CONTINGENCIES

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

CONTINGENCIES

Brazilian Tax Assessments

Tax on Manufactured Products – minimum pricing rules

In December 2012, October 2017 and June 2022, our Brazilian subsidiary, Avon Industrial LTDA (Avon Brazil Manufacturing) received excise tax ("IPI"), assessments notices for the years 2008, 2014 and 2018.

As in prior IPI cases that have been resolved in Avon’s favor, the assessments assert 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 the tax on manufactured products. 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 assessments are unfounded.

These matters are being contested at the administrative court, where proceedings are currently in progress. As of March 31, 2023 and December 31, 2022, the total disputed amount classified as a remote risk of loss was $505.6 and $483.0, respectively, with the increase largely due to higher interest rates and movements in foreign exchange rates.

Tax on Manufactured Products – Decree equated certain commercial companies (not subject to IPI taxation) to industrial companies (IPI taxpayers)

In May 2015, an executive decree established the levy of IPI on the sales of cosmetic products by Avon Brazil. Avon Brazil filed an objection to this levy on the basis that it is not 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 Federal Tax Authority. As of March 31, 2023 and December 31, 2022, the total amount under discussion classified as a reasonably possible risk of loss was $317.0 and $301.2, respectively, with the increase being largely a result of higher interest due, and movements in foreign exchange rates.

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 codefendants 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 March 31, 2023 and December 31, 2022, there were 244 and 227 individual active cases pending against the Company, respectively, for which associated costs and estimated liabilities have been included in current liabilities of discontinued operations on the Consolidated Balance Sheet. During the three months ended March 31, 2023, 42 new cases were filed and 25 cases were dismissed, settled or otherwise resolved.

In December 2022, one case, captioned Chapman, et al. v. Avon Products, Inc., et al., No. 22STCV05968, resulted in an adverse jury verdict after a trial, with the jury awarding Plaintiffs a total of $36.0 in compensatory damages and $10.3 in punitive damages against Avon. The Company believes it has strong grounds for seeking to overturn the verdict in this case and in January 2023 began the process of appealing the verdict by seeking relief from the trial court. On March 1, 2023, following post-trial arguments, the trial court issued a conditional order reducing the compensatory damages award against Avon to $29.3. Plaintiffs challenged the reduction of the award as to Avon and asserted that the reduction should only apply to Avon’s co-defendant. The trial court has resolved this issue in Plaintiffs’ favor and, once judgment is entered, the case will proceed on appeal.

The Company believes that the claims asserted against us in all of these cases are without merit and is defending vigorously against these claims and will continue to do so. However, additional similar cases arising out of the use of the Company's talc products are reasonably anticipated. Given the inherent uncertainties of litigation, it is not possible to predict the outcome of all individual cases pending against the Company or potential unasserted claims, and therefore a specific estimate and associated provision is made for a small number of individual cases that have advanced to the later stages of legal proceedings. This estimated liability for claims and associated legal costs incurred to date includes an amount for the Chapman case, however taking into consideration the strong grounds for appeal and seeking to overturn the verdict as noted above, should the Company ultimately lose the case, additional amounts representing a significant portion of the original awarded damages could be incurred.

For the remaining filed cases, we record an estimate of exposure loss on an aggregated and ongoing basis, which takes into account the historical outcomes of all cases we have resolved to date. 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 cases at March 31, 2023 and December 31, 2022 was approximately $10.2 and $10.0, respectively. Accordingly, we have recognized a liability for this amount.

Brazilian Financial Indemnities

As of March 31, 2023 and December 31, 2022, the Company has issued a number of guarantees totaling $189.4 and $181.3, respectively, which it could be required to make in the event of adverse judgments in a number of lawsuits in Brazil.

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’s opinion, based on its review of the information available at this time, the total cost of resolving such other contingencies at March 31, 2023 is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.