Avon 2000 Annual Report Download - page 25

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Effective January 1, 2000, the Company adopted
Staff Accounting Bulletin No. 101, “Revenue Recognition
in Financial Statements” (“sab 101”). sab 101 provides
the Securities and Exchange Commission’s views in
applying generally accepted accounting principles to
revenue recognition in the financial statements. As a
result of adopting sab 101, Avon changed its revenue
recognition policy to recognize revenue upon delivery,
when both title and risks and rewards of ownership pass
to the independent Representative. In accordance with
the provisions of sab 101, the Company recorded a
charge to earnings of $6.7, net of a tax benefit of $3.5,
to reflect the accounting change. This charge is reflected
as a cumulative effect of an accounting change in the
accompanying Consolidated Statements of Income. The
effect of the change on the year ended December 31,
2000, was to decrease net income before the cumulative
effect of the accounting change by $1.1. The change in
accounting method would not have a material effect on
the Statements of Income in 1999 or 1998 if adopted in
these periods.
In September 2000, the Emerging Issues Task Force
(“eitf”) issued eitf 00-10, “Accounting for Shipping and
Handling Fees and Costs.” Under the provisions of eitf
00-10, amounts billed to a customer in a sales transaction
related to shipping and handling should be classified as
revenue. eitf 00-10 also requires the disclosure of the
income statement classification of any shipping and han-
dling costs. Prior to October 1, 2000, the Company
included shipping and handling fees in Marketing, distri-
bution and administrative expenses in the Consolidated
Statements of Income. Effective October 1, 2000, the
Company adopted eitf 00-10, with restatement of all
comparative prior period financial statements. The adop-
tion has no impact on the determination of net income.
In March 2000, the eitf reached a consensus on the
application of eitf Issue No. 96-13, “Accounting for
Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock,” with
Issue No. 00-7, “Equity Derivative Transactions that
Require Net Cash Settlement if Certain Events Outside
the Control of the Issuer Occur” (“eitf 00-7”). Equity
derivative contracts that contain any provision that could
require net cash settlement (except upon the complete
liquidation of the Company) must be marked to fair value
through earnings under eitf 00-7. In September 2000,
the eitf reached a consensus on Issue No. 00-19,
“Determination of Whether Share Settlement Is Within
the Control of the Issuer for Purposes of Applying Issue
No. 96-13, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock” (“eitf 00-19”). eitf 00-19
addresses questions regarding the application of eitf
00-7 and sets forth a model to be used to determine
whether equity derivative contracts should be recorded
as equity. Under the transition provisions of eitf 00-19,
all contracts existing prior to the date of the consensus
are grandfathered until June 30, 2001, with a cumula-
tive catch-up adjustment to be recorded at that time.
Additionally, any contracts entered into prior to
September 20, 2000, which are not revised to comply
with the requirements of eitf 00-19 by December 31 ,
2000, will require reclassification out of permanent
equity and into temporary equity pursuant to Accounting
Series Release No. 268. This reclassification will remain
until the contracts are revised to comply with eitf
00-19 through June 30, 2001. At December 31, 2000,
contracts aggregating $51.0 do not comply with the
provisions of eitf 00-19 and have been included in the
accompanying Consolidated Balance Sheets in Share
repurchase commitments with a corresponding decrease
in Additional paid-in capital. The Company believes that
the equity derivative contracts that may remain outstand-
ing at June 30, 2001, if any, will be in accordance with
the requirements of eitf 00-19 and does not anticipate
that such adoption will have a material impact on the
consolidated financial statements. On March 1, 2001, the
Company purchased 260,000 shares of Avon common
stock at a purchase price of $11.5 under these contracts.
In May 2000, the eitf reached a consensus on eitf
00-14, “Accounting for Certain Sales Incentives,” which
provides guidance on accounting for discounts, coupons,
rebates and free products, as well as the income statement
classification of these discounts, coupons, rebates and free
products. eitf 00-14 is effective April 1, 2001, for the
Company. The Company is currently evaluating the
impact of this new guidance.
3Inventories
Inventories at December 31 consisted of the following:
2000 1999
Raw materials $168.0 $156.9
Finished goods 442.6 366.6
Total $610.6 $523.5