In July 2018, the FASB added an optional transition method which we elected upon adoption of the new standard. This allows 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.

The standard had a material impact on our consolidated balance sheets but does not have a material impact on our Consolidated Income Statements. The most significant impact was the recognition of right-of-use ("ROU") assets and lease liabilities for operating leases which are presented separately on the Consolidated Balance Sheet. Accounting for finance leases remains substantially unchanged, with leased assets included in Property, Plant and Equipment and lease liabilities included within Debt.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the 2017 enactment of U.S. tax reform legislation (the "Act") on items within AOCI (loss) to retained earnings. We adopted this new accounting guidance effective January 1, 2019 and elected not to reclassify the disproportionate income tax effects of the Act from AOCI (loss) to retained earnings.

We adopted ASC 606 with a date of the initial application of January 1, 2018, as a cumulative-effect adjustment to retained earnings. Therefore, the comparative information for prior periods has not been adjusted and continues to be reported under ASC 605, Revenue Recognition. We applied ASC 606 to all outstanding contracts at January 1, 2018.

•an increase to other accrued liabilities of $37.1 due to the net impact of the establishment of a contract liability of $91.8 for deferred revenue where our performance obligations are not yet satisfied, which is partially offset by a reduction in the sales incentive accrual of $54.7.

We recognize revenue for Avon products and appointment kits in net sales in our Consolidated Statements of Operations when the Representative obtains control of the products, which occurs upon delivery of the product to the Representative. Transaction price is the amount we expect to receive in exchange for those products adjusted for variable consideration, such as sales returns and past due fees, and the estimated SSP of other performance obligations, such as sales incentives. Revenue allocated to the material right (performance obligation) for sales incentives is deferred on the balance sheet until the associated performance obligations are satisfied. The cost of these products and appointment kits is recognized in cost of sales in our Consolidated Statements of Operations.

Under our historical accounting, we recognized revenue for Avon products in net sales in our Consolidated Statements of Operations upon delivery of the product to the Representative. We recognized revenue for appointment kits sold to Representatives as a reduction of SG&A expenses in our Consolidated Statements of Operations, and the associated cost was recognized in SG&A expenses in our Consolidated Statements of Operations. Revenue was adjusted for expected sales returns.

Certain benefits within status programs, loyalty points, prospective discounts and certain other sales incentives constitute a material right and, therefore, a distinct performance obligation in the contract with the Representative. Transaction price is allocated to the material right based on estimated SSP and is deferred on the balance sheet until the associated performance obligations are satisfied. The cost of sales incentives is presented in inventories in our Consolidated Balance Sheets. We recognize revenue allocated to the material right in net sales and the associated cost of sales incentives is recognized in cost of sales in our Consolidated Statements of Operations, at the point in time that the Representative receives the benefits of the material right or obtains control of the products, which occurs upon delivery to the Representative or upon expiration of the material right. For sales incentives that are delivered with the associated products order (such as gift with purchase), no deferral is required.

Under our historical accounting, the cost of sales incentives was generally presented in other accrued liabilities and prepaid expenses and other in our Consolidated Balance Sheets and recognized in SG&A expenses in our Consolidated Statements of Operations over the period that the sales incentive was earned.

Brochures - Brochures represent promotional materials that are given directly by the Representatives to their customers as a marketing activity. Under ASC 606, brochures that are sold by Avon to Representatives through purchase orders represent separate performance obligations in the contract as these are promises made between Avon and the Representative. Although the brochures are used similar to marketing materials, the Representative generally orders and pays for the brochures, and Avon allocates consideration for purposes of revenue recognition. The revenue associated with brochures that are sold to Representatives is recognized in other revenue and the related cost is recognized in cost of sales in our Consolidated Statements of Operations. We recognize revenue when the Representative obtains control of the brochures, which occurs upon delivery to the Representative. When brochures are given away for free to Representatives as promotional items, the cost is recognized in SG&A expenses in our Consolidated Statements of Operations.

Under our historical accounting, all brochure costs were initially deferred to prepaid expenses and other in our Consolidated Balance Sheets and were charged to SG&A expenses in our Consolidated Statements of Operations over the campaign length. In addition, fees charged to Representatives for brochures were initially deferred and presented as a reduction of prepaid expenses and other in our Consolidated Balance Sheets, and were recorded as a reduction of SG&A expenses in our Consolidated Statements of Operations over the campaign length.

Fulfillment activities and late payment fees - We often charge the Representative for shipping and handling (including order processing) and payment processing activities on the invoice, and such activities are considered to be fulfillment costs. The consideration received represents part of the transaction price in the contract that is allocated to the performance obligations in the contract. We recognize revenue for fulfillment activities in other revenue in our Consolidated Statements of Operations when such services are provided to the Representative. The cost of these activities is recognized in SG&A expenses in our Consolidated Statements of Operations. Late payment fees are recorded in other revenue in our Consolidated Statements of Operations when collected.

Under our historical accounting, revenue for shipping and handling (including order processing) activities was recorded in other revenue in our Consolidated Statements of Operations. However, the revenue for payment processing activities and late payment fees were recognized as a reduction of SG&A expenses in our Consolidated Statements of Operations. The cost of these activities was recognized in SG&A expenses in our Consolidated Statements of Operations.


	Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Operations	Per consolidated financial statements		Adjustments			Balances excluding the impact of adopting ASC 606
Revenue
Net sales	$	5,247.7	$	(28.5)	⁽¹⁾	$	5,219.2
Other revenue	323.6		(200.7)		⁽²⁾	122.9
Total revenue	5,571.3		(229.2)			5,342.1


Costs and expenses
Cost of sales	2,364.0		(277.4)		⁽³⁾	2,086.6
SG&A expenses	2,972.1		60.4		⁽⁴⁾	3,032.5

Operating profit	235.2		(12.2)			223.0





Income before income taxes	108.1		(12.2)			95.9
Income taxes	(129.9)		3.6			(126.3)
Net loss	(21.8)		(8.6)			(30.4)

Net loss attributable to Avon	(19.5)		(8.6)			(28.1)

(3)Primarily relates to the cost of sales incentives, the cost of brochures paid for by Representatives and the cost of appointment kits, which were reclassified from SG&A. The cost of sales incentives and the cost of brochures were also impacted by the timing of recognition.

(4)Relates to the cost of sales incentives, which were reclassified to cost of sales and were also impacted by the timing of recognition. This was partially offset by Representative fees, which were reclassified to other revenue, and appointment kits, which were reclassified to net sales and cost of sales.


	Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Other Comprehensive Income	Per consolidated financial statements	Adjustments		Balances excluding the impact of adopting ASC 606
Net loss	(21.8)	$	(8.6)	$	(30.4)

Foreign currency translation adjustments	(48.7)	(3.5)		(52.2)






Total other comprehensive loss, net of income taxes	(104.4)	(3.5)		(107.9)
Comprehensive loss	(126.2)	(12.1)		(138.3)

Comprehensive loss attributable to Avon	(123.6)	(12.1)		(135.7)


	Impact of change in revenue recognition standard
Line items impacted within the Consolidated Balance Sheets	Per consolidated financial statements	Adjustments			Balances excluding the impact of adopting ASC 606




Accounts receivable, net	349.7	$	(8.2)	⁽¹⁾	$	341.5
Inventories	542.0	(42.8)		⁽²⁾	499.2
Prepaid expenses and other	272.0	47.8		⁽²⁾	319.8

Total current assets	1,762.0	(3.2)			1,758.8




Other assets	603.0	(10.1)		⁽³⁾	592.9

Total assets	3,010.0	(13.3)			2,996.7
Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit




Other accrued liabilities	451.3	(38.0)		⁽⁴⁾	413.3

Income taxes	15.9	(3.6)			12.3

Total current liabilities	1,496.5	(41.6)			1,454.9




Other liabilities	72.1	(0.7)			71.4

Total liabilities	3,414.7	(42.3)			3,372.4







Retained earnings	2,234.3	32.5		⁽⁵⁾	2,266.8
Accumulated other comprehensive loss	(1,030.4)	(3.5)			(1,033.9)

Total Avon shareholders’ deficit	(904.5)	29.0			(875.5)

Total shareholders’ deficit	(896.8)	29.0			(867.8)
Total liabilities, series C convertible preferred stock and shareholders’ deficit	3,010.0	(13.3)			2,996.7

(2)Primarily relates to sales incentives and brochures, both of which were reclassified from prepaid expenses and other to inventories, and were also impacted by the timing of recognition. In addition, prepaid expenses and other was impacted by the timing of recognition of brochures, as well as the reclassification of sales returns (described above).


	Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Cash Flows	Per consolidated financial statements	Adjustments		Balances excluding the impact of adopting ASC 606
Cash Flows from Operating Activities
Net loss	(21.8)	$	(8.6)	$	(30.4)













Other	18.5	(3.5)		15.0

Accounts receivable	(102.8)	(.4)		(103.2)
Inventories	(99.6)	3.5		(96.1)
Prepaid expenses and other	(49.3)	3.9		(45.4)
Accounts payable and accrued liabilities	73.1	10.5		83.6
Income and other taxes	63.2	(3.6)		59.6
Noncurrent assets and liabilities	42.8	(1.8)		41.0

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The new guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendment. We early adopted ASU 2018-15 effective October 1, 2018, which did not have a material impact on our Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities to align the hedge accounting model more closely with risk management practices, and to simplify its application. Among other things, the new guidance eliminates the requirement to separately measure and report hedge ineffectiveness. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2018. The new guidance must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. We early adopted ASU 2017-12 effective July 1, 2018, the adoption did not have a material impact on our Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits. This new guidance requires entities to (1) disaggregate the service cost component from the other components of net periodic benefit costs and present it with other current employee compensation costs in the Consolidated Statements of Operations and (2) present the other components of net periodic benefit costs below operating profit in other expense, net. We adopted this new accounting guidance effective January 1, 2018. The new accounting guidance was applied retrospectively and increased our operating profit for 2017 and 2016 by $8.0 and $1.9 respectively, but had no impact on net loss.


	Impact of ASU 2017-07 adoption
Line items impacted within the Consolidated Statements of Operations	Per consolidated financial statements						Impact of adoption							As originally reported
	2017		2016		2017		2016			2017		2016
SG&A expenses	$	3,231.0	$	3,136.9	$	(8.0)	$	(1.9)	⁽⁴⁾	$	3,239.0	$	3,138.8
Operating profit	281.3		323.8		8.0		1.9			273.3		321.9
Other expense, net	34.6		172.9		8.0		1.9			26.6		171.0
Income before income taxes	120.7		31.2		—		—			120.7		31.2

In January 2017, the FASB issued Accounting Standards Update ("ASU") 2017-04 Intangibles - Goodwill and other, which simplifies the test for goodwill impairment. This Update eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of the assets acquired and liabilities assumed in a business combination. Instead an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, however the loss recognized should not exceed the total amount of goodwill allocated to the reporting unit. The amendments in this Update are effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is in the process of evaluating the impact of this standard update on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued Accounting Standards Update ("ASU") 2016-09, Compensation - Stock Compensation, which is intended to simplify the accounting for share-based payment transactions. This new guidance changes several aspects of the accounting for share-based payment transactions, including accounting for income taxes, forfeitures and employer-tax withholding requirements. ASU 2016-09 also clarifies the Statements of Cash Flows presentation for certain components of share-based payment awards. We adopted this new accounting guidance in the first quarter of 2017, which did not have a material impact on our Consolidated Financial Statements.

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. We have assessed the impact of adopting this standard to reduce long term receivables, within other assets by approximately $2 on January 1, 2020, with an adjustment to retained earnings. The implementation of this standard will not result in additional allowances related to trade accounts receivable.