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 SEPTEMBER 30, 2018
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                    TO          
COMMISSION FILE NUMBER 001-35964
 
 
 
COTY INC.
(Exact name of registrant as specified in its charter)
Delaware
 
13-3823358
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
 
 
350 Fifth Avenue, New York, NY
 
10118
(Address of principal executive offices)
 
(Zip Code)
(212) 389-7300
Registrant’s telephone number, including area code
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes ý      No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   ý
 
Accelerated filer   ¨
 
Non-accelerated filer   ¨
 
Smaller reporting company   ¨
 
 
 
Emerging growth company   ¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨     No ý
At October 31, 2018, 751,075,098 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
September 30,
 
2018
 
2017
Net revenues
$
2,031.3

 
$
2,238.3

Cost of sales
809.1

 
874.2

Gross profit
1,222.2

 
1,364.1

Selling, general and administrative expenses
1,122.3

 
1,191.1

Amortization expense
92.5

 
78.2

Restructuring costs
15.5

 
11.2

Acquisition-related costs
—

 
54.1

Asset impairment charges
12.6

 
—

Operating (loss) income
(20.7
)
 
29.5

Interest expense, net
64.1

 
66.4

Other expense, net
2.7

 
4.5

Loss before income taxes
(87.5
)
 
(41.4
)
Benefit for income taxes
(77.4
)
 
(25.3
)
Net loss
(10.1
)
 
(16.1
)
Net income (loss) attributable to noncontrolling interests
1.2

 
(2.2
)
Net income attributable to redeemable noncontrolling interests
0.8

 
5.8

Net loss attributable to Coty Inc.
$
(12.1
)
 
$
(19.7
)
Net loss attributable to Coty Inc. per common share:
 

 
 

Basic
$
(0.02
)
 
$
(0.03
)
Diluted
(0.02
)
 
(0.03
)
Weighted-average common shares outstanding:
 

 
 

Basic
750.8

 
748.6

Diluted
750.8

 
748.6


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
September 30,
 
2018
 
2017
Net loss
$
(10.1
)
 
$
(16.1
)
Other comprehensive (loss) income:
 

 
 

Foreign currency translation adjustment
(48.9
)
 
239.1

Net unrealized derivative gain (loss) on cash flow hedges, net of taxes of $(0.3) and $(0.1) during the three months ended, respectively
1.0

 
(0.1
)
Pension and other post-employment benefits adjustment, net of tax of $0.5 and nil during the three months ended, respectively
0.1

 
0.7

Total other comprehensive (loss) income, net of tax
(47.8
)
 
239.7

Comprehensive (loss) income
(57.9
)
 
223.6

Comprehensive income (loss) attributable to noncontrolling interests:
 

 
 

Net income (loss)
1.2

 
(2.2
)
Foreign currency translation adjustment
0.2

 
0.6

Total comprehensive income (loss) attributable to noncontrolling interests
1.4

 
(1.6
)
Comprehensive income attributable to redeemable noncontrolling interests:
 
 
 
Net income
0.8

 
5.8

Foreign currency translation adjustment
—

 
—

Total comprehensive income attributable to redeemable noncontrolling interests
0.8

 
5.8

Comprehensive (loss) income attributable to Coty Inc.
$
(60.1
)
 
$
219.4


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)
 
September 30,
2018
 
June 30,
2018
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
423.3

 
$
331.6

Restricted cash
29.9

 
30.6

Trade receivables—less allowances of $76.1 and $81.8, respectively
1,484.4

 
1,536.0

Inventories
1,251.2

 
1,148.9

Prepaid expenses and other current assets
551.2

 
603.9

Total current assets
3,740.0

 
3,651.0

Property and equipment, net
1,648.0

 
1,680.8

Goodwill
8,570.1

 
8,607.1

Other intangible assets, net
8,218.9

 
8,284.4

Deferred income taxes
219.0

 
107.4

Other noncurrent assets
196.7

 
299.5

TOTAL ASSETS
$
22,592.7

 
$
22,630.2

LIABILITIES AND EQUITY
 

 
 

Current liabilities:


 


Accounts payable
$
1,794.9

 
$
1,928.6

Accrued expenses and other current liabilities
1,737.7

 
1,844.4

Short-term debt and current portion of long-term debt
200.7

 
218.9

Income and other taxes payable
57.8

 
52.1

Total current liabilities
3,791.1

 
4,044.0

Long-term debt, net
7,789.7

 
7,305.4

Pension and other post-employment benefits
532.9

 
533.3

Deferred income taxes
841.1

 
842.5

Other noncurrent liabilities
402.6

 
388.5

Total liabilities
13,357.4

 
13,113.7

COMMITMENTS AND CONTINGENCIES (See Note 18)


 


REDEEMABLE NONCONTROLLING INTERESTS
622.2

 
661.3

EQUITY:
 

 
 

Preferred Stock, $0.01 par value; 20.0 shares authorized, 5.0 issued and outstanding, at September 30, 2018 and June 30, 2018
—

 
—

Class A Common Stock, $0.01 par value; 1,000.0 shares authorized, 815.8 issued and 750.8 and 750.7 outstanding, respectively, at September 30, 2018 and June 30, 2018
8.1

 
8.1

Additional paid-in capital
10,699.5

 
10,750.8

Accumulated deficit
(769.1
)
 
(626.2
)
Accumulated other comprehensive income
110.8

 
158.8

Treasury stock—at cost, shares: 65.0 at September 30, 2018 and June 30, 2018
(1,441.8
)
 
(1,441.8
)
Total Coty Inc. stockholders’ equity
8,607.5

 
8,849.7

Noncontrolling interests
5.6

 
5.5

Total equity
8,613.1

 
8,855.2

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
$
22,592.7

 
$
22,630.2

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 Three Months Ended September 30, 2018
(In millions, except per share data)
(Unaudited)
 
Preferred Stock
 
Class A
Common Stock
 
Additional
Paid-in Capital
 
(Accumulated Deficit)
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Total Coty Inc.
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Redeemable
Noncontrolling Interests
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
BALANCE as previously reported—July 1, 2018
5.0

 
$
—

 
815.8

 
$
8.1

 
$
10,750.8

 
$
(626.2
)
 
$
158.8

 
65.0

 
$
(1,441.8
)
 
$
8,849.7

 
$
5.5

 
$
8,855.2

 
$
661.3

Adjustment due to the adoption of ASU 2016-16 (See Note 2)


 


 


 


 


 
(112.6
)
 


 


 


 
(112.6
)
 


 
(112.6
)
 


Adjustment due to the adoption of ASC 606 (See Note 3)
 
 
 
 
 
 
 
 
 
 
(18.2
)
 
 
 
 
 
 
 
(18.2
)
 
 
 
(18.2
)
 
 
BALANCE as adjusted—July 1, 2018
5.0

 
$
—

 
815.8

 
$
8.1

 
$
10,750.8

 
$
(757.0
)
 
$
158.8

 
65.0

 
$
(1,441.8
)
 
$
8,718.9

 
$
5.5

 
$
8,724.4

 
$
661.3

Exercise of employee stock options and restricted stock units
 
 
 
 
—

 
—

 
0.7

 
 
 
 
 
 
 
 
 
0.7

 
 
 
0.7

 
 
Share-based compensation expense
 
 
 
 
 
 
 
 
6.4

 
 
 
 
 
 
 
 
 
6.4

 
 
 
6.4

 
 
Dividends ($0.125 per Common Share)
 
 
 
 
 
 
 
 
(94.0
)
 
 
 
 
 
 
 
 
 
(94.0
)
 
 
 
(94.0
)
 
 
Net income (loss)
 
 
 
 
 
 
 
 
 
 
(12.1
)
 
 
 
 
 
 
 
(12.1
)
 
1.2

 
(10.9
)
 
0.8

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(48.0
)
 
 
 
 
 
(48.0
)
 
0.2

 
(47.8
)
 


Distribution to noncontrolling interests, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
(1.3
)
 
(1.3
)
 
(4.3
)
Additional redeemable noncontrolling interests due to employee grants (See Note 17)


 


 


 


 
(1.6
)
 


 


 


 


 
(1.6
)
 


 
(1.6
)
 
1.6

Adjustment of redeemable noncontrolling interests to redemption value
 
 
 
 
 
 
 
 
37.2

 
 
 
 
 
 
 
 
 
37.2

 
 
 
37.2

 
(37.2
)
BALANCE—September 30, 2018
5.0

 
$
—

 
815.8

 
$
8.1

 
$
10,699.5

 
$
(769.1
)
 
$
110.8

 
65.0

 
$
(1,441.8
)
 
$
8,607.5

 
$
5.6

 
$
8,613.1

 
$
622.2


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 Three Months Ended September 30, 2017
(In millions, except per share data)
(Unaudited)
 
Preferred Stock
 
Class A
Common Stock
 
Additional
Paid-in Capital
 
(Accumulated Deficit)
 
Accumulated Other Comprehensive Income
 
Treasury Stock
 
Total Coty Inc.
Stockholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
Redeemable
Noncontrolling Interests
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
 
 
BALANCE as previously reported—July 1, 2017
4.2

 
$
—

 
812.9

 
$
8.1

 
$
11,203.2

 
$
(459.2
)
 
$
4.4

 
65.0

 
$
(1,441.8
)
 
$
9,314.7

 
$
3.0

 
$
9,317.7

 
$
551.1

Adjustment due to the adoption of ASU 2016-09
 
 
 
 
 
 
 
 
 
 
8.3

 
 
 
 
 
 
 
8.3

 
 
 
8.3

 
 
BALANCE as adjusted—July 1, 2017
4.2

 
$
—

 
812.9

 
$
8.1

 
$
11,203.2

 
$
(450.9
)
 
$
4.4

 
65.0

 
$
(1,441.8
)
 
$
9,323.0

 
$
3.0

 
$
9,326.0

 
$
551.1

Exercise of employee stock options and restricted stock units and related tax benefits
 
 
 
 
1.5

 
—

 
11.2

 
 
 
 
 
 
 
 
 
11.2

 
 
 
11.2

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

 
 
 
 
 
 
 
 
 
8.1

 
 
 
8.1

 
 
Dividends ($0.125 per common share)
 
 
 
 
 
 
 
 
(94.3
)
 
 
 
 
 
 
 
 
 
(94.3
)
 
 
 
(94.3
)
 
 
Net (loss) income
 
 
 
 
 
 
 
 
 
 
(19.7
)
 
 
 
 
 
 
 
(19.7
)
 
(2.2
)
 
(21.9
)
 
5.8

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
239.1

 
 
 
 
 
239.1

 
0.6

 
239.7

 
 
Distribution to noncontrolling interests, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
 
 
—

 
(6.4
)
Dilution of redeemable noncontrolling interest due to additional contribution
 
 
 
 
 
 
 
 
17.0

 
 
 
 
 
 
 
 
 
17.0

 
 
 
17.0

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

BALANCE—September 30, 2017
4.2

 
$
—

 
814.4

 
$
8.1

 
$
11,113.1

 
$
(470.6
)
 
$
243.5

 
65.0

 
$
(1,441.8
)
 
$
9,452.3

 
$
1.4

 
$
9,453.7

 
$
562.5


See notes to Condensed Consolidated Financial Statements.

5
Table of Contents

COTY INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
Three Months Ended
September 30,
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net loss
$
(10.1
)
 
$
(16.1
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation and amortization
185.6

 
168.7

Deferred income taxes
(99.8
)
 
(81.6
)
Provision for bad debts
6.1

 
9.2

Provision for pension and other post-employment benefits
9.1

 
11.1

Share-based compensation
6.4

 
6.9

Asset impairment charges
12.6

 
—

Other
11.5

 
1.9

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

 
 

Trade receivables
35.6

 
(124.0
)
Inventories
(109.5
)
 
(97.5
)
Prepaid expenses and other current assets
40.2

 
(21.0
)
Accounts payable
(83.2
)
 
19.3

Accrued expenses and other current liabilities
(101.3
)
 
22.5

Income and other taxes payable
7.6

 
65.5

Other noncurrent assets
(5.0
)
 
(21.3
)
Other noncurrent liabilities
12.3

 
47.5

Net cash used in operating activities
(81.9
)
 
(8.9
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(133.6
)
 
(111.4
)
Payment for business combinations and asset acquisitions, net of cash acquired
(40.8
)
 
(7.5
)
Proceeds from sale of asset
—

 
2.9

Net cash used in investing activities
(174.4
)
 
(116.0
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Net repayments of short-term debt, original maturity less than three months
(17.8
)
 
(0.5
)
Proceeds from revolving loan facilities
771.9

 
778.4

Repayments of revolving loan facilities
(239.8
)
 
(150.0
)
Repayments of term loans and other long-term debt
(48.1
)
 
(40.6
)
Dividend payment
(93.8
)
 
(94.3
)
Net proceeds from issuance of Class A Common Stock and Series A Preferred Stock
0.7

 
11.2

Net payments of foreign currency contracts
(3.7
)
 
(2.3
)
Distributions to noncontrolling interests, redeemable noncontrolling interests and mandatorily redeemable financial instruments
(5.6
)
 
(6.4
)
Payment of debt issuance costs
(10.0
)
 
—

All other
(2.0
)
 
(3.1
)
Net cash provided by financing activities
351.8

 
492.4

EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(4.5
)
 
6.4

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
91.0

 
373.9

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period
362.2

 
570.7

CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period
$
453.2

 
$
944.6

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
 

 
 

Cash paid during the period for interest
$
48.9

 
$
61.0

Cash received during the period for settlement of interest rate swaps (See Note 13)
43.2

 
—

Cash paid during the period for income taxes, net of refunds received
23.9

 
32.8

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
 

 
 

Accrued capital expenditure additions
$
97.0

 
$
90.3


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”) manufacture, market, sell and distribute branded beauty products, including fragrances, color cosmetics, hair care products and skin & body related products throughout the world. Coty is a global beauty company with a rich entrepreneurial history and an iconic portfolio of brands.
The Company operates on a fiscal year basis with a year-end of June 30. Unless otherwise noted, any reference to a year preceded by the word “fiscal” refers to the fiscal year ended June 30 of that year. For example, references to “fiscal 2019” refer to the fiscal year ending June 30, 2019. When used in this Quarterly Report on Form 10-Q, the term “includes” and “including” means, unless the context otherwise indicates, including without limitation.
The Company’s sales generally increase during the second fiscal quarter as a result of increased demand associated with the holiday season. Financial performance, working capital requirements, sales, cash flows and borrowings generally experience variability during the three to six months preceding the holiday season. Product innovations, new product launches and the size and timing of orders from the Company’s customers may also result in variability. The Company also generally experiences an increase in sales during its fourth fiscal quarter in its Professional Beauty segment as a result of higher demand prior to the summer holiday season.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim Condensed Consolidated Financial Statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and include the Company’s consolidated domestic and international subsidiaries. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited interim Condensed Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the Company’s Consolidated Financial Statements as of and for the year ended June 30, 2018. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in the Condensed Consolidated Financial Statements. The results of operations for the three months ended September 30, 2018 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 2019. All dollar amounts (other than per share amounts) in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.
Restricted Cash
Restricted cash represents funds that are not readily available for general purpose cash needs due to contractual limitations. Restricted cash is classified as a current or long-term asset based on the timing and nature of when or how the cash is expected to be used or when the restrictions are expected to lapse. As of September 30, 2018 and June 30, 2018, the Company had restricted cash of $29.9 and $30.6, respectively, included in Restricted cash in the Condensed Consolidated Balance Sheets. The Restricted cash balance as of September 30, 2018 primarily provides collateral for certain bank guarantees on rent, customs and duty accounts. Restricted cash is included as a component of Cash, cash equivalents and restricted cash in the Condensed Consolidated Statement of Cash Flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, the market value of inventory, the fair value of acquired assets and liabilities associated with acquisitions, pension benefit costs, the assessment of goodwill, other intangible assets and long-lived assets for impairment, income taxes and the fair value of redeemable noncontrolling interests. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the Condensed Consolidated Financial Statements in future periods.
Tax Information

7
Table of Contents

The effective income tax rate for the three months ended September 30, 2018 and 2017 was a benefit of 88.5% and 61.1%, respectively. The increase in effective tax rate for the three months ended September 30, 2018, as compared to the prior period, is primarily due to a $30.0 favorable Swiss tax ruling.
The effective income tax rates vary from the U.S. federal statutory rate of 21% due to the effect of (i) jurisdictions with different statutory rates, (ii) adjustments to the Company’s unrealized tax benefits (“UTBs”) and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes.
On December 22, 2017, “H.R.1”, formerly known as the “Tax Cuts and Jobs Act” (“Tax Act”) was enacted. The Tax Act significantly revises the U.S. corporate income tax system by, amongst other things, reducing the federal tax rate on U.S. earnings to 21%, implementing a modified territorial tax system and imposing a one-time deemed repatriation tax on historical earnings generated by foreign subsidiaries that have not been repatriated to the U.S.
On December 22, 2017, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of the Tax Act for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
The Company recorded its initial estimate of the impact of the Tax Act in fiscal 2018. This estimate may be affected by other elements related to the Tax Act, including the state tax effect of adjustments made to federal temporary differences, confirming the amount of fiscal 2018 foreign earnings that will be subject to the one-time deemed repatriation tax, the division of foreign earnings subject to the repatriation tax between cash and non-liquid assets, and validating the amount of tax attributes the Company expects to utilize against the repatriation tax.
As the Company finalizes the analysis of the impact of the Tax Act, additional 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 Tax Act requires a U.S. shareholder of a foreign corporation to include in income its global intangible low-taxed income (“GILTI”). In general, GILTI is described as the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets. As a result of recently released Financial Accounting Standards Board (“FASB”) guidance, an entity may choose to recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or an entity can elect to treat GILTI as a period cost and include it in the tax expense of the year it is incurred. As such, the Company has elected to treat the tax on GILTI as a tax expense in the year it is incurred rather than recognizing deferred taxes. The Company has estimated the impact from GILTI for fiscal 2019 to be immaterial. Additionally, the Tax Act created the Base Erosion Anti-Abuse Tax (“BEAT”), a new minimum tax on taxable income adjusted for certain base erosion payments. The Company does not presently expect that it will be subject to the minimum tax imposed by the BEAT provisions for fiscal 2019.
As of September 30, 2018 and June 30, 2018, the gross amount of UTBs was $304.7 and $303.6, respectively. As of September 30, 2018, the total amount of UTBs that, if recognized, would impact the effective income tax rate is $125.8. As of September 30, 2018 and June 30, 2018, the liability associated with UTBs, including accrued interest and penalties, was $140.2 and $135.4, respectively, which was recorded in Income and other taxes payable and Other non-current liabilities in the Condensed Consolidated Balance Sheets. The total interest and penalties recorded in the Condensed Consolidated Statements of Operations related to UTBs was $1.2 and $1.1 for the three months ended September 30, 2018 and 2017, respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of September 30, 2018 and June 30, 2018 was $14.3 and $13.1, respectively. On the basis of the information available as of September 30, 2018, it is reasonably possible that a decrease of up to $9.3 in UTBs may occur within 12 months as a result of projected resolutions of global tax examinations and a potential lapse of the applicable statutes of limitations.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which implements a common revenue model that will enhance comparability across industries and require enhanced disclosures. The new standard introduces a five step principles based process to determine the timing and amount of revenue ultimately expected to be recorded. In March 2016, the FASB issued authoritative guidance amending certain portions of this standard to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued authoritative guidance amending certain portions of this standard to clarify the considerations for identifying performance obligations and to clarify the implementation guidance for revenue recognized from licensing arrangements. In

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May 2016, the FASB issued authoritative guidance amending certain portions of the standard to narrow the scope over, or to provide practical expedients, for assessing pending collectibility, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. See Note 3—Revenue Recognition for more information on the effects of the adoption of this standard.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. The Company adopted the standard in the first quarter of fiscal 2019 using the modified retrospective transition method and recognized tax expense, as an adjustment to the July 1, 2018 accumulated deficit balance, of $7.6 and $120.8 that were previously deferred in Prepaid expenses and other current assets and Other noncurrent assets, respectively. The recognition of this tax expense was partially offset by a previously unrecognized deferred tax asset of $15.8, resulting in a cumulative-effect adjustment of $112.6 as an increase to the July 1, 2018 accumulated deficit balance.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which provides an updated model for determining if acquired assets and liabilities constitute a business. In a business combination, the acquired assets and liabilities are recognized at fair value and goodwill could be recognized. In an asset acquisition, the assets are allocated value based on relative fair value and no goodwill is recognized. The ASU narrows the definition of a business. The Company adopted the standard in the first quarter of fiscal 2019 on a prospective basis. The adoption of this guidance did not have an impact on the Company’s Condensed Consolidated Financial Statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the subsequent measurement of goodwill by eliminating step two from the goodwill impairment test. The Company early adopted the ASU during the first quarter of fiscal 2019. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”), which requires employers to report the service cost component of net periodic benefit cost in the same line item or items as other compensation costs arising from services rendered by the underlying employees during the period. The other components of net periodic benefit cost are required to be reported separately and outside of operating income. In addition, only the service cost component would be eligible for capitalization in assets. The new guidance also allows a practical expedient that permits employers to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The Company adopted this standard during the first quarter of fiscal 2019 and retrospectively applied it to each prior period presented utilizing the prior comparative period Employee Benefit Plans footnote (See Note 12) using the practical expedient.
The following table presents our results under our historical method of accounting and as adjusted to reflect our adoption of ASU No. 2017-07:
 
Three Months Ended September 30, 2017
 
As Previously Reported
 
Effect of Adoption of ASU No. 2017-07
 
As Adjusted
Cost of sales
$
874.3

 
$
(0.1
)
 
$
874.2

Selling, general and administrative expenses
1,191.8

 
(0.7
)
 
1,191.1

Operating income
28.7

 
0.8

 
29.5

Other expense, net
3.7

 
0.8

 
4.5

Net (loss) income
(16.1
)
 
—

 
(16.1
)
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which narrows the scope of changes in grant terms that would require modification accounting. The Company adopted this standard during the first quarter of fiscal 2019 on a prospective basis. The adoption did not have an effect on the Company’s Condensed Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Company adopted the standard in the first quarter of fiscal 2019 on a prospective basis. The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

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Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, which modified the disclosure requirements by removing, modifying and clarifying disclosures related to defined benefit plans. The amendment will be effective for the Company in fiscal 2021 with early adoption permitted. The Company is evaluating the impact this guidance will have on the Company’s Condensed Consolidated Financial Statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modified the disclosure requirements by removing, modifying and adding disclosures related to fair value measurements. The amendment will be effective for the Company in fiscal 2021 with early adoption permitted. The Company is evaluating the impact this guidance will have on the Company’s Condensed Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Lessees and lessors have the option to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendment will be effective for the Company in fiscal 2020 with early adoption permitted. The Company has selected the transition method provided by the authoritative guidance in ASU 2018-11, Leases (Topic 842), and will recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company has an implementation team in place that is performing a comprehensive evaluation of the impact the standard will have on the Company’s Condensed Consolidated Financial Statements and related disclosures. The evaluation includes assessing the Company’s lease portfolio, the implementation of new software to meet reporting requirements and the impact to business processes.
3. REVENUE RECOGNITION
Adoption of ASC 606, Revenue from Contracts with Customers
On July 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers and all related amendments (the “New Revenue Standard”) using the modified retrospective method applied to those contracts which were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue Recognition.
The Company recorded a net increase to its accumulated deficit as of July 1, 2018 (as presented below) due to the cumulative impact of adopting the New Revenue Standard, with the impact primarily related to the timing of accrual for certain customer incentives and returns at the time of sell-in and reclassification of certain marketing fixtures expense as a reduction of gross revenue.
The cumulative effects of the revenue accounting changes on the Company's Condensed Consolidated Balance Sheet as of July 1, 2018 were as follows:
 
June 30, 2018
 
Adjustments
 
July 1, 2018
ASSETS
 
 
 
 
 
Property and equipment, net
$
1,680.8

 
$
(6.2
)
 
$
1,674.6

Deferred income taxes
107.4

 
0.6

 
108.0

Other noncurrent assets
299.5

 
6.9

 
306.4

 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accrued expenses and other current liabilities
$
1,844.4

 
$
20.7

 
$
1,865.1

Deferred income taxes
842.5

 
(1.2
)
 
841.3

Accumulated deficit
(626.2
)
 
(18.2
)
 
(644.4
)

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The following table summarizes the impacts of adopting the New Revenue Standard on the Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2018:
 
As reported (New Revenue Standard)
 
Current period adjustments
 
As adjusted (previous revenue standard)
Net revenues
$
2,031.3

 
$
7.2

 
$
2,038.5

Selling, general and administrative expenses
1,122.3

 
1.1

 
1,123.4

 
 
 
 
 
 
Net loss
(10.1
)
 
4.9

 
(5.2
)
 
 
 
 
 
 
Net loss attributable to Coty Inc.
(12.1
)
 
4.5

 
(7.6
)
Net loss attributable to Coty Inc. per common share:
 
 
 
 
 
Basic
$
(0.02
)
 
$
0.01

 
$
(0.01
)
Diluted
(0.02
)
 
0.01

 
(0.01
)
Revenue Recognition Accounting Policy
For periods after July 1, 2018, revenue is recognized at a point in time and/or over time when control of the promised goods or services is transferred to the Company’s customers which usually occurs upon delivery. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or services. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company’s revenue contracts principally represent a performance obligation to sell its beauty products to trade customers and are satisfied when control of promised goods and services is transferred to the customers.
Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns (estimated based on an analysis of historical experience and position in product life cycle) and various trade spending activities. Trade spending activities represent variable consideration promised to the customer and primarily relate to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers. The costs of trade spend activities are estimated using the expected value method considering all reasonably available information, including contract terms with the customer, the Company’s historical experience and its current expectations of the scope of the activities, and is reflected in the transaction price when sales are recorded.
The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.
The Company’s sales return accrual reflects seasonal fluctuations, including those related to the holiday season in its second quarter. This accrual is a subjective critical estimate that has a direct impact on reported net revenues, and is calculated based on history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that the Company has considered, and will continue to consider, include the financial condition of our customers, store closings by retailers, changes in the retail environment, and our decision to continue to support new and existing brands.
The Company accounts for certain customer store fixtures as other assets. Such fixtures are amortized using the straight-line method over the period of 3-5 years as a reduction of revenue.
For the presentation of the Company’s revenues disaggregated by segment and product category see Note 4—Segment Reporting.
4. SEGMENT REPORTING
The Company’s organizational structure is category focused, putting the consumers first, by specifically targeting how and where they shop and what and why they purchase. Operating and reportable segments (referred to as “segments”) reflect the way the Company is managed and for which separate financial information is available and evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. The Company has designated its Chief Executive Officer as the CODM.

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The Company has the following three divisions which represent its operating segments and reportable segments:
Luxury — primarily focused on prestige fragrances, premium skin care and premium cosmetics;
Consumer Beauty — primarily focused on color cosmetics, retail hair coloring and styling products, mass fragrance, mass skin care and body care;
Professional Beauty — primarily focused on hair and nail care products for professionals.
Certain revenues and shared costs and the results of corporate initiatives are managed outside of the three segments by Corporate. The items within Corporate relate to corporate-based responsibilities and decisions and are not used by the CODM to measure the underlying performance of the segments. Corporate primarily includes restructuring costs, costs related to acquisition activities and certain other expense items not attributable to ongoing operating activities of the segments.
With the adoption of ASU 2017-07 (See Note 2—Summary of Significant Accounting Policies), the non-service cost components of net periodic benefit cost have been removed from consolidated operating expenses and included in consolidated other expense, net. For segment reporting, however, all components of net periodic benefit cost are included in segment operating results as these components continue to comprise the basis on which the CODM analyzes segment results. In order to reconcile the total of segment operating (loss) income to consolidated operating (loss) income, reclassification adjustments related to the non-service costs components have been included in Corporate in the table below.
With the exception of goodwill and acquired intangible assets, the Company does not identify or monitor assets by segment. The Company does not present assets by reportable segment since various assets are shared between reportable segments. The allocation of goodwill and acquired intangible assets by segment is presented in Note 9—Goodwill and Other Intangible Assets, net.
 
Three Months Ended
September 30,
SEGMENT DATA
2018
 
2017
Net revenues:
 
 
 
Luxury
$
792.9

 
$
764.4

Consumer Beauty
828.8

 
1,043.4

Professional Beauty
409.6

 
430.5

Total
$
2,031.3

 
$
2,238.3

Operating income (loss):
 
 
 
Luxury
$
48.7

 
$
56.7

Consumer Beauty
(18.6
)
 
61.9

Professional Beauty
5.0

 
(1.7
)
Corporate
(55.8
)
 
(87.4
)
Total
$
(20.7
)
 
$
29.5

Reconciliation:
 
 
 
Operating (loss) income
$
(20.7
)
 
$
29.5

Interest expense, net
64.1

 
66.4

Other expense, net
2.7

 
4.5

Loss before income taxes
$
(87.5
)
 
$
(41.4
)
Presented below are the percentage of revenues associated with the Company’s product categories:
 
Three Months Ended
September 30,
PRODUCT CATEGORY
2018
 
2017
Fragrance
40.8
%
 
37.1
%
Color Cosmetics
26.4

 
28.9

Hair Care
24.1

 
23.9

Skin & Body Care
8.7

 
10.1

Total Coty Inc.
100.0
%
 
100.0
%

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5. BUSINESS COMBINATIONS
Burberry Beauty Business Acquisition
On October 2, 2017, the Company acquired the exclusive global license rights and other related assets for the Burberry Limited (“Burberry”) luxury fragrances, cosmetics and skincare business (the “Burberry Beauty Business”). The Burberry Beauty Business acquisition is expected to further strengthen the Company’s position in the global beauty industry. Total purchase consideration, after post-closing adjustments, was £191.7 million, the equivalent of $256.3, at the time of closing. Included in the purchase price was cash consideration of £183.3 million, the equivalent of $245.1, at the time of closing, in addition to £8.4 million, the equivalent of $11.2, of estimated contingent consideration, at the time of closing.
The future contingent consideration payments will range from zero to £16.7 million and will be payable on a quarterly basis to Burberry as certain items of inventory transferred to the Company at the acquisition date are subsequently used or sold. The amount of the contingent consideration recorded was estimated as of the acquisition date and is subject to change based on the related inventory usage. The fair value of the contingent consideration was determined by estimating the future inventory usage and corresponding payments over a four-year period, with the contingent payments being made in each of the respective years. The estimate of the portion of contingent consideration payable within twelve months from the September 30, 2018 balance sheet date is recorded in Accrued expenses and other current liabilities and the remainder is recorded in Other noncurrent liabilities in the Condensed Consolidated Balance Sheet. From the date of acquisition through the end of the first quarter of fiscal 2019, the Company made £2.9 million in contingent payments.
The Company has finalized the valuation of assets acquired and liabilities assumed for the Burberry Beauty Business acquisition. The Company recognized certain measurement period adjustments as disclosed below during the three months ended September 30, 2018. The measurement period for the Burberry Beauty Business acquisition closed on October 1, 2018.
The following table summarizes the allocation of the purchase price to the net assets of the Burberry Beauty Business as of the October 2, 2017 acquisition date:
 
Estimated
fair value as previously reported (a)
 
Measurement period adjustments (b)
 
Final fair value as adjusted
 
Estimated
useful life
(in years)
Inventories
$
47.9

 
$
—

 
$
47.9

 
 
Property, plant and equipment
5.8

 
—

 
5.8

 
1 - 3
License and distribution rights
177.8

 
6.7

 
184.5

 
3 - 15
Goodwill
34.9

 
(9.4
)
 
25.5

 
 Indefinite
Net other liabilities
(10.1
)
 
2.7

 
(7.4
)
 
 
Total purchase price
$
256.3

 
$
—

 
$
256.3

 
 
 
 
(a) 
As previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018.
(b) 
The Company recorded measurement period adjustments in the first quarter of fiscal 2019. The measurement period adjustments related to an increase in the value of the License and distribution rights due to changes in assumptions that were used at the date of acquisition for valuation purposes. The measurement period adjustment related to the decrease in net other liabilities acquired was a result of obtaining new facts and circumstances about acquired accrued expenses that existed as of the acquisition date. All measurement period adjustments were offset against Goodwill.
Goodwill is expected to be deductible for tax purposes. The goodwill is attributable to expected synergies resulting from integrating the Burberry Beauty Business products into the Company’s existing sales channels. Goodwill of $12.9, $6.8 and $5.8 is allocated to the Luxury, Consumer Beauty and Professional Beauty segments, respectively. The allocation of goodwill to the segments were due to the reduction in corporate and regional overhead allocated to these segments due to the addition of the Burberry Beauty Business.
6. ACQUISITION-RELATED COSTS
Acquisition-related costs, which are expensed as incurred, represent non-restructuring costs directly related to acquiring and integrating an entity, for both completed and contemplated acquisitions. These costs can include finder’s fees, legal, accounting, valuation, other professional or consulting fees, including fees related to transitional services, and other internal costs which can include compensation related expenses for dedicated internal resources. The Company recognized acquisition-related costs of $0.0 and $54.1 for the three months ended September 30, 2018 and 2017, respectively, which have been recorded in Acquisition-related costs in the Condensed Consolidated Statements of Operations. Acquisition-related costs

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incurred during the three months ended September 30, 2017 were primarily related to the acquisition of The Procter & Gamble Company’s (“P&G”) beauty business (the “P&G Beauty Business”).
7. RESTRUCTURING COSTS
Restructuring costs for the three months ended September 30, 2018 and 2017 are presented below:
 
Three Months Ended
September 30,
 
2018
 
2017
Global Integration Activities
$
6.5

 
$
9.8

2018 Restructuring Actions
9.1

 
1.1

Other Restructuring
(0.1
)
 
0.3

Total
$
15.5

 
$
11.2

Global Integration Activities
In connection with the acquisition of the P&G Beauty Business, the Company has and expects to continue to incur restructuring and related costs aimed at integrating and optimizing the combined organization (“Global Integration Activities”).
Of the expected costs, the Company has incurred cumulative restructuring charges of $477.2 related to approved initiatives through September 30, 2018, which have been recorded in Corporate. The following table presents aggregate restructuring charges for the program:
 
Severance and Employee Benefits
 
Third-Party Contract Terminations
 
Fixed Asset Write-offs
 
Other Exit Costs
 
Total
Fiscal 2017
$
333.9

 
$
22.4

 
$
4.6

 
$
3.3

 
$
364.2

Fiscal 2018
67.5

 
19.3

 
14.3

 
5.4

 
106.5

Fiscal 2019
4.1

 
1.0

 
—

 
1.4

 
6.5

Cumulative through September 30, 2018
$
405.5

 
$
42.7

 
$
18.9

 
$
10.1

 
$
477.2

Over the next two fiscal years, the Company expects to incur approximately $60.0 of additional restructuring charges pertaining to the approved actions, primarily related to fixed asset write-offs, contract terminations and employee termination benefits.
The related liability balance and activity for the Global Integration Activities restructuring costs are presented below:
 
Severance and
Employee
Benefits
 
Third-Party
Contract
Terminations
 
Other
Exit
Costs
 
Total
Program
Costs
Balance—July 1, 2018
$
203.0

 
$
17.0

 
$
3.1

 
$
223.1

Restructuring charges
5.9

 
1.0

 
1.4

 
8.3

Payments
(55.1
)
 
(2.0
)
 
(1.6
)
 
(58.7
)
Changes in estimates
(1.8
)
 
—

 
—

 
(1.8
)
Effect of exchange rates
(0.4
)
 
—

 
—

 
(0.4
)
Balance—September 30, 2018
$
151.6

 
$
16.0

 
$
2.9

 
$
170.5

The Company currently estimates that the total remaining accrual of $170.5 will result in cash expenditures of approximately $144.5, $23.0 and $3.0 in fiscal 2019, 2020 and thereafter, respectively.
2018 Restructuring Actions
During fiscal 2018, the Company began evaluating initiatives to reduce fixed costs and enable further investment in the business (the “2018 Restructuring Actions”).
Of the expected costs, the Company incurred cumulative restructuring charges of $77.5 related to approved initiatives through September 30, 2018, primarily related to role eliminations in Europe and North America, which have been recorded in Corporate. The following table presents aggregate restructuring charges for the program:

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Table of Contents

 
Severance and Employee Benefits
 
Third-Party Contract Terminations
 
Fixed Asset Write-offs
 
Other Exit Costs
 
Total
Fiscal 2018
63.5

 
0.2

 
1.3

 
3.4

 
68.4

Fiscal 2019
8.4

 
—

 
—

 
0.7

 
9.1

Cumulative through September 30, 2018
$
71.9

 
$
0.2

 
$
1.3

 
$
4.1

 
$
77.5

Over the next three fiscal years, the Company expects to incur approximately $4.0 of additional restructuring charges pertaining to the approved actions, primarily related to employee termination benefits.
The related liability balance and activity of restructuring costs for the 2018 Restructuring Actions are presented below:
 
Severance and
Employee
Benefits
 
Third-Party
Contract
Terminations
 
Other Exit Costs
 
Total
Program
Costs
Balance—July 1, 2018
$
48.0

 
$
0.2

 
$
3.3

 
$
51.5

Restructuring charges
8.8

 
—

 
0.7

 
9.5

Payments
(17.0
)
 
—

 
(0.8
)
 
(17.8
)
Changes in estimates
(0.4
)
 
—

 
—

 
(0.4
)
Non-cash utilization
—

 
—

 
(0.1
)
 
(0.1
)
Effect of exchange rates
(0.2
)
 
—

 
—

 
(0.2
)
Balance—September 30, 2018
$
39.2

 
$
0.2

 
$
3.1

 
$
42.5

The Company currently estimates that the total remaining accrual of $42.5 will result in cash expenditures of approximately $38.6, $3.0 and $0.9 in fiscal 2019, 2020 and thereafter, respectively.
Other Restructuring
In connection with the acquisition of the Burberry Beauty Business, the Company recorded the reversal of $(0.1) of restructuring costs relating to third party contract terminations during the three months ended September 30, 2018. The related liability balances were $1.5 and $3.9 at September 30, 2018 and June 30, 2018, respectively. The Company currently estimates that the total remaining accrual of $1.5 will result in cash expenditure in fiscal 2019.
The Company executed a number of other legacy restructuring activities in prior years, which are substantially completed. The Company incurred (income) expenses of $(0.1) and $0.4 during the three months ended September 30, 2018 and 2017, respectively. The related liability balances were $8.2 and $9.4 at September 30, 2018 and June 30, 2018, respectively. The Company currently estimates that the total remaining accrual of $8.2 will result in cash expenditures of $3.3, $2.5 and $2.4 in fiscal 2019, 2020 and 2021, respectively.
In connection with the acquisition of the P&G Beauty Business, the Company assumed restructuring liabilities of approximately $21.7 at October 1, 2016. The Company incurred expenses (income) of $0.1 and $(0.1) during the three months ended September 30, 2018 and 2017, respectively. The related liability balances were $6.6 and $7.0 at September 30, 2018 and June 30, 2018, respectively. The Company estimates that the remaining accrual of $6.6 at September 30, 2018 will result in cash expenditures of $3.6, $2.4 and $0.6 in fiscal 2019, 2020 and thereafter, respectively.
8. INVENTORIES
Inventories as of September 30, 2018 and June 30, 2018 are presented below:
 
September 30,
2018
 
June 30,
2018
Raw materials
$
289.6

 
$
278.6

Work-in-process
20.8

 
21.8

Finished goods
940.8

 
848.5

Total inventories
$
1,251.2

 
$
1,148.9


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9. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of September 30, 2018 and June 30, 2018 is presented below:
 
Luxury
 
Consumer Beauty
 
Professional Beauty
 
Total
Gross balance at June 30, 2018
$
3,366.6

 
$
4,927.5

 
$
953.8

 
$
9,247.9

Accumulated impairments
(403.7
)
 
(237.1
)
 
—

 
(640.8
)
Net balance at June 30, 2018
$
2,962.9

 
$
4,690.4

 
$
953.8

 
$
8,607.1

 
 
 
 
 
 
 
 
Changes during the period ended September 30, 2018:
 
 
 
 
 
 
 
Measurement period adjustments (a)
(10.5
)
 
0.6

 
0.5

 
(9.4
)
Foreign currency translation
(5.4
)
 
(18.2
)
 
(4.0
)
 
(27.6
)
 
 
 
 
 
 
 
 
Gross balance at September 30, 2018
$
3,350.7

 
$
4,909.9

 
$
950.3

 
$
9,210.9

Accumulated impairments
(403.7
)
 
(237.1
)
 
—

 
(640.8
)
Net balance at September 30, 2018
$
2,947.0

 
$
4,672.8

 
$
950.3

 
$
8,570.1

 
 
(a) Includes measurement period adjustments in connection with the Burberry Beauty Business acquisition (Refer to Note 5—Business Combinations).
Other Intangible Assets, net
Other intangible assets, net as of September 30, 2018 and June 30, 2018 are presented below:
 
September 30, 2018
 
June 30,
2018
Indefinite-lived other intangible assets
$
3,184.7

 
$
3,186.2

Finite-lived other intangible assets, net
5,034.2

 
5,098.2

Total Other intangible assets, net
$
8,218.9

 
$
8,284.4


16
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, 2018
$
414.6

 
$
1,703.1

 
$
1,266.3

 
$
3,384.0

Accumulated impairments
(118.8
)
 
(75.9
)
 
(3.1
)
 
(197.8
)
Net balance at June 30, 2018
295.8

 
1,627.2

 
1,263.2

 
3,186.2

 
 
 
 
 
 
 
 
Changes during the period ended September 30, 2018:
 
 
 
 
 
 
 
Foreign currency translation
(0.4
)
 
(0.5
)
 
(0.6
)
 
(1.5
)
 
 
 
 
 
 
 
 
Gross balance at September 30, 2018
414.2

 
1,702.6

 
1,265.7

 
3,382.5

Accumulated impairments
(118.8
)
 
(75.9
)
 
(3.1
)
 
(197.8
)
Net balance at September 30, 2018
$
295.4

 
$
1,626.7

 
$
1,262.6

 
$
3,184.7

Intangible assets subject to amortization are presented below:
 
Cost
 
Accumulated Amortization
 
Accumulated Impairment
 
Net
June 30, 2018
 
 
 
 
 
 
 
License agreements
$
3,362.7

 
$
(792.9
)
 
$
—

 
$
2,569.8

Customer relationships
1,960.5

 
(508.7
)
 
(5.5
)
 
1,446.3

Trademarks
1,002.1

 
(185.5
)
 
(0.4
)
 
816.2

Product formulations and technology
361.2

 
(95.3
)
 
—

 
265.9

Total
$
6,686.5

 
$
(1,582.4
)
 
$
(5.9
)
 
$
5,098.2

September 30, 2018
 
 
 
 
 
 
 
License agreements (a)
$
3,345.3

 
$
(816.5
)
 
$
(12.6
)
 
$
2,516.2

Customer relationships (a)
1,965.4

 
(544.0
)
 
(5.5
)
 
1,415.9

Trademarks (b)
1,042.9

 
(197.1
)
 
(0.4
)
 
845.4

Product formulations and technology
359.9

 
(103.2
)
 
—

 
256.7

Total
$
6,713.5

 
$
(1,660.8
)
 
$
(18.5
)
 
$
5,034.2

 
 
(a) Includes measurement period adjustments during the three months ended September 30, 2018 in connection with the Burberry Beauty Business acquisition (Refer to Note 5—Business Combinations).
(b) Includes an acquired trademark of $40.8.
During the quarter ended September 30, 2018, the Company acquired a trademark associated with a preexisting license. As a result of the acquisition, the preexisting license was effectively terminated, and accordingly the Company recorded $12.6 of Asset impairment charges in the Condensed Consolidated Statement of Operations related to the license agreement.
Amortization expense was $92.5 and $78.2 for the three months ended September 30, 2018 and 2017, respectively.

17
Table of Contents

10. DEBT
The Company’s debt balances consisted of the following as of September 30, 2018 and June 30, 2018, respectively:
 
September 30, 2018
 
June 30,
2018
Short-term debt
$
7.9

 
$
9.2

2018 Coty Credit Agreement
 
 
 
2018 Coty Revolving Credit Facility due April 2023
884.5

 
368.1

2018 Coty Term A Facility due April 2023
3,326.3

 
3,371.5

2018 Coty Term B Facility due April 2025
2,383.3

 
2,390.5

Senior Unsecured Notes
 
 
 
2026 Dollar Notes due April 2026
550.0

 
550.0

2023 Euro Notes due April 2023
640.1

 
640.9

2026 Euro Notes due April 2026
291.0

 
291.4

Other long-term debt and capital lease obligations
1.5

 
1.6

Total debt
8,084.6

 
7,623.2

Less: Short-term debt and current portion of long-term debt
(200.7
)
 
(218.9
)
Total Long-term debt
7,883.9

 
7,404.3

Less: Unamortized debt issuance costs (a)
(81.9
)
 
(86.2
)
Less: Discount on Long-term debt
(12.3
)
 
(12.7
)
Total Long-term debt, net
$
7,789.7

 
$
7,305.4

 
 
(a) Consists of unamortized debt issuance costs of $29.7 and $31.4 for the 2018 Coty Revolving Credit Facility, $27.6 and $29.2 for the 2018 Coty Term A Facility and $10.5 and $10.9 for the 2018 Coty Term B Facility, $8.0 and $8.3 for the 2026 Dollar and Euro Notes and $6.1 and $6.4 for the 2023 Euro Notes as of September 30, 2018 and June 30, 2018, respectively.
On April 5, 2018, the Company issued senior unsecured notes in a private offering and entered into a new credit agreement (the “2018 Coty Credit Agreement”). The net proceeds of the offering of the notes, together with borrowings under the 2018 Coty Credit Agreement, were used to repay in full and refinance the indebtedness outstanding under the Company’s previously existing long-term debt agreements and to pay accrued interest, related premiums, fees and expenses in connection therewith. Future borrowings under the 2018 Coty Credit Agreement could be used for corporate purposes.
Offering of Senior Unsecured Notes
On April 5, 2018 the Company issued, at par, $550.0 of 6.50% senior unsecured notes due 2026 (the “2026 Dollar Notes”), €550.0 million of 4.00% senior unsecured notes due 2023 (the “2023 Euro Notes”) and €250.0 million of 4.75% senior unsecured notes due 2026 (the “2026 Euro Notes” and, together with the 2023 Euro Notes, the “Euro Notes,” and the Euro Notes together with the 2026 Dollar Notes, the “Senior Unsecured Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. persons outside the United States pursuant to Regulation S under the Securities Act.
The Senior Unsecured Notes are senior unsecured debt obligations of the Company and will be pari passu in right of payment with all of the Company’s existing and future senior indebtedness (including the 2018 Credit Facilities described below). The Senior Unsecured Notes are guaranteed, jointly and severally, on a senior basis by the Guarantors (as later defined). The Senior Unsecured Notes are senior unsecured obligations of the Company and are effectively junior to all existing and future secured indebtedness of the Company to the extent of the value of the collateral securing such secured indebtedness. The related guarantees are senior unsecured obligations of each Guarantor and are effectively junior to all existing and future secured indebtedness of such Guarantor to the extent of the value of the collateral securing such indebtedness.
The 2026 Dollar Notes will mature on April 15, 2026. The 2026 Dollar Notes will bear interest at a rate of 6.50% per annum. Interest on the 2026 Dollar Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2018.
The 2023 Euro Notes will mature on April 15, 2023 and the 2026 Euro Notes will mature on April 15, 2026. The 2023 Euro Notes will bear interest at a rate of 4.00% per annum, and the 2026 Euro Notes will bear interest at a rate of 4.75% per annum. Interest on the Euro Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2018.

18
Table of Contents

Upon the occurrence of certain change of control triggering events with respect to a series of Senior Unsecured Notes, the Company will be required to offer to repurchase all or part of the Senior Unsecured Notes of such series at 101% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the purchase date applicable to such Senior Unsecured Notes.
The Notes contain customary covenants that place restrictions in certain circumstances on, among other things, incurrence of liens, entry into sale or leaseback transactions, sales of assets and certain merger or consolidation transactions. The Notes also provide for customary events of default.
2018 Coty Credit Agreement
On April 5, 2018, the Company entered into the 2018 Coty Credit Agreement which amended and restated the prior Coty Credit Agreement. The 2018 Coty Credit Agreement provides for (a) the incurrence by the Company of (1) a senior secured term A facility in an aggregate principal amount of (i) $1,000.0 denominated in U.S. dollars and (ii) €2,035.0 million denominated in euros (the “2018 Coty Term A Facility”) and (2) a senior secured term B facility in an aggregate principal amount of (i) $1,400.0 denominated in U.S. dollars and (ii) €850.0 million denominated in euros (the “2018 Coty Term B Facility”) and (b) the incurrence by the Company and Coty B.V., a Dutch subsidiary of the Company (the “Dutch Borrower” and, together with the Company, the “Borrowers”), of a senior secured revolving facility in an aggregate principal amount of $3,250.0 denominated in U.S. dollars, specified alternative currencies or other currencies freely convertible into U.S. dollars and readily available in the London interbank market (the “2018 Coty Revolving Credit Facility”) (the 2018 Coty Term A Facility, together with the 2018 Coty Term B Facility and the 2018 Coty Revolving Credit Facility, the “2018 Coty Credit Facilities”). Initial borrowings under the 2018 Coty Term Loan B Facility were issued at a 0.250% discount.
The 2018 Coty Credit Agreement provides that with respect to the 2018 Coty Revolving Credit Facility, up to $150.0 is available for letters of credit and up to $150.0 is available for swing line loans. The 2018 Coty Credit Agreement also permits, subject to certain terms and conditions, the incurrence of incremental facilities thereunder in an aggregate amount of (i) $1,700.0 plus (ii) an unlimited amount if the First Lien Net Leverage Ratio (as defined in the 2018 Coty Credit Agreement), at the time of incurrence of such incremental facilities and after giving effect thereto on a pro forma basis, is less than or equal to 3.00 to 1.00.
The obligations of the Company under the 2018 Coty Credit Agreement are guaranteed by the material wholly-owned subsidiaries of the Company organized in the U.S., subject to certain exceptions (the “Guarantors”) and the obligations of the Company and the Guarantors under the 2018 Coty Credit Agreement are secured by a perfected first priority lien (subject to permitted liens) on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions. The Dutch Borrower does not guarantee the obligations of the Company under the 2018 Coty Credit Agreement or grant any liens on its assets to secure any obligations under the 2018 Coty Credit Agreement.
Scheduled Amortization
The Company made quarterly payments of 1.25% and 0.25%, beginning on September 30, 2018, of the initial aggregate principal amounts of the 2018 Coty Term A Facility and the 2018 Coty Term B Facility, respectively. The remaining balance of the initial aggregate principal amounts of the 2018 Coty Term A Facility and the 2018 Coty Term B Facility will be payable on the maturity date for each facility, respectively.
Interest
The 2018 Coty Credit Agreement facilities will bear interest at rates equal to, at the Company’s option, either:
•
LIBOR of the applicable qualified currency, of which the Company can elect the applicable one, two, three, six or twelve month rate, plus the applicable margin; or
•
Alternate base rate (“ABR”) plus the applicable margin.
In the case of the 2018 Coty Revolving Credit Facility and the 2018 Coty Term A Facility, the applicable margin means the lesser of a percentage per annum to be determined in accordance with the leverage-based pricing grid and the debt rating-based grid below:

19
Table of Contents

Pricing Tier
 
Total Net Leverage Ratio:
 
LIBOR plus:
 
Alternative Base Rate Margin:
1.0
 
Greater than or equal to 4.75:1
 
2.000%
 
1.000%
2.0
 
Less than 4.75:1 but greater than or equal to 4.00:1
 
1.750%
 
0.750%
3.0
 
Less than 4.00:1 but greater than or equal to 2.75:1
 
1.500%
 
0.500%
4.0
 
Less than 2.75:1 but greater than or equal to 2.00:1
 
1.250%
 
0.250%
5.0
 
Less than 2.00:1 but greater than or equal to 1.50:1
 
1.125%
 
0.125%
6.0
 
Less than 1.50:1
 
1.000%
 
—%
Pricing Tier
 
Debt Ratings S&P/Moody’s:
 
LIBOR plus:
 
Alternative Base Rate Margin:
5.0
 
Less than BB+/Ba1
 
2.000%
 
1.000%
4.0
 
BB+/Ba1
 
1.750%
 
0.750%
3.0
 
BBB-/Baa3
 
1.500%
 
0.500%
2.0
 
BBB/Baa2
 
1.250%
 
0.250%
1.0
 
BBB+/Baa1 or higher
 
1.125%
 
0.125%
In the case of the USD portion of the 2018 Coty Term B Facility, the applicable margin means 2.25% per annum, in the case of LIBOR loans, and 1.25% per annum, in the case of ABR loans. In the case of the Euro portion of the 2018 Coty Term B Facility, the applicable margin means 2.50% per annum, in the case of EURIBOR loans.
In no event will LIBOR be deemed to be less than 0.00% per annum.
Fair Value of Debt
 
September 30, 2018
 
June 30, 2018
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
2018 Coty Credit Agreement
6,594.1

 
6,478.0

 
6,130.1

 
6,070.8

Senior Unsecured Notes
1,481.1

 
1,427.6

 
1,482.3

 
1,449.9

The Company uses the market approach to value the 2018 Coty Credit Agreement and the Senior Unsecured Notes. The Company obtains fair values from independent pricing services to determine the fair value of these debt instruments. Based on the assumptions used to value these liabilities at fair value, these debt instruments are categorized a Level 2 in the fair value hierarchy.
Debt Maturities Schedule
Aggregate maturities of the Company’s long-term debt, including the current portion of long-term debt and excluding capital lease obligations as of September 30, 2018, are presented below:
Fiscal Year Ending June 30,
 
2019, remaining
$
144.2

2020
192.3

2021
192.3

2022
192.3

2023
4,243.3

Thereafter
3,110.8

Total
$
8,075.2


20
Table of Contents

Covenants
The 2018 Coty Credit Agreement contains affirmative and negative covenants. The negative covenants include, among other things, limitations on debt, liens, dispositions, investments, fundamental changes, restricted payments and affiliate transactions. With certain exceptions as described below, the 2018 Coty Credit Agreement includes a financial covenant that requires us to maintain a Total Net Leverage Ratio (as defined below), equal to or less than the ratios shown below for each respective test period.
Quarterly Test Period Ending
Total Net Leverage Ratio (a) 
September 30, 2018 through December 31, 2018
5.50 to 1.00
March 31, 2019 through June 30, 2019
5.25 to 1.00
September 30, 2019 through December 31, 2019
5.00 to 1.00
March 31, 2020 through June 30, 2020
4.75 to 1.00
September 30, 2020 through December 31, 2020
4.50 to 1.00
March 31, 2021 through June 30, 2021
4.25 to 1.00
September 30, 2021 through June 30, 2023
4.00 to 1.00
 
 
(a) Total Net Leverage Ratio means, as of any date of determination, the ratio of: (a) (i) Total Indebtedness minus (ii) unrestricted cash and Cash Equivalents of the Parent Borrower and its Restricted Subsidiaries as determined in accordance with GAAP to (b) Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) for the most recently ended Test Period (each of the defined terms used within the definition of Total Net Leverage Ratio have the meanings ascribed to them within the 2018 Coty Credit Agreement).
In the four fiscal quarters following the closing of any Material Acquisition (as defined in the 2018 Coty Credit Agreement), including the fiscal quarter in which such Material Acquisition occurs, the maximum Total Net Leverage Ratio shall be the lesser of (i) 5.95 to 1.00 and (ii) 1.00 higher than the otherwise applicable maximum Total Net Leverage Ratio for such quarter (as set forth in the table above). Immediately after any such four fiscal quarter period, there shall be at least two consecutive fiscal quarters during which our Total Net Leverage Ratio is no greater than the maximum Total Net Leverage Ratio that would otherwise have been required in the absence of such Material Acquisition, regardless of whether any additional Material Acquisitions are consummated during such period. As of September 30, 2018, the Company was in compliance with all covenants contained within the Debt Agreements.
11. INTEREST EXPENSE, NET
Interest expense, net for the three months ended September 30, 2018 and 2017 is presented below:
 
Three Months Ended
September 30,
 
2018
 
2017
Interest expense
$
72.4

 
$
67.4

Foreign exchange losses (gains), net of derivative contracts
(3.6
)
 
1.0

Interest income
(4.7
)
 
(2.0
)
Total interest expense, net
$
64.1

 
$
66.4


21
Table of Contents

12. EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost for pension plans and other post-employment benefit plans recognized in the Condensed Consolidated Statements of Operations are presented below:
 
Three Months Ended September 30,
 
Pension Plans
 
Other Post-
Employment Benefits
 
 
 
U.S.
 
International
 
 
Total
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
$
—

 
$
—

 
$
8.2

 
$
9.8

 
$
0.3

 
$
0.5

 
$
8.5

 
$
10.3

Interest cost
0.2

 
0.2

 
3.3

 
3.1

 
0.5

 
0.6

 
4.0

 
3.9

Expected return on plan assets
—

 
—

 
(2.1
)
 
(1.9
)
 
—

 
—

 
(2.1
)
 
(1.9
)
Amortization of prior service cost (credit)
—

 
—

 
0.1

 
0.1

 
(1.5
)
 
(1.4
)
 
(1.4
)
 
(1.3
)
Amortization of net loss (gain)
(0.2
)
 
(0.2
)
 
0.3

 
0.3

 
—

 
—

 
0.1

 
0.1

Net periodic benefit cost (credit)
$
—

 
$
—

 
$
9.8

 
$
11.4

 
$
(0.7
)
 
$
(0.3
)
 
$
9.1

 
$
11.1

13. DERIVATIVE INSTRUMENTS
Foreign Exchange Risk
The Company is exposed to foreign currency exchange fluctuations through its global operations. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in foreign exchange rates by creating offsetting positions through the use of derivative instruments and also by designating foreign currency denominated borrowings as hedges of net investments in foreign subsidiaries. The Company expects that through hedging, any gain or loss on the derivative instruments would generally offset the expected increase or decrease in the value of the underlying forecasted transactions. The Company entered into derivatives for which hedge accounting treatment has been applied which the Company anticipates realizing in the Consolidated Statements of Operations through fiscal 2019.
Interest Rate Risk
The Company is exposed to interest rate fluctuations related to its variable rate debt instruments. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in the variable interest rates by entering into offsetting positions through the use of derivative instruments, such as interest rate swap contracts. The interest rate swap contracts result in recognizing a fixed interest rate for the portion of the Company’s variable rate debt that was hedged. This will reduce the negative impact of increases in the variable rates over the term of the contracts. Hedge effectiveness of interest rate swap contracts is based on a long-haul hypothetical derivative methodology and includes all changes in value.
During August 2018, the Company extended the maturity of the interest rate swap portfolio through 2021 by replacing its original swap contracts with swap contracts having longer maturities to manage the medium term exposure to interest rate increases. The Company received $43.2 for settlement of the original swap contracts. As the forecasted interest expense under the original swap agreements is still probable, the related accumulated other comprehensive income (loss) (“AOCI/(L)”) will be amortized in line with the timing of the forecasted transactions. As of September 30, 2018 and June 30, 2018, the Company had interest rate swap contracts designated as effective hedges in the notional amount of $2,000.0.
Derivative and non-derivative financial instruments which are designated as hedging instruments:
The accumulated loss on foreign currency borrowings classified as net investment hedges in the foreign currency translation adjustment component of AOCI/(L) was $119.3 and $115.0 as of September 30, 2018 and June 30, 2018, respectively.
The amount of gains and losses recognized in Other comprehensive income (loss) (“OCI”) in the Condensed Consolidated Balance Sheets related to the Company’s derivative and non-derivative financial instruments which are designated as hedging instruments is presented below:
Gain (Loss) Recognized in OCI
Three Months Ended
September 30,
 
2018
 
2017
Foreign exchange forward contracts
$
—

 
$
(0.5
)
Interest rate swap contracts
5.1

 
0.5

Net investment hedge
4.3

 
(22.1
)

22
Table of Contents

The accumulated gain on derivative instruments classified as cash flow hedges in AOCI/(L), net of tax, was $32.7 and $31.7 as of September 30, 2018 and June 30, 2018, respectively. The estimated net gain related to these effective hedges that is expected to be reclassified from AOCI/(L) into earnings, net of tax, within the next twelve months is $10.6. As of September 30, 2018, all of the Company’s remaining foreign currency forward contracts designated as hedges were highly effective.
The amount of gains and losses reclassified from AOCI/(L) to the Condensed Consolidated Statements of Operations related to the Company’s derivative financial instruments which are designated as hedging instruments is presented below:
Condensed Consolidated Statements of Operations
Classification of Gain (Loss) Reclassified from AOCI/(L)
Three Months Ended
September 30,
 
2018
 
2017
Foreign exchange forward contracts:
 
 
 
Net revenues
$
—

 
$
0.2

Cost of sales
—

 
0.1

Interest rate swap contracts: