ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2023

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 of America ("GAAP"). We consistently applied the accounting policies described in our 2022 Annual Report on Form 10-K ("2022 Form 10-K") in preparing these unaudited interim Consolidated Financial Statements, other than those impacted by new accounting standards as described below. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

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 2022 Form 10-K. When used in this report, the terms "Avon," "Company," "we" or "us" mean Avon Products, Inc. We are a wholly owned subsidiary of Natura &Co Holding S.A., a Brazilian corporation (sociedade anônima) ("Natura &Co Holding" or "Natura &Co).

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.

COVID-19 pandemic and Russia-Ukraine war

Beginning in the first quarter and continuing throughout the rest of 2020, the worldwide impact of the COVID-19 pandemic caused many markets to become subject to lockdown restrictions to varying degrees, which limited our ability to recruit and enroll Representatives, operate manufacturing facilities and distribution centers and to process and deliver orders. In 2021 and 2022 and continuing into the first quarter of 2023, the continuing economic disruption caused by the COVID-19 pandemic also resulted in inflationary pressures on the cost of certain raw materials used in the production of essential items due to the increased demand for these inputs worldwide.

These inflationary pressures were compounded in 2022 and in the first quarter of 2023 by the ongoing war between Ukraine and Russia, which adversely impacted energy prices around the globe and further increased inflationary pressures. As of the date of this report, we are unable to estimate the longer-term economic impact of the ongoing Russia-Ukraine war and of any further impacts of the COVID-19 pandemic on our business. We will continue to review our revenue, investments, expenses and cash outflows, as well as adjusting our relationships with suppliers.

See also “Item 1A. Risk Factors—General 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" included in our 2022 Form 10-K.

Going Concern

Considering the uncertain nature of any possible future impact of the COVID-19 pandemic and the ongoing war between Ukraine and Russia, both of which are beyond the Company's control, we expect these factors to continue to adversely affect our operations, which could in turn result in lower revenues and lower cash generation from activities. If these effects are more significant or enduring 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.

In May 2023, the Company received a commitment from Natura &Co Holding in the form of a letter of support that was effective through to May 31, 2024, a period more than 12 months from the date of the issuance of the consolidated financial statements. The letter states that Natura &Co will provide financial support in the form of loans (which loans shall be secured to the extent legally permissible) if and when needed to enable the Company to meet its obligations as they come due in the ordinary course of business, which excludes Discontinued Operations obligations as detailed in Note 2 in excess of those reasonably forecasted by management. Management considers that it has reasonably forecasted its exposure to cash outflows for ongoing discontinued operations, which included a contingency for expenditures considered possible though unlikely, and that management believes the Company has sufficient liquidity based on the support from Natura &Co.

Accounting Standards Implemented

ASU 2022-04, Disclosure supplier finance program (Topic 405-50)

In September 2022, the FASB issued ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which requires a buyer in a supplier finance program to disclose sufficient information about the program to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude. Disclosures will include key terms of the program, including payment terms, along with the amount of related obligations, the financial statement caption that includes such obligations, and a rollforward of activity related to the obligations during the period.

ASU 2022-04 is effective for Company beginning with the quarter ending March 31, 2023, except for the roll forward requirement which is effective for the Company beginning with the quarter ending March 31, 2024. No impact will arise on the Company's financial condition, results of operations or cash flows as a result of the application of this accounting standard.

Please see note 17 for Supplier Financing arrangement disclosure.