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Section 1: 10-Q (10-Q)

Document
 
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 June 30, 2018
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, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth 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 June 30, 2018 was 442,344,872.
 




TABLE OF CONTENTS
 
 
 
Page
Numbers
 
 
 
Item 1.
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9 - 32
 
 
 
Item 2.
33 - 52
 
 
 
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)
June 30, 2018
 
June 30, 2017
Net sales
$
1,268.8

 
$
1,353.5

Other revenue
83.1

 
42.4

Total revenue
1,351.9

 
1,395.9

Costs, expenses and other:
 
 
 
Cost of sales
539.7

 
525.0

Selling, general and administrative expenses
759.2

 
838.2

Operating profit
53.0

 
32.7

Interest expense
34.5

 
36.1

Loss on extinguishment of debt
2.9

 

Interest income
(3.5
)
 
(3.1
)
Other expense, net
19.4

 
11.9

Total other expenses
53.3

 
44.9

Loss before income taxes
(0.3
)
 
(12.2
)
Income taxes
(36.7
)
 
(33.6
)
Net loss
(37.0
)
 
(45.8
)
Net loss attributable to noncontrolling interests
0.9

 
0.3

Net loss attributable to Avon
$
(36.1
)
 
$
(45.5
)
Loss per share:
 
 
 
Basic attributable to Avon
$
(0.09
)
 
$
(0.12
)
Diluted attributable to Avon
(0.09
)
 
(0.12
)
The accompanying notes are an integral part of these statements.


3



AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Six Months Ended
(In millions, except per share data)
June 30, 2018
 
June 30, 2017
Net sales
$
2,578.4

 
$
2,651.6

Other revenue
167.0

 
77.4

Total revenue
2,745.4

 
2,729.0

Costs, expenses and other:
 
 
 
Cost of sales
1,119.4

 
1,042.1

Selling, general and administrative expenses
1,528.1

 
1,624.4

Operating profit
97.9

 
62.5

Interest expense
70.7

 
71.2

Loss on extinguishment of debt
2.9

 

Interest income
(7.7
)
 
(7.8
)
Other expense, net
21.9

 
18.0

Total other expenses
87.8

 
81.4

Income (loss), before income taxes
10.1

 
(18.9
)
Income taxes
(68.2
)
 
(63.4
)
Net loss
(58.1
)
 
(82.3
)
Net loss attributable to noncontrolling interests
1.7

 
0.3

Net loss attributable to Avon
(56.4
)
 
$
(82.0
)
Loss per share:
 
 
 
Basic attributable to Avon
(0.15
)
 
(0.21
)
Diluted attributable to Avon
(0.15
)
 
(0.21
)
The accompanying notes are an integral part of these statements.



4



AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
(In millions)
June 30, 2018
 
June 30, 2017
Net loss
$
(37.0
)
 
$
(45.8
)
Other comprehensive income:
 
 
 
Foreign currency translation adjustments
(126.6
)
 
9.5

Adjustments of and amortization of net actuarial loss and prior service cost, net of taxes of $0.1 and $0.0
2.8

 
3.1

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

 
0.1

Total other comprehensive (loss) income, net of income taxes
(123.8
)
 
12.7

Comprehensive loss
(160.8
)
 
(33.1
)
Less: comprehensive loss attributable to noncontrolling interests
(1.2
)
 
(0.2
)
Comprehensive loss attributable to Avon
$
(159.6
)
 
$
(32.9
)
The accompanying notes are an integral part of these statements.

5




AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Six Months Ended
(In millions)
June 30, 2018
 
June 30, 2017
Net loss
$
(58.1
)
 
$
(82.3
)
Other comprehensive income:
 
 
 
Foreign currency translation adjustments
(93.9
)
 
71.5

Adjustments of and amortization of net actuarial loss and prior service cost, net of taxes of $0.3 and $0.0
5.7

 
6.2

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

 
1.2

Total other comprehensive (loss) income, net of income taxes
(88.2
)
 
78.9

Comprehensive loss
(146.3
)
 
(3.4
)
Less: comprehensive loss attributable to noncontrolling interests
(1.8
)
 
(0.1
)
Comprehensive loss attributable to Avon
$
(144.5
)
 
$
(3.3
)
The accompanying notes are an integral part of these statements.


6



AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
June 30,
2018
 
December 31,
2017
Assets
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
443.9

 
$
881.5

Accounts receivable, net
386.4

 
457.2

Inventories
662.2

 
598.2

Prepaid expenses and other
290.9

 
296.4

Total current assets
1,783.4

 
2,233.3

Property, plant and equipment, at cost
1,402.9

 
1,481.9

Less accumulated depreciation
(768.7
)
 
(779.2
)
Property, plant and equipment, net
634.2

 
702.7

Goodwill
94.9

 
95.7

Other assets
573.9

 
666.2

Total assets
$
3,086.4

 
$
3,697.9

Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit
 
 
 
Current Liabilities
 
 
 
Debt maturing within one year
$
12.0

 
$
25.7

Accounts payable
729.5

 
832.2

Accrued compensation
109.2

 
130.3

Other accrued liabilities
400.9

 
405.6

Sales taxes and taxes other than income
123.4

 
153.0

Income taxes
8.6

 
12.8

Total current liabilities
1,383.6

 
1,559.6

Long-term debt
1,630.3

 
1,872.2

Employee benefit plans
134.2

 
150.6

Long-term income taxes
97.6

 
84.9

Long-term sales taxes and taxes other than income
191.1

 
193.1

Other liabilities
80.3

 
84.4

Total liabilities
3,517.1

 
3,944.8

 
 
 
 
Commitments and contingencies (Note 7)


 


Series C convertible preferred stock
479.8

 
467.8

 
 
 
 
Shareholders’ Deficit
 
 
 
Common stock
190.3

 
189.7

Additional paid-in capital
2,297.5

 
2,291.2

Retained earnings
2,210.0

 
2,320.3

Accumulated other comprehensive loss
(1,014.4
)
 
(926.2
)
Treasury stock, at cost
(4,602.3
)
 
(4,600.0
)
Total Avon shareholders’ deficit
(918.9
)
 
(725.0
)
Noncontrolling interests
8.4

 
10.3

Total shareholders’ deficit
(910.5
)
 
(714.7
)
Total liabilities, series C convertible preferred stock and shareholders’ deficit
$
3,086.4

 
$
3,697.9

The accompanying notes are an integral part of these statements.

7



AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
(In millions)
June 30, 2018
 
June 30, 2017
Cash Flows from Operating Activities
 
 
 
Net loss
$
(58.1
)
 
$
(82.3
)
Adjustments to reconcile net loss to net cash (used) provided by operating activities:
 
 
 
Depreciation
41.6

 
41.7

Amortization
13.8

 
15.0

Provision for doubtful accounts
86.2

 
113.0

Provision for obsolescence
13.3

 
16.5

Share-based compensation
7.5

 
16.2

Foreign exchange losses
13.5

 
8.5

Deferred income taxes
(0.2
)
 
12.0

Other
3.2

 
16.1

Changes in assets and liabilities:
 
 
 
Accounts receivable
(50.0
)
 
(92.0
)
Inventories
(99.7
)
 
(36.1
)
Prepaid expenses and other
1.7

 
14.2

Accounts payable and accrued liabilities
(76.6
)
 
(53.2
)
Income and other taxes
(0.3
)
 
(5.0
)
Noncurrent assets and liabilities
(2.6
)
 
26.6

Net cash (used) provided by operating activities of continuing operations
(106.7
)
 
11.2

Cash Flows from Investing Activities
 
 
 
Capital expenditures
(48.0
)
 
(43.0
)
Disposal of assets
1.4

 
2.7

Other investing activities
(3.3
)
 
(0.1
)
Net cash used by investing activities of continuing operations
(49.9
)
 
(40.4
)
Cash Flows from Financing Activities
 
 
 
Debt, net (maturities of three months or less)
(10.4
)
 
(4.4
)
Repayment of debt
(238.6
)
 
(2.0
)
Repurchase of common stock
(3.2
)
 
(6.4
)
Other financing activities
(0.1
)
 
(0.2
)
Net cash used by financing activities of continuing operations
(252.3
)
 
(13.0
)
Cash Flows from Discontinued Operations
 
 
 
Net cash used by operating activities of discontinued operations

 
(6.4
)
Net cash used by discontinued operations

 
(6.4
)
Effect of exchange rate changes on cash and cash equivalents
(28.7
)
 
28.0

Net decrease in cash and cash equivalents
(437.6
)
 
(20.6
)
Cash and cash equivalents at beginning of year
881.5

 
654.4

Cash and cash equivalents at end of period
$
443.9

 
$
633.8

 
The accompanying notes are an integral part of these statements.



8


Table of Contents

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 2017 Annual Report on Form 10-K ("2017 Form 10-K") in preparing these unaudited interim Consolidated Financial Statements, other than those impacted by new accounting standards as described below. 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 2017 Form 10-K. When used in this report, the terms "Avon," "Company," "we" or "us" mean Avon Products, Inc.
For interim Consolidated Financial Statements purposes, we generally provide for accruals under our various employee benefit plans for each quarter based on one quarter of the estimated annual expense, and adjust these accruals as estimates are refined. In addition, our income tax provision is determined using an estimate of our consolidated annual effective tax rate, adjusted in the current period for discrete income tax items including:
the effects of significant, unusual or extraordinary pretax and income tax items, if any;
withholding taxes recognized associated with cash repatriations; and
the impact of loss-making subsidiaries for which we cannot recognize an income tax benefit and subsidiaries for which an effective tax rate cannot be reliably estimated.
Revenue
Nature of goods and services
We are a global manufacturer and marketer of beauty and related products. Our product categories are Beauty and Fashion & Home. Beauty consists of skincare, 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.
Our business is conducted primarily in one channel - direct selling. Our reportable segments are based on geographic operations in four regions: Europe, Middle East & Africa; South Latin America; North Latin America; and Asia Pacific. We primarily sell our products to the ultimate consumer through the direct selling channel principally through Representatives, who are independent contractors and not our employees.
Revenue recognition
Revenue is recognized when control of a product or service is transferred to a customer, which is generally the Representative. Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties, such as Value Added Taxes (“VAT”) collected for taxing authorities.
Principal revenue streams and significant judgments
Our principal revenue streams can be distinguished into: i) the sale of Beauty and Fashion & Home products to Representatives (recorded in net sales); ii) Representative fees, primarily for the sale of brochures to Representatives and fulfillment activities related to the contract, which include fees for shipping and handling (recorded in other revenue); and iii) other, which includes the sale of products to New Avon and royalties from the licensing of our name and products (recorded in other revenue).
i) Sale of Beauty and Fashion & Home products to Representatives
We generate the majority of our revenue through the sale of Beauty and Fashion & Home products. A Representative contacts her customers directly, selling primarily through our brochure, which highlights new products and special promotions (or incentives) for each sales campaign. In this sense, the Representative, together with the brochure, are the "store" through which our products are sold. A brochure introducing a new sales campaign is typically generated every three to four weeks. A purchase order is processed and the products are picked at a distribution center and delivered to the Representative usually through a combination of local and national delivery companies. Generally, the Representative then delivers the merchandise and collects

9



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


payment from the customer for her or his own account. A Representative generally receives a refund of the price the Representative paid for a product if the Representative chooses to return it.
A Representative Agreement, which outlines the basic terms of the agreement between Avon and the Representative, combined with a purchase order, constitutes a contract for the purposes of Accounting Standards Codification Topic ("ASC 606"), Revenue from Contracts with Customers.
We account for individual products and services separately in the contract if they are distinct (i.e., if a product or service is separately identifiable from the other items in the contract and if a Representative can benefit from the product or service on its own or with other resources that are readily available). This revenue is recognized at a point in time, when control of a product is transferred to a Representative. In addition, we offer incentives to Representatives to support sales growth. Certain of these sales incentives are distinct promises to a Representative, and therefore are a separate performance obligation. As a result, revenue is allocated to the performance obligation for sales incentives and is deferred on the balance sheet until the associated performance obligations are satisfied.
Typically included within a contract is variable consideration, such as sales returns and late payment fees. Revenue is only recorded to the extent it is probable that it will not be reversed, and therefore revenue is adjusted for variable consideration. Variable consideration is generally estimated using the expected value method, which considers possible outcomes weighted by their probability. Specifically for sales returns, a refund liability will be recorded for the estimated cash to be refunded for the products expected to be returned, and a returns asset will be recorded for the products which we expect to be returned and re-sold, each of these based on historical experience. Sales returns are estimated and updated at the end of each month. The measurement of the returns asset and the refund liability is updated at the end of each month for changes in expectations regarding the amount of salvageable returns, reconditioning costs and any additional decreases in the value of the returned products. Late payment fees are recorded when the uncertainty associated with collecting such fees are resolved (i.e., when collected).
The Representative generally receives a credit period of one sales campaign if they meet certain criteria; however, the specific credit terms are outlined in the Representative Agreement. Generally, the Representative remits payment during each sales campaign, which relates to the prior campaign cycle. The Representative is generally precluded from submitting an order for the current sales campaign until the accounts receivable balance past due for prior campaigns is paid; however, there are circumstances where the Representative fails to make the required payment.
Our contracts with Representatives often include multiple promises to transfer products and/or services to the Representative, and determining which of these products and/or services are considered distinct performance obligations that should be accounted for separately may require significant judgment. In addition, in assessing the recognition of revenue for the following performance obligations, management has exercised significant judgment in the following areas: estimation of variable consideration and the stand-alone selling prices ("SSP") of promised goods or services in order to determine and allocate the transaction price.
Performance obligation - Avon products
The Representative purchases Avon products through a purchase order. We recognize revenue for Avon products in net sales in our Consolidated Statements of Operations when the Representative obtains control of the products, which occurs upon delivery of the product to the Representative. Transaction price is the amount we expect to receive in exchange for those products adjusted for variable consideration as discussed above and the estimated SSP of other performance obligations as discussed below.
Performance obligation - Sales incentives
Types of sales incentives include status programs, loyalty points, prospective discounts, and gift with purchase, among others. A Representative is eligible for certain status programs if specified sales levels are met. Status programs offer additional benefits such as free or discounted products and services. Loyalty points offer the option to redeem for additional Avon or other products or services. Prospective discounts are offered in some countries when certain sales levels are reached in a given time period. The revenue attributable to the prospective discount performance obligation is for the option to purchase additional product at a discounted amount.
Certain benefits within status programs, loyalty points, prospective discounts and certain other sales incentives constitute a material right and, therefore, a distinct performance obligation in the contract with the Representative. Transaction price is allocated to the material right (performance obligation) based on estimated SSP and is deferred on the balance sheet until the associated performance obligations are satisfied. The cost of sales incentives is presented in inventories in our Consolidated Balance Sheets. We recognize revenue allocated to the material right in net sales in our Consolidated

10



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


Statements of Operations at the point in time that the Representative receives the benefits of the material right or obtains control of the products, which occurs upon delivery to the Representative or upon expiration of the material right. For sales incentives that are delivered with the associated products order (such as gift with purchase), no deferral is required.
SSP represents the estimated market value, or the estimated amount that could be charged for that material right when the entity sells it separately in similar circumstances to similar customers. Judgment is required to determine the SSP for each distinct performance obligation. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, including for certain sales incentives, we determine the SSP using information that may include market prices and other observable inputs.
ii) Representative fees, primarily for the sale of brochures to Representatives and fulfillment activities related to the contract ("Representative fees")
The purchase order in the contract with the Representative explicitly identifies activities that we will perform. This includes fees that we charge Representatives, primarily for the sale of brochures to Representatives and fulfillment activities, and also includes late payment fees (discussed above). Brochures represent promotional materials that are given directly by the Representatives to their customers as a marketing activity. Under ASC 606, brochures that are sold by Avon to Representatives through purchase orders represent separate performance obligations in the contract as these are promises made between Avon and the Representative. Although the brochures are used similar to marketing materials, the Representative generally orders and pays for the brochures, and we allocate consideration for purposes of revenue recognition. The revenue associated with brochures that are sold to Representatives is recognized in other revenue and the related cost is recognized in cost of sales in our Consolidated Statements of Operations. We recognize revenue when the Representative obtains control of the brochures, which occurs upon delivery to the Representative. When brochures are given away for free to Representatives as promotional items, the cost is recognized in selling, general and administrative expenses in our Consolidated Statements of Operations.
We often charge the Representative for shipping and handling (including order processing) and payment processing activities on the invoice, and such activities are considered to be fulfillment costs. The consideration received represents part of the transaction price in the contract that is allocated to the performance obligations in the contract. We recognize revenue for fulfillment activities in other revenue in our Consolidated Statements of Operations when the Representative obtains control of the associated products, which occurs upon delivery of the products to the Representative. The cost of these activities is recognized in selling, general and administrative expenses in our Consolidated Statements of Operations.
iii) Other revenue
We also recognize revenue from the sale of products to New Avon LLC ("New Avon"), as part of a manufacturing and supply agreement, since the separation of the Company's North America business into New Avon on March 1, 2016, and royalties from the licensing of our name and products, in other revenue in our Consolidated Statements of Operations.

11



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


Disaggregation of revenue
In the following table, revenue is disaggregated by product or service type. All revenue is recognized at a point in time, when control of a product is transferred to a customer:
 
 
Three Months Ended June 30, 2018
 
 
Reportable segments
 
 
 
 
 
 
Europe, Middle East & Africa
 
South Latin America
 
North Latin America
 
Asia Pacific
 
Total reportable segments
 
Other operating segments and business activities
 
Total
Beauty:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Skincare
 
$
154.4

 
$
143.9

 
$
43.8

 
$
30.3

 
$
372.4

 
$
2.3

 
$
374.7

Fragrance
 
143.8

 
131.5

 
52.4

 
20.1

 
347.8

 
0.7

 
348.5

Color
 
98.1

 
80.6

 
20.8

 
12.9

 
212.4

 
1.4

 
213.8

Total Beauty
 
396.3

 
356.0


117.0


63.3


932.6


4.4

 
937.0

Fashion & Home:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fashion
 
72.9

 
49.9

 
22.5

 
40.7

 
185.8

 
1.3

 
187.1

Home
 
7.6

 
72.5

 
56.6

 
7.5

 
144.3

 
.4

 
144.7

Total Fashion & Home
 
80.5

 
122.4


79.1


48.2


330.1


1.7

 
331.8

Net sales
 
476.8

 
478.4


196.1


111.5


1,262.7


6.1

 
1,268.8

Representative fees
 
23.7

 
35.2

 
11.2

 
1.5

 
71.6

 
0.5

 
72.1

Other
 
0.2

 
2.6

 

 
0.1

 
2.9

 
8.1

 
11.0

Other revenue
 
23.9

 
37.8

 
11.2

 
1.6

 
74.5

 
8.6

 
83.1

Total revenue
 
$
500.7

 
$
516.1


$
207.3


$
113.1


$
1,337.2


$
14.7

 
$
1,351.9


 
 
Six Months Ended June 30, 2018
 
 
Reportable segments
 
 
 
 
 
 
Europe, Middle East & Africa
 
South Latin America
 
North Latin America
 
Asia Pacific
 
Total reportable segments
 
Other operating segments and business activities
 
Total
Beauty:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Skincare
 
$
323.8

 
$
285.7

 
$
90.5

 
$
61.6

 
$
761.5

 
$
7.0

 
$
768.5

Fragrance
 
307.0

 
250.0

 
106.0

 
38.7

 
701.8

 
2.9

 
704.7

Color
 
218.8

 
161.5

 
41.6

 
26.1

 
448.1

 
4.7

 
452.8

Total Beauty
 
849.6

 
697.2

 
238.1

 
126.4

 
1,911.4

 
14.6

 
1,926.0

Fashion & Home:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fashion
 
152.6

 
96.4

 
45.1

 
80.4

 
374.5

 
3.0

 
377.5

Home
 
16.9

 
144.4

 
97.9

 
14.5

 
273.6

 
1.3

 
274.9

Total Fashion & Home
 
169.5

 
240.8

 
143.0

 
94.9

 
648.1

 
4.3

 
652.4

Net sales
 
1,019.1

 
938.0

 
381.1

 
221.3

 
2,559.5

 
18.9

 
2,578.4

Representative fees
 
49.7

 
71.5

 
21.8

 
3.1

 
146.1

 
1.9

 
148.0

Other
 
0.3

 
3.7

 

 
0.1

 
4.1

 
14.9

 
19.0

Other revenue
 
50.0

 
75.2

 
21.8

 
3.2

 
150.2

 
16.8

 
167.0

Total revenue
 
$
1,069.1

 
$
1,013.2

 
$
402.9

 
$
224.5

 
$
2,709.7

 
$
35.7

 
$
2,745.4



12



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



Contract balances
The timing of revenue recognition generally is different from the timing of a promise made to a Representative. As a result, we have contract liabilities, which primarily relate to the advance consideration received from Representatives prior to transfer of the related good or service for material rights, such as loyalty points and status programs, and are primarily classified within other accrued liabilities (with the long-term portion in other liabilities) in our Consolidated Balance Sheets.
Generally, we record accounts receivable when we invoice a Representative. In addition, we record an estimate of an allowance for doubtful accounts on receivable balances based on an analysis of historical data and current circumstances, including seasonality and changing trends. The allowance for doubtful accounts is reviewed for adequacy, at a minimum, on a quarterly basis. We generally have no detailed information concerning, or any communication with, any ultimate consumer of our products beyond the Representative. We have no legal recourse against the ultimate consumer for the collection of any accounts receivable balances due from the Representative to us. If the financial condition of the Representatives were to deteriorate, resulting in their inability to make payments, additional allowances may be required.
The following table provides information about receivables and contract liabilities from contracts with customers at June 30, 2018:
 
 
June 30, 2018
Accounts receivable, net of allowances of $108.5
 
$
386.4

Contract liabilities
 
$
70.3

At January 1, 2018 and June 30, 2018 we had a contract liability of $91.8 and $70.3 , respectively, relating to certain material rights (loyalty points, status program and prospective discounts). During the six months ended June 30, 2018, we recognized $80.8 of revenue related to the contract liability balance at January 1, 2018, as the result of performance obligations satisfied. In addition, we deferred an additional $59.7 related to certain material rights granted during the period, for which the performance obligations are not yet satisfied. Of the amount deferred during the period, substantially all will be recognized within a year, with the significant majority to be captured within a quarter; therefore, the contract liability at June 30, 2018 will primarily be recognized in the remainder of 2018. The remaining movement in the contract liability balance is attributable to foreign exchange differences arising on the translation of the balance as at June 30, 2018 as compared with December 31, 2017.
Contract costs
Incremental costs to obtain contracts, such as bonuses or commissions, are recognized as an asset if the entity expects to recover them. However, ASC 340-40, Other Assets and Deferred Costs, offers a practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. We elected the practical expedient and expense costs to obtain contracts when incurred because our amortization period is one year or less.
Costs to fulfill contracts with Representatives are comprised of shipping and handling (including order processing) and payment processing services, which are expensed as incurred. The fees for these services are included in the transaction price.
Changes in accounting policies
Except for the changes below, we have consistently applied the accounting policies to all periods presented in these consolidated financial statements.
We adopted ASC 606 with a date of the initial application of January 1, 2018, as a cumulative-effect adjustment to retained earnings. Therefore, the comparative information for prior periods has not been adjusted and continues to be reported under ASC 605, Revenue Recognition. We applied ASC 606 to all outstanding contracts at January 1, 2018.
We recorded a cumulative-effect adjustment upon adoption of the new revenue recognition standard as of January 1, 2018 comprised of the following:
a reduction to retained earnings of $52.7 before taxes ($41.1 after tax), with a corresponding impact to deferred income taxes of $11.6;
a reduction to prepaid expenses and other of $54.9;
an increase to inventories of $39.3; and

13



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


an increase to other accrued liabilities of $37.1 due to the net impact of the establishment of a contract liability of $91.8 for deferred revenue where our performance obligations are not yet satisfied, which is partially offset by a reduction in the sales incentive accrual of $54.7.
This cumulative-effect adjustment impacting our Consolidated Balance Sheets is primarily driven by sales incentives and brochures. The other changes resulting from the new revenue recognition standard were not material.
The details of the significant changes to our accounting policy for revenue recognition and the quantitative impact of the changes on our Consolidated Financial Statements are set out below.
Performance obligations - Avon products
We recognize revenue for Avon products in net sales in our Consolidated Statements of Operations when the Representative obtains control of the products, which occurs upon delivery of the product to the Representative. Transaction price is the amount we expect to receive in exchange for those products adjusted for variable consideration, such as sales returns and past due fees, and the estimated SSP of other performance obligations, such as sales incentives. Revenue allocated to the material right (performance obligation) for sales incentives is deferred on the balance sheet until the associated performance obligations are satisfied.
Under our historical accounting, we recognized revenue for Avon products in net sales in our Consolidated Statements of Operations upon delivery of the product to the Representative. Revenue was adjusted for expected sales returns.
Performance obligations/ material rights - sales incentives
Certain benefits within status programs, loyalty points, prospective discounts and certain other sales incentives constitute a material right and, therefore, a distinct performance obligation in the contract with the Representative. Transaction price is allocated to the material right based on estimated SSP and is deferred on the balance sheet until the associated performance obligations are satisfied. The cost of sales incentives is presented in inventories in our Consolidated Balance Sheets. We recognize revenue allocated to the material right in net sales and the associated cost of sales incentives is recognized in cost of sales in our Consolidated Statements of Operations, at the point in time that the Representative receives the benefits of the material right or obtains control of the products, which occurs upon delivery to the Representative or upon expiration of the material right. For sales incentives that are delivered with the associated products order (such as gift with purchase), no deferral is required.
Under our historical accounting, the cost of sales incentives was generally presented in other accrued liabilities and prepaid expenses and other in our Consolidated Balance Sheets and recognized in selling, general and administrative expenses in our Consolidated Statements of Operations over the period that the sales incentive was earned.
Representative fees, primarily for the sale of brochures to Representatives and fulfillment activities related to the contract
This includes fees that we charge Representatives, primarily for the sale of brochures to Representatives and fulfillment activities, and also includes late payment fees.
Brochures - Brochures represent promotional materials that are given directly by the Representatives to their customers as a marketing activity. Under ASC 606, brochures that are sold by Avon to Representatives through purchase orders represent separate performance obligations in the contract as these are promises made between Avon and the Representative. Although the brochures are used similar to marketing materials, the Representative generally orders and pays for the brochures, and Avon allocates consideration for purposes of revenue recognition. The revenue associated with brochures that are sold to Representatives is recognized in other revenue and the related cost is recognized in cost of sales in our Consolidated Statements of Operations. We recognize revenue when the Representative obtains control of the brochures, which occurs upon delivery to the Representative. When brochures are given away for free to Representatives as promotional items, the cost is recognized in selling, general and administrative expenses in our Consolidated Statements of Operations.
Under our historical accounting, all brochure costs were initially deferred to prepaid expenses and other in our Consolidated Balance Sheets and were charged to selling, general, and administrative expenses in our Consolidated Statements of Operations over the campaign length. In addition, fees charged to Representatives for brochures were initially deferred and presented as a reduction of prepaid expenses and other in our Consolidated Balance Sheets, and were recorded as a reduction of selling, general, and administrative expenses in our Consolidated Statements of Operations over the campaign length.
Fulfillment activities and late payment fees - We often charge the Representative for shipping and handling (including order processing) and payment processing activities on the invoice, and such activities are considered to be fulfillment

14



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


costs. The consideration received represents part of the transaction price in the contract that is allocated to the performance obligations in the contract. We recognize revenue for fulfillment activities in other revenue in our Consolidated Statements of Operations when the Representative obtains control of the associated products, which occurs upon delivery of the products to the Representative. The cost of these activities is recognized in selling, general and administrative expenses in our Consolidated Statements of Operations. Late payment fees are recorded in other revenue in our Consolidated Statements of Operations when collected.
Under our historical accounting, revenue for shipping and handling (including order processing) activities was recorded in other revenue in our Consolidated Statements of Operations. However, the revenue for payment processing activities and late payment fees were recognized as a reduction of selling, general, and administrative expenses in our Consolidated Statements of Operations. The cost of these activities was recognized in selling, general and administrative expenses in our Consolidated Statements of Operations.
Impacts on consolidated financial statements
The following tables summarize the impacts of adopting ASC 606 on the Company's consolidated financial statements for the three months ended June 30, 2018:
 
Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Operations
Per consolidated financial statements
 
Adjustments
 
Balances excluding the impact of adopting ASC 606
Revenue
 
 
 
 
 
Net sales
$
1,268.8

 
$
(7.6
)
(1) 
$
1,261.2

Other revenue
83.1

 
(50.5
)
(2) 
32.6

Total revenue
1,351.9

 
(58.1
)
 
1,293.8

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Cost of sales
539.7

 
(65.6
)
(3) 
474.1

Selling, general and administrative expenses
759.2

 
9.5

(4) 
768.7

Operating profit
53.0

 
(2.0
)
 
51.0

Loss before income taxes
(0.3
)
 
(2.0
)
 
(2.3
)
Income taxes
(36.7
)
 
(0.1
)
 
(36.8
)
Net loss
(37.0
)
 
(2.1
)
 
(39.1
)
Net loss attributable to Avon
(36.1
)
 
(2.1
)
 
(38.2
)
(1) Primarily relates to net impact of the timing of recognition of sales incentives.
(2) Relates to Representative fees (primarily brochure fees, late payment fees and certain other fees), which were reclassified from SG&A. Brochure fees were also impacted by the timing of recognition.
(3) Primarily relates to the cost of sales incentives and the cost of brochures paid for by Representatives, both of which were reclassified from SG&A and were also impacted by the timing of recognition.
(4) Relates to the cost of sales incentives, which were reclassified to cost of sales and were also impacted by the timing of recognition. This was partially offset by Representative fees, which were reclassified to other revenue.


15



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


 
Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Other Comprehensive Income
Per consolidated financial statements
 
Adjustments
 
Balances excluding the impact of adopting ASC 606
Net loss
(37.0
)
 
$
(2.1
)
 
$
(39.1
)
Other comprehensive income:
 
 
 
 
 
Total other comprehensive income, net of income taxes
(123.8
)
 
(2.0
)
 
(125.8
)
Comprehensive loss
(160.8
)
 
(4.1
)
 
(164.9
)
Comprehensive loss attributable to Avon
(159.6
)
 
(4.1
)
 
(163.7
)
    
The following tables summarize the impacts of adopting ASC 606 on the Company's consolidated financial statements for the six months ended June 30, 2018:
 
Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Operations
Per consolidated financial statements
 
Adjustments
 
Balances excluding the impact of adopting ASC 606
Revenue
 
 
 
 
 
Net sales
$
2,578.4

 
$
(33.1
)
(1) 
$
2,545.3

Other revenue
167.0

 
(105.3
)
(2) 
61.7

Total revenue
2,745.4

 
(138.4
)
 
2,607.0

 
 
 
 
 
 
Costs and expenses
 
 
 
 
 
Cost of sales
1,119.4

 
(138.6
)
(3) 
980.8

Selling, general and administrative expenses
1,528.1

 
21.3

(4) 
1,549.4

Operating profit
97.9

 
(21.1
)
 
76.8

Income (loss) before income taxes
10.1

 
(21.1
)
 
(11.0
)
Income taxes
(68.2
)
 
3.7

 
(64.5
)
Net loss
(58.1
)
 
(17.4
)
 
(75.5
)
Net loss attributable to Avon
(56.4
)
 
(17.4
)
 
(73.8
)
(1) Primarily relates to net impact of the timing of recognition of sales incentives.
(2) Relates to Representative fees (primarily brochure fees, late payment fees and certain other fees), which were reclassified from SG&A. Brochure fees were also impacted by the timing of recognition.
(3) Primarily relates to the cost of sales incentives and the cost of brochures paid for by Representatives, both of which were reclassified from SG&A and were also impacted by the timing of recognition.
(4) Relates to the cost of sales incentives, which were reclassified to cost of sales and were also impacted by the timing of recognition. This was partially offset by Representative fees, which were reclassified to other revenue.


16



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


 
Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Other Comprehensive Income
Per consolidated financial statements
 
Adjustments
 
Balances excluding the impact of adopting ASC 606
Net loss
$
(58.1
)
 
$
(17.4
)
 
$
(75.5
)
Other comprehensive income:
 
 
 
 
 
Total other comprehensive income, net of income taxes
(88.2
)
 
(1.3
)
 
(89.5
)
Comprehensive loss
(146.3
)
 
(18.7
)
 
(165.0
)
Comprehensive loss attributable to Avon
(144.5
)
 
(18.7
)
 
(163.2
)
 
Impact of change in revenue recognition standard
Line items impacted within the Consolidated Balance Sheets
Per consolidated financial statements
 
Adjustments
 
Balances excluding the impact of adopting ASC 606
Assets
 
 
 
 
 
Accounts receivable, net
$
386.4

 
$
(6.2
)
(1) 
$
380.2

Inventories
662.2

 
(40.9
)
(2) 
621.3

Prepaid expenses and other
290.9

 
47.1

(2) 
338.0

Other assets
573.9

 
(10.9
)
(3) 
563.0

Total assets
3,086.4

 
(10.9
)
 
3,075.5

Liabilities, Series C Convertible Preferred Stock and Shareholders’ Deficit
 
 
 
 

Other accrued liabilities
400.9

 
(28.2
)
(4) 
372.7

Income taxes
8.6

 
(3.7
)
 
4.9

Total current liabilities
1,383.6

 
(31.9
)
 
1,351.7

Other liabilities
80.3

 
(1.4
)
 
78.9

Total liabilities
3,517.1

 
(33.3
)
 
3,483.8

 
 
 
 
 


Retained earnings
2,210.0

 
23.7

(5) 
2,233.7

Accumulated other comprehensive loss
(1,014.4
)
 
(1.3
)
 
(1,015.7
)
Total Avon shareholders’ deficit
(918.9
)
 
22.4

 
(896.5
)
Total shareholders’ deficit
(910.5
)
 
22.4

 
(888.1
)
Total liabilities, series C convertible preferred stock and shareholders’ deficit
3,086.4

 
(10.9
)
 
3,075.5

(1) Relates to sales returns, which were reclassified from a reduction of accounts receivable to a refund liability (within other accrued liabilities) and a returns asset (within prepaid expenses and other).
(2) Primarily relates to sales incentives and brochures, both of which were reclassified from prepaid expenses and other to     inventories, and were also impacted by the timing of recognition. In addition, prepaid expenses and other was impacted by the timing of recognition of brochures, as well as the reclassification of sales returns (described above).
(3) Relates to deferred tax assets associated with the cumulative-effect adjustment.
(4) Primarily relates to the contract liability for sales incentives, which is partially offset by the lower accrual for sales incentives. In addition, other accrued liabilities was impacted by the reclassification of sales returns (described above).
(5) Relates to the $41.1 cumulative-effect adjustment upon adoption of ASC 606, partially offset by the $17.4 net loss adjustment.

17



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


 
Impact of change in revenue recognition standard
Line items impacted within the Consolidated Statements of Cash Flows
Per consolidated financial statements
 
Adjustments
 
Balances excluding the impact of adopting ASC 606
Net loss
$
(58.1
)
 
$
(17.4
)
 
$
(75.5
)
Other
3.2

 
1.7

 
$
4.9

Changes in assets and liabilities:
 
 
 
 


Accounts receivable
(50.0
)
 
(2.4
)
 
$
(52.4
)
Inventories
(99.7
)
 
1.6

 
$
(98.1
)
Prepaid expenses and other
1.7

 
4.6

 
$
6.3

Accounts payable and accrued liabilities
(76.6
)
 
20.3

 
$
(56.3
)
Income and other taxes
(.3
)
 
(3.7
)
 
$
(4.0
)
Noncurrent assets and liabilities
(2.6
)
 
(4.7
)
 
$
(7.3
)
Other Accounting Standards Implemented
ASU 2017-07, Compensation - Retirement Benefits
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits. This new guidance requires entities to (1) disaggregate the service cost component from the other components of net periodic benefit costs and present it with other current employee compensation costs in the Consolidated Statements of Operations and (2) present the other components of net periodic benefit costs below operating profit in other expense, net. We adopted this new accounting guidance effective January 1, 2018. The new accounting guidance was applied retrospectively and increased our operating profit for the three and six months ended June 30, 2017 by $1.1 and $2.2 respectively, but had no impact on net loss.
Accounting Standards to be Implemented
ASU 2016-02, Leases
In February 2016, the FASB issued ASU 2016-02, Leases, which requires all assets and liabilities arising from leases to be recognized in our Consolidated Balance Sheets. We intend to adopt this new accounting guidance effective January 1, 2019. While we are still evaluating the full effect that adopting this new accounting guidance will have on our Consolidated Financial Statements, we believe that it will significantly increase the assets and liabilities in our Consolidated Balance Sheets.
ASU 2018-02, Income Statement - Reporting Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the 2017 enactment of U.S. tax reform legislation on items within accumulated other comprehensive income (loss) to retained earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." We intend to adopt this new accounting guidance effective January 1, 2019. We are currently assessing the impact on our consolidated financial statements.
ASU 2016-13, Financial Instruments - Credit Losses
In January 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires measurement and recognition of expected credit losses for financial assets held. We intend to adopt this new accounting guidance effective January 1, 2020. We are currently assessing the impact 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.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Shares in millions)
 
2018
 
2017
 
2018
 
2017
Numerator attributable to Avon:
 
 
 
 
 
 
 
 
Net loss attributable to Avon
 
$
(36.1
)
 
$
(45.5
)
 
$
(56.4
)
 
$
(82.0
)
Less: Loss allocated to participating securities
 
(.4
)
 
(.6
)
 
(.6
)
 
(1.0
)
Less: Earnings allocated to convertible preferred stock
 
6.0

 
5.7

 
12.0

 
11.4

Loss allocated to common shareholders
 
(41.7
)
 
(50.6
)
 
(67.8
)
 
(92.4
)
Denominator:
 
 
 
 
 
 
 
 
Basic EPS weighted-average shares outstanding
 
442.2

 
439.9

 
441.5

 
439.3

Diluted effect of assumed conversion of stock options
 

 

 

 

Diluted effect of assumed conversion of preferred stock
 

 

 

 

Diluted EPS adjusted weighted-average shares outstanding
 
442.2

 
439.9

 
441.5

 
439.3

Loss per Common Share attributable to Avon:
 
 
 
 
 
 
 
 
Basic
 
$
(.09
)
 
$
(.12
)
 
$
(.15
)
 
$
(.21
)
Diluted
 
(.09
)
 
(.12
)
 
(.15
)
 
(.21
)
Amounts in the table above may not necessarily sum due to rounding.
During the three months and six months ended June 30, 2018, we did not include stock options to purchase 18.5 million shares and 17.4 million shares, respectively, of Avon common stock in the calculation of diluted EPS as we had a net loss and the inclusion of these shares would decrease the net loss per share. Since the inclusion of such shares would be anti-dilutive, these are excluded from the calculation. During the three and six months ended June 30, 2017, we did not include stock options to purchase 18.1 million shares and 16.1 million shares, respectively, for the same reason.
For the three and six months ended June 30, 2018 and 2017, it is more dilutive to assume the series C convertible preferred stock is not converted into common stock; therefore, the weighted-average shares outstanding were not adjusted by the as-if

18



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


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 and six months ended June 30, 2018 and 2017. See Note 4, Related Party Transactions.
We purchased approximately 1.1 million shares of Avon common stock for $3.2 during the first six months of 2018, as compared to approximately 1.5 million shares of Avon common stock for $6.4 during the first six months of 2017, through acquisition of stock from employees in connection with tax payments upon the vesting of restricted stock units and performance restricted stock units.
3. INVESTMENT IN NEW AVON
In connection with the separation of the Company's North America business, which closed on March 1, 2016, the Company retained a 19.9% ownership interest in New Avon, a privately-held company that is majority-owned and managed by an affiliate of Cerberus Capital Management L.P. ("Cerberus"). The Company has accounted for its ownership interest in New Avon using the equity method of accounting, which resulted in the Company recognizing its proportionate share of New Avon's income or loss and other comprehensive income or loss. Our recorded investment balance in New Avon at June 30, 2018 and December 31, 2017 was zero.
During the third quarter of 2017, the Company received a cash distribution of $22.0 from New Avon, which reduced our recorded investment balance in New Avon. During the third quarter of 2017, we recorded only $1.7 of the Company's proportionate share of the losses in New Avon, as this reduced our recorded investment balance in New Avon to zero. As a result, we have not recorded our proportionate share of New Avon's loss since the third quarter of 2017. If New Avon experiences future losses while our recorded investment balance is zero, we would not record our proportionate share of such loss. The Company's proportionate share of the losses of New Avon was $5.8 and $9.8 during the three and six months ended June 30, 2017, respectively, which was recorded within other expense, net. In addition, the Company's proportionate share of the post-separation other comprehensive income of New Avon was an immaterial amount during the three and six months ended June 30, 2017, and was recorded within other comprehensive income (loss).
The Company also recorded an additional loss of $.5 within other expense, net and a benefit of $1.1 within other comprehensive income (loss), during the six months ended June 30, 2017, primarily associated with purchase accounting adjustments reported by New Avon.
Summarized financial information related to New Avon is shown below:
 
 
Six Months Ended June 30,
 
 
 2018
 
2017
Total revenue
 
$
320.1

 
$
361.8

Gross profit
 
186.6

 
225.6

Net loss
 
(42.3
)
 
(49.4
)

19



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


4. RELATED PARTY TRANSACTIONS
The following tables present the related party transactions with New Avon, affiliates of Cerberus and the Instituto Avon in Brazil. There are no other related party transactions. New Avon is majority-owned and managed by Cerberus NA. See Note 3, Investment in New Avon for further details.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Statement of Operations Data
 
 
 
 
 
 
 
 
Revenue from sale of product to New Avon(1)
 
$
7.1

 
$
9.6

 
$
13.0

 
$
17.6

Gross profit from sale of product to New Avon(1)
 
$
.4

 
$
.7

 
$
.7

 
$
1.3

 
 
 
 
 
 
 
 
 
Cost of sales for purchases from New Avon(2)
 
$
.7

 
$
1.3

 
$
1.2

 
$
2.1

 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses related to New Avon:
 
 
 
 
 
 
 
 
Transition services, intellectual property, technical support and innovation and subleases(3)
 
$
(.5
)
 
$
(7.2
)
 
$
(3.7
)
 
$
(15.1
)
Project management team(4)
 
.2

 
$
.8

 
$
.8

 
$
1.6

Net reduction of selling, general and administrative expenses
 
$
(.3
)
 
$
(6.4
)
 
$
(2.9
)
 
$
(13.5
)
 
 
 
 
 
 
 
 
 
Interest income from Instituto Avon(5)
 
$

 
$

 
$

 
$

 
 
June 30, 2018
 
December 31, 2017
Balance Sheet Data
 
 
 
 
Inventories(6)
 
$
.4

 
$
.4

Receivables due from New Avon(7)
 
$
6.7

 
$
9.8

Receivables due from Instituto Avon(5)
 
$
3.6

 
$

Payables due to New Avon(8)
 
$
.3

 
$
.2

Payables due to an affiliate of Cerberus(9)
 
$
.4

 
$
.4

(1) The Company supplies product to New Avon as part of a manufacturing and supply agreement.
(2) New Avon supplies product to the Company as part of the same manufacturing and supply agreement noted above. The Company purchased $.5 and $.9 from New Avon associated with this agreement during the three months ended June 30, 2018 and 2017, respectively, and recorded $.7 and $1.3 associated with these purchases within cost of sales in our Consolidated Statement of Operations during the three months ended June 30, 2018 and 2017, respectively. The Company purchased $1.2 and $1.9 from New Avon associated with this agreement during the six months ended June 30, 2018 and 2017, respectively, and recorded $1.2 and $2.1 associated with these purchases within cost of sales in our Consolidated Statement of Operations during the six months ended June 30, 2018 and 2017, respectively.
(3) The Company also entered into a transition services agreement to provide certain services to New Avon, as well as an intellectual property ("IP") license agreement, an agreement for technical support and innovation and sublease for office space. In addition, New Avon performed certain services for the Company under a similar transition services agreement, which expired during the third quarter of 2017. The Company recorded a net $.5 and $7.2 reduction of selling, general and administrative expenses associated with these agreements during the three months ended June 30, 2018 and 2017, respectively, and a net $3.7 and $15.1 reduction of selling, general and administrative expenses associated with these agreements during the six months ended June 30, 2018 and 2017, 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 $.2 and $.8 in selling, general and administrative expenses associated with these agreements during the three months ended June 30, 2018 and 2017, respectively, and recorded $.8 and $1.6 in selling, general and administrative expenses associated with these agreements during the six months ended June 30, 2018 and 2017, respectively. See Note 11, Restructuring Initiatives for additional information related to the Transformation Plan.

20



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


(5) During the second quarter of 2018, the Company entered into an agreement to loan the Instituto Avon, an independent non-government charitable organization in Brazil, $3.6 for an unsecured 5-year term at a fixed interest rate of 7% per annum, to be paid back in 5 equal annual installments. The Instituto Avon was created by an Avon subsidiary in Brazil, with board and executive team comprising of Avon Brazil management. The purpose of the loan is to provide the Instituto Avon with the means to donate funds to Fundação Pio XII (a leading cancer prevention and treatment organization in Brazil and owner of the Hospital do Câncer de Barretos), in order to invest in equipment with the objective of expanding breast cancer prevention and treatment.
(6) 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 our Consolidated Balance Sheets.
(7) The receivables due from New Avon relate to the agreements for transition services, the IP license, technical support and innovation and subleases for office space, as well as the manufacturing and supply agreement, and were classified within prepaid expenses and other in our Consolidated Balance Sheets.
(8) The payables due to New Avon relate to the manufacturing and supply agreement, and were classified within other accrued liabilities in our Consolidated Balance Sheets.
(9) 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 our Consolidated Balance Sheets.
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 June 30, 2018, the Company has a liability of $1.4 for the estimated value of such standby letters of credit.
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 $53.5 as of June 30, 2018. There were no dividends declared in the six months ended June 30, 2018 and 2017.
5. INVENTORIES
Components of Inventories
 
June 30, 2018
 
December 31, 2017
Raw materials
 
$
191.3

 
$
190.6

Finished goods
 
470.9

 
407.6

Total
 
$
662.2

 
$
598.2

6. EMPLOYEE BENEFIT PLANS
 
 
Three Months Ended June 30,
 
 
Pension Benefits
 
 
 
 
Net Periodic Benefit Costs
 
U.S. Plans
 
Non-U.S. Plans
 
Postretirement Benefits
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
.9

 
$
1.3

 
$
1.2

 
$
1.2

 
$

 
$

Interest cost
 
.6

 
.8

 
4.0

 
4.4

 
.3

 
.3

Expected return on plan assets
 
(.8
)
 
(.8
)
 
(8.2
)
 
(6.9
)
 

 

Amortization of prior service credit
 

 

 

 
(.1
)
 
(.1
)
 
(.1
)
Amortization of net actuarial losses
 
1.3

 
1.3

 
1.8

 
2.0

 

 
.1

Net periodic benefit costs(1)
 
$
2.0

 
$
2.6

 
$
(1.2
)
 
$
.6

 
$
.2

 
$
.3


21



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


 
 
Six Months Ended June 30,
 
 
Pension Benefits
 
 
 
 
Net Periodic Benefit Costs
 
U.S. Plans
 
Non-U.S. Plans
 
Postretirement Benefits
 
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Service cost
 
$
1.8

 
$
2.7

 
$
2.4

 
$
2.4

 
$
.1

 
$

Interest cost
 
1.2

 
1.5

 
8.2

 
8.8

 
.6

 
.7

Expected return on plan assets
 
(1.6
)
 
(1.6
)
 
(16.6
)
 
(13.6
)
 

 

Amortization of prior service credit
 

 

 

 
(.1
)
 
(.2
)
 
(.2
)
Amortization of net actuarial losses
 
2.6

 
2.5

 
3.6

 
3.8

 

 
.1

Net periodic benefit costs(1)
 
$
4.0

 
$
5.1

 
$
(2.4
)
 
$
1.3

 
$
.5

 
$
.6



(1) Service cost is presented in selling, general and administrative expenses in our Consolidated Statements of Operations. The components of net periodic benefit costs other than service cost are presented in other expense, net in our Consolidated Statements of Operations.
During the six months ended June 30, 2018, we made approximately $11.4 and approximately $8 of contributions to the U.S. and non-U.S. defined benefit pension and postretirement benefit plans, respectively. During the remainder of 2018, we anticipate contributing approximately $0 to $4 and approximately $12 to $17 to fund our U.S. and non-U.S. defined benefit pension and postretirement benefit plans, respectively.
In addition to the amounts in the tables above, during the second quarter of 2017, we recorded an $18.2 charge for a loss contingency related to a non-U.S. pension plan, for which an amendment to the plan that occurred in a prior year may not have been appropriately implemented.
7. 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 Foreign Corrupt Practices Act ("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 U.S. Department of Justice (the "DOJ") and the U.S. Securities and Exchange Commission (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. Ltd., a subsidiary of the Company operating in China, pleaded guilty to conspiring to violate the books and records provision of the FCPA. The USDC also entered a judgment in January 2015 approving our consent agreement with the SEC (the "Consent") to settle the SEC’s complaint charging violations of the books and records and internal control provisions of the FCPA.
As part of these resolutions, the Company agreed, among other things, to pay fines, disgorgement and prejudgment interest in an aggregate amount of $135 and to have a compliance monitor (the "monitor"). The monitor was replaced by the Company, which undertook self-reporting obligations for the remainder of the monitoring period. The DPA has expired, and the charges against the Company were dismissed with prejudice on February 5, 2018.
The Company was subject to a continued self-monitoring period, including the filing of periodic self-monitoring reports with the SEC, until the July 2018 expiry of the monitoring period under the Consent. The Company’s final self-monitoring report and certification of completion were filed on July 9, 2018, but the SEC retains the right under the Consent to request additional compliance-related information from the Company as part of the Company's self-monitoring. Third-party costs incurred in connection with self-monitoring and compliance with the Consent have not been material to date. While we do not anticipate material costs going forward, the Company's related obligations may be costly and/or time-consuming.
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, which was officially closed in favor of Avon Brazil in July 2017. In December 2012,

22



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


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. As in the 2002 IPI case, the 2012 IPI assessment asserts that the 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 2012 IPI assessment is 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 appealed this decision to the second administrative level. The 2012 IPI assessment totals approximately $303, including penalties and accrued interest. On April 18, 2018, Avon received official notification that the second administrative level has issued a partially favorable and partially unfavorable decision. In this decision, the original assessment was reduced by approximately $64 (including associated penalty and interest), subject to Federal Revenue appeal. The remaining $239 of the assessment was upheld at the second administrative level. On April 20, 2018, we appealed this decision in the third administrative level.
On October 3, 2017, Avon Brazil received a new tax assessment notice regarding IPI for 2014. The 2017 IPI assessment totals approximately $232, including penalties and accrued interest. In line with the other assessments received in the past, the Brazilian tax authorities assert that the structure adopted in 2005 has no valid business purpose and that Avon Brazil did not observe minimum pricing rules to define the taxable basis of excise tax. Avon will vigorously contest this assessment, and presented the first defense on November 1, 2017. On April 2, 2018, Avon was notified of an unfavorable decision at the first administrative level. On April 27, 2018, we filed an appeal in the second administrative level.
In the event that the 2012 and the 2017 IPI assessments are upheld in the third and final administrative level, it may be necessary for us to provide security to pursue further appeals in the judicial levels, which, depending on the circumstances, may result in a charge to earnings and an adverse effect on the Company's Consolidated Statements of Cash Flows. 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 cancelled and officially closed in our favor by the second administrative level and in July 2017 we received the official cancellation of the 2002 assessment pursuant to the favorable decision discussed above. We believe that the 2012 and the 2017 IPI assessments are unfounded, however, based on the likelihood that these will be upheld, we assess the risks as disclosed above as reasonably possible. At June 30, 2018, we have not recognized a liability for the 2012 or 2017 IPI assessments.
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. While an increasing number of recent preliminary decisions have been in favor of the taxpayer, as of
June 30, 2018, we have concluded that it is appropriate to continue to recognize the associated IPI taxes as a liability. At June 30, 2018, the liability to the taxing authorities for this IPI tax increase was approximately $191 and was classified within long-term sales taxes and taxes other than income in our Consolidated Balance Sheets, and the judicial deposit was approximately $65 and was classified within prepaid expenses and other in our Consolidated Balance Sheets. The net liability that did not have a corresponding judicial deposit was approximately $126 at June 30, 2018, and the interest associated with this net liability has been and will continue to 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 based on the preliminary injunction that is still in force. On June 12, 2018, we received a decision authorizing Avon to withdraw the amount held as a judicial deposit, substituting it by letter of guarantee, which was presented; on July 30, 2018, the funds were received in our bank account. The tax authorities have presented an appeal against that decision.
An unfavorable ruling to our objection of this IPI tax increase would have an adverse effect on the Company's Consolidated Statements of Cash Flows as Avon Brazil would have to remit the liability owed to the taxing authorities (including the judicial

23



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


deposit that was returned to us on July 30, 2018). We are not able to reliably predict the timing of the outcome of our objection to this tax increase.
Talc-Related Litigation
The Company has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products the Company sold in the past were contaminated with asbestos. Many of these actions involve a number of codefendants from a variety of different industries, including manufacturers of cosmetics and manufacturers of other products that, unlike the Company’s products, were designed to contain asbestos. We believe that the claims against us are without merit. We are defending vigorously against these claims and will continue to do so. To date, there have been no findings of liability against the Company in any of these cases but we are unable to predict the ultimate outcome of each case. Additional similar cases arising out of the use of the Company's talc products are reasonably anticipated. At this time, we are unable to estimate our reasonably possible losses, if any. Also, in light of the inherent litigation uncertainties, potential costs to litigate these cases are not known, but they may be significant, though some costs will be covered by insurance.
Brazilian Labor-Related Litigation
On an ongoing basis, the Company is subject to numerous and diverse labor-related lawsuits filed by employees in Brazil. These cases are assessed on an aggregated and ongoing basis based on historical outcomes of similar cases. The claims made are often for significantly larger sums than have historically been paid out by the Company. Our practice continues to be to recognize a liability based on our assessment of historical payments in similar cases. Our best estimate of the probable loss for such current cases at June 30, 2018 is approximately $13 and, accordingly, we have recognized a liability for this amount.
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 June 30, 2018, is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The tables below present the changes in AOCI by component and the reclassifications out of AOCI for the three and six months ended June 30, 2018 and 2017:
Three Months Ended June 30, 2018
 
Foreign Currency Translation Adjustments
 
Net Investment Hedges
 
Pension and Postretirement Benefits
 
Investment in New Avon
 
Total
Balance at March 31, 2018
 
$
(797.3
)
 
$
(4.3
)
 
$
(92.8
)
 
$
3.4

 
$
(891.0
)
Other comprehensive income other than reclassifications
 
(126.2
)
 

 

 

 
(126.2
)
Reclassifications into earnings:
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss and prior service cost, net of tax of $.1(1)
 

 

 
2.8

 

 
2.8

Total reclassifications into earnings
 

 

 
2.8

 

 
2.8

Balance at June 30, 2018
 
$
(923.5
)
 
$
(4.3
)
 
$
(90.0
)
 
$
3.4

 
$
(1,014.4
)
Three Months Ended June 30, 2017:
 
Foreign Currency Translation Adjustments
 
Net Investment Hedges
 
Pension and Postretirement Benefits
 
Investment in New Avon
 
Total
Balance at March 31, 2017
 
$
(849.0
)
 
$
(4.3
)
 
$
(117.1
)
 
$
3.3

 
$
(967.1
)
Other comprehensive income other than reclassifications
 
9.3

 

 

 
.1

 
9.4

Reclassifications into earnings:
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss and prior service cost, net of tax of $0.0(1)
 

 

 
3.1

 

 
3.1

Total reclassifications into earnings
 

 

 
3.1

 

 
3.1

Balance at June 30, 2017
 
$
(839.7
)
 
$
(4.3
)
 
$
(114.0
)
 
$
3.4

 
$
(954.6
)



24



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


Six Months Ended June 30, 2018:
 
Foreign Currency Translation Adjustments
 
Net Investment Hedges
 
Pension and Postretirement Benefits
 
Investment in New Avon
 
Total
Balance at December 31, 2017
 
$
(829.6
)
 
$
(4.3
)
 
$
(95.7
)
 
$
3.4

 
$
(926.2
)
Other comprehensive income other than reclassifications
 
(93.9
)
 

 

 

 
(93.9
)
Reclassifications into earnings:
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss and prior service cost, net of tax of $0.3(1)
 

 

 
5.7

 

 
5.7

Total reclassifications into earnings
 

 

 
5.7

 

 
5.7

Balance at June 30, 2018
 
$
(923.5
)
 
$
(4.3
)
 
$
(90.0
)
 
$
3.4

 
$
(1,014.4
)

Six Months Ended June 30, 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
 
71.2

 

 

 
1.2

 
72.4

Reclassifications into earnings:
 
 
 
 
 
 
 
 
 
 
Amortization of net actuarial loss and prior service cost, net of tax of $0.0(1)
 

 

 
6.2

 

 
6.2

Total reclassifications into earnings
 

 

 
6.2

 

 
6.2

Balance at June 30, 2017
 
$
(839.7
)
 
$
(4.3
)
 
$
(114.0
)
 
$
3.4

 
$
(954.6
)


(1) Gross amount reclassified to pension and postretirement expense, within other expense, net in our Consolidated Statements of Operations, and related taxes reclassified to income taxes in our Consolidated Statements of Operations.
Foreign exchange net loss of $9.6 and net gain of $6.4 for the three months ended June 30, 2018 and 2017, respectively, and a foreign exchange net losses of $3.7 and net gain of $9.8 for the six months ended June 30, 2018 and 2017, respectively, resulting from the translation of actuarial losses and prior service cost recorded in AOCI, are included in foreign currency translation adjustments in our Consolidated Statements of Comprehensive Loss.
9. SEGMENT INFORMATION
We determine segment profit by deducting the related costs and expenses from segment revenue. 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 11, Restructuring Initiatives), a loss contingency related to a non U.S. pension plan (see Note 6, Employee Benefit Plans), 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.
Summarized financial information concerning our reportable segments was as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 Total Revenue
 
2018
 
2017
 
2018
 
2017
Europe, Middle East & Africa
 
$
500.7

 
$
494.6

 
$
1,069.1

 
$
1,002.1

South Latin America
 
516.1

 
558.1

 
1,013.2

 
1,057.3

North Latin America
 
207.3

 
207.8

 
402.9

 
401.0

Asia Pacific
 
113.1

 
113.9

 
224.5

 
227.3

Total revenue from reportable segments
 
1,337.2

 
1,374.4

 
2,709.7

 
2,687.7

Other operating segments and business activities
 
14.7

 
21.5

 
35.7

 
41.3

Total revenue
 
$
1,351.9

 
$
1,395.9

 
$
2,745.4

 
$
2,729.0


25



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


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Operating Profit
 
2018
 
2017
 
2018
 
2017
Segment Profit
 
 
 
 
 
 
 
 
Europe, Middle East & Africa
 
$
74.4

 
$
80.8

 
$
148.8

 
$
154.3

South Latin America
 
55.2

 
45.7

 
82.4

 
59.4

North Latin America
 
19.0

 
18.2

 
39.8

 
39.6

Asia Pacific
 
7.3

 
10.2

 
17.7

 
23.5

Total profit from reportable segments
 
$
155.9

 
$
154.9

 
$
288.7

 
$
276.8

Other operating segments and business activities
 
(.6
)
 
(.3
)
 
1.6

 
.6

Unallocated global expenses
 
(78.6
)
 
(83.3
)
 
(157.8
)
 
(166.4
)
CTI restructuring initiatives
 
(23.7
)
 
(20.4
)
 
(34.6
)
 
(30.3
)
Loss contingency