Avon 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 1 3 A N N U A L R E P O R T

  • Page 2
    there are no ordinary women, only BEAUTIFUL WOMEN Avon Independent Sales Representatives

  • Page 3
    ... our cash position, we have work to do in delivering profitable growth. 2013 total revenue of $10.0 billion decreased 6%, or 1% in constant dollars. Total Beauty sales declined 7%, or 2% in constant dollars. Active Representatives were down 2% although average order increased 1%. Also in 2013, we...

  • Page 4
    ... crucial areas in each of our top markets. We will also continue to modernize our direct selling channel, offering digital tools like virtual makeover apps and mobile brochures, to make it easier for Representatives to do business with Avon. Rosallie Avon Independent Sales Representative Philippines...

  • Page 5
    ...Our Representatives and their customers are at the heart of our business. We have solid plans in place to make Avon a better, simpler, and more stable business. And we remain committed to returning Avon to pro table and sustainable growth. Thank you, Sheri McCoy Chief Executive Officer March 2014

  • Page 6

  • Page 7
    ...day of our most recently completed second quarter) was $9.1 billion. The number of shares of Common Stock (par value $.25) outstanding at January 31, 2014, was 433,955,008 Documents Incorporated by Reference Part III - Portions of the registrant's Proxy Statement relating to the 2014 Annual Meeting...

  • Page 8
    ... About Market Risk 55 Item 11 Executive Compensation 56 15 (a) 2 Financial Statement Schedule 18 Item 2 Properties 18 Item 3 Legal Proceedings 53 Item 8 Financial Statements and Supplementary Data 55 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder...

  • Page 9
    ..., product mix and pricing strategies, enterprise resource planning, customer service initiatives, sales and operation planning process, outsourcing strategies, Internet platform and technology strategies, marketing and advertising strategies, information technology and related system enhancements...

  • Page 10
    ... and acquisitions, as well as to successfully integrate or manage any acquired business; disruption in our supply chain or manufacturing and distribution operations; the quality, safety and efficacy of our products; the success of our research and development activities; our ability to protect our...

  • Page 11
    ... sales. A Representative contacts customers directly, selling primarily through our brochure, which highlights new products and special promotions for each sales campaign. In this sense, the Representative, together with the brochure, are the "store" through which our products are sold. AVON 2013...

  • Page 12
    ... to license our beauty centers and other retail-oriented and direct-to-consumer opportunities to reach new customers in complementary ways to direct selling. In the U.S. and certain other markets, we also market our products through consumer websites (e.g., www.avon.com in the U.S.). The...

  • Page 13
    ..., often country-by-country basis, with our direct-selling competitors. Unlike most other beauty companies, we compete within a distinct business model where providing a compelling earnings opportunity for our Representatives is as critical as developing and marketing new and innovative products. As...

  • Page 14
    ... significant markets. See Item 2, Properties, on page 18 of our 2013 Annual Report for additional information regarding the location of our principal manufacturing facilities. Product Categories Each of our product categories individually account for 10% or more of consolidated net sales in 2013...

  • Page 15
    ... these strategies; • implement enterprise resource planning ("ERP") successfully, execute investments in information technology infrastructure and realize efficiencies across our supply chain, marketing processes, sales model and organizational structure; • implement customer service initiatives...

  • Page 16
    ... investments in the direct-selling channel; • improve management of our businesses in developing markets, including improving local information technology resources and management of local supply chains; • increase the number of consumers served per Representative and their engagement online...

  • Page 17
    ...including reducing purchases of beauty and related products generally, or reducing purchases from Representatives or 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...

  • Page 18
    ..., our revenue, operating profit and net (loss) income could be negatively impacted further. See "Segment Review - Latin America" within MD&A on pages 38 through 41 of our 2013 Annual Report for additional information regarding Venezuela. In addition, there can be no assurance that other countries in...

  • Page 19
    ...concern regarding further deterioration globally. In addition, as mentioned 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...

  • Page 20
    ... us globally. Unlike most other beauty companies, we compete within a distinct business model where providing a compelling earnings opportunity for our Representatives is as critical as developing and marketing new and innovative products. Therefore, in contrast to a typical consumer packaged goods...

  • Page 21
    ...invoicing systems and on-line training, and utilize third-party service providers. We have Internet sites in many of our markets, including business-tobusiness websites to support Representatives. We have undertaken initiatives to increase our reliance on employing information technology AVON 2013...

  • Page 22
    ..., Service Model Transformation ("SMT") was a global program initiated in 2009 to improve the Company's order management system and enable changes to the way Representatives interact with the Company. SMT was piloted in Canada during 2013, and caused significant business disruption in that market...

  • Page 23
    ..., result in an increase in our indebtedness or both. Acquisitions may entail numerous risks, including: • difficulties in assimilating acquired operations or products, including the loss of key employees from acquired businesses and disruption to our direct-selling channel; AVON 2013 15

  • Page 24
    ... principal properties consist of worldwide manufacturing facilities for 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...

  • Page 25
    ... thereto; a change in our credit ratings; economic conditions and volatility in the financial markets; announcements or significant developments in connection with our business and with respect to beauty and related products or the beauty industry in general; actual or anticipated variations in...

  • Page 26
    ...the returns and call center) in Springdale, OH in 2013, and the sale and short-term leaseback of the manufacturing facility in Germany in 2011. These transactions are now closed. In January 2013, we announced plans to close the Atlanta and Pasadena distribution centers. The Atlanta property was sold...

  • Page 27
    ... day in the year indicated. 2008 Avon S&P 500 Peer Group(2) (1) (2) 2009 135.2 126.5 107.8 2010 128.5 145.5 116.9 2011 80.3 148.6 130.2 2012 68.9 172.4 141.6 2013 83.6 228.2 177.5 100.0 100.0 100.0 Total return assumes reinvestment of dividends at the closing price at the end of each quarter...

  • Page 28
    ... 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 Total assets Debt maturing within one year Long-term debt Total debt Total shareholders' equity (1) 2012 2011 2010 2009...

  • Page 29
    ... by the non-cash impairment charge associated with capitalized software related to our Service Model Transformation ("SMT") project in the fourth quarter of 2013. See Note 17, Goodwill and Intangible Assets on pages F-52 through F-53 of our 2013 Annual Report for more information on China and Note...

  • Page 30
    ... and include commercial business units in Latin America; Europe, Middle East & Africa; North America; and Asia Pacific. Our product categories are Beauty and Fashion & Home. Beauty consists of color, fragrance, skincare and personal care. Fashion & Home consists of fashion jewelry, watches, apparel...

  • Page 31
    ... quarter of 2013, the Company recorded a pre-tax charge of $79 ($50 net of tax), reflecting the expected loss on sale. See Note 3, Discontinued Operations, on pages F-15 through F-17 of our 2013 Annual Report for more information. New Accounting Standards Information relating to new accounting...

  • Page 32
    ... tax assets related to the China business in the third quarter of 2013, and the goodwill impairment charge related to the China business in the third quarter of 2012. The Asset impairment and other charges also include the impact on the Consolidated Statements of Income caused by the capitalized...

  • Page 33
    ...marketing or promotional strategies, or for other reasons, additional allowances may be required. Allowances for Doubtful Accounts Receivable Representatives contact their customers, selling primarily through the use of brochures for each sales campaign. Sales campaigns are generally for a two-week...

  • Page 34
    ... are reviewed and determined on an annual basis. A 50 basis point change (in either direction) in the expected rate of return on plan assets, the discount rate or the rate of compensation increases, would have had approximately the following effect on 2013 pension expense and the pension benefit...

  • Page 35
    ... to 2012. The net impact on the deferred tax liability associated with the Company's undistributed earnings is a reduction of $82, resulting in a deferred tax liability balance of $143 related to the incremental U.S. tax cost on $2.6 billion of undistributed foreign earnings at December 31, 2013...

  • Page 36
    ... positions are ultimately upheld or denied, it is possible that the 2014 provision for income taxes may be impacted. Share-based Compensation All share-based payments issued to employees are recognized in the Consolidated Financial Statements based on their fair value using an option-pricing model...

  • Page 37
    ... in order to return China's cash flows to normalized, sustainable levels. See Note 17, Goodwill and Intangible Assets on pages F-52 through F-53 of our 2013 Annual Report for more information on China. Silpada During the 2012 year-end close process, our analysis of the Silpada business indicated...

  • Page 38
    ... during these impairment assessments 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. To estimate the fair value of Silpada, we forecasted revenue and the resulting cash flows over...

  • Page 39
    ...%/Point Change 2013 Total revenue Cost of sales Selling, general and administrative expenses Impairment of goodwill and intangible asset Operating profit Interest expense Loss on extinguishment of debt Interest income Other expense, net (Loss) income from continuing operations, net of tax Net (loss...

  • Page 40
    ...mix increased 4%, as pricing benefited from inflationary impacts in Latin America, primarily in Argentina and Venezuela. On a category basis, revenue growth rates were as follows: %/Point Change US$ Beauty Beauty Category: Fragrance Color Skincare Personal care Fashion & Home Fashion & Home Category...

  • Page 41
    ... of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2013 Annual Report for more information on SMT. As a percentage of revenue, selling, general and administrative expenses increased 160 basis points, while Adjusted selling, general and administrative...

  • Page 42
    ... order. Active Representatives and units sold were relatively unchanged, while the net impact of price and mix increased 1%. On a category basis, revenue growth rates were as follows: %/Point Change US$ Beauty Beauty Category: Fragrance Color Skincare Personal care Fashion & Home Fashion & Home...

  • Page 43
    ... with employee incentive compensation plans; • an increase of 60 basis points due to higher Representative and sales leader investment, primarily driven by investments in the One Simple Sales Model in the U.S., partially offset by lower investments in China; • an increase of 40 basis points due...

  • Page 44
    ... discount rates used for determining future pension obligations, but to a much lesser extent. See Note 12, Employee Benefit Plans on pages F-34 through F-42 of our 2013 Annual Report for more information. Segment Review Below is an analysis of the key factors affecting revenue and operating profit...

  • Page 45
    ... 1, Description of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2013 Annual Report for more information. Adjusted total global expenses decreased compared to the prior-year period primarily due to lower professional and related fees associated with the...

  • Page 46
    ... in the first quarter of 2013. Brazil's Constant $ revenue growth was primarily driven by higher average order, as well as an increase in Active Representatives. Higher average order was primarily due to benefits from pricing, new Beauty product launches and continued strength in Fashion & Home. On...

  • Page 47
    ... position, approximately $92 was associated with Bolívar-denominated monetary net assets and prepaid income taxes. During 2013, Avon Venezuela represented approximately 5% of Avon's consolidated revenue and 7% of Avon's consolidated Adjusted operating profit. The costs associated with acquiring...

  • Page 48
    ...'s sales of Beauty products increased 4% and sales of Fashion & Home products were flat. Constant $ revenue growth in Mexico was driven by an increase in Active Representatives, as well as higher average order. Revenue growth in Venezuela was primarily due to higher average order, benefiting from...

  • Page 49
    .... In South Africa, revenue declined 8%, unfavorably impacted by foreign exchange. On a Constant $ basis, South Africa's revenue grew 9%, primarily due to higher average order from successful marketing strategies and Representative mix. Operating margin was negatively impacted by .2 points as...

  • Page 50
    ...from higher supply chain costs due to foreign exchange, primarily due to the weakening of the Turkish Lira against the Euro, as well as increased product costs in Fashion and Home. The unfavorable net pricing and mix negatively impacted gross margin by .9 points, driven by smart value offerings; and...

  • Page 51
    ... count. We continue to expect weak financial results within North America as we address continued deterioration in the business. We are focused on restoring field health, improving our brochure and creating a sustainable cost base which may include additional restructuring actions. AVON 2013 43

  • Page 52
    ... by larger average order which was primarily due to Representative mix. Sales from Beauty products declined 8%, or 7% on a Constant $ basis. Sales from Fashion & Home products declined 6%, on both a reported and Constant $ basis. Operating margin was negatively impacted by .4 points as compared to...

  • Page 53
    ... 1 point as a result of our decision to exit the South Korea and Vietnam markets. Revenue in the Philippines declined 5%, or 4% on a Constant $ basis, as operational challenges in that market contributed to the decrease in Active Representatives and a decline in unit sales. Revenue in China declined...

  • Page 54
    ... inflation outpacing revenue growth, partially offset by restructuring savings; and • a benefit of .8 points from lower Representative and sales leader investment, primarily due to China as a result of our transition to a retail compensation model in that market. Liquidity and Capital Resources...

  • Page 55
    ...that did not recur in 2012. We maintain defined benefit pension plans and unfunded supplemental pension benefit plans (see Note 12, Employee Benefit Plans on pages F-34 through F-42 of our 2013 Annual Report). Our funding policy for these plans is based on legal requirements and available cash flows...

  • Page 56
    ...the further roll-out of SMT beyond Canada in the fourth quarter of 2013. Capital expenditures during 2012 were $228.5 compared with $276.4 during 2011, as 2011 included higher investment associated with new distribution facilities in Latin America. Capital expenditures in 2014 are currently expected...

  • Page 57
    ... America entered into in 2009 and $11.6 of capital leases which were primarily related to automobiles and equipment. Amounts represent expected future benefit payments for our unfunded pension and postretirement benefit plans, as well as expected contributions for 2014 to our funded pension benefit...

  • Page 58
    ... below under "Public Notes"), which repayment resulted in a loss in the first quarter of 2013 of $1.6 on extinguishment of debt associated with the write-off of debt issuance costs related to the term loan agreement. On July 25, 2013, we prepaid $117.5 of the outstanding principal balance under the...

  • Page 59
    ... costs and discounts related to the initial issuance of the 2014 Notes, partially offset by a deferred gain of $9.8 associated with the January 2013 interest-rate swap agreement termination. See Note 8, Financial Instruments and Risk Management on pages F-26 through F-29 of our 2013 Annual Report...

  • Page 60
    ... on the outstanding balance of all these financial instruments at December 31, 2013, a hypothetical 50-basis-point change (either an increase or a decrease) in interest rates prevailing at that date, sustained for one year, would not represent a material potential change in fair value, earnings or...

  • Page 61
    ...31, 2013, at the reasonable assurance level. Disclosure controls and procedures are designed to ensure that information relating to Avon (including our consolidated subsidiaries) required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized...

  • Page 62
    ...of our supply chain and financial transaction processes. The implementation is expected to occur in phases over the next several years. The implementation of a worldwide ERP system will likely affect the processes that constitute our internal control over financial reporting and will require testing...

  • Page 63
    ... is available, free of charge, on our investor website, www.avoninvestor.com. Our Code of Conduct is also available, without charge, by sending a letter to Investor Relations, Avon Products, Inc., 777 Third Avenue, New York, N.Y. 10017-1307, by sending an email to [email protected] or by...

  • Page 64
    ... Exhibit 4.2 to Avon's Current Report on Form 8-K filed on March 2, 2009). Fifth Supplemental Indenture, dated as of March 12, 2013, between Avon Products, Inc. and Deutsche Bank Trust Company Americas, as Trustee, with respect to the issuance of the 2.375% Notes due 2016 (incorporated by reference...

  • Page 65
    ...to Avon's Current Report on Form 8-K filed on March 8, 2011). Form of Retention Restricted Stock Unit Award Agreement under the Avon Products, Inc. 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). Form...

  • Page 66
    ... quarter ended September 30, 2012). Avon Products, Inc. Management Incentive Plan, effective as of January 1, 2009 (incorporated by reference to Exhibit 10.50 to Avon's Annual Report on Form 10-K for the year ended December 31, 2008). Avon Products, Inc. Compensation Recoupment Policy (incorporated...

  • Page 67
    ... identified above with an asterisk (*) are management contracts or compensatory plans or arrangements. Avon's Annual Report on Form 10-K for the year ended December 31, 2013, at the time of filing with the United States Securities and Exchange Commission, shall modify and supersede all prior...

  • Page 68
    SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of February 2014. Avon Products, Inc. /s/ Robert Loughran ...

  • Page 69
    ... and Chief Financial Officer - Principal Financial Officer Chief Executive Officer - Principal Executive Officer February 26, 2014 February 26, 2014 /s/ ROBERT LOUGHRAN Robert Loughran Vice President and Corporate Controller - Principal Accounting Officer February 26, 2014 /s/ DOUGLAS R. CONANT...

  • Page 70
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  • Page 71
    ... 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, 2013 F-57 Schedule...

  • Page 72
    ...the financial position of Avon Products, Inc. at December 31, 2013 and December 31, 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America...

  • Page 73
    ... 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 Loss...

  • Page 74
    ... actuarial loss and prior service cost, net of taxes of $39.2, $(17.8) and $(46.9) Total other comprehensive income (loss), net of taxes Comprehensive (loss) income Less: comprehensive income (loss) attributable to noncontrolling interests Comprehensive (loss) income attributable to Avon 2013 $ (51...

  • Page 75
    ... maturing within one year Accounts payable Accrued compensation Other accrued liabilities Sales and taxes other than income Income taxes Current liabilities of discontinued operations Total current liabilities Long-term debt Employee benefit plans Long-term income taxes Other liabilities Noncurrent...

  • Page 76
    ... Foreign exchange losses (gains) Deferred income taxes Impairment of goodwill, intangible assets and SMT capitalized software Charge for Venezuelan monetary assets and liabilities Other Changes in assets and liabilities: Accounts receivable Inventories Prepaid expenses and other Accounts payable and...

  • Page 77
    ... and sales of noncontrolling interests, net of dividends paid of $2.2 Income tax benefits - stock transactions Balances at December 31, 2013 Accumulated Other Treasury Stock NonCommon Stock Additional Paid-In Retained Comprehensive controlling Shares Amount Shares Amount Capital Earnings Loss...

  • Page 78
    ... Accounting Policies Business When used in these notes, the terms "Avon," "Company," "we," "our" or "us" mean 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...

  • Page 79
    ... in 2013, $506.3 in 2012 and $505.6 in 2011. The fees charged to Representatives recorded as a reduction to selling, general and administrative expenses amounted to $274.1 in 2013, $285.9 in 2012 and $292.6 in 2011. Property, Plant and Equipment Property, plant and equipment are stated at cost and...

  • Page 80
    ... our Service Model Transformation ("SMT") project. SMT was a global program initiated in 2009 to improve our order management system and enable changes to the way Representatives interact with us. SMT was piloted in Canada during 2013, and caused significant business disruption in that market. This...

  • Page 81
    ... foreign currency contracts, to manage foreign currency exposures. We record all derivative instruments at their fair values on the Consolidated Balance Sheets as either assets or liabilities. See Note 8, Financial Instruments and Risk Management. Deferred Income Taxes Deferred income taxes have...

  • Page 82
    ...in 2011. 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 83
    ... quarter of 2011, we determined that the net after-tax gain on sale of Avon Products Company Limited ("Avon Japan"), reported in our financial statements for the year ended December 31, 2010, should have been reported as a net after-tax loss of approximately $3, to correctly include all balances...

  • Page 84
    ... stock options Diluted EPS adjusted weighted-average shares outstanding (Loss) Earnings per Common Share from continuing operations: Basic Diluted Loss per Common Share from discontinued operations: Basic Diluted (Loss) Earnings per Common Share attributable to Avon: Basic Diluted 2013 2012 2011...

  • Page 85
    ... financial information for discontinued operations is shown below: Year ended December 31, 2013 Total revenue Operating loss(1) (1) 2012 $ 155.7 (210.2) 2011 $ 192.1 (237.4) $ 54.5 (81.0) Operating loss for the year ended December 31, 2013 includes a pre-tax charge of $79.0 recorded in...

  • Page 86
    ...DCF model which included a terminal value at the end of the projection period. Avon Japan On November 8, 2010, the Company announced that Avon International Operations, Inc. ("AIO"), a wholly-owned subsidiary of the Company, had agreed to sell the ownership interest in Avon Products Company Limited...

  • Page 87
    ...-tax gain on sale of Avon Japan should have been reported as a net after-tax loss of $3, to correctly include all balances relating to Avon Japan that were previously included in AOCI. See Note 1, Description of the Business and Summary of Significant Accounting Policies, for further information...

  • Page 88
    ... below under "Public Notes"), which repayment resulted in a loss in the first quarter of 2013 of $1.6 on extinguishment of debt associated with the write-off of debt issuance costs related to the term loan agreement. On July 25, 2013, we prepaid $117.5 of the outstanding principal balance under the...

  • Page 89
    ...the unamortized discount to face value of $.4 at December 31, 2013 and $.4 at December 31, 2012. In March 2009, we issued $850.0 principal amount of notes payable in a public offering. $500.0 of the notes bear interest at a per annum rate equal to 5.625%, payable semi-annually, and were scheduled to...

  • Page 90
    ... an annual fee of approximately $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, 2013, there were no amounts outstanding under the revolving credit facility, and as of December 31, 2012, there...

  • Page 91
    .... 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 Baa3 (Stable Outlook...

  • Page 92
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Foreign exchange net gains of $.2 and $7.7 for 2013 and 2012, respectively, resulting from the translation of actuarial losses and prior service cost recorded in AOCI are included in changes in foreign currency translation adjustments in the Consolidated ...

  • Page 93
    ... and expense for tax and financial reporting purposes at December 31 consisted of the following: 2013 Deferred tax assets: Accrued expenses and reserves Pension and postretirement benefits Asset revaluations Capitalized expenses Intangible assets Share-based compensation Restructuring initiatives...

  • Page 94
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income from continuing operations, before taxes for the years ended December 31 was as follows: 2013 United States Foreign Total $(500.8) 663.4 $ 162.6 2012 2011 $(227.7) $ (156.9) 656.4 1,137.0 $ 428.7 $ 980.1 The U.S. loss from continuing operations...

  • Page 95
    ... total gross unrecognized tax benefits of which approximately $2.8 would impact the effective tax rate, if recognized. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Balance at December 31, 2010 Additions based on tax positions related to the current...

  • Page 96
    ...2013: Asset Balance Sheet Classification Derivatives not designated as hedges: Foreign exchange forward contracts Total derivatives not designated as hedges Total derivatives Fair Value Liability Balance Sheet Classification Fair Value Prepaid expenses and other $ 3.4 $ 3.4 $ 3.4 Accounts payable...

  • Page 97
    ...was included within debt maturing within one year. During 2013 and 2012, we recorded net losses of $.7 and $8.4, respectively, in interest expense in the Consolidated Statements of Income for these interest-rate swap agreements designated as fair value hedges. The impact on interest expense of these...

  • Page 98
    ...recorded an immaterial net loss and an immaterial net gain, respectively, in other expense, net in the Consolidated Statements of Income, associated with these undesignated interest-rate swap agreements. There was no hedge ineffectiveness for the years ended December 31, 2013, 2012 and 2011, related...

  • Page 99
    ... 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: Interest-rate swap agreements Foreign exchange forward contracts Total Level 2 Total $26...

  • Page 100
    ... Plans). The available-for-sale securities include securities held in a trust in order to fund future benefit 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...

  • Page 101
    ...cash equivalents, available-for-sale securities, short-term investments, money market funds, accounts receivable, loans receivable, debt maturing within one year, accounts payable, long-term debt, foreign exchange forwards contracts, and interest-rate swap agreements. The carrying value for cash and...

  • Page 102
    ... recorded in selling, general and administrative expenses. For the years ended December 31, 2013, 2012 and 2011, we have determined that we have a pool of windfall tax benefits. Stock Options The fair value of each option is estimated on the date of grant using a Black-Scholes-Merton option-pricing...

  • Page 103
    ... dates. Cash proceeds, tax benefits, and intrinsic value related to total stock options exercised during 2013, 2012 and 2011, were as follows: 2013 Cash proceeds from stock options exercised Tax (obligation) benefit realized for stock options exercised Intrinsic value of stock options exercised $19...

  • Page 104
    ... Benefit Plans Savings Plan We offer a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the "PSA"), which allows eligible participants to contribute up to 25% of eligible compensation through payroll deductions. We match employee contributions...

  • Page 105
    ... subsidiaries. Benefits under these plans are generally based on an employee's years of service and average compensation near retirement. Plans are funded based on legal requirements and cash flow. We provide health care benefits subject to certain limitations to the majority of retired employees in...

  • Page 106
    ... Service cost Interest cost Actuarial gain (loss) Plan participant contributions Benefits paid Plan amendments Curtailments Special termination benefits Foreign currency changes and other Ending balance Change in Plan Assets: Beginning balance Actual return on plan assets Company contributions Plan...

  • Page 107
    .... The net of tax amounts are included within the Consolidated Statements of Comprehensive Income. The amounts in AOCI that are expected to be recognized as components of net periodic benefit cost during 2014 are as follows: Pension Benefits U.S. Plans Net actuarial loss Prior service credit $42...

  • Page 108
    ... cost recorded in the Consolidated Statements of Income for the years ended December 31 were as follows: Pension Benefits U.S. Plans Non-U.S. Plans 2011 Postretirement Benefits 2011 5.60% 4.00% 7.16% 2013 Discount rate Rate of compensation increase Rate of return on assets 3.55% 3.86% 7.75% 2012...

  • Page 109
    ... non-U.S. funded pension plans target and weighted-average asset allocations at December 31, 2013 and 2012, by asset category were as follows: U.S. Pension Plan % of Plan Assets Target Asset Category Equity securities Debt securities Real Estate Other Total 2014 30-35% 65-70 - - 100% at Year End Non...

  • Page 110
    ...31, 2012 Purchases and sales, net Actual return on plan assets held Foreign currency changes Balance as of December 31, 2013 $ 15.9 (2.6) .2 13.5 (10.4) (.5) (.3) $ 2.3 Investments in equity securities classified as Level 1 in the fair value hierarchy are valued at quoted market prices. Investments...

  • Page 111
    ... 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 level, risk, and required growth of...

  • Page 112
    .... The accrued cost for postemployment benefits was $39.1 at December 31, 2013 and $52.2 at December 31, 2012, and was included in employee benefit plans in the Consolidated Balance Sheets. Supplemental Retirement Programs We offer a non-qualified deferred compensation plan, the Avon Products, Inc...

  • Page 113
    ...segment records direct expenses related to its employees and its operations. Summarized financial information concerning our reportable segments as of December 31 is shown in the following tables: Total Revenue & Operating Profit (Loss) 2013 Total Revenue Latin America Europe, Middle East & Africa...

  • Page 114
    ... TO CONSOLIDATED FINANCIAL STATEMENTS Capital Expenditures 2013 Latin America Europe, Middle East & Africa North America Asia Pacific Total from operations Global and other Total capital expenditures $ 94.1 20.0 7.6 6.6 128.3 69.0 $197.3 2012 $ 99.0 27.1 8.6 4.6 139.3 89.2 $228.5 2011 $117.1 51...

  • Page 115
    ... care. Fashion includes jewelry, watches, apparel, footwear, accessories and children's products. Home includes gift and decorative products, housewares, entertainment and leisure products, children's products and nutritional products. Other revenue primarily includes shipping and handling and order...

  • Page 116
    ... inventory write-offs of $1.4 associated with the exit of our South Korea and Vietnam markets. Of the total costs to implement, $49.3 was recorded in selling, general and administrative expenses and $1.4 was recorded in cost of sales, in the Consolidated Statements of Income. The liability balance...

  • Page 117
    ...Contract Terminations/ Other $ 6.7 7.7 $14.4 Total $ 99.5 15.9 $115.4 $ The charges, net of adjustments, of initiatives under the $400M Cost Savings Initiative by reportable business segment were as follows: Europe, Middle East & Africa $ 1.1 15.6 16.7 12.1 $28.8 Latin America 2012 2013 Charges...

  • Page 118
    ... realign certain distribution operations and close certain manufacturing operations; and • a net gain of $1.4 due to the sale of machinery and equipment in Germany. Of the total cost to implement, a net benefit of $3.0 was recorded in selling, general and administrative expenses and total costs to...

  • Page 119
    ... $11.2 was recorded in cost of sales, in the Consolidated Statements of Income. The liability balance, which primarily consists of employee-related costs, for the initiatives under the 2005 and 2009 Restructuring Programs is as follows: Total Balance December 31, 2010 2011 Charges Adjustments Cash...

  • Page 120
    ... we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We have conducted these compliance reviews in a number of countries selected to represent each of the Company's international geographic segments...

  • Page 121
    ..., at the exchange rate on December 31, 2013. 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 rules to define...

  • Page 122
    ... of 2012. As a result, in the third quarter of 2013, it became apparent that we would not achieve our 2013 and long-term forecasted revenue and earnings, and we completed an interim impairment assessment of the fair value of goodwill related to our operations in China. China's revenue performance...

  • Page 123
    ...time in order to return China's cash flows to normalized, sustainable levels. Goodwill Latin America Gross balance at December 31, 2012 Accumulated impairments Net balance at December 31, 2012 $122.8 - $122.8 Europe, Middle East & Africa $167.3 - $167.3 Asia Pacific $ 84.2 (44.0) $ 40.2 Total $374...

  • Page 124
    ... TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18. Supplemental Balance Sheet Information At December 31, 2013 and 2012, prepaid expenses and other included the following: Prepaid expenses and other Deferred tax assets (Note 7) Prepaid taxes and tax refunds receivable Prepaid brochure costs, paper and...

  • Page 125
    ... annual financial statements for all impacted periods. (2) Operating profit (loss) was impacted by the following: 2013 Costs to implement restructuring initiatives: Cost of sales Selling, general and administrative expenses Total costs to implement restructuring initiatives Venezuelan special...

  • Page 126
    ... FINANCIAL STATEMENTS extinguishment of debt of $13.0 before tax in the second quarter of 2013 caused by the make-whole premium and the write-off of debt issuance costs and discounts, partially offset by a deferred gain associated with the January 2013 interest-rate swap agreement termination...

  • Page 127
    ...2013, 2012 and 2011 Additions Balance at Beginning of Period Charged to Costs and Expenses Charged to Revenue Balance at End of Period (In millions) Description Deductions 2013 Allowance for doubtful accounts receivable Allowance for sales returns Allowance for inventory obsolescence Deferred tax...

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  • Page 129
    ... company's 2013 Annual Report (Form 10-K) 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 130
    www.avoncompany.com