Market Overview

Coty Inc. Reports Third Quarter Fiscal 2018 Results

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Positive Net Revenue Performance

Strong Growth in Reported and Adjusted Operating Profit

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

               
Results at a glance     Three Months Ended March 31, 2018   Nine Months Ended March 31, 2018
  Change YoY     Change YoY
(in millions, except per share data)  

Reported
Basis

 

Constant
Currency

 

Reported
Basis

 

Combined
Company *

 

Combined
Company
Constant
Currency *

Net revenues $ 2,222.7 9 % 3 % $ 7,098.6 31 % 10 % 6 %
Operating income - reported 19.9

>100

%

223.0 >100%
Operating income - adjusted* 227.8 9 % 770.4 13 %
Net income - reported (77.0 ) 53 % 12.5

>100

%

Net income - adjusted* 96.2 (13 %) 409.7 (1 %)
EPS (diluted) - reported $ (0.10 ) 55 % $ 0.02

>100

%

EPS (diluted) - adjusted*     $ 0.13     (13 %)       $ 0.54     (19 %)        
 
* 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, 2016.
 

Third Quarter Fiscal 2018 Summary

  • Net revenues of $2,222.7 million increased 9.4% as reported compared
    to the prior year and increased 3.4% at constant currency
  • Excluding the contribution from the acquisitions of Burberry and one
    month of Younique, organic net revenues increased 0.2% on a constant
    currency basis
  • Reported operating income of $19.9 million increased from a loss of
    $(192.5) million
  • Adjusted operating income of $227.8 million increased 9.4% from $208.3
    million
  • Reported net loss of $(77.0) million decreased from $(164.2) million,
    and adjusted net income of $96.2 million decreased from $110.3 million
  • Reported earnings per diluted share of $(0.10) increased from $(0.22)
    and adjusted earnings per diluted share of $0.13 decreased from $0.15
  • Net cash from operating activities was $(118.9) million compared to
    $43.3 million in the prior year

Nine Months Fiscal 2018 Summary

  • Net revenues of $7,098.6 million increased 31.2% as reported compared
    to the prior year net revenues, and increased 6.3% for the combined
    company at constant currency
  • Excluding the contribution from the acquisitions of Burberry, seven
    months of Younique and five months of ghd, organic net revenues
    increased 0.3% on a constant currency basis
  • Reported operating income of $223.0 million increased from $(158.8)
    million
  • Adjusted operating income of $770.4 million increased from $682.7
    million
  • Reported net income of $12.5 million increased from $(117.4) million,
    and adjusted net income of $409.7 million was in line with the prior
    period of $411.9 million
  • Reported earnings per diluted share of $0.02 increased from $(0.19),
    and adjusted earnings per diluted share of $0.54 decreased from $0.67
  • Net cash provided by operating activities was $188.9 million compared
    to $706.7 million in the prior year

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

"Our results were generally in line with our expectations, as we
delivered steady performance with modest positive organic top line
growth and healthy adjusted operating profit improvement. The Luxury
division continued to deliver very strong results, while our
Professional Beauty division once again demonstrated consistent solid
growth. The Consumer Beauty division continued its uneven performance,
but with encouraging signs of stability.

We continued to reshape our growth profile by strengthening our iconic
global brands, supported by recent relaunches. We are also fueling
smaller brands with high growth potential and stabilizing the remaining
portfolio including the conclusion of our previously communicated
portfolio rationalization program. This streamlining of our portfolio is
an important milestone that will allow us to focus on those brands where
we believe we are particularly suited to drive long term revenue growth.

Though there is still much work to be done, including the continued
integration of the P&G Beauty business, I am encouraged by how far we
have come since embarking on our journey to transform Coty into a
challenger in the global beauty industry.

As we have said, recovery will not be a straight line, but we continue
to aim to deliver modest organic net revenue growth for the second half
of the year. For adjusted operating 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."





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 nine
months ended March 31, 2018, as compared to the nine months ended March
31, 2017, as if it had occurred on July 1, 2016. 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 March 31, 2018, as compared to
three months ended March 31, 2017, are reported by segment and
geographic region and are presented on a reported (GAAP) and a constant
currency basis. Net revenues for the nine months ended March 31, 2018,
as compared to nine months ended March 31, 2017, 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.





Third Quarter Fiscal 2018 Summary Operating
Review

Net revenues of $2,222.7 million increased 9.4% as reported
compared to the prior year and increased 3.4% on a constant currency
basis. The 3.4% constant currency net revenue growth reflected a 3.2%
contribution from Burberry Beauty and one month of Younique, and 0.2%
increase in organic net revenue growth, which includes two months of
Younique. Organic net revenue growth was driven by strong performance in
Luxury and steady momentum in Professional Beauty, partially offset by a
decline in Consumer Beauty.

Gross margin of 63.4% increased significantly from 59.8% in the
prior year, while adjusted gross margin increased 100bps to 64.3% from
63.3% with strength in all three divisions and mainly due to the
realization of benefits from our synergy program.

Reported operating income increased to $19.9 million from a loss
of $(192.5) million, primarily due to higher gross profit and lower
acquisition costs.

Adjusted operating income increased 9.4% to $227.8 million from
$208.3 million driven by improved gross margin and tight cost controls,
which were partially offset by increased marketing spend to support
multiple brand relaunch efforts.

Reported effective tax rate was (7.9)% compared to 36.9%.

Adjusted effective tax rate was 23.8% compared to 22.2%.

Reported net loss decreased to $(77.0) million from $(164.2)
million, primarily due to higher operating income partially offset by
higher interest and tax expense.

Adjusted net income of $96.2 million decreased from $110.3
million, reflecting increased interest and redeemable non-controlling
interest expense, partially offset by higher adjusted operating income.





Cash Flows

  • Net cash from operating activities in the quarter was $(118.9)
    million, compared to $43.3 million in the prior year, driven by higher
    working capital requirements due, in part, to the Burberry Beauty
    acquisition and build-up of inventory in preparation for consolidation
    of certain distribution centers.
  • Negative free cash flow of $(205.4) million in the quarter compared to
    $(82.5) million in the prior year reflects higher cash used in
    operating activities partially offset by lower capital expenditures.
  • On March 15, 2018, the Company paid a quarterly dividend of $0.125 per
    share for a total of $93.8 million.
  • Cash and cash equivalents of $460.8 million decreased by $74.6 million
    compared to June 30, 2017.

Total debt of $7,931.2 million increased by $715.6 million while net
debt of $7,470.4 million increased by $790.2 million from the balance on
June 30, 2017 driven in part by the acquisition of the Burberry Beauty
business.





Third Quarter Fiscal 2018 Business Review by
Segment

    Three Months Ended March 31,
Net Revenues   Change  

Reported Operating
Income

 

Adjusted Operating
Income

(in millions)   2018   2017

Reported
Basis

 

Constant
Currency

2018     Change 2018   Change
Luxury $   752.5 $   634.6 19 % 12 % $ 59.4   (2 %) $ 100.4 17 %
Consumer Beauty 1,021.7 988.6 3 % (1 %) 64.2 2 % 97.3 (20 %)
Professional 448.5 408.9 10 % 2 % 11.4

>100

%

30.1

>100

%

Corporate N/A   N/A   (115.1 ) 61 % N/A  
Total $   2,222.7 $   2,032.1 9 % 3 % $ 19.9   >100%   $ 227.8 9 %
 



Luxury

  • Reported net revenues of $752.5 million increased 18.6% compared to
    the prior year and 11.8% on a constant currency basis. The increase in
    constant currency reflects 6.1% organic growth driven by the on-going
    success of Tiffany & Co. and Gucci Bloom fragrances as well as CK One
    and Chloe Nomade, and a 5.7% contribution from Burberry.
  • Adjusted operating income of $100.4 million increased 16.6% from $86.1
    million in the prior year.

Consumer Beauty

  • Net revenues of $1,021.7 million increased 3.3% compared to the prior
    year and decreased (1.2)% on a constant currency basis. The decrease
    in constant currency reflects a (4.4)% decline in organic growth,
    which includes two months of Younique. The decline in our organic net
    revenue growth was driven by certain U.S. brands not yet fully
    benefiting from relaunch efforts and the impact of pricing actions to
    improve profitability in our Brazil business, partially offset by
    growth in the rest of ALMEA.
  • Adjusted operating income decreased 19.9% to $97.3 million from $121.5
    million in the prior year.

Professional

  • Net revenues of $448.5 million increased 9.7% compared to the prior
    year and 1.9% on a constant currency basis. The 1.9% growth in the
    underlying business reflects higher net revenues from OPI due to
    on-going success of the gel restage as well as strength in lacquers.
    Wella Professionals also continues to benefit from the successful
    Wellaplex product launch.
  • Adjusted operating income increased >100% to $30.1 million from $0.7
    million in the prior year.





Third Quarter Fiscal 2018 Business Review by
Geographic Region

        Three Months Ended March 31,
Net Revenues   Change
(in millions)       2018   2017

Reported
Basis

 

Constant
Currency

North America $ 712.8 $ 685.1 4 % 4 %
Europe 976.5 848.4 15 % 3 %
ALMEA 533.4 498.6 7 % 5 %
Total $ 2,222.7 $ 2,032.1 9 % 3 %
 





North America

  • Reported net revenues increased 4.0% compared to the prior year and
    increased 3.5% on a constant currency basis, driven primarily by the
    contributions from Younique and Burberry, the on-going success of
    Tiffany & Co. and Gucci Bloom and certain mass fragrances, partially
    offset by declines in U.S. color cosmetics. OPI was also a contributor.

Europe

  • Reported net revenues increased 15.1% compared to the prior year and
    increased 2.7% on a constant currency basis driven primarily by
    incremental revenues from the success of fragrances including Tiffany
    & Co. and Gucci Bloom as well as Max Factor.

ALMEA

  • Reported net revenues increased 7.0% compared to the prior year and
    increased 4.8% on a constant currency basis reflecting incremental
    revenues from fragrances driven by the launches of Tiffany & Co. and
    Gucci Bloom, and higher revenues from color cosmetics driven by Max
    Factor in China, partially offset by lower revenues in Brazil.





Noteworthy Company Developments

Other noteworthy company developments include:

  • On April 5, 2018, Coty completed its previously announced offering of
    three series of U.S. dollar denominated and euro denominated senior
    unsecured notes in an aggregate principal amount of $550 million and
    €800 million, in a private offering.
  • On April 5, 2018, Coty entered into a credit agreement which amended
    and restated the existing credit agreements. The credit agreement
    provides for senior secured credit facilities comprised of (i) a five
    year revolving credit facility in an aggregate principal amount up to
    $3.25 billion, (ii) a five year term loan A facility consisting of (a)
    $1.0 billion denominated in U.S. dollars and (b) €2.035 billion
    denominated in Euros and (iii) a seven year term loan B facility
    consisting of (a) $1.4 billion denominated in U.S. dollars and (b)
    €850 million denominated in Euros.
  • On April 25, 2018, Coty announced the appointment of Esra Erkal-Paler
    as Chief Global Corporate Affairs Officer and member of the Executive
    Committee.
  • On May 9, 2018, Coty announced a dividend of $0.125 per share, payable
    June 14, 2018 to holders of record on May 31, 2018.
  • After the quarter close, Coty has completed the previously announced
    portfolio rationalization program.





Conference Call

Coty Inc. will host a conference call at 8:00 a.m. (ET) today, May 9,
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: 8276807). 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: 8276807).



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, revenue and
profit trends, and any outlook for the remainder of the fiscal year and
future reporting periods), synergies from, performance of and
integration of (including costs associated therewith) the Company's
recent acquisitions (including the P&G Beauty business), ongoing and
future cost-efficiency initiatives and the timing, presentation and cost
of future cost saving and/or restructuring plans, strategic transactions
(including mergers and acquisitions, joint ventures, divestitures,
licenses and portfolio rationalizations), future liquidity, future
performance in digital and e-commerce, future performance of the
Company's key brands and the Company's Consumer Beauty division,
dividends, and fiscal year and subsequent effective tax rates (including
the future impact of the Tax Act). 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", "should", "outlook", "continue",
"target", "aim", "potential" 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 (including its financial condition,
results of operations, cash flows and prospects) 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 initiatives (including sell-through of
    its relaunched brands and reduction in discounts in certain markets)
    within the expected time frame 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;
  • use of estimates and assumptions in preparing the Company's 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 diversion of management attention to and management
    of, cash flows, and expenses and costs (including operating costs and
    capital expenses) associated with multiple strategic initiatives and
    internal reorganizations, including current and future business
    realignment or restructuring activities;
  • the continued integration of the P&G Beauty Business and other recent
    acquisitions with the Company's 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 to simplify processes and improve organizational
    agility) at the levels and at the costs and within the time frames
    currently contemplated or at all;
  • increased competition, consolidation among retailers, shifts in
    consumers' preferred distribution and marketing channels (including to
    digital and luxury channels), shelf-space resets, compression of
    go-to-market cycles, changes in product and marketing requirements by
    retailers, and other changes in the retail, e-commerce and wholesale
    environment in which the Company does 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 and its business partners' and licensors' abilities to
    obtain, maintain and protect the intellectual property used in its and
    their respective businesses, protect its and their respective
    reputations (including those of its and their executives), public
    goodwill, and defend claims by third parties for infringement of
    intellectual property rights;
  • the effect of the divestiture and discontinuation of the Company's
    non-core brands (including associated post-closing cost 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 or new,
    unanticipated or unknown liabilities, including with respect to
    environmental, competition and other regulatory, compliance 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 its 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 tariffs and other international
    trade regulations and the U.S. tax code;
  • the number, type, outcomes (by judgment, order or settlement) and
    costs of legal, compliance, 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 and other business realignment activities,
    manufacturing or information technology systems, labor disputes, and
    natural disasters;
  • restrictions imposed on the Company through its license agreements,
    credit facilities and senior unsecured bonds, its ability to refinance
    or recapitalize 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, 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 the Company's products; and
  • other factors described elsewhere in this document and from time to
    time in documents that the Company 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 nine months ended March 31, 2018, as
compared to the nine months ended March 31, 2017, as if it has been
completed on July 1, 2016. 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
March 31,

Nine Months Ended
March 31,
(in millions, except per share data) 2018   2017 2018   2017
Net revenues $ 2,222.7 $ 2,032.1 $ 7,098.6 $ 5,409.0
Cost of sales 812.4   816.1   2,711.7   2,153.2  
as % of Net revenues 36.6 % 40.2 % 38.2 % 39.8 %
Gross profit 1,410.3 1,216.0 4,386.9 3,255.8
Gross margin 63.4 % 59.8 % 61.8 % 60.2 %
 
Selling, general and administrative expenses 1,252.3 1,092.4 3,764.0 2,741.5
as % of Net revenues 56.3 % 53.8 % 53.0 % 50.7 %
Amortization expense 92.8 102.6 260.6 219.0
Restructuring costs 42.7 155.8 75.6 179.0
Acquisition-related costs 2.6   57.7   63.7   275.1  
Operating income (loss) 19.9 (192.5 ) 223.0 (158.8 )
as % of Net revenues 0.9 % (9.5 %) 3.1 % (2.9 %)
Interest expense, net 72.6 60.8 199.3 159.1
Other expense (income), net 3.0   (0.5 ) 10.1   0.2  
(Loss) income before income taxes (55.7 ) (252.8 ) 13.6 (318.1 )
as % of Net revenues (2.5 %) (12.4 %) 0.2 % (5.9 %)
Provision (benefit) for income taxes 4.4   (93.4 ) (28.8 ) (220.6 )
Net (loss) income (60.1 ) (159.4 ) 42.4 (97.5 )
as % of Net revenues (2.7 %) (7.8 %) 0.6 % (1.8 %)
Net income (loss) income attributable to noncontrolling interests 1.1 3.5 (3.0 ) 14.2
Net income attributable to redeemable noncontrolling interests 15.8   1.3   32.9   5.7  
Net (loss) income attributable to Coty Inc. $ (77.0 ) $ (164.2 ) $ 12.5   $ (117.4 )
as % of Net revenues (3.5 %) (8.1 %) 0.2 % (2.2 %)
Net (loss) income attributable to Coty Inc. per common share:
Basic $ (0.10 ) $ (0.22 ) $ 0.02 $ (0.19 )
Diluted $ (0.10 ) $ (0.22 ) $ 0.02 $ (0.19 )
Weighted-average common shares outstanding:
Basic 750.1 747.3 749.4 607.9
Diluted 750.1 747.3 753.1 607.9
 
Cash dividend declared per common share $ 0.125 $ 0.125 $ 0.375 $ 0.525
 
 
 

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 March 31, 2018
(in millions) Reported
(GAAP)
  Adjustments(a)   Adjusted
(Non-GAAP)
  Foreign Currency
Translation
 

Adjusted Results at
Constant Currency

Net revenues $ 2,222.7 $ 2,222.7 $ (120.1 ) $ 2,102.6
Gross profit 1,410.3 18.0 1,428.3 (77.5 ) 1,350.8
Gross margin 63.4 % 64.3 % 64.2 %
Operating income 19.9 207.9 227.8 (1.6 ) 226.2
as % of Net revenues 0.9 % 10.2 % 10.8 %
Net income attributable to Coty Inc. $ (77.0 ) $ 173.2 $ 96.2
as % of Net revenues (3.5 %) 4.3 %
 
EPS (diluted) $ (0.10 ) $ 0.13
         
Three Months Ended March 31, 2017
(in millions) Reported
(GAAP)
Adjustments(a) Adjusted
(Non-GAAP)
Net revenues $ 2,032.1 $ 2,032.1
Gross profit 1,216.0 71.2 1,287.2
Gross margin 59.8 % 63.3 %
Operating (loss) income (192.5 ) 400.8 208.3
as % of Net revenues (9.5 %) 10.3 %
Net income attributable to Coty Inc. $ (164.2 ) $ 274.5 $ 110.3
as % of Net revenues (8.1 %) 5.4 %
 

EPS (diluted)

$ (0.22 ) $ 0.15
               
 
(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.
 
 
 
Nine Months Ended March 31, 2018
(in millions) Reported
(GAAP)
  Adjustments(a)   Adjusted
(Non-GAAP)
  Foreign Currency
Translation
 

Adjusted Results at
Constant Currency

Net revenues $ 7,098.6 $ $ 7,098.6 $ (266.9 ) $ 6,831.7
Gross profit 4,386.9 43.3 4,430.2 (166.5 ) 4,263.7
Gross margin 61.8 % 62.4 % 62.4 %
Operating income 223.0 547.4 770.4 (13.7 ) 756.7
as % of Net revenues 3.1 % 10.9 % 11.1 %
Net income attributable to Coty Inc. $ 12.5 $ 397.2 $ 409.7
as % of Net revenues 0.2 % 5.8 %
 
EPS (diluted) $ 0.02 $ 0.54
 
Nine Months Ended March 31, 2017
(in millions) Reported
(GAAP)
Adjustments(a) Adjusted
(Non-GAAP)
Net revenues $ 5,409.0 $ 5,409.0
Gross profit 3,255.8 126.9 3,382.7
Gross margin 60.2 % 62.5 %
Operating income (158.8 ) 841.5 682.7
as % of Net revenues (2.9 %) 12.6 %
Net income attributable to Coty Inc. $ (117.4 ) $ 529.3 $ 411.9
as % of Net revenues (2.2 %) 7.6 %
 
EPS (diluted) $ (0.19 ) $ 0.67
 
(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 March 31, Nine Months Ended March 31,
(in millions) 2018   2017   Change 2018   2017   Change
Reported Operating Income (Loss) 19.9 (192.5 )

>100

%

223.0 (158.8 )

>100

%

% of Net revenues 0.9 % (9.5 %) 3.1 % (2.9 %)
Amortization expense (a) 92.8 102.6 (10 %) 260.6 219.0 19 %
Restructuring and other business realignment costs (b) 111.0 175.9 (37 %) 217.2 210.9 3 %
Costs related to acquisition activities (c) 4.1 122.3 (97 %) 69.6 395.7 (82 %)
Pension settlement charge (d)     N/A     15.9   (100 %)
Total adjustments to Reported Operating Income 207.9   400.8   (48 %) 547.4   841.5   (35 %)
Adjusted Operating Income 227.8   208.3   9 % 770.4   682.7   13 %
% of Net revenues 10.2 % 10.3 % 10.9 % 12.6 %
 
(a) In the three months ended March 31, 2018,
amortization expense decreased to $92.8 from $102.6 in the three
months ended March 31, 2017 primarily as a result of the
acquisitions. In the three months ended March 31, 2018, amortization
expense of $41.0, $33.1, and $18.7 was reported in the Luxury,
Consumer Beauty and Professional Beauty segments, respectively. In
the three months ended March 31, 2017, amortization expense of
$25.2, $58.5, and $18.9 was reported in the Luxury, Consumer Beauty
and Professional Beauty segments, respectively.
 
In the nine months ended March 31, 2018, amortization expense
increased to $260.6 from $219.0 in the nine months ended March 31,
2017, primarily as a result of the acquisitions. In the nine months
ended March 31, 2018, amortization expense of $114.5, $92.1, and
$54.0 was reported in the Luxury, Consumer Beauty and Professional
Beauty segments, respectively. In the nine months ended March 31,
2017, amortization expense of $70.6, $110.9, and $37.5 was reported
in the Luxury, Consumer Beauty, and Professional Beauty segments,
respectively.
 
(b) In the three months ended March 31, 2018, we incurred
restructuring and other business structure realignment costs of
$111.0. We incurred Restructuring costs of $42.7 primarily related
to Global Integration Activities and 2018 Restructuring Actions,
included in the Condensed Consolidated Statements of Operations. We
incurred business structure realignment costs of $68.3 primarily
related to our Global Integration Activities and certain other
programs. This amount primarily includes $51.8 in Selling, general
and administrative expense and $16.5 in Cost of sales. In the three
months ended March 31, 2017, we incurred restructuring and other
business structure realignment costs of $175.9. We incurred
Restructuring costs of $155.8 primarily related to Global
Integration Activities, included in the Condensed Consolidated
Statements of Operations. We incurred business structure realignment
costs of $20.1 primarily related to our Global Integration
Activities, Organizational Redesign and certain other programs. Of
this amount, $12.0 is included in selling, general and
administrative expenses and $8.1 is included in cost of sales.
 
In the nine months ended March 31, 2018, we incurred restructuring
and other business structure realignment costs of $217.2. We
incurred Restructuring costs of $75.6 primarily related to Global
Integration Activities and 2018 Restructuring Actions, included in
the Condensed Consolidated Statements of Operations. We incurred
business structure realignment costs of $141.6 primarily related to
our Global Integration Activities and certain other programs. This
amount primarily includes $104.4 in Selling, general and
administrative expense and $37.2 in Cost of sales. In the nine
months ended March 31, 2017, we incurred restructuring and other
business structure realignment costs of $210.9. We incurred
Restructuring costs of $179.0 primarily related to the Global
Integration Activities, included in the Condensed Consolidated
Statements of Operations. We incurred business structure realignment
costs of $31.9 primarily related to our Global Integration
Activities, Organizational Redesign and certain other programs. Of
this amount $20.4 is included in Selling, general and administrative
expenses and $11.5 is included in Cost of sales.
 
(c) In the three months ended March 31, 2018, we incurred
$4.1 of costs related to acquisition activities. We recognized
Acquisition-related costs of $2.6, 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 $1.5 in Costs of sales primarily
reflecting revaluation of acquired inventory in connection with the
acquisition of the Burberry Beauty Business in the Condensed
Consolidated Statements of Operations. In the three months ended
March 31, 2017, we incurred $122.3 of costs related to acquisition
activities. We recognized Acquisition-related costs of $57.7,
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 $28.3, $22.2 and $12.7 in costs of sales primarily
reflecting revaluation of acquired inventory in connection with the
acquisition of ghd, Younique and the P&G Beauty Business in the
Condensed Consolidated Statements of Operations.
 
In the nine months ended March 31, 2018, we incurred $69.6 of costs
related to acquisition activities. We recognized Acquisition-related
costs of $63.7, 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
$2.4 in Costs of sales primarily reflecting revaluation of acquired
inventory in connection with the acquisitions of Younique and the
Burberry Beauty Business, respectively, in the Condensed
Consolidated Statements of Operations. In the nine months ended
March 31, 2017, we incurred $395.7 of costs related to acquisition
activities. We recognized Acquisition-related costs of $275.1,
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 $44.4, $22.2 and $48.8 in costs of sales primarily
reflecting revaluation of acquired inventory in connection with the
acquisitions of ghd, Younique and the P&G Beauty Business,
respectively in the Condensed Consolidated Statements of Operations.
 
d) During the nine months ended March 31, 2017, 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 March 31,
2017. 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 March 31, 2018 Three Months Ended March 31, 2017
(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 $ (55.7 ) $ 4.4   (7.9 )% $ (252.8 ) $ (93.4 )   36.9 %
Adjustments to Reported Operating Income (a) (b) 207.9   31.8       400.8   126.3      
Adjusted Income Before Taxes $ 152.2   $ 36.2     23.8 % $ 148.0   $ 32.9     22.2 %
 
(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.
 

The adjusted effective tax rate was 23.8% for the three months
ended March 31, 2018 compared to 22.2% for the three months ended
March 31, 2017. The differences were primarily due to the
expiration of foreign statutes of limitations.

 
     
Nine Months Ended
March 31, 2018
Nine Months Ended
March 31, 2017
(in millions)    

Income
Before
Income
Taxes

 

(Benefit)
Provision for
Income
Taxes

 

Effective Tax
Rate

(Loss)
Income
Before
Income
Taxes

 

(Benefit)
Provision for
Income
Taxes

 

Effective Tax
Rate

Reported income (loss) before income taxes $ 13.6 $ (28.8 )   (211.8 )% $ (318.1 ) $ (220.6 )   69.3 %
Adjustments to reported operating income (a)(b) 547.4 128.6 841.5 313.0
Adjustments to interest expense (b)(c)       1.4   0.6      
Adjusted income before income taxes $ 561.0 $ 99.8     17.8 % $ 524.8   $ 93.0     17.7 %
 
(a)   See a description of adjustments under "Adjusted Operating Income
for Coty Inc."
 
(b) The tax effects of each of the items included in adjusted income are
calculated in a manner that results in a corresponding income tax
expense/provision for adjusted income. In preparing the calculation,
each adjustment to reported income is first analyzed to determine if
the adjustment has an income tax consequence. The provision for
taxes is then calculated based on the jurisdiction in which the
adjusted items are incurred, multiplied by the respective statutory
rates and offset by the increase or reversal of any valuation
allowances commensurate with the non-GAAP measure of profitability.
 
(c) See "Reconciliation of Reported Net (Loss) Income Attributable to
Coty Inc. to Adjusted Net Income Attributable to Coty Inc."
 
The adjusted effective tax rate remained relatively stable at 17.8%
compared to 17.7% in the prior-year period.
 
 
 

RECONCILIATION OF REPORTED NET INCOME TO ADJUSTED NET INCOME

   
Three Months Ended March 31, Nine Months Ended March 31,
(in millions) 2018   2017   Change 2018   2017   Change
Reported Net Income Attributable to Coty Inc. $ (77.0 ) $ (164.2 ) 53 % $ 12.5 $ (117.4 ) >100%
% of Net revenues (3.5 %) (8.1 %) 0.2 % (2.2 %)
Adjustments to Reported Operating Income (a) 207.9 400.8 (48 %) 547.4 841.5 (35 %)
Adjustments to Interest Expense (b) N/A 1.4 (100 %)
Adjustments to noncontrolling interests (c) (2.9 ) NM (21.6 ) NM
Change in tax provision due to adjustments to Reported Net Income
Attributable to Coty Inc.
(31.8 ) (126.3 ) 75 % (128.6 ) (313.6 ) 59 %
Adjusted Net Income Attributable to Coty Inc. $ 96.2   $ 110.3   (13 %) $ 409.7   $ 411.9   (1 %)
% of Net revenues 4.3 % 5.4 % 5.8 % 7.6 %
 
Per Share Data
Adjusted weighted-average common shares
Basic 750.1 747.3 749.4 607.9
Diluted 754.0 751.5 753.1 613.4
Adjusted Net Income Attributable to Coty Inc. per Common Share
Basic $ 0.13 $ 0.15 $ 0.55 $ 0.68
Diluted $ 0.13 $ 0.15 $ 0.54 $ 0.67
 
(a)   See a description of adjustments under "Reconciliation of Reported
Operating Income to Adjusted Operating Income".
 
(b) In the nine months ended March 31, 2017, 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 March 31, Nine Months Ended March 31,
(in millions)     2018   2017 2018   2017
Net cash provided by operating activities $ (118.9 ) $ 43.3 $ 188.9 $ 706.7
Capital expenditures (86.5 ) (125.8 ) (318.7 ) (324.0 )
Free cash flow $ (205.4 ) $ (82.5 ) $ (129.8 ) $ 382.7  
 
 
 

NET REVENUES AND ADJUSTED OPERATING INCOME BY SEGMENT

   
Three Months Ended March 31,
Net Revenues   Change  

Reported Operating
Income

 

Adjusted Operating
Income

(in millions)   2018   2017

Reported
Basis

 

Constant Currency

2018     Change 2018   Change
Luxury $ 752.5 $ 634.6 19 % 12 % $ 59.4 (2 %) $ 100.4 17 %
Consumer Beauty 1,021.7 988.6 3 % (1 %) 64.2 2 % 97.3 (20 %)
Professional 448.5 408.9 10 % 2 % 11.4 >100% 30.1 >100%
Corporate     N/A   N/A     (115.1 ) 61 %   N/A  
Total $ 2,222.7 $ 2,032.1 9 % 3 % $ 19.9  

>100%

$ 227.8 9 %
 
Nine Months Ended March 31,
Net Revenues Change

Reported Operating
Income

Adjusted Operating
Income

(in millions)   2018 2017

Reported
Basis

Combined
Company
Year-
Over-Year

 

Combined
Company
Constant
Currency

2018   Change 2018 Change
Luxury $ 2,468.1 $ 1,918.6 29 % 13 % 8 % $ 201.2 (1 %) $ 315.7 15 %
Consumer Beauty 3,203.7 2,562.2 25 % 7 % 3 % 225.4 26 % 317.5 10 %
Professional 1,426.8 928.2 54 % 15 % 10 % 83.2 2 % 137.2 15 %
Corporate     N/A   N/A   N/A     (286.8 ) (54 %)   N/A  
Total $ 7,098.6 $ 5,409.0 31 % 10 % 6 % $ 223.0   >100% $ 770.4 13 %
 
 
 

NET REVENUES BY GEOGRAPHIC REGION

         
Three Months Ended March 31,
Net Revenues   Change
(in millions)         2018   2017 Reported Basis

Constant
Currency

North America $ 712.8 $ 685.1 4 % 4 %
Europe 976.5 848.4 15 % 3 %
ALMEA 533.4   498.6 7 % 5 %
Total $ 2,222.7   $ 2,032.1 9 % 3 %
 
Nine Months Ended March 31,
Net Revenues   Change
(in millions)         2018   2017

Reported
Basis

 

Combined
Company
Year-over-
Year

 

Combined
Company
Constant
Currency

North America $ 2,205.2 $ 1,727.4 28 % 7 %   6 %
Europe 3,242.5 2,429.4 33 % 12 % 4 %
ALMEA 1,650.9   1,252.2 32 % 13 % 11 %
Total $ 7,098.6   $ 5,409.0 31 % 10 % 6 %
 
 
 

RECONCILIATION OF REPORTED OPERATING INCOME TO ADJUSTED OPERATING
INCOME BY SEGMENT

   
Three Months Ended March 31, 2018
(in millions)  

Reported
(GAAP)

  Adjustments (a)  

Adjusted
(Non-GAAP)

 

Foreign
Currency
Translation

 

Adjusted
Results at
Constant
Currency

OPERATING INCOME (LOSS)
Luxury $ 59.4 $ (41.0 ) $ 100.4 $ 1.9 $ 102.3
Consumer Beauty 64.2 (33.1 ) 97.3 (2.7 ) 94.6
Professional Beauty 11.4 (18.7 ) 30.1 (0.7 ) 29.4
Corporate (115.1 ) (115.1 )      
Total $ 19.9   $ (207.9 ) $ 227.8   $ (1.5 ) $ 226.3  
 
OPERATING MARGIN
Luxury 7.9 % 13.3 % 14.4 %
Consumer Beauty 6.3 % 9.5 % 9.7 %
Professional Beauty 2.5 % 6.7 % 7.1 %
Corporate N/A N/A N/A
Total 0.9 % 10.2 % 10.8 %
 
 
Three Months Ended March 31, 2017
(in millions)   Reported
(GAAP)
Adjustments (a) Adjusted
(Non-GAAP)
OPERATING INCOME (LOSS)
Luxury $ 60.9 $ (25.2 ) $ 86.1
Consumer Beauty 63.0 (58.5 ) 121.5
Professional Beauty (18.2 ) (18.9 ) 0.7
Corporate (298.2 ) (298.2 )  
Total $ (192.5 ) $ (400.8 ) $ 208.3  
 
OPERATING MARGIN
Luxury 9.6 % 13.6 %
Consumer Beauty 6.4 % 12.3 %
Professional Beauty (4.5 %) 0.2 %
Corporate N/A N/A
Total (9.5 %) 10.3 %
 
(a) See "Reconciliation of Reported Operating Income to Adjusted
Operated Income" for a detailed description of adjusted items.
 
   
Nine Months Ended March 31, 2018
(in millions)   Reported
(GAAP)
  Adjustments (a)   Adjusted
(Non-GAAP)
 

Foreign
Currency
Translation

 

Adjusted
Results at
Constant
Currency

OPERATING INCOME (LOSS)
Luxury $ 201.2 $ (114.5 ) $ 315.7 $ (1.7 ) $ 314.0
Consumer Beauty 225.4 (92.1 ) 317.5 (7.8 ) 309.7
Professional Beauty 83.2 (54.0 ) 137.2 (4.1 ) 133.1
Corporate (286.8 ) (286.8 )      
Total $ 223.0   $ (547.4 ) $ 770.4   $ (13.6 ) $ 756.8  
 
OPERATING MARGIN
Luxury 8.2 % 12.8 % 13.3 %
Consumer Beauty 7.0 % 9.9 % 10.0 %
Professional Beauty 5.8 % 9.6 % 9.8 %
Corporate N/A N/A N/A
Total 3.1 % 10.9 % 11.1 %
 
 
Nine Months Ended March 31, 2017
(in millions)   Reported
(GAAP)
Adjustments (a) Adjusted
(Non-GAAP)
OPERATING INCOME (LOSS)
Luxury $ 203.6 $ (70.6 ) $ 274.2
Consumer Beauty 178.6 (110.9 ) 289.5
Professional Beauty 81.5 (37.5 ) 119.0
Corporate (622.5 ) (622.5 )  
Total $ (158.8 ) $ (841.5 ) $ 682.7  
 
OPERATING MARGIN
Luxury 10.6 % 14.3 %
Consumer Beauty 7.0 % 11.3 %
Professional Beauty 8.8 % 12.8 %
Corporate N/A N/A
Total (2.9 %) 12.6 %
 
(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 March 31, 2018 vs. Three Months Ended March
31, 2017 Net Revenue Change
    of which
 
Net Revenues Change YoY Reported Basis   Constant Currency  

Impact from
Acquisitions1

  Organic (LFL)
Luxury 19 % 12 % 6 % 6 %
Consumer Beauty 3 % (1 )% 3 % (4 )%
Professional Beauty 10 %   2 %   %   2 %
Total Company 9 %   3 %   3 %   %
 
1 Acquisitions reflect the net revenue contribution in the current
period from the acquisition of Burberry, and one month of the of
Younique acquisition.
 
 
    Nine Months Ended March 31, 2018 vs. Nine Months Ended March 31,
2017 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 29% 13% 8% 2%     6%
Consumer Beauty 25% 7% 3% 8% (5)%
Professional Beauty 54%   15%   10%   8%     2%
Total Company 31%   10%   6%   6%     —%
 
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 acquisition Burberry, seven months of the Younique
acquisition and five months of the ghd acquisition.
 
 
       

COTY INC. & SUBSIDIARIES
CONSOLIDATED BALANCE
SHEETS

(Unaudited)

 
(in millions)

March 31,
2018

June 30,
2017

ASSETS
Current assets:
Cash and cash equivalents $ 460.8 $ 535.4
Restricted cash 25.7 35.3
Trade receivables—less allowances of $93.6 and $58.5, respectively 1,555.4 1,470.3
Inventories 1,258.5 1,052.6
Prepaid expenses and other current assets 610.2   487.9  
Total current assets 3,910.6 3,581.5
Property and equipment, net 1,689.2 1,632.1
Goodwill 8,972.8 8,555.5
Other intangible assets, net 8,662.1 8,425.2
Deferred income taxes 226.5 72.6
Other noncurrent assets 303.8   281.3  
TOTAL ASSETS $ 23,765.0   $ 22,548.2  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,709.3 $ 1,732.1
Accrued expenses and other current liabilities 1,882.2 1,796.4
Short-term debt and current portion of long-term debt 231.6 209.1
Income and other taxes payable 118.7   66.0  
Total current liabilities 3,941.8 3,803.6
Long-term debt, net 7,628.6 6,928.3
Pension and other post-employment benefits 588.7 549.2
Deferred income taxes 941.3 924.9
Other noncurrent liabilities 499.6   473.4  
Total liabilities 13,600.0   12,679.4  
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTERESTS 665.4   551.1  
EQUITY:
Preferred Stock
Common Stock 8.1 8.1
Additional paid-in capital 10,835.3 11,203.2
Accumulated deficit (438.4 ) (459.2 )
Accumulated other comprehensive income 536.1 4.4
Treasury stock (1,441.8 ) (1,441.8 )
Total Coty Inc. stockholders' equity 9,499.3 9,314.7
Noncontrolling interests 0.3   3.0  
Total equity 9,499.6   9,317.7  
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY $ 23,765.0   $ 22,548.2  
 
 
   

COTY INC. & SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Unaudited)

 
Nine Months Ended
March 31,
(in millions) 2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 42.4 $ (97.5 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 543.5 414.9
Deferred income taxes (157.7 ) (298.3 )
Provision for bad debts 15.4 23.3
Provision for pension and other post-employment benefits 33.3 44.7
Share-based compensation 26.1 19.1
Other 16.2 (0.6 )
Change in operating assets and liabilities, net of effects from
purchase of acquired companies:
Trade receivables (33.5 ) (216.2 )
Inventories (101.3 ) 172.6
Prepaid expenses and other current assets (76.2 ) (6.5 )
Accounts payable (80.2 ) 339.3
Accrued expenses and other current liabilities (27.4 ) 345.4
Income and other taxes payable 64.6 3.1
Other noncurrent assets (7.2 ) 9.9
Other noncurrent liabilities (69.1 ) (46.5 )
Net cash provided by operating activities 188.9   706.7  
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (318.7 ) (324.0 )
Payment for business combinations, net of cash acquired (265.5 ) (742.6 )
Proceeds from sale of asset 3.5   10.5  
Net cash used in investing activities (580.7 ) (1,056.1 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt, original maturity more than three
months
9.5
Repayments of short-term debt, original maturity more than three
months
(9.7 )
Net proceeds (repayments) of short-term debt, original maturity less
than three months
5.1 (48.7 )
Proceeds from revolving loan facilities 2,298.1 1,809.4
Repayments of revolving loan facilities (1,535.8 ) (1,624.4 )
Proceeds from term loans 1,075.0
Repayments of term loans (150.6 ) (95.7 )
Dividend payment (281.9 ) (279.2 )
Net proceeds from issuance of Class A Common Stock and Series A
Preferred Stock
20.0 19.5
Payments for employee taxes related to net settlement of equity
awards
(3.5 )
Payments for purchases of Class A Common Stock held as Treasury Stock (36.3 )
Net (payments) proceeds from foreign currency contracts (2.7 ) 3.8
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
(54.0 ) (7.5 )
Payment of deferred financing fees (4.0 ) (24.8 )
Net cash provided by financing activities 290.9   781.1  
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 16.7   (12.1 )
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED
CASH
(84.2 ) 419.6
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 570.7   372.4  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 486.5   $ 792.0  
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the period for interest $ 194.2 $ 132.9
Cash paid during the period for income taxes, net of refunds received 83.9 63.6
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Accrued capital expenditure additions $ 104.3 $ 70.8
Non-cash Common Stock issued for business combination 9,628.6
Non-cash debt assumed for business combination 1,943.0
Non-cash redeemable noncontrolling interest for business combinations 410.9
Non-cash contingent consideration for business combination 5.0

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