Avon 2003 Annual Report Download - page 46

For each of the three years ended December 31, the components of basic
and diluted earnings per share were as follows:
2003 2002 2001
Numerator:
Basic:
Income from continuing
operations before cumulative
effect of accounting change $664.8 $534.6 $444.9
Cumulative effect of accounting change — — (.3)
Net income $664.8 $534.6 $444.6
Diluted:
Income from continuing operations before
cumulative effect of accounting change $664.8 $534.6 $444.9
Interest expense on Convertible Notes,
net of taxes 5.7 10.4 10.0
Income for purposes of computing diluted
EPS before cumulative effect of
accounting change 670.5 545.0 454.9
Cumulative effect of accounting change — — (.3)
Net income for purposes of computing
diluted EPS $670.5 $545.0 $454.6
Denominator:
Basic EPS weighted-average
shares outstanding 235.54 236.06 236.83
Dilutive effect of:
Assumed conversion of stock options
and settlement of forward contracts 2.37 2.45* 2.26*
Assumed conversion of Convertible Notes 3.66 6.96 6.96
Diluted EPS adjusted weighted-average
shares outstanding 241.57 245.47 246.05
Basic EPS:
Continuing operations $ 2.82 $ 2.26 $ 1.88
Cumulative effect of accounting changes — — —
$ 2.82 $ 2.26 $ 1.88
Diluted EPS:
Continuing operations $ 2.78 $ 2.22 $ 1.85
Cumulative effect of accounting changes — — —
$ 2.78 $ 2.22 $ 1.85
* At December 31, 2002 and 2001, stock options and forward contracts to purchase Avon
common stock totaling 2.8 million shares and .3 million shares, respectively, are not
included in the diluted EPS calculation since their impact is anti-dilutive.
2. Accounting Changes
Accounting for Certain Sales Incentives
Effective January 1, 2002, Avon adopted Emerging Issues Task Force (“EITF”)
No. 00-14, “Accounting for Certain Sales Incentives,” which requires the cost
of certain products and cash incentives used in Avon’s promotional activities,
previously reported in Marketing, distribution and administrative expenses, to
be classified as Cost of sales or as a reduction of Net sales.
Effective January 1, 2002, Avon adopted EITF No. 00-25, “Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase
or Promotion of the Vendor’s Products” and EITF No. 01-09, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products),” which require certain expenses related to the U.S.
Retail business previously included in Marketing, distribution and adminis-
trative expenses to be classified as a reduction of Net sales.
Accounting for Goodwill and Other Intangibles Assets
Effective January 1, 2002, Avon adopted FAS No. 142, “Goodwill and Other
Intangible Assets.” Under FAS No. 142, goodwill and intangible assets with
indefinite lives are no longer amortized, but are assessed for impairment annu-
ally and upon the occurrence of an event that indicates impairment may have
occurred. In accordance with FAS No. 142, Avon completed its annual goodwill
impairment assessment based on an evaluation of estimated future cash flow
and no adjustments to goodwill were necessary in 2003 and 2002. Goodwill
totaled $45.2 and $25.4 at December 31, 2003 and 2002, respectively. Intangible
assets totaled $1.0 and $.6 at December 31, 2003 and 2002, respectively.
The pro forma effect of FAS No. 142 assuming Avon had adopted this stan-
dard on January 1, 2001, was not material to Avon’s Income from continuing
operations before cumulative effect of accounting change, Net income or
Basic and Diluted earnings per share for the year ended December 31, 2001.
Advertising costs totaled $111.6 million in 2003, up 11% from
2002’s advertising spend. R&D costs in 2003 were $49.6 million,
an increase of 4% from 2002’s level.
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