COTY filing — read by section

Item 7. Management’s Discussion and Analysis

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 
 The following discussion and analysis of the financial condition and results of operations of Coty Inc. and its consolidated subsidiaries, should be read in conjunction with the information contained in the Consolidated Financial Statements and related notes included elsewhere in this document. When used in this discussion, the terms “Coty,” the “Company,” “we,” “our,” or “us” mean, unless the context otherwise indicates, Coty Inc. and its majority and wholly-owned subsidiaries. The following discussion contains forward-looking statements. See “Forward-Looking Statements” and “Risk Factors” for a discussion on the uncertainties, risks and assumptions associated with these statements as well as any updates to such discussion as may be included in subsequent reports we file with the SEC. Actual results may differ materially and adversely from those contained in any forward-looking statements. The following discussion includes certain non-GAAP financial measures. See “Overview—Non-GAAP Financial Measures” for a discussion of non-GAAP financial measures and how they are calculated. 
 All dollar amounts in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated. 
 OVERVIEW 
 We are a global beauty company. We manufacture, market, sell and distribute branded beauty products, including fragrances, color cosmetics, hair care products and skin & body related products throughout the world. 
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 Overview 
 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. 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. 
 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. launch. 
 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 
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 segments. These are: 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 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. These non-GAAP financial measures should not be considered in isolation from, or as a substitute for or superior to, financial measures reported in accordance with GAAP. Moreover, these non-GAAP financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with GAAP. Other companies, including companies in the beauty industry, may calculate similarly titled non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. 
 Despite the limitations of these non-GAAP financial measures, our management uses the Adjusted Performance Measures as key metrics in the evaluation of our performance and annual budgets and to benchmark performance of our business against our competitors. The following are examples of how these Adjusted Performance Measures are utilized by our management: 
 • strategic plans and annual budgets are prepared using the Adjusted Performance Measures; 
 • senior management receives a monthly analysis comparing budget to actual operating results that is prepared using the Adjusted Performance Measures; and 
 • 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. 
 Our management believes that Adjusted Performance Measures are useful to investors in their assessment of our operating performance and the valuation of the Company. In addition, these non-GAAP financial measures address questions we routinely receive from analysts and investors and, in order to ensure that all investors have access to the same data, our management has determined that it is appropriate to make this data available to all investors. The Adjusted Performance Measures exclude the impact of certain items (as further described below) and provide supplemental information regarding our operating performance. By disclosing these non-GAAP financial measures, our management intends to provide investors with a supplemental comparison of our operating results and trends for the periods presented. Our management believes these measures are also useful to investors as such measures allow investors to evaluate our performance using the same metrics that our management uses to evaluate past performance and prospects for future performance. 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. 
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 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 exclude divestitures, and fluctuate based on specific facts and circumstances. Additionally, Adjusted net income attributable to Coty Inc. and Adjusted net income attributable to Coty Inc. per common share are adjusted for certain interest and other (income) expense as described below and the related tax effects of each of the items used to derive Adjusted net income as such charges are not used by our management in assessing our operating performance period-to-period. 
 Adjusted Performance Measures reflect adjustments based on the following items: 
 • 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: We have excluded costs associated with restructuring and business structure realignment programs to allow for comparable financial results to historical operations and forward-looking guidance. In addition, the nature and amount of such charges vary significantly based on the size and timing of the programs. By excluding the referenced expenses from our non-GAAP financial measures, our management is able to further evaluate our ability to utilize existing assets and estimate their long-term value. 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: We have excluded the impact of amortization of finite-lived intangible assets, 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. Although we exclude amortization of intangible assets from our non-GAAP expenses, our management believes that it is important for investors to understand that such intangible assets contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. 
 • 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. 
 • Interest (income) expense: We have excluded foreign currency impacts associated with acquisition-related and debt financing-related forward contracts, as well as debt financing transaction costs as the nature and amount of such charges are not consistent and are significantly impacted by the timing and size of such transactions. 
 • Other expense (income): We have excluded the impact of costs incurred for legal and advisory services rendered in connection with the evaluation of the tender offer initiated by certain of our shareholders. Our management believes these costs do not reflect our underlying ongoing business, and the adjustment of such costs helps investors and others compare and analyze performance from period to period. We have also excluded the impact of pension curtailment (gains) and losses and pension settlements as such events are triggered by our restructuring and other business realignment activities and the amount of such charges vary significantly based on the size and timing of the programs. 
 • Loss on early extinguishment of debt: We have excluded loss on extinguishment of debt as this represents a non-cash charge, and the amount and frequency of such charges is not consistent and is significantly impacted by the timing and size of debt financing transactions. 
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 • Noncontrolling interest: This adjustment represents the after-tax impact of the non-GAAP adjustments included in Net income attributable to noncontrolling interests based on the relevant non-controlling interest percentage. 
 • Tax: 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 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. Our management assesses the success of an acquisition as a component of performance using a variety of indicators depending on the size and nature of the acquisition, including: 
 • the scale of the combined company by evaluating consolidated and segment financial metrics; 
 • the expansion of product offerings by evaluating segment, brand, and geographic performance and the respective strength of the brands; 
 • 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; and 
 • the comparison of actual and projected results, including achievement of projected synergies, post integration; provided that timing for any such comparison will depend on the size and complexity of the acquisition. 
 Constant Currency 
 We operate on a global basis, with the majority of our net revenues generated outside of the U.S. Accordingly, fluctuations in foreign currency exchange rates can affect our results of operations. Therefore, to supplement financial results presented in accordance with GAAP, certain financial information is presented in “constant currency”, excluding the impact of foreign currency exchange translations to provide a framework for assessing how our underlying businesses performed excluding the impact of foreign currency exchange translations. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We calculate constant currency information by translating current and prior-period results for entities reporting in currencies other than U.S. dollars into U.S. dollars using prior year foreign currency exchange rates. The constant currency calculations do not adjust for the impact of revaluing specific transactions denominated in a currency that is different to the functional currency of that entity when exchange rates fluctuate. The constant currency information we present may not be comparable to similarly titled measures reported by other companies. 
 Basis of Presentation of Acquisitions and Divestitures 
 
 
 During the period when we complete an acquisition, divestiture or early license termination, the financial results of the current year period are not comparable to the financial results presented in the prior year period. When explaining such changes from period to period and to maintain a consistent basis between periods, we exclude the financial contribution of: (i) the acquired brands or businesses in the current year period until we have twelve months of comparable financial results and (ii) the divested brands or businesses or early terminated brands in the prior year period, to maintain comparable financial results with the current fiscal year period. 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. 
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 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 
 
 
 n/a First quarter fiscal 2019 financial contribution excluded 
 Third quarter fiscal 2018 
 Termination : Guess 
 n/a First, second and third quarter fiscal 2018 financial contribution excluded 
 Fourth quarter fiscal 2018 
 Divestitures of licenses : 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. n/a 
 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. n/a 

 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. 
 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. 
 
 
 
 
 NET REVENUES 
 In fiscal 2020, net revenues decreased 25%, or $1,570.1, to $4,717.8 from $6,287.9 in fiscal 2019. 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; and 
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 (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 
 NET REVENUES 
 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 %) 
 

 Americas 
 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: 
 (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; and 
 (iii) negative category trends in the United States for mass color cosmetics and mass fragrances. 
 These decreases were partially offset by: 
 (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; and 
 (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) lower net revenues from philosophy due to distribution losses at a key U.S. customer and due to the timing of shipments; and 
 (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; and 
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 (ii) higher net revenues from Monange due to category growth and share gains in Brazil. 
 EMEA 
 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: 
 (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. These decreases more than offset the increased net revenues from prestige products in the first half of the fiscal year. 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; and 
 (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; and 
 (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; and 
 (iii) declines in mass fragrances in Western Europe in part due to negative share and category trends in the mass fragrances category. 
 These declines were partially offset by: 
 (i) incremental net revenues from Calvin Klein and Burberry across the region; and 
 (ii) increased net revenues in South Africa from brands across the color cosmetics and prestige fragrance categories. 
 Asia Pacific 
 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. 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) 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; and 
 (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; and 
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 (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 
 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 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; and 
 (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; and 
 (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; and 
 (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; 
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 (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; and 
 (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 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; and 
 (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: 
 (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; and 
 (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, Change % 
 (in millions) 2020 2019 2018 2020/2019 2019/2018 
 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%) 

 
 
 38 

 
 

 Americas 
 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. 
 EMEA 
 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. 
 Asia Pacific 
 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 
 Other represents operating (loss) income from Younique. 
 Corporate 
 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 $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. 
 39 

 
 

 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) Reported
(GAAP) Adjustments (a) 
 Adjusted 
(Non-GAAP) 
 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) Reported 
 (GAAP) 
 Adjustments (a) 
 Adjusted 
 (Non-GAAP) 
 
 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 
 (GAAP) 
 Adjustments (a) 
 Adjusted 
 (Non-GAAP) 
 
 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. 
 
 
 40 

 
 

 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 from continuing operations $ (1,236.5) $ (3,688.4) $ (155.5) 66 % <(100%) 
 % of Net revenues (26.2 %) (58.7 %) (2.3 %) 
 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 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 % 

 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 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; and 
 • 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 
 41 

 
 

 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; and 
 • We incurred business structure realignment costs of $169.3 primarily related to our Global Integration Activities and certain other programs. 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; and 
 • We incurred business structure realignment costs of $216.1 primarily related to our Global Integration Activities and certain other programs. 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. 
 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- 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: $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. 
 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. 
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 INTEREST EXPENSE, NET 
 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 
 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 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 $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. 
 INCOME TAXES 
 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) 
 Effective income tax rate 25.7 % 1.4 % 8.2 % 

 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 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. 
 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. 
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 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) 
 (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. 
 (c) See “Reconciliation of Reported Net (Loss) 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 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. 
 
 
 44 

 
 

 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, Change % 
 (in millions) 2020 2019 2018 2020/2019 2019/2018 
 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) 
 — — (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. (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 % 
 Per Share Data 
 Adjusted weighted-average common shares 
 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 
 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. pension plans. In fiscal 2018, we incurred losses of $24.1 related to the expensing of third-party debt issuance costs incurred in connection with the refinancing of the Coty Credit Agreement and Galleria Credit Agreement, partially offset by pension curtailment gains of $10.4 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. 
 (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. 
 (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 
 45 

 
 

 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. 
 
 
 
 
 46 

 
 

 Quarterly Results of Operations Data 
 The following tables set forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the periods ended June 30, 2020. We have prepared the quarterly consolidated statements of operations data on a basis consistent with the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of this data. This information should be read in conjunction with the consolidated financial statements and related notes included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report. 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 2019 
 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 
 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-and divestiture-related costs 72.0 49.3 36.0 — — — — — 
 Asset impairment charges 393.6 40.4 — — 2,783.2 — 933.3 12.5 
 Operating (loss) income (920.5) (299.5) (80.5) 64.0 (2,744.4) 11.8 (888.9) (66.9) 
 Interest expense, net 57.4 63.8 58.4 63.1 57.1 59.0 56.5 52.6 
 
 
 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 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 
 Net (loss) income attributable to Coty Inc. per common share: 
 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. 
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 FINANCIAL CONDITION 
 LIQUIDITY AND CAPITAL RESOURCES 
 Overview 
 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 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. by $63.8. 
 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. Our principal uses of cash are to fund planned operating expenditures, capital expenditures, interest payments, acquisitions, dividends, share repurchases and any principal payments on debt. The working capital movements are based on the sourcing of materials related to the production of products within each of our segments. 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. 
 Debt 
 On April 5, 2018, we completed an offering of three series of U.S. dollar denominated and euro denominated senior unsecured notes in an aggregate principal amount of $550.0 and €800 million, in a private offering. 
 On April 5, 2018, we entered into a credit agreement which amended and restated the existing credit agreements. The credit agreement provides for senior secured credit facilities comprised of (i) a five year revolving credit facility in an aggregate principal amount up to $3,250.0, (ii) a five year term loan A facility consisting of (a) $1,000.0 denominated in U.S. dollars and (b) €2.035 billion denominated in Euros and (iii) a seven year term loan B facility consisting of (a) $1,400.0 denominated in U.S. dollars and (b) €850 million denominated in Euros. Future borrowings under the 2018 Coty Credit Agreement could be used for corporate purposes. 
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 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 
 U.S. Receivables Purchase Agreement 
 On March 19, 2019, we entered into an Uncommitted Receivables Purchase Agreement (the “Receivables Purchase Agreement”) with a financial institution, with an aggregate facility limit of $150.0. Eligible trade receivables are purchased by the financial institution for cash at net invoice value less a factoring fee. 
 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. 
 Overall 
 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 
 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. 
 Dispositions 
 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. 
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 Cash Flows 
 
 Year Ended June 30, 
 2020 2019 2018 
 Consolidated Statements of Cash Flows Data:
(in millions) 
 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 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. This increase is primarily driven by an increase of $286.5 in net income after adjusting for non-cash items only partially offset by increased outflows from net changes in working capital accounts of $60.7. The increase in net income after adjusting for non-cash items in fiscal 2019, compared to fiscal 2018, as noted above. Working capital changes included an increase in cash outflows from accounts payable and accrued expenses and other current liabilities of $642.4 which were only partially offset by higher inflows from trade receivables, prepaid expenses and other current assets and inventory of $581.7. The increase in cash outflows from accounts payable and accrued expenses and other current liabilities were mainly the result of decreases in current restructuring accruals for payments of prior year amounts accrued, combined with decreases in trade spend related payables and accruals due to a smaller revenue base decreasing the level of trade spending. Changes in trade receivables contributed to $424.5 of the increase in cash inflows during fiscal 2019 compared to fiscal 2018 mainly due to positive results from stronger collection efforts and the implementation of additional factoring facilities. 
 Net cash used in investing activities 
 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 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. 
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 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. These decreases were partially offset by cash increases from lower payments for debt issuance costs of $37.7 and lower cash dividend payments of $29.6. 
 Dividends 
 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 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 23—Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements. 
 Contractual Obligations and Commitments 
 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 
 License agreements: (b) 
 
 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 

 
 
 
 

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 (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. A 25 basis-point increase in our variable interest rate debt would have increased our interest costs by $72.8 over the term of our long-term debt. 
 (b) Obligations under license agreements relate to royalty payments and required advertising and promotional spending levels for our products bearing the licensed trademark. Royalty payments are typically made based on contractually defined net sales. However, certain licenses require minimum guaranteed royalty payments regardless of sales levels. Minimum guaranteed royalty payments and required minimums for advertising and promotional spending have been included in the table above. Actual royalty payments and advertising and promotional spending are expected to be higher. Furthermore, early termination of any of these license agreements could result in potential cash outflows that have not been reflected above. 
 (c) Other contractual obligations primarily represent advertising/marketing, manufacturing, logistics and capital improvements commitments. 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. 
 (d) Represents future contributions to our pension and other postretirement benefit plans over the next five years mandated by local regulations or statutes. Subsequent funding requirements cannot be reasonably estimated as the return on plan assets in future periods, as well as future assumptions are not known. 
 The table above excludes obligations for uncertain tax benefits, including interest and penalties, of $170.7 as of June 30, 2020, as we are unable to predict when, or if, any payments would be made. See Note 17—Income Taxes in the notes to our Consolidated Financial Statements for additional information on our uncertain tax benefits. 
 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 
 We are exposed to foreign currency exchange fluctuations and interest rate volatility through our global operations. We utilize natural offsets to the fullest extent possible in order to identify net exposures. In the normal course of business, established policies and procedures are employed to manage these net exposures using a variety of financial instruments. We do not enter into derivative financial instruments for trading or speculative purposes. 
 Foreign Currency Exchange Risk Management 
 We operate in multiple functional currencies and are exposed to the impact of foreign currency fluctuations. 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 $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. 
 We have experienced and will continue to experience fluctuations in our net income as a result of balance sheet transactional exposures. 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 $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. This gain does not include the impact on our underlying foreign currency exposures. 
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 Interest Rate Risk Management 
 We are exposed to interest rate risk that relates primarily to our indebtedness, which is affected by changes in the general level of the interest rates primarily in the U.S. and Europe. We periodically enter into interest rate swap agreements to facilitate our interest rate management activities. We have designated these agreements as cash flow hedges and, accordingly, applied hedge accounting. The effective changes in fair value of these agreements are recorded in AOCI/(L), net of tax, and ineffective portions are recorded in current- period earnings. Amounts in AOCI/(L) are subsequently reclassified to earnings as interest expense when the hedged transactions are settled. 
 We expect that both at the inception and on an ongoing basis, the hedging relationship between any designated interest rate hedges and underlying variable rate debt will be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge. If it is determined that a derivative is not highly effective, or that it has ceased to be a highly effective hedge, we will be required to discontinue hedge accounting with respect to that derivative prospectively. 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 from continuing operations before income taxes in fiscal 2020 would decrease/increase by $25.2. 
 Credit Risk Management 
 We attempt to minimize credit exposure to counterparties by generally entering into derivative contracts with counterparties that have an “A” (or equivalent) credit rating. The counterparties to these contracts are major financial institutions. Exposure to credit risk in the event of nonperformance by any of the counterparties is limited to the fair value of contracts in net asset positions, which totaled $1.9 as of June 30, 2020. Accordingly, management believes risk of material loss under these hedging contracts is remote. 
 Inflation Risk 
 To date, we do not believe inflation has had a material effect on our business, financial condition or results of operations. However, if our costs were to become subject to significant inflationary pressures in the future, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities. 
 Off-Balance Sheet Arrangements 
 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 
 We prepare our Consolidated Financial Statements in conformity with U.S. 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. 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. We evaluate our estimates and assumptions on an ongoing basis. 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, and income taxes. 
 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. 
 Revenue Recognition 
 Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns (estimated based on an analysis of historical experience and position in product life cycle) and various trade spending activities. Trade spending activities represent variable consideration promised to the customer and primarily relate to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers. The costs of trade spend activities are estimated considering all reasonably available information, including contract terms with the customer, the Company’s historical experience and its current expectations of the scope of the activities, and is reflected in the transaction price when sales are recorded. For additional information on our revenue accounting policies, see Note 2—Summary of Significant Accounting Policies. Returns represent 3%, 2% and 2% of gross revenue after customer discounts and allowances in fiscal 2020, 2019 and 2018, respectively. Trade spending activities recorded as a reduction to gross revenue after customer discounts and allowances represent 11%, 9%, and 10% in fiscal 2020, 2019 and 2018, respectively. 
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 Our sales return accrual reflects seasonal fluctuations, including those related to the holiday season in the first half of our fiscal year. This accrual is a subjective critical estimate that has a direct impact on reported net revenues, and is calculated based on history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that we have considered, and will continue to consider, include the financial condition of our customers, store closings by retailers, changes in the retail environment, and our decision to continue to support new and existing brands. If the historical data we use to calculate these estimates does not approximate future returns, additional allowances may be required. 
 Goodwill, Other Intangible Assets and Long-Lived Assets 
 Goodwill 
 Goodwill is calculated as the excess of the cost of purchased businesses over the fair value of their underlying net assets. Other intangible assets consist of indefinite-lived trademarks. Goodwill and other indefinite-lived intangible assets are not amortized. 
 We assess goodwill at least annually as of May 1 for impairment, or more frequently, if certain events or circumstances warrant. We test goodwill for impairment at the reporting unit level, which is the same level as our reportable segments. We identify our reporting units by assessing whether the components of our reporting segments constitute businesses for which discrete financial information is available and management of each reporting unit regularly reviews the operating results of those components. 
 When testing goodwill for impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as the basis to determine if it is necessary to perform a quantitative goodwill impairment test. In performing our qualitative assessment, we consider the extent to which unfavorable events or circumstances identified, such as changes in economic conditions, industry and market conditions or company specific events, could affect the comparison of the reporting unit’s fair value with its carrying amount. If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we are required to perform a quantitative impairment test. 
 Quantitative impairment testing for goodwill is based upon the fair value of a reporting unit as compared to its carrying value. We make certain judgments and assumptions in allocating assets and liabilities to determine carrying values for our reporting units. The impairment loss recognized would be the difference between a reporting unit’s carrying value and fair value in an amount not to exceed the carrying value of the reporting unit’s goodwill. 
 Testing goodwill for impairment requires us to estimate fair values of reporting units using significant estimates and assumptions. The assumptions made will impact the outcome and ultimate results of the testing. 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, 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, 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. 
 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, when applicable, as well as our historical operating trends. 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. A revision of these assumptions could cause the fair values of the reporting units to fall below their respective carrying values, resulting in a non-cash impairment charge. 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 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. 
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 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. 
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 Other Intangible Assets 
 We assess indefinite-lived other intangible assets (trademarks) at least annually as of May 1 for impairment, or more frequently if certain events occur or circumstances change that would more likely than not reduce the fair value of an indefinite-lived intangible asset below its carrying value. Trademarks are tested for impairment on a brand level basis. 
 The trademarks’ fair values are based upon the income approach, primarily utilizing the relief from royalty methodology. This methodology assumes that, in lieu of ownership, a third party would be willing to pay a royalty in order to obtain the rights to use the comparable asset. An impairment loss is recognized when the estimated fair value of the intangible asset is less than the carrying value. Fair value calculation requires significant judgments in determining both the assets’ estimated cash flows as well as the appropriate discount and royalty rates applied to those cash flows to determine fair value. Variations in economic conditions or a change in general consumer demands, operating results estimates or the application of alternative assumptions could produce significantly different results. 
 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: 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, 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%. 
 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. For instance, with regards to our CoverGirl trademark, our 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 $13.1. If the discount rate increased by 0.5%, it may cause an additional impairment of $16.6. 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, 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. 
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 The fair values of the remaining indefinite-lived trademarks exceeded their carrying values by amounts ranging from 56% to more than 100%. 
 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. 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. 
 Long-Lived Assets 
 Long-lived assets, including tangible and intangible assets with finite lives, are amortized over their respective lives to their estimated residual values and are also reviewed for impairment whenever certain triggering events may indicate impairment. When such events or changes in circumstances occur, a recoverability test is performed comparing projected undiscounted cash flows from the use and eventual disposition of an asset or asset group to its carrying value. If the projected undiscounted cash flows are less than the carrying value, an impairment would be recorded for the excess of the carrying value over the fair value, which is determined by discounting future cash flows. 
 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. 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 
 We allocate the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. The excess value of the cost of an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill. The valuation of the acquired assets and liabilities will impact our future operating results, as we recognize depreciation and amortization expense on long-lived assets. We use a variety of information sources to determine the value of acquired assets and liabilities including: third-party appraisers for the values and lives of property, identifiable intangibles and inventories; and legal counsel or other experts to assess the obligations and liabilities associated with legal, environmental or other claims. 
 Significant judgment is required in estimating the fair value of intangible assets and in assigning their respective useful lives. The fair value estimates are based on historical information and on future expectations and assumptions deemed reasonable by management, but are inherently uncertain. Determining the useful life of an intangible asset also requires judgment. Certain brand intangibles are expected to have indefinite lives based on their history and our plans to manage the acquired brands. Other intangible assets are expected to have determinable useful lives. Our assessment of intangible assets that have an indefinite life and those that have a determinable life is based on a number of factors including the competitive environment, market share, brand history, underlying product life cycles, operating plans and the macroeconomic environment. The costs of determinable-lived intangible assets are amortized to expense over the estimated useful life. 
 We generally use the following methodologies for valuing our significant acquired intangibles assets: 
 • Trademarks (indefinite or finite) - We use a relief from royalty method to value trademarks. The key assumptions for the model are forecasted net revenue, the royalty rate, the effective tax rate and the discount rate. 
 • 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 
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 amortization (“EBITDA”), the estimated allocation of earnings between different classes of assets, the attrition rate, the effective tax rate and the discount rate. 
 Inventory 
 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. Costs include direct materials, direct labor and overhead (e.g., indirect labor, rent and utilities, depreciation, purchasing, receiving, inspection and quality control) and in-bound freight costs. We classify inventories into various categories based upon their stage in the product life cycle, future marketing sales plans and the disposition process. 
 We also record an inventory obsolescence reserve, which represents the excess of the cost of the inventory over its estimated net realizable value, based on various product sales projections. This reserve is calculated using an estimated obsolescence percentage applied to the inventory based on age, historical trends, and requirements to support forecasted sales. In addition, and as necessary, we may establish specific reserves for future known or anticipated events. 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. 
 Income Taxes 
 We are subject to income taxes in the U.S. and various foreign jurisdictions. We account for income taxes under the asset and liability method. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. Deferred taxes are recorded at currently enacted statutory tax rates and are adjusted as enacted tax rates change. 
 A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized based on currently available evidence. We consider how to recognize, measure, present and disclose in financial statements uncertain tax positions taken or expected to be taken on a tax return. 
 We are subject to tax audits in various jurisdictions. We regularly assess the likely outcomes of such audits in order to determine the appropriateness of liabilities for unrecognized tax benefits. We classify interest and penalties related to unrecognized tax benefits as a component of the provision for income taxes. 
 For unrecognized tax benefits, we first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to unrecognized tax benefits, including associated interest and penalties, requires significant estimates to be made by us, there can be no assurance that we will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on our operating results or financial condition and cash flows. 
 Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of examinations by tax authorities, developments in case law and closing of statute of limitations. Such adjustments are reflected in the provision for income taxes as appropriate. In addition, we are present in approximately 55 tax jurisdictions and we are subject to the continuous examination of our income tax returns by the Internal Revenue Service (IRS) and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. 
 As a result of the 2017 Tax Act changing the U.S. to a modified territorial tax system, the Company no longer asserts that any of its undistributed foreign earnings are permanently reinvested. 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.
COTY INC. 10-K

Item 7. Management’s Discussion and Analysis
