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 one of the world’s largest beauty companies, with an iconic portfolio of brands across fragrance, color cosmetics, 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 King Kylie and Kim Kardashian West transactions complement our existing portfolio as personality-led Direct-to-Consumer (“DTC”) business models with strong social media engines. As we transform the Company, we continue to make progress on our strategic priorities, including stabilizing our consumer beauty brands through leading innovation and improved execution, accelerating our prestige fragrance business and ongoing expansion into prestige cosmetics, building a comprehensive skincare portfolio leveraging existing brands, enhancing our e-commerce and DTC capabilities, expanding our presence in China through prestige products and select consumer beauty brands, and establishing Coty as an industry leader in sustainability. 
 The divestiture of the Younique business in September 2019 and the completion of the strategic Wella Transaction 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, through a potential divestiture at a later stage. 
 COVID-19 Impacts Update 
 The COVID-19 pandemic has had material effects on all our product categories across all segments and geographies. The continuing sporadic containment measures and travel restrictions adopted worldwide to address the pandemic have contributed to a significant decline in volume trends, albeit with some emerging evidence of recovery in the Americas and Asia during fiscal 2021, particularly in the latter quarter of the year, and most notably in the prestige fragrance categories. Demand for color cosmetics products and products sold in the travel retail channel continues to be impacted by temporary closures of non-essential businesses and social distancing measures, although this is being partially offset by the gradual removal or reduction of travel restrictions in key markets, and growth in beauty product sales online. Many of our mass products are offered in other channels, such as drug and grocery stores, that continued to operate as essential businesses during the height of the pandemic, the negative effects of which were ameliorated through successful vaccination programs and reopenings in many markets in the latter portion of the fiscal year, particularly the fourth quarter. However, these product categories continue to experience negative effects on sales volume due to changes in consumer behavior as a result of the pandemic, and continued social distancing measures in certain regions. 
 As previously reported, we have implemented several key measures in response to the COVID-19 pandemic which continue to be in place. We have also amplified our Transformation Plan, discussed below, to address the potentially longer-lasting impacts of the COVID-19, the intermittent lockdowns and possible economic uncertainty resulting from COVID-19 in many markets. 
 We anticipate the recovery to be non-linear until COVID-19 containment measures are discontinued across all regions and normal consumer traffic resumes on a consistent basis. 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 resurgence of COVID-19 and related uncertainties, and the availability and widespread distribution of a safe and effective vaccine varies across regions. 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. 
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 Transformation Plan Update 
 As previously reported, we are implementing a comprehensive transformation agenda (the “Transformation Plan”), which aims to stabilize and accelerate revenue growth, improve our profitability through gross margin growth and cost control, optimize our operating model for speed and agility, accelerate e-commerce and digital growth, and deleverage our balance sheet. 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 are continually reviewing ways to accelerate and amplify the transformation of the Company, including through the implementation of additional initiatives in connection with our Transformation Plan. As a result, we have exited fiscal 2021 with a higher level of cost savings than initially anticipated. We expect to incur additional cash costs of approximately $200.0 in fiscal years 2022 and 2023, which is $100.0 below the aggregate estimates previously announced by the Company. These organizational, business and structural changes are still being operationalized, which introduces additional risk and complexity as we roll out several initiatives simultaneously, including the ongoing obligations under the TSA. 
 
 
 Other Matters 
 
 
 As previously disclosed, our CODM has been in the process of finalizing her organization structure and how she will assess performance, and we have concurrently evaluated the potential impact to our segment reporting. Based on this evaluation, we have determined that it is appropriate to realign our reportable segments from the current regional structure to a principally product category-based structure, comprised of a prestige business segment and a consumer beauty business segment. We are in the process of making corresponding changes, as needed, to our management structure and operating responsibilities as well as to our information systems to enable appropriate internal and external financial reporting reflecting such newly identified segments by the first quarter of fiscal year 2022. 
 
 
 
 
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 Selected Financial Data 
 
 (in millions, except per share data) Year Ended June 30, 
 2021 2020 (a) 
 2019 
 Condensed Consolidated Statements of Operations Data: 
 Net revenues $ 4,629.9 $ 4,717.8 $ 6,287.9 
 Gross profit 2,768.2 2,726.6 3,789.4 
 Restructuring costs 63.6 130.2 34.2 
 Acquisition- and divestiture-related costs 138.8 157.3 — 
 Asset impairment charges — 434.0 3,729.0 
 Operating loss (48.6) (1,236.5) (3,688.4) 
 Interest expense, net 235.1 242.7 225.2 
 
 
 Loss before income taxes from continuing operations (239.8) (1,467.6) (3,945.4) 
 Benefit for income taxes (172.0) (377.7) (54.8) 
 Net loss from continuing operations (67.8) (1,089.9) (3,890.6) 
 Net (loss) income from discontinued operations (137.3) 87.2 121.0 
 Net loss (205.1) (1,002.7) (3,769.6) 
 
 
 Net loss attributable to Coty Inc. for common stockholders $ (201.3) $ (1,006.7) $ (3,784.2) 
 
 Amounts attributable to Coty Inc.: 
 
 
 Loss from continuing operations attributable to Coty Inc. common stockholders $ (166.3) $ (1,100.4) $ (3,905.2) 
 
 Net loss attributable to Coty Inc. common stockholders $ (303.6) $ (1,013.2) $ (3,784.2) 
 Per Share Data: 
 Net (loss) income attributable to Coty Inc. per common share: 
 Basic loss from continuing operations $ (0.22) $ (1.45) $ (5.20) 
 
 Basic loss for Coty Inc. $ (0.40) $ (1.33) $ (5.04) 
 Diluted loss from continuing operations $ (0.22) $ (1.45) $ (5.20) 
 Diluted (loss) earnings from discontinued operations $ (0.18) $ 0.12 $ 0.16 
 Diluted loss for Coty Inc. $ (0.40) $ (1.33) $ (5.04) 
 Weighted-average common shares 
 Basic 764.8 759.1 751.2 
 Diluted 764.8 759.1 751.2 
 Dividends declared per common share $ — $ 0.38 $ 0.50 

 
 
 
 (in millions) Year Ended June 30, 
 2021 2020 (a) 
 2019 
 Consolidated Statements of Cash Flows Data: 
 Net cash provided by (used in) operating activities $ 318.7 $ (50.9) $ 639.6 
 Net cash provided by (used in) investing activities 2,441.9 (833.4) (454.0) 
 Net cash (used in) provided by financing activities (2,795.1) 877.3 (160.3) 

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 (in millions) As of June 30, 
 2021 2020 (a)(b) 
 2019 
 Consolidated Balance Sheets Data: 
 Cash and cash equivalents $ 253.5 $ 308.3 $ 340.4 
 Total assets 13,691.4 16,728.8 17,710.0 
 Total debt, net of discount 5,476.9 8,147.3 7,735.0 
 Total Coty Inc. stockholders’ equity 2,860.7 3,004.6 4,586.9 

 
 
 
 

 (a) Included in fiscal 2020 are the financial impacts of the divestiture of Younique LLC on September 16, 2019, and the King Kylie transaction on January 6, 2020. 
 (b) In fiscal 2020, we adopted ASU 2016-02 , Leases (Topic 842) which requires lease assets and liabilities to be recorded on the balance sheet. 
 
 
 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 EBITDA, 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. 
 Adjusted operating income/Adjusted EBITDA 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. For adjusted EBITDA, in addition to the preceding, we adjust for non-cash stock-based compensation expense and depreciation. 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. 
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 They are primarily incurred to realign our operating structure and integrate new acquisitions, and implement divestitures of components of our business, 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. 
 • Non-cash stock-based compensation: Although non-cash stock-based compensation is a key incentive offered to our employees, we have excluded the effect of these expenses from the calculation of adjusted EBITDA. This is primarily due to their non-cash nature; in addition, the amount and timing of these expenses may be highly variable and unpredictable, which may negatively affect comparability between periods. 
 • Depreciation and Adjusted depreciation: We have excluded adjusted depreciation from our adjusted operating income and depreciation from our adjusted EBITDA. We have excluded from depreciation the impact of accelerated depreciation for costs related to certain restructuring projects that impacts the expected useful lives of Property, Plant and Equipment as such charges vary significantly based on the size and timing of the programs. 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 debt financing transaction costs, including deferred financing fee write-offs and similar 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 (income) expense: We have excluded the impact of costs incurred for legal and advisory services rendered in connection with the tender offer that was in fiscal 2019 initiated by certain of our shareholders. Additionally, we have excluded the write-off of deferred financing fees and discounts that resulted from the pay down of our term debt from the proceeds of the Wella sale, due to the requirements of the 2018 Coty Credit Agreement, as amended. Our 
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 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. Further, we have excluded the change in fair value of the investment in Wella, as our management believes these unrealized (gains) and losses do not reflect our underlying ongoing business, and the adjustment of such impact helps investors and others compare and analyze performance from period to period. 
 • 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. 
 • 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. Additionally, adjustments are made for the tax impact of any intra-entity transfer of assets and liabilities. 
 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 2021/2020 presentation Impact on basis of 2020/2019 presentation 
 
 
 
 
 First quarter fiscal 2020 Divestiture: Younique - the divestiture of the interest in Foundation, LLC, which held the net assets for Younique 
 First quarter fiscal year 2020 net revenue excluded. September of fiscal year 2020 and September - June of fiscal year 2019 financial contribution excluded. Closing date of divestiture was September 16, 2019. 
 Third quarter fiscal 2020 Acquisition: King Kylie Transaction - the acquisition of 51% interest in King Kylie LLC 
 First and second quarter fiscal year 2021 net revenue excluded. Third and fourth quarter fiscal year 2020 financial contribution excluded. 

 When used herein, the term “Acquisitions” and “Divestitures” refer to the financial contributions of the related acquisitions or divestitures and early license terminations shown above, during the period that is not comparable as a result of such acquisitions or divestitures and early license terminations. 
 Financial results for the Wella Business for fiscal years 2021, 2020 and 2019 are presented as discontinued operations. 
 Unless otherwise noted, the following section pertains to the results of continuing operations. 
 
 
 
 
 NET REVENUES 
 In fiscal 2021, net revenues decreased 2%, or $87.9, to $4,629.9 from $4,717.8 in fiscal 2020. Excluding the impacts of the Acquisition and Divestiture, total net revenues in fiscal 2021 decreased 2%, or $82.0, to $4,580.3 from $4,662.3 in fiscal 2020, reflecting a positive foreign currency exchange translation impact of 2%, a negative price and mix impact of 1%, and a decrease in unit volume of 3%. The decrease in net revenues primarily reflects lower net revenues due to the COVID-19 pandemic, with the highest impact on the mass color cosmetics category, due mainly to category decline related to COVID-19 protocols such as mask-wearing, remote working arrangements, and social distancing which contributed to reduced demand for several product lines, particularly lip and face products. In addition, prestige products in our travel retail channels remained significantly impacted due to continued restrictions on leisure travel. The decrease in demand throughout most of fiscal 2021 was partially offset by the re-opening of stores and reduced COVID restrictions in the last fiscal quarter, which mainly increased prestige products, a repositioning and reinvestment in mass beauty brands, and growth of e-commerce and continued expansion in China. The Company also experienced successful launches of Marc Jacobs Perfect , Gucci Guilty and Gucci Bloom in the 2021 fiscal year. 
 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 Divestitures, 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 2020 fiscal year. 
 
 Year Ended June 30, Change % 
 (in millions) 2021 2020 2019 2021/2020 2020/2019 
 NET REVENUES 
 Americas $ 1,866.9 $ 1,771.0 $ 2,248.9 5 % (21 %) 
 EMEA 2,183.7 2,308.6 2,909.7 (5 %) (21 %) 
 Asia Pacific 579.3 582.7 771.1 (1 %) (24 %) 
 Other — 55.5 358.2 (100 %) (85 %) 
 Total $ 4,629.9 $ 4,717.8 $ 6,287.9 (2 %) (25 %) 
 

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 Americas 
 In fiscal 2021, net revenues in the Americas segment increase d 5%, or $95.9 to $1,866.9 from $1,771.0 in fiscal 2020. Excluding the impact of the Acquisition, net revenues in the Americas segment increased 3%, or $47.8, to $1,818.8 in fiscal 2021 from $1,771.0 in fiscal 2020, reflecting an increase in unit volume of 4%, a positive price and mix impact of 2%, partially offset by a negative foreign currency exchange translation impact of 3%. The increase in net revenues primarily reflects: 
 (i) increased net revenues due to the recovery from COVID-19 pandemic, with the highest impact on prestige products due to reopening of retail malls, and increased store traffic in the second half of the fiscal year; 
 (ii) an increase in net revenues from the recent launches of Marc Jacobs Perfect , Gucci Guilty EDP , Burberry London Dream , and Diamond Gel from Risqué , as well as improved performance in the last fiscal quarter due to new brand positioning and increased support for CoverGirl and continued strength of Marc Jacobs Daisy ; 
 (iii) an increase in net revenues from Sally Hansen products, primarily in the United States, due to increased demand for at-home manicures and creative Sally Hansen collections. Sally Hansen continues to see incremental net revenues from the launch of Sally Hansen Good.Kind.Pure and Sally Hansen Miracle Gel in prior periods; 
 (iv) an increase in net revenues as a result of growth in e-commerce sales across all brands due to change in consumer shopping preferences, as well as increased holiday program specifically for Philosophy ; and 
 (v) an increase in net revenues in Brazil from Monange due to strategic pricing actions leading to market share gain. 
 These increases were partially offset by: 
 (i) lower net revenues due to negative brand and category trends for mass color cosmetics, in particular lip and face products, due to the COVID-19 pandemic, primarily impacting CoverGirl and Rimmel ; 
 (ii) lower net revenues attributable to Kylie , primarily due to Kylie make-up production transitioning from the previous supplier; 
 (iii) lower net revenues due to overall decreased launch activities, reduced holiday exposure, and promotional activity in the first nine months of the fiscal year compared to prior period; and 
 (iv) lower net revenues from travel retail as a result of rolling travel restrictions due to COVID-19, which significantly affected prestige products across the region. 
 In fiscal 2020, net revenues in the Americas segment decreased 21%, or $477.9, to $1,771.0 from $2,248.9 in fiscal 2019. Excluding the impact of the Acquisition and Divestitures, net revenues in Americas 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. 
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 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. 
 EMEA 
 In fiscal 2021, net revenues in the EMEA region decreased 5%, or $124.9, to $2,183.7 from $2,308.6 in fiscal 2020, reflecting a decrease in unit volume of 12%, partially offset by a positive foreign currency exchange translation impact of 5%, and 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 lines across the region in the first nine months of the fiscal year. Reduced customer traffic in retail malls contributed significantly to the overall decrease in the region. Travel retail channels also continue to be significantly impacted as COVID-19 outbreaks continued restrictions in airports and other travel hubs. The pandemic also contributed to lower launch activity in the prestige category compared to the comparative period. This COVID-19 impact has been partially offset in the last fiscal quarter as a result of reopening of stores and reduced COVID restrictions; 
 (ii) lower net revenues due to the ongoing challenges with a key customer and distribution channel in Russia, primarily occurring in the first quarter of fiscal 2021; 
 (iii) lower net revenues due to strategic initiatives to reduce sales through lower priced channels; and 
 (iv) decreased net revenues related to negative category and share trends in color cosmetics and mass fragrance, with somewhat greater resilience being shown in products related to lifestyle scenting, nails, and eye categories. 
 These decreases were partially offset by: 
 (i) an incremental increase in net revenues from various brands as a result of reductions in promotional allowances and other trade spend items, as well as less customer returns; 
 (ii) an increase in net revenues across EMEA resulting from the continued success of launches in prestige fragrances and color cosmetics, including Marc Jacobs Perfect , Hugo Boss Alive , Boss Bottled , Gucci Guilty , as well as continued growth of e-commerce sales for prestige and mass beauty products; and 
 (iii) an increase in net revenues due to shelf space gains from Rimmel in the UK. 
 In fiscal 2020, net revenues in the EMEA region 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. 
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 Asia Pacific 
 In fiscal 2021, net revenues in the Asia Pacific segment decreased 1%, or $3.4, to $579.3 from $582.7 in fiscal 2020, reflecting a decrease in unit volume of 15%, a positive foreign currency exchange translation impact of 5%, and a positive price and mix impact of 9%. The decrease in net revenues primarily reflects: 
 (i) lower net revenues from travel retail as a result of rolling travel restrictions due to COVID-19, which significantly affected prestige products across the region; 
 (ii) lower net revenues due to strategic initiatives to reduce sales through lower priced channels for prestige products across the Asia Pacific region; 
 (iii) lower net revenues in the mass channel, primarily color cosmetics such as Rimmel related to lower market consumption mainly driven by consumer behavior changes partly attributable to the COVID-19 pandemic, and Max Factor as a result of a strategic decision to exit department stores in China; and 
 (iv) lower net revenues due to declines in Calvin Klein, mainly impacting Australia as a result of decrease in travel activity. 
 These decreases were partially offset by: 
 (i) an increase in net revenue due to continued growth of e-commerce across the region and new store expansions in China; 
 (ii) an increase in net revenue across the region resulting from the continued success of Gucci Face Foundation , Gucci Bloom , Marc Jacobs Perfect , and Chloé Atelier des Fleurs in the prestige category; and 
 (iii) an increase in net revenue related to travel retail in China and Korea, specifically due to reductions in travel restrictions within these countries. 
 In fiscal 2020, net revenues in Asia Pacific 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 
 (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. 
 Other 
 Other consists of the net revenues from Younique. 
 
 COST OF SA LES 
 In fiscal 2021, cost of sales decreased 7%, or $129.5, to $1,861.7 from $1,991.2 in fiscal 2020. Cost of sales as a percentage of net revenues decreased to 40.2% in fiscal 2021 from 42.2% in fiscal 2020 resulting in a gross margin percentage increase of approximately 200 basis points, primarily reflecting: 
 (i) approximately 100 basis points primarily related to reductions, as a percentage of revenues, in promotional allowances and other trade spend items, as well as customer returns, which are recorded as adjustments to net sales; 
 (ii) approximately 100 basis points related to decreased excess and obsolescence expense due to the high levels of excess and obsolescence expense in the prior year as a result of COVID-19 pandemic impacting demand, as well as improvements in the current fiscal year in forecasting sales and related inventory levels; and 
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 (iii) approximately 40 basis points related to decreased manufacturing overhead cost due to increased manufacturing efficiencies. 
 These positive impacts were partially offset by: 
 (i) approximately 20 basis points related to negative gross margin impacts from changes in product and category mix, primarily due to increased contribution of relatively lower margin body care products, and an increase in the proportionate share of our Brazil market, which has a lower margin contribution; and 
 (ii) approximately 20 basis points related to negative gross margin impact due to an unfavorable mix of prestige brands with higher minimum royalty rates. 
 In fisca l 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 250.0 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) Approximately 110 basis points related to increased excess and obsolescence expense on inventory; 
 (ii) Approximately 60 basis points related to incremental expense of underutilized facilities costs; and 
 (iii) Approximately 50 basis points related to increased designer license fees due to an unfavorable mix of prestige brands with higher minimum royalty rates. 
 These negative impacts were partially offset by approximately 20 basis points of 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. 
 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 
 In fiscal 2021, selling, general and administrative expenses decreased 24%, or $756.8, to $2,363.2 from $3,120.0 in fiscal 2020. Selling, general and administrative expenses as a percentage of net revenues decreased to 51.0% in fiscal 2021 from 66.1% in fiscal 2020, or approximately 1,510 basis points. This decrease was primarily due to: 
 (i) 690 basis points related to administrative costs primarily due to the decrease in compensation expense from reduction of employee headcount and bonus, reduction in non-essential travel impacted by COVID-19, and decreased professional fees due to completion of the sale of the Wella Business; 
 (ii) 620 basis points related to lower advertising and consumer promotional costs as a percentage of net revenue, as disciplined management of advertising and consumer promotion spending, including lower working media spending of 240 basis points instituted to counter the COVID-19 pandemic, led to savings that outpaced the decline in net revenues; 
 (iii) 110 basis points related to lower bad debt expense; 
 (iv) 40 basis points related to savings in logistics costs due to cost reductions from packaging and storage fees; and 
 (v) 30 basis points in stock compensation related to a modification of the former CEO's equity awards. This expense will be impacted in future periods by the CEO grant made on June 30, 2021, with the highest impact coming in fiscal year 2022. See Note 24—Share-Based Compensation Plans in the notes to our Consolidated Financial Statements for additional information. 
 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 1,090 basis points. This increase was primarily due to: 
 (i) 520 basis points related to higher administrative costs as a percentage of net revenue as the compensation expense savings and from prior restructuring programs were out-paced by the decline in net revenues; 
 (ii) 310 basis points related to higher advertising and consumer promotion costs as a percentage of net revenues as the savings in non-strategic spending in non-working media and other consumer promotion activities across all segments, and savings in media and promotional trade spending from the COVID-19 pandemic were out-paced by the decline in net revenues; 
 (iii) 150 basis points related to higher bad debt expense of 70 basis points, with the remainder due to: loss on disposal of assets and lease terminations; higher negative transactional impact from our exposure to foreign currency exchange fluctuations; and other expenses; 
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 (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. 
 OPERATING (LOSS) INCOME FROM CONTINUING OPERATIONS 
 In fiscal 2021, operating loss from continuing operations was $48.6 compared to a loss of $1,236.5 in fiscal 2020. Operating loss as a percentage of net revenues, improved to (1.0)% in fiscal 2021 as compared to (26.2)% in fiscal 2020. The improved operating margin is primarily driven by various initiatives to lower costs, including management's plan to reduce certain discretionary and fixed costs, a temporary reduction in advertising and promotional spend, and lower cost of goods sold as a percentage of net revenues. Further, there were no asset impairment charges in fiscal 2021. These improvements are partially offset by an increase in amortization expense. 
 In fiscal 2020, operating loss from continuing operations was $1,236.5 compared to a loss of $3,688.4 in fiscal 2019. Operating loss as a percentage of net revenues, improved 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 fiscal 2020 compared with fiscal 2019, 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. 
 Operating (Loss) Income by Segment 
 
 Year Ended June 30, Change % 
 (in millions) 2021 2020 2019 2021/2020 2020/2019 
 Operating income (loss) from continuing operations 
 Americas $ 36.5 $ (164.8) $ (1,474.5) >100% 89 % 
 EMEA 129.8 (248.4) (1,344.1) >100% 82 % 
 Asia Pacific (13.2) (74.0) (253.1) 82 % 71 % 
 Other — (10.9) (18.6) 100 % 41 % 
 Corporate (201.7) (738.4) (598.1) 73 % (23 %) 
 Total $ (48.6) $ (1,236.5) $ (3,688.4) 96 % 66 % 

 Americas 
 In fiscal 2021, operating income for Americas was $36.5 compared to a loss of $164.8 in fiscal 2020. Operating margin improved to 2.0% of net revenues in fiscal 2021 as compared to (9.3)% in fiscal 2020, primarily reflecting a significant decrease in advertising and promotional spend and reduction in fixed costs, partially offset by higher cost of goods sold as a percentage of net revenues and amortization expense. 
 In fiscal 2020, operating loss for Americas was $164.8 compared to a loss of $1,474.5 in fiscal 2019. Operating margin improved 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. 
 EMEA 
 In fiscal 2021, operating income for EMEA was $129.8 compared to a loss of $248.4 in fiscal 2020. Operating margin improved to 5.9% of net revenues in fiscal 2021 as compared to (10.8)% in fiscal 2020, primarily reflecting a significant decrease in advertising and promotional spend, decrease in asset impairment cost, lower cost of goods sold as a percentage of net revenues, and reduction in fixed costs. 
 In fiscal 2020, operating loss for EMEA was $248.4 compared to a loss of $1,344.1 in fiscal 2019. Operating margin improved 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. 
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 Asia Pacific 
 In fiscal 2021, operating loss for Asia Pacific was $13.2 compared to a loss of $74.0 in fiscal 2020. Operating margin improved to (2.3)% of net revenues in fiscal 2021 as compared to (12.7)% in fiscal 2020, primarily reflecting decrease in advertising and promotional spend, and lower fixed costs as a percentage of net revenues. 
 In fiscal 2020, operating loss for Asia Pacific was $74.0 compared to a loss of $253.1 in fiscal 2019. Operating margin improved 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. 
 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 $201.7, $738.4 and $598.1 in fiscal 2021, 2020 and 2019, respectively, as described under “Adjusted Operating Income” below. The operating loss of $201.7 in fiscal 2021 includes acquisition and divestiture related costs, and restructuring and other business realignment costs. 
 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. 
 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, 2021 
 (in millions) Reported
(GAAP) Adjustments (a) 
 Adjusted 
(Non-GAAP) 
 Adjusted operating income (loss) from continuing operations 
 Americas $ 36.5 $ (105.0) $ 141.5 
 EMEA 129.8 (122.1) 251.9 
 Asia Pacific (13.2) (24.1) 10.9 
 Other — — — 
 Corporate (201.7) (206.8) 5.1 
 Total $ (48.6) $ (458.0) $ 409.4 

 
 
 
 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) 

 
 
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 Year Ended June 30, 2019 
 (in millions) Reported 
 (GAAP) 
 Adjustments (a) 
 Adjusted 
 (Non-GAAP) 
 
 Adjusted operating (loss) 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 

 
 
 
 

 (a) See a reconciliation of reported operating (loss) income to adjusted operating income and a description of the adjustments under “Adjusted Operating (Loss) Income from Continuing Operations for Coty Inc.” below. All adjustments are reflected in Corporate, except for amortization and asset impairment charges on goodwill, regional indefinite-lived intangible assets, and finite-lived intangible assets, which are reflected in the Americas, EMEA, Asia Pacific, and Other segments. 
 
 
 Adjusted Operating (Loss) Income and Adjusted EBITDA 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) 2021 2020 2019 2021/2020 2020/2019 
 Reported operating loss from continuing operations $ (48.6) $ (1,236.5) $ (3,688.4) 96 % 66 % 
 % of Net revenues (1.0 %) (26.2 %) (58.7 %) 
 Amortization expense 251.2 233.1 246.7 8 % (6 %) 
 Restructuring and other business realignment costs 68.0 361.9 203.5 (81 %) 78 % 
 Costs related to acquisition and divestiture activities 138.8 157.3 — (12 %) N/A 
 Asset impairment charges — 434.0 3,729.0 (100 %) (88 %) 
 Loss/(gain) on divestitures — (111.5) — 100 % N/A 
 Total adjustments to reported operating loss 458.0 1,074.8 4,179.2 (57 %) (74) % 
 Adjusted operating (loss) income from continuing operations $ 409.4 $ (161.7) $ 490.8 >100% <(100%) 
 % of Net revenues 8.8 % (3.4 %) 7.8 % 
 Non-cash stock-based compensation 25.2 2.0 12.5 >100% (84 %) 
 Adjusted depreciation 325.8 334.3 333.6 (3 %) — % 
 Adjusted EBITDA $ 760.4 $ 174.6 $ 836.9 >100% (79) % 
 % of Revenues 16.4 % 3.7 % 13.3 % 

 In fiscal 2021, adjusted operating income was $409.4 compared to a loss of $161.7 in fiscal 2020. Adjusted operating margin increased to 8.8% of net revenues in fiscal 2021 as compared to (3.4%) in fiscal 2020. In fiscal 2021, adjusted EBITDA was $760.4 compared to $174.6 in fiscal 2020. Adjusted EBITDA margin increased to 16.4% of net revenues in 2021 as compared to 3.7% in fiscal 2020, primarily driven by various initiatives to lower costs, including a temporary reduction in advertising and promotional spend, management's plan to reduce certain discretionary and fixed costs, and lower cost of goods sold as a percentage of net revenues. 
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 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. In fiscal 2020, adjusted EBITDA was $174.6 compared to $836.9 in fiscal 2019. Adjusted EBITDA margin decreased to 3.7% of net revenues in 2020 as compared to 13.3% 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. 
 Amortization Expense 
 In fiscal 2021, amortization expense increased to $251.2 from $233.1 in fiscal 2020. In fiscal 2021, amortization expense of $105.0, $122.1, $24.1, and $0.0 was reported in the Americas, EMEA, Asia Pacific, and Other segments, respectively. 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. The increase was primarily driven by finite lived intangibles recorded for the Kylie acquisition in the third quarter of fiscal 2020. 
 In fiscal 2020, amortization expense decreased to $233.1 from $246.7 in fiscal 2019. 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. 
 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. We incurred $366.4 of cash costs life-to-date as of June 30, 2021, which have been recorded in Corporate. 
 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 2021, we incurred restructuring and other business structure realignment costs of $68.0, as follows: 
 • We incurred restructuring costs of $63.6, primarily related to the Transformation Plan, included in the Consolidated Statements of Operations; and 
 • We incurred business structure realignment costs of $4.4 primarily related to our Transformation Plan and certain other programs. This amount includes $(3.9) reported in selling, general and administrative expenses, which is a result of changes in estimate, and $8.3 reported in cost of sales due to an increase in accelerated depreciation as part of Transformation Plan, in the Consolidated Statement of Operations. 
 In fiscal 2020, we incurred restructuring and other business structure 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 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 all reported periods, all restructuring and other business realignment costs were reported in Corporate. 
 Acquisition- and divestiture-related costs 
 In fiscal 2021,we incurred $138.8 of acquisition- and divestiture-related costs, of which $135.8 were associated with the Wella Transaction, and $3.0 were consulting and legal costs associated with the Kim Kardashian West Transaction. 
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 In fiscal 2020, we incurred $157.3 of acquisition- and divestiture-related costs, of which $137.6 were associated with the Wella Transaction and other contract termination costs, and $19.7 were consulting and legal costs associated with the King Kylie Transaction and the then pending transaction with Kim Kardashian West. 
 In fiscal 2019, there were no acquisition or divestiture-related charges incurred. 
 In all reported periods, all acquisition- and divestiture-related costs were reported in Corporate, except where otherwise noted. 
 Asset Impairment Charges 
 In fiscal 2021, we did not incur any 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. 
 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 
 In fiscal 2021, we did not incur a loss (gain) on divestitures. 
 In fiscal 2020, we completed the divestiture of Younique resulting in income of $111.5 included in Gain on divestitures in the Consolidated Statements of Operations. 
 In fiscal 2019, we did not incur a loss (gain) on divestitures. 
 Non-cash stock-based compensation 
 In fiscal 2021, non-cash stock-based compensation of $10.2, $11.9 and $3.1 was reported in the Americas, EMEA and Asia Pacific segments, respectively. 
 In fiscal 2020, non-cash stock-based compensation of $0.8, $1.0 and $0.2 was reported in the Americas, EMEA and Asia Pacific segments, respectively. 
 In fiscal 2019, non-cash stock-based compensation of $4.5, $5.8, $1.5 and $0.7 was reported in the Americas, EMEA, Asia Pacific and Other segments, respectively. 
 Adjusted depreciation expense 
 In fiscal 2021, adjusted depreciation expense of $147.3, $134.0 and $44.5 was reported in the Americas, EMEA and Asia Pacific segments, respectively. 
 In fiscal 2020, adjusted depreciation expense of $145.5, $142.0, $42.5 and $4.3 was reported in the Americas, EMEA, Asia Pacific and Other segments, respectively. 
 In fiscal 2019, adjusted depreciation expense of $135.2, $139.5, $38.8 and $20.1 was reported in the Americas, EMEA, Asia Pacific and Other segments, respectively. 
 INTEREST EXPENSE, NET 
 Net interest expense was $235.1, $242.7, and $225.2 in fiscal 2021, fiscal 2020 and fiscal 2019, respectively. In fiscal year 2021, the decrease is primarily due to the paydown of debt as a result of the completion of Wella Business sale on November 30, 2020. In fiscal 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 interest expense on average debt balances due to lower interest rates. 
 OTHER EXPENSE (INCOME), NET 
 In fiscal 2021, we incurred $43.9 of net other income, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $73.5, partially offset by write-off of deferred financing costs and debt discounts of $24.2 as a result of prepayments of the 2018 Coty Term A and B Facilities. 
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 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. 
 INCOME TAXES 
 The following table presents our (benefit) provision for income taxes, and effective tax rates for the periods presented: 
 
 2021 2020 2019 
 (Benefit) for income taxes $ (172.0) $ (377.7) $ (54.8) 
 Effective income tax rate 71.7 % 25.7 % 1.4 % 

 The positive effective income tax rate in fiscal 2021 is primarily due to a preliminary benefit of $234.4 recorded as a result of a tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the Company’s relocation of the main principal location from Geneva to Amsterdam. The overall value of the assets and liabilities transferred was negotiated with both the Swiss and Dutch Tax Authorities and per terms of the agreements, will be reevaluated after three years. The Company also recorded an expense of $130.0 related to an internal restructuring following the Wella divestiture, primarily intended to create a more efficient structure to hold its remaining 40% equity investment in Wella. 
 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 effective rates vary from the U.S. Federal statutory rate of 21% due to the effect of (i) jurisdictions with different statutory rates, (ii) adjustments to our unrecognized tax benefits and accrued interest, (iii) non-deductible expenses, (iv) audit settlements and (v) valuation allowance changes. 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, 2021 Year Ended June 30, 2020 Year Ended June 30, 2019 
 (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 $ (239.8) $ (172.0) 71.7 % $ (1,467.6) $ (377.7) 25.7 % $ (3,945.4) $ (54.8) 1.4 % 
 Adjustments to reported operating income (loss) (a) (b) 
 458.0 109.3 1,186.3 210.3 4,179.2 123.8 
 Gain on sale of business adjustment (a)(b) 
 — — (111.5) 110.5 — — 
 Post Divestiture Restructuring (c) 
 — (130.0) — — — — 
 Tax impact from intra-entity transfer of assets (d) 
 — 234.4 — — — — 
 Change in fair value of investment in Wella Business (b) (d) 
 (73.5) (11.2) — — — — 
 Other adjustments (b) (f) 
 7.2 2.0 (16.3) (3.1) 11.0 2.3 
 Adjusted (loss) income before income taxes $ 151.9 $ 32.5 21.4 % $ (409.1) $ (60.0) 14.7 % $ 244.8 $ 71.3 29.1 % 

 
 
 
 

 (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 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) Tax expense relates to an internal restructuring following the Wella divestiture, primarily intended to create a more efficient structure to hold its remaining 40% equity investment in Wella. 
 (d) Tax benefit of $234.4 is the result of a tax rate differential on the deferred taxes recognized on the transfer of assets and liabilities, following the relocation of our main principal location from Geneva to Amsterdam. The overall value of the assets and liabilities transferred was negotiated with both the Swiss and Dutch Tax Authorities and per terms of the agreements, will be reevaluated after three years. 
 (e) The amount represents the unrealized (gain) loss recognized for the change in fair value of the investment in Wella. 
 (f) 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 21.4% compared to 14.7% in the prior-year period. The differences were primarily due to the relocation of our main principal from Geneva to Amsterdam. Cash paid during the years ended June 30, 2021, 2020 and 2019, for income taxes of $15.9, $123.2 and $110.3 represents 10.5%, (30.1)% and 45.1% of Adjusted (loss) income before income taxes for the fiscal year ended, respectively. 
 NET INCOME (LOSS) ATTRIBUTABLE TO COTY INC. 
 In fiscal 2021, net loss attributable to Coty Inc. was $201.3 compared to a loss of $1,006.7 in fiscal 2020. 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 2020, net loss attributable to Coty Inc. was $1,006.7 compared to a loss of $3,784.2 in fiscal 2019. The net loss decrease primarily reflects a lower operating loss in fiscal 2020 compared to the operating loss in fiscal 2019. 
 
 
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 ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO COTY INC. 
 We believe that adjusted net income (loss) attributable to Coty Inc. provides an enhanced understanding of our performance. See “Overview—Non-GAAP Financial Measures.” 
 
 Year Ended June 30, Change % 
 (in millions) 2021 2020 2019 2021/2020 2020/2019 
 Net income from Coty Inc. net of noncontrolling interests $ (201.3) $ (1,006.7) $ (3,784.2) 80 % 73 % 
 Convertible Series B Preferred Stock dividends (a) 
 (102.3) (6.5) — <(100%) N/A 
 Reported net income (loss) attributable to Coty Inc. (303.6) (1,013.2) (3,784.2) 70 % 73 % 
 
 Adjustments to reported operating income (b) 
 457.4 1,179.7 4,421.2 (61 %) (73 %) 
 Adjustments to Loss on Sale of Business 246.4 — — N/A N/A 
 Change in fair value of investment in 
 Wella Business (c) 
 (73.5) — — N/A N/A 
 Adjustments to other expense (income) (d) 
 7.2 (16.3) 11.0 >100% <(100%) 
 
 
 Adjustments to noncontrolling interest (e) 
 (11.3) (4.6) (14.7) <(100%) 69 % 
 Change in tax provision due to adjustments to reported net (loss) income attributable to Coty Inc. (170.0) (338.3) (145.7) 50 % <(100%) 
 Adjusted net (loss) income attributable to Coty Inc. $ 152.6 $ (192.7) $ 487.6 >100% <(100%) 
 
 Per Share Data 
 Adjusted weighted-average common shares 
 Basic 764.8 759.1 751.2 
 Diluted (f) 
 764.8 
 
 759.1 754.3 
 Adjusted net income attributable to Coty Inc. per common share 
 Basic $ 0.20 $ (0.25) $ 0.65 
 Diluted $ 0.20 $ (0.25) $ 0.65 

 
 
 
 

 (a) Diluted EPS is adjusted by the effect of dilutive securities, including awards under our equity compensation plans and the convertible Series B Preferred Stock. We use the if-converted method for calculating any potential dilutive effect of the convertible Series B Preferred Stock, which requires an adjustment to reverse the impact of the preferred stock dividends, including deemed dividends, of $102.3 and $6.5 in fiscal 2021 and 2020, respectively, on income applicable to common stockholders. 
 (b) See a description of adjustments under “Adjusted Operating (Loss) Income for Coty Inc.” 
 (c) In fiscal 2021, the amount represents the unrealized (gain) loss recognized for the change in fair value of the investment in Wella. 
 (d) In fiscal 2021, the Company incurred losses of $13.8 due to the write-off of deferred financing fees related to the Wella sale, primarily offset by pension curtailment gains of $6.9 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 2020, the Company had gains of $16.3 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. 
 (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. 
 (f) As of June 30 2021, 171.1 million shares of outstanding stock options and Series A/A-1 Preferred Stock with purchase or conversion rights to purchase shares of Common Stock, RSUs and Convertible Series B Preferred Stock were excluded in the computation of adjusted weighted-average diluted shares because their effect would be anti-dilutive. 
 DISCONTINUED OPERATIONS 
 Due to the sale of the Wella Business on November 30, 2020, no net revenues or operating expenses from discontinued operations were recorded after November 30, 2020. As such, our results from discontinued operations for the fiscal year ended June 30, 2021 reflect only five months of operations. 
 In fiscal 2021, net revenues from discontinued operations decreased 51.2%, to $986.3 from $2,020.1 in fiscal 2020. In fiscal 2021, net revenues from discontinued operations increased by 2.6% or $24.6 to $986.3 from $961.7 in the comparative 
 47 

 
 

 five month period in the prior year. The increase in net revenues in the comparative five month period was primarily driven by continued growth of ghd products through the e-commerce channel across all geographical regions, and reorders from the reopening and restocking of professional salons in the U.S. and Brazil, increased sales in Wella and Clairol retail channels driven by an ongoing trend of at-home self-care. That increase was partially offset by additional lockdown and restrictions on salon operations due to social distancing protocols. Operating income was $220.8 in fiscal 2021 compared to $218.2 in fiscal 2020. In fiscal 2021, operating income from discontinued operations increased to $220.8 from income of $145.8 in the comparative five month period in the prior year. The increase in operating income was primarily due to no amortization and depreciation charges in the current year (due to the accounting treatment of assets held for sale), as well as lower selling, general, and administrative expenses due to reduction in travel expenses, and lower cost of goods sold as a percentage of net revenues in the current year. 
 The loss on sale of the Wella Business was $246.4 in fiscal 2021. Factored into the loss on sale are the proceeds received from the sale of our majority interest in Wella, the book value of net assets sold and costs to sell. The book value of net assets sold was impacted by the seasonal effects on certain portions of the Wella Business during the months leading up to the sale, resulting in increases in the net assets sold. Additionally, certain legal and tax structuring matters were finalized in the final month of the closing of the transaction, resulting in a reduction to certain deferred tax assets and liabilities that were transferred at the date of sale and an increase in the tax liabilities retained by us. The loss on sale of the Wella Business also reflects certain purchase price working capital adjustments made during fiscal 2021. As we finalize post-closing adjustments to the purchase consideration for working capital and other contractually specified items over the coming several months, there may be further adjustments to the purchase price and loss on sale. The Company anticipates resolution of any further purchase price adjustments in fiscal 2022. 
 In connection with the sale of a majority stake in the Wella Business, the Company recorded a tax cost of approximately $34.3 in fiscal 2021. This cost is a combination of cash taxes incurred as well as a deferred tax expense due to the utilization of net operating loss carryforwards, capital loss carryforwards, and foreign tax credits. 
 Net loss was $137.3 in fiscal 2021 compared to net income of $87.2 in fiscal 2020. In fiscal 2021, net loss was $137.3 compared to net income of $123.2 in the comparative five month period in the prior year. The decrease was primarily due to the loss on sale of Wella Business of $246.4. 
 In fiscal 2020, net revenues from discontinued operations decreased 14.4%, to $2,020.1 from $2,360.6 in fiscal 2019. The decrease in net revenues primarily reflects lower sales due to the COVID-19 pandemic, relatively mitigated by the online sales of ghd products and Clairol in the retail hair category. Operating income was $218.2 in fiscal 2020 compared to $216.9 in fiscal 2019, due primarily to the asset impairment charges in the prior year and the lower cost of goods sold as a percentage of net revenues in the current year, offset by the higher selling, general and administrative expenses as a percentage of net revenues in the current year, mainly driven by the lower net revenue base due to the COVID-19 pandemic. 
 
 
 
 
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 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, 2021. 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. 
 
 Fiscal 2021 (a) 
 Fiscal 2020 
 
 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) 2021 2021 2020 2020 2020 2020 2019 2019 
 Condensed Consolidated Statements of Operations Data: 
 Net revenues $ 1,062.4 $ 1,027.8 $ 1,415.6 $ 1,124.1 $ 560.4 $ 1,062.5 $ 1,683.7 $ 1,411.2 
 Gross profit 641.3 636.1 831.6 659.2 224.2 601.7 1,051.4 849.3 
 Restructuring costs (26.1) — 59.6 30.1 4.7 (8.0) 128.7 4.8 
 Acquisition-and divestiture-related costs 11.1 29.7 51.7 46.3 72.0 49.3 36.0 — 
 Asset impairment charges — — — — 393.6 40.4 — — 
 Operating (loss) income 1.8 (1.4) 17.0 (66.0) (920.5) (299.5) (80.5) 64.0 
 Interest expense, net 63.5 50.3 59.2 62.1 57.4 63.8 58.4 63.1 
 
 
 Loss from continuing operations before income taxes (68.5) 10.8 (59.8) (122.3) (962.3) (363.6) (140.3) (1.4) 
 Provision (benefit) for income taxes 132.9 (19.2) (40.8) (244.9) (260.7) (59.8) (39.0) (18.2) 
 Net (loss) income from continuing operations (201.4) 30.0 (19.0) 122.6 (701.6) (303.8) (101.3) 16.8 
 Net (loss) income from discontinued operations 10.9 (17.3) (235.6) 104.7 (76.6) 39.4 84.9 39.5 
 Net income (loss) attributable to noncontrolling interests (4.6) (9.4) (2.5) 0.4 (4.8) 6.2 0.5 2.8 
 Net income attributable to redeemable noncontrolling interests 0.1 6.5 0.2 5.5 (7.1) 1.0 4.2 1.2 
 Net (loss) income attributable to Coty Inc. $ (186.0) $ 15.6 $ (252.3) $ 221.4 $ (766.3) $ (271.6) $ (21.1) $ 52.3 
 Amounts attributable to Coty Inc. common stockholders: 
 
 Convertible Series B Preferred Stock dividends (24.2) (34.1) (23.1) (20.8) (6.5) — — — 
 Net (loss) income from continuing operations attributable to common stockholders (221.1) (1.2) (39.8) 95.9 (696.2) (311.0) (106.0) 12.8 
 
 Net (loss) income attributable to common stockholders $ (210.2) $ (18.5) $ (275.4) $ 200.6 $ (772.8) $ (271.6) $ (21.1) $ 52.3 
 Per Share Data: 
 Weighted-average common shares: 
 Basic 765.4 765.4 764.6 763.9 763.3 760.8 758.1 754.2 
 Diluted (b) 
 765.4 765.4 764.6 916.7 763.3 760.8 758.1 758.9 
 Dividends declared per common share $ — $ — $ — $ — $ — $ 0.125 $ 0.125 $ 0.125 
 Net (loss) income attributable to Coty Inc. per common share: 
 Basic for Continuing Operations $ (0.29) $ — $ (0.05) $ 0.13 $ (0.91) $ (0.41) $ (0.14) $ 0.02 
 Diluted for Continuing Operations $ (0.29) $ — $ (0.05) $ 0.13 $ (0.91) $ (0.41) $ (0.14) $ 0.02 
 
 
 Basic for Coty Inc $ (0.27) $ (0.02) $ (0.36) $ 0.26 $ (1.01) $ (0.36) $ (0.03) $ 0.07 
 Diluted for Coty Inc. $ (0.27) $ (0.02) $ (0.36) $ 0.24 $ (1.01) $ (0.36) $ (0.03) $ 0.07 

 
 
 
 

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 (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. 
 (b) The outstanding stock options and Series A/A-1 Preferred Stock with purchase or conversion rights to purchase shares of Common Stock, RSUs and Convertible Series B Preferred Stock were excluded in the computation of diluted shares when their effect would be antidilutive. 
 
 FINANCIAL CONDITION 
 LIQUIDITY AND CAPITAL RESOURCES 
 Overview 
 As of June 30, 2021, we had cash and cash equivalents of $253.5 compared with $308.3 at June 30, 2020. Our cash and cash equivalents balances decreased by $54.8 during fiscal 2021 primarily as a result of cash used from operations, expenditures for acquisitions, and dividend payments to preferred shareholders, partially offset by proceeds from dispositions and proceeds from the issuance of convertible preferred stock. During fiscal 2021, we decreased our cash held outside of the U.S. by $33.3. 
 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, business structure realignment 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. 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. 
 During fiscal 2021, KKR Aggregator purchased an additional $250.0 of convertible preferred stock. In accordance with the terms of our 2018 Coty Credit Agreement (defined below), we have utilized the cash proceeds from the issuance of convertible preferred shares to KKR Aggregator in part to fund the KKW acquisition. 
 On November 30, 2020, the Company completed the sale of a majority stake in its Professional and Retail Hair business, including the Wella, Clairol, OPI and ghd brands to KKR. As part of the transaction, we received cash proceeds of $2,451.7 and retained a 40% stake in the business. Immediately after closing, Wella drew down on their third party debt for $1,282.4 and used $448.0 of such funds to make a distribution to the Company, which the Company has accounted for as a return of capital. We utilized $2,015.5 of the net proceeds to pay down our 2018 Coty Term A and B Facilities on a pro rata basis and reserved $500.0 for reinvestment in the business. 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, through a potential divestiture at a later stage. 
 In connection with the sale of the Wella Business, the Company and Wella entered into the TSA. Under the terms of the TSA, the Company will perform services for Wella in exchange for related fees. Such services include billing and collecting from Wella customers, certain logistics and warehouse services, as well as other administrative and systems support. Due to the integrated nature of the historical business and related contractual arrangements, certain receivables from customers and certain payables to vendors have Wella and Coty activity that is intermingled. Additionally, keeping in mind the temporary nature of this arrangement, we have included the related cash flows in our Cash flows from operating activities. See Note 27—Related Party Transactions for more information. 
 During the six months ended December 30, 2021, the Company had Consolidated net cash provided by operating activities of $472.7. Management estimates the impact of excluding the Wella Business on a go forward basis, excluding temporary impacts from the TSA, would be a reduction of 45% in Consolidated net cash provided by operating activities. The decrease in such cash flows are be expected to be partially offset by cost reductions as we exit our service obligations under the TSA. The impact on Cash flows from investing activities would be a roughly 10% decrease in the outflows for capital expenditures related to the Wella Business. During the second quarter of 2021, the Company’s total debt decreased from $8,400.2 to $5,391.7, a decrease of roughly 36%, principally due to the Sale of the Wella Business. Accordingly, we note that the estimated decrease in our net consolidated cash flows from the exclusion of the Wella Business, inclusive of the reduction in capital expenditures, is slightly higher than the decrease in our debt service obligation for this period. We do not expect a material adverse impact on our future cash flows from the Sale of the Wella Business. 
 
 
 
 
 
 
 
 
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 Our response to the impact of COVID-19 
 In response to the ongoing risks presented by the COVID-19 pandemic, we continue to utilize 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, initiatives to improve cash flow, hiring and travel restrictions, and the reduction of advertising and consumer promotion costs for sales channels that are closed or heavily impacted by lockdowns and social distancing. We intend to utilize any tax payment deferrals that apply to us in specific jurisdictions. We will continue to actively manage our working capital to support our liquidity needs. 
 Despite encouraging signs of recovery in the latter half of fiscal 2021 and the fourth quarter in particular, the impact and duration of COVID-19 on our business continues to be uncertain. However, as a result of the cash on hand, our amended debt covenants, and our plans to manage expenses, 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 COVID-19, we have implemented a plan to reduce our cost base by the end of fiscal 2023, with additional plans for savings in fiscal 2024. This plan includes an adaptation of our supply network, organizational changes, renegotiation of purchasing and licensing agreements, as well as a reduction of certain discretionary expenses. 
 Debt 
 See Note 15—Debt in the notes to our Consolidated Financial Statements for additional information on our debt arrangements. 
 In the fourth quarter of fiscal 2021, the we refinanced $900.0 of our dollar-denominated term loan debt and €700.0 million (approximately $833.3 as of June 30, 2021) of our euro-denominated term loan debt that were scheduled to mature in 2023 with new senior secured notes that mature in 2026. This improved our medium term liquidity. We used the net proceeds of these offerings to repay portions of the term loans outstanding under the existing credit facilities and to pay related premiums, fees and expenses thereto. As we refinance our debt in order to extend maturing obligations, the applicable interest rates have been, and are likely to continue to be, higher than previous applicable interest rates, due in large part to prevailing macroeconomic conditions and our credit ratings at the time. Despite these higher interest rates, we expect that our interest expense will be favorably impacted by lower overall debt balances as we continue to deleverage. 
 On June 27, 2019, we entered into an amendment (“2019 Amendment”) to our existing credit agreement (“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. 
 Factoring of Receivables 
 The net amount utilized under the factoring facilities was $133.6 and $123.1 as of June 30, 2021 and 2020, respectively. The aggregate amount of trade receivable invoices factored on a worldwide basis amounted to $793.8 and $839.8 in fiscal 2021 and 2020, respectively. Remaining balances due from factors amounted to $6.3 and $6.2 as of June 30, 2021 and 2020, respectively, and are included in Trade receivables, net in the Consolidated Balance Sheets. 
 Business Combinations 
 During fiscal 2021, we completed the acquisition of a 20% ownership interest in the KKW beauty business and the related collaboration agreement. Total cash paid in the transaction totaled $200.0. 
 For additional information on our prior period business combinations from fiscal years 2020 and 2019, see Note 4—Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements. 
 Dispositions 
 During fiscal 2021, we completed the previously announced strategic transaction with KKR for the sale of a majority stake in Coty’s Wella Business and received cash proceeds of $2,451.7, and retained a 40% stake in Wella. 
 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 any brands during fiscal 2019. 
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 Cash Flows 
 
 Year Ended June 30, 
 (in millions) 2021 2020 2019 
 Consolidated Statements of Cash Flows Data (a) : 
 
 Net cash provided by (used in) operating activities $ 318.7 $ (50.9) $ 639.6 
 Net cash provided by (used in) investing activities 2,441.9 (833.4) (454.0) 
 Net cash (used in) provided by financing activities (2,795.1) 877.3 (160.3) 

 
 
 
 

 (a) Balances presented herein represent the cash flows of Coty Inc. 
 Net cash provided by (used in) operating activities 
 Net cash provided by (used in) operating activities was $318.7, $(50.9) and $639.6 for fiscal 2021, 2020 and 2019, respectively. 
 The increase in operating activities cash flows of $369.6 from outflows in fiscal 2020 to proceeds in fiscal 2021 is primarily driven by improvements in our net income due to management reducing costs to offset the impact of COVID-19 on our business and better fourth quarter results than in the prior year. The increase in net cash from a decreased net loss was offset by higher outflows from changes in working capital during the current year driven by the negative impacts of COVID-19 and higher cash outflows for acquisition and divestiture-related costs. Higher fourth quarter sales in the current year have caused an increase in cash outflows, which was partially offset by current year collection of past due receivables. These outflows were offset by decreased outflows related to payables due to lower spending for advertising and consumer promotion, customer sales, and administrative expenses in fiscal 2021. Additionally, there were inflows from changes in tax receivables primarily related to prior year tax overpayments collected in the current year and lower cash paid for interest resulting from lower average debt balances during fiscal 2021. 
 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. 
 Net cash provided by (used in) investing activities 
 Net cash provided by (used in) investing activities was $2,441.9, $(833.4) and $(454.0) for fiscal 2021, 2020 and 2019, respectively. 
 The increase in cash flows from investing activities of $3,275.3 in fiscal 2021 as compared with fiscal 2020 was principally driven by the proceeds received from the sale of the Wella Business that took place on November 30, 2020. As part of the transaction, Coty received initial net cash proceeds of $2,386.2 for the sale of the discontinued operations, net of cash disposed as part of the sale, as well as a return of capital of $448.0 under the equity investment whereby Coty retained a 40% stake in Wella. Prior year investing cash flows also includes the impact of the cash used for the purchase of 51% of the equity interest of King Kylie, LLC for a net cash outflow of $592.2, and was only partially offset by $200.0 of cash used for the fiscal 2021 purchase of 20% KKW Holdings equity investment and related license agreement. Current year investing cash flows were also positively impacted by lower cash used for capital expenditures of $93.5. These current year investing cash flow increases were only slightly offset by the cash payment of $37.6 resulting from the fiscal 2021 termination of the net investment cross currency swap derivative. 
 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 
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 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. 
 Net cash (used in) provided by financing activities 
 Net cash (used in) provided by financing activities was $(2,795.1), $877.3 and $(160.3) for fiscal 2021, 2020 and 2019, respectively. 
 The decrease in cash inflows of $(3,672.4) in fiscal 2021 as compared to fiscal 2020 was primarily driven by the current year net cash repayments associated with the Company's revolving loan facility compared to net revolver borrowings in the prior year, the use of more than $2,000.0 to prepay a portion of the outstanding balances on the Company's 2018 Coty Term A and B Facilities using the proceeds from the sale of the Wella Business. Proceeds from the issuance of Senior Secured Notes during the fourth quarter of fiscal 2021 were primarily offset against additional prepayments on the Company's 2018 Coty Term A and B Facilities. Lower cash inflows from financing activities is also a result of the higher prior year cash proceeds of $724.5 compared to $227.2 in the current year from the issuance and sale of the Company's Convertible Series B Preferred Stock in connection with the Investment Agreement with KKR. Additionally, dividend payments of $24.2 on the Convertible Series B Preferred Shares also contributed to a decrease in financing cash flows. These financing related decreases year over year were partially offset by lower dividend payments of $195.4 due to the suspension of common stock dividends payments that began in the fourth quarter of fiscal 2020. Further, the current year experienced a positive impact from the prior year payment of $45.0 to purchase the remaining mandatorily redeemable noncontrolling interest in our Southeastern Asian subsidiary. 
 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 common stock 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. 
 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 susp ended the payment of dividends, in accordance with our 2018 Coty Credit Agreement, as amended. As we focus on preserving cash, we have continued to suspend the payment of Common Stock dividends. 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, or by increasing the amount of accrued dividends on Convertible Series B Preferred Stock, or any combination thereof, at the sole discretion of the Company. After the expiration of applicable restrictions under the 2018 Coty Credit Agreement, as amended, we began to pay dividends on the Convertible Series B Preferred Stock in cash for the period ending June 30, 2021, and we expect to continue to pay such dividends in cash on a quarterly basis, subject to the declaration thereof by our Board of Directors. Dividends accrued on the Convertible Series B Preferred Stock before April 1, 2021 have not been paid in cash and any decision to do so will be at the discretion of our Board. The terms of the Convertible Series B Preferred Stock restrict our ability to declare cash dividends on our common stock until all accrued dividends on the Convertible Series B Preferred Stock have been declared and paid in cash. The Board of Directors declared and paid a dividend on Convertible Series B Preferred Stock, totaling $24.2, for the quarter ended June 30, 2021. 
 For additional information on our dividends and dividend policy, respectively, see Note 23—Equity and Convertible Preferred Stock in the notes to our Consolidated Financial Statements and Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy”. 
 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. 
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 Contractual Obligations and Commitments 
 Our principal contractual obligations and commitments are presented below as of June 30, 2021. 
 
 (in millions) Total Payments Due in Fiscal Thereafter 
 2022 2023 2024 2025 2026 
 Long-term debt obligations $ 5,481.3 $ 24.1 $ 1,462.8 $ 24.1 $ 1,389.4 $ 2,580.9 $ — 
 Interest on long-term debt obligations (a) 
 1,131.8 204.8 222.2 230.2 236.0 238.6 — 
 Operating lease obligations 390.0 87.5 68.5 54.4 42.2 34.9 102.5 
 License agreements: (b) 
 
 Royalty payments 695.8 134.6 91.3 80.6 63.9 56.9 268.5 
 Advertising and promotional spend obligations 17.9 0.6 1.2 1.2 1.8 2.4 10.7 
 Other contractual obligations (c) 
 706.4 617.8 46.4 28.9 5.3 8.0 — 
 Other long-term obligations: 
 Pension obligations (mandated) (d) 
 18.0 4.0 3.4 3.5 3.5 3.6 — 
 Total $ 8,441.2 $ 1,073.4 $ 1,895.8 $ 422.9 $ 1,742.1 $ 2,925.3 $ 381.7 

 
 
 
 

 (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 $29.8 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 $181.2 as of June 30, 2021, 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 $84.1 of RNCI which is reflected in Redeemable noncontrolling interest in the Consolidated Balance Sheet as of June 30, 2021 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 $1,036.3 of preferred stock, which is reflected in Convertible Series B Preferred Stock in the Consolidated Balance Sheet as of June 30, 2021 related to the issuance of 1,000,000 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. 
 Contingencies 
 From time to time, our Brazilian subsidiaries receive tax assessments from local, state, and federal tax authorities in Brazil. See Note 26—Legal and Other Contingencies for more details on these tax assessments. As of June 30, 2021, we are in the early stages of administrative action and expect the judicial process in Brazil to take a number of years to conclude. 
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 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. In July 2021, the Company entered into foreign exchange forward contracts to hedge up to 80% of our euro denominated external debt as part of management's strategy to minimize the impact of currency movements on those debt instruments. We recorded foreign currency losses of $7.8, $18.0 and $2.7 in fiscal 2021, 2020 and 2019, 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 $(6.8), $(14.8) and $7.6 in fiscal 2021, 2020 and 2019, 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, 2021, 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 $(0.8) 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. 
 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 2021 would decrease/increase by $19.2. 
 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 $5.1 as of June 30, 2021. Accordingly, management believes risk of material loss under these hedging contracts is remote. 
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 Inflation Risk 
 To date, we do not believe inflation has had a material effect on our business, financial condition or results of operations. Based on current market conditions, we expect to largely offset the expected inflation in input costs and transportation costs through a combination of gross margin levers and selective price increases. 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 $15.0 and $6.0 and bank guarantees of $31.2 and $45.7 as of June 30, 2021 and 2020, 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 fair value of equity investments, 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 represented 2%, 3% and 2% of gross revenue after customer discounts and allowances in fiscal 2021, 2020 and 2019, respectively. Trade spending activities recorded as a reduction to gross revenue after customer discounts and allowances represent 10%, 11%, and 9% in fiscal 2021, 2020 and 2019, respectively. 
 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. 
 Equity Investments 
 The Company elected the fair value option to account for its investment in the Wella Business to align with the Company’s strategy for this investment. The fair value is updated on a quarterly basis. The investments are classified within Level 3 in the fair value hierarchy because the Company estimates the fair value of the investments using a combination of the income and market approaches, when applicable. Changes in the fair value of equity investments under the fair value option are recorded in Other (income) expense, net within the Consolidated Statements of Operations (see Note 13—Equity Investments). 
 Some of the inherent estimates and assumptions used in determining fair value of the Wella Business 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 equity investment valuation performed during our 2021 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 
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 value of the Wella Business, it is possible changes could occur. As for the Wella Business, if in future years, the actual results are not consistent with the Company’s estimates and assumptions used to calculate fair value, the Company may be required to recognize additional adjustments. 
 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. 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 in fiscal 2021. During fiscal years 2020 and 2019, we recorded total goodwill impairments of $105.0 and $3,037.5, respectively. 
 Based on the annual impairment tested performed at May 1, 2021, we determined that the fair value of each of the reporting units exceeded their respective carrying values at that date by approximately 54.4%, 120.1% and 60.1% relating to the Americas, Asia Pacific and EMEA reporting units, respectively. To determine the fair value of our reporting units, we have used annual revenue growth rates ranging from 1.8%-15.4%, 4.3%-25.4% and 1.3%-16.0% for the Americas, Asia Pacific and EMEA reporting units, respectively, and a discount rate of 8.00%. The revenue growth rates are expected to be higher than historical growth rates for the immediate periods after fiscal year 2021 due to the expected recovery from the COVID-19 global pandemic. 
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 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 2021 fiscal year will prove to be accurate predictions of the future. While the Company believes it has made reasonable estimates and assumptions to calculate the fair values of the reporting units, it is possible changes could occur. As for all the Company’s reporting units, if in future years, the reporting unit’s actual results are not consistent with the Company’s estimates and assumptions used to calculate fair value, the Company may be required to recognize material impairments to goodwill. The Company will continue to monitor its reporting units for any triggering events or other signs of impairment. The Company may be required to perform additional impairment testing based on changes in the economic environment, disruptions to the Company’s business, significant declines in operating results of the Company’s reporting units, further sustained deterioration of the Company’s market capitalization, and other factors, which could result in impairment charges in the future. Although management cannot predict when improvements in macroeconomic conditions will occur, if consumer confidence and consumer spending decline significantly in the future or if commercial and industrial economic activity or the market capitalization deteriorates significantly from current levels, it is reasonably likely the Company will be required to record impairment charges in the future. 
 Other Intangible Assets 
 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 trademark. 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 $1,018.7 as of June 30, 2021, and is comprised of trademarks for the following brands: CoverGirl of $327.4, Max Factor of $169.7, Sally Hansen of $164.6, Philosophy of $135.7, Bourjois of $51.6 and other trademarks totaling $169.7. 
 On May 1, 2021, we performed our annual impairment testing of indefinite-lived other intangible assets and determined that no adjustments to carrying values were required. During fiscal years 2020 and 2019, we recorded total impairments on our indefinite-lived other intangible assets of $329.0 and $389.8, respectively. 
 As of May 1, 2021, we determined that the fair value of our Max Factor trademark exceeded its carrying value by approximately 3.3% using annual revenue growth rates ranging from 1.4%-22.6% and a discount rate of 8.5%. The revenue growth rates are expected to be higher than historical growth rates for the immediate periods after fiscal year 2021 due to the expected recovery from the COVID-19 global pandemic. The fair value of the Max Factor trademark would fall below its carrying value if the average annual revenue growth rate decreased by approximately 50 basis points or the discount rate increased by 25 basis points. 
 The fair values of the remaining indefinite-lived trademarks exceeded their carrying values by amounts ranging from 27% to 82%. 
 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 2021 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 
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 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 years 2021, 2020 and 2019, we recorded asset impairment charges of $5.2, $16.8 and $27.8, respectively, to Property and equipment and $0.6, $7.8 and $0.0, respectively to Operating lease right-of-use asset, primarily relating to the abandonment of equipment or leases 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 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. 
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 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 50 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, the Company is permanently reinvested. A determination of the unrecognized deferred taxes related to these components is not practicable.
COTY INC. 10-K

Item 7. Management’s Discussion and Analysis
