Avon 2014 Annual Report Download

Download and view the complete annual report

Please find the complete 2014 Avon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 130

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130

Annual Annual Report 2014Report 2014

Table of contents

  • Page 1
    Annual Report 2014

  • Page 2
    Avon trademark 1954-1972 The 4A Heritage Logo Anytime, Anywhere, Always, Ask

  • Page 3
    ... we will succeed in our mission of returning Avon to sustainable, profitable growth, which will create long-term shareholder value. My confidence stems from our experience over the course of 2014. Market by market, step by step, we are rebuilding the Company's core. We've been executing with more...

  • Page 4
    ... flat revenue performance year-on-year, and total Beauty sales were also flat. Active Representatives were down 5%. Average order increased 5%. We continued to improve our cost structure and achieved our cost savings target of $400 million that we established in late 2012. While these savings have...

  • Page 5
    ...business is on track to be profitable in 2015, driven by good progress in some key areas. This includes a substantial reduction to SG&A costs to get our cost base in line with the current size of the business. We also saw major improvement in commercial marketing in the areas of product mix, pricing...

  • Page 6

  • Page 7
    ... For the fiscal year ended December 31, 2014 OR ' Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 1-4881 AVON PRODUCTS, INC. (Exact name of registrant as specified in its charter) New York 13-0544597...

  • Page 8
    ...III 3-7 Item 1 Business Item 6 Selected Financial Data Item 9B Other Information Part IV 61 Item 15 Exhibits and Financial Statement Schedule 7 - 18 Item 1A Risk Factors 60 Item 10 Directors, Executive Officers and Corporate Governance 61 15 (a) 1 Consolidated Financial Statements 18 Item 1B...

  • Page 9
    ... planning, customer service initiatives, sales and operation planning process, outsourcing strategies, Internet platform and technology strategies including e-commerce, marketing and advertising strategies, information technology and related system enhancements and cash management, tax, foreign...

  • Page 10
    ...revolving credit facility; • the impact of possible pension funding obligations, increased pension expense and any changes in pension standards and regulations or interpretations thereof on our cash flow and results of operations; • our ability to successfully identify new business opportunities...

  • Page 11
    ... consumer packaged goods ("CPG") and direct-selling companies to create, manufacture and market beauty and non-beauty-related products. Our product categories are Beauty and Fashion & Home. Beauty consists of skincare (which includes personal care), fragrance and color (cosmetics). Fashion & Home...

  • Page 12
    ... 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., U.K. and certain other markets, we also utilize e-commerce and market our products through consumer websites (e.g., www.avon.com in...

  • Page 13
    ... small companies that sell fashion jewelry through department stores, mass merchandisers, specialty retailers and e-commerce. 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-by-market...

  • Page 14
    ...Avon Femme Fragrance, Avon Exploration Fragrance, Far Away Gold Fragrance and Avon Luck for Her and for Him Fragrances. The amounts incurred on research activities relating to the development of new products and the improvement of existing products were $62.5 in 2014, $67.2 in 2013 and $73.3 in 2012...

  • Page 15
    ... the sale of Avon Products Company Limited ("Avon Japan") and in July 2013, we completed the sale of Silpada. Website Access to Reports Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are, and have been throughout 2014...

  • Page 16
    ... in information technology infrastructure and realize efficiencies across our supply chain, marketing processes, sales model and organizational structure; • implement customer service initiatives; • implement and continue to innovate our Internet platform and technology strategies; • offer...

  • Page 17
    ... Representative earning opportunities and transform the value chain, restore field health and sales force effectiveness, successfully implement other initiatives in the direct-selling channel, successfully execute our digital strategy, including e-commerce, improve our brochure and product offerings...

  • Page 18
    ... on our business, assets, financial condition, liquidity and results of operations or cash flows. For example, Venezuela has been designated as a highly inflationary economy. See "Segment Review - Latin America" within MD&A on pages 40 through 45 of our 2014 Annual Report for additional information...

  • Page 19
    .... Our credit ratings could limit our access to new financing, particularly short-term financing; reduce our flexibility with respect to working capital needs; adversely affect the market price of some or all of our outstanding debt securities; result in an increase in financing costs, including...

  • Page 20
    ...lines of business, in both the domestic and international markets. Worldwide, we compete against products sold to consumers in a number of distribution methods, including direct selling, through the Internet, and through mass market retail and prestige retail channels. We also face increasing direct...

  • Page 21
    ... data transfer networks. We also employ information technology systems to support Representatives in many of our markets, including electronic order collection, invoicing systems, social media tools and on-line training. We have e-commerce and Internet sites, including business-to-business websites...

  • Page 22
    ... technology systems on a worldwide basis. For example, 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...

  • Page 23
    ... the brochures that are used by Representatives to sell Avon products. The loss of multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on the manufacturing and packaging of our Beauty products, the purchasing of our Fashion & Home...

  • Page 24
    ... pension cost of the following fiscal years. Pension funding requirement changes under the U.S. Pension Protection Act of 2006 and related standards and regulations affect pension funding obligations and may impose limitations on a hybrid plan's interest crediting rate to the "market rate of return...

  • Page 25
    ...regard to direct selling in emerging and developing markets where we do business is evolving, and government officials in such locations often exercise broad discretion in deciding how to interpret and apply applicable regulations. From time to time, we may receive formal and informal inquiries from...

  • Page 26
    ... and shipped to Representatives in fulfillment of their orders, and one principal research and development facility located in Suffern, NY. We also lease an office space in New York City for our executive and administrative offices, and we own property in Rye, NY that is predominantly for Global IT...

  • Page 27
    ... distribution centers and one administrative office in Asia Pacific. We consider all of these properties to be in good repair, to adequately meet our needs and to operate at reasonable levels of productive capacity. In January 2013, we announced plans to close the Atlanta and Pasadena distribution...

  • Page 28
    ... 16.81 Comparison of 5 Year Cumulative Total Return(1) Among Avon Products, Inc., The S&P 500 Index and 2014 Peer Group(2) 250 Avon Products, Inc. 200 S&P 500 Peer Group 150 $ Value 100 50 0 2009 2010 2011 2012 2013 2014 The Stock Performance Graph above assumes a $100 investment on December 31...

  • Page 29
    ... Financial Statements and related Notes contained in our 2014 Annual Report. 2014 Income Statement 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 30
    ...$18.5 net tax benefit recorded in the fourth quarter of 2014 related to the finalization of the Foreign Corrupt Practices Act ("FCPA") settlements. See Note 7, Income Taxes on pages F-21 through F-25 of our 2014 Annual Report, for more information. In addition to the items impacting operating profit...

  • Page 31
    ... related to our Service Model Transformation ("SMT") project in the fourth quarter of 2013. See Note 16, Goodwill and Intangible Assets on pages F-49 through F-51 of our 2014 Annual Report for more information on China and Note 1, Description of the Business and Summary of Significant Accounting...

  • Page 32
    ... Company settled charges of violations of the books and records and internal control provisions of the Foreign Corrupt Practices Act (the "FCPA") with U.S. Department of Justice (the "DOJ") and the U.S. Securities and Exchange Commission (the "SEC"). This included the $68 fine related to Avon China...

  • Page 33
    ... number of unique Representatives submitting at least one order in a sales campaign, totaled for all campaigns in the related period. To determine the change in Active Representatives, this calculation is compared to the same calculation in the corresponding period of the prior year. Orders in China...

  • Page 34
    ... tax assets related to Venezuela recorded in the fourth quarter of 2013, as well as the release of a provision in the fourth quarter of 2012 associated with the excess cost of acquiring U.S. dollars in Venezuela at the regulated market rate as compared with the official exchange rate. The Pension...

  • Page 35
    ... our 2014 Annual Report for a detailed discussion of the application of these and other accounting policies. 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...

  • Page 36
    ... current economic forecasts. We evaluate the expected long-term rate of return annually and adjust as necessary. Beginning in 2014, we have adopted an investment strategy for the U.S. defined benefit pension plan which is designed to match the movements in the pension liability through an increased...

  • Page 37
    ... 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 2014 pension expense and the pension benefit obligation at December 31, 2014: Increase/(Decrease) in Pension Expense 50 Basis Point...

  • Page 38
    ... could materially impact the Consolidated Financial Statements. We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. In 2015, a number of open tax years are scheduled to close due to the expiration of the statute of limitations and it is possible...

  • Page 39
    ... royalty and discount rates. As a result of this impairment charge, the remaining carrying amount of the SMT asset is not material. See Note 1, Description of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2014 Annual Report for more information on SMT...

  • Page 40
    ... a reasonable amount of time in order to return China's cash flows to normalized, sustainable levels. See Note 16, Goodwill and Intangible Assets on pages F-49 through F-51 of our 2014 Annual Report for more information on China. Silpada During the 2012 year-end close process, our analysis of the...

  • Page 41
    ... Diluted loss per share attributable to Avon Advertising expenses(1) Gross margin CTI restructuring Venezuelan special items Adjusted gross margin Selling, general and administrative expenses as a % of total revenue CTI restructuring Venezuelan special items FCPA accrual Pension settlement charge...

  • Page 42
    ... discussion of the tax benefits in Brazil. On a category basis, our net sales and associated growth rates were as follows: Years ended December 31 2014 Beauty: Skincare Fragrance Color Total Beauty Fashion & Home: Fashion Home Total Fashion & Home Net sales 2013 US$ %/Point Change Constant $ $2,588...

  • Page 43
    ... fourth quarter of 2013, lower fixed expenses primarily resulting from our cost savings initiatives, lower net brochure costs, lower Representative and sales leader expense, lower bad debt expense and lower professional and related fees associated with the FCPA investigation and compliance reviews...

  • Page 44
    ... quarter of 2013, we recorded a non-cash impairment charge of approximately $42 for goodwill and intangible assets associated with our China business. See Note 16, Goodwill and Intangible Assets on pages F-49 through F-51 of our 2014 Annual Report for more information on China. See "Segment Review...

  • Page 45
    ... information related to changes in revenue by segment. Operating Margin Operating margin decreased 70 basis points and Adjusted operating margin increased 130 basis points compared to 2012. The increase in Adjusted operating margin includes the benefits associated with the $400M Cost Savings...

  • Page 46
    ... of our 2014 Annual Report for more information on China. See "Segment Review" in this MD&A for additional information related to changes in operating margin by segment. Other Expense Interest expense increased by 16% compared to the prior-year period, primarily due to higher average interest rates...

  • Page 47
    ... fourth quarter of 2013, due to an out-of-period adjustment related to judicial deposits in Brazil. This out-of-period benefit to interest income was partially offset by lower average interest rates, as well as lower average cash balances in 2013 as compared to 2012. Other expense, net increased by...

  • Page 48
    ...America - 2014 Compared to 2013 %/Point Change 2014 Total revenue Operating profit CTI restructuring Venezuelan special items Adjusted operating profit Operating margin CTI restructuring Venezuelan special items Adjusted operating margin Change in Active Representatives Change in units sold Amounts...

  • Page 49
    ..., which is recorded as a reduction to revenue, the benefit from these VAT credits is recognized as revenue. Brazil's Active Representatives and average order were relatively unchanged from the prior-year period. On a Constant $ basis, Brazil's sales from both Beauty and Fashion & Home products were...

  • Page 50
    ... 2013, the Venezuelan government announced a foreign exchange system ("SICAD I") that increased government control over the allocation of U.S. dollars in the country. The availability of U.S. dollars under the SICAD I market for Avon has been limited to-date. At December 31, 2014, the SICAD I rate...

  • Page 51
    ... consolidated revenue and approximately 1% of Avon's consolidated Adjusted operating profit. There also could be ongoing impacts primarily related to the remeasurement of Avon Venezuela's financial statements. To illustrate our sensitivity to potential future changes in the foreign exchange rates in...

  • Page 52
    ... 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 53
    ... order. In South Africa, revenue declined 3%, which was unfavorably impacted by foreign exchange. On a Constant $ basis, South Africa's revenue increased 8%, primarily due to an increase in Active Representatives. Operating margin was negatively impacted by .3 points as compared to the prior-year...

  • Page 54
    ... 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 compared to the prior-year period from higher...

  • Page 55
    ... strategies; • a benefit of .5 points due to lower Representative and sales leader expense primarily due to lower commissions and reduced appointments of new Representatives; • a benefit of .4 points due to lower distribution expenses, primarily resulting from our cost savings initiatives...

  • Page 56
    ... the SMT technology platform and associated business process changes initiated in the second quarter of 2013. See "Global and other expenses" in this MD&A for more information on SMT. Operating margin benefited by .8 points as compared to the prior-year period from lower CTI restructuring. Adjusted...

  • Page 57
    ... of pricing and mix primarily driven by the Philippines largely due to unit driving offers, and .6 points from the unfavorable impact of foreign currency transaction losses; and • a decline of .9 points due to higher advertising spend, primarily in China to support product re-launches. AVON 2014...

  • Page 58
    ... in China in the third quarter of 2013, which was significantly in excess of our expectations. See Note 16, Goodwill and Intangible Assets on pages F-49 through F-51 of our 2014 Annual Report for more information on China. Operating margin benefited by 1.3 points as compared to the prior-year period...

  • Page 59
    ... was recorded. See Note 1, Description of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2014 Annual Report for more information. Adjusted total global expenses decreased compared to the prior-year period primarily as a result of cost savings initiatives...

  • Page 60
    ... Report. See our Cautionary Statement for purposes of the "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 on pages 1 through 2 of our 2014 Annual Report. Balance Sheet Data 2014 Cash and cash equivalents Total debt Working capital $ 960.5 2,601.0 917.3 2013...

  • Page 61
    ... Adjusted operating profit. We maintain defined benefit pension plans and unfunded supplemental pension benefit plans (see Note 11, Employee Benefit Plans on pages F-32 through F-40 of our 2014 Annual Report). Our funding policy for these plans is based on legal requirements and available cash flows...

  • Page 62
    ... of interest-rate swap agreements designated as fair value hedges. See Note 5, Debt and Other Financing on pages F-17 through F-20 of our 2014 Annual Report, and Note 8, Financial Instruments and Risk Management on pages F-25 through F-27 of our 2014 Annual Report for more information. Net cash used...

  • Page 63
    ... quarter of 2013, $1.2 was recorded for the write-off of issuance costs related to the 2010 revolving credit facility. Borrowings under the revolving credit facility bear interest, at our option, at a rate per annum equal to LIBOR plus an applicable margin or a floating base rate plus an applicable...

  • Page 64
    ... 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-25 through F-27 of our 2014 Annual Report...

  • Page 65
    ... our near-term liquidity. However, additional rating agency reviews could result in a change in outlook or downgrade, which could further limit our access to new financing, particularly shortterm financing, reduce our flexibility with respect to working capital needs, affect the market price of some...

  • Page 66
    ... to market risk on the underlying items being hedged as a result of changes in foreign exchange rates. See Note 8, Financial Instruments and Risk Management on pages F-25 through F-27 of our 2014 Annual Report for more information. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference...

  • Page 67
    ...31, 2014, 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 68
    ... in June 2013, that applies to all members of the Board of Directors and to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer or controller. Our Code of Conduct is available, free of charge, on our investor website, www...

  • Page 69
    ... the consolidated financial statements and notes. (a) 3. Index to Exhibits Exhibit Number 3.1 Description Restated Certificate of Incorporation, filed with the Secretary of State of the State of New York on October 5, 2012 (incorporated by reference to Exhibit 3.1 to Avon's Current Report on Form...

  • Page 70
    ...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 10.21 to Avon's Annual Report on Form 10-K for the year ended December 31...

  • Page 71
    ....4 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011). Third Amendment, dated November 10, 2014, to the Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of January 1, 2008. Avon Products, Inc. Compensation Plan for Non-Employee Directors, amended...

  • Page 72
    ... for the year ended December 31, 2011). Letter Agreement, dated as of April 4, 2012, between the Company and Ms. McCoy (incorporated by reference to Exhibit 10.1 to Avon's Current Report on Form 8-K filed on April 10, 2012) as modified by the "CEO stock holding requirement" adopted on March 13, 2014...

  • Page 73
    ... this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 24th day of February 2015. Avon Products, Inc. /s/ Robert Loughran Robert Loughran Acting Chief Financial Officer, Vice President and Corporate Controller - Principal Accounting Officer AVON 2014 65

  • Page 74
    ... Title Date /s/ Sherilyn S. McCoy Sherilyn S. McCoy /s/ Robert Loughran Robert Loughran Acting Chief Financial Officer, Vice President and Corporate Controller - Principal Financial Officer and Principal Accounting Officer Chief Executive Officer - Principal Executive Officer February 24, 2015...

  • Page 75
    ...- Valuation and Qualifying Accounts F-4 Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended December 31, 2014 F-5 Consolidated Balance Sheets at December 31, 2014 and 2013 F-6 Consolidated Statements of Cash Flows for each of the years in the three...

  • Page 76
    ... all material respects, the financial position of Avon Products, Inc. at December 31, 2014 and December 31, 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the...

  • Page 77
    ... 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 assets Operating profit Interest expense Loss on extinguishment of debt Interest...

  • Page 78
    ... of net actuarial loss and prior service cost, net of taxes of $(12.0), $39.2 and $(17.8) Total other comprehensive (loss) income, net of taxes Comprehensive loss Less: comprehensive (loss) income attributable to noncontrolling interests Comprehensive loss attributable to Avon 2014 $(384.9) (248...

  • Page 79
    ... Debt maturing within one year Accounts payable Accrued compensation Other accrued liabilities Sales and taxes other than income Income taxes Total current liabilities Long-term debt Employee benefit plans Long-term income taxes Other liabilities Total liabilities Commitments and contingencies...

  • Page 80
    ... in fair market value of interest-rate swap agreements of $(.7) in 2013 and $(8.4) in 2012 (see Note 8, Financial Instruments and Risk Management). (1) (2) Includes cash and cash equivalents of discontinued operations of $2.7 and $6.9 at the beginning of the year in 2013 and 2012, respectively...

  • Page 81
    ... data) Balances at December 31, 2011 Net (loss) income Other comprehensive (loss) income Dividends - $0.75 per share Exercise / vesting of share-based compensation Repurchase of common stock Purchases and sales of noncontrolling interests, net of dividends paid of $3.5 Income tax expense - stock...

  • Page 82
    ... 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 83
    ...with product returns. In addition, we estimate an allowance for doubtful accounts on receivable balances based on an analysis of historical data and current circumstances. Other Revenue Other revenue is primarily comprised of shipping and handling and order processing fees billed to Representatives...

  • Page 84
    ... and royalty and discount rates, as appropriate. In December 2013, we decided to halt further roll-out of 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...

  • Page 85
    ... currency contracts, to manage foreign currency exposures. If applicable, derivatives are recognized on the Consolidated Balance Sheets at their fair values. When we become a party to a derivative instrument and intend to apply hedge accounting, we designate the instrument, for financial reporting...

  • Page 86
    ... 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 on their fair value at the date...

  • Page 87
    ... generally reviewed and determined on an annual basis. These assumptions include discount rates, hybrid plan maximum interest crediting rates and expected rate of return on plan assets, rate of compensation increase of plan participants, interest cost, health care cost trend rates, benefits earned...

  • Page 88
    ...of tax, we would have included .8 million shares for the year ended December 31, 2013, because the average market price was higher than the exercise prices of those options. During the year ended December 31, 2012, we did not include stock options to purchase 22.0 million shares of Avon common stock...

  • Page 89
    ...in the achievement of the earn-out for fiscal year 2014. In 2013, we recorded a loss on sale of $79.4 before tax ($50.4 after tax), which represented the difference between the carrying value of the Silpada business and the proceeds. Of the total loss on sale, $79.0 before tax ($50.0 after tax), was...

  • Page 90
    ...the forecasted long-term growth rates and cash flows used to estimate fair value. The lower than expected financial results for fiscal year 2012 served as the baseline for the long-term projections of the business. Fiscal year 2012 revenue for Silpada was approximately 19% less than fiscal year 2011...

  • Page 91
    ... of debt issuance 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 for more information. In addition, the...

  • Page 92
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ba1 (Stable outlook) (as discussed below), the interest rates on the Notes will increase by .50%, effective as of March 15, 2015. The carrying value of the 2016 Notes represented the $250.0 principal amount, net of the unamortized discount to face value of...

  • Page 93
    ... quarter of 2013, $1.2 was recorded for the write-off of issuance costs related to the 2010 revolving credit facility. Borrowings under the revolving credit facility bear interest, at our option, at a rate per annum equal to LIBOR plus an applicable margin or a floating base rate plus an applicable...

  • Page 94
    ... our near-term liquidity. However, additional rating agency reviews could result in a change in outlook or downgrade, which could further limit our access to new financing, particularly shortterm financing, reduce our flexibility with respect to working capital needs, affect the market price of some...

  • Page 95
    ... $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 Statements of Comprehensive Income. NOTE 7. Income Taxes At December 31, 2014, we...

  • Page 96
    ... Pension and postretirement benefits Asset revaluations Capitalized expenses Depreciation and amortization Deferred loss on foreign currency Share-based compensation Restructuring initiatives Postemployment benefits Tax loss carryforwards Foreign tax credit carryforwards Minimum tax and business...

  • Page 97
    ... (7.3) $ 163.6 1.2 (4.2) (3.0) $ 335.4 Total $549.1 The foreign provision for income taxes includes the U.S. tax benefit on foreign earnings of $3.5, and the U.S. tax cost on foreign earnings of $9.9 and $156.8 for the years ended December 31, 2014, 2013 and 2012, respectively. AVON 2014 F-23

  • Page 98
    ... amount of unrecognized tax benefits is as follows: Balance at December 31, 2011 Additions based on tax positions related to the current year Additions for tax positions of prior years Reductions for tax positions of prior years Reductions due to lapse of statute of limitations Reductions due to...

  • Page 99
    ... tax benefit. We recorded expense of $1.0, and benefits of $.1 and $1.1 for interest and penalties, net of taxes during 2014, 2013 and 2012, respectively. We file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. As of December 31, 2014, the tax years...

  • Page 100
    ...terminated in order to increase our ratio of fixed-rate debt. At December 31, 2014, the unamortized deferred gain associated with the March 2012 interest-rate swap termination was $29.4, and was included within long-term debt in the Consolidated Balance Sheets. During 2013, we recorded a net loss of...

  • Page 101
    ...for 2012 related to the effective portions of the foreign exchange forward contract was included in foreign currency translation adjustments within AOCI. The foreign exchange forward contract was terminated in January 2012, and therefore no gain or loss was recorded during 2014 or 2013. Credit Risk...

  • Page 102
    ...market funds Available-for-sale securities Foreign exchange forward contracts Total Liabilities: Foreign exchange forward contracts Total Level 2 Total $ .5 2.5 - $ - - 3.4 $ .5 2.5 3.4 $ 3.0 $ 3.4 $ 6.4 $ $ - - $ $ .3 .3 $ $ .3 .3 The tables above exclude our defined benefit pension...

  • Page 103
    ... Our financial instruments include cash and 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 and foreign exchange forwards contracts. The carrying value...

  • Page 104
    ... of forward contracts were estimated based on quoted forward foreign exchange prices at the reporting date. NOTE 10. Share-Based Compensation Plans The Avon Products, Inc. 2010 Stock Incentive Plan (the "2010 Plan") and the Avon Products, Inc. 2013 Stock Incentive Plan (the "2013 Plan"), which are...

  • Page 105
    ... vesting dates. Cash proceeds, tax obligations and intrinsic value related to total stock options exercised during 2014, 2013 and 2012, were as follows: 2014 Cash proceeds from stock options exercised Tax obligation realized for stock options exercised Intrinsic value of stock options exercised...

  • Page 106
    ... restricted stock units. At December 31, 2014, there was $.8 of unrecognized compensation cost related to these restricted stock units. NOTE 11. Employee Benefit Plans Savings Plan We offer a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the...

  • Page 107
    ...employee's length of service and average compensation near retirement, and certain plans have vesting requirements. Plans are funded based on legal requirements and cash flow. The U.S. defined benefit pension plan, the Avon Products, Inc. Personal Retirement Account Plan (the "PRA"), has been closed...

  • Page 108
    ... date for all of our employee benefit plans. Pension Plans U.S. Plans Non-U.S. Plans 2013 $(792.7) (15.7) (27.5) 58.4 - 109.2 668.3) $ 529.2 59.8 51.3 - (109.2) - $ 531.1 $(137.2) $ - (10.3) (126.9) Postretirement Benefits 2014 Change in Benefit Obligation: Beginning balance Service cost...

  • Page 109
    ...) cost Amortization of prior service credit Amortization of net actuarial losses Foreign currency changes Total recognized in other comprehensive (loss) income* Total recognized in net periodic benefit cost and other comprehensive (loss) income $ 14.1 27.8 (35.8) (.3) 45.1 38.0 - $ 88.9 2013 2014...

  • Page 110
    ... obligations recorded on the Consolidated Balance Sheets as of December 31 were as follows: Pension Benefits U.S. Plans Non-U.S. Plans 2013 4.54% 3.91% Postretirement Benefits 2014 Discount rate Rate of compensation increase 3.83% 4.00% 2014 3.34% 3.30% 2013 4.58% 3.63% 2014 4.12% N/A 2013 4.91...

  • Page 111
    ... 2 100% 2013 63% 35 - 2 100% The following tables present the fair value hierarchy for pension assets measured at fair value on a recurring basis as of December 31, 2014: U.S. Pension Plan Asset Category Equity Securities: Domestic equity International equity Emerging markets Level 1 Level 2 Total...

  • Page 112
    ...as of December 31, 2013 Actual return on plan assets held Foreign currency changes Balance as of December 31, 2014 $ 13.5 (10.4) (.5) (.3) 2.3 (.3) (.1) $ 1.9 Investments in equity securities classified as Level 1 in the fair value hierarchy are valued at quoted market prices. Investments in equity...

  • Page 113
    ... each investment manager and monitored by the plan's management team. In 2015, similar investment strategies are expected to be implemented in some of our non-U.S. defined benefit pension plans. Pension trust assets are invested so as to achieve a return on investment, based on levels of liquidity...

  • Page 114
    ... life insurance policies Cash and cash equivalents Total $ 32.2 1.4 33.6 $ 2013 30.5 .8 31.3 $ $ The assets are recorded at fair market value, except for investments in corporate-owned life insurance policies which are recorded at their cash surrender values as of each balance sheet date, which...

  • Page 115
    ... business characteristics and each offers similar products through similar customer access methods. Global and other expenses include, among other things, costs related to our executive and administrative offices, information technology, research and development, marketing, professional and related...

  • Page 116
    ... East & Africa North America Asia Pacific Total from operations Global and other Total depreciation and amortization $ 70.9 40.0 22.1 17.3 150.3 42.3 $192.6 2013 $ 72.2 46.6 37.4 21.9 178.1 46.5 $224.6 2012 $ 74.3 47.0 33.7 21.2 176.2 36.3 $212.5 Total Revenue by Major Country A major country is...

  • Page 117
    ... total revenue to help us achieve a targeted low double-digit operating margin. The restructuring actions under the $400M Cost Savings Initiative primarily consist of global headcount reductions and related actions, as well as the closure of certain smaller, under-performing markets, including South...

  • Page 118
    ....1 was recorded in selling, general and administrative expenses and a net benefit of $.7 was recorded in cost of sales, in the Consolidated Statements of Income. Restructuring Charges - 2012 During 2012, we recorded total costs to implement of $50.7 related to the $400M Cost Savings Initiative, and...

  • Page 119
    ..., of initiatives under the $400M Cost Savings Initiative by reportable business segment were as follows: Europe, Middle East & Africa $ 1.1 15.6 19.9 36.6 - $36.6 Latin America 2012 2013 2014 Charges incurred to date Estimated charges to be incurred on approved initiatives Total expected charges on...

  • Page 120
    ... During 2012, we recorded total costs to implement of $73.9, in selling, general and administrative expenses, in the Consolidated Statements of Income. The costs consisted of the following net charge of $53.4 primarily for employee-related costs, including severance and pension benefits; contract...

  • Page 121
    ...The net benefit in 2013 primarily consisted of a net gain of $4.9 due to the sale of a facility in the U.S., as well as adjustments to the reserve for employee-related costs. During 2012, we recorded total costs to implement of $.1, of which a net benefit of $3.0 was recorded in selling, general and...

  • Page 122
    ... or former Company employees pursuant to the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132. An amended complaint was filed on January 28, 2015. The purported class consists of participants in and beneficiaries of the Avon Personal Savings Account Plan (the "Plan") who invested...

  • Page 123
    ... 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, 2014, is not expected to...

  • Page 124
    ... to support the carrying value of the business. As compared to prior years' projections for China, the future expectations declined significantly in the 2012 and 2013 impairment analyses. This reduction in future expectations led to impairments of $44.0 and $42.1 being recorded in the third quarters...

  • Page 125
    ... Balance Sheet Information At December 31, 2014 and 2013, 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 other literature Receivables other than trade Short-term...

  • Page 126
    ...$ .19 .19 Operating profit (loss) was impacted by the following: 2014 Costs to implement restructuring initiatives: Cost of sales Selling, general and administrative expenses Total costs to implement restructuring initiatives Venezuelan special items FCPA accrual Pension settlement charge $ First...

  • Page 127
    ... 45, Note 15, Contingencies, Note 11, Employee Benefit Plans, Note 16, Goodwill and Intangibles, Note 1, Description of the Business and Summary of Significant Accounting Policies, Note 5, Debt and Other Financing and Note 7, Income Taxes, for more information on these items. AVON 2014 F-53

  • Page 128
    ...2014, 2013 and 2012 Additions Balance at Beginning of Period Charged to Costs and Expenses Charged to Revenue Balance at End of Period (In millions) Description Deductions 2014 Allowance for doubtful accounts receivable Allowance for sales returns Allowance for inventory obsolescence Deferred tax...

  • Page 129
    ... company's 2014 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