UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SeptemberJune 30, 20192020
OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to             
Commission file number 1-4881
_________________________
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
_________________________
New York 13-0544597
(State or other jurisdiction of
Incorporation or organization)		 (I.R.S. Employer
Identification No.)
Building 6, Chiswick Park, London W4 5HR
United Kingdom
(Address of principal executive offices)
+44-1904-232425
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.25 per shareNoneAVPNoneNYSENone

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Note: The registrant is a voluntary filer of reports required to be filed by certain companies under Sections 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer☒☐  Accelerated filer☐
Non-accelerated filer☐☒  Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of Common Stock (par value $0.25)$0.01) outstanding at SeptemberJune 30, 20192020 was 443,525,346.101.34.

The registrant meets the conditions sets forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.



TABLE OF CONTENTS
 
  Page
Numbers
Part I. Financial Information
Item 1.
Consolidated Statements of Operations
Three and NineMonths Ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182019
3
Consolidated Statements of Operations
Six Months Ended June 30, 2020 and June 30, 2019
4
Consolidated Statements of Comprehensive Income(LLossoss)
Three and Nine& Six Months Ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018


2019
5
Consolidated Balance Sheets
JuneSeptember 30, 2020 30, 2019 and December 31, 20182019

7
Consolidated Statements of Cash Flows
Three and NineSix Months Ended SeptemberJune 30, 201930, 2020 and SeptemberJune 30, 20183

0, 2019
98
Consolidated Statement of Changes in Shareholders’' Equity (Deficit)Deficit
NineThree & Six Months EndedSeptember 30, 2019June 30, 2020 and SeptemberJune 30, 201830, 2019
1110
1312 - 4139
Item 2.
4139 - 6456
Item 3.
6556
Item 4.
6556
Part II. Other Information
Item 1.
6657
Item 1A.
6657
Item 2.
6859
Item 5.Other Information
60
Item 6.
7060
7161


2


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 Three Months Ended
(In millions, except per share data)September 30, 2019September 30, 2018
Product sales$1,117.2  $1,346.3  
Other revenue70.8  77.9  
Total revenue1,188.0  1,424.2  
Costs, expenses and other:
Cost of sales(468.2) (538.4) 
Selling, general and administrative expenses(622.1) (698.9) 
Operating profit97.7  186.9  
Interest expense(32.0) (31.3) 
Loss on extinguishment of debt and credit facilities(8.1) —  
Interest income2.1  4.3  
Other income (expense), net57.9  22.2  
Gain on sale of business/assets26.8  —  
Total other income (expenses)46.7  (4.8) 
Income from continuing operations, before income taxes144.4  182.1  
Income taxes(31.5) (68.3) 
Income from continuing operations, net of tax112.9  113.8  
Loss from discontinued operations, net of tax(6.3) —  
Net income106.6  113.8  
Net loss attributable to noncontrolling interests.3  .7  
Net income attributable to Avon$106.9  $114.5  
Earnings (loss) per share
Basic
Basic from continuing operations$0.21  $0.21  
Basic from discontinued operations(0.01) —  
Basic attributable to Avon$0.20  $0.21  
Diluted
Diluted from continuing operations$0.21  $0.21  
Diluted from discontinued operations(0.01) —  
Diluted attributable to Avon$0.20  $0.21  
 Three Months Ended
(In millions, except per share data)June 30, 2020June 30, 2019
Product sales$573.1  $1,108.8  
Other revenue31.6  66.0  
Revenue from affiliates of Natura &Co1.8  —  
Total revenue606.5  1,174.8  
Costs, expenses and other:
Cost of sales(250.5) (497.5) 
Selling, general and administrative expenses(406.1) (646.8) 
Operating (loss) income(50.1) 30.5  
Interest expense(31.7) (30.7) 
Interest income.3  1.5  
Other (expense) income, net(.9) 6.8  
Gain on sale of business/assets.1  13.2  
Total other expenses(32.2) (9.2) 
(Loss) income from continuing operations, before income taxes(82.3) 21.3  
Income taxes(6.1) (27.2) 
Loss from continuing operations, net of tax(88.4) (5.9) 
Loss from discontinued operations, net of tax(5.1) (13.2) 
Net loss(93.5) (19.1) 
Net loss (income) attributable to noncontrolling interests.7  (.4) 
Net loss attributable to Avon$(92.8) $(19.5) 
The accompanying notes are an integral part of these statements.



























3


AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Nine Months Ended
(In millions, except per share data)September 30, 2019September 30, 2018
Product sales$3,342.2  $3,924.7  
Other revenue207.5  244.9  
Total revenue3,549.7  4,169.6  
Costs, expenses and other:
Cost of sales(1,482.7) (1,657.8) 
Selling, general and administrative expenses(1,942.7) (2,227.0) 
Operating profit124.3  284.8  
Interest expense(95.9) (102.0) 
Loss on extinguishment of debt(10.1) (2.9) 
Interest income5.3  12.0  
Other income (expense), net87.3  .3  
Gain on sale of business/assets50.3  —  
Total other income (expenses)36.9  (92.6) 
Income before income taxes161.2  192.2  
Income taxes(78.2) (136.5) 
Income from continuing operations, net of tax83.0  55.7  
Loss from discontinued operations, net of tax(29.0) —  
Net income54.0  55.7  
Net loss attributable to noncontrolling interests.7  2.4  
Net income attributable to Avon$54.7  $58.1  
Earnings (loss) per share
Basic
Basic from continuing operations$0.14  $0.09  
Basic from discontinued operations(0.06) —  
Basic attributable to Avon$0.08  $0.09  
Diluted
Diluted from continuing operations$0.14  $0.09  
Diluted from discontinued operations(0.06) —  
Diluted attributable to Avon$0.08  $0.09  

 Six Months Ended
(In millions, except per share data)June 30, 2020June 30, 2019
Product sales$1,472.9  $2,225.0  
Other revenue89.1  136.7  
Revenue from affiliates of Natura &Co1.8  —  
Total revenue1,563.8  2,361.7  
Costs, expenses and other:
Cost of sales(671.5) (1,014.5) 
Selling, general and administrative expenses(1,044.2) (1,320.6) 
Operating (loss) income(151.9) 26.6  
Interest expense(63.5) (63.9) 
Loss on extinguishment of debt and credit facilities(7.8) (2.0) 
Interest income1.5  3.2  
Other (expense) income, net(19.1) 29.4  
Gain on sale of business/assets.1  23.5  
Total other expenses(88.8) (9.8) 
(Loss) income from continuing operations, before income taxes(240.7) 16.8  
Income taxes(14.9) (46.7) 
Loss from continuing operations, net of tax(255.6) (29.9) 
Loss from discontinued operations, net of tax(9.8) (22.7) 
Net loss(265.4) (52.6) 
Net loss attributable to noncontrolling interests1.6  .4  
Net loss attributable to Avon$(263.8) $(52.2) 
The accompanying notes are an integral part of these statements.

4


AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
(In millions)September 30, 2019September 30, 2018
Net income$106.6  $113.8  
Other comprehensive loss:
Foreign currency translation adjustments—  0.8  
Unrealized losses on revaluation of long-term intercompany balances, net of taxes of $0.0(19.1) (4.6) 
Change in unrealized gains/losses on cash flow hedges, net of taxes of $0.0.1  —  
Adjustments and amortization of net actuarial loss and prior service cost, net of taxes of $0.2 and $0.11.6  2.1  
 Sale of business(3.4) —  
Total other comprehensive loss, net of income taxes(20.8) (1.7) 
Comprehensive income85.8  112.1  
Less: comprehensive loss attributable to noncontrolling interests(.3) (0.9) 
Comprehensive income attributable to Avon$86.1  $113.0  
Three Months Ended
(In millions)June 30, 2020June 30, 2019
Net loss$(93.5) $(19.1) 
Other comprehensive (loss) income:
Foreign currency translation adjustments(.2) 4.1  
Unrealized (loss) gain on revaluation of long-term intercompany balances(3.3) .3  
Change in unrealized loss on cash flow hedges, net of taxes of $0.0 and $0.0—  (.7) 
Adjustments and amortization of net actuarial loss and prior service cost, net of taxes of $0.2 and $0.22.0  1.8  
Total other comprehensive (loss) income, net of income taxes(1.5) 5.5  
Comprehensive loss(95.0) (13.6) 
Less: comprehensive loss (income) attributable to noncontrolling interests.7  (.3) 
Comprehensive loss attributable to Avon$(94.3) $(13.9) 
The accompanying notes are an integral part of these statements.













5


AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

Nine Months Ended
(In millions)September 30, 2019September 30, 2018
Net income$54.0  $55.7  
Other comprehensive income:
Foreign currency translation adjustments1.3  (49.1) 
Unrealized losses on revaluation of long-term intercompany balances, net of taxes of $0.0(19.4) (48.7) 
Change in unrealized gains/losses on cash flow hedges, net of taxes of $0.0(2.5) —  
Adjustments of and amortization of net actuarial loss and prior service cost, net of taxes of $0.5 and $0.44.7  7.8  
 Sale of business(3.4) —  
Total other comprehensive loss, net of income taxes(19.3) (90.0) 
Comprehensive income (loss)34.7  (34.3) 
Less: comprehensive loss attributable to noncontrolling interests(.8) (2.8) 
Comprehensive income (loss) attributable to Avon$35.5  $(31.5) 

Six Months Ended
(In millions)June 30, 2020June 30, 2019
Net loss$(265.4) $(52.6) 
Other comprehensive (loss) income:
Foreign currency translation adjustments(84.0) 1.2  
Unrealized losses on revaluation of long-term intercompany balances(26.6) (.2) 
Change in unrealized gains, (losses) on cash flow hedges, net of taxes of $0.0 and $0.0.6  (2.6) 
Adjustments and amortization of net actuarial loss and prior service cost, net of taxes of $0.4 and $0.34.0  3.1  
Total other comprehensive (loss) income, net of income taxes(106.0) 1.5  
Comprehensive loss(371.4) (51.1) 
Less: comprehensive loss attributable to noncontrolling interests1.8  .4  
Comprehensive loss attributable to Avon$(369.6) $(50.7) 
The accompanying notes are an integral part of these statements.



6


AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 20182019 (Audited) and SeptemberJune 30, 20192020 (Unaudited)
(In millions)September 30,
2019		December 31,
2018
Assets
Current Assets
Cash and cash equivalents$564.2  $532.7  
Accounts receivable, net303.0  349.7  
Inventories499.4  542.0  
Prepaid expenses and other265.4  272.0  
Assets held for sale18.3  65.6  
Total current assets1,650.3  1,762.0  
Property, plant and equipment, at cost1,101.4  1,207.8  
Less accumulated depreciation(624.4) (650.2) 
Property, plant and equipment, net477.0  557.6  
Right-of-use assets172.3  —  
Goodwill82.5  87.4  
Deferred tax asset174.2  212.6  
Other assets513.9  390.4  
Total assets$3,070.2  $3,010.0  
Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit
Current Liabilities
Debt maturing within one year$116.2  $12.0  
Accounts payable642.0  816.5  
Accrued compensation104.4  85.5  
Other accrued liabilities387.9  451.3  
Sales taxes and taxes other than income98.2  103.9  
Income taxes10.4  15.9  
Held for sale liabilities—  11.4  
Current liabilities of discontinued operations14.2  —  
Total current liabilities1,373.3  1,496.5  
Long-term debt1,589.1  1,581.6  
Long-term operating lease liability141.7  —  
Employee benefit plans128.2  128.3  
Long-term income taxes127.4  136.2  
Other liabilities74.6  72.1  
Total liabilities3,434.3  3,414.7  
Series C convertible preferred stock511.1  492.1  
Shareholders’ Deficit
Common stock190.4  190.3  
Additional paid-in capital2,310.5  2,303.6  
Retained earnings2,270.0  2,234.3  
Accumulated other comprehensive loss(1,049.7) (1,030.4) 
Treasury stock, at cost(4,603.3) (4,602.3) 
Total Avon shareholders’ deficit(882.1) (904.5) 
Noncontrolling interests6.9  7.7  
Total shareholders’ deficit(875.2) (896.8) 
Total liabilities, series C convertible preferred stock and shareholders’ deficit$3,070.2  $3,010.0  
7


(In millions)June 30,
2020		December 31,
2019
Assets
Current Assets
Cash and cash equivalents$285.8  $650.6  
Restricted cash10.7  2.9  
Accounts receivable, net156.9  280.2  
Receivables from affiliates of Natura &Co1.9  —  
Inventories436.7  452.3  
Prepaid expenses and other240.5  252.1  
Assets held for sale12.3  22.6  
Total current assets1,144.8  1,660.7  
Property, plant and equipment, at cost1,086.6  1,203.0  
Less accumulated depreciation(665.7) (715.0) 
Property, plant and equipment, net420.9  488.0  
Right-of-use assets160.1  175.4  
Goodwill76.9  86.2  
Deferred tax asset126.5  161.2  
Other assets438.0  514.8  
Total assets$2,367.2  $3,086.3  
Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit
Current Liabilities
Debt maturing within one year$28.2  $1.8  
Loan from affiliates of Natura &Co4.6  —  
Accounts payable538.8  723.3  
Payables to affiliates of Natura &Co91.5  —  
Dividends payable—  8.7  
Accrued compensation73.8  114.5  
Other accrued liabilities344.2  410.7  
Sales taxes and taxes other than income95.2  118.7  
Income taxes—  7.4  
Current liabilities of discontinued operations17.3  16.0  
Total current liabilities1,193.6  1,401.1  
Long-term debt1,593.1  1,590.4  
Long-term operating lease liability129.3  143.3  
Employee benefit plans130.5  137.6  
Long-term income taxes113.7  128.7  
Other liabilities86.5  90.5  
Total liabilities3,246.7  3,491.6  
Series C convertible preferred stock—  578.5  
Shareholders’ Deficit
Common stock—  192.6  
Additional paid-in capital524.2  2,321.2  
Retained earnings(262.9) 2,138.9  
Accumulated other comprehensive loss(1,145.8) (1,040.0) 
Treasury stock, at cost—  (4,603.3) 
Total Avon shareholders’ deficit(884.5) (990.6) 
Noncontrolling interests5.0  6.8  
Total shareholders’ deficit(879.5) (983.8) 
Total liabilities, series C convertible preferred stock and shareholders’ deficit$2,367.2  $3,086.3  
The accompanying notes are an integral part of these statements.
87


AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months EndedNine Months Ended Six Months Ended
(In millions)(In millions)September 30, 2019September 30, 2018September 30, 2019September 30, 2018(In millions)June 30, 2020June 30, 2019
Cash Flows from Operating ActivitiesCash Flows from Operating ActivitiesCash Flows from Operating Activities
Net income$106.6  $113.8  $54.0  $55.7  
Net lossNet loss$(265.4) $(52.6) 
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax(6.3) —  (29.0) —  Loss from discontinued operations, net of tax(9.8) (22.7) 
Income from continuing operations, net of tax112.9  113.8  83.0  55.7  
Adjustments to reconcile net income from continuing operations to net cash provided (used) by operating activities:
Loss from continuing operations, net of taxLoss from continuing operations, net of tax(255.6) (29.9) 
Adjustments to reconcile net loss from continuing operations to net cash used by operating activities:Adjustments to reconcile net loss from continuing operations to net cash used by operating activities:
DepreciationDepreciation18.1  19.5  54.6  61.1  Depreciation30.2  36.5  
AmortizationAmortization5.9  6.5  18.7  20.3  Amortization13.1  12.8  
Provision for doubtful accountsProvision for doubtful accounts28.2  40.7  86.9  126.9  Provision for doubtful accounts52.7  58.7  
Provision for obsolescenceProvision for obsolescence6.0  9.2  22.2  22.5  Provision for obsolescence21.4  16.2  
Share-based compensationShare-based compensation3.7  2.0  8.9  9.5  Share-based compensation18.6  5.2  
Foreign exchange losses (gains)Foreign exchange losses (gains).6  (9.5) (6.7) 4.0  Foreign exchange losses (gains)25.7  (7.3) 
Deferred income taxesDeferred income taxes14.4  (28.3) 21.7  (28.5) Deferred income taxes14.9  7.3  
Impairment loss on assetsImpairment loss on assets2.1  —  15.4  —  Impairment loss on assets.7  13.3  
Gain on sale of business / assetsGain on sale of business / assets(26.8) —  (50.3) —  Gain on sale of business / assets(.1) (23.5) 
Certain Brazil indirect taxes(118.3) (194.7) (118.3) (194.7) 
OtherOther11.5  11.0  16.7  14.2  Other13.2  5.2  
Changes in assets and liabilities:Changes in assets and liabilities:Changes in assets and liabilities:
Accounts receivableAccounts receivable(15.2) (43.4) (56.1) (93.4) Accounts receivable36.8  (40.9) 
InventoriesInventories(7.9) (32.1) 10.1  (131.8) Inventories(52.6) 18.0  
Prepaid expenses and otherPrepaid expenses and other18.9  (39.9) 34.1  (38.2) Prepaid expenses and other(12.0) 15.2  
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities(21.5) 45.9  (232.8) (30.7) Accounts payable and accrued liabilities(191.7) (211.3) 
Income and other taxesIncome and other taxes(1.7) 74.4  5.5  74.1  Income and other taxes(23.7) 7.2  
Noncurrent assets and liabilitiesNoncurrent assets and liabilities(.6) 63.3  (18.9) 60.7  Noncurrent assets and liabilities(15.8) (18.3) 
Net cash provided (used) by operating activities of continuing operations30.3  38.4  (105.3) (68.3) 
Net cash used by operating activities of continuing operationsNet cash used by operating activities of continuing operations(324.2) (135.6) 
Cash Flows from Investing ActivitiesCash Flows from Investing ActivitiesCash Flows from Investing Activities
Capital expendituresCapital expenditures(10.3) (23.0) (42.8) (71.0) Capital expenditures(21.1) (32.5) 
Disposal of assetsDisposal of assets1.0  .9  1.8  2.3  Disposal of assets1.1  .8  
Net proceeds from sale of business / assetsNet proceeds from sale of business / assets23.4  —  99.9  —  Net proceeds from sale of business / assets10.0  76.5  
Other investing activitiesOther investing activities1.0  —  1.0  (3.3) Other investing activities.4  —  
Net cash provided (used) by investing activities of continuing operations15.1  (22.1) 59.9  (72.0) 
Net cash (used) provided by investing activities of continuing operationsNet cash (used) provided by investing activities of continuing operations(9.6) 44.8  
Cash Flows from Financing ActivitiesCash Flows from Financing ActivitiesCash Flows from Financing Activities
Cash dividendsCash dividends(8.6) —  
Debt, net (maturities of three months or less)Debt, net (maturities of three months or less)(7.4) 3.6  (6.9) (6.8) Debt, net (maturities of three months or less)10.1  .5  
Proceeds from debtProceeds from debt400.0  —  400.0  —  Proceeds from debt20.0  —  
Repayment of debtRepayment of debt(275.5) (.3) (275.8) (238.9) Repayment of debt(.2) (.3) 
Repurchase of common stockRepurchase of common stock.1  .1  (1.0) (3.1) Repurchase of common stock(.4) (1.1) 
Costs associated with debt issue / repayment(16.4) —  (25.4) —  
Proceeds from monetization of COFINS tax credits19.4  —  19.4  —  
Settlement of stock optionsSettlement of stock options(25.8) —  
Other financing activitiesOther financing activities.7  (6.2) .5  (6.3) Other financing activities—  (9.2) 
Net cash provided (used) by financing activities of continuing operations120.9  (2.8) 110.8  (255.1) 
Net cash used by financing activities of continuing operationsNet cash used by financing activities of continuing operations(4.9) (10.1) 
Cash Flows from Discontinued OperationsCash Flows from Discontinued OperationsCash Flows from Discontinued Operations
Net cash used by operating activities of discontinued operationsNet cash used by operating activities of discontinued operations(10.2) —  (14.8) —  Net cash used by operating activities of discontinued operations(8.4) (4.6) 
Net cash used by discontinued operationsNet cash used by discontinued operations(10.2) —  (14.8) —  Net cash used by discontinued operations(8.4) (4.6) 
Effect of exchange rate changes on cash and cash equivalents, and restricted cashEffect of exchange rate changes on cash and cash equivalents, and restricted cash(17.4) (2.3) 
Net decrease in cash and cash equivalents, and restricted cashNet decrease in cash and cash equivalents, and restricted cash(364.5) (107.8) 
Cash and cash equivalents, and restricted cash at beginning of period(1)
Cash and cash equivalents, and restricted cash at beginning of period(1)
661.0  536.4  
Cash and cash equivalents, and restricted cash at end of period (2)
Cash and cash equivalents, and restricted cash at end of period (2)
$296.5  $428.6  
98


 Three Months EndedNine Months Ended
(In millions)September 30, 2019September 30, 2018September 30, 2019September 30, 2018
Effect of exchange rate changes on cash and cash equivalents, and restricted cash(12.9) (4.8) (15.2) (33.5) 
Net increase in cash and cash equivalents, and restricted cash143.2  8.7  35.4  (428.9) 
Cash and cash equivalents, and restricted cash at beginning of period(1)
428.6  443.9  536.4  881.5  
Cash and cash equivalents, and restricted cash at end of period (2)
$571.8  $452.6  $571.8  $452.6  
 
The accompanying notes are an integral part of these statements.
(1)The balance at the beginning of the nine monthsix-month period ended SeptemberJune 30, 2019 includes cash and cash equivalents of $3.7 classified as Held for sale assets in our Consolidated Balance Sheets.

(2)The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheet that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows for the six-month period ended June 30, 2020.
June 30, 2020December 31, 2019
Cash and cash equivalents$285.8  $650.6  
Restricted cash10.7  2.9  
Long-term restricted cash(1)
—  7.5  
Cash and cash equivalents, and restricted cash at end of period per the statement of cash flows$296.5  $661.0  

(1) Long-term restricted cash is presented in other assets in our Consolidated Balance Sheets. The balance at the end of the three and nine month period ended September 30,$7.5 as of December 31, 2019 includes restricted cash of $7.6 related toresulting from the sale of Avon Manufacturing (Guangzhou), Ltd classifiedhas been reclassified to short-term restricted cash as Cash and cash equivalents in our Consolidated Balance Sheets.of June 30, 2020.


109


AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)DEFICIT
(Unaudited)

(In millions, except per Common StockAdditionalRetainedAccumulated OtherTreasury StockNoncontrolling 
share data)SharesAmountPaid-In CapitalEarningsComprehensive LossSharesAmountInterestsTotal
Balances at December 31, 2018761.8  $190.3  $2,303.6  $2,234.3  $(1,030.4) 319.4  $(4,602.3) $7.7  $(896.8) 
Net loss—  —  —  (32.7) —  —  —  (.8) (33.5) 
Other comprehensive (loss) income—  —  —  (4.0) —  —  .1  (3.9) 
Dividends accrued - Series C convertible preferred stock—  —  —  (6.2) —  —  —  —  (6.2) 
Exercise/ vesting/ expense of share-based compensation1.3  .3  (1.5) —  —  —  —  —  (1.2) 
Purchases and sales of noncontrolling interests, net of dividends paid of $0.0—  —  —  —  —  —  —  .1  0.1  
Balances at March 31, 2019763.1  $190.6  $2,302.1  $2,195.4  $(1,034.4) 319.4  $(4,602.3) $7.1  $(941.5) 
Net loss—  —  —  (19.5) —  —  —  .4  (19.1) 
Other comprehensive income—  —  —  —  5.5  —  —  —  5.5  
Dividends accrued - Series C convertible preferred stock—  —  —  (6.4) —  —  —  —  (6.4) 
Exercise/ vesting/ expense of share-based compensation—  —  5.4  —  —  —  —  —  5.4  
Repurchase of common stock.1  .1  —  —  —  .5  (1.0) —  (1.0) 
Purchases and sales of noncontrolling interests, net of dividends paid of $0.1—  —  —  —  —  —  —  (.3) (.3) 
Balances at June 30, 2019763.2  $190.7  $2,307.5  $2,169.5  $(1,028.9) 319.9  $(4,603.3) $7.2  $(957.3) 
Net income—  —  —  $106.9  —  —  —  (.3) 106.6  
Other comprehensive income—  —  —  —  (20.8) —  —  —  (20.8) 
Dividends accrued - Series C convertible preferred stock—  —  —  (6.4) —  —  —  —  (6.4) 
Exercise/ vesting/ expense of share-based compensation.3  .3  3.0  —  —  —  —  —  3.3  
Repurchase of common stock(.1) (.6) —  —  —  —  —  —  (.6) 
Balances at September 30, 2019763.4  $190.4  $2,310.5  $2,270.0  $(1,049.7) 319.9  $(4,603.3) $6.9  $(875.2) 
(In millions, except per 
share data)		Common StockAdditionalRetainedAccumulated OtherTreasury StockNoncontrolling 
SharesAmountPaid-In CapitalEarningsComprehensive LossSharesAmountInterestsTotal
Balances at December 31, 2019770.0  $192.6  $2,321.2  $2,138.9  $(1,040.0) 319.9  $(4,603.3) $6.8  $(983.8) 
Credit Losses Cumulative catch up—  —  —  (2.0) —  —  —  —  (2.0) 
Net loss—  —  —  (171.0) —  —  —  (.9) (171.9) 
Other comprehensive loss—  —  —  —  (104.3) —  —  (.2) (104.5) 
Conversion of Series C convertible preferred stock (1)
—  —  —  (710.8) —  (87.0) 1,197.6  —  486.8  
Exercise/ vesting/ expense of share-based compensation—  (.2) (9.7) —  —  —  —  —  (9.9) 
Exchange of common stock (2)
(770.0) (192.4) (1,788.1) (1,425.2) —  (232.9) 3,405.7  —  —  
Balances at March 31, 2020 (3)
—  $—  $523.4  $(170.1) $(1,144.3) —  $—  $5.7  $(785.3) 
Net loss—  —  —  (92.8) —  —  —  (.7) (93.5) 
Other comprehensive loss—  —  —  —  (1.5) —  —  —  (1.5) 
Exercise/ vesting/ expense of share-based compensation—  —  .8  —  —  —  —  —  .8  
Balances at June 30, 2019—  $—  $524.2  $(262.9) $(1,145.8) —  $—  $5.0  $(879.5) 

(1)On December 30, 2019, an affiliate of Cerberus Capital Management, L.P. ("Cerberus") elected to convert 435,000 shares of Series C Preferred Stock into 87,000,000 shares of the Company’s common stock, par value U.S.$0.25 per share, conditioned on the Conversion Condition (as defined below). See Note 13, Series C Convertible Preferred Stock.

(2)In January 2020, subsequent to the Transaction, the Company restated its certificate of incorporation to effect a change in capitalization of the Company by changing the number of authorized shares of stock from 1,525,000,000 shares (of which (i) 1,500,000,000 shares, par value $0.25 per share, were common stock and (ii) 25,000,000 shares, par value $1.00 per share, were preferred stock) to 1,000 shares of common stock, par value $0.01 per share. As a result of the Merger, all of the issued and outstanding common stock of the Company, being 550,890,788, were canceled and converted. See Note 19, Mergers  with Natura Cosméticos S.A., to the Consolidated Financial Statements included herein.

(3)The number of shares of Common Stock (par value $0.01 per share) outstanding at June 30, 2020 was 101.34.

10


(In millions, except per 
share data)		Common StockAdditionalRetainedAccumulated OtherTreasury StockNoncontrolling 
SharesAmountPaid-In CapitalEarningsComprehensive LossSharesAmountInterestsTotal
Balances at December 31, 2018761.8  $190.3  $2,303.6  $2,234.3  $(1,030.4) 319.4  $(4,602.3) $7.7  $(896.8) 
Net loss—  —  —  (32.7) —  —  —  (.8) (33.5) 
Other comprehensive loss—  —  —  —  (4.0) —  —  .1  (3.9) 
Dividends accrued - Series C convertible preferred stock—  —  —  (6.2) —  —  —  —  (6.2) 
Exercise/ vesting/ expense of share-based compensation1.3  .3  (1.5) —  —  —  —  —  (1.2) 
Purchases and sales of noncontrolling interests, net of dividends paid of $0.0—  —  —  —  —  —  —  .1  .1  
Balances at March 31, 2019763.1  $190.6  $2,302.1  $2,195.4  $(1,034.4) 319.4  $(4,602.3) $7.1  $(941.5) 
Net (loss) income—  —  —  (19.5) —  —  —  .4  (19.1) 
Other comprehensive income—  —  —  —  5.5  —  —  —  5.5  
Dividends accrued - Series C convertible preferred stock—  —  —  (6.4) —  —  —  —  (6.4) 
Exercise/ vesting/ expense of share-based compensation—  —  5.4  —  —  —  —  —  5.4  
Repurchase of common stock.1  .1  —  —  —  .5  (1.0) —  (1.0) 
Purchases and sales of noncontrolling interests, net of dividends paid of $0.0—  —  —  —  —  —  —  (.3) (.3) 
Balances at June 30, 2019763.2  $190.7  $2,307.5  $2,169.5  $(1,028.9) 319.9  $(4,603.3) $7.2  $(957.3) 

The accompanying notes are an integral part of these statements.

11


(In millions, except per Common StockAdditionalRetainedAccumulated OtherTreasury StockNoncontrolling 
share data)SharesAmountPaid-In CapitalEarningsComprehensive LossSharesAmountInterestsTotal
Balances at December 31, 2017758.7  $189.7  $2,291.2  $2,320.3  $(926.2) 318.4  $(4,600.0) $10.3  $(714.7) 
Net loss—  —  —  (20.3) —  —  —  (.8) (21.1) 
Revenue Recognition Cumulative catch up—  —  —  (41.1) —  —  —  —  (41.1) 
Other comprehensive income—  —  —  35.2  .4  35.6  
Dividends accrued - Series C convertible preferred stock—  —  —  (6.0) —  —  —  —  (6.0) 
Exercise/ vesting/ expense of share-based compensation2.2  .6  2.5  (.4) —  (.1) .9  —  3.6  
Repurchase of common stock—  —  —  —  —  .9  (2.7) —  (2.7) 
Purchases and sales of noncontrolling interests, net of dividends paid of $0.0—  —  —  —  —  —  —  (.2) (.2) 
Balances at March 31, 2018760.9  $190.3  $2,293.7  $2,252.5  $(891.0) 319.2  $(4,601.8) $9.7  $(746.6) 
Net loss—  —  —  (36.1) —  —  —  (.9) (37.0) 
Other comprehensive loss—  —  —  —  (123.4) —  —  (.4) (123.8) 
Dividends accrued - Series C convertible preferred stock—  —  —  (6.0) —  —  —  —  (6.0) 
Exercise/ vesting/ expense of share-based compensation.8  —  3.8  (.4) —  —  —  —  3.4  
Repurchase of common stock—  —  —  —  —  .2  (.5) —  (.5) 
Balances at June 30, 2018761.7  $190.3  $2,297.5  $2,210.0  $(1,014.4) 319.4  $(4,602.3) $8.4  $(910.5) 
Net loss—  —  —  114.5  —  —  —  (.7) 113.8  
Other comprehensive loss—  —  —  —  (1.5) —  —  (.2) (1.7) 
Dividends accrued - Series C convertible preferred stock—  —  —  (6.2) —  —  —  —  (6.2) 
Exercise/ vesting/ expense of share-based compensation—  —  1.6  —  —  —  —  —  1.6  
Balances at September 30, 2018761.7  190.3  2,299.1  2,318.3  (1,015.9) 319.4  (4,602.3) 7.5  (803.0) 

The accompanying notes are an integral part of these statements.


12

AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)

1. ACCOUNTING POLICIES
Basis of Presentation
We prepare our unaudited interim Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States ("GAAP"). We consistently applied the accounting policies described in our 20182019 Annual Report on Form 10-K ("20182019 Form 10-K") in preparing these unaudited interim Consolidated Financial Statements, other than those impacted by new accounting standards as described below. In addition, upon the consummation of the Transaction with Natura &Co Holding S.A. ("Natura &Co Holding"), the Company became a wholly owned subsidiary of Natura &Co Holding and Avon common stock ceased to be traded on the NYSE. As a result, we have excluded disclosures of Earnings per Share from our consolidated financial statements.
The Company has updated its reportable segments to align with how the business is operated and managed since the merger with Natura &Co Holding, we have identified 2 reportable segments based on geographic operations: Avon International and Avon Latin America. In prior periods, the Company reported 4 segments: Europe, Middle East and Africa, Asia Pacific, South Latin America and North Latin America. Previously reported segment information has been recast throughout the consolidated financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reportable segments. Refer to Note 10, Segment Information, to the Consolidated Financial Statements contained herein for more information.
In our opinion, the unaudited interim Consolidated Financial Statements reflect all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods presented. Results for interim periods are not necessarily indicative of results for a full year. You should read these unaudited interim Consolidated Financial Statements in conjunction with our Consolidated Financial Statements contained in our 20182019 Form 10-K. When used in this report, the terms "Avon," "Company," "we" or "us" mean Avon Products, Inc.
For interim Consolidated Financial Statements purposes, we generally provide for accruals under our various employee benefit plans for each quarter based on one quarter of the estimated annual expense, and adjust these accruals as estimates are refined. In addition, our income tax provision is determined using an estimate of our consolidated annual effective tax rate, adjusted in the current period for discrete income tax items including:
•the effects of significant, unusual or extraordinary pretax and income tax items, if any;
•the impact of changes in tax legislation, if any;
•withholding taxes recognized associated with cash repatriations; and
•the impact of loss-making subsidiaries for which we cannot recognize an income tax benefit and subsidiaries for which an effective tax rate cannot be reliably estimated.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation in the Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, the Company had tooling, net of amortization of $8.4 and $12.9, respectively. The tooling balance as of December 31, 2019, representing cost of $94.4 and accumulated depreciation of $81.5, previously included in other long-term assets has been reclassified to property, plant and equipment to conform to the current year presentation. The prior period reflects the reclassification of the balance to conform to the current year presentation, which is consistent with industry practice.
COVID-19 pandemic
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization. During the second quarter of 2020, COVID-19 had a significant impact on our operations as many markets were subject to lockdown restrictions which limited our ability to recruit and enroll Representatives, operate manufacturing facilities and distribution centers and to process and deliver orders. Due to the uncertain and rapidly evolving nature of current conditions around the world, the impacts of COVID-19 most of which are beyond the Company’s control, continue to evolve, and the outcome is uncertain, we are therefore unable to predict accurately the impact that COVID-19 will have on our business going forward.

We are closely monitoring the evolution of the COVID-19 pandemic and deciding on actions to minimize impacts, ensure the continuity of operations and promote the safety and health of all the people involved. Since the beginning of the virus spread
12


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
and the consequent restrictive measures imposed by governments, such as closing non-essential trade and restricting the movement of people across borders, the Company has implemented some measures in all its operations, in line with the official measures:

•Incentives to remote working and adoption of essentiality criteria to limit industrial and logistical operations;
•Adoption of new safety measures for operational workers, such as the use of masks and procedures to distance people between processes;
•Re-planning of sales cycles, prioritizing personal care items;
•Speeding up the digitization of sales channels;
•We communicated social distancing protocols to our Representatives around the world;
•Change in the minimum order criteria, start kit and increased deadline for payment of Representatives; and
•Daily monitoring of suppliers to ensure supply.

As of the date of this report, we are unable to estimate the long term impact of the economic paralysis arising from efforts to curb the spread of the COVID-19 virus and the expected reduction in activity on our business, results of operations and financial condition. We will continue to review our revenue, investments, expenses and cash outflows, as well as adjusting our relationships with suppliers. Furthermore, the actions outlined above are continuously being re-evaluated in light of global developments relating to COVID-19.

The impact of COVID-19 on our financial performance was more severe in the first half of the second quarter with signs of recovery in the second half of the quarter due to actions taken by the Company to operate during the pandemic and the easing of some lockdown restrictions. This recovery was subsequently impacted by the cyber incident later in the quarter.
Cyber incident
In June 2020, the Company became aware that it was exposed to a cyber incident in its Information Technology environment which interrupted some systems and partially affected operations. We engaged leading external cyber security and IT general controls specialists, launched a comprehensive containment and remediation effort and started a forensic investigation. As of the date of this report, the Company has re-established all of its core business processes and resumed operations in all of its markets, including all of its distribution centers. The Company continues to investigate and evaluate the extent of the cyber incident, while working diligently to mitigate its impacts and re-evaluate our IT general controls.
The cyber incident had a significant impact on our revenue performance for the second quarter of 2020, with the majority of the impact (approximately $87 million in sales) being shifted to the third quarter of 2020 as the company fulfills the order backlog created. The incremental expense incurred as a result of the cyber incident in the second quarter of 2020 was not material.
Although we have no indications that the accuracy and completeness of any financial information was impacted as a result of the incident and the Company has performed extensive procedures to validate such accuracy and completeness, we believe that, if the incident had gone differently, it could have potentially resulted in a material impact to the Company’s financial statements.
Going concern
We expect some negative impact on revenue from COVID-19 to continue for the remainder of 2020 which will, in turn, result in lower cash generation from activities. Our forecasts and projections indicate that we should have sufficient liquidity to meet our obligations for a period of not less than 12 months from the issuance date of the Consolidated Financial Statements contained herein. If the downturn is deeper or for longer than we anticipate, the Company could take certain further actions to ease the pressure of certain cash outflows, such as reducing discretionary expenditure, selling non-core assets, accessing government pandemic initiatives or arranging borrowing facilities with third-party banks and affiliate companies. Furthermore, the Company has received an irrevocable commitment from Natura &Co Holding management that they will provide sufficient financial support if and when needed to enable the Company to meet its obligations as they come due in the normal course of business for a period of not less than 12 months from the date issuance of the Consolidated Financial Statements contained herein.
Accounting Standards Implemented
LeasesASU 2016-13, Financial Instruments - Credit Losses
In FebruaryJune 2016, the FASB issued ASU 2016-02, 2016-13Leases, Financial Instruments - Credit Losses, which requires allmeasurement and recognition of expected credit losses for financial assets and liabilities arising from leases to be recognized in our Consolidated Balance Sheets.held. We adopted this new accounting guidance effective January 1, 2019.
In July 2018, the FASB added an optional2020, using a modified retrospective transition method which we elected uponapproach. The adoption of the new standard. This allowed us to recognize and measure leases existing at January 1, 2019 without restating comparative information. In addition, we elected to apply the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification.
We determine if an arrangement isdid not have a lease at the lease commencement date. In addition to our lease agreements, we review all material new vendor arrangements for potential embedded lease obligations. The asset balance related to operating and finance leases is presented within right-of-use (ROU) asset and property, plant and equipment, respectively,impact on our Consolidated Balance Sheet. The short-term liability balance related to operatingcondensed consolidated financial statements and finance leases is presented within other accrued liabilities on our Consolidated Balance Sheets. The long-term liability balance is presented within long-term operating lease liabilitydisclosures and long-term debt on our Consolidated Balance Sheets for operating and finance leases, respectively.  
The lease liability is recognized based ondid not significantly impact the present value of the remaining fixedCompany’s accounting policies or in-substance fixed lease payments discounted using our incremental borrowing rates. We use a specific incremental borrowing rate for our material leases, which is determined based on the geography, nature of the asset and term of the lease. These rates are determined based on inputs provided by external banks and updated periodically. The lease liability includes the exercise of a purchase option only if we are reasonably certain to exercise as of the commencement date of the lease. The residual value guarantee amount is only included in the lease liability calculation to the extent payment is probable to the lessor as of the commencement of the lease. The ROU asset is calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before the commencement date (i.e. prepaid rent) and initial direct costs incurred by Avon and excluding any lease incentives received from the Lessor.
Variable lease payments are payments to the lessor not included in the lease liability calculation. We define variable lease payments as payments made by Avon to the lessor for the right to use a leased asset that vary because of changes in facts or circumstances (such as changes in an index rate, volume, usage, etc.) occurring after the lease commencement date, other than predetermined contractual changes due to the passage of time (for example, predetermined rent increase amounts that are set out in the contract). Variable lease payments or charges are accounted for as incurred.
13


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
estimation methods related to the allowance for doubtful accounts. The lease term for purposesadoption resulted in a cumulative effect decrease to retained earnings of lease accounting may include optionsapproximately $2 to extend or terminate the lease when it is reasonably certain that we will exercise that option as of the commencement date of the lease. For operating leases, the lease expense is recognized onreflect a straight-line basis over the lease term. For finance leases, the Company amortizes the ROU asset on a straight-line basis and records interest expense on the lease liability created at lease commencement over the lease term.
We account for our lease and non-lease components as a single component for most of our asset classes, and therefore both are includedchange in the calculation of lease liability recognized on the Consolidated Balance Sheets. However,allowance for certain lease asset classes relateddoubtful accounts.
Accounting Standards to identified embedded leases we account for the lease and non-lease components separately, and therefore, the non-lease component is not included in the lease liability.
Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheet; we recognize lease expense for these leases over their lease term. See Note 9, Leases, to the Consolidated Financial Statements contained herein for further details.be Implemented
ASU 2018-02,2019-12, Simplifying the Accounting for Income Statement - Reporting Comprehensive IncomeTaxes
In February 2018,December 2019, the FASB issued ASU 2018-02, 2019-12, Income Statement - Reporting Comprehensive Income,Taxes, which permits entitiesis intended to reclassifysimplify the disproportionate income tax effectsaccounting standard and improve the usefulness of information provided in the 2017 enactment of U.S. tax reform legislation (the "Act") on items within accumulated other comprehensive income (loss)financial statements. We intend to retained earnings. We adoptedimplement this new accounting guidance effective January 1, 2019 and elected not to reclassify the disproportionate income tax effects of the Act from accumulated other comprehensive income (loss) to retained earnings.
Accounting Standards to be Implemented
ASU 2016-13, Financial Instruments - Credit Losses
In January 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires measurement and recognition of expected credit losses for financial assets held. We intend to adopt this new accounting guidance effective January 1, 2020.2021, however early adoption is permitted. We are currently assessing the impact of adopting this standard but do not expect the adoption of thisnew accounting guidance towill have a material impact on our Consolidated Financial Statements.
14


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
2. EARNINGS PER SHARE AND SHARE REPURCHASES
We compute earnings per share ("EPS") using the two-class method, which is a earnings allocation formula that determines loss per share for common stock and loss allocated to convertible preferred stock and participating securities, as appropriate. The earnings allocated to convertible preferred stock are the larger of 1) the preferred dividends accrued in the period or 2) the percentage of earnings from continuing operations allocable to the preferred stock as if they had been converted to common stock. Our participating securities are our grants of restricted stock and restricted stock units, which contain non-forfeitable rights to dividend equivalents to the extent any dividends are declared and paid on our common stock. We compute basic EPS by dividing net income (loss) allocated to common shareholders by the weighted-average number of shares outstanding during the period. Diluted EPS is calculated to give effect to all potentially dilutive common shares that were outstanding during the period.
Three Months Ended September 30,Nine Months Ended September 30,
(Shares in millions)2019201820192018
Numerator from continuing operations:
Income from continuing operations, less amounts attributable to noncontrolling interests$113.2  $114.5  $83.7  $58.1  
Less: Earnings allocated to participating securities1.6  1.4  1.2  .7  
Less: Earnings allocated to convertible preferred stock18.6  18.8  19.0  18.1  
Income from continuing operations allocated to common shareholders93.0  94.3  63.5  39.3  
Numerator from discontinued operations:
Loss from discontinued operations$(6.3) $—  $(29.0) $—  
Loss allocated to common shareholders(6.3) —  (29.0) —  
Numerator attributable to Avon:
Net income attributable to Avon$106.9  $114.5  $54.7  $58.1  
Less: Earnings allocated to participating securities1.6  1.4  1.2  .7  
Less: Earnings allocated to convertible preferred stock18.6  18.8  19.0  18.1  
Income allocated to common shareholders86.7  94.3  34.5  39.3  
Denominator:
Basic EPS weighted-average shares outstanding442.4  442.3  442.7  441.8  
Diluted effect of assumed conversion of stock-based compensation.2  —  .2  —  
Diluted effect of assumed conversion of preferred stock—  —  —  —  
Diluted EPS adjusted weighted-average shares outstanding442.6  442.3  442.9  441.8  
Earnings per Common Share from continuing operations:
Basic$0.21  $0.21  $0.14  $0.09  
Diluted$0.21  $0.21  $0.14  $0.09  
Loss per Common Share from discontinued operations:
Basic$(0.01) $—  $(0.06) $—  
Diluted$(0.01) $—  $(0.06) $—  
Earnings per Common Share attributable to Avon:
Basic$0.20  $0.21  $0.08  $0.09  
Diluted$0.20  $0.21  $0.08  $0.09  
Amounts in the table above may not necessarily sum due to rounding.
During the three and nine months ended September 30, 2019, we did not include stock options to purchase 8.6 million and 16.6 million shares, respectively, of Avon common stock in the calculation of diluted EPS as the exercise prices of those options were greater than the average market price. Since the inclusion of such shares would be anti-dilutive, these are excluded from the calculation. During the three and nine months ended September 30, 2018, we did not include stock options to purchase 18.1 million shares and 17.6 million shares, respectively, of Avon common stock in the calculation of diluted EPS for the same reason.
15


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
For the three and nine months ended September 30, 2019 and 2018, respectively, it is more dilutive to assume the series C convertible preferred stock is not converted into common stock; therefore, the weighted-average shares outstanding were not adjusted by the as-if converted series C convertible preferred stock because the effect would be anti-dilutive. The inclusion of the series C convertible preferred stock would increase the earnings per share for the three and nine months ended September 30, 2019 and 2018. If the as-if converted series C convertible preferred stock had been dilutive, approximately 87.1 million additional shares would have been included in the diluted weighted average number of shares outstanding for the three and nine months ended September 30, 2019 and 2018. See Note 6, Related Party Transactions, to the Consolidated Financial Statements contained herein.
We purchased approximately 0.5 million shares of Avon common stock for $1.5 during the first nine months of 2019, as compared to approximately 1.1 million shares of Avon common stock for $3.2 during the first nine months of 2018, through acquisition of stock from employees in connection with tax payments upon the vesting of restricted stock units and performance restricted stock units.
financial statements.

3.
2. DISCONTINUED OPERATIONS, ASSETS AND LIABILITIES HELD FOR SALE AND DIVESTITURES

Discontinued Operations
On December 17, 2015, the Company entered into definitive agreements with affiliates controlled by Cerberus Capital Management, L.P. ("Cerberus").Cerberus. The agreements resulted in the separation of the Company'sCompany’s North America business, which represented the Company'sCompany’s operations in the United States, Canada and Puerto Rico, from the Company into New Avon Company, formerly New Avon, LLC ("New Avon"), a privately-heldprivately held company majority-owned and managed by Cerberus NA Investor LLC (an affiliate of Cerberus). The Company retained an investment of 19.9% ownership interest in New Avon. These transactions closed on March 1, 2016,2016; from that date, resolution of contingent liabilities relating to Avon'sAvon’s ownership and operation of the North America business prior to its separation from the Company into New Avon have been treated as discontinued operations. ReferIn April 2019, we signed an agreement with LG Household & Health Care Ltd. to Divestitures section below for information relating to the sale ofsell our 19.9% ownership interest in New Avon.Avon, which was completed during August 2019.
The Company incurred costs during the three and ninesix months ended SeptemberJune 30, 2020 and 2019 following the resolution of certain contingent liabilities related to its ownership and operation of the North America business prior to its separation into New Avon. 
The major classes of financial statement components comprising the loss on discontinued operations, net of tax for New Avon are shown below:
Three Months Ended June 30,Six Months Ended June 30,
Three Months Ended September 30, 2019Nine Months Ended September 30, 20192020201920202019
Selling, general and administrative expensesSelling, general and administrative expenses$6.3  $29.0  Selling, general and administrative expenses$5.1  $13.2  $9.8  $22.7  
Operating lossOperating loss$(6.3) $(29.0) Operating loss$(5.1) $(13.2) $(9.8) $(22.7) 
Loss from discontinued operations, net of taxLoss from discontinued operations, net of tax$(6.3) $(29.0) Loss from discontinued operations, net of tax$(5.1) $(13.2) $(9.8) $(22.7) 

There were no amounts recorded in discontinued operations for the three and nine months ended September 30, 2018.

Assets and Liabilities Held for Sale
The major classes of assets and liabilities comprising Heldheld for sale assets and Held for sale liabilities on the Consolidated Balance Sheets as of SeptemberJune 30, 20192020 and December 31, 20182019 are shown in the following table.
September 30, 2019
Current Held for sale assets
Property, Plant & Equipment (net)$18.3 
$18.3 
June 30, 2020December 31, 2019
Current held for sale assets
Property, Plant and Equipment (net)12.3  22.6  

At December 31, 2019, in line with the Open Up Avon strategy the Company classified 5 properties which met the held for sale criteria under ASC 360 as "held for sale". During the first quarter of 2020, the Company decided not to proceed with the sale of 1 property in the Avon International segment and 1 property in the Avon Latin America segment with a carrying value of $9.1. As a result, the Company reclassified such properties from held for sale to property, plant and equipment during the first quarter of 2020. At the time of reclassification, we recorded a true up on depreciation resulting in an immaterial impact on our Consolidated Statements of Operations.
During the second quarter of 2020, the Company decided to proceed with the sale of the 1 property in the Avon Latin America segment with a carrying value of $3.0. As a result, the Company reclassified the property from property, plant and equipment to held for sale and depreciation has ceased.
1614


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
December 31, 2018
Avon Manufacturing (Guangzhou)Rye OfficeMalaysia MaximinTotal
Current Held for sale assets
Inventories$8.7  $—  $—  $8.7  
Property, Plant & Equipment (net)36.7  12.3  3.0  52.0  
Cash and cash equivalents3.7  —  —  3.7  
Other assets1.1  —  .1  1.2  
$50.2  $12.3  $3.1  $65.6  
Current held for sale liabilities
Accounts payable$8.6  $—  $—  $8.6  
Other liabilities2.6  —  .2  2.8  
$11.2  $—  $.2  $11.4  
The Company, in line with the Open Up Avon strategy, identified two additional properties to be sold which met theAt June 30, 2020, assets held for sale criteria under Accounting Standard Codification ("ASC") 360, Property, Plantinclude 2 properties in Avon International segment and Equipment as1 property in the Avon Latin America Segment.
Divestitures
Hungary Distribution Center in Gödöllő
In April 2020, we signed an agreement to sell the Hungary Distribution Center in Gödöllő for a selling price of September 30, 2019. The Company expects to close these transactions within$3.4, and received a year.
Refer to Divestitures section below for information ondeposit of $.3. In June 2020, we completed the sale of Avon Manufacturing (Guangzhou), Rye Office, Malaysia Maximinthe asset and New Avon.the remaining proceeds of $3.1 were received. These proceeds are presented as investing activities in the Consolidated Statement of Cash Flows.
In the second quarter of 2020, we recorded a gain of $.1 before and after tax, which is reported separately in the Consolidated Statements of Operations. The gain represents the difference between the proceeds and the carrying value of the Hungary Distribution Center on the date of sale.
China Wellness Plant

In March 2020, we signed an agreement to sell the China Wellness Plant for a total selling price of $6.6 before expenses and we expect this transaction to close during the third quarter of 2020. In the six-month period ended June 30, 2020 we received a cash deposit for the selling price of $6.6, presented as investing activities in the Consolidated Statement of Cash Flows, which includes $3.3 of restricted cash.
Divestitures
Rye Office
On June 26, 2019, we completed the sale of the Rye office for a selling price of $23.2, less expenses of approximately $0.8,$.8, resulting in proceeds of $22.4. These proceeds are presented as investing activities in the Consolidated Statement of Cash Flows.
In the second quarter of 2019, we recorded a gain on sale of $9.9 before and after tax, which is reported separately in the Consolidated Statements of Operations. The gain recorded represents the difference between the proceeds and the carrying value of the Rye office on the date of sale. During the first quarter of 2019, we refined the calculation for the Held for sale assets which gave rise to an additional $.2 in assets.
Malaysia Maximin
On May 9, 2019, we completed the sale of all of the equity interests in Maximin Corporation Sdn Bhd ("Malaysia Maximin") for a total sellingpurchase price of $7.8. The cash proceeds of $7.6, net of expenses, are presented within investing activities in the Consolidated Statement of Cash Flows.
In the second quarter of 2019, we recorded a gain on sale of $3.3 before tax, which is reported separately in the Consolidated Statements of Operations, and $3.0 after tax. The gain recorded represents the difference between the proceeds and the carrying value of Malaysia Maximin on the date of sale. During the second quarter of 2019, we refined the calculation for the Held for sale assets which gave rise to an additional $1.4 in assets.

China manufacturing
On February 15, 2019, we completed the sale to TheFaceShop Co., Ltd., an affiliate of LG Household & Health Care Ltd. ("TheFaceShop"), of all of the equity interests in Avon Manufacturing (Guangzhou), Ltd. for a total selling price of $71.0, less expenses of approximately $1.1. The selling price included $23.5 relating to outstanding intercompany loans payable to Avon Manufacturing (Guangzhou), Ltd. from other Avon subsidiaries that was presented as financing activities in the Consolidated Statement of Cash Flows, whenthis was subsequently settled in April 2019. The cash proceeds of $46.4, net of loan amounts, are presented as investing activities in the Consolidated Statement of Cash Flows, which includes $7.6$7.5 of restricted cash as of September 30, 2019, referDecember 31, 2019. This was subsequently reclassified to Note 4, Restricted Cash toshort-term restricted cash in the Consolidated Financial Statements contained herein.
17


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
three-month period ended March 31, 2020.
In the first quarter of 2019, we recorded a gain on sale of $10.3 before tax, which is reported separately in the Consolidated Statements of Operations, and $8.2 after tax, representing the difference between the proceeds, including the settlement of the intercompany loans, and the carrying value of Avon Manufacturing (Guangzhou), Ltd. on the date of sale.
New Avon
In April 2019, we signed an agreement with LG Household & Health Care Ltd. to sell our 19.9% ownership interest in New Avon. During August, 2019, we completed the sale of New Avon for a selling price of $24.5. Expenses were approximately $1.1, resulting in cash proceeds of $23.4. These proceeds are presented as investing activities in the Consolidated Statement of Cash Flows.
In the third quarter of 2019, we recorded a gain on sale of $26.8 before and after tax, which is reported in the Consolidated Statements of Operations as Gain on sale of business/asset. The gain recorded represents the total proceeds and the release of accumulated other comprehensive income of $3.4.
Our recorded investment balance in New Avon at September 30, 2019 and December 31, 2018 was 0.

4. RESTRICTED CASH

Restricted cash is related to the sale of Avon Manufacturing (Guangzhou), Ltd. as described in Note 3, Discontinued Operations, Assets and Liabilities Held for Sale and Divestitures to the Consolidated Financial Statements contained herein.

Restricted cash is subject to legal restrictions imposed by the Equity Purchase Agreement between TheFaceShop Co., Ltd., an affiliate of LG Household & Health Care Ltd., Avon Asia Holdings Company and Avon Products (China) Co., Ltd. related to the sale of Avon Manufacturing (Guangzhou), Ltd. These deposits are not available for general use by the Company.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheet that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows for the nine month period ended September 30, 2019.
September 30, 2019December 31, 2018
Cash and cash equivalents$564.2  $532.7  
Long-term restricted cash(1)
7.6  —  
Held for sale cash and cash equivalents—  3.7  
Cash and cash equivalents, and restricted cash at end of period per the statement of cash flows$571.8  $536.4  
(1) Long-term restricted cash is presented in other assets in our Consolidated Balance Sheets.


5. INVESTMENT IN NEW AVON
In connection with the separation of the Company's North America business, which closed on March 1, 2016, the Company retained a 19.9% ownership interest in New Avon, a privately-held company that is majority-owned and managed by an affiliate of Cerberus. In April 2019, Avon and Cerberus signed an agreement with LG Household & Health Care Ltd. for the sale of New Avon, including our 19.9% ownership interest. This transaction closed on August 14, 2019. See Note 3, Discontinued Operations, Assets and Liabilities Held for Sale and Divestitures, for additional information.



1815


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
6.3. RELATED PARTY TRANSACTIONS
On January 3, 2020, the Company became a wholly owned subsidiary of Natura &Co Holding. From this point Natura &Co Holding, its subsidiaries and affiliates became related parties of the Company.
The following tables present the related party transactions with Natura &Co and its affiliates, New Avon, affiliates of Cerberus and the Instituto Avon in Brazil.Brazil. There are no other related party transactions. On AugustAugust 14, 2019, we sold our investment in New Avon to LG Household & Health Care Ltd. Upon completion of the sale, New Avon iswas no longer a related party. See Note 3, Discontinued Operation, Assets and Liabilities Held for Sale and Divestitures, to the Consolidated Financial Statements contained herein, for further details.
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
20192018201920182020201920202019
Statement of Operations DataStatement of Operations DataStatement of Operations Data
Revenue from sale of product to New Avon(1)
Revenue from sale of product to New Avon(1)
$3.5  $7.3  $12.0  $20.3  
Revenue from sale of product to New Avon(1)
N/A$3.7  N/A$8.5  
Gross profit from sale of product to New Avon(1)
Gross profit from sale of product to New Avon(1)
$.1  $.6  $.2  $1.3  
Gross profit from sale of product to New Avon(1)
N/A$—  N/A$.1  
Cost of sales for purchases from New Avon(2)
Cost of sales for purchases from New Avon(2)
$.7  $.9  $2.1  $2.1  
Cost of sales for purchases from New Avon(2)
N/A$.8  N/A$1.5  
Revenue from affiliates of Natura &Co(8)
Revenue from affiliates of Natura &Co(8)
$1.8  $—  $1.8  $—  
Gross profit from affiliates of Natura &Co(8)
Gross profit from affiliates of Natura &Co(8)
$.4  $—  $.4  $—  
Selling, general and administrative expenses related to New Avon:Selling, general and administrative expenses related to New Avon:Selling, general and administrative expenses related to New Avon:
Transition services, intellectual property, technical support and innovation and subleases(3)
$—  $(.6) $(.2) $(4.3) 
Project management team(4)
.6  $.2  $4.0  $1.0  
Net reduction of selling, general and administrative expenses$.6  $(.4) $3.8  $(3.3) 
Interest income from Instituto Avon(5)
$—  $.1  $.1  $.1  
Transition services, intellectual property, technical support and innovation and subleasesTransition services, intellectual property, technical support and innovation and subleasesN/A$(.1) N/A$(.2) 
Project management team(3)
Project management team(3)
N/A$2.1  N/A$3.4  
Interest income from Instituto Avon(4)
Interest income from Instituto Avon(4)
$—  $.1  $—  $.1  
Interest expense on Loan from affiliates of Natura &Co(7)
Interest expense on Loan from affiliates of Natura &Co(7)
$(.3) $—  $(.3) $—  

September 30, 2019December 31, 2018
Balance Sheet Data
Inventories(6)
N/A  $.3  
Receivables due from New Avon(6)
N/A  $7.0  
Receivables due from Instituto Avon(5)
$2.0  $3.2  
Payables due to New Avon(6)
N/A  $.2  
Payables due to an affiliate of Cerberus(7)
$2.1  $.6  
June 30, 2020December 31, 2019
Balance Sheet Data
Receivables due from Instituto Avon(4)
$1.2  $2.1  
Receivables due from affiliates of Natura &Co(8)
$1.9  $—  
Payables due to an affiliate of Cerberus(5)
N/A$2.1  
Payables due to affiliates of Natura &Co(6)
$91.5  $—  
Loan from affiliates of Natura &Co(7)
$4.6  $—  
(1) The Company supplies product to New Avon as part of a manufacturing and supply agreement. On August 14, 2019, the Company sold it'sits investment in New Avon to LG Household & Health Care Ltd, from thisthat point New Avon iswas no longer a related party. Transactions entered into with New Avon for the three month and ninesix month periods ended SeptemberJune 30, 2019 have been disclosed above.
(2) New Avon supplies product to the Company as part of the same manufacturing and supply agreement discussed in footnote (1) above. The Company purchased $.5 and $.7$.6 from New Avon associated with this agreement during the three months ended SeptemberJune 30, 2019, and 2018, respectively, and recorded $.7 and $.9$.8 associated with these purchases within cost of sales in our Consolidated Statement of Operations during the three months ended SeptemberJune 30, 2019 and 2018, respectively.2019. The Company purchased $1.6 and $1.9$1.4 from New Avon associated with this agreement during the ninesix months ended SeptemberJune 30, 2019, and 2018, respectively, and recorded $2.1 and $2.1$1.5 associated with these purchases within cost of sales in our Consolidated Statement of Operations during the ninesix months ended SeptemberJune 30, 2019. Transactions entered into with New Avon for the three and six month periods ended June 30, 2019 and 2018, respectively.have been disclosed above. On August 14, 2019, the Company sold its investment in New Avon to LG Household & Health Care Ltd; from thisthat point New Avon iswas no longer a related party. Transactions entered into with New Avon for the three month and nine month periods ended September 30, 2019 have been disclosed above.
(3) The Company also entered into agreements with an affiliate of Cerberus, which provided for the secondment of Cerberus affiliate personnel to the Company's project management team responsible for assisting with the execution of the implementation of the Company’s strategic initiatives. Furthermore, upon consummation of the Transaction with Natura &Co Holding in January 2020, Cerberus ceased being a transition services agreement to provide certain services to New Avon, which expired on October 31, 2018, as well as an intellectual property license agreement, an agreement for technical supportrelated party. During the three and innovationsix months ended June 30, 2019 the Company recorded net costs of $2.1 and sublease for office space. The net amounts recorded within$3.4, respectively, in selling, general and administrative expenses generally represent a recovery of the related costs.associated with these agreements.
1916


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
(4) The Company also entered into agreements with an affiliate of Cerberus, which provide for the secondment of Cerberus affiliate personnel to the Company's project management team responsible for assisting with the execution of the implementation of the Company’s strategic initiatives. The Company recorded net cost of $.6 and $.2 in selling, general and administrative expenses associated with these agreements during the three months ended September 30, 2019 and 2018, respectively, and recorded $4.0 and $1.0 in selling, general and administrative expenses associated with these agreements during the nine months ended September 30, 2019 and 2018, respectively. See Note 15, Restructuring Initiatives to the Consolidated Financial Statements contained herein, for additional information related to the Company's strategic initiatives.
(5)During the second quarter of 2018, the Company entered into an agreement to loan the Instituto Avon, an independent non-government charitable organization in Brazil, R$12 million (Brazilian real)reais) for an unsecured 5-yearfive-year term at a fixed interest rate of 7% per annum, to be paid back in 5 equal annual installments. The Instituto Avon was created by an Avon subsidiary in Brazil, with the board and executive team comprised of Avon Brazil management. The purpose of the loan was to provide the Instituto Avon with the means to donate funds to Fundação Pio XII (a leading cancer prevention and treatment organization in Brazil and owner of the Hospital do Câncer de Barretos), in order to invest in equipment with the objective of expanding breast cancer prevention and treatment. During the third quarter of 2019 Institutio Avon repaid $1 million of the loan.
(6)(5) On August 14, 2019, the Company sold its investment in New Avon to LG Household & Health Care Ltd, from this point New Avon is no longer a related party. Therefore at September 30, 2019, we do not have any related party balances with New Avon.
(7) The payablesPayables due to an affiliate of Cerberus relaterelated to the agreement for the project management team, and were classified within other accrued liabilities in our Consolidated Balance Sheets. Upon the consummation of Transaction with Natura in January 2020, Cerberus ceased their involvement in Company operations and is no longer a related party.
In addition,(6) Upon consummation of the Transaction on January 3, 2020, the Company also issued standby letterswas acquired by Natura &Co Holding and became a wholly owned direct subsidiary of creditNatura &Co Holding. The payables due to Natura &Co Holding relate to the lessorsamount of certain equipment, a lease for which was transferredaccrued dividend paid by Natura &Co Holding in relation to New AvonSeries C preferred stock and is presented separately in connection with the separation of the Company's North America business. As of SeptemberConsolidated Balance Sheet. On December 30, 2019, the Company has a liability of $.8 for the estimated value of such standby letters of credit.
Series C Preferred Stock
On March 1, 2016, the Company issued and soldCerberus elected to Cerberus Investorconvert 435,000 shares of newly issued series C preferred stock, for an aggregate purchase pricerepresenting all shares of $435.0. Cumulative preferred dividends accrue daily on the series C preferred stock at a rateoutstanding, into 87,000,000 shares of 1.25%the Company’s common stock, par value U.S.$0.25 per quarter.share, pursuant to the holder of the Company’s series C preferred stock’s rights under the Company’s certificate of incorporation. The foregoing election was conditioned upon the filing of the certificates of merger with respect to the First Merger (the "Conversion Condition"). Upon consummation of the Transaction in January 2020, the Company’s common stock was converted to Natura &Co Holding common stock. In January 2020 Natura &Co Holding paid the accrued unpaid dividends on the shares of series C preferred stock had accrued unpaid dividends of $84.8 as of September 30, 2019.in an amount equal to U.S. $91.5 to Cerberus. The Company intends to repay this balance. See Note 13, Series C convertibleConvertible Preferred Stock, for discussion of preferred stock and accrued dividendsshares issued to Cleveland Apple Investor L.P. ("Cerberus Investor") (an affiliate of $511.1 onCerberus).
(7) During the Consolidated Balance Sheet at Septembersecond quarter of 2020, the Company entered into an agreement to receive funding from Natura &Co Holding with respect to our Argentina operations. At June 30, 20192020 the balance outstanding under this loan is stated net of $8.7 of costs incurred in connection with the issuance300 Argentinian Pesos, which is equivalent to $4.6. See Note 17, Debt for further details of the Series C convertible preferred stock in 2016. There were 0 dividends declared interms of this loan.
(8) During the nine monthssecond quarter of 2020, the Company entered into manufacturing agreements with affiliates of Natura &Co Holding. The Company recorded revenue from related party of $1.8 and gross profit of $.4 associated with these agreements during the quarter ended SeptemberJune 30, 2019 and 2018.2020. The receivables from Natura &Co Holding relate to these manufacturing agreements.


























20
17


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
7.4. REVENUE

Disaggregation of revenue
In the following table, revenue is disaggregated by product or service type. All revenue is recognized at a point in time when control of a product is transferred to a customer:
Three Months Ended September 30, 2019
Reportable segmentsThree Months Ended June 30, 2020
Europe, Middle East & AfricaSouth Latin AmericaNorth Latin AmericaAsia PacificTotal reportable segmentsOther operating segments and business activitiesTotalAvon InternationalAvon Latin AmericaTotal reportable segmentsAffiliates of Natura&CoTotal
Beauty:Beauty:Beauty:
SkincareSkincare$125.2  $129.3  $44.0  $27.7  $326.2  $—  $326.2  Skincare$122.6  $93.6  $216.2  $—  $216.2  
FragranceFragrance129.2  100.2  47.1  19.1  295.6  —  295.6  Fragrance78.7  70.8  $149.5  —  149.5  
ColorColor70.7  69.3  20.3  11.3  171.6  —  171.6  Color45.3  29.9  $75.2  —  75.2  
Total BeautyTotal Beauty325.1  298.8  111.4  58.1  793.4  —  793.4  Total Beauty246.6  194.3  440.9  —  440.9  
Fashion & Home:Fashion & Home:Fashion & Home:
FashionFashion46.4  37.6  19.4  40.5  143.9  —  143.9  Fashion38.4  26.9  65.3  —  65.3  
HomeHome6.4  56.1  43.7  6.0  112.2  —  112.2  Home7.8  59.1  66.9  —  66.9  
Total Fashion & HomeTotal Fashion & Home52.8  93.7  63.1  46.5  256.1  —  256.1  Total Fashion & Home46.2  86.0  132.2  —  132.2  
Certain Brazil indirect taxes*—  67.7  —  —  67.7  —  67.7  
Product salesProduct sales377.9  460.2  174.5  104.6  1,117.2  —  1,117.2  Product sales292.8  280.3  573.1  —  573.1  
Representative feesRepresentative fees20.0  28.7  10.2  1.7  60.6  60.6  Representative fees11.1  18.1  29.2  —  29.2  
OtherOther.4  5.1  —  —  5.5  4.7  10.2  Other1.1  1.3  2.4  1.8  4.2  
Other revenueOther revenue20.4  33.8  10.2  1.7  66.1  4.7  70.8  Other revenue12.2  19.4  31.6  1.8  33.4  
Total revenueTotal revenue$398.3  $494.0  $184.7  $106.3  $1,183.3  $4.7  $1,188.0  Total revenue$305.0  $299.7  $604.7  $1.8  $606.5  

Three Months Ended June 30, 2019
Avon InternationalAvon Latin AmericaTotal
Beauty:
Skincare$165.9  $180.0  $345.9  
Fragrance143.0  160.1  303.1  
Color92.9  87.9  180.8  
Total Beauty401.8  428.0  829.8  
Fashion & Home:
Fashion95.0  61.2  156.2  
Home13.8  109.0  122.8  
Total Fashion & Home108.8  170.2  279.0  
Product sales510.6  598.2  1,108.8  
Representative fees22.7  39.0  61.7  
Other.8  3.5  4.3  
Other revenue23.5  42.5  66.0  
Total revenue$534.1  $640.7  $1,174.8  


2118


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Three Months Ended September 30, 2018
Reportable segmentsSix Months Ended June 30, 2020
Europe, Middle East & AfricaSouth Latin AmericaNorth Latin AmericaAsia PacificTotal reportable segmentsOther operating segments and business activitiesTotalAvon InternationalAvon Latin AmericaTotal reportable segmentsAffiliates of Natura&CoTotal
Beauty:Beauty:Beauty:
SkincareSkincare$133.7  $137.8  $38.2  $29.3  $339.0  $—  $339.0  Skincare$273.2  $239.6  $512.8  $—  $512.8  
FragranceFragrance139.5  113.8  54.9  23.7  331.9  —  331.9  Fragrance211.0  186.8  $397.8  —  397.8  
ColorColor80.1  76.5  21.2  14.2  192.0  —  192.0  Color130.4  93.6  $224.0  —  224.0  
Total BeautyTotal Beauty353.3  328.1  114.3  67.2  862.9  —  862.9  Total Beauty614.6  520.0  1,134.6  —  1,134.6  
Fashion & Home:Fashion & Home:Fashion & Home:
FashionFashion58.9  46.0  25.1  44.7  174.7  —  174.7  Fashion111.2  70.2  $181.4  —  181.4  
HomeHome8.7  68.6  56.0  6.8  140.1  .2  140.3  Home20.9  136.0  $156.9  —  156.9  
Total Fashion & HomeTotal Fashion & Home67.6  114.6  81.1  51.5  314.8  .2  315.0  Total Fashion & Home132.1  206.2  338.3  —  338.3  
Brazil IPI tax release**—  168.4  —  —  168.4  —  168.4  
Product salesProduct sales420.9  611.1  195.4  118.7  1,346.1  .2  1,346.3  Product sales746.7  726.2  1,472.9  —  1,472.9  
Representative feesRepresentative fees21.8  33.7  11.6  1.8  68.9  .1  69.0  Representative fees31.3  48.8  $80.1  —  80.1  
OtherOther.2  .6  —  —  .8  8.1  8.9  Other4.1  4.9  $9.0  1.8  10.8  
Other revenueOther revenue22.0  34.3  11.6  1.8  69.7  8.2  77.9  Other revenue35.4  53.7  89.1  1.8  90.9  
Total revenueTotal revenue$442.9  $645.4  $207.0  $120.5  $1,415.8  $8.4  $1,424.2  Total revenue$782.1  $779.9  $1,562.0  $1.8  $1,563.8  


Nine Months Ended September 30, 2019
Reportable segmentsSix Months Ended June 30, 2019
Europe, Middle East & AfricaSouth Latin AmericaNorth Latin AmericaAsia PacificTotal reportable segmentsOther operating segments and business activitiesTotalAvon InternationalAvon Latin AmericaTotal
Beauty:Beauty:Beauty:
SkincareSkincare$400.9  $386.1  $144.2  $90.2  $1,021.4  $1,021.4  Skincare$338.2  $357.0  $695.2  
FragranceFragrance386.9  313.0  140.7  56.1  896.7  896.7  Fragrance294.7  306.4  601.1  
ColorColor246.6  196.2  63.4  35.4  541.6  541.6  Color200.0  170.0  370.0  
Total BeautyTotal Beauty1,034.4  895.3  348.3  181.7  2,459.7  —  2,459.7  Total Beauty832.9  833.4  1,666.3  
Fashion & Home:Fashion & Home:Fashion & Home:
FashionFashion162.1  117.7  61.4  123.2  464.4  464.4  Fashion198.4  122.1  320.5  
HomeHome21.3  178.3  131.0  19.8  350.4  350.4  Home28.7  209.5  238.2  
Total Fashion & HomeTotal Fashion & Home183.4  296.0  192.4  143.0  814.8  —  814.8  Total Fashion & Home227.1  331.6  558.7  
Certain Brazil indirect taxes*—  67.7  —  —  67.7  —  67.7  
Product salesProduct sales1,217.8  1,259.0  540.7  324.7  3,342.2  —  3,342.2  Product sales1,060.0  1,165.0  2,225.0  
Representative feesRepresentative fees63.5  87.0  30.5  5.2  186.2  186.2  Representative fees47.0  78.6  125.6  
OtherOther.8  5.7  —  .1  6.6  14.7  21.3  Other1.8  9.3  11.1  
Other revenueOther revenue64.3  92.7  30.5  5.3  192.8  14.7  207.5  Other revenue48.8  87.9  136.7  
Total revenueTotal revenue$1,282.1  $1,351.7  $571.2  $330.0  $3,535.0  $14.7  $3,549.7  Total revenue$1,108.8  $1,252.9  $2,361.7  


In January 2020 the Company became a fully owned subsidiary of Natura &Co Holding. As a result of this transaction, the Company has updated its reportable segments to align with how the business is operated and managed since the merger with Natura &Co Holding, we have identified 2 reportable segments based on geographic operations: Avon International and Avon Latin America. In prior periods, the Company reported 4 segments: Europe, Middle East and Africa, Asia Pacific, South Latin America and North Latin America. Previously reported segment information has been recast throughout the consolidated financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reportable segments. Refer to Note 10, Segment Information, to the Consolidated Financial Statements contained herein for more information.
22
19


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Nine Months Ended September 30, 2018
Reportable segments
Europe, Middle East & AfricaSouth Latin AmericaNorth Latin AmericaAsia PacificTotal reportable segmentsOther operating segments and business activitiesTotal
Beauty:
Skincare$457.4  $423.4  $128.8  $90.9  $1,100.5  $6.4  $1,106.9  
Fragrance446.5  363.9  160.9  62.4  1,033.7  2.9  1,036.6  
Color299.0  237.9  62.8  40.3  640.0  4.8  644.8  
Total Beauty1,202.9  1,025.2  352.5  193.6  2,774.2  14.1  2,788.3  
Fashion & Home:
Fashion211.5  142.4  70.1  125.2  549.2  3.0  552.2  
Home25.6  213.1  153.9  21.2  413.8  2.0  415.8  
Total Fashion & Home237.1  355.5  224.0  146.4  963.0  5.0  968.0  
Brazil IPI tax release**—  168.4  —  —  168.4  —  168.4  
Product sales1,440.0  1,549.1  576.5  340.0  3,905.6  19.1  3,924.7  
Representative fees71.5  105.1  33.4  4.9  214.9  2.0  216.9  
Other.5  4.4  —  .1  5.0  23.0  28.0  
Other revenue72.0  109.5  33.4  5.0  219.9  25.0  244.9  
Total revenue$1,512.0  $1,658.6  $609.9  $345.0  $4,125.5  $44.1  $4,169.6  

* 2019 includes the impact of certain Brazil indirect taxes which was recorded in product sales of approximately $68, in our Consolidated Income Statements. See Note 14 Supplemental Balance Sheet Information, to the Consolidated Financial Statements contained herein for further information.
**2018 includes the impact of the Brazil IPI, which was recorded in product sales of approximately $168, in our Consolidated Income Statements. See Note 11, Contingencies, to the Consolidated Financial Statements contained herein for further information.

Contract balances
The timing of revenue recognition generally is different from the timing of a promise made to a Representative. As a result, we have contract liabilities, which primarily relate to the advance consideration received from Representatives prior to transfer of the related good or service for material rights, such as loyalty points and status programs, and are primarily classified within other accrued liabilities (with the long-term portion in other liabilities) in our Consolidated Balance Sheets.
Generally, we record accounts receivable when we invoice a Representative. In addition, we record an estimate of an allowance for doubtful accounts on receivable balances based on an analysis of historical data and current circumstances, including seasonality, changing trends and changing trends.the impact of COVID-19. The allowance for doubtful accounts is reviewed for adequacy, at a minimum, on a quarterly basis. We generally have no detailed information concerning, or any communication with, any ultimate consumer of our products beyond the Representative. We have no legal recourse against the ultimate consumer for the collection of any accounts receivable balances due from the Representative to us. If the financial condition of the Representatives were to deteriorate, resulting in their inability to make payments, additional allowances may be required.
The following table provides information about receivables and contract liabilities from contracts with customers at SeptemberJune 30, 20192020 and December 31, 2018:2019:
September 30, 2019December 31, 2018June 30, 2020December 31, 2019
Accounts receivable, net of allowances of $65 and $93$303.0  $349.7  
Accounts receivable, net of allowances of $57.0 and $66.6Accounts receivable, net of allowances of $57.0 and $66.6$156.9  $280.2  
Contract liabilitiesContract liabilities$49.1  $84.4  Contract liabilities$39.1  $51.0  

23


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
The contract liability balances relate to certain material rights (loyalty points, status program and prospective discounts). During the ninesix months ended SeptemberJune 30, 2019,2020, we recognized $67.2$34.5 of revenue related to the contract liability balance at the beginning of the nine monthsix-month period ended SeptemberJune 30, 2019,2020, as the result of performance obligations satisfied. In addition, we deferred an additional $32.9$25.9 related to certain material rights granted during the period, for which the performance obligations are not yet satisfied. Of the amount deferred during the period, substantially all will be recognized within a year, with the significant majority to be captured within a quarter. The remaining movement in the contract liability balance is attributable to foreign exchange differences arising on the translation of the balance as at SeptemberJune 30, 20192020 as compared with December 31, 2018.2019.
Contract costs
Incremental costs to obtain contracts, such as bonuses or commissions, are recognized as an asset if the entity expects to recover them. However, ASC 340-40, Other Assets and Deferred Costs, offers a practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. We elected the practical expedient and expense costs to obtain contracts when incurred because our amortization period is one year or less.
Costs to fulfill contracts with Representatives are comprisedcomposed of shipping and handling (including order processing) and payment processing services, which are expensed as incurred. The fees for these services are included in the transaction price.

8.
5. INVENTORIES
Components of InventoriesComponents of InventoriesSeptember 30, 2019December 31, 2018Components of InventoriesJune 30, 2020December 31, 2019
Raw materialsRaw materials$131.2  $157.8  Raw materials$128.8  $130.6  
Finished goodsFinished goods368.2  384.2  Finished goods307.9  321.7  
TotalTotal$499.4  $542.0  Total$436.7  $452.3  

9.








20

AVON PRODUCTS, INC.

6. LEASES

We have operating and finance leases for corporate and market offices, warehouses, automotive and other equipment. Some of our leases may include options to extend or terminate the lease. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
ClassificationSeptember 30, 2019January 1, 2019ClassificationJune 30, 2020December 31, 2019
AssetsAssetsAssets
Operating right-of-use assetsOperating right-of-use assetsRight-of-use asset$172.3  $187.5  Operating right-of-use assetsRight-of-use asset$160.1  $175.4  
Finance right-of-use assetsFinance right-of-use assetsProperty, Plant and Equipment2.5  3.2  Finance right-of-use assetsProperty, Plant and Equipment1.9  2.4  
Total right-of-use assetsTotal right-of-use assets174.8  190.7  Total right-of-use assets162.0  177.8  
LiabilitiesLiabilitiesLiabilities
CurrentCurrentCurrent
Operating lease liabilitiesOperating lease liabilitiesOther accrued liabilities$43.9  $45.4  Operating lease liabilitiesOther accrued liabilities$44.3  $45.7  
Finance lease liabilitiesFinance lease liabilitiesOther accrued liabilities1.0  1.1  Finance lease liabilitiesOther accrued liabilities.6  1.0  
Total current lease liabilitiesTotal current lease liabilities44.9  46.5  Total current lease liabilities44.9  46.7  
NoncurrentNoncurrentNoncurrent
Operating lease liabilitiesOperating lease liabilitiesLong-term operating lease liability$141.7  $155.9  Operating lease liabilitiesLong-term operating lease liability$129.3  $143.3  
Finance lease liabilitiesFinance lease liabilitiesLong-term debt1.5  1.9  Finance lease liabilitiesLong-term debt1.5  1.4  
Total noncurrent lease liabilitiesTotal noncurrent lease liabilities$143.2  $157.8  Total noncurrent lease liabilities$130.8  $144.7  
Total lease liabilityTotal lease liability$188.1  $204.3  Total lease liability$175.7  $191.4  

24

AVON PRODUCTS, INC.

The table below shows the lease income and expenses recorded in the Consolidated Statement of Operations incurred during the three and ninesix months ended SeptemberJune 30, 2020 and 2019.
Three months ended September 30,Nine months ended September 30,Three months ended June 30,Six months ended June 30,
Lease CostsLease CostsClassification20192019Lease CostsClassification2020201920202019
Operating lease cost (1)
Operating lease cost (1)
Selling, general and administrative expenses$16.9  $49.9  
Operating lease cost (1)
Selling, general and administrative expenses$15.8  $16.6  $31.8  $33.3  
Finance lease costFinance lease costFinance lease cost
Amortization of right-of-use assetsAmortization of right-of-use assetsSelling, general and administrative expenses.4  1.2  Amortization of right-of-use assetsSelling, general and administrative expenses.3  .4  .6  .9  
Interest on lease liabilitiesInterest on lease liabilitiesInterest Expense.1  .2  Interest on lease liabilitiesInterest Expense.1  .1  .1  .2  
Short-term leases costsShort-term leases costsSelling, general and administrative expenses.9  2.9  Short-term leases costsSelling, general and administrative expenses.6  .8  1.2  1.9  
Sublease income (2)
Sublease income (2)
Selling, general and administrative expenses(2.5) (8.3) 
Sublease income (2)
Selling, general and administrative expenses(4.5) (2.6) (8.6) (5.8) 
Net lease costNet lease cost$15.8  $45.9  Net lease cost$12.3  $15.3  $25.1  $30.5  
(1) Includes variable lease costs which are immaterial. These are presented in selling, general and administrative expenses in our Consolidated Statements of Operations.
(2) Sublease portfolio consists of the sublease of our previous principal executive office located at 777 Third Avenue, New York, NY.

The maturity analysis of the finance and operating lease liabilities is reflected below. This table also reflects the reconciliation of the undiscounted cash flows to the discounted finance and operating lease liabilities as recognized in the SeptemberJune 30, 20192020 Consolidated Balance Sheet:
Maturity of Lease LiabilitiesOperating LeasesFinance LeasesTotal
2019$15.4  $.3  $15.7  
202055.3  1.1  56.4  
202146.1  .8  46.9  
202238.3  .5  38.8  
202325.7  .1  25.8  
202418.4  —  18.4  
Thereafter29.1  —  29.1  
Total lease payments$228.3  $2.8  $231.1  
Less: Interest42.7  .3  43.0  
Present value of lease liabilities$185.6  $2.5  $188.1  
21

AVON PRODUCTS, INC.

Maturity of Lease LiabilitiesOperating LeasesFinance LeasesTotal
2020$32.4  $.4  $32.8  
202152.9  .9  53.8  
202244.9  .7  45.6  
202329.7  .2  29.9  
202421.2  .1  21.3  
202518.3  —  18.3  
Thereafter12.1  —  12.1  
Total lease payments$211.5  $2.3  $213.8  
Less: Interest(37.9) (.2) (38.1) 
Present value of lease liabilities$173.6  $2.1  $175.7  

At December 31, 20182019 our operating and finance lease obligations by due dates were as follows:
Maturity of Lease LiabilitiesOperating LeasesFinance LeasesTotal
2019$56.4  $1.1  $57.5  
202042.0  .6  42.6  
202135.3  .4  35.7  
202231.1  .2  31.3  
202322.4  .1  22.5  
Thereafter46.9  .1  47.0  
Total lease payments(1)
$234.1  $2.5  $236.6  
(1) Total lease payments of $236.6 represent undiscounted cash flows and therefore do not reconcile to the total discounted lease liability of $204.3 at January 1, 2019 shown above.

Maturity of Lease LiabilitiesOperating LeasesFinance LeasesTotal
202059.7  1.2  60.9  
202150.5  .9  51.4  
202242.4  .6  43.0  
202328.3  .1  28.4  
202420.2  —  20.2  
Thereafter30.1  —  30.1  
Total lease payments$231.2  $2.8  $234.0  
Less: Interest(42.2) (.4) (42.6) 
Present value of lease liabilities$189.0  $2.4  $191.4  
The Company has calculated the weighted-average remaining lease term, presented in years below, and the weighted-average discount rate for our operating and finance lease population. As noted in our lease accounting policy (See Note 1, Accounting
25

AVON PRODUCTS, INC.

Policies to the Consolidated Financial Statements contained herein), theThe Company uses the incremental borrowing rate as the lease discount rate.
Lease Term and Discount RateSeptember 30, 2019
Weighted-average remaining lease term (years)
Operating leases5.0
Finance leases2.7
Weighted-average discount rate
Operating leases8.5 %
Finance leases10.7 %

Lease Term and Discount RateJune 30, 2020December 31, 2019
Weighted-average remaining lease term (years)
Operating leases4.54.8
Finance leases2.52.6
Weighted-average discount rate
Operating leases8.8 %8.5 %
Finance leases12.5 %11.2 %
The table below sets out the classification of lease payments in the Consolidated Statement of Cash Flows. The right-of-use assets obtained in exchange for new finance and operating lease liabilities represent the new operating and finance leases entered into during the three and ninesix months ended SeptemberJune 30, 2019.
Other InformationThree months ended September 30, 2019Nine months ended September 30, 2019
Operating Cash Flows From Operating Leases$16.2  $47.9  
Financing Cash Flows From Finance Leases.3  1.0  
Cash Paid For Amounts Included In Measurement of Liabilities$16.5  $48.9  
Right-of-use Assets Obtained In Exchange For New Finance Liabilities$—  $.9  
Right-of-use Assets Obtained In Exchange For New Operating Liabilities$8.5  $33.9  

10. EMPLOYEE BENEFIT PLANS
 Three Months Ended September 30,
 Pension Benefits  
Net Periodic Benefit CostsU.S. PlansNon-U.S. PlansPostretirement Benefits
 201920182019201820192018
Service cost(1)
$.3  $.6  $.9  $1.1  $—  $—  
Interest cost.6  .6  3.5  3.4  .3  .2  
Expected return on plan assets(.8) (1.0) (7.2) (7.3) —  —  
Amortization of prior service credit—  —  —  (.1) —  (.1) 
Amortization of net actuarial losses.6  .7  1.1  1.5  —  .1  
Net periodic benefit costs(1)
$.7  $.9  $(1.7) $(1.4) $.3  $.2  

 Nine Months Ended September 30,
 Pension Benefits  
Net Periodic Benefit CostsU.S. PlansNon-U.S. PlansPostretirement Benefits
 201920182019201820192018
Service cost(1)
$1.3  $2.4  $2.9  $3.5  $—  $.1  
Interest cost1.8  1.8  11.2  11.6  .9  .8  
Expected return on plan assets(2.4) (2.6) (22.8) (23.9) —  —  
Amortization of prior service credit—  —  —  (.1) —  (.3) 
Amortization of net actuarial losses2.0  3.3  3.7  5.1  —  .1  
Settlements/curtailments—  —  0.1  —  —  —  
Net periodic benefit costs(1)
$2.7  $4.9  $(4.9) $(3.8) $.9  $.7  
2020.
2622


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Three months ended June 30,Six months ended June 30,
Other Information2020201920202019
Operating cash flows from operating leases$15.7  $15.8  $31.8  $32.1  
Operating cash flows from finance leases.1  —  .1  —  
Financing cash flows from finance leases.2  .3  .6  .7  
Cash paid for amounts included in measurement of liabilities$16.0  $16.1  $32.5  $32.8  
Right-of-use assets obtained in exchange for new finance liabilities$.1  $.1  $.2  $.9  
Right-of-use assets obtained in exchange for new operating liabilities$.8  $8.0  $12.8  $20.0  

7. EMPLOYEE BENEFIT PLANS
 Three Months Ended June 30,
 Pension Benefits  
Net Periodic Benefit CostsU.S. PlansNon-U.S. PlansPostretirement Benefits
 202020192020201920202019
Service cost(1)
$.4  $.5  $1.0  $1.0  $—  $—  
Interest cost.4  .6  2.8  3.8  .2  .3  
Expected return on plan assets(.7) (.8) (3.8) (7.7) —  —  
Amortization of prior service credit—  —  —  —  (.1) —  
Amortization of net actuarial losses.8  .7  1.5  1.3  —  —  
Settlements/curtailments—  —  —  —  —  —  
Net periodic benefit costs(1)
$.9  $1.0  $1.5  $(1.6) $.1  $.3  

 Six Months Ended June 30,
 Pension Benefits  
Net Periodic Benefit CostsU.S. PlansNon-U.S. PlansPostretirement Benefits
 202020192020201920202019
Service cost(1)
$.8  $1.0  $2.1  $2.0  $—  $—  
Interest cost.8  1.2  5.8  7.7  .3  .6  
Expected return on plan assets(1.4) (1.6) (7.9) (15.6) —  —  
Amortization of prior service credit—  —  —  —  —  —  
Amortization of net actuarial losses1.6  1.4  3.1  2.6  —  —  
Settlements/curtailments—  —  —  .1  —  —  
Net periodic benefit costs(1)
$1.8  $2.0  $3.1  $(3.2) $.3  $.6  

(1) Service cost is presented in selling, general and administrative expenses in our Consolidated Statements of Operations. The components of net periodic benefit costs other than service cost are presented in other income (expense), net in our Consolidated Statements of Operations.
During the ninesix months ended SeptemberJune 30, 2019,2020, we made $1$2 of contributions to the U.S. and contributions of $3 to the non-U.S. defined benefit pension and postretirement benefit plans, respectively. During the remainder of 2019,2020, we anticipate contributing approximately $0 to $5 and approximately $0 to $5 to fund our U.S. and non-U.S.global defined benefit pension and postretirement benefit plans, respectively.plans.


23

11.

AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
8. CONTINGENCIES
Brazilian Tax Assessments
In December 2012, our Brazilian subsidiary, Avon Industrial LTDA (Avon Brazil Manufacturing) received an excise tax (IPI)("IPI") assessment for the year 2008. The assessment totals approximately $293,$179, including penalties and accrued interest. As in prior IPI cases that have been resolved in Avon’s favor, this assessment asserts that the establishment in 1995 of separate manufacturing and distribution companies in Brazil was done without a valid business purpose and that Avon Brazil Manufacturing did not observe minimum pricing rules to define the taxable basis of excise tax. The structure adopted in 1995 is comparable to that used by many other companies in Brazil. We believe that our Brazilian corporate structure is appropriate, both operationally and legally, and that the 2012 IPI assessment is unfounded.
These matters are being vigorously contested. In July 2013, the 2012 IPI assessment was upheld at the first administrative level and we appealed this decision to the second administrative level. OnIn April 18, 2018, Avon received official notification that the second administrative level has issued a partially favorable and partially unfavorable decision. In this decision, the original assessment was reduced by approximately $62$47 (including associated penalty and interest), subject to Federal Revenue appeal.. The remaining $231$179 of the assessment was upheld at the second administrative level. OnIn April 20, 2018, we appealed this decision in the third administrative level whereand in December 2019, we received an unfavorable decision in the matter remains pending resolution. We expect to havethird administrative level. In June 2020, Avon was formally notified of the December unfavorable decision and presented a decisionMotion for Clarification. In the coming weeks we should receive a notice on whether that appeal will be accepted for trial. If the assessment is upheld by the end of 2019.third administrative level, the case will continue in the judicial sphere.

OnIn October 3, 2017, Avon Brazil Manufacturing received a new tax assessment notice regarding IPI for the year 2014 on grounds similar to the 2012 assessment. The 2017 IPI assessment totals approximately $228,$178, including penalties and accrued interest. OnIn April 2, 2018, Avon was notified of an unfavorable decision at the first administrative level. OnIn February, 25, 2019, this IPI assessment was upheld at the second administrative level and onin April 11, 2019 we appealed this decision to the third administrative level. The structure adopted in 1995In December 2019, the tax assessment was ruled unfavorable at the third Administrative level. Avon is comparablewaiting for the formal notification of this decision to that used by many other companies in Brazil. We believe that our Brazilian corporate structurefurther present a Motion of Clarification. After this motion is appropriate, both operationally and legally, and thatanalyzed, if the 2017 IPI assessment is unfounded.

upheld by the third administrative level, the case will continue in the judicial sphere.
In the event that the 2012 and the 2017 IPI assessments are upheld in the third and final administrative level, it may be necessary for us to provide monetary securitya guarantee letter or a deposit in the fulltotal amount of the debt to pursue further appealsmove the discussion in the judicial levels, which, dependingsphere. Depending on the circumstances, this may result in a charge to earnings and an adverse effect on the Company'sCompany’s Consolidated Statements of Cash Flows. It is not possible to reasonably estimate the likelihood or potential amount of assessments that may be issued for subsequent periods (tax years up through 20102014 are closed by statute). We believe that the 2012 and the 2017 IPI assessments are unfounded, however,unfounded. However, based on the likelihood that these will be upheld, we assess the risks as disclosed above as reasonably possible. At SeptemberAs of June 30, 2019,2020, we have not recognized a liability for the 2012 or 2017 IPI assessments.
Brazil IPI Tax on Cosmetics
Separate from the tax assessments received by Avon Brazil Manufacturing, Avon Cosmeticos LTDA (Avon Brazil) is involved in litigation related toIn May 2015, an executive decree issued in May 2015. This decree increasedestablished the amountlevy of IPI taxes that are to be remitted by Avon Brazil to the taxing authority on the sales of cosmetic products.products by Avon Brazil. Avon Brazil filed an objection to this IPI tax increaselevy on the basis that it is not constitutional.constitutional since this tax is already paid by Avon Brazil Manufacturing. In December 2016, Avon Brazil received a favorable decision from the Federal District Court regarding this objection. This decision has been appealed by the tax authorities.federal authority.
From May 2015 through April 2016, Avon Brazil remitteddeposited in Court the taxes associated with this IPI tax increase into a judicial deposit which would be remittedamount relating to the taxing authorities in the event that we are not successful in our objection to the tax increase.IPI being discussed. In May 2016, Avon Brazil received a favorable preliminary decision on its objectionobtained an injunction authorizing the Company not to pay the tax and was granted a preliminary injunction.IPI. As a result, beginning in May 2016,June 2018, Avon Brazil was no longer required to remit the taxes associated with IPI into a judicial deposit. On June 12, 2018, we received a decision authorizing Avonthe Company to withdraw the amount held asdeposited in Court and replace it with a judicial deposit, substituting it by letter of guarantee, which was presented. Onguarantee. In June 29, 2018, the tax authorities presented an appeal against that decision. OnIn July 30, 2018, the funds were received in our bank account. As ofamount deposited was withdrawn. In September 30, 2018, due in part to recent
27


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
contemporaneous judicial decisions acrossin favor of taxpayers in the cosmetics industry and other developments, we concluded, and supported by theour legal counsel’s opinion, of legal counsel, that the Executive Decree is unconstitutional. We thereforewe assessed the IPI tax underaccording to ASC 450, Contingencies and determined that the risk of loss iswas reasonably possible but not probable. Accordingly, we released the associated liability as of September 30, 2018 of approximately $195 and ceasedstopped accruing the IPI taxes from October 1, 2018. The liability had been classified within long-term sales taxes and taxes other than income in our Consolidated Balance Sheet, and the release was recorded in product sales and other income (expense), net in the amounts of approximately $168 and approximately $27, respectively, in our Consolidated Income Statements for the quarter ended September 30, 2018.
An unfavorable ruling to our objection of this IPI tax increase would have an adverse effect on the Company'sCompany’s Consolidated Income Statements and Consolidated Statements of Cash Flows as Avon Brazil would have to remit the reasonably possible amount of $249$203 to the taxing authorities (including the judicial deposit that was returned to us on July 30, 2018). We are not able to reliably predict the timing of the outcome of our objection to this tax increase.
24


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
A favorable judicial ruling to our objection of this IPI tax would also have an adverse effect on the Company'sCompany’s Consolidated Statements of Cash Flows as Avon Brazil would have to remit all or a portion of the associated income tax liability to the taxing authorities. The Company is accruing a tax reserve, which amounts to approximately $77$68 at SeptemberJune 30, 2019.2020. This reserve would be settled on final adjudication of the law through a combination of cash and use of deferred tax assets.
Talc-Related Litigation
The Company has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products the Company sold in the past were contaminated with asbestos. Many of these actions involve a number of co-defendants from a variety of different industries, including manufacturers of cosmetics and manufacturers of other products that, unlike the Company’s products, were designed to contain asbestos. As of SeptemberJune 30, 2019,2020, there were 106139 individual cases pending against the Company. During the three months ended SeptemberJune 30, 2019, 162020, 11 new cases were filed and 283 cases were dismissed, settled or otherwise resolved. The value of our settlements in this area thus far has not been material, either individually or in the aggregate. Additional similar cases arising out of the use of the Company'sCompany’s talc products are reasonably anticipated.

We believe that the claims asserted against us in these cases are without merit. We are defending vigorously against these claims and will continue to do so. To date, the Company has not proceeded to trial in any case filed against it and there have been no findings of liability enforceable against the Company. However, nationwide trial results in similar cases filed against other manufacturers of cosmetic talc products have ranged from outright dismissals to very large jury awards of both compensatory and punitive damages. Given the inherent uncertainties of litigation, we cannot predict the outcome of all individual cases pending against the Company, and we are only able to make a reasonable estimate for a small number of individual cases that have advanced to the later stages of legal proceedings. For the remaining cases, we provide an estimate of exposure on an aggregated and ongoing basis, which takes into account the historical outcomes of all cases we have resolved to date.Any accruals currently recorded on the Company’s balance sheet with respect to these cases are not material. Other than these accruals, we are at this time unable to estimate our reasonably possible or probable losses. However, any adverse outcomes, either in an individual case or in the aggregate, could be material. Future costs to litigate these cases, which we expense as incurred, are not known but may be significant, though some costs will be covered by insurance.

Brazilian Labor-Related Litigation
On an ongoing basis, the Company is subject to numerous and diverse labor-related lawsuits filed by employees in Brazil. These cases are assessed on an aggregated and ongoing basis based on historical outcomes of similar cases. The claims made are often for significantly larger sums than have historically been paid out by the Company. Our practice continues to be to recognize a liability based on our assessment of historical payments in similar cases. Our best estimate of the probable loss for such current cases at SeptemberJune 30, 20192020 is approximately $12$4 and, accordingly, we have recognized a liability for this amount.
Shareholder Litigation
On February 14, 2019, a purported shareholder’s class action complaint (Bevinal v. Avon Products, Inc., et al., No. 19-cv-1420) was filed in the United States District Court for the Southern District of New York against the Company and certain former officers of the Company. On June 3, 2019, the court appointed a lead plaintiff and class counsel. The complaint was subsequently amended on June 28, 2019 and recaptioned “In"In re Avon Products, Inc. Securities Litigation”Litigation" on July 8, 2019. On July 24, 2019, the plaintiffs filed a further amended complaint. The amended complaint is brought on behalf of a purported class consisting of all purchasers or acquirers of Avon common stock between January 21, 2016 and November 1, 2017, inclusive. The complaint asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") based on allegedly false or misleading statements and alleged market manipulation with respect to, among other things, changes made to Avon’s credit terms for Representatives in Brazil. On July 26, 2019, Avon and the individual defendants filed a motion to dismiss. On November 18, 2019, the court denied that motion. Accordingly, on December 16, 2019, Avon and the individual defendants filed an answer to the amended complaint. On February 14, 2020, plaintiffs filed a motion for class certification. The parties have reached an agreement on a settlement of this class action. The terms of settlement include releases by members of the class of claims against the Company and the individual defendants and payment of $14.5 million. Approximately $2 million of the settlement will be paid by the Company (which represents the remaining deductible under the Company’s applicable insurance policies) and the remainder of the settlement will be paid by the Company’s insurers. Certain documentation relating to the settlement has not yet been finalized, and the settlement is subject to court approval. In the event the settlement is not approved by the court, or is otherwise terminated before it is finalized, the Company will be unable to predict the outcome of this matter. Furthermore, in that event, it is reasonably possible that the Company may incur a loss in connection with this matter, which the Company is unable to reasonably estimate.
2825


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
On July 26, 2019 we filed a motion to dismiss.In light of the early stage of the litigation, we are unable to predict the outcome of this matter and are unable to assess the likelihood of loss or to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome.
Other Matters
Various other lawsuits and claims, arising in the ordinary course of business or related to businesses previously sold, are pending or threatened against Avon. In management'smanagement’s opinion, based on its review of the information available at this time, the total cost of resolving such other contingencies at SeptemberJune 30, 2019,2020, is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

12.9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the changes in AOCI by component and the reclassifications out of AOCI for the three and six months ended SeptemberJune 30, 20192020 and 2018:2019:
Three Months Ended September 30, 2019Foreign Currency Translation AdjustmentsCash Flow HedgesNet Investment HedgesPension and Postretirement BenefitsInvestment in New AvonTotal
Balance at June 30, 2019$(935.2) $(2.1) $(4.3) $(90.7) $3.4  $(1,028.9) 
Other comprehensive loss other than reclassifications(19.1) (.1) —  —  —  (19.2) 
Reclassifications into earnings:
Derivative losses on cash flow hedges, net of tax of $0.0—  .2  —  —  —  .2  
Amortization of net actuarial loss and prior service cost, net of tax of $0.2(1)
—  —  —  1.6  —  1.6  
Sale of New Avon—  —  —  —  (3.4) (3.4) 
Total reclassifications into earnings—  .2  —  1.6  (3.4) (1.6) 
Balance at September 30, 2019$(954.3) $(2.0) $(4.3) $(89.1) $—  $(1,049.7) 
Three Months Ended June 30, 2020Foreign Currency Translation AdjustmentsCash Flow HedgesNet Investment HedgesPension and Postretirement BenefitsTotal
Balance at March 31, 2020$(1,049.6) $—  $(4.3) $(90.4) $(1,144.3) 
Other comprehensive loss other than reclassifications(3.5) —  —  —  (3.5) 
Reclassifications into earnings:
Amortization of net actuarial loss and prior service cost, net of tax of $0.2(1)
—  —  —  2.0  2.0  
Total reclassifications into earnings—  —  —  2.0  2.0  
Balance at June 30, 2020$(1,053.1) $—  $(4.3) $(88.4) $(1,145.8) 


Three Months Ended September 30, 2018Foreign Currency Translation AdjustmentsNet Investment HedgesPension and Postretirement BenefitsInvestment in New AvonTotal
Balance at June 30, 2018$(923.5) $(4.3) $(90.0) $3.4  $(1,014.4) 
Other comprehensive loss other than reclassifications(3.6) —  —  —  (3.6) 
Reclassifications into earnings:
Amortization of net actuarial loss and prior service cost, net of tax of $0.1(1)
—  —  2.1  —  2.1  
Total reclassifications into earnings—  —  2.1  —  2.1  
Balance at September 30, 2018$(927.1) $(4.3) $(87.9) $3.4  $(1,015.9) 
Three Months Ended June 30, 2019Foreign Currency Translation AdjustmentsCash Flow HedgesNet Investment HedgesPension and Postretirement Benefits
Investment in New Avon (2)
Total
Balance at March 31, 2019$(939.6) $(1.4) $(4.3) $(92.5) $3.4  $(1,034.4) 
Other comprehensive income (loss) other than reclassifications4.4  (1.0) —  —  —  3.4  
Reclassifications into earnings:
Derivative loss on cash flow hedges, net of tax of $0.0—  .3  —  —  —  .3  
Amortization of net actuarial loss and prior service cost, net of tax of $0.21)
—  —  —  1.8  —  1.8  
Total reclassifications into earnings—  .3  —  1.8  —  2.1  
Balance as June 30, 2019$(935.2) $(2.1) $(4.3) $(90.7) $3.4  $(1,028.9) 


Six Months Ended June 30, 2020Foreign Currency Translation AdjustmentsCash Flow HedgesNet Investment HedgesPension and Postretirement BenefitsTotal
Balance at December 31, 2019$(942.7) $(.6) $(4.3) $(92.4) $(1,040.0) 
Other comprehensive loss other than reclassifications(110.4) —  —  —  (110.4) 
Reclassifications into earnings:
Derivative losses on cash flow hedges, net of tax of $0.0—  .6  —  —  .6  
Amortization of net actuarial loss and prior service cost, net of tax of $0.4(1)
—  —  —  4.0  4.0  
Total reclassifications into earnings—  .6  —  4.0  4.6  
Balance at June 30, 2020$(1,053.1) $—  $(4.3) $(88.4) $(1,145.8) 
29
26


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Nine Months Ended September 30, 2019Foreign Currency Translation AdjustmentsCash Flow HedgesNet Investment HedgesPension and Postretirement BenefitsInvestment in New AvonTotal
Balance at December 31, 2018$(936.2) $.5  $(4.3) $(93.8) $3.4  $(1,030.4) 
Other comprehensive loss other than reclassifications(18.1) (3.6) —  —  —  (21.7) 
Reclassifications into earnings:
Derivative losses on cash flow hedges, net of tax of $0.0—  1.1  —  —  —  1.1  
Amortization of net actuarial loss and prior service cost, net of tax of $0.5(1)
—  —  —  4.7  —  4.7  
Sale of New Avon—  —  —  —  (3.4) (3.4) 
Total reclassifications into earnings—  1.1  —  4.7  (3.4) 2.4  
Balance at September 30, 2019$(954.3) $(2.0) $(4.3) $(89.1) $—  $(1,049.7) 


Nine Months Ended September 30, 2018:Foreign Currency Translation AdjustmentsNet Investment HedgesPension and Postretirement BenefitsInvestment in New AvonTotal
Balance at December 31, 2017$(829.6) $(4.3) $(95.7) $3.4  $(926.2) 
Other comprehensive loss other than reclassifications(97.5) —  —  —  (97.5) 
Reclassifications into earnings:
Amortization of net actuarial loss and prior service cost, net of tax of $0.4(1)—  —  7.8  —  7.8  
Total reclassifications into earnings—  —  7.8  —  7.8  
Balance at September 30, 2018$(927.1) $(4.3) $(87.9) $3.4  $(1,015.9) 
Six Months Ended June 30, 2019Foreign Currency Translation AdjustmentsCash Flow HedgesNet Investment HedgesPension and Postretirement Benefits
Investment in New Avon (2)
Total
Balance at December 31, 2018$(936.2) $.5  $(4.3) $(93.8) $3.4  $(1,030.4) 
Other comprehensive (loss) other than reclassifications1.0  (3.4) —  —  —  (2.4) 
Reclassifications into earnings:
Derivative loss on cash flow hedges, net of tax of $0.0—  .8  —  —  —  .8  
Amortization of net actuarial loss and prior service cost, net of tax of $0.41)
—  —  —  3.1  —  3.1  
Total reclassifications into earnings—  .8  —  3.1  —  3.9  
Balance as June 30, 2019$(935.2) $(2.1) $(4.3) $(90.7) $3.4  $(1,028.9) 

For further details on Other Comprehensive loss other than reclassifications see the Consolidated Statement of Comprehensive Loss.

(1) Gross amount reclassified to other income (expense), net in our Consolidated Statements of Operations, and related taxes reclassified to income taxes in our Consolidated Statements of Operations.
(2) In April 2019, Avon and Cerberus signed an agreement with LG Household & Health Care Ltd. for the sale of New Avon, including our 19.9% ownership interest. In April 2019, Avon and Cerberus signed an agreement with LG Household & Health Care Ltd. for the sale of New Avon, including our 19.9% ownership interest. This transaction closed on August 14, 2019 and the related balance was reclassified into earnings.
Foreign exchange net losslosses of $5.1$.1 and net gain of $1.2$2.3 for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, and foreign exchange net losses of $5.8$3.9 and $2.5$.7 for the ninesix months ended SeptemberJune 30, 2020 and 2019, and 2018, respectively,resulting from the translation of actuarial losses and prior service cost recorded in AOCI, are included in foreign currency translation adjustments in our Consolidated Statements of Comprehensive Income (Loss).Loss.
13.10. SEGMENT INFORMATION
The Company has updated its reportable segments to align with how the business is operated and managed since the merger with Natura &Co Holding. We have identified 2 reportable segments based on geographic operations: Avon International and Avon Latin America. In prior periods, the Company reported 4 segments: Europe, Middle East and Africa, Asia Pacific, South Latin America and North Latin America. Previously reported segment information has been recast throughout the consolidated financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reportable segments.
We determine segment profit by deducting the related costs and expenses from segment revenue. Segment profit includes an allocation of global marketing and digitalcentral expenses based on actual revenues.to the extent the y support the operating activity of the segment. Segment profit excludes global expenses other than the allocation of marketing and digital, costs to implement ("CTI")certain CTI restructuring initiatives, (see Note 15, Restructuring Initiatives to the Consolidated Financial Statements contained herein), certain significant asset impairment charges, and other expenses, which are not allocated to a particular segment, if applicable. This is consistent with the manner in which we assess our performance and allocate resources.
Summarized financial information concerning our reportable segments was as follows:
Three Months Ended June 30,Six Months Ended June 30,
 Total Revenue2020201920202019
Avon International$305.0  $534.1  $782.1  $1,108.8  
Avon Latin America299.7  640.7  779.9  1,252.9  
Total revenue from reportable segments (1)
604.7  1,174.8  1,562.0  2,361.7  
Revenue from affiliates to Natura &Co1.8  —  1.8  —  
Total revenue(1)
606.5  1,174.8  1,563.8  2,361.7  
3027


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Summarized financial information concerning our reportable segments was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
 Total Revenue2019201820192018
Europe, Middle East & Africa$398.3  $442.9  $1,282.1  $1,512.0  
South Latin America*494.0  645.4  1,351.7  1,658.6  
North Latin America184.7  207.0  571.2  609.9  
Asia Pacific106.3  120.5  330.0  345.0  
Total revenue from reportable segments*1,183.3  1,415.8  3,535.0  4,125.5  
Other operating segments and business activities(1)
4.7  8.4  14.7  44.1  
Total revenue*$1,188.0  $1,424.2  $3,549.7  $4,169.6  
Three Months Ended September 30,Nine Months Ended September 30,
Operating Profit2019201820192018
Segment Profit
Europe, Middle East & Africa$47.6  $46.1  $165.8  $194.9  
South Latin America*118.4  194.1  207.4  276.5  
North Latin America17.0  14.3  52.6  54.1  
Asia Pacific9.4  9.6  36.9  27.3  
Total profit from reportable segments*$192.4  $264.1  $462.7  $552.8  
Other operating segments and business activities(1)
.9  1.1  2.0  2.7  
Unallocated global expenses(58.9) (58.5) (187.3) (216.3) 
CTI restructuring initiatives(17.5) (19.8) (116.7) (54.4) 
Other expenses(2)
(19.2) —  (36.4) —  
Operating profit*$97.7  $186.9  $124.3  $284.8  

* 2019 includes the impact of certain Brazil indirect taxes which was recorded in product sales of approximately $68, in our Consolidated Income Statements. See Note 14 Supplemental Balance Sheet Information, to the Consolidated Financial Statements contained herein for further information. 2018 includes the impact of the Brazil IPI, which was recorded in product sales of approximately $168, in our Consolidated Income Statements. See Note 11, Contingencies, to the Consolidated Financial Statements contained herein for further information.

Three Months Ended June 30,Six Months Ended June 30,
Operating Profit2020201920202019
Segment Profit
Avon International$(4.4) $44.5  $(1.7) $94.5  
Avon Latin America(50.8) 53.8  (68.0) 66.5  
Total profit from reportable segments (2)
$(55.2) $98.3  $(69.7) $161.0  
Unallocated global expenses(3)
(1.8) (9.0) (1.8) (18.0) 
Certain Brazil Indirect taxes (5)
10.6  —  10.6  —  
CTI restructuring initiatives(3.4) (45.7) (5.2) (99.2) 
Other expenses(4)
(.3) (13.1) (85.8) (17.2) 
Operating profit$(50.1) $30.5  $(151.9) $26.6  
(1)Total revenue also includes revenue from other operating segments and business activities of $2.4 and $4.5 for the three months ended June 30, 2020 and 2019 and $8.8 and $10.0 for the six months ended June 30, 2020 and 2019, respectively, allocated to Avon International and Avon Latin America segments. Other operating segments and business activities include markets that have been exited. Effective in the first quarter of 2018, given that we exited Australia and New Zealand during 2018, the results of Australia and New Zealand are now reported in Other operating segments and business activities for all periods presented, while previously the results had been reported in the Asia Pacific segment. Other operating segments and business activities also include revenue from the sale of products to New Avon since the separation of the Company'sCompany’s North America business into New Avon on March 1, 2016 and ongoing royalties from the licensing of our name and products. Previously reported amount has been allocated to Avon International and Avon Latin America segments to conform to the current year presentation.
(2)Total profit from reportable segments also includes profit from other operating segments and business activities and central expenses allocated to Avon International and Avon Latin America segments. Other operating segments and business activities of $1.2 and $.5 for the three months ended June 30, 2020 and 2019 and $4.1 and $1.1 for the six months ended June 30, 2020 and 2019, respectively, include profit from the sale of products to New Avon since the separation of the Company’s North America business into New Avon on March 1, 2016 and ongoing royalties from the licensing of our name and products. Central expenses includesof $39.3 and $65.3 for the three months ended June 30, 2020 and 2019 and $103.0 and $128.4 for the six months ended June 30, 2020 and 2019, respectively, include corporate general and administrative expenses allocated to Avon International and Avon Latin America to the extent they support the operating activity of the segment. Previously reported amounts has been allocated to segments to conform to the current year presentation.
(3)For the three and six months ended June 30, 2020 unallocated global expenses include primarily stewardship and other expenses not directly attributable to reportable segments.
(4)For the six months ended June 30, 2020, other expenses include primarily professional fees incurred in relation to the Natura transaction,Transaction of approximately $44, severance payments of approximately $25 and other impairment losses on assets.acceleration of share based compensation of approximately $10 relating to these terminations triggered by change in control provisions. Refer to Note 21, Agreement and Plan of19, Mergers with Natura CosmeticosCosméticos S.A., to the Consolidated Financial Statements contained herein for more information relating to the Natura transaction.Transaction.
(5)
The three and six-month periods ended June 30, 2020 include the impact of certain Brazil indirect taxes, which were recorded in selling, general and administrative expenses, net in the amounts of approximately $11.
14.11. SUPPLEMENTAL BALANCE SHEET INFORMATION
At SeptemberJune 30, 20192020 and December 31, 2018,2019, prepaid expenses and other included the following:
Components of Prepaid Expenses and OtherSeptember 30, 2019December 31, 2018
Prepaid taxes and tax refunds receivable$155.1  $145.0  
Receivables other than trade47.7  69.2  
Prepaid brochure costs, paper and other literature12.0  14.9  
Other50.6  42.9  
Prepaid expenses and other$265.4  $272.0  

Components of Prepaid Expenses and OtherJune 30, 2020December 31, 2019
Prepaid taxes and tax refunds receivable$122.3  $141.1  
Receivables other than trade(1)
70.9  51.4  
Prepaid brochure costs, paper and other literature11.2  13.1  
Other36.1  46.5  
Prepaid expenses and other$240.5  $252.1  
3128


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
(1) As of June 30, 2020, the Company has recognized insurance receivables of $27 including $12 related to a contingent liability of approximately $15 for Shareholder Litigation, recognized in the Consolidated Balance Sheet under Other Accrued Liabilities. See Note 8, Contingencies.
At SeptemberJune 30, 20192020 and December 31, 2018,2019, other assets included the following:
Components of Other Assets(1)
Components of Other Assets(1)
September 30, 2019December 31, 2018
Components of Other Assets(1)
June 30, 2020December 31, 2019
Net overfunded pension plansNet overfunded pension plans$95.2  $88.1  Net overfunded pension plans$96.0  $100.6  
Capitalized softwareCapitalized software81.0  89.3  Capitalized software71.6  83.1  
Judicial depositsJudicial deposits67.9  74.1  Judicial deposits48.5  70.1  
Long-term receivablesLong-term receivables186.4  73.2  Long-term receivables161.8  196.1  
Trust assets associated with supplemental benefit plansTrust assets associated with supplemental benefit plans39.4  37.0  Trust assets associated with supplemental benefit plans35.8  37.3  
Tooling (plates and molds associated with our beauty products)12.6  12.6  
OtherOther31.4  16.1  Other24.3  27.6  
Other assetsOther assets$513.9  $390.4  Other assets$438.0  $514.8  

(1) Deferred tax assetAs of June 30, 2020 and December 31, 2019, the Company had tooling, net of amortization of $8.4 and $12.9, respectively. Tooling balance as of September 30, 2019 and December 31, 2018 is presented separately in the Consolidated Balance Sheet
Long-term receivables includes approximately $118 of certain Brazil indirect taxes (COFINS), recognized in the three months ended September 30, 2019. Approximately $68 and $50 was recorded in product sales and other income (expense), net, in our Consolidated Income Statements following favorable judicial decisions in the three months ending September 30, 2019. The corresponding tax charge on this transaction is approximately $23 and is2019 previously included in the deferred tax asset balance as of September 30, 2019 which is presented separately in the Consolidated Balance Sheet.
During the three months ended September 30, 2019, we entered into an arrangement to sell the rights to a portion of these credits, in the amount of approximately $80. The Company has the option to repurchase these credits for a period of three years. This transaction resulted in a cash inflow of approximately $19, which is presented as a financing activity in the Consolidated Statements of Cash Flows. The sale of credits is accounted for as a financing arrangement, therefore the receivables have not been derecognized and a financing liability of approximately $19other long-term assets has been recognized.reclassified to property, plant and equipment to conform to the current year presentation.

32


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
15.12. RESTRUCTURING INITIATIVES
Transformation PlanNatura &Co - Avon Integration
Subsequent to the merger of Natura and Open Up Avon in January 2020, an integration plan (the "Avon Integration") was established to create the right global infrastructure to support the future ambitions of the Natura &Co Group while also identifying synergies and opportunities to leverage our combined strength, scale and reach. Synergies will be derived mainly from procurement, manufacturing/distribution and administrative, including new top line synergies at Natura &Co Latin America, as well as cost synergies at Avon International.
Open Up Avon, Open Up & Grow and Transformation Plan
In January 2016, we initiated a transformation plan (the "Transformation Plan"), in order to enable us to achieve our long-term goals of mid-single-digit Constant $ revenue growth and low double-digit operating margin. There are no further restructuring actions to be taken associated with our Transformation Plan as, beginning in the third quarter of 2018, all new restructuring actions approved operate under our new Open Up Avon plan described below.
In September 2018, we initiated a new strategy in order to return Avon to growth ("("Open Up Avon"). The Open Up Avon strategy is integral to our ability to return Avon to growth, built around the necessity of incorporating new approaches to various elements of our business, including increased utilization of third-party providers in manufacturing and technology, a more fit for purpose asset base, and a focus on enabling our Representatives to more easily interact with the company and achieve relevant earnings. The commercial elements of the strategy were developed to help increase Representative earningsThese savings have been and thereby retention. Elements of the Representative strategy include improvements in service functions, increased training on utilization of digital tools to expand her consumer reach, product bundling and regimens designed to help improve her earnings opportunity and sharper more targeted product innovation to drive brand relevancy. Cost savings under this plan are targeted as annualized cost savings of approximately $400 by 2021, and expected to be generated from efficiencies in manufacturing and sourcing, distribution, general and administrative activities, and back office functions, as well as through revenue management, interest and tax. These savings are expectedcontinue to be achieved through restructuring actions (that have may continue to result in charges related to severance, contract terminations and inventory and other asset write-offs), as well as other cost-savings strategies that would not result in restructuring charges. In January 2019, we announced significant advancements in this strategy, including a structural reset of inventory processes and a reduction in global workforce. The structural reset
In May 2020, the new leadership of inventory will result in lower operationalAvon refreshed our strategy ("Open Up & Grow") which aims to return Avon to growth over the next three years. Open Up & Grow replaces and ongoing obsolescence costs. Overbuilds on the longer term, it will result in a more concentrated focus on high-turn, higher margin products, driving greater earnings for Representatives due to lessened discount pressure and enhanced service levels. The structural reset resulted in an incremental one-off inventory obsolescence expense of $88 recognized at December 31, 2018. At September 30, 2019, we are trending ahead of the expected 10% global workforce reduction as announced in January 2019, to align with ongoing operating model changes and to create a leaner organization that is better aligned with Avon’s current and future business focus. This reduction is incremental to an 8% reduction of the global workforce that was completed in 2018. The restructuring charge relating to the global workforce reduction, which was approved by the Board of Directors in January 2019, forms an integral partsuccess of the Open Up Avon initiative,strategy, launched in 2018 to strengthen competitiveness through enhancing the impacts of thisrepresentative experience, improving brand position and relevance, accelerating digital expansion and improving costs. Over the next three years, savings are disclosed below. We initiated the Open Up Avon strategyexpected to enable uscontinue to achieve our goals of low-single-digit Constant $ revenue growth and low double-digit operating margin by 2021. We plan to reinvest a portion of these cost savings in commercial initiatives, including training for Representatives, and digital and information technology infrastructure initiatives. As a result of Open Up Avonbe achieved through restructuring actions approved to-date, we have recorded total costs(that may continue to implement these restructuring initiatives of $227.4 before taxes, of which $10.8result in charges related to severance, contract terminations and $84.1 was recorded during the three and nine months ended September 30, 2019, respectively, in our Consolidated Statements of Operations.
Transformation Plan
In January 2016, we initiated a transformation plan (the "Transformation Plan")asset write-offs), in order to enable us to achieve our long-term goals of mid-single-digit constant-dollar ("Constant $") revenue growth and low double-digit operating margin. Under this plan, we had targeted pre-tax annualized cost savings of approximately $350 after three years, which we exceeded through restructuring actions, as well as other cost-savings strategies that didwould not result in restructuring charges.
As a result of these restructuring actions approved to-date, we have recorded total costs to implement these restructuring initiatives of $214.4 before taxes, of which $6.7 and $9.0 was recorded during the three and nine months ended September 30, 2019, respectively, in our Consolidated Statements of Operations. There are no further restructuring actions to be taken associated with our Transformation Plan, as beginning in the third quarter of 2018, all new restructuring actions approved operate under our new Open Up Avon plan described above.
Costs to Implement Restructuring Initiatives - Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019
During the three months ended SeptemberJune 30, 2019,2020, we recorded net costs to implement of $17.5,$3.3, of which $10.8$1.5 related to Avon Integration, $2.0 related to Open Up Avon& Grow and $6.7a benefit of $.2 related to the Transformation Plan, in our Consolidated Statements of Operations. During the three months ended SeptemberJune 30, 2018,2019, we recorded costs to implement of $19.8,$32.5 of which $19.1 related to Open Up Avon and .7 related to the Transformation Plan in our Consolidated Statements of Operations.
During the nine months ended September 30, 2019, we recorded net costs to implement of $93.2, of which $84.1 related to Open Up Avon, $9.0 related to the Transformation Plan, and $.1 related to other restructuring initiatives, in our Consolidated Statements of Operations. During the nine months ended September 30, 2018, we recorded costs to implement of $54.4 of which $19.1 related to Open Up Avon, $36.0 related to the Transformation Plan and $.7 benefit related to other restructuring initiatives in our Consolidated Statements of Operations.
The costs during the three and nine months ended September 30, 2019 and 2018 consisted of the following:

3329


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
CTI recorded in operating profit - COGS
Manufacturing asset write-offs$1.1  $—  $10.9  $—  
Inventory write-off(2.1) (.1) 1.0  1.0  
(1.0) (.1) 11.9  1.0  
CTI recorded in operating profit - SG&A
Net charges for employee-related costs, including severance benefits3.2  6.4  51.9  31.9  
Implementation costs, primarily related to professional service fees7.8  11.8  33.7  17.5  
Dual running costs3.7  —  8.2  —  
Contract termination and other net benefits(.1) (1.7) 4.5  (1.0) 
Impairment of other assets.1  2.5  2.4  2.5  
Accelerated depreciation2.3  .9  2.6  2.5  
Variable lease charges1.5  —  1.5  —  
18.5  19.9  104.8  53.4  
CTI recorded in operating profit17.5  19.8  116.7  54.4  
CTI recorded in other (income) expense
Gain on sale of Rye Office—  —  (9.9) —  
Gain on sale of Malaysia Maximin—  —  (3.3) —  
Gain on sale of China business (relating mainly to foreign currency translation adjustment gain)—  —  (10.3) —  
Total CTI$17.5  $19.8  $93.2  $54.4  
Open Up Avon$10.8  $19.1  $84.1  $19.1  
Transformation Plan$6.7  $0.7  $9.0  $36.0  
Other$—  $—  $.1  $(.7) 
$28.3 related to Open Up Avon, a net benefit of $4.2 related to the Transformation Plan, in our Consolidated Statements of Operations.
During the six months ended June 30, 2020, we recorded net costs to implement of $5.1, of which $1.5 related to Avon Integration, $6.9 related to Open Up & Grow and a benefit of $3.3 related to the Transformation Plan, in our Consolidated Statements of Operations. During the six months ended June 30, 2019, we recorded costs to implement of $75.7 of which $73.4 related to Open Up Avon, a net benefit of $2.2 related to the Transformation Plan, and $.1 related to other restructuring initiatives, in our Consolidated Statements of Operations.
The costs during the three and six months ended June 30, 2020 and 2019 consisted of the following:

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
CTI recorded in operating profit - COGS
Manufacturing asset write-offs$—  $6.0  $—  $9.8  
Inventory write-off(.2) 2.6  (.3) 3.1  
(.2) 8.6  (.3) 12.9  
CTI recorded in operating profit - SG&A
Net charges for employee-related costs, including severance benefits.6  13.4  (1.7) 48.6  
Implementation costs, primarily related to professional service fees1.2  17.3  .7  26.0  
Dual running costs.7  2.6  1.5  4.5  
Contract termination and other net benefits.7  1.4  3.0  4.6  
Impairment of other assets—  2.3  .7  2.3  
Accelerated depreciation—  .1  .4  .3  
Variable lease charges.4  —  .9  —  
3.6  37.1  5.5  86.3  
CTI recorded in operating profit3.4  45.7  5.2  99.2  
CTI recorded in other (expense) income
(Gain) loss on sale of business / assets(.1) (13.2) (.1) (23.5) 
Total CTI$3.3  $32.5  $5.1  $75.7  
Avon Integration$1.5  $—  $1.5  
Open Up & Grow$2.0  $28.3  $6.9  $73.4  
Transformation Plan$(.2) $4.2  $(3.3) $2.2  
Other$—  $—  $—  $.1  
The tables below include restructuring costs such as employee-related costs, inventory and asset write-offs, foreign currency translation write-offs and contract terminations, and do not include other costs to implement restructuring initiatives such as professional services fees, dual running costs, accelerated depreciation and gain on sale of business.
The liability balance included in other accrued liabilities in our Consolidated Statements of OperationsBalance Sheet for the restructuring actions associated with Avon Integration at June 30, 2020 is $.7 related to employee related costs.
The liability balance included in other accrued liabilities in our Consolidated Balance Sheet for the restructuring actions associated with Open Up Avon & Grow at SeptemberJune 30, 20192020 is as follows:
3430


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Employee-Related CostsInventory/Assets Write-offsForeign Currency Translation Adjustment Write-offsContract Terminations/OtherTotal
Balance at December 31, 2018$19.6  $—  $—  $1.1  $20.7  
2019 charges$56.1  $14.3  $(10.9) $4.4  63.9  
Adjustments(3.6) —  —  (.1) (3.7) 
Cash payments(46.2) —  —  (2.5) (48.7) 
Non-cash write-offs—  (14.3) 10.9  —  (3.4) 
Foreign exchange(3.0) —  —  —  (3.0) 
Balance at September 30, 2019$22.9  $—  $—  $2.9  $25.8  

Employee-Related CostsInventory/Assets Write-offsContract Terminations/OtherTotal
Balance at December 31, 2019$17.8  $—  $6.4  $24.2  
2020 charges1.2  .4  2.6  4.2  
Adjustments(1.4) —  .4  (1.0) 
Cash payments(7.8) —  (6.6) (14.4) 
Non-cash write-offs—  (.4) —  (.4) 
Foreign exchange(.8) —  —  (.8) 
Balance at June 30, 2020$9.0  $—  $2.8  $11.8  
The liability balance included in other accrued liabilities in our Consolidated Balance Sheet for the restructuring actions associated with our Transformation Plan as of SeptemberJune 30, 20192020 is as follows:
Employee-Related CostsContract Terminations/OtherTotal
Balance at December 31, 2018$34.4  $3.6  $38.0  
2019 charges(0.7) .2  (.5) 
Cash payments(26.3) (2.3) (28.6) 
Foreign exchange.1  —  .1  
Balance at September 30, 2019$7.5  $1.5  $9.0  
Employee-Related CostsContract Terminations/OtherTotal
Balance at December 31, 2019$8.4  $1.5  $9.9  
2020 charges—  —  —  
Adjustments(2.9) —  (2.9) 
Cash payments(1.9) (1.3) (3.2) 
Foreign exchange(.1) (.1) (.2) 
Balance at June 30, 2020$3.5  $.1  $3.6  
The majority of cash payments, if applicable, associated with the year-end liability are expected to be made during 2019.2020.
The following table presents the restructuring charges incurred to date, under, Avon Integration, Open Up Avon& Grow (formerly Open Up Avon) and the Transformation Plan, along with the estimated charges expected to be incurred on approved initiatives under the plans:
Employee- Related CostsInventory/ Asset Write-offsContract
Terminations/Other		Foreign Currency Translation Adjustment Write-offsTotalEmployee- Related CostsInventory/ Asset Write-offsContract
Terminations/Other		Foreign Currency Translation Adjustment Write-offsTotal
Open Up Avon
Avon IntegrationAvon Integration
Charges incurred to-dateCharges incurred to-date$1.5  $—  $—  $—  $1.5  
Estimated charges to be incurred on approved initiativesEstimated charges to be incurred on approved initiatives—  —  —  —  —  
Total expected charges on approved initiativesTotal expected charges on approved initiatives$1.5  $—  $—  $—  $1.5  
Open Up & GrowOpen Up & Grow
Charges incurred to-dateCharges incurred to-date$78.9  $104.1  $5.1  $(10.9) $177.2  Charges incurred to-date$83.4  $107.9  $11.5  $(10.9) $191.9  
Estimated charges to be incurred on approved initiativesEstimated charges to be incurred on approved initiatives—  —  1.7  —  1.7  Estimated charges to be incurred on approved initiatives—  —  2.5  $—  2.5  
Total expected charges on approved initiativesTotal expected charges on approved initiatives$78.9  $104.1  $6.8  $(10.9) $178.9  Total expected charges on approved initiatives$83.4  $107.9  $14.0  $(10.9) $194.4  
Transformation PlanTransformation PlanTransformation Plan
Charges incurred to-dateCharges incurred to-date$127.3  $2.4  $40.9  $3.4  $174.0  Charges incurred to-date$124.1  $2.5  $40.9  $3.4  $170.9  
Estimated charges to be incurred on approved initiativesEstimated charges to be incurred on approved initiatives—  —  —  —  —  Estimated charges to be incurred on approved initiatives—  —  —  —  —  
Total expected charges on approved initiativesTotal expected charges on approved initiatives$127.3  $2.4  $40.9  $3.4  $174.0  Total expected charges on approved initiatives$124.1  $2.5  $40.9  $3.4  $170.9  
The charges, net of adjustments, of initiatives under the Open Up Avon and the Transformation Plan, along with the estimated charges expected to be incurred on approved initiatives under the plans, by reportable segment are as follows:
3531


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Europe, Middle East & AfricaSouth Latin AmericaNorth Latin AmericaAsia
Pacific		Global & Other Operating SegmentsTotalAvon International*Avon Latin America*Global & Other Operating SegmentsTotal
Open Up Avon
Avon IntegrationAvon Integration
Second quarter 2020Second quarter 2020.3  —  1.2  1.5  
Charges incurred to-dateCharges incurred to-date.3  —  1.2  1.5  
Estimated charges to be incurred on approved initiativesEstimated charges to be incurred on approved initiatives—  —  —  —  
Total expected charges on approved initiativesTotal expected charges on approved initiatives$.3  $—  $1.2  $1.5  
Open Up & GrowOpen Up & Grow
20182018$32.2  $36.4  $27.9  $14.4  $6.2  $117.1  2018$46.6  $64.3  $6.2  $117.1  
First quarter 201913.5  12.7  2.9  (3.2) 7.3  33.2  
Second quarter 20194.5  13.7  4.3  (1.2) 3.9  25.2  
Third quarter 2019(.8) 1.6  .4  .4  .1  1.7  
2019201919.4  36.9  15.3  71.6  
First quarter 2020First quarter 20203.5  (.1) .2  3.6  
Second quarter 2020Second quarter 2020(1.0) (.1) .7  (.4) 
Charges incurred to-dateCharges incurred to-date49.4  64.4  35.5  10.4  17.5  177.2  Charges incurred to-date68.5  101.0  22.4  191.9  
Estimated charges to be incurred on approved initiativesEstimated charges to be incurred on approved initiatives1.7  1.7  Estimated charges to be incurred on approved initiatives2.5  —  —  2.5  
Total expected charges on approved initiativesTotal expected charges on approved initiatives$51.1  $64.4  $35.5  $10.4  $17.5  $178.9  Total expected charges on approved initiatives$71.0  $101.0  $22.4  $194.4  
Transformation PlanTransformation PlanTransformation Plan
20152015$—  $—  $—  $—  $21.4  $21.4  2015$—  $—  $21.4  $21.4  
2016201630.9  13.2  4.4  9.1  16.8  74.4  201640.0  17.6  16.8  74.4  
20172017.9  5.6  (.6) (.5) 49.4  54.8  2017.4  5.0  49.4  54.8  
201820185.0  4.1  .6  .6  13.4  23.7  20185.6  4.7  13.4  23.7  
First quarter 2019(1.1) —  —  —  .3  (.8) 
Second quarter 2019—  —  —  —  —  —  
Third quarter 2019(.1) .5  —  —  .1  .5  
20192019(1.3) .6  .3  (.4) 
First quarter 2020First quarter 2020.1  .1  (3.0) (2.8) 
Second quarter 2020Second quarter 2020(.2) —  —  (.2) 
Charges incurred to-dateCharges incurred to-date35.6  23.4  4.4  9.2  101.4  174.0  Charges incurred to-date44.6  28.0  98.3  170.9  
Estimated charges to be incurred on approved initiativesEstimated charges to be incurred on approved initiatives—  —  —  —  —  —  Estimated charges to be incurred on approved initiatives—  —  —  —  
Total expected charges on approved initiativesTotal expected charges on approved initiatives$35.6  $23.4  $4.4  $9.2  $101.4  $174.0  Total expected charges on approved initiatives$44.6  $28.0  $98.3  $170.9  
*In January 2020 the Company became a fully owned subsidiary of Natura &Co Holding. As a result of this transaction, the Company has updated its reportable segments to align with how the business is operated and managed since the merger with Natura &Co Holding. Previously reported segment information has been recast throughout the financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reportable segments. Refer to Note 10, Segment Information, to the Consolidated Financial Statements contained herein for more information.
The charges above are not included in segment profit, as this excludes costs to implement restructuring initiatives. The amounts shown in the tables above as charges recorded to-date relate to initiatives that have been approved and recorded in the consolidated financial statements, as the costs are probable and estimable. The amounts shown in the tables above as total expected charges on approved initiatives represent charges recorded to-date plus charges yet to be recorded for approved initiatives as the relevant accounting criteria for recording an expense have not yet been met.

16. GOODWILL13. SERIES C CONVERTIBLE PREFERRED STOCK
Europe, Middle East & AfricaSouth Latin
America		Asia
Pacific		Total
Net balance at December 31, 2018$18.0  $66.8  $2.6  $87.4  
Changes during the period ended September 30, 2019:
Foreign exchange(1.0) (3.9) —  (4.9) 
Net balance at September 30, 2019$17.0  $62.9  $2.6  $82.5  
On March 1, 2016, the Company issued and sold to Cerberus Investor 435,000 shares of newly issued series C preferred stock for an aggregate purchase price of $435 pursuant to an Investment Agreement, dated as of December 17, 2015, between the Company and Cerberus Investor. In connection with the issuance of the series C preferred stock, the Company incurred direct and incremental expenses of $8.7, composed of financial advisory fees and legal expenses, which reduced the carrying value of the series C preferred stock. Cumulative preferred dividends accrue daily on the series C preferred stock at a rate of 1.25% per quarter. The series C preferred stock had accrued unpaid dividends of $91.3 as of December 31, 2019.
32


17.AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
On December 19, 2019, the Company and Natura &Co Holding announced that as of such date, all regulatory approvals required by the Merger Agreement to complete the Transactions have been obtained. As a result, the series C preferred stock were probable of becoming redeemable and the redemption value was adjusted. Subsequently, on December 30, 2019, Cerberus elected to convert the series C preferred stock, and the series C preferred stock was no longer probable of becoming redeemable. We recognize changes in redemption value immediately as they occur and the carrying value of the security is adjusted to equal what the redemption amount would be as if redemption were to occur at the end of the reporting date based on the conditions that exist as of that date. As a result, we recognized an increase of $60.9 in the carrying value of the series C preferred stock for the year ended December 31, 2019.
On December 30, 2019, Cerberus elected to convert 435,000 shares of series C preferred stock, representing all shares of series C preferred stock outstanding, into 87,000,000 shares of the Company’s common stock, par value U.S.$0.25 per share, pursuant to the holder of the Company’s series C preferred stock’s rights under the Company’s certificate of incorporation. The foregoing election was conditioned upon the filing of the certificates of merger with respect to the First Merger (the "Conversion Condition").
On January 3, 2020, the Company consummated the Transaction to become a wholly owned direct subsidiary of Natura &Co Holding. Upon consummation of the Transaction, the Company’s common stock was converted to Natura &Co Holding common stock. After the effective time of the Second Merger and in January 2020, Natura &Co Holding elected to pay the accrued dividends on the shares of series C preferred stock in an amount equal to $91.5 to Cerberus. See Note 19, Mergers with Natura Cosméticos S.A., and Note 3, Related Party Transactions.
14. GOODWILL
Avon InternationalAvon Latin AmericaTotal
Net balance at December 31, 2019*
$20.0  $66.2  $86.2  
Changes during the period ended June 30, 2020:
Foreign exchange(1.0) (8.3) (9.3) 
Net balance at June 30, 2020$19.0  $57.9  $76.9  
*In January 2020 the Company became a fully owned subsidiary of Natura &Co Holding. As a result of this transaction, the Company has updated its reportable segments to align with Natura &Co Holding operations. Previously reported segment information has been recast throughout the financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reportable segments. Refer to Note 10, Segment Information, to the Consolidated Financial Statements contained herein for more information.
15. FAIR VALUE
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of SeptemberJune 30, 2020:
 Level 1Level 2Total
Assets:
Available-for-sale securities$4.2  $—  $4.2  
Foreign exchange forward contracts$—  $2.7  $2.7  
Total$4.2  $2.7  $6.9  
Liabilities:
Foreign exchange forward contracts$—  $10.1  $10.1  
Total$—  $10.1  $10.1  
The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2019:
3633


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
 Level 1Level 2Total
Assets:
Available-for-sale securities$4.0  $—  $4.0  
Foreign exchange forward contracts$—  $17.0  $17.0  
Total$4.0  $17.0  $21.0  
Liabilities:
Foreign exchange forward contracts$—  $2.0  $2.0  
Total$—  $2.0  $2.0  
The assets and liabilities measured at fair value on a recurring basis were immaterial at December 31, 2018.
 Level 1Level 2Total
Assets:
Available-for-sale securities$4.3  $—  $4.3  
Foreign exchange forward contracts$—  $5.6  $5.6  
Total$4.3  $5.6  $9.9  
Liabilities:
Foreign exchange forward contracts$—  $3.8  $3.8  
Total$—  $3.8  $3.8  
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, available-for-sale securities, short-term investments, accounts receivable, debt maturing within one year, accounts payable, long-term debt and foreign exchange forward contracts. The carrying value for cash and cash equivalents, accounts receivable, accounts payablepayable, debt maturing within one year and short-term investments approximate fair value because of the short-term nature of these instruments.
The net asset (liability) amounts recorded in the balance sheet (carrying amount) and the estimated fair values of our remaining financial instruments at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, consisted of the following:
September 30, 2019December 31, 2018 June 30, 2020December 31, 2019
Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value		 Carrying
Amount		Fair
Value		Carrying
Amount		Fair
Value
Available-for-sale securitiesAvailable-for-sale securities$4.0  $4.0  $3.8  $3.8  Available-for-sale securities$4.2  $4.2  $4.3  $4.3  
Debt maturing within one year(1)
Debt maturing within one year(1)
(116.2) (117.4) (12.0) (12.0) 
Debt maturing within one year(1)
(28.2) (28.2) (1.8) (1.8) 
Long-term debt(1)
Long-term debt(1)
(1,589.1) (1,696.7) (1,581.6) (1,460.2) 
Long-term debt(1)
(1,593.1) (1,634.3) (1,590.4) (1,748.1) 
Foreign exchange forward contractsForeign exchange forward contracts15.0  15.0  (5.1) (5.1) Foreign exchange forward contracts(7.4) (7.4) 1.8  1.8  
(1) The carrying value of debt maturing within one year and long-term debt is presented net of debt issuance costs and includes any related discount or premium and unamortized deferred gains on terminated interest-rate swap agreements, as applicable.premium.
The methods and assumptions used to estimate fair value are as follows:
•Available-for-sale securities - The fair values of these investments were the quoted market prices for issues listed on securities exchanges.
•Debt maturing within one year and long-termLong-term debt - The fair values of our debt and other financing were determined using Level 2 inputs based on indicative market prices.
•Foreign exchange forward contracts - The fair values of forward contracts were estimated based on quoted forward foreign exchange prices at the reporting date.
18.16. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We operate globally, with manufacturing and distribution facilities in various countries around the world. We may reduce our exposure to fluctuations in the fair value and cash flows associated with changes in interest rates and foreign exchange rates by creating offsetting positions, including through the use of derivative financial instruments. If we use foreign currency-rate sensitive and interest-rate sensitive instruments to hedge a certain portion of our existing and forecasted transactions, we would expect that any gain or loss in value of the hedge instruments generally would be offset by decreases or increases in the value of the underlying forecasted transactions.
We do not enter into derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives. The master agreements governing our derivative contracts generally contain standard provisions that could trigger early termination of the contracts in certain circumstances, including if we were to merge with another entity and the creditworthiness of the surviving entity were to be "materially weaker" than that of Avon prior to the merger.
Transaction.
3734


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
Derivatives are recognized in the Consolidated Balance Sheets at their fair values. The following table presents the fair value of derivative instruments at SeptemberJune 30, 2019:2020:
AssetLiabilityAssetLiability
Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
Derivatives designated as hedges:
Foreign exchange forward contractsPrepaid expenses and other$—  Accounts payable$1.9  
Derivatives not designated as hedges:Derivatives not designated as hedges:Derivatives not designated as hedges:
Foreign exchange forward contractsForeign exchange forward contractsPrepaid expenses and other$17.0  Accounts payable$.1  Foreign exchange forward contractsPrepaid expenses and other$2.7  Accounts payable$10.1  
Total derivativesTotal derivatives$17.0  $2.0  Total derivatives$2.7  $10.1  

Derivatives are recognized in the Consolidated Balance Sheets at their fair values. The following table presents the fair value of derivative instruments outstanding was immaterial at December 31, 2018.2019:
AssetLiability
Balance Sheet
Classification		Fair
Value		Balance Sheet
Classification		Fair
Value
Derivatives designated as hedges:
Foreign exchange forward contractsPrepaid expenses and other$—  Accounts payable$.6  
Derivatives not designated as hedges:
Foreign exchange forward contractsPrepaid expenses and other$5.6  Accounts payable$3.2  
Total derivatives$5.6  $3.8  
Interest Rate Risk
A portionAt June 30, 2020 and December 31, 2019, our exposure to floating interest rate risk was minimal as over 98% of our borrowings is subject to interest rate risk. In the past we have used interest-rate swap agreements,are at fixed rates of interest. Only our short-term debt, which effectively converted the fixed rate on long-term debt to a floating interest rate, to manage our interest rate exposure. The agreements were designated as fair value hedges. As of September 30, 2019, we do not have any interest-rate swap agreements. Approximately 7% and 1%represents approximately 2% of our debt portfolio, at September 30, 2019 and December 31, 2018, respectively, was exposed to floating interest rates. For the purpose of this calculation, we consider all short-term debt to beis exposed to floating interest rates.
In March 2012, we terminated 2 of our interest-rate swap agreements previously designated as fair value hedges, with notional amounts totaling $350. As of the interest-rate swap agreements’ termination date, the aggregate favorable adjustment to the carrying value (deferred gain) of our debt was $46.1, which was amortized as a reduction of interest expense until repayment of the underlying debt obligations in June 2018, at which point the remaining unamortized balance was fully released to the Consolidated Statement of Operations. The net impact of the gain amortization was 0 for both the three and nine months ended September 30, 2019, and 0 and $6.0 for the three and nine months ended September 30, 2018, respectively. At September 30, 2019, there was no unamortized deferred gain associated with the March 2012 interest-rate swap termination as the underlying debt obligations have been paid.
Foreign Currency Risk
We may use foreign exchange forward contracts to manage a portion of our foreign currency exchange rate exposures. At SeptemberJune 30, 2019,2020, we had outstanding foreign exchange forward contracts with notional amounts totaling approximately $893.3$917 for various currencies, 0ne of which $13.1 were designated as cash flow hedges.
We may use foreign exchange forward contracts to manage foreign currency exposure of certain intercompany loans. The change in fair value of these contracts is immediately recognized in earnings and substantially offsets the foreign currency translation impact recognized in earnings relating to the associated intercompany loans. During the three and nine months ended SeptemberJune 30, 2020 and 2019, we recorded gainslosses of $35.1$3.7 and $57.0,$3.1, respectively, in other (expense) income, (expense), net in our Consolidated Statements of Operations related to these undesignated foreign exchange forward contracts. During the three and ninesix months ended SeptemberJune 30, 2018,2020 and 2019, we recorded a gaingains of $2.0$6.8 and a loss of $1.1,$21.9, respectively, in other (expense) income, (expense), net in our Consolidated Statements of Operations related to otherthese undesignated foreign exchange forward contracts.
During the first quarter of 2019, we discontinued our program to hedge foreign exchange risk relating to forecasted operational transactions. The last of our designated cash flow hedges will expireexpired during the first quarter of 2020. Our designated hedges did not have a material impact on our Consolidated Financial Statements for the ninethree months ended SeptemberJune 30, 2019.
19.17. DEBT
Revolving Credit FacilityShort-term financing
In June 2015,During the second quarter of 2020, the Company’s subsidiary, Cosmeticos Avon International Operations, Inc. ("AIO")S.A.C.I entered into an agreement to receive funding from Natura Cosmeticos S.A., a wholly-owned domestic subsidiary of Natura &Co Holding S.A and an affiliate of the Company entered intoin the amount of 300 million Argentine Peso which may be used for working capital and other general corporate purposes (the "Argentina Facility"). Any borrowings under the Argentina Facility will bear interest at a five-year $400.0 senior secured revolving credit facility (the "2015 facility").rate per annum of 29.81% and has a six-month maturity. At June 30, 2020 the balance outstanding under this loan is $4.6.
In February 2019, Avon International Capital, p.l.c. ("AIC"), a wholly-owned foreign subsidiaryaddition, during the second quarter of the Company, entered into a
three-year €200.0 million senior secured revolving credit facility (the "2019 facility"). As2020, we utilized approximately $28 of September 30, 2019 this amounted to $218. The 2019 facility replaced the 2015 facility and the 2015 facility was terminated at such time. There were no amountsshort-term financing from third-party banks
3835


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
across multiple markets.
Natura Revolving Credit Facility
drawnIn May 2020, the Company’s subsidiary, Avon Luxembourg Holdings S.à r.l entered into a Revolving Credit Facility Agreement with Natura &Co International S.à r.l,. a subsidiary of Natura &Co Holding S.A. and an affiliate of the Company in the amount of $100 which may be used for working capital and other general corporate purposes (the "Facility"). Any borrowings under the 2015Facility will bear interest at a rate per annum of LIBOR plus 7.7% and the Facility will mature on May 31, 2022. As at June 30, 2020, $0 was outstanding under the Facility. On July 3, 2020, $40 was borrowed under the Facility for a six-month tenor.
2019 Revolving Credit Facility
In February 2019, Avon International Capital, p.l.c. ("AIC"), a wholly owned foreign subsidiary of the Company, entered into a three-year €200.0 senior secured revolving credit facility on the date of termination(the "2019 facility") and no early termination penalties were incurred. In the first quarter of 2019, $2.0 was recorded for the write-off of unamortized issuance costs related to the 2015 revolving credit facility. As of September 30, 2019, there were no amounts outstanding under the 2019 facility. The 2019 facility will terminate in February 2022; provided, however, that it shall terminate on the 91st day prior to the maturity of the 4.60% Notes (as defined below), if on such 91st day, the applicable notes are not redeemed, repaid, discharged, defeased or otherwise refinanced in full. In the first quarter of 2019, the Company capitalized $11.0 of issueissuance costs, relating to the new revolving credit facility; this resulted in arelated cash outflow is presented in other financing activities within the 10-K Consolidated Statement of Cash Flows. The 2019 facility was available for general corporate and working capital purposes.
As of September 30,December 31, 2019, wethere were in compliance with our interest coverage and net leverage ratios0 amounts outstanding under the 2019 facility. The amount offacility and on January 3, 2020, the facility availablewas automatically canceled upon change of control, and as a result $7.8 of unamortized issuance costs were written off, see Note 19, Mergers with Natura Cosméticos S.A., to be drawn down on is reduced by any standby letters of credit granted by an obligor, which, as of September 30, 2019, was approximately $23. As of September 30, 2019, based on then applicable exchange rates, the entire amount of the remaining 2019 facility, which is approximately €179 million, could have been drawn down without violating any covenant.Consolidated Financial Statements included herein.
PublicUnsecured Notes
In March 2013, we issued in a public offering, $500.0series of unsecured notes (the "2013 Notes"). As of June 30, 2020, the following 2013 Notes remain outstanding; $461.9 aggregate principal amount of 4.60% Notes due March 15, 2020 (the "4.60% Notes"), $500.0 principal amount of 5.00%5% Notes due March 15, 2023 (the "5.00% Notes") and $250.0$243.8 aggregate principal amount of 6.95% Notes due March 15, 2043 (the "6.95% Notes") (collectively, the "2013 Notes").2043. Interest on the 2013 Notes is payable semi-annuallysemiannually on March 15 and September 15 of each year.
The indenture governing the 2013 Notes contains interest rate adjustment provisions depending on the long-term credit ratings assigned to the 2013 Notes by S&P and Moody's. As described in the indenture, theMoody’s. The interest ratesrate on the 2013 Notes increase by .25% for each one-notch downgrade below investment grade on eachis currently at the maximum allowable level of our long-term credit ratings assigned to the 2013 Notes by S&P or Moody's. These adjustments are limited to a total increase of 2.00%2% above the respective interest rates in effect on the date of issuance of the 2013 Notes. As a result of the long-term credit rating downgrades by S&P and Moody's since issuance of the 2013 Notes, the interest rates on these notes have increased by the maximum allowable increase.
As of September 30, the remaining aggregate principal amount of the 4.60% Notes was $112.3 which will mature on March 15, 2020. In July 2019, AIC issued $400.0 Senior Secured Notes (the 2019 Notes), the proceeds of which were partially used to purchase an aggregate principal amount of $274.8 of the 4.60% Notes. In the third quarter of 2019, AIC capitalized $9 of issue costs relating to the 2019 Notes, this resulted in a cash outflow presented in other financing activities within the Consolidated Statement of Cash Flows.

issuance.
Senior Secured Notes
In August 2016, AIOAvon International Operations, Inc. ("AIO"), issued in a private placement exempt from registration under the Securities Act of 1933, as amended, $500.0 in aggregate principal amount of 7.875% Senior Secured Notes which will mature ondue August 15, 2022 (the "2016 Notes"). Interest on the 2016 Notes is payable semi-annually on February 15 and August 15 of each year.
In July 2019, AIC issued in a private placement exempt from registration under the Securities Act of 1933, as amended, $400.0 in aggregate principal amount of 6.5% Senior Secured Notes which will mature ondue August 15, 2022 (the "2019 Notes"). Interest on the 2019 Notes is payable semi-annually on February 15 and August 15 of each year.
For a more detailed description of the Company’s debt agreements, refer to Note 8, Debt and Other Financing of our Annual Report on Form 10-K for the year ended December 31, 2019.

20.18. INCOME TAXES
Our quarterly income tax provision is calculated using an estimated annual effective income tax approach. The quarterly effective tax rate can differ from our estimated annual effective tax rate as the Company cannot apply an effective tax rate approach for all of its operations. For those entities that can apply an effective tax rate approach, as of SeptemberJune 30, 2019,2020, our annual effective tax rate, excluding discrete items, is 25.2%27.5% for 2019,2020, as compared to 23.6%26.0% as of SeptemberJune 30, 2018.2019. 
The remaining entities, which are operations that generate pre-tax losses which cannot be tax benefited and/or have an effective tax rate which cannot be reliably estimated, have to account for their income taxes on a discrete year-to-date basis as of the end of each quarter and are excluded from the effective tax rate approach. The estimated annual effective tax rate for 20192020 also excludes the unfavorable impact of withholding taxes associated with certain intercompany payments, including royalties, service charges, interest and dividends, which in the aggregate are relatively consistent each year due to the need to repatriate funds to cover U.S. and U.K. based costs, such as interest on debt and corporate overhead.central expenses. Withholding taxes associated with the relatively consistent intercompany payments are accounted for discretely and accrued in the provision for income taxes as they become due.
The provision for income taxes for the three months ended June 30, 2020 and 2019 was $6.1 and $27.2, respectively. Our effective tax rates for the three months ended June 30, 2020 and 2019 were (7.4)% and 127.7%, respectively. The provision for income taxes for the six months ended June 30, 2020 and 2019 were $14.9 and $46.7, respectively. Our effective tax rates for the six months ended June 30, 2020 and 2019 were (6.2)% and 278.0%.
3936


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
The provision for income taxes for the three months ended September 30, 2019 and 2018 was $31.5 and $68.3, respectively. Our effective tax rates for the three months ended September 30, 2019 and 2018 were 21.8% and 37.5%, respectively. The effective tax rates for the three months ended SeptemberJune 30, 20192020 and 20182019 were impacted by CTI restructuring charges which could not all be benefitted, country mix of earnings and withholding taxes. The effective tax rate in the second quarter of 2020 was unfavorably impacted by miscellaneous income tax expense of approximately $2.3. The effective tax rate for the three months ended September 30,second quarter of 2019 was also favorablynegatively impacted by the accrual of miscellaneous income tax benefitsexpenses of approximately $2.3.The effective tax rate for the three months ended September 30, 2018 was also favorably impacted by the accrual of tax benefits of approximately $14.0 associated with the initial recognition of tax benefits associated with Avon’s interpretation of case law, net releases of tax reserves of approximately $3.1 associated with our uncertain tax positions and other net benefits of approximately $1.9. $.6.
The provision for income taxes for the nine months ended September 30, 2019 and 2018 was $78.2 and $136.5, respectively. Our effective tax rates for the nine months ended September 30, 2019 and 2018 were 48.5% and 71.0%. The effective tax rates for the ninesix months ended SeptemberJune 30, 20192020 and 20182019 were impacted by CTI restructuring charges which could not all be benefitted, country mix of earnings and withholding taxes. The effective tax rate forin the nine months ended September 30,first half of 2020 was also unfavorably impacted by miscellaneous income tax expense of approximately $3.8. The effective tax rate in the first half of 2019 was also favorably impacted by the accrual of net income tax benefits of approximately $5.2$2.9 associated with the release of income tax reserves of approximately $3.0$3.3 associated with our uncertain tax positions andnet of other net, miscellaneous income tax benefitsexpenses of approximately $2.2. The effective tax rate for the nine months ended September 30, 2018 was also favorably impacted by the accrual of tax benefits of approximately $14.0 associated with the initial recognition of tax benefits associated with Avon’s interpretation of recent case law, the recognition of approximately $4.1 of deferred tax assets that had previously been subject to a full valuation allowance and other net benefits of approximately $1.0 offset with a net increase of approximately $10.9 associated with our uncertain tax positions.

$.4
In its final analysis of the impacts of the Tax Cuts and Job Act (the "TCJA") during the fourth quarter of 2018, the Company elected to treat income taxes associated with Global Intangible Low-Taxed Income ("GILTI"), as a period cost. As a result, the 2019 provision for income taxes reflects this treatment. The 2018 provision for income taxes was also calculated treating GILTI as a period cost. For both periods, GILTI did not have a material effect. The TCJA has significant complexity. The Company has considered the published guidance provided by the various Federal and state regulatory authorities into the calculation of its income tax provisions available as of September 30, 2019 and September 30, 2018 for the respective periods ended September 30, 2019 and September 30, 2018..
In prior years, we had previously recorded valuation allowances against certain deferred tax assets associated with the U.S. and various foreign jurisdictions. We intend to continue maintaining these valuation allowances on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
Further, the Company continuously assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize our existing deferred tax assets that are not subject to a valuation allowance. As of June 30, 2020, the COVID-19 pandemic is a new piece of negative evidence the Company must consider. As of June 30, 2020, the Company has not changed any conclusions regarding the realizability of existing deferred tax assets that are not subject to a valuation allowance as a result of COVID-19. The Company will continue to monitor the impact of COVID-19 and other effects that could impact the conclusions regarding the realizability of its deferred tax assets. Potential negative evidence, including worsening of the economies in the markets we operate in and reduced profitability of our markets could give rise to a need for a valuation allowance to reduce our deferred tax assets in upcoming quarters.

40


AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
21. AGREEMENT AND PLAN OF MERGERS19. MERGER WITH NATURA COSMÉTICOS S.A.
On May 22, 2019, the Company entered into anthe Agreement and Plan of Mergers (as amended by Amendment Number One to
Agreement and Plant of Mergers, dated as of October 3, 2019, and as further amended by Amendment Number Two to
Agreement and Plan of Mergers, dated as of November 5, 2019, the "Merger Agreement") withamong the Company, Natura Cosméticos S.A., a Brazilian corporation (sociedade(sociedade anônima)nima) ("Natura Cosméticos"), Natura &Co Holding S.A., a Brazilian corporation (sociedade(sociedade anônima) ("Natura &Co Holding")nima), Nectarine Merger Sub I, Inc., a Delaware corporation and a direct wholly owned subsidiary of Natura &Co Holding ("Merger Sub I"), and Nectarine Merger Sub II, Inc., a Delaware corporation and a direct wholly owned subsidiary of Merger Sub I ("Merger Sub II"), pursuant to which (i) Natura &Co Holding, will, after the completion of certain restructuring steps, holdholds all issued and outstanding shares of Natura Cosméticos, (ii) Merger Sub II will mergemerged with and into Avon,the Company, with Avonthe Company surviving the merger (the "First Merger") and (iii) Merger Sub I will mergemerged with and into Natura &Co Holding (the "Second Merger"), with Natura &Co Holding surviving the merger and as a result of which Avon will becomethe Company and Natura Cosméticos became wholly owned direct subsidiaries of Natura &Co Holding (collectively, the "Transaction").
The Transaction was consummated on January 3, 2020, and at this time, the Company became a wholly owned direct subsidiary of Natura &Co Holding (collectively, the "Transaction"). IfHolding. In connection with the Transaction, is completed, Avontrading of the Company’s stock was suspended by the NYSE, and Natura Cosméticos will each become wholly owned subsidiaries of Natura &Co Holding.the Company’s common stock was subsequently delisted and deregistered.

IfOn completion of the Transaction, is completed, each share of Avonthe Company’s common stock issued and outstanding immediately prior to the consummation of the Transaction will bewas converted into the ultimate right to receive, at the election of the holder thereof, (i) 0.300 validly issued and allotted, fully paid-up American Depositary Shares of Natura &Co Holding, each representing one Natura &Co Holding Share ("Natura &Co Holding ADSs") against the deposit of two2 shares of common stock of Natura &Co Holding ("Natura &Co Holding Shares"), subject to adjustment in accordance with the terms of the Merger Agreement, and any cash in lieu of fractional Natura &Co Holding ADSs or (ii) 0.600 validly issued and allotted, fully paid-up Natura &Co Holding Shares, subject to adjustment in accordance with the terms of the Merger Agreement, and any cash in lieu of fractional Natura &Co Holding Shares, and each share of Avon seriesShares. The Company’s Series C preferred stockPreferred Stock held by Cleveland AppleCerberus Investor L.P. issued and outstanding immediatelywere converted to common stock prior to the consummation of the Transaction will beand were therefore automatically converted into the right to receive an amount in cash without interest equal to the Stated Value (as defined in Avon's certificatecommon stock of incorporation) of such shares of seriesNatura &Co; see Note 13, Series C preferred stock. Upon the consummation of the Transaction, Convertible Preferred Stock.
Natura &Co Holding Shares are expected to be listed on the B3 S.A. - Brasil, Bolsa, Balcão stock exchange, (the "B3")and Natura &Co Holding ADSs are expected to be listed on the New York Stock Exchange (the "NYSE").NYSE. Additionally, upon the consummation of the Transaction, Avon common stock will ceaseceased to be traded on the NYSE.
37

The Merger Agreement contains customary representations and warranties of Avon, Natura Cosméticos and Natura &Co Holding relating to their respective businesses and public filings, in each case generally subject to a materiality qualifier. Additionally, the Merger Agreement provides for customary pre-closing covenants of Avon, including (i) covenants relating to conducting its business in the ordinary course consistent with past practice and to refrain from taking certain actions without Natura Cosméticos's consent, (ii) covenants not to solicit proposals relating to alternative transactions or, subject to certain exceptions, enter into discussions concerning, or provide information in connection with, alternative transactions and (iii) covenants to recommend, subject to certain exceptions, that Avon's shareholders adopt the Merger Agreement.

AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in millions, except per share data)
In January 2020, subsequent to the Transaction, the Company restated the certificate of incorporation. The timing and completioncertificate of incorporation was restated to effect a change in capitalization of the Transaction is subject to aCompany by changing the number of closing conditions, includingauthorized shares of stock from 1,525,000,000 shares (of which (i) Avon1,500,000,000 shares, par value $0.25 per share, are common stock and Natura Cosméticos shareholder approvals having been obtained in accordance with applicable law, (ii) clearance from competition authorities in certain jurisdictions where Avon25,000,000 shares, par value $1.00 per share, are preferred stock) to 1,000 shares of common stock, par value $0.01 per share. As a result, all of the issued and Natura Cosméticos operate, (iii)outstanding common stock of the absence of any judgment, injunction or other order issued by a court of competent jurisdiction prohibiting the Transaction, (iv) effectiveness of registration statements for Natura &Co Holding's ADSs, (v) listing approval for Natura &Co Holding's ADSs on the NYSE, (vi) listing approval for Natura &Co Holding'sCompany, being 550,890,788 were canceled and converted into 101.34 common stock, par value $0.01 per share, and all outstanding treasury shares on the B3 stock exchange under the Novo Mercado listing segment and (vii) subject to certain materiality exceptions, the accuracy of Avon's, Natura Cosméticos's and Natura &Co Holding's representations and warranties in the Merger Agreement and performance by each party of their obligations under the Merger Agreement.

were canceled.
The Company has incurred costs to date of $27$45 and $44 in relation to the Transaction, primarily professional fees. It is expectedfees during the six months ended June 30, 2020 and the year ended December 31, 2019, respectively.
During January 2020, it was announced that additional costs willthe employment of certain senior officers of the Company would be terminated, in connection with the Transaction. The Company incurred priorseverance of approximately $24 and acceleration of share based compensation of approximately $10 relating to or at the closingthese terminations triggered by change in control provisions.
As a result of the Transaction, includingthe Company made payments of approximately $31 with respect$26 related to professional fees that are contingent on the successful closingsettlement of stock options. In addition, any remaining restricted stock units and performance restricted stock units were exchanged for awards of Natura &Co Holding. The replacement awards contain substantially the same terms and conditions of the Transaction.original awards except for the removal of the performance conditions. As such, the replacement awards contain only a service vesting condition.
On consummation of the Transaction, a deferred compensation scheme relating to former employees of the Company became payable which resulted in extinguishing the liability and a cash outflow of approximately $12.
In January 2020, upon completion of the Transaction, the Company’s revolving credit facility was canceled, triggered by change in control provisions. As a result, debt issuance costs of $7.8 were written off.
As a result of the Transaction, the Company will no longer have access to certain tax attributes of approximately $480 to approximately $550 in certain taxing jurisdictions.

20. SUBSEQUENT EVENTS

On July 3, 2020, the Company borrowed $40 under the $100 Revolving Credit Facility with a subsidiary of Natura &Co Holding S.A. for a six-month tenor.
38


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)

When used in this report, the terms "Avon," "Company," "we," "our" or "us" mean, unless the context otherwise indicates, Avon Products, Inc. and its majority, wholly owned and controlled subsidiaries.
OVERVIEW
41


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


We are a global manufacturer and marketer of beauty and related products. Our business is conducted primarily in the direct-selling channel.channel, with a strategy to expand to omni-channel. During 2018,2019, we had sales operations in 5654 countries and territories, and distributed products in 2124 more. All of our consolidated revenue is derived from operations of subsidiaries outside of the United States ("U.S."). Our reportable segments are based on geographic operations in four regions: Europe, Middle East & Africa; Southtwo regions, Avon International and Avon Latin America; North Latin America; and Asia Pacific.America. Our product categories are Beauty and Fashion & Home. Beauty consists of skincare, fragrance and color (cosmetics). Fashion & Home consists of fashion apparel, accessories, housewares and leisure products. Sales are made to the ultimate consumer principally through direct selling by Representatives, who are independent contractors and not our employees.
During the ninesix months ended SeptemberJune 30, 2019,2020, revenue decreased 15%34% compared to the prior-year period, impacted by certain indirect taxes recognized in Brazil in the nine month period ended September 30, 2019 as well as the IPI tax release in the prior year. Excluding the impact of Brazil indirect taxes, Adjusted revenue was down 13%, impacted by the unfavorable impact of foreign exchange which resulted in a decrease in Adjusted Constant $ Revenuewas driven by the strengthening of 5%.
Adjusted Revenuethe U.S. dollar relative to multiple currencies, primarily the Brazilian real, the Argentinian peso and Adjustedthe Mexican peso. Constant $ revenue declines were primarily driven by Europe Middle East & Africa markets, in particular Russia. Russia continued to be impacted by lower market consumption, as well as weaker sales leader engagement. The latter has been actively addressed in the second quarter of 2019 through a heavy focus on recruitment which resulted in Active Representatives growth in the third quarter in comparison to both the prior year and the prior quarters. decreased 27%.
Revenue and Constant $ revenue were impacted by a decrease in Active Representatives of 10%23%, partially offset by higheracross multiple markets. Average Representative Sales. While RevenueSales decreased 11% on a reported basis, unfavorably impacted by foreign exchange and Constant $ Average Representative Sales decreased 4%. The decline in revenue and Constant $ revenue have declined, this is a consequence of our intent to improve productivity by increasing Average Representative Sales,was primarily through price/mix expansion. Average Representative Sales were also favorably impacted by Brazil IPI tax compareddue to the prior-year period. For additionalCOVID-19 pandemic which negatively impacted the initial signs of recovery coming from a lower Representative base in 2019, followed by the cyber incident in June 2020. See below for further details onrelated to COVID-19 and the IPI tax on cosmetics increase in Brazil, see Note 11, Contingencies, to the Consolidated Financial Statements included herein.cyber incident.
Units sold decreased 14%decreased25%, driven by declines in Brazil and Russia.across all markets.
See "Segment Review" in this management's discussion and analysis of financial condition and results of operations ("MD&A") for additional information related to changes in revenue by segment.
Agreement and Plan of Mergers with Natura Cosméticos S.A.
On May 22, 2019, we entered into anJanuary 3, 2020 the Company became a fully owned direct subsidiary of Natura &Co Holding following the consummation of the Merger Agreement and Plan of Mergers with Natura Cosméticos, S.A., a Brazilian corporation (sociedade anônima) ("Natura Cosméticos"), Natura &Co Holding S.A., a Brazilian corporation (sociedade anônima) ("Natura &Co Holding"), and two subsidiaries of Natura &Co Holding pursuantHolding. In connection with the Transaction, trading of the Company's stock was suspended by the NYSE, the Company's common stock was subsequently delisted and deregistered.
COVID-19 pandemic
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization. During the second quarter of 2020, COVID-19 had a significant impact on our operations as many markets were subject to lockdown restrictions which limited our ability to recruit and enroll Representatives, operate manufacturing facilities and distribution centers and to process and deliver orders. Due to the uncertain and rapidly evolving nature of current conditions around the world, the impacts of COVID-19 most of which are beyond the Company’s control, continue to evolve, and the outcome is uncertain, we are therefore unable to predict accurately the impact that COVID-19 will have on our business going forward.

We are closely monitoring the evolution of the COVID-19 pandemic and deciding on actions to minimize impacts, ensure the continuity of operations and promote the safety and health of all the people involved. Since the beginning of the virus spread and the consequent restrictive measures imposed by governments, such as closing non-essential trade and restricting the movement of people across borders, the Company has implemented some measures in all its operations, in line with the official measures:

•Incentives to remote working and adoption of essentiality criteria to limit industrial and logistical operations;
•Adoption of new safety measures for operational workers, such as the use of masks and procedures to distance people between processes;
•Re-planning of sales cycles, prioritizing personal care items;
•Speeding up the digitization of sales channels;
39

AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


•We communicated social distancing protocols to our Representatives around the world;
•Change in the minimum order criteria, start kit and increased deadline for payment of Representatives; and
•Daily monitoring of suppliers to ensure supply.

As of the date of this report, we are unable to estimate the long term impact of the economic paralysis arising from efforts to curb the spread of the COVID-19 virus and the expected reduction in activity on our business, results of operations and financial condition. We will continue to review our revenue, investments, expenses and cash outflows, as well as adjusting our relationships with suppliers. Furthermore, the actions outlined above are continuously being re-evaluated in light of global developments relating to COVID-19.

The impact of COVID-19 on our financial performance was more severe in the first half of the second quarter with signs of recovery in the second half of the quarter due to actions taken by the Company to operate during the pandemic and the easing of some lockdown restrictions. This recovery was subsequently impacted by the cyber incident later in the quarter.
Cyber incident
In June 2020, the Company became aware that it was exposed to a cyber incident in its Information Technology environment which interrupted some systems and partially affected operations. We engaged leading external cyber security and IT general controls specialists, launched a comprehensive containment and remediation effort and started a forensic investigation. As of the date of this report, the Company has re-established all of its core business processes and resumed operations in all of its markets, including all of its distribution centers. The Company continues to investigate and evaluate the extent of the cyber incident, while working diligently to mitigate its impacts and re-evaluate our IT general controls.
The cyber incident had a significant impact on our revenue performance for the second quarter of 2020, with the majority of the impact (approximately $87 million in sales) being shifted to the third quarter of 2020 as the company fulfills the order backlog created. The incremental expense incurred as a result of the cyber incident in the second quarter of 2020 was not material.
Although we have no indications that the accuracy and completeness of any financial information was impacted as a result of the incident and the Company has performed extensive procedures to validate such accuracy and completeness, we believe that, if the incident had gone differently, it could have potentially resulted in a series of transactions,material impact to the Company’s financial statements. Refer to Item 4. Controls and Procedures section for conclusions related to internal controls.
Natura &Co - Avon and Natura Cosméticos will become direct wholly owned subsidiariesIntegration
Subsequent to the merger of Natura and Avon in January 2020, an integration plan (the "Avon Integration") was established to create the right global infrastructure to support the future ambitions of the Natura &Co Holding (the "Transaction"). For additional information, see Note 21, AgreementGroup while also identifying synergies and Plan of Mergers withopportunities to leverage our combined strength, scale and reach. Synergies will be derived mainly from procurement, manufacturing/distribution and administrative, including new top line synergies at Natura Cosméticos S.A., to the Consolidated Financial Statements included herein, and our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2019. Please also see our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2019 and our Definitive Proxy Statement filed with the Commission on October 4, 2019 in conjunction with our Special Meeting of Shareholders that is scheduled for November 13, 2019.&Co Latin America, as well as cost synergies at Avon International.
Open Up Avon, Open Up & Grow and Transformation Plan
In January 2016, we initiated a transformation plan (the "Transformation Plan"), in order to enable us to achieve our long-term goals of mid-single-digit Constant $ revenue growth and low double-digit operating margin. There are no further restructuring actions to be taken associated with our Transformation Plan as, beginning in the third quarter of 2018, all new restructuring actions approved operate under our new Open Up Avon plan described below.
In September 2018, we initiated a new strategy in order to return Avon to growth ("Open Up Avon"). The Open Up Avon strategy is integral to our ability to return Avon to growth, built around the necessity of incorporating new approaches to various elements of our business, including increased utilization of third-party providers in manufacturing and technology, a more fit for purpose asset base, and a focus on enabling our Representatives to more easily interact with the company and achieve relevant earnings. The commercial elements of the strategy were developed to help increase Representative earningsThese savings have been and thereby retention. Elements of the Representative strategy include improvements in service functions, increased training on utilization of digital tools to expand her consumer reach, product bundling and regimens designed to help improve her earnings opportunity and sharper more targeted product innovation to drive brand relevancy. Cost savings under this plan are targeted as annualized cost savings of approximately $400 by 2021, and expected to be generated from efficiencies in manufacturing and sourcing, distribution, general and administrative activities, and back office functions, as well as through revenue management, interest and tax. These savings are expectedcontinue to be achieved through restructuring actions (that have may continue to result in charges related to severance, contract terminations and inventory and other asset write-offs), as well as other cost-savings strategies that would not result in restructuring charges. In January 2019, we announced significant advancements in this strategy, including a structural reset of inventory processes and a reduction in global workforce. The structural reset
In May 2020, the new leadership of inventory will resultAvon refreshed our strategy ("Open Up & Grow") which has aims to return Avon to growth over the next three years. Open Up & Grow replaces and builds on the success of the Open Up Avon strategy, launched in lower operational2018 to strengthen competitiveness through enhancing the representative experience, improving brand position and ongoing obsolescencerelevance, accelerating digital expansion and improving costs. Over the longer term, it will result in a more concentrated focus on high-turn, higher margin products, driving greater earnings for Representatives duenext three years, savings are expected to lessened discount pressure and enhanced servicecontinue to be achieved
4240

AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


levels. The structural reset resultedthrough restructuring actions (that may continue to result in an incremental one-off inventory obsolescence expense of $88 recognized at December 31, 2018. At September 30, 2019, we are trending ahead of the expected 10% global workforce reduction as announced in January 2019, to align with ongoing operating model changes and to create a leaner organization that is better aligned with Avon’s current and future business focus. This reduction is incremental to an 8% reduction of the global workforce that was completed in 2018. The restructuring charge relating to the global workforce reduction, which was approved by the Board of Directors in January 2019, forms an integral part of the Open Up Avon initiative, the impacts of this are disclosed below. We initiated the Open Up Avon strategy to enable us to achieve our goals of low-single-digit Constant $ revenue growth and low double-digit operating margin by 2021. We plan to reinvest a portion of these cost savings in commercial initiatives, including training for Representatives, and digital and information technology infrastructure initiatives.
During 2018, we estimate that we achieved total cost savings of $40 attributable to Open Up Avon, primarilycharges related to tax and interest, when compared to our costs in 2017. In addition, during the nine months ended September 30, 2019, we estimate that we achieved cost savings of $161. These savings included both run-rate savings from Open Up Avon actions in 2018, along with in-year savings from current year initiatives.
In connection with the actions and associated savings discussed above, we have incurred costs to implement ("CTI") restructuring initiatives of approximately $227 before taxes to-date associated with Open Up Avon, which includes $88 relating to the structural reset of inventory. The costs of approximately $227 before taxes incurred to-date associated with Open Up Avon includes $177 of employee-related costs, inventory and asset write-offs, foreign currency translation write-offs andseverance, contract terminations and $50 related to professional service fees, dual running costs, accelerated depreciation and gain on sale of business. Of these costs, $84 was recorded during the nine months ended September 30, 2019. The additional chargesasset write-offs), as well as other cost-savings strategies that would not yet incurred associated with theresult in restructuring actions approved as at September 30, 2019 of $5 to $10 before taxes are expected to be recorded primarily in 2019. At September 30, 2019, we have liabilities of approximately $35 associated with our restructuring actions, primarily associated with Open Up Avon. The majority of future cash payments associated with these restructuring liabilities are expected to be made during 2019. For additional details on restructuring initiatives, see Note 15, Restructuring Initiatives, to the Consolidated Financial Statements included herein.
Transformation Plan
In January 2016, we initiated a transformation plan (the "Transformation Plan"), in order to enable us to achieve our long-term goals of mid-single-digit constant-dollar ("Constant $") revenue growth and low double-digit operating margin. There are no further restructuring actions to be taken associated with our Transformation Plan as, beginning in the third quarter of 2018, all new restructuring actions approved operate under our new Open Up Avon plan described above.charges.
NEW ACCOUNTING STANDARDS
Information relating to new accounting standards is included in Note 1, Accounting Policies, to the Consolidated Financial Statements included herein.
RESULTS OF OPERATIONS—THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20192020 AS COMPARED TO THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 2018
Performance Metrics
Within this MD&A, in addition to our key financial metrics of revenue, operating profit and operating margin, we define additional performance metrics in our 2018 Annual Report on Form 10-K. We have renamed the Change in Average Order metric to Change in Average Representative Sales. We have also added a new metric showing the change in Active Representatives in the current quarter compared to the prior quarter. In addition, we have modified the definition of free cash flow to include proceeds from the monetization of COFINS tax credits present in cash provided by financing activities. The definitions of these metrics are included below.
43

AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Performance MetricsDefinition
Change in Average Representative SalesThis metric is a measure of Representative productivity. The calculation is the difference of the year-over-year change in revenue on a Constant $ basis and the Change in Active Representatives. Change in Average Representative Sales may be impacted by a combination of factors such as inflation, units, product mix, and/or pricing.
Change in Active Representatives compared to prior quarterThis metric is a measure of the percentage change in the number of Active Representative between the current quarter and the prior quarter of the same year.
Free cash flowDuring the quarter, the Company defined free cash flow as net cash provided (used) by operating activities of continuing operations plus net cash provided (used) by investing activities of continuing operations plus the proceeds from the monetization of COFINS tax credits presented within net cash provided (used) by financing activities of continuing operations.
Since the second quarter of 2019 references to "net sales" have been replaced with "product sales", as it was considered a more accurate description of the nature of the balance. There have been no changes to what constitutes this balance.
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with accounting principles generally accepted in the United States ("GAAP"), we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: revenue, operating profit, Adjusted operating profit, operating margin and Adjusted operating margin. We also refer to these adjusted financial measures as Constant $ items, which are Non-GAAP financial measures. We believe these measures provide investors an additional perspective on trends and underlying business results. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, we calculate current-year results and prior-year results at constant exchange rates, which are updated on an annual basis as part of our budgeting process. Foreign currency impact is determined as the difference between actual growth rates and Constant $ growth rates.
We also present gross margin, SG&A as a percentage of revenue, operating profit, operating margin, income (loss) before taxes, income taxes and effective tax rate on a Non-GAAP basis. We refer to these Non-GAAP financial measures as "Adjusted." We also present free cash flow as an additional financial measure for liquidity. We have provided a quantitative reconciliation of the difference between the Non-GAAP financial measures and the financial measures calculated and reported in accordance with GAAP. See "Reconciliation of Non-GAAP Financial Measures" within "Results of Operations" in this MD&A for this quantitative reconciliation.
The Company uses the Non-GAAP financial measures to evaluate its operating performance. These Non-GAAP measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company believes investors find the Non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the Company's financial results in any particular period. The Company believes that it is meaningful for investors to be made aware ofof the impacts of 1) CTI restructuring initiatives; 2) Transaction related expenses; 3) certain Brazil indirect taxes; 2) CTI restructuring initiatives; 3) Natura transaction fees and impairment losses on assets;taxes 4) costs associated with the early termination of debt; and 5) one-time tax items that are not associated with recurring, normal operations ("Special tax items").debt.

(1) The three and nine month periods ended September 30, 2019 include the impact of certain Brazil indirect taxes, which were recorded in product sales and other income (expense), net in the amounts of approximately $68 and approximately $51, respectively, in our Consolidated Income Statements. See Note 14, Supplemental balance sheet information, to the Consolidated Financial Statements contained herein for further information. The corresponding tax impact is $23. The three and nine month periods ended September 30, 2018 included the impact of the Brazil IPI tax release, which was recorded in product sales and other income (expense), net in the amounts of approximately $168 and approximately $27, respectively, in our Consolidated Income Statements. See Note 11, Contingencies, to the Consolidated Financial Statements contained herein for further information. The Brazil IPI tax release also included approximately $66 recorded in income taxes.

(2) CTI restructuring initiatives includes the impact on the Consolidated Statements of Operations for all periods presented of net charges incurred on approved restructuring initiatives. See Note 15,12, Restructuring Initiative,Initiatives, to the Consolidated Financial Statements contained herein for further information.

(2)In both the three and six-month period ended June 30, 2020, the Company recorded approximately $86 of other expenses, primarily professional fees, senior officer severance and other expenses incurred in relation to the Transaction. Further information relating to the Transaction is included in Note 19, Mergers with Natura Cosméticos S.A., to the Consolidated Financial Statements included herein.

(3)The three and six-month periods ended June 30, 2020 include the impact of certain Brazil indirect taxes, which were recorded in selling, general and administrative expenses, net in the amounts of approximately $11.

(4)During the first quarter of 2020, the Company incurred costs of $8 associated with the early termination of debt.


4441

AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)



Three Months Ended June 30,Six Months Ended June 30,
20202019%/Basis Point
Change		20202019%/Basis Point
Change
Select Consolidated Financial Information
Total revenue$606.5  $1,174.8  (48)%$1,563.8  $2,361.7  (34)%
Cost of sales(250.5) (497.5) (50)%(671.5) (1,014.5) (34)%
Selling, general and administrative expenses(406.1) (646.8) (37)%(1,044.2) (1,320.6) (21)%
Operating (loss) income(50.1) 30.5  (264)%(151.9) 26.6  (671)%
Interest expense(31.7) (30.7) 3 %(63.5) (63.9) (1)%
Loss on extinguishment of debt and credit facilities—  —  *(7.8) (2.0) 290 %
Interest income.3  1.5  (80)%1.5  3.2  (53)%
Other (expense) income, net(.9) 6.8  *(19.1) 29.4  *
Gain on sale of business / assets.1  13.2  (99)%.1  23.5  (100)%
(Loss) income from continuing operations, before income taxes(82.3) 21.3  (486)%(240.7) 16.8  (1,533)%
Loss from continuing operations, net of tax(88.4) (5.9) 1,398 %(255.6) (29.9) 755 %
Net loss attributable to Avon$(92.8) $(19.5) 376 %$(263.8) $(52.2) 405 %
Advertising expenses(1)
$(7.1) $(11.6) (39)%$(22.8) $(27.7) (18)%
Reconciliation of Non-GAAP Financial Measures
Gross margin58.7 %57.7 %100  57.1 %57.0 %10  
CTI restructuring—  .7  —  .6  
Certain Brazil Indirect taxes(.1) —  (.1) —  
Adjusted gross margin58.6 %58.4 %20  57.0 %57.6 %(60) 
Selling, general and administrative expenses as a % of total revenue67.0 %55.1 %1,190  66.8 %55.9 %1,090  
CTI restructuring(.6) (3.2) 260  (.3) (3.6) 330  
Certain Brazil Indirect taxes1.6  —  160  .6  (.1) 70  
Costs related to the Transaction—  —  —  (5.5) —  (550) 
Other items—  (1.1) 110  —  (.7) 70  
Adjusted selling, general and administrative expenses as a % of total revenue68.0 %50.8 %1,720  61.6 %51.5 %1,010  
Operating (loss) income$(50.1) $30.5  (264)%$(151.9) $26.6  (671)%
CTI restructuring3.4  45.7  5.2  99.2  
Certain Brazil Indirect taxes(10.6) —  (10.6) —  
Costs related to the Transaction.3  —  85.8  —  
Other items—  13.1  —  17.2  
Adjusted operating (loss) profit$(57.0) $89.3  (164)%$(71.5) $143.0  (150)%
Operating margin(8.3)%2.6 %(1,090) (9.7)%1.1 %(1,080) 
CTI restructuring.6  3.9  (330) .3  4.2  (390) 
Certain Brazil Indirect taxes(1.7) —  (170) (.7) .1  (80) 
Costs related to the Transaction—  —  —  5.5  —  550  
Other items—  1.1  (110) —  .7  (70) 
Adjusted operating margin(9.4)%7.6 %(1,700) (4.6)%6.1 %(1,070) 
42


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


(3) In
Three Months Ended June 30,Six Months Ended June 30,
20202019%/Basis Point
Change		20202019%/Basis Point
Change
Change in Constant $ Adjusted operating margin(2)
(1,670) (1,000) 
Loss before taxes$(82.3) $21.3  *$(240.7) $16.8  *
CTI restructuring3.3  32.5  5.1  75.7  
Certain Brazil Indirect taxes(10.6) —  (10.6) —  
Costs related to the Transaction.3  —  85.8  —  
Other items—  13.1  7.8  17.2  
Adjusted (loss) income before taxes$(89.3) $66.9  *$(152.6) $109.7  *
Income taxes$(6.1) $(27.2) (78)%$(14.9) $(46.7) (68)%
Effective tax rate(7.4)%127.7 %(6.2)%278.0 %
Performance Metrics
Change in Active Representatives(35)%(23)%
Change in units sold(34)%(25)%
* Calculation not meaningful
Amounts in the table above may not necessarily sum due to rounding.
(1)Advertising expenses are recorded in SG&A.
(2)Change in Constant $ Adjusted operating margin for all years presented is calculated using the current-year Constant $ rates.
Three Months Ended June 30, 2020
Revenue
During the three and nine month periodsmonths ended SeptemberJune 30, 2019, the Company recorded approximately $19 and $36 respectively, of other expenses, primarily professional fees incurred in relation2020, revenue decreased 48% compared to the Natura transactionprior-year period, impacted by the unfavorable impact of foreign exchange which was driven by the strengthening of the U.S. dollar relative to multiple currencies, primarily the Brazilian real, the Argentinian peso and impairment lossesthe Mexican peso. Constant $ revenue decreased 39%.
Revenue and Constant $ revenue were impacted by a decrease in Active Representatives of 35%, across multiple markets. Average Representative Sales decreased 13% on assets. See Note 21, Agreementa reported basis, unfavorably impacted by foreign exchange and Plan of Mergers with Natura Cosméticos S.A.,Constant $ Average Representative Sales decreased 4%. The decline in revenue and Constant $ revenue was primarily due to the Consolidated Financial Statements contained hereinCOVID-19 pandemic, followed by the cyber incident in June 2020.
Units sold decreased34%, across all markets.
On a category basis, our product sales from reportable segments and "Agreement and Plan of Mergers with Natura Cosméticos S.A., in this MD&A for further information.associated growth rates were as follows:

 Three Months Ended June 30,% Change
 20202019US$Constant $
Beauty:
Skincare$216.2  $345.9  (37)%(28)%
Fragrance149.5  303.1  (51) (42) 
Color75.2  180.8  (58) (51) 
Total Beauty440.9  829.8  (47) (38) 
Fashion & Home:
Fashion65.3  156.2  (58) (52) 
Home66.9  122.8  (46) (31) 
Total Fashion & Home132.2  279.0  (53) (43) 
Product sales$573.1  $1,108.8  (48) (39) 
(4)  During the third quarter of 2019, the Company incurred costs of $8 associated with the early termination of debt.

(5) The Special tax items includes the impact on the provision for income taxes in the Consolidated Statements of Operations for the nine month period ended September 30, 2018 due to one-time tax reserves of approximately $15 associated with our uncertain tax positions. See Note 20, Income Taxes, to the Consolidated Financial Statements included herein and "Effective Tax Rate" in this MD&A for more information.


* Calculation not meaningful
4543


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Three Months Ended September 30,Nine Months Ended September 30,
20192018%/Basis Point
Change		20192018%/Basis Point
Change
Select Consolidated Financial Information
Total revenue$1,188.0  $1,424.2  (17)%$3,549.7  $4,169.6  (15)%
Cost of sales(468.2) (538.4) (13)%(1,482.7) (1,657.8) (11)%
Selling, general and administrative expenses(622.1) (698.9) (11)%(1,942.7) (2,227.0) (13)%
Operating profit97.7  186.9  (48)%124.3  284.8  (56)%
Interest expense(32.0) (31.3) 2 %(95.9) (102.0) (6)%
Interest income2.1  4.3  (51)%5.3  12.0  (56)%
Other income (expense), net57.9  22.2  *  87.3  0.3  *  
Gain on sale of business / assets26.8  —  100 %50.3  —  100 %
Loss on extinguishment of debt and credit facilities(8.1) —  (100)%(10.1) (2.9) *  
Income from continuing operations, before income taxes144.4  182.1  (21)%161.2  192.2  (16)%
Income from continuing operations, net of tax112.9  113.8  (1)%83.0  55.7  49 %
Net income attributable to Avon$106.9  $114.5  (7)%$54.7  $58.1  (6)%
Diluted income per share attributable to Avon$.20  $.21  (5)%$.08  $.09  (11)%
Advertising expenses(1)
$(22.7) $(32.1) (29)%$(50.4) $(93.2) (46)%
Reconciliation of Non-GAAP Financial Measures
Total revenue$1,188.0  $1,424.2  (17)%$3,549.7  $4,169.6  (15)%
Certain Brazil Indirect taxes(67.7) (168.4) (67.7) (168.4) 
Adjusted revenue$1,120.3  $1,255.8  (11) $3,482.0  $4,001.2  (13)%
Gross margin60.6 %62.2 %(160) 58.2 %60.2 %(200) 
Certain Brazil Indirect taxes(2.4) (5.1) 270  (.7) (1.6) 90  
CTI restructuring(.1) —  .3  —  —  
Adjusted gross margin58.1 %57.1 %100  57.8 %58.6 %(80) 
Selling, general and administrative expenses as a % of total revenue52.4 %49.1 %330  54.7 %53.4 %130  
Certain Brazil Indirect taxes3.0  6.4  (340) 1.0  2.2  (120) 
CTI restructuring(1.6) (1.4) (20) (3.0) (1.3) (170) 
Natura transaction fees and impairment losses on assets(1.6) —  (160) (1.0) —  (100) 
Adjusted selling, general and administrative expenses as a % of total revenue52.2 %54.1 %(200) 51.7 %54.3 %(260) 
Operating profit$97.7  $186.9  (48)%$124.3  $284.8  (56)%
Certain Brazil Indirect taxes(67.7) (168.4) (67.7) (168.4) 
CTI restructuring17.5  19.8  116.7  54.4  
Natura transaction fees and impairment losses on assets19.2  —  36.4  —  
Adjusted operating profit$66.7  $38.3  74 %$209.7  $170.8  23 %
Operating margin8.2 %13.1 %(490) 3.5 %6.8 %(330) 
Certain Brazil Indirect taxes(5.3) (11.5) 620  (1.8) (3.8) 200  
CTI restructuring1.5  1.4  10  3.3  1.3  200  
46


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Three Months Ended September 30,Nine Months Ended September 30,
20192018%/Basis Point
Change		20192018%/Basis Point
Change
Natura transaction fees and impairment loss on assets1.6  —  160  1.0  —  100  
Adjusted operating margin6.0 %3.0 %300  6.0 %4.3 %170  
Change in Constant $ Adjusted operating margin(2)
310  230  
Income before taxes$144.4  $182.1  *  $161.2  $192.2  (16)%
Certain Brazil Indirect taxes(118.3) (194.7) (118.3) (194.7) 
CTI restructuring17.5  19.8  93.2  54.4  
Natura transaction fees and impairment loss on assets26.7  —  43.9  —  
Adjusted income before taxes$70.3  $7.2  *  $180.0  $51.9  *  
Income taxes$(31.5) $(68.3) (54)%$(78.2) $(136.5) (43)%
Certain Brazil Indirect taxes23.0  66.2  23.0  66.2  
CTI restructuring(1.5) (2.3) (11.8) (4.4) 
Special tax items—  3.7  —  18.4  
Adjusted income taxes$(10.0) $(0.7) 1329 %$(67.0) $(56.3) 19 %
Effective tax rate21.8 %37.5 %48.5 %71.0 %
Adjusted effective tax rate14.2 %9.7 %37.2 %108.5 %
Net cash provided (used) by operating activities of continuing operations$30.3  $38.4  (21)%$(105.3) $(68.3) 54 %
Net cash provided (used) by investing activities of continuing operations15.1  (22.1) 59.9  (72.0) 
Proceeds from monetization of COFINS tax credits19.4  —  19.4  —  
Free cash flow provided (used) by continuing operations$64.8  $16.3  298 %$(26.0) $(140.3) (81)%
Performance Metrics
Change in Active Representatives compared to prior year(10)%(10)%
Change in Active Representatives compared to prior quarter1 %
Change in units sold(15)%(14)%
* Calculation not meaningful
Amounts in the table above may not necessarily sum due to rounding.
(1)Advertising expenses are recorded in SG&A.
(2)Change in Constant $ Adjusted operating margin for all years presented is calculated using the current-year Constant $ rates.
Three Months Ended September 30, 2019
Revenue
During the three months ended September 30, 2019, revenue decreased 17% compared to the prior-year period, significantly impacted by indirect tax items in Brazil in the current year and the Brazil IPI tax release in the prior year. Excluding these items, Adjusted revenue decreased 11% unfavorably impacted by foreign exchange. Constant $ Adjusted revenue decreased 7%.
Revenue and Constant $ revenue were impacted by a decrease in Active Representatives of 10%, across multiple markets. Average Representative Sales decreased 1% on a reported basis, unfavorably impacted by foreign exchange and Constant $ Average Representative Sales increased 4%. While Revenue, Adjusted revenue and Constant $ Adjusted revenue have declined, this is a consequence of our intent to improve productivity by increasing Average Representative Sales. Average Representative Sales were
47


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


impacted by improved price/mix as well as a positive impact from the Brazil IPI tax compared to the prior-year period. For additional details on the IPI tax on cosmetics increase in Brazil, see Note 11, Contingencies, to the Consolidated Financial Statements included herein.
Units sold decreased 15%, driven by declines in Brazil.
On a category basis, our product sales from reportable segments and associated growth rates were as follows:
 Three Months Ended September 30,% Change
 2019  2018  US$Constant $
Beauty:
Skincare$326.2  $338.9  (4)%1 %
Fragrance295.6  332.1  (11) (6) 
Color171.6  192.0  (11) (6) 
Total Beauty793.4  863.0  (8) (4) 
Fashion & Home:
Fashion143.9  174.7  (18) (15) 
Home112.2  140.2  (20) (15) 
Total Fashion & Home256.1  314.9  (19) (15) 
Certain Brazil indirect taxes67.7168.4*  *  
Product sales from reportable segments$1,117.2  $1,346.3  (17) (14) 
Product sales$1,117.2  $1,346.3  (17) (14) 
* Calculation not meaningful
See "Segment Review" in this MD&A for additional information related to changes in revenue by segment.
Operating Margin
Operating margin decreased 490by 1,090 basis points, significantly impacted by certain indirect taxes recognized in Brazil in the three month period ended September 30, 2019 as well as the IPI tax benefit in the prior year. Excluding the impact of these indirect taxes in Brazil,and Adjusted operating margin increased 300decreased by 1,700 basis points, compared to the same period of 2018, driven by improved price/mix and savings across multiple cost lines. This2019. The decline in operating margin improvement was delivered despitemostly due to the unfavorable impact of foreign currency.lower revenue on SG&A expenses. The movements in operating margin and Adjusted operating margin are discussed further below in "Gross Margin" and "Selling, General and Administrative Expenses."
Gross Margin
Gross margin decreased 160increased 100 basis points, significantly impacted by the effects of indirect tax items in both the current and prior years.Excluding these items, Adjusted gross margin increased 10020 basis points, compared to the same period of 2018.
Gross margin and Adjusted gross margin increased2019 as the positive impact of price/mix more thanfully offset the unfavorable impact of foreign currency and higher supply chain costs (benefit of 280 basis points offset by unfavorable impact of 140 basis and unfavorable impact of 120 basis points). Price/mix improvements were driven by effective pricing, optimized discounts lower volume on fixed overhead costs and promotions, more effective incentives and more favorable product mix in most markets. Thethe unfavorable impact of foreign currency is largely due to currency devaluations in Brazil and Argentina. Higher supply chain costs were driven by higher material costs..
Selling, General and Administrative Expenses ("SG&A")
SG&A as a percentage of total revenue increased 3301,190 basis points, significantly impacted by CTI restructuring charges.and Adjusted SG&A as a percentage of total revenue decreased 200increased 1,720 basis points, compared to the same period of 2018.2019.
Savings in AdjustedThe impact of SG&A were recorded across all segments,on segment margin was largely due to betterthe impact of revenue reduction causing deleverage of our fixed expenses and higher sales leader and field investments in response to COVID-19 and cyber incident to support our representatives and maintain engagement. In addition, SG&A was negatively impacted by increased bad debt management from continued focus on credit control and collections processes (benefitreflecting the increased risk of 90 basis points) and lower advertising and brochure expenses that benefited from certain indirect tax items in Brazil (benefitrecoverability of 70 basis points).

trade receivables due to COVID-19.
Other Expenses
Interest expense increased by approximately $1 and interest income decreased by approximately $2$1 compared to the prior-year period.
48


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Loss on extinguishment of debt and credit facilities of approximately $8 is primarily comprised of the costs of termination of a portion of the 2020 bonds repaid in the third quarter of 2019.
Other income (expense), income, net, of $58 increased by approximately $36($.9) represents an unfavorable impact of $8 compared to the thirdsecond quarter of 2019. The current period income is2019 primarily attributable to the impact of interest on certain indirect tax items recognized in Brazil of approximately $50 and the favorable impact of foreign exchange net gains not repeated to the same extent in the thirdsecond quarter of 20192020 compared to losses in the thirdsecond quarter of 2018.2019.
Gain on sale of business/assets of approximately $27$.1 in the three-month period ended June 30, 2020 related to the result of the sale of our investmenta distribution center in New AvonHungary, which closed in AugustJune 2020. During the three months ended, June 30, 2019, the gain on sale of business/assets was the result of the sale of the Rye office, which closed in June 2019 and the sale of Maximin Corporation Sdn Bhd, which closed in May 2019. Refer to Note 3, Discontinued Operations, Assets and Liabilities Held for Sale and Divestitures, to the Consolidated Financial Statements contained herein for more information relating to the sale of these disposals.
businesses and assets.

4944


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Effective Tax Rate
The effective tax rates in 2020 and the Adjusted effective tax rates in 2019 and 2018 continue to be impacted by our inability to recognize additional deferred tax assets in various jurisdictions related to our current-year operating results. In addition, the effective tax rates in 2020 and the Adjusted effective tax rates in 2019 and 2018 continue to be impacted by withholding taxes associated with certain intercompany payments, including royalties, service charges, interest and dividends, which in the aggregate are relatively consistent each year due to the need to repatriate funds to cover U.S. and U.K.-based costs, such as interest on debt and corporate overhead.

Our effective tax rates for the three months ended SeptemberJune 30, 2020 and 2019 were (7.4)% and 2018 were 21.8% and 37.5%127.7%, respectively. The effective tax rates for the three months ended SeptemberJune 30, 20192020 and 20182019 were impacted by CTI restructuring charges which could not all be benefitted,benefited, country mix of earnings and withholding taxes. The effective tax rate in the second quarter of 2020 was unfavorably impacted by miscellaneous income tax expense of approximately $2.3. The effective tax rate for in the three months ended September 30,second quarter of 2019 was also favorablynegatively impacted by the accrual of miscellaneous income tax benefitsexpenses of approximately $2.3. The effective tax rate in the third quarter of 2018 was also favorably impacted by the accrual of tax benefits of approximately $14.0 associated with the initial recognition of tax benefits associated with Avon’s interpretation of case law, net releases of tax reserves of approximately $3.1 associated with our uncertain tax positions and other net benefits of approximately $1.9.$.6.

Our Adjusted effective tax rates for the three months ended SeptemberJune 30, 2020 and 2019 were (2.7)% and 2018 were 14.2% and 9.7%50.5%, respectively. The Adjusted effective tax rates in 20192020 and 20182019 were impacted by country mix of earnings and withholding taxes. The Adjusted effective tax rate for the three months ended September 30,second quarter of 2020 was unfavorably impacted by miscellaneous income tax expense of approximately $2.3. The Adjusted effective tax rate in the second quarter of 2019 was also favorablynegatively impacted by the accrual of miscellaneous income tax benefitsexpenses of approximately $2.3. The Adjusted effective tax rate for the three months ended September 30, 2018 was also favorably impacted by the accrual of tax benefits of approximately $14 associated with the initial recognition of tax benefits associated with Avon’s interpretation of case law, releases of tax reserves of approximately $7 associated with our uncertain tax positions and other net benefits of approximately $2.$.6.

Further, the Company continuously assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize our existing deferred tax assets that are not subject to a valuation allowance. As of June 30, 2020, the global COVID-19 pandemic is a new piece of negative evidence the Company must consider. As of June 30, 2020, the increase in negative evidence due to COVID-19 has not resulted in any changes to the Company’s conclusions regarding the realizability of existing deferred tax assets that are not subject to a valuation allowance. The Company will continue to monitor the COVID-19 pandemic and other effects that could impact the conclusions regarding the realizability of its deferred tax assets. Potential negative evidence, including worsening of the economies in the markets we operate in and reduced profitability of our markets could give rise to a need for a valuation allowance to reduce our deferred tax assets in upcoming quarters.
See Note 20,18, Income Taxes, to the Consolidated Financial Statements included herein for more information on the effective tax rate, and Note 15,12, Restructuring Initiatives, to the Consolidated Financial Statements included herein for more information on CTI restructuring.

Impact of Foreign Currency
As compared to the prior-year period, foreign currency has impacted our consolidated financial results in the form of:
•foreign currency transaction losses (classified within cost of sales and SG&A in our Consolidated Statements of Operations), which had an unfavorable impact to operating profit and Adjusted operating profit of approximately $20,$5, or approximately 12040 basis points to operating margin and Adjusted operating margin;
•foreign currency translation, which had an unfavorable impact of approximately $10 to operating profit and $5 to Adjusted operating profit, or an unfavorable impact of approximately 210 basis points and 140160 basis points to operating margin and Adjusted operating margin, respectively;
•foreign currency translation, which had an impact of approximately nil to operating profit and Adjusted operating profit, or an impact of approximately nil basis points to operating margin and Adjusted operating margin; and
•foreign exchange net gains, on our working capital (classified within other income (expense), net in our Consolidated Statements of Operations) as compared to lossesgains in the prior year, resulting in a favorablean impact of approximately $10$5 before tax on both a reported and Adjusted basis.
NineSix Months Ended SeptemberJune 30, 20192020
Revenue
During the ninesix months ended SeptemberJune 30, 2019,2020, revenue decreased 15%34% compared to the prior-year period, impacted by certain indirect taxes recognized in Brazil in the nine month period ended September 30, 2019 as well asunfavorable impact of foreign exchange which was driven by the IPI tax release instrengthening of the prior year. Excluding these items, AdjustedU.S. dollar relative to multiple currencies, primarily the Brazilian real and the Argentinian peso. Constant $ revenue decreased 13% unfavorably impacted by foreign exchange. Constant $ Adjusted revenue decreased 5%27%.
Adjusted revenueRevenue and Adjusted Constant $ revenue decline was primarily driven by Europe Middle East & Africa markets, in particular Russia. Russia continued to bewere impacted by a decrease in Active Representatives of 23%, across multiple markets. Average Representative Order drivenSales decreased 11% on a reported basis, unfavorably impacted by foreign exchange and Constant $ Average Representative Sales decreased 4%. The decline in revenue and Constant $ revenue is significantly attributable to the COVID-19 pandemic which negatively impacted the initial signs of recovery coming from a lower consumer confidence, partially offsetRepresentative base in 2019, followed by an increasethe cyber incident in Active Representatives. In recent quarters we have focused heavily onJune 2020.
5045


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


representative recruitment which resulted in an increase in Active Representatives in comparison to both the prior year and the prior quarters.
Revenue and Constant $ revenue were impacted by a decrease in Active Representatives of 10%, partially offset by higher Average Representative Sales. Average Representative Sales decreased 3% on a reported basis, unfavorably impacted by foreign exchange, and increased 5% on a Constant $ basis. While Revenue and Constant $ revenue have declined, this is a consequence of our intent to improve productivity by increasing Average Representative Sales, primarily through price/mix expansion. Average Representative Sales were also favorably impacted by the Brazil IPI tax compared to the prior-year period. For additional details on the IPI tax on cosmetics increase in Brazil, see Note 11, Contingencies, to the Consolidated Financial Statements included herein.
Units sold decreased 14%25%, driven by declines in Brazil and Russia.across all markets.
On a category basis, our product sales from reportable segments and associated growth rates were as follows:
Nine Months Ended September 30,% Change Six Months Ended June 30,% Change
2019  2018  US$Constant $ 20202019US$Constant $
Beauty:Beauty:Beauty:
SkincareSkincare$1,021.4  $1,100.5  (7)%1 %Skincare$512.9  $695.2  (26)%(19)%
FragranceFragrance896.7  1,033.7  (13) (4) Fragrance397.8  601.1  (34) (27) 
ColorColor541.6  640.0  (15) (7) Color224.0  370.0  (39) (33) 
Total BeautyTotal Beauty2,459.7  2,774.2  (11) (3) Total Beauty1,134.7  1,666.3  (32) (25) 
Fashion & Home:Fashion & Home:Fashion & Home:
FashionFashion464.4  549.2  (15) (10) Fashion181.4  320.5  (43) (39) 
HomeHome350.4  413.8  (15) (8) Home156.9  238.2  (34) (23) 
Total Fashion & HomeTotal Fashion & Home814.8  963.0  (15) (9) Total Fashion & Home338.3  558.7  (39) (32) 
Certain Brazil indirect taxes67.7  168.4  *  *  
Product sales from reportable segments$3,342.2  $3,905.6  (14) (7) 
Product sales from Other operating segments and business activities—  19.1  (100) (100) 
Product salesProduct sales$3,342.2  $3,924.7  (15) (7) Product sales$1,473.0  $2,225.0  (34) (27) 
* Calculation not meaningful
See "Segment Review" in this MD&A for additional information related to changes in revenue by segment.
Operating Margin
Operating margin decreased 330by 1,080 basis points, significantly impacted by certain indirect taxes recognized in Brazil in the nine month period ended September 30, 2019 as well as the IPI tax release in the prior year. Excluding the impact of these indirect taxes in Brazil,and Adjusted operating margin increased 170decreased by 1,070 basis points, compared to the same period of 2018, driven by improved price/mix and savings across multiple cost lines. This2019. The decline in operating margin improvement was delivered despitemostly due to the unfavorable impact of foreign currency.lower revenue on SG&A expenses. The movements in operating margin and Adjusted operating margin are discussed further below in "Gross Margin" and "Selling, General and Administrative Expenses."
Gross Margin
Gross margin decreased 200 basis points, significantly impacted by the effects of indirect tax items in both the currentwas relatively unchanged and prior years. Excluding these items, Adjusted gross margin decreased 8060 basis points, compared to the same period of 2018.
Gross margin and Adjusted gross margin declined2019, as price/mix did not fully offset the unfavorablefavorable impact of foreign currency andprice/mix was entirely offset by higher supply chain costs (benefit of 220 basis points offset by unfavorable impact of 180 basis points and 90 basis points). Price/mix improvements were driven by effective pricing, optimized discountslower volume on fixed overhead costs and promotions, more effective incentives and more favorable product mix in most markets. The unfavorable impactinventory obsolescence of foreign currency is largely due to currency devaluations in Brazil and Argentina. Higher supply chain costs were driven by higher material costs.non-beauty products.
Selling, General and Administrative Expenses ("SG&A")
SG&A as a percentage of total revenue increased 1301,090 basis points, significantly impacted by higher CTI restructuring charges, and Adjusted SG&A as a percentage of total revenue decreased 260increased 1,010 basis points, compared to the same period of 2018.2019.
The impact of SG&A on segment margin was primarily due to the impact of revenue reduction causing deleverage of our fixed expenses and higher sales leader and field investments in response to COVID-19 and cyber incident to support our representatives and maintain engagement. In addition, SG&A was negatively impacted by increased bad debt reflecting the increased risk of recoverability of trade receivables due to COVID-19 and certain indirect tax benefits in the prior year.
Other Expenses
Interest expense remained relatively unchanged and interest income decreased by approximately $2 compared to the prior-year period.
Loss on extinguishment of debt and credit facilities of approximately $8 consists primarily of the costs of termination of our 2019 revolving credit facility in the six-month period ended June 30, 2020. The loss on extinguishment of debt and credit facilities in the six-month period ended June 30, 2019 related to the cost of termination of our 2015 revolving credit facility.
Other (expense) income, net, of ($19) represents an unfavorable impact of $48 compared to the six-month period of 2019. The current period expense is primarily attributable to the unfavorable impact of foreign exchange net losses in the six-month period ended June 30, 2020 compared to gains in the six-month period ended June 30, 2019.
Gain on sale of business/assets of approximately $.1 in the six-month period ended June 30, 2020 related to the result of the sale of a distribution center in Hungary, which closed in June 2020. During the six months ended, June 30, 2019, the gain on sale of business/assets was the result of the sale of Avon Manufacturing (Guangzhou), Ltd. which closed in February 2019, the sale of the Rye office, which closed in June 2019 and the sale of Maximin Corporation Sdn Bhd, which closed in May 2019. Refer to
51
46


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Savings in Adjusted SG&A were recorded across all segments, in multiple areas, mostly from lower fixed expenses (benefit of 110 basis points), lower advertising expenses (benefit of 80 basis points) and better bad debt management (benefit of 70 basis points). Lower fixed expenses were driven by tight cost management and restructuring initiatives including lower headcount. Advertising expenses benefited from certain indirect tax items in Brazil as well as optimizing our portfolio by concentrating investments in selected channels and focusing on digital advertising. We have further reduced our bad debt expense, primarily in Brazil, from continued focus on credit control and collections processes.

Other Expenses
Interest expense decreased by approximately $7 and interest income decreased by approximately $7 compared to the prior-year period.
Loss on extinguishment of debt and credit facilities of approximately $10 is primarily comprised of the costs of termination of a portion of the 2020 bonds repaid in the third quarter of 2019.
Other income (expense), net, of $87 increased by approximately $87 compared to the prior-year period. The current period income is primarily attributable to the impact of interest on certain indirect tax items recognized in Brazil of approximately $55 and the favorable impact of foreign exchange net gains in the third quarter of 2019 compared to losses in the third quarter of 2018.
Gain on sale of business/assets related to the result of the sale of the Rye Office, Maximin Corporation Sdn Bhd and Avon Manufacturing (Guangzhou), Ltd in June, May and February 2019 respectively and the sale of our investment in New Avon in August 2019. Refer to Note 3, Discontinued Operations, Assets and Liabilities Held for Sale and Divestitures, to the Consolidated Financial Statements contained herein, for more information relating to the sale of these disposals.businesses and assets.


Effective Tax Rate
The effective tax rates in 2020 and the Adjusted effective tax rates in 2019 and 2018 continue to be impacted by our inability to recognize additional deferred tax assets in various jurisdictions related to our current-year operating results. In addition, the effective tax rates in 2020 and the Adjusted effective tax rates in 2019 and 2018 continue to be impacted by withholding taxes associated with certain intercompany payments, including royalties, service charges, interest and dividends, which in the aggregate are relatively consistent each year due to the need to repatriate funds to cover U.S. and U.K.-based costs, such as interest on debt and corporate overhead. These factors resulted in unusually high effective tax rates and Adjusted effective tax rates in 2019 and 2018.

Our effective tax rates for the ninesix months ended SeptemberJune 30, 2020 and 2019 were (6.2)% and 2018 were 48.5% and 71.0%278.0%, respectively. The effective tax rates infor the six months ended June 30, 2020 and 2019 and 2018 were impacted by CTI restructuring charges which could not all be benefited, country mix of earnings and withholding taxes. The effective tax rate in the first half of 2020 was unfavorably impacted by miscellaneous income tax expense of approximately $3.8. The effective tax rate for the nine months ended Septemberfirst half of June 30, 2019 was also favorably impacted by the accrual of net income tax benefits of approximately $5.2$2.9 associated with the release of income tax reserves of approximately $3.0$3.3 associated with our uncertain tax positions andnet of other net, miscellaneous income tax benefitsexpenses of approximately $2.2.$.4.
The effective tax rate for the nine months ended September 30, 2018 was also favorably impacted by the accrual of tax benefits of approximately $14.0 associated with the initial recognition of tax benefits associated with Avon’s interpretation of recent case law, the recognition of approximately $4.1 of deferred tax assets that had previously been subject to a full valuation allowance and other net benefits of approximately $1.0 offset with a net increase of approximately $10.9 associated with our uncertain tax positions.
Our Adjusted effective tax rates for the ninesix months ended SeptemberJune 30, 2020 and 2019 were (7.3)% and 2018 were 37.2% and 108.5%52.0%, respectively. The Adjusted effective tax rates in 20192020 and 20182019 were impacted by country mix of earnings and withholding taxes. The Adjusted effective tax rate for the nine months ended September 30,first half of 2020 was unfavorably impacted by miscellaneous income tax expense of approximately $3.8. The Adjusted effective tax rate in the first half of 2019 was also favorably impacted by the accrual of net income tax benefits of approximately $3.0$2.9 associated with the release of income tax reserves of approximately $3.3 associated with our uncertain tax positions and net of other net, miscellaneous income tax benefitsexpenses of approximately $2.2$.4.

The Adjusted effective tax rate in 2018 was also favorably impacted by
Further, the accrual of tax benefits of approximately $14 associated with the initial recognition of tax benefits associated with Avon’s interpretation of case law, releases of tax reserves of approximately $8 associated withCompany continuously assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize our uncertain tax positions and the recognition of $4 ofexisting deferred tax assets that had previously beenare not subject to a fullvaluation allowance. As of June 30, 2020, the global COVID-19 pandemic is a new piece of negative evidence the Company must consider. As of June 30, 2020, the increase in negative evidence due to COVID-19 has not resulted in any changes to the Company’s conclusions regarding the realizability of existing deferred tax assets that are not subject to a valuation allowance. The Company will continue to monitor the COVID-19 pandemic and other effects that could impact the conclusions regarding the realizability of its deferred tax assets. Potential negative evidence, including worsening of the economies in the markets we operate in and reduced profitability of our markets could give rise to a need for a valuation allowance offset with other net charges of approximately $1.
52


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollarsto reduce our deferred tax assets in millions, except per share data)


upcoming quarters.
See Note 20,18, Income Taxes, to the Consolidated Financial Statements included herein for more information on the effective tax rate, and Note 15,12, Restructuring Initiatives, to the Consolidated Financial Statements included herein for more information on CTI restructuring.

Impact of Foreign Currency
As compared to the prior-year period, foreign currency has impacted our consolidated financial results in the form of:
•foreign currency transaction losses (classified within cost of sales and SG&A in our Consolidated Statements of Operations), which had an unfavorable impact to operating profit and Adjusted operating profit of approximately $60,$10, or approximately 15040 basis points to operating margin and Adjusted operating margin;
•foreign currency translation, which had an unfavorable impact of approximately $15$10 to operating profit and $25$5 to Adjusted operating profit, or an unfavorable impact of approximately 130 basis points and a negligible impact60 basis points to operating margin and Adjusted operating margin;margin, respectively; and
•higher foreign exchange net gainslosses, on our working capital (classified within other income (expense), net in our Consolidated Statements of Operations) as compared to lossgains in the prior year, resulting in a favorablean unfavorable impact of approximately $50$40 before tax on both a reported and Adjusted basis.
47


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Segment Review
The Company has updated its reportable segments to align with how the business is operated and managed since the merger with Natura &Co Holding, we have identified two reportable segments based on geographic operations: Avon International and Avon Latin America. In prior periods, the Company reported four segments: Europe, Middle East and Africa, Asia Pacific, South Latin America and North Latin America. Previously reported segment information has been recast throughout the consolidated financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reportable segments.
We determine segment profit by deducting the related costs and expenses from segment revenue. Segment profit includes an allocation of global marketing and digitalcentral expenses based on actual revenues.to the extent they support the operating activity of the segment. Segment profit excludes global expenses other than the allocation of marketing and digital,certain CTI restructuring initiatives, certain significant asset impairment charges, and other expenses, which are not allocated to a particular segment, if applicable. This is consistent with the manner in which we assess our performance and allocate resources. See Note 13,10, Segment Information, to the Consolidated Financial Statements included herein for a reconciliation of segment profit to operating profit.
Europe, Middle East & AfricaAvon International
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended June 30,Six Months Ended June 30,
  %/Basis Point Change  %/Basis Point Change   %/Basis Point Change  %/Basis Point Change
20192018US$Constant $20192018US$Constant $   20202019US$Constant $20202019US$Constant $
Total revenueTotal revenue$398.3  $442.9  (10)%(7)%$1,282.1  $1,512.0  (15)%(8)%Total revenue$305.0  $534.1  (43)%(39)%$782.1  $1,108.8  (29)%(27)%
Segment profitSegment profit47.6  46.1  3 %9 %165.8  194.9  (15)%(6)%Segment profit(4.4) 44.5  (110)%(113)%$(1.7) 94.5  (102)%(104)%
Segment marginSegment margin12.0 %10.4 %160  180  12.9 %12.9 %—  20  Segment margin(1.4)%8.3 %(970) (1,010) (.2)%8.5 %(870) (890) 
Change in Active Representatives compared to prior year(6)% (9)% 
Change in Active Representatives compared to prior quarter(2)% 
Change in Active RepresentativesChange in Active Representatives(36)%(22)%
Change in units soldChange in units sold(13)% (14)% Change in units sold(34)%(25)%
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended SeptemberJune 30, 20192020
Total revenue decreased 10%43% compared to the prior-year period owing toimpacted unfavorably by the unfavorable impact of foreign exchange which was driven by the strengthening of the U.S. dollar relative to multiple currencies,currencies, primarily the Russian Ruble and the South African Rand. On a Constant $ basis, revenue decreased 39% primarily driven by a decrease in Active Representatives of 36% across most markets. The decline in revenue and Constant $ revenue was primarily due to the COVID-19 pandemic, followed by the cyber incident in June 2020, shifting approximately $12 in revenue to the third quarter of 2020 as the company fulfils the order backlog created.
Segment margin decreased 970 basis points, or 1,010 on a Constant $ basis was mostly due to the impact of lower revenue on SG&A expenses.
The gross margin improved marginally as the positive impact of price/mix fully offset the unfavorable impact of higher supply chain costs driven by lower volume on fixed overhead costs.
The impact of SG&A on segment margin was largely due to the impact of revenue reduction causing deleverage of our fixed expenses and higher sales leader and field investments in response to COVID-19 and cyber incident to support our representatives and maintain engagement.

Six Months Ended June 30, 2020
Total revenue decreased 29% compared to the prior-year period impacted unfavorably by the impact of foreign exchange which was driven by the strengthening of the U.S. dollar relative to multiple currencies, primarily the Russian Ruble, the South African Rand and the British Pound.Turkish Lira. On a ConstantConstant $ basis, revenue decreased 7%. Revenue and Constant $ revenue were negatively impacted27% primarily driven by a decrease in Active Representatives of 22% across multiple marketsmost markets. The decline in Europe, Middle East & Africa.
In Russia, revenue decreased 9% on both a fluctuating and constant $ basis. Revenue and Constant $ revenue in Russia wereis significantly attributable to the COVID-19 pandemic which negatively impacted primarilythe initial signs of recovery coming from a lower Representative base in 2019, followed by a decreasethe cyber incident in Average Representative Sales driven by lower consumer confidence, partially offset by an increase in Active Representatives. In recent quarters we have focused heavilyJune 2020.
Segment margin decreased 870 basis points, or 890 on representative recruitment which resulted in an increase in Active Representatives in comparison to both the prior year and the prior quarters.
In the UK, revenue decreased 18%, unfavorably impacted by foreign exchange. On a Constant $ basis,was mostly due to the UK'simpact of lower revenue decreased 12%. Revenue and Constant $ revenue in the UK were entirely impacted by lower Active Representatives as a result of changes in commercial practices and lower consumer confidence.
on SG&A expenses.
5348


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Segment margin increased 160 basis points, or 180 basis points on a Constant $ basis, due to tight control over SG&A and improvements in gross margin.
The gross margin increase was primarily caused byincreased marginally as the favorablepositive impact of price/mix which more than offset the unfavorable impact of foreign currency net losseshigher supply chain costs driven by inventory obsolescence of non-beauty products and lower volume on fixed overhead costs.
The impact of SG&A on segment margin was largely due to the impact of lower production volumes on supply chain costs.
Savingsrevenue reduction causing deleverage of our fixed expenses and higher sales leader and field investments in response to COVID-19 and cyber incident to support our representatives and maintain engagement. In addition, SG&A were drivenwas negatively impacted by tight cost management, as well as the re-allocation of resources. Savings are driven by lowerincreased bad debt expensereflecting the increased risk of recoverability of trade receivables due to improved credit control and collections processes primarily in Russia and South Africa and lower fixed costs, while lower advertising costs were re-allocated into representative and sales leader investments and training.COVID-19.

Nine
Avon Latin America
Three Months Ended June 30,Six Months Ended June 30,
   %/Basis Point Change%/Basis Point Change
 20202019US$Constant $20202019US$Constant $
Total revenue$299.7  $640.7  (53)%(40)%$779.9  $1,252.9  (38)%(27)%
Segment (loss) profit(50.8) 53.8  (194)%(181)%(68.0) 66.5  (202)%(188)%
Segment margin(17.0)%8.4 %(2,540) (2,090) (8.7)%5.3 %(1,400) (1,240) 
Change in Active Representatives(35)%(23)%
Change in units sold(34)%(25)%
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended SeptemberJune 30, 20192020
Total revenue decreased 15%53% compared to the prior-yearprior-year period, owing toimpacted by the unfavorable impact of foreign exchange which was driven by the strengthening of the U.S. dollar relative to multiple currencies, primarily the Russian ruble, South African randBrazilian real, the Argentinian Peso and the Turkish lira.Mexican peso. On a Constant $ basis, revenue decreased 8%. Revenue and Constant $ revenue were negatively impacteddeclined 40% primarily driven by a decrease in Active Representatives partially offset by higher Average Representative Sales. of 35% across all markets in Latin America. The decline in Active RepresentativesRevenue and Constant $ revenue was across multiple marketsprimarily due to the COVID-19 pandemic, followed by the cyber incident in Europe, Middle East & Africa, primarily Russia.June 2020, shifting approximately $75 in revenue to the third quarter of 2020 as the company fulfils the order backlog created.
In Russia, revenueRevenue in Brazil decreased 21%50%, unfavorably impacted by foreign exchange. On aexchange, while Brazil's Constant $ basis, Russia's revenue decreased 14%32%. Revenue and Constant $ revenue in RussiaBrazil were negatively impacted primarily driven by a decrease in Active Representatives.Representatives, which was impacted primarily by the cyber incident and to a lesser extent the COVID-19 pandemic, both of which negatively impacted the initial signs of recovery coming from a lower Representative base in 2019.
Segment margin decreased 2,540 basis points, or 2,090 basis points on a Constant $ basis was mostly due to the impact of lower revenue on SG&A expenses.
The gross margin declined marginally as the positive impact of price/mix was offset by increased supply chain costs driven by lower volume on fixed overhead costs and the unfavorable impact of foreign currency.  
The impact of SG&A on segment margin was primarily due to the impact of revenue reduction causing deleverage of our fixed expenses and higher sales leader and field investments in response to COVID-19 and cyber incident to support our representatives and maintain engagement. In addition, SG&A was negatively impacted by increased bad debt reflecting the increased risk of recoverability of trade receivables due to COVID-19 and certain indirect tax benefits in the prior year.
Six Months Ended June 30, 2020
Total revenue decreased 38% compared to the prior-year period, impacted by the unfavorable impact of foreign exchange which was driven by the strengthening of the U.S. dollar relative to multiple currencies, primarily the Brazilian real and the Argentinian Peso and the Mexican peso. On a Constant $ basis, revenue declined 27% primarily driven by a decrease in Active Representatives of 23% across all markets in Latin America. The decline in Revenue and Constant $ revenue is significantly attributable to the COVID-19 pandemic which negatively impacted the initial signs of recovery coming from a lower Representative base in 2019, followed by the cyber incident in June 2020.
Revenue in Brazil decreased 35%, unfavorably impacted by foreign exchange, while Brazil's Constant $ revenue decreased 19%. Revenue and Constant $ revenue in Russia continued to be impactedBrazil were primarily driven by lower consumer confidence, as well as weaker sales leader engagement. The latter has been actively addressed in the second quarter of 2019 through a heavy focus on recruitment which resulteddecrease in Active Representatives, growth inwhich was impacted primarily by the third quarter in comparisoncyber incident and to a declinelesser extent the COVID-19 pandemic, both of which negatively impacted the initial signs of recovery coming from a lower Representative base in the prior quarters.
In the UK, revenue decreased 17%, unfavorably impacted by foreign exchange. On a Constant $ basis, the UK's revenue decreased 12%. Revenue and Constant $ revenue in the UK were entirely impacted by lower Active Representatives as a result of a changes in commercial practices and lower consumer confidence.
Segment margin was relatively unchanged, or increased 20 basis points on a Constant $ basis, as the improvement from SG&A was only partially offset by the decline in gross margin.
The gross margin decline was primarily caused by the impact of lower production volumes on supply chain costs. The impact of price/mix fully offset the unfavorable impact of foreign currency net losses.
Savings in SG&A were driven by tight cost management, as well as the re-allocation of resources. Savings are driven by lower fixed costs and lower bad debt expense due to improved credit control and collections processes primarily in Russia and South Africa, while lower advertising costs were re-allocated into representative and sales leader investments and training.


2019.
5449


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


South Latin America
Three Months Ended September 30,Nine Months Ended September 30,
   %/Basis Point Change  %/Basis Point Change
 20192018US$Constant $20192018US$Constant $
Total revenue$494.0  $645.4  (23)%(19)%$1,351.7  $1,658.6  (19)%(8)%
Certain Brazil indirect tax benefit  (67.7) (168.4) (60)%(61)%(67.7) (168.4) (60)%(61)%
Adjusted revenue$426.3  $477.0  (11)%(3)%$1,284.0  $1,490.2  (14)%(1)%
Segment profit118.4  194.1  (39)%(38)%207.5  276.5  (25)%(19)%
Certain Brazil indirect tax benefit  (67.7) (168.4) (60)%(61)%(67.7) (168.4) (60)%(61)%
Adjusted segment profit$50.7  $25.7  97 %98 %$139.8  $108.1  29 %57 %
Segment margin24.0 %30.1 %(610) (770) 15.4 %16.7 %(130) (220) 
Certain Brazil indirect tax benefit  (12.1) (24.7) 1,260  1,420  (4.5) (9.4) 490  640  
Adjusted segment margin11.9 %5.4 %650  650  10.9 %7.3 %360  430  
Change in Active Representatives compared to prior year(10)% (9)% 
Change in Active Representatives compared to prior quarter5%  
Change in units sold(16)% (15)% 
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended September 30, 2019
Total revenueSegment margin decreased 23% compared to the prior-year period, impacted by certain indirect taxes recognized in Brazil in the three month period ended September 30, 2019 as well as the IPI tax benefit in the prior year. Excluding the impact of these indirect taxes in Brazil, Adjusted revenue for the region was down 11%, impacted by the unfavorable impact of foreign exchange, which was primarily resulting from the strengthening of the U.S. dollar relative to the Brazilian real and the Argentinian peso. On1,400 basis points, or 1,240 basis points on a Constant $ basis Adjusted revenue declined 3%. Revenue and Constant $ Adjusted revenue benefited from higher Average Representative Sales, driven by Brazil and Argentina, offset by a decrease in Active Representatives. The decline in Active Representatives was primarily driven by Brazil.
Revenue in Brazil decreased 27%, significantly impacted by indirect tax items in both the current and prior year. Excluding these indirect tax items, Adjusted revenue in Brazil decreased 6%, unfavorably impacted by foreign exchange while Brazil's Constant $ Adjusted revenue decreased 5%. Revenue and Adjusted Constant $ revenue in Brazil were negatively impacted by a decrease in Active Representatives, which continued to be impacted by competitive pressures and our strategy to improve productivity. The decrease in Active Representatives was partially offset by higher Average Representative Sales, which was impacted by improved price/mix as well as a positive impact from the Brazil IPI tax compared to the prior-year period. For additional details on the IPI tax on cosmetics in Brazil, see Note 11, Contingencies, to the Consolidated Financial Statements included herein.
Revenue in Argentina declined 15%, unfavorably impacted by foreign exchange. On a Constant $ basis, Argentina's revenue grew 35%. Revenue and Constant $ revenue in Argentina were negatively impacted by a decrease in Active Representatives offset by higher Average Representative Sales, which was impacted by improved revenue growth management including inflationary pricing.
Segment margin decreased, significantly impacted by the effects of indirect tax items in both the current and prior years. Adjusted segment margin and Constant $ Adjusted segment margin increased by 650 basis points, primarilymostly due to benefits in SG&A as well as the impact of other certain indirect tax itemslower revenue on revenue and SG&A recognized in the quarter (benefit of 330 basis points).expenses.
GrossThe gross margin was relatively unchanged as improved price/mix in most markets offsetdeclined primarily due to the unfavorable impact of foreign currency net losses and higheras the positive impact of price/mix was offset by increased supply chain costs primarily driven by increased material costs.lower volume on fixed overhead costs and inventory obsolescence of non-beauty products.
Savings inThe impact of SG&A were recorded across multiple areas, including continuouson segment margin was primarily due to the impact of revenue reduction causing deleverage of our fixed expenses and higher sales leader and field investments in response to COVID-19 and cyber incident to support our representatives and maintain engagement. In addition, SG&A was negatively impacted by increased bad debt expensereflecting the increased risk of recoverability of trade receivables due to improved credit controlCOVID-19 and collections processes, primarilycertain indirect tax benefits in Brazil, lower fixed costs resulting from tight cost management andthe prior year.
5550


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


restructuring initiatives and lower sales leader and field investments and lower representative and sales leader investments in incentives, linked to the decrease in Active Representatives.

Nine Months Ended September 30, 2019
Total revenue decreased 19% compared to the prior-year period, impacted by certain indirect taxes recognized in Brazil in the nine month period ended September 30, 2019 as well as the IPI tax benefit in the prior year. Excluding the impact of these indirect taxes in Brazil, Adjusted revenue for the region was down 14%, impacted by the unfavorable impact of foreign exchange, which was primarily resulting from the strengthening of the U.S. dollar relative to the Brazilian real and the Argentinian peso which resulted in a decrease in Adjusted Constant $ Revenue of 1%. Adjusted revenue and Adjusted Constant $ revenue were impacted by a decrease in Active Representatives, primarily in Brazil substantially offset by higher Average Representative Sales, driven by Brazil and Argentina.
Revenue in Brazil decreased 19%, significantly impacted by indirect tax items in both the current and prior year. Excluding these indirect tax items, Adjusted revenue in Brazil decreased 11%, unfavorably impacted by foreign exchange, while Brazil's Constant $ Adjusted revenue decreased 2%. Revenue and Adjusted Constant $ revenue in Brazil were negatively impacted by a decrease in Active Representatives, which continued to be negatively impacted by competitive pressures and our strategy to improve productivity. The decrease in Active Representatives was offset by higher Average Representative Sales, which was impacted by improved price/mix. In addition, Average Representative Sales were favorably impacted by certain indirect tax items, as well as a positive impact from the Brazil IPI tax compared to the prior-year period. For additional details on the IPI tax on cosmetics in Brazil, see Note 11, Contingencies, to the Consolidated Financial Statements included herein.
Revenue in Argentina declined 25%, unfavorably impacted by foreign exchange. On a Constant $ basis, Argentina's revenue grew 36%. Revenue and Constant $ revenue in Argentina benefited from higher Average Representative Sales, which was impacted by improved revenue growth management including inflationary pricing.
Segment margin decreased 130 basis points, significantly impacted by the effects of indirect tax items in both the current and prior years. Adjusted segment margin increased by 360 basis points and Constant $ Adjusted segment margin increased by 430 basis points, benefited by other certain indirect tax items on revenue and SG&A (favorable impact of 300 basis points) as well as SG&A benefits which more than offset the decline in gross margin.
The gross margin decline was primarily caused by higher supply chain costs driven by higher material costs. The improved price/mix in most markets offset the unfavorable impact of foreign currency.
Savings in SG&A were driven primarily by Brazil in multiple areas, such as, reduction of bad debt expense due to improved credit control and collections processes, lower fixed costs resulting from tight cost management and restructuring initiatives and lower sales leader and field investments, linked to the decrease in Active Representatives.

North Latin America
Three Months Ended September 30,Nine Months Ended September 30,
   %/Basis Point Change  %/Basis Point Change
 20192018US$Constant $20192018US$Constant $
Total revenue$184.7  $207.0  (11)%(9)%$571.2  $609.9  (6)%(5)%
Segment profit17.0  14.3  19 %22 %52.6  54.1  (3)%(1)%
Segment margin9.2 %6.9 %230  230  9.2 %8.9 %30  30  
Change in Active Representatives compared to prior year(13)%(10)%
Change in Active Representatives compared to prior quarter1 %
Change in units sold(15)%(9)%
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended September 30, 2019
56


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Total revenue for the segment declined 11% compared to the prior-year period also unfavorably impacted by foreign exchange. On a Constant $ basis, revenue declined 9%. Revenue and Constant $ revenue declined driven by a decrease in Active Representatives, which was partially offset by higher Average Representative Sales.
Revenue in Mexico decreased 9% compared to the prior year period, unfavorably impacted by foreign exchange. On a Constant $ basis, Mexico's revenue decreased 6%. Constant $ revenue decline in Mexico was primarily due to a decrease in Active Representatives, partially offset by higher Average Representative Sales, both driven by strategic initiatives to focus on Representative productivity via Representative segmentation and training.
Segment margin increased 230 basis points on a both a reported and Constant $ basis, driven by an improvement gross margin and lower SG&A expense.
The gross margin increased, primarily as a result of lower representative incentives, linked to the decrease in Active Representative and the timing of 2019 sales incentives deferred during the period, partially offset by higher brochure cost. The favorable impact of price/mix offset the impact of increased supply chain costs driven by higher materials costs and the impact of foreign currency.
SG&A cost savings were driven by lower advertising expenses which more than offset increased bad debt expense. Lower representative and sales leader investments in incentives, linked to the decrease in Active Representative offset higher transportation costs, primarily in Mexico, to address security issues and improve service quality.
Nine Months Ended September 30, 2019
Total revenue for the segment declined 6% compared to the prior-year period also unfavorably impacted by foreign exchange. On a Constant $ basis, revenue declined 5%. Revenue and Constant $ revenue declined from a decrease in Active Representatives offset by higher Average Representative Sales.
Revenue in Mexico decreased 4% compared to the prior year period, unfavorably impacted by foreign exchange. Constant $ Revenue decreased 3%. The decline in reported and Constant $ revenue in Mexico was primarily due to decline in Active Representatives, partially offset by higher Average Representative Sales, both driven by strategic initiatives to focus on Representative productivity via Representative segmentation and training.
Segment margin increased 30 basis points on both a reported and Constant $ basis, due to an improvement from SG&A partially offset by a decline in gross margin.
The gross margin decline was primarily caused by the unfavorable impact of foreign currency net losses.
SG&A cost savings were driven by tight cost management in multiple areas, such as, lower representative and sales leader investments in incentives linked to the decrease in Active Representative, lower advertising costs, lower distribution costs. Savings were partially offset by higher bad debt expense and higher transportation cost, primarily in Mexico, to address security issues and improve service quality.

Asia Pacific
Three Months Ended September 30,Nine Months Ended September 30,
   %/Basis Point Change  %/Basis Point Change
 20192018US$Constant $20192018US$Constant $
Total revenue$106.3  $120.5  (12)%(13)%$330.0  $345.0  (4)%(4)%
Segment profit9.4  9.6  (2)%(9)%36.9  27.3  35 %31 %
Segment margin8.8 %8.0 %80  40  11.2 %7.9 %330  290  
Change in Active Representatives compared to prior year(19)%(13)%
Change in Active Representatives compared to prior quarter(7)%
Change in units sold(21)%(11)%
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended September 30, 2019
57


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Total revenue decreased 12% compared to the prior-year period, including a favorable impact of foreign exchange. On a Constant $ basis, revenue decreased 13%. Revenue and Constant $ revenue declined driven by a decrease in Active Representatives, across most markets, partially offset by higher Average Representative Sales.
Revenue in the Philippines decreased 7%, favorably impacted by foreign exchange. On a Constant $ basis, revenue in the Philippines decreased 10%. Revenue and Constant $ revenue in the Philippines were negatively impacted by a decrease in Active Representatives partially offset by higher Average Representative Sales. The decrease in Active Representatives was impacted by changes in sales leader recruitment and commercial practices.
Segment margin increased 80 basis points, or 40 basis points on a Constant $ basis, driven entirely by lower SG&A expense, partially offset by a decrease in gross margin.
The gross margin decline was primarily impacted by higher supply chain costs, as higher materials costs and obsolescence more than offset the benefits in logistics from one off expense to address service disruption in the Philippines in the prior year which was not repeated.
Savings in SG&A were driven by lower fixed costs resulting from tight cost management and restructuring initiatives partially offset by higher sales leader and field investment costs.
Nine Months Ended September 30, 2019
Total revenue decreased 4% on both a reported and Constant $ basis. Revenue and Constant $ Revenue declined driven by a decrease in Active Representatives, across most markets, partially offset by higher Average Representative Sales.
Revenue in the Philippines increased by 1%, favorably impacted by foreign exchange. On a Constant $ basis Revenue in the Philippines was relatively unchanged. Revenue and Constant $ Revenue in the Philippines benefited from the impact of inventory system implementation issues in the first half of the prior-year period resulting in a lower revenue base. Revenue and Constant $ Revenue in the Philippines was driven by higher Average Representative Sales, primarily due to effective pricing partially offset by a decrease in Active Representatives impacted by changes in sales leader recruitment and commercial practices.
Segment margin increased 330 basis points, or 290 basis points on a Constant $ basis, due to both lower SG&A expense gross margin.
The gross margin benefit of 90 basis was primarily due to improved price/mix in most markets. The benefit from higher logistics costs in the prior year in the Philippines, to address service disruptions caused by the inventory system implementation, offset by higher supply chain costs driven by higher material costs.
Savings in SG&A were primarily driven by lower fixed costs resulting from tight cost management and restructuring initiatives, an impairment of the inventory system in the Philippines recognized in the second quarter of 2018 and a one-off benefit following the closure of a 2014 tax audit, recognized in the first quarter of 2019.
58


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of funds historically have been cash flows from operations, public offerings of notes, bank financings, issuance of commercial paper, borrowings under lines of credit and a private placement of notes. Furthermore, since January 3, 2020, we are part of the Natura &Co group of companies which gives us access to intercompany funding. As at Septemberof June 30, 2019,2020, the Company has a $112$900.0 debt maturity obligationobligation due March 2020. In July 2019, the Company issued $400 in aggregate principal amount of 6.50% Senior Notes which will mature on 15 August 2022. The proceeds were partially used to purchase an aggregate principal amount of $275 of the Notes due March 2020 under a cash tender offer completed during July 2019.
The Company has cash on hand of $564$285.8 and restricted cash of $10.7 as of SeptemberJune 30, 2020.
COVID-19 pandemic
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and has accesssubsequently declared a pandemic by the World Health Organization. During the second quarter of 2020, COVID-19 had a significant impact on our operations as many markets were subject to lockdown restrictions which limited our ability to recruit and enroll Representatives, operate manufacturing facilities and distribution centers and to process and deliver orders. Due to the unused portionuncertain and rapidly evolving nature of current conditions around the world, the impacts of COVID-19 most of which are beyond the Company’s control, continue to evolve, and the outcome is uncertain, we are therefore unable to predict accurately the impact that COVID-19 will have on our business going forward.

We are closely monitoring the evolution of the COVID-19 pandemic and deciding on actions to minimize impacts, ensure the continuity of operations and promote the safety and health of all the people involved. Since the beginning of the virus spread and the consequent restrictive measures imposed by governments, such as closing non-essential trade and restricting the movement of people across borders, the Company has implemented some measures in all its 2019 facility (as defined belowoperations, in line with the official measures:

•Incentives to remote working and adoption of essentiality criteria to limit industrial and logistical operations;
•Adoption of new safety measures for operational workers, such as the use of masks and procedures to distance people between processes;
•Re-planning of sales cycles, prioritizing personal care items;
•Speeding up the digitization of sales channels;
•We communicated social distancing protocols to our Representatives around the world;
•Change in the Capital Resources- revolving Credit Facility section)minimum order criteria, start kit and increased deadline for payment of €179.Representatives; and
•Daily monitoring of suppliers to ensure supply.

As of the date of this report, we are unable to estimate the long term impact of the economic paralysis arising from efforts to curb the spread of the COVID-19 virus and the expected reduction in activity on our business, results of operations and financial condition. We will continue to review our revenue, investments, expenses and cash outflows, as well as adjusting our relationships with suppliers. Furthermore, the actions outlined above are continuously being re-evaluated in light of global developments relating to COVID-19.

The impact of COVID-19 on our financial performance was more severe in the first half of the second quarter with signs of recovery in the second half of the quarter due to actions taken by the Company to operate during the pandemic and the easing of some lockdown restrictions. This recovery was subsequently impacted by the cyber incident later in the quarter.
Going concern
We expect some negative impact on revenue from COVID-19 to continue for the remainder of 2020 which will, in turn, result in lower cash generation from activities. Our forecasts and projections indicate that we should have sufficient liquidity to meet our obligations for a period of not less than 12 months from the issuance date of the Consolidated Financial Statements contained herein. If the downturn is deeper or for longer than we anticipate, the Company could take certain further actions to ease the pressure of certain cash outflows, such as reducing discretionary expenditure, selling non-core assets, accessing government pandemic initiatives or arranging borrowing facilities with third-party banks and affiliate companies. Furthermore, the Company has received an irrevocable commitment from Natura &Co Holding management that they will provide sufficient financial support if and when needed to enable the Company to meet its obligations as they come due in the normal course of business for a period of not less than 12 months from the date issuance of the Consolidated Financial Statements contained herein.
Other liquidity matters
We may seek to repurchase our equity or to retire our outstanding debt in open market purchases, through existing call mechanisms, privately negotiated transactions, through derivative instruments, cash tender offers or otherwise. Repurchases of equity and debt may be funded by cash or the
51


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


incurrence of additional debt or the issuance of equity (including shares of preferred stock) or convertible securities and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material. We may also elect to incur additional debt or issue equity (including shares of preferred stock) or convertible securities to finance ongoing operations or to meet our other liquidity needs. Such transactions may be limited in scope by certain restrictions that are binding on the Company in conjunction with the Merger Agreement. Any issuances of equity (including shares of preferred stock) or convertible securities could have a dilutive effect on the ownership interest ofHowever, our current shareholders and may adversely impact earnings per share in future periods.Our credit ratings were downgraded during the past several years,remain below investment grade which may impact our ability to access such transactions on favorable terms, if at all. For more information, see "Risk Factors - Our credit ratings were downgraded during the past several years,are below investment grade, which could limit our access to financing, affect the market price of our financing and increase financing costs. A further downgrade in our credit ratings may adversely affect our access to liquidity," "Risk Factors - Our indebtedness and any future inability to meet any of our obligations under our indebtedness, could adversely affect us by reducing our flexibility to respond to changing business and economic conditions,"conditions" and "Risk Factors - A general economic downturn, a recession globally or in one or more of our geographic regions or markets or sudden disruption in business conditions or other challenges may adversely affect our business, our access to liquidity and capital, and our credit ratings" containedincluded in our 2018 Form 10-K. For more information, please also see "Risk Factors - The Merger Agreement subjects us to restrictions on our business activities prior to completion of the merger” in Part II, Item 1A of this Form 10-Q.our 2019 Annual Report.
Our liquidity could also be negatively impacted by restructuring initiatives, dividends, capital expenditures, acquisitions, and certain contingencies, including any legal or regulatory settlements, described more fully in Note 11,8, Contingencies, to the Consolidated Financial Statements included herein. See our Cautionary Statement for purposes of the "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 contained in this report.
report1
.
Cash Flows
ThreeSix months ended SeptemberJune 30, 20192020

Net Cash Provided (Used)Used by Operating Activities of Continuing Operations
Net cash providedused by operating activities of continuing operations during the third quarterfirst six months of 20192020 was approximately $30$324 as compared to net cash providedcash used by operating activities of continuing operations of approximately $38$136 during the third quarterfirst six months of 2018, a decrease2019, an increased cash outflow of approximately $8.$188. The declineincrease in net cash fromused by operating activities was primarily due to favorableunfavorable one-time items inlinked to the thirdacquisition by Natura &Co Holding and lower cash profits impacted by lower revenue levels. Cash outflows related the Transaction included professional fees, senior officer severance and other expenses during the first quarter of 2018 that did not recur in 2019 ($68 judicial deposit receipt2020. Further information relating to Brazil IPI taxes and an unfavorable impact of a timing difference of approximately $34 relatingthe Transaction is included in Note 19, Merger with Natura Cosméticos S.A., to refundable indirect taxes). Operational improvements in working capital and higher cash generated from earnings more than offset the increase in restructuring payments.Consolidated Financial Statements included herein.
Net Cash (Used) Provided (Used) by Investing Activities of Continuing Operations
Net cash providedused by continuing investing activities during the third quarterfirst six months of 20192020 was approximately $15,$10, as compared to net cash usedprovided by continuing investing activities of approximately $22$45 during the third quarterfirst six months of 2018.2019. The approximate $37 increase$55 decrease to net cash provided by continuing investing activities was primarily due to the net proceeds of $76 from the sale of New Avon and reduced capital expenditure. Refer to Note 5, Investment in New Avon, toManufacturing (Guangzhou), Ltd, which closed during the Consolidated Financial Statements contained herein for more information relating tofirst quarter of 2019, the sale of New Avon.the Rye office and the sale of Maximin Corporation Sdn Bhd, both of which closed during the second quarter of 2019. In the six-month period ended, June 30, 2020, net proceeds of $10 were received from the sale of the Hungary Distribution Center in Gödöllő and deposits received for the sale of the China Wellness Plant.
Net Cash Provided (Used)Used by Financing Activities of Continuing Operations
Net cash used by continuing financing activities during the first six months of 2020 was approximately $5, as compared to cash used by continuing financing activities of $10 in the first six months of 2019 as proceeds from short debt of $30 partially offset $26 of payments to settle stock options related to the Transaction and a dividend payment of $9 during 2020.
1 NTD: Company to include disclosure (if any) on material: (i) unused sources of liquid assets, (ii) changes to off-balance sheet arrangements, (iii) changes to contractual obligations.
5952


AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


Net cash provided by continuing financing activities during the third quarter of 2019 was approximately $121, as compared to net cash used by financing activities of $3 during the third quarter of 2018. The approximate $124 favorable impact to net cash from financing activities was primarily due to the net impact of proceeds from debt issued in the quarter offset by the repayment of debt and proceeds from the monetization of COFINS tax credits.
Free Cash Flow Provided (Used) by Continuing Operations
We also present free cash flow as an additional financial measure for liquidity, which we believe provides an additional perspective on trends and underlying business results. Free cash flow is the sum of net cash (used) provided by continuing operating activities and net cash provided (used) by continuing investing activities. We have also included the proceeds from the monetization of COFINS tax credits presented within net cash provided (used) by financing activities of continuing operations. Free cash flow provided by continuing operations was a net inflow of $65 compared to $16, during the third quarter of 2019 and 2018, respectively. Improvements in Free Cash Flow compared to prior year were driven by operational improvements in both earnings and working capital. Cash proceeds from asset sales, including the monetization of tax assets, funded Open Up Avon restructuring and mitigated the impact of non-recurring tax benefits in the third quarter of 2018.
Nine months ended September 30, 2019
Net Cash (Used) by Operating Activities of Continuing Operations
Net cash used by operating activities of continuing operations during the first nine months of 2019 was approximately $105 as compared to approximately $68 during the first nine months of 2018, an increase in usage of approximately $37. The decline in net cash from operating activities was primarily due to favorable onetime items in the third quarter of 2018 that did not recur in 2019 ($68 judicial deposit receipt relating to the Brazil IPI taxes and an unfavorable impact of a timing difference of approximately $34 relating to refundable indirect taxes). Operational improvements in working capital and higher cash generated from earnings more than offset the increase in restructuring payments.
Net Cash Provided (Used) by Investing Activities of Continuing Operations
Net cash provided by continuing investing activities during the first nine months of 2019 was approximately $60, as compared to net cash used by continuing investing activities of approximately $72 during the first nine months of 2018. The approximate $132 increase to net cash from investing activities was primarily due to net proceeds from the sale of Avon Manufacturing (Guangzhou), Ltd, which closed during the first quarter of 2019, the sale of the Rye Office and the sale of Maximin Corporation Sdn Bhd, both of which closed during the second quarter of 2019 and the sale of New Avon which closed during the third quarter of 2019. Refer to Note 3, Discontinued Operations, Assets and Liabilities Held for Sale and Divestitures, and Note 4, Investment in New Avon, to the Consolidated Financial Statements contained herein for more information relating to the sale of these businesses and assets.
Net Cash Provided (Used) by Financing Activities of Continuing Operations
Net cash provided by continuing financing activities during the first nine months of 2019 was approximately $111, as compared to net cash used by financing activities of $255 during the first nine months of 2018. The approximate $366 favorable impact to net cash from financing activities was primarily due the proceeds from debt in the third quarter of 2019 and proceeds from the monetization of COFINS tax credits.
Free Cash Flow Used by Continuing Operations
We also present free cash flow as an additional financial measure for liquidity, which we believe provides an additional perspective on trends and underlying business results. Free cash flow is the sum of net cash (used) provided by continuing operating activities and net cash provided (used) by continuing investing activities, we have also included the proceeds from the monetization of COFINS tax credits presented within net cash provided (used) by financing activities of continuing operations. Free cash flow provided by continuing operations was a net outflow of $26 and $140, respectively, during the first nine months of 2019 and 2018. Improvements in Free Cash Flow compared to prior year were driven by operational improvements in both earnings and working capital. Cash proceeds from asset sales, including the monetization of tax assets, funded Open Up Avon restructuring and mitigated the impact of non-recurring tax benefits in the third quarter of 2018.

Capital Resources
Revolving Credit Facility
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AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


In June 2015, Avon International Operations, Inc. ("AIO"), a wholly-owned domestic subsidiary of the Company, entered into a five-year $400.0 senior secured revolving credit facility (the "2015 facility").
In February 2019, Avon International Capital, p.l.c. ("AIC"), a wholly-owned foreign subsidiary of the Company, entered into a three-year €200.0 million senior secured revolving credit facility (the "2019 facility"). The 2019 facility replaced the 2015 facility and the 2015 facility was terminated at such time. The 2019 facility will terminate in February 2022; provided, however, that it shall terminate on the 91st day prior to the maturity of the 4.60% Notes(1), if on such 91st day, the applicable notes are not redeemed, repaid, discharged, defeased or otherwise refinanced in full.
In July 2019, AIC issued $400 in aggregate principal amount of 6.50% Senior Notes which will mature on 15 August 2022. The proceeds were partially used to purchase the aggregate principal amount of $275 of the 4.6% Notes, due March 2020, under a cash tender offer completed during July 2019.
As of September 30, 2019, we were in compliance with our interest coverage and net leverage ratios under the 2019 facility, as amended. The amount of the facility available to be drawn down on is reduced by any standby letters of credit granted by an obligor, which, as of September 30, 2019, was approximately $23. As of September 30, 2019, based on then applicable exchange rates, the entire amount of the remaining 2019 facility, which is approximately €179 million, could have been drawn down without violating any covenant. Depending on our business results (including the impact of any adverse foreign exchange movements and significant restructuring charges), it is possible that we may be non-compliant with our interest coverage or net leverage ratio absent the Company undertaking other alternatives to avoid noncompliance, such as obtaining amendments to the 2019 facility. If we were to be non-compliant with our interest coverage or net leverage ratio, we would no longer have access to our 2019 facility and our credit ratings may be downgraded. As of September 30, 2019, there were no amounts outstanding under the 2019 facility.

(1) In March 2013, we issued, in a public offering $500.0 principal amount of 4.60% Notes due March 15, 2020, referred above as the "4.60% Notes"

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AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


FINANCIAL INSTRUMENTS AND RISK MANAGEMENT STRATEGIES
Interest Rate Risk
In the past we have used interest-rate swaps to manage our interest rate exposure. The interest-rate swaps were used to either convert our fixed rate borrowing to a variable interest rate or to unwind an existing variable interest-rate swap on a fixed rate borrowing. As of September 30, 2019, we do not have any interest-rate swap agreements. Approximately 7% and 1%2% of our debt portfolio, at September 30, 2019 and December 31, 2018, respectively, wasour short-term debt, is exposed to floating interest rates. For the purposeOur long-term borrowings are all at fixed rates of this calculation, we consider all short-term debt to be exposed to floating interest rates.interest.
Foreign Currency Risk
We conduct business globally, with operations in various locations around the world. Over the past three years,Since 2016, all of our consolidated revenue washas been derived from operations of subsidiaries outside of the U.S. The functional currency for most of our foreign operations is their local currency. We may reduce our exposure to fluctuations in cash flows associated with changes in foreign exchange rates by creating offsetting positions, including through the use of derivative financial instruments.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements in this report (or in the documents it incorporates by reference) that are not historical facts or information may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "estimate," "project," "forecast," "plan," "believe," "may," "expect," "anticipate," "intend," "planned," "potential," "can," "expectation," "could," "will," "would" and similar expressions, or the negative of those expressions, may identify forward lookingforward-looking statements. They include, among other things, statements regarding our anticipated or expected results, future financial performance, various strategies and initiatives (including our Transformation Plan, Open Up Avon, stabilization strategies, digital strategies, cost savings initiatives, restructuring and other initiatives and related actions), costs and cost savings, competitive advantages, impairments, the impact of foreign currency, including devaluations, and other laws and regulations, government investigations, results of litigation, contingencies, taxes and tax rates, potential alliances or divestitures, liquidity, cash flow, uses of cash and financing, hedging and risk management strategies, pension, postretirement and incentive compensation plans, supply chain and the legal status of the Representatives. Such forward-looking statements are based on management's reasonable current assumptions, expectations, plans and forecasts regarding the Company's current or future results and future business and economic conditions more generally. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management's expectations. Therefore, you should not rely on any of these forward-looking statements as predictors of future events. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
•our ability to improve our financial and operational performance and execute fully our global business strategy, including our ability to implement the key initiatives of, and/or realize the projected benefits (in the amounts and time schedules we expect) from our Transformation Plan, Open Up Avon, stabilization strategies, cost savings initiatives, restructuring and other initiatives, product mix and pricing strategies, enterprise resource planning, customer service initiatives, sales and operation planning process, outsourcing strategies, digital strategies, Internet platform and technology strategies including e-commerce, marketing and advertising strategies, information technology and related system enhancements and cash management, tax, foreign currency hedging and risk management strategies, and any plans to invest these projected benefits ahead of future growth;
•our ability to achieve the anticipated benefits of our strategic partnership with Cerberus Capital Management, L.P.;
•our broad-based geographic portfolio, which is heavily weighted towards emerging markets, a general economic downturn, a recession globally or in one or more of our geographic regions or markets, such as Brazil, Mexico or Russia, or sudden disruption in business conditions, and the ability to withstand an economic downturn, recession, cost inflation, commodity cost pressures, economic or political instability (including fluctuations in foreign exchange rates), competitive or other market pressures or conditions;
•the effect of economic factors, including inflation and fluctuations in interest rates and foreign currency exchange rates; as well as the designation of Argentina as a highly inflationary economy, and the potential effect of such factors on our business, results of operations and financial condition;
•the possibility of business disruption in connection with our Transformation Plan, Open Up Avon, stabilization strategies, cost savings initiatives, or restructuring and other initiatives;
•our ability to reverse declining revenue, to improve margins and net income, or to achieve profitable growth, particularly in our largest markets and developing and emerging markets, such as Brazil, Mexico, Russia and the United Kingdom;
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AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


•our ability to reverse declining revenue, to improve margins and net income, or to achieve profitable growth, particularly in our largest markets and developing and emerging markets, such as Brazil, Mexico and Russia;
•our ability to improve working capital and effectively manage doubtful accounts and inventory and implement initiatives to reduce inventory levels, including through our recent structural reset of inventory processes, and the potential impact on cash flows and obsolescence;
•our ability to reverse declines in Active Representatives, to enhance our sales leadership programs, to generate Representative activity, to increase the number of consumers served per Representative and their engagement online, to enhance branding and the Representative and consumer experience and increase Representative productivity through field activation and segmentation programs and technology tools and enablers, to invest in the direct-selling channel, to offer a more social selling experience, and to compete with other direct-selling organizations to recruit, retain and service Representatives and to continue to innovate the direct-selling model;
•general economic and business conditions in our markets, including social, economic and political uncertainties, such as in Russia and Ukraine or elsewhere, and any potential sanctions, restrictions or responses to such conditions imposed by other markets in which we operate;
•the effect of political, legal, tax, including changes in tax rates, and other regulatory risks imposed on us abroad and in the U.S., our operations or the Representatives, including foreign exchange, pricing, data privacy or other restrictions, the adoption, interpretation and enforcement of foreign laws, including in jurisdictions such as Brazil and Russia, and any changes thereto, as well as reviews and investigations by government regulators that have occurred or may occur from time to time, including, for example, local regulatory scrutiny;
•competitive uncertainties in our markets, including competition from companies in the consumer packaged goods industry, some of which are larger than we are and have greater resources;
•the impact of the adverse effect of volatile energy, commodity and raw material prices, changes in market trends, purchasing habits of our consumers and changes in consumer preferences, particularly given the global nature of our business and the conduct of our business in primarily one channel;
•our ability to attract and retain key personnel;
•other sudden disruption in business operations beyond our control as a result of events such as acts of terrorism or war, natural disasters, pandemic situations, large-scale power outages and similar events;
•in December 2019, a novel strain of coronavirus (COVID-19) was reported in China and other countries. While we do not currently have significant operations in geographical locations where COVID-19 was initially reported to be most prevalent, we source certain services, finished products, ingredients and packaging materials from vendors in Asia. We cannot reasonably estimate at this time the impact, if any, that COVID-19 may have on our business or operations. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact including on financial markets or otherwise. See also "Item 1A. Risk Factors—The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, manufacturing, supply chains and distribution systems, and we have experienced and expect to continue to experience unpredictable negative effects associated with the pandemic."
•key information technology systems, process or site outages and disruptions, and any cyber securitycybersecurity breaches, including any security breach of our systems or those of a third-party provider that results in the theft, transfer or unauthorized disclosure of Representative, customer, employee or Company information or compliance with information security and privacy laws and regulations in the event of such an incident which could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations, and related costs to address such malicious intentional acts and to implement adequate preventative measures against cybersecurity breaches. This includes the cyber security breaches;incident which occurred in the second quarter of 2020, see Note 1, Accounting Policies, to the Consolidated Financial Statements included herein and Part 4, Controls and Procedures;
•our ability to comply with various data privacy laws affecting the markets in which we do business;
•the risk of product or ingredient shortages resulting from our concentration of sourcing in fewer suppliers;
•any changes to our credit ratings and the impact of such changes on our financing costs, rates, terms, debt service obligations, access to lending sources and working capital needs;
•the impact of our indebtedness, our access to cash and financing, and our ability to secure financing or financing at attractive rates and terms and conditions;
54
•
the impact of our business results (including the impact of any adverse foreign exchange movements and significant restructuring charges), on our ability to comply with certain covenants
AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in our revolving credit facility;millions, except per share data)


•our ability to successfully identify new business opportunities, strategic alliances and strategic alternatives and identify and analyze alliance candidates, secure financing on favorable terms and negotiate and consummate alliances;
•disruption in our supply chain or manufacturing and distribution operations;
•the quality, safety and efficacy of our products;
•the success of our research and development activities;
•our ability to protect our intellectual property rights, including in connection with the separation of the North America business;
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AVON PRODUCTS, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(U.S. dollars in millions, except per share data)


•our ability to repurchase the series C preferred stock in connection with a change of control;
•the risk of an adverse outcome in any material pending and future litigation or with respect to the legal status of Representatives; and
•other risks and uncertainties include the timing and likelihood of completion of the proposed combination of the Company and Natura, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the proposed transactions that could reduce anticipated benefits or cause the parties to abandon the transactions; the possibility that the Company’s shareholders may not approve the proposed transactions; the possibility that Natura’s shareholders may not approve the proposed transactions; the possibility that the expected synergies and value creation from the proposed transactionsTransaction will not be realized or will not be realized within the expected time period;period; the risk that the businesses of the Company and Natura &Co Holding will not be integrated successfully;successfully; disruption from the proposed transactionsTransaction making it more difficult to maintain business and operational relationships; the risk that unexpected costs will be incurred; the possibility that the proposed transactions do not close, including due to the failure to satisfy the closing conditions;relationships; the possibility that the intended accounting and tax treatments of the proposed transactionsTransaction are not achieved;achieved; the effect of the announcement, pendency or consummation of the proposed transactionsTransaction on customers, employees, representatives, suppliers and partners and operating results;results; as well as more specific risks and uncertainties.
Additional information identifying such factors is contained in Item 1A of our 20182019 Form 10-K for the year ended December 31, 2018,2019, and in Item 1A of this 10-Q. We undertake no obligation to update any such forward-looking statements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 20182019 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our principal executive and principal financial officers carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").Act. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.
Based upon their evaluation, the principal executive and principal financial officers concluded that our disclosure controls and procedures were not effective as of SeptemberJune 30, 2019, at2020, due to a material weakness in our IT general controls (“ITGCs”), which is described below.
In June 2020, the reasonable assurance level. DisclosureCompany became aware that it was exposed to a cyber incident in its Information Technology environment which interrupted some systems and partially affected operations. The Company engaged a leading cyber security firm to perform a forensic investigation of this incident. While our investigation is ongoing, management has concluded that controls related to our IT environment have not been designed and/or operated effectively to prevent access and changes to our IT systems supporting financial information processing. Although we have no indications that the accuracy and completeness of any financial information was impacted as a result of the incident and the Company has performed extensive procedures are designed to ensurevalidate such accuracy and completeness, we believe that, if the incident had gone differently, it could have potentially resulted in a material impact to the Company’s financial statements, which leads to the conclusion that the magnitude of these control deficiencies represent a material weakness in our IT general controls as of June 30, 2020.
The remediation plan will include, but not be limited to, redesign of procedures and controls over cyber security and the areas breaches may impact. We have begun significant activities to remediate the material weakness, including the engagement of external cyber security and IT general controls specialists. We will also accelerate our investment in IT infrastructure to upgrade Avon platforms and strengthen our cyber security controls. As mentioned above, we have also performed extensive procedures to confirm the integrity of our financial systems and validated the accuracy and completeness of the financial information relatingas of June 30, 2020. Management is fully committed to Avon (including our consolidated subsidiaries) required to be disclosed by usremediate this material weakness in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the United States Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to management to allowa timely decisions regarding disclosure.manner.
Changes in Internal Control over Financial Reporting
Our management has evaluated, with the participation of our principal executive and principal financial officers, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, other than the material weakness identified and discussed above, our management has concluded that no such changes have occurred.

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PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
See Note 11,8, Contingencies, to the Consolidated Financial Statements included herein.
ITEM 1A. RISK FACTORS

Risks RelatingThe COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our operations, manufacturing, supply chains and distribution systems, and we have experienced and expect to continue to experience unpredictable negative effects associated with the Transactionpandemic.
The timingPublic health officials worldwide have recommended and completionmandated precautions to mitigate the spread of the Transaction is subject to a number of important conditionsCOVID-19, including restrictions on manufacturing, distribution, congregating in heavily populated areas and other uncertainties, and the Merger Agreement may be terminated before the completion of the Transaction in accordance with its terms.shelter-in-place orders or similar measures. As a result, manufacturing and distribution of our products have been negatively impacted and could be further affected in the future. Our suppliers have been similarly impacted which further affects our ability to produce and distribute. Distribution has also been impacted by certain restrictions on import and export in various countries and such restrictions may continue in the future. As a result of the COVID-19 pandemic, we have also been unable to satisfy certain demand for our products. The pandemic has also led to challenges in recruiting Representatives, and enrollment of Representatives will likely occur at a slower pace. As a result, customers have experienced and may continue to experience delays in receiving our products.Additionally, there is no assurance asa general risk that our employees or other workers could be exposed to whetherthe virus and whenthat an incident of infection in one of our sites could result in "lock-down" measures for the Transactionwhole site that could negatively impact our business.
Our results will continue to be completed.adversely impacted by these public health restrictions and other actions taken to contain or mitigate the impact of COVID-19.
As described elsewhereWe expect the impact of COVID-19 to result in this Quarterly Report on Form 10-Q,a decline in revenues during 2020 which will, in turn, result in lower cash generation from activities. Our forecasts and projections indicate that we should have entered intosufficient liquidity to meet our obligations for a Merger Agreement with Natura Cosméticos,period of not less than 12 months from the date issuance of the Consolidated Financial Statements contained herein. The Company has received an irrevocable commitment from Natura &Co Holding management that they will provide sufficient financial support if and two subsidiarieswhen needed to enable the Company to meet its obligations as they come due in the normal course of Natura &Co Holding, pursuant to which, inbusiness for a seriesperiod of transactions, Avon and Natura Cosméticos will each become direct wholly owned subsidiariesnot less than 12 months from the date issuance of the Consolidated Financial Statements contained herein. In July 2020, we drew $40 from the $100 facility with an affiliate of Natura &Co Holding. If the downturn is deeper or for longer than we anticipate then we may need further support of our ultimate parent company, Natura &Co Holding. For further information see Note 1, Accounting Policies, to the Consolidated Financial Statements included herein.
The timing and completionextent of the Transaction is subject to a numbercontinued impact of closing conditions,COVID-19 on our operational and financial performance will depend on certain developments, including (i) Avonthe duration and Natura Cosméticos shareholder approvals having been obtained in accordance with applicable law, (ii) clearance from competition authorities in certain jurisdictions where Avon and Natura Cosméticos operate, (iii) the absence of any judgment, injunction or other order issued by a court of competent jurisdiction prohibiting the Transaction, (iv) effectiveness of registration statements for Natura &Co Holding’s ADSs, (v) listing approval for Natura &Co Holding’s ADSs on the NYSE, (vi) listing approval for Natura &Co Holding’s shares on the B3 stock exchange under the Novo Mercado listing segment and (vii) subject to certain materiality exceptions, the accuracy of Avon’s, Natura Cosméticos’s and Natura &Co Holding’s representations and warranties in the Merger Agreement and performance by each party of their obligations under the Merger Agreement.
The failure to satisfy the foregoing conditions could delay completionspread of the Transactionoutbreak and its impact on our clients, suppliers and employees, all of which are uncertain and cannot be predicted. COVID-19 also poses risks that our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for a significantan indefinite period of time, including current or prevent it from occurring. Any delay in completing the Transactionfuture shutdowns that may be requested or mandated by governmental authorities and could cause us not to realize some or allhave a material adverse effect on our results of its expected benefits. Further, there can be no assurance that the conditionsoperations, financial condition and liquidity. Furthermore, to the closingextent the COVID-19 pandemic adversely affects our business, results of operations, financial condition and liquidity, it may also have the effect of heightening many of the Transaction will be satisfied or, so farother risks to which we are exposed, such as applicable, waived or thatthose relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, our ability to comply with the Transaction will be completed. If these conditions are not satisfied or, if applicable, waived by July 22, 2020, the Merger Agreement may be terminated by either party, subject to certain exceptions. Likewise, the Transaction may be completed on terms that differ, perhaps substantially, from those describedcovenants contained in the Merger Agreement.agreements that govern our indebtedness.
FailureThere is uncertainty around the duration and breadth of the COVID-19 pandemic and the response to complete the Transaction could negatively impact our share price and our future business and financial results.
If the Transaction is not completed for any reason, including asit. As a result of our shareholders failing to adopt the Merger Agreement, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Transaction, we would be subject to a number of risks, including the following:
◦We may be required, under certain circumstances, to pay Natura Cosméticos a termination fee of approximately U.S. $78.6 million;
◦We may experience negative reactions from the financial markets, including negative impactsultimate impact on our share prices; and
◦We may experience negative reactions from our customers, regulators and employees.

In addition, we could be subject to litigation related to any failure to complete the Transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If the Transaction is not completed, these risks may materialize and may adversely affect our business, financial condition or operating results cannot be reasonably estimated at this time. While we expect the impacts of COVID-19 to continue to have an adverse effect on our business, financial condition and results and/of operations, we are unable to predict the extent or share price.precise nature of these impacts at this time. If the pandemic or the resulting economic downturn continues to worsen, we could experience loss of business, which could have a material impact on our financial position and cash flows.
In orderOur ability to complete the Transaction, we and Natura Cosméticos must obtain certain governmentalconduct business in our international markets may be affected by political, legal, tax and regulatory approvals,risks.
Our ability to achieve growth in our international markets, and if such approvals are not grantedto improve operations in our existing international markets, is exposed to various risks, including:
•the possibility that a foreign government might ban, halt or are granted with conditions, completionseverely restrict our business, including our primary method of the Transaction may be jeopardized or the anticipated benefits of the Transaction could be reduced.
Consummation of the Transaction is subject to governmental and regulatory approvals, including approval and review by the Administrative Council for Economic Defense (“CADE”) in Brazil and certain other jurisdictions (or the waiting period with respect thereto shall have expired or been terminated). There is no assurance that all governmental and regulatory approvals will be obtained.
In addition, certain of the governmental authorities from which these authorizations are required have broad discretion in administering the governing regulations. Prior to their authorization of the Transaction, these governmental authorities may impose requirements, limitations or costs, which may result in the delay or abandonment of the Transaction. After thedirect selling;
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completion•the possibility that local civil unrest, economic or political instability, bureaucratic delays, changes in macro-economic conditions, changes in diplomatic or trade relationships (including any sanctions, restrictions and other responses such as those related to Russia and Ukraine) or other uncertainties might disrupt our operations in an international market;
•the lack of well-established or reliable legal systems in certain areas where we operate;
•the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities, including exposure to tax assessments without prior notice or the opportunity to review the basis for any such assessments in certain jurisdictions; including in Brazil, particularly, where the tax system is highly complex and the interpretation of the Transaction,tax laws and regulations is commonly controversial, and the Brazilian government regularly implements changes to tax regimes that may increase our tax burden, including modifications in the rate of assessments and the enactment of new or temporary taxes, the proceeds of which are earmarked for designated governmental purposes;
•the possibility that a government authority might impose legal, tax or other financial burdens on the Representatives, as direct sellers, or on Avon, due, for example, to the structure of our operations in various markets, or additional taxes on our products, including in Brazil;
•the possibility that a government authority might challenge the status of the Representatives as independent contractors or impose employment or social taxes on the Representatives; and
•those associated with data privacy regulation and the international transfer of personal data.
We are also subject to the adoption, interpretation and enforcement by governmental agencies abroad and in the U.S. (including on federal, state and local levels) of other laws, rules, regulations or policies, including any changes thereto, such governmental authoritiesas restrictions on trade, competition, manufacturing, license and permit requirements, import and export license requirements, privacy and data protection laws, anti-trust laws, anti-corruption laws, environmental laws, records and information management, tariffs and taxes, laws relating to the sourcing of "conflict minerals," health care reform requirements such as those required by the Patient Protection and Affordable Healthcare Act, and regulation of our brochures, product claims or ingredients, which may require divestituresus to adjust our operations and systems in certain markets where we do business.
For example, from time to time, local governments and others question the legal status of Representatives or place restrictions onimpose burdens inconsistent with the conduct of our business, which may materially limit our revenues followingRepresentative's status as independent contractors, often in regard to possible coverage under social benefit laws that would require us (and, in most instances, the Transaction, or otherwise adversely affect, includingRepresentatives) to a material extent, our strategic plans and its businesses and results of operations.
Furthermore, governmental authorities could seekmake regular contributions to block or challenge the Transaction as they deem necessary or desirable in the public interest at any time, including after completion of the Transaction. In addition, in some circumstances, a competitor, customer or other third party could initiate a private action under antitrust laws challenging or seeking to enjoin a portion or all of the Transaction, before it is consummated. We may not prevail and may incur significant costs in defending or settling any action under antitrust laws.government social benefit funds.
If the Transaction is consummated, the expected benefits from integrating our operations with Natura & Co's operations may not be achieved.
The success of the Transaction will depend, in part, on the ability of Natura Cosméticos and its subsidiaries (including Aesop, The Body Shop and their respective subsidiaries) (collectively, "Natura &Co") and Avon to realize the expected benefits from integrating their respective operations. No assurance can be given that Natura &Co and Avon will be able to integrate their respective operations without encountering difficulties, which may include, among other things, the loss of key employees, diversion of management attention, the disruption of our respective ongoing businesses or possible inconsistencies in standards, procedures and policies. Additionally, Natura &Co and Avon may be required to make unanticipated capital expenditures or investments in order to maintain, integrate, improve or sustain our operations. Integrating our respective operations may involve additional unanticipated costs and financial risks, such as the incurrence of unexpected write-offs, the possible effect of adverse tax and accounting treatments and unanticipated or unknown liabilities relating to Natura &Co or Avon. All of these factors could decrease or delay the expected accretive effect of the Transaction.
Even if our respective operations are successfully integrated, we may not realize the full benefits of the Transaction, including the synergies, cost savings and growth opportunities, within the expected time frame, if at all. Natura &Co and Avon continue to evaluate the estimates of synergies to be realized from, and the fair value accounting allocations associated with, the Transaction. However, the actual cost savings, the costs required to realize the cost savings and the source of the cost savings could differ materially from the estimates of Natura &Co and Avon.
Further, Natura &Co and Avon may not achieve the targeted operating or long-term strategic benefits of the Transaction. In addition, Natura &Co and Avon may not accelerate growth by increasing investments in digital, product innovation and brand initiatives. If Natura &Co and Avon are unable to achieveaddress these matters in a satisfactory manner, or adhere to or successfully implement processes in response to changing regulatory requirements, our business, costs and/or reputation may be adversely affected. We cannot predict with certainty the objectives,outcome or are not ablethe impact that pending or future legislative and regulatory changes may have on our business in the future.
We were the target of a cybersecurity incident which disrupted our systems.
In June 2020, we became aware that we were exposed to achievea cyber incident in our objectives onInformation Technology (IT) environment which interrupted some of our systems and partially affected our operations. We engaged leading external cyber security and IT general controls specialists, launched a timely basis, the anticipated benefitscomprehensive containment and remediation effort and started a forensic investigation. As of the Transaction may not be realized fully or at all. An inabilitydate of this report, we have re-established all of our core business processes and resumed operations in all of our markets, including all of our distribution centers. We continue to realizeinvestigate and evaluate the full extent of or anythe cyber incident, while working diligently to mitigate its impacts and re-evaluate our IT general controls.
The cyber incident had a significant impact on our revenue performance for the second quarter of 2020, with the majority of the anticipated benefitsimpact (approximately US$87 million in sales) being shifted to the third quarter of 2020 as we fulfil the Transaction could have an adverse effect on the financial condition, results of operations and cash flows of Natura &Co and Avon and could limit Natura &Co’s and Avon’s ability to achieve the anticipated benefits of the Transaction.
order backlog created. The Transaction will result in a change of control under our 2019 facility.
The Transaction will result in a change of control under our 2019 facility. Upon the occurrence of such a change of control, the 2019 facility provides that the facility will be cancelled and all outstanding utilizations, accrued interest, amounts owing under any ancillary facility and any other amounts outstanding thereunder shall become immediately due and payable. Natura may seek to obtain a waiver of the change of control from the lenders of the 2019 facility. If Natura Cosméticos is unable to obtain a waiver of the change of control or chooses not to seek such a waiver and our 2019 facility is cancelled, there are no assurances that Natura Cosméticos will obtain replacement financing, if at all, or the timing for doing so. If the 2019 facility is cancelled and there is no replacement financing and Natura & Co Holding does not otherwise provide Avon with a source of liquidity, it could adversely impact our business, prospects, reputation and financial condition.

Third parties may terminate or alter existing contracts or relationships with usincremental expense incurred as a result of the announcement, pendency cyber incident in the second quarter of 2020 was not material.
While our investigation is ongoing, management has concluded that controls related to our IT environment have not been designed and/or completionoperated effectively to prevent access and changes to our IT systems supporting financial information processing. Although we have no indications that the accuracy and completeness of any financial information was impacted as a result of the Transaction.incident and we have performed extensive procedures to validate such accuracy and completeness, we believe that, if the incident had gone differently, it could have potentially resulted in a material impact to our financial statements, which leads to the conclusion that the magnitude of these control deficiencies represent a material weakness in our IT general controls as of June 30, 2020.
The remediation plan will include, but not be limited to, redesign of procedures and controls over cyber security and the areas breaches may impact. We have contracts with customers, employees, Representatives, suppliers, vendors, distributors, landlords, lenders, licensors, joint venture partnersbegun significant activities to remediate the material weakness, including the engagement of external cyber security and other business partners,IT general controls specialists. We will also accelerate our investment in IT infrastructure to upgrade our platforms and these contracts may require us to obtain consent from these other parties in connection with the Transaction. If these consents cannot be obtained, the counterparties to these contracts may seek to terminate or otherwise materially adversely alter the terms of such contracts following the Transaction, which in turn may result in us suffering a loss of potential future revenue, incurring contractual liabilities or losing rights that are material tostrengthen our business. Further, parties with whichcyber security controls. As mentioned above, we have business and operational relationships may experience uncertainty as to the future of such relationships and may delay or defer certain business decisions, seek alternative relationships with third parties or seekalso performed extensive
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procedures to alter their present business relationshipsconfirm the integrity of our financial systems and validated the accuracy and completeness of the financial information as of June 30, 2020. Management is fully committed to remediate this material weakness in a timely manner.
As a result of the incident, we may be subject to litigation and investigations by regulators in the jurisdictions in which we operate. We may incur losses associated with us. Parties with whom we otherwisepotential claims by third parties or individuals, as well as fines, penalties and other sanctions imposed by regulators relating to or arising from the incident. We may have soughtalso incur contingencies related to establish business relationshipsthe incident. We are not able to reliably forecast all of the losses that may seek alternative relationships with third parties.
In addition, current and prospective employees and Representatives may experience uncertainty about their roles followingoccur as a result of the Transactionincident, and such uncertainty may have an effect on our corporate culture. There can be no assurance we will be able to attract and retain key talent, including senior leaders, to the same extent that we have previously been able to attract and retain employees and Representatives. Any loss or distraction of our customers, employees, Representatives, suppliers, vendors, distributors, landlords, lenders, licensors, joint venture partners and other business partners,excess losses could have a material adverse effect on our business, financial condition operating results and cash flows and could limit our ability to achieve the anticipated benefits of the Transaction. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Transaction or the termination of the Merger Agreement.
The Merger Agreement subjects us to restrictions on our business activities prior to completion of the merger.
The Merger Agreement subjects us to restrictions on our business activities and obligates us to generally operate our business in the ordinary course in all material respects consistent with past practice prior to completion of the Transaction. These restrictions include certain restrictions on incurring additional debt and issuing additional equity. These restrictions could prevent us from pursuing attractive business opportunities that arise prior to the completion of the Transaction and are outside the ordinary course of business, or otherwise have an adverse effect on our results of operations cash flowsin future periods.
Following the incident, we have taken certain additional preventative measures to reduce cyber risks. However, we cannot provide assurance that our security frameworks and financial position.
The Merger Agreement contains provisions that restrictmeasures will be successful in preventing future cybersecurity incidents. In addition, the costs of such measures and management attention required may be significant. Further, the incident may have a negative impact on our abilityreputation and cause customers, suppliers and other third parties with whom we maintain relationships to pursue alternatives to the Transaction and,lose confidence in specified circumstances, could require us to pay the other party a termination fee.
us. We are subjectunable to restrictions on our abilitydefinitively determine the impact to pursue alternativesthese relationships and whether we will need to the Transaction. These provisions could discourage a third party that may have an interestengage in acquiring all or a significant part of Avon from considering or proposing such an acquisition, even if such third party were preparedany activities to enter into a transaction that would be more favorable to Avon and their respective shareholders than the Transaction.
The Transaction is subject to litigation, which could delay the Transaction and prevent the Transaction from being completed.

We are party to legal proceedings and claims related to the Transaction. Legal challenges to the Transaction could result in an injunction, preventing or delaying the completion of the Transaction.

If the Transaction is consummated, it may limit our ability to utilize existing tax credits
As of December 31, 2018, we had approximately $833 million of foreign tax and other credits available to offset future income for U.S. federal tax purposes. Our ability to utilize such credits to offset future income could be limited, however, if the Company undergoes an “ownership change” within the meaning of Section 382 of the Code. In general, an ownership change will occur if there is a cumulative increase in ownership of our stock by 5% shareholders (as defined in the Code) that exceeds 50 percentage points over the lowest percentage of stock owned by such shareholders at any time over a rolling three-year period. If the 50 percentage points are exceeded, Section 382 establishes an annual limitation on the amount of deferred tax assets attributable to previously incurred credits that may be used to offset taxable income in future years. A number of complex rules apply in calculating this limitation, and any such limitation would depend in part on the market value of the Company at the time of the ownership change and prevailing interest rates at the time of calculation. An ownership change would occur if the Merger were consummated and, accordingly, all or a portion of our deferred tax assets may become subject to this limitation and as a result thereof, our tax liability could increase and our future results of operations and cash flows could be adversely impacted.

rebuild them.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) RepurchasesNot applicable.
The following table provides information about our purchases of our common stock during the quarterly period ended September 30, 2019:
ITEM 5. OTHER INFORMATION
Not applicable.
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Total Number
of Shares
Purchased		Average Price
Paid per Share		Total Number of Shares
Purchased as Part of
Publicly Announced
Programs		Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Program
7/1 - 7/31/19120,997  $3.04  *  *  
8/1 - 8/31/1946,259  4.24  *  *  
9/1 - 9/30/194,376  4.24  *  *  
Total171,632  
  
$3.40  *  *  
*These amounts are not applicable as the Company does not have a share repurchase program in effect.
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AVON PRODUCTS, INC.
ITEM 6. EXHIBITS2,3

2.1 
4.1 
4.2 
4.3 
10.1 
10.2 
31.1
31.2
32.1
32.2
101The following materials formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Loss, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements


2 NTD: We understand there are no events to report under Items 3 (Defaults upon senior securities), 4 (Mine safety disclosures)
and 5 (Other information – events not reported on Form 8-K/material changes to the procedures by which security holders may
recommend nominees to the registrant’s board of directors) of Form 10-Q. Please include if otherwise.
3 NTD: Exhibit index to be updated with any new agreements/amendments to previously filed agreements.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
AVON PRODUCTS, INC.
(Registrant)
Date:October 31, 2019August 14, 2020/s/ Laura BarbrookElena Casap
Laura Barbrook
Vice President and CorporateElena Casap
Controller - Principal Accounting Officer
Signed both on behalf of the
registrant and as chief
accounting officer.
 
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