SHARE-BASED COMPENSATION PLANS

The Company has various share-based compensation programs (the “the Compensation Plans”) under which awards, including non-qualified stock options, Series A Preferred Stock, RSUs and other share-based awards, may be granted or shares of Class A Common Stock may be purchased. As of June 30, 2017, approximately 62.9 million shares of the Company's Class A Common Stock were available to be granted pursuant to these Plans.

The Company accounts for its share-based compensation plans for common stock as equity plans. The share-based compensation for equity plans is estimated and fixed at the grant date, based on the estimated fair value of the award. Series A Preferred Stock is accounted for partially as equity and partially using liability plan accounting to the extent the award is expected to be settled in cash. Accordingly, share-based compensation expense for the liability plan awards are measured at the end of each reporting period based on the fair value of the award on each reporting date and recognized as an expense to the extent earned.

Total share-based compensation expense for fiscal 2017, 2016 and 2015 of $29.0, $35.4 and $35.9, respectively, is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. The related tax benefits for share-based compensation are $4.4, $6.7, and $10.9 for fiscal 2017, 2016 and 2015, respectively. As of June 30, 2017, the total unrecognized share-based compensation expense related to unvested stock options, Series A Preferred Stock and restricted stock units and other share awards is $31.1, $4.3 and $56.5, respectively. The unrecognized share-based compensation expense related to unvested stock options, Series A Preferred Stock, restricted stock units and other share awards is expected to be recognized over a weighted-average period of 4.45, 3.79 and 2.96 years, respectively.

Nonqualified Stock Options

During fiscal 2017, the Company granted 9.3 million nonqualified stock option awards. During fiscal 2015, the Company granted 1.7 million nonqualified stock option awards to a select group of key executives. These options are accounted for using equity accounting whereby the share-based compensation expense is estimated and fixed at the grant date based on the estimated value of the options using the Black-Scholes valuation model. There were no stock options accounted for under equity plans granted during fiscal 2016.

During fiscal 2017, 2016 and 2015, the share-based compensation expense recognized on nonqualified stock options is based upon the fair value on the grant date estimated using the Black-Scholes valuation model with the following weighted-average assumptions:



	2017	2015
Expected life	7.50 years	7.50 years
Risk-free interest rate	1.60%	1.79%
Expected volatility	36.74%	31.73%
Expected dividend yield	1.62%	0.80%

Expected life—The expected life represents the period of time (years) that options granted are expected to be outstanding, which the Company calculates using a formula based on the vesting term and the contractual life of the respective option.

Risk-free interest rate—The Company bases the risk-free interest rate on the implied yield available on a U.S. Treasury note with a term equal to the expected term of the underlying options.

Expected volatility—The Company calculates expected volatility based on median volatility for peer companies using expected life daily stock price history equal to the expected life.

Expected dividend yield—The weighted-average expected dividend yield is based upon the Company’s expectation to pay dividends over the contractual term of the options.

Nonqualified stock options generally become exercisable 5 years from the date of the grant and have a 5-year exercise period from the date the grant becomes fully vested for a total contractual life of 10 years.

The Company’s outstanding nonqualified stock options as of June 30, 2017 and activity during the fiscal year then ended are presented below:



	Shares (in millions)		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
Outstanding at July 1, 2016	7.3		$	11.25
Granted	9.3		18.61
Exercised	(2.2	)	9.71
Forfeited	(2.4	)	19.31
Outstanding at June 30, 2017	12.0		$	15.64
Vested and expected to vest at June 30, 2017	9.4		$	14.98	$	35.5	6.83
Exercisable at June 30, 2017	4.0		$	9.74	$	36.2	3.10

The grant prices of the outstanding options as of June 30, 2017 ranged from $6.40 to $24.13. The grant prices for exercisable options ranged from $6.40 to $10.50.

A summary of the aggregated weighted-average grant date fair value of stock options granted, total intrinsic value of stock options exercised and payment to settle nonqualified stock options for fiscal 2017, 2016 and 2015 is presented below:



	2017		2016		2015
Weighted-average grant date fair value of stock options	$	6.34	$	—	$	8.75
Intrinsic value of options exercised	26.30		87.60		77.20
Payment to settle nonqualified stock options of former CEOs	—		—		12.00

The Company’s non-vested nonqualified stock options as of June 30, 2017 and activity during the fiscal year then ended are presented below:



	Shares (in millions)		Weighted Average Grant Date Fair Value
Non-vested at July 1, 2016	4.4		$	4.81
Granted	9.3		18.61
Vested	(3.3	)	3.99
Forfeited	(2.4	)	6.87
Non-vested at June 30, 2017	8.0		$	6.33

The share-based compensation expense recognized on the nonqualified stock options is $9.1, $14.7 and $9.5 during fiscal 2017, 2016 and 2015, respectively.

Executive Ownership Programs

The Company encourages stock ownership through various programs. These programs govern shares of Class A Common Stock purchased by employees (“Purchased Shares”). Employees purchased 0.8 million and 0.1 million shares in fiscal 2017 and 2016, respectively, and received matching nonqualified stock options or RSUs in accordance with the terms of the Compensation Plans under the Omnibus LTIP. Share-based compensation (income) expense recorded in connection with Purchased Shares for fiscal year 2017, 2016 and 2015 was nil, nil and $(0.5), respectively. Additionally, share-based compensation expense recorded in connection with matching stock awards granted in accordance with the Compensation Plans are noted in their respective section of this footnote.

Series A Preferred Stock

In addition to the Executive Ownership Programs discussed above, the Series A Preferred Stock are accounted for partially as equity and partially as a liability as of June 30, 2017, 2016 and 2015 and the Company recognized an expense of $4.4, $2.0 and $0.4 in fiscal 2017, 2016 and 2015, respectively. See Note 21—Equity for additional information.

The Series A Preferred Stock were accounted for using the Black-Scholes valuation model in prior fiscal years. In fiscal 2017, the Company granted Series A Preferred Stock that included cash bonus payments tied to the exercisability of the awards. Due to the addition of cash bonus payments in connection with the grant of Series A Preferred Stock to certain executives in fiscal 2017, the Company began estimating the fair value of the Series A Preferred Stock using a binomial lattice model to value the equity and cash bonus components of the combined instrument. The lattice structure the Company uses to value the awards consists of (i) a common stock lattice that models the possible stock price movements from the valuation date to the maturity date consistent with the stock price and estimated volatility on the valuation date; (ii) a share exchange lattice that calculates the value of the common stock received on conversion; (iii) a cash exchange lattice that calculates the value of the cash bonus; and (iv) a continuation value lattice that tracks the holding value of the combined instrument. As of June 30, 2017, the fair value of the Company’s outstanding Series A Preferred Stock that are liability accounted were estimated with the following weighted-average assumptions.



	2017
Expected life, in years	5.86 years
Expected volatility	30.00%
Risk-free rate of return	1.99%
Dividend yield on Class A Common Stock	2.67%
Yield on cash	4.70%

Expected life, in years - The expected life represents the period of time (years) that Series A Preferred Stock granted are expected to be outstanding, which the Company calculates using a formula based on the vesting term and the contractual life of the respective Series A Preferred Stock.

Expected volatility - The Company calculates expected volatility based on the average of historical and implied volatilities.

Risk-free rate of return - The Company bases the risk-free rate of return on the US Constant Maturity Treasury Rate.

Dividend yield on Class A Common Stock - The Company calculated the weighted-average dividend yield on shares using the annualized dividend rate calculated on the per share cash dividend paid quarterly and the stock price as of the valuation date.

Yield on cash - The Company calculated the weighted-average yield of comparable securities with a similar credit rating to the Company as of June 30, 2017.

The fair value of the Company’s outstanding Series A Preferred Stock liability on June 30, 2016 and 2015 was estimated using the Black-Scholes valuation model with the following assumptions:



	2016	2015
Expected life	4.79 years	5.79 years
Risk-free interest rate	1.01%	1.96%
Expected volatility	36.74%	26.14%
Expected dividend yield	0.96%	0.63%

Expected life -The expected life represents the period of time (years) that Series A Preferred Stock granted are expected to be outstanding, which the Company calculates using a formula based on the vesting term and the contractual life of the respective Series A Preferred Stock.

Risk-free interest rate-The Company bases the risk-free interest rate on the implied yield available on a U.S. Treasury note with a term equal to the expected term of the underlying Series A Preferred Stock.

Expected volatility-The Company calculates expected volatility based on median volatility for peer companies using 4.79 years and 5.79 years of daily stock price history as of June 30, 2016 and 2015, respectively.

Expected dividend yield-The Company used an expected dividend yield based upon the Company’s expectation to pay dividends over the contractual term of the shares of Series A Preferred Stock.

Shares of Series A Preferred Stock generally become exercisable 5 years from the date of the grant and have a 2-year exercise period from the date the grant becomes fully vested for a total contractual life of 7 years. See Note 21—Equity for additional information.

The Company’s outstanding Series A Preferred Shares as of June 30, 2017 and activity during the fiscal year then ended are presented below:



	Shares (in millions)	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
Outstanding at July 1, 2016	1.7	$	27.97
Granted	2.5	22.42
Outstanding at June 30, 2017	4.2	$	24.66
Vested and expected to vest at June 30, 2017	3.7	$	24.57	$	—	5.90

The Company’s non-vested shares of Series A Preferred Stock as of June 30, 2017 and activity during the fiscal year then ended are presented below:



	Shares (in millions)		Weighted Average Grant Date Fair Value
Non-vested at July 1, 2016	1.7		$	5.24
Granted	2.5		4.53
Vested	(1.0	)	3.63
Non-vested at June 30, 2017	3.2		$	5.19

Restricted Share Units

During fiscal 2017, 2.7 million RSUs were granted under the Omnibus LTIP and 0.1 million RSUs were granted under the 2007 Stock Plan for Directors. During fiscal 2016, $1.2 million RSUs were granted under the Omnibus LTIP and $0.1 million RSUs were granted under the 2007 Stock Plan for Directors.

The Company’s outstanding RSUs as of June 30, 2017 and activity during the fiscal year then ended are presented below:



	Shares (in millions)		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term
Outstanding at July 1, 2016	4.2
Granted	2.8
Settled	(0.2	)
Cancelled	(1.2	)
Outstanding at June 30, 2017	5.6
Vested and expected to vest at June 30, 2017	4.6		$	85.9	2.75

The share-based compensation expense recorded in connection with the RSUs was $15.4, $18.2 and $9.7 during fiscal 2017, 2016 and 2015, respectively.

The Company’s outstanding and non-vested RSUs as of June 30, 2017 and activity during the fiscal year then ended are presented below:



	Shares (in millions)		Weighted Average Grant Date Fair Value
Outstanding and nonvested at July 1, 2016	3.9		$	19.75
Granted	2.8		24.56
Vested	(0.2	)	15.63
Cancelled	(1.2	)	19.45
Outstanding and nonvested at June 30, 2017	5.3		$	21.76

The total intrinsic value of RSUs vested and settled during fiscal 2017, 2016, and 2015 is $3.5, $4.0 and $6.2, respectively.

Special Share Purchase Transaction

As noted in Note 21—Equity, JABC sold 1.7 million shares of its Class B shares to certain Coty executives and individuals intended to become Coty executives. One of these individuals purchased 1.4 million shares on March 13, 2015 at a purchase price representing a discount of $1.9 below the market price on the purchase date, which was determined to be share-based compensation expense to the Company. Subsequently, the individual that had purchased 1.4 million shares on March 13, 2015 indicated a desire to sell the Class A Common Stock back to JABC. JABC entered into an agreement and repurchased these shares on July 8, 2015 at the market price on that date. At June 30, 2015, the Company determined that the individual was not expected to hold the shares for a period of at least six months and therefore, the shares should be deemed compensatory and accounted for under liability plan accounting. The Company recorded a total of $15.8 share-based compensation expense to Selling, general and administrative expense which includes: (a) $1.9 for the discount recorded to APIC and (b) $13.9 for the difference between the market price of the shares as of June 30, 2015 and the original sale date of March 13, 2015 recorded to Accrued expenses and other current liabilities.

From June 30, 2015 until the date the liability was settled by JABC, the value of the obligation declined $0.1, which was recorded as a reduction of stock compensation expense. On July 8, 2015, JABC repurchased the shares. The settlement of the liability of $13.8 is considered a non-cash capital contribution to the Company and therefore was recorded in Additional paid-in capital.

Phantom Units

On July 21, 2015, the Board granted Lambertus J.H. Becht (“Mr. Becht”), the Company’s Chairman of the Board and interim Chief Executive Officer (“CEO”), an award of 300,000 phantom units, in consideration of Mr. Becht’s increased and continuing responsibilities as interim CEO of the Company. At the time of grant, the phantom units had a value of $8.1 based on the closing price of the Company’s Class A Common Stock on July 21, 2015. Each phantom unit has an economic value equivalent to one share of the Company’s Class A Common Stock settleable in cash or shares at the election of Mr. Becht. The award to Mr. Becht was made outside of the Company’s Omnibus LTIP. On July 24, 2015, Mr. Becht elected to receive payment of the phantom units in the form of shares of Class A Common Stock and the phantom units were valued at $8.0. The phantom units will be settled in shares of Class A Common Stock on the fifth anniversary of the grant date or, in the event of a change of control or Mr. Becht’s death or disability, immediately. The Company recognized $8.0 of share-based compensation expense during the fiscal year ended June 30, 2016 as there are no service or performance conditions with respect to the phantom units.