Avon 2003 Annual Report Download - page 77

corresponding taxes. Avon vigorously contested this assessment through
local administrative and judicial proceedings since 1998. In the third quarter
of 2001, the Argentine government issued a decree permitting taxpayers to
satisfy certain tax liabilities on favorable terms using Argentine government
bonds as payment. Avon decided to settle this contested tax assessment
by applying for relief under this new government program and purchased
bonds to tender in settlement of the aforementioned assessment. As a
result, a pretax charge of $6.4 ($3.4 after tax, or $.01 per diluted share) was
included in Other expense (income), net in the Consolidated Statements
of Income in the third quarter of 2001.
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 the opinion of Avon’s management, based on its review of the infor-
mation available at this time, the total cost of resolving such other contingen-
cies at December 31, 2003, should not have a material adverse effect on the
Consolidated Financial Statements.
15. Contract Settlement
In July 2001, Avon announced that, due to a change in Sears’ business strategy,
which included de-emphasizing cosmetics, Avon would not proceed with the
launch of its retail brand, beComing, in Sears stores in the fall of 2001. In July
2001, Avon and Sears reached an agreement, under which Avon received a
Contract settlement gain, net of related expenses, of approximately $25.9 pretax
($15.7 after tax, or $.06 per diluted share) to compensate Avon for lost profits
and incremental expenses as a result of the cancellation of the retail agreement.
16. Supplemental Income Statement Information
For the years ended December 31, 2003, 2002 and 2001, the components of
Other expense (income), net were as follows:
2003 2002 2001
Argentina excise tax settlement $ — $ — $ 6.4
Foreign exchange losses (gains), net 15.9 (16.0) 7.7
Amortization of debt issue costs
and other financing 14.1 6.7 5.0
Other (1.4) (.6) (3.3)
Other expense (income), net $ 28.6 $ (9.9) $15.8
17. Other Information
In January 2003, Avon announced that it had agreed with J.C. Penney to end the
business relationship, which began in 2001, pursuant to which Avon’s beComing
line of products had been carried in approximately 90 J.C. Penney stores. The
beComing brand is now being sold through Avon’s direct selling channel in the
U.S., exclusively by Avon Beauty Advisors, who are independent Avon sales
Representatives with specialized beauty product training and consultative sell-
ing skills. For the year ended December 31, 2003, costs associated with ending
this business relationship were $18.3, including severance costs ($4.1), asset
and inventory write-downs ($12.1) and other related expenses ($2.1). These
costs, which were incurred in the first and second quarters, were included in
the Consolidated Statements of Income in Marketing, distribution and adminis-
trative expenses ($10.5) and in Cost of sales ($7.8).
Notes to Consolidated Financial Statements
notes to statements
96