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DERIVATIVE INSTRUMENTS | 12 Months Ended
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Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS | DERIVATIVE INSTRUMENTS Foreign Exchange Risk Management The Company is exposed to foreign currency exchange fluctuations through its global operations. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in foreign exchange rates by creating offsetting positions through the use of derivative instruments and also by designating foreign currency denominated borrowings and cross-currency swaps as hedges of net investments in foreign subsidiaries. The Company expects that through hedging, any gain or loss on the derivative instruments would generally offset the expected increase or decrease in the value of the underlying forecasted transactions. The Company is exposed to foreign currency exchange rate fluctuations in the normal course of business, including through exposure to inventory expenditures made by the Company’s international subsidiaries whose functional currency is other than the transaction currency. To manage this exposure, in June 2021, the Company entered into non-deliverable forward foreign-exchange contracts (the “NDF contracts”) that are intended to offset changes in cash flow attributable to currency exchange movements. The NDF contracts have been designated as foreign exchange cash flow hedges. Hedge effectiveness of the NDF contracts is based on the hypothetical derivative methodology for prospective assessment and on the cumulative dollar offset methodology for retrospective assessment. The Company entered into these contracts with counterparties that are banks or other financial institutions, and the Company considers the risk of non-performance by such counterparties not to be material. The Company also continued to use certain derivatives as economic hedges of foreign currency exposure on firm commitments, which do not qualify for hedge accounting. Although these derivatives were not designated for hedge accounting, the overall objective of mitigating foreign currency exposure is the same for all derivative instruments. The Company does not enter into derivative financial instruments for trading or speculative purposes, nor is the Company a party to leveraged derivatives. For derivatives not designated as hedging instruments, changes in fair value are recorded in the line item in the Consolidated Statements of Operations to which the derivative relates. In September 2020, the Company terminated its existing net investment cross currency swap derivatives with notional amount of $550.0 in exchange for cash payment of $37.6. The related loss from this termination is included in AOCI/(L) until the sale or substantial liquidation of the underlying investments. On December 1, 2020, the Company entered into a novation agreement with Wella to assign all then existing foreign exchange forward contracts and related obligation executed by the Company in connection with the Wella Business. In July 2021, the Company entered into foreign exchange forward contracts to hedge up to 80% of the Company’s euro denominated external debt as part of management’s strategy to minimize the impact of currency movements on those debt instruments. Interest Rate Risk The Company is exposed to interest rate fluctuations related to its variable rate debt instruments. The Company may reduce its exposure to fluctuations in the cash flows associated with changes in the variable interest rates by entering into offsetting positions through the use of derivative instruments, such as interest rate swap contracts. The interest rate swap contracts result in recognizing a fixed interest rate for the portion of the Company’s variable rate debt that was hedged. This will reduce the negative impact of increases in the variable rates over the term of the contracts. Hedge effectiveness of interest rate swap contracts is based on a long-haul hypothetical derivative methodology and includes all changes in value. During September 2019, the Company entered into incremental interest rate swap contracts in the notional amount of $1,000.0, which extended the maturity of the interest rate swap portfolio from 2021 through 2023. These interest rate swaps are designated and qualify as cash flow hedges. In fiscal 2021, the Company terminated certain existing interest rate swaps with notional amount of $700.0 in exchange for cash payment of $4.9. The related losses from these terminations is included in Interest expense. As of June 30, 2021 and 2020, the Company had interest rate swap contracts designated as effective hedges in the notional amount of $1,900.0 and $3,000.0, respectively. Hedge Accounting Derivative financial instruments are recorded as either assets or liabilities on the Consolidated Balance Sheets and are measured at fair value. For derivatives accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of specific underlying forecasted transactions, the risk management objective and the strategy for undertaking the hedge transaction. In addition, the Company formally assesses both at inception and at least quarterly thereafter, whether the financial instruments used in hedging transactions are effective at offsetting changes in either the fair values or cash flows of the related underlying exposures. Additionally, all of the master agreements governing the Company’s derivative contracts contain standard provisions that could trigger early termination of the contracts in certain circumstances which would require the Company to discontinue hedge accounting, including if the Company were to merge with another entity and the creditworthiness of the surviving entity were to be “materially weaker” than that of the Company prior to the merger. For derivatives designated as cash flow hedges, changes in the fair value are recorded in AOCI/(L). Gains and losses deferred in AOCI/(L) are then recognized in Net income (loss) in a manner that matches the timing of the actual income or expense related to the hedging instruments with the hedged transaction. The gains and losses related to designated hedging instruments are also recorded in the line item in the Consolidated Statements of Operations to which the derivative relates. Cash flows from derivative instruments designated as cash flow hedges are recorded in the same category as the cash flows from the items being hedged in the Consolidated Statements of Cash Flows. The ineffective portion of foreign exchange forward and interest rate swap contracts are recorded in current-period earnings. For hedge contracts that are no longer deemed highly effective, hedge accounting is discontinued and gains and losses accumulated in Other comprehensive income (loss) (“OCI”) are reclassified to earnings when the underlying forecasted transaction occurs. If it is no longer probable that the forecasted transaction will occur, then any gains or losses in AOCI/(L) are reclassified to current-period earnings. For fiscal 2021, all of the Company’s foreign exchange forward and interest rate swap contracts designated as hedges were highly effective. The Company also attempts to minimize credit exposure to counterparties by entering into derivative contracts with counterparties that are major financial institutions and utilizing master netting arrangements. Exposure to credit risk in the event of nonperformance by any of the counterparties with respect to the Company’s foreign exchange forward contracts is limited to the fair value of contracts in net asset positions under master netting arrangements. Exposure to credit risk in the event of nonperformance by any of the counterparties with respect to the Company’s interest rate swap contracts is limited to the fair value of contracts in net asset positions. Accordingly, management of the Company believes risk of material loss under these hedging contracts is remote. Net Investment Hedge Foreign currency gains and losses on borrowings designated as a net investment hedge, except ineffective portions, are reported in the cumulative translation adjustment (“CTA”) component of AOCI/(L), along with the foreign currency translation adjustments on those investments. As a result of the prepayments of the 2018 Coty Term A and B Facilities, as described in Note 15—Debt, foreign currency denominated borrowings designated as net investment hedges decreased from nominal exposures of €3,591.0 million as of June 30, 2020 to €1,809.5 million as of June 30, 2021. Net investment hedge effectiveness is assessed based on the change in the spot rate of the foreign currency denominated loans payable. The critical terms (underlying notional and currency) of the loans payable match the portion of the net investments designated as being hedged. The net investment hedges were equal to the designated portions of the international subsidiaries’ investment balances as of June 30, 2021. As such, the net investment hedges were considered to be effective, and, as a result, the changes in the fair value were recorded within CTA on the Company’s Consolidated Balance Sheets. Derivative and non-derivative financial instruments which are designated as hedging instruments: The accumulated gain on foreign currency borrowings classified as net investment hedges in the foreign currency translation adjustment component of AOCI/(L) was $5.4 and $261.9 as of June 30, 2021 and 2020, respectively. The accumulated loss on derivative instruments classified as net investment hedges in the foreign currency translation adjustment component of AOCI/(L) was $(37.6) and $(12.5) as of June 30, 2021 and 2020, respectively. The amount of gains and losses recognized in OCI in the Consolidated Balance Sheets related to the Company’s derivative and non-derivative financial instruments which are designated as hedging instruments is presented below:
Gain (Loss) Recognized in OCI | Fiscal Year Ended June 30,
| 2021 |  | 2020 |  | 2019
Foreign exchange forward contracts | $ | (0.3) |  |  | $ | 1.3 |  |  | $ | 0.9 |
Interest rate swap contracts | 1.0 |  |  | (50.3) |  |  | (47.4) |
Cross-currency swap contracts | (25.1) |  |  | (12.5) |  |  | — |
Net investment hedges | (256.5) |  |  | 47.1 |  |  | 99.8 |
The accumulated (loss) gain on derivative instruments classified as cash flow hedges in AOCI/(L), net of tax, was $(15.5) and $(43.0) as of June 30, 2021 and 2020, respectively. The estimated net loss related to these effective hedges that is expected to be reclassified from AOCI/(L) into earnings, net of tax, within the next twelve months is $(7.3). As of June 30, 2021, all of the Company’s remaining foreign currency forward contracts designated as hedges were highly effective. The amount of gains and losses reclassified from AOCI/(L) to the Consolidated Statements of Operations related to the Company’s derivative financial instruments which are designated as hedging instruments is presented below:
Location and Amount of Gain (Loss) Recognized in Income on Cash Flow Hedging Relationships |  |  | Fiscal Year Ended June 30,
|  | 2021 |  | 2020 |  |  | 2019
|  |  | Net Revenues |  | Interest expense, net |  | Net Revenues |  | Interest expense, net |  |  | Cost of sales |  | Interest expense, net
Foreign exchange forward contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from AOCI into income |  |  | $ | 1.0 |  |  | $ | — |  |  | $ | 0.6 |  |  | $ | — |  |  |  | $ | 0.1 |  |  | $ | — |
Interest rate swap contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from AOCI into income |  |  | — |  |  | (36.1) |  |  | — |  |  | (10.8) |  |  |  | — |  |  | 12.4 |
Derivatives not designated as hedging instruments: The amount of gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments is presented below:
Consolidated Statements of Operations Classification of Gain (Loss) Recognized in Operations | Fiscal Year Ended June 30,
|  | 2021 |  | 2020 |  | 2019
Foreign exchange contracts | Selling, general and administrative expenses | $ | 0.1 |  |  | $ | (0.8) |  |  | $ | — |
Foreign exchange contracts | Interest income (expense), net | 26.3 |  |  | (3.1) |  |  | 0.1 |
Foreign exchange contracts | Other income (expense), net | (0.6) |  |  | 0.4 |  |  | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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