Avon 2007 Annual Report Download - page 70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign exchange forward and option contracts – The fair values
of forward and option contracts were determined based on
quoted market prices from banks.
Interest rate swap and treasury lock agreements – The fair values
of interest rate swap and treasury lock agreements were esti-
mated based on quotes from market makers of these instru-
ments and represent the estimated amounts that we would
expect to receive or pay to terminate the agreements.
The asset (liability) amounts recorded in the balance sheet
(carrying amount) and the estimated fair values of financial
instruments at December 31 consisted of the following:
2007 2006
Carrying
Amount Fair Value
Carrying
Amount Fair Value
Cash and cash
equivalents $ 963.4 $ 963.4 $ 1,198.9 $ 1,198.9
Fixed–income
securities 18.8 18.8 18.0 18.0
Grantor trust cash
and cash
equivalents 10.7 10.7 25.2 25.2
Debt maturing within
one year 929.5 929.5 (615.6) (615.6)
Long-term debt, net
of related discount
or premium 1,167.7 1,178.4 (1,170.4) (1,165.4)
Foreign exchange
forward and
option contracts 2.8 2.8 7.9 7.9
Interest rate swap
and treasury lock
agreements (29.0) (29.0) (13.4) (13.4)
NOTE 8. Share-Based Compensation
Plans and Other Long-Term Incentive
Plan
The Avon Products, Inc. 2005 Stock Incentive Plan (the “2005
Plan”), which is shareholder approved, provides for several types
of share-based incentive compensation awards including stock
options, stock appreciation rights, restricted stock, restricted
stock units and performance unit awards. Under the 2005 Plan,
the maximum number of shares that may be awarded is
31,000,000 shares, of which no more than 8,000,000 shares
may be used for restricted stock awards and restricted stock unit
awards. Shares issued under share-based awards will be primarily
funded with issuance of new shares.
We have issued stock options, restricted stock, restricted stock
units and stock appreciation rights under the 2005 Plan. Stock
option awards are granted with an exercise price equal to the
market price of Avon’s stock at the date of grant; those option
awards generally vest in thirds over the three-year period follow-
ing each option grant date and have ten-year contractual terms.
Restricted stock or restricted stock units generally vest after three
years.
We recognized compensation cost of $61.6, $62.9 and $10.1
for stock options, restricted stock, restricted stock units, and
stock appreciation rights, all of which was recorded in selling,
general and administrative expenses, during the three years
ended December 31, 2007, 2006 and 2005, respectively. The
total income tax benefit recognized for share-based arrange-
ments was $20.7, $21.5 and $3.5 during the three years ended
December 31, 2007, 2006 and 2005, respectively.
As discussed in Note 1, Description of the Business and Sig-
nificant Accounting Policies, effective January 1, 2006, we
adopted the fair value recognition provisions of SFAS 123R using
the modified prospective application method. The following
table summarizes the proforma effects on net income and earn-
ings per share as if we had applied the fair value recognition
provisions of SFAS 123 to share-based compensation for the year
ended December 31, 2005.
2005
Net income, as reported $847.6
Add: compensation expense recognized for restricted
stock and restricted stock units, net of taxes 6.6
Less: share-based compensation expense determined
under FAS No. 123, net of taxes (37.7)
Pro forma net income $816.5
Earnings per share:
Basic – as reported $ 1.82
Basic – pro forma $ 1.75
Diluted – as reported $ 1.81
Diluted – pro forma $ 1.74