10-Q
Table of Contents

 
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 DECEMBER 31, 2015
 
 
 
 
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 February 2, 2016, 75,098,054 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.
 

Table of Contents

COTY INC.
INDEX TO FORM 10-Q
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents

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
December 31,
 
Six Months Ended
December 31,
 
2015
 
2014
 
2015
 
2014
Net revenues
$
1,210.5

 
$
1,259.6

 
$
2,322.8

 
$
2,441.9

Cost of sales
467.7

 
508.9

 
911.4

 
991.1

Gross profit
742.8

 
750.7

 
1,411.4

 
1,450.8

Selling, general and administrative expenses
515.4

 
534.9

 
999.7

 
1,055.5

Amortization expense
18.9

 
18.5

 
38.1

 
37.4

Restructuring costs
10.6

 
12.0

 
72.7

 
52.5

Acquisition-related costs
45.5

 
1.6

 
61.3

 
1.6

Asset impairment charges
—

 
—

 
5.5

 
—

Operating income
152.4

 
183.7

 
234.1

 
303.8

Interest expense, net
14.6

 
19.1

 
30.6

 
38.7

Loss on early extinguishment of debt
3.1

 
—

 
3.1

 
88.8

Other expense, net
24.1

 
0.3

 
23.8

 
0.3

Income before income taxes
110.6

 
164.3

 
176.6

 
176.0

Provision (benefit) for income taxes
13.0

 
29.4

 
(54.1
)
 
24.4

Net income
97.6

 
134.9

 
230.7

 
151.6

Net income attributable to noncontrolling interests
5.3

 
6.1

 
9.7

 
11.1

Net income attributable to redeemable noncontrolling interests
3.3

 
3.4

 
6.3

 
4.5

Net income attributable to Coty Inc.
$
89.0

 
$
125.4

 
$
214.7

 
$
136.0

Net income attributable to Coty Inc. per common share:
 

 
 

 
 

 
 

Basic
$
0.26

 
$
0.35

 
$
0.61

 
$
0.38

Diluted
0.25

 
0.35

 
0.59

 
0.37

Weighted-average common shares outstanding:
 

 
 

 
 

 
 

Basic
345.0

 
353.4

 
352.5

 
353.8

Diluted
354.3

 
362.6

 
362.0

 
363.5

 
 
 
 
 
 
 
 
Cash dividend declared per common share
$
—

 
$
—

 
$
0.25

 
$
0.20


See notes to Condensed Consolidated Financial Statements.


1
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
 
2015
 
2014
 
2015
 
2014
Net income
$
97.6

 
$
134.9

 
$
230.7

 
$
151.6

Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation adjustment
(1.6
)
 
(54.1
)
 
(18.8
)
 
(134.0
)
Net unrealized derivative gains on cash flow hedges, net of taxes of $0.1 and $(1.2), and $(0.7) and $(2.4) during the three and six months ended, respectively
2.8

 
8.2

 
7.3

 
14.6

Pension and other post-employment benefits (losses), net of tax of nil and $0.1, and nil and $0.1 during the three and six months ended, respectively
—

 
(0.2
)
 
0.2

 
(0.2
)
Total other comprehensive income (loss), net of tax
1.2

 
(46.1
)
 
(11.3
)
 
(119.6
)
Comprehensive income
98.8

 
88.8

 
219.4

 
32.0

Comprehensive income attributable to noncontrolling interests:
 

 
 

 
 

 
 

Net income
5.3

 
6.1

 
9.7

 
11.1

Foreign currency translation adjustment
0.2

 
(0.6
)
 
(0.3
)
 
(0.6
)
Total comprehensive income attributable to noncontrolling interests
5.5

 
5.5

 
9.4

 
10.5

Comprehensive income attributable to redeemable noncontrolling interests:
 
Net income
3.3

 
3.4

 
6.3

 
4.5

Foreign currency translation adjustment
(0.1
)
 
(0.1
)
 
—

 
(0.3
)
Total comprehensive income attributable to redeemable noncontrolling interests
3.2

 
3.3

 
6.3

 
4.2

Comprehensive income attributable to Coty Inc.
$
90.1

 
$
80.0

 
$
203.7

 
$
17.3


See notes to Condensed Consolidated Financial Statements.


2
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per share data)
(Unaudited)
 
December 31,
2015
 
June 30,
2015
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
482.7

 
$
341.3

Trade receivables—less allowances of $22.9 and $19.6, respectively
697.2

 
679.6

Inventories
505.9

 
557.8

Prepaid expenses and other current assets
170.6

 
191.0

Deferred income taxes
84.2

 
86.7

Total current assets
1,940.6

 
1,856.4

Property and equipment, net
486.9

 
500.2

Goodwill
1,530.9

 
1,530.7

Other intangible assets, net
1,856.3

 
1,913.6

Deferred income taxes
9.2

 
10.4

Other noncurrent assets
687.8

 
207.6

TOTAL ASSETS
$
6,511.7

 
$
6,018.9

LIABILITIES AND EQUITY
 

 
 

Current liabilities:


 


Accounts payable
$
781.4

 
$
748.4

Accrued expenses and other current liabilities
828.4

 
719.2

Short-term debt and current portion of long-term debt
85.6

 
28.8

Income and other taxes payable
8.2

 
22.4

Deferred income taxes
9.3

 
7.4

Total current liabilities
1,712.9

 
1,526.2

Long-term debt, net
3,570.9

 
2,605.9

Pension and other post-employment benefits
202.5

 
206.5

Deferred income taxes
340.1

 
352.6

Other noncurrent liabilities
183.8

 
256.7

Total liabilities
6,010.2

 
4,947.9

COMMITMENTS AND CONTINGENCIES (Note 18)


 


REDEEMABLE NONCONTROLLING INTERESTS
82.1

 
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 December 31, 2015 and June 30, 2015
—

 
—

Class A Common Stock, $0.01 par value; 800.0 shares authorized, 136.0 and 134.0 issued, respectively, and 75.0 and 98.8 outstanding, respectively, at December 31, 2015 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 December 31, 2015 and June 30, 2015
2.6

 
2.6

Additional paid-in capital
2,004.5

 
2,044.4

Accumulated surplus (deficit)
20.8

 
(193.9
)
Accumulated other comprehensive loss
(285.0
)
 
(274.0
)
Treasury stock—at cost, shares: 61.1 and 35.2 at December 31, 2015 and June 30, 2015, respectively
(1,338.5
)
 
(610.6
)
Total Coty Inc. stockholders’ equity
405.8

 
969.8

Noncontrolling interests
13.6

 
14.9

Total equity
419.4

 
984.7

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
$
6,511.7

 
$
6,018.9


See notes to Condensed Consolidated Financial Statements.

3
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTERESTS
For the Six Months Ended December 31, 2015
(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)/Surplus
 
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
 
 
 
 
2.0

 
0.1

 
 

 
 
 
20.0

 
 
 
 
 
 
 
 
 
20.1

 
 
 
20.1

 
 
Series A Preferred Share based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
0.5

 
 
 
 
 
 
 
 
 
0.5

 
 
 
0.5

 
 
Share-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
11.6

 
 
 
 
 
 
 
 
 
11.6

 
 
 
11.6

 
 
Dividends ($0.25 per common share)
 
 
 
 
 
 
 
 
 
 
 
 
(89.6
)
 
 
 
 
 
 
 
 
 
(89.6
)
 
 
 
(89.6
)
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
214.7

 
 
 
 
 
 
 
214.7

 
9.7

 
224.4

 
6.3

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(11.0
)
 
 
 
 
 
(11.0
)
 
(0.3
)
 
(11.3
)
 
—

Distribution to noncontrolling interests, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10.7
)
 
(10.7
)
 
(6.6
)
Adjustment of redeemable noncontrolling interests to redemption value
 
 
 
 
 
 
 
 
 
 
 
 
3.9

 
 
 
 
 
 
 
 
 
3.9

 
 
 
3.9

 
(3.9
)
BALANCE—December 31, 2015
1.7

 
$
—

 
136.0

 
$
1.4

 
262.0

 
$
2.6

 
$
2,004.5

 
$
20.8

 
$
(285.0
)
 
61.1

 
$
(1,338.5
)
 
$
405.8

 
$
13.6

 
$
419.4

 
$
82.1


See notes to Condensed Consolidated Financial Statements.


4
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND
REDEEMABLE NONCONTROLLING INTERESTS
For the Six Months Ended December 31, 2014
(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

Purchase of Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.6

 
(149.2
)
 
(149.2
)
 
 
 
(149.2
)
 
 
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
2.8

 
0.1

 
 

 
 

 
22.3

 
 

 
 

 
 

 
 

 
22.4

 
 

 
22.4

 
 

Share-based compensation expense
 

 
 

 
 

 
 

 
8.1

 
 

 
 

 
 

 
 

 
8.1

 
 

 
8.1

 
 

Dividends ($0.20 per common share)
 

 
 

 
 

 
 

 
(71.8
)
 
 

 
 

 
 

 
 

 
(71.8
)
 
 

 
(71.8
)
 
 

Net income
 

 
 

 
 

 
 

 
 

 
136.0

 
 

 
 

 
 

 
136.0

 
11.1

 
147.1

 
4.5

Other comprehensive loss
 

 
 

 
 

 
 

 
 

 
 

 
(118.7
)
 
 

 
 

 
(118.7
)
 
(0.6
)
 
(119.3
)
 
(0.3
)
Distribution to noncontrolling interests, net
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
1.8

 
1.8

 
(3.2
)
Dividend payable to redeemable noncontrolling interest holder
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5.9
)
Redeemable noncontrolling interest purchase adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(16.2
)
Adjustment of redeemable noncontrolling interests to redemption value
 

 
 

 
 

 
 

 
0.2

 
 

 
 

 
 

 
 

 
0.2

 
 

 
0.2

 
(0.2
)
BALANCE—December 31, 2014
129.3

 
$
1.3

 
263.7

 
$
2.6

 
$
1,898.2

 
$
(290.4
)
 
$
(203.8
)
 
44.9

 
$
(766.6
)
 
$
641.3

 
$
22.9

 
$
664.2

 
$
84.9




5
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
December 31,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
230.7

 
$
151.6

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
112.9

 
116.7

Asset impairment charges
5.5

 
—

Deferred income taxes
(92.0
)
 
(10.3
)
Provision for bad debts
1.6

 
2.3

Provision for pension and other post-employment benefits
6.1

 
10.2

Share-based compensation
12.0

 
8.1

Loss on early extinguishment of debt
3.1

 
88.8

Other
25.6

 
10.5

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

 
 

Trade receivables
(45.7
)
 
(130.7
)
Inventories
35.1

 
48.6

Prepaid expenses and other current assets
19.6

 
(3.3
)
Accounts payable
64.7

 
(29.0
)
Accrued expenses and other current liabilities
122.7

 
126.3

Tax accruals
(29.2
)
 
(40.4
)
Other noncurrent assets
6.5

 
3.7

Other noncurrent liabilities
37.9

 
1.9

Net cash provided by operating activities
517.1

 
355.0

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(78.4
)
 
(103.1
)
Payment for actual and anticipated business combinations, net of cash acquired

(447.3
)
 
(0.6
)
Proceeds from sale of asset
0.1

 
14.2

Payments related to loss on foreign currency contracts
(18.1
)
 
—

Net cash used in investing activities
(543.7
)
 
(89.5
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from short-term debt, original maturity more than three months
12.9

 
625.6

Repayments of short-term debt, original maturity more than three months
(14.4
)
 
(25.2
)
Net (payments) proceeds from short-term debt, original maturity less than three months
(15.9
)
 
14.6

Proceeds from revolving loan facilities
1,035.0

 
495.0

Repayments of revolving loan facilities
(490.0
)
 
(494.5
)
Proceeds from term loans
2,979.6

 
—

Repayments of term loans
(2,475.0
)
 
—

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
20.1

 
22.4

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
)
 
(149.2
)
Net proceeds from foreign currency contracts
31.0

 
6.8

Payment for business combinations – contingent consideration
—

 
(0.8
)
Proceeds from noncontrolling interests
—

 
1.8

Distributions to noncontrolling interests
(10.7
)
 
—

Purchase of additional noncontrolling interests
—

 
(14.9
)
Distributions to redeemable noncontrolling interests
(8.1
)
 
(3.2
)
Payment of deferred financing fees
(53.7
)
 
(5.0
)
Net cash provided by (used in) financing activities
193.9

 
(210.8
)
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
(25.9
)
 
(89.5
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
141.4

 
(34.8
)
CASH AND CASH EQUIVALENTS—Beginning of period
341.3

 
1,238.0

CASH AND CASH EQUIVALENTS—End of period
$
482.7

 
$
1,203.2

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 

 
 

Cash paid during the period for interest
$
29.9

 
$
32.8

Cash paid during the period for income taxes, net of refunds received
59.6

 
70.0

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
 

 
 

Accrued capital expenditure additions
$
31.5

 
$
27.6

Non-cash capital contribution associated with special share purchase transaction

13.8

 
—

See notes to Condensed Consolidated Financial Statements.

6
Table of Contents

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 six months ended December 31, 2015 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 December 31, 2015, 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 Notes 15 and 16.
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 December 31, 2015 and 2014 was 11.8% and 17.9%, and for the six months ended December 31, 2015 and 2014 was (30.6)% and 13.9%, respectively. The effective tax rate for the six months ended December 31, 2015 includes the net impact of the settlement with the Internal Revenue Service (“IRS”) as described below.  The effective income tax rate for the six months ended December 31, 2014 includes the net impact of favorable tax audit resolutions in multiple jurisdictions, partially offset by the negative impact of the tax expense associated with the planned intercompany transfer of certain license agreements substantially utilized in the Company’s foreign operations.

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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 is 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 December 31, 2015 and June 30, 2015, the gross amount of UTBs was $189.2 and $342.6, respectively. As of December 31, 2015, the total amount of UTBs that, if recognized, would impact the effective income tax rate is $67.1. As of December 31, 2015 and June 30, 2015, the liability associated with UTBs, including accrued interest and penalties, was $78.7 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 December 31, 2015 and 2014 was $0.7 and $(2.3), and for the six months ended December 31, 2015 and 2014 was $2.0 and $(3.2) respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of December 31, 2015 and June 30, 2015 was $7.9 and $15.2, respectively. On the basis of the information available as of December 31, 2015, it is reasonably possible that a decrease of up to $3.5 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 Issued Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“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 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 is currently evaluating the impact the amendment will have 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 is currently evaluating the impact the amendment will have on the Company’s Consolidated Financial Statements.
In September 2015, the 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 amendments will be effective for the Company for fiscal 2017 using a prospective approach, with early adoption permitted. The Company is evaluating the impact this amendment will have 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’s interim and annual consolidated financial statements for 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 is evaluating the impact these amendments will have 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 by the customer. This amendment will be effective for the Company’s interim and annual consolidated financial statements for fiscal 2019 with either retrospective or modified retrospective treatment applied, and the Company is evaluating the impact this will have on the Company’s Consolidated Financial Statements upon implementation.

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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. The Company’s operating and reportable segments are Fragrances, Color Cosmetics and Skin & Body Care (also referred to as “segments”). The reportable segments also represent the Company’s product groupings. 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.
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
SEGMENT DATA
2015
 
2014
 
2015
 
2014
Net revenues:
 
 
 
 
 
 
 
Fragrances
$
627.0

 
$
691.7

 
$
1,175.1

 
$
1,332.6

Color Cosmetics
374.8

 
340.5

 
765.7

 
684.6

Skin & Body Care
208.7

 
227.4

 
382.0

 
424.7

Total
$
1,210.5

 
$
1,259.6

 
$
2,322.8

 
$
2,441.9

Operating income
 
 
 
 
 
 
 
Fragrances
$
128.7

 
$
145.5

 
$
237.6

 
$
266.0

Color Cosmetics
58.4

 
40.0

 
116.1

 
82.5

Skin & Body Care
27.5

 
15.1

 
34.3

 
18.8

Corporate
(62.2
)
 
(16.9
)
 
(153.9
)
 
(63.5
)
Total
$
152.4

 
$
183.7

 
$
234.1

 
$
303.8

Reconciliation:
 
 
 
 
 
 
 
Operating income
$
152.4

 
$
183.7

 
$
234.1

 
$
303.8

Interest expense, net
14.6

 
19.1

 
30.6

 
38.7

Loss on early extinguishment of debt
3.1

 
—

 
3.1

 
88.8

Other expense, net
24.1

 
0.3

 
23.8

 
0.3

Income before income taxes
$
110.6

 
$
164.3

 
$
176.6

 
$
176.0

Within the Company’s reportable segments, product categories exceeding 5% of consolidated net revenues are presented below:

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Three Months Ended
December 31,
 
Six Months Ended
December 31,
PRODUCT CATEGORY
2015
 
2014
 
2015
 
2014
Fragrances:
 
 
 
 
 
 
 
Designer
39.5
%
 
39.2
%
 
38.7
%
 
40.1
%
Lifestyle
7.4

 
9.2

 
6.7

 
8.1

Celebrity
4.9

 
6.5

 
5.1

 
6.4

Total
51.8
%
 
54.9
%
 
50.5
%
 
54.6
%
Color Cosmetics:
 
 
 
 
 
 
 
Nail Care
12.3
%
 
11.7
%
 
13.7
%
 
12.7
%
Other Color Cosmetics
18.6

 
15.3

 
19.3

 
15.3

Total
30.9
%
 
27.0
%
 
33.0
%
 
28.0
%
Skin & Body Care:
 
 
 
 
 
 
 
Body Care
11.6
%
 
12.7
%
 
11.1
%
 
12.1
%
Skin Care
5.7

 
5.4

 
5.4

 
5.3

Total
17.3
%
 
18.1
%
 
16.5
%
 
17.4
%
Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

4. RESTRUCTURING COSTS
Restructuring costs for the three and six months ended December 31, 2015 and 2014 are presented below:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2015
 
2014
 
2015
 
2014
Acquisition Integration Program
$
(0.9
)
 
$
—

 
$
45.6

 
$
—

Organizational Redesign
7.9

 
11.8

 
23.5

 
52.5

Productivity Program
3.6

 
0.2

 
3.6

 
—

Total
$
10.6

 
$
12.0

 
$
72.7

 
$
52.5

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 recent 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 $60.9 of restructuring costs life-to-date as of December 31, 2015, which have been recorded in Corporate.
The related liability balance and activity for the Acquisition Integration Program costs are presented below:
 
Total
Program
Costs
Balance—July 1, 2015
$
15.3

Restructuring charges
46.7

Payments
(5.7
)
Changes in estimates
(1.1
)
Effect of exchange rates
(1.6
)
Balance—December 31, 2015
$
53.6

The Company currently estimates that the total remaining accrual of $53.6 will result in cash expenditures of approximately $9.6 and $44.0 in fiscal 2016 and 2017, respectively.

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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 $95.1 of restructuring costs life-to-date as of December 31, 2015, which have been recorded 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
24.5

 
0.3

 
0.6

 
25.4

Payments
(14.4
)
 
—

 
(0.3
)
 
(14.7
)
Changes in estimates
(1.8
)
 
(0.1
)
 
—

 
(1.9
)
Effect of exchange rates
(0.4
)
 
—

 
(0.3
)
 
(0.7
)
Balance—December 31, 2015
$
39.9

 
$
0.2

 
$
0.1

 
$
40.2

The Company currently estimates that the total remaining accrual of $40.2 will result in cash expenditures of $22.2, $17.0, and $1.0 in fiscal 2016, 2017 and 2018, 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 $45.2 of restructuring costs life-to-date as of December 31, 2015, which have been recorded in Corporate.
The related liability balance and activity for the Productivity Program costs are presented below:
 
Severance and
Employee
Benefits
 
Third-Party
Contract
Terminations
 
Other
Exit
Costs
 
Total
Program
Costs
Balance—July 1, 2015
$
7.0

 
$
—

 
$
—

 
$
7.0

Restructuring charges
3.6

 
—

 
—

 
3.6

Payments
(3.2
)
 
—

 
—

 
(3.2
)
Changes in estimates
—

 
—

 
—

 
—

Effect of exchange rates
(0.3
)
 
—

 
—

 
(0.3
)
Balance—December 31, 2015
$
7.1

 
$
—

 
$
—

 
$
7.1

The Company currently estimates that the total remaining accrual of $7.1 will result in cash expenditures of approximately $5.4 and $1.7 in fiscal 2016 and 2017, respectively.

5. BUSINESS COMBINATIONS
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 March 12, 2015, between the Company and CHANEL (the “Stock Purchase Agreement”) for a total purchase price of $376.8.
The fair value of assets acquired and liabilities assumed from the Company’s acquisition of Bourjois was based on a preliminary valuation and the Company’s estimates and assumptions are subject to change within the measurement period. For the six months ended December 31, 2015 there were no adjustments to the fair value of the Bourjois assets acquired or

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liabilities assumed. As of December 31, 2015, the Company is still evaluating the fair value of certain intangible assets and finalizing the accounting for income taxes. 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 2016.
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 $0.4 and $1.6 for the three months ended December 31, 2015 and 2014, respectively, and $1.1 and $1.6 for the six months ended December 31, 2015 and 2014, respectively, of costs associated with this acquisition, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.

6. ACQUISITION-RELATED COSTS
Acquisition-related costs represent costs directly related to acquiring a company, for both completed and/or contemplated acquisition offers 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 $45.5 and $1.6 for the three months ended December 31, 2015 and 2014 and $61.3 and $1.6 for the six months ended December 31, 2015 and 2014, respectively, which have been recorded in Acquisition-related costs in the Condensed Consolidated Statements of Operations.

7. INVENTORIES

Inventories as of December 31, 2015 and June 30, 2015 are presented below:
 
December 31,
2015
 
June 30,
2015
Raw materials
$
135.7

 
$
160.9

Work-in-process
6.4

 
8.4

Finished goods
363.8

 
388.5

Total inventories
$
505.9

 
$
557.8


8. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of December 31, 2015 and June 30, 2015 is presented below:
 
Fragrances
 
Color Cosmetics
 
Skin & Body Care
 
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 December 31, 2015:
 
 
 
 
 
 
     Acquisitions (a)
6.9

 
4.5

 
2.3

 
13.7

     Foreign currency translation
(4.5
)
 
(9.0
)
 
—

 
(13.5
)
 
 
 
 
 
 
 
 
Gross balance at December 31, 2015
$
723.2

 
$
672.8

 
$
775.7

 
$
2,171.7

Accumulated impairments
—

 
—

 
(640.8
)
 
(640.8
)
Net balance at December 31, 2015
$
723.2

 
$
672.8

 
$
134.9

 
$
1,530.9

 
 
(a) During the six months ended December 31, 2015, 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.


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Other Intangible Assets
    
Other intangible assets, net as of December 31, 2015 and June 30, 2015 are presented below:
 
December 31, 2015
 
June 30, 2015
Indefinite-lived other intangible assets, net (a)
$
1,264.7

 
$
1,274.0

Finite-lived other intangible assets, net
591.6

 
639.6

Total Other intangible assets, net
$
1,856.3

 
$
1,913.6

 
 
(a) The balance of the Indefinite-lived other intangible assets is comprised solely of trademarks, net of accumulated impairments of $197.8 as of December 31, 2015 and June 30, 2015.

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

December 31, 2015
 
 
 
 
 
 
 
License agreements
$
797.0

 
$
(514.9
)
 
$
—

 
$
282.1

Customer relationships
553.8

 
(251.3
)
 
(5.5
)
 
297.0

Trademarks
117.3

 
(107.0
)
 
—

 
10.3

Product formulations
32.3

 
(30.1
)
 
—

 
2.2

Total
$
1,500.4

 
$
(903.3
)
 
$
(5.5
)
 
$
591.6


Amortization expense totaled $18.9 and $18.5, for the three months ended December 31, 2015 and 2014, respectively, and $38.1 and $37.4 for the six months ended December 31, 2015 and 2014, respectively.

In conjunction with the Company’s analysis of its go-to-market strategy in Southeast Asia during the first quarter of fiscal 2016, the Company evaluated future cash flows for this asset group and determined that the carrying value exceeded the undiscounted cash flows. As a result, the Company evaluated the fair value of the long-lived assets in the asset group, through an analysis of discounted future cash flows, and determined that the customer relationships were fully impaired and thus recorded nil and $5.5 of asset impairment charges in the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2015, respectively.

9. OTHER NONCURRENT ASSETS

As of December 31, 2015 and June 30, 2015, Other noncurrent assets was $687.8 and $207.6, respectively.
Pursuant to a Shares and Trademarks Sale and Purchase Agreement (the "Share Purchase Agreement") dated November 2, 2015, the Company agreed to acquire 100% of the net assets of a beauty business (the “Brazilian Beauty Business”) from Hypermarcas S.A., a consumer goods company based in Brazil. The total cash consideration net of preliminary working capital adjustments was R$3,539.0 million, the equivalent of $886.7 as described in Note 19. The Share Purchase Agreement required an advance payment of R$1,710.0 million, the equivalent of $429.4, which was paid on December 28, 2015 and is included in Other noncurrent assets in the Company's Condensed Consolidated Balance Sheet as of December 31, 2015.

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10. DEBT
 
December 31, 2015
 
June 30, 2015
Short-term debt
$
10.2

 
$
22.1

Coty Credit Agreement
 
 
 
   Revolving Credit Facility due October 2020
675.0

 
—

   Term Loan A Facility due October 2020
1,750.0

 
—

   Term Loan B Facility due October 2022
1,226.6

 
—

2015 Credit Agreement due March 2018
—

 
800.0

Coty Inc. Credit Facility
 
 
 
 2013 Term Loan due March 2018
—

 
1,050.0

 Incremental Term Loan due April 2018
—

 
625.0

 Revolving Loan Facility due April 2018
—

 
136.5

Other long-term debt and capital lease obligations
0.6

 
1.1

Total debt
3,662.4

 
2,634.7

Less: Short-term debt and current portion of long-term debt
(85.6
)
 
(28.8
)
Total Long-term debt
3,576.8

 
2,605.9

Less: Discount on Long-term debt
(5.9
)
 
—

Total Long-term debt, net
$
3,570.9

 
$
2,605.9

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 (the “Senior Secured Facilities”) comprised of (i) a five year revolving credit facility in an aggregate principal amount up to $1,500.0 (the “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 (“Term Loan A Facility”) and (iii) a Term Loan B Facility comprising of a $500.0 tranche and a €665.0 million tranche (“Term Loan B Facility”). The 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 facilities under the Coty Inc. Credit Facility (together, the “Prior Coty Inc. Credit Facilities”).
The interest rate applicable to borrowings under the Revolving Credit Facility and the Term Loan A Facility will accrue at a rate equal to, at the Company’s option, either LIBOR plus a margin ranging from 1.00% to 2.00% per annum or a base rate plus a margin ranging from 0.00% to 1.00% per annum, based on the Company’s total net leverage ratio, as defined in the Coty Credit Agreement. As of December 31, 2015, the applicable spread for the Revolving Credit Facility and the Term Loan A Facility was 1.50%.
The interest rate applicable to borrowings under the Term Loan B Facility will accrue at a rate equal to (a) for U.S. dollar term loans, at the Company’s option, either LIBOR (subject to a 0.75% floor) plus a margin of 3.00% or a base rate (subject to a 1.75% floor), plus a margin of 2.00%, and (b) for Euro denominated term loans, EURIBOR (subject to a 0.75% floor) plus a margin of 2.75%. The Company will pay to the revolving lenders an unused commitment fee calculated at a rate ranging from 0.25% to 0.50% per annum, based on the Company’s total net leverage ratio, as defined in the Coty Credit Agreement. As of December 31, 2015, the applicable rate on the unused commitment fee was 0.50%.
Quarterly repayments for the Term Loan A Facility and Term Loan B Facility will commence on June 30, 2016 and will continue to be made in quarterly installments of 1.25% and 0.25% of the original principal amount, respectively. The Revolving Credit Facility and Term Loan A Facility will mature in October 2020 and the Term Loan B Facility will mature in October 2022.
The Company recognized $56.5 of deferred financing fees in connection with the Coty Credit Agreement. In connection with the refinancing, the Company wrote off $3.1 of deferred financing fees associated with the Prior Coty Inc. Credit Facilities, which has been reflected in Loss on early extinguishment of debt in the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2015.
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 the assets of Coty Inc. and its wholly-owned domestic subsidiaries, in each case subject to certain carve outs and exceptions.

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Debt Covenants
The Company is required to comply with certain affirmative and negative covenants contained within the Coty Credit Agreement. The Coty Credit Agreement includes a financial covenant that requires the Company to maintain a total net leverage ratio, as defined therein, equal to or less than 5.50 to 1.00 for each fiscal quarter through December 31, 2016, subject to certain agreed step-downs thereafter. In the four fiscal quarters following the closing of any material acquisition, as defined in the Coty Credit Agreement, the applicable leverage ratio shall be the lesser of 1.00 to 1.00 higher than the applicable rate at the time, and 5.95 to 1.00. After the four fiscal quarter period ends, the net leverage ratio levels will return to pre-material acquisition levels.
As of December 31, 2015, the Company is in compliance with all financial covenants within the Coty Credit Agreement as described above.

11. INTEREST EXPENSE, NET

Interest expense, net for the three and six months ended December 31, 2015 and 2014 is presented below:
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
 
2015
 
2014
 
2015
 
2014
Interest expense
$
25.3

 
$
17.4

 
$
40.3

 
$
36.8

Foreign exchange (gains) losses, net of derivative contracts (a)
(10.2
)
 
2.4

 
(8.7
)
 
3.7

Interest income
(0.5
)
 
(0.7
)
 
(1.0
)
 
(1.8
)
Total interest expense, net
$
14.6

 
$
19.1

 
$
30.6

 
$
38.7

 
 
(a) During the three months ended December 31, 2015 the Company recorded a gain of $11.1 related to short-term forward contracts to exchange Euros for U.S. Dollars related to the Euro tranche of debt issued during the quarter. These short-term forward contracts were entered into to facilitate the repayment of the Company’s then existing U.S. Dollar denominated term loans as part of the debt refinancing discussed in Note 10. Fluctuations in exchange rates between the dates the short-term forward contracts were entered into and the settlement date resulted in a gain upon settlement of $11.1 included within Total interest expense, net for the three and six months ended December 31, 2015 in the Company’s Condensed Consolidated Statements of Operations.

12. EMPLOYEE BENEFIT PLANS

The components of net periodic benefit cost for pension plans and other post-employment benefit plans recognized in the Condensed Consolidated Statements of Operations are presented below for the three and six months ended December 31, 2015 and 2014:
 
Three Months Ended December 31,
 
Pension Plans
 
Other Post-
Employment
 
 
 
U.S.
 
International
 
Benefits
 
Total
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
—

 
$
—

 
$
1.7

 
$
1.5

 
$
0.3

 
$
0.7

 
$
2.0

 
$
2.2

Interest cost
0.8

 
0.8

 
0.9

 
1.2

 
0.5

 
1.0

 
2.2

 
3.0

Expected return on plan assets
(0.6
)
 
(0.7
)
 
(0.3
)
 
(0.4
)
 
—

 
—

 
(0.9
)
 
(1.1
)
Amortization of prior service (credit) cost
—

 
—

 
0.1

 
—

 
(1.4
)
 
(0.1
)
 
(1.3
)
 
(0.1
)
Amortization of net loss
0.3

 
0.5

 
0.8

 
0.9

 
—

 
—

 
1.1

 
1.4

Curtailment gain
—

 
—

 
—

 
(0.8
)
 
—

 
—

 
—

 
(0.8
)
Net periodic benefit cost (credit)
$
0.5

 
$
0.6

 
$
3.2

 
$
2.4

 
$
(0.6
)
 
$
1.6

 
$
3.1

 
$
4.6


15
Table of Contents

 
Six Months Ended December 31,
 
Pension Plans
 
Other Post-
Employment
 
 
 
U.S.
 
International
 
Benefits
 
Total
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Service cost
$
—

 
$
—

 
$
3.4

 
$
3.0

 
$
0.6

 
$
1.3

 
$
4.0

 
$
4.3

Interest cost
1.6

 
1.7

 
1.8

 
2.4

 
1.0

 
2.0

 
4.4

 
6.1

Expected return on plan assets
(1.2
)
 
(1.5
)
 
(0.6
)
 
(0.7
)
 
—

 
—

 
(1.8
)
 
(2.2
)
Amortization of prior service (credit) cost
—

 
—

 
0.2

 
0.1

 
(2.8
)
 
(0.1
)
 
(2.6
)
 
—

Amortization of net loss
0.6

 
1.0

 
1.6

 
1.8

 
—

 
—

 
2.2

 
2.8

Curtailment gain
—

 
—

 
—

 
(0.8
)
 
—

 
—

 
—

 
(0.8
)
Net periodic benefit cost (credit)
$
1.0

 
$
1.2

 
$
6.4

 
$
5.8

 
$
(1.2
)
 
$
3.2

 
$
6.2

 
$
10.2

In June 2015, the Board approved the termination of the U.S. Del Labs pension plan with a proposed plan termination date of September 30, 2015. On July 31, 2015, the Company filed a determination letter request with the IRS to approve the termination of the U.S. Del Labs pension plan. As of December 31, 2015, the Company has not received notification from the IRS in response to the determination letter request. The Company expects the termination of the plan will be completed during fiscal 2017. The Company intends to fully fund the plan to provide for all plan benefits prior to the date assets are distributed with the plan termination. Settlement gain or loss, if any, resulting from the termination will be recognized at that time.

13. FAIR VALUE MEASUREMENT
The following fair value hierarchy is used in selecting inputs for those assets and liabilities measured at fair value and distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1—Valuation based on quoted market prices in active markets for identical assets or liabilities;
Level 2