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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Sep. 30, 2014
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim Condensed Consolidated Financial Statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and include wholly-owned domestic and international subsidiaries. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited interim Condensed Consolidated Financial Statements and accompanying footnotes should be read in conjunction with the Company’s Consolidated Financial Statements as of and for the year ended June 30, 2014. In the opinion of management, all adjustments, of a normal recurring nature, considered necessary for a fair presentation have been included in the Condensed Consolidated Financial Statements. The results of operations for the three months ended September 30, 2014 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending June 30, 2015.
During fiscal 2014, the Company revised its Condensed Consolidated Statements of Cash Flows to reflect other noncurrent assets and other noncurrent liabilities as separate line items within net cash flows provided by operating activities. At September 30, 2013, $(1.4) of Other noncurrent assets and $0.5 of Other noncurrent liabilities, respectively, related to fiscal 2014 were reclassified out of Prepaid and other assets and Accrued expenses and other liabilities, respectively on the Condensed Consolidated Statements of Cash Flows to conform to the current period presentation.
Related Parties
During the three months ended September 30, 2014, JAB Holdings B.V. (“JAB”) transferred all of its Coty Inc. Class B shares to JAB Cosmetics B.V. (“JABC”). As of September 30, 2014, the Company is a majority-owned subsidiary of JABC. Lucresca SE, Agnaten SE and JAB indirectly control JABC and the shares of the Company held by JABC.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Significant accounting policies that contain subjective management estimates and assumptions include those related to revenue recognition, the market value of inventory, the fair value of acquired assets and liabilities associated with acquisitions, the fair value of share-based compensation, pension and other post-employment benefit costs, the fair value of our reporting units, and the assessment of goodwill, other intangible assets and long-lived assets for impairment, income taxes, derivatives and redeemable noncontrolling interests when calculating the impact on Earnings Per Share (“EPS”). Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates and assumptions resulting from continuing changes in the economic environment will be reflected in the Consolidated Financial Statements in future periods.
Tax Information
The effective income tax rate for the three months ended September 30, 2014 and 2013 was (42.7)% and 31.1%, respectively. The variations in the effective tax rates for the three month periods were primarily due to the negative impact associated with the expiration of Internal Revenue Code Section 954(c)(6) and the tax expense associated with the planned intercompany transfer of certain license agreements substantially utilized in our foreign operations, offset by the positive impacts associated with decrease in the accrual for unrecognized tax benefits, a reversal of valuation allowance pursuant to the implementation of the Company’s tax planning strategy and the settlement of a tax audit in a foreign jurisdiction. The proportion of discrete benefits to pretax income was substantial, resulting in a negative tax rate for the quarter.
The effective income tax rates vary from the U.S. federal statutory rate of 35% due to the effect of (i) jurisdictions with different statutory rates, (ii) adjustments to the Company’s unrealized tax benefits (“UTBs”) and accrued interest, (iii) non-deductible expenses and (iv) valuation allowance changes.
As of September 30, 2014 and June 30, 2014, the gross amount of UTBs was $385.9 and $400.5, respectively. As of September 30, 2014, the total amount of UTBs that, if recognized, would impact the effective income tax rate is $365.8. As of September 30, 2014 and June 30, 2014, the liability associated with UTBs, including accrued interest and penalties, was $150.5 and $159.4, respectively, which was recorded in Income and other taxes payable and Other non-current liabilities in the Condensed Consolidated Balance Sheets. The total interest and penalties recorded in the Condensed Consolidated Statements of Operations related to UTBs during the three months ended September 30, 2014 and 2013 was $(0.9) and $1.6, respectively. The total gross accrued interest and penalties recorded in the Condensed Consolidated Balance Sheets as of September 30, 2014 and June 30, 2014 was $23.2 and $25.5, respectively. On the basis of the information available as of September 30, 2014, it is reasonably possible that a decrease of up to $12.9 in UTBs may occur within 12 months as a result of projected resolutions of global tax examinations and a potential lapse of the applicable statutes of limitations.