Avon 2005 Annual Report Download - page 48

complaint asserts breaches of fiduciary duties and prohibited
transactions in violation of ERISA arising out of, inter alia, alleged
false and misleading public statements regarding Avon’s business
made during the class period and investments in Avon stock by
the Plan and Plan participants.
It is not possible to predict the outcome of litigation and it is
reasonably possible that there could be unfavorable outcomes
in the In re Avon Products, Inc. Securities Litigation, In re Avon
Products, Inc. Securities Litigation (derivative action) and In re
Avon Products, Inc. ERISA Litigation matters. Management is
unable to make a meaningful estimate of the amount or range of
loss that could result from unfavorable outcomes but, under some
circumstances, adverse awards could be material to our consoli-
dated financial position, results of operations or cash flows.
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 management’s opinion, based on its
review of the information available at this time, the total cost of
resolving such other contingencies at December 31, 2005, should
not have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
15SUPPLEMENTAL฀INCOME฀ STATEMENT฀INFORMATION
For the years ended December 31, 2005, 2004 and 2003, the
components of other expense, net were as follows:
2005 2004 2003
Foreign exchange losses, net $ 5.8 $ 9.5 $15.9
Net (gains) losses on available-for-sale
securities (Note 5) (2.5) 13.7 –
Amortization of debt issue costs and
other financing 8.9 7.0 14.1
Gain on de-designated treasury
lock agreement (2.5) – –
Other (1.7) (1.9) (1.4)
Other expense, net $ 8.0 $28.3 $28.6
16฀ OTHER฀INFORMATION
In January 2003, we announced that we agreed with J.C. Penney
to end the business relationship, which began in 2001, pursuant to
which our beComing line of products had been carried in approxi-
mately 90 J.C. Penney stores. 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 administrative expenses ($10.5) and in cost of sales ($7.8).
17GOODWILL฀AND฀฀ INTANGIBLE฀ASSETS฀
On October 18, 2005, we purchased the Avon direct-selling busi-
ness of our licensee in Colombia for approximately $154.0 in cash,
pursuant to a share purchase agreement that Avon International
Holdings Company, a wholly-owned subsidiary of the Company,
entered into with Sarastro Ltd. Ldc. on October 7, 2005. The
acquired business is being operated by a new wholly-owned
subsidiary under the name “Avon Colombia” and is included
in our Latin America operating segment. We had a pre-existing
license arrangement with the acquired business. The negotiated
terms of the license agreement were considered to be at market
rates; therefore, no settlement gain or loss was recognized upon
acquisition. The preliminary purchase price allocation resulted in
goodwill of $94.8, licensing agreement of $32.0 (four-year useful
life), customer relationships of $35.1 (seven-year weighted-aver-
age useful life), and a noncompete agreement of $3.9 (three-year
useful life). We are in the process of gathering sufficient data to
support certain assumptions for the final valuation; therefore, the
allocation of the purchase price is subject to adjustment.
In June 2004, we purchased 20% of the outstanding shares in our
two subsidiaries in China from a minority interest shareholder for
$45.6, including transaction costs. We previously owned 73.845%
of these subsidiaries and consolidated their results, while record-
ing minority interest for the portion not owned. As a result of this
transaction, we reduced the minority interest in the net assets
of these subsidiaries as of June 30, 2004. The purchase of these
shares did not have a material impact on our consolidated net
income. Avon China is included in our Asia Pacific operating
segment. We allocated $5.7 of the purchase price to customer
relationships and approximately $30.5 to goodwill.
In the second quarter of 2003, we purchased the outstanding 50%
of shares of our Turkish business, Eczacibasi Avon Kozmetik (EAK)
from our partner, Eczacibasi Group, for $18.4, including transaction
costs. As a result of the acquisition agreement, we consolidated the
remaining 50% of our Turkish joint venture business in the second
quarter of 2003. Prior to the second quarter of 2003, the invest-
ment was accounted for under the equity method. The impact
on net sales and operating profit in 2003 was $47.2 and $14.6,
respectively. Avon Turkey is included in our European operating
segment. We allocated approximately $17.0 of the purchase
price to goodwill.
NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS