Document
 
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, 2016
 
 
 
 
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
    FOR THE TRANSITION PERIOD FROM                    TO          
 
 
 
COMMISSION FILE NUMBER
 
 
 
COTY INC.
(Exact name of registrant as specified in its charter)
Delaware
 
13-3823358
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
350 Fifth Avenue, New York, NY
 
10118
(Address of principal executive offices)
 
(Zip Code)
(212) 389-7300
Registrant’s telephone number, including area code
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ý      No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes ý      No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer  ý
 
Accelerated filer   ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company   ¨
 
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨     No ý

At February 6, 2017, 747,117,746 shares of the registrant’s Class A Common Stock, $0.01 par value, were outstanding.
 


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,
 
2016
 
2015
 
2016
 
2015
Net revenues
$
2,296.7

 
$
1,210.5

 
$
3,376.9

 
$
2,322.8

Cost of sales
892.3

 
467.7

 
1,337.1

 
911.4

Gross profit
1,404.4

 
742.8

 
2,039.8

 
1,411.4

Selling, general and administrative expenses
1,170.2

 
515.4

 
1,649.1

 
999.7

Amortization expense
95.2

 
18.9

 
116.4

 
38.1

Restructuring costs
15.8

 
10.6

 
23.2

 
72.7

Acquisition-related costs
135.9

 
45.5

 
217.4

 
61.3

Asset impairment charges
—

 
—

 
—

 
5.5

Operating (loss) income
(12.7
)
 
152.4

 
33.7

 
234.1

Interest expense, net
57.9

 
14.6

 
98.3

 
30.6

Loss on early extinguishment of debt
—

 
3.1

 
—

 
3.1

Other (income) expense, net
(0.6
)
 
24.1

 
0.7

 
23.8

(Loss) income before income taxes
(70.0
)
 
110.6

 
(65.3
)
 
176.6

(Benefit) provision for income taxes
(122.1
)
 
13.0

 
(127.2
)
 
(54.1
)
Net income
52.1

 
97.6

 
61.9

 
230.7

Net income attributable to noncontrolling interests
2.5

 
5.3

 
10.7

 
9.7

Net income attributable to redeemable noncontrolling interests
2.8

 
3.3

 
4.4

 
6.3

Net income attributable to Coty Inc.
$
46.8

 
$
89.0

 
$
46.8

 
$
214.7

Net income attributable to Coty Inc. per common share:
 

 
 

 
 

 
 

Basic
$
0.06

 
$
0.26

 
$
0.09

 
$
0.61

Diluted
0.06

 
0.25

 
0.09

 
0.59

Weighted-average common shares outstanding:
 

 
 

 
 

 
 

Basic
746.6

 
345.0

 
539.8

 
352.5

Diluted
752.4

 
354.3

 
545.8

 
362.0

 
 
 
 
 
 
 
 
Cash dividend declared per common share
$
0.125

 
$
—

 
$
0.400

 
$
0.250


See notes to Condensed Consolidated Financial Statements.


1
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
 
2016
 
2015
 
2016
 
2015
Net income
$
52.1

 
$
97.6

 
$
61.9

 
$
230.7

Other comprehensive income (loss):
 

 
 

 
 

 
 

Foreign currency translation adjustment
(90.4
)
 
(1.6
)
 
(96.3
)
 
(18.8
)
Net unrealized derivative gains on cash flow hedges, net of taxes of $(8.8) and $0.1 and $(8.7) and $(0.7) during the three and six months ended, respectively
33.4

 
2.8

 
41.9

 
7.3

Pension and other post-employment benefits (losses) adjustment, net of tax of ($5.0) and nil, and ($5.8) and $0.1 during the three and six months ended, respectively
4.9

 
—

 
10.1

 
0.2

Total other comprehensive (loss) income, net of tax
(52.1
)
 
1.2

 
(44.3
)
 
(11.3
)
Comprehensive income
—

 
98.8

 
17.6

 
219.4

Comprehensive income attributable to noncontrolling interests:
 

 
 

 
 

 
 

Net income
2.5

 
5.3

 
10.7

 
9.7

Foreign currency translation adjustment
(0.5
)
 
0.2

 
(0.5
)
 
(0.3
)
Total comprehensive income attributable to noncontrolling interests
2.0

 
5.5

 
10.2

 
9.4

Comprehensive income attributable to redeemable noncontrolling interests:
 
Net income
2.8

 
3.3

 
4.4

 
6.3

Foreign currency translation adjustment
—

 
(0.1
)
 
—

 
—

Total comprehensive income attributable to redeemable noncontrolling interests
2.8

 
3.2

 
4.4

 
6.3

Comprehensive (loss) income attributable to Coty Inc.
$
(4.8
)
 
$
90.1

 
$
3.0

 
$
203.7


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,
2016
 
June 30,
2016
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
939.2

 
$
372.4

Trade receivables—less allowances of $67.7 and $35.2, respectively
1,450.3

 
682.9

Inventories
1,014.8

 
565.8

Prepaid expenses and other current assets
353.2

 
206.8

Deferred income taxes
151.8

 
110.5

Total current assets
3,909.3

 
1,938.4

Property and equipment, net
1,418.7

 
638.6

Goodwill
7,390.1

 
2,212.7

Other intangible assets, net
8,816.6

 
2,050.1

Deferred income taxes
71.5

 
15.7

Other noncurrent assets
284.8

 
180.1

TOTAL ASSETS
$
21,891.0

 
$
7,035.6

LIABILITIES AND EQUITY
 

 
 

Current liabilities:


 


Accounts payable
$
1,401.0

 
$
921.4

Accrued expenses and other current liabilities
1,520.6

 
748.4

Short-term debt and current portion of long-term debt
186.7

 
161.8

Income and other taxes payable
20.8

 
18.7

Deferred income taxes
8.7

 
4.9

Total current liabilities
3,137.8

 
1,855.2

Long-term debt, net
6,308.4

 
3,936.4

Pension and other post-employment benefits
589.2

 
230.6

Deferred income taxes
1,611.4

 
339.2

Other noncurrent liabilities
363.1

 
233.8

Total liabilities
12,009.9

 
6,595.2

COMMITMENTS AND CONTINGENCIES (Note 21)


 


REDEEMABLE NONCONTROLLING INTERESTS
70.9

 
73.3

EQUITY:
 

 
 

Preferred Stock, $0.01 par value; 20.0 shares authorized, 2.7 and 1.7 issued and outstanding, respectively, at December 31, 2016 and June 30, 2016
—

 
—

Class A Common Stock, $0.01 par value; 1,000.0 and 800.0 shares authorized, 812.0 and 138.7 issued, respectively, and 747.0 and 75.1 outstanding, respectively, at December 31, 2016 and June 30, 2016
8.1

 
1.4

Class B Common Stock, $0.01 par value; 0.0 and 262.0 shares authorized, 0.0 and 262.0 issued and outstanding, respectively, at December 31, 2016 and June 30, 2016
—

 
2.6

Additional paid-in capital
11,500.5

 
2,038.4

Accumulated deficit
9.8

 
(37.0
)
Accumulated other comprehensive loss
(283.5
)
 
(239.7
)
Treasury stock—at cost, shares: 65.0 and 63.6 at December 31, 2016 and June 30, 2016, respectively
(1,441.8
)
 
(1,405.5
)
Total Coty Inc. stockholders’ equity
9,793.1

 
360.2

Noncontrolling interests
17.1

 
6.9

Total equity
9,810.2

 
367.1

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
$
21,891.0

 
$
7,035.6


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, 2016
(In millions, except per share data)
(Unaudited)
 
Preferred Stock
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional
Paid-in
 
(Accumulated
 
Accumulated
Other
Comprehensive
 
Treasury Stock
 
Total Coty Inc.
Stockholders’
 
Noncontrolling
 
Total
 
Redeemable
Noncontrolling
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Deficit)
 
Loss
 
Shares
 
Amount
 
Equity
 
Interests
 
Equity
 
Interests
BALANCE—July 1, 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

Issuance of Class A Common Stock for business combination
 
 
 
 
409.7

 
4.1

 
 
 
 
 
9,624.5

 
 
 
 
 
 
 
 
 
9,628.6

 
 
 
9,628.6

 
 
Issuance of Preferred Stock
1.0

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
1.6

 
—

 
 

 
 
 
13.6

 
 
 
 
 
 
 
 
 
13.6

 
 
 
13.6

 
 
Share-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
8.9

 
 
 
 
 
 
 
 
 
8.9

 
 
 
8.9

 
 
Dividends
 
 
 
 
 
 
 
 
 
 
 
 
(187.3
)
 
 
 
 
 
 
 
 
 
(187.3
)
 
 
 
(187.3
)
 
 
Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46.8

 
 
 
 
 
 
 
46.8

 
10.7

 
57.5

 
4.4

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(43.8
)
 
 
 
 
 
(43.8
)
 
(0.5
)
 
(44.3
)
 


Distribution to noncontrolling interests, net
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
 
 
 
 
 
 
—

 


 
—

 
(3.5
)
Adjustment of redeemable noncontrolling interests to redemption value
 
 
 
 
 
 
 
 
 
 
 
 
2.4

 
 
 
 
 
 
 
 
 
2.4

 
 
 
2.4

 
(2.4
)
Adjustment to repurchase of redeemable noncontrolling interests
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.9
)
BALANCE—December 31, 2016
2.7

 
$
—

 
812.0

 
$
8.1

 
—

 
$
—

 
$
11,500.5

 
$
9.8

 
$
(283.5
)
 
65.0

 
$
(1,441.8
)
 
$
9,793.1

 
$
17.1

 
$
9,810.2

 
$
70.9


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, 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)
 
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 share units
 
 
 
 
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.


5
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Six Months Ended
December 31,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income
$
61.9

 
$
230.7

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

 
 

Depreciation and amortization
230.3

 
112.9

Asset impairment charges
—

 
5.5

Deferred income taxes
(111.2
)
 
(92.0
)
Provision for bad debts
5.8

 
1.6

Provision for pension and other post-employment benefits
28.5

 
6.1

Share-based compensation
9.1

 
12.0

Loss on early extinguishment of debt
—

 
3.1

Other
(2.7
)
 
25.6

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

 
 

Trade receivables
(293.7
)
 
(45.7
)
Inventories
103.3

 
35.1

Prepaid expenses and other current assets
22.6

 
19.6

Accounts payable
322.6

 
64.7

Accrued expenses and other current liabilities
369.8

 
122.7

Income and other taxes payable
(59.0
)
 
(29.2
)
Other noncurrent assets
11.4

 
6.5

Other noncurrent liabilities
(35.3
)
 
37.9

Net cash provided by operating activities
663.4

 
517.1

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(198.2
)
 
(78.3
)
Payment for business combinations, net of cash acquired

(143.8
)
 
(447.3
)
Payments related to loss on foreign currency contracts
—

 
(18.1
)
Net cash used in investing activities
(342.0
)
 
(543.7
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Proceeds from short-term debt, original maturity more than three months
5.6

 
12.9

Repayments of short-term debt, original maturity more than three months
(5.8
)
 
(14.4
)
Net (repayments) proceeds from short-term debt, original maturity less than three months
(39.5
)
 
(15.9
)
Proceeds from revolving loan facilities
934.4

 
1,035.0

Repayments of revolving loan facilities
(1,384.4
)
 
(490.0
)
Proceeds from term loans
1,075.0

 
2,979.6

Repayments of term loans
(55.7
)
 
(2,475.0
)
Dividend paid
(185.8
)
 
(89.0
)
Net proceeds from issuance of Class A Common Stock and related tax benefits
13.6

 
20.1

Payments for purchases of Class A Common Stock held as Treasury Stock
(36.3
)
 
(727.9
)
Net proceeds from foreign currency contracts
14.8

 
31.0

Purchase of additional noncontrolling interests
(9.8
)
 
—

Distributions to noncontrolling interests and redeemable noncontrolling interests
(3.5
)
 
(18.8
)
Payment of deferred financing fees
(23.4
)
 
(53.7
)
Net cash provided by financing activities
299.2

 
193.9

EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS
(28.8
)
 
(25.9
)
NET INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
591.8

 
141.4

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period
372.4

 
341.3

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period
$
964.2

 
$
482.7

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 

 
 


6
Table of Contents

Cash paid during the period for interest
$
79.5

 
$
29.9

Cash paid during the period for income taxes, net of refunds received
38.4

 
59.6

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
 

 
 

Accrued capital expenditure additions
$
56.2

 
$
31.5

Non-cash Common Stock issued for business combination
9,628.6

 
—

Non-cash debt assumed for business combination
1,941.8

 
—

Non-cash capital contribution associated with special share purchase transaction

—

 
13.8


See notes to Condensed Consolidated Financial Statements

7
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”) 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 and a new 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 3—Business Combinations.
After the closing of the P&G Beauty Business acquisition, the Company reorganized its business into three new divisions: the Luxury division, focused on prestige fragrances and premium skin care; the Consumer Beauty division, focused on color cosmetics, retail hair coloring and styling products, mass fragrance, mass skin care and body care; and the Professional Beauty division, 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 2017” refer to the fiscal year ending June 30, 2017.
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, 2016. 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, 2016 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 2017. All dollar amounts (other than per share amounts) in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.
Restricted Cash
Restricted cash represents funds that are not readily available for general purpose cash needs due to contractual limitations. Restricted cash is classified as a current or long-term asset based on the timing and nature of when or how the cash is expected to be used or when the restrictions are expected to lapse. As of December 31, 2016 and June 30, 2016, the Company had restricted cash of $25.0 and $0.0, respectively, classified as Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The restricted cash balance as of December 31, 2016 provides collateral for bank guarantees on rent, customs and duty accounts for the Company’s Professional Beauty division. Restricted cash is included as a component of Cash, cash equivalents, and restricted cash in the Condensed Consolidated Statement of Cash Flows. The following table provides a reconciliation of Cash, cash equivalents, and restricted cash reported within the Condensed Consolidated Balance Sheets.

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December 31,
2016
 
June 30,
2016
Cash and cash equivalents

$
939.2

 
$
372.4

Restricted cash included in Prepaid expenses and other current assets

25.0

 
—

Cash, cash equivalents, and restricted cash
$
964.2

 
$
372.4

Customer Loans
Following the closing of the P&G Beauty Business acquisition, the Company now provides loans to certain customers to help finance salon openings, renovations and other improvements. In exchange for this financing, customers become contractually obligated to purchase products from the Company. Certain customer loans may be provided at favorable rates, including interest-free or with below-market interest rates. Customer loans are initially recorded at fair value not to exceed the face value of the loan. The fair value is based on a market based measurement using published market interest rates in the country of loan origin. The difference between the face value (generally the amount advanced) and fair value of the loan at origination is reported as a reduction in net sales in the Condensed Consolidated Statements of Operations. The value of the loan after initial recognition is reduced for principal repayments, net of any allowances for uncollectibility. Customer loan payments are allocated between principal and related interest, as appropriate. Payments are received either in the form of scheduled cash payments or via partial or complete offset against rebates or other allowances earned by customers from product purchases. Allowances for uncollectible loans are recorded based on management’s assessment of objective evidence of potential uncollectibility. The portion of customer loans due within one year, net of an allowance for uncollectible loans was $15.8 as of December 31, 2016 and is recorded within Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheet. The portion of customer loans due in greater than one year, net of an allowance for uncollectible loans was $34.2 as of December 31, 2016 and is recorded within Other noncurrent assets in the Condensed Consolidated Balance Sheet.
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, 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 and pension and post-employment benefits. 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.
Recently Adopted Accounting Pronouncements
In November 2016, the FASB issued authoritative guidance amending the classification and presentation of restricted cash on the statement of cash flows. The amendments will require 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 has applied a retrospective transition method for each period presented. 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.

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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. The Company adopted this guidance as of the first quarter ended September 30, 2016. With respect to the Company’s Revolving Credit Facility (as defined in Note 9 - Debt), the Company has elected to classify unamortized debt issuance costs within the liability section of the balance sheet (as a contra-liability). In circumstances where the unamortized debt issuance costs exceeds the outstanding balance of the Coty Revolving Credit Facility or the Galleria Revolving Credit Facility, the amount of unamortized debt issuance costs exceeding the outstanding balance will be reclassified to assets. The Company has applied the change in accounting principle with retrospective application to prior periods. As such, the amounts previously reported as Other noncurrent assets and Long-term debt, net in the Condensed Consolidated Balance Sheet as of June 30, 2016 were decreased by $64.6, respectively, for the reclassification of debt issuance costs from assets to liabilities. The change in accounting principle does not have an impact on the Company’s Condensed Consolidated Statements of Operations, Statements of Cash Flows and Condensed Consolidated Statements of Equity and Redeemable Noncontrolling Interests.
In April 2015, the FASB issued authoritative guidance to clarify the accounting treatment for fees paid by a customer in cloud computing arrangements. Under the revised guidance, if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If the cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The revised guidance will not change a customer’s accounting for service contracts. The Company adopted this guidance as of the first quarter ended September 30, 2016 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued authoritative guidance that simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. Under this amendment, an entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendment also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step two of the goodwill impairment test. Early adoption is permitted and the amendment will be effective for the Company in fiscal 2021. The Company is currently evaluating the impact this guidance will have on the Company’s Consolidated Financial Statements.
In October 2016, the FASB issued authoritative guidance that amends accounting guidance for intra-entity transfer of assets other than inventory to require the recognition of taxes when the transfer occurs. The amendment will be effective for the Company in fiscal 2019 with early adoption permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. The Company is currently evaluating the impact this guidance will have on the Company’s Consolidated Financial Statements.
In August 2016, the FASB issued authoritative guidance that changes the classification and presentation of certain items within the statement of cash flows including but not limited to debt prepayment or debt extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. The amendment will be effective for the Company in fiscal 2019 with early adoption permitted. The Company is currently evaluating the effect that this guidance will have on the Company’s Consolidated Financial Statements.
In June 2014, and as further amended, 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. The standard will be effective for the Company in fiscal 2019 with either retrospective or modified retrospective treatment applied. Early adoption is permitted for the Company beginning in fiscal 2018. The Company is in the early stages of evaluating the impact this standard will have on its Consolidated Financial Statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
In February 2016, the FASB issued authoritative guidance requiring that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The amendment will be effective for the Company in fiscal 2020 with early adoption permitted. 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 has not yet started its analysis of the impact this standard will have on the Company’s Consolidated Financial Statements.

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3. BUSINESS COMBINATIONS
P&G Beauty Business Acquisition
On October 1, 2016, pursuant to the Transaction Agreement (as defined below), the Company completed the Transactions (as defined below) and 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 (the “Transaction Agreement”), 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 Merger, together with the other transactions contemplated by the Transaction Agreement, the “Transactions”).
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 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 in the Transactions. 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.
The following table summarizes the estimated allocation of the purchase price to the net assets of the P&G Beauty Business as of the October 1, 2016 acquisition date:
 
Estimated
fair value
 
Estimated
useful life
(in years)
Cash and cash equivalents
$
387.6

 
 
Inventories
506.7

 
 
Property, plant and equipment
770.4

 
3 - 40
Goodwill
5,081.8

 
Indefinite
Trademarks - indefinite
1,890.0

 
Indefinite
Trademarks - finite
879.1

 
10 - 30
Customer relationships
1,795.8

 
1.5 - 17
License agreements
1,836.0

 
10 - 30
Product formulations
183.8

 
5 - 29
Other net working capital
10.8

 
 
Net other assets
54.9

 
 
Unfavorable contract liabilities
(130.0
)
 
 
Pension liabilities
(394.9
)
 
 
Deferred tax liability, net
(1,301.6
)
 
 
Total purchase price
$
11,570.4

 
 
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 Transactions. Goodwill is not expected to be deductible for tax purposes. Goodwill of $342.0, $4,192.8, and $547.0 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 synergies.

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For the three and six months ended December 31, 2016, Net revenues and Net income of the P&G Beauty Business included in the Company’s Condensed Consolidated Statements of Operations from the date of acquisition were $1,111.2 and $55.2, respectively.
The Company recognized acquisition-related costs of $133.0 and $41.0 during the three months ended December 31, 2016 and 2015, respectively and $212.4 and $56.0 for the six months ended December 31, 2016 and 2015, respectively, which were included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
Unaudited Pro Forma Information
The unaudited pro forma financial information in the table below summarizes the combined results of the Company and the P&G Beauty Business as though the companies had been combined on July 1, 2015. The pro forma adjustments include incremental amortization of intangible assets and depreciation adjustment of property, plant and equipment, based on preliminary values of each asset as well as costs related to financing the acquisition. The unaudited pro forma information also includes non-recurring acquisition-related costs as well as amortization of the inventory step-up. 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 acquisition 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 December 31, 2015 and six months ended December 31, 2016 and 2015 are as follows:
 
Three Months Ended December 31,
 
Six Months Ended December 31,


2015 (a)
 
2016 (b)
 
2015 (a)
Pro forma Net revenues
$
2,462.5

 
$
4,407.9

 
$
4,647.8

Pro forma Net income
215.5

 
132.5

 
207.6

Pro forma Net income attributable to Coty Inc.
206.9

 
117.4

 
191.6

Pro forma Net income attributable to Coty Inc. per common share:
 
 
 
 
 
          Basic
$
0.27

 
$
0.16

 
$
0.25

          Diluted
$
0.27

 
$
0.16

 
$
0.25

 
 
(a) The pro forma information for the three and six months ended December 31, 2015 combines the Company's historical results of operations for the three and six months ended December 31, 2015 with P&G Beauty Business results of operations for the three and six months ended December 31, 2015. The pro forma information included $0.0 and $133.0 of non-recurring acquisition-related costs as well as $12.2 and $48.7 of amortization of inventory step up for the three and six months ended December 31, 2015, respectively.
(b) The pro forma information for the six months ended December 31, 2016 combines the Company's historical results of operations for the six months ended December 31, 2016 with P&G Beauty Business results of operations for the three months ended September 30, 2016. P&G Beauty Business results of operations for the three months ended December 31, 2016 are already included in the Company’s historical results of operation. For the six months ended December 31, 2016, the pro forma information excluded $314.1 of non-recurring acquisition-related costs and $36.5 of amortization of inventory step up.
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 is expected to further strengthen 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, which was funded through cash on hand and available debt.
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 in fiscal 2017 and 2018. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.

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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
 
Estimated
useful life
(in years)
Cash and cash equivalents
$
7.1

 
 
Inventories
79.8

 
 
Property, plant and equipment
11.3

 
3 - 10
Goodwill
175.5

 
Indefinite
Indefinite-lived other intangibles assets
163.8

 
Indefinite
Customer relationships
44.2

 
14 - 21
Technology
138.6

 
10 - 20
Other net working capital
(7.4
)
 
 
Net other assets
0.9

 
 
Deferred tax liability, net
(75.3
)
 
 
Total purchase price
538.5

 
 
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.
For the three and six months ended December 31, 2016, Net revenues and Net income (loss) of ghd were included in the Company’s Condensed Consolidated Statements of Operations from the date of acquisition were $44.4 and $(6.3), respectively, including the impact to net income of purchase price adjustments of $(13.8), net of tax.
The Company recognized acquisition-related costs of $0.5 and $1.8 during the three and six months ended December 31, 2016, respectively, which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
Brazil Acquisition
On February 1, 2016, the Company completed the acquisition of 100% of the net assets of the personal care and beauty business of Hypermarcas S.A. (the “Brazil Acquisition”) pursuant to a share purchase agreement in order to further strengthen its position in the Brazilian beauty and personal care market. The total consideration of R$3,599.5, the equivalent of $901.9, at the time of closing, was paid during fiscal 2016.
The Company has finalized the valuation of assets acquired and liabilities assumed for the Brazil Acquisition. The Company recognized certain measurement period adjustments as disclosed below during the quarter ended September 30, 2016. The measurement period for the Brazil Acquisition was closed as of September 30, 2016.

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The following table summarizes the allocation of the purchase price to the net assets acquired as of the February 1, 2016 acquisition date:
 
Estimated
fair value as previously reported (a)
 
Measurement period adjustments (b)
 
Estimated
fair value as adjusted
 
Estimated
useful life
(in years)
Cash and cash equivalents
$
11.1

 
$
—

 
$
11.1

 
 
Inventories
45.6

 
—

 
45.6

 
 
Property, plant and equipment
95.4

 
—

 
95.4

 
2 - 40
Goodwill
553.7

 
(16.6
)
 
537.1

 
Indefinite
Trademarks - indefinite
147.1

 
—

 
147.1

 
Indefinite
Trademarks - finite
10.3

 
—

 
10.3

 
5 - 15
Customer relationships
44.6

 
—

 
44.6

 
13 - 28
Product formulations
12.8

 
—

 
12.8

 
3
Other net working capital
0.7

 
—

 
0.7

 
 
Net other assets
2.1

 
(0.7
)
 
1.4

 
 
Deferred tax liability, net
(21.5
)
 
17.3

 
(4.2
)
 
 
Total purchase price
$
901.9

 
$
—

 
$
901.9

 
 
 
 
(a) As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016.
(b) The Company recorded measurement period adjustments in the first quarter of fiscal 2017 to account for a $0.7 asset retirement obligation, as well as, a net decrease in net deferred tax liability of $17.3 million as of the February 1, 2016 acquisition date. These adjustments were offset against Goodwill.
The Company has completed the local tax requirements allowing approximately $500.0 of goodwill and $44.6 of customer relationships assets to be tax deductible. 
The Company recognized acquisition-related costs of $0.4 and $1.1 during the three and six months ended December 31, 2016, respectively, and $0.6 during the three and six months ended December 31, 2015 which are included in Acquisition-related costs in the Condensed Consolidated Statements of Operations.
4. 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 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 will have 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. The new operating and reportable segments are:
Luxury — focused on prestige fragrance and premium skin care;
Consumer Beauty — focused on color cosmetics, retail hair coloring and styling products, mass fragrance, mass skin care and body care;
Professional Beauty — focused on hair and nail care products for professionals.
Additionally, in connection with the Company’s acquisition of the P&G Beauty Business, the Company reorganized its geographical structure into three regions: North America (Canada and the United States), Europe and ALMEA (Asia, Latin America, the Middle East, Africa and Australia).
As a result of this change in segment reporting, the Company restated 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.

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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 10.
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
SEGMENT DATA
2016
 
2015
 
2016
 
2015
Net revenues:
 
 
 
 
 
 
 
Luxury
$
835.0

 
$
548.5

 
$
1,284.0

 
$
1,027.5

Consumer Beauty
1,001.7

 
597.2

 
1,573.6

 
1,165.2

Professional Beauty
460.0

 
64.8

 
519.3

 
130.1

Total
$
2,296.7

 
$
1,210.5

 
$
3,376.9

 
$
2,322.8

Operating (loss) income:
 
 
 
 
 
 
 
Luxury
$
66.6

 
$
88.7

 
$
142.7

 
$
176.4

Consumer Beauty
62.9

 
107.0

 
115.6

 
171.0

Professional Beauty
83.3

 
18.9

 
99.7

 
40.6

Corporate
(225.5
)
 
(62.2
)
 
(324.3
)
 
(153.9
)
Total
$
(12.7
)
 
$
152.4

 
$
33.7

 
$
234.1

Reconciliation:
 
 
 
 
 
 
 
Operating (loss) income
$
(12.7
)
 
$
152.4

 
$
33.7

 
$
234.1

Interest expense, net
57.9

 
14.6

 
98.3

 
30.6

Loss on early extinguishment of debt
—

 
3.1

 
—

 
3.1

Other (income) expense, net
(0.6
)
 
24.1

 
0.7

 
23.8

(Loss) income before income taxes
$
(70.0
)
 
$
110.6

 
$
(65.3
)
 
$
176.6


15
Table of Contents

 
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
GEOGRAPHIC DATA
 
2016
 
2015
 
2016
 
2015
Net revenues:
 
 
 
 
 
 
 
 
North America
 
$
700.5

 
$
396.4

 
$
1,044.9

 
$
793.4

Europe
 
1,134.1

 
585.3

 
1,581.0

 
1,091.4

ALMEA
 
462.1

 
228.8

 
751.0

 
438.0

Total
 
$
2,296.7

 
$
1,210.5

 
$
3,376.9

 
$
2,322.8

Long-lived assets:
 
December 31,
2016
 
June 30,
2016
United States
 
$
6,052.7

 
$
2,688.7

Switzerland
 
4,278.3

 
508.0

All other (a)
 
7,294.4

 
1,713.6

Total
 
$
17,625.4

 
$
4,910.3

 
 
(a) Includes the intangible assets recognized as part of the P&G Beauty Business acquisition which have not been allocated geographically as of December 31, 2016. The Company is currently in the process of determining the geographic allocation of these intangible assets.
The table above presents long-lived assets, by our major countries and all other countries. A major country is defined as a group of subsidiaries within a country with combined long-lived assets greater than 10% of consolidated long-lived assets or as otherwise deemed significant. Long-lived assets include property and equipment, goodwill and other intangible assets.
Presented below are the revenues associated with Company’s product categories:
 
Three Months Ended
December 31,
 
Six Months Ended
December 31,
PRODUCT CATEGORY
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Fragrance
40.8
%
 
51.8
%
 
42.3
%
 
50.5
%
Color Cosmetics
24.3

 
30.9

 
27.3

 
33.0

Skin & Body Care
11.1

 
17.3

 
14.1

 
16.5

Hair Care
23.8

 
—

 
16.3

 
—

Total Coty Inc.
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%

5. RESTRUCTURING COSTS
Restructuring costs for the three and six months ended December 31, 2016 and 2015 are presented below:
 
Three Months Ended December 31,
 
Six Months Ended December 31,
 
2016
 
2015
 
2016
 
2015
Global Integration
$
13.6

 
$
—

 
$
13.6

 
$
—

Acquisition Integration Program
1.4

 
(0.9
)
 
4.6

 
45.6

Organizational Redesign
0.7

 
7.9

 
4.5

 
23.5

Other Restructuring
0.1

 
3.6

 
0.5

 
3.6

Total
$
15.8

 
$
10.6

 
$
23.2

 
$
72.7

Global Integration Activities
Following the acquisition of the P&G Beauty Business, the Company incurred costs aimed at integrating the P&G Beauty Business (“Global Integration Activities”). As part of those activities, the Company incurred exit and disposal costs primarily related to a lease loss accrual on a duplicative facility that was exited after the acquisition, as well as, employee separations. The costs incurred with the Global Integration Activities have been recorded in Corporate.
The related liability balance and activity for the Global Integration Activities costs are presented below:

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Table of Contents

 
Severance and
Employee
Benefits
 
Other
Exit
Costs
 
Total
Program
Costs
Balance—July 1, 2016
$
—

 
$
—

 
$
—

Restructuring charges
4.2

 
9.4

 
13.6

Acquisition
1.8

 
—

 
1.8

Payments
(1.6
)
 
(1.0
)
 
(2.6
)
Effect of exchange rates
0.1

 
—

 
0.1

Balance—December 31, 2016
$
4.5

 
$
8.4

 
$
12.9

The Company currently estimates that the total remaining accrual of $12.9 will result in cash expenditures of approximately $4.7, $3.2, $3.2 and $1.8 in fiscal 2017, 2018, 2019 and 2020, 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 the Bourjois brand (the “Acquisition Integration Program”).  Actions 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 $65.0, all of which will result in cash payments. The Company incurred $62.2 of restructuring costs life-to-date as of December 31, 2016, which have been recorded in Corporate.
Restructuring costs in the Company’s Condensed Consolidated Statements of Operations for the three months ended September 30, 2016 included a curtailment gain of $1.8, recognized in connection with involuntary employee terminations as part of the Acquisition Integration Program. This gain resulted in a corresponding decrease to the net pension liability as of December 31, 2016. Refer to Note 16 — Employee Benefit Plans for further information.
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, 2016
$
35.7

 
$
7.6

 
$
0.1

 
$
43.4

Restructuring charges
0.6

 
—

 
6.3

 
6.9

Payments
(6.3
)
 
(3.7
)
 
(1.3
)
 
(11.3
)
Changes in estimates
—

 
(0.5
)
 
—

 
(0.5
)
Effect of exchange rates
(1.5
)
 
(0.4
)
 
—

 
(1.9
)
Balance—December 31, 2016
$
28.5

 
$
3.0

 
$
5.1

 
$
36.6

The Company currently estimates that the total remaining accrual of $36.6 will result in cash expenditures of approximately $12.5, $16.6, $2.8 and $4.7 in fiscal 2017, 2018, 2019 and 2020, respectively.
Organizational Redesign
During the fourth quarter of fiscal 2014, the Board approved a program associated with a new organizational structure (“Organizational Redesign”) that aims to reinforce the Company’s growth path and strengthen its position as a global leader in beauty. The Company anticipates that the Organizational Redesign will result in pre-tax restructuring and related costs of $145.0 to $180.0, all of which will result in cash payments. The Company anticipates substantial completion of all project activities by the end of fiscal 2017, with the remaining costs primarily charged to Corporate. The Company incurred $110.6 of restructuring costs life-to-date as of December 31, 2016, which have been recorded in Corporate. The Company incurred $32.5 of other business realignment costs life-to-date as of December 31, 2016 which have been primarily reported in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations in Corporate.
The related liability balance and activity for the Organizational Redesign costs are presented below

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Severance and
Employee
Benefits
 
Third-Party
Contract
Terminations
 
Other
Exit
Costs
 
Total
Program
Costs
Balance—July 1, 2016
$
33.6

 
$
0.4

 
$
0.5

 
$
34.5

Restructuring charges
6.1

 
—

 
—

 
6.1

Payments
(18.5
)
 
—

 
(0.2
)
 
(18.7
)
Changes in estimates
(1.6
)
 
—

 
—

 
(1.6
)
Effect of exchange rates
(0.6
)
 
—

 
(0.2
)
 
(0.8
)
Balance—December 31, 2016
$
19.0

 
$
0.4

 
$
0.1

 
$
19.5

The Company currently estimates that the total remaining accrual of $19.5 will result in cash expenditures of $14.7 and $4.8 in fiscal 2017 and 2018, respectively.
Other Restructuring
Other restructuring primarily relates to the Company’s programs to integrate supply chain and selling activities, which were substantially completed during fiscal 2016 with cash payments expected to continue through fiscal 2018. The Company incurred expenses of $0.5 and $3.6 during the six months ended December 31, 2016 and December 31, 2015, respectively. The related liability balances were $5.1 and $6.2 at December 31, 2016 and June 30, 2016, respectively. The Company currently estimates that the total remaining accrual of $5.1 will result in cash expenditures of approximately $4.1 and $1.0 in fiscal 2017 and 2018, respectively.
In connection with the acquisition of the P&G Beauty Business, the Company assumed restructuring liabilities of approximately $10.1 at October 1, 2016. The Company estimates that the remaining accrual of $9.2 at December 31, 2016 will result in cash expenditures of $1.4, $5.8, $0.3 and $1.7 in fiscal 2017, 2018, 2019 and 2020, respectively.

6. ACQUISITION-RELATED COSTS
Acquisition-related costs, which are expensed as incurred, represent non-restructuring costs directly related to acquiring and integrating an entity, for both completed and contemplated acquisitions 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 $135.9 and $45.5 for the three months ended December 31, 2016 and 2015, respectively, and $217.4 and $61.3 for the six months ended December 31, 2016 and 2015, respectively, which have been recorded in Acquisition-related costs in the Condensed Consolidated Statements of Operations.

7. INCOME TAXES
The effective income tax rate for the three months ended December 31, 2016 and 2015 was 174.4% and 11.8%, respectively, and 194.8% and (30.6)% for the six months ended December 31, 2016 and 2015, respectively.
The effective tax rate for the three months ended December 31, 2016 includes the release of a valuation allowance in the US as a result of the P&G Beauty Business acquisition of $111.2.
The effective income tax rate for the three months ended December 31, 2015 includes the decrease in the accrual for unrecognized tax benefits and the expiration of foreign statutes of limitation.
The effective tax rate for the six months ended December 31, 2016 includes the release of a valuation allowance in the US as a result of the P&G Beauty Business acquisition of $111.2. The negative effective income tax rate for the six months ended December 31, 2015 was primarily the result of the net impact of the settlements with the Internal Revenue Service (“IRS”) as described below.
The effective income tax rate for the three months ended December 31, 2015 included the final settlement with the IRS in connection with the 2004 - 2012 examination periods. The settlement primarily related to the acquisition of the Calvin Klein fragrance business. In connection with the settlement, the Company recognized a tax benefit of approximately $193.9 of which $164.2 was mainly due to the recognition of additional deferred tax assets related to the basis of the Calvin Klein trademark, and approximately $29.7 resulted from the reduction of gross unrecognized tax benefits. Of the $193.9 tax benefit, $113.0 was offset by a valuation allowance due to on-going operating losses in the U.S.
There was an increase of $1,178.7 in deferred tax liability for the six months ended December 31, 2016 compared to fiscal year ended June 30, 2016. The increase was primarily due to the acquisition of the P&G Beauty Business and the step up in the book basis of certain assets.

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Table of Contents

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, 2016 and June 30, 2016, the gross amount of UTBs was $231.2 and $228.9, respectively. As of December 31, 2016, the total amount of UTBs that, if recognized, would impact the effective income tax rate was $230.6. As of December 31, 2016 and June 30, 2016, the liability associated with UTBs, including accrued interest and penalties, was $142.1 and $131.9, 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, 2016 and 2015 was $0.8 and $0.7, and for the six months ended December 31, 2016 and 2015 was $1.0 and $2.0, respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of December 31, 2016 and June 30, 2016 was $10.8 and $9.9, respectively. On the basis of the information available as of December 31, 2016, it is reasonably possible that a decrease of up to $10.7 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.
8. INVENTORIES
Inventories as of December 31, 2016 and June 30, 2016 are presented below:
 
December 31,
2016
 
June 30,
2016
Raw materials
$
238.8

 
$
159.8

Work-in-process
29.2

 
9.5

Finished goods
746.8

 
396.5

Total inventories
$
1,014.8

 
$
565.8


9. PROPERTY AND EQUIPMENT, NET
Property and equipment, net as of December 31, 2016 and June 30, 2016 are presented below:
 
 
December 31,
2016
 
June 30,
2016
Land, buildings and leasehold improvements
 
$
589.2

 
$
284.8

Machinery and equipment
 
781.6

 
523.1

Marketing furniture and fixtures
 
401.8

 
295.2

Computer equipment and software
 
392.3

 
346.7

Construction in progress
 
195.0

 
79.6

Property and Equipment, gross
 
2,359.9

 
1,529.4

Accumulated depreciation and amortization
 
(941.2
)
 
(890.8
)
Property and equipment, net
 
$
1,418.7

 
$
638.6

Depreciation and amortization expense of property and equipment totaled $75.3 and $36.6, for the three months ended December 31, 2016 and 2015, respectively, and $113.9 and $74.8 for the six months ended December 31, 2016 and 2015, respectively, and they are recorded in Cost of sales and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.


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Table of Contents

10. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of December 31, 2016 and June 30, 2016 is presented below:
 
Luxury
 
Consumer Beauty
 
Professional Beauty
 
Total
Gross balance at June 30, 2016
$
1,294.5

 
$
1,288.2

 
$
270.8

 
$
2,853.5

Accumulated impairments
(403.7
)
 
(237.1
)
 
—

 
(640.8
)
Net balance at June 30, 2016
$
890.8

 
$
1,051.1

 
$
270.8

 
$
2,212.7

 
 
 
 
 
 
 
 
Changes during the period ended December 31, 2016:
 
 
 
 
 
 
 
     Measurement Period Adjustments (a)
—

 
(16.6
)
 
—

 
(16.6
)
     Acquisitions (b)
342.0

 
4,192.8

 
722.5

 
5,257.3

     Foreign currency translation
(8.7
)
 
(44.9
)
 
(9.7
)
 
(63.3
)
 
 
 
 
 
 
 
 
Gross balance at December 31, 2016
$
1,627.8

 
$
5,419.5

 
$
983.6

 
$
8,030.9

Accumulated impairments
(403.7
)
 
(237.1
)
 
—

 
(640.8
)
Net balance at December 31, 2016
$
1,224.1

 
$
5,182.4

 
$
983.6

 
$
7,390.1

 
 
(a) Includes measurement period adjustments in connection with the Brazil Acquisition (Refer to Note 3 — Business Combinations)
(b) Includes goodwill resulting from the P&G Beauty Business and ghd acquisitions during the six months ended December 31, 2016 (Refer to Note 3 — Business Combinations)
As described in Note 4 — Segment Reporting, the Company changed its segments during the second quarter ended December 31, 2016. As a result, the Company allocated goodwill to the new segments using a relative fair value approach. In addition, the Company completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed. Further, the Company recast the goodwill and indefinite-lived intangible asset tables for the new segments.
Other Intangible Assets, net    
Other intangible assets, net as of December 31, 2016 and June 30, 2016 are presented below:
 
December 31, 2016
 
June 30, 2016
Indefinite-lived other intangible assets
$
3,431.0

 
$
1,417.0

Finite-lived other intangible assets, net
5,385.6

 
633.1

Total Other intangible assets, net
$
8,816.6

 
$
2,050.1


20
Table of Contents

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, 2016
$
401.2

 
$
551.5

 
$
662.1

 
$
1,614.8

Accumulated impairments
(118.8
)
 
(75.9
)
 
(3.1
)
 
(197.8
)
Net balance at June 30, 2016
282.4

 
475.6

 
659.0

 
1,417.0

 
 
 
 
 
 
 
 
Changes during the period ended December 31, 2016:
 
 
 
 
 
 
 
Acquisitions (a)
—

 
1,390.0

 
663.8

 
2,053.8

Foreign currency translation
(14.4
)
 
(18.5
)
 
(6.9
)
 
(39.8
)
 
 
 
 
 
 
 
 
Gross balance at December 31, 2016
386.8

 
1,923.0