Avon 2000 Annual Report Download - page 23

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Contracts that require physical or net share settlement are
initially measured at fair value with subsequent changes
in fair value not recognized. Contracts that require net
cash settlement are initially measured at fair value with
subsequent changes in fair value recognized as gains or
losses in the income statement.
Research and Development > Research and development
costs are expensed as incurred and aggregated in
2000–$43.1 (1999 –$38.2; 1998 –$31.4).
Advertising > Advertising costs are expensed as incurred
and aggregated in 2000–$92.4 (1999 –$63.4;
1998 –$65.0).
Income Taxes > Deferred income taxes have been provided
on items recognized for financial reporting purposes in
different periods than for income tax purposes at future
enacted rates.
u.s. income taxes have not been provided on
approximately $204.0 of undistributed income of sub-
sidiaries that has been or is intended to be permanently
reinvested outside the United States.
Shipping and Handling > Shipping and handling costs are
expensed as incurred and aggregated in 2000–$533.2
(1999 –$495.4; 1998 –$440.9). Shipping and handling
costs are included in Marketing, distribution and adminis-
trative expenses on the Consolidated Statements of Income.
Earnings per Share > Basic earnings per share (“eps”)
are computed by dividing net income by the weighted-
average number of shares outstanding during the year.
Diluted earnings per share are calculated to give effect
to all potentially dilutive common shares that were out-
standing during the year.
Depreciation > Substantially all buildings, improvements
and equipment are depreciated using the straight-line
method over estimated useful lives. Estimated useful lives
for buildings and improvements range from approximately
20 to 45 years and equipment range from 3to 15 years.
Deferred Software > Systems development costs related
to the development of major information and account-
ing systems are capitalized and amortized over the esti-
mated useful life of the related project, not to exceed
five years. Unamortized deferred software costs totaled
$121.2 and $90.7 at December 31, 2000 and 1999,
respectively, and are included in Other assets on the
Consolidated Balance Sheets.
Stock Options > Avon applies apb Opinion 25, “Account-
ing for Stock Issued to Employees,” and related interpre-
tations in accounting for its long-term incentive plans.
Compensation cost for fixed price options is measured as
the excess, if any, of the quoted market price of Avon’s
stock at the grant date or other measurement date over
the amount an employee must pay to acquire the stock.
Financial Instruments > The Company uses derivative
financial instruments, including swaps, forward contracts
and options, to manage interest rate and foreign currency
exposures. Gains and losses on existing assets, liabilities
and firm commitments designated as hedged items are
deferred and included in other assets or liabilities and rec-
ognized when the offsetting gains and losses are recog-
nized on the related financial instrument. Gains and
losses and cash flows from derivative instruments desig-
nated as hedges are classified consistent with the items
being hedged. Items which do not qualify for hedge
accounting are marked to market with the resulting gain
or loss recognized in other expense (income), net. Gains
and losses on terminations of foreign exchange and inter-
est rate swap contracts are deferred and amortized over
the remaining terms of the original agreements.
The Company also uses financial instruments,
including forward contracts to purchase Avon common
stock, to hedge certain employee benefit costs and the
cost of the Company’s share repurchase program.