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and its majority and wholly-owned subsidiaries.
+Added: Our operations and sales have been adversely impacted by the COVID-19 pandemic, and we must successfully manage the demand, supply, operational and financial challenges associated with the actual or perceived effects of COVID-19 and the related widespread public health crisis.
+Added: The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices.
+Added: Our business has been, and may continue to be, negatively impacted by the fear of exposure to or actual effects of the COVID-19 pandemic in countries where we operate or our customers are located, such as reduced travel or recommendations or mandates from governmental authorities to avoid large gatherings or to self-quarantine,
+Added: as well as temporary closures of our facilities or the facilities of our customers or suppliers.
+Added: These impacts include, but are not limited to:
+Added: • Significant reductions in demand or significant volatility in demand for one or more of our products, which may be caused by, among other things:
+Added: the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, store closures, or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or stockpiling or similar activity, supply chain and shipping constraints, reduced options for marketing and promotion of products or other restrictions in connection with COVID-19;
+Added: if prolonged, such impacts can further increase the difficulty of operating our business, including accurately planning and forecasting, and may adversely impact our results;
+Added: • Inability to meet our customers’ needs and achieve costs targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability, or the allocation of manufacturing capacity towards medical supplies such as hydro-alcoholic gel (which is used as hand sanitizer);
+Added: • Failure of third parties on which we rely, including our suppliers, our customers, contract manufacturers, distributors, contractors, commercial banks, joint venture partners and external business partners, to meet their obligations to the Company or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations;
+Added: • Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our third-party partners, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results.
+Added: These impacts have had and could continue to have a negative effect on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities, and the duration and extent to which our future results of operations and overall financial performance will be impacted remains uncertain.
+Added: In light of the adverse impact on our near-term revenues, earnings, liquidity and cash flows, we have taken and expect to continue to implement measures to reduce discretionary expenses and manage costs.
+Added: See the discussion on our response to COVID-19 in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Overview ” and “—Liquidity and Capital Resources.
+Added: ” These measures may not achieve results in accordance with our expectations or on the timelines we anticipate.
+Added: Despite our efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic as well as third-party actions taken to contain its spread and mitigate its public health effects.
The beauty industry is highly competitive, and if we are unable to compete effectively, our business, prospects, financial condition and results of operations could suffer.
The beauty industry is highly competitive and can change rapidly due to consumer preferences and industry trends, such as the expansion of digital channels, new “disruptor” trendy brands and advances in technology.
−Removed: Competition in the beauty industry is based on several factors, including pricing, value and quality, product efficacy, packaging and brands, speed or quality of innovation and new product introductions, in-store presence and visibility, promotional activities (including
−Removed: influencers) and brand recognition, distribution channels, advertising, editorials and adaption to evolving technology and device trends, including via e-commerce initiatives.
+Added: Competition in the beauty industry is based on several factors, including pricing, value and quality, product efficacy, packaging and brands, speed or quality of innovation and new product introductions, in-store presence and visibility, promotional activities (including influencers) and brand recognition, distribution channels, advertising, editorials and adaption to evolving technology and device trends, including via e-commerce initiatives.
Our competitors include large multinational consumer products companies, private label brands and emerging companies, among others, and some have greater resources than we do or may be able to respond more quickly or effectively to changing business and economic conditions than we can.
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Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in our business, and respond to technological advances and emerging industry standards and practices in a cost-effective and timely way.
−Removed: If we are unable to compete effectively on a global basis or in our key product categories or geographies, it could have an adverse impact on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
+Added: If we are unable to
+Added: compete effectively on a global basis or in our key product categories or geographies, it could have an adverse impact on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
Further consolidation in the retail industry and shifting preferences in how and where consumers shop, including to e-commerce, may adversely affect our business, prospects, financial condition and results of operations.
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Our success is dependent on our ability to manage our retailer relationships, including offering trade terms on mutually acceptable terms.
−Removed: Furthermore, increased online competition and declining in-store traffic has resulted, and may continue to result, in brick-and-mortar retailers closing physical stores, which could negatively impact our distribution strategies and/or sales if such retailers decide to significantly reduce their inventory levels for our products (as recently occurred with key customers for OPI in North America) or to designate more shelf space to our competitors.
+Added: Furthermore, increased online competition and declining in-store traffic has resulted, and may continue to result, in brick-and-mortar retailers closing physical stores, which could negatively impact our distribution strategies and/or sales if such retailers decide to significantly reduce their inventory levels for our products (as occurred in 2019 with key customers for OPI in North America, and, more recently, has occurred in connection with COVID-19 as retailers faced store closures or reduced traffic) or to designate more shelf space to our competitors.
Additionally, these retailers periodically assess the allocation of shelf space and have elected (and could further elect) to reduce the shelf space allocated to our products.
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We generally do not have long-term sales contracts or other sales assurances with our retail customers.
−Removed: Consumer shopping preferences have also shifted, and may continue to shift in the future, to distribution channels other than traditional retail in which we have more limited experience, presence and development, such as direct sales and e-commerce.
+Added: Consumer shopping preferences have also shifted, including as a result of COVID-19, and may continue to shift in the future, to distribution channels other than traditional retail in which we have more limited experience, presence and development, such as direct sales and e-commerce.
If we are not successful in our efforts to expand distribution channels, including growing our e-commerce activities, we will not be able to compete effectively.
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Furthermore, we cannot predict how consumers will react to any new products that we launch or to repositioning of our brands.
−Removed: Our successful Luxury division product launches may not continue.
+Added: Our successful product launches may not continue.
The amount of positive or negative sales contribution of any of our products may change significantly within a period or from period to period.
The above-referenced factors, as well as new product risks, could have an adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
−Removed: Our success depends on our ability to implement our Turnaround Plan and achieve our global business strategies.
−Removed: Our future performance and growth depends on the success of our Turnaround Plan and new business strategies, including our management team’s ability to successfully implement them, including a focus on improving gross margin, deleveraging, and standardizing and simplifying our business.
−Removed: The multi-year implementation of the Turnaround Plan, which is still being operationalized, is expected to result in changes to business priorities and operations, capital allocation priorities, operational and organizational structure, and increased demands on management.
+Added: These risks have been exacerbated by the impact of COVID-19.
+Added: Consumer spending habits and consumer confidence have shifted and may continue to change.
+Added: For example, demand for prestige products mainly sold in retail malls, professional salon products, and the travel retail channel have been more significantly impacted by temporary closures of non-essential businesses and social distancing measures.
+Added: The easing of containment measures and recovery of the impacted sectors of the economy is expected to be gradual and may not result in a return to pre-COVID-19 levels of demand for our products.
+Added: Our success depends on our ability to implement our Transformation Plan and achieve our global business strategies.
+Added: Our future performance and growth depends on the success of our Transformation Plan and new business strategies, including our management team’s ability to successfully implement them, including a focus on improving gross margin,
+Added: deleveraging, and simplifying our business.
+Added: In addition, in order to address the potentially permanent effects of COVID-19, the lockdown and a possible recession resulting from COVID-19 in many markets, we expanded our previously announced Turnaround Plan to include initiatives to reduce our fixed costs by 25%, including an adaptation of our supply network and organization, as well as a permanent reduction of certain discretionary expenses.
+Added: The multi-year implementation of the Transformation Plan, which is still being operationalized, is expected to result in changes to business priorities and operations, capital allocation priorities, operational and organizational structure, and increased demands on management.
Such changes could result in short-term and one-time costs without any current revenues, lost customers, reduced sales volume, higher than expected restructuring costs, loss of key personnel, additional supply chain disruptions, higher costs of supply and other negative impacts on our business.
−Removed: Implementation of the Turnaround Plan may take longer than anticipated, and, once implemented, we may not realize, in full or in part, the anticipated benefits or such benefits may be realized more slowly than anticipated.
−Removed: The failure to realize benefits, which may be due to our inability to execute plans, delays in the implementation of the Turnaround Plan, global or local economic conditions, competition, changes in the beauty industry and the other risks described herein, could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
+Added: Implementation of the Transformation Plan may take longer than anticipated, and, once implemented, we may not realize, in full or in part, the anticipated benefits or such benefits may be realized more slowly than anticipated.
+Added: The failure to realize benefits, which may be due to our inability to execute plans, delays in the implementation of the Transformation Plan, global or local economic conditions, competition, changes in the beauty industry and the other risks described herein, could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
Our strategy includes simplifying our product range and brand architecture and focusing brand-building efforts behind priority brand/country combinations.
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We also cannot be sure of the effect such divestitures or discontinuances would have on the performance of our remaining business or ability to execute our global strategies.
−Removed: We have incurred significant costs in connection with the integration of acquisitions and simplifying our business, and expect to incur costs in connection with the implementation of our Turnaround Plan, that could affect our period-to-period operating results.
−Removed: We have incurred significant restructuring costs in the past, and, as we implement our Turnaround Plan (which includes our structure reorganization and the move of our management headquarters), we expect to incur one-time cash costs of approximately $600 million spread over fiscal years 2020 through to 2023, in addition to approximately $160 million connected to previous restructuring programs.
−Removed: As we integrated acquisitions, including the transformational acquisition of the P&G Beauty Business, we experienced challenges, including supply chain disruptions, higher than expected costs and lost customers and related revenue and profits, and we could experience these or other challenges arising from the implementation of the Turnaround Plan.
+Added: We have incurred significant costs in connection with the integration of acquisitions and simplifying our business, and expect to incur costs in connection with the implementation of our Transformation Plan, that could affect our period-to-period operating results.
+Added: We have incurred significant restructuring costs in the past, and, as we implement our Transformation Plan (which builds on our previously announced Turnaround Plan and includes our structure reorganization as well as our fixed-cost reduction plan), we expect to incur one-time cash costs of approximately $600.0 spread over fiscal years 2020 through to 2023, in addition to approximately $160.0 connected to previous restructuring programs.
+Added: In the past, as we integrated acquisitions, including the transformational acquisition of the P&G Beauty Business, we experienced challenges, including supply chain disruptions, higher than expected costs and lost customers and related revenue and profits, and we could experience these or other challenges arising from the implementation of the Transformation Plan.
The cash usage associated with such, and similar, expenses has impacted and could continue to impact our ability to execute our business strategies, improve operating results and deleverage our balance sheet.
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The amount and timing of the above-referenced charges and management distraction could further adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
−Removed: In addition, the implementation of the Turnaround Plan, continuing restructuring initiatives and the integration of acquisitions may impact our ability to anticipate future business trends and accurately forecast future results.
+Added: In addition, the implementation of the Transformation Plan, continuing restructuring initiatives, the integration of acquisitions and the separation of the Wella Business and related TSA, may impact our ability to anticipate future business trends and accurately forecast future results.
The diversion of resources to the integration of the P&G Beauty Business, together with changes and turnover in our management teams as we reorganized our business, negatively impacted our fiscal 2018 and 2019 results.
−Removed: The implementation our Turnaround Plan could result in similar challenges.
−Removed: Although our Turnaround Plan is intended to deliver
−Removed: meaningful, sustainable expense and cost management improvement, events and circumstances such as financial or strategic difficulties, significant employee turnover, business disruption and delays may occur or continue, resulting in new, unexpected or increased costs that could result in us not realizing all of the anticipated benefits of the Turnaround Plan on our expected timetable or at all.
−Removed: In addition, we are executing many initiatives simultaneously, including a change to our organizational structure and global strategy, as well as the move of our management headquarters, which may result in further diversion of our resources, employee attrition and business disruption (including supply chain disruptions), and may adversely impact the execution of such initiatives.
−Removed: Any failure to implement our multi-year Turnaround Plan and other initiatives in accordance with our expectations could adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
+Added: The implementation of our Transformation Plan could result in similar challenges.
+Added: Although our Transformation Plan is intended to deliver meaningful, sustainable expense and cost management improvement, events and circumstances such as financial or strategic difficulties, significant employee turnover, business disruption and delays may occur or continue, resulting in new, unexpected or increased costs that could result in us not realizing all of the anticipated benefits of the Transformation Plan on our expected timetable or at all.
+Added: In addition, we are executing many initiatives simultaneously, including changes to our operations and global strategy, as well as the separation of the Wella Business and related Wella TSA, which may result in further diversion of our resources, employee attrition and business disruption (including supply chain disruptions), and may adversely impact the
+Added: execution of such initiatives.
+Added: Any failure to implement our multi-year Transformation Plan and other initiatives in accordance with our expectations could adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
+Added: The closing of the announced sale of the Wella Business, its separation into a standalone entity and KKR Bidco’s investment therein are subject to various risks and uncertainties, may not be completed in accordance with expected plans or on the currently contemplated timeline, or at all, and the pending transactions may be disruptive to our operations and adversely impact our profitability.
+Added: Risks and uncertainties relating to the sale and separation of the Wella Business could adversely affect our business, financial condition and results of operations.
+Added: We have expended and will continue to expend significant management time and resources and have incurred and will continue to incur significant expenses due to legal, advisory and financial services fees related to the sale and separation of the Wella Business.
+Added: These expenses must be paid regardless of whether the transaction is completed.
+Added: Accordingly, if the proposed sale and separation of the Wella Business is delayed or is not completed on the terms set forth in the definitive agreements governing the sale and separation, or at all, our business, results of operations, financial condition, cash flows and stock price may be adversely affected.
+Added: In addition, the sale and separation process, including complex carve-out and transition activities, may be time consuming and disruptive to our business operations, could divert the attention of management and the Board from our business, could negatively affect our ability to attract, retain and motivate key employees, could impact our relationships with suppliers and/or customers, could lead to a disproportionate cost base for the size of the remaining business, and could expose us to potential litigation in connection with the sale process and the standalone business.
+Added: Further, speculation regarding any developments related to the sale and separation of the Wella Business and KKR Bidco’s investment therein, and perceived uncertainties related to the future of the Company, could cause our stock price to fluctuate significantly.
+Added: If the proposed sale and separation of the Wella Business is completed, we may not achieve the operational and financial results that we anticipate in the future.
+Added: If the sale of the Wella Business is completed, our operational and financial profile will change upon the separation of the Wella Business from our other remaining businesses.
+Added: As a result, our diversification of revenue sources will diminish, and our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and greater risk as a result of the concentration of our business in the fragrance, color cosmetics and skincare sectors of the beauty industry.
+Added: Moreover, the shares of the company’s common stock will represent an investment in a smaller company than in existence today and the company’s exposure to the risks inherent in its remaining businesses will increase.
+Added: Following the closing of the sale of the Wella Business, we plan to use the net proceeds from the sale to pay down debt, which may not improve our results of operations or cash flows.
+Added: Further, the anticipated benefits to us of the proposed sale, including the retention of 40% ownership in the separated business, are based on a number of assumptions, including the successful and timely separation and transition of the Wella Business, some of which may prove incorrect.
+Added: Any such incorrect assumptions could adversely affect our business, results of operations or financial condition.
+Added: In addition, we will have continuing operational and financial obligations under the Wella TSA, in some cases as long as two years or more after the closing.
+Added: These ongoing transition arrangements will require significant management and operational resources and may limit our ability to fully implement cost reduction and efficiency initiatives or other aspects of our Transformation Plan until the Wella TSA period has expired.
Our new product introductions may not be as successful as we anticipate, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
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In addition, we believe that we must maintain and enhance the recognition of our brands, which may require us to quickly and continuously adapt in a highly competitive industry to deliver desirable products and branding to our consumers.
−Removed: For example, as part of our Turnaround Plan, we are in the process of reevaluating our product assortment and simplifying our product range and brands’ architecture.
+Added: For example, as part of our Transformation Plan, we are in the process of reevaluating our product assortment and simplifying our product range and brands’ architecture.
We are also shifting our focus to supporting our priority brands and brand/country combinations and instituting new objectives for our innovation efforts to support expansion of category coverage.
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For example, we may incur costs exceeding our expectations, our advertising, promotional and marketing strategies may be less effective than planned or customer purchases may not be as high as anticipated.
−Removed: In addition, we may experience a decrease in sales of certain of our existing products as a result of consumer preferences shifting to our newly-launched products or to the products of our competitors as a result of unsuccessful or unpopular product launches harming our brands.
+Added: In addition, we may experience a decrease in sales of certain of our existing products as a result of consumer preferences shifting to our newly-launched products or to the products of our competitors as a result of
+Added: unsuccessful or unpopular product launches harming our brands.
Also, initially successful launches may not be sustained.
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As part of our ongoing business strategy we expect that we will need to continue to introduce new products in our traditional product categories and channels, while also expanding our product launches into adjacent categories and channels in which we may have less operating experience.
−Removed: For example, we acquired professional and retail hair brands in connection with the acquisition of the P&G Beauty Business, purchased a premium brand in high-end hair styling and appliances and entered into a joint venture with an online peer-to-peer social selling platform in beauty, all of which were new product categories and channels for us.
−Removed: The peer-to-peer social selling platform business in particular has struggled recently.
+Added: For example, we acquired professional and retail hair brands in connection with the acquisition of the P&G Beauty Business, purchased a premium brand in high-end hair styling and appliances and entered into a joint venture with King Kylie and a pending transaction with Kim Kardashian West, both digital-native beauty businesses, all of which were new product categories or channels for us.
The success of product launches in adjacent product categories could be hampered by our relative inexperience operating in such categories and channels, the strength of our competitors or any of the other risks referred to herein.
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Patent expirations may also affect our business.
−Removed: As patents expire (especially with respect to our Professional Beauty hair coloring technology), competitors may be able to legally produce and market products similar to the ones that were patented, which could have a material adverse
−Removed: effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
+Added: As patents expire (especially with respect to our Professional Beauty hair coloring technology), competitors may be able to legally produce and market products similar to the ones that were patented, which could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
In addition, third parties may distribute and sell counterfeit (or grey market) versions of our products, which may be inferior or pose safety risks and could confuse consumers or customers, which could cause them to refrain from purchasing our brands in the future or otherwise damage our reputation.
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Our brand and joint venture partners’ and licensors’ ability to maintain and protect their trademark and other intellectual property rights is subject to risks similar to those described above with respect to our intellectual property.
−Removed: We do not control the protection of the trademarks and other intellectual property rights of our brand and joint venture partners and licensors and cannot ensure that our brand and joint venture partners and licensors will be able to secure or protect their trademarks and other intellectual property rights, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.
+Added: We do not control the protection of the trademarks and other intellectual property
+Added: rights of our brand and joint venture partners and licensors and cannot ensure that our brand and joint venture partners and licensors will be able to secure or protect their trademarks and other intellectual property rights, which could have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.
Our success depends on our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property of third parties.
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Moreover, our acquisition targets and other businesses in which we make strategic investments are often smaller or younger companies with less robust intellectual property clearance practices, and we may face challenges on the use of their trademarks and other proprietary rights.
−Removed: For example, we have faced oppositions to our use of the “Younique” mark in certain jurisdictions, including the European Economic Area and China.
If we are found to be infringing, misappropriating or otherwise violating a third party trademark, patent, copyright or other proprietary rights, we may need to obtain a license, which may not be available in a timely manner on commercially reasonable terms or at all, or redesign or rebrand our products, which may not be possible or result in a significant delay to market or otherwise have an adverse commercial impact.
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We cannot predict the amount and timing of any future impairments, if any.
−Removed: We have experienced impairment charges with respect to goodwill, intangible assets or other items in connection with past acquisitions, and we may experience such charges in connection with such acquisitions or future acquisitions, particularly if business performance declines or expected growth is
−Removed: not realized or the applicable discount rate changes adversely.
−Removed: For example, in fiscal 2019 we incurred impairment charges of $3,851.9 million, primarily related to goodwill write-downs in our Consumer Beauty business, charges against certain brand trademarks and a Corporate investment.
+Added: We have experienced impairment charges with respect to goodwill, intangible assets or other items in connection with past acquisitions, and we may experience such charges in connection with such acquisitions or future acquisitions, particularly if business performance declines or expected growth is not realized or the applicable discount rate changes adversely.
+Added: For example, in our continuing operations in fiscal 2020 and 2019, we incurred impairment charges of $434.0 and $3,729.0 ($3,851.9 for total Coty Inc., including discontinued operations), respectively, primarily related to goodwill write-downs and impairments on indefinite-lived other intangible assets.
It is possible that material changes in our business, market conditions, or market assumptions could occur over time.
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In addition, we are required to maintain certain financial ratios calculated pursuant to a financial maintenance covenant under the 2018 Coty Credit Agreement on a quarterly basis.
+Added: On April 29, 2020, we amended the 2018 Coty Credit Agreement.
+Added: The amendment (i) provides a Total Net Leverage Ratio financial covenant “holiday” through March 31, 2021;
+Added: (ii) establishes a quarterly minimum liquidity covenant through March 31, 2021 of $350.0;
+Added: and (iii) effectively places certain limitations on the ability to make certain investments and restricted payments (including limiting our ability to pay dividends in cash through March 31, 2021) and on incurring additional indebtedness.
For a further description of the 2018 Coty Credit Agreement and the covenants thereunder please refer to Note 15, “Debt” in the notes to our Consolidated Financial Statements.
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reducing or delaying capital investments;
−Removed: modifying terms of agreements, including timing of payments, with vendors,
−Removed: customers, and other third parties;
+Added: modifying terms of agreements, including timing of payments, with vendors, customers, and other third parties;
or seeking to raise additional capital.
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For example, in connection with the 2019 amendment to the 2018 Credit Agreement, we reduced the borrowing capacity under our revolving credit facility.
+Added: In addition, the 2020 amendment establishes a quarterly minimum liquidity covenant of $350.0 and effectively places certain limitations on the ability to make certain investments and restricted payments (including limiting our ability to pay dividends in cash) and on incurring additional indebtedness during the Total Net Leverage Ratio financial covenant “holiday” period.
The inability of our subsidiaries to generate sufficient cash flow to satisfy our covenants and debt service obligations, including the inability to service our senior unsecured notes and the 2018 Coty Credit Agreement, or to refinance our obligations on commercially reasonable terms, could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows or liquidity, as well as the trading price of our securities, and may impact our ability to satisfy our obligations in respect of our senior unsecured notes and the 2018 Coty Credit Agreement.
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In addition, amounts drawn under the 2018 Coty Credit Agreement may bear interest rates in relation to the London Interbank Offered Rate (“LIBOR”).
−Removed: In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021.
+Added: In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR,
+Added: announced that it intends to phase out LIBOR by the end of 2021.
It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.
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During the past several years, we have explored and undertaken opportunities to acquire other companies and assets as part of our growth strategy.
−Removed: For example, we completed five significant acquisitions in fiscal 2016 through fiscal 2018 (including the acquisition of P&G Beauty Business in October 2016) and entered into a joint venture with Younique in February 2017.
+Added: For example, we completed five significant acquisitions in fiscal 2016 through fiscal 2018 (including the acquisition of P&G Beauty Business in October 2016).
+Added: In 2020, we entered into a joint venture with King Kylie and a pending transaction with Kim Kardashian West.
These assets represent a significant portion of our net assets, particularly the P&G Beauty Business.
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Our due diligence investigations may fail to identify all of the problems, liabilities or other challenges associated with an acquired business which could result in increased risk of unanticipated or unknown issues or liabilities, including with respect to environmental, competition and other regulatory matters, and our mitigation strategies for such risks that are identified may not be effective.
−Removed: As a result, we may not achieve some or any of the benefits, including anticipated synergies or accretion to earnings, that we expect to achieve in connection with our acquisitions, including the acquisition of the P&G Beauty Business, or we may not accurately anticipate the fixed and other costs associated with such acquisitions, or the business may not achieve the performance we anticipated, which may materially adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
+Added: As a result, we may not achieve some or any of the benefits, including anticipated synergies or accretion to earnings, that we expect to achieve in connection with our acquisitions and joint ventures, or we may not accurately anticipate the fixed and other costs associated with such acquisitions and joint ventures, or the business may not achieve the performance we anticipated, which may materially adversely affect our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
Any financing for an acquisition could increase our indebtedness or result in a potential violation of the debt covenants under our existing facilities requiring consent or waiver from our lenders, which could delay or prevent the acquisition, or dilute the interests of our stockholders.
−Removed: For example, in connection with the acquisition of the P&G Beauty Business, Green Acquisition Sub Inc., a wholly-owned subsidiary of the Company, was merged with and into Galleria, with Galleria continuing as the surviving corporation and a direct wholly-owned subsidiary of the Company (the “Green Merger”) and pre-Green Merger holders of our
−Removed: stock were diluted to 46% of the fully diluted shares of common stock immediately following the Green Merger.
+Added: For example, in connection with the acquisition of the P&G Beauty Business, Green Acquisition Sub Inc., a wholly-owned subsidiary of the Company, was merged with and into Galleria, with Galleria continuing as the surviving corporation and a direct wholly-owned subsidiary of the Company (the “Green Merger”) and pre-Green Merger holders of our stock were diluted to 46% of the fully diluted shares of common stock immediately following the Green Merger.
In addition, acquisitions of foreign businesses, new entrepreneurial businesses and businesses in new distribution channels, such as our acquisition of the Brazilian personal care and beauty business of Hypermarcas S.A.
−Removed: (the “Hypermarcas Brands”), Younique, Burberry and ghd, entail certain particular risks, including potential difficulties in geographies and channels in which we lack a significant presence, difficulty in seizing business opportunities compared to local or other global competitors, difficulty in complying with new regulatory frameworks, the acquisition of new or unexpected liabilities, the adverse impact of fluctuating exchange rates and entering lines of business where we have limited or no direct experience.
+Added: (the “Hypermarcas Brands”), Burberry and ghd, and our joint venture with King Kylie and pending transaction with Kim Kardashian West, entail certain particular risks, including potential difficulties in geographies and channels in which we lack a significant presence, difficulty in seizing business opportunities compared to local or other global competitors, difficulty in complying with new regulatory frameworks, the acquisition of new or unexpected liabilities, the adverse impact of fluctuating exchange rates and entering lines of business where we have limited or no direct experience.
See “—Fluctuations in currency exchange rates may negatively impact our financial condition and results of operations” and “—We are subject to risks related to our international operations.”
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A general economic downturn, credit constriction, uncertainty in global economic or political conditions or other global events or a sudden disruption in business conditions may affect consumer spending, which could adversely affect our financial results.
−Removed: Global events may impact our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
−Removed: We operate in an environment of slow overall growth in the segments and geographies in which we compete with increasing competitive pressure and changing consumer preferences.
−Removed: While luxury fragrances and skin care categories are experiencing strong growth, declines in the retail mass color cosmetics and mass fragrance categories in the U.S.
+Added: Global events may impact our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities, and, as demonstrated by the impacts of COVID-19, such events can evolve rapidly and cause significant and pervasive disruptions to global economic and business conditions.
+Added: We operate in an environment of slow overall growth in the segments and geographies in which we compete with increasing competitive pressure and changing consumer preferences, and global economic activity is in decline as a result of COVID-19.
+Added: While prestige fragrances and skin care categories have experienced strong growth, declines in the retail mass color cosmetics and mass fragrance categories in the U.S.
and certain key markets in Western Europe continue to impact our business and financial results.
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The global markets and currencies have been adversely impacted, including volatility in the value of the British pound as compared to the U.S.
−Removed: There continues to be a significant lack of clarity over the eventual date and terms of the U.K.’s exit from the E.U.
−Removed: and the terms of the U.K.'s future relationship with the E.U.
+Added: The United Kingdom formally left the European Union on January 31, 2020 and immediately entered a transition period set to expire on December 31, 2020 (which may potentially be extended until December 31, 2022 at the latest).
+Added: There continues to be a significant lack of clarity over the terms of the U.K.’s future relationship with the E.U.
Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the U.K.
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See “-We are subject to risks related to our international operations.” Further, recent political and economic developments in the U.S.
−Removed: (including public statements by the current administration), the U.K., Europe, Brazil and China have introduced uncertainty in the regulatory and business environment in which we operate (including potential increases in tariffs).
+Added: (including public statements by the current administration and the upcoming election), the U.K., Europe, Brazil and China have introduced uncertainty in the regulatory and business environment in which we operate (including potential increases in tariffs).
These political and economic developments have resulted and could continue to result in changes to legislation or reformation of government policies, rules and regulations pertaining to trade.
Such changes could have a significant impact on our business by increasing the cost of doing business, affecting our ability to sell our products and negatively impacting our profitability.
+Added: Moreover, our business has been, and may continue to be, impacted by COVID-19.
+Added: See “-Our operations and sales have been adversely impacted by the COVID-19 pandemic, and we must successfully manage the demand, supply, operational and financial challenges associated with the actual or perceived effects of COVID-19 and the related widespread public health crisis.”
In addition, our sales are affected by the overall level of consumer spending.
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Our inability to collect receivables from a significant retailer or customer, or from a group of these customers, could have a material adverse effect on our business, prospects, results of operations, financial condition, results of operations, cash flows, as well as the trading price of our securities.
−Removed: If a retailer or customer were to go into liquidation, we could incur additional costs if we choose to purchase the retailer’s or customer’s inventory of our products to protect brand equity.
+Added: If a retailer or customer were to go into liquidation, we
+Added: could incur additional costs if we choose to purchase the retailer’s or customer’s inventory of our products to protect brand equity.
+Added: These risks have been, and may continue to be, amplified by COVID-19.
Volatility in the financial markets could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
While we currently generate significant cash flows from our ongoing operations and have access to global credit markets through our various financing activities, credit markets may experience significant disruptions.
−Removed: Deterioration in global financial markets could make future financing difficult or more expensive.
+Added: Deterioration in global financial markets, including as a result of COVID-19, could make future financing difficult or more expensive.
If any financial institutions that are parties to our credit facilities or other financing arrangements, such as interest rate or foreign currency exchange hedging instruments, were to declare bankruptcy or become insolvent, or experience other financial difficulty, they may be unable to perform under their agreements with us.
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We are subject to risks related to our international operations.
−Removed: We operate on a global basis, and approximately 69% of our net revenues in fiscal 2019 were generated outside North America.
−Removed: We maintain offices in over 35 countries, and we market, sell and distribute our products in over 150 countries and territories.
−Removed: Our presence in such geographies has expanded as a result of our acquisitions, including the acquisition of the Hypermarcas Brands, the P&G Beauty Business and ghd as well as organic growth, and we are exposed to risks inherent in operating in geographies in which we have not operated in or have been less present in the past.
−Removed: operations are subject to many risks and uncertainties, including ongoing instability or changes in a country’s or region’s economic, regulatory or political conditions, including inflation, recession, interest rate fluctuations, sovereign default risk and actual or anticipated military or political conflicts (including any other change resulting from Brexit), labor market disruptions, sanctions, boycotts, new or increased tariffs, quotas, exchange or price controls, trade barriers or other restrictions on foreign businesses, our failure to effectively and timely implement processes and policies across our diverse operations and employee base and difficulties and costs associated with complying with a wide variety of complex and potentially conflicting
−Removed: regulations across multiple jurisdictions.
+Added: We operate on a global basis, and approximately 71% of our net revenues from continuing operations in fiscal 2020, were generated outside North America.
+Added: We have employees in more than 46 countries, and we market, sell and distribute our products in over 150 countries and territories.
+Added: Our presence in such geographies has expanded as a result of our acquisitions, as well as organic growth, and we are exposed to risks inherent in operating in geographies in which we have not operated in or have been less present in the past.
+Added: operations are subject to many risks and uncertainties, including ongoing instability or changes in a country’s or region’s economic, regulatory or political conditions, including inflation, recession, interest rate fluctuations, sovereign default risk and actual or anticipated military or political conflicts (including any other change resulting from Brexit), labor market disruptions, sanctions, boycotts, new or increased tariffs, quotas, exchange or price controls, trade barriers or other restrictions on foreign businesses, our failure to effectively and timely implement processes and policies across our diverse operations and employee base and difficulties and costs associated with complying with a wide variety of complex and potentially conflicting regulations across multiple jurisdictions.
operations also increase the risk of non-compliance with U.S.
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operations, such as those relating to sanctions, boycotts and improper payments.
−Removed: In particular, we are monitoring the latest developments regarding Brexit negotiations, including the potential impact on our business if the United Kingdom exits the EU without having a final withdrawal agreement in place (sometimes referred to as a “hard Brexit”).
+Added: In particular, we are monitoring the latest developments regarding Brexit negotiations, including the potential impact on our business if the Brexit transition period were to expire without having a final withdrawal agreement in place (sometimes referred to as a “hard Brexit”).
Brexit (and particularly a hard Brexit) could have a number of negative implications for our business, including with respect to the production of our products in the United Kingdom, the transfer or purchase of goods and services into or out of the United Kingdom and our operations in the United Kingdom.
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For example, in 2018, the E.U.
−Removed: imposed tariffs on certain luxury products imported from the U.S., which impact the sale in the E.U.
−Removed: of certain of our Professional Beauty and Consumer Beauty products that are manufactured in the U.S.
+Added: imposed tariffs on certain prestige category products imported from the U.S., which impact the sale in the E.U.
+Added: of certain of our products that are manufactured in the U.S.
Similarly, the tariffs imposed by the U.S.
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We are under the jurisdiction of regulators and other governmental authorities which may, in certain circumstances, lead to enforcement actions, changes in business practices, fines and penalties, the assertion of private litigation claims and damages and adversely impact our customer relationships, particularly to the extent customers were implicated by such proceedings.
−Removed: We are also subject to legal proceedings and legal compliance risks in connection with legacy matters involving the P&G Beauty Business, the Burberry fragrance business, Hypermarcas Brands, ghd and Younique, that were previously outside our control and that we are now independently addressing, which may result in unanticipated or new liabilities.
+Added: We are also subject to legal proceedings and legal compliance risks in connection with legacy matters involving the P&G Beauty Business, the Burberry fragrance business, Hypermarcas Brands, ghd, the King Kylie business and the pending Kim Kardashian West business, that were previously outside our control and that we are now independently addressing, which may result in unanticipated or new liabilities.
While we believe that we have adopted, and/or will adopt, appropriate risk management and compliance programs, such adoptions take time and, given the global nature of our operations and many laws and regulations to which we are subject, these legal and compliance risks will continue to exist with respect to our business, and additional legal proceedings and other contingencies, the outcome and impact of which cannot be predicted with certainty, will arise from time to time.
−Removed: As described under “Legal Proceedings” in this report, three putative class action lawsuits have been filed in connection with the Cottage Tender Offer and related Schedule 14D-9.
+Added: As described under “Legal Proceedings” in this report, a consolidated putative class action lawsuit has been filed in connection with the Cottage Tender Offer and related Schedule 14D-9.
In addition, we are subject to pending tax assessment matters in Brazil relating to local sales tax credits for the 2016-2017 tax periods.
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In fiscal 2019, we renewed two key brand licenses.
−Removed: While many of our licenses are long term, licenses relating to certain of our brands are up for renewal in the next few years, including seven licenses up for renewal in 2020.
−Removed: We may not be able to renew expiring licenses on terms that are favorable to us or at all.
+Added: While many of our licenses are long term, licenses relating to certain of our brands are up for renewal in the next few years, including five licenses up for renewal in 2021.
+Added: We may not be able to renew expiring licenses
+Added: on terms that are favorable to us or at all.
We may also face difficulties in finding replacements for terminated or expired licenses.
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Our sales generally increase during our second fiscal quarter as a result of increased demand by retailers associated with the winter holiday season.
−Removed: We also experience an increase in sales during our fourth quarter in our Professional Beauty segment as a result of higher demand prior to the summer holiday season.
+Added: The Wella Business also generally experiences an increase in sales during its fourth fiscal quarter as a result of higher demand prior to the summer holiday season.
Accordingly, our financial performance, sales, working capital requirements, cash flow and borrowings generally experience variability during the three to six months preceding and during the holiday period.
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planning hub and one of our U.S.
−Removed: distribution centers in the fourth quarter of fiscal 2018 resulted in loss of revenue and increased costs, including penalty payments to retailers for unshipped products, as we were unable to meet consumer demand for certain Consumer Beauty products, which impacted our results of operations in fiscal 2019.
−Removed: As we continue our implementation of our Turnaround Plan and other restructuring activities, any additional or ongoing supply chain disruptions or delay in securing applicable approvals or consultations for such activities may impact our quarterly results.
+Added: distribution centers in the fourth quarter of fiscal 2018 resulted in loss of revenue and increased costs, including penalty payments to retailers for unshipped products, as we were unable to meet consumer demand for certain mass beauty products, which impacted our results of operations in fiscal 2019.
+Added: As we continue our implementation of our Transformation Plan (including our fixed cost reduction activities) and other restructuring activities, any additional or ongoing supply chain disruptions or delay in securing applicable approvals or consultations for such activities may impact our quarterly results.
The loss of, or damage or disruption to, any of our manufacturing facilities or distribution centers could have a material adverse effect on our business, prospects, results of operations, financial condition, results of operations, cash flows, as well as the trading price of our securities.
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In addition, failure by our third-party suppliers to comply with ethical, social, product, labor and environmental laws, regulations or standards, or their engagement in politically or socially controversial conduct, such as animal testing, could negatively impact our reputations and lead to various adverse consequences, including decreased sales and consumer boycotts.
−Removed: The Dodd-Frank Wall Street Reform and Consumer Protection Act includes disclosure requirements regarding the use of certain minerals mined from the Democratic Republic of Congo and adjoining countries (each, a “covered country”) and procedures pertaining
−Removed: to a manufacturer’s efforts regarding the source of such minerals.
+Added: The Dodd-Frank Wall Street Reform and Consumer Protection Act includes disclosure requirements regarding the use of certain minerals mined from the Democratic Republic of Congo and adjoining countries (each, a “covered country”) and procedures pertaining to a manufacturer’s efforts regarding the source of such minerals.
SEC rules implementing these requirements may have the effect of reducing the pool of suppliers who can supply covered country “conflict free” products, and we may not be able to obtain covered country conflict free products or supplies in sufficient quantities for our operations.
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The failure of one or more such providers to provide the expected services, provide them on a timely basis or provide them at the prices we expect, or the costs incurred in returning these outsourced functions to being performed under our management and direct control, may have a material adverse effect on our results of operations or financial condition.
+Added: The above risks have been and may continue to be exacerbated by the impact of COVID-19, and our efforts to manage and remedy these impacts to the Company may not achieve results in accordance with our expectations or on the timelines we anticipate.
We are increasingly dependent on information technology, and if we are unable to protect against service interruptions, corruption of our data and privacy protections, cyber-based attacks or network security breaches, our operations could be disrupted.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, and to comply with regulatory, legal and tax requirements.
−Removed: We also increasingly depend on our information technology infrastructure for digital marketing activities, e-commerce and for electronic communications among our locations, personnel, customers and suppliers around the world.
−Removed: These information technology systems, some of which are managed by third parties that we do not control, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, cutover activities in our restructuring and simplification initiatives (including in connection with our Turnaround Plan), power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophic events or other problems.
−Removed: For example, in connection with the expected change in our reporting segments in the third quarter of fiscal 2020 in connection with our reorganization, we will need to reconfigure our financial reporting systems.
−Removed: If we experience any delay or problems with such reconfiguration, or if our information technology systems otherwise suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
+Added: We also increasingly depend on our information technology infrastructure for digital marketing activities, e-commerce and for electronic communications among our locations, personnel, customers and suppliers around the world, including as a result of remote working in response to COVID-19.
+Added: These information technology systems, some of which are managed by third parties that we do not control, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, cutover activities in our restructuring and simplification initiatives (including in connection with our Transformation Plan as well as the separation of the Wella Business), power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors, catastrophic events or other problems.
+Added: If our information technology systems otherwise suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.
If not managed and mitigated effectively, these risks could increase in the future as we expand our digital capabilities and e-commerce activities, including through the use of new digital applications and technologies.
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Regulators, including the U.K.’s Information Commissioner’s Office, have actively enforced the law and imposed substantial fines, and are expected to continue to do so.
−Removed: In addition, the state of California enacted a data privacy law applicable to entities serving or employing California residents (the “California Consumer Privacy Act”) that will require compliance by January 2020.
−Removed: The GDPR, the California Consumer Privacy Act and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data and other personal information, require us to evaluate our current operations, information technology systems and data handling practices and implement enhancements and adaptations where necessary to comply.
+Added: In addition, the state of California enacted a data privacy law applicable to entities serving or employing California residents (the “California Consumer Privacy Act”) that required compliance by January 2020.
+Added: More recently, Brazil enacted the General Data Protection Law (“Brazil LGPD”) regulating the processing of personal data, which became effective in August 2020.
+Added: The GDPR, the California Consumer Privacy Act, the Brazil LGPD and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data and other personal information, require us to evaluate our current operations, information technology systems and data handling practices and implement enhancements and adaptations where necessary to comply.
Compliance with these laws, could greatly increase our operational costs or require us to adapt certain products, operations, processes or activities in otherwise suboptimal ways, to comply with the stricter regulatory requirements, such as efforts to meet consumer demand for personalized products and services, in jurisdictions where we operate.
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Our information technology systems, operations and security control frameworks require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems to keep pace with continuing changes in technology, legal and regulatory standards, cyber threats and the commercial opportunities that accompany the changing digital and data driven economy.
−Removed: From time to time, we undertake significant information technology systems projects, including enterprise resource planning updates, modifications, integrations and roll-outs.
+Added: From time to time, we undertake significant information technology systems projects, including enterprise resource planning updates, modifications, integrations and roll-outs, as well as separation and carve-out activities relating to dispositions such as the separation of the Wella Business.
These projects may be subject to cost overruns and delays and may cause disruptions in our daily business operations.
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Our success depends, in part, on our ability to identify, hire, train and retain our employees, including our key personnel, such as our executive officers and senior management team and our research and development and marketing personnel.
−Removed: We have recently experienced several changes to senior management and the composition of our board of directors, and we are in the process of implementing our Turnaround Plan, including the business structure reorganization and the move of our management headquarters to Amsterdam.
+Added: We have recently experienced several changes to senior management and the composition of our board of directors, and we are in the process of implementing our Transformation Plan, including our fixed cost reduction activities, and the separation of the Wella Business.
Transition periods accompanying changes in leadership and changes due to business reorganization may result in uncertainty, impact business performance and strategies and retention of personnel.
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Further, other companies may attempt to recruit our key personnel and we may attempt to recruit their key personnel, even if bound by non-competes, which could result in diversion of management attention and our resources to litigation related to such recruitment.
−Removed: These risks may be exacerbated by the stresses associated with changes in our global business strategy, the implementation of our Turnaround Plan and other restructuring activities, including the move of our management headquarters to Amsterdam, any continued changes in our senior management team and other key personnel, and other initiatives.
−Removed: As we continue to restructure our workforce from time to time (including with respect to the Turnaround Plan and other business restructuring initiatives, as well as acquisitions and our overall growth strategy) and work with more brand partners and licensors, the risk of potential employment-related claims and disputes will also increase.
+Added: These risks may be exacerbated by the stresses associated with changes in our global business strategy, the implementation of our Transformation Plan and other restructuring activities, any continued changes in our senior management team and other key personnel, and other initiatives.
+Added: As we continue to restructure our workforce from time to time (including with respect to the Transformation Plan and other business restructuring initiatives, our efforts to manage the impact of COVID-19, as well as acquisitions and our overall growth strategy) and work with more brand partners and licensors, the risk of potential employment-related claims and disputes will also increase.
As such, we or our partners may be subject to claims, allegations or legal proceedings related to employment matters including discrimination, harassment (sexual or otherwise), wrongful termination or retaliation, local, state, federal and non-U.S.
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These regulatory authorities typically require a reasonable basis to support any marketing claims.
−Removed: What constitutes a reasonable basis for substantiation can vary widely based on geography, and the efforts
−Removed: that we undertake to support our claims may not be deemed adequate for any particular product or claim.
+Added: What constitutes a reasonable basis for substantiation can vary widely based on geography, and the efforts that we undertake to support our claims may not be deemed adequate for any particular product or claim.
If we are unable to show adequate substantiation for our product claims, or our promotional materials make claims that exceed the scope of allowed claims for the classification of the specific product, regulatory authorities could take enforcement action or impose penalties, such as monetary consumer redress, requiring us to revise our marketing materials, amend our claims or stop selling or recalling certain products, all of which could harm our business, prospects, financial condition, results of operations, cash flows, as well as the trading price of our securities.
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Our ability to generate and maintain sufficient cash levels also could impact our ability to reduce our indebtedness.
+Added: The above risks have been and may continue to be exacerbated by the impact of COVID-19, and our efforts to manage and remedy these impacts to the Company may not achieve results in accordance with our expectations or on the timelines we anticipate.
Changes in laws, regulations and policies that affect our business or products could adversely affect our business, financial condition, results of operations, cash flows, as well as the trading price of our securities.
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tax laws that affect businesses operating internationally, and future regulatory, administrative or legislative guidance could adversely affect our financial results.
−Removed: See “—We are subject to risks related to our international operations”, “—Network marketing is subject to intense government scrutiny, and regulation and changes in the law, or the interpretation and enforcement of the law, might adversely affect our business” and “—We face risks associated with our independent contractors.”
+Added: See “—We are subject to risks related to our international operations”, and “—Network marketing is subject to intense government scrutiny, and regulation and changes in the law, or the interpretation and enforcement of the law, might adversely affect our business”.
We are also subject to legal proceedings and legal compliance risks in connection with legacy matters related to recently acquired companies that were previously outside our control.
Such matters may result in our incurring unanticipated costs that may negatively impact the financial contributions of such acquisitions at least in the periods in which such liability is incurred or require operational adjustments that affect our results of operations with respect to such investments.
−Removed: We may not have adequate or any insurance coverage for some of these legacy matters, including matters assumed in the acquisition of the P&G Beauty Business, Younique, ghd, the Hypermarcas Brands and the Burberry fragrance business.
−Removed: While we believe that we have adopted, and will adopt, appropriate risk management and compliance programs, the global nature of our operations and many laws and regulations to which we are subject mean that legal and compliance risks will continue to exist with respect to our
−Removed: business, and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time, which could adversely affect our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.
−Removed: Network marketing is subject to intense government scrutiny, and regulation and changes in the law, or the interpretation and enforcement of the law, might adversely affect our business.
−Removed: On February 1, 2017, we entered into a joint venture with the founders of Younique, a leading online peer-to-peer social selling platform in beauty.
−Removed: We are now subject to a number of federal and state regulations administered by the Federal Trade Commission (the “FTC”) and various federal and state agencies in the United States related to Younique’s network marketing program, as well as regulations on direct selling in foreign countries administered by foreign agencies.
−Removed: We are subject to the risk that, in one or more countries, Younique’s network marketing program could be found by federal, state or foreign regulators not to be in compliance with applicable law or regulations which could result in significant fines, changes in business practices or a permanent injunction.
−Removed: Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria.
−Removed: The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based and, thus, we are subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change and business practices can evolve.
−Removed: The FTC or other federal, state or foreign courts or agencies may not consider us to be in compliance.
−Removed: The ambiguity surrounding these laws can also affect the public perception of us.
−Removed: The failure of the network marketing program to comply with current or newly adopted regulations or any allegations or charges to that effect brought by federal, state, or foreign regulators could negatively impact our brands and business in a particular market or in general and may adversely affect our share price.
−Removed: We are also subject to the risk of private party challenges to the legality of the network marketing program.
−Removed: Some network marketing programs of other companies have been successfully challenged in the past.
−Removed: Adverse judicial determinations with respect to the network marketing program, or in proceedings not involving us directly but that challenge the legality of network marketing systems, in any other market in which we operate, could increase costs to the extent we are obligated to contribute to the cost of defense and could negatively impact our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.
+Added: We may not have adequate or any insurance coverage for some of these legacy matters, including matters assumed in the acquisition of the P&G Beauty Business, ghd, the Hypermarcas Brands and the Burberry fragrance business, the joint venture with King Kylie and the pending transaction with Kim Kardashian West.
+Added: While we believe that we have adopted, and will adopt, appropriate risk management and compliance programs, the global nature of our operations and many laws and regulations to which we are subject mean that legal and compliance risks will continue to exist with respect to our business, and additional legal proceedings and other contingencies, the outcome of which cannot be predicted with certainty, will arise from time to time, which could adversely affect our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.
Our employees or others may engage in misconduct or other improper activities including noncompliance with regulatory standards and regulatory requirements.
−Removed: We are exposed to the risk of fraud or other misconduct by our personnel or third parties such as independent contractors or agents.
−Removed: Misconduct by employees, independent contractors, or agents could include inadvertent or intentional failures to comply with the laws and regulations to which we are subject or with our policies, provide accurate information to regulatory authorities, comply with ethical, social, product, labor and environmental standards, comply with fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us.
+Added: We are exposed to the risk of fraud or other misconduct by our personnel or third parties such as independent contractors, agents or influencers.
+Added: Misconduct by employees, independent contractors, influencers or agents could include inadvertent or intentional failures to comply with the laws and regulations to which we are subject or with our policies, provide accurate information to regulatory authorities, comply with ethical, social, product, labor and environmental standards, comply with fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us.
In particular, our business is subject to laws, regulations and policies intended to prevent fraud, kickbacks, self-dealing, resale price maintenance and other abusive practices.
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Notwithstanding our conducting training and taking disciplinary action against alleged violations, we may encounter additional costs from claims made and/or legal proceedings brought against us, and we could suffer reputational harm.
−Removed: We face risks associated with our independent contractors.
−Removed: We have personnel that we classify as independent contractors for U.S.
−Removed: federal and state and international employment law purposes in certain positions in our business.
−Removed: For example, Younique relies on independent presenters that it classifies as
−Removed: independent contractors to sell its products through its peer-to-peer social selling platform and we are subject to risks related to Younique presenters’ status as independent contractors.
−Removed: We are not in a position to directly provide the same direction, motivation and oversight to our independent contractors as we would if such personnel were our own employees.
−Removed: As a result, our independent contractors may not comply with applicable law or our policies and procedures or reflect our culture or values.
−Removed: Violations by our independent contractors of applicable law or of our policies and procedures in dealing with customers and other third parties or failure to meet our standards or reflect our culture could reflect negatively on our products and operations and harm our business reputation and also negatively impact our business, prospects, financial condition, results of operations and cash flows, as well as the trading price of our securities.
−Removed: In addition, it is possible that a court could hold us civilly or criminally accountable based on vicarious liability because of the actions of our independent contractors.
−Removed: In addition, our independent contractors are not subject to employment agreements with us and our ability to retain such personnel or enforce non-competes or other restrictions against them may be limited.
−Removed: In addition, we are subject to the Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor classification.
−Removed: These regulations and guidelines are subject to changes in judicial and agency interpretation, and it could be determined that the independent contractor classification is inapplicable.
−Removed: If legal standards for classification of independent contractors change, it may be necessary to modify our compensation structure for these personnel, including by paying additional compensation and taxes and/or reimbursing expenses.
−Removed: In addition, if we are determined to have misclassified such personnel as independent contractors, we would incur additional exposure under federal and state law, including workers' compensation, unemployment benefits, labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
−Removed: Any of these outcomes could result in costs to us, could impair our financial condition and our ability to conduct our business and could damage our reputation and our ability to attract and retain other personnel.
We are subject to risks related to our common stock, our stock repurchase program and our Stock Dividend Reinvestment Program.
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A drop in our share price could result in pledged shares being sold pursuant to the terms of the pledge, which could result in a decrease in the trading price of our stock and subject us and our executives to civil and criminal investigations, including with respect to insider trading.
−Removed: Our Stock Dividend Reinvestment Program allows stockholders to elect to receive 50% of their dividend in cash and reinvest 50% of their dividend in newly issued shares of our common stock.
+Added: In the event that our Board declares a dividend, our Stock Dividend Reinvestment Program allows stockholders to elect to receive 50% of their dividend in cash and reinvest 50% of their dividend in newly issued shares of our common stock.
As a result, stockholders who do not elect to participate in the Stock Dividend Reinvestment Program may experience dilution in their ownership percentage over time.
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If we are required to indemnify P&G in the event of a taxable Distribution, this indemnification obligation would be substantial and could have a material adverse effect on us, including with respect to our financial condition and results of operations.
−Removed: JAB Cosmetics B.V.
−Removed: (“JABC”) and its affiliates beneficially own approximately 60% of the fully diluted shares of our Class A Common Stock and, as such, have the ability to effect certain decisions requiring stockholder approval, which may be inconsistent with the interests of our other stockholders.
+Added: JABC Cosmetics B.V.
+Added: (“JABC”) and its affiliates, through their ownership of approximately 61% of the fully diluted shares of our Class A Common Stock, and KKR Aggregator, through its Convertible Series B Preferred Stock investment, have the ability to effect and/or significantly influence certain decisions requiring stockholder approval, which may be inconsistent with the interests of our other stockholders.
As a result of the completion of the Cottage Tender Offer in May 2019, JABC, through an affiliate, Cottage Holdco B.V., owns approximately 61% of the outstanding shares of our Class A Common Stock.
1 unchanged sentence
In addition, several of the members of our Board of Directors are affiliated with JABC.
−Removed: Accordingly, JAB has significant influence over us and our decisions, including the appointment of management and any other action requiring a vote of our Board of Directors.
−Removed: In addition, this concentration of ownership may have the effect of delaying, preventing or deterring a change in control of us and may negatively affect the market price of our stock.
−Removed: JABC’s interests may be different from or conflict with our interests or the interests of our other stockholders.
−Removed: JABC and its affiliates are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete indirectly with us.
−Removed: JABC or its affiliates may also pursue acquisition opportunities that are complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
−Removed: In addition, JABC’s obligations under its credit facility may cause JABC to take actions which may be inconsistent with your interests.
−Removed: Accordingly, the interests of JABC may not always coincide with our interests or the interests of other stockholders, and JABC may seek to cause us to take courses of action that, in its judgment, could enhance its investment in the Company but which might involve risks to our other stockholders or adversely affect us or our other stockholders.
−Removed: An affiliate of JABC has pledged all of its beneficially owned Class A Common Stock as a security interest for a credit facility which, in certain circumstances, may result in sales of our shares into the open market, depressing the trading price of our shares of Class A Common Stock.
−Removed: All shares of Class A Common Stock beneficially owned by JABC are held by its affiliate, Cottage Holdco B.V., whose obligations under its credit facility are secured by a pledge of all such shares for the benefit of its lenders.
−Removed: Cottage Holdco B.V.
−Removed: was newly-created to consummate the Offer and does not have any material assets other than its holdings of our shares of Class A Common Stock and any dividends paid on such shares.
−Removed: It is only Cottage Holdco B.V., and not any of its affiliates, that is an obligor under the credit facility, which is secured by substantially all of the assets of Cottage Holdco B.V.
−Removed: (including the shares of our Class A Common Stock that it owns), subject to customary exceptions.
−Removed: The credit facility contains a maximum loan-to-value ratio which is designed to assure the lenders under the facility that the value of the collateral significantly exceeds the outstanding amount of the loan.
−Removed: If the trading price of our shares of Class A Common Stock drops significantly, Cottage Holdco B.V.
−Removed: may elect to sell its shares of our Class A Common Stock into the open market until such time as it has received proceeds sufficient to prepay the loan and comply with the required loan-to-value ratio.
−Removed: Alternatively, JABC may, but is not required to, contribute additional equity to Cottage Holdco B.V., which would be used to prepay the loan and satisfy the ratio.
−Removed: Any sales by Cottage Holdco B.V.
−Removed: of our shares may themselves have a depressive effect on the trading price of our shares, which may, in turn, require additional selling to maintain the required loan-to-value ratio.
−Removed: Our shares may not trade at a price sufficient to prevent such sales.
−Removed: Any such sales by Cottage Holdco B.V.
−Removed: may have a material adverse effect on the trading price of our shares and the existence of this financing arrangement may itself have an adverse effect on the trading price of our shares.
+Added: Accordingly, JABC has significant influence over us and our decisions, including the appointment of management and any other action requiring a vote of our Board of Directors.
+Added: As a result of its Convertible Series B Preferred Stock investment, KKR Aggregator has the right to designate two directors to our Board of Directors and, under the terms of the convertible preferred stock, KKR Aggregator has the right to vote on an as-converted basis.
+Added: Moreover, assuming full conversion of the convertible preferred stock held by KKR Aggregator and no other changes to our capitalization, JABC would remain Coty’s largest shareholder, with approximately 50% ownership in the company, and KKR Aggregator would be the second largest shareholder, with an approximate 17% stake.
+Added: This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of us and may negatively affect the market price of our stock.
+Added: JABC’s interests and KKR’s interests may be different from or conflict with our interests or the interests of our other stockholders.
+Added: JABC and its affiliates and KKR and its affiliates are each in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete indirectly with us.
+Added: JABC or its affiliates or KKR and its affiliates may also pursue acquisition opportunities that are complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
+Added: Accordingly, the interests of JABC or KKR may not always coincide with our interests or the interests of other stockholders, and either JABC or KKR may seek to cause us to take courses of action that, in its judgment, could enhance its investment in the Company but which might involve risks to our other stockholders or adversely affect us or our other stockholders.
We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, are entitled to rely on exemptions from certain corporate governance requirements that are designed to provide protection to stockholders of companies that are not “controlled companies”.
4 unchanged sentences
• that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
−Removed: As a result of relying on the controlled company exemptions, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our stockholders do not have the
−Removed: same protections afforded to stockholders of other companies that are required to comply with all of the independence rules of the NYSE.
+Added: As a result of relying on the controlled company exemptions, the procedures for approving significant corporate decisions could be determined by directors who have a direct or indirect interest in such decisions, and our stockholders do not have the same protections afforded to stockholders of other companies that are required to comply with all of the independence rules of the NYSE.
Unresolved Staff Comments.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.