SEC Company Response from COTY INC. (COTY) (CIK 0001024305) (COTY) — Nov 17, 2017
COTY INC. (COTY) (CIK 0001024305)
Date: Nov. 17, 2017 · CIK: 0001024305 · Accession: 0001341004-17-000723
AI Filing Summary & Sentiment
Reasoning
Letter
Coty Inc. Form 10-K for the Fiscal Year Ended June 30, 2017 Filed August 23, 2017 File No. 1-35964
Dear Mr. Cash:
On behalf of Coty Inc. (the “Company”), this letter responds to your letter, dated September 27, 2017 (“Comment Letter”) regarding the above-referenced Form 10-K for the Fiscal Year Ended June 30, 2017 (“fiscal 2017”) filed on August 23, 2017. Each of your comments is set forth below, followed by the corresponding response. For ease of reference, the headings and numbered paragraphs below correspond to the headings and numbered comments in the Comment Letter. Each response of the Company is set forth in ordinary type beneath the corresponding comment of the Staff of the Division of Corporation Finance (the “Staff”) from the Comment Letter appearing in bold type.
Because of the commercially sensitive nature of information contained herein, this submission is accompanied by the Company’s request for confidential treatment of selected portions of this letter pursuant to Rule 83 of the Commission’s Rules on Information and Requests, 17 C.F.R. § 200.83 and the Freedom of Information Act.
Management’s Discussion and Analysis of Financial Condition and Results…., page 26
Costs related to acquisition activities, page 36
1.
We note your disclosures regarding acquisition-related costs. Please address the following:
·
Separately quantify and discuss third party acquisition-related costs and internal acquisition-related costs, including the specific nature of the internal costs and how they are identified; and
CONFIDENTIAL TREATMENT REQUESTED BY COTY INC.
PURSUANT TO 17 C.F.R. § 200.83
U.S. Securities and Exchange Commission
Division of Corporation Finance
November 17, 2017
Page 2
Response:
In fiscal 2017, the Company incurred acquisition-related costs of $355.4 million, of which approximately $329 million or 93% related to third-party costs and approximately $26 million or 7% related to internal costs.
The Company entered into the Transition Services Agreement, effective as of October 1, 2016 (the “TSA”) under which Procter & Gamble (“P&G”) provided specified support services and other assistance through September 1, 2017.
External costs relate to fees paid for the execution of the TSA to P&G, consulting expenses to convert data provided by P&G to a form compatible with Coty’s systems, in addition to, consulting costs incurred to exit the TSA. The consulting costs incurred to exit the TSA relate to the Company’s enablement of the TSA functions. The external costs will run off as we exit the TSA. These costs do not include incremental costs for increasing the Coty IT infrastructure which are included in selling, general and administrative expenses.
Internal costs include employee compensation and benefits, for employees who were fully-dedicated to assisting with TSA execution and exiting TSA services and post-merger onboarding activities. These costs were identified in our financial reporting system using unique project management cost center codes.
The Company has provided additional disclosure as to the type of costs in its Form 10-Q for the period ended September 30, 2017.
·
More fully explain the specific nature of and reasons for the approximately $80 million in additional acquisition-related costs for the P&G Beauty Business that were incurred during the quarter ended June 30, 2017. Address the reasons why significant “acquisition-related costs” are continuing to be incurred nine months after the acquisition and address your expectations regarding the nature, magnitude and timing of additional acquisition-related costs for the P&G Beauty Business.
Response:
As noted above, the Company entered into a TSA with P&G effective October 1, 2016. The services started at the close of the transaction on October 1, 2016 and continued through the end of the respective TSA period in each of our three regions for the following periods: (i) North America through May 1, 2017 (ii) Europe through July 1, 2017 and (iii) ALMEA (Asia, Latin America, the Middle East, Africa and Australia) through September 1, 2017, and therefore, significant costs continued to be incurred during the quarter ended June 30, 2017.
The approximate $80 million in acquisition-related costs for the P&G Beauty Business acquisition incurred during the quarter ended June 30, 2017 include external and internal fees associated with the TSA period, as described above.
CONFIDENTIAL TREATMENT REQUESTED BY COTY INC.
PURSUANT TO 17 C.F.R. § 200.83
U.S. Securities and Exchange Commission
Division of Corporation Finance
November 17, 2017
Page 3
In the three months ended September 30, 2017, we incurred acquisition-related costs of $54.1, included in the Condensed Consolidated Statements of Operations in our Form 10-Q.
We may incur an insignificant amount of additional acquisition-related costs during the remainder of fiscal 2018 for potential post TSA functions, as the Company works to ensure that all business systems and processes are fully enabled internally without third party support services.
Cash Flows, page 50
2.
We note your disclosures that the increase in cash provided by operating activities during fiscal 2017 is primarily due to the “change in operating assets and liabilities acquired in the P&G Beauty Business” and “an improvement in working capital.” Please address the following:
·
Explain the specific reasons for the significant increases in accounts payable and accrued expenses and other current liabilities during fiscal 2017. Specifically address the reasons why increases in these liability line items significantly exceeded changes in other working capital components that were also impacted by the acquisition of the P&G Beauty Business; and
·
Explain your disclosure regarding an improvement in working capital. It appears to us that working capital actually declined during fiscal 2017 such that you have a working capital deficit as of the most recent balance sheet date.
Response:
The movements reported in the statement of cash flows during fiscal 2017 incorporate the changes in the assets and liabilities of the P&G Beauty Business subsequent to the acquisition date. After we assumed management of the P&G Beauty Business, we gained better visibility into the operating cash needs of the business and noted an increase in working capital requirements of the brands purchased from P&G. The increase in accounts payable during fiscal 2017 were primarily due to implementing significantly longer Coty payment terms to the vendors associated with the P&G Beauty Business, as compared to the prior P&G payment terms. The increase in accrued expenses and other current liabilities during fiscal 2017 resulted primarily from the establishment of the restructuring accrual for the Global Integration Activities along with incrementally larger accruals (e.g., accruals for advertising and marketing expenditures, for customer rebates and for compensation and other related employee benefits) resulting from the larger combined business subsequent to the acquisition of the P&G Beauty Business.
We acknowledge the Staff’s comment and respectfully submit that our disclosure indicating “an improvement in working capital” was meant to indicate an improvement in the generation of operating cash flows during fiscal 2017.
We propose to update our disclosure, as applicable, beginning with our Form 10-Q for the quarter ended December 31, 2017. For the Staff’s reference, below is the updated disclosure marked to show changes against the disclosure in our Form 10-K for the fiscal year ended June 30, 2017 (data as of June 30, 2017):
CONFIDENTIAL TREATMENT REQUESTED BY COTY INC.
PURSUANT TO 17 C.F.R. § 200.83
U.S. Securities and Exchange Commission
Division of Corporation Finance
November 17, 2017
Page 4
“Net cash provided by operating activities was $757.5, $501.4 and $526.3 for fiscal 2017, 2016 and 2015, respectively. The increase in operating cash inflows in fiscal 2017 compared with fiscal 2016 was $256.1. This increase is primarily due to an increase of $687.0 resulting from the change in operating assets and liabilities acquired in the P&G Beauty Business acquisition during the post-acquisition period, coupled with an improvement changes in working capital due to timing of invoices. The increase in accounts payable during fiscal 2017 was primarily due to implementing significantly longer Coty payment terms to the vendors associated with the P&G Beauty Business, as compared to the prior P&G payment terms. The increase in accrued expenses and other current liabilities during fiscal 2017 resulted primarily from the establishment of the restructuring accrual for the Global Integration Activities along with incrementally larger accruals (e.g., accruals for advertising and marketing expenditures, for customer rebates and for compensation and other related employee benefits) resulting from the larger combined business subsequent to the acquisition of the P&G Beauty Business. In addition, the increase also included a change of $323.1 for depreciation and amortization as a result of the new acquisitions. This is offset by a decrease in deferred income tax of $250.8 primarily due to a release of valuation allowance as a result of the P&G Beauty Business acquisition and a decrease of $577.7 in Net income (loss).”
Critical Accounting Policies, page 53
3.
In order for investors to more fully understand and better assess goodwill and intangible assets, please address the following:
·
Quantify and discuss the most significant assumptions you used to determine the fair values of your reporting units. Specifically address the growth rates you used in your evaluations of goodwill and indefinite-lived intangible assets and more fully explain your basis for the growth rates in light of recent declines in organic revenues;
Response:
The most significant assumptions the Company used to determine the fair values of our reporting units as of our May 1 annual impairment testing date were:
·
Revenue growth rates
·
Perpetual growth rates
·
Discount rate
A summary of significant assumptions used to determine the fair values of our reporting units is as follows:
Significant Assumptions
Revenue growth rates for fiscal 2018-2022 that range between
[***]% - [***]%
Perpetual growth rates that range between
1.5% - 2.5%
Discount rate
7.75%
CONFIDENTIAL TREATMENT REQUESTED BY COTY INC.
PURSUANT TO 17 C.F.R. § 200.83
U.S. Securities and Exchange Commission
Division of Corporation Finance
November 17, 2017
Page 5
·
We note that for each reporting unit the day one carrying values of recent acquisitions represented more than 70% of the reporting unit’s carrying value as of the annual impairment test date. Since fair value approximates carrying value of the acquired entity on the acquisition date and the period between the impairment test and the acquisition was short, the percentage of the excess of fair value over carrying value of the reporting unit was negatively impacted by the recent acquisitions.
The methods we used to determine relative fair values were a 60/40 combination of the values from the income approach and the market approach for each reporting unit.
The basis for the significant assumptions noted above is as follows:
o
Revenue growth rates:
§
The historical performance of the brands included in the reporting unit is a key consideration when preparing our revenue projections. We also consider the following: where our brands are in their life cycles; the planned level of innovation to support our brands; the planned nature, amount and timing of the advertising to support our brands; the impact of retailers’ decisions such as shelf space on our brands; and the expected impact of our competitor’s actions on our brands.
§
We believe the following underlying causes of the fiscal 2017 organic revenue decline for our brands (both legacy Coty and P&G Beauty Business) are temporary: the distraction caused by the merger; deliberately executing less innovation due to the merger; and the impact of significantly higher than expected trade inventory prior to the closing of the merger, which adversely affects revenues in fiscal 2017. However, there were other declines in organic revenue, which we believe will take a longer time to reverse such as declines affected by negative market trends in mass fragrance and retail nail categories and the loss of shelf space. Additionally, we considered the major launches for Gucci Bloom and Tiffany & Co fragrances as well as the major relaunches of Cover Girl, Max Factor and Clairol planned for fiscal 2018. Based on such considerations, we concluded that the Luxury and Professional Beauty reporting units’ net revenue would return to growth in the short term. For Consumer Beauty reporting unit, we phased in the return to revenue growth over a longer period.
§
After considering such factors from a bottom up perspective, we considered the overall reasonability of the forecasted revenue projection to reach our best estimate of the forecasted revenue growth for the reporting units.
§
In our first quarter of fiscal 2018, the performance of our reporting units has been substantially in line with our projections used for the fiscal 2017 annual impairment test. Additionally, we have had successful launches for Gucci Bloom and Tiffany & Co fragrances as discussed in our Form 10-Q for the period ended September 30, 2017.
o
Perpetual growth rates are dependent on the portfolio of brands within each
CONFIDENTIAL TREATMENT REQUESTED BY COTY INC.
PURSUANT TO 17 C.F.R. § 200.83
U.S. Securities and Exchange Commission
Division of Corporation Finance
November 17, 2017
Page 6
reporting unit, the stage of the brands within their lifecycles, the overall long-term market forecasts for the market categories as well as historical performance of the reporting units.
o
The discount rate was based on a market-based weighted average cost of capital.
o
For the market approach, we used comparable market multiples for the industry category.
·
Our significant assumptions for our material indefinite-lived trademarks impairment tests were determined using the same considerations noted above for the goodwill test at the reporting unit level. Such significant assumptions are as follows:
o
Revenue growth rates: We used annual revenue growth rates that ranged from [***]% to [***]% for the period from fiscal 2018 to fiscal 2022.
o
Perpetual growth rates: We used perpetual growth assumptions that averaged 2.4%.
o
Discount rate: We used a discount rate of 8.5%. The discount rate was based on a market-based weighted average cost of capital and the higher level of inherent risk related to trademarks.
We respectfully acknowledge the Staff’s comment and propose to update our disclosure of our critical accounting policies for goodwill and indefinite lived intangible assets prospectively beginning with our Form 10-Q for the quarter ended December 31, 2017, by enhancing our sensitivity disclosures of the assumptions used for the reporting unit/indefinite lived intangibles that did not have a substantial excess of carrying value. For the Staff’s reference, below is the updated disclosure marked to show changes against the disclosure in our Form 10-K for the fiscal year en
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CORRESP 1 filename1.htm CONFIDENTIAL TREATMENT REQUESTED BY COTY INC. PURSUANT TO 17 C.F.R. § 200.83 November 17, 2017 CERTAIN PORTIONS OF THIS LETTER AS FILED VIA EDGAR HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE OMITTED PORTIONS PURSUANT TO 17 C.F.R. § 200.83, WHICH HAVE BEEN REPLACED WITH THE FOLLOWING PLACEHOLDER “[***]” IN THE LETTER FILED VIA EDGAR. By EDGAR and Hand Delivery, “CORRESP” Designation Mr. John Cash U.S. Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-7010 Re: Coty Inc. Form 10-K for the Fiscal Year Ended June 30, 2017 Filed August 23, 2017 File No. 1-35964 Dear Mr. Cash: On behalf of Coty Inc. (the “Company”), this letter responds to your letter, dated September 27, 2017 (“Comment Letter”) regarding the above-referenced Form 10-K for the Fiscal Year Ended June 30, 2017 (“fiscal 2017”) filed on August 23, 2017. Each of your comments is set forth below, followed by the corresponding response. For ease of reference, the headings and numbered paragraphs below correspond to the headings and numbered comments in the Comment Letter. Each response of the Company is set forth in ordinary type beneath the corresponding comment of the Staff of the Division of Corporation Finance (the “Staff”) from the Comment Letter appearing in bold type. Because of the commercially sensitive nature of information contained herein, this submission is accompanied by the Company’s request for confidential treatment of selected portions of this letter pursuant to Rule 83 of the Commission’s Rules on Information and Requests, 17 C.F.R. § 200.83 and the Freedom of Information Act. Management’s Discussion and Analysis of Financial Condition and Results…., page 26 Costs related to acquisition activities, page 36 1. We note your disclosures regarding acquisition-related costs. Please address the following: · Separately quantify and discuss third party acquisition-related costs and internal acquisition-related costs, including the specific nature of the internal costs and how they are identified; and CONFIDENTIAL TREATMENT REQUESTED BY COTY INC. PURSUANT TO 17 C.F.R. § 200.83 U.S. Securities and Exchange Commission Division of Corporation Finance November 17, 2017 Page 2 Response: In fiscal 2017, the Company incurred acquisition-related costs of $355.4 million, of which approximately $329 million or 93% related to third-party costs and approximately $26 million or 7% related to internal costs. The Company entered into the Transition Services Agreement, effective as of October 1, 2016 (the “TSA”) under which Procter & Gamble (“P&G”) provided specified support services and other assistance through September 1, 2017. External costs relate to fees paid for the execution of the TSA to P&G, consulting expenses to convert data provided by P&G to a form compatible with Coty’s systems, in addition to, consulting costs incurred to exit the TSA. The consulting costs incurred to exit the TSA relate to the Company’s enablement of the TSA functions. The external costs will run off as we exit the TSA. These costs do not include incremental costs for increasing the Coty IT infrastructure which are included in selling, general and administrative expenses. Internal costs include employee compensation and benefits, for employees who were fully-dedicated to assisting with TSA execution and exiting TSA services and post-merger onboarding activities. These costs were identified in our financial reporting system using unique project management cost center codes. The Company has provided additional disclosure as to the type of costs in its Form 10-Q for the period ended September 30, 2017. · More fully explain the specific nature of and reasons for the approximately $80 million in additional acquisition-related costs for the P&G Beauty Business that were incurred during the quarter ended June 30, 2017. Address the reasons why significant “acquisition-related costs” are continuing to be incurred nine months after the acquisition and address your expectations regarding the nature, magnitude and timing of additional acquisition-related costs for the P&G Beauty Business. Response: As noted above, the Company entered into a TSA with P&G effective October 1, 2016. The services started at the close of the transaction on October 1, 2016 and continued through the end of the respective TSA period in each of our three regions for the following periods: (i) North America through May 1, 2017 (ii) Europe through July 1, 2017 and (iii) ALMEA (Asia, Latin America, the Middle East, Africa and Australia) through September 1, 2017, and therefore, significant costs continued to be incurred during the quarter ended June 30, 2017. The approximate $80 million in acquisition-related costs for the P&G Beauty Business acquisition incurred during the quarter ended June 30, 2017 include external and internal fees associated with the TSA period, as described above. CONFIDENTIAL TREATMENT REQUESTED BY COTY INC. PURSUANT TO 17 C.F.R. § 200.83 U.S. Securities and Exchange Commission Division of Corporation Finance November 17, 2017 Page 3 In the three months ended September 30, 2017, we incurred acquisition-related costs of $54.1, included in the Condensed Consolidated Statements of Operations in our Form 10-Q. We may incur an insignificant amount of additional acquisition-related costs during the remainder of fiscal 2018 for potential post TSA functions, as the Company works to ensure that all business systems and processes are fully enabled internally without third party support services. Cash Flows, page 50 2. We note your disclosures that the increase in cash provided by operating activities during fiscal 2017 is primarily due to the “change in operating assets and liabilities acquired in the P&G Beauty Business” and “an improvement in working capital.” Please address the following: · Explain the specific reasons for the significant increases in accounts payable and accrued expenses and other current liabilities during fiscal 2017. Specifically address the reasons why increases in these liability line items significantly exceeded changes in other working capital components that were also impacted by the acquisition of the P&G Beauty Business; and · Explain your disclosure regarding an improvement in working capital. It appears to us that working capital actually declined during fiscal 2017 such that you have a working capital deficit as of the most recent balance sheet date. Response: The movements reported in the statement of cash flows during fiscal 2017 incorporate the changes in the assets and liabilities of the P&G Beauty Business subsequent to the acquisition date. After we assumed management of the P&G Beauty Business, we gained better visibility into the operating cash needs of the business and noted an increase in working capital requirements of the brands purchased from P&G. The increase in accounts payable during fiscal 2017 were primarily due to implementing significantly longer Coty payment terms to the vendors associated with the P&G Beauty Business, as compared to the prior P&G payment terms. The increase in accrued expenses and other current liabilities during fiscal 2017 resulted primarily from the establishment of the restructuring accrual for the Global Integration Activities along with incrementally larger accruals (e.g., accruals for advertising and marketing expenditures, for customer rebates and for compensation and other related employee benefits) resulting from the larger combined business subsequent to the acquisition of the P&G Beauty Business. We acknowledge the Staff’s comment and respectfully submit that our disclosure indicating “an improvement in working capital” was meant to indicate an improvement in the generation of operating cash flows during fiscal 2017. We propose to update our disclosure, as applicable, beginning with our Form 10-Q for the quarter ended December 31, 2017. For the Staff’s reference, below is the updated disclosure marked to show changes against the disclosure in our Form 10-K for the fiscal year ended June 30, 2017 (data as of June 30, 2017): CONFIDENTIAL TREATMENT REQUESTED BY COTY INC. PURSUANT TO 17 C.F.R. § 200.83 U.S. Securities and Exchange Commission Division of Corporation Finance November 17, 2017 Page 4 “Net cash provided by operating activities was $757.5, $501.4 and $526.3 for fiscal 2017, 2016 and 2015, respectively. The increase in operating cash inflows in fiscal 2017 compared with fiscal 2016 was $256.1. This increase is primarily due to an increase of $687.0 resulting from the change in operating assets and liabilities acquired in the P&G Beauty Business acquisition during the post-acquisition period, coupled with an improvement changes in working capital due to timing of invoices. The increase in accounts payable during fiscal 2017 was primarily due to implementing significantly longer Coty payment terms to the vendors associated with the P&G Beauty Business, as compared to the prior P&G payment terms. The increase in accrued expenses and other current liabilities during fiscal 2017 resulted primarily from the establishment of the restructuring accrual for the Global Integration Activities along with incrementally larger accruals (e.g., accruals for advertising and marketing expenditures, for customer rebates and for compensation and other related employee benefits) resulting from the larger combined business subsequent to the acquisition of the P&G Beauty Business. In addition, the increase also included a change of $323.1 for depreciation and amortization as a result of the new acquisitions. This is offset by a decrease in deferred income tax of $250.8 primarily due to a release of valuation allowance as a result of the P&G Beauty Business acquisition and a decrease of $577.7 in Net income (loss).” Critical Accounting Policies, page 53 3. In order for investors to more fully understand and better assess goodwill and intangible assets, please address the following: · Quantify and discuss the most significant assumptions you used to determine the fair values of your reporting units. Specifically address the growth rates you used in your evaluations of goodwill and indefinite-lived intangible assets and more fully explain your basis for the growth rates in light of recent declines in organic revenues; Response: The most significant assumptions the Company used to determine the fair values of our reporting units as of our May 1 annual impairment testing date were: · Revenue growth rates · Perpetual growth rates · Discount rate A summary of significant assumptions used to determine the fair values of our reporting units is as follows: Significant Assumptions Revenue growth rates for fiscal 2018-2022 that range between [***]% - [***]% Perpetual growth rates that range between 1.5% - 2.5% Discount rate 7.75% CONFIDENTIAL TREATMENT REQUESTED BY COTY INC. PURSUANT TO 17 C.F.R. § 200.83 U.S. Securities and Exchange Commission Division of Corporation Finance November 17, 2017 Page 5 · We note that for each reporting unit the day one carrying values of recent acquisitions represented more than 70% of the reporting unit’s carrying value as of the annual impairment test date. Since fair value approximates carrying value of the acquired entity on the acquisition date and the period between the impairment test and the acquisition was short, the percentage of the excess of fair value over carrying value of the reporting unit was negatively impacted by the recent acquisitions. The methods we used to determine relative fair values were a 60/40 combination of the values from the income approach and the market approach for each reporting unit. The basis for the significant assumptions noted above is as follows: o Revenue growth rates: § The historical performance of the brands included in the reporting unit is a key consideration when preparing our revenue projections. We also consider the following: where our brands are in their life cycles; the planned level of innovation to support our brands; the planned nature, amount and timing of the advertising to support our brands; the impact of retailers’ decisions such as shelf space on our brands; and the expected impact of our competitor’s actions on our brands. § We believe the following underlying causes of the fiscal 2017 organic revenue decline for our brands (both legacy Coty and P&G Beauty Business) are temporary: the distraction caused by the merger; deliberately executing less innovation due to the merger; and the impact of significantly higher than expected trade inventory prior to the closing of the merger, which adversely affects revenues in fiscal 2017. However, there were other declines in organic revenue, which we believe will take a longer time to reverse such as declines affected by negative market trends in mass fragrance and retail nail categories and the loss of shelf space. Additionally, we considered the major launches for Gucci Bloom and Tiffany & Co fragrances as well as the major relaunches of Cover Girl, Max Factor and Clairol planned for fiscal 2018. Based on such considerations, we concluded that the Luxury and Professional Beauty reporting units’ net revenue would return to growth in the short term. For Consumer Beauty reporting unit, we phased in the return to revenue growth over a longer period. § After considering such factors from a bottom up perspective, we considered the overall reasonability of the forecasted revenue projection to reach our best estimate of the forecasted revenue growth for the reporting units. § In our first quarter of fiscal 2018, the performance of our reporting units has been substantially in line with our projections used for the fiscal 2017 annual impairment test. Additionally, we have had successful launches for Gucci Bloom and Tiffany & Co fragrances as discussed in our Form 10-Q for the period ended September 30, 2017. o Perpetual growth rates are dependent on the portfolio of brands within each CONFIDENTIAL TREATMENT REQUESTED BY COTY INC. PURSUANT TO 17 C.F.R. § 200.83 U.S. Securities and Exchange Commission Division of Corporation Finance November 17, 2017 Page 6 reporting unit, the stage of the brands within their lifecycles, the overall long-term market forecasts for the market categories as well as historical performance of the reporting units. o The discount rate was based on a market-based weighted average cost of capital. o For the market approach, we used comparable market multiples for the industry category. · Our significant assumptions for our material indefinite-lived trademarks impairment tests were determined using the same considerations noted above for the goodwill test at the reporting unit level. Such significant assumptions are as follows: o Revenue growth rates: We used annual revenue growth rates that ranged from [***]% to [***]% for the period from fiscal 2018 to fiscal 2022. o Perpetual growth rates: We used perpetual growth assumptions that averaged 2.4%. o Discount rate: We used a discount rate of 8.5%. The discount rate was based on a market-based weighted average cost of capital and the higher level of inherent risk related to trademarks. We respectfully acknowledge the Staff’s comment and propose to update our disclosure of our critical accounting policies for goodwill and indefinite lived intangible assets prospectively beginning with our Form 10-Q for the quarter ended December 31, 2017, by enhancing our sensitivity disclosures of the assumptions used for the reporting unit/indefinite lived intangibles that did not have a substantial excess of carrying value. For the Staff’s reference, below is the updated disclosure marked to show changes against the disclosure in our Form 10-K for the fiscal year en