UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
_________________________
FORM 10-Q
_________________________
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2017
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)
+44-1604-232425
(Registrant’s telephone number, including area code)
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   x    No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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 and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
  
Accelerated filer
¨
Non-accelerated filer
¨   (do not check if a smaller reporting company)
  
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   x
The number of shares of Common Stock (par value $0.25 ) outstanding at March 31, 2017 was 439,847,678 .
 



TABLE OF CONTENTS
 
 
 
Page
Numbers
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7  - 23
 
 
 
Item 2.
24  - 36
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

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)
March 31, 2017
 
March 31, 2016
Net sales
$
1,298.1

 
$
1,280.0

Other revenue
35.0

 
26.5

Total revenue
1,333.1

 
1,306.5

Costs, expenses and other:
 
 
 
Cost of sales
517.1

 
518.8

Selling, general and administrative expenses
787.3

 
779.9

Operating profit
28.7

 
7.8

Interest expense
35.1

 
32.7

Interest income
(4.7
)
 
(4.0
)
Other expense, net
5.0

 
137.2

Total other expenses
35.4

 
165.9

Loss before taxes
(6.7
)
 
(158.1
)
Income taxes
(29.8
)
 
2.3

Loss from continuing operations, net of tax
(36.5
)
 
(155.8
)
Loss from discontinued operations, net of tax
—

 
(9.6
)
Net loss
(36.5
)
 
(165.4
)
Net loss attributable to noncontrolling interests
—

 
(0.5
)
Net loss attributable to Avon
$
(36.5
)
 
$
(165.9
)
Loss per share:
 
 
 
Basic from continuing operations
$
(0.10
)
 
$
(0.36
)
Basic from discontinued operations
—

 
(0.02
)
Basic attributable to Avon
(0.10
)
 
(0.38
)
Diluted from continuing operations
$
(0.10
)
 
$
(0.36
)
Diluted from discontinued operations
—

 
(0.02
)
Diluted attributable to Avon
(0.10
)
 
(0.38
)
Cash dividends per common share
$
—

 
$
—

The accompanying notes are an integral part of these statements.


3

AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
(In millions)
March 31, 2017
 
March 31, 2016
Net loss
$
(36.5
)
 
$
(165.4
)
Other comprehensive income:
 
 
 
Foreign currency translation adjustments
62.0

 
95.9

Change in derivative losses on cash flow hedges, net of taxes of $0.0 and $0.0
—

 
0.4

Adjustments of and amortization of net actuarial loss and prior service cost, net of taxes of $0.0 and $10.4
3.1

 
264.0

Other comprehensive income related to New Avon investment, net of taxes of $0.0
1.1

 
—

Total other comprehensive income, net of taxes
66.2

 
360.3

Comprehensive income
29.7

 
194.9

Less: comprehensive income attributable to noncontrolling interests
.1

 
1.1

Comprehensive income attributable to Avon
$
29.6

 
$
193.8

The accompanying notes are an integral part of these statements.



4

AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
March 31,
2017
 
December 31,
2016
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
560.0

 
$
654.4

Accounts receivable, net
457.0

 
458.9

Inventories
630.4

 
586.4

Prepaid expenses and other
300.2

 
291.3

Current assets of discontinued operations
1.3

 
1.3

Total current assets
1,948.9

 
1,992.3

Property, plant and equipment, at cost
1,488.9

 
1,424.1

Less accumulated depreciation
(756.0
)
 
(712.8
)
Property, plant and equipment, net
732.9

 
711.3

Goodwill
97.1

 
93.6

Other assets
647.3

 
621.7

Total assets
$
3,426.2

 
$
3,418.9

Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit
 
 
 
Current Liabilities
 
 
 
Debt maturing within one year
$
20.1

 
$
18.1

Accounts payable
754.3

 
768.1

Accrued compensation
129.4

 
129.2

Other accrued liabilities
362.0

 
401.9

Sales and taxes other than income
158.7

 
147.0

Income taxes
19.1

 
10.7

Current liabilities of discontinued operations
7.3

 
10.7

Total current liabilities
1,450.9

 
1,485.7

Long-term debt
1,874.9

 
1,875.8

Employee benefit plans
167.9

 
164.5

Long-term income taxes
76.9

 
78.6

Other liabilities
213.8

 
205.8

Total liabilities
3,784.4

 
3,810.4

 
 
 
 
Commitments and contingencies (Note 8)


 


Series C convertible preferred stock
450.4

 
444.7

 
 
 
 
Shareholders’ Deficit
 
 
 
Common stock
189.5

 
188.8

Additional paid-in capital
2,283.0

 
2,273.9

Retained earnings
2,280.0

 
2,322.2

Accumulated other comprehensive loss
(967.1
)
 
(1,033.2
)
Treasury stock, at cost
(4,605.9
)
 
(4,599.7
)
Total Avon shareholders’ deficit
(820.5
)
 
(848.0
)
Noncontrolling interests
11.9

 
11.8

Total shareholders’ deficit
(808.6
)
 
(836.2
)
Total liabilities, series C convertible preferred stock and shareholders’ deficit
$
3,426.2

 
$
3,418.9

The accompanying notes are an integral part of these statements.

5

AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
(In millions)
March 31, 2017
 
March 31, 2016
Cash Flows from Operating Activities
 
 
 
Net loss
$
(36.5
)
 
$
(165.4
)
Loss from discontinued operations, net of tax
—

 
9.6

Loss from continuing operations, net of tax
$
(36.5
)
 
$
(155.8
)
Adjustments to reconcile net loss to net cash used by operating activities:
 
 
 
Depreciation
20.5

 
20.5

Amortization
7.1

 
7.1

Provision for doubtful accounts
60.8

 
37.0

Provision for obsolescence
10.2

 
12.6

Share-based compensation
9.7

 
6.2

Foreign exchange (gains) losses
(0.9
)
 
1.7

Deferred income taxes
12.3

 
(13.5
)
Loss on deconsolidation of Venezuela
—

 
120.5

Other
6.0

 
2.2

Changes in assets and liabilities:
 
 
 
Accounts receivable
(42.3
)
 
(21.4
)
Inventories
(23.5
)
 
(80.5
)
Prepaid expenses and other
10.0

 
(14.2
)
Accounts payable and accrued liabilities
(107.3
)
 
(61.8
)
Income and other taxes
1.7

 
8.0

Noncurrent assets and liabilities
(8.0
)
 
(59.9
)
Net cash used by operating activities of continuing operations
(80.2
)
 
(191.3
)
Cash Flows from Investing Activities
 
 
 
Capital expenditures
(23.9
)
 
(23.7
)
Disposal of assets
1.6

 
1.3

Reduction of cash due to Venezuela deconsolidation
—

 
(4.5
)
Other investing activities
—

 
1.6

Net cash used by investing activities of continuing operations
(22.3
)
 
(25.3
)
Cash Flows from Financing Activities
 
 
 
Debt, net (maturities of three months or less)
1.9

 
3.7

Proceeds from debt
—

 
8.6

Repayment of debt
(1.0
)
 
(1.0
)
Repurchase of common stock
(6.2
)
 
(3.5
)
Net proceeds from the sale of series C convertible preferred stock
—

 
428.1

Net cash (used) provided by financing activities of continuing operations
(5.3
)
 
435.9

Cash Flows from Discontinued Operations
 
 
 
Net cash used by operating activities of discontinued operations
(3.5
)
 
(44.9
)
Net cash used by investing activities of discontinued operations
—

 
(96.7
)
Net cash used by discontinued operations
(3.5
)
 
(141.6
)
Effect of exchange rate changes on cash and cash equivalents
16.9

 
(8.9
)
Net (decrease) increase in cash and cash equivalents
(94.4
)
 
68.8

Cash and cash equivalents at beginning of year (1)
654.4

 
684.7

Cash and cash equivalents at end of period
$
560.0

 
$
753.5

 
The accompanying notes are an integral part of these statements.
(1) Includes cash and cash equivalents of discontinued operations of $(2.2) at the beginning of the year in 2016.


6

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 2016 Annual Report on Form 10-K (" 2016 Form 10-K") in preparing these unaudited Consolidated Financial Statements. 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 2016 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 provide for accruals under our various employee benefit plans for each quarter based on one quarter of the estimated annual expense. 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;
•
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 that reduce the reliability of the estimated annual consolidated effective tax rate.
Venezuela
As of March 31, 2016, we deconsolidated our Venezuelan operations, and since then, we account for this business using the cost method of accounting. The decision to deconsolidate our Venezuelan operations was due to the lack of exchangeability between the Venezuelan bolivar and the U.S. dollar. This was caused by Venezuela's restrictive foreign exchange control regulations and our Venezuelan operations' increasingly limited access to U.S. dollars, which restricted our Venezuelan operations' ability to pay dividends and settle intercompany obligations.
As a result of the change to the cost method of accounting, in the first quarter of 2016, we recorded a loss of $120.5 in other expense, net. The loss was comprised of $39.2 in net assets of the Venezuelan business and $81.3 in accumulated foreign currency translation adjustments within accumulated other comprehensive loss ("AOCI") (shareholders' deficit) associated with foreign currency changes before Venezuela was accounted for as a highly inflationary economy. The net assets of the Venezuelan business were comprised of inventories of $23.7 , property, plant and equipment, net of $15.0 , other assets of $11.4 , accounts receivable of $4.6 , cash of $4.5 , and accounts payable and accrued liabilities of $20.0 . Our Consolidated Balance Sheets no longer include the assets and liabilities of our Venezuelan operations. We no longer include the results of our Venezuelan operations in our Consolidated Financial Statements, and will include income relating to our Venezuelan operations only to the extent that we receive cash for dividends or royalties remitted by Avon Venezuela.
Revisions
In our 2016 Form 10-K, our Consolidated Statements of Cash Flows presented supplemental information of the cash paid for interest of $87.1 for the year ended December 31, 2016; however, this amount should have been disclosed as $142.8 . We determined that the effect of this revision was not material to our 2016 Form 10-K.
New Accounting Standards Implemented
In March 2016, the FASB issued 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 have adopted this new accounting guidance in the first quarter of 2017, which did not have a material impact on our Consolidated Financial Statements.

7

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


Accounting Standards to be Implemented
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , as a new Topic, Accounting Standards Codification Topic ("ASC") 606. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We intend to adopt this new accounting guidance effective January 1, 2018. This new accounting guidance can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption, but we have not yet determined our method of adoption. We are currently evaluating the effect that adopting this new accounting guidance will have on our Consolidated Financial Statements. Based on the evaluation completed to-date, we believe that we will need to:
•
consider some of our sales incentive programs as a separate deliverable and allocate a portion of the sales transaction price to this deliverable;
•
adjust the manner in which we present our allowance for sales returns in our Consolidated Balance Sheets;
•
reflect fees paid by the Representative to the Company for items such as brochures, sales aids and late payments as revenue, rather than as a reduction to selling, general and administrative expenses ("SG&A"), as these represent separate performance obligations; and
•
reflect certain of the costs associated with the fees paid by the Representative, as well as the costs associated with shipping and handling and order processing, in cost of sales, rather than SG&A.
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. We intend to adopt this new accounting guidance effective January 1, 2018. The new accounting guidance is applied retrospectively and will increase our operating profit for the first quarter of 2017 and the full year 2016 by $.9 and $2.1 , respectively, but will have no impact on net income (loss).
In February 2016, the FASB issued ASU 2016-02, Leases , which requires all assets and liabilities arising from leases to be recognized in the statement of financial position. We intend to adopt this new accounting guidance effective January 1, 2019. We are currently evaluating the effect that adopting this new accounting guidance will have on our Consolidated Financial Statements.
2. EARNINGS (LOSS) PER SHARE AND SHARE REPURCHASES
We compute earnings (loss) per share ("EPS") using the two-class method, which is an earnings (loss) allocation formula that determines earnings (loss) per share for common stock, and earnings (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.

8

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


 
 
Three Months Ended March 31,
(Shares in millions)
 
2017
 
2016
Numerator from continuing operations:
 
 
 
 
Loss from continuing operations, less amounts attributable to noncontrolling interests
 
$
(36.5
)
 
$
(156.3
)
Less: Loss allocated to participating securities
 
.5

 
1.9

Less: Earnings allocated to convertible preferred stock
 
(5.7
)
 
(1.8
)
Loss from continuing operations allocated to common shareholders
 
(41.7
)
 
(156.2
)
Numerator from discontinued operations:
 
 
 
 
Loss from discontinued operations
 
$
—

 
$
(9.6
)
Less: Loss allocated to participating securities
 
—

 
.1

Loss allocated to common shareholders
 
—

 
(9.5
)
Numerator attributable to Avon:
 
 
 
 
Net loss attributable to Avon
 
$
(36.5
)
 
$
(165.9
)
Less: Loss allocated to participating securities
 
.5

 
2.0

Less: Earnings allocated to convertible preferred stock
 
—

 
(1.8
)
Loss allocated to common shareholders
 
(36.0
)
 
(165.7
)
Denominator:
 
 
 
 
Basic EPS weighted-average shares outstanding
 
438.6

 
435.9

Diluted effect of assumed conversion of stock options
 
—

 
—

Diluted EPS adjusted weighted-average shares outstanding
 
438.6

 
435.9

Loss per Common Share from continuing operations:
 
 
 
 
Basic
 
$
(.10
)
 
$
(.36
)
Diluted
 
(.10
)
 
(.36
)
Loss per Common Share from discontinued operations:
 
 
 
 
Basic
 
$
—

 
$
(.02
)
Diluted
 
—

 
(.02
)
Loss per Common Share attributable to Avon:
 
 
 
 
Basic
 
$
(.10
)
 
$
(.38
)
Diluted
 
(.10
)
 
(.38
)
Amounts in the table above may not necessarily sum due to rounding.
During the three months ended March 31, 2017 and 2016, we did not include stock options to purchase 13.1 million shares and 11.0 million shares, respectively, of Avon common stock in the calculation of diluted EPS as we had a loss from continuing operations, net of tax, and the inclusion of these shares would decrease the net loss per share, and therefore, their inclusion would be anti-dilutive.
For the three months ended March 31, 2017 and 2016, it is more dilutive to assume the Series C Convertible Preferred Stock is not converted into common stock; therefore, the weighted-average outstanding shares outstanding was not adjusted by the as-if converted Series C Convertible Preferred Stock because the effect would be anti-dilutive as it would decrease the net loss per share. 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 months ended March 31, 2017 and 2016. See Note 5, Related Party Transactions.
We purchased approximately 1.4 million  shares of Avon common stock for $6.2 during the first three months of 2017, as compared to approximately .9 million shares of Avon common stock for $3.5 during the first three months of 2016, through acquisition of stock from employees in connection with tax payments upon vesting of restricted stock units and performance restricted stock units.

9

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


3. DISCONTINUED OPERATIONS
On December 17, 2015, the Company entered into definitive agreements with affiliates controlled by Cerberus Capital Management, L.P. ("Cerberus"). The agreements include an investment agreement providing for a $435.0 investment by Cleveland Apple Investor L.P. (“Cerberus Investor”) (an affiliate of Cerberus) in the Company through the purchase of perpetual convertible preferred stock (see Note 5, Related Party Transactions) and a separation and investment agreement providing for the separation of the Company's North America business, which represented the Company's operations in the United States, Canada and Puerto Rico, from the Company into New Avon LLC ("New Avon"), a privately-held company that is majority-owned and managed by Cerberus NA Investor LLC (“Cerberus NA”) (an affiliate of Cerberus). These transactions closed on March 1, 2016.
The major classes of financial statement components comprising the loss on discontinued operations, net of tax for North America are shown below:
 
 
Three Months Ended March 31,
 
 
2016
Total revenue
 
$
135.2

Cost of sales
 
53.2

Selling, general and administrative expenses
 
87.8

Operating loss
 
(5.8
)
Other income items
 
.6

Loss from discontinued operations, before tax
 
(5.2
)
Loss on sale of discontinued operations, before tax
 
(14.9
)
Income taxes
 
10.5

Loss from discontinued operations, net of tax
 
$
(9.6
)
4. INVESTMENT IN NEW AVON
In connection with the separation of the Company's North America business (as discussed in Note 3, Discontinued Operations), which closed on March 1, 2016, the Company retained a 19.9% ownership interest in New Avon. The Company accounts for its ownership interests in New Avon using the equity method of accounting, which results in the Company recognizing its proportionate share of New Avon's income or loss and other comprehensive income or loss. The Company's proportionate share of the losses of New Avon was $4.0 and $3.9 during the three months ended March 31, 2017 and one month ended March 31, 2016, respectively, and was recorded within other expense, net. The Company also recorded an additional loss of $.5 within other expense, net and a benefit of $1.1 within other comprehensive income, during the three months ended March 31, 2017, primarily associated with purchase accounting adjustments reported by New Avon. At March 31, 2017, our investment in New Avon was $29.4 and was classified within other assets in our Consolidated Balance Sheets.
Summarized financial information related to New Avon is shown below:
 
 
 Three Months Ended
March 31, 2017
 
One Month Ended
March 31, 2016
Total revenue
 
$
176.8

 
$
88.8

Gross profit
 
$
110.2

 
$
53.4

Net loss
 
$
(20.3
)
 
$
(19.6
)

10

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


5. RELATED PARTY TRANSACTIONS
The following tables present the related party transactions with New Avon and affiliates of Cerberus. New Avon is majority owned and managed by Cerberus NA. See Note 3, Discontinued Operations and Note 4, Investment in Avon for further details.
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Statement of Operations Data
 
 
 
 
Revenue from sale of product to New Avon (1)
 
$
8.0

 
$
3.7

Gross profit from sale of product to New Avon (1)
 
$
.6

 
$
.5

 
 
 
 
 
Cost of sales for purchases from New Avon (2)
 
$
.8

 
$
.9

 
 
 
 
 
Selling, general and administrative expenses:
 
 
 
 
Transition services, research and development and subleases (3)
 
$
(7.9
)
 
$
(3.9
)
Project management team (4)
 
.8

 
—

Net reduction of selling, general and administrative expenses
 
$
(7.1
)
 
$
(3.9
)
 
 
 
 
 
 
 
March 31, 2017
 
December 31, 2016
Balance Sheet Data
 
 
 
 
Inventories (5)
 
$
.8

 
$
1.0

Receivables due from New Avon (6)
 
$
6.8

 
$
11.6

Payables due to New Avon (7)
 
$
.4

 
$
.7

Payables due to an affiliate of Cerberus (8)
 
$
.6

 
$
.6

(1) The Company supplies product to New Avon as part of a manufacturing and supply agreement. The Company recorded revenue of $8.0 and $3.7 , within other revenue, and gross profit of $.6 and $.5 associated with this agreement during the three months ended March 31, 2017 and 2016, respectively.
(2) New Avon also supplies product to the Company as part of this manufacturing and supply agreement. The Company purchased $1.0 and $1.2 from New Avon associated with this agreement during the three months ended March 31, 2017 and 2016, respectively, and recorded $.8 and $.9 associated with these purchases within cost of sales during the three months ended March 31, 2017 and 2016, respectively.
(3) The Company also entered into a transition services agreement to provide certain services to New Avon, as well as an agreement for research and development and subleases for office space. In addition, New Avon is performing certain services for the Company under a similar transition services agreement. The Company recorded a net $7.9 and $3.9 reduction of selling, general and administrative expenses associated with these agreements during the three months ended March 31, 2017 and 2016, respectively, which generally represents a recovery of the related costs.
(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 transformation plan (the "Transformation Plan") announced in January 2016. The Company recorded $.8 in selling, general and administrative expenses associated with these agreements during the three months ended March 31, 2017. See Note 12, Restructuring Initiatives for additional information related to the Transformation Plan.
(5) Inventories relate to purchases from New Avon, associated with the manufacturing and supply agreement, which have not yet been sold, and were classified within inventories in the Consolidated Balance Sheets.
(6) The receivables due from New Avon relate to the agreements for transition services, research and development and subleases for office space, as well as the manufacturing and supply agreement, and were classified within prepaid expenses and other in the Consolidated Balance Sheets.
(7) The payables due to New Avon relate to the manufacturing and supply agreement, and were classified within other accrued liabilities in the Consolidated Balance Sheets.
(8) The payables due to an affiliate of Cerberus relate to the agreement for the project management team, and were classified within other accrued liabilities in the Consolidated Balance Sheets.

11

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


In addition, the Company also issued standby letters of credit to the lessors of certain equipment, a lease for which was transferred to New Avon in connection with the separation of the Company's North America business. As of March 31, 2017, the Company has a liability of $1.6 for the estimated value of such standby letters of credit. The recognition of the initial liability of $2.1 was included in the estimated loss on sale of the North America business in loss from discontinued operations, net of tax during the three months ended March 31, 2016.
Series C Preferred Stock
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 $435.0 . 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 $24.1 as of March 31, 2017. There were no dividends declared in the three months ended March 31, 2017 and 2016.
6. INVENTORIES
Components of Inventories
 
March 31, 2017
 
December 31, 2016
Raw materials
 
$
194.3

 
$
179.3

Finished goods
 
436.1

 
407.1

Total
 
$
630.4

 
$
586.4

7. EMPLOYEE BENEFIT PLANS
 
 
Three Months Ended March 31,
 
 
Pension Benefits
 
 
 
 
Net Periodic Benefit Costs
 
U.S. Plans
 
Non-U.S. Plans
 
Postretirement Benefits
 
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Service cost
 
$
1.4

 
$
2.3

 
$
1.2

 
$
1.3

 
$
—

 
$
.1

Interest cost
 
.7

 
4.3

 
4.4

 
6.0

 
.4

 
.6

Expected return on plan assets
 
(.8
)
 
(5.2
)
 
(6.7
)
 
(8.8
)
 
—

 
—

Amortization of prior service credit
 
—

 
(.1
)
 
—

 
—

 
(.1
)
 
(.9
)
Amortization of net actuarial losses
 
1.2

 
6.1

 
1.8

 
1.7

 
—

 
.2

Settlements/curtailments
 
—

 
.1

 
—

 
—

 
—

 
—

Net periodic benefit costs (1)
 
$
2.5

 
$
7.5

 
$
.7

 
$
.2

 
$
.3

 
$
—

(1) Includes $4.4 of U.S. pension and immaterial amounts of the postretirement benefit plans (related to the U.S.) for the three months ended March 31, 2016, which are included in discontinued operations. Amounts associated with the pension and postretirement benefit plans in Canada and the postretirement benefit plan in Puerto Rico, which are included in discontinued operations, have been excluded from all amounts in the table above. See Note 3, Discontinued Operations for discussion of the separation of the Company's North America business.
During the three months ended March 31, 2017 , we made less than $1 and approximately $5 of contributions to the U.S. and non-U.S. defined benefit pension and postretirement benefit plans, respectively. During the remainder of 2017, we anticipate contributing approximately $10 to $15 and approximately $15 to $20 to fund our U.S. and non-U.S. defined benefit pension and postretirement benefit plans, respectively.
8. CONTINGENCIES
Settlements of FCPA Investigations
As previously reported, we engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the FCPA and related U.S. and foreign laws in China and additional countries. The internal investigation, which was conducted under the oversight of our Audit Committee, began in June 2008 and along with the compliance reviews, was completed in 2014.
Following our voluntary reporting of the internal investigation to both the DOJ and the SEC and our subsequent cooperation with those agencies, the United States District Court for the Southern District of New York (the "USDC") approved in December 2014 a deferred prosecution agreement (“DPA”) entered into between the Company and the DOJ related to charges of violations of the books and records and internal controls provisions of the FCPA. In addition, Avon Products (China) Co.

12

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


Ltd., a subsidiary of the Company operating in China, pleaded guilty to conspiring to violate the books and records provision of the FCPA and was sentenced by the USDC to pay a $ 68 fine. The SEC also filed a complaint against the Company charging violations of the books and records and internal controls provisions of the FCPA and the Consent which was approved in a judgment entered by the USDC in January 2015, and included $ 67 in disgorgement and prejudgment interest. The DPA, the above-mentioned guilty plea and the Consent resolved the SEC’s and the DOJ’s investigations of the Company’s compliance with the FCPA and related U.S. laws in China and additional countries. The fine was paid in December 2014 and the payment to the SEC was made in January 2015.
Under the DPA, the DOJ will defer criminal prosecution of the Company for a term of three years. If the Company remains in compliance with the DPA during its term, the charges against the Company will be dismissed with prejudice. Under the DPA, the Company also represented that it has implemented and agreed that it will continue to implement a compliance and ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws throughout its operations.
Under the DPA and the Consent, among other things, the Company agreed to have a compliance monitor (the "monitor"). During July 2015, the Company engaged a monitor, who had been approved by the DOJ and SEC. With the approval of the DOJ and the SEC, the monitor can be replaced by the Company, if the Company agrees to undertake self-reporting obligations for the remainder of the monitoring period. The monitoring period is scheduled to expire in July 2018. There can be no assurance as to whether or when the DOJ and the SEC will approve replacing the monitor with the Company’s self-reporting. If the DOJ determines that the Company has knowingly violated the DPA, the DOJ may commence prosecution or extend the term of the DPA, including the monitoring provisions described above, for up to one year.
The monitor is assessing and monitoring the Company's compliance with the terms of the DPA and the Consent by evaluating, among other things, the Company's internal accounting controls, recordkeeping and financial reporting policies and procedures. The monitor has recommended some changes to our policies and procedures that we are in the process of adopting, and may make additional recommendations that we must adopt unless they are unduly burdensome or otherwise inadvisable, in which case we may propose alternatives, which the DOJ and the SEC may or may not accept. In addition, operating under the oversight of the monitor may result in additional time and attention on these matters by members of our management, which may divert their time from the operation of our business. Assuming the monitor is replaced by a self-reporting period, the Company’s self-reporting obligations may be costly or time-consuming.
The third-party costs incurred in connection with ongoing compliance with the DPA and the Consent, including the monitorship, have not been material to date and we do not anticipate material costs going forward. We currently cannot estimate the costs that we are likely to incur in connection with self-reporting, if applicable, and any additional costs of implementing the changes, if any, to our policies and procedures required by the monitor.
Litigation Matters
Between December 23, 2014 and March 12, 2015, two purported class actions were filed in the United States District Court for the Southern District of New York --  Poovathur v. Avon Products, Inc., et al. ( No. 14-CV-10083) and  McCoy et al. v. Avon Products, Inc., et al. ( No. 15-CV-01828) asserting claims under the Employee Retirement Income Security Act ("ERISA") against the Company, the Plan's administrator, benefits board and investment committee, and certain individuals alleged to have served as Plan fiduciaries. On April 8, 2015, the Court consolidated the two actions and recaptioned the consolidated case as  In re 2014 Avon Products, Inc. ERISA Litigation, ( No. 14-CV-10083). On May 8, 2015, plaintiffs filed a consolidated complaint, asserting claims for alleged breach of fiduciary duty and failure to monitor under ERISA on behalf of a purported class of participants in and beneficiaries of the Plan who invested in and/or held shares of the Avon Common Stock Fund between July 31, 2006 and May 1, 2014 and between December 14, 2011 and the present.  Plaintiffs seek,  inter alia , certain monetary relief, damages, and declaratory, injunctive and other equitable relief. On July 9, 2015, Defendants moved to dismiss the consolidated complaint. The parties 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 approximately $6 . Approximately $5 of the settlement was paid by the Company’s insurer and approximately $1  was paid by the Company (which represented the remaining deductible under the Company’s applicable insurance policy). On June 7, 2016, the court granted preliminary approval of the settlement and scheduled a hearing to consider final approval for October 11, 2016. On January 3, 2017, the Court issued a Final Approval Order approving the settlement .
Brazilian Tax Assessments
In 2002, our Brazilian subsidiary received an excise tax (IPI) assessment from the Brazilian tax authorities for alleged tax deficiencies during the years 1997-1998. In December 2012, additional assessments were received for the year 2008 with respect to excise tax (IPI) and taxes charged on gross receipts (PIS and COFINS). In the second quarter of 2014, the PIS and COFINS assessments were officially closed in favor of Avon Brazil. The 2002 and the 2012 IPI assessments assert that the

13

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


establishment in 1995 of separate manufacturing and distribution companies in Brazil was done without a valid business purpose and that Avon Brazil 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 2002 and 2012 IPI assessments are unfounded.
These matters are being vigorously contested. In January 2013, we filed a protest seeking a first administrative level review with respect to the 2012 IPI assessment. In July 2013, the 2012 IPI assessment was upheld at the first administrative level and we have appealed this decision to the second administrative level. The 2012 IPI assessment totals approximately $352 , including penalties and accrued interest. In October 2010, the 2002 IPI assessment was upheld at the first administrative level at an amount reduced to approximately $ 30 from approximately $ 71 , including penalties and accrued interest. We appealed this decision to the second administrative level, which ruled in favor of Avon in March 2015 and canceled the 2002 IPI assessment. The Brazilian tax authorities' appeal to this favorable decision regarding the 2002 IPI assessment was decided in Avon’s favor in February 2017. This favorable decision remains subject to further appeal by the Brazilian tax authorities.
In the event that the 2002 or 2012 IPI assessments are upheld, it may be necessary for us to provide security to pursue further appeals, which, depending on the circumstances, may result in a charge to earnings. 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 2010 are closed by statute). However, other similar IPI assessments involving different periods (1998-2001) have been canceled and officially closed in our favor by the second administrative level. We believe that the likelihood that the 2002 IPI assessment will be upheld on any further appeal is remote and the likelihood that the 2012 IPI assessment will be upheld is reasonably possible. As stated above, we believe that the 2002 and 2012 IPI assessments are unfounded.
Brazil IPI Tax on Cosmetics
In May 2015, an Executive Decree on certain cosmetics went into effect in Brazil which increased the amount of IPI taxes that are to be remitted by Avon Brazil to the taxing authority on the sales of cosmetic products subject to IPI. Avon Brazil filed an objection to this IPI tax increase on the basis that it is not constitutional. 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.
From May 2015 through April 2016, Avon Brazil remitted the taxes associated with this IPI tax increase into a judicial deposit which would be remitted to the taxing authorities in the event that we are not successful in our objection to the tax increase. In May 2016, Avon Brazil received a favorable preliminary decision on its objection to the tax and was granted a preliminary injunction. As a result, beginning in May 2016, Avon Brazil is no longer required to remit the taxes associated with IPI into a judicial deposit. As the IPI tax increase remains in effect, Avon Brazil is continuing to recognize the IPI taxes associated with the May 2015 Executive Decree as a liability. At March 31, 2017, the liability to the taxing authorities for this IPI tax increase was approximately $ 148 and was classified within other liabilities in our Consolidated Balance Sheets, and the judicial deposit was approximately $74 and was classified within other assets in our Consolidated Balance Sheets. The net liability that does not have a corresponding judicial deposit was $74 at March 31, 2017, and the interest associated with this net liability will be recognized in other expense, net. Our cash flow from operations has benefited as compared to our earnings as we have recognized the expense and associated interest related to this IPI tax in our Consolidated Statements of Operations; however, since May 2016, we have not made a corresponding cash payment into a judicial deposit.
An unfavorable ruling to our objection of this IPI tax increase would have an adverse effect on the consolidated cash flows as Avon Brazil would have to remit the liability owed to the taxing authorities. This amount would be partially offset by the amount of the judicial deposit held by Avon Brazil. We are not able to reliably predict the timing of the outcome of our objection to this tax increase.
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, 2017, is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

14

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


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 months ended March 31, 2017 and 2016 :
Three Months Ended March 31, 2017:
 
Foreign Currency Translation Adjustments
 
Net Investment Hedges
 
Pension and Postretirement Benefits
 
Investment in New Avon
 
Total
Balance at December 31, 2016
 
$
(910.9
)
 
$
(4.3
)
 
$
(120.2
)
 
$
2.2

 
$
(1,033.2
)
Other comprehensive income other than reclassifications
 
61.9

 
—

 
—

 
1.1

 
63.0

Reclassifications into earnings:
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss and prior service cost, net of tax of $0.0 (2)
 
—

 
—

 
3.1

 
—

 
3.1

Total reclassifications into earnings
 
—

 
—

 
3.1

 
—

 
3.1

Balance at March 31, 2017
 
$
(849.0
)
 
$
(4.3
)
 
$
(117.1
)
 
$
3.3

 
$
(967.1
)
Three Months Ended March 31, 2016:
 
Foreign Currency Translation Adjustments
 
Cash Flow Hedges
 
Net Investment Hedges
 
Pension and Postretirement Benefits
 
Total
Balance at December 31, 2015
 
$
(950.0
)
 
$
(1.3
)
 
$
(4.3
)
 
$
(410.6
)
 
$
(1,366.2
)
Other comprehensive income (loss) other than reclassifications
 
23.9

 
—

 
—

 
(12.7
)
 
11.2

Reclassifications into earnings:
 
 
 
 
 
 
 
 
 
 
Derivative losses on cash flow hedges, net of tax of $0.0 (1)
 
—

 
.4

 
—

 
—

 
.4

Amortization of net actuarial loss and prior service cost, net of tax of $.2 (2)
 
—

 
—

 
—

 
6.7

 
6.7

Deconsolidation of Venezuela, net of tax of $0.0
 
81.3

 
—

 
—

 
.8

 
82.1

Separation of North America, net of tax of $10.2
 
(10.0
)
 
—

 
—

 
269.2

 
259.2

Total reclassifications into earnings
 
71.3

 
.4

 
—

 
276.7

 
348.4

Balance at March 31, 2016
 
$
(854.8
)
 
$
(.9
)
 
$
(4.3
)
 
$
(146.6
)
 
$
(1,006.6
)
(1) Gross amount reclassified to interest expense, and related taxes reclassified to income taxes.
(2) Gross amount reclassified to pension and postretirement expense, within selling, general & administrative expenses, and related taxes reclassified to income taxes.
A foreign exchange net gain of $ 3.4 and net loss of $ 1.2 for the three months ended March 31, 2017 and 2016 , respectively, resulting from the translation of actuarial losses and prior service cost recorded in AOCI are included in changes in foreign currency translation adjustments in our Consolidated Statements of Comprehensive Income.
10. SEGMENT INFORMATION
We determine segment profit by deducting the related costs and expenses from segment revenue. In order to ensure comparability between periods, segment profit includes an allocation of global marketing expenses based on actual revenues. Segment profit excludes global expenses other than the allocation of marketing, costs to implement ("CTI") restructuring initiatives (see Note 12, Restructuring Initiatives), certain significant asset impairment charges, and other items, 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.

15

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 March 31,
 Total Revenue
 
2017
 
2016
Europe, Middle East & Africa
 
$
507.5

 
$
520.4

South Latin America
 
499.2

 
426.4

North Latin America
 
193.2

 
204.7

Asia Pacific
 
124.2

 
134.6

Total revenue from reportable segments
 
1,324.1

 
1,286.1

Other operating segments and business activities
 
9.0

 
20.4

Total revenue
 
$
1,333.1

 
$
1,306.5

 
 
Three Months Ended March 31,
Operating Profit
 
2017
 
2016
Segment Profit
 
 
 
 
Europe, Middle East & Africa
 
$
74.6

 
$
68.7

South Latin America
 
13.3

 
23.1

North Latin America
 
21.0

 
28.5

Asia Pacific
 
12.9

 
14.8

Total profit from reportable segments
 
$
121.8

 
$
135.1

Other operating segments and business activities
 
1.2

 
4.1

Unallocated global expenses
 
(84.3
)
 
(84.6
)
CTI restructuring initiatives
 
(10.0
)
 
(46.8
)
Operating profit
 
$
28.7

 
$
7.8

Other operating segments and business activities include the first quarter of 2016 results of Venezuela, as it was deconsolidated effective March 31, 2016, as well as markets that have been exited. Effective in the first quarter of 2017, given that we have exited Thailand during 2016, the results of Thailand are now reported in Other operating segments and business activities for all periods presented, while previously the results had been reported in Asia Pacific. Other operating segments and business activities also include revenue 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.
11. SUPPLEMENTAL BALANCE SHEET INFORMATION
At March 31, 2017 and December 31, 2016 , prepaid expenses and other included the following:
Components of Prepaid Expenses and Other
 
March 31, 2017
 
December 31, 2016
Prepaid taxes and tax refunds receivable
 
$
114.3

 
$
99.3

Prepaid brochure costs, paper and other literature
 
78.1

 
73.2

Receivables other than trade
 
55.0

 
68.3

Other
 
52.8

 
50.5

Prepaid expenses and other
 
$
300.2

 
$
291.3


16

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


At March 31, 2017 and December 31, 2016 , other assets included the following:
Components of Other Assets
 
March 31, 2017
 
December 31, 2016
Deferred tax assets
 
162.8

 
162.1

Long-term receivables
 
89.6

 
78.9

Judicial deposits other than Brazil IPI tax (see below)
 
85.7

 
78.0

Capitalized software
 
83.3

 
83.9

Judicial deposit for Brazil IPI tax on cosmetics (Note 8)
 
74.4

 
69.0

Net overfunded pension plans
 
59.7

 
54.8

Trust assets associated with supplemental benefit plans
 
35.9

 
35.2

Investment in New Avon (Note 4)
 
29.4

 
32.8

Tooling (plates and molds associated with our beauty products)
 
14.5

 
14.7

Other
 
12.0

 
12.3

Other assets
 
$
647.3

 
$
621.7

12. RESTRUCTURING INITIATIVES
Transformation Plan
In January 2016, we announced the Transformation Plan, which includes cost reduction efforts to continue to improve our cost structure and to enable us to reinvest in growth. As a result of this plan, we have targeted pre-tax annualized cost savings of approximately $350 after three years, with an estimated $200 from supply chain reductions and an estimated $150 from other cost reductions, which are expected to be achieved through restructuring actions, as well as other cost-savings strategies that will not result in restructuring charges. We plan to reinvest a portion of these cost savings in growth initiatives, including media, social selling and information technology systems that will help us modernize our business. We initiated the Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin and mid single-digit constant-dollar revenue growth. As part of the Transformation Plan, we identified certain actions, that we believe will reduce ongoing costs, primarily consisting of global headcount reductions relating to operating model changes, as well as the closure of Thailand, a smaller, under-performing market. These operating model changes include the streamlining of our corporate functions to align with the current and future needs of the business and an information technology infrastructure outsourcing initiative.
As a result of these restructuring actions approved-to-date, we have recorded total costs to implement these restructuring initiatives of $116.1 before taxes, of which $10.0 was recorded during the three months ended March 31, 2017, in our Consolidated Statements of Operations. The additional charges not yet incurred associated with the restructuring actions approved to-date of approximately $10 to $15 before taxes are expected to be recorded primarily in 2018. At this time we are unable to quantify the total costs to implement the restructuring initiatives that will be incurred through the time the Transformation Plan is fully implemented as we have not yet identified all actions to be taken.
Restructuring Charges - Three Months Ended March 31, 2017
During the three months ended March 31, 2017, we recorded costs to implement of $10.0 related to the Transformation Plan, in our Consolidated Statements of Operations. The costs consisted of the following:
•
net charges of $7.6 , primarily for employee-related costs, including severance benefits;
•
contract termination and other net charge of $1.4 ;
•
implementation costs of $.5 primarily related to professional service fees; and
•
accelerated depreciation of $.5 .
Of the total costs to implement during the three months ended March 31, 2017, $10.1 was recorded in selling, general and administrative expenses and a benefit of $.1 was recorded in cost of sales.

17

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


Restructuring Charges - Three Months Ended March 31, 2016
During the three months ended March 31, 2016, we recorded costs to implement of $47.5 related to the Transformation Plan, in selling, general and administrative expenses, in our Consolidated Statements of Operations. The costs consisted of the following:
•
net charge of $47.1 primarily for employee-related costs, including severance benefits; and
•
implementation costs of $.4 primarily related to professional service fees.
The liability balance for the Transformation Plan as of March 31, 2017 is as follows:
 
 
Employee-Related Costs
 
Contract Terminations/Other
 
Total
Balance at December 31, 2016
 
$
48.6

 
$
2.8

 
$
51.4

2017 charges
 
9.7

 
—

 
9.7

Adjustments
 
(2.1
)
 
1.4

 
(.7
)
Cash payments
 
(9.0
)
 
(.5
)
 
(9.5
)
Foreign exchange
 
.5

 
—

 
.5

Balance at March 31, 2017
 
$
47.7

 
$
3.7

 
$
51.4

The majority of cash payments, if applicable, associated with these charges are expected to be made during 2017.
The following table presents the restructuring charges incurred to date, under the Transformation Plan, along with the estimated charges expected to be incurred on approved initiatives under the plan:
 
 
Employee- Related Costs
 
Inventory Write-offs
 
Foreign Currency Translation Adjustment Write-offs
 
Contract
Terminations/Other
 
Total
Charges incurred to-date
 
$
91.6

 
$
.4

 
$
2.7

 
$
10.1

 
$
104.8

Estimated charges to be incurred on approved initiatives
 
6.2

 
—

 
—

 
1.2

 
7.4

Total expected charges on approved initiatives
 
$
97.8

 
$
.4

 
$
2.7

 
$
11.3

 
$
112.2

The charges, net of adjustments, of initiatives under the Transformation Plan, along with the estimated charges expected to be incurred on approved initiatives under the plan, by reportable segment are as follows:
 
 
Europe, Middle East & Africa
 
South Latin America
 
North Latin America
 
Asia
Pacific
 
Global & Other Operating Segments
 
Total
2015
 
$
—

 
$
—

 
$
—

 
$
—

 
$
21.4

 
$
21.4

2016
 
30.9

 
13.2

 
4.4

 
11.7

 
14.2

 
74.4

First quarter 2017
 
3.0

 
2.7

 
(.1
)
 
(.5
)
 
3.9

 
9.0

Charges incurred to-date
 
33.9

 
15.9


4.3


11.2


39.5


104.8

Estimated charges to be incurred on approved initiatives
 
1.2

 
—

 
—

 
—

 
6.2

 
7.4

Total expected charges on approved initiatives
 
$
35.1

 
$
15.9

 
$
4.3

 
$
11.2

 
$
45.7

 
$
112.2

We expect our total costs to implement restructuring on approved initiatives to be an estimated $125 to $130 before taxes under the Transformation Plan. The amounts shown in the tables above as charges recorded to-date relate to initiatives that have been approved and recorded in the 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. In addition to the charges included in the tables above, we have incurred and will continue to incur other costs to implement restructuring initiatives such as professional services fees and accelerated depreciation.

18

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


Other Restructuring Initiatives
During the three months ended March 31, 2017 and 2016 , we recorded an immaterial amount and a net benefit of $.7 , respectively, in selling, general and administrative expenses, in the Consolidated Statements of Operations, associated with the restructuring programs launched in 2005 and 2009, the restructuring initiatives launched in 2012 (including the cost savings initiative known as the "$400M Cost Savings Initiative"), and the restructuring actions identified during 2015 (collectively, the "Other Restructuring Initiatives"), which are substantially complete. The liability balance associated with the Other Restructuring Initiatives, which primarily consists of employee-related costs, as of March 31, 2017 is not material.
13. GOODWILL
Goodwill
 
 
Europe, Middle East & Africa
 
South Latin
America
 
Asia
Pacific
 
Total
Gross balance at December 31, 2016
 
$
25.6

 
$
72.3

 
$
85.0

 
$
182.9

Accumulated impairments
 
(6.9
)
 
—

 
(82.4
)
 
(89.3
)
Net balance at December 31, 2016
 
$
18.7

 
$
72.3

 
$
2.6

 
$
93.6

 
 
 
 
 
 
 
 
 
Changes during the period ended March 31, 2017:
 
 
 
 
 
 
 
 
Foreign exchange
 
.5

 
3.0

 
—

 
3.5

 
 
 
 
 
 
 
 
 
Gross balance at March 31, 2017
 
$
26.1

 
$
75.3

 
$
85.0

 
$
186.4

Accumulated impairments
 
(6.9
)
 
—

 
(82.4
)
 
(89.3
)
Net balance at March 31, 2017
 
$
19.2

 
$
75.3

 
$
2.6

 
$
97.1

14. FAIR VALUE
Assets and Liabilities Recorded at Fair Value
The fair value measurement provisions required by GAAP establish a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
•
Level 1 - Quoted prices in active markets for identical assets or liabilities.
•
Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
•
Level 3 - Unobservable inputs based on our own assumptions.
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 March 31, 2017 :
 
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Available-for-sale securities
$
2.8

 
$
—

 
$
2.8

Foreign exchange forward contracts
—

 
.4

 
.4

Total
$
2.8

 
$
.4

 
$
3.2

Liabilities:
 
 
 
 
 
Foreign exchange forward contracts
$
—

 
$
.3

 
$
.3

Total
$
—

 
$
.3

 
$
.3


19

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


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, 2016 :
 
Level 1
 
Level 2
 
Total
Assets:
 
 
 
 
 
Available-for-sale securities
$
2.8

 
$
—

 
$
2.8

Foreign exchange forward contracts
—

 
.6

 
.6

Total
$
2.8

 
$
.6

 
$
3.4

Liabilities:
 
 
 
 
 
Foreign exchange forward contracts
$
—

 
$
3.0

 
$
3.0

Total
$
—

 
$
3.0

 
$
3.0

Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, available-for-sale securities, short-term investments, accounts receivable, loans 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 payable 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 March 31, 2017 and December 31, 2016 , respectively, consisted of the following:
 
March 31, 2017
 
December 31, 2016
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Available-for-sale securities
$
2.8

 
$
2.8

 
$
2.8

 
$
2.8

Debt maturing within one year (1)
(20.1
)
 
(20.1
)
 
(18.1
)
 
(18.1
)
Long-term debt (1)
(1,874.9
)
 
(1,880.8
)
 
(1,875.8
)
 
(1,877.5
)
Foreign exchange forward contracts
.1

 
.1

 
(2.4
)
 
(2.4
)
(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.
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-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.
15. 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.

20

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 outstanding at March 31, 2017 :
 
Asset
 
Liability
 
Balance Sheet
Classification
 
Fair
Value
 
Balance Sheet
Classification
 
Fair
Value
Derivatives not designated as hedges:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Prepaid expenses and other
 
$
.4

 
Accounts payable
 
$
.3

Total derivatives not designated as hedges
 
 
$
.4

 
 
 
$
.3

Total derivatives
 
 
$
.4

 
 
 
$
.3

 
The following table presents the fair value of derivative instruments outstanding at December 31, 2016 :
 
Asset
 
 
 
Liability
 
Balance Sheet
Classification
 
Fair
Value
 
Balance Sheet
Classification
 
Fair
Value
Derivatives not designated as hedges:
 
 
 
 
 
 
 
Foreign exchange forward contracts
Prepaid expenses and other
 
$
.6

 
Accounts payable
 
$
3.0

Total derivatives not designated as hedges
 
 
$
.6

 
 
 
$
3.0

Total derivatives
 
 
$
.6

 
 
 
$
3.0

Interest Rate Risk
A portion of our borrowings is subject to interest rate risk. In the past we have used interest-rate swap agreements, 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 March 31, 2017 , we do not have any interest-rate swap agreements. Approximately 1% of our debt portfolio at March 31, 2017 and December 31, 2016 was exposed to floating interest rates.
In January 2013, we terminated eight of our interest-rate swap agreements previously designated as fair value hedges, with notional amounts totaling $ 1,000 . As of the interest-rate swap agreements’ termination date, the aggregate favorable adjustment to the carrying value (deferred gain) of our debt was $ 90.4 , which was amortized as a reduction to interest expense over the remaining term of the underlying debt obligations. The net impact of the gain amortization was $3.7 for the three months ended March 31, 2016 . At March 31, 2017, there is no unamortized deferred gain associated with the January 2013 interest-rate swap termination, as the underlying debt obligations have been paid.
In March 2012, we terminated two 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 is being amortized as a reduction to interest expense over the remaining term of the underlying debt obligations through March 2019. The net impact of the gain amortization was $1.2 and $1.7 , respectively, for the three months ended March 31, 2017 and 2016, respectively. At March 31, 2017 , the unamortized deferred gain associated with the March 2012 interest-rate swap termination was $9.7 , and was classified within long-term debt in our Consolidated Balance Sheets.
Foreign Currency Risk
We may use foreign exchange forward contracts to manage a portion of our foreign currency exchange rate exposures. At March 31, 2017 , we had outstanding foreign exchange forward contracts with notional amounts totaling approximately $65 for various currencies.
We may use foreign exchange forward contracts to manage foreign currency exposure of certain intercompany loans. These contracts are not designated as hedges. The change in fair value of these contracts is immediately recognized in earnings and substantially offsets the foreign currency impact recognized in earnings relating to the associated intercompany loans. During the three months ended March 31, 2017 and 2016, we recorded a gain of $.5 and a loss of $2.3 , respectively, in other expense, net in our Consolidated Statements of Operations related to these undesignated foreign exchange forward contracts. Also during the three months ended March 31, 2017 and 2016, we recorded a loss of $1.2 and a gain of $.8 , resp ectively, related to the associated intercompany loans, caused by changes in foreign currency exchange rates.

21

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


16. DEBT
Revolving Credit Facility
In June 2015, the Company and 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”). Borrowings under the 2015 facility bear interest, at our option, at a rate per annum equal to LIBOR plus 250 basis points or a floating base rate plus 150 basis points, in each case subject to adjustment based upon a leverage-based pricing grid. As of March 31, 2017 , there were no amounts outstanding under the 2015 facility.
All obligations of AIO under the 2015 facility are (i) unconditionally guaranteed by each material domestic restricted subsidiary of the Company (other than AIO, the borrower), in each case, subject to certain exceptions and (ii) fully guaranteed on an unsecured basis by the Company. The obligations of AIO and the subsidiary guarantors are secured by first priority liens on and security interest in substantially all of the assets of AIO and the subsidiary guarantors, in each case, subject to certain exceptions.
The 2015 facility will terminate in June 2020; provided, however, that it shall terminate on the 91 st day prior to the maturity of the 6.50% Notes (as defined below) and the 4.60% Notes (as defined below), if on such 91 st day, the applicable notes are not redeemed, repaid, discharged, defeased or otherwise refinanced in full.
The 2015 facility contains affirmative and negative covenants, which are customary for secured financings of this type, as well as financial covenants (interest coverage and total leverage ratios). As of March 31, 2017 , we were in compliance with our interest coverage and total leverage ratios under the 2015 facility. The amount of the facility available to be drawn down is reduced by any standby letters of credit granted by AIO, which, as of March 31, 2017 , was approximately $44 . As of March 31, 2017 , based on then applicable interest rates, the entire amount of the remaining 2015 facility, which is approximately $356 , could have been drawn down without violating any covenant.
Public Notes
In March 2013, we issued, in a public offering, $250.0 principal amount of 2.375% Notes due March 15, 2016 (the "2.375% Notes"), $500.0 principal amount of 4.60% Notes due March 15, 2020 (the "4.60% Notes"), $500.0 principal amount of 5.00% Notes due March 15, 2023 (the "5.00% Notes") and $250.0 principal amount of 6.95% Notes due March 15, 2043 (the "6.95% Notes") (collectively, the "2013 Notes"). In March 2008, we issued $350.0 principal amount of 6.50% Notes due March 1, 2019 (the "6.50% Notes"). Interest on the 2013 Notes is payable semi-annually on March 15 and September 15 of each year, and interest on the 6.50% Notes are payable semi-annually on March 1 and September 1 of each year.
In August 2015, we prepaid the entire principal amount of our 2.375% Notes plus accrued interest and a make-whole premium. In 2016, we completed cash tender offers totaling to a $300.6 reduction for certain of our outstanding public notes, repurchased $180.5 of certain of our outstanding public notes, and prepaid the remaining principal amounts totaling $238.4 of our 4.20% Notes due July 15, 2018 and our 5.75% Notes due March 1, 2018, plus accrued interest and a make-whole premium (the "2016 debt transactions").
The indenture governing the 2013 Notes contains interest rate adjustment provisions depending on the long-term credit ratings assigned to the 2013 Notes with S&P and Moody's. As described in the indenture, the interest rates on the 2013 Notes increase by .25% for each one-notch downgrade below investment grade on each 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% 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.
The indentures governing our outstanding notes described above contain certain customary covenants and customary events of default and cross-default provisions. Further, we would be required to make an offer to repurchase all of our outstanding notes described above at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change in control involving Avon and, at such time, the outstanding notes are rated below investment grade.
Senior Secured Notes
In August 2016, 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 on August 15, 2022 (the "Senior Secured Notes"). Interest on the Senior Secured Notes is payable semi-annually on February 15 and August 15 of each year.
All obligations of AIO under the Senior Secured Notes are unconditionally guaranteed by each current and future wholly-owned domestic restricted subsidiary of the Company that is a guarantor under the 2015 facility and fully guaranteed on an unsecured basis by the Company. The obligations of AIO and the subsidiary guarantors are secured by first priority liens on and

22

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


security interest in substantially all of the assets of AIO and the subsidiary guarantors, in each case, subject to certain exceptions.
The indenture governing our Senior Secured Notes contains certain customary covenants and restrictions as well as customary events of default and cross-default provisions. The indenture also contains a covenant requiring AIO and its restricted subsidiaries to, at the end of each year, own at least a certain percentage of the total assets of API and its restricted subsidiaries, subject to certain qualifications. Further, we would be required to make an offer to repurchase all of our Senior Secured Notes, at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest, in the event of a change in control involving Avon.
Long-Term Credit Ratings
Our long-term credit ratings are: Moody’s ratings of Stable Outlook with B1 for corporate family debt, B3 for senior unsecured debt, and Ba1 for the Senior Secured Notes; S&P ratings of Positive Outlook with B for corporate family debt and senior unsecured debt and BB- for the Senior Secured Notes; and Fitch rating of Negative Outlook with B+, each of which are below investment grade. We do not believe these long-term credit ratings will have a material impact on our near-term liquidity. However, any rating agency reviews could result in a change in outlook or downgrade, which could further limit our access to new financing, particularly short-term financing, reduce our flexibility with respect to working capital needs, affect the market price of some or all of our outstanding debt securities, and likely result in an increase in financing costs, and less favorable covenants and financial terms under our financing arrangements.

23

AVON PRODUCTS, INC.
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
We are a global manufacturer and marketer of beauty and related products. Our business is conducted primarily in the direct-selling channel. During 2016 , we had sales operations in 57 countries and territories, and distributed products in 18 more. All of our consolidated revenue is derived from operations of subsidiaries outside of the U.S. Our reportable segments are based on geographic operations in four regions: Europe, Middle East & Africa; South Latin America; North Latin America; and Asia Pacific. Our product categories are Beauty and Fashion & Home. Beauty consists of skincare (which includes personal care), fragrance and color (cosmetics). Fashion & Home consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and leisure products, children’s products and nutritional products. Sales are made to the ultimate consumer principally through direct selling by Representatives, who are independent contractors and not our employees.
During the three months ended March 31, 2017 , revenue increased 2% compared to the prior-year period, primarily due to favorable foreign exchange, while Constant $ revenue decreased 1%. Our Constant $ revenue decline was primarily driven by declines in Russia, Asia Pacific and the United Kingdom, partially offset by growth in South Africa, Brazil and North Latin America. The decline in Constant $ revenue was primarily due to a 4% decrease in Active Representatives, which was partially offset by higher average order. The net impact of price and mix increased 6% as we have realized benefits from pricing. Units sold decreased 7%, primarily due to declines in units sold in Russia. The decrease in Active Representatives was primarily due to Europe, Middle East & Africa (driven by Russia), Asia Pacific (most significantly in Malaysia) and South Latin America. In addition, the decrease in Active Representatives was due to the impact of the exit from the Thailand market and the deconsolidation of Venezuela, which had a combined negative impact of 1 point.
Ending Representatives decreased by 2%. The decrease in Ending Representatives at March 31, 2017 as compared to the prior-year period was partially due to declines in Asia Pacific (most significantly in Malaysia) and Russia, partially offset by growth in South Africa and South Latin America. In addition, the decrease in Ending Representatives was due to the exit from the Thailand market, which had a negative impact of 1 point.
See "Segment Review" in this MD&A for additional information related to changes in revenue by segment.
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. The Transformation Plan includes three pillars: invest in growth, reduce costs in an effort to continue to improve our cost structure and improve our financial resilience.
The Transformation Plan was designed to focus on cost savings and financial resilience in the first year, in order to support future investment in growth. In 2016 we achieved an estimated cost savings of $120 before taxes and significantly strengthened the balance sheet. In 2017, our cost savings target is $230 before taxes, which includes both run-rate savings from 2016, along with in-year savings from current year initiatives. Based on savings realized through the first quarter of 2017, we believe we are on track to achieve this target.
During 2017, we are increasing our focus on the invest in growth pillar, which includes investment in media and social selling, as well as spend related to service model evolution and information technology, primarily capital expenditures, which will be aimed at improving the overall Representative experience. The Company expects to increase capital expenditures by approximately $65 in 2017 related to invest in growth.
In connection with the actions and associated savings discussed above, we have incurred costs to implement ("CTI") restructuring initiatives of approximately $116 before taxes associated with the Transformation Plan to-date. In connection with the restructuring actions approved to-date associated with the Transformation Plan, we expect to realize annualized savings of an estimated $105 to $115 before taxes. We have realized an estimated $20 before taxes of savings associated with the restructuring actions in the first quarter of 2017 and are expected to achieve the majority of the annualized savings in 2017. In addition, we have realized savings from other cost-savings strategies that did not result in restructuring charges. For the market closures, the expected annualized savings represented the operating profit (loss) no longer included within Avon's operating

24

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



results as a result of no longer operating in the respective market. For actions that did not result in the closure of a market, the annualized savings represent the net reduction of expenses that will no longer be incurred by Avon.
For additional details on restructuring initiatives, see Note 12, Restructuring Initiatives, to the consolidated financial statements included herein. For additional details on strengthening the balance sheet, see Note 16, Debt, to the consolidated financial statements included herein and "Liquidity and Capital Resources" in this MD&A for additional information.
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 MONTHS ENDED MARCH 31, 2017 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2016
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with generally accepted accounting principles 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, selling, general and administrative expenses as a percentage of revenue, operating profit, operating margin and effective tax rate on a Non-GAAP basis. We refer to these Non-GAAP financial measures as "Adjusted." 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 - Consolidated" 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 of the impacts of 1) CTI restructuring initiatives, 2) charges related to the deconsolidation of our Venezuelan operations as of March 31, 2016 ("Venezuelan special items"), and, as it relates to our effective tax rate discussion, 3) an income tax benefit realized in the first quarter of 2016 as a result of tax planning strategies ("Special tax items").
The Venezuelan special items include the impact on the Consolidated Statements of Operations in 2016 caused by the deconsolidation of our Venezuelan operations for which we recorded a loss of approximately $120 in other expense, net. The loss was comprised of approximately $39 in net assets of the Venezuelan business and approximately $81 in accumulated foreign currency translation adjustments within accumulated other comprehensive loss ("AOCI") associated with foreign currency changes before Venezuela was accounted for as a highly inflationary economy.
In addition, the effective tax rate discussion includes Special tax items, including the impact during the first quarter of 2016 on the provision for income taxes in the Consolidated Statements of Operations due to an income tax benefit of approximately $29 recognized as the result of the implementation of foreign tax planning strategies.
See Note 12, Restructuring Initiatives, Note 1, Accounting Policies, and "Venezuela Discussion" and "Liquidity and Capital Resources" in this MD&A for more information on these items.

25

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 March 31,
 
 
2017
 
2016
 
%/Point
Change
Select Consolidated Financial Information
 
 
 
 
 
 
Total revenue
 
$
1,333.1

 
$
1,306.5

 
2
 %
Cost of sales
 
517.1

 
518.8

 
—
 %
Selling, general and administrative expenses
 
787.3

 
779.9

 
1
 %
Operating profit
 
28.7

 
7.8

 
*

Interest expense
 
35.1

 
32.7

 
7
 %
Interest income
 
(4.7
)
 
(4.0
)
 
18
 %
Other expense, net
 
5.0

 
137.2

 
(96
)%
Loss before taxes
 
(6.7
)
 
(158.1
)
 
96
 %
Loss from continuing operations, net of tax
 
(36.5
)
 
(155.8
)
 
77
 %
Net loss attributable to Avon
 
$
(36.5
)
 
$
(165.9
)
 
78
 %
 
 
 
 
 
 
 
Diluted loss per share from continuing operations
 
$
(.10
)
 
$
(.36
)
 
72
 %
Diluted loss per share attributable to Avon
 
$
(.10
)
 
$
(.38
)
 
74
 %
 
 
 
 
 
 
 
Advertising expenses (1)
 
$
30.1

 
$
23.0

 
31
 %
 
 
 
 
 
 
 
Reconciliation of Non-GAAP Financial Measures
 
 
 
 
Gross margin
 
61.2
 %
 
60.3
 %
 
.9

CTI restructuring
 
—

 
—

 
—

Adjusted gross margin
 
61.2
 %
 
60.3
 %
 
.9

 
 
 
 
 
 
 
Selling, general and administrative expenses as a % of total revenue
 
59.1
 %
 
59.7
 %
 
(.6
)
CTI restructuring
 
(.8
)
 
(3.6
)
 
2.8

Adjusted selling, general and administrative expenses as a % of total revenue
 
58.3
 %
 
56.1
 %
 
2.2

 
 
 
 
 
 
 
Operating profit
 
$
28.7

 
$
7.8

 
*

CTI restructuring
 
10.0

 
46.8

 


Adjusted operating profit
 
$
38.7

 
$
54.6

 
(29
)%
 
 
 
 
 
 
 
Operating margin
 
2.2
 %
 
.6
 %
 
1.6

CTI restructuring
 
.8

 
3.6

 
(2.8
)
Adjusted operating margin
 
2.9
 %
 
4.2
 %
 
(1.3
)
 
 
 
 
 
 
 
Change in Constant $ Adjusted operating margin (2)
 
 
 
 
 
(1.1
)
 
 
 
 
 
 
 
Performance Metrics
 
 
 
 
 
 
Change in Active Representatives
 
 
 
 
 
(4
)%
Change in units sold
 
 
 
 
 
(7
)%
Change in Ending Representatives
 
 
 
 
 
(2
)%
* Calculation not meaningful
Amounts in the table above may not necessarily sum due to rounding.
(1)
Advertising expenses are recorded in selling, general and administrative expenses.
(2)
Change in Constant $ Adjusted operating margin for all years presented is calculated using the current-year Constant $ rates.
Three Months Ended March 31, 2017
Revenue
During the three months ended March 31, 2017 , revenue increased 2% compared to the prior-year period, primarily due to favorable foreign exchange, while Constant $ revenue decreased 1%. Our Constant $ revenue decline was primarily driven by declines in Russia, Asia Pacific and the United Kingdom, partially offset by growth in South Africa, Brazil and North Latin America. The decline in Constant $ revenue was primarily due to a 4% decrease in Active Representatives, which was partially offset by higher average order. The net impact of price and mix increased 6% as we have realized benefits from pricing. Units

26

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



sold decreased 7%, primarily due to declines in units sold in Russia. The decrease in Active Representatives was primarily due to Europe, Middle East & Africa (driven by Russia), Asia Pacific (most significantly in Malaysia) and South Latin America. In addition, the decrease in Active Representatives was due to the impact of the exit from the Thailand market and the deconsolidation of Venezuela, which had a combined negative impact of 1 point.
Ending Representatives decreased by 2%. The decrease in Ending Representatives at March 31, 2017 as compared to the prior-year period was partially due to declines in Asia Pacific (most significantly in Malaysia) and Russia, partially offset by growth in South Africa and South Latin America. In addition, the decrease in Ending Representatives was due to the exit from the Thailand market, which had a negative impact of 1 point.
On a category basis, our net sales from reportable segments and associated growth rates were as follows:
 
Three Months Ended March 31,
 
%/Point Change
 
2017
 
2016
 
US$
 
Constant $
Beauty:
 
 
 
 
 
 
 
Skincare
$
385.1

 
$
362.0

 
6
 %
 
1
 %
Fragrance
343.3

 
331.2

 
4

 
—

Color
241.7

 
245.7

 
(2
)
 
(6
)
Total Beauty
970.1

 
938.9

 
3

 
(1
)
Fashion & Home:
 
 
 
 
 
 
 
Fashion
193.8

 
196.3

 
(1
)
 
(4
)
Home
134.1

 
129.2

 
4

 
1

Total Fashion & Home
327.9

 
325.5

 
1

 
(2
)
Net sales from reportable segments
$
1,298.0

 
$
1,264.4

 
3

 
(1
)
Net sales from Other operating segments and business activities
.1

 
15.6

 
*

 
*

Net sales
$
1,298.1

 
$
1,280.0

 
1

 
(2
)
* Calculation not meaningful
See “Segment Review” in this MD&A for additional information related to changes in revenue by segment.
Operating Margin
Operating margin and Adjusted operating margin increased 160 basis points and decreased 130 basis points, respectively, compared to the same period of 2016. The increase in operating margin and decrease in Adjusted operating margin are discussed further below in "Gross Margin" and "Selling, General and Administrative Expenses."
Gross Margin
Gross margin and Adjusted gross margin both increased 90 basis points compared to the same period of 2016, primarily due to the following:
•
an increase of 140 basis points due to the favorable net impact of mix and pricing, primarily due to inflationary and strategic pricing in South Latin America and Europe, Middle East & Africa; and
•
an increase of approximately 20 basis points due to the net favorable impact of foreign currency transaction gains and foreign currency translation.
These items were partially offset by the following:
•
a decrease of 40 basis points due to higher supply chain costs, primarily in South Latin America, North Latin America and Asia Pacific due to higher material and overhead costs, which was partially offset by lower material and distribution costs in Europe, Middle East & Africa; and
•
a decrease of 20 basis points due to sales of products to New Avon since the separation of the Company's North America business into New Avon on March 1, 2016.
See Note 5, Related Party Transactions, to the consolidated financial statements included herein for more information on New Avon.

27

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



Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of revenue and Adjusted selling, general, and administrative expenses as a percentage of revenue decreased 60 basis points and increased 220 basis points, respectively, compared to the same period of 2016. The selling, general and administrative expenses as a percentage of revenue comparison was impacted by approximately 280 basis points for lower CTI restructuring. See Note 12, Restructuring Initiatives, to the consolidated financial statements included herein for more information on CTI restructuring.
The remaining decrease in selling, general and administrative expenses as a percentage of revenue and the increase of 220 basis points in Adjusted selling, general and administrative expenses as a percentage of revenue were primarily due to the following:
•
an increase of 140 basis points from higher bad debt expense, driven by Brazil primarily due to the lower than anticipated collection of receivables which was partly as a result of the macroeconomic environment;
•
an increase of 60 basis points due to the impact of an out-of-period adjustment in Global related to equity compensation which was recorded in the first quarter of 2017 that should have been recorded in the first quarter of 2016;
•
an increase of 60 basis points from higher transportation costs, primarily in Russia driven by new delivery rates; and
•
an increase of 40 basis points from higher advertising expense, primarily in Brazil and Russia.
These items were partially offset by the following:
•
a decrease of 50 basis points primarily due to lower Representative, sales leader and field expense, driven by Brazil; and
•
a decrease of approximately 40 basis points due to the favorable impact of foreign currency translation and foreign currency transaction gains.
Other Expense
Interest expense increased by approximately $2 compared to the prior-year period, primarily due to the interest associated with $500 of 7.875% Senior Secured Notes issued in August 2016 and lower amortization of gains associated with the termination of interest rate swaps. These items were partially offset by the interest savings associated with prepayment of the remaining principal amount of our 4.20% Notes and 5.75% Notes in November 2016, the August 2016 cash tender offers and the October 2016 and December 2016 repurchases of certain of our outstanding public notes. Refer to Note 16, Debt, and Note 15, Derivative Instruments and Hedging Activities, to the consolidated financial statements included herein for additional information.
Interest income increased by approximately $1 compared to the prior-year period.
Other expense, net, decreased by approximately $132 compared to the prior-year period, primarily due to the deconsolidation of our Venezuelan operations, as we recorded a loss of approximately $120 in the first quarter of 2016. In addition, other expense, net was positively impacted by foreign exchange net gains as compared to net losses in the prior year, resulting in a year-over-year benefit of approximately $14. See "Venezuela Discussion" in this MD&A and Note 1, Accounting Policies, to the consolidated financial statements included herein for further discussion of our Venezuela operations.
Effective Tax Rate
The effective tax rates in 2017 and 2016 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 2017 and 2016 continue to be impacted by withholding taxes associated with certain intercompany payments, including royalties, service charges and dividends, which in the aggregate are relatively consistent each year due to the need to repatriate funds to cover U.S.-based costs, such as interest on debt and corporate overhead. These factors resulted in unusual effective tax rates in 2017 and 2016.
The effective tax rate in 2017 was impacted by CTI restructuring. The effective tax rate in 2016 was impacted by the deconsolidation of our Venezuelan operations and CTI restructuring, partially offset by a benefit of approximately $29 as a result of the implementation of foreign tax planning strategies.
The effective tax rates and the Adjusted effective tax rates in 2017 and 2016 were negatively impacted by the country mix of earnings and the inability to recognize additional deferred tax assets in various jurisdictions related to our current-year operating results, including the impact caused by the withholding taxes associated with certain intercompany payments, including royalties, service charges and dividends.

28

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



See "Venezuela Discussion" in this MD&A and Note 1, Accounting Policies, to the consolidated financial statements included herein for further discussion of our Venezuela operations.
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 gains (classified within cost of sales, and selling, general and administrative expenses), which had a favorable impact to operating profit and Adjusted operating profit of an estimated $5, or approximately 20 basis points to operating margin and Adjusted operating margin;
•
foreign currency translation, which had a favorable impact to operating profit and Adjusted operating profit of approximately $5, or approximately 40 points to operating margin and Adjusted operating margin; and
•
foreign exchange net gains on our working capital (classified within other expense, net) as compared to net losses in the prior year, resulting in a year-over-year benefit of approximately $14 before tax on both a reported and Adjusted basis.
Discontinued Operations
Loss from discontinued operations, net of tax was approximately $10 for 2016. During the first quarter of 2016, we recorded a charge of approximately $15 before tax ($5 after tax) associated with the sale of the North America business which closed on March 1, 2016. See Note 3, Discontinued Operations, to the consolidated financial statements included herein for more information.
Venezuela Discussion
As of March 31, 2016, we deconsolidated our Venezuelan operations, and since then, we account for this business using the cost method of accounting. The decision to deconsolidate our Venezuelan operations was due to the lack of exchangeability between the Venezuelan bolivar and the U.S. dollar. This was caused by Venezuela's restrictive foreign exchange control regulations and our Venezuelan operations' increasingly limited access to U.S. dollars, which restricted our Venezuelan operations' ability to pay dividends and settle intercompany obligations.
As a result of the change to the cost method of accounting, in the first quarter of 2016 we recorded a loss of approximately $120 in other expense, net. The loss was comprised of approximately $39 in net assets of the Venezuelan business and approximately $81 in accumulated foreign currency translation adjustments within AOCI associated with foreign currency movements before Venezuela was accounted for as a highly inflationary economy. The net assets of the Venezuelan business were comprised of inventories of approximately $24, property, plant and equipment, net of approximately $15, other assets of approximately $11, accounts receivable of approximately $5, cash of approximately $4, and accounts payable and accrued liabilities of approximately $20. Our Consolidated Balance Sheets no longer include the assets and liabilities of our Venezuelan operations. We no longer include the results of our Venezuelan operations in our Consolidated Financial Statements, and will include income relating to our Venezuelan operations only to the extent that we receive cash for dividends or royalties remitted by Avon Venezuela.
Segment Review
We determine segment profit by deducting the related costs and expenses from segment revenue. In order to ensure comparability between periods, segment profit includes an allocation of global marketing expenses based on actual revenues. Segment profit excludes global expenses other than the allocation of marketing, CTI restructuring initiatives, certain significant asset impairment charges, and other items, 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 10, Segment Information, to the consolidated Financial statements for a reconciliation of segment profit to operating profit.

29

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



Europe, Middle East & Africa
 
Three Months Ended March 31,
 
 
 
 
 
%/Point Change
 
2017
 
2016
 
US$
 
Constant $
Total revenue
$
507.5

 
$
520.4

 
(2
)%
 
(4
)%
Segment profit
74.6

 
68.7

 
9
 %
 
5
 %
 
 
 
 
 
 
 
 
Segment margin
14.7
%
 
13.2
%
 
1.5

 
1.3

 
 
 
 
 
 
 
 
Change in Active Representatives
 
 
 
 
 
 
(3
)%
Change in units sold
 
 
 
 
 
 
(13
)%
Change in Ending Representatives
 
 
 
 
 
 
(1
)%
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended March 31, 2017
Total revenue decreased 2% compared to the prior-year period, despite the favorable impact of foreign exchange which was primarily driven by the weakening of the U.S. dollar relative to the Russian ruble. On a Constant $ basis, revenue decreased 4%, primarily driven by declines in Russia and the United Kingdom, partially offset by growth in South Africa. The segment's Constant $ revenue decline was driven by the decrease in Active Representatives, as well as lower average order. The decline in Ending Representatives was primarily driven by a decline in Russia, partially offset by an increase in South Africa.
In Russia, revenue increased 13%, benefiting significantly from the favorable impact of foreign exchange. On a Constant $ basis, Russia's revenue declined 10%, primarily due to a decrease in Active Representatives along with lower average order. Constant $ revenue in Russia was negatively impacted by an aggressive pricing environment, combined with service issues related to our delivery provider, which also negatively impacted units in Russia. In the United Kingdom, revenue declined 18%, which was unfavorably impacted by foreign exchange. On a Constant $ basis, the United Kingdom's revenue declined 6%, primarily due to a decrease in Active Representatives as well as lower average order. The Constant $ revenue decline in the United Kingdom was partially due to the anniversary of the strong product launch of Matte lipstick in the first quarter of 2016. In South Africa, revenue grew 41%, which was favorably impacted by foreign exchange. On a Constant $ basis, South Africa’s revenue grew 19%, primarily due to an increase in Active Representatives.
Segment margin increased 1.5 points, or 1.3 points on a Constant $ basis, primarily as a result of:
•
a benefit of 4.5 points due to higher gross margin caused primarily by 2.6 points from the favorable net impact of mix and pricing, 1.2 points due to lower supply chain costs, and an estimated 1 point from the favorable impact of foreign currency transaction net gains. Supply chain costs benefited primarily from lower material and distribution costs, partially due to productivity initiatives;
•
a decline of 1.2 points from higher transportation costs, primarily in Russia driven by new delivery rates;
•
a net decline of 1.1 points primarily due to the impact of the Constant $ revenue decline with respect to our fixed expenses; and
•
a decline of .4 points from higher advertising expense, primarily in Russia.

30

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 March 31,
 
 
 
 
 
%/Point Change
 
2017
 
2016
 
US$
 
Constant $
Total revenue
$
499.2

 
$
426.4

 
17
 %
 
2
 %
Segment profit
13.3

 
23.1

 
(42
)%
 
(49
)%
 
 
 
 
 
 
 
 
Segment margin
2.7
%
 
5.4
%
 
(2.7
)
 
(2.5
)
 
 
 
 
 
 
 
 
Change in Active Representatives
 
 
 
 
 
 
(2
)%
Change in units sold
 
 
 
 
 
 
(1
)%
Change in Ending Representatives
 
 
 
 
 
 
1
 %
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended March 31, 2017
Total revenue increased 17% compared to the prior-year period, primarily due to the favorable impact of foreign exchange which was primarily driven by the weakening of the U.S. dollar relative to the Brazilian real. On a Constant $ basis, revenue increased 2%. The segment's Constant $ revenue benefited from higher average order, which was driven by pricing, partially offset by a decrease in Active Representatives. The increase in Ending Representatives was primarily driven by growth in Brazil and Argentina.
Revenue in Brazil increased 26%, favorably impacted by foreign exchange. Brazil’s Constant $ revenue increased 2%, primarily due to higher average order, partially offset by a decrease in Active Representatives. Brazil continued to be impacted by a difficult macroeconomic environment. On a Constant $ basis, Brazil’s sales from Beauty products and Fashion & Home products were relatively unchanged and increased 3%, respectively. Revenue in Argentina grew 16%, or 26% on a Constant $ basis, which was primarily due to higher average order which was impacted by the inflationary impact on pricing.
Segment margin decreased 2.7 points, or 2.5 points on a Constant $ basis, primarily as a result of:
•
a decline of 3.5 points from higher bad debt expense, driven by Brazil primarily due to the lower than anticipated collection of receivables which was partly as a result of the macroeconomic environment;
•
a decline of 1.2 points primarily due to higher fixed expenses, which included inflationary pressures in Argentina, partially offset by the impact of the Constant $ revenue growth with respect to our fixed expenses;
•
a decline of .5 points from higher advertising expense, primarily in Brazil which was driven by product launches;
•
a benefit of 1.5 points due to higher gross margin caused by 2.9 points from the favorable net impact of mix and pricing, primarily due to inflationary and strategic pricing, partially offset by 1.1 points from higher supply chain costs. Supply chain costs were primarily negatively impacted by higher material costs, which included inflationary pressures in Argentina; and
•
a benefit of 1.3 points primarily due to lower Representative, sales leader and field expense in Brazil which was driven by lower payouts to the field.


31

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



North Latin America
 
Three Months Ended March 31,
 
 
 
 
 
%/Point Change
 
2017
 
2016
 
US$
 
Constant $
Total revenue
$
193.2

 
$
204.7

 
(6
)%
 
2
 %
Segment profit
21.0

 
28.5

 
(26
)%
 
(20
)%
 
 
 
 
 
 
 
 
Segment margin
10.9
%
 
13.9
%
 
(3.0
)
 
(2.9
)
 
 
 
 
 
 
 
 
Change in Active Representatives
 
 
 
 
 
 
—
 %
Change in units sold
 
 
 
 
 
 
(1
)%
Change in Ending Representatives
 
 
 
 
 
 
—
 %
Amounts in the table above may not necessarily sum due to rounding.
Three Months Ended March 31, 2017
North Latin America consists largely of our Mexico business. Total revenue for the segment decreased 6% compared to the prior-year period, due to the unfavorable impact from foreign exchange which was primarily driven by the strengthening of the U.S. dollar relative to the Mexican peso. On a Constant $ basis, revenue increased 2%, which benefited from higher average order. Revenue in Mexico decreased 10%, unfavorably impacted by foreign exchange. On a Constant $ basis, Mexico's revenue increased 1%, primarily due to higher average order, which benefited from pricing, partially offset by a decrease in Active Representatives. Beauty Constant $ sales grew in Mexico, primarily due to innovation. This was partially offset by a Constant $ sales decline in Fashion & Home in Mexico, caused by a focus on moving excess inventory in that category.
Segment margin decreased 3.0 points, or 2.9 points on a Constant $ basis, primarily as a result of:
•
a decline of 1.2 points due to lower gross margin caused primarily by 1.6 points from higher supply chain costs, partially offset by .7 points from the favorable impact of mix and pricing. Supply chain costs were negatively impacted by higher overhead costs as a result of lower productivity, and higher air freight costs, partially offset by lower obsolescence;
•
a decline of .8 points from higher bad debt expense, primarily in Mexico driven by the implementation of a new collection process as a result of changes in regulations; and
•
a decline of .4 points from higher transportation costs driven by increased fuel prices.
Asia Pacific
 
Three Months Ended March 31,
 
 
 
 
 
%/Point Change
 
2017
 
2016
 
US$
 
Constant $
Total revenue
$
124.2

 
$
134.6

 
(8
)%
 
(5
)%
Segment profit
12.9

 
14.8

 
(13
)%
 
(7
)%
 
 
 
 
 
 
 
 
Segment margin
10.4
%
 
11.0
%
 
(.6
)
 
(.2
)
 
 
 
 
 
 
 
 
Change in Active Representatives
 
 
 
 
 
 
(8
)%
Change in units sold
 
 
 
 
 
 
(3
)%
Change in Ending Representatives
 
 
 
 
 
 
(8
)%
Amounts in the table above may not necessarily sum due to rounding.
Effective in the first quarter of 2017, given that we have exited Thailand during 2016, the results of Thailand are now reported in Other operating segments and business activities for all periods presented, while previously the results had been reported in Asia Pacific. The impact was not material to Asia Pacific or Other operating segments and business activities and is consistent with how we present other market exits.

32

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 March 31, 2017
Total revenue decreased 8% compared to the prior-year period, partially due to the unfavorable impact from foreign exchange. On a Constant $ basis, revenue decreased 5%, as modest Constant $ revenue growth in the Philippines was not enough to offset the declines in most other markets. The segment's Constant $ revenue decline was primarily due to a decrease in Active Representatives, most significantly in Malaysia, partially offset by higher average order. The decrease in Ending Representatives was impacted by declines in all markets, most significantly in Malaysia. Revenue in the Philippines decreased 4%, or increased 2% on a Constant $ basis, primarily due to higher average order, which benefited from pricing, partially offset by a decrease in Active Representatives.
Segment margin decreased .6 points, or .2 points on a Constant $ basis, primarily as a result of:
•
a decline of 2.3 points due to lower gross margin caused primarily by 2.1 points from higher supply chain costs and .8 points from the unfavorable impact of mix and pricing, partially offset by .6 points from the favorable impact of foreign currency transaction net gains. Supply chain costs were negatively impacted by higher overhead costs;
•
a net benefit of 1.3 points from lower fixed expenses, partially offset by the unfavorable impact of the declining revenue with respect to our fixed expenses;
•
a benefit of .4 points due to lower Representative, sales leader and field expense; and
•
various other insignificant items that partially offset the decline in segment margin.
We have completed the review of our China operations and have determined that we will retain China in our portfolio of businesses.
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. At March 31, 2017 , we had cash and cash equivalents totaling approximately $560 . We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements through at least the next twelve months. For more information with respect to currency restrictions, see "Segment Review - South Latin America" in this MD&A above, and "Risk Factors - We are subject to financial risks related to our international operations, including exposure to foreign currency fluctuations and the impact of foreign currency restrictions" contained in our 2016 Form 10-K.
We may seek to repurchase our equity or to retire our outstanding debt in open market purchases, privately negotiated transactions, through derivative instruments, cash tender offers or otherwise. Repurchases of equity and debt may be funded by the 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. Any issuances of equity (including shares of preferred stock) or convertible securities could have a dilutive effect on the ownership interest of our current shareholders and may adversely impact earnings per share in future periods. Our credit ratings were downgraded in 2015 and 2016, 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 in each of the last three years, 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 could adversely affect us by reducing our flexibility to respond to changing business and economic 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" contained in our 2016 Form 10-K.
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 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.  
Cash Flows
Net Cash Used by Continuing Operating Activities
Net cash used by continuing operating activities during the first three months of 2017 was approximately $80, as compared to approximately $191 during the first three months of 2016. The approximate $111 decrease to net cash used by continuing operating activities was primarily due to lower purchases of inventory, the contribution to the U.S. pension plan in 2016 of $20,

33

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



and Industrial Production Tax ("IPI") payments made in Brazil in 2016 that did not recur in 2017 (based on the favorable outcome received in May 2016 related to the injunction on cash deposits for IPI taxes). See Note 8, Contingencies, to the consolidated financial statements included herein for additional information on the IPI taxes.
Net Cash Used by Continuing Investing Activities
Net cash used by continuing investing activities during the first three months of 2017 was approximately $22, as compared to approximately $25 during the first three months of 2016.
Net Cash (Used) Provided by Continuing Financing Activities
Net cash used by continuing financing activities during the first three months of 2017 was approximately $5, as compared to net cash provided by continuing financing activities of approximately $436 during the first three months of 2016. The approximate $441 decrease to net cash (used) provided by continuing financing activities was primarily due to the net proceeds from the sale of Series C Preferred Stock. See Note 5, Related Party Transactions, to the consolidated financial statements included herein for more information.
Capital Resources
Revolving Credit Facility
In June 2015, the Company and 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”). Borrowings under the 2015 facility bear interest, at our option, at a rate per annum equal to LIBOR plus 250 basis points or a floating base rate plus 150 basis points, in each case subject to adjustment based upon a leverage-based pricing grid. As of March 31, 2017 , there were no amounts outstanding under the 2015 facility.
All obligations of AIO under the 2015 facility are (i) unconditionally guaranteed by each material domestic restricted subsidiary of the Company (other than AIO, the borrower), in each case, subject to certain exceptions and (ii) fully guaranteed on an unsecured basis by the Company. The obligations of AIO and the subsidiary guarantors are secured by first priority liens on and security interest in substantially all of the assets of AIO and the subsidiary guarantors, in each case, subject to certain exceptions.
The 2015 facility will terminate in June 2020; provided, however, that it shall terminate on the 91 st day prior to the maturity of 6.50% Notes due March 1, 2019 and 4.60% Notes due March 15, 2020, if on such 91 st day, the applicable notes are not redeemed, repaid, discharged, defeased or otherwise refinanced in full.
The 2015 facility contains affirmative and negative covenants, which are customary for secured financings of this type, as well as financial covenants (interest coverage and total leverage ratios). As of March 31, 2017 , we were in compliance with our interest coverage and total leverage ratios under the 2015 facility. The amount of the facility available to be drawn down is reduced by any standby letters of credit granted by AIO, which, as of March 31, 2017 , was approximately $44 . As of March 31, 2017 , based on then applicable interest rates, the entire amount of the remaining 2015 facility, which is approximately $356 , could have been drawn down without violating any covenant. A continued decline in our business results (including the impact of any adverse foreign exchange movements and significant restructuring charges) may further reduce our borrowing capacity under the 2015 facility or cause us to be non-compliant with our interest coverage and total leverage ratios. If we were to be non-compliant with our interest coverage or total leverage ratio, we would no longer have access to our 2015 facility and our credit ratings may be downgraded. As of March 31, 2017 , there were no amounts outstanding under the 2015 facility.
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 March 31, 2017 , we do not have any interest-rate swap agreements. Approximately 1% of our debt portfolio at March 31, 2017 and December 31, 2016 was exposed to floating interest rates.
Foreign Currency Risk
We conduct business globally, with operations in various locations around the world. Over the past three years, all of our consolidated revenue was 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.

34

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



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-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, stabilization 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, internal investigations and compliance reviews, 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 our 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, 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, 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. ("Cerberus");
•
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;
•
the possibility of business disruption in connection with our transformation plan, 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, such as Brazil, and developing and emerging markets, such as Mexico and Russia;
•
our ability to improve working capital and effectively manage doubtful accounts and inventory and implement initiatives to reduce inventory levels, including 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, and any potential sanctions, restrictions or responses to such conditions imposed by other markets in which we operate;
•
developments in or consequences of any investigations and compliance reviews, and any litigation related thereto, including the investigations and compliance reviews of Foreign Corrupt Practices Act and related United States ("U.S.")

35

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



and foreign law matters in China and additional countries, as well as any disruption or adverse consequences resulting from such investigations, reviews, related actions or litigation, including the retention of a compliance monitor as required by the deferred prosecution agreement with the U.S. Department of Justice and a consent to settlement with the Securities and Exchange Commission ("SEC"), any changes in Company policy or procedure suggested by the compliance monitor or undertaken by the Company, the duration of the compliance monitor and whether and when the Company will be permitted to undertake self-reporting, the Company’s compliance with the deferred prosecution agreement and whether and when the charges against the Company are dismissed with prejudice;
•
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 our 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;
•
key information technology systems, process or site outages and disruptions, and any cyber security 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 cyber security breaches;
•
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;
•
the impact of a continued decline in our business results, which includes the impact of any adverse foreign exchange movements, significant restructuring charges and significant legal settlements or judgments, on our ability to comply with certain covenants in our revolving credit facility;
•
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;
•
our ability to repurchase the Series C Preferred Stock (as defined herein) in connection with a change of control; and
•
the risk of an adverse outcome in any material pending and future litigation or with respect to the legal status of Representatives.
Additional information identifying such factors is contained in Item 1A of our 2016 Form 10-K for the year ended December 31, 2016, and other reports and documents we file with the SEC. We undertake no obligation to update any such forward-looking statements.


36

AVON PRODUCTS, INC.

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 2016 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”). 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 effective as of March 31, 2017 , at the reasonable assurance level. Disclosure controls and procedures are designed to ensure that information relating to Avon (including our consolidated subsidiaries) required to be disclosed by us 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 allow timely decisions regarding disclosure.
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, our management has concluded that no such changes have occurred.

37

AVON PRODUCTS, INC.

PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
See Note 8, Contingencies, to the consolidated financial statements included herein.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Repurchases
The following table provides information about our purchases of our common stock during the quarterly period ended March 31, 2017 :
 
 
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
1/1 - 1/31/17
 
256,870

(1)  
$
5.06

 
*
 
*
2/1 - 2/28/17
 
5,015

(1)  
5.29

 
*
 
*
3/1 - 3/31/17
 
1,154,237

(1)  
4.31

 
*
 
*
Total
 
1,416,122

    
$
4.45

 
*
 
*
*
These amounts are not applicable as the Company does not have a share repurchase program in effect.
(1)
All shares were repurchased by the Company in connection with employee elections to use shares to pay withholding taxes upon the vesting of their restricted stock units and performance restricted stock units.
Some of these share repurchases may reflect a delay from the actual transaction date.
ITEM 6. EXHIBITS
See Exhibit Index.

38

AVON PRODUCTS, INC.

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:
May 4, 2017
/s/ Robert Loughran
 
 
Robert Loughran
 
 
Group Vice President and
 
 
Chief Accounting Officer
 
 
 
 
 
Signed both on behalf of the
 
 
registrant and as chief
 
 
accounting officer.
 

39

AVON PRODUCTS, INC.

EXHIBIT INDEX
 
10.1
Transition Letter Agreement and General Release of Claims dated as of March 20, 2017, between Avon Products, Inc. and Jeff Benjamin.
 
 
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101
The following materials formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements




40

Exhibit 10.1

[Avon Letterhead]

March 20, 2017
Personal & Confidential
Jeff Benjamin
15 Hart Place
Nyack, NY 10960

Re:      Transition Letter Agreement and General Release of Claims
Dear Jeff:

This Transition Letter Agreement and General Release of Claims (this “Agreement”) sets forth the terms and conditions of a transition agreement with Avon Products, Inc. (“Avon” or the “Company”). It provides for salary continuation and certain other benefits (collectively, the “Transition Benefits”) to be provided to you in exchange for ongoing cooperation and support in transition of your position and other obligations described herein.
To be eligible for the Transition Benefits, you must: (1) work through the Avon-selected Separation Date; (2) timely sign this Agreement; (3) allow this Agreement to become effective and irrevocable (by not revoking it within seven days of your signature); and (4) if you signed this Agreement before the Separation Date, you must timely sign another general release of claims (the “Second General Release”) and allow the Second General Release to become effective and irrevocable (by not revoking it within seven days of your signature). A copy of this Second General Release is included with the Agreement. See Paragraph 18 herein regarding the timing requirements for deciding whether to execute these documents and the accompanying instructions in the Second General Release.
The below Paragraphs briefly describe the treatment of your benefits after the Separation Date (defined in Paragraph 1), including certain treatment available to you if you meet the terms and conditions of this Agreement. Please note, however, that the actual written plan documents for the relevant benefit plans set forth the terms and conditions of benefits and control in the event of differences described herein.



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1.
Last Day of Active Employment
Your last day of active employment with Avon is currently anticipated to be on or after August 1, 2017, although we will confirm the actual date as we get closer (the actual date as selected by Avon, the “Separation Date”). Avon will provide you with at least thirty (30) days advance notice prior to the Separation Date.
2.
Transition Benefits
a.
Salary Continuation
If you accept this Agreement and become eligible to receive the Transition Benefits, you will be eligible for salary continuation for 52 weeks immediately following the Separation Date (referred to as the “Salary Continuation Period”) based upon your current annual salary of $700,000. Avon payroll will calculate the total amount of salary continuation payable, in accordance with Avon’s normal payroll practices.
Because you are one of the top 50 highest paid employees at Avon (a “specified employee”), under Internal Revenue Code Section 409A (“Section 409A”), the section which governs nonqualified deferred compensation, certain limitations may apply on how the salary continuation will be paid to you if the total payments exceed $540,000 (the “409A Limit). Since the total salary continuation is expected to exceed the 409A Limit, you will receive the salary continuation portion of the Transition Benefits in two tranches:
(x)
The first tranche (“Tranche A”) will be equal to the 409A Limit, payable over the Salary Continuation Period in substantially equal, bi-weekly installments (less applicable deductions) on each of Avon’s regular payroll dates. Note that this will be less than your current bi-weekly paycheck.
(y)
The second tranche (“Tranche B”) will be equal to the remaining amount of salary continuation owed to you under this Agreement in excess of the 409A Limit, payable from the first administratively feasible Avon regular payroll date that occurs in the seventh month following the Separation Date through the end of the Salary Continuation Period, in substantially equal, bi-weekly installments (less applicable deductions) on each of Avon’s regular payroll dates.


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Where both tranches are being paid at the same time, there will be one check paid to you by Avon. You will note that this combined amount may be more than your current bi-weekly paycheck.
For the avoidance of doubt, payments under Tranche A are intended to be exempt from the requirements of Section 409A. Payments under Tranche B are intended to either be exempt from the requirements of Section 409A or satisfy any applicable requirements of Section 409A for payments of nonqualified deferred compensation to specified employees.
b.
Transportation Allowance
If you accept this Agreement and become eligible to receive the Transition Benefits, as part of the Transition Benefits you will be entitled to receive a transportation allowance for the three-month period following your last day of active employment. Normally this will paid in the same manner as it is paid as when you were an active employee. However, because you are a specified employee under Section 409A, you will be paid this benefit in a lump sum payment in the seventh month following the Separation Date.
If you do not accept this Agreement and therefore do not receive the Transition Benefits, your eligibility for a Transportation Allowance will end on the Separation Date.
c.
Executive Health Exam
If you accept this Agreement and become eligible to receive the Transition Benefits and if you have not already received your annual Executive Health Exam in the calendar year in which your Separation Date occurs, as part of the Transition Benefits you may still receive the exam for up to the earlier of three months following the Separation Date or the end of the calendar year in which the Separation Date occurs. Note, however, that because you are considered a specified employee under Section 409A, reimbursements for an Executive Health Exam after the Separation Date will be subject to a six-month delay from the Separation Date, and so any such reimbursements will be payable to you no earlier than the seventh month following the Separation Date.
If you do not accept this Agreement and therefore do not receive the Transition Benefits, your eligibility for an Executive Health Exam will end on the Separation Date.
d.
Other Transition Benefits


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As part of the Transition Benefits, during the Salary Continuation Period, as explained below, you will be eligible to continue to participate in certain of Avon’s benefit plans in accordance with the provisions of the relevant plan documents, including any amendments to those plans that may be enacted from time to time, and any applicable elections that you may have on file with Avon. You will not, however, accrue any vacation days or be eligible for any other benefits provided to active employees during the Salary Continuation Period, other than those expressly provided for herein and/or as otherwise required by law.
3.
Retirement Plans
a.
Avon Products, Inc. Personal Retirement Account Plan (“PRA”)
If you accept this Agreement and are eligible for the Transition Benefits, during the Salary Continuation Period you will continue to be credited with service under the PRA pursuant to and in accordance with the terms of the PRA, including any amendments to the PRA that may be enacted from time to time. This means that as a participant under the Cash Balance benefit formula, you can only continue to accrue vesting service, if applicable, during the Salary Continuation Period. In the month following the end of the Salary Continuation Period, you first may take a distribution from the PRA in the form you then elect in accordance with the terms of the PRA.
If you do not accept this Agreement and therefore do not receive the Transition Benefits, your PRA benefit will be calculated with the service you have earned through the Separation Date in accordance with the terms of the PRA. In the month following the Separation Date, you may first take your PRA benefit in the form you then elect, in accordance with the terms of the PRA.
b.
Benefit Restoration Plan of Avon Products, Inc.
If you accept this Agreement and become eligible to receive the Transition Benefits, your benefit under the Benefit Restoration Pension Plan of Avon Products, Inc. (the “Restoration Plan”), if payable, will be calculated and paid taking into account the Salary Continuation Period in accordance with the terms of the Restoration Plan.
If you do not accept this Agreement and therefore do not receive the Transition Benefits, your Restoration Plan benefit will be calculated based upon your service through the Separation Date only and, if payable, will be paid in accordance with the terms of the Restoration Plan.


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Because you are considered a specified employee under Section 409A, payments of benefits under the Restoration Plan will be subject to a six-month delay from the Separation Date, and so any benefits payable to you under the Restoration Plan will not commence until the seventh month following the Separation Date.
c.
Avon Personal Savings Account Plan
With respect to the Avon Personal Savings Account Plan (the “PSA”), also known as the 401(k) Plan, you are considered a terminated employee on the Separation Date. Even if you accept this Agreement and are eligible to receive the Transition Benefits, you will not be entitled to participate in the PSA during the Salary Continuation Period. Whether or not you accept this Agreement and become eligible for the Transition Benefits, upon the Separation Date you may take a distribution of your benefits immediately. You may roll over the contents of your PSA account into an Individual Retirement Account or other tax-deferred savings account in accordance with the PSA and applicable tax rules. Please consult with your accountant or tax advisor before doing so. Any outstanding PSA loans you may have are payable within three months after your Separation Date if you do not make arrangements to continue to make regular loan repayments after the Separation Date through the PSA third party administrator, Empower Retirement. You should contact Empower Retirement if you have an outstanding plan loan.
4.
Cash Incentive Award
As a reminder, all cash incentive awards are subject to Avon’s compensation recoupment policy. It is expected that you will be a participant in the Avon Products, Inc. 2013-2017 Executive Incentive Plan (the “Annual EIP”) for 2017. Regardless of whether or not you accept this Agreement and become eligible for the Transition Benefits, payments, if any, any Annual EIP award is governed by the terms of the Annual EIP and are triggered by the attainment of performance measures, as determined in accordance with Company policies. Payment, if any, of the 2017 Annual EIP award, will be made in 2018 at the same time active 2017 Annual EIP participants receive their payments. Even if you accept this Agreement and become eligible for the Transition Benefits, you are not eligible for an award for any years after 2017 under the Annual EIP or any other bonus program.
5.
Equity Awards
Regardless of whether or not you accept this Agreement and become eligible for the Transition Benefits, each equity award (such as restricted stock units and


Page 6 of 19

stock options) will continue to be governed by the applicable equity agreement(s) and the applicable stock incentive plan(s) (including, but not limited to, terms and conditions regarding vesting and settlement of awards).
6.
Health and Welfare Plans & Other Benefits
If you accept this Agreement and become eligible to receive the Transition Benefits, and provided that you are a participant in the applicable Avon plan as of the Separation Date, during the Salary Continuation Period, as part of the Transition Benefits, you will continue to be eligible to participate in the following benefit plans: Medical, Dental, Vision, Employee Assistance Program, Group Life Insurance, Supplemental Group Life Insurance, Group Accidental Death and Dismemberment (“AD&D”) and Supplemental Group AD&D. For those plans requiring premium payments, you will be required to pay the same portion of the total premium as an active associate pays. If you elect to continue Medical, Dental and/or Vision coverage, your benefit coverage level will be provided at the benefit coverage level that you previously selected, subject to Avon’s right to amend, modify, or terminate such arrangements at any time. But note, however, because you are considered one of the top 25% highest paid associates at Avon per IRS regulations, you will be paying your entire premiums on an after-tax basis and your Form W-2s will include imputed income equal to value of the subsidized premiums being provided by Avon, as required by the Internal Revenue Code. Because of this required tax treatment, the cost to you of continuing coverage may be substantially higher than while you were actively employed. You may wish to consult a tax advisor to see how this change may impact you.
Also, in the event that during the Salary Continuation Period you should become employed by another employer and are provided with medical and/or dental insurance coverage, you may either drop your Avon coverage or continue your coverage under both plans. Under the second alternative, your coverage will be coordinated between the two plans, with your new employer’s plan serving as the primary payer. In the event that your group health plan coverage ceases during the Salary Continuation Period due to a “qualifying event,” or due to the expiration of the Salary Continuation Period, you will then be entitled to elect continued coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) at your own expense, assuming you satisfy the requirements of COBRA.
In addition, pursuant to Section 409A, the following rules apply to your continued receipt of the above welfare benefits and benefits described in Paragraph 2(b) and 2(c) above to the extent those benefits are not exempt from the requirements of


Page 7 of 19

Section 409A: (x) to the extent that any such benefit is provided via reimbursement to you, no such reimbursement will be made by Avon later than the end of the year following the year in which the underlying expense is incurred; (y) any such benefit provided by Avon in any year will not be affected by the amount of any such benefit provided by Avon in any other year; and (z) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit.
If you do not accept this Agreement and therefore do not receive the Transition Benefits, your participation in the Medical, Dental, Vision, Employee Assistance Additional, Group Life Insurance, Supplemental Group Life Insurance, Group AD&D and Supplemental Group AD&D will generally end on the Separation Date (or no later than the last day of the month in which the Separation Date occurs, pursuant to the terms of each plan and/or policy). You are entitled to elect to continue group health plan coverage under COBRA at your own expense, assuming you satisfy the requirements of COBRA. Information regarding COBRA coverage would be sent to you under separate cover.
Other Welfare Benefits
Regardless of whether or not you accept this Agreement, your participation in the Short-Term and Long-Term Disability plans, the Flexible Spending Accounts, and the Transit Incentive Plan will cease following the Separation Date (except that you may continue to participate in the Health Care Flexible Spending Account for the remainder of the calendar year in which the Separation Date occurs in accordance with COBRA, assuming you satisfy the requirements of COBRA and assuming that you elect COBRA). You will receive separate paperwork required to elect COBRA continuation coverage for the Health Care Flexible Spending Account.
If you participate in the Transit Incentive Program, you will have 90 days after the Separation Date to spend the remaining pre-tax and after-tax funds on your WageWorks Transit Commuter Card.  After the 90-day period has expired, the post-tax contributions will be returned to you. Pre-tax contributions, per regulations, will be forfeited .  For more information please contact WageWorks at 877-924-3967.
Also, when your group life insurance coverage terminates (either immediately, or if you accept this Agreement and receive the Transition Benefits, at the end of the Salary Continuation Period), you may be entitled to convert the group coverage to individual life insurance coverage. Please contact the group life insurance vendor


Page 8 of 19

(currently Liberty Mutual) before your group life insurance coverage terminates for details.
Financial Planning and Tax Preparation
Regardless of whether or not you accept this Agreement, your eligibility for Financial Planning and Tax Preparation will end on the Separation Date.
7.
Transition Services and Your Other Obligations to Avon

Except as otherwise provided in this Agreement, in consideration of your receipt of the Transition Benefits, you agree to the following:
a.
Cooperation and Transition Services: By signing this Agreement and, if applicable, the Second General Release, you are agreeing that you may be reasonably requested from time to time by Avon: (x) to advise and consult on matters within or related to your expertise and knowledge in connection with the business of Avon; (y) to make yourself available to Avon to respond to requests for information concerning matters involving facts or events relating to Avon; and (z) to assist with pending and future litigation, investigations, arbitrations, and/or other dispute resolution matters. You understand that, with respect to any consultation services or assistance provided by you under this paragraph, you will not be credited with any compensation, service or age credit for purposes of eligibility, vesting, or benefit accrual under any employee benefit plan of Avon, unless such employee benefit plan otherwise expressly and specifically provides for such credit.
b.
Confidentiality: You agree to keep and hold in strict trust all Confidential Information that you obtained or generated during or as a result of your employment at Avon. You promise not to knowingly use, disclose, copy, distribute or reverse-engineer, directly or through persons interposed, without Avon’s prior written consent (which may only be provided by a Senior Vice President or higher officer), as and from this date, and at any time, Avon’s Confidential Information. For this purpose, “Confidential Information” means any secret, confidential, and/or proprietary information or knowledge relating to Avon or related to any of Avon’s affiliated companies, and/or their respective businesses, agents, employees, customers and independent sales representatives, that is not generally known to the public. Such Confidential Information includes, but is not limited to, financial information and projections, marketing information and plans, product formulations, samples, processes, production methods, intellectual property and trade secrets, data, know-how, sales, market development programs and plans, and other types of


Page 9 of 19

information not generally known to the public, including non-public unpublished or pending patent applications and all related patent rights, techniques, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and developments, whether or not patentable and whether or not copyrightable. Confidential Information for purposes of this Agreement shall not include concepts, techniques, fictitious case studies or other educational material developed, created or authored by you for purposes of ethics and compliance training and communications (“E&C Concepts”) so long as such E&C Concepts include no proprietary, secret or confidential information relating to Avon’s business operations outside of ethics and compliance. Notwithstanding your confidentiality obligations, you are permitted to disclose Confidential Information that is required to be disclosed by you pursuant to judicial order or other legal mandate, provided that you have given Avon prompt notice of the disclosure requirement, and that you fully cooperate with any efforts by Avon to obtain and comply with any protective order imposed on such disclosure.
In accordance with the Defend Trade Secrets Act of 2016, you are hereby notified by Avon that you will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (i) is made (x) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and (y) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. You are further notified by Avon that, if you file a lawsuit for retaliation by an employer for reporting a suspected violation of law, then you may disclose the employer’s trade secrets to your attorney and use the trade secret information in the court proceeding if you: (A) file any document containing the trade secret under seal; and (B) do not disclose the trade secret, except pursuant to court order.
c.
Use of Confidential Information : You agree that you will not use Avon’s Confidential Information in connection with any publicity, advertising, endorsement or other promotion. You further agree not to use Avon’s trademarks, logos, service marks or other intellectual property in any form of advertising, publicity or release without Avon’s prior written approval. You understand that nothing in this Agreement shall be construed to prevent lawful communications regarding working conditions, or other terms and conditions of employment protected under Section 7 of the National Labor Relations Act or applicable state law.


Page 10 of 19


d.
Non-solicitation : You will not, without Avon’s prior written consent (which may only be provided by a Senior Vice President or higher officer), during the Salary Continuation Period, directly or indirectly hire, solicit, or aid in the solicitation of, any employee of Avon or an affiliated company, including any solicitation or recruitment of such employee to take him or her away from or to leave his or her Avon employment to work for any other employer or other entity.
e.
By signing this Agreement and, if applicable, the Second General Release, you acknowledge that you understand that violations of any of the preceding covenants are material and that any violations may result in a forfeiture, at Avon’s sole discretion, of your benefits and payments under this Agreement (including salary continuation, whether or not already paid), but do not relieve you of your continuing obligations under this Agreement. You agree that Avon’s remedies at law for any breach by you of the preceding covenants will be inadequate and that Avon will also have the right to obtain immediate injunctive relief, without a bond, so as to prevent any continued breach of any of these covenants, in addition to any other available legal remedies. It is understood that any remedy available at law or in equity shall be available to Avon should the preceding covenants be breached.
f.
By signing this Agreement and the Second General Release, if applicable, to the fullest extent allowed by law, you agree not to commence, join, participate in, or assist any lawsuit, action, investigation or proceeding arising from or relating to any act or omission by any of the “Avon Released Parties” (as that term is defined both in this Agreement in Paragraph 13 below and, if applicable in the Second General Release) unless you are compelled by law to do so and you also agree not to recover or seek to recover any damages, backpay or other monetary relief as part of any action or class action brought by any other individual, the EEOC, or any other civil rights or governmental agency.

8.
Return of Avon Property : On or before the end of the Salary Continuation Period, you agree to promptly deliver to Avon, and not keep in your possession, duplicate, or deliver to any other person or entity, any and all property (whether in hard copy, physical form, or electronic form) that belongs to Avon or any of its affiliated companies, including, without limitation, automobiles, computer hardware and software, cell phones, Blackberrys, iPhones, Androids, other smartphones, iPads, other tablets, thumb drives, other electronic equipment, keys, credit cards, identification cards, records, files, data, and other documents and information, including any and all copies of the foregoing.


Page 11 of 19


9.
Entire Agreement and Amendments to Agreement : You acknowledge that the only consideration for your execution and non-revocation of this Agreement (which includes a general release of claims) and, if applicable, your execution and non-revocation of the Second General Release are the benefits which are expressly stated in this document. All other promises or agreements of any kind, including, but not limited to, your offer letter agreement with Avon dated September 10, 2012 (other than the provision that expressly excludes you from coverage under the Avon Products, Inc. Severance Pay Plan), that have been made by or between the parties or by any other person or entity whatsoever that are related to the subject matter of this Agreement are superseded, revoked and cancelled by this Agreement, except that any arbitration, nondisclosure, intellectual property protection, non-solicit, or classified information provisions and/or agreements with the Company continue to apply in accordance with their terms (and the greater protection to Avon applies in the event of any conflict between this Agreement and such other agreements) and any plans (such as the PRA), equity award agreements, or policies that are referenced in this Agreement as continuing to be applicable (including, without limitation, the Company’s “Associate Arbitration Policy”) are not superseded and will remain in effect. In addition, any compensation recoupment provisions, practices or policies, will continue to apply, as applicable. You agree that this Agreement and, if applicable, the Second General Release, may not be changed orally, by email, or by any other form of electronic communication, but only by a written agreement, signed by both you and an authorized representative of Avon.
10.
Severability : You agree that the provisions of this Agreement and, if applicable, the Second General Release are severable. If a provision or any part of a provision is held to be invalid under any law or ruling, all of the remaining provisions of this Agreement and, if applicable, the Second General Release, will remain in full force and effect and be enforceable to the extent allowed by law. If any restriction contained in this Agreement or, if applicable, the Second General Release is held to be excessively broad as to duration, activity, or scope, then you agree that such restriction may be construed, “blue-penciled” or judicially modified so as to be limited or reduced to the extent required to be enforceable under applicable law.
11.
Voluntary Nature : You are not required to accept this Agreement. Any election to do so by you is completely voluntary. By signing this Agreement and, if applicable, the Second General Release, you warrant and represent that you have read this entire Agreement and, if applicable, the Second General Release, that you have had an opportunity to consult fully with an attorney, and that you fully


Page 12 of 19

understand the meaning and intent of this Agreement and, if applicable, the Second General Release. Further, you knowingly and voluntarily, of your own free will, without any duress, being fully informed, and after due deliberation, accept its terms and sign below as your own free act.
12.
Governing Law : You agree that this Agreement (which includes a general release of claims) and, if applicable, the Second General Release will be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles, and federal law where applicable. Any legal action to enforce this Agreement, and, if applicable the Second General Release, by either party, shall be subject to arbitration in accordance with Avon’s “Associate Arbitration Policy”. To the extent that Avon is seeking equitable relief to enforce your obligations under this Agreement, Avon may seek such relief as provided in the Paragraph above entitled Your Obligations to Avon in any federal, state or local court in any jurisdiction.
13.
General Release of Claims
In consideration of the Transition Benefits herein and the other terms and conditions of this Agreement, you agree, on behalf of yourself and your heirs, executors, administrators, and assigns, to forever release, dismiss, and discharge (except as provided by this Agreement) Avon and its affiliated companies and each of their respective current and former officers, directors, associates, employees, agents, employee benefit plans, employee benefit plan fiduciaries, employee benefit plan trustees, employee benefit plan administrators, representatives, attorneys, shareholders, successors and assigns, each and all of them in every capacity, personal and representative (collectively referred to as the “Avon Released Parties”), from any and all actions, causes of action, claims, suits, losses, demands, judgments, charges, contracts, obligations, debts, and liabilities of whatever nature (“Claims”), that you and your heirs, executors, administrators, and assigns have or may hereafter have against the Avon Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof, including, without limitation:
•
All Claims arising from your employment relationship with Avon and the termination of such relationship;
•
All Claims arising under any federal, state, or local constitution, statute, rule, or regulation, or principle of contract law or common law;


Page 13 of 19


•
All Claims for breach of contract, wrongful discharge, tort, breach of common-law duty, or breach of fiduciary duty;
•
All Claims for benefits under the Avon Products, Inc. Severance Pay Plan or severance under any other Avon plan, policy or program;
•
All Claims for violation of laws prohibiting any form of employment discrimination or other unlawful employment practice, including without limitation, as applicable:
◦
The Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§ 2101 et seq.;
◦
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq.;
◦
The Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”);
◦
The Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq.;
◦
The Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq.;
◦
The Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq.;
◦
The Genetic Information Nondiscrimination Act of 2008, as amended, 42 U.S.C. §§ 2000ff et seq.;
◦
The National Labor Relations Act of 1935, as amended, 29 U.S.C. §§ 151 et seq. (the “NLRA”);
◦
the Fair Credit Reporting Act, as amended, 15 U.S.C. §§ 1681 et seq.;
◦
“Whistleblower” laws (other than as provided for in Paragraph 14 herein) and laws protecting “whistleblowers” from retaliation;
◦
The New York State Human Rights Law, as amended, N.Y. Exec. Law §§ 290 et seq.; the New York State Worker Adjustment and Retraining Notification Act, as amended, N.Y. Labor Law §§ 860


Page 14 of 19

et seq.; Article 6 of the New York Labor Law, as amended, N.Y. Labor Law §§ 190 et seq.; the New York Nondiscrimination for Legal Actions Law, as amended, N.Y. Labor Law § 201-d; the New York State Fair Credit Reporting Act, as amended, N.Y. Gen. Bus. Law §§ 380 et seq.; Article 23-A of the New York State Corrections Law, as amended, N.Y. Correc. Law §§ 750 et seq.; the New York City Human Rights Law, as amended, N.Y.C. Admin. Code §§ 8-101 et seq.; the New York City Earned Sick Time Act, as amended, N.Y.C. Admin. Code §§ 20-911 et seq.; the New York City Stop Credit Discrimination in Employment Act, as amended, N.Y.C. Admin. Code §§ 8-102(29), 8-107(9)(d), 8-107(24); and the New York City Fair Chance Act, as amended, N.Y.C. Admin. Code §§ 8-102(5), 8-107(9) et seq.;
◦
Any other state’s and local government’s human rights laws, anti-discrimination laws, and “plant closing”/mini-WARN Act laws;
◦
Anti-retaliation laws, including without limitation retaliation claims under the New York State Workers' Compensation Law, as amended, N.Y. Workers' Comp. Law § 120, and the New York State Disability Benefits Law, as amended, N.Y. Workers' Comp. Law § 241; and
◦
Any other federal, state, or local constitution, statute, rule, or regulation;

provided , that you do not release or discharge the Avon Released Parties: (x) from any Claims arising after the date on which you execute this Agreement (except, where applicable, you later execute and do not revoke the Second General Release); (y) from any Claims for a breach by Avon of its obligations under this Agreement; or (z) from any Claims that by law cannot be released or waived. It is understood that the release herein does not release the Avon employee benefit plans from any claims for vested benefits that you have under the terms of any of Avon’s employee benefit plans applicable to you. It is further understood that nothing in this General Release of Claims shall preclude or prevent you from challenging the validity of this General Release of Claims solely with respect to any waiver of any Claims arising under the ADEA after the date on which you execute this General Release of Claims.
Nothing in this Agreement is to be construed as an admission on behalf of the Avon Released Parties of any wrongdoing with respect to you, any such wrongdoing being expressly denied.


Page 15 of 19


You represent and warrant that you have not filed any complaint, charge, claim, or proceeding against any of the Avon Released Parties before any federal, state, or local agency, court, or other body relating to your employment and the cessation thereof or to any claim released in this Agreement, and that you are not currently aware of any facts or basis for filing such a complaint, charge, claim, or proceeding against any of the Avon Released Parties. Except as otherwise provided in this Agreement, you agree that, if you or any other person or entity files an action, complaint, charge, claim, or proceeding against any of the Avon Released Parties, you will not seek or accept any monetary, equitable, or other relief in such action, complaint, charge, claim, or proceeding (including without limitation, relief that would provide you with reinstatement to employment with Avon) and that you will take all available steps/procedures to withdraw and/or dismiss the complaint, charge, claim or proceeding, regardless of who filed or initiated such complaint, charge, claim, or proceeding, whether pursued solely on your behalf or on behalf of a greater class of individuals.
If you are employed in, or, were formerly employed in the State of California, you additionally acknowledge that you are aware of and familiar with the provisions of Section 1542 of the California Civil Code, which provides as follows:
“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the general release which if known by him must have materially affected his settlement with the debtor.”
If you are employed in, or, were formerly employed in the State of California, by signing this Agreement, you hereby waive and relinquish all rights and benefits which you may have under Section 1542 of the California Civil Code and under the law of any other state or jurisdiction to the same or similar effect. You represent and warrant that you have the authority to enter into this general release on your behalf individually and to bind all persons and entities claiming through you.
You acknowledge: (w) that you are receiving valuable consideration in exchange for your execution of this Agreement, and if applicable, the Second General Release, that you would not otherwise be entitled to receive; (x) that you were given at least twenty-one (21) days in which to consider this Agreement and the Second General Release; (y) that any changes made to this Agreement, whether material or immaterial, will not restart the twenty-one (21) day consideration period; and (z) that you are entitled to revoke this Agreement and the Second General Release (if applicable) in writing, within seven (7) days after you sign


Page 16 of 19

each, respectively. Such revocation must be delivered to the Company as provided herein within the applicable seven (7)-day period, in which case you will receive no benefits under the Agreement and neither this Agreement, nor your eligibility for Transition Benefits, will go into effect.

14.
Reservation of Certain Rights
You understand that nothing in this Agreement is intended, and nothing in this Agreement will be construed, to prevent, interfere with, or otherwise restrict communications or actions protected or required by applicable law, including the legitimate exercise of any Section 7 rights under the NLRA that you may have during your employment with Avon (such as discussing terms and conditions of employment and other workplace conditions).
Protection of Whistleblower Rights: This Agreement is not intended to, and shall be interpreted in a manner that does not, limit or restrict you from exercising any legally protected rights that you may have under any applicable statutes, regulations and rules intended to protect whistleblowers (including pursuant to Rule 21F under the Securities Exchange Act of 1934, as amended).
15.
Compliance with Laws/Tax Treatment : Avon will comply with all payroll/tax withholding requirements and will include in income these benefits as required by law. Avon cannot guarantee the tax treatment of any of these benefits and makes no representation regarding the tax treatment.
16.
Internal Revenue Code Section 409A : The parties hereto have made a good faith effort to comply with current guidance under Section 409A. The intent of the parties hereto is that payments and benefits under this Agreement comply with or be exempt from Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith, including, without limitation, that references to “termination of employment” and like terms, with respect to payments and benefits that are provided under a “nonqualified deferred compensation plan” (as defined in Section 409A) that is not exempt from Section 409A, will be interpreted to mean “separation from service” (as defined in Section 409A). In the event that amendments to this Agreement are necessary in order to comply with Section 409A or to minimize or eliminate any income inclusion and penalties under Section 409A ( e.g. , under any document or operational correction program), Avon and you agree to negotiate in good faith the applicable terms of such amendments and to implement such negotiated amendments, on a prospective and/or retroactive basis, as needed. To the extent that any amount payable or benefit to be provided under this


Page 17 of 19

Agreement constitutes an amount payable or benefit to be provided under a “nonqualified deferred compensation plan” (as defined in Section 409A) that is not exempt from Section 409A, and such amount or benefit is payable or to be provided as a result of a “separation from service” (as defined in Section 409A), and you are a “specified employee” (as defined in Section 409A and determined pursuant to procedures adopted by Avon from time to time) on your separation from service date, then, notwithstanding any other provision in this Agreement to the contrary, such payment or benefit will not be made or provided to you during the six (6) month period following your separation from service. Notwithstanding the foregoing, Avon makes no representation to you about the effect of Section 409A on the provisions of this Agreement and Avon shall have no liability to you in the event that you become subject to taxation under Section 409A (other than any tax reporting and/or withholding obligations that Avon may have under applicable law).
17.
Challenge to the Validity of the Agreement and Communication with Government Agency : Nothing in this Agreement: (y) limits or affects your right to challenge the validity of the General Release of Claims under the ADEA or the Older Workers Benefit Protection Act; or (z) precludes you from filing an administrative charge or otherwise communicating with any federal, state or local government office, official or agency. However, you promise and agree never to seek or accept any damages, or other legal remedies, or any equitable remedies or relief (including, without limitation, relief that would provide you with reinstatement to employment with Avon), and hereby waive any right to recovery of any such damages, remedies or other relief for you personally with respect to any claim released by Paragraph 13, regardless of whether another person or entity or you initiate the underlying action related to the Claim. You also promise and agree not to voluntarily offer to be a witness and/or voluntarily provide evidence in support of any lawsuit brought by a third party (excluding governmental agencies) against Avon or the Avon Released Parties (as defined in the General Release of Claims above).
18.
Permissible Time to Sign Agreement and Possible Second General Release . If you do not sign this Agreement and return it to Avon within twenty-one (21) days after the date on which you receive this Agreement and, if applicable, if you do not sign the Second General Release and return it within twenty-one (21) days following the Separation Date , then the offer of Transition Benefits described herein will expire. As long as you sign and return this Agreement within this time period, you will have seven (7) days immediately after the date of your signature to revoke your decision by delivering, within the seven (7) day period, written notice of revocation to the Senior Vice President, Human Resources. If you do


Page 18 of 19

not revoke your decision during that seven (7)-day period, then this Agreement will become effective on the eighth (8 th ) day. Note that similar consideration and revocation rules apply to the Second General Release (except that the consideration period begins on the Separation Date and the revocation period begins on the date you sign the Second General Release). If you timely sign and return this Agreement and, if applicable, the Second General Release and do not revoke the Agreement, and, if applicable, the Second General Release, each will become effective, respectively, on the day following the expiration of their respective seven (7)-day revocation periods .

You understand that the present offer of the Transition Benefits is made without prejudice and is conditional upon its unqualified acceptance and compliance with the execution and delivery requirements described above for this Agreement, and, if applicable, for the Second General Release.


[Signatures on next page]


Page 19 of 19


A duplicate copy of this Agreement and the Second General Release is attached for your files. Please sign and date both copies of this Agreement, in the spaces provided, returning one copy to Avon and retaining the other copy for your records.
Sincerely,
AVON PRODUCTS, INC.

By: /s/ Gina Fitzsimons ______________
Gina Fitzsimons
Group Vice President HR,
Compensation and Benefits and Global Functions



You have carefully reviewed, understood and agree with the terms and conditions specified in this Agreement above. You have signed to indicate your acceptance thereof.

Date: __ 3/20/17 _______      By: /s/ Jeff Benjamin _____________
Jeff Benjamin



SECOND GENERAL RELEASE
A.
General Release of Any Claims That May Have Arisen During the Period From the Date of “Transition Letter Agreement and General Release of Claims” Through the Date of This Second General Release :
As one of the conditions of my eligibility for, and in consideration of my receipt of, the Transition Benefits as set forth in the Transition Letter Agreement and General Release of Claims between Avon Products, Inc. (“Avon”) and Jeff Benjamin , dated March 20, 2017 (the “Agreement”), and in consideration of the other terms and conditions of the Agreement, I agree, on behalf of myself and my heirs, executors, administrators, and assigns, to forever release, dismiss, and discharge (except as otherwise provided by the Agreement and this Second General Release), Avon and its affiliated companies and each of their respective current and former officers, directors, associates, employees, agents, employee benefit plans, employee benefit plan fiduciaries, employee benefit plan trustees, employee benefit plan administrators, representatives, attorneys, shareholders, successors and assigns, each and all of them in every capacity, personal and representative (collectively referred to as the “Avon Released Parties”), from any and all actions, causes of action, claims, suits, losses, demands, judgments, charges, contracts, obligations, debts, and liabilities of whatever nature (“Claims”), that I and my heirs, executors, administrators, and assigns have or may hereafter have against the Avon Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the date I signed the Agreement to the date hereof, including, without limitation:

•
All Claims arising from my employment relationship with Avon and the termination of such relationship;
•
All Claims arising under any federal, state, or local constitution, statute, rule, or regulation, or principle of contract law or common law;
•
All Claims for breach of contract, wrongful discharge, tort, breach of common-law duty, or breach of fiduciary duty;
•
All Claims for benefits under the Avon Products, Inc. Severance Pay Plan or severance under any other Avon plan, policy or program;
•
All Claims for violation of laws prohibiting any form of employment discrimination or other unlawful employment practice, including without limitation, as applicable:



ii

◦
The Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§ 2101 et seq.;
◦
Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq.;
◦
The Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”);
◦
The Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq.;
◦
The Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq.;
◦
The Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq.;
◦
The Genetic Information Nondiscrimination Act of 2008, as amended, 42 U.S.C. §§ 2000ff et seq.;
◦
The National Labor Relations Act of 1935, as amended, 29 U.S.C. §§ 151 et seq. (the “NLRA”);
◦
the Fair Credit Reporting Act, as amended, 15 U.S.C. §§ 1681 et seq.;
◦
“Whistleblower” laws (other than as provided for in Paragraph C(vi) below) and laws protecting “whistleblowers” from retaliation;
◦
The New York State Human Rights Law, as amended, N.Y. Exec. Law §§ 290 et seq.; the New York State Worker Adjustment and Retraining Notification Act, as amended, N.Y. Labor Law §§ 860 et seq.; Article 6 of the New York Labor Law, as amended, N.Y. Labor Law §§ 190 et seq.; the New York Nondiscrimination for Legal Actions Law, as amended, N.Y. Labor Law § 201-d; the New York State Fair Credit Reporting Act, as amended, N.Y. Gen. Bus. Law §§ 380 et seq.; Article 23-A of the New York State Corrections Law, as amended, N.Y. Correc. Law §§ 750 et seq.; the New York City Human Rights Law, as amended, N.Y.C. Admin. Code §§ 8-101 et seq.; the New York City Earned Sick Time Act, as amended, N.Y.C. Admin. Code §§ 20-911 et seq.; the


iii

New York City Stop Credit Discrimination in Employment Act, as amended, N.Y.C. Admin. Code §§ 8-102(29), 8-107(9)(d), 8-107(24); and the New York City Fair Chance Act, as amended, N.Y.C. Admin. Code §§ 8-102(5), 8-107(9) et seq.;
◦
Any other state’s and local government’s human rights laws, anti-discrimination laws, and “plant closing”/mini-WARN Act laws;
◦
Anti-retaliation laws, including without limitation retaliation claims under the New York State Workers' Compensation Law, as amended, N.Y. Workers' Comp. Law § 120, and the New York State Disability Benefits Law, as amended, N.Y. Workers' Comp. Law § 241; and
◦
Any other federal, state, or local constitution, statute, rule, or regulation;

provided that I do not release or discharge the Avon Released Parties: (1) from any Claims arising after the date on which I execute this Second General Release; (2) from any Claims for a breach by Avon of its obligations under the Agreement or this Second General Release; or (3) from any Claims that by law cannot be released or waived. It is understood that this Second General Release does not release the Avon employee benefit plans from any claims for vested benefits that I may have under the terms of any of Avon’s employee benefit plans applicable to me. It is further understood that nothing in this Second General Release will preclude or prevent me from challenging the validity of the Second General Release solely with respect to any waiver of any Claims arising under the ADEA after the date on which I execute this Second General Release.
B.
Challenge to the Validity of the Agreement and Communication with Government Agency :
Nothing in this Second General Release (i) limits or affects my right to challenge the validity of the Second General Release of Claims under the ADEA or the Older Workers Benefit Protection Act; or (ii) precludes me from filing an administrative charge or otherwise communicating with any federal, state or local government office, official or agency. However, I promise and agree never to seek or accept any damages or other legal remedies, or any equitable remedies or relief (including, without limitation, relief that would provide me with reinstatement to employment with Avon), and hereby waive any right to recovery of any such damages, remedies or other relief for myself personally with respect to any Claim released by Paragraph A, regardless of whether another person or entity or I initiate the underlying action related to the Claim. I also promise and agree not to voluntarily offer to be a witness and/or voluntarily provide


iv

evidence in support of any lawsuit brought by a third party (excluding governmental agencies) against one or more of the Avon Released Parties.
C.      Other Representations and Reservation of Certain Rights :
I make the following additional representations, which I acknowledge the Company has relied upon in entering into this Second General Release:
i.
Nothing in this Second General Release is to be construed as an admission on behalf of the Avon Released Parties of any wrongdoing with respect to me, any such wrongdoing being expressly denied.
ii.
I represent and warrant that as of today’s date, I have not filed any complaint, charge, claim, or proceeding against any of the Avon Released Parties before any federal, state, or local agency, court, or other body relating to my employment and the cessation thereof or to any claim released in the Agreement or this Second General Release, and that I am not currently aware of any facts or basis for filing such a complaint, charge, claim, or proceeding against any of the Avon Released Parties. Except as otherwise provided in the Agreement and this Second General Release, I agree that, if I or any other person or entity files an action, complaint, charge, claim, or proceeding against any of the Avon Released Parties, I agree that, to the maximum extent permitted by law, I will not seek or accept any monetary, equitable, or other relief in such action, complaint, charge, claim, or proceeding (including without limitation relief that would provide me with reinstatement to employment with Avon), and that I will take all available steps/procedures to withdraw and/or dismiss the complaint, charge, claim or proceeding, regardless of who filed or initiated such complaint, charge, claim or proceeding, whether pursued solely on my behalf or on behalf of a greater class of individuals.
iii.
If I am employed in, or was formerly employed in the State of California, I acknowledge that I am aware of and familiar with the provisions of Section 1542 of the California Civil Code, which provides as follows:
“A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the general release which if known by him must have materially affected his settlement with the debtor.”


v


If I am employed in, or, was formerly employed in the State of California, by signing this Second General Release, I hereby waive and relinquish all rights and benefits which I may have under Section 1542 of the California Civil Code and under the law of any other state or jurisdiction to the same or similar effect.
iv.
I represent and warrant that I have the authority to enter into this Second General Release on my behalf individually and to bind all persons and entities claiming through me.
v.
I understand that nothing in the Agreement or this Second General Release will limit or interfere with any rights that I may have under Section 7 of the NLRA.
vi.
Protection of Whistleblower Rights : I understand that this Second General Release is not intended to, and shall be interpreted in a manner that does not, limit or restrict me from exercising any legally protected rights that I may have under any applicable statutes, regulations and rules intended to protect whistleblowers (including pursuant to Rule 21F under the Securities Exchange Act of 1934, as amended).
vii.
I acknowledge that Avon has advised me, and hereby advises me, to consult with legal counsel prior to signing the Agreement and the Second General Release. I represent and warrant that I fully understand the terms of the Agreement and the Second General Release, that I have been encouraged to seek the benefit of advice of counsel and either have done so or have knowingly and voluntarily waived my right to do so, and that and I knowingly and voluntarily, of my own free will, without any duress, being fully informed, and after due deliberation, accept its terms and sign below as my own free act. I understand that as a result of signing the Agreement and the Second General Release (subject to Paragraph B above), I will not have the right to assert that Avon or any other Avon Released Party unlawfully terminated my employment or violated any of my rights in connection with my employment with Avon or the cessation thereof.

I acknowledge that I was afforded at least twenty-one (21) days (the “consideration period”) to consider whether to sign this Second General Release (it was included with my Agreement) during which time Avon did not change or revoke the terms of this Second General Release or the Agreement. I understand that, in order to receive the Transition Benefits, I must sign and return this Second General Release no


vi

earlier than my last day of active employment and no later than the end of the consideration period specified in my Agreement.
I understand that if I do not sign this Second General Release and return it to Avon within the time period specified above, then I will not be entitled to any Transition Benefits. I understand that, as long as I sign and return this Second General Release within the consideration period, I will have seven (7) days immediately after the date of my signature in which I may revoke my decision to sign this Second General Release by delivering, within the seven (7) day period, written notice of revocation to the Senior Vice President, Human Resources. If I do not revoke my decision during that seven (7) day period, then this Second General Release will become effective on the eighth (8 th ) day after I sign it and will be irrevocable.
I acknowledge: (w) that I am receiving valuable consideration in exchange for the execution of the Agreement and this Second General Release that I would not otherwise be entitled to receive; (x) that I was given at least twenty-one (21) days in which to consider the Agreement and a separate twenty-one (21) days in which to consider the Second General Release; (y) that any changes made to the Agreement or Second General Release, whether material or immaterial, will not restart their respective twenty-one (21) day consideration periods; and (z) that I am entitled to revoke the Agreement and the Second General Release in writing, within seven (7) days after I sign each, respectively. Such revocation must be delivered to the Company as provided herein within the applicable seven (7)-day period, in which case I will receive no benefits described in the Agreement, and neither the Agreement, the Second General Release nor my eligibility for Transition Benefits, will go into effect.
This Second General Release shall be governed by the laws of the State of New York without giving effect to its conflict of laws principles.

Date: _________________      By: _____________________________
Jeff Benjamin






Exhibit 31.1
CERTIFICATION
I, Sherilyn S. McCoy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avon Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2017
 
/s/ Sherilyn S. McCoy
Sherilyn S. McCoy
Chief Executive Officer




Exhibit 31.2
CERTIFICATION
I, James Wilson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Avon Products, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2017
 
/s/ James Wilson
James Wilson
Executive Vice President and
Chief Financial Officer




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avon Products, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sherilyn S. McCoy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Sherilyn S. McCoy
Sherilyn S. McCoy
Chief Executive Officer
May 4, 2017




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Avon Products, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James Wilson, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ James Wilson
James Wilson
Executive Vice President and
Chief Financial Officer
May 4, 2017