REVENUE RECOGNITION

Adoption of ASC 606, Revenue from Contracts with Customers

On July 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers and all related amendments (the “New Revenue Standard”) using the modified retrospective method applied to those contracts which were not completed as of July 1, 2018. Results for reporting periods beginning after July 1, 2018 are presented under the New Revenue Standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, Revenue Recognition.

The Company recorded a net increase to its accumulated deficit as of July 1, 2018 (as presented below) due to the cumulative impact of adopting the New Revenue Standard, with the impact primarily related to the timing of accrual for certain customer incentives and markdowns at the time of sell-in and reclassification of certain marketing fixtures expense as a reduction of gross revenue.

The cumulative effects of the revenue accounting changes on the Company's Condensed Consolidated Balance Sheet as of July 1, 2018 were as follows:



	June 30, 2018			Adjustments			July 1, 2018
ASSETS
Property and equipment, net	$	1,680.8		$	(6.2	)	$	1,674.6
Deferred income taxes	107.4			0.6			108.0
Other noncurrent assets	299.5			6.9			306.4

LIABILITIES AND EQUITY
Current liabilities:
Accrued expenses and other current liabilities	$	1,844.4		$	20.7		$	1,865.1
Deferred income taxes	842.5			(1.2		)	841.3
Accumulated deficit	(626.2		)	(18.2		)	(644.4		)

The following table summarizes the impacts of adopting the New Revenue Standard on the Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019:



	As reported (New Revenue Standard)			Current period adjustments		As adjusted (previous revenue standard)
Net revenues	$	1,990.6		$	25.6	$	2,016.2
Selling, general and administrative expenses	1,070.5			1.0		1,071.5
Net (loss) income	(4.0		)	18.4		14.4
Net (loss) income attributable to Coty Inc.	(12.1		)	18.6		6.5

Net (loss) income attributable to Coty Inc. per common share:
Basic	$	(0.02	)	$	0.03	$	0.01
Diluted	(0.02		)	0.03		0.01

The following table summarizes the impacts of adopting the New Revenue Standard on the Condensed Consolidated Statements of Operations for the Nine Months Ended March 31, 2019:



	As reported (New Revenue Standard)			Current period adjustments		As adjusted (previous revenue standard)
Net revenues	$	6,533.1		$	8.9	$	6,542.0
Selling, general and administrative expenses	3,476.8			2.3		3,479.1
Net (loss) income	(970.1		)	5.0		(965.1		)
Net (loss) income attributable to Coty Inc.	(984.8		)	5.0		(979.8		)

Net (loss) income attributable to Coty Inc. per common share:
Basic	$	(1.31	)	$	0.01	$	(1.30	)
Diluted	(1.31		)	0.01		(1.30		)

Revenue Recognition Accounting Policy

For periods after July 1, 2018, revenue is recognized at a point in time and/or over time when control of the promised goods or services is transferred to the Company’s customers, which usually occurs upon delivery. Revenue is recognized in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those goods or services. At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices. The Company’s revenue contracts principally represent a performance obligation to sell its beauty products to trade customers and are satisfied when control of promised goods and services is transferred to the customers.

Net revenues comprise gross revenues less customer discounts and allowances, actual and expected returns (estimated based on an analysis of historical experience and position in product life cycle) and various trade spending activities. Trade spending activities represent variable consideration promised to the customer and primarily relate to advertising, product promotions and demonstrations, some of which involve cooperative relationships with customers. The costs of trade spend activities are estimated using the expected value method considering all reasonably available information, including contract terms with the customer, the Company’s historical experience and its current expectations of the scope of the activities, and is reflected in the transaction price when sales are recorded.

The Company’s payment terms vary by the type and location of its customers and the products offered. The term between invoicing and when payment is due is not significant.

The Company’s sales return accrual reflects seasonal fluctuations, including those related to the holiday season in its second quarter. This accrual is a subjective critical estimate that has a direct impact on reported net revenues, and is calculated based on history of actual returns, estimated future returns and information provided by retailers regarding their inventory levels. In addition, as necessary, specific accruals may be established for significant future known or anticipated events. The types of known or anticipated events that the Company has considered, and will continue to consider, include the financial condition of our customers, store closings by retailers, changes in the retail environment, and our decision to continue to support new and existing brands.

The Company accounts for certain customer store fixtures as other assets. Such fixtures are amortized using the straight-line method over the period of 3 to 5 years as a reduction of revenue.

For the presentation of the Company’s revenues disaggregated by segment and product category see Note 4—Segment Reporting.