Avon 2008 Annual Report Download - page 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006, we did
not include stock options to purchase 21.3 million shares,
7.4 million and 12.9 million shares of Avon common stock,
respectively, in the calculations of diluted EPS because the
exercise prices of those options were greater than the average
market price and their inclusion would be anti-dilutive.
NOTE 2. New Accounting Standards
Standards Implemented
Effective January 1, 2008, we adopted Financial Accounting
Standards Board (“FASB”) SFAS 157, Fair Value Measurements
(“SFAS 157”), with the exception of the application of the
statement to non-recurring, nonfinancial assets and liabilities.
SFAS 157 defines fair value, establishes a framework for measur-
ing fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measure-
ments. In February 2008, the FASB issued Staff Position 157-2,
Effective Date of FASB Statement No. 157, which delays the
effective date of SFAS No. 157 for nonfinancial assets and
liabilities, except for those that are recognized or disclosed at fair
value in the financial statements on a recurring basis, until
January 1, 2009. The adoption of SFAS 157 did not have a mate-
rial impact on our Consolidated Financial Statements. See Note
8, Fair Value, for additional information.
Effective January 1, 2008, we adopted SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities –
including an amendment to FASB Statement No. 115, (“SFAS
159”), which permits entities to choose to measure many finan-
cial instruments and certain other items at fair value that are not
currently required to be measured at fair value. The adoption of
SFAS 159 had no impact on our Consolidated Financial State-
ments, as we did not choose to measure the items at fair value.
Effective January 1, 2007, we adopted Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes – an interpretation of FASB State-
ment No. 109, (“FIN 48”). See Note 6, Income Taxes, for
additional information.
Effective December 31, 2006, we adopted SFAS No. 158,
Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans – an amendment of FASB Statements
No. 87, 88, 106 and 132R (“SFAS 158”). See Note 11, Employee
Benefit Plans, for additional information.
Effective December 31, 2006, we adopted Staff Accounting
Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements (“SAB 108”), which provides interpretive
guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the
purpose of a materiality assessment. SAB 108 allows for a
one-time transitional cumulative effect adjustment to beginning
retained earnings as of January 1, 2007, for errors that were not
previously deemed material, but are material under the guidance
in SAB 108. The adoption of SAB 108 had no impact on our
Consolidated Financial Statements.
Standards to be Implemented
In December 2008, the FASB issued Staff Position No. (“FSP”)
FAS 132(R)-1, Employers’ Disclosures about Postretirement Bene-
fit Plan Assets. The FSP will require additional disclosures about
the major categories of plan assets and concentrations of risk, as
well as disclosure of fair value levels, similar to the disclosure
requirements of SFAS 157. The enhanced disclosures about plan
assets required by this FSP must be provided in our 2009 Annual
Report on Form 10-K.
In February 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities – an
amendment of FASB Statement No. 133, (“SFAS 161”) which
changes, among other things, the disclosure requirements for
derivative instruments and hedging activities. We will be re-
quired to provide enhanced disclosures about how and why we
use derivative instruments, how they are accounted for, and how
they affect our financial performance. SFAS 161 is effective
January 1, 2009, for Avon.
In June 2008, the FASB issued FSP Emerging Issues Task Force
(“EITF”) 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities,
(“FSP EITF 03-6-1”), which addresses whether instruments grant-
ed in share-based payment awards are participating securities
prior to vesting and, therefore, need to be included in the earn-
ings allocation in computing earnings per share (“EPS”) under
the two-class method. FSP EITF 03-6-1 is effective January 1,
2009, for Avon and requires prior period EPS presented to be
adjusted retrospectively. Our grants of restricted stock and re-
stricted stock units contain non-forfeitable rights to dividend
equivalents and are considered participating securities as defined
in FSP EITF 03-6-1 and will be included in computing earnings
per share using the two-class method beginning with our first
quarter 2009 Form 10-Q. The adoption of FSP EITF 03-6-1 will
not have a material impact on the calculation of basic or diluted
earnings per share.
In December 2007, the FASB issued SFAS No. 141 (revised 2007),
Business Combinations, (“SFAS 141R”), which changes how
business combinations are accounted for and will impact financial
statements both on the acquisition date and in subsequent peri-
ods. SFAS 141R is effective January 1, 2009, for Avon and will be
applied prospectively. The impact of adopting SFAS 141R will
depend on the nature and terms of future acquisitions.