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Item 7. Management’s Discussion and Analysis

2020-08-27 compared with 2019-08-28 · 539 added, 512 removed, 379 unchanged (73% of the section changed)

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We manufacture, market, sell and distribute branded beauty products, including fragrances, color cosmetics, hair care products and skin & body related products throughout the world.

Operating and Reportable Segments

Our business is organized into three divisions:

Luxury, Consumer Beauty and Professional Beauty, and our operating and reportable segments reflect this divisional structure.

Certain shared costs and the results of corporate initiatives are managed outside of our three segments by Corporate.

Our organizational structure is product category focused, putting the consumer first, by specifically targeting how and where they shop and what and why they purchase.

Each division has full end-to-end responsibility to optimize the consumers’ beauty experiences in their relevant categories and channels in this new organizational design and translate this into profitable growth.

The operating and reportable segments are:

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.

Geographic Structure

We have determined our geographic regions to be North America (Canada and the U.S.), Europe and ALMEA (Asia, Latin America, the Middle East, Africa and Australia).

We are one of the world’s largest beauty companies, with an iconic portfolio of brands across fragrance, color cosmetics, hair color and styling, and skin and body care.

We are the global leader in fragrance, a strong number two in professional hair color & styling, and number three in color cosmetics.

The transformational acquisition of the P&G Beauty Business and our other strategic transactions have strengthened and diversified our presence across the countries, categories and channels in which we compete, building a strong beauty platform.

Our products are sold in more than 150 countries around the world.

Certain product categories and geographies in which we compete continue to grow moderately.

This includes mid single digit growth in the luxury fragrance category and low single digit decline in the mass beauty category driven by declines in North America and Europe.

Additionally, in certain categories, our revenues are declining faster than the category which continue to negatively impact our business and financial results.

The economics of developing, producing, launching, supporting and discontinuing products impact the timing of our sales and operating performance each period.

Through targeted strategic transactions, we have strengthened and diversified our presence across the countries, categories and channels in which we compete, building a strong beauty platform.

The recent King Kylie transaction and the pending transaction with Kim Kardashian West complement our existing portfolio.

As we continue to transform our Company, we are focused on the fragrance, color cosmetics and skin care categories, in both our prestige and mass beauty businesses.

The divestiture of the Younique business in September 2019 and the strategic Wella Transaction signed in June, 2020 are reflections of our intent to focus on our core go-to-market competencies and to simultaneously deleverage our balance sheet.

By retaining a 40% interest in the Wella Business following the closing of the Wella Transaction, we are able to benefit from the potential upside of the stand-alone business in the longer term.

Our recently announced management changes, including an increase in diversity at both the Board and senior management levels, demonstrate a commitment to our continued transformation.

We expect that our strategy will continue to develop under the direction of our new management team.

COVID-19 Impacts

The COVID-19 pandemic has had, and is expected to continue to have material effects on all of our product categories across all segments and geographies.

The unprecedented containment measures adopted worldwide to address the pandemic have contributed to a significant decline in volume trends.

In particular, demand for prestige products mainly sold in retail malls, professional salon products, and the travel retail channel have been more significantly impacted by temporary closures of non-essential businesses and social distancing measures.

Many of our mass products are offered in other channels, such as drug and grocery stores, that continue to operate as essential businesses.

However, shelter-in-place orders, reduced store hours, and other social distancing measures have resulted in reduced customer traffic and sales volumes for these product categories as well.

In response to the COVID-19 pandemic, we have implemented several key measures.

To mitigate closures of our existing sales channels, open channels and markets are being prioritized, with the acceleration of several initiatives such as e-commerce.

We have also taken aggressive steps to reduce operating costs to more appropriately align with the current sales volume trends.

Such measures include slowing down our production to adjust our inventories, the recently announced temporary compensation reductions for certain executives and for our non-executive board members, hiring and travel restrictions, temporary furloughs for certain employees, using available local government assistance programs to reduce employee costs, and the reduction of advertising and consumer promotion costs for sales channels that are closed or heavily impacted by social distancing.

We intend to utilize any tax payment deferrals that apply to us in specific jurisdictions.

We will actively manage our working capital to support our liquidity needs.

Additionally, to address the potentially longer-lasting impacts of the COVID-19, the lockdown and a possible recession resulting from COVID-19 in many markets, we will be implementing a plan to reduce our cost base, which does not vary with revenues, by 25%, including an adaptation of our supply network and organization as well as a reduction of certain discretionary expenses.

We anticipate continued negative pressure on sales volume until such containment measures are discontinued and normal consumer traffic resumes.

We currently expect that any easing of containment measures and recovery of the impacted sectors of the economy will be gradual and uneven, as regions face potential resurgence of COVID-19 and related uncertainties.

As a result, we anticipate that consumer spending habits and consumer confidence will continue to shift, causing future sales and volume trends to be non-linear.

After the resumption of more typical business conditions, the economics of developing, producing, launching, supporting and discontinuing products will continue to impact the timing of our sales and operating performance each period.

In addition, as product life cycles shorten, results are driven primarily by successfully developing, introducing and marketing new, innovative products.

Fiscal 2019 results

Despite strong consumer demand and innovation in the Luxury and Professional Beauty divisions, results in fiscal 2019 reflected the impact of supply chain disruptions on all divisions, arising from our supply chain footprint transformation (the “Supply Chain Disruptions”).

The deterioration in Consumer Beauty’s results were further impacted by the continued weakness in U.S.

and Europe mass beauty categories, and the continued impact from distribution losses, primarily in the U.S.

We have resolved the supply chain issues, and they had minimal impact on our results during the fourth quarter of fiscal 2019.

Fiscal 2019 milestones and Turnaround Plan

Our top priority is taking the necessary steps to stabilize our consumer business and build lasting and sustainable performance at Coty.

In fiscal 2019, we completed the last steps of the complex integration of the P&G Beauty Business, including our one order, one invoice, one shipment integration program which enables us to sell, ship and invoice our brands in a more efficient way for our customers.

We also completed the transformation of our supply chain footprint.

Under the direction of our new senior leadership, we undertook a broad review of our business to develop a strategic framework to position us for sustainable performance and long-term success, and in July 2019, we announced a multi-year Turnaround Plan that aims to stabilize and gradually accelerate revenue growth, improve our profitability through gross margin growth and cost control, and deleverage our balance sheet.

The priorities of the Turnaround Plan are threefold:

to rediscover growth, to regain operational leadership and to build a culture of pride and performance.

In connection with the Turnaround Plan, we announced organizational changes intended to align our costs with our revenue realities, simplify decision making and enable our teams in the markets to act with closer guidance and with greater speed.

We expect to move from the current organizational structure into regional commercial business units for Luxury and Consumer Beauty, as well as create new regions:

Americas, Asia Pacific and EMEA.

Such regional business units will be supported by central Luxury and Consumer Beauty marketing teams.

Professional Beauty is expected to remain a distinct business unit due to its unique salon channel focus.

Our commercial front line – the local sales and marketing teams facing our customers and building our brands locally – will see little impact and will remain specialized in their respective products and sales channels.

In order to reduce geographic fragmentation and costs, the reorganization includes the co-location of most of our executive team and corporate functions in a centralized management headquarters in Amsterdam.

The reorganization is accompanied by strategies to drive substantial improvement in our Consumer Beauty business while also further optimizing our Luxury and Professional Beauty businesses.

We aim to achieve this by focusing our investments in fewer brands and markets, increasing shelf productivity through improved assortment, improving mix management, and developing a stronger and margin-accretive innovation pipeline.

In order to fuel both increased investment in the business (including targeted advertising and consumer promotion spend and disciplined research and development investments) as well as improved profitability, we are working to lower our cost of goods sold through improved productivity in our existing manufacturing footprint, simplifying our product range, and lowering fixed costs through a simplified organizational structure.

We are also focused on increasing our cash flow and reducing our indebtedness.

To implement the Turnaround Plan, we expect to incur one-time cash costs of approximately $600 million spread over fiscal years 2020 through to 2023, in addition to approximately $160 million connected to previous programs.

For fiscal year 2020, we expect to moderate the decline in our net revenues and target moderate improvements in cash flow and operating income, underpinned by our efforts to lower costs and improve operational execution.

By fiscal year 2023, we are targeting moderate net revenue growth, significant expansion in operating income and operating margin and improvements in cash flow.

Exclusive of the effects of the COVID-19 pandemic, which became more evident in the fourth quarter, our global share trends in the mass color cosmetics categories in which we compete continue to decline.

However, Sally Hansen continues to experience positive trends due to the ongoing success of the Good.Kind.Pure.

April was the low point for net revenues due to the effects of COVID-19 in Fiscal 2020 and we have seen improvements in May and June as different markets re-open.

Further, we have seen considerable improvements during July and the first three weeks of August, however our revenues continue to be below comparable periods in the prior year.

Operating and Reportable Segments

Due to the change in our reporting structure during the third quarter of this year and the discontinued operations presentation (see Footnote 5—Segment Reporting), our business is organized into three operating segments and reportable

Americas, Europe, Middle East & Africa (“EMEA”), and Asia Pacific, which include the businesses focused on prestige fragrances, prestige skin care, prestige color cosmetics, mass color cosmetics, mass fragrance, mass skin care and body care and are supported by central marketing teams.

Certain shared costs and the results of corporate initiatives are managed outside of our three segments by Corporate.

Transformation Plan

Building on the multi-year Turnaround Plan we launched in July 2019, we are implementing a comprehensive transformation agenda (the “Transformation Plan”), which aims to stabilize and gradually accelerate revenue growth, improve our profitability through gross margin growth and cost control, optimizing our operating model for speed and agility, accelerate e-commerce and digital growth, and deleverage our balance sheet.

In 2020, we made organizational changes to reduce geographic fragmentation and costs.

On May 11, 2020, we commenced the implementation of a 25% reduction of our cost base, which does not vary with revenues, by the end of fiscal 2023, including reprioritizing projects providing larger cost reduction benefits, an adaptation of our supply network and organization as well as a reduction of certain discretionary expenses.

This Transformation Plan is designed to adjust our cost base to allow us to exit the post-COVID recovery phase as a financially and operationally stronger, more nimble company, which is well positioned to capture growth opportunities.

We expect to incur cash costs consistent with the previously announced estimate.

We are continually reviewing ways to accelerate and amplify the transformation of the Company, including through the implementation of additional initiatives in connection with our T ransformation Plan.

These organizational, business and structural changes are still being operationalized, which introduces additional complexity as we roll out several initiatives simultaneously, such as the separation of the Wella Business and the obligations under the related TSA in connection with the Wella Transaction.

Non-GAAP Financial Measures

To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures including Adjusted operating income, Adjusted net income attributable to Coty Inc.

and Adjusted net income attributable to Coty Inc.

per common share (collectively, the “Adjusted Performance Measures”).

To supplement the financial measures prepared in accordance with GAAP, we use non-GAAP financial measures for continuing operations and Coty Inc.

including Adjusted operating income (loss), Adjusted net income (loss), and Adjusted net income (loss) attributable to Coty Inc.

to common stockholders (collectively, the “Adjusted Performance Measures”).

The reconciliations of these non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP are shown in tables below.

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• senior management receives a monthly analysis comparing budget to actual operating results that is prepared using the Adjusted Performance Measures;

senior management’s annual compensation is calculated, in part, by using the Adjusted Performance Measures.

• senior management’s annual compensation is calculated, in part, by using some of the Adjusted Performance Measures.

In addition, our financial covenant compliance calculations under our debt agreements are substantially derived from these Adjusted Performance Measures.

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We provide disclosure of the effects of these non-GAAP financial measures by presenting the corresponding measure prepared in conformity with GAAP in our financial statements, and by providing a reconciliation to the corresponding GAAP measure so that investors may understand the adjustments made in arriving at the non-GAAP financial measures and use the information to perform their own analyses.

Adjusted operating income excludes restructuring costs and business structure realignment programs, amortization, acquisition-related costs and acquisition accounting impacts, asset impairment charges and other adjustments as described below.

Adjusted operating income from continuing operations excludes restructuring costs and business structure realignment programs, amortization, acquisition- and divestiture-related costs and acquisition accounting impacts, asset impairment charges and other adjustments as described below.

We do not consider these items to be reflective of our core operating performance due to the variability of such items from period-to-period in terms of size, nature and significance.

They are primarily incurred to realign our operating structure and integrate new acquisitions, and fluctuate based on specific facts and circumstances.

They are primarily incurred to realign our operating structure and integrate new acquisitions, and exclude divestitures, and fluctuate based on specific facts and circumstances.

Additionally, Adjusted net income attributable to Coty Inc.

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Adjusted Performance Measures reflect adjustments based on the following items:

Costs related to acquisition activities:

We have excluded acquisition-related costs and acquisition accounting impacts such as those related to transaction costs and costs associated with the revaluation of acquired inventory in connection with business combinations because these costs are unique to each transaction.

The nature and amount of such costs vary significantly based on the size and timing of the acquisitions and the maturities of the businesses being acquired.

Also, the size, complexity and/or volume of past acquisitions, which often drives the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of any future acquisitions.

• Costs related to acquisition and divestiture activities:

We have excluded acquisition- and divestiture-related costs and the accounting impacts such as those related to transaction costs and costs associated with the revaluation of acquired inventory in connection with business combinations because these costs are unique to each transaction.

Additionally, for divestitures, we exclude write-offs of assets that are no longer recoverable and contract related costs due to the divestiture.

The nature and amount of such costs vary significantly based on the size and timing of the acquisitions and divestitures, and the maturities of the businesses being acquired or divested.

Also, the size, complexity and/or volume of past transactions, which often drives the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of any future acquisitions or divestitures.

• Restructuring and other business realignment costs:

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Furthermore, our management believes that the adjustment of these items supplement the GAAP information with a measure that can be used to assess the sustainability of our operating performance.

• Asset impairment charges:

We have excluded the impact of asset impairments as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions.

Our management believes that the adjustment of these items supplement the GAAP information with a measure that can be used to assess the sustainability of our operating performance.

• Amortization expense:

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Any future acquisitions may result in the amortization of additional intangible assets.

Asset impairment charges:

We have excluded the impact of asset impairments as such non-cash amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions.

Our management believes that the adjustment of these items supplement the GAAP information with a measure that can be used to assess the sustainability of our operating performance.

Loss/(Gain) on sale of brand assets:

We have excluded the impact of Loss/(gain) on sale of brand assets as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of divestitures.

• Loss/(Gain) on divestitures and sale of brand assets:

We have excluded the impact of Loss/(gain) on divestitures and sale of brand assets as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of divestitures.

Our management believes that the adjustment of these items supplement the GAAP information with a measure that can be used to assess the sustainability of our operating performance.

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This adjustment represents the impact of the tax effect of the pretax items excluded from Adjusted net income.

The tax impact of the non-GAAP adjustments are based on the tax rates related to the jurisdiction in which the adjusted items are received or incurred.

The tax impact of the non-GAAP adjustments is based on the tax rates related to the jurisdiction in which the adjusted items are received or incurred.

While acquiring brands and licenses comprises a part of our overall growth strategy, along with targeting organic growth opportunities, we have excluded acquisition-related costs and acquisition accounting impacts in connection with business combinations because these costs are unique to each transaction and the amount and frequency are not consistent and are significantly impacted by the timing and size of our acquisitions.

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• the expansion of product offerings by evaluating segment, brand, and geographic performance and the respective strength of the brands;

the evaluation of market share expansion in categories and geographies;

• the evaluation of share expansion in categories and geographies;

• the earnings per share accretion and substantial incremental free cash flow generation providing financial flexibility for us;

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Acquisitions, divestitures and early license terminations that would impact the comparability of financial results between periods presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations are shown in the table below.

Period of acquisition, divestiture, or termination

Acquisition, divestiture, or termination

Impact on basis of 2019/2018 presentation

Impact on basis of 2018/2017 presentation

First quarter fiscal 2017

Second quarter fiscal 2017

Acquisition :

P&G Beauty Business (all segments) Ghd (Professional segment)

First quarter of fiscal 2018 P&G financial contribution excluded and five months of fiscal 2018 ghd financial contribution excluded

Third quarter fiscal 2017

Acquisitions :

Younique (Consumer Beauty segment)

Seven months of fiscal 2018 financial contribution excluded

Fourth quarter fiscal 2017

First quarter fiscal 2018

Period of acquisition, divestiture, or termination Acquisition, divestiture, or termination Impact on basis of 2020/2019 presentation Impact on basis of 2019/2018 presentation

Second quarter fiscal 2018

Acquisition :

Burberry Beauty Business (Luxury segment)

First quarter fiscal 2019 financial contribution excluded

Second, third, and fourth quarter fiscal 2018 financial contribution excluded

Burberry Beauty Business

n/a First quarter fiscal 2019 financial contribution excluded

Third quarter fiscal 2018

Termination :

Guess (Consumer Beauty segment)

First, second and third quarter fiscal 2018 financial contribution excluded

n/a First, second and third quarter fiscal 2018 financial contribution excluded

Fourth quarter fiscal 2018

Divestitures of licenses :

Playboy (Consumer Beauty segment) and Cerruti (Luxury segment)

First, second, third and fourth quarter fiscal 2018 financial contribution excluded

Playboy and Cerruti

n/a Fiscal 2018 financial contribution excluded

First quarter fiscal 2020 Divestiture:

Younique - the divestiture of the interest in Foundation, which holds the net assets for Younique

September fiscal year 2020 and September - June fiscal year 2019 financial contribution excluded.

Closing date of divestiture was September 16, 2019.

This effectively excludes the incremental three months and 14 days of net revenue contribution from Younique in the prior year.

Third quarter fiscal 2020 Acquisition:

King Kylie Transaction - the acquisition of 51% interest in King Kylie LLC

Third and fourth quarter fiscal year 2020 financial contribution excluded.

When used herein, the term “Acquisitions” and “Divestitures” refer to the financial contributions of the related acquisitions or divestitures and early license terminations shown above, during the period that is not comparable as a result of such acquisitions or divestitures and early license terminations.

A detailed discussion of the fiscal 2018 year-over-year changes can be found in Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K filed on August 21, 2018.

Financial results for the Wella Business for fiscal years 2020, 2019 and 2018 are presented as discontinued operations.

Unless otherwise noted, the following section pertains to the results of continuing operations.

In fiscal 2020, net revenues decreased 25%, or $1,570.1, to $4,717.8 from $6,287.9 in fiscal 2019.

The impact of the acquisition of the Burberry Beauty Business had a positive contribution of 1% to the total change in net revenues in fiscal 2019 as compared to fiscal 2018.

This was more than offset by the impact of the termination of the Guess license and the divestitures of the licenses of Playboy and Cerruti , which had a negative impact of 2% on the total change in net revenues in fiscal 2019 as compared to fiscal 2018 .

Excluding the impacts of the Acquisitions and Divestitures, total net revenues in fiscal 2019 decreased 7% , or $657.3 , to $8,586.2 from $9,243.5 in fiscal 2018 , reflecting a negative foreign currency exchange translation impact of 3% and a decrease in unit volume of 4% .

The d ecrease in net revenues primarily reflects:

Shelf-space losses primarily impacting CoverGirl, Rimmel and Clairol which have contributed to the negative share trends in the color cosmetics and hair color categories in North America;

Performance challenges in our brands across Europe which have contributed to the region’s negative share trends in the color cosmetics category;

Moderate weakness in the mass beauty categories in North American and Europe;

The Supply Chain Disruptions, which negatively impacted net revenues primarily in the first half of 2019 and were resolved in the fourth quarter of fiscal 2019.

Net Revenues by Segment

Year Ended June 30,

Excluding the impacts of the Acquisition and Divestiture, total net revenues in fiscal 2020 decreased 22%, or $1,339.7, to $4,653.4 from $5,993.1 in fiscal 2019, reflecting a negative foreign currency exchange translation impact of 2%, and a decrease in unit volume of 20%.

The decrease in net revenues primarily reflects lower sales due to the COVID-19 pandemic, impacting all product categories across the Company, which more than offset the positive trends in the first half of the fiscal year driven by the resolution of the supply chain disruptions, which negatively impacted net revenues in the prior year.

The pandemic had the highest impact on our prestige products, due to the closure of retail malls and travel retail channels, while the impact to the mass category brands sold in drug and grocery stores, although significant due to social distancing directives, was relatively mitigated due to these distribution channels mostly remaining open.

The closure of nail salons had a positive impact on our Sally Hansen brand, mainly in the United States.

This brand also experienced a successful launch of the Good.Kind.Pure products in the first half of the fiscal year.

In fiscal 2019, net revenues decreased 8%, or $553.9, to $6,287.9 from $6,841.8 in fiscal 2018.

Excluding the impacts of the Acquisition and Divestitures, total net revenues in fiscal 2019 decreased 7%, or $461.5, to $6,225.6 from $6,687.1 in fiscal 2018, reflecting a negative foreign currency exchange translation impact of 3%, and a decrease in unit volume of 4%.

The decrease in net revenues primarily reflects:

(i) shelf-space losses primarily impacting CoverGirl and Rimmel which have contributed to the negative share trends in the color cosmetics category;

(ii) performance challenges in our brands across Europe which have contributed to the region’s negative share trends in the color cosmetics category;

(iii) moderate weakness in the mass beauty categories in the United States and Europe;

(iv) the supply chain disruptions, which negatively impacted net revenues primarily in the first half of 2019 and were resolved in the fourt h quarter of fiscal 2019.

These decreases were partially offset by continued success from the prestige product category, mainly from increased sales from Burberry, Calvin Klein and Gucci .

Year Ended June 30, Change %

(in millions) 2020 2019 2018 2020/2019 2019/2018

Consumer Beauty

Professional Beauty

In fiscal 2019 , net revenues from the Luxury segment increased 3% , or $83.8 to $3,294.3 from $3,210.5 in fiscal 2018 .

The impact of the acquisition of the Burberry Beauty Business had a positive contribution of 2% on the total change in net revenues for the segment in fiscal 2019 as compared to fiscal 2018 .

This was partially offset by the impact of the divestiture of the license of Cerruti , which had a negative contribution of 1% on the total change in net revenues for the segment in fiscal 2019 as compared to fiscal 2018 .

Excluding the impacts of the Acquisitions and Divestitures, net revenues from the Luxury segment increased 2% , or $50.8 , to $3,232.0 in fiscal 2019 from $3,181.2 in fiscal 2018 , reflecting an increase in unit volume of 7% , offset by a negative foreign currency exchange translation impact of 3% and a negative price and mix impact of 2% .

This increase in net revenues primarily reflects:

(i) increased net revenues from Burberry due to the integration and growth of the brand since the acquisition of the Burberry Beauty Business in the second quarter of fiscal 2018;

(ii) increased net revenues from Calvin Klein due to the continued success from the launch of Calvin Klein Women in the first quarter of fiscal 2019;

and (iii) increased net revenues from Gucci due to a number of successful launches in fiscal 2019 including Gucci Bloom Nettare di Fiori, Gucci Guilty Pour Femme, Gucci Alchemist Garden and the relaunch of Gucci Make-up .

These increases were partially offset by a net revenue decline in (i) Hugo Boss due to the Supply Chain Disruptions primarily during the first half of fiscal 2019;

(ii) lower net revenues from philosophy due to reduced promotional activities with a key U.S.

customer and due to the timing of shipments;

and (iii) the negative impact of foreign currency exchange translation.

Consumer Beauty

In fiscal 2019 , net revenues from the Consumer Beauty segment decreased 17% , or $728.8 , to $3,539.3 from $4,268.1 in fiscal 2018 .

The impact of the termination of Guess and the divestiture of the license of Playboy had a negative contribution of 2% on the total change in net revenues for the segment in fiscal 2019 as compared to fiscal 2018 .

Excluding the impact of the Divestitures, net revenues from the Consumer Beauty segment decreased 15% , or $603.6 , to $3,539.3 in fiscal 2019 from $4,142.9 in fiscal 2018 , primarily reflecting a negative price and mix impact of 6% , a decrease in unit volume of 5% , and a negative foreign currency exchange translation impact of 4% .

Americas $ 1,771.0 $ 2,248.9 $ 2,399.3 (21 %) (6 %)

EMEA 2,308.6 2,909.7 3,250.7 (21 %) (10 %)

Asia Pacific 582.7 771.1 758.7 (24 %) 2 %

Other 55.5 358.2 433.1 (85 %) (17 %)

Total $ 4,717.8 $ 6,287.9 $ 6,841.8 (25 %) (8 %)

In fiscal 2020, net revenues in the Americas segment decrease d 21%, or $477.9 to $1,771.0 from $2,248.9 in fiscal 2019.

Excluding the impact of the Acquisition, net revenues in the Americas segment decreased 24%, or $529.9, to $1,719.0 in fiscal 2020 from $2,248.9 in fiscal 2019, reflecting a decrease in unit volume of 19%, a negative foreign currency exchange translation impact of 2% and a negative price and mix impact of 3%.

The decrease in net revenues primarily reflects:

Shelf-space losses primarily impacting CoverGirl , Rimmel and Clairol which have contributed to the negative share trends in the color cosmetics and hair color categories in North America;

Performance challenges in our brands across Europe which have contributed to the region’s negative share trends in the color cosmetics category;

Moderate weakness in the mass beauty categories in North America and Europe;

The Supply Chain Disruptions which resulted in lower net revenues primarily in the first half of the year mainly in the color cosmetics category, namely the Rimmel , Max Factor and Bourjois brands;

Reduced net revenues from Younique due to a decline in presenter sponsorship;

The negative impact of foreign currency exchange translation.

These net revenue declines were partially offset by increased net revenue from Monange supported by continued share gains in Brazil.

The negative price and mix impact for the segment primarily reflects this higher volume from Monange and the remainder of the body care category which has relatively lower-priced products.

Professional Beauty

In fiscal 2019 , net revenues from the Professional Beauty segment decreased 5% , or $104.5 , to $1,814.9 from $1,919.4 in fiscal 2018 primarily reflecting a decrease in unit volume of 6% and a negative foreign currency exchange translation impact of 3% , partially offset by a positive price and mix impact of 4% .

The decrease in this segment primarily reflects:

(i) decreased volume for hair care brands due to lower shipments to optimize retailer trade inventory levels for certain key U.S.

(ii) lower net revenues due to the Supply Chain Disruptions mainly impacting OPI and brands across the hair care category in the first half of fiscal 2019;

and (iii) the negative impact of foreign currency exchange translation.

(i) lower net revenues due to the COVID-19 pandemic, impacting all product categories across the segment, with the highest impact on prestige products due to the closure of retail malls and travel retail channels.

The impact to the mass category brands sold in drug and grocery stores, although significant due to social distancing directives, was relatively mitigated due to these distribution channels mostly remaining open;

(ii) shelf-space losses in the United States primarily in the first half, impacting CoverGirl, and Rimmel which have contributed to the negative share trends in the mass color cosmetics and prestige skin products;

(iii) negative category trends in the United States for mass color cosmetics and mass fragrances.

These decreases were partially offset by:

(i) a net revenue increase in ghd due to the product launch of the ghd Glide in the third quarter and continued innovation and success from the launch of Platinum+ ;

and (ii) favorable price and mix impacts from the Wella Koleston Perfect ME+ product restage in the first quarter of fiscal 2019.

Net Revenues by Geographic Regions

In addition to our reporting segments, net revenues by geographic regions are as follows.

Year Ended June 30,

(in millions)

North America

In fiscal 2019 , net revenues in North America decreased 10% or $309.5 , to $2,656.5 from $2,966.0 in fiscal 2018 .

Excluding the impacts of the Acquisition and Divestitures, net revenues in North America decreased 10% or $304.3 , to $2,641.9 in fiscal 2019 from $2,946.2 in fiscal 2018 , primarily due to:

(i) shelf-space losses in the United States primarily impacting CoverGirl , Rimmel and Clairol , which have contributed to the negative share trends in the color cosmetics and hair color categories in North America;

(i) positive impact in the first half of fiscal 2020 from the resolution of the supply chain disruptions which negatively impacted net revenues in the prior year;

(ii) significant improvement in e-commerce sales from a modest prior year base, primarily in prestige make-up and mass body care;

(iii) increased net revenues from Sally Hansen due to continued success across its core sub-brands as well as incremental net revenues from the launch of Good.Kind.Pure, enhanced by the closure of nail salons across the region due to the COVID-19 pandemic;

(iv) incremental net revenues from Tiffany & Co due to the launch of Tiffany & Love in the first half.

In fiscal 2019, net revenues in the Americas segment decreased 6%, or $150.4, to $2,248.9 from $2,399.3 in fiscal 2018.

Excluding the impact of the Acquisition and Divestitures, net revenues in Americas decreased 6% or $131.6, to $2,232.0 in fiscal 2019 from $2,363.6 in fiscal 2018, reflecting a negative foreign currency exchange translation impact of 3%, a negative price and mix impact of 2%, and a decrease in unit volume of 1%.

The decrease in net revenues primarily reflects:

(i) shelf-space losses in the United States primarily impacting CoverGirl and Rimmel , which have contributed to the negative share trends in the color cosmetics category;

(ii) reduced net revenues in the United States from the supply chain disruptions primarily in the first half of fiscal 2019;

(iii) reduced net revenues from Younique due to a decline in presenter sponsorship;

(iv) decreased volume for Professional hair care brands due to lower shipments to optimize retailer trade inventory levels for certain key U.S.

and (v) lower net revenues from philosophy due to distribution losses at a key U.S.

(iii) lower net revenues from philosophy due to distribution losses at a key U.S.

customer and due to the timing of shipments;

These decreases were partially offset by increased net revenues from Burberry in the United States due to the integration and growth of the Burberry Beauty Business.

In fiscal 2019 , net revenues in Europe decreased 10% , or 423.8 , to $3,777.8 from $4,201.6 in fiscal 2018 .

Excluding the impacts of the Acquisition and Divestitures, net revenues in Europe decreased 9% , or 361.5 , to 3,748.8 in fiscal 2019 from 4,110.3 in fiscal 2018 , primarily due to:

(i) performance challenges in our Consumer Beauty brands across Europe which have contributed to the region’s negative share trends in the color cosmetics category;

(iv) unfavorable foreign currency exchange translation impacts of certain currencies in Latin America.

These decreases were partially offset by:

(i) increased net revenues from Burberry in the United States due to the integration and growth of the Burberry Beauty Business;

(ii) higher net revenues from Monange due to category growth and share gains in Brazil.

In fiscal 2020, net revenues in the EMEA segment decreased 21%, or $601.1, to $2,308.6 from $2,909.7 in fiscal 2019, reflecting a decrease in unit volume of 21% and a negative foreign currency exchange translation impact of 2%, partially offset by a positive price and mix impact of 2%.

The decrease in net revenues primarily reflects:

These decreases more than offset the increased net revenues from prestige products in the first half of the fiscal year.

(ii) negative share trends in Europe for mass color cosmetics, partially due to a strategic decision to withdraw Bourjois in the UK.

These decreases were partially offset by:

(i) increased net revenues in the first half of fiscal 2020 due to the resolution of the supply chain disruptions which negatively impacted net revenues in the prior year;

(ii) significant improvement in e-commerce sales from a modest prior year base;

(iii) positive impact in the first three quarters of the fiscal year from:

Burberry due to continued success from the launch of Burberry Her in the prior year;

Lacoste in Russia due to the launch of Lacoste Timeless ;

and Bruno Banani mainly driven by the launch of Bruno Banani Loyal Man in Germany.

In fiscal 2019, net revenues in EMEA decreased 10%, or $341.0, to $2,909.7 from $3,250.7 in fiscal 2018.

Excluding the impact of the Acquisition and Divestitures, net revenues in EMEA decreased 9%, or $275.0, to $2,878.0 in fiscal 2019 from $3,153.0 in fiscal 2018, reflecting a decrease in unit volume of 8% and a negative foreign currency exchange translation impact of 4%, offset by a positive price and mix impact of 3%.

The decrease in net revenues primarily reflects:

(i) performance challenges in our mass category brands across Europe which have contributed to the region’s negative share trends in the color cosmetics category;

(ii) declines in Rimmel , Bourjois , and Max Factor across the region due to the supply chain disruptions primarily in the first half of fiscal 2019;

(iii) declines in mass fragrances in Western Europe in part due to negative share and category trends in the mass fragrances category.

and (iv) negative foreign currency exchange translation impacts.

These declines were partially offset by incremental net revenues from Calvin Klein and Burberry across the region.

Excluding the impact of the Acquisitions, Divestitures and the negative foreign currency exchange translation impact of 4%, net revenues in Europe decreased 5%.

In fiscal 2019 , net revenues in ALMEA decreased 1% , or $16.2 , to $2,214.2 from $2,230.4 in fiscal 2018 .

Excluding the impacts of the Acquisitions and Divestitures, net revenues in ALMEA remained consistent at $2,195.5 in fiscal 2019 compared to $2,187.0 in fiscal 2018 , primarily due to (i) unfavorable foreign currency exchange translation impacts of certain currencies in Latin America;

and (ii) lower net revenues in China and the Middle East from Max Factor and the retail hair line of Wella hair products due to changes to retailer trade inventory levels.

These decreases were offset by (i) higher net revenues from Monange due to category growth and share gains in Brazil;

(ii) increased net revenues in China from Gucci and Burberry ;

and (iii) increased net revenues in South Africa from brands across the color cosmetics and prestige fragrance categories.

Excluding the impact of the Acquisitions, Divestitures and the negative foreign currency exchange translation impact of 7%, net revenues in ALMEA increased 7%.

COST OF SALES

These declines were partially offset by:

(i) incremental net revenues from Calvin Klein and Burberry across the region;

(ii) increased net revenues in South Africa from brands across the color cosmetics and prestige fragrance categories.

In fiscal 2020, net revenues in the Asia Pacific segment decreased 24%, or $188.4, to $582.7 from $771.1 in fiscal 2019, reflecting a decrease in unit volume of 21%, a negative foreign currency exchange translation impact of 2%, and a negative price and mix impact of 1%.

The decrease in net revenues primarily reflects:

(i) lower net revenues due to the COVID-19 pandemic, impacting all product categories across the segment, with the highest impact on the prestige category due to the closure of retail malls and travel retail channels.

(ii) lower net revenues due to the Hong Kong protests, impacting mainly the prestige brands;

(iii) declines from strategic initiatives to reduce distribution through lower priced channels in Southeast Asia impacting brands across the prestige and mass fragrance category;

(iv) declines in Max Factor in China in an effort to optimize trade inventory levels.

These decreases were partially offset by:

(i) increased net revenues from the relaunch of Gucci Make-up in the Asia Pacific travel retail channel in the first half of the fiscal year, despite geopolitical disruptions in Hong Kong;

(ii) positive impact in the first half of the fiscal year from Burberry due to continued success from the launch of Burberry Her in the prior year;

and Rimmel mainly driven by increased net revenues in Japan.

In fiscal 2019, net revenues in Asia Pacific increased 2%, or $12.4, to $771.1 from $758.7 in fiscal 2018.

Excluding the impact of the Acquisition and Divestitures, net revenues in Asia Pacific increased 3% or $20.0 to $757.4 in fiscal 2019 from $737.4 in fiscal 2018, reflecting an increase in unit volume of 7%, offset by a decrease in price and mix of 1% and a negative foreign currency exchange translation impact of 3%.

The increase in net revenues primarily reflects increased net revenues in China from Gucci and Burberry , offset by lower net revenues in China from Max Factor due to changes to retailer trade inventory levels.

Other consists of the net revenues from Younique.

COST OF SA LES

In fiscal 2020, cost of sales decreased 20%, or $507.3, to $1,991.2 from $2,498.5 in fiscal 2019.

Cost of sales as a percentage of net revenues decreased to 38.2% in fiscal 2019 from 38.4% in fiscal 2018 , resulting in a gross margin improvement of approximately 20 basis points, primarily reflecting:

a favorable mix impact associated with the increased proportion of net revenue contribution from higher-margin Luxury and Professional Beauty products in the twelve months ended June 30, 2019 as compared to the twelve months ended June 30, 2018;

lower costs from distributor terminations and accelerated depreciation of buildings and equipment associated with plant closures related to the Global Integration Activities (as defined below) in fiscal 2018;

decreased excess and obsolescence expense on inventory in the Corporate segment for artwork transition activities on acquired inventory in connection with the acquisition of the P&G Beauty Business.

These improvements were partially offset by:

increased excess and obsolescence expense on inventory within the Consumer Beauty segment;

increased freight expenses, primarily reflecting higher import duties and freight rates;

the negative mix impact within the Consumer Beauty segment associated with a higher proportionate net revenue contribution from lower-margin body care products, which has its primary commercial market located in Brazil;

Cost of sales as a percentage of net revenues increased to 42.2% in fiscal 2020 from 39.7% in fiscal 2019 resulting in a gross margin percentage decrease of approximately 250 basis points primarily reflecting COVID-19 reduced sales volume impact which negatively impacted the gross margin trends during the pre-COVID-19 period, as follows:

(i) increased excess and obsolescence expense on inventory;

(ii) incremental expense of underutilized facilities costs;

(iii) increased designer license fees due to an unfavorable mix of prestige brands with higher minimum royalty rates.

These negative impacts were partially offset by increased gross margin due to sales price increases in Brazil in the current period, compared to lower base due to negative mix impact associated with lower-margin body care products in the prior period.

In fisca l 2019, cost of sales decreased 8%, or $219.7, to $2,498.5 from $2,718.2 in fiscal 2018.

Cost of sales as a percentage of net revenues remained constant at 39.7% in fiscal 2019 and in fiscal 2018, primarily reflecting:

(i) a favorable mix impact associated with the increased proportion of net revenue contribution from higher-margin prestige products in the current period as compared to the prior period;

(ii) lower costs from distributor terminations and accelerated depreciation of buildings and equipment associated with plant closures related to the global integration activities in the prior period;

(iii) decreased excess and obsolescence expense on inventory in the Corporate segment for artwork transition activities on acquired inventory in connection with the acquisition of the P&G Beauty Business.

These improvements were mostly offset by:

(i) increased designer license fees due to an unfavorable mix of prestige brands with higher loyalty rates;

(ii) increased excess and obsolescence expense on mass category product inventory;

(iii) increased freight expenses, primarily reflecting higher import duties and freight rates in the Asia Pacific segment;

(iv) the negative mix impact within the mass product category associated with a higher proportionate net revenue contribution from lower-margin body care products, which has its primary commercial market located in Brazil.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In fiscal 2020, selling, general and administrative expenses decreased 10%, or $347.9, to $3,120.0 from $3,467.9 in fiscal 2019.

These amounts include the impact of a higher base of overhead costs in continuing operations following the decision to divest the Wella Business.

Selling, general and administrative expenses as a percentage of net revenues increased to 66.1% in fiscal 2020 from 55.2% in fiscal 2019, or approximately 1090 basis points.

This increase was primarily due to:

(i) 520 basis points related to higher administrative costs as a percentage of net revenue as the compensation expense savings and from prior restructuring programs were out-paced by the decline in net revenues;

(ii) 310 basis points related to higher advertising and consumer promotion costs as a percentage of net revenues as the savings in non-strategic spending in non-working media and other consumer promotion activities across all segments, and savings in media and promotional trade spending from the COVID-19 pandemic were out-paced by the decline in net revenues;

(iii) 150 basis points related to higher bad debt expense of 70 basis points, with the remainder due to:

loss on disposal of assets and lease terminations;

higher negative transactional impact from our exposure to foreign currency exchange fluctuations;

and other expenses;

(iv) 70 basis points related to higher share-based compensation in the current year, compared to significant executive forfeitures of share-based compensation instruments in the prior year;

(v) 40 basis points related to savings in logistics costs from the COVID-19 pandemic out-paced by the decline in net revenues.

In fiscal 2019, selling, general and administrative expenses decreased 9%, or $339.2, to $3,467.9 from $3,807.1 in fiscal 2018.

Selling, general and administrative expenses as a percentage of net revenues decreased to 55.2% in fiscal 2019 from 55.6% in fiscal 2018, or approximately 40 basis points.

This decrease primarily reflects:

150 basis points related to lower advertising and consumer promotion costs due to a rationalization of non-strategic spending in non-working media and other consumer promotion activities across all segments, a decrease in media spending within the Consumer Beauty segment due to higher investments in the prior year on the brand relaunches of CoverGirl and Clairol as well as media decreases in the current year in brands across the color cosmetics category;

20 basis points related to lower share-based compensation expense due to significant executive forfeitures of share-based compensation instruments and the impact of actual forfeitures on the change in the estimated forfeiture rates during the period.

This decrease was primarily reflecting:

(i) 140 basis points related to lower advertising and consumer promotion costs due to a rationalization of non-strategic spending in non-working media and other consumer promotion activities across all segments, and a decrease in media spending in the mass product category;

(ii) 30 basis points related to lower share-based compensation expense due to significant executive forfeitures of share-based compensation instruments, and positive transactional impact from our exposure to foreign currency exchange fluctuations.

These decreases were partially offset by:

60 bas is points related to higher administrative costs due to increased depreciation expense on IT assets placed into service in conjunction with our integration activities as well as the decline in net revenues in the Consumer Beauty segment out-pacing the overall decline in administrative costs from compensation expense savings as a result of restructuring actions and certain other programs and travel & entertainment expense savings from the implementation of more stringent spending policies;

50 basis points related to higher distribution and warehousing expenses due to a strategic shift in certain markets to distribute through subsidiaries as opposed to third-party distributors, which increases storage and handling costs and due to incremental customer penalties stemming from the Supply Chain Disruptions.

OPERATING (LOSS) INCOME

In fiscal 2019 , operating (loss) of ( $3,471.5 ) decreased greater than 100% , or ( $3,624.8 ), from income of $153.3 in fiscal 2018 primarily due to the asset impairment charges of $3,851.9 in fiscal 2019.

Operating margin, or operating (loss) income as a percentage of net revenues, decreased to (40.1)% of net revenues in fiscal 2019 as compared to 1.6% in fiscal 2018 .

Favorable and (unfavorable) basis point changes in operating (loss) income as a percentage of net revenues for the fiscal years ended June 30, 2019 and 2018 as compared to the respective prior year periods, are comprised of the following:

Year Ended June 30,

(bps rounded to nearest tenth)

Asset impairment charges (a)

Amortization Expense

Cost of sales

Loss (gain) on sale of brand assets

Selling, general and administrative expenses

Acquisition-related costs

Restructuring costs

Total basis point favorable (unfavorable) change

See Operating (Loss) Income by Segment for the asset impairment charges by division.

(i) 60 basis points related to higher administrative costs due to our integration activities, as well as the decline in net revenues in the mass product category, which outpaced the overall decline in administrative costs from compensation expense savings as a result of restructuring actions and certain other programs;

(ii) 70 basis points related to higher distribution and warehousing expenses due to a strategic shift in certain markets to distribute through subsidiaries as opposed to third-party distributors;

and other expenses.

OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS

In fiscal 2020, operating loss from continuing operations was $1,236.5 compared to a loss of $3,688.4 in fiscal 2019.

Operating margin increased to (26.2)% in fiscal 2020 as compared to (58.7)% in fiscal 2019.

The operating margin improvements are largely driven by lower asset impairment charges in the current year compared with the prior year, partially offset by reduced net revenue base in the current year due to the impact from the COVID-19 pandemic, causing increased cost of goods sold and selling and general administrative expenses as a percentage of net revenues, and higher restructuring expense and acquisition and divestiture related costs in the current year.

In fiscal 2019, operating loss from continuing operations was $3,688.4 compared to a loss of $155.5 in fiscal 2018.

Operating margin, or operating loss as a percentage of net revenues, decreased to (58.7)% of net revenues in fiscal 2019 as compared to an operating margin of (2.3)% in fiscal 2018.

The operating margin decreases were largely driven by the asset impairment charges in fiscal 2019.

Operating (Loss) Income by Segment

Year Ended June 30,

Year Ended June 30, Change %

(in millions) 2020 2019 2018 2020/2019 2019/2018

OPERATING (LOSS) INCOME

Consumer Beauty

Professional Beauty

In fiscal 2019 , operating income for Luxury decreased 6% , or $15.9 , to $232.8 from $248.7 in fiscal 2018 .

Operating margin decreased to 7.1% of net revenues in fiscal 2019 as compared to 7.7% in fiscal 2018 , primarily driven by the asset impairment charges of $122.2 in fiscal 2019.

Consumer Beauty

In fiscal 2019 , operating (loss) income for Consumer Beauty decreased greater than 100%, or ( $3,877.6 ), to a loss of ( $3,598.7 ) from income of $278.9 in fiscal 2018 .

Operating margin decreased to less than (100%) of net revenues in fiscal 2019 as compared to 6.5% in fiscal 2018 , primarily driven by the asset impairment charges of $3,690.7 in fiscal 2019.

Professional Beauty

In fiscal 2019 , operating income for Professional Beauty increased 2% , or $2.7 to $122.1 from $119.4 in fiscal 2018 .

Operating margin increased to 6.7% of net revenues in fiscal 2019 as compared to 6.2% in fiscal 2018 , primarily driven by lower selling, general and administrative expenses as a percentage of net revenues and lower cost of goods sold as a percentage of net revenues, partially offset by the asset impairment charges of $27.0 in fiscal 2019.

OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS

Americas $ (164.8) $ (1,474.5) $ 45.6 89 % <(100%)

EMEA (248.4) (1,344.1) 131.4 82 % <(100%)

Asia Pacific (74.0) (253.1) 52.7 71 % <(100%)

Other (10.9) (18.6) 70.1 41 % <(100%)

Corporate (738.4) (598.1) (455.3) (23 %) (31 %)

Total $ (1,236.5) $ (3,688.4) $ (155.5) 66 % <(100%)

In fiscal 2020, operating loss for Americas was $164.8 compared to a loss of $1,474.5 in fiscal 2019.

Operating margin increased to (9.3)% of net revenues in fiscal 2020 as compared to (65.6)% in fiscal 2019, primarily reflecting higher asset impairment charges in the prior year , partially offset by reduced net revenue base due to the impact from the COVID-19 pandemic, higher cost of goods sold and selling, general, and administrative expense as a percentage of net revenues, and current year asset impairment charges.

In fiscal 2019, operating loss for Americas was $1,474.5 compared to an income of $45.6 in fiscal 2018.

Operating margin decreased to (65.6)% of net revenues in fiscal 2019 as compared to 1.9% in fiscal 2018, primarily driven by the asset impairment charges in fiscal 2019.

In fiscal 2020, operating loss for EMEA was $248.4 compared to a loss of $1,344.1 in fiscal 2019.

Operating margin increased to (10.8)% of net revenues in fiscal 2020 as compared to (46.2)% in fiscal 2019, primarily reflecting higher asset impairment charges in the prior year, partially offset by reduced net revenue base due to the impact from the COVID-19 pandemic, higher cost of goods sold and selling, general, and administrative expense as a percentage of net revenues, and current year asset impairment charges.

In fiscal 2019, operating loss for EMEA was $1,344.1 compared to an income of $131.4 in fiscal 2018.

Operating margin decreased to (46.2)% of net revenues in fiscal 2019 as compared to 4.0% in fiscal 2018, primarily driven by the asset impairment charges in fiscal 2019.

In fiscal 2020, operating loss for Asia Pacific was $74.0 compared to a loss of $253.1 in fiscal 2019.

Operating margin increased to (12.7)% of net revenues in fiscal 2020 as compared to (32.8)% in fiscal 2019, primarily reflecting higher asset impairment charges in the prior year, partially offset by reduced net revenues due to the impact from the COVID-19 pandemic, and higher cost of goods sold and selling, general and administrative expenses as a percentage of net revenues.

In fiscal 2019, operating loss for Asia Pacific was $253.1 compared to an income of $52.7 in fiscal 2018.

Operating margin decreased to (32.8)% of net revenues in fiscal 2019 as compared to 6.9% in fiscal 2018, primarily driven by the asset impairment charges in fiscal 2019.

Other represents operating (loss) income from Younique.

Corporate primarily includes expenses not directly relating to our operating activities.

These items are included in Corporate since we consider them to be corporate responsibilities, and these items are not used by our management to measure the underlying performance of the segments.

Operating loss for Corporate was $227.7 , $493.7 and $918.6 in fiscal 2019 , 2018 and 2017 , res pectively , as described under “Adjusted Operating Income” below.

The operating loss of $227.7 in fiscal 2019 includes $12.0 million of asset impairment charges related to a Corporate investment.

Adjusted Operating Income by Segment

We believe that adjusted operating income by segment further enhances an investor’s understanding of our performance.

Operating loss for Corporate was $738.4, $598.1 and $455.3 in fiscal 2020, 2019 and 2018, respectively, as described under “Adjusted Operating Income” below.

The operating loss of $738.4 in fiscal 2020 includes asset impairment charges, acquisition and divestiture related costs and restructuring and other business realignment costs, partially offset by the gain on sale of business.

The operating loss of $598.1 in fiscal 2019 includes asset impairment charges and restructuring and other business realignment costs.

Continuing Operations by Segment

We believe that adjusted operating (loss) income from continuing operations by segment further enhances an investor’s understanding of our performance.

See “Overview—Non-GAAP Financial Measures.” A reconciliation of reported operating income (loss) to Adjusted operating income is presented below, by segment:

Year Ended June 30, 2020

(in millions)

Adjustments (a)

Operating (loss) income

Consumer Beauty

Professional Beauty

Year Ended June 30, 2018

(in millions)

Adjustments (a)(b)

(Non-GAAP) (b)

Operating income (loss)

Consumer Beauty

Professional Beauty

(in millions) Reported

(GAAP) Adjustments (a)

Adjusted Operating loss from continuing operations

Americas $ (164.8) $ (75.3) $ (89.5)

EMEA (248.4) (230.4) (18.0)

Asia Pacific (74.0) (25.0) (49.0)

Other (10.9) (7.4) (3.5)

Corporate (738.4) (736.7) (1.7)

Total $ (1,236.5) $ (1,074.8) $ (161.7)

Year Ended June 30, 2019

(in millions)

Adjustments (a)(b)

(Non-GAAP) (b)

Operating (loss) income

Consumer Beauty

Professional Beauty

See a reconciliation of reported operating income to adjusted operating income and a description of the adjustments under “adjusted operating income for Coty Inc.” below.

All adjustments are reflected in Corporate, except for amortization expense and the asset impairment charges which are reflected in the Luxury, Consumer Beauty and Professional Beauty divisions.

Prior periods have been restated in accordance with the adoption of ASU No.

2017-07 as the curtailment gains and pension settlements are a non-service component of the net periodic benefit cost and have therefore been retrospectively reported outside operating income.

See “Reconciliation of Reported Net (Loss) Income Attributable to Coty Inc.

to Adjusted Net Income Attributable to Coty Inc.” for the description of transactions that have been retrospectively reported outside operating income.

Adjusted Operating Income for Coty Inc.

Adjusted operating income provides investors with supplementary information relating to our performance.

See “Overview—Non-GAAP Financial Measures.” Reconciliation of reported operating (loss) income to adjusted operating income is presented below:

(in millions) Reported

Adjustments (a)

Adjusted Operating income from continuing operations

Americas $ (1,474.5) $ (1,633.7) $ 159.2

EMEA (1,344.1) (1,597.4) 253.3

Asia Pacific (253.1) (314.8) 61.7

Other (18.6) (34.8) 16.2

Corporate (598.1) (598.5) 0.4

Total $ (3,688.4) $ (4,179.2) $ 490.8

Year Ended June 30, 2018

(in millions) Reported

Adjustments (a)

Adjusted Operating income from continuing operations

Americas $ 45.6 $ (62.0) $ 107.6

EMEA 131.4 (125.1) 256.5

Asia Pacific 52.7 (22.0) 74.7

Other 70.1 (35.2) 105.3

Corporate (455.3) (455.7) 0.4

Total $ (155.5) $ (700.0) $ 544.5

(a) See a reconciliation of reported operating (loss) income to adjusted operating income and a description of the adjustments under “Adjusted Operating (Loss) Income from Continuing Operations for Coty Inc.” below.

All adjustments are reflected in Corporate, except for amortization and asset impairment charges on goodwill, regional indefinite-lived intangible assets, and finite-lived intangible assets, which are reflected in the Americas, EMEA, Asia Pacific, and Other segments.

Adjusted Operating (Loss) Income from Continuing Operations for Coty Inc.

Adjusted operating (loss) income from continuing operations provides investors with supplementary information relating to our performance.

See “Overview—Non-GAAP Financial Measures.” Reconciliation of reported operating loss to adjusted operating (loss) income is presented below:

Year Ended June 30, Change %

(in millions) 2020 2019 2018 2020/2019 2019/2018

Reported operating (loss) income

Reported operating loss from continuing operations $ (1,236.5) $ (3,688.4) $ (155.5) 66 % <(100%)

% of Net revenues (26.2 %) (58.7 %) (2.3 %)

Asset impairment charges

Amortization expense 233.1 246.7 244.3 (6 %) 1 %

Restructuring and other business realignment costs 361.9 203.5 351.0 78 % (42 %)

Costs related to acquisition activities

Loss/(gain) on sale of brand assets

Total adjustments to reported operating (loss) income

Adjusted operating income

Costs related to acquisition and divestiture activities 157.3 — 76.1 N/A (100 %)

Asset impairment charges 434.0 3,729.0 — (88 %) N/A

Loss/(gain) on divestitures and sale of brand assets (111.5) — 28.6 N/A (100 %)

Total adjustments to reported operating loss 1,074.8 4,179.2 700.0 (74 %) >100%

Adjusted operating (loss) income from continuing operations $ (161.7) $ 490.8 $ 544.5 <(100%) (10 %)

% of Net revenues (3.4 %) 7.8 % 8.0 %

Prior periods have been restated in accordance with the adoption of ASU No.

2017-07 as the curtailment gains and pension settlements are a non-service component of the net periodic benefit cost and have therefore been retrospectively reported outside operating income.

See “Reconciliation of Reported Net (Loss) Income Attributable to Coty Inc.

to Adjusted Net Income Attributable to Coty Inc.” for the description of transactions that have been retrospectively reported outside operating income.

In fiscal 2019 , adjusted operating income decreased 5% , or $52.6 , to $949.7 from $1,002.3 in fiscal 2018 .

Adjusted operating margin increased to 11.0% of net revenues in fiscal 2019 as compared to 10.7% in fiscal 2018 , driven by approximately 70 basis points related to lower adjusted selling, general and administrative expenses partially offset by approximately 40 basis points related to higher adjusted costs of sales as a percentage of net revenues.

Excluding the impact of foreign currency exchange translations, adjusted operating income decreased 1% .

In fiscal 2020, adjusted operating loss was $161.7 compared to an income of $490.8 in fiscal 2019.

These amounts include the impact of a higher base of overhead costs in continuing operations following the decision to divest the Wella Business.

Adjusted operating margin decreased to (3.4%) of net revenues in fiscal 2020 as compared to 7.8% in fiscal 2019, primarily driven by reduced net revenues due to the COVID-19 pandemic, higher selling, general and administrative costs as a percentage of net revenues and higher cost of goods sold as a percentage of net revenues.

In fiscal 2019, adjusted operating income was $490.8 from $544.5 in fiscal 2018.

Adjusted operating margin decreased to 7.8% of net revenues in fiscal 2019 as compared to 8.0% in fiscal 2018, primarily driven by higher selling, general and administrative costs as a percentage of net revenues, partially offset by cost of goods sold as a percentage of net revenues.

Amortization Expense

In fiscal 2020, amortization expense decreased to $233.1 from $246.7 in fiscal 2019.

In fiscal 2020, amortization expense of $75.3, $125.4, $25.0, and $7.4 was reported in the Americas, EMEA, Asia Pacific, and Other segments, respectively.

In fiscal 2019 , amortization expense of $53.9, $133.3, $24.6, and $34.9 was reported in the Americas, EMEA, Asia Pacific, and Other segments, respectively.

In fiscal 2019, amortization expense increased to $246.7 from $244.3 in fiscal 2018 .

In fiscal 2018, amortization expense of $62.0, $125.0, $22.0, and $35.3 was reported in the Americas, EMEA, Asia Pacific, and Other segments, respectively.

Restructuring and Other Business Realignment Costs

We have in place a number of restructuring plans to improve our cost structure, including opportunities to simplify and streamline operations.

In particular, in connection with the acquisition of the P&G Beauty Business, we have incurred restructuring and related costs aimed at integrating and optimizing the combined organization, which we refer to as the Global Integration Activities.

In addition, in 2018, we began evaluating initiatives to reduce fixed costs and enable further investment in the business, which we refer to as the 2018 Restructuring Actions.

We have incurred cumulative restructuring charges of $85.2 related to approved initiatives through June 30, 2019.

On July 1, 2019, we announced our Turnaround Plan.

To implement the Turnaround Plan, we expect to incur restructuring and other business realignment costs, in addition to costs associated with previously announced programs.

The Company expects incremental cash costs related to the Turnaround Plan to be approximately $600.0.

In addition, the Company will continue to incur cash costs of $160.0 related to restructuring and other business realignment costs connected to previously announced programs.

We continue to analyze our cost structure, including opportunities to simplify and optimize operations.

In connection with the four-year Turnaround plan announced on July 1, 2019 to drive substantial improvement and optimization in our business, we have and expect to continue to incur restructuring and other business realignment costs.

On May 11, 2020 we announced an expansion of the Turnaround Plan to further reduce fixed costs, the Transformation Plan.

During fiscal 2020, we paid cash of approximately $210.7 in connection with the execution of the Transformation Plan and our previously announced programs.

Prior to July 1, 2019, we incurred restructuring and related costs aimed at integrating and optimizing the combined organization following the acquisition of the P&G Beauty Business, which we refer to as the Global Integration Activities, and reducing fixed costs and enabling further investment in the business, which we refer to as the 2018 Restructuring Actions.

In fiscal 2020, we incurred restructuring and other business realignment costs of $361.9, as follows:

• We incurred restructuring costs of $130.2, primarily related to the Transformation Plan, included in the Consolidated Statements of Operations;

• We incurred business structure realignment costs of $231.7 primarily related to our Transformation Plan and certain other programs.

This amount includes $217.2 reported in selling, general and administrative expenses, primarily

related to severance, consulting costs and accelerated depreciation costs;

and $14.5 reported in cost of sales in the Consolidated Statement of Operations.

In fiscal 2019, we incurred restructuring and other business structure realignment costs of $203.5, as follows:

• We incurred Restructuring costs of $34.2 primarily related to the Global Integration Activities and 2018 Restructuring Actions, included in the Consolidated Statements of Operations;

• We incurred business structure realignment costs of $169.3 primarily related to our Global Integration Activities and certain other programs.

This amount includes $162.2 in Selling, general and administrative expenses and $9.4 in Cost of sales.

In fiscal 2018 , we incurred restructuring and other business realignment costs of $391.5 , as follows:

Of this amount $159.9 is included in selling, general and administrative expenses and $9.4 is included in cost of sales, primarily due to costs incurred for the realignment of the business due to the P&G Beauty Business.

In fiscal 2018, we incurred restructuring and other business structure realignment costs of $351.0, as follows:

• We incurred Restructuring costs of $134.9 primarily related to the Global Integration Activities and 2018 Restructuring Actions, included in the Consolidated Statements of Operations;

• We incurred business structure realignment costs of $216.1 primarily related to our Global Integration Activities and certain other programs.

This amount includes $167.2 in Selling, general and administrative expenses and $51.1 in Cost of sales.

Of this amount $165.6 is included in selling, general and administrative expenses and $50.5 is included in cost of sales.

In all reported periods, all restructuring and other business realignment costs were reported in Corporate.

Amortization Expense

In fiscal 2019 , amortization expense increased to $353.5 from $352.8 in fiscal 2018 .

In fiscal 2019 , amortization expense of $155.3, $127.8, and $70.4 were reported in the Luxury, Consumer Beauty, and Professional Beauty segments, respectively.

In fiscal 2018 , amortization expense increased to $352.8 from $275.1 in fiscal 2017 , primarily as a result of the Acquisitions.

In fiscal 2018 , amortization expense of $145.1, $132.2, and $75.5 were reported in the Luxury, Consumer Beauty, and Professional Beauty segments, respectively.

Costs related to acquisition activities

In fiscal 2019 , we did not incur any acquisition related costs.

In fiscal 2018 , we incurred $76.1 of costs related to acquisition activities.

We recognized Acquisition-related costs of $64.2, primarily in connection with the acquisitions of the P&G Beauty Business, the Burberry Beauty Business, ghd and Younique.

Acquisition- and divestiture-related costs

In fiscal 2020,we incurred $157.3 of acquisition- and divestiture-related costs, of which $19.7 were consulting and legal costs associated with the King Kylie Transaction and the pending transaction with Kim Kardashian West, and $137.6 associated with the Wella Transaction and other contract termination costs.

In fiscal 2019, there were no acquisition or divestiture-related charges incurred.

In fiscal 2018, we incurred $64.2 of costs primarily related to the acquisition of the P&G Beauty Business, the Burberry Beauty Business, and Younique.

We also incurred $7.1 of cost related to acquired inventory step-up amortization in connection with the acquisitions of Younique and the Burberry Beauty Business, as well as $4.8 in excess & obsolescence expense on inventory associated with the Burberry Beauty Business acquisition, included in Cost of sales in the Consolidated Statements of Operations.

In all reported periods, all acquisition-related costs were reported in Corporate, except where otherwise noted.

In all reported periods, all acquisition- and divestiture-related costs were reported in Corporate, except where otherwise noted.

Asset Impairment Charges

In fiscal 2020, we incurred $434.0 of asset impairment charges primarily due to $329.0 related to indefinite-lived other intangible assets and $105.0 related to goodwill, all reported in Corporate.

In fiscal 2019, we incurred $3,729.0 of asset impairment charges primarily due to:

(i) $3,690.7 related to goodwill and other intangible assets in the Consumer Beauty reporting unit recorded in fiscal 2019;

(ii) $109.6 related to the philosophy trademark that is part of the Luxury reporting unit recorded in fiscal 2019;

(iii) $27.0 related to the professional product line of the Wella trademark that is part of the Professional Beauty reporting unit recorded in fiscal 2019;

(iii) $12.6 charge in the Luxury reporting unit during fiscal 2019 related to an acquired trademark associated with a terminated pre-existing license as a result of the acquisition;

(iv) $12.0 related to a Corporate investment recorded during fiscal 2019.

For further detail as to the factors in the second and fourth quarters resulting in the asset impairment charges please refer to the Goodwill and Other Intangibles note to the Consolidated Financial Statements.

$3,307.5 related to goodwill;

$389.8 related to indefinite-lived other intangible assets;

$19.7 on finite-lived other intangible assets;

and $12.0 related to a Corporate investment recorded during fiscal 2019.

In fiscal 2018, we did not incur any asset impairment charges.

Loss (Gain) on sale of brand assets

In fiscal 2019 , we did not incur a loss (gain) on sale of brand assets.

In fiscal 2018, we sold certain assets relating to our Playboy and Cerruti fragrance brands and recorded a loss of $28.6 which has been reflected in loss (gain) on sale of brand assets in the Consolidated Statements of Operations.

For further detail as to the factors resulting in the asset impairment charges please see Note 12 —Goodwill and Other Intangible Assets, net to the Consolidated Financial Statements.

Loss (Gain) on divestitures and sale of brand assets

In fiscal 2020, we completed the divestiture of Younique resulting in income of $111.5 included in Gain on divestitures and sale of brand assets in the Consolidated Statements of Operations.

In fiscal 2019, we did not incur a loss (gain) on divestitures and sale of brand assets.

In fiscal 2018, we sold certain assets relating to our Playboy and Cerruti fragrance brands and recorded a loss of $28.6.

INTEREST EXPENSE, NET

In fiscal 2019 , net interest expense was $275.7 as compared with $265.0 in fiscal 2018 .

This increase is primarily a result of higher average debt balances.

Net interest expense was $242.7, $225.2, and $200.6 in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

In fiscal year 2020, the net interest expense was higher due to foreign exchange losses, net of derivative contracts, as compared to gains in fiscal 2019, and lower interest income on bank balances and short-term investments, offset by lower current year interest expense on average debt balances due to lower interest rates.

In fiscal 2019, the increased net interest expense was primarily as a result of higher average debt balances.

LOSS ON EARLY EXTINGUISHMENT OF DEBT

In fiscal 2019 , we did not incur any losses related to the early extinguishment of debt.

We did not incur any losses related to the early extinguishment of debt in fiscal 2020 and in fiscal 2019.

In fiscal 2018, we incurred $10.7 in losses related to the write-off of debt discount and deferred financing costs in connection with the refinancing of our credit agreement entered into on October 27, 2017 (the “Coty Credit Agreement”) and the debt facilities available under the Galleria Credit Agreement (the “Galleria Credit Agreement”).

OTHER EXPENSE (INCOME), NET

In fiscal 2019 , we incurred $30.9 of net other expense.

The other expense in fiscal 2019 primarily includes $16.1 of legal and advisory services rendered in connection with the evaluation of the tender offer initiated by certain of our shareholders, $13.3 due to the change in the Mandatorily Redeemable Financial Instrument (“MRFI”) balance associated with a certain Southeast Asian subsidiary and $3.8 related to the write off of unamortized deferred financing fees associated with the 2019 Amendment to the 2018 Coty Credit Agreement, which was partially offset by pension curtailment gains of $5.1 as a result of the Global Integration Activities, which significantly reduced the expected years of future service for employees participating in our non-U.S.

In fiscal 2020, we incurred $(11.6) of net other income, primarily related to pension curtailment gains as a result of the Transformation plan, which significantly reduced the expected years of future service for employees participating in our non-U.S.

pension plans, partially offset by changes in the Mandatorily Redeemable Financial Interest (“MRFI”) and other miscellaneous expense.

In fiscal 2019 , we incurred $31.8 of net other expense, primarily related to legal and advisory services rendered in connection with the evaluation of the tender offer initiated by certain of our shareholders, changes in the MRFI balance associated with a certain Southeast Asian subsidiary, partially offset by pension curtailment gains as a result of the Global Integration Activities, which significantly reduced the expected years of future service for employees participating in our non-U.S.

pension plans.

In fiscal 2018 , we incurred $30.1 of net other expense.

The other expense in fiscal 2018 primarily includes $24.1 in expense related to third-party debt issuance costs incurred in connection with the refinancing of the Coty Credit Agreement and Galleria Credit Agreement and $12.5 related to the change in the MRFI balance primarily associated with a certain Southeast Asian subsidiary.

These other expense charges were partially offset by a $10.4 curtailment gain triggered by an amendment to a non-U.S.

In fiscal 2018, we incurred $27.7 of net other expense, primarily related to third-party debt issuance costs incurred in connection with the refinancing of the Coty Credit Agreement and Galleria Credit Agreement, and costs related to the change in the MRFI balance primarily associated with a certain Southeast Asian subsidiary, partially offset by curtailment gain triggered by an amendment to a non-U.S.

postretirement healthcare plan during fiscal 2018, which significantly reduced the expected years of future service for employees participating in the plan.

The following table presents our (benefit) provision for income taxes, and effective tax rates for the periods presented:

2020 2019 2018

(Benefit) for income taxes $ (377.7) $ (54.8) $ (32.2)

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The effective income tax rate for fiscal 2020 was 25.7% as compared with 1.4% in fiscal 2019 and 8.2% in fiscal 2018.

The effective income tax rate in fiscal 2019 includes the impact of the goodwill impairment that is not tax-deductible.

The effective income tax rate in fiscal 2018 includes an expense of $41.0 as a result of the Tax Act.

The positive effective income tax rate in fiscal 2020 results from reporting losses before taxes and a benefit for income taxes.

During fiscal 2020, the Company recorded a benefit of $105.7 for the capital loss generated as a result of the disposition of its investment in Younique.

The positive effective income tax rate in fiscal 2019 includes the impact of the goodwill impairment that is not tax-deductible.

The positive effective income tax rate in fiscal 2018 includes an expense of $123.0 as a result of the Tax Act.

This expense is due to the one-time deemed repatriation tax offset by a tax benefit on the revaluation of the Company’s deferred taxes.

See Note 16 — Income Taxes in the notes to our Consolidated Financial Statements for additional information.

The effective 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 our unrecognized tax benefits and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes.

The effective rates vary from the blended rate of approximately 21% due to the effect of (i) jurisdictions with different statutory rates, (ii) adjustments to our unrecognized tax benefits and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes.

Our effective tax rate could fluctuate significantly and could be adversely affected to the extent earnings are lower than anticipated in countries that have lower statutory rates and higher than anticipated in countries that have higher statutory rates.

Reconciliation of Reported (Loss) Income Before Income Taxes to Adjusted Income Before Income Taxes and Effective Tax Rates:

Year Ended June 30, 2019

Year Ended June 30, 2018

Year Ended June 30, 2017

(in millions)

(Loss)/ income before income taxes

(Benefit)provision for income taxes

Effective tax rate

(Loss)/ income before income taxes

(Benefit)provision for income taxes

Effective tax rate

(Loss)/income before income taxes

(Benefit)provision for income taxes

Effective tax rate

Reconciliation of Reported (Loss) Income Before Income Taxes to Adjusted (Loss) Income Before Income Taxes and Effective Tax Rates from Continuing Operations:

Year Ended June 30, 2020 Year Ended June 30, 2019 Year Ended June 30, 2018

(in millions) (Loss)/ income before income taxes (Benefit) provision for income taxes Effective tax rate (Loss)/ income before income taxes (Benefit) provision for income taxes Effective tax rate (Loss)/income before income taxes (Benefit)provision for income taxes Effective tax rate

Reported (loss) income before income taxes $ (1,467.6) $ (377.7) 25.7 % $ (3,945.4) $ (54.8) 1.4 % $ (394.5) $ (32.2) 8.2 %

Adjustments to reported operating income (loss) (a) (b)

1,186.3 210.3 4,179.2 123.8 700.0 57.8

Gain on sale of business adjustment (a) (b)

(111.5) 110.5

Other adjustments (b) (c)

Adjusted income before income taxes

See a description of adjustments under “Adjusted Operating Income for Coty Inc.”

The tax effects of each of the items included in adjusted income are calculated in a manner that results in a corresponding income tax benefit/provision for adjusted income.

(16.3) (3.1) 11.0 2.3 24.4 6.9

Adjusted (loss) income before income taxes $ (409.1) $ (60.0) 14.7 % $ 244.8 $ 71.3 29.1 % $ 329.9 $ 32.5 9.9 %

(a) See a description of adjustments under “Adjusted Operating (Loss) Income for Coty Inc.”

(b) The tax effects of each of the items included in adjusted income are calculated in a manner that results in a corresponding income tax benefit/provision for adjusted income.

In preparing the calculation, each adjustment to reported income is first analyzed to determine if the adjustment has an income tax consequence.

The benefit/provision for taxes is then calculated based on the jurisdiction in which the adjusted items are incurred, multiplied by the respective statutory rates and offset by the increase or reversal of any valuation allowances commensurate with the non-GAAP measure of profitability.

See “Reconciliation of Reported Net (Loss) Income Attributable to Coty Inc.

to Adjusted Net Income Attributable to Coty Inc.”

to Adjusted Net (Loss) Income Attributable to Coty Inc.”

The adjusted effective tax rate was 14.7% compared to 29.1% in the prior-year period.

The differences were primarily due to the resolution of a foreign uncertain tax position of approximately $43.0 in the prior period.

Cash paid during the years ended June 30, 2019 , 2018 and 2017 , for income taxes of $110.3 , $124.6 and $90.1 represents 16.9% , 17.3% and 16.3% of Adjusted income before income taxes for the fiscal year ended, respectively.

NET LOSS ATTRIBUTABLE TO COTY INC.

In fiscal 2019 , net loss attributable to Coty Inc.

increased $3,615.4 to a loss of $3,784.2 from a loss of $168.8 in fiscal 2018 .

This net loss increase primarily reflects a higher operating loss in the current year compared to operating income in the prior year.

We believe that adjusted net income attributable to Coty Inc.

The differences were primarily due to additional foreign uncertain tax positions recorded in the prior period.

Cash paid during the years ended June 30, 2020, 2019 and 2018, for income taxes of $123.2, $110.3 and $124.6 represents (30.1)%, 45.1% and 37.8% of Adjusted (loss) income before income taxes for the fiscal year ended, respectively.

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COTY INC.

In fiscal 2020, net loss from continuing operations attributable to Coty Inc.

was $1,093.9 compared to a loss of $3,905.2 in fiscal 2019.

This net loss decrease primarily reflects a lower operating loss in the current year compared to the operating loss in the prior year.

In fiscal 2019, net loss from continuing operations attributable to Coty Inc.

was $3,905.2 compared to a loss of $403.3 in fiscal 2018.

The net loss increase primarily reflects a higher operating loss in fiscal 2019 compared to the operating loss in fiscal 2018.

ADJUSTED NET LOSS ATTRIBUTABLE FROM CONTINUING OPERATIONS TO COTY INC.

We believe that adjusted net (loss) income from continuing operations attributable to Coty Inc.

provides an enhanced understanding of our performance.

See “Overview—Non-GAAP Financial Measures.”

Year Ended June 30,

Year Ended June 30, Change %

(in millions) 2020 2019 2018 2020/2019 2019/2018

Reported net loss attributable to Coty Inc.

Reported net loss from continuing operations attributable to Coty Inc.

to common stockholders $ (1,100.4) $ (3,905.2) $ (403.3) 72 % <(100%)

% of Net revenues (23.3 %) (62.1 %) (5.9 %)

Adjustments to reported operating income (a)

1,074.8 4,179.2 700.0 (74 %) >100%

Adjustments to other expense (income) (b)

(16.3) 11.0 24.4 <(100%) (55 %)

Loss on early extinguishment of debt (c)

— — 10.7 N/A (100 %)

Adjustments to interest (income) expense (d)

Adjustments to noncontrolling interest expense (e)

— — (1.4) N/A 100 %

Adjustments to noncontrolling interest (e)

(4.6) (14.7) (24.0) 69 % 39 %

Change in tax provision due to adjustments to reported net (loss) income attributable to Coty Inc.

Adjusted net income attributable to Coty Inc.

(317.7) (126.1) (64.7) <(100%) (95 %)

Adjusted net (loss) income from continuing operations attributable to Coty Inc.

to common stockholders $ (364.2) $ 144.2 $ 241.7 <(100%) (40 %)

% of Net revenues (7.7 %) 2.3 % 3.5 %

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Adjusted weighted-average common shares

Adjusted net income attributable to Coty Inc.

Basic 759.1 751.2 749.7

Diluted 759.1 754.3 753.1

Adjusted net income from continuing operations attributable to Coty Inc.

per common share

Prior periods have been restated in accordance with the adoption of ASU No.

See below for the description of transactions that have been retrospectively reported outside operating income.

See a description of adjustments under “Adjusted Operating Income for Coty Inc.”

Basic $ (0.48) $ 0.19 $ 0.32

Diluted $ (0.48) $ 0.19 $ 0.32

(a) See a description of adjustments under “Adjusted Operating (Loss) Income for Coty Inc.”

(b) In fiscal 2020, the Company had gains of $14.6 primarily related to pension curtailment gains as a result of the Transformation plan, which significantly reduced the expected years of future service for employees participating in our non-U.S.

pension plans.

In fiscal 2019, the Company incurred legal and advisory services of $16.1 rendered in connection with the evaluation of the tender offer initiated by certain of our shareholders, partially offset by pension curtailment gains of $5.1 as a result of the Global Integration Activities, which significantly reduced the expected years of future service for employees participating in our non-U.S.

2 unchanged sentences

postretirement healthcare plan during fiscal 2018, which significantly reduced the expected years of future service for employees participating in the plan.

In accordance with the adoption of ASU No.

2017-07, the curtailment gains and pension settlements are a non-service component of the net periodic benefit cost and have therefore been retrospectively reported outside operating income.

In fiscal 2017, we recorded pension expense of $17.5 in connection with the settlement of obligations related to the U.S.

Del Laboratories, Inc.

Additionally, we recorded pension curtailment gains of $2.6 for pension plans where there was a significant reduction in the expected years of future service for plan participants as a result of the Acquisition Integration Program and Global Integration Activities.

In fiscal 2018, the amount represents the write-off of debt discount and deferred financing costs in connection with the refinancing of the Coty Credit Agreement and Galleria Credit Agreement, included in Loss on early extinguishment of debt in the Consolidated Statements of Operations.

The amount in fiscal 2018 represents one-time gains of $1.4 on short-term forward contracts to exchange euros for U.S.

(c) In fiscal 2018, the amount represents the write-off of debt discount and deferred financing costs in connection with the refinancing of the Coty Credit Agreement and Galleria Credit Agreement, included in Loss on early extinguishment of debt in the Consolidated Statements of Operations.

(d) The amount in fiscal 2018 represents one-time gains of $1.4 on short-term forward contracts to exchange euros for U.S.

dollars to repay U.S.

dollar debt balances outstanding under the Coty Credit Agreement and Galleria Credit Agreement, in connection with the refinancing

of those respective agreements in April 2018, included in Interest expense, net in the Consolidated Statements of Operations.

The amount in fiscal 2017 represents a net loss of $1.4 incurred in connection with the acquisition of the Hypermarcas Brands and subsequent intercompany loans, included in Interest expense, net in the Consolidated Statements of Operations.

The amounts represent the after-tax impact of the non-GAAP adjustments included in Net income attributable to noncontrolling interest based on the relevant noncontrolling interest percentage in the Consolidated Statements of Operations.

dollar debt balances outstanding under the Coty Credit Agreement and Galleria Credit Agreement, in connection with the refinancing of those respective agreements in April 2018, included in Interest expense, net in the Consolidated Statements of Operations.

(e) The amounts represent the after-tax impact of the non-GAAP adjustments included in Net (loss) income attributable to noncontrolling interest based on the relevant noncontrolling interest percentage in the Consolidated Statements of Operations,

DISCONTINUED OPERATIONS

In fiscal 2020, net revenues from discontinued operations decreased 14%, to $2,020.1 from $2,360.6 in fiscal 2019.

The decrease in net revenues primarily reflects lower sales due to the COVID-19 pandemic, relatively mitigated by the online sales of ghd products and Clairol in the retail hair category.

Operating income was $218.2 in fiscal 2020 compared to $216.9 in fiscal 2019, due primarily to the asset impairment charges in the prior year and the lower cost of goods sold as a percentage of net

revenues in the current year, offset by the higher selling, general and administrative expenses as a percentage of net revenues in the current year, mainly driven by the lower net revenue base due to the COVID-19 pandemic.

In fiscal 2019, net revenues from discontinued operations decreased 8%, to $2,360.6 from $2,556.1 in fiscal 2018.

The decrease in net revenues primarily reflects lower sales due to lower shipments to optimize retailer trade inventory levels for certain U.S.

customers, impact of the supply chain disruptions, shelf space loss for Clairol , and negative impact of foreign currency exchange translation, partially offset by the success of ghd product launches, and favorable price and mix impact from Wella Professional .

Operating income was $216.9 in fiscal 2019 compared to $308.6 in fiscal 2018, due primarily to the asset impairment charges in fiscal 2019, offset by lower selling, general and administrative expenses as a percentage of net revenues and lower cost of goods sold as a percentage of net revenues.

Quarterly Results of Operations Data

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The results of historical periods are not necessarily indicative of the results of operations for any future period.

The quarterly financial information has been recast to reflect the presentation of discontinued operations as of June 30, 2020.

Fiscal 2020 (a)

Fiscal 2018 (b)

Three Months Ended

September 30,

Three Months Ended Three Months Ended

June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30,

(in millions, except per share data) 2020 2020 2019 2019 2019 2019 2018 2018

Consolidated Statements of Operations Data:

Condensed Consolidated Statements of Operations Data:

Net revenues $ 560.4 $ 1,062.5 $ 1,683.7 $ 1,411.2 $ 1,506.2 $ 1,437.8 $ 1,848.4 $ 1,495.5

Gross profit 224.2 601.7 1,051.4 849.3 917.8 881.3 1,123.3 867.0

Restructuring costs 4.7 (8.0) 128.7 4.8 — 2.7 22.3 9.2

Acquisition-related costs

Acquisition-and divestiture-related costs 72.0 49.3 36.0 — — — — —

Asset impairment charges 393.6 40.4 — — 2,783.2 — 933.3 12.5

1 unchanged sentence

Interest expense, net 57.4 63.8 58.4 63.1 57.1 59.0 56.5 52.6

Loss on early extinguishment of debt

Other expense (income), net

(Loss) income before income taxes

Loss from continuing operations before income taxes (962.3) (363.6) (140.3) (1.4) (2,807.3) (65.9) (949.9) (122.3)

Provision (benefit) for income taxes (260.7) (59.8) (39.0) (18.2) (24.2) (12.4) (14.3) (3.9)

Net (loss) income

Net income (loss) attributable to noncontrolling interests

Net income attributable to redeemable noncontrolling interests

Net (loss) income from continuing operations (701.6) (303.8) (101.3) 16.8 (2,783.1) (53.5) (935.6) (118.4)

Net (loss) income from discontinued operations (76.6) 39.4 84.9 39.5 (16.4) 49.5 (20.4) 108.3

Net (loss) income attributable to Coty Inc.

$ (766.3) $ (271.6) $ (21.1) $ 52.3 $ (2,799.4) $ (12.1) $ (960.6) $ (12.1)

Amounts attributable to Coty Inc.

common stockholders:

Net (loss) income from continuing operations attributable to common stockholders (696.2) (311.0) (106.0) 12.8 (2,783.0) (61.6) (940.2) (120.4)

Net (loss) income attributable to common stockholders $ (772.8) $ (271.6) $ (21.1) $ 52.3 $ (2,799.4) $ (12.1) $ (960.6) $ (12.1)

Per Share Data:

Weighted-average common shares:

Basic 763.3 760.8 758.1 754.2 751.6 751.4 751.1 750.8

Diluted 763.3 760.8 758.1 758.9 751.6 751.4 751.1 750.8

Dividends declared per common share $ — $ 0.125 $ 0.125 $ 0.125 $ 0.125 $ 0.125 $ 0.125 $ 0.125

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per common share:

In fiscal 2019, we adopted authoritative guidance issued by the FASB for ASC 606, Revenue from Contracts with Customers, ASU No.

2016-16 and Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other Than Inventory, the impacts of which were applied as of July 1, 2018 in the financial results presented.

Beginning in the second quarter of fiscal 2018, the financial results presented above include the impacts of the Burberry Beauty Business acquisition.

Additionally, in fiscal 2019, we adopted authoritative guidance issued by the FASB for ASU No.

2017-07, Compensation — Retirement Benefits (Topic 715):

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , the impacts of which were applied to the financial results of the fiscal 2018 periods presented.

Basic for Continuing Operations $ (0.91) $ (0.41) $ (0.14) $ 0.02 $ (3.70) $ (0.08) $ (1.25) $ (0.16)

Diluted for Continuing Operations $ (0.91) $ (0.41) $ (0.14) $ 0.02 $ (3.70) $ (0.08) $ (1.25) $ (0.16)

Basic for Coty Inc $ (1.01) $ (0.36) $ (0.03) $ 0.07 $ (3.72) $ (0.02) $ (1.28) $ (0.02)

Diluted for Coty Inc.

$ (1.01) $ (0.36) $ (0.03) $ 0.07 $ (3.72) $ (0.02) $ (1.28) $ (0.02)

(a) Beginning in the second quarter 2020, the financial results exclude the effect of the Younique divestiture.

Additionally, beginning in the third quarter of 2020, the financial results include the effect of the King Kylie Transaction.

FINANCIAL CONDITION

1 unchanged sentence

As of June 30, 2020, we had cash and cash equivalents of $308.3 compared with $340.4 at June 30, 2019.

Our cash and cash equivalents balances increased by $8.8 during fiscal 2019 primarily as a result of cash generated from operations and net borrowings from long-term debt, partially offset by cash used for capital expenditures, dividend payments to shareholders and acquisitions.

During fiscal 2019 , we increased our cash held outside of the U.S.

Our cash and cash equivalents balances decreased by $32.1 during fiscal 2020 primarily as a result of cash used from operations, expenditures for acquisitions, and dividend payments to shareholders, partially offset by net borrowings from long-term debt and proceeds from the issuance of convertible preferred stock.

During fiscal 2020, we decreased our cash held outside of the U.S.

Our cash flows are subject to seasonal variation throughout the year, including demands on cash made during our first fiscal quarter in anticipation of higher global sales during the second fiscal quarter and strong cash generation in the second fiscal quarter as a result of increased demand by retailers associated with the holiday season.

1 unchanged sentence

The working capital movements are based on the sourcing of materials related to the production of products within each of our segments.

The phasing of payments to vendors also impacts our working capital from time-to-time as we seek to efficiently manage our cash and working capital requirements.

As a result of the cash on hand, our ability to generate cash from operations and through access to our revolving credit facility and other lending sources, we believe we have sufficient liquidity to meet our ongoing needs on both a near term and long-term basis.

Cash and working capital management initiatives, including the phasing of vendor payments and factoring of trade receivables from time-to-time, may also impact the timing and amount of our operating cash flows.

We have utilized the cash proceeds from the issuance of convertible preferred shares to KKR Aggregator in order to pay down our revolving credit facility.

As specified in our Credit Agreement, cash generated from the divestiture of any businesses during the next year will be utilized to reduce our outstanding debt, other than a maximum of $500.0 th at will be used to fund operations.

Our response to the impact of COVID-19

In response to the risks presented by the COVID-19 pandemic, we have been actively implementing a number of measures to bolster our liquidity position and provide additional financial flexibility.

Such measures include actively aligning operating expenses to the current state of the business, including slowing down our production to adjust our inventories, the recently announced temporary compensation reductions for certain executives and for our non-executive board members, hiring and travel restrictions, temporary furloughs for certain employees, using available local government assistance programs to reduce employee costs, and the reduction of advertising and consumer promotion costs for sales channels that are closed or heavily impacted by social distancing.

We intend to utilize any tax payment deferrals that apply to us in specific jurisdictions.

We will actively manage our working capital to support our liquidity needs.

Additionally, on May 26, 2020, KKR Aggregator purchased $750.0 of convertible preferred stock in Coty, which provides us with additional liquidity.

An additional purchase of $250.0 of convertible preferred stock was completed on July 31, 2020.

See additional information in Note 23—Equity and Convertible Preferred Stock and Note 28—Subsequent Events.

Due in part to these measures, our current cash position is favorable;

as of June 30, 2020, we had $1,618.1 of immediate liquidity, which consisted of available cash and cash equivalents and available borrowings under our 2018 Coty Revolving Credit Facility.

While the impact and duration of COVID-19 on our business is currently uncertain, as a result of the cash on hand, our amended debt covenants, our plans to manage expenses and the cash received from KKR Aggregator from the issuance of convertible preferred stock, we believe we have sufficient liquidity and covenant headroom to meet our foreseeable business operating and recurring cash needs (including for debt service and capital expenditures).

To address the potentially longer-lasting impacts of the COVID-19, the lockdown and a possible recession resulting from COVID-19 in many markets, we will be implementing a plan to reduce our cost base, which does not vary with revenues, by 25%, including an adaptation of our supply network and organization as well as a reduction of certain discretionary expenses.

On April 5, 2018, we completed an offering of three series of U.S.

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Future borrowings under the 2018 Coty Credit Agreement could be used for corporate purposes.

Based on our credit agreement (the “2018 Coty Credit Agreement”), as amended, the calculation of our financial covenant for net debt excludes the impact of operating leases, and thus, the adoption of the new leasing standard, ASU 2016-02, Leases (Topic 842), (see Note 2—Summary of Significant Accounting Policies), did not impact our financial covenants.

In order to be consistent with our financial covenant, we will continue to report our net debt calculation excluding operating leases.

On June 27, 2019, we entered into an amendment (“2019 Amendment”) to the 2018 Coty Credit Agreement.

The 2019 Amendment modified the 2018 Coty Credit Agreement by amending the financial covenants to (i) delay until March 31, 2022 the total net leverage ratio step down from 5.25 to 5.0, (ii) extend the applicable window for certain cost savings add-backs in the calculation of Adjusted EBITDA for purpose of determining the total net leverage ratio, and (iii) amend the determination of the exchange rate to be used for purposes of calculating “Total Indebtedness” (as defined in the 2018 Coty Credit Agreement) for purposes of the total net leverage ratio, and decreasing the total commitments under the revolving credit facility by $500.0 to $2,750.0.

On April 29, 2020, we amended our existing credit agreement.

The amendment (i) provides a Total Net Leverage Ratio financial covenant “holiday” through March 31, 2021;

(ii) establishes a minimum liquidity covenant through March 31, 2021 of $350.0;

and (iii) effectively places certain limitations on the ability to make certain investments and restricted payments (including limiting our ability to pay dividends in cash through March 31, 2021) and on incurring additional indebtedness.

The amendment does not modify the applicable funding costs during the period through March 31, 2021.

See Note 15—Debt in the notes to our Consolidated Financial Statements for additional information on our debt arrangements and prior period credit agreements.

Factoring of Receivables

Receivables Purchase Agreement

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Eligible trade receivables are purchased by the financial institution for cash at net invoice value less a factoring fee.

Cash received from the selling of receivables under the Receivables Purchase Agreement are presented as a change in trade receivables within the operating activities section of the Consolidated Statements of Cash Flows.

During the fiscal year ended June 30, 2019 , total trade receivables factored under the Receivables Purchase Agreement, was $267.3 and $118.3 , on a gross basis and net of collections, respectively.

The net factored amount primarily reflects the timing of certain trade receivables factored late in the fourth fiscal quarter.

European Receivables Purchase Agreement

In September,2019, we entered into a factoring agreement with a financial institution, which allows for the transfer of receivables from certain of our European subsidiaries, in exchange for cash (the “European Receivables Purchase Agreement”).

The total outstanding amount permitted among such subsidiaries is €93.0.

Factoring of such receivables under the European Receivables Purchase Agreement is executed on a non-recourse basis.

The net amount utilized under the factoring facilities was $123.1 and $118.3 as of June 30, 2020 and 2019, respectively.

The aggregate amount of trade receivable invoices factored on a worldwide basis amounted to $839.8 and $547.9 in fiscal 2020 and 2019, respectively.

Remaining balances due from factors amounted to $6.2 and $8.6 as of June 30, 2020 and 2019, respectively, and are included in Trade receivables, net in the Consolidated Balance Sheets.

Business Combinations

We did not enter into any business combinations in fiscal 2019 .

For additional information on our prior period business combinations from fiscal years 2018 and 2017, see Note 3 — Business Combinations in the notes to our Consolidated Financial Statements.

During fiscal 2020, we entered into purchase agreement with King Kylie, LLC for a base purchase price of $600.0 in cash.

For additional information on our prior period business combinations from fiscal years 2019 and 2018, see Note 4—Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.

During fiscal 2020, we divested the Younique business for $50.0 cash and a secured promissory note with a face value of $27.9.

We did not divest of any brands during fiscal 2019.

During fiscal 2018, we divested the Playboy and Cerruti brands and related assets for total proceeds of $33.0 .

We allocated $12.3 of goodwill to these brands as part of the sale.

We recorded a non-cash loss of $28.6 which has been reflected in Loss (gain) on sale of brand assets in the Consolidated Statements of Operations for the fiscal year ended June 30, 2018.

Year Ended June 30,

2020 2019 2018

Consolidated Statements of Cash Flows Data:

(in millions)

Net cash provided by operating activities

Net cash (used in) provided by operating activities $ (50.9) $ 639.6 $ 413.7

Net cash used in investing activities (833.4) (454.0) (687.6)

Net cash (used in) provided by financing activities

Net cash provided by operating activities

Net cash provided by operating activities was $639.6 , $413.7 and $757.5 for fiscal 2019 , 2018 and 2017 , respectively.

Net cash provided by (used in) financing activities 877.3 (160.3) 69.3

Net cash (used in) provided by operating activities

Net cash (used in) provided by operating activities was $(50.9), $639.6 and $413.7 for fiscal 2020, 2019 and 2018, respectively.

The decrease in operating activities cash flows of $690.5 from proceeds in fiscal 2019 to outflows in fiscal 2020 is primarily driven by significantly lower cash related operating results of $888.0 resulting from the impact of lower net revenues during the second half of fiscal 2020 due to the COVID-19 pandemic and lower cash flows from changes in other noncurrent assets and liabilities of $31.8.

These decreases were only partially offset by positive impacts from the changes in working capital accounts of $229.3 during fiscal 2020 compared to fiscal 2019.

Changes in working capital accounts during fiscal 2020 were positively impacted primarily by inflows from changes in accrued expenses and other current liabilities during the current year compared to outflows in the prior year, resulting from less cash payments for restructuring and business realignment programs in the current year as well as current year increase in restructuring accruals for the Transformation Plan.

Further, changes in inventories contributed to higher cash inflows period over period of $146.3 driven by an overall decrease in production caused by the shutdowns associated with the COVID-19 pandemic, and the reversal of the prior year impact of supply chain disruptions.

Changes in trade receivables also contributed to the year over year increase in cash inflows which is the result of timing of collections and lower net revenues during the second half of fiscal 2020.

Partially offsetting the cash inflows from changes in these working capital accounts, changes in accounts payable contributed to higher outflows of $246.2 mainly attributable to lower overall spending.

The increase in operating cash inflows in fiscal 2019 as compared with fiscal 2018 was $225.9.

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Net cash used in investing activities was $(833.4), $(454.0) and $(687.6) for fiscal 2020, 2019 and 2018, respectively.

The increase in cash used for investing activities of $(379.4) in fiscal 2020 as compared with fiscal 2019 is primarily caused by the payment, net of cash acquired of $592.2 for the purchase of 51% of the equity interest of King Kylie, LLC compared to $40.8 of cash used for the purchase of a trademark in the prior year which did not reoccur in the current year.

The overall increase in cash used in investing activities was partially offset by lower capital expenditures of $159.2 during fiscal 2020 compared to fiscal 2019 and $25.6 of net cash proceeds from the sale of the Younique business during fiscal 2020.

The decrease in cash used for investing activities of $233.6 in fiscal 2019 as compared to fiscal 2018 primarily relates to higher cash outflows of $237.2 from cash paid in prior year for business combinations including the Burberry Beauty Business for $245.1 and other acquisition related activity of $32.4 compared to cash outflows in the current year of $40.8 for the purchase of a trademark.

Net cash (used in) provided by financing activities

Net cash (used in) provided by financing activities wa s $(160.3) , $69.3 and $595.2 for fiscal 2019 , 2018 and 2017 , respectively.

Net cash provided by (used in) financing activities

Net cash provided by (used in) financing activities was $877.3, $(160.3) and $69.3 for fiscal 2020, 2019 and 2018, respectively.

The increase in cash inflows of $1,037.6 in fiscal 2020 as compared to fiscal 2019 was primarily driven by the fiscal 2020 net proceeds of $724.5 from the issuance and sale of the Company's new Convertible Series B Preferred Stock in connection with the Investment Agreement with KKR.

Additionally, the Company had higher net borrowings of $182.7 from its revolving loan facility in fiscal 2020 and a positive impact of $149.3 from lower cash used for dividend payments.

Lower cash payments for dividends was primarily due to the Company's Stock Dividend Reinvestment Program, which became available to stockholders in the fourth quarter of fiscal 2019, and the suspension of dividend payments beginning in the fourth quarter of fiscal 2020.

Partially offsetting the increase in cash from financing activities, the Company paid $45.0 during the first quarter of fiscal 2020 to purchase the remaining mandatorily redeemable noncontrolling interest in the Company's Southeast Asian subsidiary, which did not occur in the prior year.

The decrease in cash inflows of $229.6 in fiscal 2019 as compared to fiscal 2018 was primarily due to lower net borrowings of $294.8.

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On May 8, 2019, the Board approved a stock dividend reinvestment program giving shareholders the option to receive their full dividend in cash or to receive their dividend in 50% cash / 50% common stock.

Shareholders were able to make this election on a quarterly basis, beginning with the dividend declared on May 8, 2019.

The percentage of our total Common Stock for which the shareholders elected to participate in the Stock Dividend Reinvestment Program for the June 28, 2019 dividend was 68% .

As may be declared by the Board of Directors (the “Board”), we anticipate issuing future dividends on a quarterly basis.

For additional information on our dividends, see Note 22 — Equity in the notes to our Consolidated Financial Statements.

Shareholders were able to make this election on a quarterly basis, beginning with the dividend declared on May 8, 2019 through the dividend declared on February 5, 2020.

The percentage of our total Common Stock for which the shareholders elected to participate in the Stock Dividend Reinvestment Program for the June 28, 2019, September 30, 2019, December 27, 2019 and March 27, 2020 dividend was 68%, 69%, 65% and 63%, respectively.

On April 29, 2020, our Board of Directors has suspended the payment of dividends, in keeping with our 2018 Coty Credit Agreement, as amended.

As we focus on preserving cash, we expect to suspend the payment of dividends through April 1, 2021 or until such later date that we reach a Net debt to Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of 4x.

Any determination to pay dividends in the future will be at the discretion of our Board of Directors.

Dividends on the Convertible Series B Preferred Stock are payable in cash, by increasing the amount of accrued dividends with respect to a share of Convertible Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company.

For additional information on our dividends, see Note 23—Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements.

Treasury Stock - Share Repurchase Program

For additional information on our Share Repurchase Program, see Note 22 — Equity in the notes to our Consolidated Financial Statements.

For additional information on our Share Repurchase Program, see Note 23—Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements.

Contractual Obligations and Commitments

Our principal contractual obligations and commitments as of June 30, 2019 are presented below:

(in millions)

Payments Due in Fiscal

Our principal contractual obligations and commitments, which include those associated with our discontinued operations, are presented below as of June 30, 2020.

(in millions) Total Payments Due in Fiscal Thereafter

2021 2022 2023 2024 2025

Long-term debt obligations $ 8,155.7 $ 187.9 $ 187.9 $ 4,711.0 $ 23.6 $ 2,214.2 $ 831.1

Interest on long-term debt obligations (a)

1,400.8 255.6 260.9 262.1 225.2 236.8 160.2

Operating lease obligations 465.6 115.1 85.3 60.3 47.8 37.6 119.5

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Royalty payments 745.1 145.9 93.2 80.0 70.1 58.2 297.7

Advertising and promotional spend obligations 19.1 2.2 0.6 1.1 1.1 1.7 12.4

Other contractual obligations (c)

383.4 249.4 76.7 33.7 22.4 1.2 —

Other long-term obligations:

Pension obligations (mandated) (d)

65.2 14.8 12.4 12.5 12.7 12.8 —

Total $ 11,234.9 $ 970.9 $ 717.0 $ 5,160.7 $ 402.9 $ 2,562.5 $ 1,420.9

(a) Interest costs on our debt after consideration of our interest rate swap arrangements are determined based on interest rate forecast and assumptions of the amount of debt outstanding.

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(c) Other contractual obligations primarily represent advertising/marketing, manufacturing, logistics and capital improvements commitments.

Additionally, we have included the mandatorily redeemable financial instruments arising out of our subsidiaries as discussed in Note 20 — Mandatorily Redeemable Financial Interest .

Additionally, we have included the mandatorily redeemable financial interest arising out of our subsidiaries as discussed in Note 21 — Mandatorily Redeemable Financial Interest.

We also maintain several distribution agreements for which early termination could result in potential future cash outflows that have not been reflected above.

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See Note 17—Income Taxes in the notes to our Consolidated Financial Statements for additional information on our uncertain tax benefits.

The table excludes $451.8 of RNCI which is reflected in Redeemable noncontrolling interests in the Consolidated Balance Sheet as of June 30, 2019 related to our 25.0% RNCI in our subsidiary in the Middle East (“Middle East Subsidiary”) and our 40.7% interest in our subsidiary Foundation, LLC (“Foundation”).

Given the provisions of the associated Put and Call rights, both RNCI are redeemable outside of our control and are recorded in temporary equity.

The table excludes $79.1 of RNCI which is reflected in Redeemable noncontrolling interest in the Consolidated Balance Sheet as of June 30, 2020 related to our 25.0% RNCI in our subsidiary in the Middle East (“Middle East Subsidiary”).

Given the provisions of the associated Put and Call rights, RNCI is redeemable outside of our control and is recorded in temporary equity.

See Note 22—Redeemable Noncontrolling Interests in the notes to our Consolidated Financial Statements for further discussion related to the calculation of the redemption value for each of these noncontrolling interests.

The table excludes also excludes $715.8 of preferred stock which is reflected in Convertible Series B Preferred Stock in the Consolidated Balance Sheet as of June 30, 2020 related to the issuance of 750,000 shares of our Convertible Series B Preferred Stock.

Given the provisions of the associated Put rights, Convertible Series B Preferred Stock is redeemable outside of our control upon certain change of control events and is recorded in temporary equity.

See Note 23 – Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements for further discussion related to the calculation of the Convertible Series B Preferred Stock.

Derivative Financial Instruments and Hedging Activities

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For foreign currency exposures, which primarily relate to receivables, inventory purchases and sales, payables and intercompany loans, derivatives are used to better manage the earnings and cash flow volatility arising from foreign currency exchange rate fluctuations.

We recorded foreign currency losses of $3.5 , $3.9 and $1.5 in fiscal 2019 , 2018 and 2017 , respectively, resulting

from non-financing foreign currency exchange transactions which are included in their associated expense type and are included in the Consolidated Statements of Operations.

Net gains (losses) of $7.6 , $8.5 and $(12.8) in fiscal 2019 , 2018 and 2017 , respectively, resulting from financing foreign exchange currency transactions are included in Interest expense, net in the Consolidated Statements of Operations.

Net (losses) of nil , nil and $(1.7) in fiscal 2019 , 2018 and 2017 , respectively, resulting from acquisition-related foreign exchange currency transactions are included in Other expense, net in the Consolidated Statements of Operations.

We recorded foreign currency losses of $18.0, $2.7 and $5.2 in fiscal 2020, 2019 and 2018, respectively, resulting from non-financing foreign currency exchange transactions which are included in their associated expense type and are included in the Consolidated Statements of Operations.

Net (losses) gains of $(14.8), $7.6 and $8.5 in fiscal 2020, 2019 and 2018, respectively, resulting from financing foreign exchange currency transactions are included in Interest expense, net in the Consolidated Statements of Operations.

Exchange gains or losses are also partially offset through the use of qualified derivatives under hedge accounting, for which we record accumulated gains or losses in Accumulated other comprehensive income until the underlying transaction occurs at which time the gain or loss is reclassified into the respective account in the Consolidated Statements of Operations.

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As of June 30, 2020, in the event of a 10.0% unfavorable change in the prevailing market rates of hedged foreign currencies versus the U.S.

dollar, the change in fair value of all foreign exchange forward contracts would result in a $7.7 increase in the fair value of the forward contracts.

dollar, the change in fair value of all foreign exchange forward contracts would result in a $11.5 decrease in the fair value of the forward contracts.

In the view of management, these hypothetical gains resulting from an assumed change in foreign currency exchange rates are not material to our consolidated financial statement position or results of operations.

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The corresponding gain or loss position of the ineffective hedge recorded to AOCI/(L) will be reclassified to current-period earnings.

If interest rates had been 10% higher/lower and all other variables were held constant, Loss before income taxes in fiscal 2019 would decrease/increase by $27.1 .

During August 2018, we extended the maturity of our interest rate swap portfolio, in order to maintain a 50:50 ratio of fixed to floating rate debt through 2021 to better manage our medium term exposure to interest rate increases.

Looking forward, we expect that the fixed to floating rate debt ratio will improve as we reduce the notional value of our floating rate debt.

We intend to continue to target a 50:50 euro to U.S.

dollar liability split under our long term debt agreements which would match our underlying cash inflows, to manage our exposure to foreign exchange risk in the financial markets.

If interest rates had been 10% higher/lower and all other variables were held constant, Loss from continuing operations before income taxes in fiscal 2020 would decrease/increase by $25.2.

Credit Risk Management

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Off-Balance Sheet Arrangements

We had no material off-balance sheet arrangements as of June 30, 2019 and 2018 .

We had undrawn letters of credit of $6.0 and $6.3 and bank guarantees of $45.7 and $97.1 as of June 30, 2020 and 2019, respectively.

Critical Accounting Policies

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generally accepted accounting principles.

The preparation of these Consolidated Financial Statements requires us to make estimates, assumptions and judgments that affect

the reported amounts of assets, liabilities, revenues and expenses and related disclosures.

The preparation of these Consolidated Financial Statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures.

These estimates and assumptions can be subjective and complex and, consequently, actual results may differ from those estimates that would result in material changes to our operating results and financial condition.

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Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

Our most critical accounting policies relate to revenue recognition, the assessment of goodwill, other intangible and long-lived assets for impairment, business combinations, inventory, pension benefit costs, income taxes and the valuation of redeemable noncontrolling interests.

Our management has discussed the selection of significant accounting policies and the effect of estimates with the Audit and Finance Committee of our Board of Directors.

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We use industry accepted valuation models and set criteria that are reviewed and approved by various levels of management and, in certain instances, we engage independent third-party valuation specialists for advice.

To determine fair value of the reporting unit, we used a

combination of the income and market approaches.

We believe the blended use of both models compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation.

To determine fair value of the reporting unit, we used a combination of the income and market approaches, when applicable.

We believe the blended use of both models, when applicable, compensates for the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation.

Under the income approach, we determine fair value using a discounted cash flow method, projecting future cash flows of each reporting unit, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows.

Under the market approach, we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, which creates valuation multiples that are applied to the operating performance of the reporting units being tested, to value the reporting unit.

The key estimates and factors used in these approaches include revenue growth rates and profit margins based on our internal forecasts, our specific weighted-average cost of capital used to discount future cash flows, and comparable market multiples for the industry segment as well as our historical operating trends.

Under the market approach, when applicable, we utilize information from comparable publicly traded companies with similar operating and investment characteristics as the reporting units, which creates valuation multiples that are applied to the operating performance of the reporting units being tested, to value the reporting unit.

Certain future events and circumstances, including deterioration of market conditions, higher cost of capital, a decline in actual and expected consumer consumption and demands, could result in changes to these assumptions and judgments.

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Such charge could have a material effect on the Consolidated Statements of Operations and Balance Sheets.

There were no impairments of goodwill at our reporting units in fiscal 2018 or 2017.

During fiscal 2019, we recorded total goodwill impairments of $3,391.1, resulting in remaining goodwill balances as of June 30, 2019 of $1,216.4, $2,921.7 and $935.7, in our Consumer Beauty, Luxury and Professional Beauty reporting units, respectively.

The goodwill impairment charge was a result of the following impairment tests:

In the course of evaluating the results for the second quarter of fiscal 2019, we noted that since the previous impairment test, the cash flows associated with our Consumer Beauty reporting unit were adversely impacted by negative category trends and market share losses in the color cosmetics, hair color and mass fragrance categories;

additional shelf-space losses for CoverGirl, Clairol, and Max Factor;

expected increased costs in the short-term to offset the lower service levels caused by supply chain disruptions;

and lower than expected net revenues and profitability for Younique.

Additionally, we included the impact of a 75 basis point increase in the discount rate on the valuation model, due to changes in the market assumptions, which adversely affected the fair value of the reporting unit.

We concluded that these factors represented indicators of impairment that warranted an interim impairment test for goodwill and certain other intangible assets in the Consumer Beauty reporting unit.

To determine the fair value of our Consumer Beauty reporting unit, we used an updated average annual revenue growth rate of (3.3)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.0%.

The result of the interim impairment test showed that the fair value of the reporting unit was lower than its carrying value, resulting in an $832.5 goodwill impairment charge.

There were no impairments of goodwill at other reporting units during the interim impairment test in the second quarter of fiscal 2019.

Based on the annual impairment test performed at May 1, 2019, we determined that the fair values of our Luxury and Professional Beauty reporting units exceeded their respective carrying values at that date by approximately 70.4% and 22.5%, respectively.

For our Consumer Beauty reporting unit, we determined that the fair value did not exceed the carrying value, and as such we recorded an asset impairment charge of $2,558.6 related to goodwill of the Consumer Beauty reporting unit.

The cash flows associated with our Consumer Beauty reporting unit were adversely affected by factors that developed during the fourth quarter of fiscal 2019 including fourth quarter net revenue results and market share trends that were below expectations, continued net revenue and profitability declines for Younique in excess of management’s expectations, and the development of our Turnaround Plan to stabilize operations and improve profitability.

The Turnaround Plan impacted the projected cash flows associated with the Consumer Beauty reporting unit by lowering revenue growth and, in the near term, margin expectations.

Such changes in our estimated forecasts were based on a top down review of the business which resulted in decisions to simplify the product range as well as identify priority brand-country combinations and invest behind such combinations at scale, which will initially lower net revenues and profits.

The Turnaround Plan also considered the latest market data including continued negative category trends in the color cosmetics, hair color and mass fragrance categories that were below expectations and indicated a longer required recovery period.

Additionally, the forecast was updated to include the costs of the Turnaround Plan.

Overall, these factors negatively impacted the cash flows of the Consumer Beauty reporting unit and resulted in a decrease in our assumed terminal growth rate, which also adversely affected the fair values.

To determine the fair value of our Consumer Beauty reporting unit, we used an updated average annual revenue growth rate of (5.9)% for fiscal 2019 to fiscal 2023, a 1.0% decrease in the terminal growth rate since the second quarter of fiscal 2019, and a discount rate of 8.0%.

As the Consumer Beauty reporting unit was impaired, it has a 0% excess and as such, further material negative trends in its actual and expected business performance or an increase in the discount rate may result in further impairments.

If the average annual revenue growth rate for fiscal 2019 to fiscal 2023 declined by 1% it may cause an additional impairment of $214.0.

If the discount rate increased by 0.5%, it may cause an additional impairment of $195.5.

We believe the assumptions used in calculating the estimated fair value of the reporting units are reasonable.

However, we can provide no assurances that we will achieve such projected results.

Further, we can provide no assurances that we will not have to recognize additional impairment of goodwill in the future due to other market conditions or changes in our discount rates.

Recognition of additional impairment of a significant portion of our goodwill would negatively affect our reported results of our operations and total capitalization.

There were no impairments of goodwill at our reporting units or of indefinite-lived other intangible assets in fiscal 2018.

During fiscal 2019, we recorded total goodwill impairments of $3,307.5.

During fiscal 2020, we recorded total goodwill impairments of $105.0, resulting in remaining goodwill balances as of June 30, 2020 of $1,343.5, $1,781.6 and $848.8 in our Americas, EMEA and Asia Pacific reporting units, respectively.

During the third quarter of fiscal 2020, the Company was adversely impacted by the COVID-19 global pandemic.

This drove a decrease in net revenue, impacting all product categories across the Company, due to the closure of retail malls, professional salons, travel retail channels and certain mass channels.

In response to these adverse business indicators and the rapidly declining revenue trends experienced during the third quarter of our 2020 fiscal year, we reduced our near-term revenue projection.

As a result, we determined that our goodwill should be tested for potential impairment.

The fair values of each of the reporting units exceeded the respective carrying values of the reporting units as of March 31, 2020.

Consequently, there were no goodwill impairment charges recorded as a result of the impairment testing performed during the third quarter of our 2020 fiscal year.

Based on the annual impairment test performed at May 1, 2020, we determined that the fair values of each of the reporting units exceeded their respective carrying values at that date by approximately 11.3%, 102.0% and 9.0% relating to the Americas, Asia Pacific and EMEA reporting units, respectively.

Consequently, there were no goodwill impairment charges recorded as a result of the annual impairment test performed on May 1, 2020.

To determine the fair value of the Americas and EMEA reporting units, we have used an average annual revenue growth rate of 2.1% and 2.4% for fiscal 2021 to fiscal 2025, respectively, and a discount rate of 9.75%.

The fair value of the Americas and EMEA reporting units would fall below its carrying value if the assumed average annual growth rate for fiscal 2021 to fiscal 2025 fell 35 basis points, respectively, or the discount rate increased by 85 and 70 basis points, respectively.

On June 1, 2020, the Company entered into a definitive agreement with KKR, regarding a strategic transaction for the sale of the Wella Business.

A goodwill impairment test should be performed immediately before and after a Company reorganizes its reporting structure if the reorganization would affect the composition of one or more of its reporting units.

As a result, we determined that our goodwill should be tested for potential impairment after considering the sale of its Wella Business.

Based on the impairment test performed at June 1, 2020, we determined that the fair values of our Americas and Asia Pacific reporting units exceeded their respective carrying values at that date by approximately 2.4%, and 85.0%, respectively.

To determine the fair value of the Americas reporting unit, we have used an average annual revenue growth rate of 2.2% for fiscal 2021 to fiscal 2025, and a discount rate of 9.75%.

The fair value of the Americas reporting unit would fall below its carrying value if the assumed average annual growth rate for fiscal 2021 to fiscal 2025 fell 10 basis points, or the discount rate increased by 20 basis points.

For our EMEA reporting unit, we determined that the fair value did not exceed the carrying value, and as such we recorded an asset impairment charge of $105.0 relating to goodwill.

The cash flows associated with our EMEA reporting unit were adversely affected by the continuing impacts of the COVID-19 pandemic.

Additionally, we noted the fair value of the EMEA reporting unit was adversely impacted due to a loss of synergies from the sale of the Wella Business.

To determine the fair value of our EMEA reporting unit, we used an average annual revenue growth rate of 2.5% for fiscal 2021 to fiscal 2025 and a discount rate of 9.75%.

As the EMEA reporting unit was impaired, it has a 0% excess and as such, further material negative trends in its actual and expected business performance or an increase in the discount rate may result in further impairments.

If the average annual revenue growth rate for fiscal 2021 to fiscal 2025 declined by 50 basis points it may cause an additional impairment of $485.0.

If the discount rate increased by 50 basis points, it may cause an additional impairment of $234.0.

Some of the inherent estimates and assumptions used in determining fair value of the reporting units are outside the control of management, including interest rates, cost of capital, tax rates, credit ratings and industry growth.

Given the current COVID-19 global pandemic and the uncertainties regarding the financial potential impact on the Company's business, there can be no assurance that the Company's estimates and assumptions regarding the impact of COVID-19 and the recovery period made for purposes of the goodwill impairment testing performed during our 2020 fiscal year will prove to be accurate predictions of the future.

While the Company believes it has made reasonable estimates and assumptions to calculate the fair values of the reporting units, it is possible changes could occur.

As for all the Company’s reporting units, if in future years, the reporting unit’s actual results are not consistent with the Company’s estimates and assumptions used to calculate fair value, the Company may be required to recognize material impairments to goodwill.

The Company will continue to monitor its reporting units for any triggering events or other signs of impairment.

The Company may be required to perform additional impairment testing based on changes in the economic environment, disruptions to the Company’s business, significant declines in operating results of the Company’s reporting units, further sustained deterioration of the Company’s market capitalization, and other factors, which could result in impairment charges in the future.

Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization deteriorates significantly from current levels, it is reasonably likely the Company will be required to record impairment charges in the future.

Other Intangible Assets

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The carrying value of our indefinite-lived other intangible assets was $995.5 as of June 30, 2020, and is comprised of trademarks for the following brands:

OPI of $661.8, CoverGirl of $501.0, the professional product line of Wella of $413.0, Max Factor of $247.0, Sally Hansen of $161.9, philosophy of $156.4, ghd related trademarks of $149.6, Bourjois of $67.0, Clairol of $32.7 and other trademarks totaling $339.4.

On May 1, 2018 and 2017 , we performed our annual impairment testing of indefinite-lived other intangible assets and determined that no adjustments to carrying values were required.

During fiscal 2019, we recorded total impairments on our indefinite-lived other intangible assets of $429.1, resulting in a balance as of June 30, 2019 of $1,324.7, $177.4 and $1,227.7 in our Consumer Beauty, Luxury and Professional Beauty reporting units, respectively.

CoverGirl of $327.4, Max Factor of $169.7, Sally Hansen of $161.3, Philosophy of $128.2, Bourjois of $48.7 and other trademarks totaling $160.2.

On May 1, 2018, we performed our annual impairment testing of indefinite-lived other intangible assets and determined that no adjustments to carrying values were required.

As a result of the May 1, 2019 annual impairment test, total impairments on indefinite-lived other intangible assets of $389.8 were recorded.

During fiscal 2020, we recorded total impairments on our indefinite-lived other intangible assets of $329.0.

The impairment charges were a result of the following impairment tests:

As noted above, in the course of evaluating the results for the second quarter of fiscal 2019, the cash flows associated with the Consumer Beauty reporting unit were adversely impacted during the quarter which warranted an interim impairment test for goodwill and certain other intangible assets in the Consumer Beauty reporting unit.

Accordingly, we re-evaluated future cash flows of intangible assets and the impact of a 75 basis point increase to the discount rate.

This resulted in asset impairment charges of $90.8 related to indefinite-lived other intangible assets for our CoverGirl, Clairol and a regional Brazilian skin care trademark, and $7.0 related to a finite-lived other intangible asset for a regional hair license agreement.

The fair value of the CoverGirl trademark fell below its carrying value using projections that assumed an average annual growth rate of (3.3)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.5%.

The fair value of the Clairol trademark fell below its carrying value using projections that assumed an average annual growth rate of (6.1)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.5%.

The fair value of the regional Brazilian skin care trademark fell below its carrying value using projections that assumed an annual growth rate of 7.7% for fiscal 2019 to fiscal 2023 and a discount rate of 13.0%.

The regional hair license agreement was concluded to be fully impaired due to on-going shelf space losses.

In addition to the Consumer Beauty reporting unit, we also identified indicators of impairment related to the philosophy trademark that is part of the Luxury reporting unit during the second quarter of fiscal 2019.

In addition to the impact of a 75 basis point increase in the discount rate, we considered the impact of lower than expected net revenue growth in the U.S.

during the quarter, shelf space losses at key retailers and a decrease in the level of expected profitability of the trademark.

We concluded that the fair value of the philosophy trademark fell below its carrying value using projections that assumed an average annual growth rate of 1.2% for fiscal 2019 to fiscal 2023 and a discount rate of 8.5%.

This resulted in an asset impairment charge of $22.8.

As part of the May 1, 2019 annual impairment test, we considered the impact of the certain factors on the cash flows of the indefinite-lived other intangible assets associated with the Consumer Beauty reporting unit that developed during the fourth quarter of fiscal 2019.

This resulted in asset impairment charges of $201.7 related to indefinite-lived other intangible assets for our CoverGirl, Max Factor, Sally Hansen, Bourjois, Clairol and two regional Brazilian trademarks.

These factors included fourth quarter net revenue results below expectations, and the development of our Turnaround Plan to stabilize operations and improve profitability.

The Turnaround Plan impacted the projected cash flows associated with our indefinite-lived other intangible assets by lowering revenue growth and, in the near term, margin expectations.

The Turnaround Plan also considered the latest market data including continued negative category trends

in the color cosmetics, hair color and mass fragrance categories that were below expectations and indicated a longer required recovery period.

Overall, these factors negatively impacted the cash flows of our indefinite-lived other intangible assets and resulted in a decrease in their assumed terminal growth rates, which also adversely affected their fair values.

Additionally we noted the fair values of the indefinite-lived other intangible assets were adversely impacted by an additional 25 basis point increase to the discount rate due to changes in market assumptions.

Based on results of the test, the fair value of the Max Factor trademark fell below its carrying value using projections that assumed an average annual growth rate of (4.8)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.75%.

As noted above, during the third quarter of fiscal 2020, the Company was adversely impacted by the COVID-19 global pandemic.

This drove a decrease in net revenue, impacting all product categories across the Company, due to the closure of retail malls, professional salons, travel retail channels and certain mass channels.

Management concluded that this adverse factor represented an indicator of impairment that warranted an interim impairment test for goodwill and certain other intangible assets.

Accordingly, we re-evaluated future cash flows of intangible assets and the impact of a 25 basis point decrease to the discount rate.

This resulted in asset impairment charges of $40.4 related to indefinite-lived other intangible assets for our CoverGirl ($26.5), Max Factor ($9.2) and Bourjois ($4.7) trademarks.

As part of the May 1, 2020 annual impairment test, the Company considered several factors that developed during the fourth quarter of fiscal 2020 that led to the conclusion that the fair values of certain indefinite-lived other intangible assets were below their carrying amounts.

The continuing impacts of the COVID-19 pandemic was the principle driver of additional impairments.

Additionally, we noted the fair values of the indefinite-lived other intangible assets were adversely impacted by a 165 and 190 basis point increase in the discount rate compared to the May 1, 2019 and March 31, 2020 test, respectively.

This resulted in additional asset impairment charges of $288.6 primarily related to indefinite-lived other intangible assets for our CoverGirl ($147.0), Max Factor ($68.1), Philosophy ($26.6), and Bourjois ($12.8) trademarks.

Based on results of the test, the fair value of the of the CoverGirl trademark fell below its carrying value using projections that assumed an average annual growth rate of 2.0% for fiscal 2021 to fiscal 2025 and a discount rate of 10.4%.

The fair value of the Max Factor trademark fell below its carrying value using projections that assumed an average annual growth rate of 3.0% for fiscal 2021 to fiscal 2025 and a discount rate of 10.4%.

The fair value of the Philosophy trademark fell below its carrying value using projections that assumed an average annual growth rate of 4.5% for fiscal 2021 to fiscal 2025 and a discount rate of 10.4%.

The fair value of the Bourjois trademark fell below its carrying value using projections that assumed an average annual growth rate of (1.5)% for fiscal 2021 to fiscal 2025 and a discount rate of 10.4%.

The fair value of the CoverGirl trademark fell below its carrying value using projections that assumed an average annual growth rate of (2.2)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.75%.

The fair value of the Sally Hansen trademark fell below its carrying value using projections that assumed an average annual growth rate of (4.9)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.75%.

The fair value of the Clairol trademark fell below its carrying value using projections that assumed an average annual growth rate of (5.7)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.75%.

We also noted during the annual impairment test that the cash flows related to the philosophy trademark decreased since the second quarter of fiscal 2019 mainly due to updated projections as a result of a revised strategy for the business developed as part of the Turnaround Plan in the fourth quarter of fiscal 2019 to simplify the product range.

The fair value of the philosophy trademark was also adversely affected by a 25 basis point increase in the discount rate for trademarks, since the second quarter of fiscal 2019.

This caused the fair value of the philosophy trademark to fall below its carrying value using projections that assumed an average annual growth rate of (6.1)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.75%.

This resulted in an asset impairment charge of $86.8.

Further, we noted during the annual impairment test that the cash flows related to the professional product line of Wella trademark were adversely impacted by lower than expected revenue in the U.S.

in the fourth quarter of fiscal 2019 and the impact of a 100 basis point increase in the discount rate for the trademark since the fiscal 2018 annual impairment test.

This caused the fair value of the professional product line of Wella trademark to fall below its carrying value using projections that assumed an average annual growth rate of (1.0)% for fiscal 2019 to fiscal 2023 and a discount rate of 8.75%.

This resulted in an asset impairment charge of $27.0.

As the impaired indefinite-lived intangible assets have a 0% excess, further material negative trends in the actual and expected business performance or an increase in the discount rate may result in further impairments.

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If the discount rate increased by 0.5%, it may cause an additional impairment of $16.6.

With regards to our professional product line of Wella trademark, our second largest impaired indefinite-lived intangible asset, if the average annual revenue growth rate for fiscal 2019 to fiscal 2023 declined by 1% it may cause an additional impairment of $21.0.

With regards to our Max Factor trademark, our second largest impaired indefinite-lived intangible asset, if the average annual revenue growth rate for fiscal 2021 to fiscal 2025 declined by 1% it may cause an additional impairment of $6.7.

If the discount rate increased by 0.5%, it may cause an additional impairment of $8.4.

As of May 1, 2019, we determined that the fair value of our ghd trademark exceeded its carrying value by approximately 5.4% using projections that assumed an average annual revenue growth rate of 5.8% for fiscal 2019 to fiscal 2023 and a discount rate of 10.5%.

The fair value of the ghd trademark would fall below its carrying value if the average annual revenue growth rate decreased by approximately 96 basis points or the discount rate increased by 45 basis points.

As of May 1, 2020, we determined that the fair value of our Sally Hansen trademark exceeded its carrying value by approximately 0.6% using projections that assumed an average annual revenue growth rate of 0.6% for fiscal 2021 to fiscal 2025 and a discount rate of 10.4%.

The fair value of the Sally Hansen trademark would fall below its carrying value if the average annual revenue growth rate decreased by approximately 20 basis points or the discount rate increased by 10 basis points.

The fair values of the remaining indefinite-lived trademarks exceeded their carrying values by amounts ranging from 56% to more than 100%.

We believe the assumptions used in calculating the estimated fair value of the trademarks are reasonable and attainable.

However, we can provide no assurances that we will not have to recognize additional impairment of indefinite-lived intangible assets in the future due to other market conditions or changes in our discount rates.

Recognition of additional impairment of a significant portion of our indefinite-lived intangible assets would negatively affect our reported results of operations and total capitalization.

Some of the inherent estimates and assumptions used in determining fair value of the indefinite-lived intangible assets are outside the control of management, including interest rates, cost of capital, tax rates, credit ratings and industry growth.

Given the current COVID-19 global pandemic and the uncertainties regarding the financial potential impact on the Company's business, there can be no assurance that the Company's estimates and assumptions regarding the impact of COVID-19 and the recovery period made for purposes of the indefinite-lived intangible asset impairment testing performed during our 2020 fiscal year will prove to be accurate predictions of the future.

While the Company believes it has made reasonable estimates and assumptions to calculate the fair values of the indefinite-lived intangible assets, it is possible changes could occur.

As for the indefinite-lived intangible assets, the most significant assumptions used are the revenue growth rate and the discount rate, a decrease in the revenue growth rate or an increase in the discount rate could result in a future impairment.

The Company will continue to monitor its indefinite-lived tradenames for any triggering events or other signs of impairment.

The Company may be required to perform additional impairment testing based on changes in the economic environment, disruptions to the Company’s business, significant declines in operating results of the Company’s reporting units and/or tradenames, further sustained deterioration of the Company’s market capitalization, and other factors, which could result in impairment charges in the future.

Long-Lived Assets

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During fiscal 2020, 2019 and 2018, we recorded asset impairment charges of $0.0, $27.8 and $15.6, respectively, primarily relating to the planned disposal of certain manufacturing facilities, and the write-off of machinery and equipment in excess of our needs.

due to our Global Integration Activities.

The impairment charges are included in Restructuring costs in the Consolidated Statements of Operations.

There were no impairments on long-lived assets in fiscal 2017.

These impairment charges are included in Restructuring costs in the Consolidated Statements of Operations.

During fiscal 2020, we recorded asset impairment charges of $16.8 to Property and equipment and $7.8 to Operating lease right-of-use asset, primarily relating to the abandonment of a retail store and software no longer in use.

These impairment charges are primarily recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations.

Business Combinations

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• Customer relationships and license agreements - We use an excess earnings method to value customer relationships.

The key assumptions for the model are forecasted net revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”), the estimated allocation of earnings between different classes of assets, the attrition rate, the effective tax rate and the discount rate.

The key assumptions for the model are forecasted net revenue and earnings before interest, taxes, depreciation and

amortization (“EBITDA”), the estimated allocation of earnings between different classes of assets, the attrition rate, the effective tax rate and the discount rate.

Inventories include items which are considered salable or usable in future periods, and are stated at the lower of cost or net realizable value, with cost being based on standard cost which approximates actual cost on a first-in, first-out basis.

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These estimates could vary significantly, either favorably or unfavorably, from the amounts that we may ultimately realize upon the disposition of inventories if future economic conditions, customer inventory levels, product discontinuances, sales return levels, competitive conditions or other factors differ from our estimates and expectations.

Pension Benefit Costs

We sponsor both funded and unfunded pension plans in various forms covering employees who meet the applicable eligibility requirements.

We use several statistical and other factors in an attempt to estimate future events in calculating the liability and expense related to these plans.

Certain significant variables require us to make assumptions such as anticipated discount rate and expected rate of return on plan assets.

We evaluate these assumptions with our actuarial advisors and select assumptions that we believe reflect the economics underlying our pension obligations.

While we believe these assumptions are within accepted industry ranges, an increase or decrease in the assumptions or economic events outside our control could have a material impact on reported net income.

The discount rates used to measure the benefit obligations at the measurement date and the net periodic benefit cost for the subsequent fiscal year are reset annually using data available at the measurement date.

The long-term rates of return on our pension plan assets are based on management’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios.

In establishing this assumption, management considers historical and expected returns for the assets in which the plan is invested, as well as current economic and market conditions.

The difference between actual and expected return on plan assets is reported as a component of accumulated other

comprehensive income (loss).

Those gains or losses that are subject to amortization over future periods will be recognized as a component of the net periodic benefit cost in such future periods.

In fiscal 2019 , our pension plans had actual returns on assets of $3.5 as compared with expected return on assets of $8.2 , which resulted in a net deferred gain/(loss) of $(4.7) , substantially all of which is currently subject to be amortized over periods ranging from approximately 9 to 28 years.

The actual return on assets was primarily related to the performance of equity markets during the past fiscal year.

The weighted-average assumptions used to determine our projected benefit obligation were as follows:

Pension Plans

International

Discount rates

The weighted-average assumptions used to determine our net periodic benefit cost during the fiscal year were as follows:

Pension Plans

International

Discount rates

Expected long-term rates of return on plan assets

The actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions.

Differences from these assumptions could significantly impact the actual amount of net periodic benefit cost and liability recorded by us.

We are subject to income taxes in the U.S.

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We do not expect to incur significant withholding or state taxes on future distributions.

To the extent there remains a basis difference between the financial reporting and tax basis of an

investment in a foreign subsidiary after the repatriation of the previously taxed income of $4,600.0 , the Company is permanently reinvested.

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 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, we have elected to treat the tax on GILTI as a tax expense in the year it is incurred rather than recognizing deferred taxes.

Redeemable Noncontrolling Interests

Interests held by third parties in consolidated majority-owned subsidiaries are presented as noncontrolling interests, which represents the noncontrolling stockholders’ interests in the underlying net assets of Coty consolidated majority-owned subsidiaries.

Noncontrolling interests, where we may be required to repurchase the noncontrolling interest under a put option or other contractual redemption requirement, are reported in the Consolidated Balance Sheets between liabilities and equity, as redeemable noncontrolling interests (“RNCI”).

We adjust the redeemable noncontrolling interests to the higher of the redemption value or the carrying value (the acquisition date fair value adjusted for the noncontrolling interest’s share of net income (loss) and dividends) on each balance sheet date with changes recognized as an adjustment to additional paid-in capital (“APIC”).

We use an income approach, a market approach or a combination of these approaches to estimate the fair value of the RNCI related to our subsidiary Foundation, which holds a 100% interest in Younique, LLC.

The income approach is used to determine the fair value of the Foundation RNCI using a discounted cash flow method, projecting future cash flows of the business, as well as a terminal value, and discounting such cash flows at a rate of return that reflects the relative risk of the cash flows.

For the market approach, we use a selected multiple based on comparable companies multiplied by the forecasted cash flows.

The key estimates and factors used in this approach include, but are not limited to, revenue growth rates and profit margins based on our internal forecasts and the entity specific weighted-average cost of capital used to discount future cash flows.

To the extent there remains a basis difference between the financial reporting and tax basis of an investment in a foreign subsidiary after the repatriation of the previously taxed income of $4,600.0, the Company is permanently reinvested.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis