ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

ACCOUNTING POLICIES

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 2019 Annual Report on Form 10-K ("2019 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 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. 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 2019 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

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

ASU 2016-13, Financial Instruments - Credit Losses

In June 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 adopted this new accounting guidance effective January 1, 2020, using a modified retrospective transition approach. The adoption did not have a material impact on our condensed consolidated financial statements and disclosures and did not significantly impact the Company’s accounting policies or

estimation methods related to the allowance for doubtful accounts. The adoption resulted in a cumulative effect decrease to retained earnings of approximately $2 to reflect a change in the allowance for doubtful accounts.

Accounting Standards to be Implemented

ASU 2019-12, Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes, which is intended to simplify the accounting standard and improve the usefulness of information provided in the financial statements. We intend to implement this new accounting guidance effective January 1, 2021, however early adoption is permitted. We are currently assessing the impact this new accounting guidance will have on our financial statements.