What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-08-22 compared with 2022-08-25 · 287 added, 357 removed, 648 unchanged (50% of the section changed)

10 unchanged sentences

All dollar amounts in the following discussion are in millions of United States (“U.S.”) dollars, unless otherwise indicated.

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

We serve consumers around the world, selling prestige and mass market products in approximately 125 countries and territories.

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.

We continue to make progress on our strategic priorities, including stabilizing and growing 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 Direct-to-Consumer (“DTC”) capabilities, expanding our presence in China and travel retail through Prestige products and select Consumer Beauty brands, and establishing Coty as an industry leader in sustainability.

Our brands empower people to express themselves freely, creating their own visions of beauty;

and we are committed to making a positive impact on the planet.

Over the past few years we have been implementing a comprehensive transformation agenda (the “Transformation Plan”), As we execute this multi-year transformation, we have been focusing on our core go-to-market competencies, simplifying our capital structure and deleveraging our balance sheet.

As we transform the Company, we continue to make progress on our strategic priorities, including stabilizing and growing 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.

In fiscal 2022, we completed certain transactions to simplify our capital structure resulting in annual dividend savings.

We also received shareholder distributions from our equity investment in Wella, which we used to repay debt.

We expect that our reported net revenues for fiscal year 2023 will grow in the mid-single digits, excluding the impact of foreign exchange.

We remain attentive to economic and geopolitical conditions that may materially impact our business and the implementation of our strategic priorities.

We remain attentive to economic and geopolitical conditions that may materially impact our business.

We continue to explore and implement risk mitigation strategies in the face of these unfolding conditions and remain agile in adapting to changing circumstances.

Such conditions – whether resulting from the Russia-Ukraine War, inflation, the COVID-19 pandemic or any other issues – have or may have global implications which may impact the future performance of our business in unpredictable ways.

In addition, supply chain constraints may impact the availability of raw materials and services (such as transportation) that we need to manufacture and distribute our products which may negatively impact our ability to meet customer demands timely, thereby impacting future profitability.

Russia-Ukraine War

In February of 2022, Russia invaded Ukraine and is still engaged in active armed conflict against the country.

As a result, governments of the United States, the European Union, and other countries have enacted additional sanctions against Russia and Russian interests.

Our operations in Russia, including local Travel Retail, accounted for approximately 3% of consolidated net sales in fiscal 2021.

We do not operate any stores, sales counters, e-commerce sites or industrial activities in Russia.

We do not have any operations in Ukraine.

During April 2022, we announced our Board's decision to wind down the operations of our Russian subsidiary as a result of the war and the related sanctions.

We plan to liquidate our remaining inventory in Russia, in accordance with applicable sanctions, over the next six months as part of the wind down.

During fiscal 2022, we recognized total pre-tax charges of $83.6 associated with our exit of Russia, which primarily relate to the net realizable value of assets associated with the Russian business.

These charges consisted of:

$45.5 in Selling, general and administrative expenses, primarily related to the write-down of working capital, long-term assets, as well as contract termination charges, contingent liabilities and legal costs;

$31.4 in Asset impairment charges related to the impairment of indefinite-lived intangibles;

$6.3 in Restructuring costs related to employee severances;

and $0.4 in Cost of sales related to inventory write-downs.

We incurred $24.1 of income tax charges associated with our decision to exit Russia, in fiscal 2022.

We anticipate incurring up to $10.0 of additional costs through completion of the wind down, and future net cash costs of $40.0 to 45.0 which will be funded by our Russian subsidiary.

Additionally, management anticipates derecognizing the

cumulative translation adjustment balance pertaining to the Russian subsidiary.

The wind down process of the Russian subsidiary is at an early stage and the amount of future costs, including cash costs, will be subject to various factors, such as additional government regulation and the resolution of legal contingencies.

We will continue to monitor events related to the Russia-Ukraine War and any impacts to our global business resulting from increased inflation, supply chain constraints, foreign currency risk and other factors.

However, future impacts to our net sales, earnings and cash flows resulting from negative economic or geopolitical events in neighboring and other territories in which we operate, is currently unknown.

Inflationary trends in most markets and global supply chain challenges may negatively affect our sales and operating performance.

We experienced the impact of greater inflation on material, logistical and other costs during the current fiscal year.

We currently anticipate the impact of inflation in certain markets will be increasing as we move into fiscal 2023.

Such conditions, including risks and uncertainties associated with the economy in China and the broader global economy, global inflation, and resulting impacts from the conflict between Russia and Ukraine, have or may have global implications that may impact the future performance and growth of our business in unpredictable ways.

Our operations outside of the United States account for a significant portion of our revenues and expenses.

As a result, a substantial portion of our total revenue and expenses are denominated in currencies other than the U.S.

Exchange rates between certain of these currencies and the U.S.

dollar have fluctuated significantly and may continue to do so in the future.

Our revenues grew across both divisions in fiscal 2023 and benefited from price increases across our product portfolio despite stable year-over-year sales volumes and market share declines across certain major product categories.

Fluctuations in foreign exchange rates may have a significant impact our operating results.

During fiscal 2023, fluctuations in the U.S.

dollar relative to certain other foreign currencies – such as the euro and British pound – reduced our reported revenue and expenses, such as those expenses principally related to cost of sales, fixed costs, and advertising and consumer promotional costs.

Refer to Part I, Item 1A under the heading “Risk Factors” for a discussion of these factors and other risks.

We expect that our net revenue for fiscal year 2024 will grow in the mid-to-high single digits versus the prior year, excluding the impact of foreign exchange and the early termination of the Lacoste fragrance license.

Global Supply Chain Challenges

We experienced global supply chain challenges resulting from industry-wide component shortages and transportation delays.

These challenges have negatively impacted order fill rates across our product categories, particularly prestige fragrances where there has been demand growth, especially in North America and certain European countries.

In the second half of fiscal 2023 we saw sequential quarterly improvements in our order fill rates on a company-wide basis and continue to take steps to improve order fill rates and mitigate the impact of these constraints, including working closely with our suppliers to ensure the availability of components such as glass and metal, and building our inventory levels to meet demand.

We expect to sustain the progress made this fiscal year, into the first quarter of fiscal 2024, or make incremental improvements to our order fill rates on a divisional and company-wide basis.

Inflationary trends in certain markets and global supply chain challenges may negatively affect our sales and operating performance.

We experienced the impact of inflation on material, logistical and other costs during fiscal 2023.

We will continue to implement mitigation strategies and price increases to offset these trends;

however, such measures may not fully offset the impact to our operating performance.

COVID-19 Impacts Update

An increase of COVID-19 related cases in certain parts of China resulted in the re-imposition of widespread lockdowns and restrictions in mid-March 2022.

Although on a full year basis, our operating performance in China showed improvement compared to the prior fiscal year, the impact of these lockdowns did negatively impact our results in the fourth quarter.

We believe that these lockdowns may continue to have a negative impact on our operations in China, due to reduced customer traffic and supply chain constraints.

Future impacts to our sales and operating performance, due to the lockdowns in China or containment measures that may be deployed in other areas or countries are difficult to predict due to the potential high level of uncertainty regarding their nature and duration.

Transformation Plan Update

We continue to implement our 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 plan is anticipated to be completed by the end of fiscal 2023, with additional plans for savings in fiscal 2024.

Other Matters

During the first quarter of fiscal 2022, our CODM finalized the Company's organizational structure and how performance will be assessed, and we realigned our reportable segments to a principally product category-based structure, comprised of a Prestige business segment and a Consumer Beauty business segment beginning in the first quarter of fiscal 2022.

Russia-Ukraine War

We recognized total pre-tax gains of $17.0 in fiscal year 2023 related to our market exit of Russia primarily related to a bad debt accrual release due to better than expected collections.

We also recognized $0.4 of income tax benefits.

We anticipate that we will incur an immaterial amount of additional costs through completion of the wind down.

Additionally, we anticipate derecognizing the cumulative translation adjustment balance pertaining to the Russian subsidiary.

We have substantially completed our commercial activities in Russia.

However, we anticipate that the process related to the liquidation of the Russian legal entity will take an extended period of time.

Selected Financial Data

(in millions, except per share data) Year Ended June 30,

2022 2021 2020 (a)

Condensed Consolidated Statements of Operations Data:

2023 2022 2021

Net revenues $ 5,554.1 $ 5,304.4 $ 4,629.9

28 unchanged sentences

Diluted 886.5 834.1 764.8

Dividends declared per common share $ — $ — $ 0.38

(in millions) Year Ended June 30,

2022 2021 2020 (a)

2023 2022 2021

Consolidated Statements of Cash Flows Data:

Net cash provided by (used in) operating activities $ 726.6 $ 318.7 $ (50.9)

Net cash provided by (used in) investing activities 269.7 2,441.9 (833.4)

Net cash (used in) provided by financing activities (1,034.0) (2,795.1) 877.3

Net cash provided by operating activities $ 625.7 $ 726.6 $ 318.7

Net cash (used in) provided by investing activities (118.2) 269.7 2,441.9

Net cash (used in) financing activities (469.3) (1,034.0) (2,795.1)

(in millions) As of June 30,

2022 2021 2020 (a)

2023 2022 2021

Consolidated Balance Sheets Data:

4 unchanged sentences

stockholders’ equity 3,811.1 3,154.5 2,860.7

(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.

Non-GAAP Financial Measures

45 unchanged sentences

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

• Loss/(Gain) on divestitures, Gain on sale of brand assets and Gains on sale of real estate:

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

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

• Gain on sale and termination of brand assets:

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

• Costs related to market exit:

2 unchanged sentences

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

• Gains on sale of real estate:

We have excluded the impact of gains on sale of real estate as such amounts are inconsistent in amount and frequency and are significantly impacted by the size of the sale.

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

• Stock-based compensation:

7 unchanged sentences

• Other (income) expense:

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 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.

We have 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.

7 unchanged sentences

Additionally, adjustments are made for the tax impact of any intra-entity transfer of assets and liabilities.

Also, in connection with our decision to wind down our operations in Russia, we have adjusted recognized tax charges related to certain direct incremental impacts of our decision.

• Deemed Preferred Stock Dividends:

We have excluded preferred stock deemed dividends related to the First Exchange and the Second Exchange (as disclosed and defined in Note 13—Equity Investments in our Annual Report on Form 10-K for fiscal 2023) from our calculation of adjusted net income attributable to Coty Inc.

These deemed dividends are nonmonetary in nature, the transactions were entered into to simplify our capital structure and do not reflect our underlying ongoing business.

Management believes that this adjustment helps investors and others compare and analyze our performance from period to period.

Constant Currency

8 unchanged sentences

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.

Basis of Presentation of Acquisitions, Divestitures, Terminations and Market Exit from Russia

During the period when we complete an acquisition, divestiture, early license termination, or market exit, 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.

Period of acquisition, divestiture, or termination Acquisition, divestiture, or termination Impact on basis of 2022/2021 presentation Impact on basis of 2021/2020 presentation

First quarter fiscal 2020 Divestiture:

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

n/a First quarter fiscal year 2020 net revenue excluded.

Third quarter fiscal 2020 Acquisition:

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

n/a First and second quarter fiscal year 2021 net revenue 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 and 2020 are presented as discontinued operations.

(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 or markets exited in the prior year period, to maintain comparable financial results with the current fiscal year period.

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

Period of acquisition, divestiture, termination, or market exit Acquisition, divestiture, termination, or market exit Impact on basis of 2023/2022 presentation Impact on basis of 2022/2021 presentation

Third quarter fiscal 2023 Market Exit from Russia Third and fourth quarters fiscal 2022 net revenue excluded.

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

Financial results for the Wella Business for fiscal year 2021 are presented as discontinued operations.

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

In fiscal 2023, net revenues increased 5%, or $249.7, to $5,554.1 from $5,304.4 in fiscal 2022.

Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $276.8 to $5,554.1 from $5,277.3, reflecting a positive price and mix impact of 11% partially offset by a negative foreign currency exchange translation impact of 5%.

Net revenues grew across both our segments.

The growth in our Consumer Beauty segment was due to positive performance across the body care, skincare, and color cosmetics categories.

Growth in our Prestige segment was primarily due to the positive performance in the prestige fragrance category due to the continued success of fragrance brands such as Burberry, Calvin Klein, Hugo Boss, Gucci, and Marc Jacobs .

Although, the prestige make up category was negatively impacted by COVID-19 related to the lockdowns in China in the earlier portion of the fiscal period, this category began to show recovery in the last quarter of the fiscal period.

The overall increase in net revenues reflects the successful implementation of global price increases across all product categories, our product premiumization strategy, and positive overall market trends.

Net revenues also grew across all of our major geographic regions led by growth in the U.S.

Additionally, there was an increase in travel retail sales in all major regions due to increased leisure travel in the period.

The overall increase in net revenues was partially offset by the negative impact of foreign exchange headwinds on net revenues, primarily affecting the euro and British pound.

Our ongoing exit from Russia impacted the overall change in our reported net revenues.

Considering total fiscal year-to-date net revenues from Russia in both the current and prior year periods, the net negative impact on our fiscal year-to-date reported net revenue was approximately 1% on a consolidated basis, 1% for our Prestige division, and 1% for our Consumer Beauty division.

In fiscal 2022, net revenues increased 15%, or $674.5, to $5,304.4 from $4,629.9 in fiscal 2021, reflecting a positive price and mix impact of 10%, an increase in unit volume of 6%, partially offset by a negative foreign currency exchange translation impact of 1%.

9 unchanged sentences

China also contributed to net revenue increase despite a downturn in economic conditions due to increased COVID-19 restrictions impacting performance in the second half of the fiscal year.

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 Divestitures, total net revenues in fiscal 2021 decreased 2%, or $82.0, to $4,580.3 from $4,662.3 in fiscal 2020, reflecting a decrease in unit volume of 3%, and a negative price and mix impact of 1%, partially offset by a positive foreign currency exchange translation impact of 2%.

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.

Year Ended June 30, Change %

3 unchanged sentences

Total $ 5,554.1 $ 5,304.4 $ 4,629.9 5 % 15 %

In fiscal 2023, net revenues in the Prestige segment increased 5%, or $152.6 to $3,420.5 from $3,267.9 in fiscal 2022.

Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $169.0 to $3,420.5 from $3,251.5, reflecting a positive price and mix impact of 11% partially offset by a negative foreign currency exchange translation impact of 5%.

The increase in net revenues primarily reflects:

(i) the continued success and growth of prestige fragrances, specifically Burberry Hero, Burberry Her, Calvin Klein, Hugo Boss Boss Bottled, Gucci Flora, and Marc Jacobs Daisy ;

(ii) the positive pricing impact as a result of global price increases and in line with the overall premiumization strategy;

(iii) growth in travel retail net revenues in all major regions due to increased leisure travel compared to the prior year;

(iv) growth in the U.S due to positive market trends and innovation in the prestige fragrance brands.

These increases were partially offset by:

(i) lower net revenues in the Prestige makeup category impacted by a decline in Gucci makeup travel retail sales in the Asia Pacific region as a result of slow recovery from the lockdowns in China;

(ii) lower net revenues for philosophy due to less innovation and repositioning of the brand.

In fiscal 2022, net revenues in the Prestige segment increased 20%, or $547.1, to $3,267.9 from $2,720.8 in fiscal 2021, reflecting an increase in unit volume of 18%, a positive price and mix impact of 4%, partially offset by a negative foreign currency exchange translation impact of 2%.

12 unchanged sentences

net revenues for improvements in returns trends for philosophy in the prior year.

In fiscal 2021, net revenues in the Prestige segment increased 4%, or $114.2, to $2,720.8 from $2,606.6 in fiscal 2020.

Excluding the impact of the Acquisition, net revenues in the Prestige segment increased 2% or $64.6, to $2,671.2 in fiscal 2021 from $2,606.6 in fiscal 2020, reflecting a positive price and mix impact of 3% and a positive foreign currency exchange translation impact of 3%, partially offset by a decrease in unit volume of 4%.

The increase in net revenues primarily reflects:

(i) increased net revenues due to the recovery from the COVID-19 pandemic, with the highest impact 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 launches of Marc Jacobs Perfect, Gucci Guilty EDP and , Hugo Boss Alive as well as improved performance in the last fiscal quarter due to new brand positioning and continued strength of Marc Jacobs Daisy ;

(iii) an increase in net revenue from continued success of Gucci Make-up and Kylie Skin;

(iv) 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;

(v) an increase in net revenues as a result of growth in e-commerce sales across brands due to change in consumer shopping preferences, as well as increased holiday program specifically for philosophy .

These increases were partially offset by:

(i) lower net revenues due to the COVID-19 pandemic, primarily during the first nine months of the fiscal year as a result of reduced customer traffic in retail malls, reduced travel due to continued restrictions in airports and other travel hubs which impacted travel retail channels, and lower launch activity compared to the comparative period;

(ii) lower net revenues due to declines in Calvin Klein, Lacoste, Tiffany & Co .

and Davidoff mainly as a result of a decrease travel activity;

(iii) lower net revenues due to strategic initiatives to reduce sales through lower priced channels;

(iv) lower net revenues due to reduced holiday exposure, and promotional activity in the first nine months of the fiscal year compared to the prior period;

(v) 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.

Consumer Beauty

In fiscal 2023, net revenues in the Consumer Beauty segment increased 5%, or $97.1, to $2,133.6 from $2,036.5 in fiscal 2022.

Excluding net revenue from the second half of the prior period from Russia, net revenues increased 6% or $107.8 to $2,133.6 from $2,025.8, reflecting a positive price and mix impact of 10% partially offset by a negative foreign currency exchange translation impact of 4%.

The increase in net revenues primarily reflects:

(i) an increase in net revenues from color cosmetics brands, including CoverGirl due to positive pricing impact and higher sell out resulting in lower returns and markdowns in the U.S., and Rimmel Manhattan due to brand innovation and positive price and mix impact in major European markets, such as Germany, Austria and Switzerland, and Australia;

(ii) an increase in net revenues from the skin and body care brands in Brazil due to strong category momentum, and positive product mix impact, as well as due to innovation in brands such as Monange and market share gains for Paixao ;

(iii) due to price increases across the Consumer Beauty product portfolio.

These increases were partially offset by lower net revenues from the mass fragrance category, primarily due to negative foreign currency exchange translation impacts.

In fiscal 2022, net revenues in the Consumer Beauty segment increased 7%, or $127.4, to $2,036.5 from $1,909.1 in fiscal 2021, reflecting an increase in unit volume of 5%, and a positive price and mix impact of 3%, partially offset by a negative foreign currency exchange translation impact of 1%.

4 unchanged sentences

These actions involved selectively reducing the level of incentives and price reductions on certain products, limiting the frequency and number of shelf resets in the period, and better focusing on planning for new products.

These increases were partially offset by lower net revenues from Beyoncé and Stetson as a result of license expiration.

These increase s were partially offset by lower net revenues from Beyoncé and Stetson as a result of license expiration.

Also, the exit from the Russian market negatively impacted brands such as Bourjois , which experienced a decline in net revenue, as well as Max Factor .

1 unchanged sentence

This resulted from the closure of nail salons in the prior year due to COVID restrictions which increased demand for at-home nail care, positively impacting the nail category and the brand’s net revenue in fiscal 2021.

In fiscal 2021, net revenues in the Consumer Beauty segment decreased 10%, or $202.1, to $1,909.1 from $2,111.2 in fiscal 2020.

Excluding the impact of the Divestiture, net revenues in the Consumer Beauty segment decreased 7%, or $146.5, to $1,909.1 from $2,055.6 reflecting a negative price and mix impact of 4%, and a decrease in unit volume of 3%.

The decrease in net revenues primarily reflects:

(i) lower net revenues due to negative brand and category trends for mass color cosmetics, in particular lip and face products, primarily impacting Max Factor, CoverGirl and Rimmel related to lower market consumption mainly driven by consumer behavior changes mainly attributable to the COVID-19 pandemic;

(ii) 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;

(iii) lower net revenue due to a decline in Max Factor as a result of a strategic decision to exit department stores in China;

(iv) lower net revenues due to strategic initiatives to reduce sales through lower priced channels.

These decreases were partially offset by:

(i) increased net revenues due to the recovery from the COVID-19 pandemic, 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 improved performance in the last fiscal quarter due to new brand positioning and increased support for CoverGirl ;

(iii) an increase in net revenues from Sally Hansen products, due to increased demand for at-home manicures and creative Sally Hansen collections.

Sally Hansen continued to see incremental net revenues from the launch of Sally Hansen Good.Kind.Pure and Sally Hansen Miracle Gel in prior periods.

COST OF SA LES

1 unchanged sentence

Cost of sales as a percentage of net revenues decreased to 36.1% in fiscal 2023 from 36.5% in fiscal 2022 resulting in a gross margin percentage increase of approximately 40 basis points, primarily reflecting:

(i) approximately 30 basis points primarily related to manufacturing and material costs due to productivity improvements;

(ii) approximately 20 basis points related to designer license fees due to favorable royalty related activity;

(iii) approximately 10 basis points related to excess and obsolescence costs.

These increases were partially offset by approximately 20 basis points in increased freight costs.

The above includes the negative impact of inflation (principally for material costs) and the positive impact from pricing, estimated at approximately 200 basis points each.

In fisca l 2022, cost of sales increased 4%, or $73.5, to $1,935.2 from $1,861.7 in fiscal 2021.

Cost of sales as a percentage of net revenues decreased to 36.5% in fiscal 2022 from 40.2% in fiscal 2021 resulting in a gross margin percentage increase of approximately 370 basis points primarily reflecting:

(i) approximately 130 basis points related to positive product and category mix associated with increased contribution from higher margin Prestige products, reduced sales of products through lower priced channels, as well as price increases within our product portfolio;

5 unchanged sentences

Included in the above is the negative impact of inflation on material, freight, and energy costs of approximately 120 basis points.

In fisca l 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;

(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;

(ii) approximately 20 basis points related to negative gross margin impact due to an unfavorable mix of prestige brands with higher minimum royalty rates.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In fiscal 2023, selling, general and administrative expenses decreased 2%, or $63.0, to $2,818.3 from $2,881.3 in fiscal 2022.

Selling, general and administrative expenses as a percentage of net revenues decreased to 50.7% in fiscal 2023 from 54.3% in fiscal 2022, or approximately 360 basis points.

This decrease was primarily due to:

(i) 130 basis points in stock-based compensation cost primarily related to a reduction in expense recognized in connection with a prior year's grant made to the CEO;

(ii) 100 basis points due to a decrease in advertising and consumer promotional costs as a percentage of net revenues primarily related to a reduction of working media in the fiscal period;

(iii) 100 basis points due to a decrease in administrative costs as a percentage of net revenues primarily due to lower depreciation expense related to fully depreciated IT equipment and lower consulting fees;

(iv) 70 basis points due to a decrease in bad debt expense as a percentage of net revenues;

(v) 40 basis points due to a decrease in logistics costs as a percentage of net revenues.

These decreases were partially offset by the following increases:

(i) 60 basis points due to unfavorable transactional impact from our exposure to foreign currency exchange fluctuations;

(ii) 30 basis points due to gains on sale of real estate recorded in the comparative period, which represented a greater percentage of net revenues compared to the net gains recorded in the current period, which primarily related to the early termination of the Lacoste license.

In fiscal 2022, selling, general and administrative expenses increased 22%, or $518.1, to $2,881.3 from $2,363.2 in fiscal 2021.

10 unchanged sentences

(iv) 20 basis points related to sale of rights associated with certain brands distributed by a subsidiary in South Africa.

In fiscal 2021, selling, general and administrative expenses decreased 24%, or $756.8, to $2,363.2 from $3,120.0 in fiscal 2020.

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 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;

(v) 30 basis points in stock compensation related to a modification of the former CEO's equity awards.

OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS

In fiscal 2023, operating income from continuing operations was $543.7 compared to a income of $240.9 in fiscal 2022.

Operating income as a percentage of net revenues, improved to 9.8% in fiscal 2023 as compared to Operating income as a percentage of net revenues of 4.5% in fiscal 2022.

The improved operating margin is largely driven by lower fixed costs as a percentage of net revenues, lower stock-based compensation as a percentage of net revenues, lower advertising and consumer promotional spending as a percentage of net revenues, and an asset impairment charge related to the impairment of indefinite-lived intangibles recorded in the prior period.

In fiscal 2022, operating income from continuing operations was $240.9 compared to a loss of $48.6 in fiscal 2021.

1 unchanged sentence

The improved operating margin is largely driven by lower cost of goods sold as a percentage of net revenues, a reduction in fixed costs, decrease in acquisition and divestiture related expenses, gains recognized on sale of real estate, lower amortization expense, decrease in restructuring expense, partially offset by an increase in advertising and consumer promotional costs, higher stock-based compensation and asset impairment charges related to the impairment of indefinite-lived intangibles.

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.

Operating Income (Loss) by Segment

7 unchanged sentences

In fiscal 2023, operating income for Prestige was $483.7 compared to income of $367.2 in fiscal 2022.

Operating margin improved to 14.1% of net revenues in fiscal 2023 as compared to 11.2% in fiscal 2022, driven primarily by lower fixed costs as a percentage of net revenues, lower cost of goods sold as a percentage of net revenues and lower amortization expense as a percentage of net revenues.

In fiscal 2022, operating income for Prestige was $367.2 compared to income of $158.1 in fiscal 2021.

Operating margin improved to 11.2% of net revenues in fiscal 2022 as compared to 5.8% in fiscal 2021, driven primarily by higher sales volume, lower cost of goods sold as a percentage of net revenues, lower fixed costs as a percentage of net revenues and a decrease in amortization expense, partially offset by an increase in advertising and consumer promotional costs.

In fiscal 2021, operating income for Prestige was $158.1 compared to a loss of $279.2 in fiscal 2020.

Operating margin improved to 5.8% of net revenues in fiscal 2021 as compared to (10.7)% in fiscal 2020, primarily reflecting a significant decrease in advertising and promotional spend, higher asset impairment charges in the prior year, a reduction in fixed costs, lower cost of goods sold as a percentage of net revenues, partially offset by higher amortization expense.

Consumer Beauty

In fiscal 2022, operating income for Consumer Beauty was $9.5 compared to a income of $26.9 in fiscal 2021.

In fiscal 2023, operating income for Consumer Beauty was $63.3 compared to income of $9.5 in fiscal 2022.

Operating margin improved to 3.0% of net revenues in fiscal 2023 as compared to 0.5% in fiscal 2022, driven by lower advertising and consumer promotional costs as a percentage of net revenues, an impairment charge related to the impairment of indefinite-lived intangibles recorded in the prior period, and lower fixed costs as a percentage of net revenues, partially offset by an increase in cost of sales as a percentage of net revenues.

In fiscal 2022, operating income for Consumer Beauty was $9.5 compared to income of $26.9 in fiscal 2021.

Operating margin worsened to 0.5% of net revenues in fiscal 2022 as compared to 1.4% in fiscal 2021, driven by an increase in advertising and consumer promotional costs and asset impairment charges related to the impairment of indefinite-lived intangibles, partially offset by higher sales volume, a reduction in fixed costs, lower cost of goods sold as a percentage of net revenues, and a decrease in amortization expense.

In fiscal 2021, operating income for Consumer Beauty was $26.9 compared to a loss of $531.3 in fiscal 2020.

Operating margin improved to 1.4% of net revenues in fiscal 2021 as compared to a loss of (25.2)% in fiscal 2020, primarily reflecting higher asset impairment charges in the prior year, a decrease in advertising and consumer promotional costs, a reduction in fixed costs, and lower cost of goods sold.

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

1 unchanged sentence

Operating loss for Corporate was $3.3, $135.8 and $233.6 in fiscal 2023, 2022 and 2021, respectively, as described under “Adjusted Operating Income” below.

The operating loss of $3.3 in fiscal 2023 declined in comparison to the prior year primarily due to lower stock based compensation, a gain recognized due to the early termination of the Lacoste fragrance license in the current period, and a reduction in acquisition and divestiture related costs, partially offset by a gain on sale of real estate recognized in the comparative period.

The operating loss of $135.8 in fiscal 2022 includes stock-based compensation, costs related to the Russia market exit, restructuring and other business realignment costs, acquisition and divestiture related costs, partially offset by a gains on the sale of real estate.

The operating loss of $233.6 in fiscal 2021 includes acquisition and divestiture related costs, restructuring and other business realignment costs, and stock-based compensation.

The operating loss of $426.0 in fiscal 2020 includes asset impairment charges, restructuring and other business realignment costs, acquisition and divestiture related costs, and stock-based compensation, partially offset by the gain on sale of Younique.

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.

We believe that adjusted operating income (loss) 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:

18 unchanged sentences

Adjustments (a)

Adjusted operating (loss) income from continuing operations

Adjusted operating income (loss) from continuing operations

Prestige $ 158.1 $ 201.2 $ 359.3

2 unchanged sentences

Total $ (48.6) $ 484.8 $ 436.2

(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.

(a) See a reconciliation of reported operating income (loss) to adjusted operating income and a description of the adjustments under “Adjusted Operating Income (Loss) 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 Prestige and Consumer Beauty segments.

1 unchanged sentence

Adjusted operating income (loss) 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:

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

Year Ended June 30, Change %

7 unchanged sentences

Asset impairment charges — 31.4 — (100 %) N/A

Gain on divestitures — — (111.5) N/A 100 %

Costs related to market exit 45.9 — — N/A N/A

Gain on sale of brand assets (9.5) — — N/A N/A

Gains on sale of real estate (115.5) — — N/A N/A

(Gains) Costs related to market exit (17.0) 45.9 — <(100%) N/A

Gains on sale and termination of brand assets (104.4) (9.5) — <(100%) N/A

Gains on sale of real estate (4.9) (115.5) — 96 % N/A

Total adjustments to reported operating loss 195.1 374.6 484.8 (48 %) (23) %

Adjusted operating income (loss) from continuing operations $ 615.5 $ 436.2 $ (143.4) 41 % >100%

Adjusted operating income from continuing operations $ 738.8 $ 615.5 $ 436.2 20 % 41 %

% of Net revenues 13.3 % 11.6 % 9.4 %

2 unchanged sentences

% of Revenues 17.5 % 17.1 % 16.5 % 2.3 % 3.6 %

In fiscal 2022, adjusted operating income was $615.5 compared to a income of $436.2 in fiscal 2021.

In fiscal 2023, adjusted operating income was $738.8 compared to income of $615.5 in fiscal 2022.

Adjusted operating margin increased to 13.3% of net revenues in fiscal 2023 as compared to 11.6% in fiscal 2022.

In fiscal 2023, adjusted EBITDA was $972.8 compared to $905.3 in fiscal 2022.

Adjusted EBITDA margin increased to 17.1% of net revenues in 2022 as compared to 16.5% in fiscal 2021, primarily driven by higher sales volume, lower cost of goods sold as a percentage of net revenues, and a reduction in fixed costs, partially offset by an increase in advertising and consumer promotional costs.

In fiscal 2021, adjusted operating income was $436.2 compared to an loss of $143.4 in fiscal 2020.

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

Adjusted EBITDA margin increased to 17.5% of net revenues in 2023 as compared to 17.1% in fiscal 2022, primarily driven by lower fixed costs as a percentage of net revenues, and lower advertising and consumer promotional costs as a percentage of net revenues.

In fiscal 2022, adjusted operating income was $615.5 compared to an income of $436.2 in fiscal 2021.

Adjusted operating margin increased to 11.6% of net revenues in fiscal 2022 as compared to 9.4% in fiscal 2021.

In fiscal 2022, adjusted EBITDA was $905.3 compared to $762.0 in fiscal 2021.

Adjusted EBITDA margin increased to 16.5% of net revenues in 2021 as compared to 4.0% 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.

Amortization Expense

1 unchanged sentence

In fiscal 2023, amortization expense of $151.4 and $40.4, was reported in the Prestige and Consumer Beauty respectively.

In fiscal 2022, amortization expense of $162.9 and $44.5, was reported in the Prestige and Consumer Beauty segments, respectively.

The decrease was primarily driven by certain license and collaboration agreements, which fully amortized in early fiscal 2023 and fiscal 2022.

In fiscal 2022, amortization expense decreased to $207.4 from $251.2 in fiscal 2021.

In fiscal 2021, amortization expense of $201.2, $50.0, was reported in the Prestige and Consumer Beauty segments, respectively.

The decrease was primarily driven by finite intangible assets that are fully amortized as of fiscal 2021.

In fiscal 2021, amortization expense increased to $251.2 from $233.1 in fiscal 2020.

In fiscal 2020, amortization expense of $174.9, $58.2, was reported in the Prestige and Consumer Beauty segments, respectively.

The increase was primarily driven by finite lived intangibles recorded for the King Kylie acquisition in the third quarter of fiscal 2020.

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.

Restructuring costs are initially

based on estimates which may differ from actuals due to various factors including more than expected employee attrition and final negotiated severance packages.

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

In connection with the four-year Turnaround plan announced on July 1, 2019 to drive substantial improvement and optimization in our business, we have reached the end of the plan at the end of the fiscal period, however, we will continue looking for opportunities to improve our cost structure.

Restructuring costs are initially based on estimates which may differ from actuals due to various factors including more than expected employee attrition and final negotiated severance packages.

On May 11, 2020 we

announced an expansion of the Turnaround Plan to further reduce fixed costs, the Transformation Plan.

We incurred $517.7 of cash costs life-to-date as of June 30, 2023, which have been recorded in Corporate.

In fiscal 2022, we incurred restructuring and other business structure realignment costs of $4.7, as follows:

• We incurred restructuring costs of $(6.5), related to the Transformation Plan, included in the Consolidated Statements of Operations.

Included within restructuring costs is $6.3 related to employee severances in connection with our exit of Russia;

• We incurred business structure realignment costs of $11.2 primarily related to our Transformation Plan and certain other programs.

This amount includes $(0.4) reported in selling, general and administrative expenses, which is a result of changes in estimate, and $11.6 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 2023, we incurred a credit in restructuring and other business structure realignment costs of $(6.3), as follows:

• We incurred a credit in restructuring costs of $(6.5), related to the Transformation Plan, included in the Consolidated Statements of Operations and

• We incurred business structure realignment costs of $0.2 primarily related to our Transformation Plan.

This amount includes $0.9 reported in cost of sales in the Consolidated Statement of Operations, and a credit of $(0.7) reported in selling, general and administrative expenses.

In fiscal 2022, we incurred restructuring and other business structure realignment costs of $4.7, as follows:

• We incurred restructuring costs of $63.6 primarily related to the Transformation Plan, included in the Consolidated Statements of Operations;

• We incurred a credit in restructuring costs of $(6.5) primarily related to the Transformation Plan, included in the Consolidated Statements of Operations.

Included within the credit in restructuring costs is $(6.3) related to employee severances in connection with our exit of Russia;

• We incurred business structure realignment costs of $11.2 primarily related to our Transformation Plan and certain other programs.

This amount includes $(4.9) 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.

This amount includes $11.6 reported in cost of sales due to an increase in accelerated depreciation as part of Transformation Plan, and a credit of $(0.4) reported in selling, general and administrative expenses in the Consolidated Statement of Operations.

In fiscal 2021, we incurred restructuring and other business structure realignment costs of $67.0, as follows:

1 unchanged sentence

• We incurred business structure realignment costs of $3.4 primarily related to our Transformation Plan and certain other programs.

This amount includes $194.4 reported included 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.

This amount includes $8.3 reported in cost of sales due to an increase in accelerated depreciation as part of Transformation Plan, and a credit of $(4.9) reported included in selling, general and administrative expenses, which is a result of changes in estimate, in the Consolidated Statement of Operations.

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

1 unchanged sentence

In fiscal 2023, stock-based compensation was $135.9 as compared with $195.5 in fiscal 2022.

The increase in stock-based compensation is primarily related to the CEO grant made on June 30, 2021.

The decrease in stock-based compensation is primarily related to a reduction in expense recognized in connection with a prior year's grant made to the CEO.

In fiscal 2022, stock-based compensation was $195.5 as compared with $27.8 in fiscal 2021.

Greater share-based compensation expense in the prior period is related to the repurchase of Series A-1 Preferred Stock shares from the Company’s former CEO in fiscal 2020.

The increase in stock-based compensation is primarily related to the CEO grant made on June 30, 2021.

In all reported periods, all costs related to stock-based compensation were reported in Corporate.

Acquisition- and divestiture-related costs

In fiscal 2023, we incurred no costs related to acquisition- and divestiture-activities.

In fiscal 2022, we incurred $14.7 of acquisition- and divestiture-related costs which were associated with the Wella Transaction.

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.

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

Asset Impairment Charges

In fiscal 2023, we did not incur any asset impairment charges.

In fiscal 2022, we incurred $31.4 of asset impairment charges related to the impairment of indefinite-lived intangibles in connection with our decision to exit Russia, all of which was reported in Consumer Beauty.

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.

Of the total asset impairment charges incurred $315.9 was reported in Consumer Beauty and $118.1 was reported in Prestige.

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.

Gain on divestitures

In fiscal 2022, we did not incur a (gain) loss on divestitures.

In fiscal 2021, we did not incur a (gain) loss 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.

Costs Related to Market Exit

In fiscal 2022, we incurred costs related to our decision to wind down our business operations in Russia which are included in Selling, general and administrative expenses and Cost of sales in the Consolidated Statements of Operations.

In fiscal 2021 and 2020, we did not recognize costs related to a market exit.

Gain on Sale of Brand Assets

(Gains) Costs Related to Market Exit

In fiscal 2023, we recognized gains of $(17.0) related to our decision to wind down our business operations in Russia which are included in Selling, general and administrative expenses and Cost of sales in the Consolidated Statements of Operations.

In fiscal 2022, we incurred costs of $45.9 related to our decision to wind down our business operations in Russia which are included in Selling, general and administrative expenses and Cost of sales in the Consolidated Statements of Operations.

In fiscal 2021, we did not recognize costs related to a market exit.

Gains on Sale and Termination of Brand Assets

In fiscal 2023, we recognized a gain of $104.4 related to the early termination of the Lacoste fragrance license.

In fiscal 2022, we recognized a gain of $9.5 related to sale of brand assets in South Africa, which was reported in Corporate.

In fiscal 2021 and 2020, we did not recognize any gain or loss on the sale of brand assets.

In fiscal 2021, we did not recognize any gain or loss on the sale and termination of brand assets.

Gains on Sale of Real Estate

In fiscal 2023, we recognized gains of $4.9 related to sale of real estate, which was reported in Corporate.

In fiscal 2021 and 2020, we did not recognize any gain or loss on the sale of real estate.

In fiscal 2022, we recognized gains of $115.5 related to sale of real estate, which was reported in Corporate.

In fiscal 2021, we did not recognize any gain or loss on the sale of real estate.

Adjusted depreciation expense

4 unchanged sentences

Net interest expense was $257.9, $224.0, and $235.1 in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

In fiscal year 2022, the decrease was primarily due to foreign currency exchange gains, offset by the impact of higher interest rates despite lower average debt balances.

In fiscal 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 year 2023, the increase in interest expense is primarily due to the impact of a higher average interest rate despite lower debt balances in the current period.

In fiscal year 2022, the decrease in interest expense was primarily due to foreign currency exchange gains, offset by the impact of higher interest rates despite lower average debt balances.

OTHER EXPENSE (INCOME), NET

In fiscal 2022, net other income was $409.9 of net other income, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $403.9.

In fiscal 2023, net other income was $419.0, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $230.0 and unrealized gain on forward repurchase contracts of $196.9.

In fiscal 2022, net other income was $409.9, primarily related to a favorable adjustment for the unrealized gain in the Wella investment of $403.9.

In fiscal 2021, net other income was $43.9, 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.

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

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

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

2 unchanged sentences

Effective income tax rate 25.8 % 38.6 % 71.7 %

The positive effective income tax rate in fiscal 2022 is primarily due to the limitation on the deductibility of executive stock compensation and tax costs associated with the Russia exit, offset by large fair value gains related to the investment in the Wella business.

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 effective income tax rate in fiscal 2023 is primarily due to the limitation on the deductibility of executive stock compensation, offset by fair value gains related to the investment in the Wella business at a lower tax rate.

The effective income tax rate in fiscal 2022 is primarily due to the limitation on the deductibility of executive stock compensation and tax costs associated with the Russia exit, offset by large fair value gains related to the investment in the Wella business at a lower rate.

The 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 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 effective rates vary from the U.S.

7 unchanged sentences

195.1 374.6 484.8

Change in fair value of investment in Wella Business (b)(e)

Change in fair value of investment in Wella Business (e)

(230.0) (403.9) (73.5)

3 unchanged sentences

(34.7) $ (4.5) (31.7) (55.3) 418.5 204.3

Adjusted income (loss) before income taxes $ 395.1 $ 109.5 27.7 % $ 178.7 $ 32.3 18.1 % $ (390.9) $ (56.8) 14.5 %

Adjusted income before income taxes $ 670.1 $ 177.1 26.4 % $ 395.1 $ 109.5 27.7 % $ 178.7 $ 32.3 18.1 %

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

2 unchanged sentences

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.

In connection with our decision to wind down our operations in Russia, we recognized tax charges related to certain direct incremental impacts of our decision, which are reflected in this amount, in fiscal 2022.

(c) The total tax impact on adjustments in the current period includes a tax expense of $24.1 recorded as the result of the Company’s exit from Russia.

(d) The total tax impact on adjustments in the prior period includes a $234.4 benefit recorded as the result of the 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 on July 1, 2020.

(c) The total tax impact on adjustments includes a tax benefit of $0.4 and tax expense of $24.1 for fiscal 2023 and fiscal 2022, respectively, recorded as the result of the Company’s exit from Russia.

(d) The total tax impact on adjustments in fiscal 2021 includes a $234.4 benefit recorded as the result of the 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 on July 1, 2020.

It also includes a $130.0 tax expense recorded as the result of an internal restructuring following the Wella divestiture, primarily intended to create a more efficient structure to hold its equity investment in Wella.

3 unchanged sentences

The adjusted effective tax rate was 26.4% compared to 27.7% in the prior-year period.

The differences were primarily due to the resolution of foreign uncertain tax positions having a greater proportional effect in the prior period and a valuation allowance recorded in the current period.

Cash paid during the years ended June 30, 2022, 2021 and 2020, for income taxes of $97.2, $15.9 and $123.2 represents 24.6%, 8.9% and (31.5)% of Adjusted (loss) income before income taxes for the fiscal year ended, respectively.

The differences were primarily due to permanent adjustments and jurisdictional mix of income.

Cash paid during the years ended June 30, 2023, 2022 and 2021, for income taxes was $58.6, $97.2 and $15.9, respectively.

NET INCOME (LOSS) ATTRIBUTABLE TO COTY INC.

In fiscal 2023, net income attributable to Coty Inc.

was $508.2 compared to income of $259.5 in fiscal 2022.

The net income increase was primarily driven by higher operating income, incremental net gains associated with forward repurchase contracts, contingent consideration gains associated with the sale of Wella, partially offset by a less favorable adjustment related to the unrealized gain in the Wella investment in the current year, higher net interest expense in the current year and an increase in the provision for income taxes in the current year compared to the prior year.

In fiscal 2022, net income attributable to Coty Inc.

was $259.5 compared to a loss of $201.3 in fiscal 2021.

The net income increase was primarily driven by higher operating income in the current year, a favorable adjustment of $403.9 related to the realized and unrealized gain in the Wella investment in the current year, and the loss on sale of the Wella Business, which was recorded in the comparative period, partially offset by a provision for income taxes in the current year compared to income tax benefit in the prior year.

In fiscal 2021, net loss attributable to Coty Inc.

was $201.3 compared to a loss of $1,006.7 in fiscal 2020.

The net loss decrease primarily reflects a lower operating loss in fiscal 2021 compared to the operating loss in fiscal 2020.

ADJUSTED NET INCOME (LOSS) ATTRIBUTABLE TO COTY INC.

12 unchanged sentences

195.1 374.6 486.3 (48 %) (23 %)

Adjustments to Loss on Sale of Business (6.1) 246.4 — <(100%) N/A

Adjustments to Loss on Sale of Business — (6.1) 246.4 100 % <(100%)

Change in fair value of investment in Wella Business (c)

(403.9) (73.5) — <(100%) N/A

(230.0) (403.9) (73.5) 43 % <(100%)

Adjustments to other expense (income) (d)

1 unchanged sentence

Adjustments to noncontrolling interest (e)

(7.0) (11.3) — 38 % N/A

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

(6.9) (7.0) (11.3) 1 % 38 %

Adjustment for deemed Series B Preferred Stock dividends related to the First and Second Exchanges 160.0 — —

Adjusted net income (loss) attributable to Coty Inc.

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

4.5 55.7 (170.0) (92 %) >100%

Adjustment for deemed Series B Preferred Stock dividends related to the First and Second Exchanges — 160.0 — (100 %) N/A

Adjusted net income attributable to Coty Inc.

$ 457.9 $ 232.1 $ 181.5 97 % 28 %

% of Net revenues 8.2 % 4.4 % 3.2 %

2 unchanged sentences

Basic 849.0 820.6 764.8

Diluted (a)(f)

Adjusted net income attributable to Coty Inc.

1 unchanged sentence

Basic $ 0.54 $ 0.28 $ 0.24

Diluted (a)(f)

$ 0.53 $ 0.28 $ 0.24

(a) Diluted EPS is adjusted by the effect of dilutive securities, including awards under the Company's equity compensation plans and the convertible Series B Preferred Stock.

When calculating any potential dilutive effect of stock options, Series A Preferred Stock, restricted stock and RSUs, the Company uses the treasury method and the if-converted method for the Convertible Series B Preferred Stock.

The treasury method typically does not adjust the net income attributable to Coty Inc., while the if-converted method requires an adjustment to reverse the impact of the preferred stock dividends, if dilutive,, on net income applicable to common stockholders during the period.

(a) Diluted EPS is adjusted by the effect of dilutive securities, including awards under the Company's equity compensation plans, the convertible Series B Preferred Stock and the Forward Repurchase Contracts.

When calculating any potential dilutive effect of stock options, Series A Preferred Stock, restricted stock, PRSUs and RSUs, the Company uses the treasury method and the if-converted method for the Convertible Series B Preferred Stock and the Forward Repurchase Contracts.

The treasury method typically does not adjust the net income attributable to Coty Inc., while the if-converted method requires an adjustment to reverse the impact of the preferred stock dividends and the impact of fair market value (gains)/losses for contracts with the option to settle in shares or cash, if dilutive, on net income applicable to common stockholders during the period.

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

(c) In fiscal 2023, 2022, and 2021, the amount represents the unrealized (gain) loss recognized for the change in fair value of the investment in Wella.

(d) In fiscal 2022, the amount includes a net gain on the exchange of Series B Preferred Stock partially offset by the amortization of basis differences in certain equity method investments and pension curtailment losses.

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.

(d) In fiscal 2023, the amount includes the amortization of basis differences in certain equity method investments and pension curtailment gains.

In fiscal 2022, the amount includes a net gain on the exchange of Series B Preferred Stock partially offset by the amortization of basis differences in certain equity method investments and pension curtailment losses.

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.

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

(f) As of June 30, 2022 and 2021, 65.4 and 171.1 million shares, respectively, 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.

(f) As of June 30, 2023 and 2022, 23.7 and 65.4 million dilutive shares of Convertible Series B Preferred Stock were excluded in the computation of adjusted weighted-average diluted shares because their effect would be anti-dilutive.

As of June 30, 2021, 171.1 million dilutive shares of 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

1 unchanged sentence

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 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.

In fiscal 2021, net revenues from discontinued operations was $986.3 and operating income was $220.8 in fiscal 2021.

Net loss was $137.3 in fiscal 2021.

The loss on sale of the Wella Business was $246.4 in fiscal 2021.

5 unchanged sentences

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.

Quarterly Results of Operations Data

13 unchanged sentences

Asset impairment charges — — — — 31.4 — — —

Operating (loss) income (77.4) 57.1 244.0 17.2 1.8 (1.4) 17.0 (66.0)

Operating income (loss) 129.0 43.5 199.3 171.9 (77.4) 57.1 244.0 17.2

Interest expense, net 72.2 58.8 61.0 65.9 40.4 62.9 60.9 59.8

Loss from continuing operations before income taxes (280.8) 54.8 309.3 343.5 (68.5) 10.8 (59.8) (122.3)

Income (Loss) from continuing operations before income taxes 78.8 141.6 280.2 204.2 (280.8) 54.8 309.3 343.5

Provision (benefit) for income taxes 43.3 29.8 38.8 69.7 0.3 0.5 49.4 114.6

27 unchanged sentences

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.

Our principal uses of cash are to fund planned operating expenditures, capital expenditures, interest payments, dividends, share repurchases, any principal payments on debt, and from time to time, acquisitions, and business structure realignment expenditures.

Working capital movements are influenced by 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.

In fiscal 2022, we simplified our capital structure through a series of transactions with KKR Aggregator, as a result of which KKR Aggregator fully exited its ownership of Coty's shares.

Cumulatively, such transactions resulted in annual dividend savings of approximately $77.0.

Refer to Note 23—Equity and Convertible Preferred Stock.

In addition, during fiscal 2022, we received the planned shareholder distributions of $230.6 from our equity investment in Wella, which we used to repay debt.

We do not expect further distributions from Wella in the short term.

During April 2022, we announced our Board's decision to wind down the operations of our Russian subsidiary as a result of the Russia-Ukraine War and the related sanctions.

We plan to liquidate our remaining inventory in Russia, as allowed by the relevant sanctions, over the next six months as part of the wind down.

During fiscal 2022, we recognized total pre-tax charges of $83.6 associated with our exit of Russia.

These charges are primarily related to the net realizable value of assets associated with the Russian business, including working capital and long-lived assets, as well as contract termination charges, certain contingent liabilities, employee severance charges and other costs to effectuate the wind-down.

We incurred $24.1 of income tax charges associated with our decision to exit Russia, in fiscal 2022.

We anticipate incurring up to $10.0 of additional costs through completion of the wind down, and future net cash costs of $40.0 to 45.0 which will be funded by our Russian subsidiary.

The wind down process of our Russian subsidiary is at an early stage, and the amount of future costs, including cash costs, will be subject to various factors, such as additional government regulation and the resolution of legal contingencies.

During fiscal 2022, we experienced inflationary pressures in most markets resulting in higher commodity and supply chain costs, including material, freight, and energy costs.

We expect that the pressures of cost inflation will persist into fiscal 2023.

Further, inflationary trends in certain markets and global supply chain challenges may negatively affect our future sales and operating performance.

We remain focused on deleveraging our balance sheet using cash flows generated from our operations.

We continue to take steps to permanently reduce our debt, in order to reduce interest costs and improve our long term profitability and cash flows.

In addition, our 25.9% investment in Wella gives us the opportunity for further permanent debt reductions, when our equity position is divested.

On July 18, 2023 we announced that we entered into a binding letter of intent to sell a 3.6% stake in Wella to investment firm IGF Wealth Management for $150.0.

The closing of the transaction is subject to, among other things, completion of due diligence and the satisfaction of certain closing conditions, including the approval of the transaction by KKR.

If the transaction closes, we intend to use the net proceeds to pay down a portion of the outstanding principal balance of our Revolving Credit Facility.

Assuming the transaction closes, we would retain 22.3% of the Wella Company.

Variable rate debt accounts for approximately 34% of our total debt outstanding as of June 30, 2023.

We incurred higher average variable interest rates compared to the same period in the prior year.

We have taken action to reduce variability in our interest payments including paying down variable interest rate debt outstanding under our 2018 Coty Term B Facility, issuing fixed rate bonds (as discussed in the Debt section below), and entering into floating to fixed interest rate swaps.

Giving effect to transactions in July 2023 (as noted in the Debt section below) on our June 30, 2023 debt balances, the proportion of our fixed rate debt outstanding would have been approximately 84%.

During the fiscal year, we terminated our licensing arrangement for Lacoste fragrances and received termination payments from the licensor totaling €87.8 million (approximately $93.9).

We expect to receive an additional payment of €15.0 million (approximately $16.3) in fiscal 2024.

We used proceeds received to repay debt, as discussed below.

We continue to wind down the operations of our Russian subsidiary.

We anticipate that we will incur an immaterial amount of additional costs through completion of the wind down, and future net cash costs of $10.0 to $20.0, which will be funded by our Russian subsidiary.

The amount of future costs, including cash costs, will be subject to various factors, such as additional government regulation and the resolution of legal contingencies.

We have substantially completed our commercial activities in Russia.

However, we anticipate that the process related to the liquidation of the Russian legal entity will take an extended period of time.

We continue to experience inflationary pressures in most markets resulting in higher commodity and supply chain costs, including material, freight, and energy costs, as well as higher costs for services and labor.

Further, inflationary trends in certain markets and global supply chain challenges, including component shortages, may negatively affect our future sales and operating performance.

Supply chain constraints may impact the availability of raw materials used to manufacture our products which may negatively impact our ability to meet customer demands, thereby impacting our cash flows and profitability.

We are in the process of deleveraging our company and improving the maturity mix of our debt, including through consideration of refinancing or redemption of a portion of our debt.

In fiscal 2022, we replaced our two existing classes of revolving commitments, having an aggregate principal amount of $2,750.0, with a single class of revolving commitments, having an aggregate principal amount of $2,000.0 due April 2025, and issued $500.0 of senior secured notes due January 2029.

We used the net proceeds of these offerings to repay portions of the term loans outstanding under the existing credit facilities originally due April 2023 and to pay related premiums, fees and expenses thereto.

During fiscal 2022, we fully redeemed our 2023 euro-denominated notes in the amount of €550.0 million (approximately $606.4 at the redemption date), by utilizing cash on hand and drawing down on our revolving credit facility, thereby accelerating our deleveraging trajectory.

Also, during fiscal 2022 we entered into two separate agreements that mature in September and October 2023, which established new U.S.

Dollar-denominated credit facilities in Brazil (the “Brazilian Credit Facilities”) in the amounts of $10.5 and $31.9, respectively.

These activities improved our medium term liquidity.

Our Convertible Series B Preferred stock held by KKR Aggregator was fully converted and exchanged during fiscal 2022, which reduced our future commitment to preferred shareholders and improved our ability to reduce our external debt and simplifying our capital structure.

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

To mitigate the impact of these supply chain constraints on our ability to meet demand for our products, we have increased inventory levels throughout the year.

We continue to monitor supply chain and other factors impacting our ability to meet demand and we will take the necessary actions to optimize our inventory levels in light of these factors.

We are in the process of deleveraging our company and improving the maturity mix of our debt, including through refinancing or repayment of a portion of our debt.

Actions that we have taken in fiscal 2023 and subsequently include the following.

• Senior Notes – We completed cash tender offers and redeemed $77.0 of our 2026 Dollar Notes and €69.7 million (approximately $72.2) of our 2026 Euro Notes.

• 2018 Term B Facility – We used proceeds associated with the termination of the Lacoste fragrances license to reduce the euro and U.S.

dollar portions of the 2018 Term B Facility, in the amounts of €20.1 million (approximately $21.5) and $29.5, respectively.

In addition, on March 7, 2023, we amended the 2018 Coty Credit Agreement to effectuate the transition of the underlying variable interest rate from LIBOR to the Secured Overnight Financing Rate (“SOFR”).

Interest payments on our debt agreements were not materially impacted by the transition to SOFR.

First Quarter of Fiscal 2024

July Transactions

• 2018 Revolving Credit Facility – On July 11, 2023, we extended the maturity of the 2018 Revolving Credit Facility until July 2028.

• Senior Notes – On July 26, 2023, we completed a senior secured notes offering and received net proceeds of $740.6.

The new senior secured notes are due in 2030 and bear an annual interest rate of 6.625%.

• 2018 Term B Facility – At the time we completed the senior secured noted offering, we used net proceeds to fully repay our U.S.

dollar variable interest rate loans outstanding and repay a pro-rata portion of our euro variable interest rate loans outstanding under our existing 2018 Term B Facility.

August Transactions

• On August 3, 2023, we repaid €408.0 million of debt outstanding under our 2018 Term B Facility.

See Note 15—Debt in the notes to our Consolidated Financial Statements for additional information on our debt arrangements and prior period credit agreements, as well as definitions of capitalized terms.

See Note 28—Subsequent Events in the notes to our Consolidated Financial Statements for disclosures of transactions occurring after June 30, 2023.

A significant portion of our long-term debt maturities (excluding capital lease obligations) have been extended from fiscal 2024 and 2025 to fiscal 2029 and thereafter following the July 2023 transactions.

Following the transactions over 99% of our aggregate debt maturities have been pushed out to fiscal 2026 and beyond.

Factoring of Receivables

5 unchanged sentences

Business Combinations

During fiscal 2022, we did not enter into any business combinations or asset acquisitions.

During fiscal 2023 and 2022, we did not enter into any business combinations or asset acquisitions.

During fiscal 2021, we completed the acquisition of a 20% ownership interest in KKW Holdings and the related collaboration agreement.

1 unchanged sentence

For additional information on our prior period activity from fiscal year 2022, see Note 4—Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.

During fiscal 2022, we did not enter into any business dispositions.

During fiscal 2023 and 2022, we did not enter into any business dispositions.

During fiscal 2021, we completed the sale of a majority stake in the Wella Business (as discussed below).

The Wella Business Divestiture

During fiscal 2021, we completed the sale of a majority stake in the Wella Business and received cash proceeds of $2,451.7 and retained an initial ownership stake of 40% in Wella.

As of June 30, 2022, we owned a 25.9% stake in the Wella Company.

During the current fiscal year, we entered into an agreement related to post-closing adjustments to the purchase consideration for the Wella Business.

Based on this agreement, a $34.0 advance of future contingent proceeds was paid to us and is subject to claw back if recovery targets related to the Wella Business tax credits are not achieved within four years of the Wella sale.

During the current fiscal year, certain recovery targets were achieved and we recognized a $0.7 gain related to the advance payment.

The remainder of $33.3 is unearned as of the current fiscal year end.

For additional information on our prior period business dispositions from fiscal years 2021 and 2020, see Note 4—Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.

Additionally, during fiscal 2021, we entered into a post-closing purchase consideration adjustment agreement for the Wella Business sale and received advanced contingent proceeds of $34.0.

During fiscal 2022, our ownership stake in the Wella Company was reduced to 25.9%.

During fiscal 2023 and 2022, we earned $30.8 and $0.7, respectively of the contingent proceeds advanced to us from the sale of Wella.

The remaining $2.5 is unearned as of June 30, 2023.

For additional information on our prior period business dispositions from fiscal year 2021, see Note 4—Business Combinations, Asset Acquisitions and Divestitures in the notes to our Consolidated Financial Statements.

Year Ended June 30,

1 unchanged sentence

Consolidated Statements of Cash Flows Data (a) :

Net cash provided by (used in) operating activities $ 726.6 $ 318.7 $ (50.9)

Net cash provided by (used in) investing activities 269.7 2,441.9 (833.4)

Net cash (used in) provided by financing activities (1,034.0) (2,795.1) 877.3

Net cash provided by operating activities $ 625.7 $ 726.6 $ 318.7

Net cash (used in) provided by investing activities (118.2) 269.7 2,441.9

Net cash (used in) financing activities (469.3) (1,034.0) (2,795.1)

(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 $726.6, $318.7 and $(50.9) for fiscal 2022, 2021 and 2020, respectively.

Net cash provided by operating activities

Net cash provided by operating activities was $625.7, $726.6 and $318.7 for fiscal 2023, 2022 and 2021, respectively.

The decrease in cash provided by operating activities of $100.9 in fiscal 2023 as compared with fiscal 2022 is primarily driven by an overall net decrease in cash from working capital partially offset by an increase in cash related net income.

The net decrease in cash from working capital was mainly the result of changes in accrued expenses and other current liabilities and increased inventory levels in fiscal 2023, partially offset by positive impacts from changes in trade receivables.

The increase in cash related net income was due to an increase in net revenues and gross margin, and lower selling, general and administrative expenses in the current year compared to the prior year.

The increase in cash provided by operating activities of $407.9 in fiscal 2022 as compared with fiscal 2021 is primarily driven by a year over year increase in cash related net income and overall increase in cash flows from changes in net working capital accounts.

1 unchanged sentence

Higher cash outflows during fiscal 2022 for net income tax payments is driven by the significant prior year tax overpayment collections and were primarily offset by lower year over year cash outflows for restructuring activity payments and payments for interest costs.

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.

Net cash provided by (used in) investing activities

Net cash provided by (used in) investing activities was $269.7, $2,441.9 and $(833.4) for fiscal 2022, 2021 and 2020, respectively.

Net cash (used in) provided by investing activities

Net cash (used in) provided by investing activities was $(118.2), $269.7 and $2,441.9 for fiscal 2023, 2022 and 2021, respectively.

The decrease in cash flows from investing activities of $387.9 in fiscal 2023 as compared with fiscal 2022 was mainly attributable to the prior year cash received from return of capital from one of our equity investments which did not reoccur

during the year ended June 30, 2023.

Additionally, the prior year included higher proceeds from the sales of long-lived assets and the positive impact from the receipt of contingent proceeds related to the Wella Business tax credits partially offset with higher capital expenditures in the current year.

The decrease in cash flows provided by investing activities of $2,172.2 in fiscal 2022 as compared with fiscal 2021 was principally driven by higher cash proceeds associated with the sale of the discontinued Wella Business in the prior year.

2 unchanged sentences

Higher proceeds from the sale of other long lived assets in fiscal 2022 and outflows from the prior year related to the KKW Holdings asset acquisition and 20% equity investment helped to partially offset the year over year decrease in cash from investing activities

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.

Net cash (used in) provided by financing activities

Net cash (used in) provided by financing activities was $(1,034.0), $(2,795.1) and $877.3 for fiscal 2022, 2021 and 2020, respectively.

Net cash (used in) financing activities

Net cash (used in) financing activities was $(469.3), $(1,034.0) and $(2,795.1) for fiscal 2023, 2022 and 2021, respectively.

The decrease in cash used in financing activities of $564.7 in fiscal 2023 as compared to fiscal 2022 was primarily driven mainly by higher cash outflows in the prior year for net paydowns of the Company's revolving credit facility and other long term debt balances as well, as higher payments of deferred financing fees, and higher dividend payments on Series B Preferred Stock.

Additionally, lower cash payments in the current year for the settlement of foreign currency contracts contributed to the overall decrease in use of cash but were partially offset by cash payments related to the Company's forward repurchase contracts.

The decrease in cash used in financing activities of $1,761.1 in fiscal 2022 as compared to fiscal 2021 was primarily driven by lower net cash outflows for repayments associated with the Company's revolving credit facility and other long term debt outstanding under the Company's Credit Agreement.

2 unchanged sentences

Increases in cash outflows for the settlement of realized losses on foreign currency contracts in the current year and the prior year inflows from the issuance of Convertible Series B Preferred Stock only partially offset the impact of the year over year changes in debt activities

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.

In May 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, which was effective for dividends declared through February 5, 2020, which was paid March 27, 2020.

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

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

4 unchanged sentences

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.

During the twelve months ended June 30, 2022, the Board of Directors declared dividends on the Series B Preferred Stock of $35.2 of which $30.7 was paid and $1.2 was converted as part of the November 10, 2021 conversion.

During the twelve months ended June 30, 2023, the Board of Directors declared dividends on the Series B Preferred Stock of $13.2 of which $9.9 was paid and $3.3 was paid in July 2023.

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”.

11 unchanged sentences

Royalty payments 505.0 132.3 68.7 60.8 43.8 39.0 160.4

Advertising and promotional spend obligations 15.1 1.0 1.0 1.6 2.1 2.1 7.3

Other contractual obligations (c)

9 unchanged sentences

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.

Actual royalty payments 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.

3 unchanged sentences

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

The table excludes $69.8 of RNCI which is reflected in Redeemable noncontrolling interest in the Consolidated Balance Sheet as of June 30, 2022 related to our 25.0% RNCI in our subsidiary in the Middle East (“Middle East Subsidiary”).

The table excludes $93.5 of RNCI which is reflected in Redeemable noncontrolling interest in the Consolidated Balance Sheet as of June 30, 2023 related to the 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 also excludes $142.4 of preferred stock, which is reflected in Convertible Series B Preferred Stock in the Consolidated Balance Sheet as of June 30, 2023.

14 unchanged sentences

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 gains (losses) of $(32.3), $3.3 and $(7.8) in fiscal 2023, 2022 and 2021, respectively, resulting from non-financing foreign currency exchange transactions which are included in their associated expense type and are included in the Consolidated Statements of Operations.

Net gains (losses) of $10.0, $(6.8) and $(14.8) in fiscal 2022, 2021 and 2020, respectively, resulting from financing foreign exchange currency transactions are included in Interest expense, net in the Consolidated Statements of Operations.

Net (losses) gains of $(12.2), $10.0 and $(6.8) in fiscal 2023, 2022 and 2021, 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.

5 unchanged sentences

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.

We periodically enter into interest rate swap agreements to facilitate

our interest rate management activities.

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.

4 unchanged sentences

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, Income (loss) from continuing operations before income taxes in fiscal 2022 would decrease/increase by $20.1.

We are exposed to changes in interest rates because of certain variable-rate debt discussed in Note 15—Debt.

If interest rates had been 10% higher and all other variables were held constant, Income (loss) from continuing operations before income taxes in fiscal 2023 would decrease by $8.4.

As of June 30, 2023, we also had fixed-rate senior notes (the “Notes”) outstanding.

Since our Notes bear interest at fixed rates and are carried at amortized cost, fluctuations in interest rates do not have any impact on our consolidated financial statements.

However, the fair value of the Notes will fluctuate with movements in market interest rates, increasing in periods of declining interest rates and declining in periods of increasing interest rates.

Equity Investment Risk

3 unchanged sentences

See Note 13—Equity Investments for additional information.

In addition to the above equity investments, we entered into certain forward repurchase contracts to start hedging for a potential $200.0 share buyback program in 2024.

In addition to the above equity investments, we entered into certain forward repurchase contracts to start hedging for two potential $200.0 and $196.0 share buyback programs, in 2024 and 2025, respectively.

These forward repurchase contracts are accounted for at fair value, with changes in the fair value recorded in Other income, net within the Consolidated Statements of Operations.

1 unchanged sentence

These factors include actual or anticipated fluctuations in the quarterly and annual results of our Company or of other peer companies in the industry, market perceptions concerning the macroeconomic, social or political developments, industry conditions, changes in government regulation and the securities market trends.

We estimate that an immediate, hypothetical 10% decline in our stock price would result in a $19.6 decrease in the fair value of these forward repurchase contracts and reduce our Income (loss) from continuing operations before income taxes.

We estimate that an immediate, hypothetical 10% decline in our stock price would result in a $60.9 decrease in the fair value of these forward repurchase contracts and reduce our Income (loss) from continuing operations before income

Any realized gains or losses resulting from such fair value changes would occur if we elect to terminate the forward repurchase contracts prior to or on maturity.

4 unchanged sentences

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 $225.5 as of June 30, 2023.

Accordingly, management believes risk of material loss under these hedging contracts is remote.

Management believes risk of material loss under these hedging contracts is remote.

Inflation Risk

We began to experience the impact of increased inflation on our business during the fiscal year.

We believe that inflation may have a more material effect on our business, financial condition or results of operations in fiscal year 2023.

Rising inflation may negatively impact our business by raising cost and reducing profitability.

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.

We experienced the impact of inflation on our business during the fiscal year.

We believe that inflation may continue to have an effect on our business, financial condition or results of operations in fiscal year 2024.

Inflation may negatively impact our business by raising cost and reducing profitability and 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.

7 unchanged sentences

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

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.

14 unchanged sentences

The fair value is updated on a quarterly basis.

The investments are classified within Level 3 in the fair value hierarchy because we estimate the fair value of the investments using a combination of the income approach, the market approach and private transactions, when applicable.

transactions, when applicable.

Changes in the fair value of equity investments under the fair value option are recorded in Other income, net within the Consolidated Statements of Operations (see Note 13—Equity Investments).

On October 20, 2021, we completed the sale of a 9.4% stake in Wella to KKR in exchange for the redemption of 290,465 shares of KKR's Series B Convertible Preferred Stock shares in Coty and a portion of unpaid dividends (the "First Exchange").

On November 30, 2021, we completed the sale of an additional 4.7% stake in Wella to KKR in exchange for the redemption of KKR's remaining convertible preferred shares in Coty (the "Second Exchange").

The First Exchange and Second Exchange were included and weighted for valuation purposes, when appropriate.

In May 2022, the Wella Company divested its Russian operations.

The impact of the divestiture was included for valuation purposes.

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

Further, continued uncertainty exists due to the macroeconomic impacts of inflationary and supply chain pressures and the indirect impact of the Russia Ukraine war.

While we believe we have made reasonable estimates and assumptions to calculate the fair value of the Wella Company, it is possible changes could occur.

6 unchanged sentences

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.

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.

16 unchanged sentences

There were no impairments of goodwill at our reporting units in fiscal 2023, 2022 or fiscal 2021.

During fiscal year 2020 we recorded total goodwill impairment of $105.0.

Based on the annual impairment tested performed at May 1, 2022, we determined that the fair value of each of the reporting units exceeded their respective carrying values at that date by approximately 78.6% and 61.5% relating to the Prestige and Consumer Beauty reporting units, respectively.

Based on the annual impairment test performed on May 1, 2023, we determined that the fair value of each of the reporting units exceeded their respective carrying values at that date by approximately 132.1% and 71.6% relating to the Prestige and Consumer Beauty reporting units, respectively.

To determine the fair value of our reporting units, we have used annual revenue growth rates ranging from 3.0%-11.3% and 2.0%-9.2% for the Prestige and Consumer Beauty reporting units, respectively, and a discount rate of 9.75%.

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.

Further, continued uncertainty exists due to the macroeconomic impacts of inflationary and supply chain pressures, and the indirect impact of the Russia Ukraine war.

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.

15 unchanged sentences

On May 1, 2023, we performed our annual impairment testing of indefinite-lived other intangible assets and determined that no adjustments to carrying values were required.

In the fourth quarter of fiscal 2022, as a result of the May 1, 2022 annual impairment test, the Company recorded asset impairment charges of $21.3 and $10.1 related to the Max Factor and Bourjois trademarks, respectively, that are part of the Consumer Beauty reporting unit.

The principle drivers of the impairments were related to the loss of revenue and impact on profitability as a result of the Company’s decision to exit the Russian market.

Additionally, the current macroeconomic environment resulted in a 150 basis point increase in the discount rate compared to the May 1, 2021 test.

Based on results of the test, the fair value of the Max Factor trademark fell below its carrying value using projections that assumed an annual revenue growth rate ranging from 2.0% to 15.1% and a discount rate of 10.0%.

The fair value of the Bourjois trademark fell below its carrying value using projections that assumed an annual revenue growth rate ranging from 2.0% to 7.4% and a discount rate of 10.0%.

As the impaired indefinite-lived intangible assets have a 0% excess, further material negative trends in the actual and expected business performance or an increase in the discount rate may result in further impairments.

For instance, with regards to our Max Factor trademark, our largest impaired indefinite-lived intangible asset, if the annual revenue declined by 5% it may cause an additional impairment of $7.3.

If the discount rate increased by 50 basis points, it may cause an additional impairment of $8.6.

With regards to our Bourjois trademark, our second largest impaired indefinite-lived intangible asset, if the annual revenue declined by 5% it may cause an additional impairment of $1.9.

If the discount rate increased by 50 basis points, it may cause an additional impairment of $2.2.

As of May 1, 2023, we determined that the fair value of our Max Factor and Bourjois trademarks exceeded their carrying values by approximately 6.8% and 10.5%, respectively, using annual revenue growth rates ranging from 2.0%-10.5% and 2.0%-8.2%, respectively, and a discount rate of 10.3%.

The fair value of the Max Factor and Bourjois trademarks would fall below their carrying values if the average annual revenue growth rate decreased by approximately 55 basis points and 80 basis points, respectively, or the discount rate increased by 60 basis points and 90 basis points, respectively.

The fair values of the remaining indefinite-lived trademarks exceeded their carrying values by amounts ranging from 26% to 868%.

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.

Further, continued uncertainty exists due to the macroeconomic impacts of inflationary and supply chain pressures and the indirect impact of the Russia Ukraine war.

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.

4 unchanged sentences

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

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.

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.

1 unchanged sentence

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.

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.

28 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis