Avon 2000 Annual Report Download - page 22

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1Description of the Business and Summary of Significant Accounting Policies
Business
Avon Products, Inc. (“Avon” or the “Company”) is a
global manufacturer and marketer of beauty and related
products. The product categories include cosmetics, fra-
grance and toiletries (“cft”); Beauty Plus which consists
of jewelry, watches and accessories and apparel; and
Beyond Beauty which consists of gift and decorative,
home entertainment and health and nutrition products.
Avon’s business is primarily comprised of one industry
segment, direct selling, which is conducted in North
America, Latin America, the Pacific and Europe. Sales are
made to the ultimate customers principally by independ-
ent Avon Representatives.
Significant Accounting Policies
Principles of Consolidation > The consolidated financial
statements include the accounts of Avon and its majority
and wholly-owned subsidiaries. Intercompany balances
and transactions are eliminated. These statements have
been prepared in conformity with generally accepted
accounting principles and require management to make
estimates and assumptions that affect amounts reported
and disclosed in the financial statements and related
notes. Actual results could differ from these estimates.
Foreign Currency > Financial statements of foreign sub-
sidiaries operating in other than highly inflationary
economies are translated at year-end exchange rates for
assets and liabilities and average exchange rates during
the year for income and expense accounts. The resulting
translation adjustments are recorded within accumulated
other comprehensive income. Financial statements of sub-
sidiaries operating in highly inflationary economies are
translated using a combination of current and historical
exchange rates and any translation adjustments are
included in income.
Revenue Recognition > Avon recognizes revenue upon
delivery, when both title and risks and rewards of owner-
ship pass to the independent Representatives, who are
Avon’s customers. Prior to 2000, Avon recognized rev-
enue as shipments were made. See Note 2 of the Notes to
Consolidated Financial Statements.
Other revenues include shipping and handling fees
charged to Representatives.
Cash and Equivalents > Cash equivalents are stated at cost
plus accrued interest, which approximates fair value. Cash
equivalents are highly liquid debt instruments with an
original maturity of three months or less and consist of
time deposits with a number of u.s. and non-u.s. com-
mercial banks with high credit ratings.
Inventories > Inventories are stated at the lower of cost or
market. Cost is determined using the first-in, first-out
(“fifo”) method for all inventories. Prior to October
1999, substantially all u.s. inventories, except apparel,
used the last-in, first-out (“lifo”) method to determine
cost. The lifo value of such inventory at December 31,
1999 was approximately $3.6 lower than it would have
been under the fifo method at December 31, 1998.
Effective October 1, 1999, the u.s. inventories using the
lifo method were changed to the fifo method. The
change was made because the Company had begun to
realize and expects to continue to experience cost reduc-
tions as a result of technological advancements and
process improvements in its manufacturing operations.
As a result, the fifo method will better measure the cur-
rent value of such inventories, provide a more appropriate
matching of revenues and expenses, and conform all
inventories of the Company to the same accounting
method. This accounting change was not material to the
financial statements on an annual or quarterly basis, and
accordingly, no restatement of prior periods’ financial
statements was made.
Notes to Consolidated Financial Statements
Avon Products, Inc.
In millions, except per share data