Market Overview

Coty Inc. Reports Second Quarter Fiscal 2018 Results

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Improving Net Revenue Performance
Significant Growth in
Reported and Adjusted Profits

Coty Inc. (NYSE:COTY) today announced financial results for the second
quarter of fiscal year 2018, ended December 31, 2017.

 
Results at a glance     Three Months Ended December 31, 2017     Six Months Ended December 31, 2017
  Change YoY   Change YoY
(in millions, except per share data)    

Reported

Basis

  Constant Currency  

Reported

Basis

 

Combined

Company *

 

Combined

Company

Constant

Currency *

Net revenues $ 2,637.6 15% 10% $ 4,875.9 44% 10% 8%
Operating income - reported 174.4 >100% 203.1 >100%
Operating income - adjusted* 347.5 13% 542.6 14%
Net income - reported 109.2 >100% 89.5 91%
Net income - adjusted* 237.2 6% 313.5 4%
EPS (diluted) - reported $ 0.15 >100% $ 0.12 33%
EPS (diluted) - adjusted*     $ 0.32   7%         $ 0.42   (24%)        
 
* As compared to combined Coty and P&G Beauty Business net revenues
(herein defined as "Combined Company"). These measures, as well as
"free cash flow," are Non-GAAP Financial Measures. Refer to "Basis
of Presentation" and "Non-GAAP Financial Measures" for a discussion
of these measures. Net Income represents Net Income Attributable to
Coty Inc. Reconciliations from reported to adjusted results can be
found at the end of this release. Combined Company year-over-year
change in net revenues is presented giving effect to the completion
of the acquisition of the P&G Beauty Business (the "Merger"), as if
the Merger had occurred as of July 1, 2015.
 

Second Quarter Fiscal 2018 Summary

  • Net revenues of $2,637.6 million increased 14.8% as reported compared
    to the prior year and increased 10.3% at constant currency
  • Excluding the positive contributions from the acquisitions of
    Younique, Burberry and two months of ghd, organic net revenues
    increased 2.8% on a constant currency basis
  • Reported operating income of $174.4 million increased from a loss of
    $(12.7) million
  • Adjusted operating income of $347.5 million increased 12.8% from
    $308.0 million
  • Reported net income of $109.2 million increased from $46.8 million,
    and adjusted net income of $237.2 million increased from $223.3 million
  • Reported earnings per diluted share of $0.15 increased from $0.06 and
    adjusted earnings per diluted share of $0.32 increased from $0.30
  • Net cash provided by operating activities was $316.7 million compared
    to $678.4 million in the prior year

First Six Months Fiscal 2018 Summary

  • Net revenues of $4,875.9 million increased 44.4% as reported compared
    to the prior year net revenues, and increased 7.6% for the combined
    company at constant currency
  • Excluding the positive contribution from the acquisitions of Younique,
    Burberry and five months of ghd, organic net revenues were flat on a
    constant currency basis
  • Reported operating income of $203.1 million increased from $33.7
    million
  • Adjusted operating income of $542.6 million increased from $474.4
    million
  • Reported net income of $89.5 million increased from $46.8 million, and
    adjusted net income of $313.5 million increased from $301.6 million
  • Reported earnings per diluted share of $0.12 increased from $0.09,
    while adjusted earnings per diluted share of $0.42 declined from $0.55
  • Net cash provided by operating activities was $307.8 million compared
    to $663.4 million in the prior year



Commenting on Coty's performance, Camillo Pane, Coty CEO said:

"Q2 was a very strong quarter marked by Coty's return to organic top
line growth. We delivered excellent growth in Luxury, an acceleration in
positive momentum in Professional Beauty and a significant improvement
in Consumer Beauty. Our recent acquisitions continue to have strong
performance. Across each of our three businesses we continue to see
improving results with our strong performance in Q2 directly linked to
our growth strategy. Recent innovations are working well, e-commerce is
performing ahead of the market and we are working to implement better
in-store execution.

"Fiscal 2018 continues to be a year of stabilization and this is what
our results have shown so far. While I am pleased with our performance,
there is still much work to be done before we achieve the consistency
that we seek as we still need to relaunch many brands, deliver our
synergies and continue with our integration of the P&G Beauty business.

"Based on the much improved results to date, we have refined our revenue
growth objectives for the remainder of the fiscal year. While revenue
recovery will not be a straight line, we now aim to deliver positive but
modest net revenue growth for the second half of the year. For margin,
we continue to aim for a healthy improvement in the second half of the
year versus the prior year, with most of the impact coming in Q4, as we
continue to deliver on our merger synergies.

"I remain confident that the real progress we have seen year-to-date,
coupled with our commitment to our growth strategy, will continue to
move Coty gradually onto the path of full recovery."





Basis of Presentation

To supplement financial results presented in accordance with GAAP,
certain financial information is presented in this release using the
non-GAAP financial measures described in this section. The term
"combined company" describes net revenues of Coty Inc. and the P&G
Beauty Business giving effect to the Merger for purposes of the six
months ended December 31, 2017, as compared to the six months ended
December 31, 2016, as if it had occurred on July 1, 2015. Combined
company period-over-period and combined company constant currency
period-over-period do not include any adjustments related to potential
profit improvements, potential cost savings or adjustments to fully
conform to the accounting policies of Coty. "Constant currency"
describes net revenues excluding the effect of foreign currency exchange
translations. The term "adjusted" primarily excludes the impact of
restructuring and business realignment costs, amortization, costs
related to acquisition activities, and certain interest expense and
other (income) expense items to the extent applicable. Refer to
"Non-GAAP Financial Measures" below for additional discussion of these
measures as well as the definition of free cash flow.

Net revenues for the three months ended December 31, 2017, as compared
to three months ended December 31, 2016, are reported by segment and
geographic region and are presented on a reported (GAAP) and a constant
currency basis. Net revenues for the six months ended December 31, 2017,
as compared to six months ended December 31, 2016, are reported by
segment and geographic region and are presented on a reported (GAAP),
combined company and combined company constant currency basis. Certain
percentages may not agree to the tables due to rounding. Operating
income is reported by segment. All changes in margin percentage are
described in basis points rounded to the nearest tenth of a percent.

Operating income, net income, operating income margin, gross margin,
effective tax rate, and earnings per diluted share (EPS (diluted)) are
presented on a reported (GAAP) basis and an adjusted (non-GAAP) basis.
Adjusted EPS (diluted) is a performance measure and should not be
construed as a measure of liquidity. Net revenues on a constant currency
basis, net revenues on a combined company basis, net revenues on a
combined company constant currency basis, adjusted operating income,
adjusted operating income on a constant currency basis, adjusted
operating income margin, adjusted effective tax rate, adjusted net
income, adjusted gross margin, adjusted EPS (diluted) and free cash flow
are non-GAAP financial measures. Refer to "Non-GAAP Financial Measures"
below for additional discussion of these measures. A reconciliation
between GAAP and non-GAAP results can be found in the tables and
footnotes at the end of this release.

To the extent that Coty provides guidance, it does so only on a non-GAAP
basis and does not provide reconciliations of such forward-looking
non-GAAP measures to GAAP due to the inherent difficulty in forecasting
and quantifying certain amounts that are necessary for such
reconciliation, including adjustments that could be made for
restructuring, integration and acquisition-related expenses,
amortization expenses, adjustments to inventory, and other charges
reflected in our reconciliation of historic numbers, the amount of
which, based on historical experience, could be significant.





Second Quarter Fiscal 2018 Summary Operating
Review

Net revenues of $2,637.6 million increased 14.8% as reported
compared to the prior year and increased 10.3% on a constant currency
basis. The 10.3% constant currency net revenue growth reflected a 7.5%
contribution from Younique, Burberry and two months of ghd, and a 2.8%
increase in the underlying business, driven by strong growth in Luxury,
sustained momentum in Professional Beauty and partially offset by a
modest decline in Consumer Beauty.

Gross margin of 61.1% was flat as compared to the prior year,
while adjusted gross margin declined to 61.6% from 63.6%, primarily
attributable to positive momentum in our emerging market Consumer Beauty
business as well as favorable items following the P&G Beauty acquisition
in the prior year.

Reported operating income increased to $174.4 million from a loss
of $(12.7) million, primarily due to higher reported net revenues and
lower acquisition costs.

Adjusted operating income increased 12.8% to $347.5 million from
$308.0 million driven by improved net revenues and tight cost controls.

Reported effective tax rate was (7.1)% compared to 174.4%. The
current period rate reflects a $41.8 million positive impact from a
foreign tax settlement.

Adjusted effective tax rate was 10.3% compared to 8.8%. The
current period rate reflects a $41.8 million positive impact from a
foreign tax settlement.

Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22,
2017. The Tax Act significantly revises the U.S. corporate income tax
system by, amongst other things, lowering corporate income tax rates,
implementing the territorial tax system and imposing a one-time deemed
repatriation tax on un-repatriated earnings of foreign subsidiaries.

The Company has performed a preliminary analysis and estimates the
overall impact on our recurring tax rate to be neutral from both a cash
and financial statement perspective for Fiscal 2018. The Company expects
to fully offset the cash and financial statement impacts of the one-time
deemed repatriation tax with tax attributes (e.g. net operating loss
carryforwards, foreign tax credits, etc.).

Reported net income increased to $109.2 million from $46.8
million, driven by higher operating income, partially offset by a lower
tax benefit.

Adjusted net income of $237.2 million increased from $223.3
million, reflecting higher adjusted operating income.





Cash Flows

  • Net cash from operating activities in the quarter was $316.7 million,
    compared to $678.4 million in the prior year, largely due to a one
    time benefit associated with the ramp up of accounts payable and
    accrued expenses following the close of the acquisition of the P&G
    Beauty business.
  • Positive free cash flow of $195.9 million in the quarter compared to
    $567.0 million in the prior year primarily reflects lower cash from
    operations.
  • On December 14, 2017, the Company paid a quarterly dividend of $0.125
    per share for a total of $93.7 million.
  • Cash and cash equivalents of $400.1 million decreased by $135.3
    million compared to June 30, 2017.

Total debt of $7,517.8 million increased by $302.2 million while net
debt of $7,117.7 million increased by $437.5 million from the balance on
June 30, 2017.





Second Quarter Fiscal 2018 Business Review by
Segment

                   
Three Months Ended December 31,
Net Revenues Change

Reported Operating

Income

Adjusted Operating

Income

(in millions)     2017 2016

Reported

Basis

Constant

Currency

2017 Change 2017 Change
Luxury $ 951.2 $ 835.0 14% 9% $ 85.1

28% 

$ 125.4

29% 

Consumer Beauty 1,138.6 1,001.7 14% 10% 99.3

58% 

131.9

19% 

Professional 547.8 460.0 19% 14% 73.5 (12%) 90.2 (10%)
Corporate    

N/A 

N/A 

  (83.5)

63% 

 

N/A  

Total $ 2,637.6 $ 2,296.7 15% 10% $ 174.4

>100% 

$ 347.5

13% 

 

Luxury

  • Reported net revenues of $951.2 million increased 13.9% compared to
    the prior year and 9.1% on a constant currency basis. The increase in
    constant currency reflects 8.1% growth in the underlying business
    driven by the on-going success of the debut Tiffany & Co. and Gucci
    Bloom fragrance launches as well as growth in Chloe, and a 1.0%
    contribution from Burberry.
  • Adjusted operating income of $125.4 million increased 28.6% from $97.5
    million in the prior year.

Consumer Beauty

  • Net revenues of $1,138.6 million increased 13.7% compared to the prior
    year and 9.8% on a constant currency basis. The increase in constant
    currency reflects an 11.1% contribution from Younique and a modest
    (1.3)% decline in the underlying business. The modest decline in our
    underlying net revenues was driven by certain U.S.-focused brands and
    largely offset by strong growth in Wella Retail, Max Factor and
    Monange.
  • Adjusted operating income increased 19.4% to $131.9 million from
    $110.5 million in the prior year.

Professional

  • Net revenues of $547.8 million increased 19.1% compared to the prior
    year and 13.6% on a constant currency basis. The increase in constant
    currency reflects a 11.6% contribution from ghd and 2.0% growth in the
    underlying business driven by strength in OPI globally.
  • Adjusted operating income declined 9.8% to $90.2 million from $100.0
    million in the prior year.





Second Quarter Fiscal 2018 Business Review by
Geographic Region

                         
Three Months Ended December 31,
Net Revenues Change
(in millions)              

       2017       

       2016       

   Reported   

   Basis   

   Constant   

   Currency   

North America $ 743.5 $ 700.5 6% 6%
Europe 1,289.1 1,134.1 14% 6%
ALMEA   605.0   462.1 31% 29%
Total $ 2,637.6 $ 2,296.7 15% 10%
 

North America

  • Reported net revenues increased 6.1% compared to the prior year and
    increased 5.6% on a constant currency basis, driven primarily by the
    contribution from Younique and the on-going success of Tiffany & Co.
    and Gucci Bloom, partially offset by declines in the U.S. Consumer
    Beauty division.

Europe

  • Reported net revenues increased 13.7% compared to the prior year and
    increased 5.7% on a constant currency basis driven primarily by the
    contribution from ghd, the on-going success of Tiffany & Co. and Gucci
    Bloom as well as mass fragrances and retail hair across the region.

ALMEA

  • Reported net revenues increased 30.9% compared to the prior year and
    increased 28.8% on a constant currency basis reflecting strong growth
    in all three divisions. Performance reflects strength in retail hair
    in Brazil and Max Factor in China, the on-going success of Tiffany &
    Co. and Gucci Bloom and the initial restage of OPI gel.





Noteworthy Company Developments

Other noteworthy company developments include:

  • On February 8, 2018, Coty announced a dividend of $0.125 per share,
    payable March 15, 2018 to holders of record on February 28, 2018.





Conference Call

Coty Inc. will host a conference call at 8:00 a.m. (ET) today,
February 8, 2018 to discuss its results. The dial-in number for the call
is (855) 889-8783 in the U.S. or (720) 634-2929 internationally
(conference passcode number: 2698723). The call will also be webcast
live at http://investors.coty.com.
The conference call will be available for replay. The replay dial-in
number is (855) 859-2056 in the U.S. or (404) 537-3406 outside the U.S.
(conference passcode number: 2698723).



About Coty Inc.

Coty is one of the world's largest beauty companies with approximately
$9 billion in pro forma revenue, an iconic portfolio of brands and a
purpose to celebrate and liberate the diversity of consumers' beauty. We
believe the beauty of humanity lies in the individuality of its people;
beauty is at its best when authentic; and beauty should make you feel
happy, never sad. As the global leader in fragrance, a strong number two
in professional salon hair color & styling, and number three in color
cosmetics, Coty operates three divisions: Consumer Beauty, which is
focused on mass color cosmetics, mass retail hair coloring and styling
products, body care and mass fragrances with brands such as COVERGIRL,
Max Factor and Rimmel; Luxury, which is focused on prestige fragrances
and skincare with brands such as Calvin Klein, Burberry, Marc Jacobs,
Hugo Boss, Gucci and philosophy; and Professional Beauty, which is
focused on servicing salon owners and professionals in both hair and
nail, with brands such as Wella Professionals, Sebastian Professional,
OPI and ghd. Coty has over 20,000 colleagues globally and its products
are sold in over 150 countries. Coty and its brands are committed to a
range of social causes as well as seeking to minimize its impact on the
environment.

For additional information about Coty Inc., please visit www.coty.com.



Forward Looking Statements

Certain statements in this release are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect the Company's current
views with respect to, among other things, establishing the Company as a
global leader and challenger in beauty, the Company's future operations
and financial performance (including brand relaunches and returning to
profitable top line growth and other revenue trends), ongoing and future
cost efficiency initiatives and the timing, presentation and cost of
future cost saving and/or restructuring plans, mergers and acquisitions,
divestitures and brand rationalization, synergies (including the timing,
cost and amount thereof), growth from and future performance of
acquisitions, the success of the integration of the P&G Beauty Business
and other recent acquisitions, performance in digital and e-commerce,
future dividends, fiscal year and subsequent effective tax rates, the
future impact of the Tax Act and any outlook for future reporting
periods, including results and performance for the reminder of the
fiscal year. These forward-looking statements are generally identified
by words or phrases, such as "anticipate", "are going to", "estimate",
"plan", "project", "expect", "believe", "intend", "foresee", "forecast",
"will", "may", "confident", "seek", "outlook", "continue", "commitment",
"target", "aim", "potential", "should" and similar words or phrases.
These statements are based on certain assumptions and estimates that the
Company considers reasonable, but are subject to a number of risks and
uncertainties, many of which are beyond the Company's control, which
could cause actual events or results to differ materially from such
statements, including:

  • the Company's ability to achieve its global business strategies,
    compete effectively in the beauty industry and achieve the benefits
    contemplated by its strategic transactions, including its joint
    ventures and recent acquisitions, within the expected time frame or at
    all;
  • use of estimates and assumptions in preparing its financial
    statements, including with regard to revenue recognition, stock
    compensation expense, income taxes, purchase price allocations, the
    assessment of goodwill, other intangible assets and long-lived assets
    for impairment, the market value of inventory, pension expense and the
    fair value of acquired assets and liabilities associated with
    acquisitions;
  • managerial, integration, operational, regulatory, legal and financial
    risks, including management of cash flows, and expenses and costs
    (including one-time costs and capital expenses) associated with its
    strategic transactions and internal reorganizations, including current
    and future business realignment activities;
  • the continued integration of the P&G Beauty Business and other recent
    acquisitions with its business, operations, systems, financial data
    and culture and the ability to realize synergies, reduce costs and
    realize other potential efficiencies and benefits (including through
    the Company's restructuring and business realignment programs) at the
    levels and at the costs and within the time frames currently
    contemplated or at all;
  • the Company's ability to anticipate, gauge and respond to market
    trends and consumer preferences, which may change rapidly, and the
    market acceptance of new products, including any relaunched or
    rebranded products, execution of new launches, and the anticipated
    costs and discounting associated with such relaunches and rebrands;
  • increased competition, consolidation among retailers, shifts in
    consumers' preferred distribution channels (including to digital
    channels), changes in product and marketing requirements by retailers,
    and other changes in the retail, e-commerce and wholesale environment
    in which we do business and sell its products;
  • changes in law (including the Tax Act), regulations and policies
    and/or the enforcement thereof that affect its business, financial
    performance, operations or its products;
  • the Company's and its brand partners' and licensors' abilities to
    obtain, maintain and protect the intellectual property rights,
    including trademarks, brand names and other intellectual property used
    in their respective businesses, products and software, and it and its
    business partners (including suppliers, customers, and talent) and
    licensors' abilities to protect their respective reputations, public
    goodwill as well as defend claims by third parties for infringement of
    intellectual property rights;
  • successfully divesting and/or discontinuing non-core brands (including
    associated post-closing reduction programs) and rationalizing
    wholesale distribution by reducing the amount of product diversion to
    the value and mass channels;
  • any unanticipated problems, liabilities or other challenges associated
    with an acquired business which could result in increased risk of new,
    unanticipated or unknown liabilities, including with respect to
    environmental, competition and other regulatory or legal matters;
  • the Company's international operations and joint ventures, including
    enforceability and effectiveness of its joint venture agreements and
    reputational, compliance, regulatory, economic and foreign political
    risks, including difficulties and costs associated with maintaining
    compliance with a broad variety of complex domestic and international
    regulations;
  • the Company's dependence on certain licenses (especially in the Luxury
    division), entities performing outsourced functions and third-party
    suppliers, including third party software providers;
  • administrative, development and other difficulties in meeting the
    expected timing of market expansions, product launches and marketing
    efforts;
  • global political and/or economic uncertainties, disruptions or major
    regulatory changes, including the impact of Brexit, the current U.S.
    administration and recent changes in the U.S. tax code;
  • the number, type, outcomes (by judgment, order or settlement) and
    costs of legal, tax, regulatory or administrative proceedings, and/or
    litigation;
  • the Company's ability to manage seasonal and other variability and to
    anticipate future business trends and needs;
  • disruptions in operations, including due to disruptions in supply
    chain, restructurings, manufacturing or information technology
    systems, labor disputes, natural disasters and consolidation of its
    legal entities, supply chain, footprint and information technology
    systems;
  • restrictions imposed on the Company through its license agreements and
    credit facilities, its ability to refinance or capitalize debt, and
    changes in the manner in which the Company finances its debt and
    future capital needs, including potential acquisitions;
  • increasing dependency on information technology and the Company's
    ability to protect against service interruptions, data corruption,
    cyber-based attacks or network security breaches, costs and timing of
    implementation and effectiveness of any upgrades or other changes to
    information technology systems, inability to control the quality or
    level of detail of financial data provided by third parties, and its
    failure to comply with any privacy or data security laws (including
    the EU General Data Protection Regulation) or to protect against theft
    of customer, employee and corporate sensitive information;
  • the Company's ability to attract and retain key personnel, including
    during times of integration, transition and restructurings;
  • the distribution and sale by third parties of counterfeit and/or gray
    market versions of its products; and
  • other factors described elsewhere in this document and from time to
    time in documents that we file with the SEC.

When used herein, the term "includes" and "including" means, unless the
context otherwise indicates, "including without limitation". More
information about potential risks and uncertainties that could affect
the Company's business and financial results is included under the
heading "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2017 and other
periodic reports the Company has filed and may file with the SEC from
time to time.

All forward-looking statements made in this release are qualified by
these cautionary statements. These forward-looking statements are made
only as of the date of this release, and the Company does not undertake
any obligation, other than as may be required by law, to update or
revise any forward-looking or cautionary statements to reflect changes
in assumptions, the occurrence of events, unanticipated or otherwise, or
changes in future operating results over time or otherwise.

Comparisons of results for current and any prior periods are not
intended to express any future trends or indications of future
performance unless expressed as such, and should only be viewed as
historical data.



Non-GAAP Financial Measures

The Company operates on a global basis, with the majority of net
revenues generated outside of the U.S. Accordingly, fluctuations in
foreign currency exchange rates can affect results of operations.
Therefore, to supplement financial results presented in accordance with
GAAP, certain financial information is presented excluding the impact of
foreign currency exchange translations to provide a framework for
assessing how the underlying businesses performed excluding the impact
of foreign currency exchange translations ("constant currency").
Constant currency information compares results between periods as if
exchange rates had remained constant period-over-period, with the
current period's results calculated at the prior-year period's rates.
The Company calculates constant currency information by translating
current and prior-period results for entities reporting in currencies
other than U.S. dollars into U.S. dollars using constant foreign
currency exchange rates. The constant currency calculations do not
adjust for the impact of revaluing specific transactions denominated in
a currency that is different to the functional currency of that entity
when exchange rates fluctuate. The constant currency information
presented may not be comparable to similarly titled measures reported by
other companies. The Company discloses the following constant currency
financial measures: net revenues, combined company net revenues, gross
profit and adjusted operating income.

The Company presents period-over-period comparisons of net revenues on a
constant currency basis, on a combined company, combined company
constant currency, and combined company constant currency excluding the
impact of acquisitions other than the acquisition of the P&G Beauty
Business ("combined company organic (LFL)") basis. The Company believes
that combined company period-over-period and combined company constant
currency period-over-period better enable management and investors to
analyze and compare the Company's net revenues performance from period
to period, as the total business and individual divisions are being
managed on a combined company basis. In the periods described in this
release, combined company period-over-period and combined company
constant currency period-over-period give effect to the completion of
the Merger for purposes of the six months ended December 31, 2017, as
compared to the six months ended December 31, 2016, as if it has been
completed on July 1, 2015. Combined company growth and combined company
constant currency growth do not include any adjustments related to
potential profit improvements, potential cost savings or adjustments to
fully conform to the accounting policies of Coty. For a reconciliation
of combined company period-over-period, combined company constant
currency period-over-period, and combined company organic (LFL)
period-over-period, see the table entitled "Reconciliation of Reported
Net Revenues to Combined Company and Like-For-Like Net Revenues". For a
reconciliation of the Company's combined company period-over-period,
combined company constant currency period-over-period and combined
company organic (LFL) by segment and geographic region, see the tables
entitled "Net Revenues and Adjusted Operating Income by Segment" and
"Net Revenues by Geographic Regions."

The Company presents operating income, operating income margin, gross
profit, gross margin, effective tax rate, net income, net income margin,
net revenues and EPS (diluted) on a non-GAAP basis and specifies that
these measures are non-GAAP by using the term "adjusted". The Company
believes these non-GAAP financial measures better enable management and
investors to analyze and compare operating performance from period to
period. In calculating adjusted operating income, operating income
margin, gross profit, gross margin, effective tax rate, net income, net
income margin and EPS (diluted), the Company excludes the following
items:

  • Costs related to acquisition activities: The Company excludes
    acquisition-related costs and acquisition accounting impacts such as
    those related to transaction costs and costs associated with the
    revaluation of acquired inventory in connection with business
    combinations because these costs are unique to each transaction. The
    nature and amount of such costs vary significantly based on the size
    and timing of the acquisitions and the maturities of the businesses
    being acquired. Also, the size, complexity and/or volume of past
    acquisitions, which often drives the magnitude of such expenses, may
    not be indicative of the size, complexity and/or volume of any future
    acquisitions.
  • Restructuring and other business realignment costs: The Company
    excludes costs associated with restructuring and business structure
    realignment programs to allow for comparable financial results to
    historical operations and forward-looking guidance. In addition, the
    nature and amount of such charges vary significantly based on the size
    and timing of the programs. By excluding the above referenced expenses
    from the non-GAAP financial measures, management is able to evaluate
    the Company's ability to utilize existing assets and estimate their
    long-term value. Furthermore, management believes that the adjustment
    of these items supplement the GAAP information with a measure that can
    be used to assess the sustainability of the Company's operating
    performance.
  • Amortization expense: The Company excludes the impact of amortization
    of finite-lived intangible assets, as such non-cash amounts are
    inconsistent in amount and frequency and are significantly impacted by
    the timing and/or size of acquisitions. Management believes that the
    adjustment of these items supplement the GAAP information with a
    measure that can be used to assess the sustainability of the Company's
    operating performance. Although the Company excludes amortization of
    intangible assets from the non-GAAP expenses, management believes that
    it is important for investors to understand that such intangible
    assets contribute to revenue generation. Amortization of intangible
    assets that relate to past acquisitions will recur in future periods
    until such intangible assets have been fully amortized. Any future
    acquisitions may result in the amortization of additional intangible
    assets.
  • Interest and other (income) expense: The Company excludes foreign
    currency impacts associated with acquisition-related and debt
    financing related forward contracts as the nature and amount of such
    charges are not consistent and are significantly impacted by the
    timing and size of such transactions.
  • Noncontrolling interest: This adjustment represents the after-tax
    impact of the non-GAAP adjustments included in Net income attributable
    to noncontrolling interests based on the relevant non-controlling
    interest percentage.
  • Tax: This adjustment represents the impact of the tax effect of the
    pretax items excluded from Adjusted net income. The tax impact of the
    non-GAAP adjustments are based on the tax rates related to the
    jurisdiction in which the adjusted items are received or incurred.

The Company has provided a quantitative reconciliation of the difference
between the non-GAAP financial measures and the financial measures
calculated and reported in accordance with GAAP. For a reconciliation of
adjusted gross profit to gross profit, adjusted EPS (diluted) to EPS
(diluted), and adjusted net revenues to net revenues, see the table
entitled "Reconciliation of Reported to Adjusted Results for the
Consolidated Statements of Operations." For a reconciliation of adjusted
operating income to operating income and adjusted operating income
margin to operating income margin, see the tables entitled
"Reconciliation of Reported Operating Income to Adjusted Operating
Income" and "Reconciliation of Reported Operating Income to Adjusted
Operating Income by Segment." For a reconciliation of adjusted effective
tax rate and adjusted cash tax rate to effective tax rate, see the table
entitled "Reconciliation of Reported Income (Loss) Before Income Taxes
and Effective Tax Rates to Adjusted Income Before Income Taxes,
Effective Tax Rates and Cash Tax Rates." For a reconciliation of
adjusted net income and adjusted net income margin to net income, see
the table entitled "Reconciliation of Reported Net Income to Adjusted
Net Income."

The Company also presents free cash flow. Free cash flow is defined as
net cash provided by operating activities, less capital expenditures.
Management believes that free cash flow is useful for investors because
it provides them with an important perspective on the cash available for
debt repayment and other strategic measures, after making necessary
capital investments in property and equipment to support the Company's
ongoing business operations, and provides them with the same measures
that management uses as the basis for making resource allocation
decisions. For a reconciliation of Free Cash Flow, see the table
entitled "Reconciliation of Net Cash Provided by Operating Activities to
Free Cash Flow."

These non-GAAP measures should not be considered in isolation, or as a
substitute for, or superior to, financial measures calculated in
accordance with GAAP.

- Tables Follow -

 

COTY INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

         

Three Months Ended

December 31,

Six Months Ended
December 31,

(in millions, except per share data) 2017 2016 2017 2016
Net revenues $ 2,637.6 $ 2,296.7 $ 4,875.9 $ 3,376.9
Cost of sales   1,025.0     892.3     1,899.3     1,337.1  
as % of Net revenues 38.9 % 38.9 % 39.0 % 39.6 %
Gross profit 1,612.6 1,404.4 2,976.6 2,039.8
Gross margin 61.1 % 61.1 % 61.0 % 60.4 %
 
Selling, general and administrative expenses 1,319.9 1,170.2 2,511.7 1,649.1
as % of Net revenues 50.0 % 51.0 % 51.5 % 48.8 %
Amortization expense 89.6 95.2 167.8 116.4
Restructuring costs 21.7 15.8 32.9 23.2
Acquisition-related costs   7.0     135.9     61.1     217.4  
Operating income (loss) 174.4 (12.7 ) 203.1 33.7
as % of Net revenues 6.6 % (0.6 %) 4.2 % 1.0 %
Interest expense, net 60.3 57.9 126.7 98.3
Other expense (income), net   3.4     (0.6 )   7.1     0.7  
Income (loss) before income taxes 110.7 (70.0 ) 69.3 (65.3 )
as % of Net revenues 4.2 % (3.0 %) 1.4 % (1.9 %)
Benefit for income taxes   (7.9 )   (122.1 )   (33.2 )   (127.2 )
Net income 118.6 52.1 102.5 61.9
as % of Net revenues 4.5 % 2.3 % 2.1 % 1.8 %
Net (loss) income attributable to noncontrolling interests (1.9 ) 2.5 (4.1 ) 10.7
Net income attributable to redeemable noncontrolling interests   11.3     2.8     17.1     4.4  
Net income attributable to Coty Inc. $ 109.2   $ 46.8   $ 89.5   $ 46.8  
as % of Net revenues 4.1 % 2.0 % 1.8 % 1.4 %
Net income attributable to Coty Inc. per common share:
Basic $ 0.15 $ 0.06 $ 0.12 $ 0.09
Diluted $ 0.15 $ 0.06 $ 0.12 $ 0.09
Weighted-average common shares outstanding:
Basic 749.6 746.6 749.1 539.8
Diluted 752.7 752.4 752.5 545.8
 
Cash dividend declared per common share $ 0.125 $ 0.125 $ 0.250 $ 0.400
 
 

COTY INC.

SUPPLEMENTAL SCHEDULES INCLUDING NON-GAAP FINANCIAL MEASURES

 

RECONCILIATION OF REPORTED TO ADJUSTED RESULTS FOR THE
CONSOLIDATED STATEMENTS OF OPERATIONS

 
These supplemental schedules provide adjusted Non-GAAP financial
information and a quantitative reconciliation of the difference
between the Non-GAAP financial measure and the financial measure
calculated and reported in accordance with GAAP.
 
  Three Months Ended December 31, 2017
(in millions) Reported
(GAAP)
  Adjustments(a)   Adjusted
(Non-GAAP)
  Foreign Currency
Translation
 

Adjusted Results at

Constant Currency

Net revenues $ 2,637.6 $ 2,637.6 $ (103.8 ) $ 2,533.8
Gross profit 1,612.6 11.3 1,623.9 (64.4 ) 1,559.5
Gross margin 61.1 % 61.6 % 61.5 %
Operating income 174.4 173.1 347.5 (13.1 ) 334.4
as % of Net revenues 6.6 % 13.2 % 13.2 %
Net income attributable to Coty Inc. $ 109.2 $ 128.0 $ 237.2
as % of Net revenues 4.1 % 9.0 %
 
EPS (diluted) $ 0.15 $ 0.32
 
Three Months Ended December 31, 2016
(in millions) Reported
(GAAP)
Adjustments(a) Adjusted
(Non-GAAP)
Net revenues $ 2,296.7 $ 2,296.7
Gross profit 1,404.4 55.4 1,459.8
Gross margin 61.1 % 63.6 %
Operating (loss) income (12.7 ) 320.7 308.0
as % of Net revenues (0.6 %) 13.4 %
Net income attributable to Coty Inc. $ 46.8 $ 176.5 $ 223.3
as % of Net revenues 2.0 % 9.7 %
 
EPS (diluted) $ 0.06     $ 0.30  
 
(a) Adjustments to Gross profit for the three months
ended December 31, 2017 are primarily due to costs incurred for the
realignment of the business due to the P&G Beauty Business and the
impact of the revaluation of acquired inventory from the Burberry
Beauty Business acquisition. For other adjustments to Operating
income (loss) and Net income attributable to Coty Inc, see
"Reconciliation of Reported Operating Income to Adjusted Operated
Income" and "Reconciliation of Reported Net Income to Adjusted Net
Income", respectively, for a detailed description of adjusted items.
 
 
Six Months Ended December 31, 2017
(in millions) Reported
(GAAP)
  Adjustments(a)   Adjusted
(Non-GAAP)
  Foreign Currency
Translation
 

Adjusted Results at

Constant Currency

Net revenues $ 4,875.9 $ $ 4,875.9 $ (146.8 ) $ 4,729.1
Gross profit 2,976.6 25.3 3,001.9 (89.0 ) 2,912.9
Gross margin 61.0 % 61.6 % 61.6 %
Operating income 203.1 339.5 542.6 (12.1 ) 530.5
as % of Net revenues 4.2 % 11.1 % 11.2 %
Net income attributable to Coty Inc. $ 89.5 $ 224.0 $ 313.5
as % of Net revenues 1.8 % 6.4 %
 
EPS (diluted) $ 0.12 $ 0.42
 
Six Months Ended December 31, 2016
(in millions) Reported
(GAAP)
Adjustments(a) Adjusted
(Non-GAAP)
Net revenues $ 3,376.9 $ 3,376.9
Gross profit 2,039.8 55.6 2,095.4
Gross margin 60.4 % 62.1 %
Operating income 33.7 440.7 474.4
as % of Net revenues 1.0 % 14.0 %
Net income attributable to Coty Inc. $ 46.8 $ 254.8 $ 301.6
as % of Net revenues 1.4 % 8.9 %
 
EPS (diluted) $ 0.09 $ 0.55
 
(a) See "Reconciliation of Reported Operating Income to
Adjusted Operated Income" and "Reconciliation of Reported Net Income
to Adjusted Net Income" for a detailed description of adjusted items.
 
 

RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED OPERATING
INCOME

   
Three Months Ended December 31, Six Months Ended December 31,
(in millions) 2017   2016   Change 2017   2016   Change
Reported Operating Income (Loss) 174.4 (12.7 )

>100

%

203.1 33.7

>100

%

% of Net revenues 6.6 % (0.6 %) 4.2 % 1.0 %
Amortization expense (a) 89.6 95.2 (6 %) 167.8 116.4 44 %
Restructuring and other business realignment costs (b) 75.6 22.6

>100

%

106.2 35.0

>100

%

Costs related to acquisition activities (c) 7.9 190.1 (96 %) 65.5 273.4 (76 %)
Pension settlement charge (d)   12.8   (100 %)   15.9  

(100

%)
Total adjustments to Reported Operating Income 173.1   320.7   (46 %) 339.5   440.7   (23 %)
Adjusted Operating Income 347.5   308.0   13 % 542.6   474.4   14 %
% of Net revenues 13.2 % 13.4 % 11.1 % 14.0 %
 
(a) In the three months ended December 31, 2017,
amortization expense decreased to $89.6 from $95.2 in the three
months ended December 31, 2016 primarily as a result of the
acquisitions. In the three months ended December 31, 2017,
amortization expense of $40.3, $32.6, and $16.7 was reported in the
Luxury, Consumer Beauty and Professional Beauty segments,
respectively. In the three months ended December 31, 2016,
amortization expense of $30.9, $47.6, and $16.7 was reported in the
Luxury, Consumer Beauty and Professional Beauty segments,
respectively.
 
In the six months ended December 31, 2017, amortization expense
increased to $167.8 from $116.4 in the six months ended December 31,
2016, primarily as a result of the acquisitions. In the six months
ended December 31, 2017, amortization expense of $73.5, $59.0, and
$35.3 was reported in the Luxury, Consumer Beauty and Professional
Beauty segments, respectively. In the six months ended December 31,
2016, amortization expense of $45.4, $52.4, and $18.6 was reported
in the Luxury, Consumer Beauty, and Professional Beauty segments,
respectively.
 
(b) In the three months ended December 31, 2017, we
incurred restructuring and other business structure realignment
costs of $75.6. We incurred Restructuring costs of $21.7 primarily
related to Global Integration Activities, included in the Condensed
Consolidated Statements of Operations. We incurred business
structure realignment costs of $53.9 primarily related to our Global
Integration Activities. This amount primarily includes $43.7 in
Selling, general and administrative expense and $10.2 in Cost of
sales. In the three months ended December 31, 2016, we incurred
restructuring and other business structure realignment costs of
$22.6. We incurred Restructuring costs of $15.8 primarily related to
Organizational Redesign and Acquisition Integration Program costs,
included in the Condensed Consolidated Statements of Operations. We
incurred business structure realignment costs of $6.8 primarily
related to our Organizational Redesign and certain other programs.
Of this amount, $3.2 is included in Cost of sales, $2.2 is included
in Selling, general and administrative expenses and $1.4 is included
in Other expense in the Condensed Consolidated Statements of
Operations.
 
In the six months ended December 31, 2017, we incurred restructuring
and other business structure realignment costs of $106.2. We
incurred Restructuring costs of $32.9 primarily related to Global
Integration Activities, included in the Condensed Consolidated
Statements of Operations. We incurred business structure realignment
costs of $73.3 primarily related to our Global Integration
Activities. This amount primarily includes $52.6 in Selling, general
and administrative expense and $20.7 in Cost of sales. In the six
months ended December 31, 2016, we incurred restructuring and other
business structure realignment costs of $35.0. We incurred
Restructuring costs of $23.2 primarily related to the Global
Integration Activities, Acquisition Integration Program and
Organizational Redesign, included in the Condensed Consolidated
Statements of Operations. We incurred business structure realignment
costs of $11.8 primarily related to our Organizational Redesign. Of
this amount, $7.0 is included in Selling, general and administrative
expenses, $3.4 is included in Cost of sales, and $1.4 is included in
Other expense in the Condensed Consolidated Statements of Operations.
 
(c) In the three months ended December 31, 2017, we
incurred $7.9 of costs related to acquisition activities. We
recognized Acquisition-related costs of $7.0, included in the
Condensed Consolidated Statements of Operations. These costs may
include finder's fees, legal, accounting, valuation, and other
professional or consulting fees, and other internal costs which may
include compensation related expenses for dedicated internal
resources. We also incurred approximately $0.9 in Costs of sales
primarily reflecting revaluation of acquired inventory in connection
with the acquisitions of the Burberry Beauty Acquisition in the
Condensed Consolidated Statements of Operations. In the three months
ended December 31, 2016, we incurred $190.1 of costs related to
acquisition activities. We recognized Acquisition-related costs of
$135.9, included in the Condensed Consolidated Statements of
Operations. These costs primarily consist of legal and consulting
fees in connection with the acquisition of the P&G Beauty Business.
We also incurred $36.2 and $16.1 in Cost of sales primarily
reflecting revaluation of acquired inventory in connection with the
acquisition of the P&G Beauty Business and ghd, respectively, and
$1.9 in Selling, general and administrative expense primarily
related to P&G real estate in the Condensed Consolidated Statements
of Operations six months ended December 31, 2016.
 

In the six months ended December 31, 2017, we incurred $65.5 of
costs related to acquisition activities. We recognized
Acquisition-related costs of $61.1, included in the Condensed
Consolidated Statements of Operations. These costs were primarily
incurred in connection with the acquisition of P&G Beauty
Business. These costs include amounts paid for external consulting
fees and internal costs for converting the data received from P&G
during the transition period to satisfy the Company's internal and
external financial reporting, regulatory and other requirements,
as well as legal, accounting, and valuation services, and fees
paid directly to P&G. We also incurred $3.5 and $0.9 in Costs of
sales primarily reflecting revaluation of acquired inventory in
connection with the acquisitions of Younique and the Burberry
Beauty Acquisition, respectively in the Condensed Consolidated
Statements of Operations. In the six months ended December 31,
2016, we incurred $273.4 of costs related to acquisition
activities. We recognized Acquisition-related costs of $217.4,
included in the Condensed Consolidated Statements of Operations.
These costs primarily consist of legal and consulting fees in
connection with the acquisition of the P&G Beauty Business. We
also incurred $36.2 and $16.1 in Cost of sales primarily
reflecting revaluation of acquired inventory in connection with
the acquisition of the P&G Beauty Business and ghd, respectively,
and $3.7 in Selling, general and administrative expense primarily
related to P&G real estate in the Condensed Consolidated
Statements of Operations in the six months ended December 31, 2016.

 
d) During the three months ended December 31, 2016, we
incurred a charge of $12.8, and in the six months ended December 31,
2016, we incurred a charge of $15.9, in connection with the
settlement of obligations related to the U.S. Del Laboratories, Inc.
pension plan. The settlement of the plan was effectuated through the
purchase of annuity contracts from a third-party insurance provider,
effectively transferring the U.S. Del Laboratories, Inc. pension
plan obligation to the insurance provider, during the three months
ended December 31, 2016. The settlement charge is as a result of
accelerating the recognition of losses previously deferred in other
comprehensive income (loss).
 
 

RECONCILIATION OF REPORTED INCOME (LOSS) BEFORE INCOME TAXES
AND EFFECTIVE TAX RATES TO

ADJUSTED INCOME BEFORE
INCOME TAXES, EFFECTIVE TAX RATES AND CASH TAX RATES

   
Three Months Ended December 31, 2017 Three Months Ended December 31, 2016
(in millions)

Income

Before

Income

Taxes

 

(Benefit)

Provision for

Taxes

 

Effective Tax

Rate

(Loss)

Income

Before

Income

Taxes

 

(Benefit)

Provision for

Taxes

 

Effective Tax

Rate

Reported Income (Loss) Before Taxes $ 110.7 $ (7.9 )   (7.1 )% $ (70.0 ) $ (122.1 )   174.4 %
Adjustments to Reported Operating Income (a) (b) 173.1 37.2       320.7   144.2      
Adjusted Income Before Taxes $ 283.8 $ 29.3     10.3 % $ 250.7   $ 22.1     8.8 %
 
(a) See a description on adjustments under
"Reconciliation of Reported Operating Income to Adjusted Operating
Income".
 
(b) The tax effects of each of the items included in
adjusted income are calculated in a manner that results in a
corresponding income tax benefit/provision for adjusted income. In
preparing the calculation, each adjustment to reported income is
first analyzed to determine if the adjustment has an income tax
consequence. The benefit/provision for taxes is then calculated
based on the jurisdiction in which the adjusted items are incurred,
multiplied by the respective statutory rates and offset by the
increase or reversal of any valuation allowances commensurate with
the non–GAAP measure of profitability.
 
 

RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME

  Three Months Ended December 31,   Six Months Ended December 31,
(in millions) 2017   2016   Change 2017   2016   Change
Reported Net Income Attributable to Coty Inc. $ 109.2 $ 46.8 >100% $ 89.5 $ 46.8 91%
% of Net revenues 4.1 % 2.0 % 1.8 % 1.4 %
Adjustments to Reported Operating Income (a) 173.1 320.7 (46%) 339.5 440.7 (23%)
Adjustments to Interest Expense (b)

N/A  

1.4 (100%)
Adjustments to noncontrolling interests (c) (7.9 )

NM  

(18.7 )

NM  

Change in tax provision due to adjustments to Reported Net Income
Attributable to Coty Inc.
(37.2 ) (144.2 ) 74% (96.8 ) (187.3 ) 48%
Adjusted Net Income Attributable to Coty Inc. $ 237.2   $ 223.3   6% $ 313.5   $ 301.6   4%
% of Net revenues 9.0 % 9.7 % 6.4 % 8.9 %
 
Per Share Data
Adjusted weighted-average common shares
Basic 749.6 746.6 749.1 539.8
Diluted 752.7 752.4 752.5 545.8
Adjusted Net Income Attributable to Coty Inc. per Common Share
Basic $ 0.32 $ 0.30 $ 0.42 $ 0.56
Diluted $ 0.32 $ 0.30 $ 0.42 $ 0.55
 
(a) See a description of adjustments under
"Reconciliation of Reported Operating Income to Adjusted Operating
Income".
 

(b) In the six months ended December 31, 2016, the
amount represents a net loss of $1.4 incurred in connection with
the Hypermarcas Brands and subsequent intercompany loans, included
in Interest expense, net in the Condensed Consolidated Statements
of Operations.

 

(c) The amounts represent the impact of non-GAAP
adjustments to Net income attributable to noncontrolling interest
related to the Company's majority-owned consolidated subsidiaries.
The amounts are based on the relevant noncontrolling interest's
percentage ownership in the related subsidiary, for which the
non-GAAP adjustments were made.

 
 

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE
CASH FLOW

       
Three Months Ended December 31, Six Months Ended December 31,
(in millions)     2017   2016 2017   2016
Net cash provided by operating activities $ 316.7 $ 678.4 $ 307.8 $ 663.4
Capital expenditures (120.8 ) (111.4 ) (232.2 ) (198.2 )
Free cash flow $ 195.9   $ 567.0   $ 75.6   $ 465.2  
 
 

NET REVENUES AND ADJUSTED OPERATING INCOME BY SEGMENT

 
Three Months Ended December 31,
Net Revenues   Change  

Reported Operating

Income

 

Adjusted Operating

Income

(in millions) 2017   2016

Reported

Basis

 

Constant Currency

2017   Change 2017   Change
Luxury $ 951.2 $ 835.0 14% 9% $ 85.1 28 % $ 125.4

29% 

Consumer Beauty 1,138.6 1,001.7 14% 10% 99.3 58 % 131.9

19% 

Professional 547.8 460.0 19% 14% 73.5 (12 %) 90.2 (10%)
Corporate

N/A  

N/A 

(83.5 ) 63 %

N/A  

Total $ 2,637.6 $ 2,296.7 15% 10% $ 174.4  

>100%  

$ 347.5

13% 

 
Six Months Ended December 31,
Net Revenues   Change  

Reported Operating

Income

 

Adjusted Operating

Income

(in millions) 2017   2016

Reported

Basis

 

Combined

Company

Year-

Over-Year

 

Combined

Company

Constant

Currency

2017   Change 2017   Change
Luxury $ 1,715.6 $ 1,284.0 34% 10% 7% $ 141.8 (1 %) $ 215.3

14% 

Consumer Beauty 2,182.0 1,573.6 39% 9% 6% 161.2 39 % 220.2

31% 

Professional 978.3 519.3 88% 17% 13% 71.8 (28 %) 107.1 (9%)
Corporate

N/A 

N/A 

N/A 

(171.7 ) (47 %)

N/A  

Total $ 4,875.9 $ 3,376.9 44% 10% 8% $ 203.1  

>100%  

$ 542.6

14% 

 
 
 

NET REVENUES BY GEOGRAPHIC REGION

                 
Three Months Ended December 31,
Net Revenues Change
(in millions)        

     2017     

     2016     

Reported Basis  

Constant

Currency

North America $ 743.5 $ 700.5 6 % 6 %
Europe 1,289.1 1,134.1 14 % 6 %
ALMEA   605.0   462.1 31 % 29 %
Total $ 2,637.6 $ 2,296.7 15 % 10 %
 
Six Months Ended December 31,
Net Revenues Change
(in millions)         2017 2016

Reported

Basis

 

Combined

Company

Year-over-

Year

   

Combined

Company

Constant

Currency

North America $ 1,492.4 $ 1,044.9 43 % 8 % 8 %
Europe 2,266.0 1,581.0 43 % 10 % 4 %
ALMEA   1,117.5   751.0 49 % 16 % 14 %
Total $ 4,875.9 $ 3,376.9 44 % 11 % 8 %
 
 

RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED OPERATING
INCOME BY SEGMENT

   
Three Months Ended December 31, 2017
(in millions)  

Reported
(GAAP)

  Adjustments (a)   Adjusted
(Non-GAAP)
  Foreign Currency
Translation
 

Adjusted

Results at

Constant

Currency

OPERATING INCOME (LOSS)
Luxury $ 85.1 $ (40.3 ) $ 125.4 $ (3.4 ) $ 122.0
Consumer Beauty 99.3 (32.6 ) 131.9 (5.5 ) 126.4
Professional Beauty 73.5 (16.7 ) 90.2 (4.2 ) 86.0
Corporate (83.5 ) (83.5 )      
Total $ 174.4   $ (173.1 ) $ 347.5   $ (13.1 ) $ 334.4  
 
OPERATING MARGIN
Luxury 8.9 % 13.2 % 13.4 %
Consumer Beauty 8.7 % 11.6 % 11.5 %
Professional Beauty 13.4 % 16.5 % 16.5 %
Corporate N/A

N/A   

N/A   

Total 6.6 % 13.2 % 13.2 %
 
 
Three Months Ended December 31, 2016
(in millions)   Reported
(GAAP)
Adjustments (a) Adjusted
(Non-GAAP)
OPERATING INCOME (LOSS)
Luxury $ 66.6 $ (30.9 ) $ 97.5
Consumer Beauty 62.9 (47.6 ) 110.5
Professional Beauty 83.3 (16.7 ) 100.0
Corporate (225.5 ) (225.5 )  
Total $ (12.7 ) $ (320.7 ) $ 308.0  
 
OPERATING MARGIN
Luxury 8.0 % 11.7 %
Consumer Beauty 6.3 % 11.0 %
Professional Beauty 18.1 % 21.7 %
Corporate

N/A   

N/A   

Total (0.6 %) 13.4 %
 
(a) See "Reconciliation of Reported Operating Income to
Adjusted Operated Income" for a detailed description of adjusted
items.
   
Six Months Ended December 31, 2017
(in millions)   Reported
(GAAP)
  Adjustments (a)   Adjusted
(Non-GAAP)
  Foreign Currency
Translation
 

Adjusted

Results at

Constant

Currency

OPERATING INCOME (LOSS)
Luxury $ 141.8 $ (73.5 ) $ 215.3 $ (3.6 ) $ 211.7
Consumer Beauty 161.2 (59.0 ) 220.2 (5.1 ) 215.1
Professional Beauty 71.8 (35.3 ) 107.1 (3.4 ) 103.7
Corporate (171.7 ) (171.7 )      
Total $ 203.1   $ (339.5 ) $ 542.6   $ (12.1 ) $ 530.5  
 
OPERATING MARGIN
Luxury 8.3 % 12.5 % 12.8 %
Consumer Beauty 7.4 % 10.1 % 10.1 %
Professional Beauty 7.3 % 10.9 % 11.0 %
Corporate

N/A   

N/A   

N/A   

Total 4.2 % 11.1 % 11.2 %
 
 
Six Months Ended December 31, 2016
(in millions)   Reported
(GAAP)
Adjustments (a) Adjusted
(Non-GAAP)
OPERATING INCOME (LOSS)
Luxury $ 142.7 $ (45.4 ) $ 188.1
Consumer Beauty 115.6 (52.4 ) 168.0
Professional Beauty 99.7 (18.6 ) 118.3
Corporate (324.3 ) (324.3 )  
Total $ 33.7   $ (440.7 ) $ 474.4  
 
OPERATING MARGIN
Luxury 11.1 % 14.6 %
Consumer Beauty 7.3 % 10.7 %
Professional Beauty 19.2 % 22.8 %
Corporate

N/A   

N/A   

Total 1.0 % 14.0 %
 
(a) See "Reconciliation of Reported Operating Income to
Adjusted Operated Income" for a detailed description of adjusted
items.
 
 

RECONCILIATION OF REPORTED NET REVENUES TO COMBINED COMPANY AND
LIKE-FOR-LIKE NET REVENUES

   
      Three Months Ended December 31, 2017 vs. Three Months Ended
December 31, 2016 Net Revenue Change
        of which
Net Revenues Change YoY   Reported Basis    

Reported at Constant

Currency

   

Impact from

Acquisitions

   

Organic (LFL)

Luxury 14% 9%   1%    

8%

Consumer Beauty 14% 10% 11% (1)%
Professional Beauty 19%     14%     12%    

2%

Total Company 15%     10%     7%     3%
 

1Acquisitions reflect the net revenue contribution in
the current period from the acquisitions of Younique, Burberry and
two months of ghd.

   
 
      Six Months Ended December 31, 2017 vs. Six Months Ended December
31, 2016 Net Revenue Change
            of which
Net Revenues Change YoY  

Reported Basis vs

Legacy Coty

   

Combined

Company

Reported 1

   

Combined

Company

Reported at

Constant

Currency

   

Impact from

Acquisitions 2

   

Combined

Company

Organic (LFL)

Luxury 34% 10% 7%   1%     6%
Consumer Beauty 39% 9% 6% 11% (5)%
Professional Beauty 88%     17%     13%     12%     1%
Total Company 44%     11%     8%     8%     —%
 
¹ Combined Company reflects combined Legacy-Coty and P&G Beauty
Business net revenues in the current and prior-year period.
 
² Acquisitions reflect the net revenue contribution in the current
period from the acquisitions of the Younique, Burberry and five
months of ghd.
 
 

COTY INC. & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

     
(in millions)

December 31,

2017

     June 30,     

     2017     

ASSETS
Current assets:
Cash and cash equivalents $ 400.1 $ 535.4
Restricted cash 25.6 35.3
Trade receivables—less allowances of $90.6 and $58.5, respectively 1,743.9 1,470.3
Inventories 1,155.3 1,052.6
Prepaid expenses and other current assets 554.3   487.9  
Total current assets 3,879.2 3,581.5
Property and equipment, net 1,647.3 1,632.1
Goodwill 8,864.9 8,555.5
Other intangible assets, net 8,550.7 8,425.2
Deferred income taxes 199.1 72.6
Other noncurrent assets 304.4   281.3  
TOTAL ASSETS $ 23,445.6   $ 22,548.2  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,758.6 $ 1,732.1
Accrued expenses and other current liabilities 2,007.3 1,796.4
Short-term debt and current portion of long-term debt 295.9 209.1
Income and other taxes payable 94.0   66.0  
Total current liabilities 4,155.8 3,803.6
Long-term debt, net 7,145.8 6,928.3
Pension and other post-employment benefits 571.3 549.2
Deferred income taxes 933.9 924.9
Other noncurrent liabilities 572.0   473.4  
Total liabilities 13,378.8   12,679.4  
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTERESTS 638.3   551.1  
EQUITY:
Preferred Stock
Common Stock 8.1 8.1
Additional paid-in capital 10,940.3 11,203.2
Accumulated deficit (361.4 ) (459.2 )
Accumulated other comprehensive income 283.9 4.4
Treasury stock (1,441.8 ) (1,441.8 )
Total Coty Inc. stockholders' equity 9,429.1 9,314.7
Noncontrolling interests (0.6 ) 3.0  
Total equity 9,428.5   9,317.7  
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY $ 23,445.6   $ 22,548.2  
 
 

COTY INC. & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

     

   Six Months Ended   
   December
31,   

(in millions) 2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 102.5 $ 61.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 350.5 230.3
Deferred income taxes (75.1 ) (111.2
Provision for bad debts 9.0 5.8
Provision for pension and other post-employment benefits 22.2 28.5
Share-based compensation 16.2 9.1
Other (5.1 ) (2.7
Change in operating assets and liabilities, net of effects from
purchase of acquired companies:
Trade receivables (246.6 ) (293.7
Inventories (22.2 ) 103.3
Prepaid expenses and other current assets (47.6 ) 22.6
Accounts payable 18.7 322.6
Accrued expenses and other current liabilities 185.6 369.8
Income and other taxes payable 19.5 (59.0
Other noncurrent assets (14.9 ) 11.4
Other noncurrent liabilities (4.9 ) (35.3
Net cash provided by operating activities 307.8   663.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (232.2 ) (198.2
Payment for business combinations, net of cash acquired (264.6 ) (143.8
Proceeds from sale of asset 2.8  
Net cash used in investing activities (494.0 ) (342.0
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt, original maturity more than three
months
5.6
Repayments of short-term debt, original maturity more than three
months
(5.8
Net proceeds (repayments) of short-term debt, original maturity less
than three months
71.5 (39.5
Proceeds from revolving loan facilities 1,437.0 934.4
Repayments of revolving loan facilities (1,166.4 ) (1,384.4
Proceeds from term loans 1,075.0
Repayments of term loans (95.5 ) (55.7
Dividend payment (188.1 ) (185.8
Net proceeds from issuance of Class A Common Stock and Series A
Preferred Stock
13.7 13.6
Payments for employee taxes related to net settlement of equity
awards
(3.4 )
Payments for purchases of Class A Common Stock held as Treasury Stock (36.3
Net proceeds from foreign currency contracts 8.2 14.8
Purchase of additional noncontrolling interests (9.8
Proceeds from noncontrolling interests 0.2
Distributions to noncontrolling interests, redeemable noncontrolling
interests and mandatorily redeemable financial instruments
(40.0 ) (3.5
Payment of deferred financing fees (4.0 ) (23.4
Net cash provided by financing activities 33.2   299.2
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 8.0   (28.8
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED
CASH
(145.0 ) 591.8
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 570.7   372.4
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 425.7   $ 964.2
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for interest $ 129.4 $ 79.5
Cash paid during the period for income taxes, net of refunds received 57.5 38.4
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Accrued capital expenditure additions $ 72.6 $ 56.2
Non-cash Common Stock issued for business combination 9,628.6
Non-cash debt assumed for business combination 1,941.8
Non-cash contingent consideration for business combination 5.0

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