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annual report 2015
7553_Insert.indd 1 4/13/16 7:58 AM

Table of contents

  • Page 1
    annual repor t 2015

  • Page 2
    ... and understand their motivations. And while the world is big, we quickly learned that our Representatives are closely connected as part of a global sisterhood - bonded by a passion for the Avon brand, a drive to be financially independent and a desire to inspire others. Their story is our story...

  • Page 3
    ... Representative Brazil Jessica Avon Representative Brazil When women support each other...Beci & Carrie Avon Representatives United Kingdom "After I had my first child, I felt really lost in terms of what I was going to do for work. And Avon's given me a an opportunity again." "Avon has changed...

  • Page 4
    Orenthia Avon Representative United States Ksenia Avon Representative Poland "I got involved with Avon because I fell in love with a skincare product. But I actually made this a defining opportunity because I fell in love with the company." Catherine, Carrie, Sandy & Glenice Avon Representatives ...

  • Page 5
    ... on anyone. Now I'm in control." Wafaa Avon Representative Morocco Sabryna Avon Representative Canada Yashira Avon Representative Puerto Rico "To be empowered means to be confident, to be independent and to be a role model." Durna Avon Representative Turkey Nik, Attiya, Steffi , Sunshine...

  • Page 6
    Our Beauty Secrets? Confidence. Strength. Pride.

  • Page 7
    ... to return the Avon North America business to sustainable growth. Cerberus also invested $435 million in Avon Products, Inc. in exchange for an ownership interest of approximately 16.6%. Avon Products, Inc., comprised of the remaining international markets, continues to trade on the New York Stock...

  • Page 8
    ... Cost Financial Resilience 2016 2017 Focus Builds into 2017 2018 Primary Focus to Fuel Growth Continued Focus to Fund Transformation * Namely VAT credits that we recognized and benefited from in 2014 and the negative impact of newly enacted IPI taxes during 2015. ** On a reported basis, revenue...

  • Page 9
    ...better meet each Representative's needs and significant improvements in the service model. We will also invest to contemporize our model through social selling. Drive out Cost. Over three years, we will reduce our cost base by $350 million. We announced significant changes in our operating model in...

  • Page 10

  • Page 11
    ...recently completed second quarter) was $2.7 billion. The number of shares of Common Stock (par value $.25) outstanding at January 31, 2016, was 435,472,459 Documents Incorporated by Reference Part III - Portions of the registrant's Proxy Statement relating to the 2016 Annual Meeting of Shareholders...

  • Page 12
    ...of Financial Condition and Results of Operations 62 Item 9B Other Information Part IV 22 Item 1B Unresolved Staff Comments 64 Item 15 Exhibits and Financial Statement Schedule Part III 63 Item 10 Directors, Executive Officers and Corporate Governance 22 - 23 Item 2 Properties 60 - 61 Item 7A...

  • Page 13
    ... 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 14
    ...cyber security breaches; the risk of product or ingredient shortages resulting from our concentration of sourcing in fewer suppliers; any changes to our credit ratings and the impact of such changes on our financing costs, rates, terms, debt service obligations, access to lending sources and working...

  • Page 15
    ... 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 16
    ...-level compensation program which gives Representatives, known as independent leaders, the opportunity to earn discounts on their own sales of our products, as well as commissions based on the net sales made by Representatives they have recruited and trained. This program generally limits the number...

  • Page 17
    ... degree of competition that we face in this industry varies widely from country to country. We compete against products sold to consumers in a number of distribution methods, including direct selling, through the Internet, and through the mass market retail and prestige retail channels. Specifically...

  • Page 18
    ..., Anew Power Serum, Ultra Color Indulgence Lip Color, SuperExtend Winged Out Mascara, Big & False Lash Volume Mascara, Outspoken Party! by Fergie Fragrance and Avon Attraction for Him and for Her Fragrances. The amounts incurred on research activities relating to the development of new products and...

  • Page 19
    ...well as other cost-savings strategies that will not result in restructuring charges. We are targeting the realization of $70 of these pre-tax cost savings in 2016. We have initiated this Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin and mid...

  • Page 20
    ... supply chain, marketing processes, sales model and organizational structure; • implement and continue to innovate our Internet platform, technology strategies and customer service initiatives; • effectively manage our outsourcing activities; • offer a more compelling social selling experience...

  • Page 21
    ..., including media, social selling and information technology systems that will help us modernize our business. We initiated the Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin and mid single-digit constant-dollar revenue growth. As we work to...

  • Page 22
    ... 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 23
    ... 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 47 through 51 of our 2015 Annual Report for additional information regarding...

  • Page 24
    .... 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 25
    ... the markets we operate. 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-selling and retail competition in our developing and...

  • Page 26
    ...and many small companies that sell fashion jewelry through department stores, mass merchandisers, specialty retailers and e-commerce. The number of competitors and degree of competition that we face in the beauty and related products industry varies widely from country to country. If our advertising...

  • Page 27
    ... information security vulnerabilities. As a company that operates globally, we could be impacted by commercial agreements between us and processing organizations, existing and proposed laws and regulations, and government policies and practices related to cybersecurity, privacy and data protection...

  • Page 28
    ... 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 29
    ... funding policy for pension plans is to meet the minimum required contributions under applicable law and accumulate plan assets that, over the long run, are expected to approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate used...

  • Page 30
    ... 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 31
    ...operating results; developments in connection with any investigations or litigations; 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...

  • Page 32
    ... held in our U.S. defined benefit pension plan to the NewCo defined benefit pension plan. The amount of assets transferred will be determined under Section 4044 of the Employee Retirement Income Security Act of 1974, as amended, and Section 414(l) of the Internal Revenue Code of 1986, as amended...

  • Page 33
    ... our position and options globally relating to enforcement of our intellectual property. The issuance and subsequent conversion of 435,000 shares of our Series C Preferred Stock to Cleveland Investor would dilute the ownership of holders of our common stock and may adversely affect the market price...

  • Page 34
    ...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. In October 2012...

  • Page 35
    ... five distribution centers measuring 50,000 square feet or more, of which five are owned and one is leased. ITEM 3. LEGAL PROCEEDINGS Reference is made to Note 15, Contingencies, on pages F-48 through F-51 of our 2015 Annual Report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. AVON 2015 23

  • Page 36
    ... TOTAL RETURN(1) Among Avon Products, Inc., The S&P 500 Index and 2015 Peer Group(2) 250 Avon Products, Inc. 200 S&P 500 Peer Group $ Value 150 100 50 0 2010 2011 2012 2013 2014 2015 The Stock Performance Graph above assumes a $100 investment on December 31, 2010, in Avon's common stock, the...

  • Page 37
    ... Statements and related Notes contained in our 2015 Annual Report. 2015 Statement of Operations 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 38
    ... 2015 Annual Report and Note 7, Income Taxes on pages F-22 through F-26 of our 2015 Annual Report for more information on these items. Impact on Operating Profit 2015 Costs to implement restructuring initiatives Venezuelan special items(2) FCPA accrual(3) Pension settlement charge(4) Other items...

  • Page 39
    ... operations in "Segment Review - Latin America" within MD&A on pages 47 through 51 and Note 1, Description of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2015 Annual Report for more information. (3) During 2014, our operating profit and operating...

  • Page 40
    ... foreign exchange. Constant $ revenue increased 2%. Constant $ revenue was negatively impacted by approximately 2 points due to taxes in Brazil from the combined impact of the recognition of Value Added Tax ("VAT") credits in 2014 which did not recur in 2015 along with a new Industrial Productions...

  • Page 41
    ...well as other cost-savings strategies that will not result in restructuring charges. We are targeting the realization of $70 of these pre-tax cost savings in 2016. We have initiated this Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin and mid...

  • Page 42
    ... tax rate discussion, 7) the non-cash income tax adjustments associated with our deferred tax assets recorded in 2015 and 2014, and an income tax benefit realized as a result of tax planning strategies ("Special tax items"). The Company believes investors find the Non-GAAP information helpful...

  • Page 43
    ... of lower earnings, which were significantly impacted by foreign exchange losses on working capital balances. The Special tax items also include the impact during the fourth quarter of 2014 on the income taxes in the Consolidated Statements of Operations due to a non-cash income tax charge primarily...

  • Page 44
    ... plans for some current and retired executives and provide retiree health care benefits subject to certain limitations to many retired employees in the U.S. and certain foreign countries. See Note 11, Employee Benefit Plans on pages F-34 through F-42 of our 2015 Annual Report for more information...

  • Page 45
    ...of assumptions, including discount rates, hybrid plan maximum interest crediting rates and expected return on plan assets discussed above, rate of compensation increase of plan participants, interest cost, health care cost trend rates, benefits earned, mortality rates, the number of participants and...

  • Page 46
    ... benefit pension plans. Our assumptions 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 2015...

  • Page 47
    ... statement benefit associated with its deferred tax assets, the Company will continue to manage and plan for the utilization of its deferred tax assets to avoid the expiration of deferred tax assets that may have limited lives. At December 31, 2015, we continue to assert that our foreign earnings...

  • Page 48
    ... performed required several estimates, including market conditions and inflation rates. See Note 1, Description of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2015 Annual Report for more information on Avon Venezuela. Goodwill and Intangible Assets...

  • Page 49
    ...value of goodwill related to our operations in China. The revenue decline in China during the third quarter of 2013 resulted in the recognition of an operating loss while we had expected operating profit in our projections. In the third quarter of 2013, we significantly lowered our long-term revenue...

  • Page 50
    ...2015 Total revenue Cost of sales Selling, general and administrative expenses Impairment of goodwill and intangible assets Operating profit Interest expense Loss on extinguishment of debt Interest income Other expense, net Gain on sale of business (Loss) income from continuing operations, net of tax...

  • Page 51
    ...information related to changes in revenue by segment and "Segment Review - Latin America" in this MD&A for a further 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 2015 Beauty: Skincare Fragrance Color...

  • Page 52
    ... for more information on the FCPA investigations, "Segment Review - Global and Other Expenses" in this MD&A and Note 11, Employee Benefit Plans on pages F-34 through F-42 of our 2015 Annual Report for a further discussion of the pension settlement charges, and Note 14, Restructuring Initiatives on...

  • Page 53
    ...result of the IPI tax law on cosmetics in Brazil, which reduced revenue as we did not raise the prices paid by Representatives to the same extent as the IPI tax; and • an increase of 40 basis points due to higher expenses associated with long-term employee incentive compensation plans as the prior...

  • Page 54
    ...with 2014 despite lower revenues as a result of significant cost savings, as well as lower costs to implement restructuring initiatives. The estimated loss on sale was comprised of the following: Pension and postretirement benefit plan liabilities Cash to be contributed to the North America business...

  • Page 55
    ... information related to changes in revenue by segment. 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...

  • Page 56
    ... $10 aggregate settlement charges recorded in 2014 associated with the payments made to former employees who were vested and participated in the U.S. defined benefit pension plan. In the prior-year period, selling, general and administrative expenses as a percentage of revenue was impacted by the...

  • Page 57
    ... in 2014 as compared with 2013 due to lower revenues, higher costs to implement restructuring initiatives and settlement charges associated with the U.S. pension plan. These were partially offset by significant cost savings from our North America Avon business as compared to 2013. AVON 2015 45

  • Page 58
    ...18 and "Segment Review - Global and Other Expenses" in this MD&A and Note 11, Employee Benefit Plans on pages F-34 through F-42 of our 2015 Annual Report for a further discussion of the pension settlement charges. Other Comprehensive Income (Loss) Other comprehensive income (loss), net of taxes was...

  • Page 59
    ..., which benefited from our alliance with Coty, as well as from new product launches during the first quarter of 2015. The IPI tax also negatively impacted Brazil's Beauty units, as we increased prices to partially offset the new tax. On a Constant $ basis, Brazil's sales from Fashion & Home products...

  • Page 60
    ... $21 to operating profit and net income relating to these non-monetary assets in the second, third and fourth quarters of 2014. In February 2015, the Venezuelan government announced that the SICAD II market would no longer be available, and a new foreign exchange system was created, referred...

  • Page 61
    ... and fourth quarters) represented less than 1% of Avon's consolidated revenue and less than 3% of Avon's consolidated Adjusted operating profit. While the rate in the SIMADI market will vary, the ongoing impacts primarily related to the remeasurement of Avon Venezuela's financial statements are not...

  • Page 62
    ... Latin 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...

  • Page 63
    ... costs, and increased legal expenses associated with labor and civil related matters in Brazil. Europe, Middle East & Africa - 2015 Compared to 2014 %/Point Change 2015 Total revenue Operating profit CTI restructuring Asset impairment and other charges Adjusted operating profit Operating...

  • Page 64
    ... allocated from Global. Europe, Middle East & Africa - 2014 Compared to 2013 %/Point Change 2014 Total revenue Operating profit CTI restructuring Adjusted operating profit Operating margin CTI restructuring Adjusted operating margin Change in Active Representatives Change in units sold Amounts in...

  • Page 65
    ... from lower supply chain costs. Asia Pacific - 2015 Compared to 2014 %/Point Change 2015 Total revenue Operating profit CTI restructuring Adjusted operating profit Operating margin CTI restructuring Adjusted operating margin Change in Active Representatives Change in units sold * Calculation not...

  • Page 66
    ...spend, primarily in China to support product re-launches. Global and Other Expenses Global and other expenses include, among other things, costs related to our executive and administrative offices, information technology, research and development, and marketing, costs in connection with the ongoing...

  • Page 67
    ... due to lower planned corporate expenses, primarily as a result of our cost savings initiatives. As a result of the lump-sum payments made to former employees who were vested and participated in the U.S. defined benefit pension plan, in the third quarter of 2015, we recorded a settlement charge of...

  • Page 68
    ... globally or in one or more of our geographic regions or markets or sudden disruption in business conditions or other challenges may adversely affect our business, our access to liquidity and capital, and our credit ratings" included in Item 1A on pages 8 through 22 of our 2015 Annual Report...

  • Page 69
    ..., both of which did not recur in 2014. We maintain defined benefit pension plans and unfunded supplemental pension benefit plans (see Note 11, Employee Benefit Plans on pages F-34 through F-42 of our 2015 Annual Report). Our funding policy for these plans is based on legal requirements and available...

  • Page 70
    ... on page F-44 of our 2015 Annual Report for more information. Amounts represent expected future benefit payments for our unfunded defined benefit pension and postretirement benefit plans, as well as expected contributions for 2016 to our funded defined benefit pension benefit plans. We are not able...

  • Page 71
    ... 2.375% Notes and the write-off of $.5 of debt issuance costs and discounts related to the initial issuance of the 2.375% Notes. The indenture governing the 2013 Notes contains interest rate adjustment provisions depending on the long-term credit ratings assigned to the 2013 Notes with S&P and Moody...

  • Page 72
    ... rating agency reviews could result in a change in outlook or downgrade, which could further limit our access to new financing, particularly short-term financing, reduce our flexibility with respect to working capital needs, affect the market price of some or all of our outstanding debt securities...

  • Page 73
    ... 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-27 through F-28 of our 2015 Annual Report for more information. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference...

  • Page 74
    ...31, 2015, 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 75
    ... 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 76
    ... 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 Share Purchase Agreement, dated as of July 9, 2015, among Avon Products Holding Limited, Liz Earle Beauty Co. Limited and Alliance...

  • Page 77
    ...Agreement under the Avon Products, Inc. 2010 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012). Avon Products, Inc. 2013 Stock Incentive Plan (incorporated by reference to Appendix A to Avon's Proxy Statement...

  • Page 78
    ... 10.27 to Avon's Annual Report on Form 10-K for the year ended December 31, 2014). Avon Products, Inc. Compensation Plan for Non-Employee Directors, amended and restated as of May 6, 2010 (incorporated by reference to Exhibit 10.5 to Avon's Quarterly Report on Form 10-Q for the quarter ended June 30...

  • Page 79
    ...2010, to the Avon Products, Inc. International Retirement Plan as amended and restated effective as of January 1, 2009 (incorporated by reference to Exhibit 10.6 to Avon's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015). Employment Offer Letter Agreement, dated as of May 18, 2011...

  • Page 80
    ..., (vi) Notes to Consolidated Financial Statements and (vi) Schedule of Valuation and Qualifying Accounts. 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 on Form 10-K for the...

  • Page 81
    ... the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23rd day of February 2016. Avon Products, Inc. /s/ Robert Loughran Robert Loughran Group Vice President and Corporate Controller - Principal Accounting Officer AVON 2015 69

  • Page 82
    ... Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Sherilyn S. McCoy Sherilyn S. McCoy Chief Executive Officer - Principal Executive Officer February 23, 2016...

  • Page 83
    ... 31, 2015 F-56 Schedule II - Valuation and Qualifying Accounts F-4 Consolidated Statements of Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2015 F-5 Consolidated Balance Sheets at December 31, 2015 and 2014 F-6 Consolidated Statements of Cash Flows...

  • Page 84
    ... financial statements, the Company changed the manner in which it presents deferred taxes in 2015 due to the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes. A company's internal control over financial reporting is a process designed to provide...

  • Page 85
    ...PRODUCTS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (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 assets Operating profit...

  • Page 86
    AVON PRODUCTS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) Years ended December 31 Net loss Other comprehensive (loss) income: Foreign currency translation adjustments Change in derivative losses on cash flow hedges, net of taxes of $0.0, $0.0 and $0.9 Amortization of ...

  • Page 87
    ... one year Accounts payable Accrued compensation Other accrued liabilities Sales and taxes other than income Income taxes Payable to discontinued operations Current liabilities of discontinued operations Total current liabilities Long-term debt Employee benefit plans Long-term income taxes Other...

  • Page 88
    ...the change in fair market value of interest-rate swap agreements of $(.7) in 2013(see Note 8, Financial Instruments and Risk Management). (1) (2) Includes cash and cash equivalents of discontinued operations of $24.1, $17.9 and $19.9 at the beginning of the year in 2015, 2014 and 2013, respectively...

  • Page 89
    ... PRODUCTS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) Accumulated Other Treasury Stock Common Stock Additional Paid-In Retained Comprehensive Noncontrolling Shares Amount (In millions, except per share data) Capital Earnings Loss Shares Amount Interests Total Balances...

  • Page 90
    ... and share data) NOTE 1. Description of the Business and Summary of Significant 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...

  • Page 91
    ...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. AVON 2015...

  • Page 92
    ... include paper supply of $3.8 at December 31, 2015 and $6.2 at December 31, 2014. Brochure costs expensed to selling, general and administrative expenses amounted to $256.6 in 2015, $309.4 in 2014 and $348.0 in 2013. The fees charged to Representatives recorded as a reduction to selling, general and...

  • Page 93
    .... 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 purposes, as a fair value hedge, a AVON 2015 F-11

  • Page 94
    ... Statements of Operations. 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...

  • Page 95
    ... 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, mortality rates, the number of participants and...

  • Page 96
    ... 31, 2013, we did not include stock options to purchase 17.5 million shares of Avon common stock in the calculation of diluted EPS because the exercise prices of those options were greater than the average market price, and therefore, their inclusion would be anti-dilutive. 2015 2014 2013 $ (799...

  • Page 97
    ... periods presented, as these represent costs associated with functions of the Company's continuing operations. As the carrying value exceeded the estimated fair value less costs to sell, in the fourth quarter of 2015, we recorded an estimated loss on sale of discontinued operations of approximately...

  • Page 98
    ... commercial agreements, including research and development and manufacturing. The major classes of financial statement components comprising the loss on discontinued operations, before tax for North America are shown below: Year ended December 31, 2015 Total revenue Cost of sales Selling, general...

  • Page 99
    ... 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 100
    ...East & Africa segment. In 2015, we recorded a gain on sale of $44.9 before tax, which was reported separately in the Consolidated Statements of Operations, and $51.6 after tax, representing the difference between the proceeds, including the expected working capital settlement, and the carrying value...

  • Page 101
    ... 2.375% Notes and the write-off of $.5 of debt issuance costs and discounts related to the initial issuance of the 2.375% Notes. The indenture governing the 2013 Notes contains interest rate adjustment provisions depending on the long-term credit ratings assigned to the 2013 Notes with S&P and Moody...

  • Page 102
    ... write-off of $1.1 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...

  • Page 103
    ... rating agency reviews could result in a change in outlook or downgrade, which could further limit our access to new financing, particularly short-term financing, reduce our flexibility with respect to working capital needs, affect the market price of some or all of our outstanding debt securities...

  • Page 104
    ... loss and prior service cost, net of tax of $1.2(2) Total reclassifications into earnings Balance at December 31, 2015 $(677.0) (273.0) Cash Flow Hedges $(3.2) - Net Investment Hedges $(4.3) - Pension and Postretirement Benefits $(533.1) 40.7 Total $(1,217.6) (232.3) - - - $(950.0) Foreign...

  • Page 105
    ... tax cost on foreign earnings of $9.9 for the years ended December 31, 2015, 2014 and 2013, respectively. The effective tax rate for the years ended December 31 was as follows: 2015 Statutory federal rate State and local taxes, net of federal tax benefit Tax on foreign income Tax on uncertain tax...

  • Page 106
    ... 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 credit carryforwards All other Valuation allowance Total...

  • Page 107
    ... largely due to lower earnings and the impact of foreign exchange losses on working capital balances. During the first and second quarters of 2015, the Company recorded a $31.3 charge and a $3.2 benefit, respectively, associated with valuation allowances, to adjust our U.S. deferred tax assets to an...

  • Page 108
    ... were as follows: Jurisdiction Brazil Mexico Poland Russia United States (Federal) Open Years 2010-2015 2009-2015 2010-2015 2011-2015 2014-2015 We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $1 to $18.1 within the next...

  • Page 109
    ... Instruments and Risk Management We operate globally, with manufacturing and distribution facilities in various countries 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 creating...

  • Page 110
    ... the Consolidated Statements of Operations related to these undesignated foreign exchange forward contracts. Also during 2015 and 2014, we recorded a loss of $2.5 and a gain of $16.6, respectively, related to the intercompany loans, caused by changes in foreign currency exchange rates. Credit Risk...

  • Page 111
    ... assets. 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 11, Employee Benefit Plans). The foreign exchange forward contracts are hedges of either recorded assets or liabilities or anticipated...

  • Page 112
    ...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 for cash and cash equivalents, accounts receivable, accounts payable and...

  • Page 113
    ...Level 2 inputs based on indicative market prices. Foreign exchange forward contracts - The fair values 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...

  • Page 114
    ... 31, 2015, there was no unrecognized compensation cost related to stock options outstanding. Cash proceeds, tax obligations and intrinsic value related to total stock options exercised during 2014 and 2013, were as follows: 2014 Cash proceeds from stock options exercised Tax obligation realized...

  • Page 115
    ... 31, 2015, there was $2.5 of unrecognized compensation cost related to these restricted stock units. In March 2015, we granted 121,951 performance restricted stock units that will be funded with treasury shares, outside of the 2013 Plan, in reliance upon The New York Stock Exchange rules. These...

  • Page 116
    ... are generally based on an 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...

  • Page 117
    ... balance Actual return on plan assets Company contributions Plan participant contributions Benefits paid Foreign currency changes and other Ending balance Funded Status: Funded status at end of year(1) Amount Recognized in Balance Sheet: Other assets Accrued compensation Employee benefit plans...

  • Page 118
    ... was also recorded in the fourth quarter of 2015, as a result of additional payments from the PRA. These settlement charges were allocated between Global Expenses and Discontinued Operations. In an effort to reduce our pension benefit obligations, in March 2014, we offered former employees who were...

  • Page 119
    ...net benefit cost recorded in the Consolidated Statements of Operations for the years ended December 31 were as follows: Pension Benefits U.S. Plans Non-U.S. Plans 2013 3.55% 3.86% 7.75% Postretirement Benefits 2013 4.69% 3.95% 6.64% 2015 Discount rate Rate of compensation increase Rate of return on...

  • Page 120
    ... costs for the U.S. defined benefit pension plan was 7.25%. In addition, the current rate of return assumption for the U.S. defined benefit pension plan was based on an asset allocation of approximately 70% in corporate and government bonds and mortgage-backed securities (which are expected to earn...

  • Page 121
    ...a recurring basis as of December 31, 2014: U.S. Pension Plan Asset Category Equity Securities: Domestic equity International equity Emerging markets Fixed Income Securities: Corporate bonds Government securities Cash Derivatives Total(5) (5) Level 1 18.0 - $18.0 Level 2 $ 21.5 93.5 25.7 140.7 208...

  • Page 122
    ...2014 Actual return on plan assets held Foreign currency changes Balance as of December 31, 2015 $2.3 (.3) (.1) 1.9 .1 (.2) $1.8 Investments in equity securities classified as Level 1 in the fair value hierarchy are valued at quoted market prices. Investments in equity securities classified as Level...

  • Page 123
    ... benefit plan in Puerto Rico, which are associated with discontinued operations, have been excluded from all amounts in the table above. Postretirement Benefits For 2015, the assumed rate of future increases in the per capita cost of health care benefits (the health care cost trend rate...

  • Page 124
    ... 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, and marketing, costs in connection...

  • Page 125
    ...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) 2015 Total Revenue Latin America Europe, Middle East & Africa...

  • Page 126
    ..., plant and equipment related to manufacturing and distribution facilities and long-lived assets in the U.S. consist primarily of property, plant and equipment, including our global research and development facility. 2015 Brazil U.S. All other Total $ 302.7 225.9 597.3 $1,125.9 2014 $ 361.9 250...

  • Page 127
    ... a portion of these cost savings in growth initiatives, including media, social selling and information technology systems that will help us modernize our business. We initiated the Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin and mid...

  • Page 128
    ... 2015 charges Adjustments Cash payments Foreign exchange Balance at December 31, 2015 $ 24.9 (2.8) (17.8) (.3) $ 4.0 The charges approved to date under these various restructuring initiatives by reportable business segment were as follows: Europe, Middle East & Africa $4.2 Latin America Charges...

  • Page 129
    ... Cost Savings Initiative as of December 31, 2015 is as follows: Foreign Currency Translation Adjustment Write-offs $ - (3.5) - - 3.5 - $ - 3.7 - - (3.7) - - (.4) - - .4 - - EmployeeRelated Costs Balance at December 31, 2012 2013 Charges Adjustments Cash payments Non-cash write-offs Foreign exchange...

  • Page 130
    ... Asset Write-offs $.7 Contract Terminations/ Other $12.9 Total $139.5 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 19.9 (1.2) $35.4 Latin America 2012 2013 2014 2015...

  • Page 131
    ... District of New York (the "USDC") approved a DPA entered into between the Company and the DOJ related to charges of violations of the books and records and internal controls provisions of the FCPA. In addition, Avon Products (China) Co. Ltd., a subsidiary of the Company operating in China, pleaded...

  • Page 132
    ... of New York - Poovathur v. Avon Products, Inc., et al. (No. 14-CV-10083) and McCoy et al. v. Avon Products, Inc., et al. (No. 15-CV-01828) asserting claims under the Employee Retirement Income Security Act ("ERISA") against the Company, the Plan's administrator, benefits board and investment...

  • Page 133
    ...an operating loss while we had expected operating profit in our projections. In the third quarter of 2013, we significantly lowered our long-term revenue and earnings projections for China that was included in our DCF model utilized in our interim impairment assessment. Based upon this interim AVON...

  • Page 134
    ... in order to return cash flows of Egypt and China, respectively, to normalized, sustainable levels. Goodwill Latin America Gross balance at December 31, 2014 Accumulated impairments Net balance at December 31, 2014 Changes during the period ended December 31, 2015: Divestitures Impairment Foreign...

  • Page 135
    ... Balance Sheet Information At December 31, 2015 and 2014, prepaid expenses and other included the following: Prepaid expenses and other Prepaid taxes and tax refunds receivable Receivables other than trade Prepaid brochure costs, paper and other literature Short-term investments Deferred tax...

  • Page 136
    ... Diluted (1) Operating (loss) profit was impacted by the following: 2015 Costs to implement restructuring initiatives: Cost of sales Selling, general and administrative expenses Total costs to implement restructuring initiatives Venezuelan special items Pension settlement charge Other items Asset...

  • Page 137
    ... of the Business and Summary of Significant Accounting Policies, Note 11, Employee Benefit Plans, Note 16, Goodwill and Intangible Assets, Note 15, Contingencies, Note 3, Discontinued Operations and Divestitures and Note 7, Income Taxes, for more information on these items. AVON 2015 F-55

  • Page 138
    ...2015, 2014 and 2013 Additions Balance at Beginning of Period Charged to Costs and Expenses Charged to Revenue Balance at End of Period (In millions) Description Deductions 2015 Allowance for doubtful accounts receivable Allowance for sales returns Allowance for inventory obsolescence Deferred tax...

  • Page 139
    ... company's 2015 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 140
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