value as previously reported (a)
 
Measurement period adjustments (b)
 
Estimated fair value adjusted
 
Estimated
useful life
(in years)
Cash and cash equivalents
$
7.1

 
$
—

 
$
7.1

 
 
Inventories
79.6

 
—

 
79.6

 
 
Property, plant and equipment
10.0

 
—

 
10.0

 
3 - 10
Goodwill
174.4

 
(4.1
)
 
170.3

 
Indefinite
Indefinite-lived other intangibles assets
163.8

 
—

 
163.8

 
Indefinite
Customer relationships
36.6

 
—

 
36.6

 
11 - 24
Technology
146.6

 
—

 
146.6

 
11 - 16
Other net working capital
(16.6
)
 
4.1

 
(12.5
)
 
 
Net other assets
0.9

 
—

 
0.9

 
 
Deferred tax liability, net
(63.9
)
 
—

 
(63.9
)
 
 
Total purchase price
$
538.5

 
$
—

 
$
538.5

 
 
 
 
(a) As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017. The business combination was completed in fiscal 2017.
(b) The Company recorded measurement period adjustments in the first quarter of fiscal 2018 to account for an increase in the estimated other net working capital of $4.1 as of the November 21, 2016 acquisition date. This adjustment is offset against Goodwill.
Goodwill is not expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating ghd’s products into the Company’s existing sales channels. Goodwill of $49.0, $42.0 and $79.3 is allocated to 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 ghd acquisition.
The Company recognized acquisition-related costs of $0.3 and $1.3 during the three months ended September 30, 2017 and 2016, respectively, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
Younique Acquisition
On February 1, 2017, the Company completed its acquisition of 60% of the membership interest in Foundation, LLC (“Foundation”) which held the net assets of Younique, LLC, a Utah limited liability company (“Younique”), for cash consideration of $600.0, net of acquired cash and debt assumed, and an additional payment of $7.5 for working capital adjustments paid in the three months ended September 30, 2017. The existing Younique membership holders contributed their 100% membership interest in Younique to Foundation in exchange for a 40% membership interest in Foundation and $607.5 of cash consideration. Younique strengthens the Consumer Beauty division’s product offerings. The Company accounts for the noncontrolling interest portion of the acquisition as a redeemable noncontrolling interest.
The Company estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on information currently available. The preliminary fair values are substantially complete with the exception of inventories, accrued expenses, taxes and goodwill. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.

12

The following table summarizes the estimated allocation of the purchase price to the net assets of Younique as of the February 1, 2017 acquisition date:
 
Estimated fair value as previously reported (a)
 
Measurement period adjustments (b)
 
Estimated fair value adjusted
 
Estimated useful life (in years)
Cash and cash equivalents
$
17.5

 
$
—

 
$
17.5

 
 
Inventories
88.1

 
—

 
88.1

 
 
Property, plant and equipment
67.1

 
—

 
67.1

 
3 - 7
Goodwill
575.3

 
0.8

 
576.1

 
Indefinite
Trademark — finite
123.0

 
—

 
123.0

 
20
Product formulations
0.6

 
—

 
0.6

 
5
Customer relationships
197.0

 
—

 
197.0

 
7 - 10
Other net working capital
(27.7
)
 
(0.8
)
 
(28.5
)
 
 
Short-term and long-term debt
(1.2
)
 
—

 
(1.2
)
 
 
Total equity value
1,039.7

 
—

 
1,039.7

 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest
415.9

 
—

 
415.9

 
 
Net cash and debt acquired
16.3

 
—

 
16.3

 
 
Total purchase price
$
607.5

 
$
—

 
$
607.5

 
 
 
 
(a) As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017. The business combination was completed in fiscal 2017.
(b) The Company recorded measurement period adjustments in the first quarter of fiscal 2018 to account for a decrease in the estimated other net working capital of $0.8 as of the February 1, 2017 acquisition date. This adjustment is offset against Goodwill.
Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from certain manufacturing and supply chain cost savings. Goodwill of $95.0, $421.1 and $60.0 is allocated to 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 Younique acquisition.
Unaudited Pro Forma Information
The unaudited pro forma financial information in the table below summarizes the combined results of the Company and the P&G Beauty Business and Younique (the “Pro Forma Acquisitions”) as though the companies had been combined on July 1, 2015. The three months ended September 30, 2016 include pro forma adjustments for all the Pro Forma Acquisitions.
The pro forma adjustments include incremental amortization of intangible assets and depreciation of property, plant and equipment, based on allocated fair values of each asset as well as costs related to financing the Pro Forma Acquisitions. The unaudited pro forma information also includes non-recurring acquisition-related costs. Pro forma adjustments were tax-effected at the Company’s statutory rates. For the pro forma basic and diluted earnings per share calculation, 409.7 million shares issued in connection with the P&G Beauty Business acquisition were considered as if issued on July 1, 2015. 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 Pro Forma Acquisitions had taken place on July 1, 2015 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 the three months ended September 30, 2016 is as follows:

13

 
Three Months Ended
September 30,


2016 (a)
Pro forma Net revenues
$
2,189.6

Pro forma Net income (loss)
(47.1
)
Pro forma Net income (loss) attributable to Coty Inc.
(55.7
)
Pro forma Net income (loss) attributable to Coty Inc. per common share:
 
          Basic
$
(0.07
)
          Diluted
$
(0.07
)
 
 
(a) For the three months ended September 30, 2016, the pro forma information excluded $181.1 of non-recurring acquisition-related costs.

5. 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 $54.1 and $81.5 for the three months ended September 30, 2017 and 2016, respectively, which have been recorded in Acquisition-related costs in the Condensed Consolidated Statements of Operations.

6. RESTRUCTURING COSTS
Restructuring costs for the three months ended September 30, 2017 and 2016 are presented below:
 
Three Months Ended
September 30,
 
2017
 
2016
Global Integration Activities
$
9.8

 
$
—

Acquisition Integration Program
—

 
3.2

Other Restructuring
1.4

 
4.2

Total
$
11.2

 
$
7.4

Global Integration Activities
In connection with the acquisition of the P&G Beauty Business, the Company anticipates that it will 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 $374.0 related to approved initiatives through September 30, 2017, 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
0.4

 
8.0

 
—

 
1.4

 
9.8

Cumulative through September 30, 2017
$
334.3

 
$
30.4

 
$
4.6

 
$
4.7

 
$
374.0

Over the next two fiscal years, the Company expects to incur approximately $150.0 of additional restructuring charges pertaining to the approved actions.  Of the $150.0 of additional restructuring charges, the Company currently anticipates spending equal amounts related to employee termination benefits, fixed asset write-offs, contract terminations, and other costs to exit facilities and relocate employees.
The related liability balance and activity for the Global Integration Activities restructuring costs are presented below:

14

 
Severance and
Employee
Benefits
 
Third-Party
Contract
Terminations
 
Other
Exit
Costs
 
Total
Program
Costs
Balance—July 1, 2017
$
310.8

 
$
14.9

 
$
2.8

 
$
328.5

Restructuring charges
3.9

 
8.0

 
1.4

 
13.3

Payments
(39.5
)
 
(2.9
)
 
(1.2
)
 
(43.6
)
Changes in estimates
(3.5
)
 
—

 
—

 
(3.5
)
Effect of exchange rates
13.5

 
0.1

 
0.2

 
13.8

Balance—September 30, 2017
$
285.2

 
$
20.1

 
$
3.2

 
$
308.5

The Company currently estimates that the total remaining accrual of $308.5 will result in cash expenditures of approximately $172.5, $134.3 and $1.7 in fiscal 2018, 2019 and thereafter, respectively.
Acquisition Integration Program
In the first quarter of fiscal 2016, the Company’s Board of Directors (the “Board”) approved an expansion to a restructuring program in connection with the acquisition of Bourjois (the “Acquisition Integration Program”).  Actions associated with the program were initiated after the acquisition of Bourjois and were substantially completed during fiscal 2017 with cash payments continuing through fiscal 2020. The Company incurred $59.9 of restructuring costs life-to-date as of September 30, 2017, which have been recorded in Corporate.
The related liability balance and activity for the Acquisition Integration Program costs are presented below:
 
Severance and
Employee
Benefits
 
Third-Party
Contract
Terminations
 
Other
Exit
Costs
 
Total
Program
Costs
Balance—July 1, 2017
$
24.8

 
$
1.5

 
$
4.1

 
$
30.4

Restructuring charges
—

 
—

 
—

 
—

Payments
(9.2
)
 
—

 
(0.6
)
 
(9.8
)
Changes in estimates
—

 
—

 
—

 
—

Non-cash utilization
—

 
—

 
—

 
—

Effect of exchange rates
0.8

 
—

 
0.1

 
0.9

Balance—September 30, 2017
$
16.4

 
$
1.5

 
$
3.6

 
$
21.5

The Company currently estimates that the total remaining accrual of $21.5 will result in cash expenditures of approximately $18.7, $1.4 and $1.4 in fiscal 2018, 2019 and 2020, respectively.
Other Restructuring
The Company executed a number of other restructuring activities during 2013 and 2014, which focused primarily on work-force reductions around a new organizational structure and other productivity initiatives related to the integration of supply chain and selling activities. These programs are substantially completed. The Company incurred expenses of $1.4 and $4.2 during the three months ended September 30, 2017 and 2016, respectively. The related liability balances were $8.3 and $10.1 at September 30, 2017 and June 30, 2017, respectively. The Company currently estimates that the total remaining accrual of $8.3 will result in cash expenditures in fiscal 2018.
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 estimates that the remaining accrual of $12.9 at September 30, 2017 will result in cash expenditures of $8.0, $3.3 and $1.6 in fiscal 2018, 2019 and 2020, respectively.


15

7. INVENTORIES
Inventories as of September 30, 2017 and June 30, 2017 are presented below:
 
September 30,
2017
 
June 30,
2017
Raw materials
$
262.3

 
$
256.4

Work-in-process
26.9

 
33.4

Finished goods
882.8

 
762.8

Total inventories
$
1,172.0

 
$
1,052.6

8. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of September 30, 2017 and June 30, 2017 is presented below:
 
Luxury
 
Consumer Beauty
 
Professional Beauty
 
Total
Gross balance at June 30, 2017
$
3,496.8

 
$
4,732.0

 
$
967.5

 
$
9,196.3

Accumulated impairments
(403.7
)
 
(237.1
)
 
—

 
(640.8
)
Net balance at June 30, 2017
$
3,093.1

 
$
4,494.9

 
$
967.5

 
$
8,555.5

 
 
 
 
 
 
 
 
Changes during the period ended September 30, 2017:
 
 
 
 
 
 
 
     Measurement period adjustments (a)
(140.3
)
 
223.7

 
(51.2
)
 
32.2

     Foreign currency translation
45.3

 
86.5

 
18.5

 
150.3

 
 
 
 
 
 
 
 
Gross balance at September 30, 2017
$
3,401.8

 
$
5,042.2

 
$
934.8

 
$
9,378.8

Accumulated impairments
(403.7
)
 
(237.1
)
 
—

 
(640.8
)
Net balance at September 30, 2017
$
2,998.1

 
$
4,805.1

 
$
934.8

 
$
8,738.0

 
 
(a) Includes measurement period adjustments in connection with the acquisitions of the P&G Beauty Business, ghd and Younique acquisitions (Refer to Note 4—Business Combinations).
Other Intangible Assets, net
Other intangible assets, net as of September 30, 2017 and June 30, 2017 are presented below:
 
September 30, 2017
 
June 30,
2017
Indefinite-lived other intangible assets
$
3,214.3

 
$
3,186.9

Finite-lived other intangible assets, net
5,279.6

 
5,238.3

Total Other intangible assets, net
$
8,493.9

 
$
8,425.2


16

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, 2017
$
409.8

 
$
1,696.4

 
$
1,278.5

 
$
3,384.7

Accumulated impairments
(118.8
)
 
(75.9
)
 
(3.1
)
 
(197.8
)
Net balance at June 30, 2017
291.0

 
1,620.5

 
1,275.4

 
3,186.9

 
 
 
 
 
 
 
 
Changes during the period ended September 30, 2017:
 
 
 
 
 
 
 
Foreign currency translation
8.0

 
10.6

 
8.8

 
27.4

 
 
 
 
 
 
 
 
Gross balance at September 30, 2017
417.8

 
1,707.0

 
1,287.3

 
3,412.1

Accumulated impairments
(118.8
)
 
(75.9
)
 
(3.1
)
 
(197.8
)
Net balance at September 30, 2017
$
299.0

 
$
1,631.1

 
$
1,284.2

 
$
3,214.3


Intangible assets subject to amortization are presented below:
 
Cost
 
Accumulated Amortization
 
Accumulated Impairment
 
Net
June 30, 2017
 
 
 
 
 
 
 
License agreements
$
3,148.4

 
$
(653.3
)
 
$
—

 
$
2,495.1

Customer relationships
1,937.3

 
(375.0
)
 
(5.5
)
 
1,556.8

Trademarks
1,001.1

 
(141.0
)
 
—

 
860.1

Product formulations
389.3

 
(63.0
)
 
—

 
326.3

Total
$
6,476.1

 
$
(1,232.3
)
 
$
(5.5
)
 
$
5,238.3

September 30, 2017
 
 
 
 
 
 
 
License agreements(a)
$
3,234.5

 
$
(684.8
)
 
$
—

 
$
2,549.7

Customer relationships(a)
1,980.9

 
(411.7
)
 
(5.5
)
 
1,563.7

Trademarks
1,003.8

 
(153.4
)
 
—

 
850.4

Product formulations and technology(a)
387.8

 
(72.0
)
 
—

 
315.8

Total
$
6,607.0

 
$
(1,321.9
)
 
$
(5.5
)
 
$
5,279.6

 
 
(a) Includes measurement period adjustments in connection with the P&G Beauty Business acquisition during the three months ended September 30, 2017 (Refer to Note 4—Business Combinations).
Amortization expense totaled $78.2 and $21.2, for the three months ended September 30, 2017 and 2016, respectively.

17

9. DEBT
The Company’s debt balances consisted of the following as of September 30, 2017 and June 30, 2017, respectively:
 
September 30, 2017
 
June 30,
2017
Short-term debt
$
3.3

 
$
3.7

Galleria Credit Agreement
 
 
 
   Galleria Revolving Credit Facility due September 2021
—

 
—

   Galleria Term Loan A Facility due September 2021
944.3

 
944.3

   Galleria Term Loan B Facility due September 2023
1,000.0

 
1,000.0

Coty Credit Agreement
 
 
 
   Coty Revolving Credit Facility due October 2020
1,436.8

 
810.0

   Coty Term Loan A Facility due October 2020
1,773.3

 
1,792.8

   Coty Term Loan A Facility due October 2021
938.4

 
950.6

   Coty Term Loan B Facility due October 2022
1,741.1

 
1,712.5

Other long-term debt and capital lease obligations
1.4

 
1.7

Total debt
7,838.6

 
7,215.6

Less: Short-term debt and current portion of long-term debt
(223.3
)
 
(209.1
)
Total Long-term debt
7,615.3

 
7,006.5

Less: Unamortized debt issuance costs (a)
(63.2
)
 
(67.6
)
Less: Discount on Long-term debt
(10.2
)
 
(10.6
)
Total Long-term debt, net
$
7,541.9

 
$
6,928.3

 
 
(a) Consists of unamortized debt issuance costs of $16.2 and $17.5 for the Coty Revolving Credit Facility, $30.9 and $33.2 for the Coty Term Loan A Facility and $10.8 and $11.3 for the Coty Term Loan B Facility as of September 30, 2017 and June 30, 2017, respectively. Consists of unamortized debt issuance costs of $2.5 and $2.7 for the Galleria Term Loan A Facility and $2.8 and $3.0 for the Galleria Term Loan B Facility as of September 30, 2017 and June 30, 2017, respectively. Unamortized debt issuance costs of $4.0 and $4.2 for the Galleria Revolving Credit Facility were classified as Other noncurrent assets in the Condensed Consolidated Balance Sheets as of September 30, 2017 and June 30, 2017, respectively.
Coty Credit Agreement
On October 27, 2015, the Company entered into a Credit Agreement (the “Coty Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent. The Coty Credit Agreement provides for senior secured credit facilities comprised of (i) a revolving credit facility in an aggregate principal amount up to $1,500.0 (the “Coty Revolving Credit Facility”) which includes up to $80.0 in swingline loans available for short term borrowings, (ii) a $1,750.0 term loan A facility (“Coty Term Loan A Facility”) and (iii) a term loan B facility comprising of a $500.0 tranche and a €665.0 million tranche (“Coty Term Loan B Facility”). The Coty Term Loan B Facility was issued at a 0.50% discount. The proceeds of the Coty Credit Agreement were primarily used to refinance the Company’s previously existing debt, which included the 2015 Credit Agreement due March 2018 and other facilities of Coty Inc.
On April 8, 2016, the Company entered into an Incremental Assumption Agreement and Amendment No. 1 (the “Incremental Credit Agreement”) to the Coty Credit Agreement. The Incremental Credit Agreement provides for an additional €140.0 million in loans under the Coty Term Loan A Facility and an additional €325.0 million in loans under the Coty Term Loan B Facility (the “Incremental Term Loans”). The proceeds of the Incremental Term Loans were used to partially repay outstanding balances under the Coty Revolving Credit Facility. The terms of the €140.0 million and €325.0 million portions of the Incremental Term Loans are substantially the same as the respective existing Coty Term Loan A Facility and Euro denominated portion of the Coty Term Loan B Facility.
On October 28, 2016, the Company entered into an Incremental Assumption Agreement and Refinancing Amendment (the “Incremental and Refinancing Agreement”), which amended the Coty Credit Agreement. The Incremental and Refinancing Agreement provides for: (i) an additional Coty Term Loan A Facility in aggregate principal amount of $975.0 in loans (the “Incremental Term A Facility”), (ii) an additional Coty Term Loan B Facility in aggregate principal amount of $100.0 in loans (the “Incremental Term B Facility”) and (iii) a refinancing of the previously existing USD and Euro denominated Coty Term Loan B Facility loans (the “Refinancing Facilities”) under the Coty Credit Agreement.
The loans made under the Incremental Term A Facility have terms that are substantially identical to the existing Coty Term Loan A Facility except that the loans will mature on the date that is five years after October 28, 2016. The loans under the

18

Incremental Term B Facility and the Refinancing Facilities have substantially identical terms as the term B loans existing under the Coty Credit Agreement prior to effectiveness of the Incremental and Refinancing Agreement, except that, among other things: (i) the interest rate with respect to the USD denominated tranche of the Refinancing Facilities and the Incremental Term B Facility will be, at the Company’s option, either the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 2.50% or an alternate base rate (“ABR”) equal to the highest of (1) JPMorgan Chase Bank N.A.’s prime rate, (2) the federal funds rate plus 0.50% and (3) one-month LIBOR plus 1.00%, in each case plus an applicable margin of 1.50% and (ii) the LIBOR floor with respect to the LIBOR loans under the Incremental Term B Facility and the Refinancing Facilities is 0.00%.
The Company recognized $13.0 of deferred debt issuance costs in connection with the Incremental and Refinancing Agreement.
The Coty Credit Agreement is guaranteed by Coty Inc.’s wholly-owned domestic subsidiaries and secured by a first priority lien on substantially all of Coty Inc. and its wholly-owned domestic subsidiaries’ assets, in each case subject to certain carve outs and exceptions.
Galleria Credit Agreement
On October 1, 2016, at the closing of the P&G Beauty Business acquisition, the Company assumed the debt facilities available under the Galleria Credit Agreement (the “Galleria Credit Agreement”) which was initially entered into by Galleria on January 26, 2016. The Galleria Credit Agreement provides for senior secured credit facilities comprised of (i) a $2,000.0 five year term loan A facility (“Galleria Term Loan A Facility”), (ii) a $1,000.0 seven year term loan B facility (“Galleria Term Loan B Facility”) and (iii) a $1,500.0 five year revolving credit facility (“Galleria Revolving Facility”). The Galleria Term Loan B Facility was issued at a 0.50% discount. In connection with the closing of the P&G Beauty Business acquisition, the Company assumed $1,941.8 of aggregate debt outstanding consisting of $944.3 Galleria Term Loan A Facility, $995.0 Galleria Term Loan B Facility, net of a discount and $0.0 outstanding under the Galleria Revolving Facility, as well as $2.5 in assumed fees payable. At the closing of the P&G Beauty Business acquisition, the remaining unused loan commitments for the Galleria Term Loan A Facility expired.
The Company recognized $11.4 of deferred debt issuance costs in connection with the Galleria Credit Agreement.
The Galleria Credit Agreement is guaranteed by Coty Inc. and its wholly-owned domestic subsidiaries (other than Galleria) and secured by a first priority lien on substantially all of Coty Inc. and its wholly-owned domestic subsidiaries’ assets, in each case subject to certain carve outs and exceptions.
Scheduled Amortization
Beginning in the second quarter of fiscal 2018 and ending at maturity, the Company will make quarterly repayments of 1.25% and 0.25% of the initial aggregate Galleria Term Loan A Facility and Galleria Term Loan B Facility, respectively. The remaining balance of the initial aggregate Galleria Term Loan A Facility and Galleria Term Loan B Facility amount will be payable on the maturity date for each facility, respectively.
Interest
The Coty Credit Agreement and Galleria Credit Agreement facilities will bear interest at rates equal to, at the Company’s option, either:
•
LIBOR of the applicable qualified currency plus the applicable margin; or
•
ABR plus the applicable margin.
In the case of the Coty Revolving Credit Facility, Coty Term Loan A Facilities, Galleria Revolving Facility and Galleria Term Loan A Facility, the applicable margin means a percentage per annum to be determined in accordance with a leverage-based pricing grid below:

19

Pricing Tier
 
Total Net Leverage Ratio:
 
LIBOR plus:
 
Alternative Base Rate Margin:
1.0
 
Greater than or equal to 5.00:1
 
2.000%
 
1.000%
2.0
 
Less than 5.00:1 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%
 
—%
In the case of the USD portion of the Coty Term Loan B Facility, the applicable margin means 2.50% per annum, in the case of LIBOR loans, and 1.50% per annum, in the case of ABR loans. In the case of the Euro portion of the Coty Term Loan B Facility, the applicable margin means 2.75% per annum, in the case of EURIBOR loans. In the case of the Galleria Term Loan B Facility, the applicable margin means 3.00% per annum, in the case of LIBOR loans, and 2.00% per annum, in the case of ABR loans. With respect to the Galleria Term Loan B Facility, in no event will (i) LIBOR be deemed to be less than 0.75% per annum and (ii) ABR be deemed to be less than 1.75% per annum.
Fair Value of Debt
 
September 30, 2017
 
June 30, 2017
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Galleria Credit Agreement
$
1,944.3

 
$
1,943.9

 
$
1,944.3

 
$
1,944.0

Coty Credit Agreement
5,889.6

 
5,901.0

 
5,265.9

 
5,275.4

The Company uses the market approach to value the Coty Credit Agreement and the Galleria Credit Agreement. The Company obtains market values for comparable instruments from independent pricing services and infers 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 current portion of long-term debt and excluding capital lease obligations as of September 30, 2017, are presented below:
Fiscal Year Ending June 30,
 
2018, remaining
$
164.5

2019
219.3

2020
219.3

2021
3,070.5

2022
1,550.5

Thereafter
2,609.8

Total
$
7,833.9

Debt Covenants
The Company is required to comply with certain affirmative and negative covenants contained within the Coty Credit Agreement and the Galleria Credit Agreement (collectively the “Debt Agreements”). With certain exceptions as described below, the Debt Agreements include a financial covenant that requires the Company to maintain a Total Net Leverage Ratio (as defined below), equal to or less than the ratios shown below for each respective test period.

20

Test Period Ending
Total Net Leverage Ratio(a) 
September 30, 2017
5.00 to 1.00
December 31, 2017
5.00 to 1.00
March 31, 2018
4.75 to 1.00
June 30, 2018
4.75 to 1.00
September 30, 2018
4.50 to 1.00
December 31, 2018
4.50 to 1.00
March 31, 2019
4.25 to 1.00
June 30, 2019
4.25 to 1.00
September 30, 2019
4.00 to 1.00
December 31, 2019
4.00 to 1.00
March 31, 2020
4.00 to 1.00
June 30, 2020
4.00 to 1.00
September 30, 2020
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 used within the definition of Total Net Leverage Ratio have the meanings ascribed to them within the Debt Agreements).
In the four fiscal quarters following the closing of any Material Acquisition (as defined in the Debt Agreements), 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 the Company's 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. Following the acquisition of Younique, the Total Net Leverage Ratio applicable for the periods ending September 30, 2017 and December 31, 2017 is 5.95 to 1.00. As of September 30, 2017, the Company was in compliance with all covenants contained within the Debt Agreements.
10. INTEREST EXPENSE, NET
Interest expense, net for the three months ended September 30, 2017 and 2016 is presented below:
 
Three Months Ended
September 30,
 
2017
 
2016
Interest expense
$
67.4

 
$
39.7

Foreign exchange losses, net of derivative contracts
1.0

 
1.3

Interest income
(2.0
)
 
(0.6
)
Total interest expense, net
$
66.4

 
$
40.4


11. 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:

21

 
Three Months Ended September 30,
 
Pension Plans
 
Other Post-
Employment Benefits
 
 
 
U.S.
 
International
 
 
Total
 
2017
 
2016
 
2017
 
2016
 
2017