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ANNUAL REPORT 2012ANNUAL REPORT 2012
annual report 2009
2012
ANNUAL REPORT

Table of contents

  • Page 1
    annual report 2009 ANNUAL REPORT 2012 ANNUAL REPORT 2012

  • Page 2

  • Page 3
    ... company around. Nearly one year into my role leading Avon, I am even more con dent that we will achieve our vision: Return Avon to its rightful place as an iconic Beauty Brand with products that consumers love and demand, while at the same time reinforcing our global leadership in Direct Selling...

  • Page 4
    ... & Home. We are fast-tracking mobile and social media technologies that will help our Representatives connect with their customers and improve their ease of doing business with Avon. At the same time, we have begun to reduce the cost base, improve focus on cash management, and improve our capital...

  • Page 5
    ...materials. By 2016, we also intend to invest an incremental $150- 200 million in Information Technology capital expenditures to retire and transform legacy systems, improve supply chain processes and improve the overall Representative experience. Our current situation did not develop overnight, and...

  • Page 6
    ...day of our most recently completed second quarter) was $7.0 billion. The number of shares of Common Stock (par value $.25) outstanding at January 31, 2013, was 432,280,018 Documents Incorporated by Reference Part III - Portions of the registrant's Proxy Statement relating to the 2013 Annual Meeting...

  • Page 7
    ... Other Information Part IV 3-7 Item 1 Business 52 Item 15 Exhibits and Financial Statement Schedule 7 - 18 Item 1A Risk Factors 22 - 47 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations Part III 51 Item 10 Directors, Executive Officers and Corporate...

  • Page 8
    ... programs and other initiatives, product mix and pricing strategies, enterprise resource planning, customer service initiatives, sales and operation planning process, outsourcing strategies, Internet platform and technology strategies, information technology and related system enhancements and cash...

  • Page 9
    ..., secure financing on favorable terms and negotiate and consummate acquisitions, as well as to successfully integrate or manage any acquired business; • the challenges to our businesses, such as Silpada and China, including the effects of rising costs, macro-economic pressures, competition...

  • Page 10
    ...consumer packaged goods ("CPG") and direct-selling companies to create, manufacture and market beauty and non-beauty-related products. Our product categories are Beauty, Fashion and Home. Beauty consists of color cosmetics, fragrances, skin care and personal care. Fashion consists of fashion jewelry...

  • Page 11
    ... the "store" through which our products are sold. A brochure introducing a new sales campaign is usually generated every two weeks in the U.S. and every two to four weeks for most markets outside the U.S. Generally, the Representative forwards an order for a campaign to us using the Internet, mail...

  • Page 12
    ... department stores, gift shops and specialty retailers, mass merchandisers, and direct-sales companies specializing in these products. We believe that the personalized customer service offered by our Representatives; the amount and type of field incentives we offer our Representatives on a market...

  • Page 13
    ... markets. See Item 2, Properties, on pages 18 through 19 of our 2012 Annual Report for additional information regarding the location of our principal manufacturing facilities. Product Categories Each of our three product categories individually account for 10% or more of consolidated net sales...

  • Page 14
    ... stabilization strategies, cost savings initiative, multi-year restructuring programs and other initiatives, including Service Model Transformation, and achieve anticipated savings and benefits from such programs and initiatives; • reverse declines in our top line performance and market share, and...

  • Page 15
    ... multi-level leadership structure; • improve management of our businesses in developing markets, including improving local information technology resource and management of local supply chains; • increase the number of consumers served per Representative and their engagement online, as well as...

  • Page 16
    ...buying beauty and related products in channels other than in direct selling, such as retail, could reduce our sales, impact our ability to execute our global business strategy or have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash...

  • Page 17
    ... ruble, South Africa rand, Turkish lira, and Ukrainian hryvnia. As a result, movements in exchange rates may have a significant impact on our business, assets, financial condition, liquidity, results of operations and cash flows. For example, in 2012, our revenues declined 5% compared to 2011 due to...

  • Page 18
    ... to execute business development activities to support our strategies; • limitations on our ability to invest in recruiting, retaining and servicing our Representatives; and • compliance with certain covenants in our debt instruments, including the impact of any significant restructuring charges...

  • Page 19
    ... compliance reviews, we continue to enhance our ethics and compliance program, including our policies and procedures, FCPA compliance-related training, FCPA third-party due diligence program and other compliance-related resources. As previously reported in October 2008, we voluntarily contacted the...

  • Page 20
    above, our business is conducted primarily in the direct-selling channel. We could experience declines in revenues, profitability and cash flow due to reduced orders, payment delays, supply chain disruptions or other factors caused by such economic, operational or business challenges. Any or all of ...

  • Page 21
    ...competition that we face in the beauty and related products industry varies widely from country to country. If our advertising, promotional, merchandising or other marketing strategies are not successful, if we are unable to improve our product mix and offer new products that represent technological...

  • Page 22
    ...employ information technology systems to support Representatives in many of our markets, including electronic order collection and invoicing systems and on-line training, and utilize third-party service providers. We have Internet sites in many of our markets, including business-to-business websites...

  • Page 23
    ...the production of Beauty products, distribution centers where offices are located and where finished merchandise is packed and shipped to Representatives in fulfillment of their orders, and one principal research and development facility. Additionally, we use third-party manufacturers to manufacture...

  • Page 24
    ... the procedures we employ to detect the likelihood of hazard, manufacturing issues and unforeseen product misuse. If our products are found to be, or are perceived to be, defective or unsafe, or if they otherwise fail to meet our Representatives' or end customers' standards, our relationship with...

  • Page 25
    ... our New York City offices into one location at 777 Third Avenue. Our previous executive office location at 1345 Avenue of the Americas was vacated and is now being marketed for a potential sublease. In 2010, Avon acquired Silpada Designs, Inc., a direct seller of sterling silver jewelry with...

  • Page 26
    ..., and the sale and short-term leaseback of the manufacturing facility in Germany in 2011 which is now closed. In January 2013, we announced plans to close the Atlanta distribution center in 2013 and the Pasadena distribution center in 2014. Both properties are being marketed for sale. North America...

  • Page 27
    ... day in the year indicated. 2007 Avon S&P 500 Industry Composite(2) (1) (2) 2008 62.3 63.0 85.8 2009 84.2 79.7 92.5 2010 80.0 91.7 100.3 2011 50.0 93.6 111.7 2012 42.9 108.6 121.5 100.0 100.0 100.0 Total return assumes reinvestment of dividends at the closing price at the end of each quarter...

  • Page 28
    ... Financial Statements and related Notes contained in our 2012 Annual Report. 2012 Income Data Total revenue Operating profit(1) (Loss) income from continuing operations, net of tax(1) Diluted (loss) earnings per share from continuing operations Cash dividends per share Balance Sheet Data...

  • Page 29
    ...Constant $") growth rates (a Non-GAAP financial measure) are determined. Overview We are a global manufacturer and marketer of beauty and related products. Our business is conducted worldwide, primarily in the directselling channel. We presently have sales operations in 65 countries and territories...

  • Page 30
    ... of Venezuela in the "Segment Review - Latin America" section of this MD&A. New Accounting Standards Information relating to new accounting standards is included in Note 2, New Accounting Standards, to our consolidated financial statements contained in this 2012 Annual Report. AVON 2012 23

  • Page 31
    ... number of days of cost of sales, based on the average of the preceding 12 months, covered by the inventory balance at the end of the period. Change in Units Inventory Days Non-GAAP Financial Measures To supplement our financial results presented in accordance with generally accepted accounting...

  • Page 32
    ... for doubtful accounts on receivable balances based on an analysis of historical data and current circumstances, including selling schedules, business operations, seasonality and changing trends. Over the past three years, annual bad debt expense was $251 in 2012, $247 in 2011, and $216 in 2010, or...

  • Page 33
    ... of retired employees in the U.S. and certain foreign countries. See Note 12, Employee Benefit Plans, on pages F-31 through F-39 of our 2012 Annual Report for further information on our benefit plans. Pension plan expense and the requirements for funding our major pension plans are determined...

  • Page 34
    ... tax positions are ultimately upheld or denied, it is possible that the 2013 provision for income taxes may reflect adjustments. Share-based Compensation Stock options issued to employees are recognized in the Consolidated Financial Statements based on their fair value using an option-pricing model...

  • Page 35
    ... assumptions used in measuring the fair values of Silpada and China included the discount rate (based on the weighted-average cost of capital) and revenue growth, as well as silver prices and Representative growth and activity rates for Silpada. The fair value of Silpada's indefinite-lived trademark...

  • Page 36
    ...)% 2012 Total revenue Cost of sales Selling, general and administrative expenses Impairment of goodwill and intangible asset Operating profit Interest expense Interest income Other expense, net Net (loss) income attributable to Avon Diluted (loss) earnings per share attributable to Avon Advertising...

  • Page 37
    ... in average order was offset by a 1% decline in Active Representatives. Growth in units sold and the net impact of price and mix were flat. On a category basis, revenue growth rates were as follows: %/Point Change US$ Beauty Beauty Category: Fragrance Color Skincare Personal Care Fashion Home...

  • Page 38
    .... Units sold decreased 2% and the net impact of price and mix increased 3%. On a category basis, revenue growth rates were as follows: %/Point Change US$ Beauty Beauty Category: Fragrance Color Skincare Personal Care Fashion Home 5% 7 5 3 4 (1) 1 Constant $ 2% 5 2 - 1 (3) (2) AVON 2012 31

  • Page 39
    ... distribution costs and bad debt expense. Selling, general and administrative expenses during 2011, benefited from lower expenses associated with employee incentive compensation plans. Selling, general and administrative expenses as a percentage of revenue increased 50 basis points compared to 2010...

  • Page 40
    ...executive and administrative offices, information technology, research and development, marketing, and professional and related fees associated with the FCPA investigations and compliance reviews. We allocate certain planned global expenses to our business segments primarily based on planned revenue...

  • Page 41
    ... and related fees related to the FCPA investigations and compliance reviews. 2011 Compared to 2010 Total global expenses declined primarily due to lower expenses associated with management incentive programs, lower professional fees associated with acquisitions and divestitures, and lower costs to...

  • Page 42
    ...Representatives. Revenue growth in Brazil was negatively impacted by decreased demand, which was partially due to increased competition, as well as uncompetitive pricing in Fashion and Home during the first half of 2012. Brazil's sales of Beauty products declined 11% and sales of non-Beauty products...

  • Page 43
    ...of any operating performance improvements. Results for periods prior to 2013 will not be impacted by the change in the official rate in February of 2013. Latin America - 2011 Compared to 2010 %/Point Change 2011 Total revenue Operating profit CTI restructuring Venezuelan special items Adjusted Non...

  • Page 44
    ...ERP system and transformation of the related processes may negatively impact service levels in the short-term, we expect the ERP system to help improve our service reliability over the long-term. Constant $ revenue growth in Mexico during 2011, was driven by an increase in Active Representatives and...

  • Page 45
    ... to declines in average order as well as Active Representatives. During the latter part of 2011, we believe Russia's performance was also impacted by weak trends in the Beauty category market in that country. Revenue in South Africa increased 31%, partially benefiting from favorable foreign exchange...

  • Page 46
    North America - 2012 Compared to 2011 %/Point Change 2012 Total revenue Operating loss CTI restructuring Impairment charges Adjusted Non-GAAP operating profit Operating margin CTI restructuring Impairment charges Adjusted Non-GAAP operating margin Active Representatives Units sold Amounts in the ...

  • Page 47
    PART II North America - 2011 Compared to 2010 %/Point Change 2011 Total revenue Operating (loss) profit CTI restructuring Impairment charge Adjusted Non-GAAP operating profit Operating margin CTI restructuring Impairment charge Adjusted Non-GAAP operating margin Active Representatives Units sold ...

  • Page 48
    ... offset by restructuring savings; and • a benefit of 1.0 point from lower investments in RVP, primarily due to China as we transition to a retail compensation model in that market. Asia Pacific - 2011 Compared to 2010 %/Point Change 2011 Total revenue Operating profit CTI restructuring Adjusted...

  • Page 49
    ...operations, commercial paper, borrowings under lines of credit, public offerings of notes, bank financings, and a private placement. At December 31, 2012 we had cash and cash equivalents totaling $1,210. As disclosed in the "Segment Review - Latin America" section of this MD&A, we held cash balances...

  • Page 50
    ... higher cash related net income and the higher recovery of value added taxes in Brazil. Inventory levels decreased during 2012, to $1,135.4 at December 31, 2012, from $1,161.3 at December 31, 2011, primarily reflecting actions in 2012 to flow inventory, including discounted products. Inventory days...

  • Page 51
    ...II We maintain defined benefit pension plans and unfunded supplemental pension benefit plans (see Note 12, Employee Benefit Plans, on pages F-31 through F-39 of our 2012 Annual Report). Our funding policy for these plans is based on legal requirements and available cash flows. The amounts necessary...

  • Page 52
    ...Amounts represent expected future benefit payments for our unfunded pension and postretirement benefit plans, as well as expected contributions for 2013 to our funded pension benefit plans. We are not able to estimate our contributions to our funded pension and postretirement plans beyond 2013. The...

  • Page 53
    ...us to exclude the non-cash impairment charge associated with the Silpada business recorded during the fourth quarter of 2011 from the interest coverage ratio calculation pursuant to our note purchase agreement for the four fiscal quarters ended September 30, 2012. On August 15, 2012, we entered into...

  • Page 54
    ... Silpada impairment charge already recorded during the 2011 year-end close process and excluded from the calculation for the four fiscal quarters ended September 30, 2012) during the term of the note purchase agreement, (iii) add a most favored lender provision with respect to financial covenants in...

  • Page 55
    ... year, would not represent a material potential change in fair value, earnings or cash flows. This potential change was calculated based on discounted cash flow analyses using interest rates comparable to our current cost of debt. Foreign Currency Risk We conduct business globally, with operations...

  • Page 56
    ... the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail accurately and...

  • Page 57
    ...financial reporting. Based on the evaluation we conducted, our management has concluded that no such changes have occurred. We also continue to implement an enterprise resource planning ("ERP") system on a worldwide basis, which is expected to improve the efficiency of our supply chain and financial...

  • Page 58
    ... principal accounting officer or controller. Our Code of Business Conduct and Ethics is available, free of charge, on our investor website, www.avoninvestor.com. Our Code of Business Conduct and Ethics is also available, without charge, by sending a letter to Investor Relations, Avon Products, Inc...

  • Page 59
    ... other schedules are omitted because they are not applicable or because the required information is shown in the consolidated financial statements and notes. (a) 3. Index to Exhibits Exhibit Number 2.1 Description Asset Purchase Agreement, dated as of July 9, 2010, by and among Avon Products, Inc...

  • Page 60
    ... by reference to Exhibit 10.1 to Avon's Current Report on Form 8-K filed on March 8, 2011). Form of Performance Restricted Stock Unit Award Agreement under the Avon Products, Inc. 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.121 to Avon's Annual Report on Form 10-K for the year...

  • Page 61
    ...quarter ended March 31, 2011). Benefit Restoration Pension Plan of Avon Products, Inc., as amended and restated as of January 1, 2009 (incorporated by reference to Exhibit 10.26 to Avon's Annual Report on Form 10-K for the year ended December 31, 2008). First Amendment, dated as of December 13, 2010...

  • Page 62
    ... 10.5 to Avon's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012). First Amendment, dated as of December 21, 2012 to the Revolving Credit and Competitive Advance Facility Agreement among Avon Products, Inc., Avon Capital Corporation, the banks, financial institutions and other...

  • Page 63
    ... Consolidated Financial Statements and (vi) Schedule of Valuation and Qualifying Accounts. 10.62 10.63 10.64 10.65 10.66 21 23 31.1 31.2 32.1 32.2 101 * The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements. Avon's Annual Report...

  • Page 64
    ... 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of February 2013. Avon Products, Inc. /s/ Robert Loughran Robert Loughran Vice President and Corporate Controller - Principal Accounting Officer AVON 2012 57

  • Page 65
    ... and Chief Financial Officer - Principal Financial Officer Chief Executive Officer - Principal Executive Officer February 28, 2013 February 28, 2013 /s/ ROBERT LOUGHRAN Robert Loughran Vice President and Corporate Controller - Principal Accounting Officer February 28, 2013 /s/ DOUGLAS R. CONANT...

  • Page 66
    ... CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Consolidated Financial Statements: Financial Statement Schedule: F-2 Report of Independent Registered Public Accounting Firm F-3 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2012 F-54 Schedule...

  • Page 67
    ... consolidated balance sheets and the related consolidated statements of income, comprehensive income, cash flows and changes in shareholders' equity present fairly, in all material respects, the financial position of Avon Products, Inc. and its subsidiaries at December 31, 2012 and December 31, 2011...

  • Page 68
    CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) Years ended December 31 Net sales Other revenue Total revenue Costs, expenses and other: Cost of sales Selling, general and administrative expenses Impairment of goodwill and intangible asset Operating profit Interest expense ...

  • Page 69
    ... on net investment hedge Amortization of net actuarial losses, prior service credit, and transition obligation, net of taxes of $15.8, $14.5, and $12.2 Adjustments of net actuarial losses and prior service cost, net of taxes of $17.8, $46.9, and $5.1 Sale of Avon Japan, net of taxes of $8.1 Total...

  • Page 70
    ... BALANCE SHEETS (In millions, except per share data) December 31 Assets Current Assets Cash, including cash equivalents of $762.9 and $623.7 Accounts receivable (less allowances of $161.4 and $174.5) Inventories Prepaid expenses and other Total current assets Property, plant and equipment, at cost...

  • Page 71
    ... Share-based compensation Foreign exchange losses (gains) Deferred income taxes Impairment of goodwill and intangible asset Charge for Venezuelan monetary assets and liabilities Other Changes in assets and liabilities: Accounts receivable Inventories Prepaid expenses and other Accounts payable...

  • Page 72
    ...of net actuarial losses and prior service cost, net of taxes of $5.1 Sale of Avon Japan, net of taxes of $8.1 Net derivative losses on cash flow hedges, net of taxes of $2.2 Total comprehensive income Dividends - $.88 per share Exercise / vesting and expense of share-based compensation Repurchase of...

  • Page 73
    ... Avon Products, Inc. We are a global manufacturer and marketer of beauty and related products. Our business is conducted worldwide, primarily in one channel, direct selling. Our reportable segments are based on geographic operations in four regions: Latin America; Europe, Middle East & Africa; North...

  • Page 74
    ... with product returns. In addition, we estimate an allowance for doubtful accounts receivable based on an analysis of historical data and current circumstances. Other Revenue Other revenue primarily includes shipping and handling and order processing fees billed to Representatives. Cash and Cash...

  • Page 75
    ... of major capital projects. Capitalized interest is added to the cost of the related asset and depreciated over the useful life of the related asset. We capitalized interest of $2.0 for 2012, $.4 for 2011, and $5.3 for 2010. Capitalized Software Certain systems development costs related to the...

  • Page 76
    ...position. Selling, General and Administrative Expenses Selling, general and administrative expenses include costs associated with selling; marketing; and distribution activities, including shipping and handling costs; advertising; net brochure costs; research and development; information technology...

  • Page 77
    ...in 2010. Research and development costs include all costs related to the design and development of new products such as salaries and benefits, supplies and materials and facilities costs. Share-based Compensation All share-based payments to employees are recognized in the financial statements based...

  • Page 78
    ... annual financial statements for all impacted periods. See Note 19, Results of Operations by Quarter (Unaudited), for discussion of these and other out-of-period adjustments within 2012 and 2011 and their impact on the interim periods. (Loss) Earnings per Share We compute (loss) earnings per share...

  • Page 79
    ... to sell the ownership interest in Avon Products Company Limited ("Avon Japan") held by AIO pursuant to a tender offer bid agreement between AIO and Devon Holdings K.K., an affiliate of TPG Capital ("Buyer"). The transaction included both the sale of the Company's stake in Avon Japan as well as...

  • Page 80
    ... distribution facilities in North America entered into in 2009. Adjustments for debt with fair value hedges include adjustments to reflect net unrealized gains of $93.1 and $147.6 at December 31, 2012, and 2011, respectively. See Note 8, Financial Instruments and Risk Management. AVON 2012 F-15

  • Page 81
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We held interest-rate swap contracts that effectively converted approximately 62% at December 31, 2012 and 74% at December 31, 2011, of our long-term fixed-rate borrowings to a variable interest rate based on LIBOR. In January 2013, we terminated eight of ...

  • Page 82
    ... annum coupon rate equal to 6.50%, payable semi-annually, and mature on March 1, 2019 (the "2019 Notes"). The net proceeds from the offering of $837.6 were used to repay the outstanding indebtedness under our commercial paper program and for general corporate purposes. The carrying value of the 2014...

  • Page 83
    ... credit ratings. The revolving credit facility has an annual fee of $2.0, payable quarterly, based on our current credit ratings. The revolving credit facility may be used for general corporate purposes. As of December 31, 2012 and 2011, there were no amounts outstanding under the revolving credit...

  • Page 84
    .... In addition, we had outstanding letters of credit for trade activities and commercial commitments executed in the ordinary course of business, such as purchase orders for normal replenishment of inventory levels. Additional Information Our long-term credit ratings are Baa2 (Stable Outlook...

  • Page 85
    ... tax assets: Accrued expenses and reserves Pension and postretirement benefits Asset revaluations Capitalized expenses Intangible assets Share-based compensation Restructuring initiatives Postemployment benefits Tax loss carryforwards Foreign tax credit carryforwards Minimum tax and business credit...

  • Page 86
    ...devaluation and highly inflationary accounting Other Effective tax rate 35.0% (2.5) (3.9) (4.2) 77.0 5.8 7.0 2.9 - .4 117.5% 2011 35.0% (.4) (4.4) (4.3) - 1.6 - .1 - 1.5 29.1% 2010 35.0% (.4) (2.4) (2.5) - .8 - (.2) 6.0 .7 37.0% At December 31, 2012, we had tax loss carryforwards of $2,183.7. The...

  • Page 87
    ... 8. Financial Instruments and Risk Management We operate globally, with manufacturing and distribution facilities in various locations around the world. We may reduce our exposure to fluctuations in the fair value and cash flows associated with changes in interest rates and foreign exchange rates by...

  • Page 88
    ... Accounts payable Accounts payable $1.7 1.5 $3.2 $3.2 The following table presents the fair value of derivative instruments outstanding at December 31, 2011: Asset Balance Sheet Classification Derivatives designated as hedges: Interest-rate swap agreements Foreign exchange forward contracts Total...

  • Page 89
    ...we may de-designate the hedging relationship of a receive-fixed/pay-variable interest-rate swap agreement. In these cases, we enter into receive-variable/pay-fixed interest-rate swap agreements that are designated to offset the gain or loss on the de-designated contract. At December 31, 2012, we had...

  • Page 90
    ... to the sale of Avon Japan. During 2011, we identified an out-of-period adjustment relating to balances included in AOCI relating to Avon Japan. See Note 1, Description of the Business and Summary of Significant Accounting Policies, for further information. Credit Risk of Financial Instruments We...

  • Page 91
    ... following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2012: Level 1 Assets: Money market funds Available-for-sale securities Interest-rate swap agreements Foreign exchange forward contracts Total Liabilities...

  • Page 92
    ... payments for non-qualified retirement plans (see Note 12, Employee Benefit Plans). The foreign exchange forward contracts and interest-rate swap agreements are hedges of either recorded assets or liabilities or anticipated transactions. The underlying hedged assets and liabilities or anticipated...

  • Page 93
    ... general economic and business conditions, among other factors. Key assumptions used in measuring the fair values of Silpada and China included the discount rate (based on the weighted-average cost of capital) and revenue growth, as well as silver prices and Representative growth and activity rates...

  • Page 94
    .... Expected volatility was based on the weekly historical volatility of our stock price, over a period similar to the expected life of the option. Assumed the then-current cash dividends of $.23 during 2012, $.23 during 2011 and $.22 during 2010 per share each quarter on our common stock for options...

  • Page 95
    ...conditions are probable at each reporting period. In the fourth quarter of 2011, we assessed that it is no longer probable that we would meet the specified performance conditions, and reversed the compensation cost recognized to-date. In March 2012, we granted performance restricted stock units that...

  • Page 96
    ...December 17, 2012. We repurchased approximately 4.8 million shares for $180.8 under the $2.0 billion program through its expiration. NOTE 12. Employee Benefit Plans Savings Plan We offer a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the "PSA...

  • Page 97
    ... recognize the funded status of pension and other postretirement benefit plans on the balance sheet. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. The recognition of prior service costs or credits and net actuarial gains or losses, as well as...

  • Page 98
    ... balance Funded Status: Funded status at end of year Amount Recognized in Balance Sheet: Other assets Accrued compensation Employee benefit plans liability Net amount recognized Pretax Amounts Recognized in Accumulated Other Comprehensive Loss: Net actuarial loss Prior service credit Transition...

  • Page 99
    ...Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Loss Pension Benefits U.S. Plans Non-U.S. Plans 2010 Postretirement Benefits 2010 2012 Net Periodic Benefit Cost: Service cost Interest cost Expected return on plan assets Amortization of prior service credit Amortization...

  • Page 100
    ... obligations recorded on the Consolidated Balance Sheets as of December 31 were as follows: Pension Benefits U.S. Plans Non-U.S. Plans 2011 4.10% 3.82% Postretirement Benefits 2012 Discount rate Rate of compensation increase 3.55% 3.86% 2012 4.63% 3.88% 2011 5.30% 4.13% 2012 3.99% N/A 2011 4.66...

  • Page 101
    ... FINANCIAL STATEMENTS The following tables present the fair value hierarchy for pension and postretirement assets measured at fair value on a recurring basis as of December 31, 2012: U.S. Pension Plans Asset Category Equity Securities: Domestic equity International equity Emerging markets Level...

  • Page 102
    ... ending balances for our Level 3 investments is provided in the table below: Amount Balance as of January 1, 2011 Actual return on plan assets held Foreign currency changes Balance as of December 31, 2011 Actual return on plan assets held Foreign currency changes Balance as of December 31, 2012 $15...

  • Page 103
    ... consideration of the non-investment aspects of the Avon Products, Inc. Personal Retirement Account Plan, including future retirements, lump-sum elections, growth in the number of participants, company contributions, and cash flow. These characteristics of the plan place certain demands upon the...

  • Page 104
    ...accrued cost for postemployment benefits was $52.2 at December 31, 2012 and $69.5 at December 31, 2011, and was included in employee benefit plans liability. Supplemental Retirement Programs We offer a non-qualified deferred compensation plan, the Avon Products, Inc. Deferred Compensation Plan (the...

  • Page 105
    ..., costs related to our executive and administrative offices, information technology, research and development, marketing and professional and related fees associated with the Foreign Corrupt Practices Act ("FCPA") investigations and compliance reviews. We allocate certain planned global expenses...

  • Page 106
    ... primarily of property, plant and equipment related to manufacturing and distribution facilities. Revenue by Product Category 2012 Beauty(1) Fashion(2) Home(3) Net sales Other revenue(4) Total revenue (1) (2) (3) (4) 2011 $ 8,067.8 1,995.5 1,048.7 11,112.0 179.6 $11,291.6 2010 $ 7,671.3 2,016...

  • Page 107
    ... of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following: • net charge of $41.3 primarily for employee-related costs, including severance and pension benefits; • implementation costs of $27.7 for professional service fees, primarily associated with our initiatives...

  • Page 108
    ...net benefit of $3.0 was recorded in selling, general and administrative expenses and total costs to implement of $3.1 were recorded in cost of sales for 2012. The liability balances, which primarily consist of employee-related costs, for the initiatives under the 2005 and 2009 Restructuring Programs...

  • Page 109
    ... the costs consisted of the following net charge of $53.4 primarily for employee-related costs, including severance and pension benefits; contract termination costs of $12.0 associated with the relocation of our corporate headquarters; implementation costs of $5.8 for professional service fees; and...

  • Page 110
    ...; and • inventory write-offs of $1.4 associated with the exit of our South Korea and Vietnam markets. Of the total cost to implement, $49.3 was recorded in selling, general and administrative expenses and $1.4 was recorded in cost of sales for 2012. Cash payments associated with these charges are...

  • Page 111
    ... and procedures, FCPA compliance-related training, FCPA third-party due diligence program and other compliance-related resources. As previously reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission ("SEC") and the United States Department of Justice...

  • Page 112
    ... Brockton Retirement System v. Avon Products, Inc., et al., No. 11CIV-4665) was filed in the United States District Court for the Southern District of New York against certain present or former officers and/or directors of the Company. On September 29, 2011, the Court appointed LBBW Asset Management...

  • Page 113
    ... FINANCIAL STATEMENTS the exchange rate on December 31, 2012. The 2002 and the 2012 assessments assert that the establishment in 1995 of separate manufacturing and distribution companies in that country was done without a valid business purpose and that Avon Brazil did not observe minimum pricing...

  • Page 114
    ... assumptions used in measuring the fair values of Silpada and China included the discount rate (based on the weighted-average cost of capital) and revenue growth, as well as silver prices and Representative growth and activity rates for Silpada. The fair value of Silpada's indefinite-lived trademark...

  • Page 115
    ... currency translation. Other intangible assets 2012 Gross Amount Finite-Lived Intangible Assets Customer relationships Licensing agreements Noncompete agreements Trademarks Indefinite-Lived Trademarks Total Estimated Amortization Expense: 2013 2014 2015 2016 2017 $ 93.5 62.8 8.6 6.6 64.4 $235...

  • Page 116
    ... 2010, respectively. NOTE 18. Supplemental Balance Sheet Information At December 31, 2012 and 2011, prepaid expenses and other included the following: Prepaid expenses and other Deferred tax assets (Note 7) Prepaid taxes and tax refunds receivable Receivables other than trade Prepaid brochure costs...

  • Page 117
    ... During the first quarter of 2012, we recorded an out-of-period adjustment which decreased earnings by approximately $14 before tax ($10 after tax) which related to 2011 and was associated with bad debt expense in our South Africa operations. During the second quarter of 2012, we recorded an out-of...

  • Page 118
    ...operating profit above, income (loss) from continuing operations during 2012 was impacted by a benefit of $23.8 to other expense, net in 2012 due to the release of a provision in the fourth quarter associated with the excess cost of acquiring U.S. dollars in Venezuela at the regulated market rate as...

  • Page 119
    SCHEDULE II AVON PRODUCTS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2012, 2011 and 2010 Additions Balance at Beginning of Period Charged to Costs and Expenses Charged to Revenue Balance at End of Period (In millions) Description Deductions 2012 Allowance ...

  • Page 120
    ...company's 2012 Annual Report (Form 10-K/A) can be viewed on the Internet at www.avoninvestor.com For information about becoming an Avon Representative or purchasing Avon products, please call 1-800-FOR-AVON or visit www.avon.com Annual Report design by Avon Corporate Identity Department New York, NY...

  • Page 121
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