nanitem 14 exhibits financial statement schedules reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statement income years threeyear period ended december 31 1994 35 consolidated balance sheet december 31 1994 1993 36 consolidated statement cash flows years threeyear period ended december 31 1994 37 consolidated statement changes shareholders equity years threeyear period ended december 31 1994 38 notes consolidated financial statements 3950 report independent accountants coopers lybrand llp 51 2 financial statement schedules report independent accountants coopers lybrand llp s1 consent independent accountants coopers lybrand llp s2 financial statement schedule years threeyear period ended december 31 1994 viiivaluation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york august 12 1988 incorporated reference exhibit 31 avons annual report form 10k year ended december 31 1993 32 bylaws amended april 27 1990 avon incorporated reference exhibit 31 avons quarterly report form 10q quarter ended march 31 1990 41 instrument defining rights holders avons preferred share purchase rights purchase avons series junior participating preferred stock reference made article iiia restated certificate incorporation avon filed secretary state new york state august 12 1988 included exhibit 31 1993 annual report form 10k 42 rights agreement dated march 30 1988 rights agreement avon first chicago trust company new york successor morgan shareholder services trust company incorporated reference exhibit 1 avons registration statement form 8a filed april 7 1988 43 amendment dated january 3 1989 rights agreement incorporated reference exhibit 3 avons amendment 1 form 8 filed january 4 1989 amending registration statement form 8a filed april 7 1988 44 second amendment dated april 5 1990 rights agreement incorporated reference exhibit 4c avons current report form 8k dated april 5 1990 45 third amendment dated may 10 1990 rights agreement incorporated reference exhibit 4d avons current report form 8k dated may 10 1990 46 revolving credit competitive advance facility agreement dated october 5 1994 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1994 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 avon products inc 1994 longterm incentive plan effective january 1 1994 incorporated reference exhibit 103 avons annual report form 10k year ended december 31 1993 104 avon products inc 1970 stock option incentive plan amended restated may 4 1989 incorporated reference exhibit 46 avons registration statement form s8 registration 3328653 filed may 18 1989 105 first amendment dated november 5 1992 avon products inc 1970 stock option incentive plan amended restated may 4 1989 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended march 31 1993 106 supplemental executive retirement plan supplemental life plan avon products inc amended restated september 1 1994 107 benefit restoration pension plan avon products inc effective january 1 1994 108 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated october 8 1990 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1991 1013 first amendment dated november 5 1992 avon products inc deferred compensation plan amended restated october 8 1990 incorporated reference exhibit 105 avons quarterly report form 10q quarter ended march 31 1993 1014 trust agreement dated august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1989 1015 instrument amendment effective april 1 1990 amending various employee benefit plans agreements stipulated instrument amendment incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1990 1016 employment agreement dated november 5 1992 avon james e preston incorporated reference exhibit 1010 avons annual report form 10k year ended december 31 1992 1017 nonqualified stock option award dated december 5 1991 granted avon james e preston incorporated reference exhibit 1011 avons annual report form 10k year ended december 31 1991 1018 employment agreement dated september 1 1994 avon edward j robinson incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1994 1019 restricted stock agreement effective november 4 1993 granted avon edward j robinson incorporated reference exhibit 1021 avons annual report form 10k year ended december 31 1993 1020 form employment agreement dated september 1 1994 avon certain senior officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1021 avon products inc directors retirement plan effective january 1 1988 incorporated reference exhibit 1022 avons annual report form 10k year ended december 31 1991 1022 first amendment dated november 5 1992 avon products inc directors retirement plan incorporated reference exhibit 106 avons quarterly report form 10q quarter ended march 31 1993 1023 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 1024 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 111 statement computation primary income per share 112 statement computation fully diluted income per share 13 portions annual report shareholders year ended december 31 1994 incorporated reference response items 1 5 8 filing 21 subsidiaries registrant 23 consent coopers lybrand llp set forth page s2 annual report form 10k 24 power attorney 27 financial data schedule 99 financial statements avon products inc employees savings stock ownership plan avon mirabella lomalinda employees savings plan year ended december 31 1994 filed amendment exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k reports form 8k filed fourth quarter 1994 c avons annual report form 10k year ended december 31 1994 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 23rd day march 1995 avon products inc bys ward miller jr ward miller jr senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board chief executive officer principal executive officer director march 23 1995 james e preston president chief operating officer director march 23 1995 edward j robinson senior vice president chief financial officer principal financial officer march 23 1995 edwina woodbury group vice president controllerprincipal accounting officer march 23 1995 robert j conologue brenda barnes richard barton daniel b burke remedios diaz oliver stanley c gault george v grune directors march 23 1995 charles locke ann moore john j phelan jr joseph rice cecily c selby bys ward miller jr march 23 1995 ward miller jr attorneyinfact s1 report independent accountants shareholders avon products inc report consolidated financial statements avon products inc subsidiaries december 31 1994 1993 years threeyear period ended december 31 1994 incorporated reference form 10k page 51 1994 annual report shareholders avon products inc connection audits financial statements also audited related financial statement schedules years threeyear period ended december 31 1994 listed index item 14a2 form 10k opinion financial statement schedule years threeyear period ended december 31 1994 referred considered relation basic financial statements taken whole presents fairly material respects information required included therein new york new york february 1 1995 scoopers lybrand llp s1 s2 consent independent accountants consent incorporation reference following registration statements avon products inc form s8 reg 237955 form s8 reg 248080 form s8 reg 261285 form s8 reg 283235 form s8 reg 294959 form s8 reg 3328653 form s8 reg 3347209 form s8 reg 3360218 form s8 reg 3360918 form s8 reg 3365998 post effective amendment 1 form s8 reg 298707 preeffective amendment 1 form s8 reg 3322099 reports dated february 1 1995 audits consolidated financial statements avon products inc december 31 1994 1993 years threeyear period ended december 31 1994 report included 1994 annual report shareholders incorporated reference annual report form 10k ii 1994 1993 1992 financial statement schedules avon products inc report included annual report form 10k new york new york march 23 1995 scoopers lybrand llp s2 s3 avon products inc subsidiaries schedule viiivaluation qualifying accounts millions years ended december 31 additions balance charged balance beginning costs end period expenses accounts deductions period allowance doubtful accounts receivable 220 649 596a 273 allowance doubtful accounts receivable 214 514 508a 220 allowance doubtful accounts receivable 285 453 524a 214 allowance long term receivables investments 331 331b 616 453 855 214 note amounts restated sale giorgio see note 3 notes consolidated financial statements aaccounts written net recoveries foreign currency translation adjustment bwriteoff various notes securities avon received connection sale health care businesses s3item 14 exhibits financial statement schedules reports form 8k financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york august 12 1988 incorporated reference exhibit 31 avons annual report form 10k year ended december 31 1993 32 bylaws amended april 27 1990 avon incorporated reference exhibit 31 avons quarterly report form 10q quarter ended march 31 1990 41 instrument defining rights holders avons preferred share purchase rights purchase avons series junior participating preferred stock reference made article iiia restated certificate incorporation avon filed secretary state new york state august 12 1988 included exhibit 31 1993 annual report form 10k 42 rights agreement dated march 30 1988 rights agreement avon first chicago trust company new york successor morgan shareholder services trust company incorporated reference exhibit 1 avons registration statement form 8a filed april 7 1988 43 amendment dated january 3 1989 rights agreement incorporated reference exhibit 3 avons amendment 1 form 8 filed january 4 1989 amending registration statement form 8a filed april 7 1988 44 second amendment dated april 5 1990 rights agreement incorporated reference exhibit 4c avons current report form 8k dated april 5 1990 45 third amendment dated may 10 1990 rights agreement incorporated reference exhibit 4d avons current report form 8k dated may 10 1990 46 revolving credit competitive advance facility agreement dated october 5 1994 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1994 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 avon products inc 1994 longterm incentive plan effective january 1 1994 incorporated reference exhibit 103 avons annual report form 10k year ended december 31 1993 104 avon products inc 1970 stock option incentive plan amended restated may 4 1989 incorporated reference exhibit 46 avons registration statement form s8 registration 3328653 filed may 18 1989 105 first amendment dated november 5 1992 avon products inc 1970 stock option incentive plan amended restated may 4 1989 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended march 31 1993 106 supplemental executive retirement plan supplemental life plan avon products inc amended restated september 1 1994 incorporated reference exhibit 106 avons annual report form 10k year ended december 31 1994 107 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 108 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated october 8 1990 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1991 1013 first amendment dated november 5 1992 avon products inc deferred compensation plan amended restated october 8 1990 incorporated reference exhibit 105 avons quarterly report form 10q quarter ended march 31 1993 1014 trust agreement dated april 12 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company 1015 instrument amendment effective april 1 1990 amending various employee benefit plans agreements stipulated instrument amendment incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1990 1016 employment agreement dated november 1 1995 avon james e preston 1017 stock option agreement avon james e preston dated october 30 1995 1018 nonqualified stock option award dated december 5 1991 granted avon james e preston incorporated reference exhibit 1011 avons annual report form 10k year ended december 31 1991 1019 employment agreement dated september 1 1994 avon edward j robinson incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1994 1020 restricted stock agreement effective november 4 1993 granted avon edward j robinson incorporated reference exhibit 1021 avons annual report form 10k year ended december 31 1993 1021 form employment agreement dated september 1 1994 avon certain senior officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1022 avon products inc directors retirement plan effective january 1 1988 incorporated reference exhibit 1022 avons annual report form 10k year ended december 31 1991 1023 first amendment dated november 5 1992 avon products inc directors retirement plan incorporated reference exhibit 106 avons quarterly report form 10q quarter ended march 31 1993 1024 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 1025 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 111 statement computation primary income per share 112 statement computation fully diluted income per share 13 portions annual report shareholders year ended december 31 1995 incorporated reference response items 15 8 filing 21 subsidiaries registrant 21 subsidiaries registrant 23 consent coopers lybrand llp set forth page s2 annual report form 10k 24 power attorney 27 financial data schedule 99 financial statements avon products inc employees savings stock ownership plan avon mirabellalomalinda employees savings plan year ended december 31 1995 filed amendment exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k report form 8k dated december 8 1995 filed report disclosed agreement mallinckrodt group inc setting litigation initiated mallinckrodt c avons annual report form 10k year ended december 31 1995 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 7th day march 1996 avon products inc sward miller jr ward miller jr senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board chief executive officerprincipal executive officer director march 27 1996 james e preston president chief operating officer director march 27 1996 edward j robinson senior vice president chief financial officerprincipal financial officer march 27 1996 edwina woodbury vice president controllerprincipal accounting officer march 27 1996 michael r mathieson brenda barnes richard barton daniel b burke remedios diaz oliver edward fogarty stanley c gault george v grune directors march 27 1996 charles locke ann moore joseph rice cecily c selby bys ward miller jr march 27 1996 ward miller jr attorneyinfact s1 report independent accountants shareholders avon products inc report consolidated financial statements avon products inc subsidiaries december 31 1995 1994 years threeyear period ended december 31 1995 incorporated reference form 10k page 57 1995 annual report shareholders avon products inc connection audits financial statements also audited related financial statement schedule years threeyear period ended december 31 1995 listed index item 14a2 form 10k opinion financial statement schedule years threeyear period ended december 31 1995 referred considered relation basic financial statements taken whole presents fairly material respects information required included therein new york new york february 1 1996 scoopers lybrand llp s1 s2 consent independent accountants consent incorporation reference following registration statements avon products inc form s8 reg 237955 form s8 reg 248080 form s8 reg 261285 form s8 reg 283235 form 8 reg 294959 form s8 reg 3328653 form s8 reg 3347209 form s8 reg 3360218 form s8 reg 3360918 form s8 reg 3365998 post effective amendment 1 form s8 reg 2 98707 preeffective amendment 1 form s8 reg 3322099 reports dated february 1 1996 audits consolidated financial statements avon products inc december 31 1995 1994 years threeyear period ended december 31 1995 report included 1995 annual report shareholders incorporated reference annual report form 10k ii 1995 1994 1993 financial statement schedule avon products inc report included annual report form 10k new york new york march 27 1996 scoopers lybrand llp s2 s3 avon products inc subsidiaries schedule viiivaluation qualifying accounts millions years ended december 31 accounts written net recoveries foreign currency translation adjustment s3item 14 exhibits financial statement schedules reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statement income years threeyear period ended december 31 1996 42 consolidated balance sheet december 31 1996 1995 43 consolidated statement cash flows years threeyear period ended december 31 1996 44 consolidated statement changes shareholders equity years threeyear period ended december 31 1996 45 notes consolidated financial statements 4656 report independent accountants coopers lybrand llp 57 2 financial statement schedules report independent accountants coopers lybrand llp s1 consent independent accountants coopers lybrand llp s2 financial statement schedule years threeyear period ended december 31 1996 iivaluation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 13 1996 incorporated reference exhibit 31 avons quarterly report form 10q quarter ended june 30 1996 32 bylaws avon restated effective june 6 1996 incorporated reference exhibit 32 avons quarterly report form 10q quarter ended june 30 1996 41 instrument defining rights holders avons preferred share purchase rights purchase avons series junior participating preferred stock reference made article iiia restated certificate incorporation avon filed secretary state new york state august 12 1988 included exhibit 31 1993 annual report form 10k 42 rights agreement dated march 30 1988 rights agreement avon first chicago trust company new york successor morgan shareholder services trust company incorporated reference exhibit 1 avons registration statement form 8a filed april 7 1988 refiled form se december 31 1996 43 amendment dated january 3 1989 rights agreement incorporated reference exhibit 3 avons amendment 1 form 8 filed january 4 1989 amending registration statement form 8a filed april 7 1988 refiled form se december 31 1996 44 second amendment dated april 5 1990 rights agreement incorporated reference exhibit 4c avons current report form 8k dated april 5 1990 refiled form se december 31 1996 45 third amendment dated may 10 1990 rights agreement incorporated reference exhibit 4d avons current report form 8k dated may 10 1990 refiled form se december 31 1996 46 amended restated revolving credit competitive advance facility agreement dated august 8 1996 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1996 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 avon products inc 1994 longterm incentive plan effective january 1 1994 incorporated reference exhibit 103 avons annual report form 10k year ended december 31 1993 104 avon products inc 1970 stock option incentive plan amended restated may 4 1989 incorporated reference exhibit 46 avons registration statement form s8 registration 3328653 filed may 18 1989 105 first amendment dated november 5 1992 avon products inc 1970 stock option incentive plan amended restated may 4 1989 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended march 31 1993 106 supplemental executive retirement plan supplemental life plan avon products inc amended restated september 1 1994 incorporated reference exhibit 106 avons annual report form 10k year ended december 31 1994 107 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 108 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated january 1 1996 1013 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1014 instrument amendment effective april 1 1990 amending various employee benefit plans agreements stipulated instrument amendment incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1990 refiled form se december 31 1996 1015 employment agreement dated november 1 1995 avon james e preston incorporated reference exhibit 1016 avons annual report form 10k year ended december 31 1995 1016 stock option agreement avon james e preston dated october 30 1995 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 1995 1017 employment agreement dated september 1 1994 avon edward j robinson incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1994 1018 restricted stock agreement effective november 4 1993 granted avon edward j robinson incorporated reference exhibit 1021 avons annual report form 10k year ended december 31 1993 1019 form employment agreement dated september 1 1994 avon certain senior officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1020 avon products inc directors retirement plan effective january 1 1988 incorporated reference exhibit 1022 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1021 first amendment dated november 5 1992 avon products inc directors retirement plan incorporated reference exhibit 106 avons quarterly report form 10q quarter ended march 31 1993 1022 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1023 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 111 statement computation primary income per share 112 statement computation fully diluted income per share 13 portions annual report shareholders year ended december 31 1996 incorporated reference response items 15 8 filing 21 subsidiaries registrant 23 consent coopers lybrand llp set forth page s2 annual report form 10k 24 power attorney 27 financial data schedule 99 financial statements avon products inc employees savings stock ownership plan avon mirabellalomalinda employees savings plan year ended december 31 1996 filed amendment exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k form 8k filed fourth quarter 1996 c avons annual report form 10k year ended december 31 1996 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 27th day march 1997 avon products inc sward miller jr ward miller jr senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date james e preston chairman board chief executive officer principal executive officer director march 6 1997 edward j robinson president chief operating officer director march 6 1997 edwina woodbury senior vice president chief financial officer principal financial officer march 6 1997 michael r mathieson vice president controller principal accounting officer march 6 1997 brenda barnes richard barton remedios diaz oliver edward fogarty stanley c gault george v grune directors march 6 1997 charles locke ann moore charles r perrin joseph rice cecily c selby sward miller jr march 6 1997 ward miller jr attorneyinfact s1 report independent accountants shareholders avon products inc report consolidated financial statements avon products inc subsidiaries december 31 1996 1995 years threeyear period ended december 31 1996 incorporated reference form 10k page 57 1996 annual report shareholders avon products inc connection audits financial statements also audited related financial statement schedule years threeyear period ended december 31 1996 listed index item 14a2 form 10k opinion financial statement schedule years threeyear period ended december 31 1996 referred considered relation basic financial statements taken whole presents fairly material respects information required included therein new york new york february 6 1997 s2 consent independent accountants consent incorporation reference following registration statements avon products inc form s8 reg 237955 form s8 reg 248080 form s8 reg 261285 form s8 reg 283235 form s8 reg 294959 form s8 reg 3328653 form s8 reg 33 47209 form s8 reg 3360218 form s8 reg 3360918 form s8 reg 3365998 post effective amendment 1 form s8 reg 2 98707 preeffective amendment 1 form s8 reg 3322099 reports dated february 6 1997 audits consolidated financial statements avon products inc december 31 1996 1995 years threeyear period ended december 31 1996 report included 1996 annual report shareholders incorporated reference annual report form 10k ii 1996 1995 1994 financial statement schedule avon products inc report included annual report form 10k new york new york march 27 1997 s3 accounts written net recoveries foreign currency translation adjustmentitem 14 exhibits financial statement schedules reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statements income years threeyear period ended december 31 1998 44 consolidated balance sheets december 31 1998 1997 45 consolidated statements cash flows years threeyear period ended december 31 1998 46 consolidated statements changes shareholders equity years threeyear period ended december 31 1998 47 notes consolidated financial statements 4859 report independent accountants pricewaterhousecoopers llp 60 2 financial statement schedule report independent accountants financial statement schedule pricewaterhousecoopers llp s1 consent independent accountants pricewaterhousecoopers llp s2 financial statement schedule years threeyear period ended december 31 1998 ii valuation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 13 1996 incorporated reference exhibit 31 avons quarterly report form 10q quarter ended june 30 1996 32 bylaws avon restated effective june 6 1996 incorporated reference exhibit 32 avons quarterly report form 10q quarter ended june 30 1996 33 certificate amendment certificate incorporation avon products inc filed may 13 1998 incorporated reference exhibit 33 avons quarterly report form 10q quarter ended march 30 1998 41 amended restated revolving credit competitive advance facility agreement dated august 8 1996 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1996 42 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 33341299 filed december 1 1997 43 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment 1993 avon stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement plan supplemental life plan avon products inc amended restated july 1 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10 q quarter ended march 31 1990 refiled form se year ended december 31 1996 108 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 109 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1010 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 18 1011 avon products inc deferred compensation plan amended restated july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 33365989 filed october 22 1998 1012 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 19975 1013employment agreement dated november 1 1995 avon james e preston incorporated reference exhibit 1016 avons annual report form 10k year ended december 31 1995 1014 stock option agreement avon james e preston dated october 30 1995 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 1995 1015 supplemental employment agreement date december 10 1997 avon james e preston incorporated reference exhibit 1016 avons annual report form 10k year ended december 31 1997 1016 stock option agreement avon james e preston dated december 10 1997incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 1997 1017 employment agreement dated december 11 1997 avon charles r perrin incorporated reference exhibit 1018 avons annual report form 10k year ended december 31 1997 1018 stock option agreement avon charles r perrin dated december 10 1997 incorporated reference exhibit 1019 avons annual report form 10k year ended december 31 1997 1019 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1020 form employment agreement dated september 1 1994 avon certain senior officers incorporated 19 reference exhibit 102 avons quarterly report form 10 q quarter ended september 30 1994 1021 avon products inc compensation plan nonemployee directors effective may 1 1997 incorporated reference exhibit 1022 avons annual report form 10k year ended december 31 1997 1022 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1023 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1024 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1025 stock option agreement avon charles r perrin dated june 4 1998 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended june 30 1998 1026 stock option agreement avon andrea jung dated june 4 1998 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 1998 incorporated reference response items 15 8 filing 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney 27 financial data schedule 99 financial statements avon products inc employees savings stock ownership plan avon mirabellalomalinda employees savings plan 20 year ended december 31 1998 filed amendment exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k form 8k filed fourth quarter 1998 c avons annual report form 10k year ended december 31 1998 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 24th day february 1999 avon products inc sward miller jr ward miller jr senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date james e preston chairman board director february 4 1999 charles r perrin chief executive officer director principal executive officer february 4 1999 robert j corti executive vice president chief financial officer principal financial officer february 4 1999 janice marolda vice president controller principal accounting officer february 4 1999 andrea jung president chief february 4 1999 operating officer director susan j kropf executive vice president february 4 1999 president avon north america director brenda c barnes director february 4 1999 richard barton director february 4 1999 remedios diaz oliver director february 4 1999 edward fogarty director february 4 1999 stanley c gault director february 4 1999 23 george v grune director february 4 1999 ann moore director february 4 1999 paula stern director february 4 1999 sward miller jr ward miller jr attorneyinfact february 4 1999 24 s1 report independent accountants financial statement schedule shareholders avon products inc audits consolidated financial statements referred report dated february 4 1999 appearing 1998 annual report shareholders avon products inc subsidiaries report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule list item 14 2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york february 4 1999 s1 s2 consent independent accountants consent incorporation reference following registration statements avon products inc form s8 reg nos 3347209 3360218 3360918 3365998 reports dated february 4 1999 audits consolidated financial statements avon products inc december 31 1998 1997 years threeyear period ended december 31 1998 report included 1998 annual report shareholders incorporated reference annual report form 10k ii 1998 1997 1996 financial statement schedule avon products inc report included annual report form 10k pricewaterhousecoopers llp new york new york february 24 1999 s2 s3 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 additions balance charged balance beginning costs end period expenses accounts deductions period allowance doubtful accounts receivable 355 913 778a 490 allowance doubtful accounts receivable 364 808 817a 355 allowance doubtful accounts receivable 326 790 752a 364 accounts written net recoveries foreign currency translation adjustment s3item 14 exhibits financial statement schedule reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statements income years threeyear period ended december 31 1999 43 consolidated balance sheets december 31 1999 1998 44 consolidated statements cash flows years threeyear period ended december 31 1999 45 consolidated statements changes shareholders deficitequity years threeyear period ended december 31 1999 46 notes consolidated financial statements 4758 report independent accountants pricewaterhousecoopers llp 59 2 financial statement schedule report independent accountants financial statement schedule pricewaterhousecoopers llp s1 consent independent accountants pricewaterhousecoopers llp s2 financial statement schedule years threeyear period ended december 31 1999 ii valuation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 13 1996 incorporated reference exhibit 31 avons quarterly report form 10q quarter ended june 30 1996 32 bylaws avon restated effective december 2 1999 33 certificate amendment certificate incorporation avon products inc filed may 13 1998 incorporated reference exhibit 33 avons quarterly report form 10q quarter ended march 30 1998 41 amended restated revolving credit competitive advance facility agreement dated august 8 1996 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1996 42 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 33341299 filed december 1 1997 43 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avons registration statement form s4 registration statement 33392333 filed december 8 1999 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment 1993 avon stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement plan supplemental life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 108 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 109 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1010 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1011 avon products inc deferred compensation plan amended restated july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 33365989 filed october 22 1998 1012 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1013stock option agreement avon stanley c gault dated november 4 1999 1014 employment agreement dated december 11 1997 avon charles r perrin incorporated reference exhibit 1018 avons annual report form 10k year ended december 31 1997 1015 stock option agreement avon charles r perrin dated december 10 1997 incorporated reference exhibit 1019 avons annual report form 10k year ended december 31 1997 1016 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1017 form employment agreement dated september 1 1994 avon certain senior officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1018 avon products inc compensation plan nonemployee directors effective may 1 1997 incorporated reference exhibit 1022 avons annual report form 10k year ended december 31 1997 1019 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1020 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1021 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1022 stock option agreement avon charles r perrin dated june 4 1998 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended june 30 1998 1023 stock option agreement avon andrea jung dated june 4 1998 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 1999 incorporated reference response items 15 8 filing 18 preferability letter pricewaterhousecoopers llp regarding change accounting principle 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney 27 financial data schedule exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k form 8k filed fourth quarter 1999 c avons annual report form 10k year ended december 31 1999 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 27 day march 2000 avon products inc sward miller jr ward miller jr senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrea jung president chief executive officer director principal executive officer march 9 2000 jose ferreira jr executive vice president march 9 2000 chief operating officer international new business development susan j kropf executive vice president march 9 2000 chief operating officer north america global business operations robert j corti executive vice president chief financial officer principal financial officer march 9 2000 janice marolda vice president controller principal accounting officer march 9 2000 brenda c barnes director march 9 2000 richard barton director march 9 2000 stanley c gault chairman board director march 9 2000 fred hassan director march 9 2000 ann moore director march 9 2000 lawrence weinbach director march 9 2000 sward miller jr ward miller jr attorneyinfact march 9 2000 s1 report independent accountants financial statement schedule board directors avon products inc audits consolidated financial statements referred report dated january 27 2000 appearing 1999 annual report shareholders avon products inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 27 2000 s2 consent independent accountants consent incorporation reference registration statements avon products inc form s8 reg nos 3347209 33 60218 3360918 3365998 report dated january 27 2000 relating financial statements appear 1999 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 27 2000 relating financial statement schedule appears form 10k pricewaterhousecoopers llp new york new york march 27 2000 s3 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 additions balance charged balance beginning costs end period expenses accounts deductions period allowance doubtful accounts receivable 490 875 965a 400 allowance doubtful accounts receivable 355 913 778a 490 allowance doubtful accounts receivable 364 808 817a 355 accounts written net recoveries foreign currency translation adjustmentitem 14 exhibits financial statement schedule reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statements income years threeyear period ended december 31 2000 48 20 consolidated balance sheets december 31 2000 1999 49 21 consolidated statements cash flows years threeyear period ended december 31 2000 50 22 consolidated statements changes shareholders deficit years threeyear period ended december 31 2000 51 23 notes consolidated financial statements 5268 2448 report independent accountants pricewaterhousecoopers llp 69 50 2 financial statement schedule report independent accountants financial statement schedule pricewaterhousecoopers llp s1 consent independent accountants pricewaterhousecoopers llp s2 financial statement schedule years threeyear period ended december 31 2000 ii valuation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 8 2000 incorporated reference exhibit 34 avons quarterly report form 10q quarter ended june 30 2000 32 bylaws avon restated effective december 2 1999 incorporated reference exhibit 32 avons annual report form 10k year ended december 31 1999 41 amended restated revolving credit competitive advance facility agreement dated august 8 1996 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1996 42 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 3341299 filed december 1 1997 43 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avons registration statement form s4 registration statement 3392333 filed december 8 1999 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment 1993 avon stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement plan supplemental life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 108 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 109 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1010 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 19 1011 avon products inc deferred compensation plan amended restated july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 3365989 filed october 22 1998 1012 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1013 stock option agreement avon stanley c gault dated november 4 1999 incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 1999 1014 avon products inc 2000 stock incentive plan incorporated reference appendix companys proxy statement form 14a filed commission march 27 2000 file 1 04881 1015 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1016 form employment agreement dated september 1 1994 avon certain senior officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1017 avon products inc compensation plan nonemployee directors amended restated effective june 1 2000 1018 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1019 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1020 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1021 stock option agreement avon andrea jung dated june 4 1998 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 2000 incorporated reference response items 15 8 filing 18 preferability letter pricewaterhousecoopers llp regarding change accounting principle incorporated reference exhibit 18 avons annual report form 10k year ended december 31 1999 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney 21 exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k february 8 2001 company filed form 8k detail restatements financial information first three quarters 2000 result adoption sab 101 eitf 0010 c avons annual report form 10k year ended december 31 2000 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 9th day march 2001 avon products inc sward miller jr ward miller jr senior vice president corporate counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrea jung chief executive officer director principal executive officer march 9 2001 susan j kropf president march 9 2001 chief operating officer director robert j corti executive vice president chief financial officer principal financial officer march 9 2001 janice marolda vice president controller principal accounting officer march 9 2001 brenda c barnes director march 9 2001 edward fogarty director march 9 2001 stanley c gault chairman board director march 9 2001 fred hassan director march 9 2001 maria elena lagomasino director march 9 2001 ann moore director march 9 2001 lawrence weinbach director march 9 2001 sward miller jr ward miller jr attorneyinfact march 9 2001 25 report independent accountants financial statement schedule board directors avon products inc audits consolidated financial statements referred report dated january 25 2001 appearing 2000 annual report shareholders avon products inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 25 2001 s1 consent independent accountants consent incorporation reference registration statements form s3 reg 3345808 form s8 reg nos 33 43820 3347209 3365989 3365998 avon products inc report dated january 25 2001 relating financial statements appear 2000 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 25 2001 relating financial statement schedule appears form 10k pricewaterhousecoopers llp new york new york march 9 2001 s2 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 additions balance charged balance beginning costs end period expenses accounts deductions period allowance doubtful accounts receivable 400 943 951a 392 allowance doubtful accounts receivable 490 875 965a 400 allowance doubtful accounts receivable 355 913 778a 490 accounts written net recoveries foreign currency translation adjustment s3item 14 exhibits financial statement schedule reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statements income years threeyear period ended december 31 2001 38 27 consolidated balance sheets december 31 2001 2000 39 28 consolidated statements cash flows years threeyear period ended december 31 2001 40 29 consolidated statements changes shareholders deficit equity years threeyear period ended december 31 2001 41 30 notes consolidated financial statements 4260 3161 report independent accountants pricewaterhousecoopers llp 61 63 2 financial statement schedule report independent accountants financial statement schedule pricewaterhousecoopers llp s1 consent independent accountants pricewaterhousecoopers llp s2 financial statement schedule years threeyear period ended december 31 2001 ii valuation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 8 2000 incorporated reference exhibit 34 avons quarterly report form 10q quarter ended june 30 2000 32 bylaws avon restated effective december 2 1999 incorporated reference exhibit 32 avons annual report form 10k year ended december 31 1999 41 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 33 41299 filed december 1 1997 42 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 43 indenture dated may 11 1998 avon products inc issuer chase manhattan bank trustee relating 625 putablecallable notes due may 1 2018 putablecallable may 1 2003 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avons registration statement form s4 registration statement 33 92333 filed december 8 1999 45 indenture dated july 12 2000 avon issuer chase manhattan bank trustee relating zero coupon convertible senior notes due 2020 incorporated reference exhibit 42 avons registration statement form s3 registration statement 33345808 filed september 14 2000 46 600000000 revolving credit competitive advance facility agreement dated may 1 2001 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10 q quarter ended june 30 2001 47 agency agreement dated september 20 2001 avon hsbc bank plc initial principal paying agent relating jpy 9000000000 106 percent notes due 2006 incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 2001 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 amendment avon products inc benefit restoration plan effective december 5 2001 108 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 18 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated effective july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 3365989 filed october 22 1998 1013 first amendment avon products inc deferred compensation plan amended restated july 1 1998 effective december 6 2001 1014 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1015 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 1999 1016 avon products inc 2000 stock incentive plan incorporated reference appendix companys proxy statement form 14a filed commission march 27 2000 file 1 04881 1017 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1018 form employment agreement dated september 1 1994 avon certain senior officers substantially similar employment agreements entered executive officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1019 description consulting arrangement avon fernando lezama effective march 31 2002 1020 avon products inc compensation plan nonemployee directors amended restated june 1 2000 effective may 1 1997 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 2000 1021 first amendment restated avon products inc compensation plan nonemployee directors amended restated june 1 2000 executed september 6 2001 effective january 1 2002 1022 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1023 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1024 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1025 stock option agreement dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 2001 incorporated reference response items 15 8 filing 18 preferability letter pricewaterhousecoopers llp regarding change accounting principle incorporated reference exhibit 18 avons annual report form 10k year ended december 31 1999 20 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k october 12 2001 company filed form 8k announce writeoff carrying value order management system known first project c avons annual report form 10k year ended december 31 2001 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 18th day march 2002 avon products inc sgilbert l klemann ii gilbert l klemann ii senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrea jung chairman board chief executive officer director principal executive officer march 18 2002 susan j kropf president march 18 2002 chief operating officer director robert j corti executive vice president chief financial officer principal financial officer march 18 2002 janice marolda vice president controller principal accounting officer march 18 2002 brenda c barnes director march 18 2002 w cornwell director march 18 2002 edward fogarty director march 18 2002 stanley c gault director march 18 2002 fred hassan director march 18 2002 maria elena lagomasino director march 18 2002 ann moore director march 18 2002 paula stern director march 18 2002 lawrence weinbach director march 18 2002 sgilbert l klemann ii gilbert l klemann ii attorneyinfact march 18 2002 25 report independent accountants financial statement schedule board directors avon products inc audits consolidated financial statements referred report dated january 31 2002 appearing 2001 annual report shareholders avon products inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 31 2002 s1 consent independent accountants consent incorporation reference registration statements form s3 reg 3345808 form s8 reg nos 33 43820 3347209 3365989 3365998 avon products inc report dated january 31 2002 relating financial statements appear 2001 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 31 2002 relating financial statement schedule appears form 10k pricewaterhousecoopers llp new york new york march 18 2002 s2 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 additions balance charged balance beginning costs end period expenses accounts deductions period allowance doubtful accounts receivable 392 1056 997a 451 deferred tax asset valuation allowance 254 34b 288 allowance doubtful accounts receivable 400 943 951a 392 deferred tax asset valuation allowance 467 213c 254 allowance doubtful accounts receivable 490 875 965a 400 deferred tax asset valuation allowance 469 02c 467 accounts written net recoveries foreign currency translation adjustment b increase valuation allowance tax loss tax credit carryforward benefits likely deferred tax assets utilized future c decrease valuation allowance tax loss tax credit carryforward benefits likely portion asset balance utilized future s3 conformed copy securities exchange commission washington dc 20549 form 10k annual report pursuant section 13 15d securities exchange act 1934 fiscal year ended december 31 2001 commission file number 14881 avon products inc exact name registrant specified charter exhibits index exhibits a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 8 2000 incorporated reference exhibit 34 avons quarterly report form 10q quarter ended june 30 2000 32 bylaws avon restated effective december 2 1999 incorporated reference exhibit 32 avons annual report form 10k year ended december 31 1999 41 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 33 41299 filed december 1 1997 42 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 43 indenture dated may 11 1998 avon products inc issuer chase manhattan bank trustee relating 625 putablecallable notes due may 1 2018 putablecallable may 1 2003 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avons registration statement form s4 registration statement 33 92333 filed december 8 1999 45 indenture dated july 12 2000 avon issuer chase manhattan bank trustee relating zero coupon convertible senior notes due 2020 incorporated reference exhibit 42 avons registration statement form s3 registration 33345808 filed september 14 2000 46 600000000 revolving credit competitive advance facility agreement dated may 1 2001 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10 q quarter ended june 30 2001 47 agency agreement dated september 20 2001 avon hsbc bank plc initial principal paying agent relating jpy 9000000000 106 percent notes due 2006 incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 2001 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 amendment avon products inc benefit restoration plan effective december 5 2001 108 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated effective july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 3365989 filed october 22 1998 1013 first amendment avon products inc deferred compensation plan amended restated july 1 1998 effective december 6 2001 1014 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1015 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 1999 1016 avon products inc 2000 stock incentive plan incorporated reference appendix companys proxy statement form 14a filed commission march 27 2000 file 1 04881 1017 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1018 form employment agreement dated september 1 1994 avon certain senior officers substantially similar employment agreements entered executive officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1019 description consulting arrangement avon fernando lezama effective march 31 2002 1020 avon products inc compensation plan nonemployee directors amended restated june 1 2000 effective may 1 1997 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 2000 1021 first amendment restated avon products inc compensation plan nonemployee directors amended restated june 1 2000 executed september 6 2001 effective january 1 2002 1022 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1023 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1024 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1025 stock option agreement dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 2001 incorporated reference response items 15 8 filing 18 preferability letter pricewaterhousecoopers llp regarding change accounting principle incorporated reference exhibit 18 avons annual report form 10k year ended december 31 1999 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney exhibits identified exhibit index asterisk management contracts compensatory plans arrangementsitem 14 controls procedures evaluation disclosure controls procedures within 90day period prior filing date report companys chief executive officer chief financial officer carried evaluation effectiveness design operation companys disclosure controls procedures pursuant rule 13a14 securities exchange act 1934 exchange act based upon evaluation chief executive officer chief financial officer concluded companys disclosure controls procedures adequate effective designed ensure material information relating company including consolidated subsidiaries required disclosed company reports files exchange act recorded processed summarized reported within required time periods changes internal controls significant changes companys internal controls factors could significantly affect controls subsequent date evaluation referred part iv item 15item 14 principal accountant fees services information incorporated reference “ratification appointment independent accountants section avon’s proxy statement 2004 annual meeting shareholders part iv item 15item 14 principal accounting fees services information incorporated reference “proposal 2 ratification appointment independent registered public accounting firm section avons proxy statement 2006 annual meeting shareholders part iv item 15item 14 principal accounting fees services information incorporated reference “proposal 2 ratification appointment independent registered public accounting firm” section avons proxy statement 2007 annual meeting shareholders part iv item 15item 14 principal accounting fees services information incorporated reference “proposal 2 ratification appointment independent registered public accounting firm” section avon’s proxy statement 2008 annual meeting shareholders part iv item 15item 14 principal accountant fees services information incorporated reference “proposal 2 ratification appointment independent registered public accounting firm” section avon’s proxy statement 2009 annual meeting shareholders part iv item 15item 14 principal accountant fees services information incorporated reference “proposal 2 ratification appointment independent registered public accounting firm section 2010 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference “proposal 2 ratification appointment independent registered public accounting firm” section 2011 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference “proposal 3 ratification appointment independent registered public accounting firm” section 2012 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference proposal 5 ratification appointment independent registered public accounting firm section 2013 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference proposal 4 ratification appointment independent registered public accounting firm section 2015 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference proposal 4 ratification appointment independent registered public accounting firm section 2016 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference proposal 4 ratification appointment independent registered public accounting firm section 2018 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference proposal titled ratification appointment independent registered public accounting firm section 2019 proxy statement part iv item 15item 14 principal accountant fees services audit committee place 2019 appointed pricewaterhousecoopers llp united kingdom pwcuk serve independent registered public accounting firm 2019 pwcuk audited accounts since 2017 prior us affiliate pricewaterhousecoopers llp united states pwcus audited accounts since 1989 appointment ratified shareholders 2019 meeting shareholders determining whether reappoint pwcuk independent registered public accounting firm audit committee took consideration number factors including •the breadth experience length time pwcuk pwcus engaged •historical recent performance company’s audit •familiarity global operations businesses •the advisability potential impact selecting entirely different unaffiliated independent registered public accounting firm •pwcuk’s independence internal quality controls •the appropriateness pwc’s fees professional services •an assessment professional qualifications past performance lead audit partner auditing team pwcuk following evaluation audit committee concluded selection pwcuk independent registered public accounting firm 2019 best interest company shareholders new lead audit partner designated least every five years line new lead audit partner last designated 2017 process selection company’s new lead audit partner involves meetings candidate chair audit committee avon financial management well discussion full audit committee management audit nonaudit services preapproval policy audit committee historically established policy preapproval audit nonaudit services pricewaterhousecoopers llp worldwide affiliates pwc corresponding fees strictly disallows service would prohibited service ii allows audit auditrelated tax services particular type service list types services preapproved audit committee specific procedures followed ensure appropriate management assessment service proposed fee within overall limit set audit committee category service audit committee informed timely basis service iii allows services within foregoing categories service corresponding fee approved advance audit committee one members audit committee subsequent approval audit committee audit committee reviewed approved services provided pwc 2019 amount fees paid pwc services concluded provision services pwc compatible maintenance independence upon merger avon natura co avon longer maintain audit committee decisions related company’s independent auditor going forward made conjunction natura co independent registered public accounting firm fees following table sets forth aggregate fees professional services rendered us pwc years ended december 31 2019 december 31 2018 audit fees amounts represent aggregate fees professional services rendered pwc audit annual financial statements years ended december 31 2019 december 31 2018 review financial statements included quarterly reports form 10q years services related statutory regulatory filings engagements years auditrelated fees amounts represent aggregate fees assurance related services performed pwc reasonably related performance audit review financial statements 2019 2018 auditrelated fees de minimis tax fees 2019 2018 taxrelated fees de minimis fees amounts represent aggregate fees services rendered pwc included foregoing categories 2018 fees de minimis part iv item 15item 14 principal accountant fees services independent registered public accounting firm fees companys principal accountant 2020 2019 pricewaterhousecoopers llp united kingdom pwcuk following table sets forth aggregate fees professional services rendered us pwc years ended december 31 2020 december 31 2019 audit fees amounts represent aggregate fees professional services rendered pwc audit annual financial statements years ended december 31 2020 december 31 2019 review financial statements included quarterly reports form 10q years services related statutory regulatory filings engagements years auditrelated fees amounts represent aggregate fees assurance related services performed pwc reasonably related performance audit review financial statements 2020 2019 auditrelated fees de minimis tax fees 2020 2019 taxrelated fees de minimis fees amounts represent aggregate fees services rendered pwc included foregoing categories 2020 fees de minimis audit nonaudit services preapproval policy since merger avon natura co january 2020 avon longer maintains audit committee decisions related company’s independent auditor taken natura co compliance paragraph c 7i rule 201 regulation sx prior merger avon natura co companys audit committee historically established policy preapproval audit nonaudit services pricewaterhousecoopers llp worldwide affiliates pwc corresponding fees current natura co policy former avon audit committee policy established strictly disallow service would prohibited service ii allow audit auditrelated tax services particular type service list types services preapproved audit committee specific procedures followed ensure appropriate management assessment service proposed fee within overall limit set audit committee category service audit committee informed timely basis service iii allow services within foregoing categories service corresponding fee approved advance audit committee one members audit committee subsequent approval audit committee services provided pwc 2020 2019 reviewed amount fees paid pwc services concluded provision services pwc compatible maintenance independence part iv item 15item 14 principal accountant fees services information incorporated reference proposal 3 ratification appointment independent registered public accounting firm section 2014 proxy statement part iv item 15item 14 principal accountant fees services information incorporated reference proposal 4 ratification appointment independent registered public accounting firm section 2017 proxy statement part iv item 15item 14 exhibits financial statement schedules reports form 8k annual report shareholders form 10k page number page number a1 consolidated financial statements avon products inc subsidiaries consolidated statement income years threeyear period ended december 31 1997 41 consolidated balance sheet december 31 1997 1996 42 consolidated statement cash flows years threeyear period ended december 31 1997 43 consolidated statement changes shareholders equity years threeyear period ended december 31 1997 44 notes consolidated financial statements 4556 report independent accountants coopers lybrand llp 57 2 financial statement schedules report independent accountants coopers lybrand llp s1 consent independent accountants coopers lybrand llp s2 financial statement schedule years threeyear period ended december 31 1997 iivaluation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 13 1996 incorporated reference exhibit 31 avons quarterly report form 10q quarter ended june 30 1996 32 bylaws avon restated effective june 6 1996 incorporated reference exhibit 32 avons quarterly report form 10q quarter ended june 30 1996 41 instrument defining rights holders avons preferred share purchase rights purchase avons series junior participating preferred stock reference made article iiia restated certificate incorporation avon filed secretary state new york state august 12 1988 included exhibit 31 1993 annual report form 10k 42 rights agreement dated march 30 1988 rights agreement avon first chicago trust company new york successor morgan shareholder services trust company incorporated reference exhibit 1 avons registration statement form 8a filed april 7 1988 refiled form se december 31 1996 43 amendment dated january 3 1989 rights agreement incorporated reference exhibit 3 avons amendment 1 form 8 filed january 4 1989 amending registration statement form 8a filed april 7 1988 refiled form se december 31 1996 44 second amendment dated april 5 1990 rights agreement incorporated reference exhibit 4c avons current report form 8k dated april 5 1990 refiled form se december 31 1996 45 third amendment dated may 10 1990 rights agreement incorporated reference exhibit 4d avons current report form 8k dated may 10 1990 refiled form se december 31 1996 46 amended restated revolving credit competitive advance facility agreement dated august 8 1996 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 1996 47 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 33341299 filed december 1 1997 48 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit avons registration statement form 8a filed march 18 1998 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment 1993 avon stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 105 supplemental executive retirement plan supplemental life plan avon products inc amended restated september 1 1994 incorporated reference exhibit 106 avons annual report form 10k year ended december 31 1994 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 trust agreement amended restated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 108 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 109 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1010 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1011 avon products inc deferred compensation plan amended restated january 1 1996 incorporated reference exhibit 1012 avons annual report form 10k year ended december 31 1996 1012 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1013 instrument amendment effective april 1 1990 amending various employee benefit plans agreements stipulated instrument amendment incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 1014 employment agreement dated november 1 1995 avon james e preston incorporated reference exhibit 1016 avons annual report form 10k year ended december 31 1995 1015 stock option agreement avon james e preston dated october 30 1995 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 1995 1016 supplemental employment agreement dated december 10 1997 avon james e preston 1017 stock option agreement avon james e preston dated december 10 1997 1018 employment agreement dated december 11 1997 avon charles r perrin 1019 stock option agreement avon charles r perrin dated december 10 1997 1020 employment agreement dated december 11 1997 avon andrea jung 1021 form employment agreement dated september 1 1994 avon certain senior officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1022 avon products inc compensation plan nonemployee directors effective may 1 1997 1023 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 1024 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1025 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 13 portions annual report shareholders year ended december 31 1997 incorporated reference response items 15 8 filing 21 subsidiaries registrant 23 consent coopers lybrand llp set forth page s2 annual report form 10k 24 power attorney 27 financial data schedule 99 financial statements avon products inc employees savings stock ownership plan avon mirabellalomalinda employees savings plan year ended december 31 1997 filed amendment exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k form 8k filed fourth quarter 1997 march 18 1998 company filed form 8k announcing march 5 1998 board directors avon products inc adopted new shareholder rights plan effective close business march 30 1998 replace companys existing shareholder rights plan expires close business march 30 1998 c avons annual report form 10k year ended december 31 1997 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 23rd day march 1998 avon products inc sward miller jr ward miller jr senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date james e preston chairman board chief executive officer principal executive officer director march 5 1998 charles r perrin vice chairman chief operating officer director march 5 1998 robert j corti senior vice president chief financial officer principal financial officer march 5 1998 michael r mathieson vice president controller principal accounting officer march 5 1998 andrea jung president avon products inc director march 5 1998 susan j kropf executive vice president avon north america director march 5 1998 brenda barnes richard barton remedios diaz oliver edward fogarty directors march 5 1998 charles locke ann moore sward miller jr ward miller jr attorneyin fact march 5 1998 s1 report independent accountants shareholders avon products inc report consolidated financial statements avon products inc subsidiaries december 31 1997 1996 years threeyear period ended december 31 1997 incorporated reference form 10k page 57 1997 annual report shareholders avon products inc connection audits financial statements also audited related financial statement schedule years three year period ended december 31 1997 listed index item 14a2 form 10k opinion financial statement schedule years threeyear period ended december 31 1997 referred considered relation basic financial statements taken whole presents fairly material respects information required included therein new york new york february 5 1998 s2 consent independent accountants consent incorporation reference following registration statements avon products inc form s8 reg 33 47209 form s8 reg 3360218 form s8 reg 3360918 form s8 reg 3365998 reports dated february 5 1998 audits consolidated financial statements avon products inc december 31 1997 1996 years threeyear period ended december 31 1997 report included 1997 annual report shareholders incorporated reference annual report form 10k ii 1997 1996 1995 financial statement schedule avon products inc report included annual report form 10k new york new york march 23 1998 s3 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 additions balance charged balance beginning costs end period expenses accounts deductions period allowance doubtful accounts receivable 364 808 817a 355 allowance doubtful accounts receivable 326 790 752a 364 allowance doubtful accounts receivable 273 780 727a 326 accounts written net recoveries foreign currency translation adjustmentitem 14 principal accountant fees services information incorporated reference “ratification appointment independent accountants section avons proxy statement 2005 annual meeting shareholders part iv item 15 item 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 16 23 avons 1993 annual report shareholders item 8item 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 24 33 avons 1994 annual report shareholders item 8item 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 29 40 avons 1995 annual report shareholders item 8item 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 29 40 avons 1996 annual report shareholders item 8item 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 30 42 avons 1998 annual report shareholders item 7aitem 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 29 41 avons 1999 annual report shareholders item 7aitem 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 33 45 avons 2000 annual report shareholders item 7aitem 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 21 35 avons 2001 annual report shareholders item 7aitem 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis financial condition results operations pages 25 41 avons 2002 annual report shareholders item 7aitem 7 managements discussion analysis financial condition results operations information incorporated reference managements discussion analysis financial condition results operations pages 1 31 exhibit 13 2003 annual report form 10k item 7aitem 7 managements discussion analysis financial condition results operations information incorporated reference managements discussion analysis financial condition results operations pages 1 24 exhibit 131 2005 annual report form 10k pages 22 39 avon’s 2005 annual report shareholders item 7aitem 7 managements discussion analysis financial condition results operations following discussion results operations financial condition avon products inc majority wholly owned subsidiaries “avon” “company” read conjunction information contained consolidated financial statements related notes used discussion terms “avon” “company” “we” “us” mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries overview global manufacturer marketer beauty related products business conducted worldwide primarily direct selling channel presently sales operations approximately 63 countries territories including united states distribute products approximately 51 reportable segments based geographic operations six regions north america latin america western europe middle east africa central eastern europe asia pacific china centrally manage global brand marketing supply chain organizations product categories include beauty consists cosmetics fragrances skin care toiletries beauty plus consists fashion jewelry watches apparel accessories beyond beauty consists home products gift decorative products sales health wellness products mark global cosmetics brand focuses market young women included among categories based product type sales made ultimate consumer principally approximately 53 million independent representatives independent contractors employees avon success business highly dependent recruiting motivating retaining representatives view geographic diversity businesses strategic advantage developed markets united states seek achieve growth line overall beauty market developing emerging markets higher growth targets continued experience strong growth developing markets brazil russia turkey significant contribution another colombia acquired avon business licensee fourth quarter 2005 also experienced signs improvement certain developed markets united states united kingdom taking steps address continued declines certain developed markets mexico japan challenges remain markets require longerterm solutions 2006 experienced growth segments except asia pacific 2005 launched comprehensive multiyear turnaround plan described seeks take cost business reinvest savings initiatives expect generate revenues well increase profitability long run part turnaround plan 2006 invested ahead savings incurred incremental costs including costs implement restructuring initiatives increased spending advertising higher inventory obsolescence expense operating profit 2006 negatively impacted costs associated turnaround plan additionally higher compensationrelated expenses associated january 1 2006 adoption sfas 123 revised 2004 sharebased payment “sfas 123r” negatively impacted operating profit strategic initiatives november 2005 launched comprehensive multiyear turnaround plan restore sustainable growth fourpoint turnaround plan includes • committing brand competitiveness focusing research development resources product innovation increasing advertising • winning commercial edge effectively utilizing pricing promotion expanding sales leadership program improving attractiveness representative earnings opportunity needed • elevating organizational effectiveness redesigning structure eliminate layers management order take full advantage global scale size • transforming cost structure costs aligned revenue growth remain turnaround plan starting deliver results attacked cost structure primarily delayering reinvested ahead savings cost savings initiatives initial investments focused significantly advertising direct selling channel increased investments 2006 increased investment advertising 83 1359 2005 2489 2006 support product launches support avon china’s directselling launch 2007 expect increase investment advertising 35 almost 3400 also committed increasing spending product brand innovation 2006 launched several new innovative products including anew clinical thermafirm face lifting cream anew clinical eye lift superfull mascara avon solutions ageless results ultra moisture rich metallic lipstick avon crystal aura fragrance avon blue rush fragrance derek jeter driven fragrance 2007 expect implement comprehensive strategy reposition rebrand color line including product innovation upgrading packaging significant increase advertising improved merchandising new brochure executions forging alliances color line including alliances color makeup artist international fashion designer 2007 also plan launch global integrated marketing campaign called hello tomorrow supporting brand direct selling channel additionally expect continue reallocate time research development department spends toward innovation away promotional items also investing direct selling channel improve reward effort equation representatives representative value proposition accelerated roll sales leadership program undertaken extensive analysis better understand drivers value representatives 2007 continue look ways improve earnings opportunity representatives various means including following • evaluating optimum commissions select markets • continuing rollout sales leadership program offers representatives enhanced career opportunity • strategically examining fee structure brochure costs enhance representative economics • recalibrating frequency campaigns maximize representative selling opportunities earnings effort equation different within global portfolio businesses expect web enablement key element reduce representative effort worldwide focus improving internetbased tools representatives also focus enhanced training representatives field management part focus brand competitiveness 2006 sought reduce brand margin dilution sale heavily discounted excess products result incurred higher inventory obsolescence expense 205 first quarter 2006 made sense discontinue selling products rather sell deep discounts adversely affect sales profitable products year progressed also launched product line simplification program “pls” includes analysis product line develop smaller range better performing profitable products program designed improve shopping experience brand image representative experiences reducing number sku’s overall expected significant savings implications time expect initiative • improve customer service • reduce complexity confusion offering customers representatives • simplify product line effectiveness efficiency • impact new product development decisionmaking process • improve life cycle management procedures • improve inventory management • drive improved supply chain utilization incurred 814 costs related pls program 2006 primarily incremental inventory obsolescence expense 726 depending results additional pls analyses performed identify optimal product assortment next three years timing resulting decisions may incur future costs related pls range 1000 principally form inventory obsolescence charges expect realize annualized benefits pls range 2000 benefits building progressively next three years additionally embarking strategic sourcing initiative “ssi” reduce direct indirect costs materials goods services initiative shift purchasing strategy toward global supplier orientation one local component oriented beyond lower costs goal initiative improve asset management service representatives vendor relationships expect realize initial benefits ssi beginning second half 2007 annualized benefits initiative range 2000 end 2009 expect incur significant costs associated initiative also begun implementation sales operating planning process intended better align demand plans supply capabilities provide us earlier visibility potential supply issues begun institutionalize zero overhead growth methodology “zog” inflation offset improvements productivity improvements productivity come primarily previously announced initiatives restructuring program pls ssi restructuring initiatives connection fourpoint turnaround plan november 2005 announced multiyear restructuring plan expect incur total restructuring charges costs implement restructuring initiatives range 5000 taxes incurred total costs implement net adjustments 2853 2288 2006 565 2005 actions associated restructuring initiatives plan primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives approximately 85 restructuring charges incurred 2006 expected result cash expenditures majority remaining cash payments expected made 2007 approximately 58 restructuring charges incurred 2005 resulted future cash expenditures expect incur significant additional charges next years expect restructuring initiatives deliver excess 3000 annualized savings fully realized actions implemented date resulted savings approximately 1000 2006 associated delayering program completed 2006 expect actions announced date result savings range 2300 2007 specific actions 2005 2006 january 2007 phase restructuring initiatives included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain key human resource customer service processes move certain services markets within europe lower cost shared service centers • realignment north america distribution operations • exit certain unprofitable operations including closure avon salon spa closure operations indonesia exit product line china exit becoming product line us • reorganization certain functions primarily salesrelated organizations see note 13 restructuring initiatives pages 2006 annual report form 10k outlook expect investments brand direct selling channel drive sustainable growth revenue growth average midsingledigits longterm operating margin 2007 impacted incremental investments advertising representative value proposition well continued costs restructuring pls operating margin expand 2007 2006’s level 87 expected close 2005’s level 141 2008 savings benefits restructuring pls ssi begin exceed incremental levels investment advertising representative value proposition operating margin expected expand beginning 2009 new accounting pronouncements effective january 1 2006 adopted sfas 123 requires sharebased payments employees recognized financial statements based fair values using optionpricing model date grant impact adoption sfas 123r 2006 including restricted stock units granted connection design changes sharebased compensation plans related adoption decreased income taxes minority interest net income basic diluted earnings per share net cash provided operating activities year ended december 31 2006 492 324 07 81 respectively increased net cash provided financing activities 81 see note 1 description business summary significant accounting policies note 8 sharebased compensation plans longterm incentive plan effective december 31 2006 adopted sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r “sfas 158” adopted sfas 158 december 31 2006 adoption sfas 158 resulted decrease shareholders’ equity 2547 aftertax basis decrease assets 2328 increase accrued compensation 355 decrease employee benefit plans liability 134 adoption sfas 158 impact consolidated statement income year ended december 31 2006 prior period presented affect operating results future periods see note 10 employee benefit plans june 2006 fasb issued fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” fin 48 prescribes consistent recognition threshold measurement attribute well criteria subsequently recognizing derecognizing measuring uncertain tax positions financial statement purposes fin 48 also requires expanded disclosure respect uncertainty income taxes fin 48 effective january 1 2007 avon impact adopting fin 48 expected material based work performed date continue assess impact fin 48 along implementation guidance issued september 2006 fasb issued sfas 157 fair value measurements “sfas 157” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective january 1 2008 avon currently evaluating impact sfas 157 consolidated financial statements key performance indicators within following discussion analysis utilize key performance indicators “kpis” defined assist evaluation business kpi definition change active representatives indicator based number representatives submitting order campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine change active representatives calculation compared calculation corresponding period prior year change units indicator based gross number pieces merchandise sold period compared number period prior year units sold include samples sold product contingent upon purchase another product example gift purchase exclude free samples inventory days indicator equal number days estimated future months’ cost sales covered inventory balance end period critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies detailed discussion application accounting policies restructuring reserves record severancerelated expenses probable estimable accordance provisions fas 112 employer’s accounting postemployment benefits severance provided ongoing benefit arrangement onetime benefit arrangements disposal costs primarily contract termination costs accounted provisions fas 146 accounting costs associated exit disposal activities evaluate impairment issues provisions fas 144 accounting impairment disposal longlived assets estimate expense initiatives approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment contract termination payments leases qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent management’s best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly avon may sell end user general representative independent contractor remits payment avon sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances past three years annual bad debt expense approximately 1350 1450 approximately 17 total revenue generally detailed information concerning communication end user products beyond representative legal recourse end user collectibility accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns record provision estimated sales returns based historical experience product returns past three years sales returns range 2850 2950 approximately 35 total revenue historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected management additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 1733 839 767 years ended december 31 2006 2005 2004 respectively discussed overview section 2006 includes inventory obsolescence charges 726 related pls program 205 related decision discontinue sale heavily discounted excess products pension postretirement postemployment benefit expense maintain defined benefit pension plans cover substantially employees us certain international locations additionally unfunded supplemental pension benefit plans certain current retired executives see note 10 employee benefit plans calculations pension postretirement postemployment costs dependent upon use assumptions including discount rates expected return plan assets interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2006 actuarial losses 4121 2278 us nonus plans respectively yet charged expense actuarial losses charged accumulated comprehensive loss within equity accordance sfas 158 adopted december 31 2006 believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2006 weighted average assumed rate return pension plan assets including us nonus plans 76 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2006 us plan 80 based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 5 7 long term 65 equity securities expected earn approximately 8 10 long term historical rates return assets us plan recent 10year 20year periods 76 97 respectively us plan asset allocation policy favored us equity securities returned 80 118 respectively 10year 20year periods actual rate return plan assets us approximately 131 55 2006 2005 respectively discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 543 december 31 2006 52 december 31 2005 future effects pension plans operating results depend economic conditions employee demographics mortality rates number associates electing take lumpsum payments investment performance funding decisions among factors however given current assumptions including noted 2007 pension expense related us plan expected increase range 30 50 basis point change either direction expected rate return plan assets discount rate compensation increases would following effect 2006 pension expense taxes record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made establish additional provisions income taxes despite belief tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities adjust additional accruals light changing facts circumstances file income tax returns many jurisdictions 2007 number income tax returns scheduled close statute possible number tax examinations may completed avon’s filing positions ultimately upheld possible 2007 provision income taxes may reflect adjustments depending number filing positions ultimately upheld impact adjustments could significant 2007 net income sharebased compensation effective january 1 2006 adopted sfas 123r requires sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future recorded current period loss contingencies accordance fas 5 accounting contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements results operations consolidated 1 advertising expenses included within selling general administrative expenses total revenue total revenue increased 8 2006 continued benefit fourth quarter 2005 acquisition licensee colombia market contributed 3 percentage points revenue growth foreign exchange also contributed 2 percentage points revenue growth revenue grew latin america western europe middle east africa central eastern europe north america china revenue declined asia pacific category basis 2006 increase revenue primarily driven increase 8 beauty sales within beauty category fragrance increased 12 skin care increased 6 personal care increased 7 color increased 3 beauty plus sales increased 10 beyond beauty sales increased 2 total revenue grew 5 2005 foreign exchange contributing 3 percentage points revenue growth 2005 revenue grew latin america western europe middle east africa central eastern europe revenue declined north america china category basis 2005 increase revenue driven increases beauty sales 6 beauty plus sales 9 decrease beyond beauty sales 5 additional discussion changes revenue segment see “segment review” section management’s discussion analysis financial condition results operations gross margin gross margin decreased 7 point 2006 primarily due higher inventory obsolescence provisions increased 894 2006 discussed overview section 2006 includes charges related new pls program decision discontinue sale heavily discounted excess products depending results additional pls analyses performed timing resulting decisions expect incur future additional obsolescence charges gross margin decreased 7 point 2005 compared 2004 due unfavorable product mix pricing higher inventory obsolescence expense gross margin 2005 included 84 inventory writeoffs related restructuring initiatives selling general administrative expenses selling general administrative expenses increased 7010 2006 primarily due 1810 incremental costs incurred implement restructuring initiatives higher spending advertising 1130 contributing items include higher performancebased compensation expense expenses associated business colombia acquired fourth quarter 2005 onetime charge 210 related resolution longstanding dispute regarding valueadded taxes uk additional expense 492 due adoption sfas 123r including restricted stock units granted connection design changes sharebased compensation plans related adoption expense increases partially offset benefits associated restructuring initiatives primarily salary benefit savings associated delayering initiative selling general administrative expenses increased 2806 2005 compared 2004 primarily due 481 costs incurred implement restructuring initiatives higher spending brochures sales leadership program higher pension expense well impact higher revenue see “segment review” section management’s discussion analysis financial condition results operations additional information related changes operating margin segment expenses interest expense increased 2006 2005 mainly due higher borrowings support share repurchase programs well increases domestic interest rates december 31 2006 2005 held interest rate swap agreements effectively converted approximately 30 60 respectively outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates december 31 2006 approximately 50 interest income increased 2006 2005 primarily due higher cash equivalent balances invested offshore higher interest rates expense net increased 2006 primarily 2005 included net gain 47 million sale investments equity securities gain 25 treasury lock agreement longer designated hedge expense net decreased 2005 primarily 2004 included writedowns 137 resulting otherthantemporary declines fair values investments equity securities costs bases well gains included 2005 discussed effective tax rate effective tax rate 2006 318 compared 240 2005 2006 tax rate favorably impacted approximately 40 points due closure tax years expiration statute limitations audit settlements well 17 points due tax refunds benefits partially offset repatriation international earnings increased rate approximately 31 points tax impact associated restructuring charges due lower weightedaverage effective tax rate subsidiaries incurring charges effective tax rate 2005 240 primarily due favorable effects completion tax examinations well closure tax year expiration statute limitations reduced effective tax rate approximately 105 points segment review analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2006 global expenses include among things costs related executive administrative offices information technology research development marketing certain planned global expenses allocated business segments primarily based planned revenue unallocated costs remain global expenses allocate costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment increase amounts allocated segments 2006 primarily due higher sharebased compensation expense due adoption fas 123r effective january 1 2006 well higher performancebased compensation expense increase net global expenses primarily due incremental costs 424 implement restructuring initiatives well higher planned performancebased compensation expense net global expenses increased 2005 primarily due costs implement restructuring initiatives partially offset lower expense performancebased compensation plans north america 2006 compared 2005 total revenue increased 2 2006 larger average order received representatives offset decline active representatives revenue 2006 benefited new product launches supported significant advertising increase average order driven strong sales products beauty plus category higher price point primary contributor decline active representatives decrease number orders placed active representatives declined overall 2006 noted improvement second half year turning slight growth fourth quarter believe improvement primarily driven variety representative valueenhancing initiatives implemented second half 2006 us business designed increase representative ordering activity combined increased consumer investments easing negative impact higher fuel prices us representative value enhancing initiatives included reindexing certain earnings thresholds sales leadership program distributing bonus brochures higherperforming representatives strengthening sales incentives expect improvement continue implement representative value proposition decrease 2006 operating margin north america primarily driven incremental costs implement restructuring initiatives including costs associated decision realign north america distribution operations delayering closure avon salon spa incremental costs negatively impacted operating margin 22 points decrease operating margin also due substantially higher spending advertising higher performancebased compensation expenses higher allocation global expenses incremental inventory obsolescence expense related inventory initiatives partially offset expense reduction efforts north america 2005 compared 2004 total revenue declined 2005 compared 2004 primarily due 7 decline beauty sales decline beauty sales due decreases units sold active representatives reflecting lower customer purchase frequency ongoing competitive intensity beauty plus sales increased 9 beyond beauty sales decreased 14 partially reflecting shift product mix two categories occurred part planned repositioning strategy beauty plus sales increased primarily due national rollout intimate apparel line 2005 us 2005 us business exited toy category part beyond beauty contributed decreased sales category north american operating margin declined primarily due declines us reflecting unfavorable impacts pricing product mix including rollout intimate apparel line additionally operating margin negatively impacted lower revenue combined costs implement restructuring initiatives primarily delayering exit becoming product line us latin america 2006 compared 2005 total revenue increased 2006 reflecting growth active representatives units sold well favorable foreign exchange primarily brazil region benefited fourth quarter 2005 acquisition licensee colombia market contributed 8 points region’s revenue growth region benefited continued strength brazil revenues increased 32 due larger average order increased active representatives reflecting new product launches supported significant advertising promotional activities increase revenue brazil acquisition growth colombia compensated continued declines mexico revenues decreased 6 mainly due decline active representatives decline active representatives reflected part challenges related field execution caused change attractiveness incentives including ineffective performance management zone managers 2006 commenced number initiatives improve performance mexico including upgrade field talent investments incentives motivation programs may see improvement end 2007 continue increase advertising focus field execution representative value proposition also plan continue focus supply chain transition mexico decrease operating margin latin america 2006 significantly impacted increased spending advertising incremental inventory obsolescence expense related inventory initiatives higher allocation global expenses 2005 gain sale property mexico partially offset operating efficiencies due revenue increase additionally incremental costs implement restructuring initiatives negatively impacted operating margin 11 points currency restrictions enacted venezuelan government 2003 become restrictive impacted ability subsidiary venezuela “avon venezuela” obtain foreign currency official rate pay imported products result increased difficulty 2006 avon venezuela purchased approximately 176 parallel market resulted foreign exchange loss 45 unless official foreign exchange made readily available avon venezuela’s operations continue negatively impacted need obtain foreign currency needs parallel market december 31 2006 avon venezuela cash balances approximately 760 primarily denominated bolivars year avon venezuela remitted dividends 262 official exchange rate result continue use official rate translate financial statements avon venezuela us dollars 2006 avon venezuela’s revenue operating profit represented approximately 3 7 consolidated revenue consolidated operating profit respectively latin america 2005 compared 2004 total revenue increased 2005 increases markets region except mexico reflecting growth active representatives well favorable foreign exchange purchase licensee colombia favorably impacted latin america’s revenue active representative growth 2 revenue grew significantly brazil primarily due growth units sold active representatives incremental consumer field incentive programs well favorable foreign exchange revenue decline mexico reflected increased competitive intensity significant decline nonbeauty product offerings partially offset favorable foreign exchange operating margin declined latin america 2005 mainly affected increased fixed expenses primarily salaries costs implement restructuring initiatives unfavorable product mix pricing investments incremental inventory obsolescence expense related inventory initiatives partially offset benefits supply chain efficiencies gain sale property mexico western europe middle east africa 2006 compared 2005 calculation meaningful total revenue increased reflecting growth active representatives units increases revenues markets region significantly turkey uk revenue growth 23 turkey benefited continued strength recruiting field programs well investments advertising driving increased order size revenue uk increased 3 reflecting strong beauty growth driven successful new product launches increased advertising incremental costs 2006 associated implementing restructuring initiatives primarily costs related delayering drove operating margin decline negatively impacted segment operating margin 30 points 2006 contributing items include 210 expense associated resolution valueadded tax dispute uk third quarter 2006 incremental inventory obsolescence expense related inventory initiatives unfavorable foreign exchange imported inventory turkey spending advertising higher allocation global expenses costs related implementation enterprise resource planning system unfavorable yearoveryear comparisons partially offset impact higher revenue benefits associated restructuring initiatives primarily compensationrelated savings associated delayering initiative western europe middle east africa 2005 compared 2004 total revenue increased 2005 reflecting growth active representatives units sold well favorable foreign exchange turkey continued grow revenues driven high growth active representatives units sold revenue decreased uk due smaller average order per active representative reflecting economy adversely impacted higher interest rates rising fuel costs lower disposable income well increased competition operating margin declined due unfavorable pricing product mix higher manufacturing overhead costs associated planning developing enterprise resource planning system costs implement restructuring initiatives operating margin 2005 also suffered investment overhead expenses support expectation growth materialize central eastern europe 2006 compared 2005 total revenue increased 2006 reflecting growth active representatives favorable foreign exchange partially offset lower average order revenue growth primarily driven growth russia due strong active representative growth increased advertising partially offset decline countries principally poland decline mainly due underperformance color cosmetics first three quarters 2006 primarily result ineffective merchandising declines also due increased competition beauty color cosmetics sales grew fourth quarter including poland following changes made color merchandising increased advertising operating margin negatively impacted higher spending advertising higher allocation global expenses incremental inventory obsolescence expense related inventory initiatives central eastern europe 2005 compared 2004 total revenue increased 2005 reflecting favorable foreign exchange growth active representatives revenue growth primarily driven increase russia 17 reflecting growth active representatives growth rates decelerated central eastern europe scale markets competitive intensity increased operating margin declined 2005 primarily due unfavorable pricing product mix higher manufacturing overhead adverse foreign exchange movements operating margin also suffered investment overhead expenses support expectation growth materialize asia pacific 2006 compared 2005 region’s revenue decline 2006 primarily attributable decreases units sold active representatives reflecting continued declines measures japan well closing indonesian operations early 2006 japan’s revenue declined 21 driven declines direct mail business reflecting ongoing rebalancing efforts direct selling fundamentals number direct mailings revenue declined japan 2006 decline second half lesser extent first half business responded actions took improve representative economics well decision restore direct mailings business japan responded positively early actions longterm objective continues stabilize business asia pacific operating margin declined primarily due incremental inventory obsolescence expense related inventory initiatives lower revenue higher allocation global expenses spending advertising higher product costs principally japan additionally incremental expenses 2006 costs implement restructuring initiatives decreased segment margin 7 points contributed operating margin decline asia pacific 2005 compared 2004 total revenue increased driven increases nearly markets asia except japan revenue declined due decrease active representatives deceleration active representative growth primarily driven japan partially offset growth active representatives philippines partially due increase number sales campaigns philippines beginning second quarter 2004 increased active representative growth region 2 asia pacific operating margin declined primarily due costs implement restructuring initiatives mainly closure operations indonesia decreased segment margin 21 points china 2006 compared 2005 calculation meaningful business china continues evolve opening direct selling late february 2006 avon received first national license commence direct selling directives issued chinese government late 2005 since actively recruiting direct selling force called sales promoters throughout country sales promoters must trained certified according government regulations december 31 2006 350000 certified sales promoters approximately 150000 fit standard definition active representatives continue engaged comprehensive training sales promoters help build business developing customer base product knowledge 2007 plan initiate removal program consistent removal programs markets eliminate inactive certified sales promoters period time since received license companies received direct selling licenses two large multinational competitors receiving regional licenses late 2006 prior reopening direct selling sold products china network licensed beauty boutiques well dealerowned companyowned store counters companyowned store counters exited part restructuring initiatives addition retail boutique beauty boutique participate direct selling operating service center sales promoters essential element direct selling model stipulated direct selling regulations earn service fees avon china’s revenue generated sales promoters beauty boutiques dealerowned counters total revenue increased 2006 significant growth direct selling offset lower revenue beauty boutiques reduced order sizes connection resumption direct selling well unfavorable impact exit companyowned counters negative ninepoint impact 2006 revenue growth total revenue 2006 also benefited favorable effects foreign exchange due significant growth direct selling since march 2006 launch direct selling becoming greater portion business expected continue built time building direct selling stabilized beauty boutiques 2006 experienced significant decline number beauty boutiques ended 2006 similar number active beauty boutiques compared beginning 2006 operating margin decrease primarily driven significantly higher spending advertising fees paid registered service centers providing services active representatives costs associated launch direct selling china 2005 compared 2004 calculation meaningful revenue china declined 7 beauty boutique owners reduced size orders compared prior year connection anticipated resumption direct selling discussed operating margin decreased driven incremental costs prepare direct selling cost maintaining consumer investment primarily advertising significantly lower revenue base liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit currently believe existing cash operations including impacts cash required restructuring initiatives available sources public private financing adequate meet anticipated requirements working capital dividends capital expenditures stock repurchase program possible acquisitions cash needs balance sheet data cash flows net cash provided operating activities net cash provided operating activities decreased 994 2006 primarily due cash payments approximately 1170 associated restructuring charges additional cash payments associated costs implement restructuring initiatives lesser extent unfavorable working capital levels inventory accounts receivable contributed decrease net cash provided operating activities decreases operating cash flow partially offset favorable working capital levels accounts payable lower payments associated incentive compensation compared 2005 inventory levels continued increase 2006 8017 december 31 2005 9003 december 31 2006 reflecting increase inventory coverage partially driven decisions protect service levels first quarter 2007 higher sales volume impacts foreign exchange previously mentioned turnaround plan includes initiatives pls sales operations planning process expected improve inventory levels maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 10 employee benefit plans funding policy plans based legal requirements cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed “critical accounting estimates” future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect contribute approximately 230 700 us international pension plans respectively 2007 net cash provided operating activities 2005 129 favorable 2004 principally reflecting higher net income adjusted noncash items lower income tax audit settlement payments 712 2004 versus 125 2005 offset increased inventory levels additionally operating cash flow favorably impacted timing accounts payable payments unfavorably affected higher contributions approximately 210 us international pension plans 2005 approximately 1620 2005 versus 1410 2004 lower accruals performancebased compensation net cash used investing activities net cash used investing activities 2006 1352 lower 2005 resulting lower capital expenditures due fewer major construction projects 2006 2005 purchase avon direct selling business licensee colombia 1540 partially offset 2006 acquisition remaining minority interest two joint venture subsidiaries china approximately 391 capital expenditures 2006 1748 compared 2068 2005 decrease capital spending primarily driven spending 2005 global research development facility capacity expansion enterprise resource planning “erp” system plant construction expansion modernization projects progress december 31 2006 estimated cost complete approximately 764 capital expenditures 2007 currently expected range 2750 3250 funded cash operations expenditures include investments capacity expansion construction new distribution facility north america information systems including continued development erp system net cash used investing activities 2005 637 higher 2004 resulting primarily 2005 purchase avon direct selling business licensee colombia 1540 partially offset 2004 purchase portion ownership interest subsidiary china 456 lower capital expenditures capital expenditures 2005 2068 compared 2501 2004 decrease capital spending primarily driven investments 2004 new manufacturing facility russia construction global research development facility partially offset spending 2005 erp system net cash used financing activities net cash used financing activities 2006 2637 higher 2005 mainly driven higher borrowings 2005 lower proceeds stock option exercises 2006 partially offset lower repurchases common stock 2006 net cash used financing activities 2005 3403 lower 2004 mainly driven higher commercial paper borrowings partially offset higher repurchases common stock lower proceeds stock option exercises higher dividend payments purchased approximately 116 million shares avon common stock 3551 2006 compared approximately 229 million shares avon common stock 7280 2005 approximately 57 million shares avon common stock 2242 2004 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock 2006 increased sequentially purchases program accelerating pace repurchase program dividends 70 per share declared paid 2006 compared 66 per share 2005 56 per share 2004 february 2007 board approved increase quarterly dividend 185 per share debt contractual financial obligations commitments december 31 2006 debt contractual financial obligations commitments due dates follows 1 amount debt contractual financial obligations commitments excludes amounts due pursuant derivative transactions table also excludes information recurring purchases inventory purchase orders nonbinding generally consistent year shortterm nature 2 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2007 funded pension benefit plans see note 4 debt financing note 12 leases commitments information debt contractual financial obligations commitments additionally disclosed note 13 restructuring initiatives remaining liability 860 associated restructuring charges recorded date also expect record additional restructuring expenses 96 future periods implement actions charges recorded 2006 significant majority liabilities require cash payments 2007 balance sheet arrangements december 31 2006 material offbalancesheet arrangements capital resources total debt december 31 2006 increased 1373 17863 16490 december 31 2005 primarily due 5000 principal amount notes payable issued january 2006 see note 4 debt financing partially offset lower commercial paper borrowings fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings new credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 675 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires avon’s interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facility also provides possible extension term two years possible increases aggregate incremental principal amount 2500 subject consent affected lenders credit facility december 31 2006 amounts outstanding credit facility 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2006 commercial paper outstanding 3359 august 2006 entered oneyear japanese yen 110 billion 929 exchange rate december 31 2006 uncommitted credit facility “yen credit facility” bank tokyomitsubishi ufj ltd borrowings yen credit facility bear interest yen libor rate plus applicable margin yen credit facility available general corporate purposes including working capital repayment outstanding indebtedness yen credit facility used repay japanese yen 90 billion note came due september 2006 well general corporate purposes yen credit facility designated hedge net investment japanese subsidiary december 31 2006 929 japanese yen 110 billion outstanding yen credit facility december 31 2006 compliance covenants indentures see note 4 debt financing indentures contain rating downgrade triggers would accelerate maturity debt item 7aitem 7 management’s discussion analysis financial condition results operations following discussion results operations financial condition avon products inc majority wholly owned subsidiaries “avon” “company” read conjunction information contained consolidated financial statements related notes used discussion terms “avon” “company” “we” “us” mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries overview global manufacturer marketer beauty related products business conducted worldwide primarily directselling channel presently sales operations approximately 66 countries territories including us distribute products approximately 48 reportable segments based geographic operations six regions north america latin america western europe middle east africa central eastern europe asia pacific china centrally manage global brand marketing supply chain organizations product categories consist beauty consists cosmetics fragrances skin care toiletries beauty plus consists fashion jewelry watches apparel accessories beyond beauty consists home products gift decorative products sales health wellness products mark global cosmetics brand focuses market young women included among categories based product type sales made ultimate consumer principally approximately 54 million independent representatives independent contractors employees avon success business highly dependent recruiting motivating retaining representatives view geographic diversity businesses strategic advantage developed markets us seek achieve growth line overall beauty market developing emerging markets seek achieve higher growth targets revenue grew every segment 2007 continued experience strong growth emerging developing markets including brazil china colombia russia turkey venezuela also experienced growth developed markets us uk revenue china increased significantly due continued rollout direct selling see “segment review” section management’s discussion analysis financial condition results operations additional information related changes revenue segment 2005 launched comprehensive multiyear turnaround plan described seeks take costs business reinvest savings initiatives expect generate revenues well increase profitability long run part turnaround plan invested ahead savings incurred incremental costs including investments advertising representative value proposition “rvp” well costs implement restructuring costs related product line simplification “pls” program operating margins years 2007 2006 negatively impacted costs associated turnaround plan strategic initiatives november 2005 launched comprehensive multiyear turnaround plan restore sustainable growth fourpoint turnaround plan includes • committing brand competitiveness focusing research development resources product innovation increasing advertising • winning commercial edge effectively utilizing pricing promotion expanding sales leadership program improving attractiveness representative earnings opportunity needed • elevating organizational effectiveness redesigning structure eliminate layers management order take full advantage global scale size • transforming cost structure costs aligned revenue growth remain turnaround plan continued gain traction deliver results 2007 revenues increased 13 active representatives increased 9 increases segments sales product categories increased products beauty category increasing 15 fueled higher investments advertising rvp benefiting shift research development investment innovation beauty sales also benefited modest improvement frequency depth discounting advertising rvp investments substantially funded savings restructuring initiatives cost savings initiatives ongoing effort improve brand competitiveness increased investment advertising 83 2006 48 2007 advertising investments 3684 2489 1359 2007 2006 2005 respectively approximately 60 incremental spending allocated china brazil russia us advertising investments supported new product launches anew ultimate age repair night cream elixir christian lacroix fragrances imari seduction avon color cosmetics including uplifting mascara ultra color rich lipstick well support “hello tomorrow” avon’s first global integrated marketing campaign supporting brand direct selling channel advertising investments also included advertising recruit representatives representative value proposition part rvp also continued invest directselling channel improve reward effort equation representatives allocated significant investments proprietary direct selling analytics better understand drivers value representatives measure investment rvp incremental cost provide valueenhancing initiatives 2007 invested approximately 121 incrementally enhance rvp continued implementation sales leadership program increased incentives spending web enablement improved commissions launch frequent selling opportunities central eastern europe investing rvp continue key strategy product line simplification 2006 began analyze product line pls program develop smaller range better performing profitable products overall goal pls identify improved product assortment drive higher sales profitable products fourth quarter 2007 completed analysis product portfolio concluded appropriate product assortment going forward made decisions regarding ultimate disposition products longer part improved product assortment selling discount donation destruction result decisions recorded costs fourth quarter 2007 1037 related pls program includes incremental inventory obsolescence expense 992 incurred costs 1878 related pls program full year 2007 includes incremental inventory obsolescence expense 1673 incurred total pls costs 2692 1878 2007 814 2006 pls inventory charges see “provisions inventory obsolescence” section mda page 22 annual report form 10k expect sales marketing benefits account approximately 85 projected benefits improving product assortment allow us increase exposure improve presentation remaining products within brochure expected yield pleasurable consumer shopping experiences easier representative selling experiences greater sales per brochure page second source benefits pls results “transferable demand” transferable demand refers concept products redundant characteristics removed product assortment demand eliminated products transfer remaining products offer similar comparable product characteristics part pls identify products sufficient overlap characteristics eliminate products lowest profitability expect products retain generate profit third source benefits pls less price discounting implement operating procedures pls anticipate introducing fewer new products lengthening lifecycle products offering expect lead less aggressive price discounting product’s life cycle addition benefits also expect supply chain benefits account approximately 15 projected benefits expect improvements cost sales pls fully implemented primarily reduction inventory obsolescence expense result better managed inventory levels lower variable spending warehousing efficient manufacturing utilization lower purchasing costs also expect operating expenses benefit reduction distribution costs benefits inventory productivity expect realize annualized benefits excess 200 end 2009 full year benefit 2010 expect begin realize initial benefits second half 2008 benefits 2008 expected large annualized benefits annualized savings mean additional operating profit expect realize fullyear basis every year following full implementation respective initiative compared operating profit would expected achieve without implemented initiative expect realize benefits approximately 40 120 2008 2009 respectively excess 200 2010 strategic sourcing initiative march 2007 launched ssi initiative expected reduce direct indirect costs materials goods services initiative shifting purchasing strategy local commodityoriented approach towards globallycoordinated effort leverages volumes allows suppliers benefit economies scale utilizes sourcing best practices processes better matches suppliers’ capabilities needs beyond lower costs goals ssi include improving asset management service representatives vendor relationships 2007 completed analysis based 2006 data identified approximately 4000 spending targeted cost reductions additionally 2007 implemented first three waves initiative addressed approximately 38 identified spending expected generate approximately 45 expected benefits fourth quarter 2007 launched second wave initiative expected address 45 identified spending generate approximately 40 expected benefits realized benefits approximately 15 ssi 2007 expect realize approximately 50 total expected benefits 2008 annualized benefits initiative excess 200 end 2009 full year benefit 2010 result expect realize benefits approximately 100 175 2008 2009 respectively excess 200 2010 also begun implementation sales operating planning process intended better align demand plans supply capabilities provide us earlier visibility potential supply issues zerooverheadgrowth institutionalized zerooverheadgrowth philosophy aims offset inflation productivity improvements productivity come primarily ssi restructuring initiatives defined overhead fixed expenses costs associated sales marketing infrastructure management administrative activities overhead excludes variable expenses within selling general administrative expenses shipping handling costs bonuses employees sales organization also excludes consumer strategic investments included selling general administrative expenses advertising rvp research development brochure costs overhead expenses increased slightly 2007 increase due negative impact foreign exchange restructuring initiatives connection fourpoint turnaround plan november 2005 announced multiyear restructuring plan expected incur total restructuring charges costs implement restructuring initiatives range 500 taxes fourth quarter 2007 announced final initiatives part restructuring plan expect record total restructuring charges costs implement restructuring initiatives approximately 530 taxes recorded total costs implement net adjustments 4436 1583 2007 2288 2006 565 2005 actions associated restructuring initiatives plan primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives expect record majority remaining costs end 2009 approximately 70 20 2008 2009 respectively expect restructuring initiatives deliver annualized savings approximately 430 initiatives fully implemented 20112012 compared original estimate excess 300 expect savings reach approximately 300 2009 actions implemented date resulted savings approximately 230 2007 associated delayering program completed 2006 compared savings approximately 100 2006 costs implement restructuring initiatives 2005 2007 associated specific actions including • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain finance information technology human resource customer service processes move certain services markets lower cost shared service centers • restructure certain international directselling operations • realignment certain distribution manufacturing operations including realignment certain north america latin america distribution operations • automation certain distribution processes • exit certain unprofitable operations including closure avon salon spa closure operations indonesia exit product line china exit becoming product line us • reorganization certain functions primarily salesrelated organizations see note 13 restructuring initiatives pages 2007 annual report form 10k outlook expect investments brand directselling channel drive sustainable growth expect revenue growth average midsingledigits long term operating margin 2006 2007 impacted costs associated turnaround plan expect operating margin impacted much lesser degree 2008 costs expect incremental investments advertising 2008 line revenue growth incremental investments rvp slightly ahead revenue growth fullyear operating margin improved slightly 2007 88 2006’s level 87 expected approach 2005’s level approximately 14 2008 due projected benefits decreased cost related pls gross margin improvements projected benefits ssi projected savings decreased costs implement restructuring expect larger proportion benefits pls ssi savings restructuring realized second half year revenues grow savings restructuring benefits pls ssi realized continue apply zerooverheadgrowth philosophy operating margin expected expand beginning 2009 saw decelerating trend north american segment revenue fourth quarter 2007 consistent general retail environment decelerating trend continued first quarter 2008 revenue trend north america segment heavily influenced weakness nonbeauty business broadbased geographic portfolio gives us confidence weather macroeconomic pressures achieve companywide revenue operating margin targets full year 2008 described january 2008 announced final initiatives restructuring program turnaround plan also announced completed analysis optimal product portfolio made decisions exit strategies nonoptimal products pls program continue move turnaround plan driving revenue growth restoring margin growth key priorities emphasis ssi philosophy zero overhead growth however since turnaround plan multiyear effort still may see quarterly variability move turnaround due timing advertising product launches new accounting pronouncements new accounting standards implemented effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” result implementation fin 48 recognized 183 increase liability unrecognized tax benefits including interest penalties accounted reduction january 1 2007 balance retained earnings see note 6 income taxes effective december 31 2006 adopted sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r “sfas 158” adoption sfas 158 resulted decrease shareholders’ equity 2547 aftertax basis decrease assets 2328 increase accrued compensation 355 decrease employee benefit plans liability 134 adoption sfas 158 impact consolidated statement income years ended december 31 2007 2006 2005 see note 10 employee benefit plans effective january 1 2006 adopted sfas 123 revised 2004 requires sharebased payments employees recognized financial statements based fair values using optionpricing model date grant impact adoption sfas 123r 2006 including restricted stock units granted connection design changes sharebased compensation plans related adoption decreased income taxes minority interest net income basic diluted earnings per share net cash provided operating activities year ended december 31 2006 492 324 07 81 respectively increased net cash provided financing activities 81 see note 1 description business summary significant accounting policies note 8 sharebased compensation plans longterm incentive plan new accounting standards implemented december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 avon applied prospectively impact adopting sfas 141r depend nature terms future acquisitions december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements “sfas 160” changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders’ equity sfas 160 effective january 1 2009 avon requires retroactive adoption presentation disclosure requirements existing minority interests believe adoption sfas 160 material impact consolidated financial statements december 31 2007 2006 liabilities included minority interest liabilities 382 370 respectively february 2007 fasb issued statement financial accounting standards “sfas” 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 “sfas 159” permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective january 1 2008 avon february 2008 fasb issued staff position 157b effective date fasb statement 157 delays effective date sfas 157 nonfinancial assets nonfinancial liabilities january 1 2009 avon believe adoption sfas 159 impact consolidated financial statements september 2006 fasb issued sfas 157 fair value measurements “sfas 157” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective january 1 2008 avon believe adoption sfas 157 material impact consolidated financial statements key performance indicators within following discussion analysis utilize key performance indicators “kpis” defined assist evaluation business kpi definition growth active representatives indicator based number representatives submitting order campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units indicator based gross number pieces merchandise sold period compared number period prior year units sold include samples sold product contingent upon purchase another product example gift purchase exclude free samples inventory days indicator equal number days historical cost sales covered inventory balance end period critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies detailed discussion application accounting policies restructuring reserves record severancerelated expenses probable estimable accordance provisions fas 112 employer’s accounting postemployment benefits severance provided ongoing benefit arrangement onetime involuntary benefit arrangements disposal costs primarily contract termination costs accounted provisions fas 146 accounting costs associated exit disposal activities onetime voluntary benefit arrangements accounted provisions fas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits evaluate impairment issues provisions fas 144 accounting impairment disposal longlived assets estimate expense initiatives approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment contract termination payments leases qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent management’s best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly avon may sell end user general representative independent contractor remits payment avon sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances past three years annual bad debt expense range 136 164 approximately 17 total revenue generally detailed information concerning communication end user products beyond representative legal recourse end user collectability accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns record provision estimated sales returns based historical experience product returns past three years sales returns range 289 338 approximately 34 total revenue historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected management additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 2806 1797 933 years ended december 31 2007 2006 2005 respectively discussed overview section 2007 2006 include inventory obsolescence charges 1673 726 respectively related pls program 2006 also includes 205 related decision discontinue sale heavily discounted excess products pension postretirement postemployment benefit expense maintain defined benefit pension plans cover substantially employees us certain international locations additionally unfunded supplemental pension benefit plans certain current retired executives see note 10 employee benefit plans calculations pension postretirement postemployment costs dependent upon use assumptions including discount rates expected return plan assets interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2007 pretax actuarial losses 3252 1777 us nonus plans respectively yet charged expense actuarial losses charged accumulated comprehensive loss within equity accordance sfas 158 adopted december 31 2006 believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2007 weighted average assumed rate return pension plan assets including us nonus plans 75 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2007 us plan 80 based asset allocation approximately 33 corporate government bonds mortgagebacked securities expected earn approximately 5 7 long term 67 equity securities expected earn approximately 8 10 long term historical rates return assets us plan recent 10year 20year periods 662 991 respectively us plan asset allocation policy favored us equity securities returned 58 1197 respectively 10year 20year periods actual rate return plan assets us 93 131 2007 2006 respectively discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 588 december 31 2007 543 december 31 2006 future effects pension plans operating results depend economic conditions employee demographics mortality rates number associates electing take lumpsum payments investment performance funding decisions among factors however given current assumptions including noted 2008 pension expense related us plan expected decrease range 20 40 50 basis point change either direction expected rate return plan assets discount rate compensation increases would following effect 2007 pension expense taxes record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested establish additional provisions income taxes despite belief tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities adjust additional accruals light changing facts circumstances file income tax returns many jurisdictions 2008 number income tax returns scheduled close statute possible number tax examinations may completed avon’s filing positions ultimately upheld possible 2008 provision income taxes may reflect adjustments depending number filing positions ultimately upheld impact adjustments could significant 2008 net income accordance fin 48 recognize benefit tax position likely sustained audit based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements sharebased compensation effective january 1 2006 adopted sfas 123r requires sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future recorded current period loss contingencies accordance fas 5 accounting contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements results operations consolidated 1 advertising expenses included within selling general administrative expenses total revenue total revenue increased 13 2007 growth segments revenue growth driven increase 9 active representatives foreign exchange contributed 5 percentage points revenue growth increase number sales campaigns central eastern europe minimal impact active representative growth category basis 2007 increase revenue primarily driven increase 15 beauty sales within beauty category fragrance increased 20 color increased 16 skin care increased 6 personal care increased 21 beauty plus sales increased 12 beyond beauty sales increased 6 total revenue increased 8 2006 benefited fourth quarter 2005 acquisition licensee colombia market contributed 3 percentage points revenue growth foreign exchange also contributed 2 percentage points revenue growth revenue grew latin america western europe middle east africa central eastern europe north america china revenue declined asia pacific category basis 2006 increase revenue primarily driven increase 8 beauty sales within beauty category fragrance increased 12 color increased 3 skin care increased 6 personal care increased 7 beauty plus sales increased 10 beyond beauty sales increased 3 additional discussion changes revenue segment see “segment review” section management’s discussion analysis financial condition results operations gross margin gross margin decreased 7 point 2007 primarily due increase inventory obsolescence provisions approximately 100 2007 unfavorable mix products sold partially offset supply chain efficiencies discussed overview section 2007 2006 included incremental inventory obsolescence charges 1673 726 respectively related decision discontinue sale certain products part pls program additionally 2006 included incremental inventory obsolescence charges 205 related decisions discontinue sale certain heavily discounted products pls inventory charges gross margin decreased 8 point 2006 primarily due higher inventory obsolescence provisions increased 864 2006 discussed overview section 2006 includes charges related pls program decision discontinue sale heavily discounted excess products selling general administrative expenses selling general administrative expenses 2007 increased 5388 primarily due higher investments advertising rvp approximately 240 higher variable expenses freight commissions increased sales volume increased distribution costs percentage revenue partially offsetting higher expenses 718 lower costs incurred implement restructuring initiatives savings associated position eliminations resulting restructuring initiatives additionally 2007 benefited favorable comparison 2006 included onetime charge 210 related resolution longstanding dispute regarding valueadded taxes uk recognition unclaimed salesrelated tax credits reduction reserve statutory liabilities selling general administrative expenses increased 6986 2006 primarily due 1810 incremental costs incurred implement restructuring initiatives investments advertising 1130 contributing items include higher performancebased compensation expense expenses associated business colombia acquired fourth quarter 2005 onetime charge 210 related resolution vat dispute discussed additional expense 492 due adoption sfas 123r including restricted stock units granted connection design changes sharebased compensation plans related adoption expense increases partially offset savings associated restructuring initiatives primarily salary benefit savings associated delayering initiative see “segment review” section management’s discussion analysis financial condition results operations additional information related changes operating margin segment expenses interest expense increased 2007 2006 mainly due higher borrowings support share repurchase programs well increases domestic interest rates december 31 2007 2006 held interest rate swap agreements effectively converted approximately 30 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates december 31 2007 december 31 2006 approximately 60 50 respectively interest income decreased 2007 primarily due lower cash equivalent balances interest income increased 2006 primarily due higher cash equivalent balances invested offshore higher interest rates expense net decreased 2007 primarily due higher net foreign exchange gains 2007 expense net increased 2006 primarily 2005 included net gain 47 million sale investments equity securities gain 25 treasury lock agreement longer designated hedge effective tax rate effective tax rate 2007 330 compared 318 2006 2007 tax rate favorably impacted approximately 20 points due net release valuation allowances partially offset unfavorable impact restructuring initiatives pls program earnings mix 2006 effective tax rate favorably impacted approximately 40 points due closure tax years expiration statute limitations audit settlements well 17 points due tax refunds benefits partially offset repatriation international earnings increased rate approximately 31 points tax impact associated restructuring charges due lower weightedaverage effective tax rate subsidiaries incurring charges effective tax rate 2006 318 compared 240 2005 effective tax rate 2005 favorably impacted completion tax examinations well closure tax year expiration statute limitations reduced effective tax rate approximately 105 points segment review analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2007 global expenses include among things costs related executive administrative offices information technology research development marketing certain planned global expenses allocated business segments primarily based planned revenue unallocated costs remain global expenses allocate costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment increase amounts allocated segments 2007 primarily due higher global marketing costs reflecting increased spending market research development advertising “hello tomorrow” increase net global expenses primarily due higher costs related global initiatives higher information technology costs higher performancebased compensation expense increase amounts allocated segments 2006 primarily due higher sharebased compensation expense due adoption fas 123r effective january 1 2006 well higher performancebased compensation expense increase net global expenses primarily due incremental costs 424 implement restructuring initiatives well higher planned performancebased compensation expense north america 2007 compared 2006 north america consists largely us business total revenue increased 3 2007 primarily due growth active representatives benefiting continued investments rvp recruiting advertising fourth quarter 2007 began see decelerating trends nonbeauty particularly accessories apparel driven negative impact rising gas prices well softness us retail sector negatively impacted average order decelerating trend continued first quarter 2008 us business midst longterm turnaround plan therefore expect variability quarterly performance north america quarterly performance may continue impacted various factors including impact fuel prices general us economy representatives’ ordering activity timing product launches increase operating margin 2007 primarily driven lower costs implement restructuring initiatives positively impacted operating margin 19 points savings associated position eliminations resulting restructuring initiatives supply chain efficiencies benefits operating margin partially offset higher inventory obsolescence expense higher spending advertising rvp costs related implementation enterprise resource planning system north america 2006 compared 2005 total revenue increased 2 2006 larger average order received representatives offset decline active representatives revenue 2006 benefited new product launches supported significant advertising increase average order driven strong sales products beauty plus category higher price point primary contributor decline active representatives decrease number orders placed active representatives declined overall 2006 noted improvement second half year turning slight growth fourth quarter believe improvement primarily driven variety representative valueenhancing initiatives implemented second half 2006 us business designed increase representative ordering activity combined increased consumer investments easing negative impact higher fuel prices us representative value enhancing initiatives included reindexing certain earnings thresholds sales leadership program distributing bonus brochures higherperforming representatives strengthening sales incentives decrease 2006 operating margin north america primarily driven incremental costs implement restructuring initiatives including costs associated decision realign north america distribution operations delayering closure avon salon spa incremental costs negatively impacted operating margin 22 points decrease operating margin also due substantially higher spending advertising higher performancebased compensation expenses higher allocation global expenses incremental inventory obsolescence expense related inventory initiatives partially offset expense reduction efforts latin america 2007 compared 2006 total revenue increased 2007 driven growth active representatives reflecting significant investments advertising rvp larger average order well favorable foreign exchange revenue 2007 benefited growth markets particularly growth approximately 30 brazil colombia venezuela revenue growth brazil 2007 driven increases average order active representatives primarily due significant investments advertising rvp recruiting advertising field incentives well favorable foreign exchange revenue mexico flat 2007 midsingle digit increase active representatives offset lower average order increase active representatives mexico primarily reflects strengthened training incentives retraining zone managers field fundamentals lower average order mainly due product mix higher share sales new representatives seen improving field trends business mexico 2007 business midst longterm turnaround plan expect variability quarterly performance decrease operating margin 2007 primarily driven higher spending advertising rvp unfavorable mix products sold higher costs partially offset impact higher revenue lower costs implement restructuring initiatives positively impacted operating margin 8 point savings associated position eliminations resulting restructuring initiatives recognition unclaimed salesrelated tax credits currency restrictions enacted venezuelan government 2003 impacted ability subsidiary venezuela “avon venezuela” obtain foreign currency official rate pay imported products unless official foreign exchange made readily available avon venezuela’s operations continue negatively impacted need obtain foreign currency needs nongovernment sources exchange rate unfavorable compared official rate december 31 2007 avon venezuela cash balances approximately 45 primarily denominated bolivars 2007 avon venezuela remitted dividends approximately 40 official exchange rate avon venezuela continues receive official foreign exchange imports remittances result continue use official rate translate financial statements avon venezuela us dollars 2007 avon venezuela’s revenue operating profit represented approximately 3 7 consolidated revenue consolidated operating profit respectively latin america 2006 compared 2005 total revenue increased 2006 reflecting growth active representatives units sold well favorable foreign exchange primarily brazil region benefited fourth quarter 2005 acquisition licensee colombia market contributed 8 points region’s revenue growth region benefited continued strength brazil revenues increased 32 due larger average order increased active representatives reflecting new product launches supported significant advertising promotional activities increase revenue brazil acquisition growth colombia compensated continued declines mexico revenues decreased 6 mainly due decline active representatives decline active representatives reflected part challenges related field execution caused change attractiveness incentives including ineffective performance management zone managers 2006 commenced number initiatives improve performance mexico including upgrade field talent investments incentives motivation programs decrease operating margin latin america 2006 significantly impacted increased spending advertising incremental inventory obsolescence expense related inventory initiatives higher allocation global expenses 2005 gain sale property mexico partially offset operating efficiencies due revenue increase additionally incremental costs implement restructuring initiatives negatively impacted operating margin 11 points western europe middle east africa 2007 compared 2006 calculation meaningful total revenue increased 2007 reflecting growth active representatives well favorable foreign exchange revenue increase 2007 primarily driven growth turkey uk revenue growth turkey 35 2007 primarily due growth active representatives well favorable foreign exchange revenue growth uk 10 2007 benefited growth active representatives mainly due strength sales leadership program favorable foreign exchange revenue turkey uk also benefited new product launches significant investments advertising rvp operating margin 2006 suppressed 19 points due 210 expense associated resolution valueadded tax dispute uk third quarter 2006 increase operating margin 2007 also driven lower product costs due favorable foreign exchange movements savings associated position eliminations resulting restructuring initiatives benefits operating margin partially offset higher costs implement restructuring initiatives negatively impacted operating margin 11 points 2007 higher spending advertising rvp higher inventory obsolescence expense western europe middle east africa 2006 compared 2005 calculation meaningful total revenue increased reflecting growth active representatives units increases revenues markets region significantly turkey uk revenue growth 23 turkey benefited continued strength recruiting field programs well investments advertising driving increased order size revenue uk increased 3 reflecting strong beauty growth driven successful new product launches increased advertising incremental costs 2006 associated implementing restructuring initiatives primarily costs related delayering drove operating margin decline negatively impacted segment operating margin 30 points 2006 contributing items include 210 expense associated resolution valueadded tax dispute uk third quarter 2006 incremental inventory obsolescence expense related inventory initiatives unfavorable foreign exchange imported inventory turkey spending advertising higher allocation global expenses costs related implementation enterprise resource planning system unfavorable yearoveryear comparisons partially offset impact higher revenue benefits associated restructuring initiatives primarily compensationrelated savings associated delayering initiative central eastern europe 2007 compared 2006 total revenue increased 2007 reflecting growth active representatives well favorable foreign exchange partially offset lower average order representatives transitioned shorter selling cycle active representative growth 2007 benefited additional selling opportunities provided representatives frequent brochure distribution beginning end june 2007 encourages frequent customer contact expect additional selling opportunities continue benefit revenue active representative growth central eastern europe first half 2008 region’s revenue growth 2007 primarily driven russia well growth markets region revenue russia increased approximately 20 2007 due strong active representative growth benefited additional selling opportunities well favorable foreign exchange revenue russia 2007 also benefited increased advertising continued merchandising improvements launch “hello tomorrow” decrease operating margin 2007 primarily driven higher inventory obsolescence expense higher spending advertising rvp partially offset lower product costs due favorable foreign exchange movements impact higher revenue central eastern europe 2006 compared 2005 total revenue increased 2006 reflecting growth active representatives favorable foreign exchange partially offset lower average order revenue growth primarily driven growth russia due strong active representative growth increased advertising partially offset decline countries principally poland decline mainly due underperformance color cosmetics first three quarters 2006 primarily result ineffective merchandising declines also due increased competition beauty color cosmetics sales grew fourth quarter including poland following changes made color merchandising increased advertising operating margin negatively impacted higher spending advertising higher allocation global expenses incremental inventory obsolescence expense related inventory initiatives asia pacific 2007 compared 2006 total revenue increased 2007 due favorable foreign exchange region’s revenue increase 2007 primarily driven growth philippines partially offset declines japan taiwan revenue philippines 2007 increased approximately 30 driven substantial growth active representatives supported rvp initiatives including rollout sales leadership program nationwide investments recruiting advertising well favorable foreign exchange revenue japan declined midsingle digits 2007 reflecting weak performance skin care japan lower sales direct mailing partially offset modest increase sales direct selling market continues execute multiyear turnaround plan obtain right balance direct selling direct mail less overall revenue decline beauty market revenue taiwan declined due economic weakness increase operating margin 2007 primarily driven lower costs implement restructuring initiatives positively impacted operating margin 22 points additionally operating margin improvement due lower inventory obsolescence expense savings associated position eliminations resulting restructuring initiatives partially offset higher spending rvp advertising unfavorable category country mixes products sold asia pacific 2006 compared 2005 region’s revenue decline 2006 primarily attributable decreases units sold active representatives reflecting continued declines measures japan well closing indonesian operations early 2006 japan’s revenue declined 21 driven declines directmail business reflecting ongoing rebalancing efforts direct selling fundamentals number direct mailings revenue declined japan 2006 decline second half lesser extent first half business responded actions took improve representative economics well decision restore direct mailings asia pacific operating margin declined primarily due incremental inventory obsolescence expense related inventory initiatives lower revenue higher allocation global expenses spending advertising higher product costs principally japan additionally incremental expenses 2006 costs implement restructuring initiatives decreased segment margin 7 point contributed operating margin decline china 2007 compared 2006 calculation meaningful total revenue china increased significantly 2007 primarily due increase active representatives reflecting expansion directselling business contributed one half region’s revenue 2007 active representatives increased significantly 2007 due representative recruiting well absence meaningful base comparison first half 2006 lower average order mainly due higher share sales new representatives time building direct selling seen ordering activity levels maintained beauty boutiques continue engage direct selling servicing representatives additionally number beauty boutiques remained stable last year revenue 2007 benefited representative recruiting continued significant investments advertising increase operating margin 2007 primarily driven impact higher revenue reduction reserve statutory liabilities positive impacts partially offset ongoing higher spending rvp fees paid registered service centers providing services active representatives china 2006 compared 2005 calculation meaningful business china continued evolve opening direct selling late february 2006 avon received first national license commence direct selling directives issued chinese government late 2005 since actively recruiting direct selling force called sales promoters throughout country sales promoters must trained certified according government regulations december 31 2006 350000 certified sales promoters approximately 150000 fit standard definition active representatives continue engaged comprehensive training sales promoters help build business developing customer base product knowledge prior reopening direct selling sold products china network licensed beauty boutiques well dealerowned companyowned store counters companyowned store counters exited part restructuring initiatives addition retail boutique beauty boutique participate direct selling operating service center sales promoters essential element direct selling model stipulated direct selling regulations earn service fees avon china’s revenue generated sales promoters beauty boutiques dealerowned counters total revenue increased 2006 significant growth direct selling offset lower revenue beauty boutiques reduced order sizes connection resumption direct selling well unfavorable impact exit companyowned counters negative ninepoint impact 2006 revenue growth total revenue 2006 also benefited favorable effects foreign exchange due significant growth direct selling since march 2006 launch 2006 direct selling became greater portion business expected continue built time building direct selling stabilized beauty boutiques 2006 experience significant decline number beauty boutiques ended 2006 similar number active beauty boutiques compared beginning 2006 operating margin decrease primarily driven significantly higher spending advertising fees paid registered service centers providing services active representatives costs associated launch direct selling liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit currently believe existing cash operations including impacts cash required restructuring initiatives available sources public private financing adequate meet anticipated requirements working capital dividends capital expenditures share repurchase program possible acquisitions cash needs short long term may time seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions pursuant derivative instruments otherwise 2007 repurchased approximately 173 million shares common stock aggregate purchase price approximately 667 million february 2005 board directors approved share repurchase program repurchase 10000 common stock fiveyear period program completed december 2007 october 2007 board directors approved share repurchase program repurchase 20000 common stock fiveyear period began december 2007 following completion previous 10000 share repurchase program retirements debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations acquisitions meet liquidity needs expect issue additional longterm debt seek reduce outstanding commercial paper august 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 expired january 31 2008 locks designated cash flow hedges used hedge exposure possible rise interest rates expect incur longterm debt refinance commercial paper december 31 2007 recorded unrealized losses 253 accumulated comprehensive loss related locks january 31 2008 extended maturity date locks july 31 2008 expect incur longterm debt date issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods liquidity could also impacted dividends capital investments acquisitions given time may discussions negotiations potential acquisition candidates acquisitions nature involve numerous risks uncertainties balance sheet data increase total debt decrease working capital primarily relates higher shortterm commercial paper borrowings cash flows net cash provided operating activities net cash provided operating activities decreased 2063 2007 primarily due higher payments inventory purchases higher incentivebased compensation payments 2007 compensation earned 2006 higher interest payments partially offset lower payments associated restructuring initiatives expect cash provided operating activities fullyear 2008 substantially higher fullyear 2007 inventory levels continued increase 2007 9003 december 31 2006 10418 december 31 2007 partially driven actions taken effort ensure service levels representatives due impacts foreign exchange new inventory life cycle management processes leveraged initiatives pls ssi erp implementation sales operations planning process expected improve inventory levels longterm expect initiatives help us deliver targeted improvements 3 5 inventory day reduction year starting 2008 next 4 5 years maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 10 employee benefit plans funding policy plans based legal requirements cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed “critical accounting estimates” future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect contribute approximately 9 23 us international pension plans respectively 2008 net cash provided operating activities decreased 994 2006 primarily due cash payments approximately 1170 associated restructuring charges additional cash payments associated costs implement restructuring initiatives lesser extent unfavorable working capital levels inventory accounts receivable contributed decrease net cash provided operating activities decreases operating cash flow partially offset favorable working capital levels accounts payable lower payments associated incentive compensation compared 2005 net cash used investing activities net cash used investing activities 2007 793 higher 2006 resulting higher capital expenditures 2007 payments associated acquisition licensee egypt 2007 partially offset acquisition remaining minority interest two joint venture subsidiaries china approximately 39 2006 capital expenditures 2007 2785 compared 1748 2006 increase capital spending primarily driven spending 2007 capacity expansion construction new distribution facility north america information systems including continued development erp system plant construction expansion modernization projects progress december 31 2007 estimated cost complete approximately 308 capital expenditures 2008 currently expected range 350 400 funded cash operations expenditures include investments capacity expansion modernization existing facilities construction new distribution facilities latin america information systems including continued development erp system net cash used investing activities 2006 1352 lower 2005 resulting lower capital expenditures due fewer major construction projects 2006 2005 purchase avon directselling business licensee colombia 1540 partially offset 2006 acquisition remaining minority interest two joint venture subsidiaries china approximately 39 capital expenditures 2006 1748 compared 2068 2005 decrease capital spending primarily driven spending 2005 global research development facility capacity expansion enterprise resource planning “erp” system net cash used financing activities net cash used financing activities 2007 1067 higher 2006 mainly driven higher repurchases common stock 2007 partially offset higher shortterm borrowings higher proceeds stock option exercises 2007 net cash used financing activities 2006 2637 higher 2005 mainly driven higher borrowings 2005 lower proceeds stock option exercises 2006 partially offset lower repurchases common stock 2006 purchased approximately 173 million shares avon common stock 6668 2007 compared approximately 116 million shares avon common stock 3551 2006 approximately 229 million shares avon common stock 7280 2005 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock units noted previously completed 10000 share repurchase program december 2007 october 2007 board directors authorized repurchase 20000 common stock fiveyear period began december 2007 following completion previous 10000 share repurchase program increased quarterly dividend payments 185 per share 2007 175 per share 2006 february 2008 board approved increase quarterly dividend 200 per share debt contractual financial obligations commitments december 31 2007 debt contractual financial obligations commitments due dates follows 1 amount debt contractual financial obligations commitments excludes amounts due pursuant derivative transactions table also excludes information recurring purchases inventory purchase orders nonbinding generally consistent year shortterm nature table include reserves income taxes fin 48 unable reasonably predict ultimate amount timing settlement reserves income taxes december 31 2007 reserves income taxes including interest penalties totaled 1554 2 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2008 funded pension benefit plans see note 4 debt financing note 12 leases commitments information debt contractual financial obligations commitments additionally disclosed note 13 restructuring initiatives remaining liability 1439 december 31 2007 associated restructuring charges recorded date also expect record additional restructuring charges 496 future periods implement actions approved date significant majority liabilities require cash payments 2008 balance sheet arrangements december 31 2007 material offbalancesheet arrangements capital resources total debt december 31 2007 increased 3111 20974 17863 december 31 2006 primarily due higher commercial paper borrowings fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 675 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires avon’s interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facility also provides possible extension term two years possible increases aggregate incremental principal amount 2500 subject consent affected lenders credit facility december 31 2007 amounts outstanding credit facility 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2007 commercial paper outstanding 7016 april 2007 entered oneyear euro 50 million 729 exchange rate december 31 2007 uncommitted credit facility “euro credit facility” bank tokyomitsubishi ufj ltd borrowings euro credit facility bear interest euro libor rate plus applicable margin euro credit facility available general corporate purposes euro credit facility designated hedge investments eurodenominated functional currency subsidiaries december 31 2007 328 euro 225 million outstanding euro credit facility august 2006 entered oneyear japanese yen 110 billion 963 exchange rate december 31 2007 uncommitted credit facility “yen credit facility” bank tokyomitsubishi ufj ltd borrowings yen credit facility bear interest yen libor rate plus applicable margin yen credit facility available general corporate purposes including working capital repayment outstanding indebtedness yen credit facility used repay japanese yen 90 billion note came due september 2006 well general corporate purposes yen credit facility designated hedge net investment japanese subsidiary august 2007 entered amendment oneyear japanese yen 110 billion 963 exchange rate december 31 2007 uncommitted credit facility bank tokyomitsubishi ufj ltd amendment provides extension yen credit facility august 2008 december 31 2007 963 japanese yen 110 billion outstanding yen credit facility december 31 2007 compliance covenants indentures see note 4 debt financing indentures contain rating downgrade triggers would accelerate maturity debt item 7aitem 7 management’s discussion analysis financial condition results operations following discussion results operations financial condition avon products inc majority wholly owned subsidiaries “avon” “company” read conjunction information contained consolidated financial statements related notes used discussion terms “avon” “company” “we” “our” “us” mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries overview global manufacturer marketer beauty related products business conducted worldwide primarily direct selling channel presently sales operations 66 countries territories including united states distribute products 44 reportable segments based geographic operations six regions latin america north america central eastern europe western europe middle east africa asia pacific china centrally manage global brand marketing supply chain sales organizations beginning fourth quarter 2008 changed product categories beauty plus beyond beauty fashion home beauty consists cosmetics fragrances skin care toiletries “cft” fashion consists fashion jewelry watches apparel footwear accessories home consists gift decorative products housewares entertainment leisure children’s nutritional products sales health wellness products mark global cosmetics brand focuses market young women included among three categories based product type sales made ultimate consumer principally direct selling 58 million active independent representatives independent contractors employees avon success business highly dependent recruiting retaining servicing representatives view geographic diversity businesses strategic advantage part allows us participate higher growth beauty markets internationally developed markets united states seek achieve growth line overall beauty market developing emerging markets seek achieve higher growth targets 2008 approximately 80 consolidated revenue derived operations outside us first penetrate market typically experience high growth rates reach scale markets growth rates generally decline end 2005 launched comprehensive multiyear turnaround plan restore sustainable growth january 2008 announced final initiatives restructuring program launched 2005 turnaround plan 2007 completed analysis optimal product portfolio made decisions exit strategies nonoptimal products product line simplification program “pls” 2007 also launched strategic sourcing initiative “ssi” expect restructuring initiatives deliver annualized savings approximately 430 initiatives fully implemented 20112012 also expect achieve annualized benefits excess 200 250 pls ssi respectively 2010 discussed february 2009 announced new restructuring program multiyear turnaround plan 2008 revenue increased 8 active representatives increased 7 increases segments fueled investments advertising representative value proposition “rvp” sales product categories increased products beauty category increasing 10 2008 revenue grew segments except north america adversely affected slowing macroeconomic environment deteriorating consumer confidence higher yearoveryear fuel prices benefited strength developing emerging markets around globe offset unfavorable impact economic softness north america see “segment review” section management’s discussion analysis financial condition results operations additional information related changes revenue segment fourth quarter 2008 revenue declined compared 2007 due significant negative impact foreign exchange depressed economy expect global economic pressures negative impact foreign currency continue could worsen foreseeable future 2009 challenging year given current macroeconomic environment expect revenue growth 2009 somewhat lower longterm revenue growth expected average midsingle digits excluding impact foreign exchange also expect operating margin 2009 continue pressured unfavorable impacts foreign exchange operating margin also negatively impacted additional restructuring charges 2009 believe benefits ssi program focusing manufacturing productivity changing sourcing raw materials finished goods use exchange rates advantage softening commodity costs help partially offset negative impact foreign exchange continue look ways transform cost structure intend reduce nonstrategic spending 2009 also continue strategies investing advertising representatives believe strong operating cash flow global cash balances 1 billion coupled continuing execution turnaround strategies competitive advantages direct selling business model allow us look beyond anticipated challenges 2009 continue focus longterm sustainable profitable growth strategic initiatives advertising representative value proposition “rvp” investing advertising key strategy significantly increased spending advertising past three years 2008 increased investment advertising 221 6 approximately 70 incremental spending spent russia china united kingdom incremental spending advertising rate somewhat less revenue growth advertising investments supported new product launches anew ultimate contouring eye system bond girl fragrance protogo lipstick anew ultimate age repair elixir supershock mascara avon solutions hydraradiance u ungaro fragrances anew rejuvenate eye advertising investments also included advertising recruit representatives also continued forge alliances celebrities including alliances patrick dempsey ferragamo parfums spa “u ungaro” line fragrances continued invest directselling channel improve reward effort equation representatives committed significant investments extensive research determine payback advertising field tools actions optimal balance tools actions markets allocated significant investments proprietary direct selling analytics better understand drivers value representatives measure investment rvp incremental cost provide valueenhancing initiatives 2008 invested approximately 83 incrementally representatives rvp continued implementation sales leadership program enhanced incentives increased sales campaign frequency improved commissions new ebusiness tools incremental investment ahead revenue growth investing rvp continue key strategy continue look ways improve earnings opportunity representatives various means including following • evaluating optimum discount structures select markets • continuing rollout sales leadership program offers representatives enhanced career opportunity • strategically examining fee structure brochure costs enhance representative economics • recalibrating frequency campaigns maximize representative selling opportunities • applying optimal balance advertising field investment key markets reward effort different within global portfolio businesses believe web enablement key element reduce representative effort worldwide continue focus improving internetbased tools representatives product line simplification 2006 began analyze product line pls program develop smaller range better performing profitable products overall goal pls identify improved product assortment drive higher sales profitable products 2007 completed analysis product portfolio concluded appropriate product assortment going forward made decisions regarding ultimate disposition products longer part improved product assortment selling discount donation destruction 2007 2006 recorded pls charges 1878 814 respectively primarily incremental inventory obsolescence expense 1673 726 respectively recorded final pls charges fourth quarter 2007 first half 2008 began implement pls uk early results appear favorable however transition long process continue 2009 second half 2008 began implementing pls markets full implementation expected end 2009 expect sales marketing benefits account approximately 85 projected benefits improving product assortment allow us increase exposure improve presentation remaining products within brochure expected yield pleasurable consumer shopping experiences easier representative selling experiences greater sales per brochure page second source benefits pls results “transferable demand” transferable demand refers concept products redundant characteristics removed product assortment demand eliminated products transfer remaining products offer similar comparable product characteristics part pls identify products sufficient overlap characteristics eliminate products lowest profitability expect products retain generate profit third source benefits pls less price discounting implement operating procedures pls anticipate introducing fewer new products lengthening lifecycle products offering expect lead less aggressive price discounting product’s life cycle addition benefits also expect supply chain benefits account approximately 15 projected benefits expect improvements cost sales pls fully implemented primarily reduction inventory obsolescence expense result better managed inventory levels lower variable spending warehousing efficient manufacturing utilization lower purchasing costs also expect operating expenses benefit reduction distribution costs benefits inventory productivity estimate realized total benefits approximately 40 2008 expect realize benefits approximately 120 2009 excess 200 2010 strategic sourcing initiative launched ssi 2007 initiative expected reduce direct indirect costs materials goods services initiative shifting purchasing strategy local commodityoriented approach towards globallycoordinated effort leverages volumes allows suppliers benefit economies scale utilizes sourcing best practices processes better matches suppliers’ capabilities needs beyond lower costs goals ssi include improving asset management service representatives vendor relationships 2008 realized benefits approximately 114 ssi addition able offset commodity cost increases approximately 21 fullyear 2008 due ssi actions already place expect realize annualized benefits initiative excess 250 end 2009 full year benefit 2010 result expect realize benefits approximately 200 2009 benefits excess 250 2010 continue implement sales operations planning process intended better align demand plans supply capabilities provide us earlier visibility potential supply issues enterprise resource planning system midst multiyear global rollout enterprise resource planning “erp” system expected improve efficiency supply chain financial transaction processes began global rollout europe 2005 since implemented erp european manufacturing facilities larger european direct selling operations us part continuing global rollout expect implement erp several countries next several years leveraging knowledge gained previous implementations 2008 worked improve effectiveness erp us began implement markets within north america well certain smaller european direct selling operations 2008 also began multiyear implementation process latin america one market latin america plan implement modules erp gradual manner across key markets next several years zerooverheadgrowth institutionalized zerooverheadgrowth philosophy aims offset inflation productivity improvements productivity come primarily ssi restructuring initiatives defined overhead fixed expenses costs associated sales marketing infrastructure management administrative activities overhead excludes variable expenses within selling general administrative expenses shipping handling costs bonuses employees sales organization also excludes consumer strategic investments included selling general administrative expenses advertising rvp research development brochure costs restructuring programs 2005 program launched original restructuring program multiyear turnaround plan late 2005 “2005 program” january 2008 announced final initiatives part 2005 program expect record total restructuring charges costs implement restructuring initiatives program approximately 530 taxes recorded 5042 december 31 2008 606 2008 1583 2007 2288 2006 565 2005 actions associated restructuring initiatives 2005 program primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives expect record majority remaining costs end 2009 costs implement restructuring initiatives 2005 2008 associated specific actions including • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain finance information technology human resource customer service processes move certain services markets lower cost shared service centers • restructure certain international directselling operations • realignment certain distribution manufacturing operations including realignment certain north america latin america distribution operations • automation certain distribution processes • exit certain unprofitable operations including closure avon salon spa closure operations indonesia exit product line china exit becoming product line us • reorganization certain functions primarily salesrelated organizations actions implemented restructuring initiatives resulted savings approximately 270 2008 compared savings approximately 230 2007 expect achieve annualized savings approximately 430 initiatives fully implemented 20112012 expect savings reach approximately 300 2009 restructuring program february 2009 announced new restructuring program multiyear turnaround plan “2009 program” restructuring initiatives 2009 program expected focus restructuring global supply chain operations realigning certain local business support functions regional basis drive increased efficiencies streamlining transactionrelated services including selective outsourcing expect incur restructuring charges costs implement initiatives range 300 400 taxes next several years targeting annualized savings 2009 program approximately 200 upon full implementation 20122013 see note 14 restructuring initiatives pages 2008 annual report form 10k new accounting standards information relating new accounting standards included note 2 new accounting standards pages 2008 annual report form 10k key performance indicators within following discussion analysis utilize key performance indicators “kpis” defined assist evaluation business kpi definition growth active representatives indicator based number representatives submitting order campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units indicator based gross number pieces merchandise sold period compared number period prior year units sold include samples sold product contingent upon purchase another product example gift purchase exclude free samples inventory days indicator equal number days historical cost sales covered inventory balance end period critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies detailed discussion application accounting policies restructuring reserves record severancerelated expenses probable estimable accordance provisions fas 112 employer’s accounting postemployment benefits severance provided ongoing benefit arrangement onetime involuntary benefit arrangements disposal costs primarily contract termination costs accounted provisions fas 146 accounting costs associated exit disposal activities onetime voluntary benefit arrangements accounted provisions fas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits evaluate impairment issues provisions fas 144 accounting impairment disposal longlived assets estimate expense initiatives approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment contract termination payments leases qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent management’s best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly avon may sell end user general representative independent contractor remits payment avon sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances past three years annual bad debt expense range 145 195 approximately 17 total revenue generally detailed information concerning communication end user products beyond representative legal recourse end user collectability accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns record provision estimated sales returns based historical experience product returns past three years sales returns range 295 370 approximately 34 total revenue historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected management additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 808 2806 1797 years ended december 31 2008 2007 2006 respectively 2007 2006 included incremental inventory obsolescence charges 1673 726 respectively related pls program 2006 also includes 205 related decision discontinue sale heavily discounted excess products obsolescence expense 2008 benefited approximately 13 changes estimates disposition plan pls program pension postretirement postemployment benefit expense maintain defined benefit pension plans cover substantially employees us certain international locations additionally unfunded supplemental pension benefit plans certain current retired executives see note 11 employee benefit plans 2008 weighted average assumed rate return pension plan assets including us nonus plans 766 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2008 us plan 8 based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 65 equity securities expected earn approximately 8 10 long term historical rates return assets us plan recent 10year 20year periods 20 76 respectively us plan asset allocation policy favored us equity securities lost 7 returned 84 respectively 10year 20year periods plan assets us lost 262 returned 93 2008 2007 respectively discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 611 december 31 2008 588 december 31 2007 funding requirements may impacted regulations interpretations thereof calculations pension postretirement postemployment costs dependent upon use assumptions including discount rates expected return plan assets interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2008 pretax actuarial losses prior service credits totaling 5384 2606 us nonus plans respectively yet charged expense actuarial losses charged accumulated comprehensive loss within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2008 plan assets experienced significant losses mostly due unfavorable returns equity securities unfavorable returns increase pension cost future periods 2009 assumption expected rate return assets 80 72 us nonus plans respectively assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would following effect 2008 pension expense taxes record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested establish additional provisions income taxes despite belief tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities adjust additional accruals light changing facts circumstances file income tax returns many jurisdictions 2009 number income tax returns scheduled close statute possible number tax examinations may completed avon’s filing positions ultimately upheld possible 2009 provision income taxes may reflect adjustments accordance fin 48 recognize benefit tax position likely sustained audit based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements sharebased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future recorded current period loss contingencies accordance fas 5 accounting contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements results operations consolidated calculation meaningful 1 advertising expenses included within selling general administrative expenses total revenue total revenue increased 8 2008 foreign exchange contributing 3 percentage points revenue growth revenue grew segments except north america revenue growth driven increase 7 active representatives category basis 2008 increase revenue primarily driven increase 10 beauty sales increases subcategories beauty within beauty category fragrance grew 9 color grew 11 skin care grew 10 personal care grew 8 fashion sales increased 6 home sales decreased 3 total revenue increased 13 2007 growth segments revenue growth driven increase 9 active representatives foreign exchange contributed 5 percentage points revenue growth additional selling opportunities central eastern europe minimal impact active representative growth category basis 2007 increase revenue primarily driven increase 15 beauty sales within beauty category fragrance increased 20 color increased 16 skin care increased 6 personal care increased 21 fashion sales increased 12 home sales increased 6 additional discussion changes revenue segment see “segment review” section management’s discussion analysis financial condition results operations gross margin gross margin increased 28 points 2008 primarily due decrease inventory obsolescence provisions 2008 benefited gross margin 20 points increased pricing favorable product mix benefited gross margin 13 points benefits gross margin partially offset higher commodity costs unfavorable impact foreign exchange product cost europe 2007 included incremental inventory obsolescence charges 1673 related pls program obsolescence expense 2008 also benefited approximately 13 changes estimates disposition plan pls program gross margin decreased 7 point 2007 primarily due increase inventory obsolescence provisions approximately 100 2007 negatively impacted gross margin 11 points unfavorable mix products sold partially offset supply chain efficiencies discussed overview section 2007 2006 included incremental inventory obsolescence charges 1673 726 respectively related decision discontinue sale certain products part pls program additionally 2006 included incremental inventory obsolescence charges 205 related decisions discontinue sale certain heavily discounted products selling general administrative expenses selling general administrative expenses increased 2769 2008 primarily due following • higher investments rvp advertising approximately 105 • higher variable expenses freight increased sales volume brochure costs • higher overhead primarily due higher marketing costs • impact foreign exchange higher costs partially offset lower costs incurred implement restructuring initiatives 998 due costs associated previously approved initiatives selling general administrative expenses increased 5388 2007 primarily due following • higher investments advertising rvp approximately 240 • higher variable expenses freight commissions increased sales volume • increased distribution costs percentage revenue higher costs partially offset 718 lower costs incurred implement restructuring initiatives savings associated position eliminations resulting restructuring initiatives additionally 2007 benefited favorable comparison 2006 included onetime charge 210 related resolution longstanding dispute regarding valueadded taxes uk recognition unclaimed salesrelated tax credits reduction reserve statutory liabilities see “segment review” section management’s discussion analysis financial condition results operations additional information related changes operating margin segment expenses interest expense decreased 2008 primarily due lower domestic interest rates interest expense increased 2007 compared 2006 mainly due higher borrowings support share repurchase programs well increases domestic interest rates december 31 2008 2007 held interest rate swap agreements effectively converted approximately 50 30 outstanding longterm fixedrate borrowings variable interest rate based libor respectively total exposure debt floating interest rates december 31 2008 december 31 2007 approximately 65 60 respectively interest income decreased 2008 primarily due lower interest rates interest income decreased 2007 compared 2006 primarily due lower cash equivalent balances expense net increased 2008 primarily due net foreign exchange losses 2008 compared foreign exchange gains 2007 expense net decreased 2007 compared 2006 primarily due higher net foreign exchange gains 2007 effective tax rate effective tax rate 2008 293 compared 330 2007 318 2006 2008 tax rate favorably impacted 38 points due audit settlement partially offset 12 points establishment valuation allowance deferred tax assets rate also favorably impacted changes earnings mix international subsidiaries expected recur 2007 tax rate favorably impacted approximately 20 points due net release valuation allowances partially offset unfavorable impact restructuring pls initiatives 2006 effective tax rate favorably impacted approximately 40 points due closure tax years expiration statute limitations audit settlements well 17 points due tax refunds benefits partially offset repatriation international earnings increased rate approximately 31 points tax impact associated restructuring charges due lower weightedaverage effective tax rate subsidiaries incurring charges segment review analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2008 global expenses include among things costs related executive administrative offices information technology research development marketing certain planned global expenses allocated business segments primarily based planned revenue unallocated costs remain global expenses allocate costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment increase amount allocated segments 2008 primarily due higher global marketing research development costs higher information technology costs higher costs related global initiatives decrease net global expenses primarily due lower costs implement restructuring initiatives lower professional service fees associated pls initiative increase amount allocated segments 2007 primarily due higher global marketing costs reflecting increased spending market research development advertising increase net global expenses 2007 primarily due higher costs related global initiatives higher information technology costs higher performancebased compensation expense latin america 2008 compared 2007 total revenue increased 2008 driven larger average order growth active representatives well favorable foreign exchange growth active representatives reflects significant investments rvp continued high level investment advertising revenue 2008 benefited continued growth substantially markets particular 2008 revenue grew 24 brazil 36 venezuela 5 mexico 3 colombia revenue growth brazil driven higher average order growth active representatives impact foreign exchange revenue growth venezuela driven higher average order revenue mexico benefited growth active representatives experienced deceleration growth colombia second half 2008 due economic conditions well competition increase operating margin latin america 2008 primarily due impact higher revenues increased pricing lower inventory obsolescence expense lower costs implement restructuring initiatives benefits margin partially offset higher investments rvp operating margin 2007 benefited recognition unclaimed salesrelated tax credits currency restrictions enacted venezuelan government 2003 impacted ability subsidiary venezuela “avon venezuela” obtain foreign currency official rate pay imported products unless official foreign exchange made readily available avon venezuela’s operations continue negatively impacted need obtain foreign currency needs nongovernment sources exchange rate less favorable official rate december 31 2008 avon venezuela cash balances approximately 120 primarily denominated bolivars 2007 avon venezuela remitted dividends approximately 40 official exchange rate avon venezuela continues receive official foreign exchange imports remittances continue use official rate translate financial statements avon venezuela us dollars 2008 avon venezuela’s revenue operating profit represented approximately 4 8 consolidated revenue consolidated operating profit respectively inflation venezuela continued increase past years possible venezuela designated highly inflationary economy 2009 gains losses resulting translation financial statements subsidiaries operating highly inflationary economies recorded earnings venezuela designated highly inflationary economy devaluation official rate earnings negatively impacted example based balance sheet venezuelan subsidiary december 31 2008 venezuela designated highly inflationary economy 20 devaluation pretax earnings would negatively impacted approximately 30 additionally revenue operating profit ongoing basis would impacted devaluation latin america 2007 compared 2006 total revenue increased 2007 driven growth active representatives reflecting significant investments advertising rvp larger average order well favorable foreign exchange revenue 2007 benefited growth markets particularly growth approximately 30 brazil colombia venezuela revenue growth brazil 2007 driven increases average order active representatives primarily due significant investments advertising rvp recruiting advertising field incentives well favorable foreign exchange revenue mexico flat 2007 midsingle digit increase active representatives offset lower average order increase active representatives mexico primarily reflects strengthened training incentives retraining zone managers field fundamentals lower average order mainly due product mix higher share sales new representatives decrease operating margin 2007 primarily driven higher spending advertising rvp unfavorable mix products sold higher costs partially offset impact higher revenue lower costs implement restructuring initiatives positively impacted operating margin 8 point savings associated position eliminations resulting restructuring initiatives recognition unclaimed salesrelated tax credits north america 2008 compared 2007 north america consists largely avon’s us business revenue 2008 impacted macroeconomic environment including deteriorating consumer confidence higher yearoveryear fuel prices sales nonbeauty products declined 9 2008 consistent general retail environment sales beauty products declined 1 2008 given economic environment expect trends continue total revenue decreased 2008 lower average order received representatives offset increase active representatives growth active representatives benefited continued investments rvp including frequent brochure distribution canada recruiting advertising decline average order large part due customer demand nonbeauty products slowing markedly recessionary environment increase operating margin 2008 primarily driven lower obsolescence overhead expenses benefits operating margin partially offset higher variable selling costs including paper brochure bad debt transportation impact lower revenue north america 2007 compared 2006 total revenue increased 3 2007 primarily due growth active representatives benefiting continued investments rvp recruiting advertising fourth quarter 2007 began see decelerating trends nonbeauty particularly accessories apparel driven negative impact rising gas prices well softness us retail sector negatively impacted average order increase operating margin 2007 primarily driven lower costs implement restructuring initiatives positively impacted operating margin 19 points savings associated position eliminations resulting restructuring initiatives supply chain efficiencies benefits operating margin partially offset higher inventory obsolescence expense higher spending advertising rvp costs related implementation enterprise resource planning system central eastern europe 2008 compared 2007 beginning end june 2007 provided representatives additional selling opportunities frequent brochure distribution encourages frequent customer contact active representative growth first half 2008 benefited increased brochure distribution frequency total revenue increased 2008 reflecting growth active representatives well favorable foreign exchange partially offset lower average order average order impacted lower average order first half 2008 representatives transitioned shorter selling cycle average order second half 2008 declined much lesser degree compared first half 2008 region’s revenue growth benefited increases russia 8 well growth markets region led ukraine growth 20 revenue increase russia 2008 primarily due strong growth active representatives well favorable foreign exchange completed rollout sales leadership improved discount structure offer representatives russia near end third quarter 2008 increase operating margin 2008 primarily driven impact higher revenue lower inventory obsolescence expense increased pricing partially offset higher spending rvp advertising impact unfavorable foreign exchange product cost central eastern europe 2007 compared 2006 total revenue increased 2007 reflecting growth active representatives well favorable foreign exchange partially offset lower average order representatives transitioned shorter selling cycle active representative growth 2007 benefited additional selling opportunities provided representatives frequent brochure distribution beginning end june 2007 encourages frequent customer contact region’s revenue growth 2007 primarily driven russia well growth markets region revenue russia increased 20 2007 due strong active representative growth benefited additional selling opportunities well favorable foreign exchange revenue russia 2007 also benefited increased advertising continued merchandising improvements launch “hello tomorrow” decrease operating margin 2007 primarily driven higher inventory obsolescence expense higher spending advertising rvp partially offset lower product costs due favorable foreign exchange movements impact higher revenue western europe middle east africa 2008 compared 2007 calculation meaningful total revenue increased 2008 due growth active representatives higher average order partially offset unfavorable foreign exchange revenue growth 2008 driven italy turkey revenue united kingdom 2008 declined 3 due unfavorable foreign exchange revenue united kingdom local currency increased driven increase active representatives benefiting investments representative recruiting revenue united kingdom also benefited continued rollout pls strong merchandising revenue growth turkey 8 2008 due larger average order revenue turkey also benefited continued high levels investments advertising rvp revenue italy 2008 increased due growth active representatives increase operating margin 2008 primarily driven lower costs implement restructuring initiatives impact higher revenue lower inventory obsolescence expense lower overhead expenses increased pricing benefits operating margin partially offset impact unfavorable foreign exchange product cost higher spending rvp advertising western europe middle east africa 2007 compared 2006 calculation meaningful total revenue increased 2007 reflecting growth active representatives well favorable foreign exchange revenue increase 2007 primarily driven growth turkey uk revenue growth turkey 35 2007 primarily due growth active representatives well favorable foreign exchange revenue growth uk 10 2007 benefited growth active representatives mainly due strength sales leadership program favorable foreign exchange revenue turkey uk also benefited new product launches significant investments advertising rvp operating margin 2006 suppressed 19 points due 210 expense associated resolution valueadded tax dispute uk third quarter 2006 increase operating margin 2007 also driven lower product costs due favorable foreign exchange movements savings associated position eliminations resulting restructuring initiatives benefits operating margin partially offset higher costs implement restructuring initiatives negatively impacted operating margin 11 points 2007 higher spending advertising rvp higher inventory obsolescence expense asia pacific 2008 compared 2007 total revenue increased 2008 due foreign exchange revenue growth philippines almost 20 primarily due growth active representatives supported rvp initiatives well favorable foreign exchange revenue japan increased slightly due foreign exchange revenue japan local currency declined 2008 due lower sales direct mail direct selling expect continue see downward pressure japan going forward revenue taiwan declined 2008 reflecting impact field restructuring economic weakness partially offset favorable foreign exchange operating margin increased 2008 primarily due impact lower inventory obsolescence expense increased pricing lower overhead expenses partially offset higher spending rvp unfavorable mix products sold asia pacific 2007 compared total revenue increased 2007 due favorable foreign exchange region’s revenue increase 2007 primarily driven growth philippines partially offset declines japan taiwan revenue philippines 2007 increased almost 30 driven substantial growth active representatives supported rvp initiatives including rollout sales leadership program nationwide investments recruiting advertising well favorable foreign exchange revenue japan declined midsingle digits 2007 reflecting weak performance skin care japan lower sales direct mailing partially offset modest increase sales direct selling less overall revenue decline beauty market revenue taiwan declined due economic weakness increase operating margin 2007 primarily driven lower costs implement restructuring initiatives positively impacted operating margin 22 points additionally operating margin improvement due lower inventory obsolescence expense savings associated position eliminations resulting restructuring initiatives partially offset higher spending rvp advertising unfavorable category country mixes products sold china 2008 compared 2007 calculation meaningful revenue china increased 2008 primarily due increase active representatives partially offset lower average order growth active representatives reflected continued expansion direct selling efforts supported significant representative recruiting television advertising field incentives lower average order resulted continued expansion direct selling representatives order smaller quantities beauty boutiques orders new representatives tend smaller average direct selling order beauty boutique ordering activity levels remained steady extended period direct selling expansion beauty boutique operators continue service representatives results china 2008 negatively impacted earthquake subsequent flooding occurred second quarter 2008 increase operating margin 2008 primarily driven impact higher revenue lower product costs partially offset ongoing higher spending rvp advertising costs associated 2008 earthquake floods operating margin 2007 benefited higher reductions reserves statutory liabilities information concerning internal investigation china operations see risk factors note 15 contingencies china 2007 compared 2006 calculation meaningful total revenue china increased significantly 2007 primarily due increase active representatives reflecting expansion directselling business contributed one half region’s revenue 2007 active representatives increased significantly 2007 due representative recruiting well absence meaningful base comparison first half 2006 lower average order mainly due higher share sales new representatives time building direct selling seen ordering activity levels maintained beauty boutiques continue engage direct selling servicing representatives additionally number beauty boutiques remained stable last year revenue 2007 benefited representative recruiting continued significant investments advertising increase operating margin 2007 primarily driven impact higher revenue reduction reserve statutory liabilities positive impacts partially offset ongoing higher spending rvp fees paid registered service centers providing services active representatives liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit currently believe existing cash operations including impacts cash required restructuring initiatives available sources public private financing adequate meet anticipated requirements working capital dividends capital expenditures share repurchase program possible acquisitions cash needs short long term may time seek repurchase equity open market purchases privately negotiated transactions pursuant derivative instruments otherwise 2008 repurchased approximately 46 million shares common stock aggregate purchase price approximately 172 retirements debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations acquisitions meet liquidity needs issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods liquidity could also impacted dividends capital expenditures acquisitions given time may process discussing negotiating acquisition may accretive dilutive nature involve numerous risks uncertainties see cautionary statement purposes “safe harbor” statement private securities litigation reform act 1995 recent turmoil global financial markets limited access capital many companies 2008 experience limitations issuing commercial paper reflecting investmentgrade credit rating standard poor’s rating single moody’s rating a2 addition commercial paper program fully supported revolving line credit described “capital resources” management aware issues currently impacting lenders’ ability honor commitment extend credit revolving line credit unclear extent credit crisis persist overall impact may avon balance sheet data cash flows net cash provided operating activities net cash provided operating activities 2008 1583 higher 2007 primarily due higher cashrelated net income 2008 favorable impacts inventory accounts receivable balances lower contributions retirementrelated plans 2008 cash inflows partially offset unfavorable impact accounts payable balance additional payments value added taxes due tax law change brazil began recover fourth quarter 2008 higher incentivebased compensation payments 2008 related 20062007 turnaround incentive plan payment 380 upon settlement treasury lock agreements associated 500 debt issuance first quarter 2008 inventory levels decreased 2008 10079 december 31 2008 10418 december 31 2007 reflecting impact foreign exchange partially offset business growth revenue declines north america new inventory life cycle management processes leveraged initiatives pls ssi erp implementation sales operations planning process expected improve inventory levels longterm inventory days three days 2008 compared 2007 expect initiatives help us deliver improvements three five inventory day reductions per year next three four years maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 11 employee benefit plans funding policy plans based legal requirements cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed “critical accounting estimates” future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 60 100 us pension plans range 20 30 international pension plans 2009 net cash provided operating activities decreased 2063 2007 compared 2006 primarily due higher payments inventory purchases higher incentivebased compensation payments 2007 compensation earned 2006 higher interest payments partially offset lower payments associated restructuring initiatives net cash used investing activities net cash used investing activities 2008 1162 higher 2007 primarily due higher capital expenditures 2007 included payment associated acquisition licensee egypt capital expenditures 2008 3805 compared 2785 2007 increase primarily driven capital spending 2008 construction new distribution facilities north america latin america information systems including continued development erp system plant construction expansion modernization projects progress december 31 2008 estimated cost complete approximately 430 capital expenditures 2009 currently expected range 325 375 funded cash operations expenditures include investments capacity expansion modernization existing facilities continued construction new distribution facilities north america latin america information systems net cash used investing activities 2007 793 higher 2006 resulting higher capital expenditures 2007 payments associated acquisition licensee egypt 2007 partially offset acquisition remaining minority interest two joint venture subsidiaries china approximately 39 2006 capital expenditures 2007 2785 compared 1748 2006 increase capital spending primarily driven spending 2007 capacity expansion construction new distribution facility north america information systems including continued development erp system net cash used financing activities net cash used financing activities 2008 4556 lower 2007 primarily due lower repurchases common stock 2008 net cash used financing activities 2007 1067 higher 2006 mainly driven higher repurchases common stock 2007 partially offset higher shortterm borrowings higher proceeds stock option exercises 2007 purchased approximately 46 million shares avon common stock 1721 2008 compared approximately 173 million shares avon common stock 6668 2007 approximately 116 million shares avon common stock 3551 2006 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock units october 2007 board directors authorized repurchase 20000 common stock fiveyear period began december 2007 increased quarterly dividend payments 20 per share 2008 185 per share 2007 february 2009 board approved increase quarterly dividend 21 per share debt contractual financial obligations commitments december 31 2008 debt contractual financial obligations commitments due dates follows 1 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2009 funded pension benefit plans 2 amount debt contractual financial obligations commitments excludes amounts due pursuant derivative transactions table also excludes information recurring purchases inventory purchase orders nonbinding generally consistent year shortterm nature table include reserves income taxes fin 48 unable reasonably predict ultimate amount timing settlement reserves income taxes december 31 2008 reserves income taxes including interest penalties totaled 1183 see note 4 debt financing note 13 leases commitments information debt contractual financial obligations commitments additionally disclosed note 14 restructuring initiatives remaining liability 939 december 31 2008 associated restructuring charges recorded date also expect record additional restructuring charges 219 future periods implement actions approved date significant majority liabilities require cash payments 2009 balance sheet arrangements december 31 2008 material offbalancesheet arrangements capital resources fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 7 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires avon’s interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facility also provides possible increases aggregate incremental principal amount 2500 subject consent affected lenders credit facility december 31 2008 amounts outstanding credit facility 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2008 commercial paper outstanding 4997 japanese yen 11 billion 1220 exchange rate december 31 2008 uncommitted credit facility “yen credit facility” expires august 2009 borrowings yen credit facility bear interest yen libor rate plus applicable margin yen credit facility available general corporate purposes including working capital repayment outstanding indebtedness december 31 2008 1020 japanese yen 92 billion outstanding yen credit facility march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 48 payable semiannually mature march 1 2013 unless redeemed prior maturity “2013 notes” 2500 notes bear interest per annum coupon rate 575 payable semiannually mature march 1 2018 unless redeemed prior maturity “2018 notes” net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes august 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses locks 380 recorded accumulated comprehensive loss 192 188 losses amortized interest expense five years ten years respectively december 31 2008 compliance covenants indentures see note 4 debt financing indentures contain rating downgrade triggers would accelerate maturity debt however would required make offer repurchase 2013 notes 2018 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding ratings downgrade investment grade item 7aitem 7 managements discussion analysis financial condition results operations read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes used discussion terms “avon” “company” “we” “our” “us” mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries refer key performance indicators table page 24 2009 annual report description constant dollar “constant ” growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted worldwide primarily direct selling channel presently sales operations 65 countries territories including us distribute products 40 reportable segments based geographic operations six regions latin america north america central eastern europe western europe middle east africa asia pacific china centralized operations global brand marketing global sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists fashion jewelry watches apparel footwear accessories home consists gift decorative products housewares entertainment leisure products children’s nutritional products sales health wellness products mark global cosmetics brand focuses market young women included among three categories based product type sales made ultimate consumer principally direct selling approximately 62 million active independent representatives independent contractors employees success business highly dependent recruiting retaining servicing representatives view geographic diversity businesses strategic advantage part allows us participate higher growth beauty markets internationally developed markets us seek achieve growth line overall beauty market developing emerging markets seek achieve higher growth targets 2009 approximately 80 consolidated revenue derived operations outside us end 2005 launched comprehensive multiyear turnaround plan restore sustainable growth approved announced initiatives restructuring program launched 2005 turnaround plan “2005 restructuring program” 2007 completed analysis optimal product portfolio made decisions exit strategies nonoptimal products product line simplification program “pls” 2007 also launched strategic sourcing initiative “ssi” expect restructuring initiatives 2005 restructuring program deliver annualized savings approximately 430 initiatives fully implemented 20112012 also expect achieve annualized benefits excess 200 pls 250 ssi 2010 february 2009 announced new restructuring program “2009 restructuring program” multiyear turnaround plan targets increasing levels efficiency organizational effectiveness across global operations expect restructuring initiatives 2009 restructuring program deliver annualized savings approximately 200 initiatives fully implemented 20122013 initiatives programs discussed whenever refer annualized savings annualized benefits mean additional operating profit expect realize fullyear basis every year following implementation respective initiative compared operating profit would expected achieve without implemented initiative 2009 revenue decreased 3 impacted unfavorable foreign exchange depressed global economy constant revenue increased 6 increases segments except north america china sales products beauty category decreased 3 due unfavorable foreign exchange constant basis sales products beauty category increased 7 due 4 increase units 3 increase net per unit active representatives increased 9 unfavorable impact foreign exchange lowered operating margin estimated 25 points approximately 2 points foreignexchange transactions approximately 05 points foreignexchange translation year see “segment review” section mda additional information related changes revenue segment although expect global economic pressures continue foreseeable future expect least midsingle digit constant revenue growth 2010 operating margin negatively impacted devaluation venezuelan currency coupled required change account operations venezuela highly inflationary basis result devaluation expect company’s operating margin negatively impacted approximately 85 costs associated historical cost us dollars nonmonetary assets refer discussion venezuela page 31 2009 annual report despite negative impact accounting cost devaluation venezuelan currency anticipate company’s operating margin improve 2010 reach midteen levels 2013 believe strong operating cash flow global cash balances approximately 13 billion coupled continuing execution turnaround strategies competitive advantages direct selling business model allow us continue focus longterm sustainable profitable growth also focused innovating direct selling channel technological service model enhancements representatives assessing new product category opportunities also continue offer increased assortment “smart value” products quality products affordable price points promote representative earnings opportunity wider audience strategic initiatives end 2005 launched comprehensive multiyear turnaround plan restore sustainable growth part turnaround plan launched pls ssi programs since 2005 identified many case implemented restructuring initiatives 2005 2009 restructuring programs continue implement certain initiatives restructuring programs anticipated savings benefits realized initiatives funded continue fund investment amongst things advertising market intelligence consumer research product innovation advertising representative value proposition “rvp” investing advertising key strategy although significantly increased spending advertising past three years 2009 investment advertising decreased 38 10 reflecting improved productivity general softness media prices benefit foreign currency translation percentage beauty sales investment advertising flat compared 2008 advertising investments supported new product launches anew reversalist serumcream anew dermafull helix spectra lash mascara spectracolor lip 24k gold lipstick supercurlacious mascara spotlight fragrance advertising investments also included advertising recruit representatives also continued forge alliances celebrities including alliances patrick dempsey reese witherspoon bloom fragrance continued invest directselling channel improve reward effort equation representatives committed significant investments extensive research determine payback advertising field tools actions optimal balance tools actions markets allocated significant investments proprietary direct selling analytics better understand drivers value representatives measure investment rvp incremental cost provide valueenhancing initiatives 2009 invested approximately 56 incrementally representatives rvp continued implementation sales leadership program enhanced incentives increased sales campaign frequency improved commissions new ebusiness tools investing rvp continue key strategy continue look ways improve earnings opportunity representatives various means including following • evaluating optimum discount structures select markets • continuing rollout sales leadership program offers representatives enhanced career opportunity • strategically examining fee structure brochure costs enhance representative economics • recalibrating frequency campaigns maximize representative selling opportunities • applying optimal balance advertising field investment key markets • web enablement representatives including online training enhancements reward effort different within global portfolio businesses believe web enablement key element reduce representative effort worldwide continue focus improving internetbased tools representatives product line simplification 2006 began analyze product line pls program develop smaller range better performing profitable products continued goal pls identify improved product assortment drive higher sales profitable products 2007 completed analysis product portfolio concluded appropriate product assortment going forward made decisions regarding ultimate disposition products longer part improved product assortment selling discount donation destruction 2007 recorded pls charges 1878 primarily incremental inventory obsolescence expense 1673 although pls program ongoing recorded final pls charges fourth quarter 2007 sales marketing benefits continue account projected benefits improving product assortment allow us increase exposure improve presentation remaining products within brochure expected yield pleasurable consumer shopping experiences easier representative selling experiences greater sales per brochure page second source benefits pls results “transferable demand” transferable demand refers concept products redundant characteristics removed product assortment demand eliminated products transfer remaining products offer similar comparable product characteristics part pls identify products sufficient overlap characteristics eliminate products lowest profitability expect products retain generate profit third source benefits pls less price discounting implement operating procedures pls anticipate introducing fewer new products lengthening lifecycle products offering expect lead less aggressive price discounting product’s life cycle addition benefits also expect supply chain benefits account projected benefits expect improvements cost sales pls fully implemented primarily reduction inventory obsolescence expense result better managed inventory levels lower variable spending warehousing efficient manufacturing utilization lower purchasing costs also expect operating expenses benefit reduction distribution costs benefits inventory productivity given nature benefits estimate realized targeted total benefits program approximately 40 2008 approximately 120 2009 incremental benefits approximately 80 2008 expect realize targeted benefits excess 200 2010 strategic sourcing initiative launched ssi 2007 initiative expected reduce direct indirect costs materials goods services initiative shifting purchasing strategy local commodityoriented approach towards globallycoordinated effort leverages volumes allows suppliers benefit economies scale utilizes sourcing best practices processes better matches suppliers’ capabilities needs beyond lower costs goals ssi include improving asset management service representatives vendor relationships 2008 realized benefits approximately 135 ssi 2009 realized approximately 200 benefits ssi incremental benefits approximately 65 2008 expect realize benefits excess 250 2010 continue implement sales operations planning process intended better align demand plans supply capabilities provide us earlier visibility potential supply issues enterprise resource planning system midst multiyear global rollout enterprise resource planning “erp” system expected improve efficiency supply chain financial transaction processes began gradual global rollout europe 2005 since implemented erp european manufacturing facilities larger european direct selling operations us part continuing global rollout expect implement erp several countries next several years leveraging knowledge gained previous implementations 2008 worked improve effectiveness erp us began implement markets within north america well smaller european direct selling operations 2008 also began multiyear implementation process latin america one market latin america plan implement modules erp gradual manner across key markets next several years 2009 began delivering erp implementation latin america implementation erp modules mexico brazil 2010 continue implementation gradual manner across key markets within region zerooverheadgrowth institutionalized zerooverheadgrowth philosophy aims offset inflation productivity improvements productivity come primarily ssi restructuring initiatives defined overhead fixed expenses costs associated sales marketing infrastructure management administrative activities overhead excludes variable expenses within selling general administrative expenses shipping handling costs bonuses employees sales organization also excludes consumer strategic investments included selling general administrative expenses advertising rvp research development brochure costs restructuring initiatives 2005 restructuring program launched original restructuring program multiyear turnaround plan late 2005 approved announced initiatives part 2005 restructuring program expect record total restructuring charges costs implement restructuring initiatives program approximately 530 taxes recorded total costs implement net adjustments 5243 december 31 2009 201 2009 606 2008 1583 2007 2288 2006 565 2005 actions associated restructuring initiatives 2005 restructuring program primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives costs implement restructuring initiatives 2005 2009 associated specific actions including • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain finance information technology human resource customer service processes move certain services markets lower cost shared service centers • restructure certain international directselling operations • realignment certain distribution manufacturing operations including realignment certain north america latin america distribution operations • automation certain distribution processes • exit certain unprofitable operations product lines • reorganization certain functions primarily salesrelated organizations actions implemented restructuring initiatives resulted savings approximately 300 2009 compared savings approximately 270 2008 expect achieve annualized savings approximately 430 initiatives fully implemented 20112012 expect savings reach approximately 350 2010 2009 restructuring program february 2009 announced new restructuring program multiyear turnaround plan restructuring initiatives 2009 restructuring program focus restructuring global supply chain operations realigning certain local business support functions regional basis drive increased efficiencies streamlining transactionrelated services including selective outsourcing expect record total restructuring charges costs implement restructuring initiatives range 300 400 taxes 2009 restructuring program recorded total costs implement net adjustments 1513 december 31 2009 actions associated restructuring initiatives 2009 restructuring program primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives actions implemented restructuring initiatives resulted savings approximately 15 2009 targeting annualized savings 2009 restructuring program approximately 200 upon full implementation 20122013 expect savings reach approximately 75 2010 see note 14 restructuring initiatives pages 2009 annual report new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2009 annual report key performance indicators within mda utilize key performance indicators “kpis” defined assist evaluation business kpi definition growth active representatives indicator based number representatives submitting order campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units indicator based gross number pieces merchandise sold period compared number period prior year units sold include samples sold product contingent upon purchase another product example gift purchase exclude free samples inventory days indicator equal number days cost sales based average preceding 12 months covered inventory balance end period constant non gaap financial measure supplement financial results presented accordance us gaap disclose operating results adjusted exclude impact changes translation foreign currencies us dollars refer adjusted growth rates constant growth believe measure provides investors additional perspective trends exclude impact changes translation foreign currencies us dollars calculate current year results prior year results constant exchange rate currency impact determined difference actual growth rates constant currency growth rates critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies consolidated financial statements contained 2009 annual report detailed discussion application accounting policies restructuring reserves record severancerelated expenses probable estimable severance provided ongoing benefit arrangement onetime involuntary benefit arrangements disposal costs primarily contract termination costs recorded benefits communicated employees onetime voluntary benefit arrangements recorded employee accepts offered benefit arrangement evaluate impairment issues carrying amount asset recoverable exceeds fair value asset estimate expense restructuring initiatives approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment contract termination payments leases qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including selling schedules business operations seasonality changing trends past three years annual bad debt expense range 164 222 approximately 20 total revenue bad debt expense percent revenue increased 03 points 2009 compared 2008 caused influx new representatives normally higher rate default established representatives well economic conditions allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collectability accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns record provision estimated sales returns based historical experience product returns past three years sales returns range 335 375 approximately 35 total revenue historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected management additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 1229 2009 808 2008 2806 2007 obsolescence expense 2007 included incremental inventory obsolescence charges 1673 related pls program obsolescence expense 2008 benefited approximately 13 changes estimates disposition plan pls program pension postretirement postemployment expense maintain defined benefit pension plans cover substantially employees us portion employees international locations additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care life insurance benefits subject certain limitations majority employees us foreign countries see note 11 employee benefit plans 2009 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions include expected rate return pension plan assets discount rate applied pension plan obligations 2009 weighted average assumed rate return pension plan assets including us nonus plans 760 compared 766 2008 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2009 us plan 8 based asset allocation approximately 37 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 63 equity securities expected earn approximately 7 10 long term historical rates return assets us plan 36 recent 10year period 80 20year period us plan asset allocation policy favored us equity securities returned 3 10year period 84 20year period plan assets us returned 246 2009 lost 262 2008 discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 561 december 31 2009 611 december 31 2008 determination expected rate return assets discount rate take consideration external actuarial advice funding requirements may impacted regulations interpretations thereof calculations pension postretirement postemployment costs dependent use assumptions including discount rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2009 pretax actuarial losses prior service credits totaling 4295 us plans 2792 nonus plans yet charged expense actuarial losses charged accumulated comprehensive loss within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2008 plan assets experienced significant losses mostly due unfavorable returns equity securities unfavorable returns increase pension cost future periods 2010 assumption expected rate return assets 80 us plans 718 nonus plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2009 pension expense taxes record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made deferred taxes provided portion unremitted earnings subsidiaries outside us conclude earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested establish additional provisions income taxes despite belief tax positions fully supportable remain positions likely challenged may sustained review tax authorities adjust additional accruals light changing facts circumstances file income tax returns many jurisdictions 2010 number income tax returns scheduled close statute possible number tax examinations may completed filing positions ultimately upheld possible 2010 provision income taxes may reflect adjustments recognize benefit tax position likely sustained audit based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements sharebased compensation sharebased payments employees recognized consolidated financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future historical results loss contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements results operations consolidated calculation meaningful 1 advertising expenses included within selling general administrative expenses total revenue total revenue decreased 3 2009 unfavorable foreign exchange accounting 9 percentage points revenue decline constant revenue increased 6 increases segments except north america china active representatives increased 9 category basis constant beauty sales increased 7 fashion increased 1 home increased 5 within beauty category constant sales skincare decreased 1 fragrance increased 8 personal care increased 9 color cosmetics increased 13 reported basis decrease revenue 2009 primarily driven decrease 3 beauty sales decreases subcategories beauty except color cosmetics within beauty category skincare declined 8 fragrance declined 2 personal care declined 1 color cosmetics increased 3 fashion sales decreased 5 home sales decreased 1 total revenue increased 8 2008 foreign exchange contributing 3 percentage points revenue growth revenue grew segments except north america revenue growth driven increase 7 active representatives category basis 2008 increase revenue primarily driven increase 10 beauty sales increases subcategories beauty within beauty category skin care grew 10 fragrance grew 9 personal care grew 9 color cosmetics grew 11 fashion sales increased 6 home sales decreased 3 category basis constant beauty sales increased 7 fashion increased 5 home decreased 4 within beauty category constant sales skincare increased 6 fragrance increased 8 personal care increased 7 color cosmetics increased 8 additional discussion changes revenue segment see “segment review” section mda gross margin gross margin 2009 decreased 05 points unfavorable impact foreign exchange transactions lowered gross margin estimated 17 points 2009 portion negative impact foreign exchange transactions offset strong manufacturing productivity gains includes benefits ssi strategic price increases 2008 gross margin included benefits approximately 13 reduced obsolescence changes estimates disposition plan pls program gross margin increased 28 points 2008 compared 2007 primarily due decrease inventory obsolescence provisions 2008 benefited gross margin 20 points increased pricing favorable product mix benefited gross margin 13 points benefits gross margin partially offset higher commodity costs unfavorable impact foreign exchange product cost europe 2007 included incremental inventory obsolescence charges 1673 related pls program obsolescence expense 2008 also benefited approximately 13 changes estimates disposition plan pls program selling general administrative expenses selling general administrative expenses increased 746 2009 compared 2008 due higher costs incurred restructuring initiatives partially offset lower advertising costs recorded charges 2005 2009 restructuring programs 1647 2009 compared 575 2008 selling general administrative expenses increased 2769 2008 compared 2007 primarily due following • higher investments rvp advertising approximately 105 • higher variable expenses freight increased sales volume brochure costs • higher overhead primarily due higher marketing costs • impact foreign exchange higher costs 2008 compared 2007 partially offset lower costs incurred implement restructuring initiatives 998 due costs associated previously approved initiatives see “segment review” section mda additional information related changes operating margin segment expenses interest expense increased 4 2009 compared 2008 due increased borrowings partially offset lower interest rates interest expense decreased 11 2008 compared 2007 primarily due lower domestic interest rates december 31 2009 held interestrate swap agreements effectively converted approximately 82 outstanding longterm fixedrate borrowings variable interest rate based libor compared 50 december 31 2008 interest income decreased 2009 2008 primarily due lower interest rates expense net 2009 lower 2008 result lower foreign exchange losses expense net increased 2008 primarily due net foreign exchange losses 2008 compared foreign exchange gains 2007 effective tax rate effective tax rate 2009 322 compared 293 2008 330 2007 effective tax rate 2009 unfavorably impacted 34 points establishment valuation allowance certain deferred tax assets primarily result restructuring activities partially offset 24 points reduction foreign tax liability 2009 rate also included higher tax cost associated repatriation current year earnings offset favorable changes earnings mix international subsidiaries effective tax rate 2008 favorably impacted 38 points due audit settlement partially offset 12 points establishment valuation allowance certain deferred tax assets 2008 rate also benefited changes earnings mix international subsidiaries effective tax rate 2007 favorably impacted 20 points due net release valuation allowances partially offset unfavorable impact restructuring pls initiatives segment review analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2009 global expenses include among things costs related executive administrative offices information technology research development marketing certain planned global expenses allocated business segments primarily based planned revenue unallocated costs remain global expenses allocate costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment increase total global expenses 2009 primarily attributable higher legal information technology related costs increase amounts allocated segments 2009 result change mix expenses allocated segments higher global expenses increase amounts allocated segments 2008 primarily due higher global marketing research development costs higher information technology costs higher costs related global initiatives decrease net global expenses primarily due lower costs implement restructuring initiatives lower professional service fees associated pls initiative latin america 2009 compared 2008 total revenue increased 2009 reflecting growth active representatives driven continued investments rvp higher average order offset unfavorable foreign exchange revenue increased 9 brazil declined 11 mexico 2009 constant revenue 2009 benefited growth markets particularly increases 17 brazil 8 mexico revenue venezuela 2009 grew 18 constant us dollars revenue venezuela negatively impacted future periods change official exchange rate discussed constant revenue growth brazil 2009 primarily driven increase active representatives well higher average order constant revenue growth mexico 2009 driven significant increase active representatives partially offset lower average order reflecting difficult economic climate revenue growth venezuela 2009 reflected increased prices due inflation decrease operating margin latin america 2009 primarily due estimated 2 point negative impact unfavorable foreign exchange transactions includes cost venezuelan subsidiary settling certain us dollardenominated liabilities transactions nongovernment sources exchange rate less favorable official rate “parallel market” additionally higher costs implement restructuring initiatives 2009 negatively impacted operating margin 07 points costs impacted operating margin 09 points 2009 02 points 2008 partially offsetting negative impacts benefit higher revenues fixed overhead expense currency restrictions enacted venezuelan government 2003 impacted ability subsidiary venezuela “avon venezuela” obtain foreign currency official rate pay imported products unless official foreign exchange made readily available avon venezuela’s operations continue negatively impacted need obtain foreign currency needs parallel market 2009 exchange rate parallel market generally averaged 5 6 bolivars us dollar compared official rate 215 2009 december 31 2009 avon venezuela cash balances approximately 104 translated december 31 2009 official rate approximately 83 denominated bolivars 21 denominated us dollars last dividends repatriated us 2007 avon venezuela remitted dividends approximately 40 official exchange rate avon venezuela continues receive official foreign exchange imports remittances 2009 continued use official rate translate financial statements avon venezuela us dollars 2009 avon venezuela’s revenue operating profit represented approximately 5 9 avon’s consolidated revenue avon’s consolidated operating profit respectively inflation venezuela high levels past years avon uses blended consumer price index national consumer price index determine whether venezuela highly inflationary economy effective beginning 2010 fiscal year avon treat venezuela highly inflationary economy accounting purposes entity operates highly inflationary economy exchange gains losses associated monetary assets liabilities deferred income taxes resulting changes exchange rate recorded income nonmonetary assets include inventories property plant equipment carried forward historical dollar cost effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services although official rules yet issued avon’s imports expected fall nonessential classification result change official rate 430 avon anticipates record onetime aftertax loss approximately 50 million first quarter 2010 primarily reflecting writedown monetary assets deferred tax benefits additionally certain nonmonetary assets carried historic dollar cost subsequent devaluation therefore costs impact income statement 2010 devalued based new exchange rates expensed historic dollar value result using historic dollar cost basis nonmonetary assets acquired prior devaluation inventory 2010 operating profit net income additionally negatively impacted approximately 85 million primarily first half year difference historical cost previous official exchange rate 215 new official exchange rate 430 addition revenue operating profit avon’s venezuela operations negatively impacted translated dollars new official exchange rate would partially offset favorable impact operating performance improvements results periods prior 2010 impacted change accounting treatment venezuela highly inflationary economy change official rate january 2010 latin america 2008 compared 2007 total revenue increased 2008 driven larger average order growth active representatives well favorable foreign exchange growth active representatives reflected significant investments rvp continued high level investment advertising revenue 2008 benefited continued growth substantially markets particular 2008 revenue grew 24 brazil 36 venezuela 5 mexico 3 colombia revenue growth brazil driven higher average order growth active representatives impact foreign exchange revenue growth venezuela driven higher average order revenue mexico benefited growth active representatives experienced deceleration growth colombia second half 2008 due economic conditions well competition increase operating margin latin america 2008 primarily due impact higher revenues increased pricing lower inventory obsolescence expense lower costs implement restructuring initiatives benefits margin partially offset higher investments rvp operating margin 2007 benefited recognition unclaimed salesrelated tax credits north america 2009 compared 2008 north america consists largely us business total revenue 2009 negatively impacted continued recessionary pressure lower average order received representatives offset increase active representatives average order remains challenging particularly nonbeauty categories sales nonbeauty products declined 13 2009 consistent general retail environment sales beauty products declined 6 2009 growth active representatives 2009 reflected ongoing recruiting training efforts given economic environment expect continued pressure results north america 2010 higher costs implement restructuring initiatives negatively impacted operating margin 2009 13 points costs impacted 2009 operating margin 18 points compared 05 points 2008 lower revenues fixed overhead expense higher obsolescence expense also lowered operating margin 2009 north america 2008 compared 2007 north america consists largely us business revenue 2008 impacted macroeconomic environment including deteriorating consumer confidence higher yearoveryear fuel prices sales nonbeauty products declined 9 2008 consistent general retail environment sales beauty products declined 1 2008 total revenue decreased 2008 lower average order received representatives offset increase active representatives growth active representatives benefited continued investments rvp including frequent brochure distribution canada recruiting advertising decline average order large part due customer demand nonbeauty products slowing markedly recessionary environment increase operating margin 2008 primarily driven lower obsolescence overhead expenses benefits operating margin partially offset higher variable selling costs including paper brochure bad debt transportation impact lower revenue central eastern europe 2009 compared 2008 total revenue decreased 2009 impacted unfavorable foreign exchange constant revenue 2009 increased despite continued recessionary pressure throughout region reflecting growth active representatives driven investments rvp brochures well strong marketing offers impact unfavorable foreign exchange rates drove revenue declines 7 russia 19 ukraine 2009 constant revenue grew 18 russia 20 ukraine constant revenue increase russia 2009 primarily due strong growth active representatives late 2008 completed rollout sales leadership improved discount structure offered representatives russia constant revenue increase ukraine 2009 primarily due growth active representatives higher average order due increased pricing inflation partially offset negative impact recent economic conditions decrease operating margin 2009 primarily driven unfavorable impacts foreign exchange transactions negatively impacted operating margin estimated 5 points higher costs implement restructuring initiatives negatively impacted operating margin 2009 16 points costs impacted 2009 operating margin 18 points compared 02 points 2008 partially offsetting unfavorable items lower advertising costs 2009 benefit higher constant revenues fixed overhead expenses operating margin 2009 also negatively impacted higher obsolescence expense 2009 2008 period benefited adjustment inventory obsolescence reserve due changes estimates disposition plan products reserved pls central eastern europe 2008 compared 2007 beginning end june 2007 provided representatives additional selling opportunities frequent brochure distribution encourages frequent customer contact active representative growth first half 2008 benefited increased brochure distribution frequency total revenue increased 2008 reflecting growth active representatives well favorable foreign exchange partially offset lower average order average order impacted lower average order first half 2008 representatives transitioned shorter selling cycle average order second half 2008 declined much lesser degree compared first half 2008 region’s revenue growth benefited increases russia 8 well growth markets region led ukraine growth 20 revenue increase russia 2008 primarily due strong growth active representatives well favorable foreign exchange completed rollout sales leadership improved discount structure offer representatives russia near end third quarter 2008 increase operating margin 2008 primarily driven impact higher revenue lower inventory obsolescence expense increased pricing partially offset higher spending rvp advertising impact unfavorable foreign exchange product cost western europe middle east africa 2009 compared 2008 total revenue decreased 2009 impacted unfavorable foreign exchange constant revenue increased 2009 result growth active representatives offset lower average order reflecting continued recessionary pressure active representatives growth 2009 benefited one point due acquisition small distributor saudi arabia second quarter 2009 acquisition minimal impact financial results revenue declined 16 united kingdom 2009 due negative impact foreign exchange constant revenue united kingdom declined 1 2009 strong merchandising “smart value” products countered recessionary pressure revenue turkey increased 2 2009 turkey’s constant revenue increased 21 2009 reflecting increase active representatives driven investments rvp sales leadership decrease operating margin 2009 primarily driven unfavorable foreign exchange including impacts foreign exchange transactions well translation negatively impacted operating margin estimated 3 points additionally higher costs implement restructuring initiatives negatively impacted operating margin 7 points costs impacted 2009 operating margin 25 points compared 18 points 2008 partially offsetting unfavorable items lower overhead expenses 2009 western europe middle east africa 2008 compared 2007 calculation meaningful total revenue increased 2008 due growth active representatives higher average order partially offset unfavorable foreign exchange revenue growth 2008 driven italy turkey revenue united kingdom 2008 declined 3 due unfavorable foreign exchange revenue united kingdom constant increased driven increase active representatives benefiting investments representative recruiting revenue united kingdom also benefited continued rollout pls strong merchandising revenue growth turkey 8 2008 due larger average order revenue turkey also benefited continued high levels investments advertising rvp revenue italy 2008 increased due growth active representatives increase operating margin 2008 primarily driven lower costs implement restructuring initiatives impact higher revenue lower inventory obsolescence expense lower overhead expenses increased pricing benefits operating margin partially offset impact unfavorable foreign exchange product cost higher spending rvp advertising asia pacific 2009 compared 2008 total revenue decreased 2009 impacted unfavorable foreign exchange constant revenue increased 2009 result growth active representatives offset lower average order revenue philippines increased 6 constant revenue increased 14 driven growth active representatives supported rvp initiatives revenue japan 2009 decreased 2 constant revenue declined 12 due lower revenues direct mail direct selling continue see downward pressure results japan decrease operating margin 2009 primarily driven unfavorable foreign exchange including impacts foreign exchange transactions well translation negatively impacted operating margin estimated 2 points additionally higher costs implement restructuring initiatives negatively impacted operating margin 21 points costs impacted 2009 operating margin 22 points compared 1 points 2008 partially offsetting items benefits growth derived higher margin markets asia pacific 2008 compared 2007 total revenue increased 2008 due foreign exchange revenue growth philippines almost 20 primarily due growth active representatives supported rvp initiatives well favorable foreign exchange revenue japan increased slightly due foreign exchange revenue japan constant declined 2008 due lower sales direct mail direct selling revenue taiwan declined 2008 reflecting impact field restructuring economic weakness partially offset favorable foreign exchange operating margin increased 2008 primarily due impact lower inventory obsolescence expense increased pricing lower overhead expenses partially offset higher spending rvp unfavorable mix products sold china 2009 compared 2008 total revenue increased 2009 due impact favorable foreign exchange increase active representatives partially offset lower average order revenue beauty boutiques decreased 40 2009 reflecting continued complex evolution towards direct selling hybrid business model unique market revenue growth direct selling increased 24 2009 nearterm outlook china remains challenged strategic transition remain optimistic longterm revenue operating profit opportunities increase operating margin 2009 primarily driven lower advertising costs cost saving initiatives lower gross margin offset operating margin benefits 2009 additionally 2008 operating margin negatively impacted costs associated 2008 earthquake floods information concerning internal investigation china operations see risk factors note 15 contingencies china 2008 compared 2007 calculation meaningful revenue china increased 2008 primarily due increase active representatives partially offset lower average order growth active representatives reflected continued expansion direct selling efforts supported significant representative recruiting television advertising field incentives lower average order resulted continued expansion direct selling representatives order smaller quantities beauty boutiques orders new representatives tend smaller average direct selling order beauty boutique ordering activity levels remained steady extended period direct selling expansion beauty boutique operators continue service representatives increase operating margin 2008 primarily driven impact higher revenue lower product costs partially offset ongoing higher spending rvp advertising costs associated 2008 earthquake floods operating margin 2007 benefited higher reductions reserves statutory liabilities liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit currently believe existing cash operations including impacts cash required restructuring initiatives available sources public private financing adequate meet anticipated requirements working capital dividends capital expenditures share repurchase program possible acquisitions cash needs short long term may time seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise 2009 repurchased approximately 4 million shares common stock aggregate purchase price approximately 86 2008 repurchased approximately 46 million shares common stock aggregate purchase price approximately 172 retirements debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations acquisitions meet liquidity needs issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods liquidity could also impacted dividends capital expenditures acquisitions given time may discussions negotiations potential acquisition candidates acquisitions may accretive dilutive nature involve numerous risks uncertainties see cautionary statement purposes “safe harbor” statement private securities litigation reform act 1995 balance sheet data cash flows net cash operating activities net cash provided operating activities 2009 339 higher 2008 primarily due favorable comparisons 2008 included timing payments relating restructuring programs cash payment 380 upon settlement treasury lock agreements associated 2008 debt issuance higher incentive based compensation payments related 20062007 turnaround incentive plan impact advance purchases paper brochures 2008 offsetting favorable comparisons net unfavorable working capital movements accounts receivable compared 2008 additional payments value added taxes brazil expect recover future inventory levels increased 2009 10675 december 31 2009 10079 december 31 2008 primarily reflecting impact foreign exchange business growth offset operational improvements new inventory life cycle management processes leveraged initiatives pls ssi erp implementation sales operations planning process expected improve inventory levels longterm inventory days 7 days 2009 compared 2008 due impact foreign exchange expect initiatives help us deliver operational improvements three five inventory day reductions per year next two three years maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 11 employee benefit plans funding policy plans based legal requirements cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed “critical accounting estimates” future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 15 20 us pension plans range 30 40 international pension plans 2010 net cash provided operating activities 2008 1583 higher 2007 primarily due higher cashrelated net income 2008 favorable impacts inventory accounts receivable balances lower contributions retirementrelated plans 2008 cash inflows partially offset unfavorable impact accounts payable balance additional payments value added taxes due tax law change brazil began recover fourth quarter 2008 higher incentivebased compensation payments 2008 related 20062007 turnaround incentive plan payment 380 upon settlement treasury lock agreements associated 500 debt issuance first quarter 2008 net cash investing activities net cash used investing activities 2009 1845 lower 2008 primarily due redemption certain corporateowned life insurance policies 2009 lower capital expenditures net cash used investing activities 2008 1162 higher 2007 primarily due higher capital expenditures net cash used investing activities 2007 included payment associated acquisition licensee egypt capital expenditures 2009 2969 compared 3805 2008 decrease resulted efforts preserve capital expenditures 2008 3805 compared 2785 2007 increase primarily driven capital spending 2008 construction new distribution facilities north america latin america information systems including continued development erp system capital expenditures 2010 currently expected approximately 350 funded cash operations expenditures include investments capacity expansion modernization existing facilities continued construction new distribution facilities latin america information systems net cash financing activities net cash used financing activities 3618 2009 compared unfavorably cash used financing activities 1415 2008 2009 repaid 9585 commercial paper debt compared 2908 2008 2009 received proceeds 850 debt issuance march 2009 compared 500 debt issuance 2008 additionally 2009 repurchased 86 common stock compared 1721 2008 net cash used financing activities 2008 4556 lower 2007 primarily due lower repurchases common stock 2008 purchased approximately 4 million shares common stock 86 2009 compared 46 million shares 1721 2008 173 million shares 6668 2007 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock units october 2007 board directors authorized repurchase 20000 common stock fiveyear period began december 2007 increased quarterly dividend payments 21 per share 2009 20 per share 2008 february 2010 board approved increase quarterly dividend 22 per share debt contractual financial obligations commitments december 31 2009 debt contractual financial obligations commitments due dates follows 1 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2010 funded pension benefit plans 2 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information recurring purchases inventory purchase orders nonbinding generally consistent year shortterm nature table include reserves income taxes unable reasonably predict ultimate amount timing settlement reserves income taxes december 31 2009 reserves income taxes including interest penalties totaled 1334 see note 4 debt financing note 13 leases commitments 2009 annual report information debt contractual financial obligations commitments additionally disclosed note 14 restructuring initiatives remaining liability 1491 december 31 2009 associated restructuring charges recorded date 2005 2009 restructuring programs also expect record additional restructuring charges 209 future periods implement actions approved date significant majority liabilities require cash payments 2010 balance sheet arrangements december 31 2009 material offbalancesheet arrangements capital resources maintain fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 7 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facility also provides possible increases aggregate incremental principal amount 2500 subject consent affected lenders credit facility december 31 2009 amounts outstanding credit facility also maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2009 amounts outstanding program march 2009 issued 8500 principal amount notes payable public offering 5000 notes bear interest per annum coupon rate equal 5625 payable semiannually mature march 1 2014 unless redeemed prior maturity “2014 notes” 3500 notes bear interest per annum coupon rate equal 6500 payable semiannually mature march 1 2019 unless redeemed prior maturity “2019 notes” net proceeds offering 8376 used repay outstanding indebtedness commercial paper program general corporate purposes connection offering 2014 notes entered fiveyear interestrate swap agreements notional amounts totaling 5000 effectively convert fixed interest rate 2014 notes variable interest rate based libor march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 48 payable semiannually mature march 1 2013 unless redeemed prior maturity “2013 notes” 2500 notes bear interest per annum coupon rate 575 payable semiannually mature march 1 2018 unless redeemed prior maturity “2018 notes” net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes august 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses locks 380 recorded accumulated comprehensive loss 192 losses amortized interest expense five years 188 amortized ten years december 31 2009 compliance covenants indentures see note 4 debt financing 2009 annual report indentures contain rating downgrade triggers would accelerate maturity debt however would required make offer repurchase 2013 notes 2014 notes 2018 notes 2019 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving us corresponding ratings downgrade investment grade item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes used discussion terms “avon” “company” “we” “our” “us” mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries refer nongaap financial measures page 24 2010 annual report description constant dollar “constant ” growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted worldwide primarily direct selling channel presently sales operations 64 countries territories including us distribute products 41 reportable segments based geographic operations six regions latin america north america central eastern europe western europe middle east africa asia pacific china centralized operations global brand marketing global sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists fashion jewelry watches apparel footwear accessories children’s products home consists gift decorative products housewares entertainment leisure products nutritional products sales made ultimate consumer principally direct selling approximately 65 million active independent representatives independent contractors employees success business highly dependent recruiting retaining servicing representatives 2010 approximately 83 consolidated revenue derived operations outside us 2010 revenues increased 6 favorably impacted growth active representatives constant revenues also increased 6 acquisitions benefited fullyear revenue growth approximately 1 sales products beauty category increased 6 also 6 constant basis due 1 increase units 5 increase net per unit active representatives increased 4 following strong performance first half 2010 revenue growth softened second half year first half 2010 realized revenue growth 11 8 constant basis operating margin expansion 150 basis points 90 basis points improvement adjusted nongaap basis excludes costs implement restructuring initiatives venezuelan special items second half 2010 realized revenue growth 3 6 constant basis acquisitions benefiting growth 3 slowdown organic revenue growth pressured operating margins revenue growth second half 2010 negatively impacted slowdown two largest profitable markets brazil russia brazil’s performance second half 2010 primarily driven service disruptions resulting shorting products brazil’s revenue grew 38 9 first half second half 2010 respectively constant revenue growth rates 13 first half 4 second half midyear implementation government mandated einvoicing exacerbated legacy order processing systems capacity also pressured significant increase order scale recent years russia’s revenue grew 26 first half 2010 flat second half constant growth rates 14 first half 2 second half russia’s performance second half 2010 primarily result slowing field growth due weak incentives increases social benefit taxes levied certain representatives exacerbated slowdown field growth russia weaker color skincare performance negatively impacted revenue growth second half 2010 see “segment review” section management’s discussion analysis financial condition results operations additional information related changes revenue segment 2010 operating margin negatively impacted devaluation venezuelan currency coupled required change account operations venezuela highly inflationary basis result using historic dollar cost basis nonmonetary assets inventory acquired prior devaluation 2010 operating profit negatively impacted 81 difference historical cost previous official exchange rate 215 new official exchange rate 430 addition negative impact operating margin discussed result devaluation venezuelan currency coupled required change account operations venezuela highly inflationary basis first quarter 2010 also recorded net charges 461 “other expense net” 127 “income taxes” reflecting writedown monetary assets liabilities deferred tax benefits see discussion venezuela within “segment review latin america” section management’s discussion analysis financial condition results operations information believe operating cash flow global cash equivalent balances approximately 12 billion coupled continuing execution turnaround strategies competitive advantages direct selling business model allow us continue focus longterm sustainable profitable growth also focused innovating direct selling channel technological service model enhancements representatives assessing new product category opportunities july 2010 purchased substantially assets liabilities silpada direct seller jewelry products primarily north america aggregate cash consideration approximately 650 pursuant terms agreement may required pay additional consideration 2015 silpada’s north america business achieves specific earnings targets march 2010 acquired liz earle beauty co limited “liz earle” acquired business included western europe middle east africa operating segment december 2010 completed sale subsidiary japan reflected discontinued operations periods strategic initiatives end 2005 launched comprehensive multiyear turnaround plan restore sustainable growth part turnaround plan launched pls ssi programs since 2005 identified many cases implemented restructuring initiatives 2005 2009 restructuring programs continue implement certain initiatives restructuring programs anticipated savings benefits realized initiatives funded continue fund investment amongst things advertising market intelligence consumer research product innovation whenever refer annualized savings annualized benefits mean additional operating profit expect realize fullyear basis every year following implementation respective initiative compared operating profit would expected achieve without implemented initiative advertising representative value proposition “rvp” investing advertising key strategy significantly increased spending advertising past four years 2010 investment advertising increased 48 14 percentage beauty sales investment advertising increased 5 compared 2009 advertising investments supported new product launches ucr mega impact lipstick super extend mascara eternal magic fragrance outspoken fergie fragrance anew platinum night cream serum anew luminositypro serum advance technique lotus shield advertising investments also included advertising recruit representatives also continued forge alliances celebrities including alliance fergie outspoken fragrance continued invest directselling channel improve reward effort equation representatives committed significant investments extensive research determine payback advertising field tools actions optimal balance tools actions markets allocated significant investments proprietary direct selling analytics better understand drivers value representatives measure investment rvp incremental cost provide valueenhancing initiatives 2010 invested approximately 83 incrementally representatives rvp continued implementation sales leadership program enhanced incentives increased sales campaign frequency improved commissions new ebusiness tools investing rvp continue key strategy continue look ways improve earnings opportunity representatives various means including following • evaluating optimum discount structures select markets • continuing rollout sales leadership program offers representatives enhanced career opportunity • strategically examining fee structure brochure costs enhance representative economics • recalibrating frequency campaigns maximize representative selling opportunities • service model transformation initiatives • applying optimal balance advertising field investment key markets • web enablement representatives including online training enhancements reward effort different within global portfolio businesses believe web enablement key element reduce representative effort worldwide continue focus improving internetbased tools representatives product line simplification 2006 began analyze product line pls program develop smaller range better performing profitable products continued goal pls identify improved product assortment drive higher sales profitable products 2007 completed analysis product portfolio determined appropriate product assortment going forward made decisions regarding ultimate disposition products longer part improved product assortment selling discount donation destruction sales marketing benefits accounted estimated projected benefits improving product assortment allowed continue allow us increase exposure improve presentation remaining products within brochure expected yield pleasurable consumer shopping experiences easier representative selling experiences greater sales per brochure page second source benefits pls results “transferable demand” transferable demand refers concept products redundant characteristics removed product assortment demand eliminated products transfer remaining products offer similar comparable product characteristics part pls identified products sufficient overlap characteristics eliminated products lowest profitability expect products retain generate profit third source benefits pls less price discounting implemented operating procedures pls introduced fewer new products lengthened life cycle products offering expect operating procedures lead less aggressive price discounting product’s life cycle addition benefits supply chain benefits accounted estimated benefits expect improvements cost sales pls fully implemented primarily reduction inventory obsolescence expense result better managed inventory levels lower variable spending warehousing efficient manufacturing utilization lower purchasing costs also expect operating expenses benefit reduction distribution costs benefits inventory productivity given nature benefits estimate realized targeted total benefits program approximately 40 2008 120 2009 approximately 200 2010 incremental benefits approximately 80 2009 strategic sourcing initiative launched ssi 2007 believe initiative reduced direct indirect costs materials goods services initiative shifted purchasing strategy local commodityoriented approach towards globallycoordinated effort leverages volumes allows suppliers benefit economies scale utilizes sourcing best practices processes better matches suppliers’ capabilities needs beyond lower costs goals ssi include improving asset management service representatives vendor relationships 2008 realized benefits approximately 135 ssi 2009 realized approximately 200 benefits ssi incremental benefits approximately 65 2008 2010 realized approximately 300 benefits ssi incremental benefits approximately 100 benefits realized 2009 continue implement sales operations planning process intended better align demand plans supply capabilities provide us earlier visibility potential supply issues enterprise resource planning system midst multiyear global rollout enterprise resource planning “erp” system expected improve efficiency supply chain financial transaction processes began gradual global rollout europe 2005 since implemented erp european manufacturing facilities larger european direct selling operations us part continuing global rollout expect implement erp countries next several years leveraging knowledge gained previous implementations 2008 worked improve effectiveness erp us began implement markets within north america well smaller european direct selling operations latin america plan implement modules erp gradual manner across key markets next several years zerooverheadgrowth institutionalized zerooverheadgrowth philosophy aims offset inflation productivity improvements productivity come primarily ssi restructuring initiatives defined overhead fixed expenses costs associated sales marketing infrastructure management administrative activities overhead excludes variable expenses within selling general administrative expenses shipping handling costs bonuses employees sales organization also excludes consumer strategic investments included selling general administrative expenses advertising rvp research development brochure costs restructuring initiatives 2005 restructuring program launched original restructuring program multiyear turnaround plan late 2005 approved announced initiatives part 2005 restructuring program expect record total restructuring charges costs implement restructuring initiatives program approximately 519 taxes december 31 2010 recorded total costs implement net adjustments 5137 32 2010 201 2009 593 2008 1575 2007 2171 2006 565 2005 actions associated restructuring initiatives 2005 restructuring program primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives costs implement restructuring initiatives 2005 2010 associated specific actions including • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain finance information technology human resource customer service processes move certain services markets lower cost shared service centers • restructure certain international directselling operations • realignment certain distribution manufacturing operations including realignment certain north america latin america distribution operations • automation certain distribution processes • exit certain unprofitable operations product lines • reorganization certain functions primarily salesrelated organizations actions implemented restructuring initiatives resulted savings approximately 350 2010 300 2009 270 2008 expect achieve annualized savings approximately 430 initiatives fully implemented 20112012 2009 restructuring program february 2009 announced new restructuring program multiyear turnaround plan approved announced initiatives 2009 restructuring program restructuring initiatives 2009 restructuring program focus restructuring global supply chain operations realigning certain local business support functions regional basis drive increased efficiencies streamlining transactionrelated services including selective outsourcing reorganizing certain functions expect record total restructuring charges costs implement restructuring initiatives range approximately 300 310 taxes 2009 restructuring program december 31 2010 recorded total costs implement net adjustments 2283 775 2010 1508 2009 actions associated restructuring initiatives primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives actions implemented restructuring initiatives resulted savings approximately 15 2009 achieved savings approximately 80 2010 targeting annualized savings 2009 restructuring program approximately 200 upon full implementation 20122013 see note 15 restructuring initiatives pages 2010 annual report overall basis estimate realized approximately 500 benefits pls ssi 430 savings two restructuring programs since inception multiyear turnaround plan 2005 savings offset approximately 650 investments advertising rvp new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2010 annual report key performance indicators within mda utilize key performance indicators “kpis” defined assist evaluation business kpi definition growth active representatives indicator based number representatives submitting order campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units indicator based gross number pieces merchandise sold period compared number period prior year units sold include samples sold product contingent upon purchase another product example gift purchase exclude free samples inventory days indicator equal number days cost sales based average preceding 12 months covered inventory balance end period nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states “gaap” disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars refer adjusted growth rates constant growth nongaap financial measure believe measure provides investors additional perspective trends exclude impact changes due translation foreign currencies us dollars calculate current year results prior year results constant exchange rate currency impact determined difference actual growth rates constant currency growth rates present gross margin selling general administrative expenses percentage revenue operating profit operating margin effective tax rate nongaap basis discussion segments presents operating profit operating margin nongaap basis provided quantitative reconciliation difference nongaap financial measure financial measure calculated reported accordance gaap nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company uses nongaap financial measures evaluate operating performance believes meaningful investors made aware period basis impacts 1 costs implement “cti” restructuring initiatives 2 costs charges related venezuela designated highly inflationary economy subsequent devaluation currency january 2010 “venezuelan special items” venezuelan special items include impact statement income caused devaluation venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventory prepaid expenses nonmonetary assets venezuelan special items include earnings impact caused difference historical cost assets previous official exchange rate 215 revised official exchange rate 430 critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies consolidated financial statements contained 2010 annual report detailed discussion application accounting policies restructuring reserves record severancerelated expenses probable estimable severance provided ongoing benefit arrangement onetime involuntary benefit arrangements disposal costs primarily contract termination costs recorded benefits communicated employees onetime voluntary benefit arrangements recorded employee accepts offered benefit arrangement evaluate impairment issues carrying amount asset recoverable exceeds fair value asset estimate expense restructuring initiatives approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment contract termination payments leases qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including selling schedules business operations seasonality changing trends past three years annual bad debt expense range 195 222 approximately 20 total revenue bad debt expense percent revenue decreased 2 points 2010 compared 2009 due improved collection efforts allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collectability accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns record provision estimated sales returns based historical experience product returns past three years sales returns range 365 425 approximately 37 total revenue historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected management additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 1311 2010 1200 2009 794 2008 obsolescence expense 2008 benefited approximately 13 changes estimates disposition plan pls program pension postretirement postemployment expense maintain defined benefit pension plans cover substantially employees us portion employees international locations additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care life insurance benefits subject certain limitations majority employees us foreign countries see note 12 employee benefit plans 2010 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions include expected rate return pension plan assets interest crediting rate hybrid plans discount rate applied pension plan obligations 2010 weighted average assumed rate return pension plan assets including us nonus plans 765 compared 760 2009 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2010 us plan 8 based asset allocation approximately 40 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 60 equity securities high yield securities expected earn approximately 7 10 long term historical rates return assets us plan 509 recent 10year period 875 20year period us plan asset allocation policy favored us equity securities returned 26 10year period 95 20year period plan assets us returned 140 2010 246 2009 recently issued regulations pension protection act 2006 require hybrid plans limit maximum interest crediting rate one among several choices crediting rates considered “market rates return” rate chosen affect total pension obligations discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 521 december 31 2010 570 december 31 2009 determination expected rate return assets discount rate take consideration external actuarial advice funding requirements may impacted regulations interpretations thereof calculations pension postretirement postemployment costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2010 pretax actuarial losses prior service credits totaling 4220 us plans 2412 nonus plans yet charged expense actuarial losses charged accumulated comprehensive loss within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2008 plan assets experienced significant losses mostly due unfavorable returns equity securities unfavorable returns increase pension cost future periods 2011 assumption expected rate return assets 80 us plans 731 nonus plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2010 pension expense taxes record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made deferred taxes provided portion unremitted earnings subsidiaries outside us conclude earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested establish additional provisions income taxes despite belief tax positions fully supportable remain positions likely challenged may sustained review tax authorities adjust additional accruals light changing facts circumstances file income tax returns many jurisdictions 2011 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed filing positions ultimately upheld possible 2011 provision income taxes may reflect adjustments recognize benefit tax position likely sustained audit based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements sharebased compensation stock options issued employees recognized consolidated financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future historical results loss contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements goodwill identified intangible assets test goodwill intangible assets indefinite lives impairment annually frequently circumstances warrant using fair value methods review identified intangible assets defined useful lives subject amortization impairment whenever events changes circumstances indicate related carrying amounts may recoverable completed annual goodwill indefinitelived intangibles impairment assessments adjustments necessary years ended december 31 2010 2009 2008 additionally events changes circumstances occurred indicated intangible assets defined useful lives may recoverable years ended december 31 2010 2009 2008 asset impairment analyses performed goodwill indefinitelived intangibles require several estimates including future cash flows growth rates selection discount rates annual goodwill impairment test estimated fair value substantially exceeded carrying values reporting units exception silpada estimated fair value similar carrying value since reporting unit recently acquired see note 17 goodwill intangible assets 2010 annual report information significant decline expected future cash flows growth rates change discount rate used fair value expected future cash flows may result goodwill impairment charge results continuing operations consolidated amounts table may necessarily sum computations made independently calculation meaningful 1 advertising expenses included within selling general administrative expenses total revenue 2010 total revenues increased 6 favorably impacted growth active representatives constant revenues also increased 6 acquisitions silpada late july liz earle late march contributed approximately 1 point revenue growth active representatives increased 4 category basis increase revenue 2010 primarily driven increase 6 beauty sales within beauty category fragrance increased 11 color cosmetics increased 7 personal care increased 5 skincare declined 3 fashion sales increased 11 home sales increased 3 constant basis beauty category increased 6 within beauty category constant sales fragrance increased 12 color cosmetics increased 6 personal care increased 5 skincare declined 3 skincare growth rates benefited 3 points liz earle acquisition constant sales fashion home increased 11 5 respectively fashion growth rates benefited 6 points silpada acquisition noted previously overview section strong revenue performance first half 2010 offset slowdown revenue growth second half year second half 2010 revenue growth negatively impacted slowdown two largest markets brazil russia brazil’s performance second half 2010 primarily driven service disruptions resulting shorting products midyear implementation government mandated einvoicing exacerbated legacy order processing systems capacity also pressured significant increase order scale recent years russia’s performance second half 2010 primarily result slowing field growth due weak incentives increases social benefit taxes levied certain representatives exacerbated slowdown field growth russia weaker color skincare performance negatively impacted growth second half 2010 total revenue decreased 3 2009 unfavorable foreign exchange accounting 9 percentage points revenue decline constant revenue increased 6 increases segments except north america china active representatives increased 10 category basis constant beauty sales increased 7 fashion increased 2 home increased 6 within beauty category constant sales skincare flat fragrance increased 7 personal care increased 8 color cosmetics increased 15 reported basis decrease revenue 2009 primarily driven decrease 3 beauty sales decreases subcategories beauty except color cosmetics within beauty category skincare declined 9 fragrance declined 2 personal care declined 2 color cosmetics increased 3 fashion sales decreased 5 home sales decreased 2 additional discussion changes revenue segment see “segment review” section mda gross margin gross margin 2010 increased 3 points nongaap basis excluding impact cti restructuring venezuelan special items gross margin improved 9 points reflecting benefits manufacturing productivity gains include benefits ssi favorable impact foreign exchange transactions gross margin 2009 decreased 05 points unfavorable impact foreign exchange transactions lowered gross margin estimated 17 points 2009 portion negative impact foreign exchange transactions offset strong manufacturing productivity gains included benefits ssi strategic price increases 2008 gross margin included benefits approximately 13 reduced obsolescence changes estimates disposition plan pls program selling general administrative expenses selling general administrative expenses 2010 increased 3743 increase primarily due higher advertising rvp costs significant professional related fees associated fcpa investigation compliance reviews described note 16 consolidated financial statements approximately 95 approximately 59 2009 higher volume related costs distribution costs partially offset lower cti restructuring initiatives adjusted nongaap basis excluding impact cti restructuring venezuelan special items percentage revenue selling general administrative expenses 2010 increased 12 points due higher advertising rvp costs significant professional related fees associated fcpa matters selling general administrative expenses increased 750 2009 compared 2008 due higher cti restructuring initiatives adjusted nongaap basis excluding impact cti restructuring percentage revenue selling general administrative expenses 2009 increased 11 points due professional related fees associated fcpa investigation compliance reviews partially offset lower advertising costs see “segment review” section mda additional information related changes operating margin segment expenses interest expense 2010 decreased 17 due lower interest rates interest expense increased 4 2009 compared 2008 due increased borrowings partially offset lower interest rates december 31 2010 held interestrate swap agreements effectively converted approximately 74 outstanding longterm fixedrate borrowings variable interest rate based libor compared 82 december 31 2009 interest income decreased 2010 2009 primarily due lower interest rates expense net 2010 increased due 461 negative impact devaluation venezuelan currency monetary assets liabilities conjunction highly inflationary accounting discussed within latin america segment review expense net 2009 lower 2008 result lower foreign exchange losses effective tax rate effective tax rate 2010 370 compared 322 2009 278 2008 effective tax rate 2010 unfavorably impacted 56 points due devaluation venezuelan currency conjunction highly inflationary accounting discussed within latin america segment review partially offset 21 points associated benefits audit settlements statute expirations 2010 rate compared 2009 rate unfavorably impacted 20 points resulting inability establish deferred taxes certain inflationary adjustments highly inflationary accounting 2010 comparison also negatively impacted unfavorable changes earnings mix international subsidiaries offset lower tax cost associated repatriation earnings effective tax rate 2009 unfavorably impacted 34 points establishment valuation allowance certain deferred tax assets primarily result restructuring activities partially offset 21 points reduction foreign tax liability 2009 rate compared 2008 rate also included higher tax cost associated repatriation 2009 earnings offset favorable changes earnings mix international subsidiaries effective tax rate 2008 favorably impacted 36 points due audit settlement segment review analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2010 global expenses include among things costs related executive administrative offices information technology research development marketing certain planned global expenses allocated business segments primarily based planned revenue unallocated costs remain global expenses allocate costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment increase net global expenses 2010 primarily attributable significant professional related fees associated fcpa investigation compliance reviews described note 16 consolidated financial statements included herein approximately 95 approximately 59 2009 increase net global expenses 2010 also due higher costs associated global initiatives costs associated business acquisitions professional related fees associated fcpa investigation compliance reviews difficult predict expected continue may vary course investigation costs allocated segments increase total global expenses 2009 primarily attributable higher legal information technology related costs increase amounts allocated segments 2009 result change mix expenses allocated segments higher global expenses latin america 2010 compared 2009 total revenue 2010 increased due growth active representatives driven continued investments rvp higher average order revenue 2010 grew 20 brazil 15 mexico benefits favorable foreign exchange impact unfavorable foreign exchange drove revenue decline 27 venezuela 2010 additional information regarding venezuela operations discussed detail constant revenue 2010 benefited continued growth markets particularly growth 8 brazil 8 mexico 47 venezuela constant revenue growth mexico 2010 driven increase active representatives well increase average order constant revenue growth 2010 venezuela reflected higher average order primarily due increased prices partially result inflation growth active representatives constant revenue growth 2010 brazil primarily driven increase active representatives constant revenue growth 2010 brazil pressured service disruptions second half year decline skin care sales brazil’s revenue grew 38 9 first half second half 2010 respectively constant growth rates 13 first half 4 second half brazil’s performance second half 2010 primarily driven service disruptions resulting shorting products midyear implementation government mandated einvoicing exacerbated legacy order processing systems capacity also pressured significant increase order scale recent years brazil’s growth period outpaced expectations planned infrastructure investments factors pressured capacity legacy systems primary cause service disruptions operating margin declined 2010 latin america due negative impact devaluation venezuelan currency conjunction highly inflationary accounting discussed decline operating margin 2010 caused venezuelan special items partially offset benefits 4 points lower cti restructuring adjusted nongaap basis excluding venezuelan special items cti restructuring decrease operating margin 2010 primarily driven higher distribution costs increased investment rvp advertising partially offset benefit favorable foreign exchange effective january 1 2010 began account venezuela highly inflationary economy effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services effective december 30 2010 venezuelan government eliminated 260 rate available import essential goods substantially imports subsidiary venezuela “avon venezuela” falls nonessential classification result change nonessentials official rate 430 conjunction accounting operations venezuela highly inflationary accounting guidelines first quarter 2010 recorded net charges 461 “other expense net” 127 “income taxes” total aftertax charge 588 reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets must continue carried us historic dollar cost subsequent devaluation therefore historic us dollar costs impacted income statement 2010 disproportionate rate devalued based new exchange rates result using u historic dollar cost basis nonmonetary assets inventory acquired prior devaluation operating profit 2010 negatively impacted 81 difference historical cost previous official exchange rate 215 current official exchange rate 430 assuming devaluations 2011 impact operating profit 2010 venezuelan currency devaluations immaterial currency restrictions enacted venezuelan government 2003 impacted ability avon venezuela obtain foreign currency official rate pay imported products since 2003 avon venezuela obtaining foreign currency needs beyond amounts could obtained official rates nongovernment sources exchange rates less favorable official rate “parallel market” late may 2010 venezuelan government took control previously freelytraded parallel market trading parallel market suspended several weeks may june reopened regulated “sitme” market early june 2010 government imposed volume restrictions trading activity limiting entity’s activity maximum 035 per month current limit monthly foreign exchange requirements venezuelan operations unless restrictions modified may negative impact avon venezuela’s future operations assurance company able recover higher cost obtaining foreign currency sitme market compared official rate operating activities increased pricing cost reductions areas december 31 2010 net asset position 158 associated operations venezuela included cash balances approximately 120 approximately 116 denominated bolívares remeasured december 31 2010 nonessentials official exchange rate approximately 4 denominated us dollars 158 net asset position approximately 134 associated bolívardenominated monetary net assets deferred income taxes additionally 2010 avon venezuela’s revenue operating profit represented approximately 3 2 avon’s consolidated revenue avon’s consolidated operating profit respectively avon venezuela’s operating profit percentage avon’s consolidated operating profit negatively impacted 7 points due venezuelan special items fourth quarter 2010 exchange rate sitme market ranged within 5 6 bolívares us dollar illustrate sensitivity potential future changes nonessentials official exchange rate venezuela nonessentials official exchange rate devalued december 31 2010 rate 57 bolívares us dollar approximately rate december 31 2010 sitme market approximate 25 devaluation results would negatively impacted follows • result use devalued exchange rate remeasurement avon venezuela’s revenues profits avon’s annualized consolidated revenues would likely negatively impacted approximately 1 annualized consolidated operating profit would likely negatively impacted approximately 2 prospectively assuming operational improvements occurred offset negative impact devaluation • avon’s consolidated operating profit first twelve months following devaluation example would likely negatively impacted approximately 4 assuming offsetting operational improvements larger negative impact operating profit first twelve months compared prospective impact caused costs nonmonetary assets carried historic dollar cost accordance requirement account venezuela highly inflationary economy revenue would remeasured devalued rate • would likely incur immediate charge approximately 25 24 “other expenses net” 1 “income taxes” associated 134 bolívardenominated monetary net assets deferred income taxes 2010 costs associated acquiring goods required settlement us dollars parallel sitme markets venezuela included within operating profit approximately 56 amounts reported within operating profit 2009 approximately 45 december 31 2010 avon venezuela pending requests submitted agency venezuelan government approximately 76 remittance dividends royalties parent company us outstanding requests periodically submitted 2005 2009 latin america 2009 compared 2008 total revenue increased 2009 reflecting growth active representatives driven investments rvp higher average order offset unfavorable foreign exchange revenue increased 9 brazil declined 11 mexico 2009 constant revenue 2009 benefited growth markets particularly increases 17 brazil 8 mexico revenue venezuela 2009 grew 18 constant us dollars constant revenue growth brazil 2009 primarily driven increase active representatives well higher average order constant revenue growth mexico 2009 driven significant increase active representatives partially offset lower average order reflecting difficult economic climate revenue growth venezuela 2009 reflected increased prices due inflation 2009 operating margin negatively impacted 6 points due higher cti restructuring compared period prior year adjusted nongaap basis excluding cti restructuring decrease operating margin latin america 2009 primarily due estimated 2 point negative impact unfavorable foreign exchange transactions included cost venezuelan subsidiary settling certain us dollardenominated liabilities transactions nongovernment sources exchange rate less favorable official rate “parallel market” partially offsetting negative impacts benefit higher revenues fixed overhead expense north america 2010 compared 2009 north america consists largely us business 2010 results include results silpada period since acqusition end july 2010 silpada favorably impacted north america revenue growth 5 points 2010 silpada also favorably impacted operating profit growth 31 points 2010 favorably impacted adjusted nongaap operating profit growth 23 points result silpada acquisition units sold active representatives 2010 favorably impacted 1 point total revenue decline 2010 due decline active representatives lower average order received representatives decline active representatives 2010 largely due decline additions compared last year’s record recruiting resulted strong growth active representatives 2009 causing unfavorable comparison 2010 sales nonbeauty products decreased 1 2010 silpada offsetting decline 10 points sales beauty products decreased 4 2010 partly due weakness beauty market increase north america operating margin adjusted nongaap operating margin 2010 primarily driven improvements gross margin caused favorable pricing mix manufacturing productivity gains inclusion silpada results benefited operating margin 12 points 2010 despite approximately 7 amortization intangible assets operating margin benefits negatively impacted lower revenues able offset overhead expenses despite cost saving initiatives costs associated completing silpada acquisition recorded global expenses allocated north america segment included within silpada results operating margin benefit 7 points due change fair value contingent consideration recorded connection silpada acquisition primarily due decrease estimates ultimate earnout expect results continue pressured focus recovery plan transitioning north america business includes optimizing product portfolio enhancing field fundamentals north america 2009 compared 2008 total revenue 2009 negatively impacted continued recessionary pressure lower average order received representatives offset increase active representatives average order particularly challenged nonbeauty categories 2009 compared 2008 sales nonbeauty products declined 13 2009 consistent general retail environment sales beauty products declined 6 2009 growth active representatives 2009 reflected ongoing recruiting training efforts 2009 operating margin negatively impacted 14 points due higher cti restructuring compared period prior year adjusted nongaap basis excluding cti restructuring decline operating margin 2009 due lower revenues fixed overhead expense higher obsolescence expense 2009 central eastern europe 2010 compared 2009 total revenue 2010 increased result growth active representatives higher average order well favorable foreign exchange region’s revenue benefited growth 11 russia due partially favorable foreign exchange 2010 constant revenue russia increased 7 due growth active representatives higher average order russia’s revenue grew 26 first half 2010 flat second half constant growth rates 14 first half 2 second half russia’s performance second half 2010 primarily result slowing field growth due weak incentives increases social benefit taxes levied certain representatives exacerbated slowdown field growth increased taxes disproportionately reduced new developing representatives’ earnings reduced motivation recruit russia weaker color skincare performance negatively impacted revenue growth second half 2010 first quarter 2011 launched new sales leadership compensation plan help offset tax burden representatives 2010 operating margin benefited 17 points due lower cti restructuring compared prior year adjusted nongaap basis increase operating margin 2010 primarily driven benefit leverage higher revenues fixed overhead expenses partially offset lower gross margin central eastern europe 2009 compared 2008 total revenue decreased 2009 compared 2008 impacted unfavorable foreign exchange constant revenue 2009 increased despite recessionary pressures throughout region reflecting growth active representatives driven investments rvp well strong marketing offers impact unfavorable foreign exchange rates drove revenue declines 7 russia 19 ukraine 2009 constant revenue grew 2009 18 russia 20 ukraine constant revenue increase russia 2009 primarily due strong growth active representatives late 2008 completed rollout sales leadership improved discount structure offered representatives russia constant revenue increase ukraine 2009 primarily due growth active representatives higher average order due increased pricing inflation partially offset negative impact recent economic conditions 2009 operating margin negatively impacted 18 points due higher cti restructuring compared prior year adjusted nongaap basis excluding cti restructuring decrease operating margin 2009 compared 2008 primarily driven unfavorable impacts foreign exchange transactions negatively impacted operating margin estimated 5 points partially offset lower advertising costs 2009 compared 2008 benefit higher constant revenues fixed overhead expenses adjusted nongaap operating margin 2009 also negatively impacted higher obsolescence expense 2009 2008 period benefited adjustment inventory obsolescence reserve due changes estimates disposition plan products reserved pls western europe middle east africa 2010 compared 2009 total revenue 2010 primarily increased result increase active representatives region’s revenue growth 2010 primarily due significant growth south africa turkey well acquisition liz earle contributed approximately 3 points revenue growth 2010 revenue increased 17 turkey constant revenue increased 15 turkey due primarily strong growth active representatives driven continued investments rvp 2010 revenue increased 82 south africa partially benefiting favorable foreign exchange constant revenue growth 64 2010 south africa primarily attributable strong growth active representatives driven investments rvp expansion geographic reach country 2010 revenue increased 1 united kingdom constant revenue increased 3 due growth active representatives partially offset lower average order 2010 operating margin benefited 23 points due lower cti restructuring compared prior year adjusted nongaap basis excluding cti restructuring increase operating margin 2010 primarily driven improvements gross margin driven improved manufacturing productivity including benefits ssi western europe middle east africa 2009 compared 2008 total revenue decreased 2009 compared 2008 result unfavorable foreign exchange constant revenue increased 2009 result growth active representatives offset lower average order reflecting recessionary pressure active representatives growth 2009 benefited one point due acquisition small distributor saudi arabia second quarter 2009 acquisition minimal impact financial results revenue declined 16 united kingdom 2009 due negative impact foreign exchange constant revenue united kingdom declined 1 2009 strong merchandising “smart value” products countered recessionary pressure revenue turkey increased 2 2009 turkey’s constant revenue increased 21 2009 reflecting increase active representatives driven investments rvp sales leadership 2009 operating margin negatively impacted 6 points due higher cti restructuring compared prior year adjusted nongaap basis excluding cti restructuring decrease operating margin 2009 compared 2008 primarily driven unfavorable foreign exchange including impacts foreign exchange transactions well translation negatively impacted operating margin estimated 3 points partially offset lower overhead expenses 2009 asia pacific 2010 compared 2009 region’s results 2010 2009 exclude results japan classified discontinued operation beginning fourth quarter 2010 total revenue 2010 increased due favorable foreign exchange growth active representatives partially offset lower average order revenue grew 15 2010 philippines benefiting partially favorable foreign exchange constant revenue 2010 philippines increased 10 driven growth active representatives supported rvp initiatives offset lower average order region’s results negatively impacted decline skincare sales 2010 operating margin benefited 27 points due lower cti restructuring compared prior year adjusted nongaap basis excluding cti restructuring operating margin 2010 benefited improved gross margin benefited lower product costs favorable foreign exchange benefited gross margin approximately 1 point partially offset increased investment rvp asia pacific 2009 compared 2008 region’s results 2009 2008 exclude results japan classified discontinued operation beginning fourth quarter 2010 total revenue flat 2009 impacted unfavorable foreign exchange constant revenue increased 2009 result growth active representatives offset lower average order revenue philippines increased 6 constant revenue philippines increased 14 driven growth active representatives supported rvp initiatives operating margin 2009 compared 2008 negatively impacted 28 points due higher cti restructuring adjusted nongaap basis excluding cti restructuring decrease operating margin 2009 primarily driven unfavorable foreign exchange including impacts foreign exchange transactions well translation negatively impacted operating margin estimated 2 points partially offsetting items benefits growth derived higher margin markets china 2010 compared 2009 total revenue 2010 decreased due significant revenue declines direct selling beauty boutiques fundamental challenges complex hybrid business model including conflicting needs retail direct selling impacted businesses resulting 39 reduction active representatives continued transition away complex hybrid business model one focuses direct selling updating service center model expected include realigned field compensation structure recalibrated merchandising campaign management strategies support direct selling anticipate position us expand direct selling penetration coverage however transition resulting attrition beauty boutiques time transition continue negatively impact nearterm outlook remain positive longterm revenue operating profit opportunities unfavorable change operating margin 2010 primarily driven significantly lower revenues information concerning internal investigation china operations see risk factors note 16 contingencies china 2009 compared 2008 total revenue increased 2009 compared 2008 due impact favorable foreign exchange increase active representatives partially offset lower average order revenue beauty boutiques decreased 40 2009 reflecting complex evolution towards direct selling hybrid business model unique market revenue growth direct selling increased 24 2009 increase operating margin 2009 primarily driven lower advertising costs cost saving initiatives lower gross margin offset operating margin benefits 2009 additionally 2008 operating margin negatively impacted costs associated 2008 earthquake floods liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit disclosed latin america segment review currency restrictions enacted venezuelan government impacted ability repatriate dividends royalties venezuelan operations timely basis currently believe existing cash outside venezuela well cash generated operations outside venezuela along available sources public private financing adequate meet company’s anticipated requirements working capital dividends capital expenditures share repurchase program possible acquisitions cash needs short long term may time seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise 2010 repurchased approximately 4 million shares common stock aggregate purchase price approximately 141 2009 repurchased approximately 4 million shares common stock aggregate purchase price approximately 86 retirements debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations acquisitions meet liquidity needs july 2010 avon completed purchase substantially assets liabilities silpada approximately 650 cash pursuant terms agreement may required pay additional consideration 2015 silpada’s north america business achieves specific earnings target acquisition funded cash commercial paper borrowings refer note 17 goodwill intangible assets 2010 annual report details issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods liquidity could also impacted dividends capital expenditures acquisitions given time may discussions negotiations potential acquisition candidates acquisitions may accretive dilutive nature involve numerous risks uncertainties see cautionary statement purposes “safe harbor” statement private securities litigation reform act 1995 balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2010 657 lower 2009 primarily due higher inventories resulting lowerthanexpected sales negative impacts timing restructuring payments offsetting unfavorable comparisons recovery value added taxes brazil net cash provided continuing operating activities 2009 208 higher 2008 primarily due favorable comparisons 2008 included timing payments relating restructuring programs higher incentive based compensation payments related 20062007 turnaround incentive plan impact advance purchases paper brochures 2008 offsetting favorable comparisons net unfavorable working capital movements accounts receivable compared 2008 additional payments value added taxes brazil expect recover future inventory levels increased 2010 11529 december 31 2010 10498 december 31 2009 primarily reflecting lowerthanexpected sales offset benefit favorable foreign exchange new inventory life cycle management processes leveraged initiatives pls ssi erp implementation sales operations planning process expected improve inventory levels longterm inventory days 4 days 2010 compared 2009 due lowerthanexpected sales offset benefit favorable foreign exchange maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 12 employee benefit plans funding policy plans based legal requirements cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed “critical accounting estimates” future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 90 100 us pension plans range 40 45 international pension plans 2011 net cash continuing investing activities net cash used continuing investing activities 2010 8774 higher 2009 primarily due acquisition silpada liz earle addition first half 2009 redeemed certain corporateowned life insurance policies net cash used investing activities 2009 1820 lower 2008 primarily due redemption certain corporateowned life insurance policies 2009 lower capital expenditures capital expenditures 2010 3312 compared 2963 2009 due higher information technology expenditure latin america capital expenditures 2009 2963 compared 3774 2008 decrease resulted efforts preserve capital expenditures 2011 currently expected approximately 300 315 funded cash operations expenditures include investments capacity expansion modernization existing facilities continued construction new distribution facilities latin america information systems net cash continuing financing activities net cash provided continuing financing activities 2347 2010 compared favorably cash used continuing financing activities 3612 2009 primarily due issuance debt 2010 partially finance silpada acquisition net cash used financing activities 3612 2009 compared unfavorably cash used financing activities 1408 2008 2009 repaid 9581 commercial paper debt compared 2908 2008 2009 received proceeds 850 debt issuance march 2009 compared 500 debt issuance 2008 additionally 2009 repurchased 86 common stock compared 1721 2008 purchased approximately 4 million shares common stock 141 2010 compared 4 million shares 86 2009 46 million shares 1721 2008 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock units october 2007 board directors authorized repurchase 20000 common stock fiveyear period began december 2007 increased quarterly dividend payments 22 per share 2010 21 per share 2009 february 2011 board approved increase quarterly dividend 23 per share debt contractual financial obligations commitments december 31 2010 debt contractual financial obligations commitments due dates follows 1 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2011 funded pension benefit plans able estimate contributions funded pension plans beyond 2011 2 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information recurring purchases inventory purchase orders nonbinding generally consistent year shortterm nature table include reserves income taxes unable reasonably predict ultimate amount timing settlement reserves income taxes december 31 2010 reserves income taxes including interest penalties totaled 978 see note 5 debt financing note 14 leases commitments 2010 annual report information debt contractual financial obligations commitments additionally disclosed note 15 restructuring initiatives remaining liability 1359 december 31 2010 associated restructuring charges recorded date 2005 2009 restructuring programs also expect record additional restructuring charges 251 future periods implement actions approved date significant majority liabilities require cash payments 2011 balance sheet arrangements december 31 2010 material offbalancesheet arrangements capital resources maintain threeyear 10000 revolving credit competitive advance facility expires november 2013 3000 364 day credit facility expires december 13 2011 collectively “credit facilities” borrowings credit facilities bear interest rate per annum either based libor floating base rate plus applicable margin credit facilities contain various covenants including financial covenant requires interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facilities may used general corporate purposes december 31 2010 amounts outstanding credit facilities also maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported threeyear credit facility outstanding commercial paper effectively reduces amount available borrowing threeyear credit facility december 31 2010 amounts outstanding program november 2010 issued private placement exempt registration securities act 1933 amended 1420 principal amount 260 senior notes series due november 23 2015 2900 principal amount 403 senior notes series b due november 23 2020 1030 principal amount 418 senior notes series c due november 23 2022 notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness company unconditionally guaranteed one company’s whollyowned subsidiaries notes also require company comply interest coverage ratio contain customary default provisions including crossdefault provisions proceeds sale notes used repay existing debt general corporate purposes march 2009 issued public offering 5000 principal amount 5625 notes due march 1 2014 3500 principal amount 650 notes due march 1 2019 march 2008 issued public offering 2500 principal amount 480 notes due march 1 2013 2500 principal amount 575 notes due march 1 2018 proceeds offerings used repay outstanding indebtedness commercial paper program general corporate purposes december 31 2010 compliance covenants indentures contain rating downgrade triggers would accelerate maturity debt would required make offer repurchase notes described price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving us corresponding ratings downgrade investment grade also outstanding 2500 principal amount 420 notes due july 15 2018 1250 principal amount 4625 notes due may 15 2013 additionally 5000 principal amount 5125 notes due january 2011 outstanding december 31 2010 subsequently repaid primarily use commercial paper please refer note 5 debt financing 2010 annual report details item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes used discussion terms “avon” “company” “we” “our” “us” mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries refer nongaap financial measures pages 22 23 2011 annual report description constant dollar “constant ” growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted worldwide primarily direct selling channel presently sales operations 65 countries territories including us distribute products 42 reportable segments based geographic operations five regions latin america north america central eastern europe western europe middle east africa asia pacific centralized operations global brand marketing global sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists fashion jewelry watches apparel footwear accessories children’s products home consists gift decorative products housewares entertainment leisure products nutritional products sales made ultimate consumer principally direct selling approximately 64 million active independent representatives independent contractors employees success business highly dependent recruiting retaining servicing representatives 2011 approximately 83 consolidated revenue derived operations outside us total revenue 2011 increased 4 favorable foreign exchange contributing 3 points revenue increase constant revenues increased 1 active representatives decreased 1 sales products beauty category increased 5 2 constant basis due 3 increase net per unit offset 1 decrease units saw slower expected growth several markets partially attributable weaker macroeconomic conditions brazil largest market lower normal service levels impacted implementation enterprise resource planning erp system second half year weakened results additionally slowing beauty category market growth pressured brazils results second half 2011 latter part 2011 believe russias performance also impacted weak trends beauty category market country see “segment review” section management’s discussion analysis financial condition results operations additional information related changes revenue segment 2011 operating margin negatively impacted impairment charge goodwill indefinitelived intangible asset associated silpada business unit acquired 2010 result impairment charge operating profit 2011 negatively impacted 2630 please refer note 17 goodwill intangible assets 2011 annual report discussion regarding silpada continue experience increases labor commodity costs including oil silver cotton pricing strategies helping partially offset resulting product cost increases assurance able pass product cost increases fully immediately 2011 committed undertake detailed assessment longrange business plan order improve performance better position increasingly complex economic environment review include internal external inputs executional capabilities capital allocation believe operating cash flow global cash equivalent balances allow us continue focus longterm sustainable profitable growth also focused innovating direct selling channel technological service model enhancements representatives beginning first quarter 2011 results asia pacific china managed single operating segment referred asia pacific accordingly asia pacific amounts include results china periods presented december 2010 completed sale subsidiary japan reflected discontinued operations periods initiatives continue implement certain initiatives 2005 2009 restructuring programs anticipated savings benefits realized initiatives funded continue fund investment amongst things advertising market intelligence consumer research product innovation advertising representative value proposition “rvp” significantly increased spending advertising four years leading 2011 investing advertising remains key strategy 2011 investment advertising decreased 892 22 percentage beauty sales investment advertising decreased 24 compared 2010 decrease advertising 2011 primarily due shift increased investment rvp advertising investments supported new product launches supershock max mascara moisture seduction lipstick outspoken intense fergie fragrance step fragrance anew genics treatment cream anew solar advance sunscreen face lotion spf 45 solutions youth minerals restorative night cream super enchant mascara extralasting makeup advertising investments also included advertising recruit representatives also continued build alliances portfolio including fergie local celebrities latin america russia continued invest directselling channel improve reward effort equation representatives committed significant investments extensive research determine payback advertising field tools actions optimal balance tools actions markets allocated significant investments proprietary direct selling analytics better understand drivers value representatives measure investment rvp incremental cost provide valueenhancing initiatives 2011 invested approximately 1210 incrementally representatives rvp continued implementation sales leadership program enhanced incentives increased sales campaign frequency improved commissions new ebusiness tools continue look ways improve earnings opportunity representatives various means including following • evaluating optimum discount structures select markets • continuing rollout sales leadership program offers representatives enhanced career opportunity • strategically examining fee structure brochure costs enhance representative economics • recalibrating frequency campaigns maximize representative selling opportunities • service model transformation initiatives • applying optimal balance advertising field investment key markets • web enablement representatives including online training enhancements reward effort different within global portfolio businesses believe web enablement key element reduce representative effort worldwide continue focus improving internetbased tools representatives enterprise resource planning system midst multiyear global rollout enterprise resource planning “erp” system expected improve efficiency supply chain financial transaction processes began gradual global rollout europe 2005 since implemented erp european manufacturing facilities larger european direct selling operations us part continuing global rollout expect implement erp countries next several years leveraging knowledge gained previous implementations 2011 implemented supply chain module erp brazil implementation erp system transformation related processes negatively impacted service levels brazil second half 2011 expect erp system help improve service reliability longterm restructuring initiatives launched restructuring programs late 2005 restructuring program february 2009 restructuring program december 31 2011 recorded total costs implement net adjustments 5260 123 2011 32 2010 201 2009 593 2008 1575 2007 2171 2006 565 2005 actions associated restructuring initiatives 2005 restructuring program primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives december 31 2011 recorded total costs implement net adjustments 2560 277 2011 775 2010 1508 2009 actions associated restructuring initiatives 2009 restructuring program primarily employeerelated costs including severance pension termination benefits professional service fees related initiatives see note 15 restructuring initiatives pages 2011 annual report information restructuring programs new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2011 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition growth active representatives metric based number representatives submitting order campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold product contingent upon purchase another product example gift purchase exclude free samples inventory days metric equal number days cost sales based average preceding 12 months covered inventory balance end period nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states “gaap” disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars refer adjusted growth rates constant growth nongaap financial measure believe measure provides investors additional perspective trends exclude impact changes due translation foreign currencies us dollars calculate current year results prior year results constant exchange rate currency impact determined difference actual growth rates constant currency growth rates present gross margin selling general administrative expenses percentage revenue operating profit operating margin effective tax rate nongaap basis discussion segments presents operating profit operating margin nongaap basis provided quantitative reconciliation difference nongaap financial measure financial measure calculated reported accordance gaap nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company uses nongaap financial measures evaluate operating performance believes meaningful investors made aware periodtoperiod basis impacts 1 costs implement “cti” restructuring initiatives 2 goodwill indefinitelived intangible impairment charge related silpada impairment charge 3 costs charges related venezuela designated highly inflationary economy subsequent devaluation currency january 2010 “venezuelan special items” company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period impairment charge includes impact statement income caused goodwill indefinitelived intangible impairment charge related silpada 2011 venezuelan special items include impact statement income caused devaluation venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventory prepaid expenses nonmonetary assets venezuelan special items include earnings impact caused difference historical cost assets previous official exchange rate 215 revised official exchange rate 430 critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies 2011 annual report detailed discussion application accounting policies restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including selling schedules business operations seasonality changing trends past three years annual bad debt expense range 215 248 approximately 20 total revenue bad debt expense percent revenue increased 2 points 2011 compared 2010 primarily latin america allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collectability accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns record provision estimated sales returns based historical experience product returns past three years sales returns range 370 447 approximately 38 total revenue historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected management additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 1281 2011 1311 2010 1200 2009 pension postretirement postemployment expense maintain defined benefit pension plans cover substantially employees us portion employees international locations additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care life insurance benefits subject certain limitations majority employees us foreign countries see note 12 employee benefit plans 2011 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions include expected rate return pension plan assets interest crediting rate hybrid plans discount rate applied pension plan obligations 2011 weighted average assumed rate return pension plan assets including us nonus plans 754 compared 765 2010 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2011 us plan 8 based asset allocation approximately 40 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 60 equity securities high yield securities expected earn approximately 7 10 long term historical rates return assets us plan 65 recent 10year period 79 20year period us plan asset allocation policy favored us equity securities returned 45 10year period 83 20year period plan assets us returned 70 2011 140 2010 recently issued regulations pension protection act 2006 though yet finalized require hybrid plans limit maximum interest crediting rate one among several choices crediting rates considered “market rates return” rate chosen affect total pension obligations discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 469 december 31 2011 521 december 31 2010 determination expected rate return assets discount rate take consideration external actuarial advice funding requirements may impacted regulations interpretations thereof calculations pension postretirement postemployment costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2011 pretax actuarial losses prior service credits transition obligations totaling 4831 us plans 2847 nonus plans yet charged expense actuarial losses charged accumulated comprehensive loss within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2012 assumption expected rate return assets 713 us plans 685 nonus plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2011 pension expense taxes record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made recognized deferred tax assets 2821 relating foreign tax credit carryforwards expire 2018 2021 extent future us taxable income less favorable currently projected management ability utilize foreign tax credits may affected valuation allowance may required deferred taxes provided portion unremitted earnings subsidiaries outside us conclude earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns many jurisdictions 2012 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed filing positions ultimately upheld possible 2012 provision income taxes may reflect adjustments sharebased compensation stock options issued employees recognized consolidated financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future historical results loss contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements goodwill identified intangible assets test goodwill intangible assets indefinite lives impairment annually frequently circumstances warrant using fair value methods review identified intangible assets defined useful lives subject amortization impairment whenever events changes circumstances indicate related carrying amounts may recoverable completed annual goodwill indefinitelived intangible assets impairment assessments 2011 yearend close process determined estimated fair values substantially exceeded carrying values reporting units exception silpada reporting unit analysis silpada business indicated impairment carrying value business exceeded estimated fair value accordingly estimated noncash tax impairment charge 2630 recorded fourth quarter 2011 reduce carrying amounts goodwill indefinitelived intangible asset december 31 2011 result impairment charge recorded carrying values silpadas goodwill indefinitelived intangible asset 1167 850 respectively following weaker expected performance fourth quarter lowered revenue earnings projections silpada largely due rise silver prices nearly doubled since acquisition negative impact pricing revenues margins decline fair values silpada reporting unit underlying trademark driven reduction forecasted growth rates cash flows used estimate fair value impairment analyses performed goodwill indefinitelived intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach market place participant would use estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions among factors key assumptions used measuring fair value silpada included discount rate based weightedaverage cost capital revenue growth silver prices representative growth activity rates fair value silpada trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates decline silpada expected future cash flows growth rates change riskadjusted discount rate used fair value expected future cash flows may result additional impairment charges goodwill indefinitelived trademark see note 17 goodwill intangible assets 2011 annual report information silpada years ended december 31 2010 2009 completed annual goodwill indefinitelived intangible assets impairment assessments adjustments necessary additionally events changes circumstances occurred indicated definitelived intangible assets may recoverable three years ended december 31 2011 impairment analyses performed goodwill indefinitelived intangible assets require several estimates including future cash flows growth rates selection discount rates significant decline expected future cash flows growth rates change discount rate used fair value expected future cash flows may result future impairment charge results continuing operations consolidated amounts table may necessarily sum computations made independently calculation meaningful 1 advertising expenses included within selling general administrative expenses total revenue total revenue 2011 increased 4 favorable foreign exchange contributing 3 points revenue increase constant revenues increased 1 active representatives decreased 1 category basis increase revenue 2011 primarily driven increase 5 beauty sales increases subcategories beauty within beauty category fragrance increased 7 color cosmetics increased 5 personal care increased 4 skincare increased 3 fashion sales decreased 1 home sales increased 1 constant basis beauty category increased 2 within beauty category constant basis sales fragrance increased 5 color cosmetics increased 2 personal care increased 1 skincare sales flat constant sales fashion decreased 3 acquired silpada end july 2010 inclusion silpadas results july 2011 benefited fashion constant growth rate 5 points similar periods results included 2010 financial results unmatched period constant sales home decreased 2 noted previously overview section revenue performance primarily latter part 2011 negatively impacted weaker macroeconomic conditions brazil largest market lower normal service levels impacted implementation erp system second half year weakened results additionally slowing beauty category market growth pressured brazils results second half 2011 latter part 2011 believe russias performance also impacted weak trends beauty category market country 2010 total revenues increased 6 2009 favorably impacted growth active representatives constant revenues also increased 6 acquisitions silpada late july liz earle late march contributed approximately 1 point revenue growth active representatives increased 4 2010 category basis increase revenue 2010 primarily driven increase 6 beauty sales within beauty category fragrance increased 11 color cosmetics increased 7 personal care increased 5 skincare declined 3 fashion sales increased 11 home sales increased 3 constant basis beauty category increased 6 within beauty category constant sales fragrance increased 12 color cosmetics increased 6 personal care increased 5 skincare declined 3 skincare growth rates benefited 3 points liz earle acquisition constant sales fashion home increased 11 5 respectively fashion growth rates benefited 6 points silpada acquisition strong revenue performance first half 2010 offset slowdown revenue growth second half year second half 2010 revenue growth negatively impacted slowdown two largest markets brazil russia brazil’s moderated performance second half 2010 primarily caused service disruptions resulting shorting products midyear implementation government mandated einvoicing exacerbated legacy order processing systems capacity also pressured significant increase order scale recent years russia’s performance second half 2010 primarily result slowing field growth due weak incentives increases social benefit taxes levied certain representatives exacerbated slowdown field growth increased taxes disproportionately reduced new developing representatives’ earnings reduced motivation recruit russia weaker color skincare performance negatively impacted growth second half 2010 additional discussion changes revenue segment see “segment review” section mda gross margin gross margin 2011 increased 5 points compared 2010 primarily due negative impact venezuelan special items 2010 nongaap basis excluding impact cti restructuring venezuelan special items gross margin decreased 1 points negative impact rising product costs partially offset pricing benefits favorable foreign currency gross margin 2010 increased 3 points compared 2009 nongaap basis excluding impact cti restructuring venezuelan special items gross margin improved 9 points reflecting benefits manufacturing productivity gains include benefits strategic sourcing initiative ssi favorable impact foreign exchange transactions ssi initiative shifted purchasing strategy towards globallycoordinated one leveraged volumes selling general administrative expenses selling general administrative expenses 2011 increased 2770 compared 2010 increase primarily due continued investing rvp well higher distribution costs bad debt expense invested approximately 1210 incrementally rvp 2011 continued implementation sales leadership program higher incentives selling general administrative expenses 2011 benefited lower expenses associated employee incentive compensation plans adjusted nongaap basis excluding impact cti restructuring venezuelan special items percentage revenue selling general administrative expenses 2011 increased 90 basis points higher rvp distribution costs bad debt expense partially offset lower advertising dual distribution costs attributable transition new facilities brazil colombia negatively impacted selling general administrative expenses 2011 compared 2010 selling general administrative expenses 2010 increased 3743 compared 2009 increase primarily due higher advertising rvp costs significant professional related fees associated fcpa investigation compliance reviews described note 16 contingencies 2011 annual report approximately 95 approximately 59 2009 higher volume related costs distribution costs partially offset lower cti restructuring initiatives adjusted nongaap basis excluding impact cti restructuring venezuelan special items percentage revenue selling general administrative expenses 2010 increased 12 points compared 2009 due higher advertising rvp costs significant professional related fees associated fcpa matters impairment goodwill intangible asset 2011 recorded noncash impairment charge 2630 goodwill indefinitelived intangible asset associated silpada refer note 17 goodwill intangible assets 2011 annual report details see “segment review” section mda additional information related changes operating margin segment expenses interest expense 2011 increased 7 compared 2010 primarily due higher outstanding debt balances interest expense decreased 17 2010 compared 2009 due lower interest rates december 31 2011 2010 held interestrate swap agreements effectively converted approximately 74 outstanding longterm fixedrate borrowings variable interest rate based libor interest income increased 2011 compared 2010 due higher average cash balances higher interest rates interest income decreased 2010 compared 2009 primarily due lower interest rates expense net 2011 compared 2010 decreased primarily due 461 negative impact 2010 devaluation venezuelan currency monetary assets liabilities conjunction highly inflationary accounting occurred 2010 partially offset higher foreign exchange losses 2011 expense net 2010 higher 2009 result 461 venezuelan currency devaluation refer latin america segment review discussion venezuelan currency effective tax rate effective tax rate 2011 291 compared 370 2010 322 2009 effective tax rate 2011 included tax benefits audit settlements statute expirations favorably impacted tax rate 31 points addition 2011 tax rate favorably impacted 20 points tax benefit impairment charge associated silpada business effective tax rate 2010 unfavorably impacted 56 points due devaluation venezuelan currency conjunction highly inflationary accounting discussed within latin america segment review partially offset 21 points associated benefits audit settlements statute expirations effective tax rate 2009 unfavorably impacted 34 points establishment valuation allowance certain deferred tax assets primarily result restructuring activities partially offset 21 points reduction foreign tax liability addition 2009 tax rate benefited 20 points establishment deferred taxes certain inflationary adjustments beginning 2010 longer recorded highly inflationary accounting 2009 tax rate also included higher tax costs associated repatriation earnings offset favorable changes earnings mix international subsidiaries respect 2012 decided indefinitely reinvest current year earnings foreign subsidiaries accordingly 2012 effective tax rate negatively impacted segment review beginning first quarter 2011 results asia pacific china managed single operating segment accordingly asia pacific amounts include results china periods presented analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2011 global expenses include among things costs related executive administrative offices information technology research development marketing certain planned global expenses allocated business segments primarily based planned revenue unallocated costs remain global expenses allocate costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment total global expenses declined 2011 2010 primarily due lower expenses associated management incentive programs lower professional fees associated acquisitions divestitures lower costs implement restructuring initiatives amounts allocated segments increased 2011 primarily due increase costs associated initiatives specifically benefiting segments compared global initiatives professional related fees associated fcpa investigation compliance reviews described note 16 contingencies consolidated financial statements included herein amounted approximately 933 2011 fees difficult predict expected continue may vary course investigation fees allocated segments please see risk factors note 16 contingencies consolidated financial statements included herein information regarding fcpa investigation related matters increase net global expenses 2010 compared 2009 primarily attributable significant professional related fees associated fcpa investigation compliance reviews approximately 953 approximately 590 2009 increase net global expenses 2010 compared 2009 also due higher costs associated global initiatives costs associated business acquisitions latin america 2011 compared 2010 amounts table may necessarily sum computations made independently total revenue 2011 increased due higher average order growth active representatives well due favorable foreign exchange average order benefited favorable impacts pricing active representatives growth benefited continued investments rvp revenue 2011 grew 6 brazil 17 mexico benefits favorable foreign exchange constant revenue 2011 benefited continued growth markets particularly growth 14 mexico constant revenue brazil relatively flat venezuela revenue constant revenue 2011 grew 28 additional information regarding venezuela operations discussed detail brazils performance 2011 continued pressured lower normal service levels addition lower normal service levels impacted implementation erp system second half year turn negatively impacted average order active representatives revenue growth additionally slowing beauty category market growth pressured brazils results second half 2011 implementation erp system transformation related processes may negatively impact service levels shortterm expect erp system help improve service reliability longterm constant revenue growth mexico 2011 driven increase active representatives higher average order revenue growth 2011 venezuela result higher average order primarily due increased prices primarily result inflation decrease adjusted nongaap operating margin 2011 driven sharp decline brazils operating margin brazils 2011 operating margin partially unfavorably impacted inventory related charges primarily due supply chain challenges negatively impacted latin americas operating margin 3 points additionally brazils decline operating margin caused business disruptions resulting investments market well inflationary pressure costs adjusted nongaap operating margin region 2011 also negatively impacted higher bad debt expense higher distribution costs due transition new facilities brazil colombia operating margin 2010 latin america negatively impacted devaluation venezuelan currency conjunction higher inflationary accounting discussed effective january 1 2010 began account venezuela highly inflationary economy effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services effective december 30 2010 venezuelan government eliminated 260 rate available import essential goods substantially imports subsidiary venezuela “avon venezuela” fall nonessential classification result change official rate 430 conjunction accounting operations venezuela highly inflationary accounting guidelines first quarter 2010 recorded net charges 461 “other expense net” 127 “income taxes” total aftertax charge 588 reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets must continue carried us historic dollar cost subsequent devaluation therefore historic us dollar costs impacted income statement 2010 disproportionate rate devalued based new exchange rates result using us historic dollar cost basis nonmonetary assets inventory acquired prior devaluation operating profit 2010 negatively impacted 795 difference historical cost previous official exchange rate 215 current official exchange rate 430 devaluations immaterial impact operating profit 2011 2010 venezuelan currency devaluations currency restrictions enacted venezuelan government 2003 impacted ability avon venezuela obtain foreign currency official rate pay imported products since 2003 avon venezuela obtaining foreign currency needs beyond amounts could obtained official rates nongovernment sources exchange rates less favorable official rate “parallel market” late may 2010 venezuelan government took control previously freelytraded parallel market trading parallel market suspended several weeks may june reopened regulated “sitme” market early june 2010 government imposed volume restrictions trading activity limiting entity’s activity maximum 035 per month current limit monthly foreign exchange requirements venezuelan operations unless restrictions modified may negative impact avon venezuela’s future operations assurance company able recover higher cost obtaining foreign currency sitme market compared official rate operating activities increased pricing cost reductions areas december 31 2011 net asset position 1834 associated operations venezuela included cash balances approximately 1958 approximately 1934 denominated bolívares remeasured december 31 2011 official exchange rate approximately 24 denominated us dollars 1834 net asset position approximately 2098 associated bolívardenominated monetary net assets deferred income taxes additionally 2011 avon venezuela’s revenue operating profit represented approximately 4 avon’s consolidated revenue 7 avon’s consolidated operating profit 5 avons nongaap operating profit 2011 exchange rate sitme market ranged within 5 6 bolívares us dollar however noted previously access us dollars sitme market limited illustrate sensitivity potential future changes official exchange rate venezuela official exchange rate devalued december 31 2011 rate 90 bolívares us dollar approximate 52 devaluation results would negatively impacted follows • result use devalued exchange rate remeasurement avon venezuela’s revenues profits avon’s annualized consolidated revenues would likely negatively impacted approximately 2 annualized consolidated operating profit would likely negatively impacted approximately 3 prospectively assuming 2011s consolidated operating profit without silpada impairment charge operational improvements occurred offset negative impact devaluation • avon’s consolidated operating profit first twelve months following devaluation example would likely negatively impacted approximately 8 assuming offsetting operational improvements larger negative impact operating profit first twelve months compared prospective impact caused costs nonmonetary assets carried historic dollar cost accordance requirement account venezuela highly inflationary economy revenue would remeasured devalued rate • would likely incur immediate charge approximately 861 802 “other expenses net” 59 “income taxes” associated 2098 bolívardenominated monetary net assets deferred income taxes 2011 costs associated acquiring goods required settlement us dollars sitme markets venezuela included within operating profit approximately 170 amounts reported costs associated acquiring goods required settlement us dollars parallel sitme markets venezuela included within operating profit 2010 approximately 56 additionally exchange rate sitme market devalued alternative source exchange becomes available unfavorable rate beyond sitme rate 57 bolívares us dollar results would negatively impacted december 31 2011 avon venezuela pending requests submitted agency venezuelan government approximately 131 remittance dividends royalties parent company us outstanding requests periodically submitted 2005 2011 latin america 2010 compared 2009 amounts table may necessarily sum computations made independently total revenue 2010 increased compared 2009 due growth active representatives driven continued investments rvp higher average order revenue 2010 grew 20 brazil 15 mexico benefits favorable foreign exchange impact unfavorable foreign exchange drove revenue decline 27 venezuela 2010 constant revenue 2010 benefited continued growth markets particularly growth 8 brazil 8 mexico 47 venezuela constant revenue growth mexico 2010 driven increase active representatives well increase average order constant revenue growth 2010 venezuela reflected higher average order primarily due increased prices partially result inflation growth active representatives constant revenue growth 2010 brazil primarily driven increase active representatives constant revenue growth 2010 brazil pressured service disruptions second half year decline skin care sales brazil’s revenue grew 38 9 first half second half 2010 respectively constant growth rates 13 first half 4 second half brazil’s performance second half 2010 primarily driven service disruptions resulting shorting products midyear implementation government mandated einvoicing exacerbated legacy order processing systems capacity also pressured significant increase order scale recent years brazil’s growth period outpaced expectations planned infrastructure investments factors pressured capacity legacy systems primary cause service disruptions operating margin declined 2010 latin america due negative impact devaluation venezuelan currency conjunction highly inflationary accounting discussed previously decline operating margin 2010 caused venezuelan special items partially offset benefits 4 points lower cti restructuring adjusted nongaap basis excluding venezuelan special items cti restructuring decrease operating margin 2010 primarily driven higher distribution costs increased investment rvp advertising partially offset benefit favorable foreign exchange north america 2011 compared 2010 amounts table may necessarily sum computations made independently north america consists largely us business includes results silpada period since acquisition end july 2010 2011 silpadas results included north america results entire year presented whereas results 2010 include silpadas results since end july 2010 inclusion silpada 2011 results unmatched period july favorably impacted north america revenue growth 4 points operating profit growth 6 points adjusted nongaap operating profit growth 1 point adjusted nongaap operating profit margin growth 1 point total revenue decline 2011 primarily due decline active representatives sales beauty products decreased 6 2011 partly due weakness beauty market sales nonbeauty products declined 7 2011 inclusion silpada 2011 results unmatched period july contributed 10 points nonbeauty growth rates 2011 operating margin north america negatively impacted impairment charge silpada goodwill indefinitelived intangible asset see note 17 goodwill intangible assets 2011 annual report discussion regarding silpada adjusted nongaap basis excluding impairment charge cti restructuring decrease operating margin primarily driven lower revenues continuing incur overhead expenses vary directly revenue increased investment rvp lower gross margin due commodity cost pressures partially offsetting negative impacts lower advertising improved bad debt 2011 operating margin benefited 5 points due reduction estimated fair value earnout provision recorded connection silpada acquisition revised estimate earnout liability zero comparison operating margin 2010 benefited 7 points due change fair value earnout provision 26 date acquisition 11 december 31 2010 given results pressured focused recovery plan included enhancing sales leadership model optimizing product portfolio latter portion year positive reaction recalibration mix beauty nonbeauty products focus smart value within beauty part optimization product portfolio continuing focus field transformation move stronger multilevel leadership structure well simplifying enhancing earnings opportunity representatives focus field transformation redistricting expect variability financial results 2012 north america 2010 compared 2009 amounts table may necessarily sum computations made independently inclusion silpadas results latter portion 2010 favorably impacted north america revenue growth 5 points 2010 compared 2009 silpada also favorably impacted operating profit growth 31 points 2010 favorably impacted adjusted nongaap operating profit growth 23 points result silpada acquisition units sold active representatives 2010 favorably impacted 1 point total revenue decline 2010 due decline active representatives lower average order received representatives decline active representatives 2010 largely due decline additions compared 2009’s record recruiting resulted strong growth active representatives 2009 causing unfavorable comparison 2010 sales nonbeauty products decreased 1 2010 silpada offsetting decline 10 points sales beauty products decreased 4 2010 partly due weakness beauty market increase north america operating margin adjusted nongaap operating margin 2010 primarily driven improvements gross margin caused favorable pricing mix manufacturing productivity gains inclusion silpada results benefited operating margin 12 points 2010 despite approximately 7 amortization intangible assets operating margin benefits negatively impacted lower revenues able offset overhead expenses despite cost saving initiatives costs associated completing silpada acquisition recorded global expenses allocated north america segment included within silpada results operating margin benefit 7 points due change estimated fair value earnout provision recorded connection silpada acquisition central eastern europe 2011 compared 2010 amounts table may necessarily sum computations made independently total revenue 2011 flat primarily due declines active representatives well average order due macroeconomic pressures region declines offset favorable foreign exchange 2011 revenue russia declined 1 constant basis revenue declined 4 russia 2011 due declines average order well active representatives latter part 2011 believe russias performance also impacted weak trends beauty category market country adjusted nongaap basis operating margin decreased 2011 improved gross margin offset higher distribution costs unfavorable impact lower revenues continuing incur overhead expenses vary directly revenue increased investments rvp offset lower advertising rvp investment increased 2011 part address increased social benefit taxes levied certain representatives beginning 2010 central eastern europe 2010 compared 2009 amounts table may necessarily sum computations made independently total revenue 2010 increased compared 2009 due growth active representatives higher average order well favorable foreign exchange region’s revenue benefited growth 11 russia due partially favorable foreign exchange 2010 constant revenue russia increased 7 due growth active representatives higher average order russia’s revenue grew 26 first half 2010 flat second half constant growth rates 14 first half 2 second half russia’s performance second half 2010 primarily result slowing field growth due weak incentives increases social benefit taxes levied certain representatives exacerbated slowdown field growth increased taxes disproportionately reduced new developing representatives’ earnings reduced motivation recruit russia weaker color skincare performance negatively impacted revenue growth second half 2010 first quarter 2011 launched new sales leadership compensation plan help offset tax burden representatives 2010 operating margin benefited 17 points due lower cti restructuring compared prior year adjusted nongaap basis increase operating margin 2010 primarily driven benefit leverage higher revenues fixed overhead expenses partially offset lower gross margin western europe middle east africa 2011 compared 2010 amounts table may necessarily sum computations made independently total revenue 2011 increased primarily result increase active representatives regions revenue growth 2011 primarily due significant growth south africa partially offset revenue decline united kingdom additionally total revenue 2011 favorably impacted approximately 1 point due benefit united kingdoms revenue resulting settlement long time dispute associated estimated value added tax vat liability initially recognized reduction revenue region experienced constant growth first nine months 2011 saw declines fourth quarter partly due negative impact continued difficult economic environment fashion home sales inclusion liz earle 2011 results unmatched period march favorably impacted regions revenue growth 1 point 2011 revenue south africa increased 31 partially benefiting favorable foreign exchange constant basis revenue south africa increased 29 due growth active representatives 2011 revenue turkey declined 5 due unfavorable foreign exchange constant basis turkey grew 5 due growth active representatives higher average order united kingdom revenue declined 1 2011 including benefits favorable foreign exchange well vat settlement constant basis revenue united kingdom 2011 declined 4 primarily due decline active representatives lower average order partially offset vat settlement benefited constant growth rates 4 points decreases operating margin adjusted nongaap operating margin 2011 primarily driven decline gross margin due higher commodity costs negative impact foreign exchange partially offset favorable impact revenue associated vat settlement reduced overhead spending western europe middle east africa 2010 compared 2009 amounts table may necessarily sum computations made independently total revenue 2010 primarily increased compared 2009 result increase active representatives region’s revenue growth 2010 primarily due significant growth south africa turkey well acquisition liz earle contributed approximately 3 points revenue growth 2010 revenue increased 17 turkey constant revenue increased 15 turkey due primarily strong growth active representatives driven continued investments rvp 2010 revenue increased 82 south africa partially benefiting favorable foreign exchange constant revenue growth 64 2010 south africa primarily attributable strong growth active representatives driven investments rvp expansion geographic reach country 2010 revenue increased 1 united kingdom constant revenue increased 3 due growth active representatives partially offset lower average order 2010 operating margin benefited 23 points due lower cti restructuring compared prior year adjusted nongaap basis excluding cti restructuring increase operating margin 2010 primarily driven improvements gross margin driven improved manufacturing productivity including benefits ssi asia pacific 2011 compared 2010 amounts table may necessarily sum computations made independently beginning first quarter 2011 results asia pacific china managed single operating segment accordingly asia pacific amounts include results china periods presented addition regions results periods exclude japan sold 2010 classified discontinued operation total revenue 2011 declined primarily due decrease active representatives partially offset favorable foreign exchange revenue grew 3 philippines 2011 benefiting favorable foreign exchange constant revenue philippines declined 1 2011 reflecting increased competitive activity regions results negatively impacted continued decline skincare sales 2011 revenue declined 20 china 2011 24 constant 2011 continued rollout service centers support direct selling continue transition towards direct selling focused improving productivity representatives adjusted nongaap operating margin increased 2011 primarily due lower advertising costs well favorable foreign exchange favorable impact items partially offset lower gross margin higher rvp spending regards gross margin favorable pricing offset higher commodity costs gross margin declined due adverse product mix asia pacific 2010 compared 2009 amounts table may necessarily sum computations made independently total revenue 2010 decreased primarily due decrease active representatives lower average order partially offset favorable foreign exchange revenue grew 15 2010 philippines benefiting partially favorable foreign exchange constant revenue 2010 philippines increased 10 driven growth active representatives supported rvp initiatives offset lower average order region’s results negatively impacted decline skincare sales 2010 revenue declined 35 36 constant china due significant revenue declines directselling beauty boutiques fundamental challenges complex hybrid business model including conflicting needs retail directselling impacted businesses continued transition away complex hybrid business model china one focuses direct selling updating service center model includes realigned field compensation structure recalibrated merchandising campaign management strategies support directselling 2010 operating margin benefited 20 points due lower cti restructuring compared prior year benefit partially offset unfavorable change operating margin china primarily driven significantly lower revenues adjusted nongaap basis excluding cti restructuring operating margin 2010 declined due lower revenues china partially offsetting decline improved gross margin markets region benefited lower product costs favorable foreign exchange benefited gross margin approximately 1 point partially offset increased investment rvp liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit public offerings notes private placement disclosed latin america segment review december 31 2011 held cash balances associated venezuela operations denominated bolívares amounting approximately 193 translated official exchange rate currency restrictions enacted venezuelan government impacted ability repatriate dividends royalties venezuelan operations timely basis currently believe existing cash outside venezuela well cash generated operations outside venezuela along available sources public private financing adequate meet company’s anticipated requirements general corporate needs substantially cash equivalents held outside us relates undistributed earnings certain foreign subsidiaries portion intend reinvest indefinitely foreign subsidiaries indefinitely reinvested earnings distributed us parent dividends may subject additional taxes respect 2012 decided indefinitely reinvest current year earnings foreign subsidiaries may time seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise 2011 repurchased approximately 4 million shares common stock aggregate purchase price approximately 77 2010 repurchased approximately 4 million shares common stock aggregate purchase price approximately 141 retirements debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations acquisitions meet liquidity needs july 2010 avon completed purchase substantially assets liabilities silpada approximately 650 cash acquisition funded cash commercial paper borrowings refer note 17 goodwill intangible assets 2011 annual report details issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods liquidity could also impacted dividends capital expenditures acquisitions certain contingencies described fully note 16 contingencies consolidated financial statements included herein given time may discussions negotiations potential acquisition candidates acquisitions may accretive dilutive nature involve numerous risks uncertainties see cautionary statement purposes “safe harbor” statement private securities litigation reform act 1995 balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2011 332 lower 2010 operating cash flow 2011 negatively impacted 750 contribution us pension plan payment associated longterm incentive compensation plan approximately 36 higher payments associated cti restructuring partially offsetting unfavorable comparisons higher cash related net income higher recovery value added taxes brazil net cash provided continuing operating activities 2010 657 lower 2009 primarily due higher inventories resulting lowerthanexpected sales negative impacts timing restructuring payments offsetting unfavorable comparisons recovery value added taxes brazil inventory levels increased 2011 11613 december 31 2011 11529 december 31 2010 primarily reflecting benefit favorable foreign exchange offset adverse impact erp implementation brazil lowerthanexpected sales new inventory life cycle management processes leveraged initiatives erp implementation sales operations planning process expected improve inventory levels longterm inventory days 2 days 2011 compared 2010 due benefit favorable foreign exchange offset adverse impact erp implementation brazil lowerthanexpected sales maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 12 employee benefit plans 2011 annual report funding policy plans based legal requirements cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed “critical accounting estimates” future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 40 45 us pension plans range 40 45 international pension plans 2012 net cash continuing investing activities net cash used continuing investing activities 2011 8280 lower 2010 primarily due acquisitions silpada liz earle 2010 well lower capital expenditures net cash used continuing investing activities 2010 8774 higher 2009 primarily due acquisitions silpada liz earle addition first half 2009 redeemed certain corporateowned life insurance policies capital expenditures 2011 2767 compared 3312 2010 included higher investment associated new distribution facilities latin america capital expenditures 2010 3312 compared 2963 2009 due higher information technology expenditures latin america capital expenditures 2012 currently expected approximately 260 290 funded cash operations net cash continuing financing activities net cash used continuing financing activities 2845 2011 compared unfavorably cash provided continuing financing activities 2347 2010 primarily due issuance debt 2010 partially finance silpada acquisition net cash provided continuing financing activities 2347 2010 compared favorably cash used continuing financing activities 3612 2009 primarily due issuance debt 2010 partially finance silpada acquisition purchased approximately 4 million shares common stock 77 2011 compared 4 million shares common stock 141 2010 4 million shares 86 2009 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock units october 2007 board directors authorized repurchase 2 billion common stock fiveyear period began december 2007 increased quarterly dividend payments 23 per share 2011 22 per share 2010 debt contractual financial obligations commitments december 31 2011 debt contractual financial obligations commitments due dates follows 1 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2012 funded pension benefit plans able estimate contributions funded pension plans beyond 2012 2 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information recurring purchases inventory purchase orders nonbinding generally consistent year shortterm nature table include reserves income taxes unable reasonably predict ultimate amount timing settlement reserves income taxes december 31 2011 reserves income taxes including interest penalties totaled 418 see note 5 debt financing note 14 leases commitments 2011 annual report information debt contractual financial obligations commitments additionally disclosed note 15 restructuring initiatives remaining liability 739 december 31 2011 associated restructuring charges recorded date 2005 2009 restructuring programs also expect record additional restructuring charges 75 future periods implement actions approved date significant majority liabilities require cash payments 2012 balance sheet arrangements december 31 2011 material offbalancesheet arrangements capital resources maintain threeyear 1 billion revolving credit competitive advance facility expires november 2013 borrowings credit facility bear interest rate per annum either based libor floating base rate plus applicable margin credit facility contains various covenants including financial covenant requires interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facility may used general corporate purposes december 31 2011 amounts outstanding credit facility also maintain 1 billion commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 1 billion outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported threeyear credit facility outstanding commercial paper effectively reduces amount available borrowing threeyear credit facility december 31 2011 7090 outstanding program information regarding risks associated ability access certain debt markets including commercial paper market see “risk factors general economic downturn recession globally one geographic regions sudden disruption business conditions challenges may adversely affect business access liquidity capital” included item 1a herein november 2010 issued private placement exempt registration securities act 1933 amended 1420 principal amount 260 senior notes series due november 23 2015 2900 principal amount 403 senior notes series b due november 23 2020 1030 principal amount 418 senior notes series c due november 23 2022 notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness company unconditionally guaranteed one company’s whollyowned subsidiaries notes require company comply interest coverage ratio contain customary default provisions including crossdefault provisions proceeds sale notes used repay existing debt general corporate purposes march 2009 issued public offering 5000 principal amount 5625 notes due march 1 2014 3500 principal amount 650 notes due march 1 2019 march 2008 issued public offering 2500 principal amount 480 notes due march 1 2013 2500 principal amount 575 notes due march 1 2018 proceeds offerings used repay outstanding indebtedness commercial paper program general corporate purposes december 31 2011 compliance covenants indentures note purchase agreement indentures note purchase agreement contain rating downgrade triggers would accelerate maturity debt would required make offer repurchase notes described price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving us corresponding ratings downgrade investment grade also outstanding 2500 principal amount 420 notes due july 15 2018 1250 principal amount 4625 notes due may 15 2013 additionally 5000 principal amount 5125 notes due january 2011 outstanding december 31 2010 subsequently repaid primarily use commercial paper please refer note 5 debt financing 2011 annual report details item 7aitem 7 management’s discussion analysis financial condition results operations mda millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2012 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries refer nongaap financial measures section pages 23 24 2012 annual report description constant dollar constant growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted worldwide primarily directselling channel presently sales operations 65 countries territories including united states us distribute products 43 reportable segments based geographic operations include commercial business units latin america europe middle east africa north america asia pacific product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists jewelry watches apparel footwear accessories children’s products home consists gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling 6 million active independent representatives independent contractors employees success business highly dependent recruiting retaining servicing representatives 2012 approximately 85 consolidated revenue derived operations outside us total revenue 2012 declined 5 due unfavorable foreign exchange constant revenue relatively unchanged 1 increase average order offset 1 decline active representatives sales products beauty category decreased 5 primarily due unfavorable foreign exchange increased 1 constant basis sales products fashion category decreased 5 2 constant basis sales products home category decreased 4 primarily due unfavorable foreign exchange increased 2 constant basis constant revenue impacted improvements latin america particularly brazil mexico venezuela however improvements offset net declines regions europe middle east africa saw revenue decline united kingdom partially reflects continued weak macroeconomic environment competition executional challenges addition north america experienced challenging financial results partially result ongoing impact field transformation redistricting us asia pacifics revenue decline primarily due continuing weak performance china operations see segment review section mda additional information related changes revenue segment recently outlined initial steps toward achieving costsavings target 400 taxes end 2015 connection costsavings target december 11 2012 announced initial steps cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth 400m cost savings initiative includes global headcount reduction related actions well exit south korea vietnam markets part 400m cost savings initiative identified certain actions fourth quarter 2012 majority expected take effect 2013 believe accelerate top line growth reduce costs result actions recorded total costs implement various restructuring initiatives 507 taxes associated approved initiatives approved date expect total costs implement range 70 80 taxes time unable quantify total costs initiative fully implemented connection initial steps 400m cost savings initiative expect realize annualized savings approximately 70 taxes effort improve operating performance identified certain actions 2012 associated 400m cost savings initiative 2005 2009 restructuring programs believe enhance operating model reduce costs improve efficiencies result analysis actions taken recorded total costs implement 739 taxes 2012 connection actions effective second quarter 2012 central eastern europe western europe middle east africa managed single operating segment accordingly europe middle east africa amounts include results central eastern europe western europe middle east africa periods presented connection actions expect realize operating profit benefits approximately 40 annually cash flow benefits approximately 35 taxes annually beginning 2013 likely mitigating factor inflationary cost pressures refer note 15 restructuring initiatives pages 2012 annual report information conjunction organizational changes effective second quarter 2012 dominican republic included latin america whereas prior periods included north america impact material either segment accordingly results dominican republic included latin america excluded north america periods presented part overall review capital structure november 1 2012 announced decrease quarterly cash dividend 06 per share 23 per share fourthquarter dividend paid december 2012 maintained dividend 06 first quarter 2013 result 32 devaluation venezuelan currency february 2013 operating margin negatively impacted result expect companys operating profit negatively impacted primarily first half 2013 approximately 50 costs associated historical cost us dollars nonmonetary assets addition negative impact operating margin result devaluation venezuelan currency first quarter 2013 expect record net charges approximately 34 expense net approximately 16 income taxes reflecting writedown monetary assets liabilities deferred tax benefits refer discussion venezuela segment review latin america section mda new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2012 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition growth active representatives metric based number orders campaign totaled campaigns related period amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples inventory days metric equal number days cost sales based average preceding 12 months covered inventory balance end period nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue operating profit adjusted nongaap operating profit operating margin adjusted nongaap operating margin refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends exclude impact changes due translation foreign currencies us dollars calculate current year results prior year results constant exchange rate currency impact determined difference actual growth rates constant currency growth rates also present gross margin selling general administrative expenses percentage revenue net global expenses operating profit operating margin effective tax rate nongaap basis discussion segments presents operating profit operating margin nongaap basis provided quantitative reconciliation difference nongaap financial measure financial measure calculated reported accordance gaap company uses nongaap financial measures evaluate operating performance believes meaningful investors made aware periodtoperiod basis impacts 1 costs implement cti restructuring initiatives 2 goodwill intangible assets charges related silpada goodwill charge related china impairment charge collectively impairment charges 3 costs charges related venezuela designated highly inflationary economy subsequent devaluation currency january 2010 well benefit related release provision associated excess cost acquiring us dollars venezuela venezuelan special items 4 additional provision income taxes longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested special tax items company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period impairment charges include impact statement income caused goodwill intangible assets impairment charges related silpada 2012 2011 goodwill impairment charge related china 2012 venezuelan special items include impact statement income caused devaluation venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventory prepaid expenses nonmonetary assets venezuelan special items include earnings impact caused difference historical cost assets previous official exchange rate 215 revised official exchange rate 430 venezuelan special items also include impact statement income caused release provision associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate special tax items include impact statement income 2012 caused additional provision income taxes longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested fourth quarter 2012 determined company may repatriate offshore cash meet certain domestic funding needs see note 15 restructuring initiatives pages 2012 annual report note 17 goodwill intangible assets pages 2012 annual report segment review latin america section note 7 income taxes pages 2012 annual report information items nongaap measures considered isolation substitute superior financial measures calculated accordance gaap critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2012 annual report detailed discussion application accounting policies restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including selling schedules business operations seasonality changing trends past three years annual bad debt expense 251 2012 247 2011 216 2010 approximately 2 total revenue year bad debt expense percent revenue increased approximately 1 point 2012 compared 2011 primarily due increase europe middle east africa allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting impairment ability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction within many jurisdictions generally allow unlimited right return record provision estimated sales returns based historical experience product returns past three years annual sales returns 390 2012 447 2011 424 2010 approximately 4 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 122 2012 128 2011 131 2010 pension postretirement postemployment expense maintain defined benefit pension plans cover substantially employees us portion employees international locations additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care life insurance benefits end 2012 subject certain limitations majority retired employees us certain foreign countries see note 12 employee benefit plans pages 2012 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions include expected rate return pension plan assets interest crediting rate hybrid plans discount rate applied pension plan obligations 2012 weighted average assumed rate return pension plan assets including us nonus plans 728 compared 754 2011 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary majority pension plan assets relate us pension plan assumed rate return 2012 us plan 775 based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 2 4 long term approximately 65 equity securities high yield securities expected earn approximately 6 10 long term historical rates return assets us plan approximately 9 recent 10year period approximately 8 20year period us plan asset allocation policy favored us equity securities returned approximately 8 10year period approximately 8 20year period rate return plan assets us approximately 15 2012 approximately 7 2011 regulations pension protection act 2006 finalized yet effective require hybrid plans limit maximum interest crediting rate one among several choices crediting rates considered market rates return rate chosen affect total pension obligations discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis 411 december 31 2012 469 december 31 2011 determination expected rate return assets discount rate take consideration external actuarial advice funding requirements may impacted regulations interpretations thereof calculations pension postretirement postemployment costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2012 pretax actuarial losses prior service credits transition obligations totaling 491 us pension postretirement plans 313 nonus pension postretirement plans yet charged expense actuarial losses charged accumulated comprehensive loss within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement postemployment obligations future expense 2013 assumption expected rate return assets 775 us plans 685 nonus plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2012 pension expense pension benefit obligation december 31 2012 taxes december 31 2012 recognized net deferred tax assets 1067 net valuation allowance 627 gross deferred tax assets relating tax loss carryforwards 648 primarily foreign jurisdictions valuation allowance 610 provided record valuation allowance reduce deferred tax assets amount likely realized considered projected future taxable income ongoing tax planning strategies assessing need valuation allowance event determine would able realize net deferred tax asset future excess net recorded amount adjustment deferred tax asset would increase earnings period determination made likewise determine would able realize part net deferred tax asset future adjustment deferred tax asset would decrease earnings period determination made recognized deferred tax assets 356 relating foreign tax credit carryforwards expire 2018 2022 extent future taxable income less favorable currently projected ability utilize foreign tax credits may affected valuation allowance may required recognize deferred income taxes respect incremental us taxes would incurred undistributed earnings foreign subsidiary subsequently repatriated unless management determined undistributed earnings indefinitely reinvested foreseeable future prior fourth quarter 2012 recognized deferred income tax liability related incremental us taxes approximately 25 billion undistributed foreign earnings deemed indefinitely reinvested fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile determined may repatriate offshore cash meet certain domestic funding needs accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested provided us income taxes earnings december 31 2012 deferred income tax liability 225 us income taxes undistributed earnings subsidiaries outside us recorded us income tax benefit 159 undistributed earnings subsidiary venezuela local regulations restrict cash distributions actual tax cost distributing foreign earnings us depend amount timing repatriation jurisdictions involved recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2013 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2013 provision income taxes may reflect adjustments sharebased compensation stock options issued employees recognized consolidated financial statements based fair value using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future historical results loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements goodwill intangible assets test goodwill intangible assets indefinite lives impairment annually frequently circumstances warrant using various fair value methods review finitelived intangible assets subject amortization impairment whenever events changes circumstances indicate related carrying amounts may recoverable completed annual goodwill impairment assessment 2012 yearend close process determined estimated fair values considered substantially excess carrying values reporting units exception silpada china reporting units analysis silpada business indicated impairment carrying value business exceeded estimated fair value finitelived intangible assets recoverable primarily result weaker expected performance fourth quarter 2012 largely due lower representative counts activity rates result lowered revenue earnings projections silpada accordingly noncash impairment charge 209 recorded reduce carrying amounts goodwill indefinitelived intangible asset finitelived intangible asset december 31 2012 result impairment charge recorded carrying values silpada’s goodwill indefinitelived intangible asset finitelived intangible asset 45 40 respectively decline fair values silpada assets driven reduction forecasted growth rates cash flows used estimate respective fair values annual analysis completed yearend close process china business indicated estimated fair value exceeded carrying value approximately 19 goodwill associated china 38 december 31 2012 third quarter 2012 based continued decline revenue performance china corresponding lowering longterm growth estimates china completed interim impairment assessment fair value goodwill related operations china results interim impairment test indicated estimated fair value china reporting unit less respective carrying amount accordingly noncash impairment charge 44 recorded reduce carrying amount goodwill estimated fair value changes longterm growth estimates based state china business predominantly retail time 2011 yearend close process analysis silpada business indicated impairment carrying value business exceeded estimated fair value accordingly noncash impairment charge 263 recorded fourth quarter 2011 reduce carrying amounts goodwill indefinitelived intangible asset following weaker expected performance fourth quarter 2011 lowered revenue earnings projections silpada largely due rise silver prices nearly doubled since acquisition negative impact pricing revenues margins decline fair values silpada reporting unit underlying trademark driven reduction forecasted growth rates cash flows used estimate respective fair value impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach market place participant would use estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors key assumptions used measuring fair values silpada china included discount rate based weightedaverage cost capital revenue growth well silver prices representative growth activity rates silpada fair value silpadas indefinitelived trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates fair value silpada finitelived customer relationships determined using dcf model multiperiod excess earnings method significant decline expected future cash flows growth rates change discount rate used fair value expected future cash flows may result future impairment charges see note 17 goodwill intangible assets pages 2012 annual report information silpada china results continuing operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses included within selling general administrative expenses 2012 compared 2011 revenue total revenue 2012 compared 2011 decreased 5 due unfavorable foreign exchange constant revenue relatively unchanged 1 increase average order offset 1 decline active representatives growth units sold net impact price mix flat category basis revenue growth rates follows noted previously overview section constant revenue impacted improvements latin america particularly brazil mexico venezuela however improvements offset net declines regions europe middle east africa saw revenue decline united kingdom partially reflects continued weak macroeconomic environment competition executional challenges addition north america experienced challenging financial results partially result ongoing impact field transformation redistricting us asia pacifics revenue decline primarily due continuing weak performance china operations additional discussion changes revenue segment see segment review section mda gross margin gross margin decreased 220 basis points compared 2011 adjusted nongaap gross margin decreased 230 basis points primarily due following • decline 100 basis points due higher supply chain costs primarily caused increased product costs partially due inflationary pressures • decline 80 basis points due unfavorable net impact product mix pricing partly due increase smart value offerings well initiatives flow excess inventory • decline 50 basis points due negative impact foreign exchange selling general administrative expenses selling general administrative expenses 2012 decreased 454 compared 2011 decrease primarily due lower distribution costs lower advertising partially offset negative impact foreign exchange higher costs implement cti restructuring initiatives selling general administrative expenses percentage revenue increased 240 basis points compared 2011 adjusted nongaap selling general administrative expenses percentage revenue increased 160 basis points primarily due following • increase 80 basis points due higher overhead expenses primarily associated wage inflation 2012 well higher expenses associated employee incentive compensation plans • increase 50 basis points due increased investments rvp primarily driven investments one simple sales model us partially offset lower investments china • increase 50 basis points due negative impact foreign exchange • decrease 30 basis points due lower advertising costs first quarter 2012 revised definition rvp represent expenses activities directly associated representatives independent leaders including cost incentives sales aids net fees charged rvp longer includes strategic investments service model transformation web enablement longer adjusts impact volume impairment goodwill intangible asset 2012 recorded noncash impairment charges 2090 fourth quarter goodwill intangible assets associated silpada business well 440 third quarter goodwill associated china business refer note 17 goodwill intangible assets pages 2012 annual report details see segment review section mda additional information related changes operating margin segment expense interest expense increased 2012 compared 2011 12 primarily due higher outstanding debt balances higher average interest rates interest income decreased 2012 compared 2011 8 primarily due lower average interest rates partially offset higher average cash balances expense net decreased 2012 compared 2011 80 primarily due benefit 238 2012 due release provision fourth quarter 2012 associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate provision released company capitalized associated intercompany liabilities refer segment review latin america section mda discussion venezuela operations effective tax rate effective tax rate 2012 1175 compared 291 2011 fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile determined company may repatriate offshore cash meet certain domestic funding needs accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested therefore recorded additional provision income taxes 1683 impacted tax rate 770 tax rate also unfavorably impacted 71 points goodwill impairment charge related operations china tax benefit recorded charge result tax deduction tax basis goodwill unfavorable impacts tax rate partially offset 16 points tax benefit noncash impairment charge associated silpada business effective tax rate 2011 included tax benefits audit settlements statute expirations favorably impacted tax rate 31 points addition 2011 tax rate favorably impacted 20 points tax benefit noncash impairment charge associated silpada business 2011 compared 2010 revenue total revenue 2011 compared 2010 increased 4 favorable foreign exchange contributing 3 points revenue increase constant revenues increased 1 due 2 increase average order partly offset 1 decline active representatives units sold decreased 2 net impact price mix increased 3 category basis revenue growth rates follows acquired silpada end july 2010 inclusion silpada’s results twelve months 2011 compared five months 2010 benefited fashion constant growth rate 5 points similar period’s results included 2010 financial results unmatched period revenue performance primarily latter part 2011 negatively impacted weaker macroeconomic conditions brazil largest market lower normal service levels impacted implementation erp system second half year weakened results additionally slowing beauty category market growth pressured brazil’s results second half 2011 latter part 2011 believe russia’s performance also impacted weak trends beauty category market country additional discussion changes revenue segment see segment review section mda gross margin gross margin adjusted nongaap gross margin increased 50 basis points decreased 10 basis points compared 2010 respectively primarily due following • decline 160 basis points due higher supply chain costs primarily due negative impact rising product costs • benefit 80 basis points due favorable net impact product mix pricing • benefit 70 basis points due favorable impact foreign exchange selling general administrative expenses selling general administrative expenses 2011 increased 2770 compared 2010 increase primarily due continued investing rvp well higher distribution costs bad debt expense selling general administrative expenses 2011 benefited lower expenses associated employee incentive compensation plans selling general administrative expenses percentage revenue increased 50 basis points compared 2010 adjusted nongaap selling general administrative expenses percentage revenue increased 90 basis points primarily due following • increase 110 basis points increased investments rvp • increase 80 basis points due higher distribution costs dual distribution costs attributable transition new facilities brazil colombia negatively impacted selling general administrative expenses 2011 compared 2010 • increase 30 basis points due higher bad debt expense • decrease 100 basis points due lower advertising impairment goodwill intangible asset 2011 recorded noncash impairment charge 2630 goodwill indefinitelived intangible asset associated silpada business refer note 17 goodwill intangible assets pages 2012 annual report details see segment review section mda additional information related changes operating margin segment expense interest expense increased 2011 compared 2010 7 primarily due higher outstanding debt balances december 31 2011 2010 held interestrate swap agreements effectively converted approximately 74 outstanding longterm fixedrate borrowings variable interest rate based libor interest income increased 2011 compared 2010 18 primarily due higher average cash balances higher average interest rates expense net decreased 2011 compared 2010 35 primarily due 461 negative impact 2010 devaluation venezuelan currency monetary assets liabilities conjunction highly inflationary accounting occurred 2010 partially offset higher foreign exchange losses 2011 refer segment review latin america section mda discussion venezuela operations effective tax rate effective tax rate 2011 291 compared 370 2010 effective tax rate 2011 included tax benefits audit settlements statute expirations favorably impacted tax rate 31 points addition 2011 tax rate favorably impacted 20 points tax benefit noncash impairment charge associated silpada business effective tax rate 2010 unfavorably impacted 56 points due devaluation venezuelan currency conjunction highly inflationary accounting discussed within latin america segment review partially offset 21 points associated benefits audit settlements statute expirations segment review effective second quarter 2012 results central eastern europe western europe middle east africa managed single operating segment accordingly europe middle east africa amounts include results central eastern europe western europe middle east africa periods presented effective second quarter 2012 dominican republic included latin america whereas prior periods included north america impact material either segment accordingly dominican republic included latin america excluded north america periods presented analysis key factors affecting revenue operating profit reportable segment years threeyear period ended december 31 2012 global expenses global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated fcpa investigations compliance reviews allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigations compliance reviews costs implementing restructuring initiatives related specific segment recorded within segment amounts table may necessarily sum due rounding 2012 compared 2011 total global expenses increased primarily due higher costs implement restructuring initiatives higher expenses associated employee incentive compensation plans higher expenses associated global initiatives partially offset lower marketing costs amounts allocated segments decreased primarily due decrease budgeted marketing global sales costs allocated segments professional related fees associated fcpa investigations compliance reviews described note 16 contingencies pages 2012 annual report amounted approximately 924 compared approximately 933 2011 fees difficult predict expect ongoing fees may vary course investigations reviews fees allocated segments please see risk factors page 12 2012 annual report note 16 contingencies pages 2012 annual report information regarding fcpa investigations compliance reviews related matters including expectations respect future professional related fees related fcpa investigations compliance reviews 2011 compared 2010 total global expenses declined primarily due lower expenses associated management incentive programs lower professional fees associated acquisitions divestitures lower costs implement restructuring initiatives amounts allocated segments increased 2011 primarily due increase costs associated initiatives specifically benefiting segments compared global initiatives professional related fees associated fcpa investigations compliance reviews described note 16 contingencies pages 2012 annual report amounted approximately 933 2011 compared approximately 953 2010 fees allocated segments please see risk factors page 12 2012 annual report note 16 contingencies pages 2012 annual report information regarding fcpa investigations compliance reviews related matters including expectations respect future professional related fees related fcpa investigations compliance reviews latin america 2012 compared 2011 amounts table may necessarily sum due rounding effective second quarter 2012 dominican republic included latin america whereas prior periods included north america impact material either segment accordingly latin america amounts include results dominican republic periods presented total revenue declined 3 due unfavorable foreign exchange constant basis revenue grew 5 due increase active representatives well higher average order average order benefited pricing including inflationary impacts revenue brazil declined 12 negatively impacted foreign exchange revenue mexico grew 1 constant revenue benefited growth 3 brazil 8 mexico venezuela revenue constant revenue grew 13 constant revenue growth brazil driven increase active representatives revenue growth brazil negatively impacted decreased demand partially due increased competition well uncompetitive pricing fashion home first half 2012 brazil’s sales beauty products declined 11 sales nonbeauty products declined 15 negatively impacted foreign exchange constant basis brazil’s sales beauty products increased 4 sales nonbeauty flat constant revenue growth mexico driven increase active representatives well higher average order revenue growth venezuela primarily due higher average order benefiting inflationary impact pricing however venezuela revenue growth restrained latter half 2012 slowing economic activity impact lower inflation pricing revenue operating profit venezuela negatively impacted future periods change official exchange rate discussed additional information venezuela operations discussed detail operating margin negatively impacted 3 points compared prioryear period higher cti restructuring adjusted nongaap operating margin declined 30 points 26 points constant basis primarily result • decline 25 points due lower gross margin caused primarily 9 points higher supply chain costs offset pricing gross margin also negatively impacted 9 points foreign exchange 7 points unfavorable net impact pricing mix • decline 8 points increased overhead primarily due wage inflation outpacing revenue growth • benefit 4 points lower bad debt expense • benefit 3 points lower advertising costs effective january 1 2010 began account venezuela highly inflationary economy effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services effective december 30 2010 venezuelan government eliminated 260 rate available import essential goods substantially imports subsidiary venezuela avon venezuela classified nonessential result change official rate 430 conjunction accounting operations venezuela highly inflationary accounting guidelines first quarter 2010 recorded net charges 461 expense net 127 income taxes total aftertax charge 588 reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets must continue carried us historic dollar cost subsequent devaluation therefore historic us dollar costs impacted income statement 2010 disproportionate rate devalued based new exchange rates result using us historic dollar cost basis nonmonetary assets inventory acquired prior devaluation operating profit 2010 negatively impacted 795 difference historical cost previous official exchange rate 215 current official exchange rate 430 devaluations 2012 2011 immaterial impact operating profit 2012 2011 2010 venezuelan currency devaluations currency restrictions enacted venezuelan government 2003 impacted ability avon venezuela obtain foreign currency official rate pay imported products since 2003 avon venezuela obtaining foreign currency needs beyond amounts could obtained official rates nongovernment sources exchange rates less favorable official rate parallel market late may 2010 venezuelan government took control previously freelytraded parallel market trading parallel market suspended several weeks may june reopened regulated sitme market early june 2010 government imposed volume restrictions trading activity limiting entity’s activity maximum 035 per month current limit monthly foreign exchange requirements venezuelan operations unless restrictions modified may negative impact avon venezuela’s future operations assurance company able recover higher cost obtaining foreign currency sitme market compared official rate operating activities increased pricing cost reductions areas refer results continuing operations consolidated section mda discussion release provision approximately 24 fourth quarter 2012 difference regulated sitme rate official exchange rate associated capitalization intercompany liabilities account venezuela highly inflationary economy december 31 2012 net asset position 371 associated operations venezuela included cash balances approximately 173 approximately 171 denominated bolívares remeasured december 31 2012 official exchange rate approximately 2 denominated us dollars 371 net asset position approximately 172 associated bolívardenominated monetary net assets deferred income taxes additionally 2012 avon venezuela represented approximately 5 avon’s consolidated revenue 14 avon’s consolidated operating profit 7 avon’s consolidated adjusted nongaap operating profit 2012 2011 costs associated acquiring goods required settlement us dollars included within venezuelas operating profit approximately 18 17 respectively december 31 2012 avon venezuela pending requests submitted agency venezuelan government approximately 80 remittance dividends royalties parent company us outstanding requests periodically submitted 2005 2012 effective february 13 2013 venezuelan government devalued currency approximately 32 official exchange rate moved 430 630 regulated sitme market eliminated result change official rate 630 based preliminary analysis avon anticipates record onetime aftertax loss approximately 50 approximately 34 expense net approximately 16 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets carried us historic dollar cost subsequent devaluation therefore costs impact income statement 2013 disproportionate rate devalued based new exchange rates expensed historic dollar value result using us historic dollar cost basis nonmonetary assets inventory acquired prior devaluation 2013 operating profit net income negatively impacted approximately 50 primarily first half year difference historical cost previous official exchange rate 430 new official exchange rate 630 addition revenue operating profit avons venezuela operations negatively impacted translated dollars new official exchange rate could partially offset favorable impact operating performance improvements results periods prior 2013 impacted change official rate february 2013 latin america 2011 compared 2010 amounts table may necessarily sum due rounding total revenue 2011 increased 11 due higher average order growth active representatives well due favorable foreign exchange average order benefited favorable impacts pricing active representatives growth benefited continued investments rvp 2011 revenue grew 6 brazil 17 mexico benefits favorable foreign exchange constant revenue 2011 increased 8 benefiting continued growth markets particularly growth 14 mexico constant revenue brazil relatively flat venezuela revenue constant revenue 2011 grew 28 brazil’s performance 2011 continued pressured lower normal service levels addition lower normal service levels impacted implementation erp system second half year turn negatively impacted average order active representatives revenue growth additionally slowing beauty category market growth pressured brazil’s results second half 2011 implementation erp system transformation related processes may negatively impact service levels shortterm expect erp system help improve service reliability longterm constant revenue growth mexico 2011 driven increase active representatives higher average order revenue growth 2011 venezuela result higher average order primarily due increased prices primarily result inflation operating margin 2010 latin america negatively impacted 17 points devaluation venezuelan currency conjunction higher inflationary accounting discussed operating margin benefited 3 points compared prioryear period lower cti restructuring adjusted nongaap operating margin declined 31 points 49 points constant basis primarily result • decline 34 points due sharp decline brazil’s operating margin brazil’s 2011 operating margin partially unfavorably impacted inventory related charges primarily due supply chain challenges negatively impacted latin america’s operating margin 3 points higher distribution costs 9 points primarily due transition new facility brazil also contributed decline operating margin additionally brazil’s decline operating margin caused business disruptions resulting investments market well inflationary pressure costs • decline 7 points higher bad debt expense countries brazil • decline 4 points higher distribution costs countries brazil primarily due transition new facility colombia europe middle east africa 2012 compared 2011 amounts table may necessarily sum due rounding effective second quarter 2012 results central eastern europe western europe middle east africa managed single operating segment accordingly europe middle east africa amounts include results central eastern europe western europe middle east africa periods presented total revenue declined 7 primarily due unfavorable foreign exchange constant basis revenue declined 1 impacted approximately 1 point due nonrecurring item prioryear period 2011 united kingdom’s revenue benefited settlement long time dispute associated estimated value added tax vat liability region’s constant revenue impacted declines united kingdom turkey partially reflecting continued weak macroeconomic environment competition executional challenges growth south africa partially offset declines russia revenue declined 5 impacted unfavorable foreign exchange russias revenue flat constant basis higher average order offset decrease active representatives united kingdom revenue constant revenue declined 10 revenue united kingdom negatively impacted decrease active representatives well approximately 4 points due benefit vat settlement prioryear period recur 2012 turkey revenue declined 10 3 constant basis due lower average order south africa revenue declined 2 impacted unfavorable foreign exchange constant basis south africa’s revenue grew 11 primarily due higher average order growth active representatives operating margin negatively impacted 2 points compared prioryear period higher cti restructuring adjusted nongaap operating margin declined 44 points 39 points constant basis primarily result • nonrecurring benefit 4 points associated vat settlement united kingdom occurred 2011 • decline 20 points due lower gross margin caused primarily 14 points higher supply chain costs due foreign exchange primarily due weakening turkish lira euro well increased product costs fashion home unfavorable net pricing mix negatively impacted gross margin 9 points driven smart value offerings • decline 9 points higher bad debt expense primarily due higher provision increase reserves bad debt south africa result growth new territories 4 points outofperiod adjustment also negatively impacted change estimate collection receivables europe middle east africa 2011 compared 2010 amounts table may necessarily sum due rounding total revenue increased 2 due favorable foreign exchange constant basis revenue flat active representatives average order flat region’s revenue 2011 favorably impacted approximately 1 point due benefit united kingdom’s revenue resulting settlement long time dispute associated vat liability region’s constant revenue benefited growth turkey south africa offset declines russia united kingdom region experienced constant growth first nine months 2011 saw declines fourth quarter partly due negative impact continued difficult economic environment fashion home sales inclusion liz earle beauty co limited liz earle 2011 results unmatched period march favorably impacted region’s revenue growth approximately 1 point 2011 revenue russia declined 1 constant basis revenue declined 4 russia due declines average order well active representatives latter part 2011 believe russia’s performance also impacted weak trends beauty category market country revenue south africa increased 31 partially benefiting favorable foreign exchange constant basis revenue south africa increased 29 due growth active representatives partially attributable growth new territories revenue turkey declined 5 due unfavorable foreign exchange constant basis turkey grew 5 due growth active representatives higher average order united kingdom revenue declined 1 including benefits favorable foreign exchange well vat settlement constant basis revenue united kingdom declined 4 primarily due decline active representatives lower average order partially offset vat settlement benefited constant growth rate 4 points operating margin adjusted nongaap operating margin declined 3 points 4 points constant basis primarily result • decline 8 points increased overhead expenses • decline approximately 6 points related increased investments rvp investment increased 2011 part address increased social benefit taxes levied certain representatives beginning 2010 russia • benefit 5 points lower advertising costs • benefit 4 points associated vat settlement united kingdom occurred 2011 north america 2012 compared 2011 amounts table may necessarily sum due rounding effective second quarter 2012 dominican republic included latin america whereas prior periods included north america impact material either segment accordingly north america amounts exclude results dominican republic periods presented total revenue decreased 8 reported constant basis primarily due decrease active representatives partially offset larger average order north america segment consists north america avon business includes north america silpada business revenue north america avon business declined 6 reported constant basis due decline active representatives partially offset larger average order primarily due representative mix revenue north america silpada business declined 19 reported constant basis primarily due lower average order well decrease active representatives sales beauty products declined 8 7 constant basis sales nonbeauty products declined 9 reported constant basis due declines north america avon business north america silpada business operating margin benefited 17 points compared prioryear period due lower noncash goodwill intangible asset impairment charges associated silpada business see note 17 goodwill intangible assets pages 2012 annual report details operating margin negatively impacted 4 points compared prioryear period higher cti restructuring adjusted nongaap operating margin declined 35 points reported constant basis primarily result • decline 22 points increased investments rvp primarily due costs related one simple sales model implementation us • decline 13 points due lower gross margin caused primarily approximately 8 points unfavorable net impact mix pricing approximately 7 points higher supply chain costs primarily due higher obsolescence costs partially offset benefit outofperiod adjustments associated vendor liabilities 3 points • nonrecurring benefit 5 points occurred 2011 due reduction estimated fair value earnout provision recorded connection silpada acquisition revised estimate earnout liability zero • decline 4 points higher brochure costs • benefit 11 points lower overhead costs primarily due headcount reduction • benefit 4 points lower advertising costs continue expect challenging financial results within north america avon business partially result ongoing impact field transformation redistricting us well simplifying enhancing earnings opportunity representatives north america 2011 compared 2010 amounts table may necessarily sum due rounding north america segment consists north america avon business includes north america silpada business period since acquisition end july 2010 2011 silpada’s results included north america results entire year presented whereas results 2010 include silpada’s results since end july 2010 inclusion silpada 2011 results unmatched period july favorably impacted north america revenue growth 4 points operating profit growth 6 points adjusted nongaap operating profit growth 1 point adjusted nongaap operating margin growth 1 point total revenue decline 6 reported constant basis 2011 primarily due decline active representatives sales beauty products decreased 6 2011 partly due weakness beauty market sales nonbeauty products declined 7 2011 inclusion silpada 2011 results unmatched period july contributed 10 points nonbeauty growth rates 2011 operating margin negatively impacted 127 points noncash goodwill intangible asset impairment charge associated silpada business see note 17 goodwill intangible assets pages 2012 annual report details operating margin benefited 7 points compared prioryear period lower cti restructuring adjusted nongaap operating margin declined 38 points reported constant basis primarily result • decline 25 points increased investments rvp • decline 22 points due lower revenues continuing incur overhead expenses vary directly revenue • decline 10 point lower gross margin primarily due commodity cost pressures • decline 2 points due lower benefit reduction estimated fair value earnout provision recorded connection silpada acquisition 2011 operating margin benefited 5 points due reduction estimated fair value earnout provision recorded connection silpada acquisition revised estimate earnout liability zero comparison operating margin 2010 benefited 7 points due change fair value earnout provision 26 date acquisition 11 december 31 2010 • benefit 10 point lower advertising costs • benefit 8 points improved bad debt asia pacific 2012 compared 2011 amounts table may necessarily sum due rounding total revenue declined 4 5 constant basis primarily due unfavorable results china operations decline regions active representatives primarily due china active representatives excluding china declined 1 previously disclosed business china predominantly retail believe including china within growth active representatives calculation segment provides relevant indicator underlying business trends second half 2012 began receiving beauty boutiques independently owned retail stores selling avon products china consolidated orders previously received multiple orders counted growth active representatives calculation revenue china declined 22 24 constant due declines unit sales resulting continuing weak performance market revenue philippines grew 7 4 constant driven growth active representatives operating margin negatively impacted 49 points noncash goodwill impairment charge associated china business see note 17 goodwill intangible assets pages 2012 annual report details operating margin also negatively impacted 20 points compared prioryear period higher cti restructuring adjusted nongaap operating margin declined 11 points 13 points constant basis primarily result • decline 11 points due lower gross margin caused primarily 7 points unfavorable net impact mix higher pricing primarily due weakness skincare • decline 12 points due wage inflation outpacing revenue growth partially offset restructuring savings • benefit 10 point lower investments rvp primarily due china transition retail compensation model market asia pacific 2011 compared 2010 amounts table may necessarily sum due rounding total revenue 2011 declined 4 primarily due decrease active representatives partially offset favorable foreign exchange constant basis revenue decreased 9 revenue declined 20 china 2011 24 constant revenue grew 3 philippines 2011 benefiting favorable foreign exchange constant revenue philippines declined 1 2011 reflecting increased competitive activity region’s results negatively impacted continued decline skincare sales 2011 operating margin adjusted nongaap operating margin increased 2 points declined 3 points constant basis primarily result • decline 11 points due impact lower revenues continuing incur overhead expenses vary directly revenue • decline 10 point higher rvp spending • decline 8 points due lower gross margin due adverse product mix higher commodity costs partially offset favorable pricing • benefit 33 points lower advertising costs • various insignificant items contributed decline operating margin adjusted nongaap operating margin liquidity capital resources principal sources funds historically cash flows operations commercial paper borrowings lines credit public offerings notes bank financings private placement december 31 2012 cash equivalents totaling 1210 disclosed segment review latin america section mda held cash balances associated venezuela operations denominated bolívares amounting approximately 171 translated official exchange rate december 31 2012 february 2013 venezuelan government devalued currency approximately 32 currency restrictions enacted venezuelan government limited ability repatriate dividends royalties venezuelan operations details respect currency restrictions currency devaluation see segment review latin america section mda information regarding risks respect currency restrictions see risk factors subject financial risks related international operations including exposure foreign currency fluctuations included item 1a pages 8 18 2012 annual report part overall review capital structure • november 1 2012 announced decrease quarterly dividend 23 per share 06 per share fourthquarter dividend paid december 2012 maintained dividend 06 first quarter 2013 • fourth quarter 2012 determined company may repatriate offshore cash meet certain domestic funding needs including improving capital structure accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested see results continuing operations consolidated section mda details • january 2013 terminated interestrate swap agreements notional amounts totaling 1000 net proceeds 881 february 2013 issued notice prepayment entire 535 outstanding principal amount private notes defined prepayment price equal 100 principal amount plus accrued interest approximately 7 makewhole premium estimated approximately 65 estimate accrued interest based applicable interest rate notes factors longterm credit ratings estimate makewhole premium based applicable interest rate notes factors longterm credit ratings prices relevant us treasury securities date notice prepayment accordingly amounts may change make final calculation prepayment price two business days advance prepayment date march 29 2013 375 principal amount public notes mature specifically 250 principal amount march 2013 125 principal amount may 2013 currently expect repay private notes maturities public notes use available cash hand well refinancing transactions debt capital markets although assurances able obtain financing purposes commercially reasonable terms event unable obtain financing may elect among things utilize revolving credit facility noted revolving credit facility expires november 2013 drawdowns facility would repaid upon expiration expect funds available repay outstanding amounts revolving credit facility cash generated operations necessary reductions discretionary expenditures march 2014 500 principal amount public notes mature currently expect repay maturity use available cash hand well refinancing transactions debt capital markets although assurances able obtain financing purposes commercially reasonable terms event unable obtain financing may elect among things utilize available cash hand reduce discretionary expenditures sell certain assets reduce cash dividend shareholders addition 1375 term loan agreement defined due june 2014 may also seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise repurchases equity debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations meet liquidity needs issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods information regarding risks associated ability refinance debt access certain debt markets including commercial paper market see risk factors indebtedness debt service obligations could materially adversely affect business prospects financial condition liquidity results operations cash flows risk factors service debt obligations require significant amount cash ability generate cash depends many factors beyond control failure meet debt service obligations refinance repay outstanding indebtedness matures could materially adversely impact business prospects financial condition liquidity results operations cash flows risk factors general economic downturn recession globally one geographic regions sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 8 18 2012 annual report liquidity could also impacted restructuring initiatives dividends capital expenditures acquisitions divestitures certain contingencies including legal regulatory settlements described fully note 16 contingencies pages 2012 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2012 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2012 997 lower 2011 operating cash flow 2012 negatively impacted primarily lower cash related net income higher payments associated cti restructuring compared 2011 partially offsetting negative impacts improvements working capital lower contributions us pension plan 2012 compared 2011 payment 2011 associated longterm incentive compensation plan approximately 36 recur 2012 net cash provided continuing operating activities 2011 332 lower 2010 operating cash flow 2011 negatively impacted 750 contribution us pension plan payment associated longterm incentive compensation plan approximately 36 higher payments associated cti restructuring compared 2010 partially offsetting negative impacts higher cash related net income higher recovery value added taxes brazil inventory levels decreased 2012 11354 december 31 2012 11613 december 31 2011 primarily reflecting actions 2012 flow inventory including discounted products inventory days 3 days 2012 compared 2011 9 days operationally without impact foreign exchange maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 12 employee benefit plans pages 2012 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates section mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 55 60 us pension postretirement plans range 40 45 international pension postretirement plans 2013 net cash continuing investing activities net cash used continuing investing activities 2012 540 lower 2011 primarily due lower capital expenditures net cash used continuing investing activities 2011 8280 lower 2010 primarily due acquisitions silpada liz earle 2010 well lower capital expenditures capital expenditures 2012 2288 compared 2767 2011 included higher investment associated new distribution facilities latin america capital expenditures 2011 2767 compared 3312 2010 included higher investment associated new distribution facilities latin america capital expenditures 2013 currently expected approximately 310 340 expected funded cash operations net cash continuing financing activities net cash used continuing financing activities 2012 4013 compared 2845 2011 primarily due lower issuances commercial paper partially offset proceeds 5500 related term loan agreement entered 2012 scheduled repayment 5000 principal amount notes 2011 lower dividend payments 2012 proceeds 436 related termination two interestrate swap agreements designated fair value hedges see note 8 financial instruments risk management pages 2012 annual report details net cash used continuing financing activities 2845 2011 compared unfavorably cash provided continuing financing activities 2347 2010 primarily due issuance debt 2010 partially finance silpada acquisition purchased approximately 5 million shares common stock 88 2012 compared 4 million shares common stock 77 2011 4 million shares 141 2010 previously announced share repurchase programs acquisition stock employees connection tax payments upon vesting restricted stock units part overall review capital structure november 1 2012 announced decrease quarterly dividend 06 per share fourthquarter dividend paid december 2012 maintained dividend 06 first quarter 2013 full year 2011 first nine months 2012 quarterly dividend payments 23 per share debt contractual financial obligations commitments december 31 2012 debt contractual financial obligations commitments due dates follows 1 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2013 funded pension benefit plans able estimate contributions funded pension postretirement plans beyond 2013 2 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves income taxes unable reasonably predict ultimate amount timing settlement reserves income taxes december 31 2012 reserves income taxes including interest penalties totaled 326 3 december 31 2012 longterm debt due 2013 excluded 5350 private notes 1420 contractually due 2015 2900 contractually due 2020 1030 contractually due 2022 therefore included respective maturity categories february 2013 issued notice prepayment entire 535 outstanding principal amount private notes plus makewhole premium accrued interest pursuant notice required prepaid march 29 2013 see capital resources private notes section details see note 5 debt financing note 14 leases commitments pages page respectively 2012 annual report information debt contractual financial obligations commitments additionally disclosed note 15 restructuring initiatives pages 2012 annual report remaining liability 210 december 31 2012 associated restructuring charges recorded date 2005 2009 restructuring programs also remaining liability 294 associated restructuring initiatives approved 2012 430 associated 400m cost savings initiative december 31 2012 majority future cash payments associated liabilities expected made 2013 balance sheet arrangements december 31 2012 material offbalancesheet arrangements capital resources revolving credit facility maintain 1 billion revolving credit facility revolving credit facility expires november 2013 discussed 1 billion available revolving credit facility effectively reduced principal amount commercial paper outstanding borrowings revolving credit facility bear interest option rate per annum equal floating base rate libor plus applicable margin varies within specified band based upon credit ratings december 31 2012 amounts outstanding revolving credit facility revolving credit facility contains covenants limiting ability among things incur liens enter mergers consolidations sales substantially assets financial covenant requires interest coverage ratio end fiscal quarter equal exceed 41 addition revolving credit facility contains customary events default crossdefault provisions interest coverage ratio determined dividing consolidated pretax income consolidated interest expense case period four fiscal quarters ending date determination july 31 2012 obtained waiver lenders revolving credit facility allowed us exclude noncash impairment charge associated silpada business recorded fourth quarter 2011 interest coverage ratio calculation pursuant revolving credit facility four fiscal quarters ended september 30 2012 december 21 2012 entered amendment revolving credit facility primarily relating calculation components interest coverage ratio allows us subject certain conditions limitations add back consolidated net income extraordinary noncash losses expenses ii onetime fees cash charges cash expenses premiums penalties incurred connection asset sale equity issuance incurrence repayment debt refinancing amendment debt instrument iii cash charges cash expenses premiums penalties incurred connection restructuring relating legal regulatory action settlement judgment ruling aggregate amount exceed 4000 period october 1 2012 termination commitments revolving credit facility december 31 2012 based interest rates approximately 250 1 billion revolving credit facility less principal amount commercial paper outstanding zero december 31 2012 could drawn without violating covenant restrictive interest coverage ratio calculation private notes pursuant notice required prepaid march 29 2013 see would able draw entire 1 billion revolving credit facility december 31 2012 without violating covenant interest coverage ratio revolving credit facility four fiscal quarters ended december 31 2012 6641 excludes certain cash noncash charges pursuant december 2012 amendment term loan agreement june 29 2012 entered 5000 term loan agreement term loan agreement subsequently august 2 2012 borrowed incremental 500 principal subscriptions new lenders term loan agreement december 31 2012 5500 remained outstanding term loan agreement term loan agreement contains covenants limiting ability incur liens enter mergers consolidations sales substantially assets addition term loan agreement contains financial covenants require interest coverage ratio end fiscal quarter equal exceed 41 leverage ratio greater 41 end fiscal quarter prior march 31 2013 3751 end fiscal quarter prior december 31 2013 351 end fiscal quarter thereafter interest coverage ratio determined dividing consolidated ebit defined term loan agreement consolidated interest expense case period four fiscal quarters ending date determination leverage ratio determined dividing amount consolidated funded debt date determination consolidated ebitda defined term loan agreement period four fiscal quarters ending date determination purposes calculating ratios consolidated ebit consolidated ebitda adjusted noncash expenses addition term loan agreement contains customary events default crossdefault provisions compliance interest coverage leverage ratios term loan agreement four fiscal quarters ended december 31 2012 pursuant term loan agreement required repay amount equal 25 aggregate principal amount term loan june 29 2014 remaining outstanding principal amount term loan june 29 2015 amounts repaid prepaid term loan agreement may reborrowed borrowings term loan agreement bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings term loan agreement also provides mandatory prepayments voluntary prepayments subject certain exceptions including issuance commercial paper drawdowns revolving credit facility required prepay term loan amount equal 50 net cash proceeds received incurrence debt borrowed money excess 500 private notes november 23 2010 issued private placement exempt registration securities act 1933 amended 142 principal amount 260 senior notes series due november 23 2015 290 principal amount 403 senior notes series b due november 23 2020 103 principal amount 418 senior notes series c due november 23 2022 collectively private notes private notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness unconditionally guaranteed one whollyowned subsidiaries proceeds sale private notes used repay existing debt general corporate purposes total 535 principal amount private notes issued pursuant note purchase agreement contains covenants limiting among things ability subsidiaries incur indebtedness subsidiaries’ ability incur liens subsidiary guarantor’s ability enter mergers consolidations sales substantially assets addition note purchase agreement contains financial covenant requires interest coverage ratio end fiscal quarter equal exceed 41 interest coverage ratio determined dividing consolidated pretax income consolidated interest expense case period four fiscal quarters ending date determination except set forth note purchase agreement provide adjustments consolidated pretax income certain onetime charges noncash impairments currency devaluations legal regulatory settlements calculating interest coverage ratio note purchase agreement contains customary events default crossdefault provisions prepayment private note option would require payment makewhole premium july 31 2012 obtained waiver holders private notes allowed us exclude noncash impairment charge associated silpada business recorded fourth quarter 2011 interest coverage ratio calculation pursuant note purchase agreement four fiscal quarters ended september 30 2012 august 15 2012 entered first amendment note purchase agreement among things add financial covenant requiring leverage ratio calculated manner term loan agreement greater 41 end fiscal quarter prior march 31 2013 3751 end fiscal quarter thereafter unless bank credit agreement principal credit facility contains leverage ratio favorable holders private notes favorable ratio apply fiscal quarters ended march 31 2014 thereafter ii amend interest coverage ratio subject favored lender provision add back consolidated pretax income actual noncash impairment charges related solely silpada business amount exceed 125 aggregate addition 263 noncash silpada impairment charge already recorded 2011 yearend close process excluded calculation four fiscal quarters ended september 30 2012 term note purchase agreement iii add favored lender provision respect financial covenants favor lenders iv provide 150 basis point step applicable interest rate unsecured unsubordinated debt rated investment grade certain number rating agencies compliance interest coverage leverage ratios note purchase agreement four fiscal quarters ended december 31 2012 interest coverage ratio note purchase agreement four fiscal quarters ended december 31 2012 4251 excludes noncash silpada impairment charges pursuant august 2012 amendment february 2013 issued notice prepayment entire 535 outstanding principal amount private notes prepayment price equal 100 principal amount plus accrued interest approximately 7 makewhole premium estimated approximately 65 estimate accrued interest based applicable interest rate notes factors longterm credit ratings estimate makewhole premium based applicable interest rate notes factors longterm credit ratings prices relevant us treasury securities date notice prepayment accordingly amounts may change make final calculation prepayment price two business days advance prepayment date march 29 2013 public notes march 2009 issued public offering 500 principal amount 5625 notes due march 1 2014 350 principal amount 650 notes due march 1 2019 march 2008 issued public offering 250 principal amount 480 notes due march 1 2013 250 principal amount 575 notes due march 1 2018 proceeds offerings used repay outstanding indebtedness commercial paper program general corporate purposes also outstanding 250 principal amount 420 notes due july 15 2018 125 principal amount 4625 notes due may 15 2013 commercial paper program also maintain 1 billion commercial paper program supported revolving credit facility program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 1 billion outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment outstanding commercial paper effectively reduces amount available borrowing revolving credit facility december 31 2012 outstanding commercial paper program 2012 demand commercial paper declined partially impacted rating agency action described additional information longterm credit ratings baa2 stable outlook moodys bbb negative outlook sp low end investment grade bb stable outlook fitch investment grade february 2013 fitch lowered longterm credit rating bbb negative outlook bb stable outlook moodys lowered longterm credit rating baa1 negative outlook baa2 stable outlook additional rating agency reviews could result change outlook downgrade would likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements reduced access lending sources including commercial paper market information regarding risks associated ability refinance debt access certain debt markets including commercial paper market see risk factors indebtedness debt service obligations could materially adversely affect business prospects financial condition liquidity results operations cash flows risk factors service debt obligations require significant amount cash ability generate cash depends many factors beyond control failure meet debt service obligations refinance repay outstanding indebtedness matures could materially adversely impact business prospects financial condition liquidity results operations cash flows risk factors general economic downturn recession globally one geographic regions sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 8 18 2012 annual report please also refer note 5 debt financing pages 2012 annual report details relating debt maturities thereof item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2014 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures pages 25 26 mda description constant dollar constant growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted worldwide primarily directselling channel december 31 2014 sales operations 60 countries territories including united states us distributed products 41 reportable segments based geographic operations include commercial business units latin america europe middle east africa north america asia pacific product categories beauty fashion home beauty consists skincare includes personal care fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling representatives independent contractors employees december 31 2014 approximately 6 million active representatives success business highly dependent recruiting retaining servicing representatives 2014 approximately 89 consolidated revenue derived operations outside us total revenue 2014 compared 2013 declined 11 compared prioryear period due unfavorable foreign exchange constant revenue relatively unchanged 5 decrease active representatives partially offset higher average order units sold decreased 5 net impact price mix increased 5 pricing benefited inflationary impacts latin america primarily argentina venezuela sales beauty category decreased 12 relatively unchanged constant basis sales fashion home category decreased 12 2 constant basis 2014 constant revenue impacted net declines north america lesser extent asia pacific partially offset net growth latin america europe middle east africa north america continued experience yearoveryear revenue declines driven decrease active representatives constant revenue growth latin america primarily driven venezuela largely due inflationary pricing partially offset declines mexico constant revenue growth europe middle east africa driven south africa united kingdom partially offset revenue declines russia turkey constant revenue russia negatively impacted difficult economy including impact geopolitical uncertainties decline first half 2014 partially offset constant revenue growth second half 2014 driven actions improve unit sales asia pacific constant revenue declined compared 2013 growth philippines offset declines asia pacific markets see segment review mda additional information related changes revenue segment 2014 foreign currency significant impact financial results us dollar strengthened relative currencies key avon markets revenue profits reduced translated us dollars margins negatively impacted country mix certain higher margin markets experienced significant devaluation local currency addition sales costs often denominated different currencies created negative foreign currency transaction impact specifically compared prioryear period foreign currency impacted consolidated financial results result foreign currency transaction losses within cost sales selling general administrative expenses unfavorable impact adjusted operating profit estimated 155 foreign currency translation unfavorable impact adjusted operating profit approximately 160 foreign exchange losses within expense net unfavorable impact approximately 41 tax 2012 outlined initial steps toward achieving costsavings target 400 taxes end 2015 connection costsavings target 2012 announced cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth part 400m cost savings initiative identified areas cost efficiency required restructuring charges reductions global workforce related actions across many businesses functions well closure certain smaller underperforming markets including south korea vietnam republic ireland bolivia france also expected achieve savings costsavings strategies would result restructuring charges including reductions legal brochure costs since announced 400m cost savings initiative reduced global headcount approximately 15 achieved costsavings target 400 taxes achieved targeted cost savings yet achieved targeted low doubledigit operating margin primarily due unfavorable impact foreign exchange inflationary pressures continued revenue decline north america continue analyze cost structure may incur additional restructuring charges effort achieve additional cost savings see note 14 restructuring initiatives pages 2014 annual report information 2015 expect continue make progress strategic objectives constantdollar revenue expected modestly however assuming january foreign currency spot rates reported revenue expected decline due estimated 12 point negative impact foreign currency translation also expect foreign currency transaction costs translation adjustments significant negative impact adjusted operating profit expect constantdollar adjusted operating margin modestly plan offset foreign currency transaction impact price increases actions reduce costs however due foreign currency translation expect adjusted operating margin could much 1 point reported dollars potential impact pending tax law change cosmetics brazil called industrial production tax ipi factored outlook time presently assessing pending tax law change looking ways mitigate potential impact february 2014 venezuelan government announced foreign exchange system sicad ii began operating march 24 2014 sicad ii represents rate better reflects economics avon venezuelas business activity concluded utilize sicad ii exchange rate remeasure venezuelan operations march 31 2014 march 31 2014 sicad ii exchange rate approximately 50 compared official exchange rate 630 used previously represents devaluation approximately 88 addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate time acquisition result determined adjustment approximately 116 cost sales needed reflect certain nonmonetary assets net realizable value recorded first quarter 2014 recognized additional negative impact approximately 21 operating profit net income relating nonmonetary assets second third fourth quarters 2014 addition negative impact operating margin recorded aftertax loss approximately 42 approximately 54 expense net benefit approximately 12 income taxes first quarter 2014 primarily reflecting writedown monetary assets liabilities february 2015 venezuelan government announced sicad ii market would longer available new open market foreign exchange system simadi created february 2015 simadi exchange rate approximately 170 believe significant uncertainty exists regarding foreign exchange mechanisms venezuela well mechanisms operate future availability us dollars mechanism still evaluating future access funds simadi similar markets see segment review latin america mda discussion venezuela december 2014 company settled charges violations books records internal control provisions foreign corrupt practices act fcpa us department justice doj us securities exchange commission sec included 68 fine related avon china paid december 2014 connection doj settlement 67 disgorgement prejudgment interest related avon products inc paid sec january 2015 previously accrued december 31 2014 fourth quarter 2014 company also recorded net tax benefit approximately 19 related finalization fcpa settlements see risk factors pages 10 11 2014 annual report note 1 description business summary significant accounting policies pages 2014 annual report note 7 income taxes pages 2014 annual report note 15 contingencies pages 2014 annual report information new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2014 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail liz earle also excluded calculation distribute directselling channel change units sold metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples change average order metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average order may impacted combination factors inflation units product mix andor pricing nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue operating profit adjusted operating profit operating margin adjusted operating margin also refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rate foreign currency impact determined difference actual growth rates constant currency growth rates also present gross margin selling general administrative expenses percentage revenue total net global expenses operating profit operating margin effective tax rate nongaap basis discussion segments presents operating profit operating margin nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation difference nongaap financial measures financial measures calculated reported accordance gaap company uses nongaap financial measures evaluate operating performance believes meaningful investors made aware periodtoperiod basis impacts 1 costs implement cti restructuring initiatives 2 costs charges related devaluations venezuelan currency march 2014 february 2013 combined designated highly inflationary economy valuation allowance deferred tax assets related venezuela benefit related release provision associated excess cost acquiring us dollars venezuela venezuelan special items 3 89 accrual recorded 2013 settlements related fcpa investigations additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations associated approximate 19 net tax benefit recorded fourth quarter 2014 fcpa accrual 4 settlement charges associated us pension plan pension settlement charge 5 goodwill intangible asset impairment charges valuation allowance deferred tax assets related china business well capitalized software impairment charge related service model transformation smt project asset impairment charges 6 costs charges related extinguishment debt loss extinguishment debt 7 noncash income tax charge associated deferred tax assets recorded 2014 additional provision recorded 2012 income taxes longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested special tax items company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period nongaap measures considered isolation substitute superior financial measures calculated accordance gaap venezuelan special items include impact consolidated statements income 2014 2013 caused devaluations venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventories nonmonetary assets venezuelan special items include earnings impact caused difference historical us dollar cost assets previous exchange rate revised exchange rate 2014 venezuelan special items also include adjustment 116 reflect certain nonmonetary assets net realizable value 2013 devaluation result change official exchange rate moved 430 630 2014 devaluation caused result moving official exchange rate 630 sicad ii exchange rate approximately 50 venezuelan special items also include impact consolidated statements income caused valuation allowance deferred tax assets related venezuela recorded fourth quarter 2013 well release provision fourth quarter 2012 associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate pension settlement charge includes impact consolidated statements income second third fourth quarters 2014 associated payments made former employees vested participate us pension plan payments fully settle pension plan obligation participants elected receive payment asset impairment charges include impact consolidated statements income caused goodwill intangible asset impairment charges valuation allowance deferred tax assets related china business third quarter 2013 goodwill impairment charge related china business third quarter 2012 asset impairment charges also include impact consolidated statements income caused capitalized software impairment charge related smt project fourth quarter 2013 loss extinguishment debt includes impact consolidated statements income first quarter 2013 caused makewhole premium writeoff debt issuance costs associated prepayment private notes defined liquidity capital resources well writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement defined liquidity capital resources loss extinguishment debt also includes impact consolidated statements income second quarter 2013 caused makewhole premium writeoff debt issuance costs discounts partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment 2014 notes defined liquidity capital resources special tax items include impact 2014 provision income taxes consolidated statements income due noncash income tax charge primarily associated valuation allowance reduce us deferred tax assets amount likely realized valuation allowance primarily due strengthening us dollar currencies key markets lesser extent finalization fcpa settlements special tax items also include impact 2012 provision income taxes consolidated statements income decision longer assert undistributed earnings foreign subsidiaries indefinitely reinvested fourth quarter 2012 determined company may repatriate offshore cash meet certain domestic funding needs see note 14 restructuring initiatives pages 2014 annual report results operations consolidated segment review latin america note 15 contingencies pages 2014 annual report note 11 employee benefit plans pages 2014 annual report note 16 goodwill intangible assets pages 2014 annual report note 1 description business summary significant accounting policies pages 2014 annual report note 5 debt financing pages 2014 annual report liquidity capital resources note 7 income taxes pages 2014 annual report information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2014 annual report detailed discussion application accounting policies allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 193 2014 239 2013 251 2012 approximately 2 total revenue year allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction within many jurisdictions generally allow unlimited right return record provision estimated sales returns based historical experience product returns past three years annual sales returns 298 2014 340 2013 386 2012 approximately 3 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 101 2014 117 2013 119 2012 pension postretirement expense maintain defined benefit pension plans cover substantially employees us portion employees international locations however us defined benefit pension plan closed employees hired january 1 2015 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations many retired employees us certain foreign countries see note 11 employee benefit plans pages 2014 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include expected rate return pension plan assets interest crediting rate hybrid plans discount rate applied pension plan obligations rate compensation increase plan participants mortality rates use december 31 measurement date employee benefit plans 2014 weighted average assumed rate return pension plan assets including us nonus defined benefit pension plans 686 compared 719 2013 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary beginning 2014 adopted investment strategy us defined benefit pension plan designed match movements pension liability increased allocation towards debt securities addition also begun utilize derivative instruments achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans management team 2015 similar investment strategies expected implemented nonus defined benefit pension plans significant portion pension plan assets relate us defined benefit pension plan assumed rate return 2014 us defined benefit pension plan 750 based asset allocation approximately 70 corporate government bonds mortgagebacked securities expected earn approximately 2 3 long term approximately 30 equity securities high yield securities expected earn approximately 6 9 long term addition physical assets asset portfolio derivative instruments increase exposure higher yielding securities historical rates return assets us defined benefit pension plan approximately 8 recent 10year period approximately 9 20year period us defined benefit pension plan asset allocation policy historically favored us equity securities returned approximately 8 10year period approximately 10 20year period rate return plan assets us approximately 11 2014 approximately 13 2013 regulations us pension protection act 2006 finalized yet effective require hybrid plans limit maximum interest crediting rate one among several choices crediting rates considered market rates return rate chosen affect total pension obligations discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us defined benefit pension plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 355 december 31 2014 456 december 31 2013 determination expected rate return assets discount rate take external actuarial advice consideration funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2014 pretax actuarial losses prior service credits totaling 377 us defined benefit pension postretirement plans 341 nonus defined benefit pension postretirement plans yet charged expense actuarial losses charged accumulated comprehensive loss aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2015 assumption expected rate return assets 725 us defined benefit pension plan 655 nonus defined benefit pension plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2014 pension expense pension benefit obligation december 31 2014 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted domestic foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration december 31 2014 net deferred tax assets 858 net valuation allowances 1209 respect deferred tax assets december 31 2014 recognized deferred tax assets relating tax loss carryforwards 726 primarily foreign jurisdictions valuation allowance 718 provided prior december 31 2014 recognized deferred tax assets 618 relating excess us foreign tax credit carryforwards 57 44 54 124 79 225 35 expire end 2018 2019 2020 2021 2022 2023 2024 respectively history domestic source losses excess us foreign tax credits primarily resulted greater domestic source loss recent years reduces foreign source income 2013 domestic source loss included tax losses generated sale silpada business losses extinguishment debt led increase excess foreign tax credit carryforwards generated 2013 expire 2023 ability realize us deferred tax assets foreign tax credit carryforwards dependent future us taxable income within carryforward period december 31 2014 would need generate approximately 18 billion excess net foreign source income order realize us foreign tax credits expire assessment deferred tax asset position relied tax planning strategies would necessary implemented accelerate sufficient taxable amounts utilize excess foreign tax credits fourth quarter 2014 company’s expected net foreign source income reduced significantly primarily due strengthening us dollar currencies key markets lesser extent finalization fcpa settlements strengthening us dollar reduced expected dividends royalties could remitted us foreign subsidiaries particularly russia brazil mexico colombia effectiveness tax planning strategies including repatriation foreign earnings acceleration royalties foreign subsidiaries also negatively impacted strengthening us dollar addition finalization fcpa settlements included 68 fine related avon china connection doj settlement 67 disgorgement prejudgment interest related avon products inc connection sec settlement negatively impacted expected future repatriation foreign earnings reduced current us taxable income respectively result developments may generate sufficient taxable income realize us deferred tax assets recorded valuation allowance 441 reduce us deferred tax assets amount likely realized 367 recorded income taxes consolidated statements income remainder recorded various components comprehensive loss income extent us taxable income less favorable currently projected including impact foreign currency may required recognize additional valuation allowances us deferred tax assets projected us taxable income includes assumptions regarding domestic profitability royalties received foreign subsidiaries potential impact possible tax planning strategies including repatriation foreign earnings acceleration royalties respect deferred tax liability fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined may repatriate offshore cash meet certain domestic funding needs accordingly asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes 168 earnings december 31 2012 deferred tax liability amount 225 us tax cost undistributed earnings subsidiaries outside us 31 billion december 31 2014 continue assert foreign earnings indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account 2014 undistributed earnings foreign subsidiaries earnings actually repatriated us year additionally deferred tax liability reduced due lower cost repatriate undistributed earnings foreign subsidiaries compared 2013 net impact deferred tax liability associated company’s undistributed earnings reduction 129 resulting deferred tax liability balance 14 related incremental tax cost 19 billion undistributed foreign earnings december 31 2014 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings result utilization foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary venezuela calculation deferred income tax liability local regulations restrict cash distributions denominated us dollars respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2015 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2015 provision income taxes may impacted loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets capitalized software review capitalized software impairment whenever events changes circumstances indicate related carrying amounts may recoverable december 2013 decided halt rollout smt project beyond pilot market canada light potential risk business disruption result noncash impairment charge capitalized software associated smt 1172 recorded impairment charge recorded component global expenses within selling general administrative expenses consolidated statements income fair value capitalized software associated smt asset determined using riskadjusted discounted cash flow dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates result impairment charge remaining carrying amount smt asset material see note 1 description business summary significant accounting policies pages 2014 annual report information smt goodwill intangible assets test goodwill intangible assets indefinite lives impairment annually frequently circumstances warrant using various fair value methods review finitelived intangible assets subject amortization impairment whenever events changes circumstances indicate related carrying amounts may recoverable completed annual goodwill impairment assessment 2014 determined estimated fair values considered substantially excess carrying values reporting units impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset part goodwill impairment analysis typically use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors china third quarter 2012 completed interim impairment assessment fair value goodwill related operations china based continued decline revenue performance corresponding lowering longterm growth estimates market made changes longterm growth estimates china business achieve revenue earnings cash flows expectations primarily due challenges business model result impairment testing recorded noncash impairment charge 440 third quarter 2012 reduce carrying amount goodwill estimated fair value compared projections used fourth quarter 2012 impairment analysis q4 2012 projections china performed generally line revenue earnings projections first half 2013 assumed q4 2012 projections chinas revenue first half 2013 continued deteriorate versus prioryear period however beginning third quarter 2013 revenue decline significantly excess assumptions result third quarter 2013 became apparent would achieve 2013 longterm forecasted revenue earnings completed interim impairment assessment fair value goodwill related operations china revenue decline china third quarter 2013 resulted recognition operating loss expected operating profit q4 2012 projections third quarter 2013 significantly lowered longterm revenue earnings projections china included dcf model utilized interim impairment assessment result impairment testing recorded noncash impairment charge 421 third quarter 2013 reduce carrying amounts goodwill finitelived intangible assets amounts remaining associated goodwill intangible assets china reporting unit result impairment charge key assumptions used measuring fair value china impairment assessments included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value china forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return chinas cash flows normalized sustainable levels see note 16 goodwill intangible assets pages 2014 annual report information china silpada 2012 yearend close process analysis silpada business indicated impairment carrying value business exceeded estimated fair value finitelived intangible assets recoverable primarily result lower expected financial performance 2012 served baseline longterm projections business lowered longterm revenue earnings projections silpada reflect moderate recovery business believed appropriate due lack sales momentum business continued inability silpada achieve financial performance expectations accordingly noncash impairment charge 209 recorded reduce carrying amounts goodwill indefinitelived intangible asset finitelived intangible asset decline fair values silpada assets driven reduction forecasted growth rates cash flows used estimate respective fair values key assumptions used measuring fair value silpada impairment assessment included discount rate based estimated weightedaverage cost capital revenue growth well silver prices representative growth activity rates estimate fair value silpada forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return silpadas cash flows normalized sustainable levels fair value silpadas indefinitelived trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates fair value silpada finitelived customer relationships determined using dcf model multiperiod excess earnings method impact impairment charge 2012 associated silpada reflected within discontinued operations risk additional impairments associated silpada business sold july 2013 see note 3 discontinued operations pages 2014 annual report information silpada results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses included within selling general administrative expenses 2 change constant adjusted operating margin years presented calculated using currentyear constant rates 2014 compared 2013 revenue total revenue 2014 compared 2013 declined 11 compared prioryear period due unfavorable foreign exchange constant revenue relatively unchanged benefited approximately 1 point due net impact certain tax benefits brazil 2014 2013 recognized tax credits brazil approximately 85 approximately 29 respectively primarily associated change estimate expected recoveries value added tax vat constant revenue negatively impacted 5 decrease active representatives partially offset higher average order units sold decreased 5 net impact price mix increased 5 pricing benefited inflationary impacts latin america primarily argentina venezuela see segment review latin america mda discussion tax benefits brazil category basis net sales associated growth rates follows 2014 constant revenue impacted net declines north america lesser extent asia pacific partially offset net growth latin america europe middle east africa north america continued experience yearoveryear revenue declines driven decrease active representatives constant revenue growth latin america primarily driven venezuela largely due inflationary pricing partially offset declines mexico constant revenue growth europe middle east africa driven south africa united kingdom partially offset revenue declines russia turkey constant revenue russia negatively impacted difficult economy including impact geopolitical uncertainties decline first half 2014 partially offset constant revenue growth second half 2014 driven actions improve unit sales asia pacific constant revenue declined compared 2013 growth philippines offset declines asia pacific markets see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin increased 20 basis points 40 basis points respectively compared 2013 increase adjusted operating margin includes benefits associated 400m cost savings initiative primarily reductions headcount well cost reductions increase operating margin increase adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill intangible assets gross margin gross margin adjusted gross margin decreased 160 basis points 70 basis points respectively compared 2013 gross margin comparison largely impacted adjustment approximately 116 associated venezuela operations reflect certain nonmonetary assets net realizable value recorded first quarter 2014 partially offsetting decrease gross margin lower negative impact devaluation venezuelan currency conjunction highly inflationary accounting approximately 5 recognized currentyear period compared approximately 45 prioryear period associated carrying certain nonmonetary assets historical us dollar cost following devaluation see segment review latin america mda discussion venezuela decrease 70 basis points adjusted gross margin primarily due following • decrease approximately 130 basis points due unfavorable impact foreign currency transaction losses foreign currency translation driven europe middle east africa latin america • increase 80 basis points due favorable net impact mix pricing primarily latin america includes realization price increases markets experiencing relatively high inflation venezuela argentina selling general administrative expenses selling general administrative expenses 2014 decreased approximately 761 compared 2013 decrease primarily due favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported selling general administrative expenses decrease selling general administrative expenses also due noncash impairment charge approximately 117 capitalized software related smt recorded 2013 recur 2014 89 accrual settlements relating fcpa investigations recorded 2013 lower expenses related smt project result decision halt rollout beyond pilot market canada fourth quarter 2013 lower fixed expenses primarily resulting cost savings initiatives lower net brochure costs lower representative sales leader expense lower bad debt expense lower professional related fees associated fcpa investigation compliance reviews partially offsetting decrease selling general administrative expenses higher amount cti restructuring primarily associated 400m cost savings initiative additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations approximate 36 aggregate settlement charges recorded 2014 associated payments made former employees vested participate us pension plan selling general administrative expenses adjusted selling general administrative expenses percentage revenue decreased 150 basis points 110 basis points respectively compared 2013 selling general administrative expenses percentage revenue impacted higher amount cti restructuring compared prioryear period additionally currentyear period selling general administrative expenses percentage revenue impacted additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations approximate 36 aggregate settlement charges recorded 2014 associated payments made former employees vested participate us pension plan approximately 16 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation prioryear period selling general administrative expenses percentage revenue impacted noncash impairment charge 117 capitalized software related smt 89 accrual settlements relating fcpa investigations 5 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation see note 14 restructuring initiatives pages 2014 annual report information cti restructuring note 1 description business summary significant accounting policies pages 2014 annual report information smt note 15 contingencies pages 2014 annual report information fcpa investigations segment review global expenses mda note 11 employee benefit plans pages 2014 annual report discussion pension settlement charges segment review latin america mda discussion venezuela decrease 110 basis points adjusted selling general administrative expenses percentage revenue primarily due following • decrease 50 basis points lower expenses related smt project result decision halt rollout beyond pilot market canada fourth quarter 2013 • decrease 40 points due lower fixed expenses primarily resulting cost savings initiatives mainly reductions headcount associated 400m cost savings initiative • decrease 30 basis points result net impact incremental tax credits brazil recognized revenue 2014 2013 • decrease 30 basis points lower net brochure costs primarily north america latin america • decrease 30 basis points lower representative sales leader expense primarily north america latin america • decrease 30 basis points lower bad debt expense • decrease 20 basis points lower professional related fees associated fcpa investigation compliance reviews items partially offset following • increase approximately 90 basis points due unfavorable impact foreign currency translation foreign currency transaction losses see segment review latin america mda discussion tax benefits brazil impairment goodwill intangible assets third quarter 2013 recorded noncash impairment charge approximately 42 goodwill intangible assets associated china business see note 16 goodwill intangible assets pages 2014 annual report information china see “segment review” mda additional information related changes operating margin segment expense interest expense decreased 8 compared prioryear period primarily due lower outstanding debt balances partially offset higher average interest rates loss extinguishment debt 2013 comprised approximately 71 makewhole premium writeoff debt issuance costs associated prepayment private notes defined liquidity capital resources approximately 2 writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement defined liquidity capital resources occurred first quarter 2013 addition second quarter 2013 recorded loss extinguishment debt approximately 13 makewhole premium writeoff debt issuance costs partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment 2014 notes defined liquidity capital resources see note 5 debt financing pages 2014 annual report liquidity capital resources mda information interest income decreased approximately 11 compared prioryear period primarily impacted 12 interest income benefited fourth quarter 2013 due outofperiod adjustment related judicial deposits brazil expense net increased approximately 56 compared prioryear period primarily due higher foreign exchange losses foreign exchange losses increased approximately 41 compared prioryear period significant impact due weakening russian ruble addition increase expense net also due significant impact approximately 54 2014 compared approximately 34 2013 devaluations venezuelan currency monetary assets liabilities conjunction highly inflationary accounting see segment review latin america mda discussion venezuela effective tax rate effective tax rate 2014 3344 compared 1006 2013 effective tax rate 2014 negatively impacted noncash income tax charge approximately 405 largely due valuation allowance recorded fourth quarter 2014 deferred tax assets approximately 384 primarily due strengthening us dollar currencies key markets approximate 384 includes valuation allowance recorded us deferred tax assets approximately 367 well approximately 17 associated foreign subsidiaries effective tax rates 2014 2013 impacted devaluation venezuelan currency conjunction highly inflationary accounting discussed within segment review latin america mda effective tax rate 2013 also negatively impacted 89 accrual settlements related fcpa investigations noncash impairment charges goodwill intangible assets associated china business approximately 42 valuation allowance deferred tax assets related china third quarter approximately 9 venezuela fourth quarter approximately 42 adjusted effective tax rate 2014 399 compared 303 2013 higher 2014 adjusted effective tax rate primarily due adjustment carrying value state deferred tax balances due changes expected tax rate valuation allowances deferred taxes including impact legislative changes outofperiod adjustments approximately 6 approximately 6 recorded second fourth quarters 2014 respectively impact foreign currency 2014 foreign currency significant impact financial results specifically compared prioryear period foreign currency impacted consolidated financial results result • foreign currency transaction losses within cost sales selling general administrative expenses unfavorable impact adjusted operating profit estimated 155 approximately 150 points adjusted operating margin • foreign currency translation unfavorable impact adjusted operating profit approximately 160 approximately 70 points adjusted operating margin • foreign exchange losses within expense net unfavorable impact approximately 41 tax 2013 compared 2012 revenue total revenue 2013 compared 2012 declined 6 compared prioryear period partially due unfavorable foreign exchange constant revenue declined 1 2 decrease active representatives partially offset 1 increase average order units sold decreased 5 net impact price mix increased 4 pricing benefited inflationary impacts latin america primarily argentina venezuela category basis net sales associated growth rates follows constant revenue impacted net declines north america asia pacific however declines partially offset improvements latin america europe middle east africa growth latin america driven brazil particularly fashion home venezuela primarily due inflationary pricing partially offset executional challenges mexico second half 2013 europe middle east africa growth driven south africa russia turkey partially offset revenue decline united kingdom north america experienced deteriorating financial results primarily result decline active representatives asia pacifics revenue decline primarily due continuing weak performance china operations operational challenges philippines see segment review mda additional information related changes revenue segment operating margin operating margin decreased 70 basis points adjusted operating margin increased 130 basis points compared 2012 increase adjusted operating margin includes benefits associated 400m cost savings initiative decrease operating margin increase adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill intangible assets gross margin gross margin adjusted gross margin increased 90 basis points 130 basis points respectively compared 2012 gross margin comparison largely impacted devaluation venezuelan currency conjunction highly inflationary accounting approximately 45 recognized 2013 associated carrying certain nonmonetary assets historical us dollar cost following devaluation see segment review latin america mda discussion venezuela increase 130 basis points adjusted gross margin primarily due following • increase 70 basis points due lower supply chain costs largely due 60 points lower freight costs primarily latin america due reduced usage air freight • increase 70 basis points due favorable net impact mix pricing primarily latin america including benefits pricing due realization price increases advance costs markets experiencing relatively high inflation venezuela argentina mix negatively impacted gross margin due higher growth fashion home • decrease 60 basis points due unfavorable impact foreign currency transaction losses foreign currency translation • various insignificant items contributed increase gross margin adjusted gross margin selling general administrative expenses selling general administrative expenses 2013 decreased approximately 176 compared 2012 decrease primarily due favorable impact foreign exchange lower professional related fees associated fcpa investigation compliance reviews lower cti restructuring lower advertising costs partially offset noncash impairment charge approximately 117 capitalized software related smt recorded fourth quarter 2013 89 accrual settlements related fcpa investigations higher distribution costs percentage revenue selling general administrative expenses increased 160 basis points adjusted selling general administrative expenses relatively unchanged compared 2012 selling general administrative expenses percentage revenue 2013 impacted noncash impairment charge approximately 117 capitalized software related smt 89 accrual settlements relating fcpa investigations approximately 5 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation partially offset lower cti restructuring see note 14 restructuring initiatives pages 2014 annual report information cti restructuring note 1 description business summary significant accounting policies pages 2014 annual report information smt note 15 contingencies pages 2014 annual report information fcpa investigations segment review latin america mda discussion venezuela primary drivers adjusted selling general administrative expenses percentage revenue compared prior year following • increase 30 basis points higher distribution costs driven increased transportation costs primarily latin america increased costs per unit result lower volume north america • increase 20 basis points due unfavorable impact foreign currency translation foreign currency transaction losses • decrease 20 basis points lower administrative expenses primarily due lower professional related fees associated fcpa investigation compliance reviews well lower compensation costs • decrease 20 basis points lower net brochure costs primarily europe north america partially driven initiatives reduce cost brochures impairment goodwill intangible assets third quarter 2013 recorded noncash impairment charge approximately 42 goodwill intangible assets compared noncash impairment charge approximately 44 third quarter 2012 goodwill associated china business see note 16 goodwill intangible assets pages 2014 annual report information china see “segment review” mda additional information related changes operating margin segment expense interest expense increased 16 compared prioryear period primarily due higher average interest rates partially offset lower outstanding debt balances loss extinguishment debt 2013 comprised approximately 71 makewhole premium writeoff debt issuance costs associated prepayment private notes defined liquidity capital resources approximately 2 writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement defined liquidity capital resources occurred first quarter 2013 addition second quarter 2013 recorded loss extinguishment debt approximately 13 makewhole premium writeoff debt issuance costs partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment 2014 notes defined liquidity capital resources see note 5 debt financing pages 2014 annual report liquidity capital resources mda information interest income increased approximately 11 compared prioryear period primarily impacted benefit approximately 12 interest income recognized fourth quarter 2013 due outofperiod adjustment related judicial deposits brazil outofperiod benefit interest income partially offset lower average interest rates well lower average cash balances 2013 compared 2012 expense net increased approximately 77 compared prioryear period primarily due approximate 34 negative impact first quarter 2013 devaluation venezuelan currency monetary assets liabilities conjunction highly inflationary accounting addition expense net impacted benefit approximately 24 2012 due release provision fourth quarter 2012 associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate provision released company capitalized associated intercompany liabilities see segment review latin america mda discussion venezuela effective tax rate effective tax rate 2013 1006 compared 782 2012 fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined company may repatriate offshore cash meet certain domestic funding needs accordingly time asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes approximately 168 related incremental us taxes associated unremitted foreign earnings increased 2012 tax rate effective tax rate 2012 also unfavorably impacted noncash impairment charges goodwill intangible assets associated china business 44 december 31 2013 continue assert company’s foreign earnings may indefinitely reinvested result domestic liquidity profile regard 2013 effective tax rate favorably impacted primarily due country mix earnings lower expected tax cost repatriate undistributed earnings foreign subsidiaries 2013 effective tax rate also unfavorably impacted noncash impairment charges goodwill intangible assets associated china business approximately 42 rate impacted unfavorably devaluation venezuelan currency conjunction highly inflationary accounting discussed within segment review latin america mda 89 accrual settlements related fcpa investigations additionally rate negatively impacted valuation allowance deferred tax assets related china third quarter approximately 9 venezuela fourth quarter approximately 42 valuation allowance venezuela due impact higher expected inflation taxable income negatively impacted likelihood would realize existing deferred tax assets given short life net operating loss carryforward periods markets determined likely would use carryforward losses expire adjusted effective tax rate 2013 303 compared 350 2012 primarily due country mix earnings lower expected tax cost repatriate undistributed earnings foreign subsidiaries comprehensive income loss comprehensive income loss net taxes approximately 348 2014 compared approximately 5 2013 primarily due net actuarial losses approximately 187 2014 compared net actuarial gains approximately 81 2013 2014 net actuarial losses negatively impacted lower discount rates nonus us pension plans updated mortality rates us pension plan partially offset higher asset returns nonus us pension plans 2014 compared 2013 comprehensive income loss yearoveryear comparison also unfavorably impacted foreign currency translation adjustments well higher amortization net actuarial loss driven settlement charges associated us pension plan 2014 foreign currency translation adjustments negatively impacted approximately 136 compared 2013 primarily due unfavorable movements polish zloty british pound colombian peso mexican peso comprehensive income loss net taxes approximately 5 2013 compared approximately 22 2012 primarily due net actuarial gains approximately 81 2013 compared net actuarial losses approximately 58 2012 2013 net actuarial gains us nonus pension postretirement plans benefited primarily due higher discount rate us pension plan well higher asset returns nonus pension plans 2013 compared 2012 partially offsetting benefits unfavorable impact foreign currency translation adjustments 2013 foreign currency translation adjustments negatively impacted approximately 113 compared 2012 primarily due unfavorable movements colombian peso polish zloty mexican peso see note 11 employee benefit plans pages 2014 annual report information segment review analysis key factors affecting revenue operating profit loss reportable segment years threeyear period ended december 31 2014 latin america 2014 compared 2013 amounts table may necessarily sum due rounding total revenue decreased 12 compared prioryear period due unfavorable impact foreign exchange constant basis revenue grew 5 regions revenue growth benefited approximately 1 point due net impact certain tax benefits brazil addition higher average order partially offset decrease active representatives average order benefited pricing including inflationary impacts primarily venezuela revenue venezuela mexico declined 55 9 respectively unfavorably impacted foreign exchange constant revenue venezuela mexico increased 45 declined 6 respectively revenue brazil declined 5 unfavorably impacted foreign exchange constant revenue brazil increased 3 brazils revenue benefited approximately 3 points result net impact certain tax benefits 2014 constant revenue growth constant operating profit growth impacted use sicad ii exchange rate applied exchange rate 630 current prior periods venezuela operations order determine constant growth used exchange rate 50 rate reflective sicad ii rate venezuela operations year ended december 31 2014 regions constant revenue would increase 1 prioryear period regions constant adjusted operating margin would decrease 8 points prioryear period avons consolidated constant revenue decline would decrease 2 prioryear period update constant rates annual basis utilize rate approximately 50 constant financial performance beginning 2015 results see discussion regarding impact venezuelan currency devaluation brazils constant revenue benefited approximately 3 points due net benefit larger tax credits recognized 2014 compared benefit tax credits recognized 2013 2014 2013 recognized tax credits brazil approximately 85 approximately 29 respectively primarily associated change estimate expected recoveries vat credits recognized 2014 approximately 13 outofperiod adjustments tax credits associated vat recorded reduction revenue benefit vat credits recognized revenue brazils active representatives average order relatively unchanged prioryear period constant basis brazil’s sales beauty fashion home products relatively unchanged mexicos constant revenue decline primarily due decrease active representatives partially offset higher average order constant revenue growth venezuela primarily due higher average order partially offset decrease active representatives venezuelas average order benefited inflationary impact pricing partially offset decrease units sold venezuelas active representatives units sold negatively impacted reduced size product offering primarily result increased difficulty import products raw materials additional information venezuela operations discussed detail operating margin negatively impacted 22 points compared prioryear period due larger impact 2014 venezuelan special items conjunction highly inflationary accounting discussed operating margin also negatively impacted 4 points compared prioryear period higher cti restructuring adjusted operating margin decreased 6 points increased 1 points constant basis primarily result • benefit 11 points lower representative sales leader field expense primarily attributable shift towards costeffective incentives • benefit 10 point associated net impact incremental tax credits brazil recognized revenue 2014 2013 discussed • benefit 3 points lower net brochure costs driven venezuela result cost savings initiatives • decline 8 points due lower gross margin caused primarily 14 points unfavorable impact foreign currency transaction losses primarily venezuela 9 points higher supply chain costs driven higher obsolescence primarily venezuela brazil items partially offset 18 points favorable net impact mix pricing benefits pricing include realization price increases markets experiencing relatively high inflation venezuela argentina inventory acquired advance inflation • decline 8 points higher distribution expenses driven inflation venezuela argentina cost pressures region • decline 7 points higher administrative expenses partially driven inflationary costs increased legal expenses associated labor civil related matters brazil expect environment latin america continue challenging near term weak economy high levels competition venezuela discussion currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency official rate pay imported products since 2010 accounting operations venezuela accounting guidance associated highly inflationary economies us gaap financial statements foreign entity operating highly inflationary economy required remeasured functional currency company’s reporting currency us dollar generally results translation adjustments caused changes exchange rate reported earnings currently monetary assets eg cash accounts receivable liabilities eg accounts payable accrued expenses requires different procedures used translate nonmonetary assets eg inventories fixed assets nonmonetary assets liabilities remeasured historical us dollar cost basis diverges significantly application accounting rules prior designation highly inflationary accounting gains losses would recognized comprehensive income shareholders equity respect 2013 results effective february 13 2013 official exchange rate moved 430 630 devaluation approximately 32 result change official rate 630 recorded aftertax loss approximately 51 approximately 34 expense net approximately 17 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets carried historical us dollar cost subsequent devaluation therefore costs impacted income statement 2013 disproportionate rate devalued based new exchange rates expensed historical us dollar value result using historical us dollar cost basis nonmonetary assets inventories acquired prior devaluation 2013 operating profit net income negatively impacted approximately 45 due difference historical us dollar cost previous official exchange rate 430 new official exchange rate 630 results periods prior 2013 impacted change official rate february 2013 march 2013 venezuelan government announced foreign exchange system sicad increased government control allocation us dollars country availability us dollars sicad market avon limited todate december 31 2014 sicad rate approximately 12 february 2014 venezuelan government announced foreign exchange system sicad ii began operating march 24 2014 venezuelan government indicated companies incorporated domiciled venezuela sectors allowed obtain us dollars sicad ii market exchange rates established sicad ii market fluctuated daily significantly higher official rate sicad rate april 2014 began access sicad ii market able obtain limited us dollars liquidity limited sicad ii market comparison available exchange rates official rate sicad rate represented rate better reflected economics avon venezuelas business activity accordingly concluded utilize sicad ii exchange rate remeasure venezuelan operations effective march 31 2014 february 2015 venezuelan government announced sicad ii market would longer available new open market foreign exchange system simadi created february 2015 simadi exchange rate approximately 170 believe significant uncertainty exists regarding foreign exchange mechanisms venezuela well mechanisms operate future availability us dollars mechanism still evaluating future access funds simadi similar markets march 31 2014 sicad ii exchange rate approximately 50 compared official exchange rate 630 used previously caused recognition devaluation approximately 88 result change sicad ii rate recorded aftertax loss approximately 42 approximately 54 expense net benefit approximately 12 income taxes first quarter 2014 primarily reflecting writedown monetary assets liabilities december 31 2014 sicad ii exchange rate approximately 50 additionally certain nonmonetary assets carried historical us dollar cost subsequent devaluation result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate time acquisition result determined adjustment approximately 116 cost sales needed reflect certain nonmonetary assets net realizable value recorded first quarter 2014 recognized additional negative impact approximately 21 operating profit net income relating nonmonetary assets second third fourth quarters 2014 addition march 31 2014 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable determined impairment avon venezuelas longlived assets required however devaluations regulatory actions may impair carrying value avon venezuelas longlived assets approximately 107 december 31 2014 december 31 2014 net asset position 100 associated operations venezuela included cash balances approximately 4 approximately 3 denominated bolívares 100 net asset position net liability approximately 5 associated bolívardenominated monetary net assets 2014 avon venezuela using 630 exchange rate first quarter sicad ii rate beginning second quarter represented approximately 2 avon’s consolidated revenue 3 avon’s consolidated adjusted operating profit remeasured avon venezuelas income statement sicad ii rate approximately 50 entire year ended december 31 2014 avon venezuela would represented approximately 1 avons consolidated revenue approximately 1 avons consolidated adjusted operating profit also could ongoing impacts primarily related remeasurement avon venezuelas financial statements illustrate sensitivity potential future changes foreign exchange rates venezuela utilize exchange rate approximately 170 bolívares us dollar remeasure venezuelan operations december 31 2014 devaluation approximately 70 exchange rate approximately 50 using 2014 results avons annualized consolidated results would negatively impacted follows • result use devalued exchange rate remeasurement avon venezuelas revenues profits avons annualized consolidated revenues would likely negatively impacted approximately 1 annualized consolidated adjusted operating profit would likely negatively impacted approximately 1 prospectively assuming operational improvements occurred offset negative impact devaluation • avons consolidated adjusted operating profit first twelve months following devaluation would likely negatively impacted approximately 5 assuming offsetting operational improvements impairment avon venezuelas longlived assets larger negative impact adjusted operating profit first twelve months compared prospective impact caused costs nonmonetary assets primarily inventories carried historical us dollar cost accordance requirement account venezuela highly inflationary economy revenue would remeasured devalued rate • would likely incur immediate benefit approximately 3 primarily expense net associated net liability bolívardenominated monetary net assets 2014 venezuelan government also issued law fair pricing establishing maximum profit margin 2014 law significant effect avon venezuelas results however uncertain law may interpreted enforced future argentina discussion late 2011 argentine government introduced restrictive foreign currency exchange controls unless foreign exchange made readily available official exchange rate avon argentinas operations may negatively impacted december 31 2014 net asset position approximately 91 associated operations argentina 2014 avon argentina represented approximately 4 avon’s consolidated revenue approximately 6 avon’s consolidated adjusted operating profit illustrate sensitivity potential future changes exchange rate argentina exchange rate devalued approximately 50 average exchange rate argentinas 2014 results using 2014 results avons annualized consolidated revenues would likely negatively impacted approximately 2 annualized consolidated adjusted operating profit would likely negatively impacted approximately 4 prospectively sensitivity analysis performed assuming operational improvements occurred offset negative impact devaluation december 31 2014 account argentina highly inflationary economy result potential devaluation would negatively impact earnings respect argentinas monetary nonmonetary assets latin america 2013 compared 2012 amounts table may necessarily sum due rounding total revenue decreased 3 compared prioryear period due unfavorable impact foreign exchange including impact venezuelan currency devaluation constant basis revenue grew 6 regions revenue favorably impacted approximately 1 point result aggregate tax credits approximately 22 recognized third quarter 2013 associated change estimate expected recoveries vat well initial realization government incentive recognized first quarter 2013 associated activity prior years tax credits associated vat government incentive associated excise taxes recorded reduction revenue benefit vat credits government incentive recognized revenue regions constant revenue growth primarily due higher average order benefited pricing including inflationary impacts primarily argentina venezuela new beauty product launches active representatives relatively unchanged revenue venezuela brazil mexico declined 17 1 respectively revenue growth brazil venezuela unfavorably impacted foreign exchange constant revenue increased 9 brazil 16 venezuela declined 4 mexico constant revenue brazil favorably impacted approximately 2 points due benefit aggregate vat credits recognized third quarter 2013 government incentive recognized first quarter 2013 brazils constant revenue growth primarily driven higher average order well increase active representatives higher average order primarily due benefits pricing new beauty product launches continued strength fashion home constant basis brazil’s sales beauty products increased 3 sales fashion home products increased 20 primarily due effective pricing merchandising constant revenue mexico negatively impacted lower average order active representatives relatively unchanged second half 2013 constant revenue mexico negatively impacted executional challenges coupled weaker economy constant revenue growth venezuela due higher average order benefiting inflationary impact pricing partially offset decrease units sold higher average order venezuela partially offset decrease active representatives impacted continued economic political instability well service issues revenue operating profit venezuela negatively impacted 2013 venezuelan currency devaluation additional information venezuela operations discussed detail operating margin negatively impacted 10 point due venezuelan currency devaluation conjunction highly inflationary accounting discussed operating margin benefited 2 points compared prioryear period lower cti restructuring adjusted operating margin increased 18 points 20 points constant basis primarily result • benefit 5 points associated aggregate vat credits brazil recognized third quarter 2013 government incentive brazil recognized first quarter 2013 discussed • benefit 19 points due higher gross margin caused primarily 15 points favorable net impact mix pricing benefits pricing include realization price increases advance costs markets experiencing relatively high inflation venezuela argentina mix negatively impacted gross margin due higher growth fashion home addition various insignificant items favorably impacted gross margin items partially offset 6 points unfavorable impact foreign currency transaction losses • decline 5 points higher transportation costs primarily venezuela europe middle east africa 2014 compared 2013 amounts table may necessarily sum due rounding total revenue decreased 7 compared prioryear period due unfavorable impact foreign exchange constant basis revenue grew 1 regions constant revenue negatively impacted approximately 1 point result closure france business russia revenue declined 18 unfavorably impacted foreign exchange constant basis russias revenue declined 1 primarily due decrease active representatives partially offset higher average order russia negatively impacted difficult economy including impact geopolitical uncertainties russias constant revenue decline first half 2014 partially offset constant revenue growth second half 2014 driven actions improve unit sales united kingdom revenue increased 6 favorably impacted foreign exchange constant basis united kingdoms revenue increased 1 primarily due higher average order partially offset decrease active representatives turkey revenue declined 14 unfavorably impacted foreign exchange constant basis turkeys revenue declined 2 primarily due lower average order south africa revenue declined 3 unfavorably impacted foreign exchange constant basis south africa’s revenue increased 8 primarily due increase active representatives operating margin negatively impacted 3 points compared prioryear period higher cti restructuring adjusted operating margin decreased 26 points 24 points constant basis primarily result decline 22 points due lower gross margin caused primarily estimated 3 points unfavorable impact foreign currency transaction losses partially offset 10 point lower supply chain costs europe middle east africa 2013 compared 2012 amounts table may necessarily sum due rounding total revenue decreased 1 compared prioryear period due unfavorable impact foreign exchange constant basis revenue grew 2 primarily due increase active representatives higher average order region’s constant revenue benefited growth south africa russia turkey growth partially offset decline united kingdom russia revenue declined 1 grew 2 constant basis primarily due increase active representatives partially offset lower average order second half 2013 average order russia negatively impacted product portfolio mix merchandising execution coupled weaker economy united kingdom revenue declined 6 5 constant basis negatively impacted decrease active representatives partially offset higher average order turkey revenue declined 5 unfavorably impacted foreign exchange constant basis turkeys revenue grew 2 higher average order partially offset decrease active representatives south africa revenue declined 8 unfavorably impacted foreign exchange constant basis south africa’s revenue grew 9 primarily due higher average order successful marketing strategies representative mix operating margin negatively impacted 2 points compared prioryear period higher cti restructuring adjusted operating margin increased 35 points 36 points constant basis primarily result • benefit 19 points due higher gross margin caused primarily lower supply chain costs largely due lower material overhead costs together benefits productivity initiatives including facility rationalization items partially offset unfavorable net impact mix pricing 5 points result discounts unfavorable impact foreign currency transaction losses • benefit 9 points lower bad debt expense partially due higher provision first quarter 2012 increase reserves bad debts south africa result growth new territories 5 points adjustment associated prior periods bad debt expense also favorably impacted change estimate collection receivables increased bad debt prioryear period recur 2013 • benefit 5 points lower net brochure costs partially impacted initiatives reduce cost brochures various european markets north america 2014 compared 2013 amounts table may necessarily sum due rounding total revenue decreased 17 reported constant basis compared prioryear period primarily due decrease active representatives sales beauty products fashion home products declined 17 reported constant basis addition believe units negatively impacted decreased depth frequency discounting primarily first half 2014 continue adjust balance depth frequency discounting effort drive revenue maximize profitability operating margin negatively impacted 22 points settlement charges associated us pension plan discussed detail operating margin also negatively impacted 14 points compared prioryear period higher cti restructuring adjusted operating margin increased 19 points 18 points constant basis primarily result • benefit 11 points due lower net brochure costs primarily result cost savings initiatives • benefit 10 point due reduced advertising spend primarily attributable shift towards costeffective recruitment strategies • benefit 5 points due lower representative sales leader expense primarily due lower commissions reduced appointments new representatives • benefit 4 points due lower distribution expenses primarily resulting cost savings initiatives including closure atlanta distribution facility associated 400m cost savings initiative • net decline 16 points due unfavorable impact declining revenue respect fixed expenses partially offset lower fixed expenses primarily resulting cost savings initiatives mainly reductions headcount associated 400m cost savings initiative reduced field spending effort reduce pension benefit obligations march 2014 offered former employees vested participate us pension plan payment would fully settle pension plan obligation participants elected receive payment election period ended second quarter 2014 payments made june 2014 plan assets result lumpsum payments made second quarter 2014 recorded settlement charge approximately 24 settlement threshold exceeded second quarter 2014 settlement charges approximately 5 approximately 7 also recorded third fourth quarters 2014 respectively result additional payments us pension plan settlement charges allocated global expenses operating results north america continue expect yearoveryear revenue declines within north america focused restoring field health improving brochure creating sustainable cost base may include additional restructuring actions north america 2013 compared 2012 calculation meaningful amounts table may necessarily sum due rounding total revenue decreased 17 compared prioryear period 16 constant basis primarily due decrease active representatives active representatives negatively impacted recruitment challenges sales beauty products declined 19 reported constant basis driven primarily skincare sales fashion home products declined 14 13 constant basis second half 2013 revenue canada adversely impacted due significant field disruptions result piloting smt technology platform associated business process changes initiated second quarter 2013 see global expenses mda information smt operating margin benefited 8 points compared prioryear period lower cti restructuring adjusted operating margin declined 48 points 47 points constant basis primarily result • decline 43 points due net impact declining revenue respect fixed expenses partially offset lower expenses primarily resulting cost savings initiatives mainly reductions headcount primarily associated 400m cost savings initiative reduced field spending • decline 9 points respect transportation expenses due net impact declining revenue increased costs per unit result lower volume • decline 6 points due lower gross margin caused primarily 7 points unfavorable supply chain costs partially result 3 points benefited prioryear period outofperiod adjustments associated vendor liabilities impact lower unit volume partially offset productivity initiatives • benefit 6 points lower net brochure costs impacted initiatives reduce cost brochures number brochures printed result lower representative count asia pacific 2014 compared 2013 1 excludes china calculation meaningful amounts table may necessarily sum due rounding total revenue decreased 7 compared prioryear period partially due unfavorable impact foreign exchange constant basis revenue decreased 4 increase philippines offset declines asia pacific markets constant revenue also impacted decrease active representatives partially offset higher average order revenue philippines declined 2 unfavorably impacted foreign exchange constant basis revenue philippines increased 3 higher average order partially offset decrease active representatives revenue china declined 10 reported constant basis primarily due decline number beauty boutiques decline number beauty boutiques negatively impacted unit sales partially offset actions taken second half 2013 intended reduce inventory levels held beauty boutiques recur 2014 operating margin benefited 56 points compared prioryear period due impact noncash goodwill intangible asset impairment charges associated china business discussed detail operating margin negatively impacted 6 points compared prioryear period higher cti restructuring adjusted operating margin decreased 3 points increased 1 point constant basis primarily result • benefit 13 points lower bad debt expense primarily 2013 results included adjustment associated prior periods philippines • net benefit 9 points due lower fixed expenses partially offset unfavorable impact declining revenue respect fixed expenses lower fixed expenses primarily resulted cost savings initiatives mainly reductions headcount associated 400m cost savings initiative • decline 12 points due lower gross margin caused primarily 7 points unfavorable net impact pricing mix primarily driven philippines largely due unit driving offers 6 points unfavorable impact foreign currency transaction losses • decline 9 points due higher advertising spend primarily china support product relaunches asia pacific 2013 compared 2012 1 excludes china calculation meaningful amounts table may necessarily sum due rounding total revenue declined 16 compared prioryear period 15 constant basis driven unfavorable results china operations decrease active representatives asia pacific markets regions revenue also negatively impacted approximately 1 point result decision exit south korea vietnam markets revenue philippines declined 5 4 constant basis operational challenges market contributed decrease active representatives decline unit sales revenue china declined 42 44 constant basis primarily due declines unit sales experienced operational challenges china number beauty boutiques declined additionally began transition retail incentive model third quarter 2012 negatively impacted regions constant revenue first half 2013 second half 2013 also took actions intended reduce inventory levels held beauty boutiques negatively impacted sales beauty boutiques china operating margin negatively impacted 7 points compared prioryear period due larger impact noncash goodwill intangible asset impairment charges associated china business 2013 noncash goodwill intangible asset impairment charge third quarter 2013 recorded based interim impairment analysis completed result significant lowering longterm revenue earnings projections china decline revenue performance china third quarter 2013 significantly excess expectations see note 16 goodwill intangible assets pages 2014 annual report information china operating margin benefited 13 points compared prioryear period lower cti restructuring adjusted operating margin decreased 29 points 27 points constant basis primarily result • decline 15 points due lower gross margin caused primarily 10 point unfavorable supply chain costs primarily driven higher material costs impact lower unit volume partially offset productivity initiatives gross margin also negatively impacted net impact mix pricing approximately 9 points partially driven underperformance skincare • decline 6 points due adjustment associated prior periods related bad debt expense philippines • unfavorable impact lower revenue fixed costs significantly offset benefits cost savings initiatives mainly reductions headcount associated 400m cost savings initiative resulting net negative impact adjusted operating margin approximately 10 point global expenses global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated fcpa investigations compliance reviews accrual settlements related fcpa investigations noncash impairment charge capitalized software associated smt pension settlement charges allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigations compliance reviews accrual settlements related fcpa investigations noncash impairment charge capitalized software associated smt settlement charges associated us pension plan costs implementing restructuring initiatives related specific segment recorded within segment 1 net global expenses represents total global expenses less amounts allocated segments amounts table may necessarily sum due rounding 2014 compared 2013 compared prioryear period total global expenses benefited noncash impairment charge approximately 117 capitalized software related smt discussed 89 accrual settlements related fcpa investigations recorded 2013 partially offset additional 46 accrual settlements related fcpa investigations settlement charges associated us pension plan discussed recorded 2014 result payments made former employees vested participate us pension plan second quarter 2014 recorded settlement charge approximately 24 settlement threshold exceeded second quarter 2014 settlement charges approximately 5 approximately 7 also recorded third fourth quarters 2014 respectively result additional payments us pension plan settlement charges allocated global expenses operating results north america see segment review north america mda discussion settlement charges fourth quarter 2013 decided halt rollout smt project beyond pilot market canada light potential risk business disruption result noncash impairment charge capitalized software associated smt recorded see note 1 description business summary significant accounting policies pages 2014 annual report information adjusted total global expenses decreased compared prioryear period primarily result cost savings initiatives including lower expenses related smt project lesser extent lower marketing expenses addition professional related fees associated fcpa investigations compliance reviews decreased compared prioryear period professional related fees associated fcpa investigations compliance reviews described note 15 contingencies pages 2014 annual report amounted approximately 7 2014 compared approximately 28 2013 fees allocated segments although fcpa investigations compliance reviews complete reached settlements government incur ongoing costs related monitor selfreporting obligations undertaken pursuant settlements respect global expenses discussion years presented please see risk factors pages 10 11 2014 annual report note 15 contingencies pages 2014 annual report information regarding fcpa settlements related matters including expectations respect future professional related fees related monitor selfreporting obligations undertaken pursuant settlements 2013 compared 2012 compared prioryear period total global expenses negatively impacted noncash impairment charge approximately 117 capitalized software related smt 89 accrual settlements related fcpa investigations recorded 2013 partially offset lower cti restructuring adjusted total global expenses decreased compared prioryear period primarily due lower professional related fees associated fcpa investigations compliance reviews well lower consulting fees partially offset higher expenses related smt project amounts allocated segments decreased compared prioryear period primarily due decrease budgeted marketing research development costs allocated segments professional related fees associated fcpa investigations compliance reviews described note 15 contingencies pages 2014 annual report amounted approximately 28 2013 compared approximately 92 2012 fees allocated segments fees difficult predict expect ongoing fees may vary course investigations reviews liquidity capital resources principal sources funding historically cash flows operations public offerings notes bank financings issuance commercial paper borrowings lines credit private placement notes december 31 2014 cash equivalents totaling approximately 961 includes cash balances associated venezuela operations denominated bolívares amounting approximately 3 believe sources funding sufficient satisfy currently anticipated cash requirements least next twelve months information respect foreign currency restrictions foreign currency devaluation see segment review latin america mda information regarding risks respect foreign currency restrictions see risk factors subject financial risks related international operations including exposure foreign currency fluctuations impact foreign currency restrictions included item 1a pages 8 18 2014 annual report may seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise repurchases equity debt may funded incurrence additional debt issuance equity convertible securities depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations meet liquidity needs issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods credit ratings downgraded 2014 may impact access transactions favorable terms information see risk factors credit ratings downgraded 2014 could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity working capital risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions markets russia sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 8 18 2014 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 15 contingencies pages 2014 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2014 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2014 approximately 180 lower 2013 operating cash flow 2014 unfavorably impacted lower cashrelated earnings including unfavorable impact foreign currency 68 fine paid connection fcpa settlement doj higher payments employee incentive compensation unfavorable impacts yearoveryear comparison cash operating activities partially offset benefit due timing accounts payable primarily inventory purchases addition operating cash flow 2013 unfavorably impacted payments makewhole premiums approximately 90 connection prepayment debt approximate 25 contribution united kingdom pension plan result decision freeze plan recur 2014 net cash provided continuing operating activities 2013 approximately 4 lower 2012 operating cash flow 2013 unfavorably impacted payments makewhole premiums contribution united kingdom pension plan discussed well higher payments employee incentive compensation substantially offsetting unfavorable impacts improved adjusted operating profit maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 11 employee benefit plans pages 2014 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 50 55 us defined benefit pension postretirement plans range 25 30 nonus defined benefit pension postretirement plans 2015 net cash continuing investing activities net cash used continuing investing activities 2014 approximately 68 lower 2013 primarily due lower capital expenditures partially offset higher proceeds received disposal assets primarily us due sale facilities associated restructuring initiatives net cash used continuing investing activities 2013 40 lower 2012 primarily due lower capital expenditures well higher proceeds received disposal assets primarily us due sale facilities associated restructuring initiatives capital expenditures 2014 approximately 131 compared approximately 197 2013 driven decision halt rollout smt beyond canada fourth quarter 2013 capital expenditures 2013 approximately 197 compared approximately 229 2012 driven lower spend associated smt primarily due launch pilot canada lesser extent decision halt rollout smt beyond canada fourth quarter 2013 capital expenditures 2015 currently expected range 125 150 expected funded cash operations net cash continuing financing activities net cash used continuing financing activities approximately 219 2014 compared approximately 468 2013 primarily due significant financing transactions 2013 partially offset repayment remaining approximate 53 outstanding principal amount term loan agreement defined second quarter 2014 2013 transactions included prepayment 535 principal amount private notes defined prepayment 500 principal amount 2014 notes defined repayment 498 outstanding principal amount term loan agreement defined scheduled repayment 250 principal amount 480 notes due march 1 2013 scheduled repayment 125 principal amount 4625 notes due may 15 2013 partially offset proceeds 15 billion related issuance notes defined proceeds 88 related termination interestrate swap agreements designated fair value hedges see note 5 debt financing pages 2014 annual report note 8 financial instruments risk management pages 2014 annual report information net cash used continuing financing activities approximately 468 2013 compared approximately 401 2012 primarily due significant repayments prepayments 2013 discussed lower debt issuances various markets partially offset proceeds 15 billion related issuance notes defined first quarter 2013 compared proceeds 550 related borrowings term loan agreement defined 2012 well lower repayments commercial paper lower dividend payments 2013 see note 5 debt financing pages 2014 annual report information addition 2013 proceeds approximately 88 related termination interestrate swap agreements designated fair value hedges compared proceeds approximately 44 2012 see note 8 financial instruments risk management pages 2014 annual report information purchased approximately 7 million shares common stock 98 2014 compared 5 million shares common stock 94 2013 5 million shares 88 2012 repurchases company connection employee elections use shares pay withholding taxes upon vesting restricted stock units private transactions broker connection stock based obligations deferred compensation plan maintained quarterly dividend 06 per share 2014 equivalent quarterly dividends 2013 first nine months 2012 quarterly dividend payments 23 per share whereas fourth quarter 2012 quarterly dividend payment 06 per share maintained dividend 06 per share first quarter 2015 debt contractual financial obligations commitments december 31 2014 debt contractual financial obligations commitments due dates follows 1 capital lease financing obligations primarily comprised 404 related sale leaseback equipment one distribution facilities north america entered 2009 116 capital leases primarily related automobiles equipment 2 amounts based current longterm credit ratings see note 5 debt financing pages 2014 annual report information 3 amounts represent expected future benefit payments unfunded defined benefit pension postretirement benefit plans well expected contributions 2015 funded defined benefit pension benefit plans able estimate contributions funded defined benefit pension postretirement plans beyond 2015 4 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2014 reserves uncertain income tax positions including interest penalties totaled 446 see note 5 debt financing note 13 leases commitments pages page respectively 2014 annual report information debt contractual financial obligations commitments additionally disclosed note 14 restructuring initiatives pages 2014 annual report remaining liability 506 associated 400m cost savings initiative december 31 2014 also remaining liability 89 associated restructuring initiatives approved 2012 december 31 2014 majority future cash payments associated restructuring liabilities expected made 2015 balance sheet arrangements december 31 2014 material offbalancesheet arrangements capital resources revolving credit facility march 2013 entered fouryear 1 billion revolving credit facility “revolving credit facility” expires march 2017 revolving credit facility replaced previous 1 billion revolving credit facility 2010 revolving credit facility terminated march 2013 prior scheduled expiration november 2013 amounts drawn 2010 revolving credit facility date termination early termination penalties incurred first quarter 2013 12 recorded writeoff issuance costs related 2010 revolving credit facility borrowings revolving credit facility bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings revolving credit facility annual fee approximately 30 payable quarterly based current credit ratings revolving credit facility may used general corporate purposes december 31 2014 amounts outstanding revolving credit facility revolving credit facility contains covenants limiting ability incur liens enter mergers consolidations sales substantially assets revolving credit facility also contains covenant limits subsidiary debt existing subsidiary debt february 28 2013 plus 5000 certain exceptions addition revolving credit facility contains financial covenants require interest coverage ratio end fiscal quarter equal exceed 41 leverage ratio greater 351 end fiscal quarter ended december 31 2014 fiscal quarter thereafter addition revolving credit facility contains customary events default crossdefault provisions interest coverage ratio determined dividing consolidated ebit defined revolving credit facility consolidated interest expense case period four fiscal quarters ending date determination leverage ratio determined dividing amount consolidated funded debt date determination consolidated ebitda defined revolving credit facility period four fiscal quarters ending date determination calculating interest coverage leverage ratios revolving credit facility allows us subject certain conditions limitations add back consolidated net income among items extraordinary noncash losses expenses ii onetime fees cash charges cash expenses premiums penalties incurred connection asset sale equity issuance incurrence repayment debt refinancing modification amendment debt instrument iii cash charges cash expenses premiums penalties incurred connection restructuring relating legal regulatory action settlement judgment ruling aggregate amount exceed 4000 period october 1 2012 termination commitments revolving credit facility expires march 2017 provided cash restructuring charges incurred december 31 2014 shall added back consolidated net income beginning january 1 2015 charges taken cash restructuring cannot added back consolidated net income december 31 2014 less 10 remaining items cash charges cash expenses premiums penalties incurred relating legal regulatory action settlement judgment ruling compliance interest coverage leverage ratios revolving credit facility four fiscal quarters ended december 31 2014 december 31 2014 based applicable interest rates approximately 825 1 billion revolving credit facility could drawn without violating covenant continued decline business results including impact adverse foreign exchange movements significant restructuring charges significant legal regulatory settlements may reduce borrowing capacity revolving credit facility cause us noncompliant interest coverage leverage ratios noncompliant interest coverage leverage ratio would longer access revolving credit facility december 31 2014 amounts outstanding revolving credit facility public notes april 15 2013 prepaid 5625 notes due march 1 2014 notes prepayment price equal 100 principal amount 5000 plus accrued interest 34 makewhole premium 217 connection prepayment 2014 notes incurred loss extinguishment debt 130 second quarter 2013 consisting 217 makewhole premium 2014 notes writeoff 11 debt issuance costs discounts related initial issuance 2014 notes partially offset deferred gain 98 associated january 2013 interestrate swap agreement termination see note 8 financial instruments risk management pages 2014 annual report information addition 2500 principal amount 480 notes due march 1 2013 1250 principal amount 4625 notes due may 15 2013 repaid full maturity march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 notes 5000 principal amount 460 notes due march 15 2020 notes 5000 principal amount 500 notes due march 15 2023 notes 2500 principal amount 695 notes due march 15 2043 notes collectively notes net proceeds notes used repay 3800 outstanding principal amount term loan agreement defined prepay private notes defined 2014 notes plus makewhole premium accrued interest prepayments repay 4625 notes due may 15 2013 maturity interest notes payable semiannually march 15 september 15 year result longterm credit rating downgrades sp bb stable outlook moodys ba1 stable outlook discussed interest rates notes increase 50 effective march 15 2015 december 31 2014 also outstanding 2500 principal amount 575 notes due march 1 2018 notes 2500 principal amount 420 notes due july 15 2018 420 notes 3500 principal amount 650 notes due march 1 2019 notes interest 2018 notes 420 notes 2019 notes payable semiannually indentures governing outstanding notes described contain certain covenants including limitations incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets addition indentures contain customary events default crossdefault provisions would required make offer repurchase 2018 notes 2019 notes series notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding credit ratings downgrade investment grade addition indenture governing notes contains interest rate adjustment provisions depending credit ratings sp moodys described indenture interest rates notes increase 25 onenotch downgrade investment grade longterm credit ratings sp moodys adjustments limited total increase 2 respective interest rates effect date issuance notes result longterm credit rating downgrades sp bb stable outlook moodys ba1 stable outlook discussed interest rates notes increase 50 effective march 15 2015 term loan agreement june 29 2012 entered 5000 term loan agreement term loan agreement subsequently august 2 2012 borrowed incremental 500 principal subscriptions new lenders term loan agreement borrowings term loan agreement bore interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings march 2013 repaid 3800 outstanding principal amount term loan agreement portion proceeds issuance notes repayment resulted loss first quarter 2013 16 extinguishment debt associated writeoff debt issuance costs related term loan agreement july 25 2013 prepaid 1175 outstanding principal balance term loan agreement without prepayment penalties june 30 2014 paid 525 remaining outstanding principal balance term loan agreement 394 yet due without prepayment penalties effectively terminating term loan agreement since amounts thereunder may reborrowed private notes march 29 2013 prepaid 5350 senior notes issued 2010 private placement exempt registration securities act 1933 amended private notes connection prepayment private notes incurred loss extinguishment debt 714 first quarter 2013 included makewhole premium 680 writeoff 34 debt issuance costs related private notes commercial paper program november 2014 terminated 1 billion commercial paper program supported revolving credit facility current credit ratings essentially eliminated demand commercial paper sought issue commercial paper since march 2013 public offering additional information longterm credit ratings ba1 stable outlook moodys bb stable outlook sp bb negative outlook fitch investment grade november 2014 sp lowered longterm credit rating bbb negative outlook bb stable outlook october 2014 moodys lowered longterm credit rating baa3 negative outlook ba1 stable outlook believe longterm credit rating downgrades material impact nearterm liquidity however additional rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities well likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements information see risk factors general economic downturn recession globally one geographic regions markets russia sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings risk factors credit ratings downgraded 2014 could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity working capital risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions included item 1a pages 8 18 2014 annual report please also see note 5 debt financing pages 2014 annual report information relating debt maturities thereof item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2015 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures pages 29 31 mda description constant dollar constant growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted primarily directselling channel 2015 sales operations 57 countries territories distributed products 15 addition north america business presented discontinued operations sales operations 3 countries territories distributed products 27 countries territories reportable segments based geographic operations include commercial business units latin america europe middle east africa asia pacific addition operate business north america presented discontinued operations periods presented discussed product categories beauty fashion home beauty consists skincare includes personal care fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling representatives independent contractors employees december 31 2015 nearly 6 million active representatives represents number representatives submitting order sales campaign totaled campaigns year divided number campaigns success business highly dependent recruiting retaining servicing representatives 2015 consolidated revenue derived operations outside us december 2015 entered definitive agreements affiliates cerberus capital management cerberus include 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business avon privatelyheld company include 100 contribution avon majorityowned managed affiliate cerberus avon retain approximately 20 ownership new privatelyheld company transactions expected close concurrently first half 2016 north america business represents companys operations united states canada puerto rico previously reportable segment presented discontinued operations periods presented refer note 3 discontinued operations divestitures pages 2015 annual report additional information regarding investment affiliate cerberus separation north america business total revenue 2015 compared 2014 declined 19 compared prioryear period due unfavorable foreign exchange constant revenue increased 2 constant revenue negatively impacted approximately 2 points due taxes brazil combined impact recognition value added tax vat credits 2014 recur 2015 along new industrial productions tax ipi cosmetics went effect may 2015 constant revenue also negatively impacted approximately 1 point result sale liz earle completed july 2015 sales beauty category decreased 20 increased 3 constant basis sales fashion home category decreased 15 increased 5 constant basis constant revenue benefited growth markets experiencing relatively high inflation venezuela argentina contributed approximately 2 points constant revenue growth constant revenue also benefited growth europe middle east africa significantly eastern europe russia ukraine lesser extent south africa underlying growth brazil constant revenue benefited higher average order 1 increase active representatives increase active representatives primarily due growth europe middle east africa significantly russia primarily due sustained momentum recruitment retention partially offset markets experiencing relatively high inflation venezuela argentina net impact price mix increased 4 driven increases regions net impact price mix primarily positively impacted markets experiencing relatively high inflation venezuela argentina markets benefited inflationary impact pricing units sold decreased 2 primarily due declines units sold brazil venezuela partially offset increase units sold russia see segment review mda additional information related changes revenue segment last two years profitability suffered significantly given geographic footprint strength us dollar relative currencies key avon markets result revenue profits reduced translated us dollars margins negatively impacted country mix certain markets historically higher operating margins experienced significant devaluation local currency addition sales costs often denominated different currencies created negative foreign currency transaction impact specifically compared prioryear period foreign currency impacted consolidated financial results result foreign currency transaction losses classified within cost sales selling general administrative expenses unfavorable impact adjusted operating profit estimated 210 foreign currency translation unfavorable impact adjusted operating profit approximately 265 approximately 90 related venezuela discussed lower foreign exchange losses working capital classified within expense net favorable impact approximately 10 tax november 2015 announced internal reorganization management structure including combined management latin america europe middle east africa effective january 1 2016 result internal reorganization report results following four reportable segments beginning first quarter 2016 europe middle east africa northern latin america south america asia pacific january 2016 announced transformation plan transformation plan includes investing growth reducing costs effort continue improve cost structure improving financial resilience result plan expect invest 350 business next three years estimated 150 media social selling 200 related service model evolution information technology aimed improving overall representative experience respect cost reductions targeted pretax annualized cost savings approximately 350 three years estimated 200 supply chain reductions estimated 150 cost reductions cost savings expected achieved restructuring actions well costsavings strategies result restructuring charges targeting realization 70 pretax cost savings 2016 initiated transformation plan order enable us achieve longterm goals doubledigit operating margin mid singledigit constantdollar revenue growth expect evaluate options improve financial resilience already implemented actions area including refinancing revolving credit facility divesting liz earle beauty co limited liz earle prepaying 2375 notes defined capital resources pages 58 59 suspending dividend see note 14 restructuring initiatives pages 2015 annual report note 3 discontinued operations divestitures pages 2015 annual report note 5 debt financing pages annual report information items july 2015 sold liz earle result expect avons constant reported revenue 2016 negatively impacted approximately 1 point see note 3 discontinued operations divestitures pages 2015 annual report information february 2015 venezuelan government announced sicad ii market would longer available new foreign exchange system created referred simadi exchange simadi began operating february 12 2015 use simadi exchange rate caused recognition devaluation approximately 70 addition recognized impairment charges approximately 11 cost sales approximately 90 selling general administrative expenses order reflect writedown inventory longlived assets respectively recorded first quarter 2015 recognized additional negative impact approximately 19 operating profit net income relating nonmonetary assets first second third fourth quarters 2015 due recognition cost basis higher exchange rate revenue reported us dollars addition negative impact operating margin recorded aftertax benefit approximately 3 benefit approximately 4 expense net loss approximately 1 income taxes first quarter 2015 primarily reflecting writedown monetary assets liabilities see segment review latin america mda discussion venezuela operations new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2015 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail liz earle also excluded calculation distribute directselling channel change units sold metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples change average order metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average order may impacted combination factors inflation units product mix andor pricing nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue operating profit adjusted operating profit operating margin adjusted operating margin also refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends underlying business results exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rate foreign currency impact determined difference actual growth rates constantcurrency growth rates also present gross margin selling general administrative expenses percentage revenue total net global expenses operating profit operating margin effective tax rate nongaap basis discussion segments presents operating profit operating margin nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation difference nongaap financial measures directly comparable financial measures calculated reported accordance gaap company uses nongaap financial measures evaluate operating performance believes meaningful investors made aware periodtoperiod basis impacts 1 costs implement cti restructuring initiatives 2 costs charges related devaluations venezuelan currency february 2015 march 2014 february 2013 combined designated highly inflationary economy valuation allowance deferred tax assets related venezuela venezuelan special items 3 89 accrual recorded 2013 settlements related foreign corrupt practices act fcpa investigations additional 46 accrual 2014 settlements related fcpa investigations fourth quarter 2014 associated approximate 19 net tax benefit fcpa accrual 4 settlement charges associated us pension plan pension settlement charge 5 goodwill impairment charge related egypt business goodwill intangible asset impairment charges valuation allowance deferred tax assets related china business asset impairment charges 6 various items associated sale liz earle separation north america business debtrelated charges items relates effective tax rate discussion 7 noncash income tax adjustments associated deferred tax assets recorded 2015 2014 income tax benefit realized result tax planning strategies special tax items company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period nongaap measures considered isolation substitute superior financial measures calculated accordance gaap venezuelan special items include impact consolidated statements operations 2015 2014 2013 caused devaluations venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventories nonmonetary assets venezuelan special items include earnings impact caused difference historical us dollar cost assets previous exchange rate revised exchange rate 2015 2014 venezuelan special items also include adjustments approximately 11 approximately 116 respectively reflect certain nonmonetary assets net realizable value 2015 venezuelan special items also include impairment charge approximately 90 reflect writedown longlived assets estimated fair value 2013 devaluation result change official exchange rate moved 430 630 2014 devaluation caused result moving official exchange rate 630 sicad ii exchange rate approximately 50 2015 devaluation caused result moving sicad ii exchange rate approximately 50 simadi exchange rate approximately 170 venezuelan special items also include impact consolidated statements operations caused valuation allowance deferred tax assets related venezuela recorded fourth quarter 2013 pension settlement charge includes impact consolidated statements operations third fourth quarters 2015 second third fourth quarters 2014 associated payments made former employees vested participated us defined benefit pension plan payments fully settle pension plan obligation participants elected receive payment asset impairment charges include impact consolidated statements operations caused goodwill impairment charge related egypt business fourth quarter 2015 asset impairment charges also include impact consolidated statements operations caused goodwill intangible asset impairment charges valuation allowance deferred tax assets related china business 2013 items include impact 2015 consolidated statements operations due gain sale liz earle items also includes impact consolidated statements operations fourth quarter 2015 caused transactionrelated costs 31 associated planned separation north america business included continuing operations addition items includes impact consolidated statements operations loss extinguishment debt caused makewhole premium writeoff debt issuance costs discounts associated prepayment 2375 notes defined liquidity capital resources items also include impact expense net consolidated statements operations 25 associated writeoff issuance costs related previous 1 billion revolving credit facility items 2013 also include impact consolidated statements operations caused makewhole premium writeoff debt issuance costs associated prepayment private notes issued 2010 well writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement items also include impact consolidated statements operations 2013 caused makewhole premium writeoff debt issuance costs discounts partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment notes due 2014 addition effective tax rate discussion includes special tax items include impact 2015 income taxes consolidated statements operations due noncash income tax charge first quarter 2015 noncash income tax benefit second quarter 2015 associated valuation allowances adjust us deferred tax assets amount likely realized adjustments primarily caused fluctuations us dollar currencies key markets special tax items also include impact third quarter 2015 income taxes consolidated statements operations due noncash income tax charge result establishing valuation allowance full amount us deferred tax assets due impact continued strengthening us dollar currencies key markets associated effect tax planning strategies additionally special tax items includes impact income taxes consolidated statements operations due noncash income tax charge associated valuation allowances adjust certain nonus deferred tax assets amount likely realized nonus valuation allowance included adjustment associated russia primarily result lower earnings significantly impacted foreign exchange losses working capital balances special tax items also include impact fourth quarter 2014 income taxes consolidated statements operations due noncash income tax charge primarily associated valuation allowance reduce us deferred tax assets amount likely realized primarily due strengthening us dollar currencies key markets lesser extent finalization fcpa settlements special tax items also include impact fourth quarter 2015 income taxes consolidated statements operations due income tax benefit recognized result implementation foreign tax planning strategies see note 14 restructuring initiatives pages 2015 annual report results operations consolidated segment review latin america note 1 description business summary significant accounting policies pages 2015 annual report note 15 contingencies pages 2015 annual report segment review global expense note 11 employee benefit plans pages 2015 annual report note 16 goodwill intangible assets pages 2015 annual report note 3 discontinued operations divestitures pages 2015 annual report liquidity capital resources note 5 debt financing pages 2015 annual report note 7 income taxes pages 2015 annual report information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2015 annual report detailed discussion application accounting policies allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally three fourweek duration representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 144 2015 171 2014 209 2013 approximately 2 total revenue year allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction within many jurisdictions generally allow unlimited right return record provision estimated sales returns based historical experience product returns past three years annual sales returns 191 2015 241 2014 274 2013 approximately 3 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 45 2015 78 2014 82 2013 pension postretirement expense maintain defined benefit pension plans cover substantially employees us portion employees international locations however us defined benefit pension plan closed employees hired january 1 2015 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations many retired employees us certain foreign countries see note 11 employee benefit plans pages 2015 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include expected rate return pension plan assets interest crediting rate hybrid plans discount rate applied pension plan obligations rate compensation increase plan participants mortality rates use december 31 measurement date employee benefit plans 2015 weighted average assumed rate return pension plan assets including us nonus defined benefit pension plans 687 compared 686 2014 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary part separation north america business transfer certain pension liabilities us defined benefit pension plan associated current former employees north america business certain former avon employees along portion assets held us defined benefit pension plan defined benefit pension plan sponsored new privatelyheld company also transfer certain postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon outside north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global expenses plan includes north america us corporate avon associates line allocation ongoing net periodic benefit costs within global expenses expected materially impacted separation north america business beginning 2014 adopted investment strategy us defined benefit pension plan designed match movements pension liability increased allocation towards debt securities addition also begun utilize derivative instruments achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee 2015 similar investment strategies implemented nonus defined benefit pension plans significant portion pension plan assets relate us defined benefit pension plan assumed rate return 2015 us defined benefit pension plan 725 based asset allocation approximately 70 corporate government bonds mortgagebacked securities expected earn approximately 3 5 longterm approximately 30 equity securities high yield securities expected earn approximately 5 7 long term addition physical assets asset portfolio derivative instruments increase exposure higher yielding securities historical rates return assets us defined benefit pension plan approximately 8 recent 10year period approximately 8 20year period us defined benefit pension plan asset allocation policy historically favored us equity securities returned approximately 7 10year period approximately 8 20year period rate return plan assets us approximately negative 3 2015 approximately 11 2014 discount rate used determining present value future pension obligations individual plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including us defined benefit pension plan based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 392 december 31 2015 354 december 31 2014 determination expected rate return assets discount rate take external actuarial advice consideration funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2015 pretax actuarial losses prior service credits totaling approximately 296 us defined benefit pension postretirement plans approximately 238 nonus defined benefit pension postretirement plans yet charged expense approximately 247 us defined benefit pension postretirement plans associated discontinued operations actuarial losses charged accumulated comprehensive loss aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2016 assumption expected rate return assets 700 us defined benefit pension plan 640 nonus defined benefit pension plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2015 pension expense pension benefit obligation december 31 2015 table reflects entire us pension postretirement plans portion associated discontinued operations restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted domestic foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration december 31 2015 net deferred tax assets 151 net valuation allowances 1972 respect deferred tax assets december 31 2015 recognized deferred tax assets relating tax loss carryforwards 657 primarily foreign us state jurisdictions valuation allowance 652 provided prior december 31 2015 recognized deferred tax assets 746 relating excess us foreign tax us general business credit carryforwards valuation allowance 746 provided history domestic source losses excess us foreign tax general business credits primarily resulted greater domestic source loss recent years reduces ability credit foreign taxes utilize general business credits generate ability realize us deferred tax assets foreign tax general business credit carryforwards dependent future us taxable income within carryforward period december 31 2015 would need generate approximately 21 billion excess net foreign source income order realize us foreign tax general business credits expire fourth quarter 2014 company’s expected net foreign source income reduced significantly primarily due strengthening us dollar currencies key markets lesser extent finalization fcpa settlements strengthening us dollar reduced expected dividends royalties could remitted us foreign subsidiaries particularly russia brazil mexico colombia effectiveness tax planning strategies including repatriation foreign earnings acceleration royalties foreign subsidiaries also negatively impacted strengthening us dollar addition finalization fcpa settlements included 68 fine related avon china connection doj settlement 67 disgorgement prejudgment interest related avon products inc connection sec settlement negatively impacted expected future repatriation foreign earnings reduced current us taxable income respectively result developments determined may generate sufficient taxable income realize us deferred tax assets recorded valuation allowance 441 reduce us deferred tax assets amount likely realized 367 recorded income taxes consolidated statements operations remainder recorded various components comprehensive loss income first second quarters 2015 company recorded 31 charge 3 benefit respectively associated valuation allowances adjust us deferred tax assets amount “more likely not” realized adjustments primarily caused fluctuations us dollar currencies key markets third quarter 2015 recorded additional valuation allowance remaining us deferred tax assets 642 increase valuation allowance resulted reduced tax benefits expected obtained tax planning strategies associated anticipated accelerated receipt us foreign source income us dollar strengthened currencies key markets third quarter 2015 benefits associated company’s tax planning strategies longer sufficient company continue conclude tax planning strategies prudent absence alternative prudent tax planning strategies sources future taxable income determined full valuation allowance recorded although company continues expect generate taxable income tax liability us company expected offset current future tax liability foreign tax credits result expected level future taxable income tax liability adequate realize benefit previously recorded deferred tax assets although company may able recognize financial statement benefit associated deferred tax assets company continue manage plan utilization deferred tax assets avoid expiration deferred tax assets may limited lives december 31 2015 continue assert foreign earnings indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account 2015 undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings increase 75 resulting deferred tax liability balance 89 related incremental tax cost 14 billion undistributed foreign earnings december 31 2015 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings may result utilization portion foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary venezuela calculation deferred income tax liability local regulations restrict cash distributions denominated us dollars addition fourth quarter 2015 recognized benefit approximately 19 associated implementation foreign tax planning strategies completed implementation tax planning strategies expect recognize additional benefit approximately 30 first quarter 2016 respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2016 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2016 provision income taxes well tax related cash receipts payments may impacted loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets plant property equipment capitalized software evaluate plant property equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge 903 selling general administrative expenses recorded reflect writedown longlived assets estimated fair value 157 recorded first quarter 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates see note 1 description business summary significant accounting policies pages 2015 annual report information avon venezuela goodwill intangible assets test goodwill intangible assets indefinite lives impairment annually frequently circumstances warrant using various fair value methods review finitelived intangible assets subject amortization impairment whenever events changes circumstances indicate related carrying amounts may recoverable completed annual goodwill impairment assessment 2015 determined estimated fair values considered substantially excess carrying values reporting units exception egypt reporting unit discussed impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset part goodwill impairment analysis typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors egypt 2015 yearend close process analysis egypt business indicated impairment carrying value business exceeded estimated fair value primarily result reducing longterm projections business 2015 egypt performed generally line revenue earnings projections assumed growth compared 2014 however result currency restrictions payment goods egypt lowered longterm revenue earnings projections business accordingly noncash impairment charge 69 recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge china first half 2013 china performed generally line revenue earnings projections assumed projections chinas revenue first half 2013 continued deteriorate versus prioryear period however beginning third quarter 2013 revenue decline significantly excess assumptions result third quarter 2013 became apparent would achieve 2013 longterm forecasted revenue earnings completed interim impairment assessment fair value goodwill related operations china revenue decline china third quarter 2013 resulted recognition operating loss expected operating profit projections third quarter 2013 significantly lowered longterm revenue earnings projections china included dcf model utilized interim impairment assessment result impairment testing recorded noncash impairment charge 421 third quarter 2013 reduce carrying amounts goodwill finitelived intangible assets amounts remaining associated goodwill intangible assets china reporting unit result impairment charge key assumptions egypt china key assumptions used measuring fair value egypt china impairment assessments included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt china forecasted revenue resulting cash flows five years ten years respectively using dcf model included terminal value end projection period believed fiveyear period tenyear period reasonable amount time order return cash flows egypt china respectively normalized sustainable levels see note 16 goodwill intangible assets pages 2015 annual report information egypt china results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses included within selling general administrative expenses 2 selling general administrative expenses adjusted selling general administrative expenses percentage revenue well operating margin adjusted operating margin impacted compared amounts previously reported due classifying north america within discontinued operations periods presented global expenses previously allocated north america remain continuing operations represent costs associated functions companys continuing operations 3 change constant adjusted operating margin years presented calculated using currentyear constant rates 2015 compared 2014 revenue total revenue 2015 compared 2014 declined 19 compared prioryear period due unfavorable foreign exchange constant revenue increased 2 constant revenue negatively impacted approximately 2 points due taxes brazil combined impact recognition vat credits 2014 recur 2015 along new ipi tax cosmetics went effect may 2015 constant revenue also negatively impacted approximately 1 point result sale liz earle completed july 2015 constant revenue benefited growth markets experiencing relatively high inflation venezuela argentina contributed approximately 2 points constant revenue growth constant revenue also benefited growth europe middle east africa significantly eastern europe russia ukraine lesser extent south africa underlying growth brazil constant revenue benefited higher average order 1 increase active representatives increase active representatives primarily due growth europe middle east africa significantly russia primarily due sustained momentum recruitment retention partially offset markets experiencing relatively high inflation venezuela argentina net impact price mix increased 4 driven increases regions net impact price mix primarily positively impacted markets experiencing relatively high inflation venezuela argentina markets benefited inflationary impact pricing units sold decreased 2 primarily due declines units sold brazil venezuela partially offset increase units sold russia see segment review mda additional information related changes revenue segment review latin america mda discussion tax benefits brazil category basis net sales associated growth rates follows operating margin operating margin adjusted operating margin decreased 300 basis points 360 basis points respectively compared 2014 decrease adjusted operating margin includes benefits associated restructuring actions taken 2015 400m cost savings initiative primarily reductions headcount well cost reductions decrease operating margin adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill intangible assets gross margin gross margin adjusted gross margin decreased 40 basis points 150 basis points respectively compared 2014 gross margin comparison impacted lower negative impact devaluation venezuelan currency conjunction highly inflationary accounting approximately 29 recognized currentyear period compared approximately 121 prioryear period primarily associated adjustments reflect certain nonmonetary assets net realizable value see segment review latin america mda discussion venezuela operations decrease 150 basis points adjusted gross margin primarily due following • decrease approximately 270 basis points due unfavorable impact foreign currency transaction losses foreign currency translation • decrease 40 basis points associated net impact vat credits brazil recognized revenue 2014 recur 2015 • decrease 20 basis points result ipi tax law cosmetics brazil went effect may 2015 items partially offset following • increase 130 basis points due favorable net impact mix pricing primarily latin america includes realization price increases markets experiencing relatively high inflation venezuela argentina • increase approximately 60 basis points due lower supply chain costs primarily europe middle east africa largely due lower overhead costs negative impact foreign currency transaction losses partially mitigated benefits pricing realized impact inflation certain markets see segment review latin america mda discussion vat credits ipi tax law brazil selling general administrative expenses selling general administrative expenses 2015 decreased approximately 664 compared 2014 decrease primarily due favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported selling general administrative expenses decrease selling general administrative expenses also due additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations lower amount cti restructuring partially offsetting decrease selling general administrative expenses approximate 90 impairment charge recorded 2015 reflect writedown longlived assets estimated fair value associated devaluation venezuelan currency conjunction highly inflationary accounting higher representative sales leader field expense higher foreign currency transaction costs higher expenses associated longterm employee incentive compensation plans prioryear period includes benefit reversal accruals recur currentyear period selling general administrative expenses adjusted selling general administrative expenses percentage revenue increased 250 basis points 220 basis points respectively compared 2014 currentyear period selling general administrative expenses percentage revenue impacted approximate 90 impairment charge recorded 2015 reflect writedown longlived assets estimated fair value associated devaluation venezuelan currency conjunction highly inflationary accounting approximate 7 aggregate settlement charges associated payments made former employees vested participated us defined benefit pension plan approximately 3 transactionrelated costs associated separation north america included continuing operations approximately 1 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation venezuelan currency conjunction highly inflationary accounting prioryear period selling general administrative expenses percentage revenue impacted additional 46 accrual recorded 2014 settlements related fcpa investigations recur 2015 approximately 16 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation venezuelan currency conjunction highly inflationary accounting approximate 10 aggregate settlement charges associated payments made former employees vested participated us defined benefit pension plan additionally selling general administrative expenses percentage revenue comparison impacted lower cti restructuring compared prioryear period see segment review latin america mda note 1 description business summary significant accounting policies pages 2015 annual report discussion venezuela operations note 15 contingencies pages 2015 annual report information fcpa investigations segment review global expenses mda note 11 employee benefit plans pages 2015 annual report discussion pension settlement charges note 14 restructuring initiatives pages 2015 annual report information cti restructuring increase 220 basis points adjusted selling general administrative expenses percentage revenue primarily due following • increase approximately 210 basis points due unfavorable impact foreign currency translation foreign currency transaction losses • increase 60 basis points associated net impact vat credits brazil recognized revenue 2014 recur 2015 • increase 60 basis points result ipi tax law cosmetics brazil reduced revenue raise prices paid representatives extent ipi tax • increase 40 basis points due higher expenses associated longterm employee incentive compensation plans prioryear period includes benefit reversal accruals recur currentyear period items partially offset following • decrease 160 basis points primarily due impact constant revenue growth respect fixed expenses addition lower fixed expenses primarily resulting cost savings initiatives mainly reductions headcount largely offset inflationary impact expenses see segment review latin america mda discussion vat credits ipi tax law brazil impairment goodwill intangible assets fourth quarter 2015 recorded noncash impairment charge approximately 7 goodwill associated egypt business see note 16 goodwill intangible assets pages 2015 annual report information egypt see “segment review” mda additional information related changes operating margin segment expense interest expense increased approximately 12 compared prioryear period primarily due increase interest rates 2013 notes defined result longterm credit rating downgrades interest income decreased approximately 2 compared prioryear period loss extinguishment debt 2015 comprised approximately 5 makewhole premium approximately 1 writeoff debt issuance costs discounts associated prepayment 2375 notes defined liquidity capital resources refer note 5 debt financing pages 2015 annual report liquidity capital resources mda additional information expense net decreased approximately 66 compared prioryear period primarily due less significant impact devaluation venezuelan currency monetary assets liabilities conjunction highly inflationary accounting recorded benefit approximately 4 first quarter 2015 compared loss approximately 54 first quarter 2014 addition decrease expense net partially due lower foreign exchange losses decreased approximately 10 compared prioryear period see segment review latin america mda discussion venezuela operations gain sale business 2015 result sale liz earle july 2015 refer note 3 discontinued operations divestitures pages 2015 annual report additional information regarding sale liz earle effective tax rate effective tax rate 2015 negatively impacted additional valuation allowances us deferred tax assets approximately 670 additional valuation allowances 2015 due continued strengthening us dollar currencies key markets impact benefits tax planning strategies associated realization deferred tax assets addition effective tax rate 2015 negatively impacted additional valuation allowances deferred tax assets outside us approximately 15 primarily russia largely due lower earnings significantly impacted foreign exchange losses working capital balances addition fourth quarter 2015 recognized benefit approximately 19 result implementation foreign tax planning strategies additional valuation allowances deferred tax assets 2015 caused income taxes significantly excess income taxes effective tax rate 2014 negatively impacted noncash income tax charge approximately 396 largely due valuation allowance recorded fourth quarter 2014 deferred tax assets approximately 375 primarily due strengthening us dollar currencies key markets approximate 375 includes valuation allowance recorded us deferred tax assets approximately 367 well approximately 8 associated foreign subsidiaries addition effective tax rates 2015 2014 negatively impacted devaluations venezuelan currency conjunction highly inflationary accounting discussed within segment review latin america mda see note 7 income taxes pages 2015 annual report information adjusted effective tax rate 2015 negatively impacted country mix earnings inability recognize additional deferred tax assets various jurisdictions related currentyear operating results adjusted effective tax rate 2014 negatively impacted adjustment carrying value state deferred tax balances due changes expected tax rate valuation allowances deferred taxes including impact legislative changes outofperiod adjustments approximately 6 recorded fourth quarter 2014 discontinued operations loss discontinued operations net tax 349 compared loss 40 2014 2015 recorded charge approximately 340 tax 340 tax associated estimated loss sale north america business expected completed 2016 addition north america operations achieved higher operating income 2015 compared 2014 despite lower revenues result significant cost savings well lower costs implement restructuring initiatives estimated loss sale comprised following see note 3 discontinued operations divestitures pages 2015 annual report discussion pension settlement charges impact foreign currency 2015 foreign currency significant impact financial results specifically compared prioryear period foreign currency impacted consolidated financial results result • foreign currency transaction losses classified within cost sales selling general administrative expenses unfavorable impact adjusted operating profit estimated 210 approximately 280 points adjusted operating margin • foreign currency translation unfavorable impact adjusted operating profit approximately 265 approximately 90 related venezuela approximately 200 points adjusted operating margin • lower foreign exchange losses classified within expense net favorable impact approximately 10 tax 2014 compared 2013 revenue total revenue 2014 declined 10 compared prioryear period due unfavorable foreign exchange constant revenue increased 3 benefited approximately 1 point due net impact certain tax benefits brazil 2014 2013 recognized tax credits brazil approximately 85 approximately 29 respectively primarily associated change estimate expected recoveries vat see segment review latin america mda discussion tax benefits brazil constant revenue benefited higher average order partially offset 4 decrease active representatives net impact price mix increased 5 pricing benefited inflationary impacts latin america primarily argentina venezuela units sold decreased 2 2014 constant revenue benefited net growth latin america europe middle east africa partially offset net decline asia pacific constant revenue growth latin america primarily driven venezuela largely due inflationary pricing partially offset declines mexico constant revenue growth europe middle east africa driven south africa united kingdom partially offset revenue declines russia turkey constant revenue russia negatively impacted difficult economy including impact geopolitical uncertainties decline first half 2014 partially offset constant revenue growth second half 2014 driven actions improve unit sales asia pacific constant revenue declined compared 2013 growth philippines offset declines asia pacific markets see segment review mda additional information related changes revenue segment category basis net sales associated growth rates follows operating margin operating margin adjusted operating margin decreased 70 basis points increased 20 basis points respectively compared 2013 increase adjusted operating margin includes benefits associated 400m cost savings initiative primarily reductions headcount well cost reductions decrease operating margin increase adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill intangible assets gross margin gross margin adjusted gross margin decreased 200 basis points 90 basis points respectively compared 2013 gross margin comparison largely impacted adjustment approximately 116 associated venezuela operations reflect certain nonmonetary assets net realizable value recorded first quarter 2014 partially offsetting decrease gross margin lower negative impact devaluation venezuelan currency conjunction highly inflationary accounting approximately 5 recognized currentyear period compared approximately 45 prioryear period associated carrying certain nonmonetary assets historical us dollar cost following devaluation see segment review latin america mda discussion venezuela operations decrease 90 basis points adjusted gross margin primarily due following • decrease approximately 140 basis points due unfavorable impact foreign currency transaction losses foreign currency translation driven europe middle east africa latin america • increase 80 basis points due favorable net impact mix pricing primarily latin america includes realization price increases markets experiencing relatively high inflation venezuela argentina selling general administrative expenses selling general administrative expenses 2014 decreased approximately 535 compared 2013 decrease primarily due favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported selling general administrative expenses decrease selling general administrative expenses also due 89 accrual settlements relating fcpa investigations recorded 2013 lower expenses related service model transformation smt project result decision halt rollout beyond pilot market canada fourth quarter 2013 lower professional related fees associated fcpa investigation compliance reviews lower bad debt expense partially offsetting decrease selling general administrative expenses additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations higher amount cti restructuring primarily associated 400m cost savings initiative selling general administrative expenses adjusted selling general administrative expenses percentage revenue decreased 80 basis points 120 basis points respectively compared 2013 selling general administrative expenses percentage revenue comparison impacted higher amount cti restructuring compared prioryear period additionally currentyear period selling general administrative expenses percentage revenue impacted additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations approximately 16 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation approximate 10 aggregate settlement charges recorded 2014 associated payments made former employees vested participated us defined benefit pension plan prioryear period selling general administrative expenses percentage revenue impacted 89 accrual settlements relating fcpa investigations 5 associated venezuela operations certain nonmonetary assets carried historical us dollar cost following devaluation see note 14 restructuring initiatives pages 2015 annual report information cti restructuring note 1 description business summary significant accounting policies pages 2015 annual report information smt note 15 contingencies pages 2015 annual report information fcpa investigations segment review global expenses mda note 11 employee benefit plans pages 2015 annual report discussion pension settlement charges segment review latin america mda discussion venezuela operations decrease 120 basis points adjusted selling general administrative expenses percentage revenue primarily due following • decrease 80 basis points lower expenses related smt project result decision halt rollout beyond pilot market canada fourth quarter 2013 • decrease 50 basis points primarily due impact constant revenue growth respect fixed expenses addition lower fixed expenses primarily resulting cost savings initiatives mainly reductions headcount largely offset inflationary impact expenses • decrease 30 basis points result net impact incremental tax credits brazil recognized revenue 2014 2013 • decrease 30 basis points lower representative sales leader expense primarily latin america • decrease 30 basis points lower bad debt expense • decrease 30 basis points lower professional related fees associated fcpa investigation compliance reviews items partially offset following • increase approximately 100 basis points due unfavorable impact foreign currency translation foreign currency transaction losses see segment review latin america mda discussion tax credits brazil impairment goodwill intangible assets third quarter 2013 recorded noncash impairment charge approximately 42 goodwill intangible assets associated china business see note 16 goodwill intangible assets pages 2015 annual report information china see “segment review” mda additional information related changes operating margin segment expense interest expense decreased approximately 9 compared prioryear period primarily due lower outstanding debt balances partially offset higher average interest rates loss extinguishment debt 2013 comprised approximately 71 makewhole premium writeoff debt issuance costs associated prepayment private notes issued 2010 approximately 2 writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement occurred first quarter 2013 addition second quarter 2013 recorded loss extinguishment debt approximately 13 makewhole premium writeoff debt issuance costs partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment notes due 2014 see note 5 debt financing pages 2015 annual report liquidity capital resources mda information interest income decreased approximately 11 compared prioryear period primarily impacted 12 interest income benefited fourth quarter 2013 due outofperiod adjustment related judicial deposits brazil expense net increased approximately 56 compared prioryear period primarily due higher foreign exchange losses foreign exchange losses increased approximately 41 compared prioryear period significant impact due weakening russian ruble addition increase expense net also due significant impact approximately 54 2014 compared approximately 34 2013 devaluations venezuelan currency monetary assets liabilities conjunction highly inflationary accounting see segment review latin america mda discussion venezuela operations effective tax rate effective tax rate 2014 negatively impacted noncash income tax charge approximately 396 largely due valuation allowance recorded fourth quarter 2014 deferred tax assets approximately 375 primarily due strengthening us dollar currencies key markets approximate 375 includes valuation allowance recorded us deferred tax assets approximately 367 well approximately 8 associated foreign subsidiaries effective tax rates 2014 2013 impacted devaluation venezuelan currency conjunction highly inflationary accounting discussed within segment review latin america mda effective tax rate 2013 also negatively impacted 89 accrual settlements related fcpa investigations noncash impairment charges goodwill intangible assets associated china business approximately 42 valuation allowance deferred tax assets related china approximately 9 valuation allowance deferred tax assets related venezuela fourth quarter approximately 42 see note 7 income taxes pages 2015 annual report information adjusted effective tax rate 2014 negatively impacted adjustment carrying value state deferred tax balances due changes expected tax rate valuation allowances deferred taxes including impact legislative changes outofperiod adjustment approximately 6 recorded fourth quarter 2014 discontinued operations loss discontinued operations net tax 40 compared loss 119 2013 recorded noncash impairment charge approximately 117 74 tax capitalized software related smt charge approximately 79 50 tax associated silpada jewelry business sold july 2013 north america avon operations achieved lower operating income 2014 compared 2013 due lower revenues higher costs implement restructuring initiatives settlement charges associated us pension plan partially offset significant cost savings north america avon business compared 2013 see note 3 discontinued operations divestitures pages segment review global expenses mda note 11 employee benefit plans pages 2015 annual report discussion pension settlement charges comprehensive income loss comprehensive income loss net taxes approximately 151 2015 compared approximately 348 2014 primarily due net actuarial gains approximately 41 2015 compared net actuarial losses approximately 187 2014 2015 net actuarial gains benefited higher discount rates nonus us pension plans partially offset lower asset returns nonus us pension plans 2015 compared 2014 comprehensive income loss yearoveryear comparison also unfavorably impacted foreign currency translation adjustments increased approximately 27 compared 2014 primarily due unfavorable movements brazilian real partially offset yearoveryear comparison movements polish zloty russian ruble comprehensive income loss net taxes approximately 348 2014 compared approximately 5 2013 primarily due net actuarial losses approximately 187 2014 compared net actuarial gains approximately 81 2013 2014 net actuarial losses negatively impacted lower discount rates nonus us pension plans updated mortality rates us pension plan partially offset higher asset returns nonus us pension plans 2014 compared 2013 comprehensive income loss yearoveryear comparison also unfavorably impacted foreign currency translation adjustments well higher amortization net actuarial loss driven settlement charges associated us pension plan 2014 foreign currency translation adjustments negatively impacted approximately 136 compared 2013 primarily due unfavorable movements polish zloty british pound colombian peso mexican peso see note 11 employee benefit plans pages 2015 annual report information segment review analysis key factors affecting revenue operating profit loss reportable segment years threeyear period ended december 31 2015 latin america 2015 compared 2014 amounts table may necessarily sum due rounding total revenue decreased 23 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative brazilian real venezuelan currency devaluation see discussion regarding impact venezuelan currency devaluation constant basis revenue increased 1 despite growth rate negatively impacted approximately 5 points due taxes brazil combined impact recognition vat credits 2014 along new ipi tax cosmetics 2015 specifically 2014 recognized 85 brazil expected vat recoveries recur 2015 approximate 2 point negative impact region’s constant growth rate addition ipi tax law cosmetics brazil went effect may 2015 caused estimated 3 point negative impact regions constant revenue growth markets experiencing relatively high inflation venezuela argentina contributed approximately 5 points regions constant revenue growth regions constant revenue growth benefited higher average order partially offset decrease active representatives regions higher average order positively impacted markets experiencing relatively high inflation venezuela argentina markets benefited inflationary impact pricing active representatives negatively impacted markets average order negatively impacted taxes brazil revenue brazil decreased 34 unfavorably impacted foreign exchange decreased 8 constant basis revenue mexico declined 15 unfavorably impacted foreign exchange increased 2 constant basis primarily due higher average order brazil’s constant revenue decline 8 negatively impacted approximately 10 points due combined impact vat credits 2014 ipi tax 2015 discussed negative impact tax items partially offset increase active representatives constant basis brazil’s sales beauty products decreased 5 negatively impacted ipi tax negative impact beauty sales partially offset increased sales fragrance benefited alliance coty well new product launches first quarter 2015 ipi tax also negatively impacted brazils beauty units increased prices partially offset new tax constant basis brazils sales fashion home products increased 1 brazil continues impacted difficult economic environment well high levels competition operating margin negatively impacted 5 points compared prioryear period due venezuelan special items conjunction highly inflationary accounting discussed operating margin also benefited 6 points compared prioryear period lower cti restructuring adjusted operating margin decreased 36 points 18 points constant basis primarily result • decline 19 points associated net impact vat credits brazil recognized revenue 2014 discussed • decline 14 points result ipi tax law cosmetics brazil reduced revenue raise prices paid representatives extent ipi tax • net benefit 12 points primarily due impact constant revenue growth respect fixed expenses includes reduction corporate expenses allocated global partially offset inflationary impact expenses • gross margin benefited slightly compared prior year period 21 points favorable net impact mix pricing includes realization price increases markets experiencing relatively high inflation venezuela argentina largely offset 20 points unfavorable impact foreign currency transaction losses venezuela discussion currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products since 2010 accounting operations venezuela accounting guidance associated highly inflationary economies us gaap financial statements foreign entity operating highly inflationary economy required remeasured functional currency company’s reporting currency us dollar generally results translation adjustments caused changes exchange rate reported earnings currently monetary assets eg cash accounts receivable liabilities eg accounts payable accrued expenses requires different procedures used translate nonmonetary assets eg inventories fixed assets nonmonetary assets liabilities remeasured historical us dollar cost basis diverges significantly application accounting rules prior designation highly inflationary accounting gains losses would recognized accumulated comprehensive income loss shareholders equity respect 2013 results effective february 13 2013 official exchange rate moved 430 630 devaluation approximately 32 result change official rate 630 recorded aftertax loss approximately 51 approximately 34 expense net approximately 17 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets carried historical us dollar cost subsequent devaluation therefore costs impact income statement 2015 disproportionate rate devalued based new exchange rates expensed historical us dollar value result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following devaluation applicable rate time acquisition result recognized additional negative impact approximately 45 operating profit net income relating nonmonetary assets first second third fourth quarters 2013 march 2013 venezuelan government announced foreign exchange system increased government control allocation us dollars country referred sicad exchange sicad february 2014 venezuelan government announced foreign exchange system began operating march 24 2014 referred sicad ii exchange sicad ii liquidity limited sicad ii market comparison available exchange rates official rate sicad rate represented rate better reflected economics avon venezuelas business activity accordingly concluded utilize sicad ii exchange rate remeasure venezuelan operations effective march 31 2014 respect 2014 results march 31 2014 sicad ii exchange rate approximately 50 compared official exchange rate 630 used previously caused recognition devaluation approximately 88 result change sicad ii rate recorded aftertax loss approximately 42 approximately 54 expense net benefit approximately 12 income taxes first quarter 2014 primarily reflecting writedown monetary assets liabilities result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate time acquisition result determined adjustment approximately 116 cost sales needed reflect certain nonmonetary assets net realizable value recorded first quarter 2014 recognized additional negative impact approximately 21 operating profit net income relating nonmonetary assets second third fourth quarters 2014 february 2015 venezuelan government announced sicad ii market would longer available new foreign exchange system created referred simadi exchange simadi began operating february 12 2015 sicad ii markets merged create single foreign exchange system referred sicad exchange sicad december 31 2015 sicad exchange rate approximately 13 exchange rates established simadi market fluctuate significantly higher official rate sicad rate march 2015 began access simadi market able obtain limited us dollars liquidity limited simadi market comparison available exchange rates official rate sicad rate represents rate better reflects economics avon venezuelas business activity accordingly concluded utilize simadi exchange rate remeasure venezuelan operations effective february 12 2015 february 12 2015 simadi exchange rate approximately 170 compared sicad ii exchange rate approximately 50 used previously caused recognition devaluation approximately 70 result change simadi rate recorded aftertax benefit approximately 3 benefit approximately 4 expense net loss approximately 1 income taxes first quarter 2015 primarily reflecting writedown monetary assets liabilities additionally certain nonmonetary assets carried historical us dollar cost subsequent devaluation therefore costs impact income statement 2015 disproportionate rate devalued based new exchange rates expensed historical us dollar value result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change simadi rate applicable rate time acquisition result determined adjustment approximately 11 cost sales needed reflect certain nonmonetary assets net realizable value recorded first quarter 2015 recognized additional negative impact approximately 19 operating profit net income relating nonmonetary assets first second third fourth quarters 2015 addition february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge approximately 90 selling general administrative expenses recorded reflect writedown longlived assets estimated fair value approximately 16 recorded first quarter 2015 devaluations regulatory actions may impair carrying value avon venezuelas longlived assets december 31 2015 simadi exchange rate approximately 200 2015 avon venezuela using average exchange rate included sicad ii exchange rates first part first quarter simadi exchange rates latter part first quarter entire second third fourth quarters represented less 1 avon’s consolidated revenue less 3 avon’s consolidated adjusted operating profit rate simadi market vary ongoing impacts primarily related remeasurement avon venezuelas financial statements expected material impact avons consolidated results company continuously monitors factors ability access transact various exchange mechanisms currently place political economic environment venezuela ability effectively make key operational decisions regard venezuela operations company unable make key operational decisions regarding business venezuela ongoing basis company may conclude deconsolidate operations venezuela december 31 2015 net asset position avon venezuela approximately 33 accumulated foreign currency translation adjustments within accumulated comprehensive income loss shareholders equity associated foreign currency movements venezuela accounted highly inflationary economy approximately 81 argentina discussion 2011 argentine government introduced restrictive foreign currency exchange controls december 2015 argentine government began process removing foreign currency exchange controls however uncertainty exists regarding foreign currency exchange controls future unless foreign exchange made readily available avon argentinas operations may negatively impacted december 31 2015 net asset position approximately 92 associated operations argentina including cash approximately 48 2015 avon argentina represented approximately 7 avon’s consolidated revenue approximately 18 avon’s consolidated adjusted operating profit also late december 2015 exchange rate argentina devalued approximately 25 approximately 10 approximately 13 december 31 2015 avon argentinas 2015 results materially impacted devaluation occurred late year december 31 2015 account argentina highly inflationary economy result devaluation negatively impact earnings respect argentinas monetary nonmonetary assets latin america 2014 compared 2013 amounts table may necessarily sum due rounding total revenue decreased 12 compared prioryear period due unfavorable impact foreign exchange constant basis revenue grew 5 regions revenue growth benefited approximately 1 point due net impact certain tax benefits brazil addition higher average order partially offset decrease active representatives average order benefited pricing including inflationary impacts primarily venezuela revenue venezuela mexico declined 55 9 respectively unfavorably impacted foreign exchange constant revenue venezuela mexico increased 45 declined 6 respectively revenue brazil declined 5 unfavorably impacted foreign exchange constant revenue brazil increased 3 brazils revenue benefited approximately 3 points result net impact certain tax benefits 2014 constant revenue growth constant operating profit growth impacted use sicad ii exchange rate applied exchange rate 630 current prior periods venezuela operations order determine constant growth used exchange rate 50 rate reflective sicad ii rate venezuela operations year ended december 31 2014 regions constant revenue would increase 1 prioryear period regions constant adjusted operating margin would decrease 8 points prioryear period avons consolidated constant revenue decline would decrease 2 prioryear period update constant rates annual basis utilized rate approximately 50 constant financial performance beginning 2015 results see discussion regarding impact venezuelan currency devaluation brazils constant revenue benefited approximately 3 points due net benefit larger tax credits recognized 2014 compared benefit tax credits recognized 2013 2014 2013 recognized tax credits brazil approximately 85 approximately 29 respectively primarily associated change estimate expected recoveries vat credits recognized 2014 approximately 13 outofperiod adjustments tax credits associated vat recorded reduction revenue benefit vat credits recognized revenue brazils active representatives average order relatively unchanged prioryear period constant basis brazil’s sales beauty fashion home products relatively unchanged mexicos constant revenue decline primarily due decrease active representatives partially offset higher average order constant revenue growth venezuela primarily due higher average order partially offset decrease active representatives venezuelas average order benefited inflationary impact pricing partially offset decrease units sold venezuelas active representatives units sold negatively impacted reduced size product offering primarily result increased difficulty import products raw materials additional information venezuela operations discussed detail operating margin negatively impacted 22 points compared prioryear period due venezuelan special items conjunction highly inflationary accounting discussed operating margin also negatively impacted 4 points compared prioryear period higher cti restructuring adjusted operating margin decreased 6 points increased 1 points constant basis primarily result • benefit 11 points lower representative sales leader field expense primarily attributable shift towards costeffective incentives • benefit 10 point associated net impact incremental tax credits brazil recognized revenue 2014 2013 discussed • benefit 3 points lower net brochure costs driven venezuela result cost savings initiatives • decline 8 points due lower gross margin caused primarily 14 points unfavorable impact foreign currency transaction losses primarily venezuela 9 points higher supply chain costs driven higher obsolescence primarily venezuela brazil items partially offset 18 points favorable net impact mix pricing benefits pricing include realization price increases markets experiencing relatively high inflation venezuela argentina inventory acquired advance inflation • decline 8 points higher distribution expenses driven inflation venezuela argentina cost pressures region • decline 7 points higher administrative expenses partially driven inflationary costs increased legal expenses associated labor civil related matters brazil europe middle east africa 2015 compared 2014 amounts table may necessarily sum due rounding total revenue decreased 16 compared prioryear period due unfavorable impact foreign exchange including strengthening us dollar relative russian ruble lesser extent due sale liz earle constant basis revenue grew 6 primarily driven eastern europe regions constant revenue negatively impacted approximately 2 points result sale liz earle increase active representatives drove regions constant revenue growth russia revenue declined 23 unfavorably impacted foreign exchange constant basis russias revenue grew 23 primarily due increase active representatives benefited sustained momentum recruiting retention higher average order united kingdom revenue declined 12 unfavorably impacted foreign exchange constant basis united kingdoms revenue declined 5 primarily due decrease active representatives turkey revenue declined 15 unfavorably impacted foreign exchange constant basis turkeys revenue grew 5 south africa revenue grew 1 unfavorably impacted foreign exchange constant basis south africa’s revenue grew 19 primarily due increase active representatives higher average order operating margin negatively impacted 3 points compared prioryear period due impact noncash goodwill impairment charge associated egypt business 2015 noncash goodwill impairment charge fourth quarter 2015 recorded based annual impairment analysis see note 16 goodwill intangible assets pages 2015 annual report information egypt operating margin benefited 7 points compared prioryear period lower cti restructuring adjusted operating margin decreased 20 points 7 points constant basis primarily result • decline 24 points due lower gross margin caused primarily estimated 4 points unfavorable impact foreign currency transaction losses partially offset approximately 12 points lower supply chain costs 8 points favorable net impact mix pricing supply chain costs benefited primarily result lower overhead costs attributable increased productivity favorable net impact mix pricing primarily driven eastern europe • decline 6 points higher representative sales leader field expense • net benefit 20 points primarily due constant revenue growth respect fixed expenses reduction corporate expenses allocated global europe middle east africa 2014 compared 2013 amounts table may necessarily sum due rounding total revenue decreased 7 compared prioryear period due unfavorable impact foreign exchange constant basis revenue grew 1 regions constant revenue negatively impacted approximately 1 point result closure france business russia revenue declined 18 unfavorably impacted foreign exchange constant basis russias revenue declined 1 primarily due decrease active representatives partially offset higher average order russia negatively impacted difficult economy including impact geopolitical uncertainties russias constant revenue decline first half 2014 partially offset constant revenue growth second half 2014 driven actions improve unit sales united kingdom revenue increased 6 favorably impacted foreign exchange constant basis united kingdoms revenue increased 1 primarily due higher average order partially offset decrease active representatives turkey revenue declined 14 unfavorably impacted foreign exchange constant basis turkeys revenue declined 2 primarily due lower average order south africa revenue declined 3 unfavorably impacted foreign exchange constant basis south africa’s revenue increased 8 primarily due increase active representatives operating margin negatively impacted 3 points compared prioryear period higher cti restructuring adjusted operating margin decreased 26 points 24 points constant basis primarily result decline 22 points due lower gross margin caused primarily estimated 3 points unfavorable impact foreign currency transaction losses partially offset 10 point lower supply chain costs asia pacific 2015 compared 2014 calculation meaningful amounts table may necessarily sum due rounding total revenue decreased 11 compared prioryear period primarily due unfavorable impact foreign exchange constant basis revenue decreased 5 growth philippines offset declines asia pacific markets led china declined 29 28 constant basis regions constant revenue decline due lower average order primarily driven declines china decrease active representatives revenue philippines increased 3 5 constant basis primarily due higher average order result strength fashion home increase active representatives operating margin negatively impacted 4 points compared prioryear period higher cti restructuring adjusted operating margin increased 30 points 33 points constant basis primarily result • net benefit 25 points primarily due lower fixed expenses primarily resulted cost savings initiatives mainly reductions headcount lesser extent reduction corporate expenses allocated global partially offsetting lower fixed expenses unfavorable impact declining revenue respect fixed expenses • benefit 9 points due lower advertising spend asia pacific 2014 compared 2013 calculation meaningful amounts table may necessarily sum due rounding total revenue decreased 7 compared prioryear period partially due unfavorable impact foreign exchange constant basis revenue decreased 4 increase philippines offset declines asia pacific markets constant revenue also impacted decrease active representatives partially offset higher average order revenue philippines declined 2 unfavorably impacted foreign exchange constant basis revenue philippines increased 3 higher average order partially offset decrease active representatives revenue china declined 10 reported constant basis primarily due decline number beauty boutiques decline number beauty boutiques negatively impacted unit sales partially offset actions taken second half 2013 intended reduce inventory levels held beauty boutiques recur 2014 operating margin benefited 56 points compared prioryear period due impact noncash goodwill intangible asset impairment charges associated china business 2013 noncash goodwill intangible asset impairment charge third quarter 2013 recorded based interim impairment analysis completed result significant lowering longterm revenue earnings projections china decline revenue performance china third quarter 2013 significantly excess expectations see note 16 goodwill intangible assets pages 2015 annual report information china operating margin negatively impacted 6 points compared prioryear period higher cti restructuring adjusted operating margin decreased 3 points increased 1 point constant basis primarily result • benefit 13 points lower bad debt expense primarily 2013 results included adjustment associated prior periods philippines • net benefit 9 points due lower fixed expenses partially offset unfavorable impact declining revenue respect fixed expenses lower fixed expenses primarily resulted cost savings initiatives mainly reductions headcount associated 400m cost savings initiative • decline 12 points due lower gross margin caused primarily 7 points unfavorable net impact pricing mix primarily driven philippines largely due unit driving offers 6 points unfavorable impact foreign currency transaction losses • decline 9 points due higher advertising spend primarily china support product relaunches global expenses global expenses include among things costs related executive administrative offices information technology research development marketing costs connection ongoing compliance deferred prosecution agreement dpa consent settlement consent prior professional related fees associated fcpa investigations compliance reviews prior accrual settlements related fcpa investigations settlement charges associated us defined benefit pension plan allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions costs connection ongoing compliance dpa consent prior professional related fees associated fcpa investigations compliance reviews prior accrual settlements related fcpa investigations settlement charges associated us defined benefit pension plan costs implementing restructuring initiatives related specific segment recorded within segment 1 net global expenses represents total global expenses less amounts allocated segments amounts table may necessarily sum due rounding result classification within discontinued operations amounts allocated segments reduced amounts previously allocated north america periods presented represent costs associated functions companys continuing operations 2015 compared 2014 comparability total global expenses impacted 46 accrual settlements related fcpa investigations recorded 2014 lower settlement charges associated us defined benefit pension plan 2015 partially offset higher cti restructuring transactionrelated costs associated separation north america included continuing operations see discussion settlement charges adjusted total global expenses decreased compared prioryear period primarily result cost savings initiatives partially offset higher expenses associated longterm employee incentive compensation plans prioryear period includes benefit reversal accruals recur currentyear period amounts allocated segments decreased compared prioryear period primarily due lower planned corporate expenses primarily result cost savings initiatives result lumpsum payments made former employees vested participated us defined benefit pension plan third quarter 2015 recorded settlement charge approximately 24 lump sum payments made plan assets result specific offer participants us defined benefit pension plan described settlement threshold exceeded third quarter 2015 settlement charge approximately 4 also recorded fourth quarter 2015 result additional payments us defined benefit pension plan settlement charges allocated global expenses discontinued operations effort reduce pension benefit obligations march 2014 offered former employees vested participated us defined benefit pension plan payment would fully settle pension plan obligation participants elected receive payment election period ended second quarter 2014 payments made june 2014 plan assets result lumpsum payments made second quarter 2014 recorded settlement charge approximately 24 settlement threshold exceeded second quarter 2014 settlement charges approximately 5 approximately 7 also recorded third fourth quarters 2014 respectively result additional payments us defined benefit pension plan settlement charges allocated global expenses discontinued operations 2014 compared 2013 comparability total global expenses impacted 89 accrual settlements related fcpa investigations recorded 2013 partially offset additional 46 accrual settlements related fcpa investigations settlement charges associated us defined benefit pension plan discussed recorded 2014 higher cti restructuring adjusted total global expenses decreased compared prioryear period primarily result cost savings initiatives including lower expenses related smt project lesser extent lower marketing expenses addition professional related fees associated fcpa investigations compliance reviews decreased compared prioryear period professional related fees associated fcpa investigations compliance reviews amounted approximately 7 2014 compared approximately 28 2013 fees allocated segments although fcpa investigations compliance reviews complete reached settlements government incur costs related ongoing compliance dpa consent respect global expenses discussion years presented please see risk factors pages 10 11 2015 annual report note 15 contingencies pages 2015 annual report information regarding fcpa settlements related matters including expectations respect future costs related ongoing compliance dpa consent including monitor selfreporting obligations undertaken pursuant settlements liquidity capital resources principal sources funding historically cash flows operations public offerings notes bank financings borrowings lines credit issuance commercial paper private placement notes december 31 2015 cash equivalents totaling approximately 687 believe sources funding sufficient satisfy currently anticipated cash requirements least next twelve months information respect foreign currency restrictions see segment review latin america mda information regarding risks respect foreign currency restrictions see risk factors subject financial risks related international operations including exposure foreign currency fluctuations impact foreign currency restrictions included item 1a pages 8 20 2015 annual report may seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise repurchases equity debt may funded incurrence additional debt issuance equity including shares preferred stock convertible securities depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity including shares preferred stock convertible securities finance ongoing operations meet liquidity needs issuances equity including shares preferred stock convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods credit ratings downgraded 2014 2015 may impact access transactions favorable terms information see risk factors credit ratings downgraded 2015 could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 8 20 2015 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 15 contingencies pages 2015 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2015 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2015 approximately 198 lower 2014 approximate 198 decrease net cash provided continuing operating activities primarily due lower cashrelated earnings impacted unfavorable impact foreign currency translation lower operating tax payments vat primarily brazil lower payments employee incentive compensation 2015 compared 2014 partially offset items net cash provided continuing operating activities 2014 approximately 182 lower 2013 approximate 182 decrease net cash provided continuing operating activities primarily due lower cashrelated earnings impacted unfavorable impact foreign currency translation 68 fine paid connection fcpa settlement doj higher payments employee incentive compensation unfavorable impacts yearoveryear comparison cash operating activities partially offset benefit due timing accounts payable primarily inventory purchases addition operating cash flow 2013 unfavorably impacted payments makewhole premiums approximately 90 connection prepayment debt approximate 25 contribution united kingdom pension plan result decision freeze plan recur 2014 maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 11 employee benefit plans pages 2015 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 25 30 us defined benefit pension postretirement plans range 20 25 nonus defined benefit pension postretirement plans 2016 net cash continuing investing activities net cash provided continuing investing activities 2015 approximately 143 compared net cash used 101 2014 approximate 243 increase net cash provided used continuing investing activities primarily due net proceeds sale liz earle approximately 208 partially offset lower capital expenditures net cash used continuing investing activities 2014 approximately 101 compared 191 2013 approximate 90 decrease net cash used continuing investing activities primarily due lower capital expenditures capital expenditures 2015 approximately 92 compared approximately 126 2014 capital expenditures 2014 approximately 126 compared approximately 190 2013 driven decision halt rollout smt beyond canada fourth quarter 2013 capital expenditures 2016 currently expected range 115 135 expected funded cash operations net cash continuing financing activities net cash used continuing financing activities approximately 431 2015 compared approximately 209 2014 primarily due prepayment 250 principal amount 2375 notes defined third quarter 2015 partially offset repayment remaining 53 outstanding principal amount term loan agreement second quarter 2014 see note 5 debt financing pages 2015 annual report information net cash used continuing financing activities approximately 209 2014 compared approximately 469 2013 primarily due significant financing transactions 2013 partially offset repayment remaining approximate 53 outstanding principal amount term loan agreement second quarter 2014 2013 transactions included prepayment 535 principal amount private notes prepayment 500 principal amount notes due 2014 repayment 498 outstanding principal amount term loan agreement defined scheduled repayment 250 principal amount 480 notes due march 1 2013 scheduled repayment 125 principal amount 4625 notes due may 15 2013 partially offset proceeds 15 billion related issuance 2013 notes defined proceeds 88 related termination interestrate swap agreements designated fair value hedges see note 5 debt financing pages 2015 annual report note 8 financial instruments risk management pages 2015 annual report information purchased approximately 3 million shares common stock 31 2015 compared 7 million shares common stock 98 2014 5 million shares 94 2013 repurchases company connection employee elections use shares pay withholding taxes upon vesting restricted stock units 2014 2013 also private transactions broker connection stock based obligations deferred compensation plan maintained quarterly dividend 06 per share 2015 equivalent quarterly dividends 2014 2013 suspended dividend effective first quarter 2016 debt contractual financial obligations commitments december 31 2015 debt contractual financial obligations commitments due dates follows 1 amounts based current longterm credit ratings see note 5 debt financing pages 2015 annual report information 2 amounts net expected sublease rental income see note 13 leases commitments page 2015 annual report information 3 amounts represent expected future benefit payments unfunded defined benefit pension postretirement benefit plans well expected contributions 2016 funded defined benefit pension benefit plans able estimate contributions funded defined benefit pension postretirement plans beyond 2016 4 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2015 reserves uncertain income tax positions including interest penalties totaled 390 see note 5 debt financing note 13 leases commitments pages page respectively 2015 annual report information debt contractual financial obligations commitments additionally disclosed note 14 restructuring initiatives pages 2015 annual report december 31 2015 liabilities 214 associated transformation plan 40 associated various restructuring initiatives 2015 62 associated 400m cost savings initiative majority future cash payments associated restructuring liabilities expected made 2016 balance sheet arrangements december 31 2015 material offbalancesheet arrangements capital resources revolving credit facility june 2015 company avon international operations inc whollyowned domestic subsidiary company “aio” entered new fiveyear 4000 senior secured revolving credit facility “2015 revolving credit facility” company terminated previous 1 billion unsecured revolving credit facility “2013 revolving credit facility” june 2015 prior scheduled expiration march 2017 amounts drawn 2013 revolving credit facility date termination early termination penalties incurred second quarter 2015 25 recorded writeoff issuance costs related 2013 revolving credit facility borrowings 2015 revolving credit facility bear interest option rate per annum equal libor plus 250 basis points floating base rate plus 150 basis points case subject adjustment based upon leveragebased pricing grid 2015 revolving credit facility may used general corporate purposes december 31 2015 amounts outstanding 2015 revolving credit facility obligations aio 2015 revolving credit facility unconditionally guaranteed material domestic restricted subsidiary company aio borrower case subject certain exceptions ii guaranteed limited recourse basis company obligations aio guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors certain assets company case subject certain exceptions 2015 revolving credit facility terminate june 2020 provided however shall terminate 91st day prior maturity 2018 notes defined 420 notes defined 2019 notes defined 460 notes defined 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2015 revolving credit facility contains affirmative negative covenants customary financings type including among things limits ability company aio restricted subsidiary subject certain exceptions incur liens incur debt make restricted payments make investments merge consolidate dispose substantially assets addition 2015 revolving credit facility contains customary events default crossdefault provisions well financial covenants interest coverage total leverage ratios december 31 2015 compliance interest coverage total leverage ratios 2015 revolving credit facility based applicable interest rates entire 4000 2015 revolving credit facility could drawn without violating covenant public notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes net proceeds 2013 notes used repay outstanding debt interest 2013 notes payable semiannually march 15 september 15 year august 10 2015 prepaid 2375 notes prepayment price equal 100 principal amount 2500 plus accrued interest 31 makewhole premium 50 connection prepayment 2375 notes incurred loss extinguishment debt 55 third quarter 2015 consisting 50 makewhole premium 2375 notes writeoff 5 debt issuance costs discounts related initial issuance 2375 notes indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp november 2014 bb february 2015 bb june 2015 b moodys october 2014 ba1 may 2015 ba3 senior unsecured debt interest rates 2013 notes increased 175 75 effective march 15 2015 10 effective september 15 2015 december 31 2015 also outstanding 2500 principal amount 575 notes due march 1 2018 notes 2500 principal amount 420 notes due july 15 2018 420 notes 3500 principal amount 650 notes due march 1 2019 notes interest series notes payable semiannually indentures governing outstanding notes described contain certain covenants including limitations incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets addition indentures contain customary events default crossdefault provisions would required make offer repurchase outstanding notes described exception 420 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding credit ratings downgrade investment grade longterm credit ratings longterm credit ratings ba2 negative outlook corporate family debt ba3 negative outlook senior unsecured debt moodys b stable outlook sp b negative outlook fitch investment grade believe longterm credit ratings material impact nearterm liquidity however rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements information see risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings risk factors credit ratings downgraded 2015 could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions included item 1a pages 8 20 2015 annual report please also see note 5 debt financing pages 2015 annual report information relating debt maturities thereof item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2017 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures pages 29 31 managements discussion analysis financial condition results operations mda description constant dollar constant growth rates nongaap financial measure determined see performance metrics page 29 mda definitions performance metrics change active representatives change units sold change ending representatives change average order overview global manufacturer marketer beauty related products business conducted primarily directselling channel 2017 sales operations 56 countries territories distributed products 18 consolidated revenue derived operations subsidiaries outside united states us reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling representatives independent contractors employees december 31 2017 approximately 6 million active representatives represents number representatives submitting order sales campaign totaled campaigns year divided number campaigns success business highly dependent recruiting retaining servicing representatives 2017 revenue relatively unchanged compared prioryear period partially benefiting foreign exchange constant revenue decreased 2 constant revenue decline primarily driven declines brazil russia united kingdom partially offset growth argentina south africa decline revenue constant revenue primarily due 3 decrease active representatives partially offset higher average order decrease active representatives impacted declines reportable segments significantly south latin america driven brazil europe middle east africa net impact price mix increased 2 primarily due inflationary impact pricing argentina russia mexico units sold decreased 4 primarily due declines russia brazil mexico united kingdom revenue performance negatively impacted significantly decline color sales experienced issues markets segmented color category three distinct brands timing innovation also impacted decline color sales ending representatives relatively unchanged ending representatives december 31 2017 compared prioryear period benefited growth russia offset decline brazil see segment review mda additional information related changes revenue segment transformation plan january 2016 initiated transformation plan “transformation plan” order enable us achieve longterm goals midsingledigit constant revenue growth low doubledigit operating margin transformation plan included three pillars invest growth reduce costs effort continue improve cost structure improve financial resilience transformation plan designed focus cost savings financial resilience first year order support future investment growth 2016 estimate achieved cost savings 120 taxes significantly strengthened balance sheet 2017 estimate achieved cost savings 255 taxes comparing costs 2015 savings include runrate savings 2016 along inyear savings current year initiatives savings mostly offset impact inflation connection actions associated savings discussed incurred costs implement cti restructuring initiatives approximately 167 taxes associated transformation plan todate connection restructuring actions approved todate associated transformation plan expect realize annualized cost savings estimated 110 120 taxes 2017 realized estimated 55 taxes cost savings associated restructuring actions achieved majority annualized savings addition realized savings costsavings strategies result restructuring charges market closures expected annualized savings represented operating loss longer included within avons operating results result longer operating respective market actions result closure market annualized savings represent net reduction expenses longer incurred avon additional details restructuring initiatives see note 16 restructuring initiatives pages 2017 annual report additional details strengthening balance sheet see note 7 debt financing pages 2017 annual report foundational initiatives company continues make progress number key areas transformation require company continue execute coordinated way foundational initiatives • deliver seamless competitive representative experience prioritize investments upgrade systems • insightful data analytics improve companys ability support representative help run business effectively deeper insight analytics representative behavior needs • rigorous performance management new executive team key enabler driving performancebased culture ownership results working well together taking action enforce accountability beginning identify ways drive right behavior • relentless focus execution capabilities focus developing service mindset using pilot programs cover service end enable implementation changes minimal disruption company believes capacity achieve longterm goals mid singledigit constantdollar revenue growth low doubledigit operating margin however company recognizes take time achieve longterm goals new accounting standards information relating new accounting standards included note 2 new accounting standards pages 2017 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail liz earle also excluded calculation distribute directselling channel change units sold metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples change ending representatives metric based total number representatives eligible place order last sales campaign related period result active roster determine change ending representatives calculation compared calculation corresponding period prior year change ending representatives may impacted combination factors requirements become andor remain representative practices regarding minimum order requirements practices regarding reinstatement representatives believe may indicator future revenue performance change average order metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average order may impacted combination factors inflation units product mix andor pricing nongaap financial measures supplement financial results presented accordance generally accepted accounting principles us gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue operating profit adjusted operating profit operating margin adjusted operating margin also refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends underlying business results exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rates updated annual basis part budgeting process foreign currency impact determined difference actual growth rates constant growth rates also present gross margin selling general administrative expenses percentage revenue operating profit operating margin effective tax rate nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation nongaap financial measures directly comparable financial measures calculated reported accordance gaap see reconciliation nongaap financial measures within results operations consolidated pages 36 37 mda quantitative reconciliation company uses nongaap financial measures evaluate operating performance nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period company believes meaningful investors made aware impacts 1 cti restructuring initiatives 2 charge loss contingency related nonus pension plan loss contingency 3 net proceeds recognized result settling claims relating professional services legal settlement 4 charges related deconsolidation venezuelan operations march 31 2016 devaluation venezuelan currency february 2015 combined venezuela designated highly inflationary economy venezuelan special items 5 settlement charges associated us pension plan pension settlement charge 6 goodwill impairment charge related egypt business asset impairment charge 7 various items associated sale liz earle separation north america business debtrelated charges items relates effective tax rate discussion 8 net income tax benefit result enactment tax cuts jobs act us release valuation allowances associated number markets europe middle east africa benefit result favorable court decision brazil partially offset charge associated valuation allowances adjust deferred tax assets mexico recognized 2017 income tax benefits realized 2016 2015 result tax planning strategies income tax benefit second quarter 2016 primarily due release valuation allowance associated russia adjustments associated deferred tax assets recorded 2016 2015 special tax items loss contingency includes impact consolidated statements operations second quarter 2017 caused charge approximately 18 loss contingency related nonus pension plan amendment plan occurred prior year may appropriately implemented legal settlement includes impact consolidated statements operations third quarter 2016 associated net proceeds approximately 27 recognized result settling claims relating professional services provided company prior 2013 connection previously disclosed legal matter venezuelan special items include impact consolidated statements operations first quarter 2016 caused deconsolidation venezuelan operations recorded loss approximately 120 expense net loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within accumulated comprehensive loss aoci associated foreign currency changes venezuela accounted highly inflationary economy venezuelan special items also include impact consolidated statements operations 2015 caused devaluations venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventories nonmonetary assets venezuelan special items include earnings impact caused difference historical us dollar cost assets previous exchange rate revised exchange rate 2015 venezuelan special items also include adjustment approximately 11 reflect certain nonmonetary assets net realizable value impairment charge approximately 90 reflect writedown longlived assets estimated fair value pension settlement charge includes impact consolidated statements operations third fourth quarters 2015 associated payments made former employees vested participated us defined benefit pension plan payments fully settled pension plan obligation participants elected receive payment asset impairment charge includes impact consolidated statements operations fourth quarter 2015 caused goodwill impairment charge related egypt business items include impact consolidated statements operations third quarter 2016 due net gain extinguishment debt associated cash tender offers august 2016 debt repurchases october december 2016 prepayment remaining principal amount 420 notes due july 15 2018 575 notes due march 1 2018 november 2016 items also include impact 2015 consolidated statements operations due gain sale liz earle addition items include impact consolidated statements operations fourth quarter 2015 caused transactionrelated costs 31 associated planned separation north america business included continuing operations addition items 2015 include impact consolidated statements operations loss extinguishment debt caused makewhole premium writeoff debt issuance costs discounts associated prepayment 2375 notes due march 15 2016 items 2015 also include impact expense net consolidated statements operations 25 associated writeoff issuance costs related previous 1 billion revolving credit facility addition effective tax rate discussion includes special tax items including impact provision income taxes consolidated statements operations 2017 due approximate 30 net benefit recognized result enactment tax cuts jobs act us release valuation allowances approximately 26 associated number markets europe middle east africa approximate 10 benefit result favorable court decision brazil partially offset charge approximately 16 associated valuation allowances adjust deferred tax assets mexico special tax items also include impact provision income taxes consolidated statements operations fourth quarter 2016 due charge approximately 9 associated valuation allowances adjust certain nonus deferred tax assets amount likely realized special tax items also include impact provision income taxes consolidated statements operations second quarter 2016 primarily due release valuation allowance associated russia approximately 7 special tax items also include impact provision income taxes consolidated statements operations first quarter 2016 fourth quarter 2015 due income tax benefits approximately 29 approximately 19 respectively recognized result implementation foreign tax planning strategies special tax items also include impact provision income taxes consolidated statements operations first second quarters 2015 due charge approximately 31 benefit approximately 3 respectively associated valuation allowances adjust us deferred tax assets amount likely realized additional valuation allowance due strengthening us dollar currencies key markets associated effect tax planning strategies partial release valuation allowance due weakening us dollar currencies key markets special tax items also include impact provision income taxes consolidated statements operations third quarter 2015 due charge approximately 642 result establishing valuation allowance full amount us deferred tax assets due impact continued strengthening us dollar currencies key markets associated effect tax planning strategies additionally special tax items include impact provision income taxes consolidated statements operations third quarter 2015 due charge approximately 15 associated valuation allowances adjust certain nonus deferred tax assets amount likely realized nonus valuation allowance included adjustment associated russia primarily result lower earnings significantly impacted foreign exchange losses working capital balances see note 16 restructuring initiatives pages 2017 annual report note 13 employee benefit plans pages 2017 annual report note 14 segment information pages 2017 annual report results operations consolidated note 1 description business summary significant accounting policies pages 2017 annual report venezuela discussion note 19 goodwill page 2017 annual report note 7 debt financing pages 2017 annual report note 9 income taxes pages 2017 annual report information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2017 annual report detailed discussion application accounting policies allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign generally credit representatives meet certain criteria sales campaigns generally three fourweek duration representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 222 2017 191 2016 144 2015 approximately 4 total revenue 2017 approximately 3 total revenue 2016 approximately 2 total revenue 2015 allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction record provision estimated sales returns based historical experience product returns past three years annual sales returns 198 2017 187 2016 191 2015 approximately 3 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence applicable equal difference cost inventory net realizable value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 37 2017 37 2016 45 2015 less 1 total revenue year pension postretirement expense maintain defined benefit pension plans significant united kingdom uk germany us however us defined benefit pension plan closed employees hired january 1 2015 uk defined benefit pension plan closed employees hired april 1 2013 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations certain retired employees us certain foreign countries see note 13 employee benefit plans pages 2017 annual report information benefit plans pension postretirement expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors use december 31 measurement date employee benefit plans 2017 weighted average assumed rate return pension plan assets 512 compared 665 2016 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts generally evaluate expected longterm rates return annually adjust necessary defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2017 net periodic benefit cost uk defined benefit pension plan 515 addition 2018 rate return assumption uk defined benefit pension plan based asset allocation approximately 80 corporate government bonds mortgagebacked securities expected earn approximately 2 4 longterm approximately 20 equity securities emerging market debt high yield securities expected earn approximately 5 9 longterm addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure rate return plan assets uk approximately 9 2017 approximately 36 2016 historically pension plan significant pension plan assets us defined benefit pension plan part separation north america business 2016 transferred 4996 pension liabilities us defined benefit pension plan associated current former employees north america business certain former avon employees along 3559 assets held us defined benefit pension plan defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations divestitures pages 2017 annual report continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon us providing services respect north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates ongoing net periodic benefit costs within global materially impacted separation north america business assumed rate return determining 2017 net periodic benefit cost us defined benefit pension plan 550 based asset allocation approximately 70 corporate government bonds expected earn approximately 3 5 longterm approximately 30 equity securities expected earn approximately 6 8 longterm rate return plan assets us approximately 15 2017 approximately 6 2016 discount rate used determining present value future pension obligations individual plan based review bonds receive highquality rating recognized rating agency discount rates calculating balance sheet obligations significant plans including uk defined benefit pension plan us defined benefit pension plan based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 266 december 31 2017 281 december 31 2016 determination expected rates return assets discount rates take external actuarial investment advice consideration effective january 1 2018 changing method use estimate service interest cost components net periodic benefit cost us defined benefit pension plan majority significant nonus pension plans including uk defined benefit pension plan historically including 2017 estimated service interest cost components using single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period beginning 2018 elected use full yield curve approach estimation components net periodic benefit cost applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows made change improve correlation projected benefit cash flows corresponding yield curve spot rates believe result precise measurement service interest costs change affect measurement benefit obligation impact 2017 net periodic benefit cost account change estimate prospective basis beginning 2018 expect change result material reduction future net periodic benefit costs funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2017 pretax actuarial losses prior service credits totaling approximately 41 us defined benefit pension postretirement plans approximately 176 nonus defined benefit pension postretirement plans yet charged expense actuarial losses charged aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2018 assumption expected rate return assets 550 us defined benefit pension plan 520 nonus defined benefit pension plans includes 520 uk defined benefit pension plan assumptions generally reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2017 pension expense pension benefit obligation december 31 2017 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted us foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration december 31 2017 net deferred tax assets approximately 182 net valuation allowances approximately 3218 deferred tax liabilities 75 respect deferred tax assets december 31 2017 recognized deferred tax assets approximately 2022 relating foreign state tax loss carryforwards valuation allowance approximately 1962 provided december 31 2017 recognized deferred tax assets approximately 981 primarily relating excess us foreign tax us general business credit carryforwards valuation allowance approximately 947 provided history us source losses excess us foreign tax general business credits primarily resulted greater us source loss recent years reduces ability credit foreign taxes utilize general business credits generate ability realize us deferred tax assets foreign tax general business credit carryforwards dependent future us taxable income within carryforward period december 31 2017 would need generate approximately 47 billion excess net foreign source income order realize us foreign tax general business credits expire following valuation allowance recorded 2014 reduce us deferred tax assets amount likely realized 2015 company recorded additional valuation allowance remaining us deferred tax assets approximately 670 increase valuation allowance resulted reduced tax benefits expected obtained tax planning strategies associated anticipated accelerated receipt us foreign source income us dollar strengthened currencies key markets 2015 benefits associated company’s tax planning strategies longer sufficient company continue conclude tax planning strategies prudent absence alternative prudent tax planning strategies sources future taxable income determined full valuation allowance recorded although company continues expect generate taxable income intercompany transactions consequently tax liability us company expected offset current future tax liability foreign tax credits result expected level future taxable income tax liability adequate realize benefit previously recorded deferred tax assets although company may able recognize financial statement benefit associated deferred tax assets company continue manage plan utilization deferred tax assets avoid expiration deferred tax assets may limited lives addition fourth quarter 2015 recognized benefit approximately 19 associated implementation initial stages foreign tax planning strategies completed implementation tax planning strategies recognized additional benefit approximately 29 first quarter 2016 december 31 2017 result us liquidity profile continue assert foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability period account undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings decrease approximately 64 resulting deferred tax liability balance approximately 23 related incremental tax cost approximately 15 billion undistributed foreign earnings december 31 2017 approximate 64 decrease primarily result enactment tax cuts jobs act us respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2018 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2018 provision income taxes well tax related cash receipts payments may impacted loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets plant property equipment capitalized software evaluate plant property equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge approximately 90 selling general administrative expenses recorded reflect writedown longlived assets estimated fair value approximately 16 recorded first quarter 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates discussed note 1 description business summary significant accounting policies concluded effective march 31 2016 deconsolidated venezuelan operations consolidated balance sheets longer includes assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements see note 1 description business summary significant accounting policies pages 2017 annual report information avon venezuela goodwill test goodwill impairment annually frequently circumstances warrant using various fair value methods completed annual goodwill impairment assessment 2017 determined estimated fair values considered substantially excess carrying values reporting units impairment analyses performed goodwill require several estimates computing estimated fair value reporting unit part goodwill impairment analysis typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors 2015 yearend close process analysis egypt business indicated impairment carrying value business exceeded estimated fair value primarily result reducing longterm projections business 2015 egypt performed generally line revenue earnings projections assumed growth compared 2014 however result currency restrictions payment goods egypt lowered longterm revenue earnings projections business accordingly noncash impairment charge approximately 7 recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge key assumptions used measuring fair value egypt impairment assessment included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt forecasted revenue resulting cash flows five years using dcf model included terminal value end projection period believed fiveyear period reasonable amount time order return cash flows egypt normalized sustainable levels see note 19 goodwill page 2017 annual report information regarding egypt results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses recorded selling general administrative expenses 2 change constant adjusted operating margin years presented calculated using currentyear constant rates 2017 compared 2016 revenue 2017 revenue relatively unchanged compared prioryear period partially benefiting foreign exchange constant revenue decreased 2 constant revenue decline primarily driven declines brazil russia united kingdom partially offset growth argentina south africa decline revenue constant revenue primarily due 3 decrease active representatives partially offset higher average order decrease active representatives impacted declines reportable segments significantly south latin america driven brazil europe middle east africa net impact price mix increased 2 primarily due inflationary impact pricing argentina russia mexico units sold decreased 4 primarily due declines russia brazil mexico united kingdom revenue performance negatively impacted significantly decline color sales experienced issues markets segmented color category three distinct brands timing innovation also impacted decline color sales ending representatives relatively unchanged ending representatives december 31 2017 compared prioryear period benefited growth russia offset decline brazil category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin decreased 80 basis points 30 basis points respectively compared 2016 decreases operating margin adjusted operating margin include benefits associated transformation plan primarily reductions headcount well cost reductions savings largely offset inflationary impact costs outpacing revenue growth decreases operating margin adjusted operating margin discussed gross margin selling general administrative expenses gross margin gross margin adjusted gross margin increased 100 basis points compared 2016 case primarily due increase 120 basis points favorable net impact mix pricing driven inflationary pricing south latin america selling general administrative expenses selling general administrative expenses 2017 increased approximately 100 compared 2016 increase primarily due unfavorable impact foreign currency translation weakening us dollar many foreign currencies resulted higher reported selling general administrative expenses increase selling general administrative expenses also due approximate 27 net proceeds recognized result legal settlement 2016 higher bad debt expense higher transportation costs loss contingency related nonus pension plan higher representative sales leader field expense partially offsetting increase selling general administrative expenses lower expenses associated employee incentive compensation plans lower cti restructuring selling general administrative expenses percentage revenue adjusted selling general administrative expenses percentage revenue increased 180 basis points 130 basis points respectively compared 2016 selling general administrative expenses percentage revenue comparison negatively impacted • approximately 50 basis points approximate 27 net proceeds recognized result legal settlement 2016 • approximately 30 basis points loss contingency related nonus pension plan items partially offset • approximately 30 basis points lower cti restructuring remaining increase selling general administrative expenses percentage revenue increase 130 basis points adjusted selling general administrative expenses percentage revenue case primarily due following • increase 50 basis points higher bad debt expense driven brazil due lower anticipated collection receivables primarily impacted macroeconomic environment well resulting adjustment credit terms available new representatives 2016 • increase 50 basis points primarily due higher representative sales leader field expense significantly brazil support efforts activate field improve representative recruitment well philippines • increase 40 basis points higher transportation costs significantly russia driven new delivery rates • increase 20 basis points primarily due impact constant revenue decline causing deleverage fixed expenses partially offset lower fixed expenses fixed expenses include benefits associated transformation plan primarily reductions headcount well cost reductions savings largely offset inflationary impact costs outpacing revenue growth items partially offset following • decrease 30 basis points due lower expenses associated employee incentive compensation plans • decrease approximately 20 basis points due favorable impact foreign currency translation foreign currency transaction losses see note 14 segment information pages 2017 annual report information legal settlement note 13 employee benefit plans pages 2017 annual report information loss contingency related nonus pension plan note 16 restructuring initiatives pages 2017 annual report information cti restructuring expenses interest expense increased approximately 4 compared prioryear period primarily due interest associated 500 principal amount 7875 senior secured notes issued august 2016 lower amortization gains associated termination interest rate swaps items partially offset interest savings associated repayment certain debt 2016 lower interest due reduction international debt balances refer note 7 debt financing pages 2017 annual report note 10 financial instruments risk management pages 2017 annual report additional information gain extinguishment debt 2016 approximately 1 comprised gain approximately 4 associated cash tender offers august 2016 gain approximately 1 associated debt repurchases december 2016 partially offset loss approximately 3 associated prepayment remaining principal amount 420 notes 575 notes november 2016 loss approximately 1 associated debt repurchases october 2016 refer note 7 debt financing pages 2017 annual report additional information interest income decreased approximately 1 compared prioryear period expense net decreased approximately 144 compared prioryear period primarily due deconsolidation venezuelan operations recorded loss approximately 120 first quarter 2016 addition expense net positively impacted foreign exchange net gains current year compared net losses prior year resulting yearoveryear benefit approximately 28 amounts recorded proportionate share new avons losses approximately 12 2017 2016 recorded investment balance new avon zero end third quarter 2017 recorded additional losses associated new avon since third quarter 2017 see venezuela discussion mda note 1 description business summary significant accounting policies pages 2017 annual report discussion venezuelan operations see note 4 investment new avon page 2017 annual report information new avon effective tax rate effective tax rates 2017 2016 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition effective tax rates 2017 2016 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2017 2016 effective tax rate 2017 impacted approximate net 30 benefit recognized result enactment tax cuts jobs act us release valuation allowances approximately 26 associated number markets europe middle east africa result business model change related headquarters move approximate 10 benefit result favorable court decision brazil partially offset charge approximately 16 associated valuation allowances adjust deferred tax assets mexico effective tax rate 2017 also impacted loss contingency related nonus pension plan cti restructuring tax benefits cannot currently claimed effective tax rate 2016 impacted deconsolidation venezuelan operations valuation allowances deferred tax assets outside us approximately 9 cti restructuring partially offset benefit approximately 29 result implementation foreign tax planning strategies net benefit approximately 7 primarily due release valuation allowance associated russia benefit net proceeds recognized result legal settlement addition effective tax rates adjusted effective tax rates 2017 2016 negatively impacted country mix earnings see note 9 income taxes pages 2017 annual report information tax items note 13 employee benefit plans pages 2017 annual report information loss contingency related nonus pension plan note 16 restructuring initiatives pages 2017 annual report information cti restructuring venezuela discussion mda note 1 description business summary significant accounting policies pages 2017 annual report information discussion venezuelan operations impact foreign currency compared prioryear period foreign currency 2017 impacted consolidated financial results form • foreign currency transaction net gains classified within cost sales selling general administrative expenses immaterial impact operating profit adjusted operating profit operating margin adjusted operating margin • foreign currency translation favorable impact operating profit adjusted operating profit approximately 20 approximately 30 basis points operating margin approximately 20 basis points adjusted operating margin • foreign exchange net gains working capital classified within expense net compared net losses prior year resulting yearoveryear benefit approximately 28 tax reported adjusted basis discontinued operations amounts recorded discontinued operations year ended december 31 2017 loss discontinued operations net tax approximately 14 year ended december 31 2016 see note 3 discontinued operations divestitures pages 2017 annual report discussion venezuela discussion avon venezuela operates directselling channel offering beauty fashion home products avon venezuela manufacturing facility produces beauty products sells avon venezuela imports many fashion home products raw materials components needed manufacture beauty products currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products 2010 began accounting operations venezuela accounting guidance associated highly inflationary economies us gaap financial statements foreign entity operating highly inflationary economy required remeasured functional currency company’s reporting currency us dollar generally results translation adjustments caused changes exchange rate reported earnings currently monetary assets eg cash accounts receivable liabilities eg accounts payable accrued expenses requires different procedures used translate nonmonetary assets eg inventories fixed assets nonmonetary assets liabilities remeasured historical us dollar cost basis diverges significantly application accounting rules prior designation highly inflationary accounting gains losses would recognized comprehensive income loss shareholders deficit venezuelas restrictive foreign exchange control regulations venezuelan operations increasingly limited access us dollars resulted lack exchangeability venezuelan bolivar us dollar restricted venezuelan operations ability pay dividends settle intercompany obligations severe currency controls imposed venezuelan government significantly limited ability realize benefits earnings venezuelan operations access resulting liquidity provided earnings expected lack exchangeability would continue foreseeable future result concluded effective march 31 2016 condition otherthantemporary longer met accounting criteria control order continue consolidating venezuelan operations result since march 31 2016 account venezuelan operations using cost method accounting result change cost method accounting first quarter 2016 recorded loss approximately 120 expense net loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within aoci associated foreign currency movements venezuela accounted highly inflationary economy net assets venezuelan business comprised inventories approximately 24 property plant equipment net approximately 15 assets approximately 11 accounts receivable approximately 5 cash approximately 4 accounts payable accrued liabilities approximately 20 consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements include income relating venezuelan operations extent receive cash dividends royalties remitted avon venezuela february 2015 venezuelan government announced creation new foreign exchange system referred simadi exchange simadi represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize simadi exchange rate remeasure venezuelan operations result change simadi rate caused recognition devaluation approximately 70 compared exchange rate used previously recorded aftertax benefit approximately 3 benefit approximately 4 expense net loss approximately 1 income taxes first quarter 2015 primarily reflecting writedown net monetary assets addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change simadi rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis caused disproportionate expense assets consumed operations negatively impacting operating profit net income approximately 19 2015 also result change simadi rate determined adjustment approximately 11 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2015 addition february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge approximately 90 selling general administrative expenses needed reflect writedown longlived assets estimated fair value approximately 16 recorded first quarter 2015 2016 compared 2015 revenue total revenue 2016 declined 7 compared prioryear period primarily due unfavorable foreign exchange constant revenue increased 2 number items affected yearoveryear comparison constant revenue significant sale liz earle completed july 2015 negatively impacted constant revenue growth approximately 1 point items affecting yearoveryear comparison netted immaterial impact addition constant revenue benefited growth argentina south africa russia mexico brazil argentina contributed approximately 1 point avons consolidated constant revenue growth markets results impacted inflationary impact pricing growth constant revenue driven higher average order partially offset 2 decrease active representatives average order benefited net impact price mix increased 6 units sold decreased 4 primarily due declines units sold brazil mexico impact deconsolidation venezuela tthe decrease active representatives primarily due impact deconsolidation venezuela decline asia pacific included impact caused reduction number sales campaigns philippines declines active representatives partially offset growth europe middle east africa significantly russia primarily due sustained momentum recruitment retention ending representatives decreased 2 decrease ending representatives december 31 2016 compared prioryear period primarily due impact deconsolidation venezuela negative impact 2 points declines asia pacific decreases partially offset growth europe middle east africa significantly south africa russia well growth south latin america significantly brazil see venezuela discussion mda note 1 description business summary significant accounting policies pages 2017 annual report consolidated financial statements included herein discussion venezuelan operations category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin increased 290 basis points 80 basis points respectively compared 2015 increases operating margin adjusted operating margin include benefits associated costs savings initiatives including transformation plan primarily reductions headcount well cost reductions increases operating margin adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill gross margin gross margin adjusted gross margin increased 20 basis points decreased 30 basis points respectively compared 2015 gross margin comparison impacted approximately 50 basis points prior year devaluation venezuelan currency conjunction highly inflationary accounting approximately 29 recognized prioryear period associated carrying certain nonmonetary assets historical us dollar cost following devaluation see venezuela discussion mda discussion venezuelan operations remaining decrease gross margin decrease 30 basis points adjusted gross margin case primarily due following • decrease approximately 260 basis points due unfavorable impact foreign currency transaction losses foreign currency translation • decrease 30 basis points due sales products new avon since separation companys north america business new avon march 1 2016 • various insignificant items decreased gross margin items partially offset following • increase 190 basis points due favorable net impact mix pricing primarily due inflationary strategic pricing south latin america europe middle east africa north latin america • increase 90 basis points due lower supply chain costs primarily lower material costs cost savings initiatives europe middle east africa south latin america see note 5 related party transactions pages 2017 annual report information new avon selling general administrative expenses selling general administrative expenses 2016 decreased approximately 404 compared 2015 decrease primarily due favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported selling general administrative expenses decrease selling general administrative expenses also due approximate 90 impairment charge recorded prioryear period reflect writedown longlived assets estimated fair value associated devaluation venezuelan currency conjunction highly inflationary accounting lower fixed expenses resulting primarily cost savings initiatives lower expenses associated employee incentive compensation plans approximate 27 net proceeds recognized result legal settlement 2016 lower advertising expense partially offsetting decrease selling general administrative expenses higher bad debt expense higher amount cti restructuring higher foreign currency transaction costs higher representative sales leader field expense selling general administrative expenses percentage revenue adjusted selling general administrative expenses percentage revenue decreased 260 basis points 110 basis points respectively compared 2015 selling general administrative expenses percentage revenue comparison benefited • approximately 150 basis points devaluation venezuelan currency conjunction highly inflationary accounting prioryear period primarily approximate 90 impairment charge recognized prioryear period reflect writedown longlived assets estimated fair value following devaluation • approximately 50 basis points approximate 27 net proceeds recognized result legal settlement 2016 • approximately 10 basis points approximate 7 aggregate settlement charges associated payments made former employees vested participated us defined benefit pension plan recorded prioryear period occur 2016 • approximately 10 basis points approximately 3 transactionrelated costs associated separation north america included continuing operations recorded prioryear period items partially offset • approximately 50 basis points higher cti restructuring see venezuela discussion mda note 1 description business summary significant accounting policies pages 2017 annual report discussion venezuelan operations note 14 segment information pages 2017 annual report information legal settlement note 13 employee benefit plans pages 2017 annual report discussion pension settlement charges note 16 restructuring initiatives pages 2017 annual report information cti restructuring remaining decrease selling general administrative expenses percentage revenue decrease 110 basis points adjusted selling general administrative expenses percentage revenue case primarily due following • decrease 210 basis points primarily due lower fixed expenses well impact constant revenue growth respect fixed expenses lower fixed expenses resulted primarily costs savings initiatives mainly reductions headcount partially offset inflationary impact expenses • decrease 40 basis points due lower expenses associated employee incentive compensation plans • decrease 30 basis points lower advertising expense primarily europe middle east africa items partially offset following • increase 80 basis points higher bad debt expense driven brazil primarily due macroeconomic environment coupled actions taken recruit new representatives • increase approximately 50 basis points due unfavorable impact foreign currency translation foreign currency transaction losses • increase 20 basis points result industrial production tax ipi tax law cosmetics brazil went effect may 2015 reduced revenue raise prices paid representatives extent ipi tax see segment review south latin america mda discussion ipi tax law brazil impairment goodwill fourth quarter 2015 recorded noncash impairment charge approximately 7 goodwill associated egypt business see note 19 goodwill page 2017 annual report information egypt see “segment review” mda additional information related changes segment margin expense interest expense increased approximately 16 compared prioryear period primarily due interest associated 500 principal amount 7875 senior secured notes issued august 2016 increase interest rates notes issued march 2013 result downgrades longterm credit ratings items partially offset interest savings associated repayment certain debt 2016 prepayment 250 principal amount 2375 notes due march 15 2016 2375 notes third quarter 2015 refer note 7 debt financing pages 2017 annual report additional information gain extinguishment debt 2016 approximately 1 comprised gain approximately 4 associated cash tender offers august 2016 gain approximately 1 associated debt repurchases december 2016 partially offset loss approximately 3 associated prepayment remaining principal amount 420 notes 575 notes november 2016 loss approximately 1 associated debt repurchases october 2016 loss extinguishment debt 2015 approximately 6 associated prepayment 2375 notes refer note 7 debt financing pages 2017 annual report additional information interest income increased approximately 3 compared prioryear period expense net increased approximately 97 compared prioryear period primarily due yearonyear impact venezuelan special items recorded loss approximately 120 first quarter 2016 compared benefit approximately 4 first quarter 2015 addition expense net positively impacted lower net losses foreign exchange partially offset proportionate share new avons loss approximately 12 foreign exchange net losses decreased approximately 40 compared prioryear period despite unfavorable impact approximately 17 result devaluation egyptian pound fourth quarter 2016 see venezuela discussion mda discussion venezuelan operations see note 4 investment new avon page 2017 annual report information new avon gain sale business 2015 result sale liz earle july 2015 refer note 3 discontinued operations divestitures pages 2017 annual report additional information regarding sale liz earle effective tax rate effective tax rates 2016 2015 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition effective tax rates 2016 2015 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2016 2015 inability recognize additional deferred tax assets various jurisdictions related currentyear operating results along withholding taxes resulted unusually high effective tax rates 2016 2015 effective tax rate 2016 impacted deconsolidation venezuelan operations valuation allowances deferred tax assets outside us approximately 9 cti restructuring partially offset benefit approximately 29 result implementation foreign tax planning strategies net benefit approximately 7 primarily due release valuation allowance associated russia benefit net proceeds recognized result legal settlement effective tax rate 2015 negatively impacted additional valuation allowances us deferred tax assets approximately 670 additional valuation allowances 2015 due continued strengthening us dollar currencies key markets impact benefits tax planning strategies associated realization deferred tax assets addition effective tax rate 2015 negatively impacted valuation allowances deferred tax assets outside us approximately 15 primarily russia largely due lower earnings significantly impacted foreign exchange losses working capital balances 2015 also recognized benefit approximately 19 result implementation initial stages foreign tax planning strategies valuation allowances deferred tax assets 2015 caused income taxes significantly excess income taxes addition effective tax rate 2015 negatively impacted devaluation venezuelan currency conjunction highly inflationary accounting addition effective tax rates adjusted effective tax rates 2016 2015 negatively impacted country mix earnings see note 9 income taxes pages 2017 annual report information addition see venezuela discussion mda note 1 description business summary significant accounting policies pages 2017 annual report discussion venezuelan operations note 16 restructuring initiatives pages 2017 annual report information cti restructuring note 14 segment information pages 2017 annual report information legal settlement impact foreign currency 2016 foreign currency continued significant impact financial results specifically compared prioryear period foreign currency 2016 impacted consolidated financial results form • foreign currency transaction net losses classified within cost sales selling general administrative expenses unfavorable impact operating profit adjusted operating profit estimated 165 approximately 270 points operating margin adjusted operating margin • foreign currency translation unfavorable impact operating profit approximately 60 adjusted operating profit approximately 65 approximately 40 points operating margin adjusted operating margin • foreign exchange net losses working capital classified within expense net lower approximately 35 tax 40 tax adjusted basis despite unfavorable impact approximately 17 result devaluation egyptian pound fourth quarter 2016 discontinued operations loss discontinued operations net tax approximately 14 2016 compared approximately 349 2015 2016 recorded charges approximately 16 tax approximately 5 tax aggregate associated separation north america business closed march 1 2016 2015 recorded charge approximately 340 tax approximately 340 tax associated estimated loss separation north america business see note 3 discontinued operations divestitures pages 2017 annual report discussion comprehensive income loss comprehensive income net taxes approximately 108 2017 compared approximately 333 2016 yearoveryear comparison unfavorably impacted recognition losses 259 comprehensive income consolidated statements operations 2016 result separation north america business primarily related unamortized losses associated employee benefit plans approximate 82 impact deconsolidation venezuela remaining approximate 116 benefit yearoveryear comparison primarily due foreign currency translation adjustments benefited approximately 117 compared 2016 primarily due favorable yearoveryear comparison movements polish zloty mexican peso partially offset unfavorable yearoveryear comparison movements brazilian real comprehensive income loss net taxes approximately 333 2016 compared approximately 151 2015 driven recognition losses 259 comprehensive income loss consolidated statements operations 2016 result separation north america business noted comprehensive income loss net taxes also favorably impacted 2016 foreign currency translation adjustments benefited approximately 240 compared 2015 primarily due favorable yearoveryear comparison movements brazilian real colombian peso argentine peso partially offset unfavorable yearoveryear comparison movements british pound addition comprehensive income loss 2016 compared 2015 favorably impacted approximate 82 impact deconsolidation venezuela favorable impacts comprehensive income loss partially offset unfavorable impacts lower amortization net actuarial losses approximately 64 largely result separation north america business lower net actuarial gains approximately 3 2016 compared approximately 41 2015 2016 net actuarial gains decreased result lower discount rates nonus us pension plans partially offset higher asset returns us nonus pension plans 2016 compared 2015 see note 3 discontinued operations divestitures pages 2017 annual report information separation north america business see venezuela discussion mda note 1 description business summary significant accounting policies pages 2017 annual report discussion venezuelan operations note 13 employee benefit plans pages 2017 annual report information benefit plans segment review determine segment profit deducting related costs expenses segment revenue order ensure comparability periods segment profit includes allocation global marketing expenses based actual revenues segment profit excludes global expenses allocation marketing cti restructuring initiatives certain significant asset impairment charges items allocated particular segment applicable consistent manner assess performance allocate resources see note 14 segment information pages 2017 annual report reconciliation segment profit operating profit summarized financial information concerning reportable segments follows analysis key factors affecting revenue segment profit reportable segment years threeyear period ended december 31 2017 foreign currency impact determined difference actual growth rates constant growth rates refer nongaap financial measures mda information europe middle east africa 2017 compared 2016 amounts table may necessarily sum due rounding total revenue decreased 1 compared prioryear period despite favorable impact foreign exchange primarily driven weakening us dollar relative russian ruble lesser extent south african rand partially offset strengthening us dollar relative turkish lira british pound constant basis revenue decreased 4 significantly impacted declines russia united kingdom partially offset growth south africa segments constant revenue decline primarily driven decrease active representatives lower average order increase ending representatives primarily driven increases russia turkey south africa partially offset decline united kingdom russia revenue increased 5 benefiting significantly favorable impact foreign exchange constant basis russias revenue declined 8 primarily due lower average order along decrease active representatives first half 2017 constant revenue decline russia impacted comparison strong volume growth prioryear period benefited primarily pricing lag inflationary period constant revenue decline russia also impacted competitive pressures innovation issues continued difficult macroeconomic environment primarily second half 2017 issues also negatively impacted active representatives despite increase ending representatives united kingdom revenue declined 14 unfavorably impacted foreign exchange constant basis united kingdoms revenue declined 11 primarily due decrease active representatives lesser extent lower average order south africa revenue grew 20 favorably impacted foreign exchange constant basis south africa’s revenue grew 9 primarily due increase active representatives partially offset lower average order segment margin increased 1 point decreased 2 points constant basis case primarily result • decline 7 points higher transportation costs driven primarily new delivery rates russia • decline 7 points primarily due impact constant revenue decline causing deleverage fixed expenses partially offset lower fixed expenses fixed expenses benefited lower expenses associated employee incentive compensation plans partially offset higher administrative costs • decline 4 points higher bad debt expense primarily south africa russia higher bad debt expense south africa driven primarily lower collection receivables result deteriorating economic conditions russia driven primarily payment facilitation agency remitted us funds received certain representatives • decline 3 points primarily related net impact declining revenue respect representative sales leader field expense • benefit 18 points due higher gross margin caused primarily 10 point favorable net impact mix pricing primarily driven russia 7 points due lower supply chain costs supply chain costs benefited primarily lower material distribution costs partially due productivity initiatives europe middle east africa 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 4 compared prioryear period due unfavorable impact foreign exchange significantly strengthening us dollar relative british pound russian ruble south african rand constant basis revenue grew 4 primarily driven south africa russia segments constant revenue growth driven primarily increase active representatives well higher average order increase ending representatives driven primarily growth russia south africa russia revenue relatively unchanged unfavorably impacted foreign exchange constant basis russias revenue grew 9 primarily due increase active representatives benefited sustained momentum recruiting retention lesser extent higher average order driven pricing benefits russias constant revenue growth driven strength performance first half 2016 tempered second half 2016 fourth quarter 2016 russias constant revenue declined primarily result increased pricing negatively impacted representative engagement activity united kingdom revenue declined 12 unfavorably impacted foreign exchange constant basis united kingdoms revenue relatively unchanged higher average order offset decrease active representatives south africa revenue grew 6 unfavorably impacted foreign exchange constant basis south africa’s revenue grew 21 primarily due increase active representatives segment margin increased 14 points 13 points constant basis case primarily result • benefit 10 point primarily due impact constant revenue growth respect fixed expenses • benefit 7 points due lower advertising expense significantly russia • decline 3 points due lower gross margin caused primarily estimated 3 points unfavorable impact foreign currency transaction losses partially offset benefits 15 points favorable net impact mix pricing 11 points due lower supply chain costs mix pricing primarily driven inflationary strategic pricing russia lower supply chain costs included benefits lower material costs cost savings initiatives south latin america 2017 compared 2016 amounts table may necessarily sum due rounding total revenue increased 4 compared prioryear period primarily due favorable impact foreign exchange primarily driven weakening us dollar relative brazilian real constant basis revenue relatively unchanged compared prior year higher average order offset decrease active representatives decline ending representatives primarily driven decline brazil described revenue brazil increased 4 favorably impacted foreign exchange brazil’s constant revenue declined 4 primarily due decrease active representatives partially offset higher average order constant basis brazil’s sales beauty products fashion home products decreased 4 5 respectively decline constant beauty sales brazil driven weaker performance color revenue brazil well active representatives ending representatives impacted difficult macroeconomic environment particularly first half 2017 combined application stricter credit requirements acceptance new representatives compared requirements prior year addition brazils results negatively impacted competition primarily second half 2017 revenue argentina grew 10 23 constant basis primarily due higher average order impacted inflationary pricing segment margin decreased 6 points 4 points constant basis case primarily result • decline 6 points higher bad debt expense driven brazil due lower anticipated collection receivables primarily impacted macroeconomic environment well resulting adjustment credit terms available new representatives 2016 • decline 6 points primarily due higher fixed expenses driven inflationary impact costs outpacing revenue growth particularly argentina partially offset lower expenses associated employee incentive compensation plans • decline 5 points due higher representative sales leader field expense significantly brazil support efforts activate field improve representative recruitment • decline 3 points higher transportation expense driven argentina due inflationary cost increases • benefit 18 points due higher gross margin caused 20 points favorable net impact mix pricing primarily due inflationary pricing partially offset 3 points higher supply chain costs primarily negatively impacted higher material costs included inflationary pressures argentina south latin america 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 7 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative argentine peso brazilian real constant basis revenue increased 5 segments constant revenue growth negatively impacted estimated 1 point additional value added tax vat state taxes brazil implemented late 2015 addition ipi tax law cosmetics brazil went effect may 2015 caused estimated 1 point negative impact segments constant revenue growth segments constant revenue benefited higher average order driven pricing partially offset decrease active representatives segments constant revenue higher average order benefited relatively high inflation argentina markets results impacted inflationary impact pricing argentina contributed approximately 4 points segments constant revenue growth revenue argentina decreased 20 unfavorably impacted foreign exchange constant basis argentinas revenue grew 28 primarily due higher average order partially offset decrease active representatives increase ending representatives primarily driven growth brazil revenue brazil decreased 3 unfavorably impacted foreign exchange brazil’s constant revenue increased 2 despite negative impact estimated 3 points due additional vat state taxes discussed constant revenue brazil also negatively impacted estimated 3 points impact ipi tax discussed negative impact additional vat state taxes ipi tax partially offset higher average order driven pricing actions taken recruit new representatives including adjustment credit terms also benefited brazils constant revenue addition brazil continued impacted difficult economic environment constant basis brazil’s sales beauty products increased 1 despite negative impact ipi tax additional vat state taxes constant basis brazils sales fashion home products increased 1 segment margin decreased 10 point 8 points constant basis case primarily result • decline 20 points higher bad debt expense driven brazil primarily due macroeconomic environment coupled actions taken recruit new representatives including adjustment credit terms • decline 6 points result ipi tax law cosmetics brazil reduction revenue raised prices paid representatives extent ipi tax • decline 4 points higher advertising expense primarily brazil second half 2016 • benefit 7 points primarily due impact constant revenue growth respect fixed expenses • benefit 5 points due higher gross margin caused 26 points favorable net impact mix pricing primarily due inflationary strategic pricing 12 points lower supply chain costs partially offset estimated 32 points unfavorable impact foreign currency transaction losses supply chain costs benefited primarily result lower material costs cost savings initiatives • benefit 3 points primarily due net impact constant revenue growth respect representative sales leader field expense • various insignificant items partially offset decline segment margin north latin america 2017 compared 2016 amounts table may necessarily sum due rounding north latin america consists largely mexico business total revenue segment decreased 2 compared prioryear period partly due unfavorable impact foreign exchange primarily driven strengthening us dollar relative mexican peso constant basis revenue decreased 1 due decrease active representatives negatively impacted product fulfillment shortfalls region second quarter 2017 constant revenue region mexico negatively impacted approximately 1 point 1 point respectively due earthquake mexico earthquake occurred late september 2017 adversely impacted mexicos fourth quarter 2017 results segments constant revenue benefited growth central america offset constant revenue decline mexico decline ending representatives primarily driven decline central america revenue mexico declined 4 unfavorably impacted foreign exchange constant basis mexicos revenue declined 2 primarily due decrease active representatives impact earthquake segment margin decreased 37 points 35 points constant basis case primarily result • decline 9 points due lower gross margin caused primarily 9 points higher supply chain costs 5 points unfavorable impact foreign currency transaction net losses partially offset 5 points favorable net impact mix pricing impact supply chain costs gross margin primarily due lower volume fixed overhead costs well higher material costs • decline 8 points higher bad debt expense primarily mexico partially due implementation new collection process result changes regulations • decline 7 points due higher representative sales leader field expense primarily result increasing incentives mitigate impact product fulfillment shortfalls region earthquake mexico • decline 6 points higher transportation costs driven mexico primarily due increased fuel prices • decline 3 points higher net brochure costs partly due increase number pages support segmentation color category north latin america 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 8 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative mexican peso constant basis revenue increased 3 benefited higher average order revenue mexico decreased 11 unfavorably impacted foreign exchange constant basis mexicos revenue grew 5 primarily due higher average order driven primarily pricing partially offset decline units sold segment margin increased 19 points 22 points constant basis case primarily result • benefit 11 points due higher gross margin caused primarily benefit 27 points favorable impact mix pricing primarily due inflationary strategic pricing partially offset 15 points unfavorable impact foreign currency transaction losses • benefit 8 points primarily lower fixed expenses includes 6 points result outofperiod adjustment negatively impacted prioryear period well due impact constant revenue growth respect fixed expenses asia pacific 2017 compared 2016 amounts table may necessarily sum due rounding effective first quarter 2017 given exited thailand 2016 results thailand reported operating segments business activities periods presented previously results reported asia pacific impact material asia pacific operating segments business activities consistent present market exits total revenue decreased 6 compared prioryear period partially due unfavorable impact foreign exchange constant basis revenue decreased 3 primarily due decrease active representatives significantly malaysia partially offset higher average order decrease ending representatives impacted significantly decline malaysia partially offset growth philippines revenue philippines decreased 2 increased 3 constant basis primarily due higher average order increase active representatives revenue growth philippines driven latter half 2017 strong commercial offers including pricing along television advertising associated color category helped drive momentum field addition actions implemented improve inventory availability provided benefits revenue growth segment margin decreased 18 points 13 points constant basis case primarily result • decline 14 points primarily related net impact declining revenue respect representative sales leader field expense primarily philippines • decline 10 point due lower gross margin caused primarily 7 points supply chain costs 4 points unfavorable net impact mix pricing impact supply chain costs gross margin primarily due lower volume fixed overhead costs • decline 4 points due higher advertising expense primarily philippines related television advertising associated color category latter half 2017 • benefit 10 point due lower fixed expenses including benefits associated transformation plan primarily reductions headcount • benefit 4 points lower bad debt expense primarily philippines driven mainly improved collection earlier 2017 completed review china operations determined retain china portfolio businesses asia pacific 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 11 compared prioryear period partially due unfavorable impact foreign exchange constant basis revenue decreased 7 due declines markets segments constant revenue decline primarily due decrease active representatives partially offset higher average order revenue philippines decreased 3 grew 2 constant basis primarily due higher average order partially offset decrease active representatives segments philippines active representatives decline impacted reduction number sales campaigns philippines decrease ending representatives driven declines markets segment margin declined 3 points increased 1 point constant basis case primarily result • net benefit 3 points primarily lower fixed expenses largely offset unfavorable impact declining revenue causing deleverage fixed expenses • decline 8 points due lower gross margin caused primarily 11 points unfavorable impact mix pricing 3 points unfavorable impact foreign currency transaction losses partially offset 7 points lower supply chain costs • various insignificant items benefited segment margin liquidity capital resources principal sources funding historically cash flows operations public offerings notes bank financings issuance commercial paper borrowings lines credit private placement notes december 31 2017 cash equivalents totaling approximately 882 believe sources funding sufficient satisfy currently anticipated cash requirements least next twelve months may seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments cash tender offers otherwise repurchases equity debt may funded incurrence additional debt issuance equity including shares preferred stock convertible securities depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity including shares preferred stock convertible securities finance ongoing operations meet liquidity needs issuances equity including shares preferred stock convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods credit ratings downgraded past several years may impact ability access transactions favorable terms information see risk factors credit ratings downgraded last three years could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 7 20 2017 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 18 contingencies pages 2017 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2017 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2017 approximately 271 compared approximately 128 2016 increase approximately 143 million yearoveryear comparison unfavorably impacted approximately 27 proceeds net legal fees related settling claims relating professional services connection previously disclosed legal matter received 2016 unfavorable impact partially offset injunction received may 2016 cash deposits associated ipi brazil result required make cash deposits 2017 paid approximately 19 cash deposits 2016 prior may see note 18 contingencies pages 2017 annual report additional information ipi taxes remaining approximate 135 benefit yearoveryear comparison net cash provided continuing operating activities primarily due improvements working capital significantly lower purchases inventory timing payments well lower net receivables net cash provided continuing operating activities 2016 approximately 37 higher 2015 approximate 37 increase net cash provided continuing operating activities primarily due approximate 67 payment us securities exchange commission connection fcpa settlement 2015 recur 2016 lower operating tax payments primarily brazil higher cashrelated earnings net cash provided continuing operating activities 2016 also benefited approximately 27 proceeds net legal fees related settling claims relating professional services connection previously disclosed legal matter items partially offset timing payments primarily inventory increased levels accounts receivable primarily attributable macroeconomic conditions brazil contribution us pension plan 2016 20 occur 2015 maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 13 employee benefit plans pages 2017 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 10 15 us defined benefit pension postretirement plans range 20 25 nonus defined benefit pension postretirement plans 2018 net cash continuing investing activities net cash used continuing investing activities 2017 approximately 70 compared approximately 83 2016 approximate 13 decrease net cash used continuing investing activities primarily due approximate 22 cash distribution received new avon third quarter 2017 partially offset lower asset disposals compared prioryear period see note 4 investment new avon page 2017 annual report information cash distribution received new avon net cash used continuing investing activities 2016 approximately 83 compared net cash provided continuing investing activities approximately 143 2015 approximate 226 decrease net cash used provided continuing investing activities primarily due net proceeds sale liz earle 2015 approximately 208 see note 3 discontinued operations divestitures pages 2017 annual report information sale liz earle capital expenditures 2017 approximately 97 compared approximately 93 2016 approximately 92 2015 capital expenditures 2018 currently expected range 120 140 expected funded cash operations net cash continuing financing activities net cash provided continuing financing activities 2017 zero compared approximately 137 2016 approximate 137 decrease net cash provided continuing financing activities primarily due net proceeds related 500 principal amount 7875 senior secured notes issued august 2016 net proceeds sale series c preferred stock drivers partially offset repayment certain debt 2016 approximately 720 aggregate higher repayments shortterm debt prioryear period see note 7 debt financing pages 2017 annual report note 17 series c convertible preferred shares pages 2017 annual report information net cash provided continuing financing activities 2016 approximately 137 compared net cash used continuing financing activities approximately 431 2015 approximately 568 increase net cash provided used continuing financing activities primarily due net proceeds related 500 principal amount 7875 senior secured notes issued third quarter 2016 net proceeds approximately 426 sale series c preferred stock suspension dividend prepayment 250 principal amount 2375 notes third quarter 2015 partially offset repayment certain debt 2016 approximately 720 aggregate see note 17 series c convertible preferred shares pages 2017 annual report note 7 debt financing pages 2017 annual report information purchased approximately 16 million shares common stock 72 2017 compared 14 million shares common stock 56 2016 3 million shares common stock 31 2015 acquisition stock employees connection tax payments upon vesting restricted stock units upon vesting performance restricted stock units 2017 2016 declare dividend 2017 2016 suspended dividend effective first quarter 2016 maintained quarterly dividend 06 per share 2015 debt contractual financial obligations commitments december 31 2017 debt contractual financial obligations commitments due dates follows 1 amounts based current longterm credit ratings see note 7 debt financing pages 2017 annual report information 2 amounts net expected sublease rental income see note 15 leases commitments page 2017 annual report information 3 amounts represent expected future benefit payments unfunded defined benefit pension postretirement benefit plans well expected contributions 2018 funded defined benefit pension benefit plans able estimate contributions funded defined benefit pension postretirement plans beyond 2018 4 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2017 reserves uncertain income tax positions including interest penalties totaled approximately 54 see note 7 debt financing note 15 leases commitments pages page respectively 2017 annual report information debt contractual financial obligations commitments additionally disclosed note 16 restructuring initiatives pages 2017 annual report december 31 2017 liabilities approximately 49 associated transformation plan majority future cash payments associated restructuring liabilities expected made 2018 balance sheet arrangements december 31 2017 material offbalancesheet arrangements capital resources revolving credit facility june 2015 avon international operations inc aio whollyowned domestic subsidiary company entered fiveyear 4000 senior secured revolving credit facility “2015 facility” borrowings 2015 facility bear interest option rate per annum equal libor plus 250 basis points floating base rate plus 150 basis points case subject adjustment based upon leveragebased pricing grid december 2017 aio entered amendment 2015 facility among things modified financial covenants interest coverage total leverage ratios provide company additional flexibility 2015 facility may used general corporate purposes december 31 2017 amounts outstanding 2015 facility 2015 facility replaced companys previous 1 billion unsecured revolving credit facility 2013 facility second quarter 2015 25 tax recorded writeoff issuance costs related 2013 facility obligations aio 2015 facility unconditionally guaranteed material domestic restricted subsidiary company aio borrower case subject certain exceptions ii fully guaranteed unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions 2015 facility terminate june 2020 provided however shall terminate 91st day prior maturity 650 notes defined 460 notes defined 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2015 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios december 31 2017 compliance interest coverage total leverage ratios 2015 facility amended amount facility available drawn reduced standby letters credit granted aio december 31 2017 approximately 38 december 31 2017 based applicable interest rates entire amount remaining 2015 facility approximately 362 could drawn without violating covenant depending business results including impact adverse foreign exchange movements significant restructuring charges possible may noncompliant interest coverage total leverage ratio absent company undertaking alternatives avoid noncompliance obtaining additional amendments 2015 facility repurchasing certain debt noncompliant interest coverage total leverage ratio would longer access 2015 facility credit ratings may downgraded december 31 2017 amounts outstanding 2015 facility item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2018 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures pages 29 30 mda description constant dollar constant growth rates nongaap financial measure determined see performance metrics page 29 mda definitions performance metrics change active representatives change units sold change ending representatives change average order overview global manufacturer marketer beauty related products business conducted primarily directselling channel 2018 sales operations 56 countries territories distributed products 21 consolidated revenue derived operations subsidiaries outside united states us reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling representatives independent contractors employees december 31 2018 approximately 5 million active representatives represents number representatives submitting order sales campaign totaled campaigns year divided number campaigns success business highly dependent recruiting retaining servicing representatives 2018 revenue declined 3 compared prioryear period excluding brazil ipi release adjusted revenue 5 primarily due unfavorable impact foreign exchange constant adjusted revenue increased 1 revenue constant adjusted revenue included benefit approximately 4 due impact adopting new revenue recognition standard 4 benefit driven primarily reclassification fees paid representatives brochures late payments payment processing income appointment kits sga impact timing revenue recognition sales incentives negligible constant adjusted revenue impacted declines primarily brazil continued negatively impacted competitive pressures backdrop challenging macroeconomic environment lower consumption market well lower appointments partly due application strict credit requirements acceptance new representatives lesser extent constant adjusted revenue also impacted declines united kingdom south africa russia well lower revenue closure australia new zealand 2018 declines partially offset improved revenue growth management including inflationary pricing argentina revenue constant adjusted revenue impacted decrease active representatives 5 primarily driven brazil lesser extent russia average order constant increased 2 including benefit approximately 4 due impact adopting new revenue recognition standard units sold decreased 6 driven decline brazil ending representatives declined 8 primarily driven declines russia brazil impact new revenue recognition standard primarily driven following accounting changes effective january 1 2018 • certain sales incentives prospective discounts considered separate deliverable thus initially revenue deferred generally delivery incentive prize representative future discounts realized time associated cost recognized cost sales historically cost sales incentives recognized sga period sales incentive earned • fees paid representatives company brochures late payments payment processing reflected revenue rather reflected reduction sga associated cost brochures sold recognized cost sales rather sga fees costs associated brochures recognized upon delivery representatives rather recognized campaign length see note 1 description business summary significant accounting policies note 2 new accounting standards consolidated financial statements included herein additional information new revenue recognition standard see segment review mda additional information related changes revenue segment transformation plan open avon january 2016 initiated transformation plan transformation plan order enable us achieve longterm goals midsingledigit constant revenue growth low doubledigit operating margin transformation plan included three pillars invest growth reduce costs effort continue improve cost structure improve financial resilience plan targeted pretax annualized cost savings approximately 350 three years expected achieved restructuring actions well costsavings strategies would result restructuring charges restructuring actions taken associated transformation plan beginning third quarter 2018 new restructuring actions approved operate new open avon plan described september 2018 initiated new strategy order return avon growth “open avon” open avon strategy integral ability return avon growth built around necessity incorporating new approaches various elements business including increased utilization thirdparty providers manufacturing technology fit purpose asset base focus enabling representatives easily interact company achieve relevant earnings commercial elements strategy developed help increase representative earnings thereby retention elements representative facing strategy include improvements service functions increased training utilization digital tools expand consumer reach product bundling regimens designed help improve earnings opportunity sharper targeted product innovation drive brand relevancy cost savings plan targeted pretax annualized cost savings approximately 400 2021 expected generated efficiencies manufacturing sourcing distribution general administrative activities back office functions well revenue management interest tax savings expected achieved restructuring actions may result charges related severance contract terminations inventory asset writeoffs well costsavings strategies would result restructuring charges january 2019 announced significant advancements strategy including structural reset inventory processes aggregate 18 reduction global workforce structural reset inventory processes includes 15 reduction inventory levels 25 reduction stock keeping units skus structural reset inventory result lower operational ongoing obsolescence costs longer term result concentrated focus highturn higher margin products driving greater earnings representatives due lessened discount pressure enhanced service levels structural reset resulted incremental oneoff inventory obsolescence expense 88 recognized december 31 2018 addition global workforce reduced 2019 approximately 10 align ongoing operating model changes create leaner organization better aligned avon’s current future business focus reduction incremental 8 reduction global workforce completed 2018 expect incur restructuring charge approximately 100 2019 relating global workforce reduction wasnt approved board directors january 2019 initiated open avon strategy enable us achieve goals lowsingledigit constant revenue growth low doubledigit operating margin 2021 plan reinvest portion cost savings commercial initiatives including training representatives digital information technology infrastructure initiatives 2018 estimate achieved total cost savings approximately 110 taxes approximately 40 attributable open avon approximately 70 attributable transformation plan estimated 40 savings attributable open avon primarily relates tax interest compared costs 2017 relates transformation plan exceeded cost savings target 65 taxes fullyear 2018 savings include runrate savings transformation plan 2017 along inyear savings current year initiatives already identified associated restructuring actions costsavings strategies result restructuring charges result restructuring actions costsavings strategies taken todate relates transformation plan exited 2018 runrate savings excess total cumulative cost savings target 350 connection actions associated savings discussed incurred costs implement cti restructuring initiatives approximately 205 taxes todate associated transformation plan approximately 143 taxes todate associated open avon includes 88 relating structural reset inventory costs approximately 38 approximately 143 recorded 2018 associated transformation plan open avon respectively additional charges yet incurred associated restructuring actions approved december 31 2018 relate open avon negligible december 31 2018 liabilities approximately 59 associated restructuring actions primarily associated transformation plan majority future cash payments associated restructuring liabilities expected made 2019 additional details restructuring initiatives see note 17 restructuring initiatives consolidated financial statements included herein new accounting standards information relating new accounting standards included note 2 new accounting standards pages 2018 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail change units sold metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples change ending representatives metric based total number representatives eligible place order last sales campaign related period result active roster determine change ending representatives calculation compared calculation corresponding period prior year change ending representatives may impacted combination factors requirements become andor remain representative practices regarding minimum order requirements practices regarding reinstatement representatives believe may indicator future revenue performance change average order metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average order may impacted combination factors inflation units product mix andor pricing nongaap financial measures supplement financial results presented accordance generally accepted accounting principles us gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue adjusted revenue operating profit adjusted operating profit operating margin adjusted operating margin refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends underlying business results exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rates updated annual basis usually october part budgeting process foreign currency impact determined difference actual growth rates constant growth rates also present revenue gross margin sga expenses percentage revenue operating profit operating margin income loss taxes income taxes effective tax rate nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation nongaap financial measures directly comparable financial measures calculated reported accordance gaap see reconciliation nongaap financial measures within results operations consolidated pages 35 43 mda quantitative reconciliation company uses nongaap financial measures evaluate operating performance nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period company believes meaningful investors made aware impacts 1 cti restructuring initiatives 2 brazil ipi tax release 3 charge loss contingency related nonus pension plan loss contingency 4 net proceeds recognized result settling claims relating professional services legal settlement 5 charges related deconsolidation venezuelan operations march 31 2016 combined venezuela designated highly inflationary economy venezuelan special items 6 various items associated debtrelated charges items relates effective tax rate discussion 7 special tax items associated uncertain tax positions ownership transfer certain operational assets within consolidated group recognized 2018 net income tax benefit result enactment tax cuts jobs act us release valuation allowances associated number markets europe middle east africa benefit result favorable court decision brazil partially offset charge associated valuation allowances adjust deferred tax assets mexico recognized 2017 income tax benefits realized 2016 result tax planning strategies income tax benefit second quarter 2016 primarily due release valuation allowance associated russia adjustments associated deferred tax assets recorded 2016 special tax items 1 cti restructuring initiatives includes impact consolidated statement operations periods presented net charges incurred approved restructuring initiatives 2 brazil ipi tax release includes impact consolidated statement operations third quarter 2018 release liability related ipi tax cosmetics brazil release recorded net sales income expense net amounts approximately 168 approximately 27 respectively brazil ipi tax release also includes approximately 66 recorded income taxes 3 loss contingency includes impact consolidated statements operations second quarter 2017 caused charge approximately 18 loss contingency related nonus pension plan amendment plan occurred prior year may appropriately implemented 4 legal settlement includes impact consolidated statements operations third quarter 2016 associated net proceeds approximately 27 recognized result settling claims relating professional services provided company prior 2013 connection previously disclosed legal matter 5 venezuelan special items include impact consolidated statements operations first quarter 2016 caused deconsolidation venezuelan operations recorded loss approximately 120 expense net loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within accumulated comprehensive loss aoci associated foreign currency changes venezuela accounted highly inflationary economy 6 items include impact consolidated statements operations third quarter 2016 due net gain extinguishment debt associated cash tender offers august 2016 debt repurchases october december 2016 prepayment remaining principal amount 420 notes due july 15 2018 575 notes due march 1 2018 november 2016 7 addition effective tax rate discussion includes special tax items including impact provision income taxes consolidated statements operations 2018 due onetime tax reserves approximately 18 associated uncertain tax positions expense approximately 3 associated ownership transfer certain operational assets within consolidated group special tax items also include impact provision income taxes consolidated statements operations 2017 due approximate 30 net benefit recognized result enactment tax cuts jobs act us release valuation allowances approximately 26 associated number markets europe middle east africa approximate 10 benefit result favorable court decision brazil partially offset charge approximately 16 associated valuation allowances adjust deferred tax assets mexico special tax items also include impact provision income taxes consolidated statements operations fourth quarter 2016 due charge approximately 9 associated valuation allowances adjust certain nonus deferred tax assets amount likely realized special tax items also include impact provision income taxes consolidated statements operations second quarter 2016 primarily due release valuation allowance associated russia approximately 7 special tax items also include impact provision income taxes consolidated statements operations first quarter 2016 due income tax benefits approximately 29 recognized result implementation foreign tax planning strategies see note 19 contingencies pages 2018 annual report note 17 restructuring initiatives pages 2018 annual report note 14 employee benefit plans pages 2018 annual report note 15 segment information pages 2018 annual report results operations consolidated note 1 description business summary significant accounting policies pages 2018 annual report venezuela discussion note 8 debt financing pages 2018 annual report note 10 income taxes pages 2018 annual report effective tax rate pages 39 mda information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2018 annual report detailed discussion application accounting policies revenue recognition revenue recognized control product service transferred customer generally representative revenue measured based consideration specified contract customer excludes amounts collected behalf third parties value added taxes “vat” collected taxing authorities contracts representatives often include multiple promises transfer products andor services representative determining products andor services considered distinct performance obligations accounted separately assessing recognition revenue identified performance obligations management exercised significant judgment following areas estimation variable consideration standalone selling prices ssp promised goods services delivered sales incentives determine allocate transaction price typically included within contract customers variable consideration sales returns late payment fees revenue recorded extent probable reversed therefore revenue adjusted variable consideration judgment required estimate variable consideration company uses expected value method considers possible outcomes weighted probability specifically sales returns refund liability recorded estimated cash refunded products expected returned returns asset recorded products expect returned resold based historical experience estimate sales returns well measurement returns asset refund liability updated end month changes expectations regarding amount salvageable returns reconditioning costs additional decreases value returned products late payment fees recorded uncertainty associated collecting fees resolved ie collected additionally management exercised significant judgment estimation ssp promised goods services delivered sales incentives status programs loyalty points prospective discounts gift purchase among others determine allocate transaction price ssp represents estimated market value estimated amount could charged material right entity sells separately similar circumstances similar customers judgment required determine ssp distinct performance obligation instances ssp directly observable sell product service separately including certain sales incentives determine ssp using information may include market prices observable inputs new standard related revenue recognition material impact consolidated financial statements see note 1 description business summary significant accounting policies pages 2018 annual report information revenue recognition accounting policy allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign generally credit representatives meet certain criteria sales campaigns generally three fourweek duration representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 162 2018 222 2017 191 2016 approximately 3 total revenue 2018 approximately 4 total revenue 2017 approximately 3 total revenue 2016 allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction record provision estimated sales returns based historical experience product returns past three years annual sales returns 172 2018 198 2017 187 2016 approximately 3 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence applicable equal difference cost inventory net realizable value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 114 2018 37 2017 37 2016 2 total revenue 2018 less 1 total revenue 2017 2016 discussed overview section 2018 includes inventory obsolescence charges 88 related inventory reset program pension postretirement expense maintain defined benefit pension plans significant uk germany us however us defined benefit pension plan closed employees hired january 1 2015 uk defined benefit pension plan frozen future accruals april 1 2013 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations certain retired employees us certain foreign countries see note 14 employee benefit plans pages 2018 annual report information benefit plans pension postretirement expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors use december 31 measurement date employee benefit plans 2018 weighted average assumed rate return pension plan assets 523 compared 512 2017 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts generally evaluate expected longterm rates return annually adjust necessary defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2018 net periodic benefit cost uk defined benefit pension plan 520 addition 2018 rate return assumption uk defined benefit pension plan based asset allocation approximately 80 corporate government bonds mortgagebacked securities expected earn approximately 2 4 longterm approximately 20 equity securities emerging market debt high yield securities expected earn approximately 5 9 longterm addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure rate return plan assets uk approximately 4 2018 approximately 9 2017 historically pension plan significant pension plan assets us defined benefit pension plan part separation north america business 2016 transferred 4996 pension liabilities us defined benefit pension plan associated current former employees north america business certain former avon employees along 3559 assets held us defined benefit pension plan defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations assets liabilities held sale pages 2018 annual report continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon us providing services respect north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates ongoing net periodic benefit costs within global materially impacted separation north america business assumed rate return determining 2018 net periodic benefit cost us defined benefit pension plan 550 based asset allocation approximately 70 corporate government bonds expected earn approximately 3 5 longterm approximately 30 equity securities expected earn approximately 6 8 longterm rate return plan assets us approximately 6 2018 approximately 15 2017 discount rate used determining present value future pension obligations individual plan based review bonds receive highquality rating recognized rating agency discount rates calculating balance sheet obligations significant plans including uk defined benefit pension plan us defined benefit pension plan based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 306 december 31 2018 266 december 31 2017 determination expected rates return assets discount rates take external actuarial investment advice consideration effective january 1 2018 changed method use estimate service interest cost components net periodic benefit cost us defined benefit pension plan majority significant nonus pension plans including uk defined benefit pension plan historically including 2017 estimated service interest cost components using single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period beginning 2018 elected use full yield curve approach estimation components net periodic benefit cost applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows made change improve correlation projected benefit cash flows corresponding yield curve spot rates believe result precise measurement service interest costs accounted change estimate prospective basis beginning 2018 funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2018 pretax actuarial losses prior service credits totaling approximately 33 us defined benefit pension postretirement plans approximately 175 nonus defined benefit pension postretirement plans yet charged expense actuarial losses charged aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2019 assumption expected rate return assets 55 us defined benefit pension plan 53 nonus defined benefit pension plans includes 520 uk defined benefit pension plan assumptions generally reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2018 pension expense pension benefit obligation december 31 2018 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits inventory writeoffs impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted us foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration december 31 2018 net deferred tax assets approximately 193 net valuation allowances approximately 3258 deferred tax liabilities 85 respect deferred tax assets december 31 2018 recognized deferred tax assets approximately 2144 relating foreign state tax loss carryforwards valuation allowance approximately 2073 provided december 31 2018 recognized deferred tax assets approximately 831 primarily relating excess us foreign tax us general business credit carryforwards valuation allowance approximately 813 provided history us source losses excess us foreign tax general business credits primarily resulted greater us source loss recent years reduces ability credit foreign taxes utilize general business credits generate ability realize us deferred tax assets foreign tax general business credit carryforwards dependent future us taxable income within carryforward period december 31 2018 would need generate approximately 40 billion excess net foreign source income order realize us foreign tax general business credits expire december 31 2018 continue assert foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability period account undistributed earnings foreign subsidiaries tax effect earnings actually repatriated year net impact deferred tax liability associated company’s undistributed earnings decrease approximately 5 resulting deferred tax liability balance approximately 17 related incremental tax cost approximately 11 billion undistributed foreign earnings december 31 2018 respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2019 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2019 provision income taxes well tax related cash receipts payments may impacted loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets plant property equipment capitalized software evaluate plant property equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate goodwill test goodwill impairment annually frequently circumstances warrant using various fair value methods completed annual goodwill impairment assessment 2018 determined estimated fair values considered substantially excess carrying values reporting units impairment analyses performed goodwill require several estimates computing estimated fair value reporting unit part goodwill impairment analysis typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses recorded sga expenses 2 change constant adjusted operating margin years presented calculated using currentyear constant rates 2018 compared 2017 revenue 2018 revenue declined 3 compared prioryear period excluding brazil ipi release adjusted revenue 5 primarily due unfavorable impact foreign exchange constant adjusted revenue increased 1 revenue constant adjusted revenue included benefit approximately 4 due impact adopting new revenue recognition standard 4 benefit driven primarily reclassification fees paid representatives brochures late payments payment processing income appointment kits sga impact timing revenue recognition sales incentives negligible revenue constant adjusted revenue impacted declines primarily brazil continued negatively impacted competitive pressures backdrop challenging macroeconomic environment lower consumption market well lower appointments due application strict credit requirements acceptance new representatives lesser extent constant adjusted revenue also impacted declines uk south africa russia well lower revenue closure australia new zealand 2018 declines partially offset improved revenue growth management including inflationary pricing argentina revenue constant adjusted revenue impacted decrease active representatives 5 primarily driven brazil lesser extent russia average order constant increased 2 including benefit approximately 4 due impact adopting new revenue recognition standard units sold decreased 6 driven decline brazil ending representatives declined 8 primarily driven declines russia brazil category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin decreased 70 basis points adjusted operating margin decreased 170 basis points compared 2017 including benefit 10 basis points due impact adopting new revenue recognition standard benefit 10 basis points driven net positive contribution operating margin fourth quarter 2017 sales incentives satisfied 2018 sales incentives deferred period impacted mix products changes operating margin adjusted operating margin include benefits associated transformation plan primarily reductions headcount well cost reductions savings partially offset inflationary impact costs operating margin adjusted operating margin drivers discussed gross margin sga expenses gross margin gross margin decreased 390 basis points adjusted gross margin decreased 360 basis points compared period 2017 including decline 350 basis points due impact adopting new revenue recognition standard 350 basis point decline driven reclassification sales incentive costs sga cost sales partially offset reclassification fees paid representatives late payments payment processing brochures sga revenue reclassification income appointment kits sga net sales gross margin adjusted gross margin primarily impacted following • decrease 80 basis points due higher supply chain costs driven higher material costs primarily south latin america • decrease 20 basis points due net unfavorable impact foreign currency transaction losses foreign currency translation • decrease 20 basis points due unfavorable impact result hyperinflationary accounting argentina effective july 1 2018 primarily due inventory accounted historical dollar cost item partially offset following • increase 110 basis points due favorable net impact mix pricing driven inflationary pricing argentina sga expenses sga percentage total revenue decreased 320 basis points benefited 170 basis points brazil ipi release third quarter 2018 30 basis points loss contingency recorded prioryear period related nonus pension plan partially offset 60 basis point higher cti restructuring adjusted sga percentage adjusted revenue decreased 180 basis points compared period 2017 sga percentage total revenue adjusted sga percentage adjusted revenue include benefit 350 basis points due impact adopting new revenue recognition standard 350 basis point benefit driven reclassification sales incentive costs sga cost sales partially offset reclassification fees paid representatives late payments payment processing brochures sga revenue reclassification income appointment kits sga net sales sga percentage total revenue adjusted sga percentage adjusted revenue primarily impacted following • increase 50 basis points due higher representative sales leader field expense primarily brazil due investments aimed recovering activity levels disrupted national transportation strike second quarter 2018 well increased focus representatives training second half 2018 • increase 40 basis points higher advertising expense primarily due increased investments europe middle east africa • increase 40 basis points higher transportation costs mainly brazil primarily driven inefficiencies caused national transportation strike increase fuel prices europe middle east africa driven increases delivery rates russia increased flexibility order processing uk mexico due increase fuel prices • increase approximately 40 basis points due net unfavorable impact foreign currency transaction losses foreign currency translation • increase 40 basis points due higher net brochure expense primarily due increase brochure volumes brazil • decrease 50 basis points lower bad debt expense primarily brazil due improved credit control collections processes see note 15 segment information pages 2018 annual report information legal settlement note 14 employee benefit plans pages 2018 annual report information loss contingency related nonus pension plan note 17 restructuring initiatives pages 2018 annual report information cti restructuring expenses interest expense decreased approximately 6 primarily due interest savings associated prepayment 2378 principal amount 650 notes due march 2019 refer note 8 debt financing pages 2018 annual report additional information loss extinguishment debt approximately 1 comprised loss approximately 3 associated prepayment 650 notes partially offset gain approximately 2 associated debt repurchases fourth quarter 2018 refer note 8 debt financing pages 2018 annual report additional information interest income increased 1 compared prioryear period expense net decreased approximately 28 compared prioryear period including impact brazil ipi tax release 27 expense net positively impacted lower expenses associated employee benefit plans 12 primarily related uk including impact 3 settlement charge recorded third quarter 2017 approximately 12 recorded proportionate share new avons losses nine months ended september 30 2017 recorded investment balance new avon zero end third quarter 2017 recorded additional losses associated new avon since third quarter 2017 benefits partially offset foreign exchange net losses increased approximately 19 compared prioryear period miscellaneous unfavorable impacts totaling 4 see note 4 investment new avon page 2018 annual report information new avon effective tax rate effective tax rates 2018 2017 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition effective tax rates 2018 2017 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2018 2017 effective tax rate 2018 impacted approximate net 25 benefit recognized primarily due avons interpretation case law andor guidance provided 2018 us latin america release valuation allowances approximately 5 associated improved profitability certain markets partially offset net charge approximately 11 primarily associated increase reserves uncertain tax positions effective tax rate 2018 also impacted accrual taxes associated reversal brazil ipi loss contingency cti restructuring tax benefits cannot currently claimed affected jurisdictions effective tax rate 2017 impacted approximate net 30 benefit recognized result enactment tax cuts jobs act us release valuation allowances approximately 26 associated number markets europe middle east africa result business model change related headquarters move approximate 10 benefit result favorable court decision brazil partially offset charge approximately 16 associated valuation allowances adjust deferred tax assets mexico effective tax rate 2017 also impacted loss contingency related nonus pension plan cti restructuring tax benefits cannot currently claimed addition effective tax rates adjusted effective tax rates 2018 2017 negatively impacted country mix earnings see note 10 income taxes pages 2018 annual report information tax items note 14 employee benefit plans pages 2018 annual report information loss contingency related nonus pension plan note 17 restructuring initiatives pages 2018 annual report information cti restructuring venezuela discussion mda note 1 description business summary significant accounting policies pages 2018 annual report information discussion venezuelan operations impact foreign currency compared prioryear period foreign currency 2018 impacted consolidated financial results form • foreign currency transaction net losses compared net gains prior year classified within cost sga expenses unfavorable impact operating profit adjusted operating profit estimated 30 approximately 50 basis points operating margin adjusted operating margin • foreign currency translation unfavorable impact compared favorable impact prior year operating profit adjusted operating profit approximately 75 approximately 35 respectively approximately 80 basis points approximately 30 basis points respectively operating margin adjusted operating margin • higher foreign exchange net losses working capital classified within expense net compared net gains prior year resulting yearoveryear unfavorable impact approximately 20 tax reported adjusted basis 2017 compared 2016 revenue 2017 revenue relatively unchanged compared prioryear period partially benefiting foreign exchange constant revenue decreased 2 constant revenue decline primarily driven declines brazil russia uk partially offset growth argentina south africa decline revenue constant revenue primarily due 3 decrease active representatives partially offset higher average order decrease active representatives impacted declines reportable segments significantly south latin america driven brazil europe middle east africa net impact price mix increased 2 primarily due inflationary impact pricing argentina russia mexico units sold decreased 4 primarily due declines russia brazil mexico uk revenue performance negatively impacted significantly decline color sales experienced issues markets segmented color category three distinct brands timing innovation also impacted decline color sales ending representatives relatively unchanged ending representatives december 31 2017 compared prioryear period benefited growth russia offset decline brazil category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin decreased 80 basis points 20 basis points respectively compared 2016 decreases operating margin adjusted operating margin include benefits associated transformation plan primarily reductions headcount well cost reductions savings largely offset inflationary impact costs outpacing revenue growth decreases operating margin adjusted operating margin discussed gross margin sga expenses gross margin gross margin adjusted gross margin increased 100 basis points compared 2016 case primarily due increase 120 basis points favorable net impact mix pricing driven inflationary pricing south latin america sga expenses sga expenses 2017 increased approximately 94 compared 2016 increase primarily due unfavorable impact foreign currency translation weakening us dollar many foreign currencies resulted higher reported sga expenses increase sga expenses also due approximate 27 net proceeds recognized result legal settlement 2016 higher bad debt expense higher transportation costs loss contingency related nonus pension plan higher representative sales leader field expense partially offsetting increase sga expenses lower expenses associated employee incentive compensation plans lower cti restructuring sga expenses percentage revenue adjusted sga expenses percentage revenue increased 160 basis points 120 basis points respectively compared 2016 sga expenses percentage revenue comparison negatively impacted • approximately 50 basis points approximate 27 net proceeds recognized result legal settlement 2016 • approximately 30 basis points loss contingency related nonus pension plan items partially offset • approximately 30 basis points lower cti restructuring remaining increase sga expenses percentage revenue increase 120 basis points adjusted sga expenses percentage revenue case primarily due following • increase 50 basis points higher bad debt expense driven brazil due lower anticipated collection receivables primarily impacted macroeconomic environment well resulting adjustment credit terms available new representatives 2016 • increase 50 basis points primarily due higher representative sales leader field expense significantly brazil support efforts activate field improve representative recruitment well philippines • increase 40 basis points higher transportation costs significantly russia driven new delivery rates • increase 20 basis points primarily due impact constant revenue decline causing deleverage fixed expenses partially offset lower fixed expenses fixed expenses include benefits associated transformation plan primarily reductions headcount well cost reductions savings largely offset inflationary impact costs outpacing revenue growth items partially offset following • decrease 30 basis points due lower expenses associated employee incentive compensation plans • decrease approximately 20 basis points due favorable impact foreign currency translation foreign currency transaction losses see note 15 segment information pages 2018 annual report information legal settlement note 14 employee benefit plans pages 2018 annual report information loss contingency related nonus pension plan note 17 restructuring initiatives pages 2018 annual report information cti restructuring expenses interest expense increased approximately 4 compared prioryear period primarily due interest associated 500 principal amount 7875 senior secured notes issued august 2016 lower amortization gains associated termination interest rate swaps items partially offset interest savings associated repayment certain debt 2016 lower interest due reduction international debt balances refer note 8 debt financing pages 2018 annual report note 11 financial instruments risk management pages 2018 annual report additional information gain extinguishment debt 2016 approximately 1 comprised gain approximately 4 associated cash tender offers august 2016 gain approximately 1 associated debt repurchases december 2016 partially offset loss approximately 3 associated prepayment remaining principal amount 420 notes 575 notes november 2016 loss approximately 1 associated debt repurchases october 2016 refer note 8 debt financing pages 2018 annual report additional information interest income decreased approximately 1 compared prioryear period expense net decreased approximately 138 compared prioryear period primarily due deconsolidation venezuelan operations recorded loss approximately 120 first quarter 2016 addition expense net positively impacted foreign exchange net gains current year compared net losses prior year resulting yearoveryear benefit approximately 28 amounts recorded proportionate share new avons losses approximately 12 2017 2016 recorded investment balance new avon zero end third quarter 2017 recorded additional losses associated new avon since third quarter 2017 see venezuela discussion mda note 1 description business summary significant accounting policies pages 2018 annual report discussion venezuelan operations see note 4 investment new avon page 2018 annual report information new avon effective tax rate effective tax rates 2017 2016 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition effective tax rates 2017 2016 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2017 2016 effective tax rate 2017 impacted approximate net 30 benefit recognized result enactment tax cuts jobs act us release valuation allowances approximately 26 associated number markets europe middle east africa result business model change related headquarters move approximate 10 benefit result favorable court decision brazil partially offset charge approximately 16 associated valuation allowances adjust deferred tax assets mexico effective tax rate 2017 also impacted loss contingency related nonus pension plan cti restructuring tax benefits cannot currently claimed effective tax rate 2016 impacted deconsolidation venezuelan operations valuation allowances deferred tax assets outside us approximately 9 cti restructuring partially offset benefit approximately 29 result implementation foreign tax planning strategies net benefit approximately 7 primarily due release valuation allowance associated russia benefit net proceeds recognized result legal settlement addition effective tax rates adjusted effective tax rates 2017 2016 negatively impacted country mix earnings see note 10 income taxes pages 2018 annual report information tax items note 14 employee benefit plans pages 2018 annual report information loss contingency related nonus pension plan note 17 restructuring initiatives pages 2018 annual report information cti restructuring venezuela discussion mda note 1 description business summary significant accounting policies pages 2018 annual report information discussion venezuelan operations impact foreign currency compared prioryear period foreign currency 2017 impacted consolidated financial results form • foreign currency transaction net gains classified within cost sales sga expenses immaterial impact operating profit adjusted operating profit operating margin adjusted operating margin • foreign currency translation favorable impact operating profit adjusted operating profit approximately 20 approximately 30 basis points operating margin approximately 20 basis points adjusted operating margin • foreign exchange net gains working capital classified within expense net compared net losses prior year resulting yearoveryear benefit approximately 28 tax reported adjusted basis discontinued operations amounts recorded discontinued operations year ended december 31 2017 loss discontinued operations net tax approximately 14 year ended december 31 2016 see note 3 discontinued operations assets liabilities held sale pages 2018 annual report discussion venezuela discussion avon venezuela operates directselling channel offering beauty fashion home products avon venezuela manufacturing facility produces beauty products sells avon venezuela imports many fashion home products raw materials components needed manufacture beauty products currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products 2010 began accounting operations venezuela accounting guidance associated highly inflationary economies us gaap financial statements foreign entity operating highly inflationary economy required remeasured functional currency company’s reporting currency us dollar generally results translation adjustments caused changes exchange rate reported earnings currently monetary assets eg cash accounts receivable liabilities eg accounts payable accrued expenses requires different procedures used translate nonmonetary assets eg inventories fixed assets nonmonetary assets liabilities remeasured historical us dollar cost basis diverges significantly application accounting rules prior designation highly inflationary accounting gains losses would recognized comprehensive income loss shareholders deficit venezuelas restrictive foreign exchange control regulations venezuelan operations increasingly limited access us dollars resulted lack exchangeability venezuelan bolivar us dollar restricted venezuelan operations ability pay dividends settle intercompany obligations severe currency controls imposed venezuelan government significantly limited ability realize benefits earnings venezuelan operations access resulting liquidity provided earnings expected lack exchangeability would continue foreseeable future result concluded effective march 31 2016 condition otherthantemporary longer met accounting criteria control order continue consolidating venezuelan operations result since march 31 2016 account venezuelan operations using cost method accounting result change cost method accounting first quarter 2016 recorded loss approximately 120 expense net loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within aoci associated foreign currency movements venezuela accounted highly inflationary economy net assets venezuelan business comprised inventories approximately 24 property plant equipment net approximately 15 assets approximately 11 accounts receivable approximately 5 cash approximately 4 accounts payable accrued liabilities approximately 20 consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements include income relating venezuelan operations extent receive cash dividends royalties remitted avon venezuela comprehensive loss income comprehensive loss net taxes approximately 104 2018 compared comprehensive income approximately 108 2017 yearoveryear comparison unfavorably impacted unrealized losses revaluation longterm intercompany balances 58 compared unrealized gains 62 prioryear period longterm intercompany balances denominated brazilian real british pound foreign currency translation adjustments unfavorably impacted comprehensive loss approximately 69 compared 2017 primarily due unfavorable yearoveryear comparison movements polish zloty argentinian peso first half 2018 highly inflationary accounting applied argentinian subsidiary july 1 2018 comprehensive income net taxes approximately 108 2017 compared approximately 333 2016 yearoveryear comparison unfavorably impacted recognition losses 259 comprehensive income consolidated statements operations 2016 result separation north america business primarily related unamortized losses associated employee benefit plans approximate 82 impact deconsolidation venezuela remaining approximate 116 benefit yearoveryear comparison primarily due foreign currency translation adjustments benefited approximately 117 compared 2016 primarily due favorable yearoveryear comparison movements polish zloty mexican peso partially offset unfavorable yearoveryear comparison movements brazilian real see note 3 discontinued operations assets liabilities held sale pages 2018 annual report information separation north america business see venezuela discussion mda note 1 description business summary significant accounting policies pages 2018 annual report discussion venezuelan operations note 14 employee benefit plans pages 2018 annual report information benefit plans segment review determine segment profit deducting related costs expenses segment revenue order ensure comparability periods segment profit includes allocation global marketing expenses based actual revenues segment profit excludes global expenses allocation marketing cti restructuring initiatives certain significant asset impairment charges items allocated particular segment applicable consistent manner assess performance allocate resources see note 15 segment information pages 2018 annual report reconciliation segment profit operating profit summarized financial information concerning reportable segments follows analysis key factors affecting revenue segment profit reportable segment years threeyear period ended december 31 2018 foreign currency impact determined difference actual growth rates constant growth rates refer nongaap financial measures mda information europe middle east africa 2018 compared 2017 amounts table may necessarily sum due rounding total revenue decreased 2 compared prioryear period unfavorably impacted foreign exchange constant basis revenue decreased 1 revenue constant revenue included benefit approximately 3 due impact adopting new revenue recognition standard revenue constant revenue negatively impacted primarily decrease active representatives partially offset higher average order decrease ending representatives driven primarily declines russia revenue decreased 6 unfavorably impacted foreign exchange constant basis russias revenue increased 1 russias revenue constant revenue included benefit approximately 4 due impact adopting new revenue recognition standard revenue constant revenue russia negatively impacted decrease active representatives partially offset higher average order revenue constant revenue russia also negatively impacted lower consumption market uk revenue decreased 6 despite favorable impact foreign exchange constant basis uks revenue decreased 9 uks revenue constant revenue included benefit approximately 4 due impact adopting new revenue recognition standard revenue constant revenue uk negatively impacted decrease active representatives driven underlying field issues temporary service issues fourth quarter 2018 partially offset higher average order south africa revenue decreased 4 despite favorable impact foreign exchange constant basis south africas revenue decreased 5 south africas revenue constant revenue included benefit approximately 2 due impact adopting new revenue recognition standard revenue constant revenue south africa negatively impacted decrease active representatives resulting challenging macroeconomic environment application strict credit requirements acceptance new representatives compared requirements prior year segment margin decreased 270 basis points 280 basis points constant basis including decline approximately 30 basis points due impact new revenue recognition standard decrease reported constant segment margin primarily result • decline 70 basis points higher advertising expense primarily due increased investments uk south africa russia • decline 50 basis points higher rep sales leader investments primarily russia poland turkey • decline 50 basis points due higher fixed expenses primarily due impact constant adjusted revenue decline causing deleverage fixed expenses • decline 40 basis points higher transportation costs driven increases delivery rates russia increased flexibility order processing uk • decline 40 basis points higher variable distribution cost primarily relating increased flexibility order processing uk • benefit 40 basis points due lower net bad debt expense driven russia south africa uk bad debt expense russia priorperiod negatively impacted payment facilitation agency remitted us funds received certain representatives yearoveryear bad debt expense comparison south africa uk benefited improved credit control enhancement collections processes europe middle east africa 2017 compared 2016 amounts table may necessarily sum due rounding total revenue decreased 1 compared prioryear period despite favorable impact foreign exchange primarily driven weakening us dollar relative russian ruble lesser extent south african rand partially offset strengthening us dollar relative turkish lira british pound constant basis revenue decreased 4 significantly impacted declines russia uk partially offset growth south africa segments constant revenue decline primarily driven decrease active representatives lower average order increase ending representatives primarily driven increases russia turkey south africa partially offset decline uk russia revenue increased 5 benefiting significantly favorable impact foreign exchange constant basis russias revenue declined 8 primarily due lower average order along decrease active representatives first half 2017 constant revenue decline russia impacted comparison strong volume growth prioryear period benefited primarily pricing lag inflationary period constant revenue decline russia also impacted competitive pressures innovation issues continued difficult macroeconomic environment primarily second half 2017 issues also negatively impacted active representatives despite increase ending representatives uk revenue declined 14 unfavorably impacted foreign exchange constant basis uks revenue declined 11 primarily due decrease active representatives lesser extent lower average order south africa revenue grew 20 favorably impacted foreign exchange constant basis south africa’s revenue grew 9 primarily due increase active representatives partially offset lower average order segment margin increased 40 basis points relatively unchanged constant basis case primarily result • decline 70 basis points higher transportation costs driven primarily new delivery rates russia • decline 70 basis points primarily due impact constant revenue decline causing deleverage fixed expenses partially offset lower fixed expenses fixed expenses benefited lower expenses associated employee incentive compensation plans partially offset higher administrative costs • decline 40 basis points higher bad debt expense primarily south africa russia higher bad debt expense south africa driven primarily lower collection receivables result deteriorating economic conditions russia driven primarily payment facilitation agency remitted us funds received certain representatives • decline 30 basis points primarily related net impact declining revenue respect representative sales leader field expense • benefit 180 basis points due higher gross margin caused primarily 100 basis points favorable net impact mix pricing primarily driven russia 70 basis points due lower supply chain costs supply chain costs benefited primarily lower material distribution costs partially due productivity initiatives south latin america 2018 compared 2017 amounts table may necessarily sum due rounding total revenue decreased 3 compared prioryear period excluding brazil ipi release adjusted revenue region 11 unfavorably impacted foreign exchange primarily driven strengthening us dollar relative argentinian peso brazilian real constant basis adjusted revenue increased 3 revenue constant adjusted revenue included benefit approximately 6 due impact adopting new revenue recognition standard revenue constant adjusted revenue negatively impacted decrease active representatives primarily driven decline brazil partially offset higher average order driven argentina decrease ending representatives driven primarily declines brazil revenue brazil remained relatively unchanged excluding brazil ipi release adjusted revenue brazil decreased 13 unfavorably impacted foreign exchange brazils constant adjusted revenue decreased 1 brazils revenue constant adjusted revenue included benefit approximately 9 due impact adopting new revenue recognition standard revenue constant adjusted revenue brazil negatively impacted primarily decrease active representatives lesser extent lower average order revenue constant adjusted revenue brazil well active representatives ending representatives negatively impacted competitive pressures backdrop challenging macroeconomic environment lower consumption market well lower appointments partly due application strict credit requirements acceptance new representatives addition revenue constant adjusted revenue brazil well active representatives ending representatives also impacted national transportation strike affected sales distribution second quarter 2018 adjusted constant basis brazil’s sales beauty products fashion home products declined 8 4 respectively including 2 benefit categories due impact new revenue recognition standard decline constant beauty sales brazil mainly color revenue argentina declined 25 unfavorably impacted foreign exchange constant basis argentinas revenue grew 22 argentinas revenue constant revenue included benefit approximately 1 due impact adopting new revenue recognition standard revenue constant revenue argentina benefited higher average order impacted improved revenue growth management including inflationary pricing segment margin increased 590 basis points including 730 basis points brazil ipi tax release constant basis segment margin increased 690 basis points including 800 basis points brazil ipi tax release reported segment margin increase constant adjusted segment margin decrease 110 basis points included decline approximately 20 basis points due impact adopting new revenue recognition standard remaining decrease reported constant adjusted segment margin primarily result • decline 110 basis points due higher representative sales leader field expense primarily brazil due investments aimed recovering activity levels disrupted national transportation strike second quarter 2018 well increased focus representatives training second half 2018 • decline 90 basis points due higher net brochure cost primarily due increase brochure volumes brazil • decline 60 basis points due higher transportation costs brazil primarily driven inefficiencies caused national transportation strike increase fuel prices • decline 50 basis points due higher fixed expenses primarily due impact constant adjusted revenue decline causing deleverage fixed expenses • benefit 110 basis points lower net bad debt expense primarily brazil due improved credit control collections processes • benefit 80 basis points due higher gross margin 200 basis points favorable net impact mix pricing driven inflationary pricing argentina revenue management initiatives brazil items partially offset 150 basis points due higher supply chain costs driven higher material costs brazil ipi tax discussion may 2015 executive decree certain cosmetics went effect brazil increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products subject ipi september 30 2018 due part judicial decisions across industry developments concluded supported opinion legal counsel executive decree unconstitutional therefore assessed ipi tax asc 450 contingencies determined risk loss ongoing judicial reviews reasonably possible probable accordingly released liability accrued september 30 2018 195 considered release liability nongaap adjustment therefore adjusted ipi tax 168 recorded net sales consolidated income statements associated interest 27 recorded income expense net consolidated income statements adjusted nongaap results period ended december 31 2018 accrual brazil ipi tax negatively impacted total revenue nine month period ended september 30 2018 brazil south latin america total avon approximately 45 approximately 23 approximately 1 respectively additional details ipi tax cosmetics increase brazil see note 19 contingencies consolidated financial statements included herein argentina discussion quarter ended june 30 2018 based published official exchange rates indicate argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina become highly inflationary economy july 1 2018 applied highly inflationary accounting argentinian subsidiary functional currency argentina changed us dollar consolidated groups reporting currency entity operates highly inflationary economy exchange gains losses associated monetary assets liabilities resulting changes exchange rate recorded income nonmonetary assets liabilities include inventories property plant equipment contract liabilities carried forward historical dollar cost calculated using exchange rate june 30 2018 result devaluation argentinian peso approximately 25 june 30 2018 december 31 2018 operating profit negatively impacted approximately 8 largely cost sales consolidated income statements primarily due inventory accounted historical dollar cost six months ended december 31 2018 also recorded benefit approximately 6 expense net primarily associated net monetary liability position argentina approximate 2 positive impact income taxes consolidated income statements argentinian operations contributed approximately 272 approximately 5 revenues approximately 7 constant adjusted revenue year ended december 31 2018 december 31 2018 net argentine pesodenominated monetary liability position argentina 33 net argentine pesodenominated nonmonetary asset position 50 primarily consisting inventory balances 32 south latin america 2017 compared 2016 amounts table may necessarily sum due rounding total revenue increased 4 compared prioryear period primarily due favorable impact foreign exchange primarily driven weakening us dollar relative brazilian real constant basis revenue relatively unchanged compared prior year higher average order offset decrease active representatives decline ending representatives primarily driven decline brazil described revenue brazil increased 4 favorably impacted foreign exchange brazil’s constant revenue declined 4 primarily due decrease active representatives partially offset higher average order constant basis brazil’s sales beauty products fashion home products decreased 4 5 respectively decline constant beauty sales brazil driven weaker performance color revenue brazil well active representatives ending representatives impacted difficult macroeconomic environment particularly first half 2017 combined application strict credit requirements acceptance new representatives compared requirements prior year addition brazils results negatively impacted competition primarily second half 2017 revenue argentina grew 10 23 constant basis primarily due higher average order impacted inflationary pricing segment margin decreased 60 basis points 30 basis points constant basis case primarily result • decline 60 basis points higher bad debt expense driven brazil due lower anticipated collection receivables primarily impacted macroeconomic environment well resulting adjustment credit terms available new representatives 2016 • decline 60 basis points primarily due higher fixed expenses driven inflationary impact costs outpacing revenue growth particularly argentina partially offset lower expenses associated employee incentive compensation plans • decline 50 basis points due higher representative sales leader field expense significantly brazil support efforts activate field improve representative recruitment • decline 30 basis points higher transportation expense driven argentina due inflationary cost increases • benefit 180 basis points due higher gross margin caused 200 basis points favorable net impact mix pricing primarily due inflationary pricing partially offset 30 basis points higher supply chain costs primarily negatively impacted higher material costs included inflationary pressures argentina north latin america 2018 compared 2017 amounts table may necessarily sum due rounding north latin america consists largely mexico business total revenue segment remained relatively unchanged compared prioryear period constant basis revenue increased 2 revenue constant revenue included benefit approximately 4 due impact adopting new revenue recognition standard revenue constant revenue negatively impacted decrease active representatives partially offset higher average order decline ending representatives primarily driven decline mexico revenue mexico increased 2 despite unfavorable impact foreign exchange constant basis mexicos revenue increased 5 mexicos revenue constant revenue included benefit approximately 4 due impact new revenue recognition standard revenue constant revenue mexico benefited higher average order driven incremental media investment color fragrance categories second half 2018 partially offset decrease active representatives primarily due quality issues fashion home category first quarter 2018 segment margin decreased 160 basis points 170 basis points constant basis including immaterial impact adopting new revenue recognition standard decrease reported constant segment margin primarily result • net decline 170 basis points primarily higher fixed expenses primarily related personnel cost • decline 50 basis points due higher transportation costs primarily related increase fuel prices mexico • decline 40 basis points higher advertising expense primarily mexico due incremental media investment color fragrance categories support new product launches second half 2018 • benefit 50 basis points due lower net brochure costs • benefit 30 basis points due higher gross margin primarily due 70 basis points favorable net impact mix pricing 30 basis points favorable impact foreign currency net gains partially offset 70 basis points higher supply chain costs driven higher material costs north latin america 2017 compared 2016 amounts table may necessarily sum due rounding north latin america consists largely mexico business total revenue segment decreased 2 compared prioryear period partly due unfavorable impact foreign exchange primarily driven strengthening us dollar relative mexican peso constant basis revenue decreased 1 due decrease active representatives negatively impacted product fulfillment shortfalls region second quarter 2017 constant revenue region mexico negatively impacted approximately 1 point 1 point respectively due earthquake mexico earthquake occurred late september 2017 adversely impacted mexicos fourth quarter 2017 results segments constant revenue benefited growth central america offset constant revenue decline mexico decline ending representatives primarily driven decline central america revenue mexico declined 4 unfavorably impacted foreign exchange constant basis mexicos revenue declined 2 primarily due decrease active representatives impact earthquake segment margin decreased 370 basis points 350 basis points constant basis case primarily result • decline 90 basis points due lower gross margin caused primarily 90 basis points higher supply chain costs 50 basis points unfavorable impact foreign currency transaction net losses partially offset 50 basis points favorable net impact mix pricing impact supply chain costs gross margin primarily due lower volume fixed overhead costs well higher material costs • decline 80 basis points higher bad debt expense primarily mexico partially due implementation new collection process result changes regulations • decline 70 basis points due higher representative sales leader field expense primarily result increasing incentives mitigate impact product fulfillment shortfalls region earthquake mexico • decline 60 basis points higher transportation costs driven mexico primarily due increased fuel prices • decline 30 basis points higher net brochure costs partly due increase number pages support segmentation color category asia pacific 2018 compared 2017 amounts table may necessarily sum due rounding effective first quarter 2018 given exited australia new zealand 2018 results australia new zealand reported operating segments business activities periods presented previously results reported asia pacific segment total revenue remained relatively unchanged compared prioryear period unfavorably impacted foreign exchange constant basis revenue increased 2 revenue constant revenue included benefit approximately 1 due impact adopting new revenue recognition standard revenue constant revenue benefited higher average order partially offset decrease active representatives significantly malaysia decline ending representatives driven declines philippines malaysia revenue philippines decreased 1 negatively impacted unfavorable impact foreign exchange constant basis revenue philippines increased 4 revenue constant revenue philippines included benefit approximately 2 due impact adopting new revenue recognition standard revenue constant revenue philippines benefited increase active representatives higher average order driven markets initiative grow skincare category mainly second half 2018 segment margin decreased 190 basis points 140 basis points constant basis including decline approximately 30 basis points due impact adopting new revenue recognition standard decrease reported constant segment margin primarily result • decline 120 basis points due higher gross margin primarily caused 80 basis points higher supply chain costs due higher logistics cost philippines 20 basis points unfavorable impact foreign current transaction losses • decline 30 basis points due higher advertising expense primarily china related celebrity digital advertising support growth • benefit 40 basis points due lower fixed expenses primarily due impact constant revenue growth respect fixed expenses asia pacific 2017 compared 2016 amounts table may necessarily sum due rounding effective first quarter 2017 given exited thailand 2016 results thailand reported operating segments business activities periods presented previously results reported asia pacific impact material asia pacific operating segments business activities consistent present market exits total revenue decreased 4 compared prioryear period partially due unfavorable impact foreign exchange constant basis revenue decreased 1 primarily due decrease active representatives significantly malaysia partially offset higher average order decrease ending representatives impacted significantly decline malaysia partially offset growth philippines revenue philippines decreased 2 increased 3 constant basis primarily due higher average order increase active representatives revenue growth philippines driven latter half 2017 strong commercial offers including pricing along television advertising associated color category helped drive momentum field addition actions implemented improve inventory availability provided benefits revenue growth segment margin decreased 190 basis points 140 basis points constant basis case primarily result • decline 140 basis points primarily related net impact declining revenue respect representative sales leader field expense primarily philippines • decline 100 basis points due lower gross margin caused primarily 70 basis points supply chain costs 40 basis points unfavorable net impact mix pricing impact supply chain costs gross margin primarily due lower volume fixed overhead costs • decline 40 basis points due higher advertising expense primarily philippines related television advertising associated color category latter half 2017 • benefit 100 basis points due lower fixed expenses including benefits associated transformation plan primarily reductions headcount • benefit 40 basis points lower bad debt expense primarily philippines driven mainly improved collection earlier 2017 completed review china operations determined retain china portfolio businesses liquidity capital resources principal sources funding historically cash flows operations public offerings notes bank financings issuance commercial paper borrowings lines credit private placement notes december 31 2018 cash equivalents totaling approximately 5327 believe sources funding sufficient satisfy currently anticipated cash requirements least next twelve months may seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments cash tender offers otherwise repurchases equity debt may funded cash incurrence additional debt issuance equity including shares preferred stock convertible securities depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity including shares preferred stock convertible securities finance ongoing operations meet liquidity needs issuances equity including shares preferred stock convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods credit ratings downgraded past several years may impact ability access transactions favorable terms information see risk factors credit ratings downgraded past several years could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness future inability meet obligations indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 7 20 2018 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 19 contingencies pages 2018 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2018 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2018 approximately 93 compared net cash provided continuing operating activities approximately 271 2017 decrease approximately 178 yearoveryear comparison net cash used continuing operating activities unfavorably impacted lower cashrelated earnings higher inventory purchases unfavorable impacts yearoveryear comparison cash operating activities partially offset judicial deposit receipt approximately 68 relating brazil ipi taxes described fully note 19 contingencies pages 2018 annual report lower net receivables net cash provided continuing operating activities 2017 approximately 271 compared approximately 128 2016 increase approximately 143 yearoveryear comparison unfavorably impacted approximately 27 proceeds net legal fees related settling claims relating professional services connection previously disclosed legal matter received 2016 unfavorable impact partially offset injunction received may 2016 cash deposits associated ipi brazil result required make cash deposits 2017 paid approximately 19 cash deposits 2016 prior may see note 19 contingencies pages 2018 annual report additional information ipi taxes remaining approximate 135 benefit yearoveryear comparison net cash provided continuing operating activities primarily due improvements working capital significantly lower purchases inventory timing payments well lower net receivables maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 14 employee benefit plans pages 2018 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 5 10 us defined benefit pension postretirement plans range 10 15 nonus defined benefit pension postretirement plans 2019 net cash continuing investing activities net cash used continuing investing activities 2018 approximately 93 compared approximately 70 2017 approximate 23 increase net cash used continuing investing activities primarily due approximate 22 cash distribution received new avon llc third quarter 2017 net cash used continuing investing activities 2017 approximately 70 compared approximately 83 2016 approximate 13 decrease net cash used continuing investing activities primarily due approximate 22 cash distribution received new avon third quarter 2017 partially offset lower asset disposals compared prioryear period see note 4 investment new avon page 2018 annual report information cash distribution received new avon capital expenditures 2018 approximately 95 compared approximately 97 2017 approximately 93 2016 capital expenditures 2019 currently expected range 120 140 expected funded cash operations net cash continuing financing activities net cash used continuing financing activities 2018 approximately 307 compared zero 2017 approximate 307 unfavorable impact net cash used continuing financing activities primarily due 238 repayment debt second quarter 2018 plus makewhole premium 6 well open market repurchases 48 fourth quarter 2018 net cash provided continuing financing activities 2017 zero compared approximately 137 2016 approximate 137 decrease net cash provided continuing financing activities primarily due net proceeds related 500 principal amount 7875 senior secured notes issued august 2016 net proceeds sale series c preferred stock drivers partially offset repayment certain debt 2016 approximately 720 aggregate higher repayments shortterm debt prioryear period see note 8 debt financing pages 2018 annual report note 18 series c convertible preferred shares page 2018 annual report information purchased approximately 11 million shares common stock 32 2018 compared 16 million shares common stock 72 2017 14 million shares 56 2016 acquisition stock employees connection tax payments upon vesting restricted stock units upon vesting performance restricted stock units 2018 2017 2016 declare dividend 2018 2017 suspended dividend effective first quarter 2016 debt contractual financial obligations commitments december 31 2018 debt contractual financial obligations commitments due dates follows 1 amounts based current longterm credit ratings see note 8 debt financing pages 2018 annual report information 2 amounts net expected sublease rental income see note 16 leases commitments page 2018 annual report information 3 amounts represent expected future benefit payments unfunded defined benefit pension postretirement benefit plans well expected contributions 2019 funded defined benefit pension benefit plans able estimate contributions funded defined benefit pension postretirement plans beyond 2019 4 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2018 reserves uncertain income tax positions including interest penalties totaled approximately 107 see note 8 debt financing note 16 leases commitments pages page respectively 2018 annual report information debt contractual financial obligations commitments additionally disclosed note 17 restructuring initiatives pages 2018 annual report december 31 2017 liabilities approximately 59 associated restructuring actions primarily associated transformation plan majority future cash payments associated restructuring liabilities expected made 2019 balance sheet arrangements december 31 2018 material offbalancesheet arrangements capital resources revolving credit facility june 2015 avon international operations inc aio whollyowned domestic subsidiary company entered fiveyear 4000 senior secured revolving credit facility “2015 facility” december 2017 aio entered amendment 2015 facility among things modified financial covenants interest coverage total leverage ratios provide company additional flexibility december 31 2018 amounts outstanding 2015 facility february 2019 avon international capital plc aic whollyowned foreign subsidiary company entered threeyear €2000 senior secured revolving credit facility “2019 facility” 2019 facility replaced 2015 facility 2015 facility terminated time borrowings 2019 facility bear interest option rate per annum equal either libor euribor loan euros plus 225 basis points case subject adjustment based upon leveragedbased pricing grid 2019 facility may used general corporate working capital purposes amounts outstanding 2019 facility amount available drawn 2019 facility reduced standby letters credit granted aic obligor 2019 facility including standby letters credit granted aio 2015 facility rolled 2019 facility december 31 2018 approximately 29 obligations aic 2019 facility unconditionally guaranteed company aio material united states english restricted subsidiary company collectively “obligors” case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions 2019 facility terminate february 2022 provided however shall terminate 91st day prior maturity 460 notes 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2019 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios depending business results including impact adverse foreign exchange movements significant restructuring charges possible may become noncompliant interest coverage total leverage ratio absent company undertaking alternatives avoid noncompliance obtaining additional amendments 2019 facility repurchasing certain debt noncompliant interest coverage total leverage ratio would longer access 2019 facility credit ratings may downgraded item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2019 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures mda description constant dollar constant growth rates nongaap financial measure determined see performance metrics mda definitions performance metrics change active representatives change units sold change ending representatives change average order overview global manufacturer marketer beauty related products business conducted primarily directselling channel 2019 sales operations 55 countries territories distributed products 24 consolidated revenue derived operations subsidiaries outside united states us reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling representatives independent contractors employees december 31 2019 approximately 5 million average active representatives represents number representatives submitting order sales campaign totaled campaigns year divided number campaigns success business highly dependent recruiting retaining servicing representatives total revenue decreased 15 compared prioryear period impacted certain indirect taxes recognized brazil well ipi prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding impact indirect taxes brazil adjusted revenue 13 impacted unfavorable impact foreign exchange adjusted constant revenue decreased 7 adjusted revenue adjusted constant revenue decline primarily driven europe middle east africa markets particular russia negatively impacted decrease active representatives decrease average representative sales revenue constant revenue russia continued impacted lower consumer confidence well weaker sales leader engagement first half year revenue constant revenue impacted decrease active representatives 10 across multiple markets average representative sales decreased 5 reported basis unfavorably impacted foreign exchange adjusted constant average representative sales increased 2 revenue adjusted revenue constant adjusted revenue declined consequence intent improve productivity increasing average representative sales adjusted constant average representative sales impacted improved pricemix addition average representative sales favorably impacted certain indirect tax items well positive impact brazil ipi tax compared prioryear period additional details ipi tax cosmetics brazil see note 19 contingencies consolidated financial statements included herein units sold decreased 14 driven declines brazil russia see segment review mda additional information related changes revenue segment agreement merger natura cosméticos sa may 22 2019 entered agreement plan mergers natura cosméticos sa brazilian corporation sociedade anônima natura cosméticos natura co holding sa brazilian corporation sociedade anônima natura co holding two subsidiaries natura co holding sa natura co pursuant series transactions avon natura cosméticos become direct wholly owned subsidiaries natura co transaction additional information see note 23 agreement plan mergers natura cosméticos sa consolidated financial statements included herein current report form 8k filed securities exchange commission may 24 2019 january 3 2020 company consummated transaction became fully owned subsidiary natura co holding connection consummation transaction company notified new york stock exchange nyse trading stock suspended companys common stock subsequently delisted deregistered transformation plan open avon january 2016 initiated transformation plan transformation plan order enable us achieve longterm goals midsingledigit constant revenue growth low doubledigit operating margin restructuring actions taken associated transformation plan beginning third quarter 2018 new restructuring actions approved operate new open avon plan described september 2018 initiated new strategy order return avon growth open avon open avon strategy integral ability return avon growth built around necessity incorporating new approaches various elements business including increased utilization thirdparty providers manufacturing technology fit purpose asset base focus enabling representatives easily interact company achieve relevant earnings commercial elements strategy developed help increase representative earnings thereby retention elements representative facing strategy include improvements service functions increased training utilization digital tools expand consumer reach product bundling regimens designed help improve earnings opportunity sharper targeted product innovation drive brand relevancy cost savings plan expected generated efficiencies manufacturing sourcing distribution general administrative activities back office functions well revenue management interest tax savings expected achieved restructuring actions may result charges related severance contract terminations inventory asset writeoffs well costsavings strategies would result restructuring charges january 2019 announced significant advancements strategy including structural reset inventory processes reduction global workforce structural reset inventory result lower operational ongoing obsolescence costs longer term result concentrated focus highturn higher margin products driving greater earnings representatives due lessened discount pressure enhanced service levels structural reset resulted incremental oneoff inventory obsolescence expense 88 recognized december 31 2018 2019 global workforce reduced 16 ahead expected 10 reduction announced january 2019 align ongoing operating model changes create leaner organization better aligned avon’s current future business focus reduction incremental 8 reduction global workforce completed 2018 restructuring charge relating global workforce reduction approved board directors january 2019 forms integral part open avon initiative impacts disclosed initiated open avon strategy enable us achieve goals lowsingledigit constant revenue growth low doubledigit operating margin 2021 plan reinvest portion cost savings commercial initiatives including training representatives digital infrastructure initiatives connection actions associated savings discussed incurred costs implement cti restructuring initiatives approximately 250 taxes todate associated open avon approximately 215 taxes todate associated transformation plan costs approximately 107 approximately 9 recorded 2019 associated open avon transformation plan respectively additional charges yet incurred associated restructuring actions approved december 31 2019 relate open avon negligible december 31 2019 liabilities approximately 24 associated restructuring actions primarily associated open avon majority future cash payments associated restructuring liabilities expected made 2020 2018 estimate achieved total cost savings approximately 110 taxes approximately 40 attributable open avon approximately 70 attributable transformation plan estimated 40 savings attributable open avon primarily related tax interest compared costs 2017 relates transformation plan exceeded cost savings target 65 taxes fullyear 2018 savings include runrate savings transformation plan 2017 along inyear savings current year initiatives already identified associated restructuring actions costsavings strategies result restructuring charges result restructuring actions costsavings strategies taken related transformation plan exited 2018 runrate savings excess total cumulative cost savings target 350 additional details restructuring initiatives see note 17 restructuring initiatives consolidated financial statements included herein new accounting standards information relating new accounting standards included note 2 new accounting standards 2019 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail change average representative salesthis metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average representative sales may impacted combination factors inflation units product mix andor pricing free cash flowfree cash flow net cash provided used operating activities continuing operations plus net cash provided used investing activities continuing operations plus proceeds monetization cofins tax credits presented within net cash provided used financing activities continuing operations nongaap financial measures supplement financial results presented accordance generally accepted accounting principles us gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue adjusted revenue operating profit adjusted operating profit operating margin adjusted operating margin refer adjusted financial measures constant items nongaap financial measures believe measures provide users financial statements additional perspective trends underlying business results exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rates updated annual basis usually october part budgeting process foreign currency impact determined difference actual growth rates constant growth rates also present revenue gross margin sga expenses percentage revenue operating profit operating margin income loss taxes income taxes effective tax rate nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation nongaap financial measures directly comparable financial measures calculated reported accordance gaap see reconciliation nongaap financial measures within results operations consolidated mda quantitative reconciliation company uses nongaap financial measures evaluate operating performance nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company believes users financial statements find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period company believes meaningful investors made aware impacts 1 certain brazil indirect taxes 2 cti restructuring initiatives 3 expenses related transaction primarily professional fees impairment losses assets 4 costs associated early termination debt 5 onetime tax items associated recurring normal operations special tax items 1 full year 2019 includes impact certain brazil indirect taxes recorded product sales income expense net amounts approximately 68 approximately 51 respectively consolidated income statements see note 21 supplemental balance sheet information consolidated financial statements contained herein information corresponding tax impact 23 full year 2018 included impact brazil ipi tax release recorded product sales income expense net amounts approximately 168 approximately 27 respectively consolidated income statements see note 19 contingencies consolidated financial statements contained herein information brazil ipi tax release also included approximately 66 recorded income taxes 2 cti restructuring initiatives includes impact consolidated statements operations periods presented net charges incurred approved restructuring initiatives see note 17 restructuring initiative consolidated financial statements contained herein information 3 2019 company recorded approximately 64 respectively expenses incurred relation transaction primarily professional fees impairment losses assets see note 23 agreement plan mergers natura cosméticos sa consolidated financial statements contained herein agreement plan mergers natura cosméticos sa mda information 4 2019 company incurred costs 9 associated early termination debt 5 effective tax rate discussion includes special tax items including impact provision income taxes consolidated statements operations 2018 due onetime tax reserves approximately 18 associated uncertain tax positions expense approximately 3 associated ownership transfer certain operational assets within consolidated group see note 19 contingencies note 17 restructuring initiatives note 14 employee benefit plans note 15 segment information note 1 description business summary significant accounting policies note 8 debt financing note 10 income taxes 2019 annual report see also effective tax rate mda results operations consolidated information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies 2019 annual report detailed discussion application accounting policies revenue recognition revenue recognized control product service transferred customer generally representative revenue measured based consideration specified contract customer excludes amounts collected behalf third parties value added taxes collected taxing authorities contracts representatives often include multiple promises transfer products andor services representative determining products andor services considered distinct performance obligations accounted separately assessing recognition revenue identified performance obligations management exercised significant judgment following areas estimation variable consideration standalone selling prices ssp promised goods services delivered sales incentives determine allocate transaction price typically included within contract customers variable consideration sales returns late payment fees revenue recorded extent probable reversed therefore revenue adjusted variable consideration judgment required estimate variable consideration company uses expected value method considers possible outcomes weighted probability specifically sales returns refund liability recorded estimated cash refunded products expected returned returns asset recorded products expect returned resold based historical experience estimate sales returns well measurement returns asset refund liability updated end month changes expectations regarding amount salvageable returns reconditioning costs additional decreases value returned products late payment fees recorded uncertainty associated collecting fees resolved ie collected additionally management exercised significant judgment estimation ssp promised goods services delivered sales incentives status programs loyalty points prospective discounts gift purchase among others determine allocate transaction price ssp represents estimated market value estimated amount could charged material right entity sells separately similar circumstances similar customers judgment required determine ssp distinct performance obligation instances ssp directly observable sell product service separately including certain sales incentives determine ssp using information may include market prices observable inputs allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign generally credit representatives meet certain criteria sales campaigns generally three fourweek duration representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 115 2019 162 2018 222 2017 approximately 2 total revenue 2019 approximately 3 total revenue 2018 approximately 4 total revenue 2017 allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction record provision estimated sales returns based historical experience product returns past three years annual sales returns 133 2019 172 2018 198 2017 24 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence applicable equal difference cost inventory net realizable value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 37 2019 114 2018 37 2017 less 1 total revenue 2019 2 total revenue 2018 less 1 total revenue 2017 discussed overview section 2018 includes inventory obsolescence charges 88 related inventory reset program utilized 2019 pension postretirement expense maintain defined benefit pension plans significant uk germany us however us defined benefit pension plan closed employees hired january 1 2015 uk defined benefit pension plan frozen future accruals april 1 2013 closed employees hired september 30 2006 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations certain retired employees us certain foreign countries see note 14 employee benefit plans 2019 annual report information benefit plans pension postretirement expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors use december 31 measurement date employee benefit plans 2019 weighted average assumed rate return pension plan assets 529 compared 523 2018 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts generally evaluate expected longterm rates return annually adjust necessary defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2019 net periodic benefit cost uk defined benefit pension plan 520 addition 2019 rate return assumption uk defined benefit pension plan based asset allocation approximately 80 liability driven investments approximately 5 corporate government bonds mortgagebacked securities approximately 15 equity securities emerging market debt high yield securities addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure rate return plan assets uk approximately 164 2019 approximately 4 2018 historically pension plan significant pension plan assets us defined benefit pension plan part separation north america business 2016 transferred 4996 pension liabilities us defined benefit pension plan associated current former employees north america business certain former avon employees along 3559 assets held us defined benefit pension plan defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations assets liabilities held sale 2019 annual report continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon us providing services respect north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates ongoing net periodic benefit costs within global materially impacted separation north america business discount rate used determining present value future pension obligations individual plan based review bonds receive highquality rating recognized rating agency discount rates calculating balance sheet obligations significant plans including uk defined benefit pension plan us defined benefit pension plan based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 215 december 31 2019 306 december 31 2018 determination expected rates return assets discount rates take external actuarial investment advice consideration effective january 1 2018 changed method use estimate service interest cost components net periodic benefit cost us defined benefit pension plan majority significant nonus pension plans including uk defined benefit pension plan historically including 2017 estimated service interest cost components using single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period beginning 2018 elected use full yield curve approach estimation components net periodic benefit cost applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows made change improve correlation projected benefit cash flows corresponding yield curve spot rates believe result precise measurement service interest costs accounted change estimate prospective basis beginning 2018 funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2019 pretax actuarial losses prior service credits totaling approximately 24 us defined benefit pension postretirement plans approximately 185 nonus defined benefit pension postretirement plans yet charged expense actuarial losses charged aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2020 assumption expected rate return assets 49 us defined benefit pension plan 26 nonus defined benefit pension plans includes 220 uk defined benefit pension plan assumptions generally reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2019 pension expense pension benefit obligation december 31 2019 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits inventory writeoffs impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted us foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration december 31 2019 net deferred tax assets approximately 153 net valuation allowances approximately 2960 deferred tax liabilities 142 respect deferred tax assets december 31 2019 recognized deferred tax assets approximately 2112 relating foreign state tax loss carryforwards valuation allowance approximately 2019 provided december 31 2019 recognized deferred tax assets approximately 658 primarily relating excess us foreign tax us general business credit carryforwards valuation allowance approximately 649 provided history us source losses excess us foreign tax general business credits primarily resulted greater us source loss recent years reduces ability credit foreign taxes utilize general business credits generate ability realize us deferred tax assets foreign tax general business credit carryforwards dependent future us taxable income within carryforward period december 31 2019 would need generate approximately 31 billion excess net foreign source income order realize us foreign tax general business credits expire december 31 2019 result us liquidity profile continue assert substantially foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability account 2018 undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings decrease 125 resulting deferred tax liability balance 61 related incremental tax cost approximately 12 billion undistributed foreign earnings december 31 2019 respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2020 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2020 provision income taxes well tax related cash receipts payments may impacted loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets plant property equipment capitalized software evaluate plant property equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate goodwill test goodwill impairment annually frequently circumstances warrant using various fair value methods completed annual goodwill impairment assessment 2019 november determined estimated fair values substantially excess carrying values reporting units impairment analyses performed goodwill require several estimates computing estimated fair value reporting unit part goodwill impairment analysis typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1the company recorded approximately 73 million expenses primarily professional fees incurred relation natura transaction loss extinguishment debt credit facilities impairment losses assets 2change constant adjusted operating margin years presented calculated using currentyear constant rates 2019 compared 2018 revenue total revenue decreased 15 compared prioryear period impacted certain indirect taxes recognized brazil well ipi prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding impact indirect taxes brazil adjusted revenue 13 impacted unfavorable impact foreign exchange adjusted constant revenue decreased 7 revenue adjusted revenue adjusted constant revenue decline primarily driven europe middle east africa markets particular russia negatively impacted decrease active representatives decrease average representative sales revenue constant revenue russia continued impacted lower consumer confidence well weaker sales leader engagement first half year revenue constant revenue impacted decrease active representatives 10 across multiple markets average representative sales decreased 5 reported basis unfavorably impacted foreign exchange adjusted constant average representative sales increased 2 revenue adjusted revenue constant adjusted revenue declined consequence intent improve productivity increasing average representative sales adjusted constant average representative sales impacted improved pricemix addition average representative sales favorably impacted certain indirect tax items well positive impact brazil ipi tax compared prioryear period additional details ipi tax cosmetics brazil see note 19 contingencies consolidated financial statements included herein units sold decreased 14 driven declines brazil russia see segment review mda additional information related changes revenue segment operating margin operating margin decreased 160 basis points significantly impacted certain indirect taxes recognized brazil current year well ipi tax benefit prior year indirect taxes ipi positively impacted operating margin 2019 2018 larger extent 2018 excluding impact indirect taxes brazil adjusted operating margin increased 100 basis points driven improved pricemix savings across multiple cost lines margin improvement delivered despite unfavorable impact foreign currency movements operating margin adjusted operating margin discussed gross margin selling general administrative expenses gross margin gross margin increased 20 basis points adjusted gross margin decreased 40 basis points unfavorable impact foreign currency higher supply chain costs offset positive impact pricemix unfavorable impact 160 basis unfavorable impact 110 basis points offset benefit 240 basis point pricemix improvements driven effective pricing optimized discounts promotions effective incentives favorable product mix markets unfavorable impact foreign currency largely due currency devaluations argentina brazil higher supply chain costs driven higher material costs selling general administrative expenses sga percentage total revenue increased 190 basis points significantly impacted cti restructuring charges adjusted sga percentage total revenue decreased 150 basis points savings sga adjusted sga primarily due lower advertising expenses benefit 80 basis points better bad debt management benefit 50 basis points advertising expense benefited certain indirect tax items brazil well optimizing portfolio concentrating investments selected channels focusing digital advertising reduced bad debt expense primarily brazil continued focus credit control collections processes see note 15 segment information 2019 annual report information legal settlement note 14 employee benefit plans 2019 annual report information loss contingency related nonus pension plan note 17 restructuring initiatives 2018 annual report information cti restructuring expenses interest expense decreased approximately 7 interest income decreased approximately 8 compared 2018 loss extinguishment debt credit facilities approximately 12 primarily comprised costs termination portion 2020 bonds repaid third fourth quarters 2019 income expense net 94 increased approximately 101 compared prioryear period current period income primarily attributable impact interest certain indirect tax items recognized brazil approximately 50 favorable impact foreign exchange net gains 2019 compared losses 2018 gain sale businessassets related result sale rye office maximin corporation sdn bhd avon manufacturing guangzhou ltd june may february 2019 respectively sale investment new avon august 2019 refer note 3 discontinued operations assets liabilities held sale consolidated financial statements contained herein information relating disposals effective tax rate adjusted effective tax rates effective tax rates 2019 2018 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition adjusted effective tax rates effective tax rates 2019 2018 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2019 2018 adjusted effective tax rate effective tax rate 2019 impacted approximate net 13 benefit recognized primarily due reduced costs repatriating subsidiary earnings approximately 7 various net tax benefits associated law changes uncertain tax positions changes tax estimates partially offset net charge approximately 5 primarily associated increase valuation allowances effective tax rate 2019 also impacted accrual nontaxable income associated indirect tax refunds cti restructuring tax benefits cannot currently claimed affected jurisdictions adjusted effective tax rate effective tax rate 2018 impacted approximate net 25 benefit recognized primarily due avons interpretation case law andor guidance provided 2018 us latin america release valuation allowances approximately 5 associated improved profitability certain markets partially offset net charge approximately 11 primarily associated increase reserves uncertain tax positions effective tax rate 2018 also impacted accrual taxes associated reversal brazil ipi loss contingency cti restructuring tax benefits cannot currently claimed affected jurisdictions addition adjusted effective tax rates effective tax rates 2019 2018 negatively impacted country mix earnings impact foreign currency compared prioryear period foreign currency 2019 impacted consolidated financial results form •foreign currency transaction net losses compared net gains prior year classified within cost sga expenses unfavorable impact operating profit adjusted operating profit estimated 80 approximately 140 basis points 150 basis points respectively operating margin adjusted operating margin •foreign currency translation unfavorable impact compared favorable impact prior year operating profit adjusted operating profit approximately 15 30 respectively approximately 10 basis points 20 basis points respectively operating margin adjusted operating margin •higher foreign exchange net gains working capital classified within income expense net consolidated statements operations compared loss prior year resulting favorable impact approximately 60 tax reported adjusted basis 2018 compared 2017 revenue 2018 revenue declined 3 compared prioryear period excluding brazil ipi release adjusted revenue 5 primarily due unfavorable impact foreign exchange constant adjusted revenue increased 1 revenue constant adjusted revenue included benefit approximately 4 due impact adopting new revenue recognition standard 4 benefit driven primarily reclassification fees paid representatives brochures late payments payment processing income appointment kits sga impact timing revenue recognition sales incentives negligible revenue constant adjusted revenue impacted declines primarily brazil continued negatively impacted competitive pressures backdrop challenging macroeconomic environment lower consumption market well lower appointments due application strict credit requirements acceptance new representatives lesser extent constant adjusted revenue also impacted declines uk south africa russia well lower revenue closure australia new zealand 2018 declines partially offset improved revenue growth management including inflationary pricing argentina revenue constant adjusted revenue impacted decrease active representatives 5 primarily driven brazil lesser extent russia average order constant increased 2 including benefit approximately 4 due impact adopting new revenue recognition standard units sold decreased 6 driven decline brazil ending representatives declined 8 primarily driven declines russia brazil category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin decreased 70 basis points adjusted operating margin decreased 170 basis points compared 2017 including benefit 10 basis points due impact adopting new revenue recognition standard benefit 10 basis points driven net positive contribution operating margin fourth quarter 2017 sales incentives satisfied 2018 sales incentives deferred period impacted mix products changes operating margin adjusted operating margin include benefits associated transformation plan primarily reductions headcount well cost reductions savings partially offset inflationary impact costs operating margin adjusted operating margin drivers discussed gross margin sga expenses gross margin gross margin decreased 390 basis points adjusted gross margin decreased 360 basis points compared period 2017 including decline 350 basis points due impact adopting new revenue recognition standard 350 basis point decline driven reclassification sales incentive costs sga cost sales partially offset reclassification fees paid representatives late payments payment processing brochures sga revenue reclassification income appointment kits sga net sales gross margin adjusted gross margin primarily impacted following •a decrease 80 basis points due higher supply chain costs driven higher material costs primarily south latin america •a decrease 20 basis points due net unfavorable impact foreign currency transaction losses foreign currency translation •a decrease 20 basis points due unfavorable impact result hyperinflationary accounting argentina effective july 1 2018 primarily due inventory accounted historical dollar cost item partially offset following •an increase 110 basis points due favorable net impact mix pricing driven inflationary pricing argentina sga expenses sga percentage total revenue decreased 320 basis points benefited 170 basis points brazil ipi release third quarter 2018 30 basis points loss contingency recorded prioryear period related nonus pension plan partially offset 60 basis point higher cti restructuring adjusted sga percentage adjusted revenue decreased 180 basis points compared period 2017 sga percentage total revenue adjusted sga percentage adjusted revenue include benefit 350 basis points due impact adopting new revenue recognition standard 350 basis point benefit driven reclassification sales incentive costs sga cost sales partially offset reclassification fees paid representatives late payments payment processing brochures sga revenue reclassification income appointment kits sga net sales sga percentage total revenue adjusted sga percentage adjusted revenue primarily impacted following •an increase 50 basis points due higher representative sales leader field expense primarily brazil due investments aimed recovering activity levels disrupted national transportation strike second quarter 2018 well increased focus representatives training second half 2018 •an increase 40 basis points higher advertising expense primarily due increased investments europe middle east africa •an increase 40 basis points higher transportation costs mainly brazil primarily driven inefficiencies caused national transportation strike increase fuel prices europe middle east africa driven increases delivery rates russia increased flexibility order processing uk mexico due increase fuel prices •an increase approximately 40 basis points due net unfavorable impact foreign currency transaction losses foreign currency translation •an increase 40 basis points due higher net brochure expense primarily due increase brochure volumes brazil •a decrease 50 basis points lower bad debt expense primarily brazil due improved credit control collections processes expenses interest expense decreased approximately 6 primarily due interest savings associated prepayment 2378 principal amount 650 notes due march 2019 refer note 8 debt financing 2019 annual report additional information loss extinguishment debt approximately 1 comprised loss approximately 3 associated prepayment 650 notes partially offset gain approximately 2 associated debt repurchases fourth quarter 2018 refer note 8 debt financing 2019 annual report additional information interest income increased 1 compared prioryear period expense net decreased approximately 28 compared prioryear period including impact brazil ipi tax release 27 expense net positively impacted lower expenses associated employee benefit plans 12 primarily related uk including impact 3 settlement charge recorded third quarter 2017 approximately 12 recorded proportionate share new avons losses nine months ended september 30 2017 recorded investment balance new avon zero end third quarter 2017 recorded additional losses associated new avon since third quarter 2017 benefits partially offset foreign exchange net losses increased approximately 19 compared prioryear period miscellaneous unfavorable impacts totaling 4 see note 4 investment new avon 2019 annual report information new avon effective tax rate adjusted effective tax rates effective tax rates 2018 2017 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition adjusted effective tax rates effective tax rates 2018 2017 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2018 2017 adjusted effective tax rate effective tax rate 2018 impacted approximate net 25 benefit recognized primarily due avons interpretation case law andor guidance provided 2018 us latin america release valuation allowances approximately 5 associated improved profitability certain markets partially offset net charge approximately 11 primarily associated increase reserves uncertain tax positions effective tax rate 2018 also impacted accrual taxes associated reversal brazil ipi loss contingency cti restructuring tax benefits cannot currently claimed affected jurisdictions adjusted effective tax rate effective tax rate 2017 impacted approximate net 30 benefit recognized result enactment tax cuts jobs act us release valuation allowances approximately 26 associated number markets europe middle east africa result business model change related headquarters move approximate 10 benefit result favorable court decision brazil partially offset charge approximately 16 associated valuation allowances adjust deferred tax assets mexico effective tax rate 2017 also impacted loss contingency related nonus pension plan cti restructuring tax benefits cannot currently claimed addition adjusted effective tax rates effective tax rates 2018 2017 negatively impacted country mix earnings impact foreign currency compared prioryear period foreign currency 2018 impacted consolidated financial results form •foreign currency transaction net losses compared net gains prior year classified within cost sga expenses unfavorable impact operating profit adjusted operating profit estimated 30 approximately 50 basis points operating margin adjusted operating margin •foreign currency translation unfavorable impact compared favorable impact prior year operating profit adjusted operating profit approximately 75 approximately 35 respectively approximately 80 basis points approximately 30 basis points respectively operating margin adjusted operating margin •higher foreign exchange net losses working capital classified within expense net compared net gains prior year resulting yearoveryear unfavorable impact approximately 20 tax reported adjusted basis comprehensive loss income comprehensive loss net taxes approximately 9 2019 compared comprehensive loss approximately 104 2018 yearoveryear comparison favorably impacted unrealized losses revaluation longterm intercompany balances 6 compared 58 prioryear period longterm intercompany balances denominated mexican peso british pound foreign currency translation adjustments favorably impacted comprehensive loss approximately 48 compared 2018 primarily due favorable yearoveryear comparison movements russian ruble comprehensive loss net taxes approximately 104 2018 compared comprehensive income approximately 108 2017 yearoveryear comparison unfavorably impacted unrealized losses revaluation longterm intercompany balances 58 compared unrealized gains 62 prioryear period longterm intercompany balances denominated brazilian real british pound foreign currency translation adjustments unfavorably impacted comprehensive loss approximately 69 compared 2017 primarily due unfavorable yearoveryear comparison movements polish zloty argentinian peso first half 2018 highly inflationary accounting applied argentinian subsidiary july 1 2018 see note 3 discontinued operations assets liabilities held sale 2019 annual report information separation sale north america business note 14 employee benefit plans 2019 annual report information benefit plans segment review determine segment profit deducting related costs expenses segment revenue segment profit excludes certain global expenses cti restructuring initiatives certain significant asset impairment charges items allocated particular segment consistent manner assess performance allocate resources see note 15 segment information 2019 annual report reconciliation segment profit operating profit summarized financial information concerning reportable segments follows analysis key factors affecting revenue segment profit reportable segment years threeyear period ended december 31 2019 foreign currency impact determined difference actual growth rates constant growth rates refer nongaap financial measures mda information europe middle east africa 2019 compared 2018 amounts table may necessarily sum due rounding total revenue decreased 14 compared prioryear period owing unfavorable impact foreign exchange driven strengthening us dollar relative multiple currencies primarily turkish lira russian ruble south african rand constant basis revenue decreased 9 revenue constant revenue negatively impacted decrease active representatives decline active representatives across multiple markets europe middle east africa primarily russia revenue decreased 17 excluding impact foreign exchange constant revenue decreased 14 revenue constant revenue russia negatively impacted primarily decrease active representatives decrease average representative sales revenue constant revenue russia continued impacted lower consumer confidence well weaker sales leader engagement first half year uk revenue decreased 16 excluding impact foreign exchange constant revenue decreased 13 revenue constant revenue uk entirely impacted lower active representatives result changes commercial practices lower consumer confidence segment margin remained relatively unchanged reported constant basis gross margin relatively unchanged favorable impact pricemix fully offset unfavorable impact foreign currency net losses lower production volumes supply chain costs sga expenses relatively unchanged lower advertising costs reallocated representative sales leader investments training europe middle east africa 2018 compared 2017 amounts table may necessarily sum due rounding total revenue decreased 2 compared prioryear period unfavorably impacted foreign exchange constant basis revenue decreased 1 revenue constant revenue included benefit approximately 3 due impact adopting new revenue recognition standard revenue constant revenue negatively impacted primarily decrease active representatives partially offset higher average order decrease ending representatives driven primarily declines russia revenue decreased 6 unfavorably impacted foreign exchange constant basis russias revenue increased 1 russias revenue constant revenue included benefit approximately 4 due impact adopting new revenue recognition standard revenue constant revenue russia negatively impacted decrease active representatives partially offset higher average order revenue constant revenue russia also negatively impacted lower consumption market uk revenue decreased 6 despite favorable impact foreign exchange constant basis uks revenue decreased 9 uks revenue constant revenue included benefit approximately 4 due impact adopting new revenue recognition standard revenue constant revenue uk negatively impacted decrease active representatives driven underlying field issues temporary service issues fourth quarter 2018 partially offset higher average order south africa revenue decreased 4 despite favorable impact foreign exchange constant basis south africas revenue decreased 5 south africas revenue constant revenue included benefit approximately 2 due impact adopting new revenue recognition standard revenue constant revenue south africa negatively impacted decrease active representatives resulting challenging macroeconomic environment application strict credit requirements acceptance new representatives compared requirements prior year segment margin decreased 270 basis points 280 basis points constant basis including decline approximately 30 basis points due impact new revenue recognition standard gross margin relatively unchanged sga expenses impacted increase advertising rep sales leader investments higher fixed expenses primarily due impact constant adjusted revenue decline causing deleverage fixed expenses higher transportation variable distribution cost driven increases delivery rates russia increased flexibility order processing uk impacts partially offset lower net bad debt expense driven russia south africa uk bad debt expense russia priorperiod negatively impacted payment facilitation agency remitted us funds received certain representatives yearoveryear bad debt expense comparison south africa uk benefited improved credit control enhancement collections processes south latin america 2019 compared 2018 amounts table may necessarily sum due rounding total revenue decreased 18 compared prioryear period impacted certain indirect taxes recognized brazil well ipi tax benefit prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding impact indirect taxes brazil adjusted revenue region 14 impacted unfavorable impact foreign exchange primarily result strengthening us dollar relative argentinian peso brazilian real adjusted constant revenue decreased 2 adjusted revenue adjusted constant revenue impacted decrease active representatives primarily brazil substantially offset higher average representative sales driven brazil argentina revenue brazil decreased 18 significantly impacted certain indirect tax items current prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding indirect tax items adjusted revenue brazil decreased 12 unfavorably impacted foreign exchange brazils constant adjusted revenue decreased 4 revenue adjusted constant revenue brazil negatively impacted decrease active representatives continued negatively impacted competitive pressures strategy improve productivity decrease active representatives offset higher average representative sales impacted improved pricemix addition average representative sales favorably impacted certain indirect tax items well positive impact brazil ipi tax compared prioryear period additional details ipi tax cosmetics brazil see note 19 contingencies consolidated financial statements included herein revenue argentina declined 23 unfavorably impacted foreign exchange constant basis argentinas revenue grew 35 revenue constant revenue argentina benefited higher average representative sales impacted improved revenue growth management including inflationary pricing segment margin decreased 110 basis points significantly impacted effects indirect tax items current prior years adjusted segment margin increased 280 basis points constant adjusted segment margin increased 330 basis points benefited certain indirect tax items revenue sga favorable impact 230 basis points well sga benefits offset decline gross margin gross margin declined result increased supply chain costs driven higher material costs unfavorable impact foreign currency fully offset positive impact pricemix savings sga driven primarily brazil multiple areas reduction bad debt expense due improved credit control collections processes lower sales leader field investments linked decrease active representatives lower fixed costs resulting tight cost management restructuring initiatives south latin america 2018 compared 2017 amounts table may necessarily sum due rounding total revenue decreased 3 compared prioryear period excluding brazil ipi release adjusted revenue region 11 unfavorably impacted foreign exchange primarily driven strengthening us dollar relative argentinian peso brazilian real constant basis adjusted revenue increased 3 revenue constant adjusted revenue included benefit approximately 6 due impact adopting new revenue recognition standard revenue constant adjusted revenue negatively impacted decrease active representatives primarily driven decline brazil partially offset higher average order driven argentina decrease ending representatives driven primarily declines brazil revenue brazil remained relatively unchanged excluding brazil ipi release adjusted revenue brazil decreased 13 unfavorably impacted foreign exchange brazils constant adjusted revenue decreased 1 brazils revenue constant adjusted revenue included benefit approximately 9 due impact adopting new revenue recognition standard revenue constant adjusted revenue brazil negatively impacted primarily decrease active representatives lesser extent lower average order revenue constant adjusted revenue brazil well active representatives ending representatives negatively impacted competitive pressures backdrop challenging macroeconomic environment lower consumption market well lower appointments partly due application strict credit requirements acceptance new representatives addition revenue constant adjusted revenue brazil well active representatives ending representatives also impacted national transportation strike affected sales distribution second quarter 2018 adjusted constant basis brazil’s sales beauty products fashion home products declined 8 4 respectively including 2 benefit categories due impact new revenue recognition standard decline constant beauty sales brazil mainly color revenue argentina declined 25 unfavorably impacted foreign exchange constant basis argentinas revenue grew 22 argentinas revenue constant revenue included benefit approximately 1 due impact adopting new revenue recognition standard revenue constant revenue argentina benefited higher average order impacted improved revenue growth management including inflationary pricing segment margin increased 590 basis points including 730 basis points brazil ipi tax release constant basis segment margin increased 690 basis points including 800 basis points brazil ipi tax release reported segment margin increase constant adjusted segment margin decrease 110 basis points included decline approximately 20 basis points due impact adopting new revenue recognition standard remaining decrease reported constant adjusted segment margin primarily result higher sa partially offset improvement gross margin gross margin increase primarily due favorable net impact mix pricing driven inflationary pricing argentina revenue management initiatives brazil partially offset higher supply chain costs driven higher material costs increase sga expenses driven higher representative sales leader field expense primarily brazil due investments aimed recovering activity levels disrupted national transportation strike second quarter 2018 well increased focus representatives training second half 2018 higher net brochure cost primarily due increase brochure volumes brazil higher transportation costs brazil primarily driven inefficiencies caused national transportation strike increase fuel prices higher fixed expenses primarily due impact constant adjusted revenue decline causing deleverage fixed expenses impacts partially offset lower net bad debt expense primarily brazil due improved credit control collections processes brazil ipi tax discussion may 2015 executive decree certain cosmetics went effect brazil increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products subject ipi september 30 2018 due part judicial decisions across industry developments concluded supported opinion legal counsel executive decree unconstitutional therefore assessed ipi tax asc 450 contingencies determined risk loss ongoing judicial reviews reasonably possible probable accordingly released liability accrued september 30 2018 195 considered release liability nongaap adjustment therefore adjusted ipi tax 168 recorded net sales consolidated income statements associated interest 27 recorded income expense net consolidated income statements adjusted nongaap results period ended december 31 2018 accrual brazil ipi tax negatively impacted total revenue nine month period ended september 30 2018 brazil south latin america total avon approximately 45 approximately 23 approximately 1 respectively additional details ipi tax cosmetics increase brazil see note 19 contingencies consolidated financial statements included herein argentina discussion quarter ended june 30 2018 based published official exchange rates indicate argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina become highly inflationary economy july 1 2018 applied highly inflationary accounting argentinian subsidiary functional currency argentina changed us dollar consolidated groups reporting currency entity operates highly inflationary economy exchange gains losses associated monetary assets liabilities resulting changes exchange rate recorded income nonmonetary assets liabilities include inventories property plant equipment contract liabilities carried forward historical dollar cost calculated using exchange rate june 30 2018 result devaluation argentinian peso approximately 25 june 30 2018 december 31 2018 operating profit negatively impacted approximately 8 largely cost sales consolidated income statements primarily due inventory accounted historical dollar cost six months ended december 31 2018 also recorded benefit approximately 6 expense net primarily associated net monetary liability position argentina approximate 2 positive impact income taxes consolidated income statements argentinian operations contributed approximately 272 approximately 5 revenues approximately 7 constant adjusted revenue year ended december 31 2018 december 31 2018 net argentine pesodenominated monetary liability position argentina 33 net argentine pesodenominated nonmonetary asset position 50 primarily consisting inventory balances 32 north latin america 2019 compared 2018 amounts table may necessarily sum due rounding north latin america consists largely mexico business total revenue decreased 7 compared prioryear period including unfavorable impact foreign exchange constant basis revenue declined 6 revenue constant revenue declined decrease active representatives offset higher average representative sales revenue mexico decreased 4 compared prior year period reported constant basis decline reported constant revenue mexico primarily due decline active representatives partially offset higher average representatives sales driven strategic initiatives focus representative productivity via representative segmentation training segment margin increased 10 basis points reported constant basis relatively unchanged gross margin relatively unchanged positive impact pricemix offset unfavorable impact higher supply chain costs driven higher material costs unfavorable impact foreign currency sga relatively unchanged cost savings multiple areas lower advertising costs lower representative sales leader investments incentives linked decrease active representatives fully offset higher bad debt expense higher transportation cost primarily mexico address security issues improve service quality north latin america 2018 compared 2017 amounts table may necessarily sum due rounding total revenue segment remained relatively unchanged compared prioryear period constant basis revenue increased 2 revenue constant revenue included benefit approximately 4 due impact adopting new revenue recognition standard revenue constant revenue negatively impacted decrease active representatives partially offset higher average order decline ending representatives primarily driven decline mexico revenue mexico increased 2 despite unfavorable impact foreign exchange constant basis mexicos revenue increased 5 mexicos revenue constant revenue included benefit approximately 4 due impact new revenue recognition standard revenue constant revenue mexico benefited higher average order driven incremental media investment color fragrance categories second half 2018 partially offset decrease active representatives primarily due quality issues fashion home category first quarter 2018 segment margin decreased 160 basis points 170 basis points constant basis including immaterial impact adopting new revenue recognition standard decrease reported constant segment margin primarily result higher sga partially offset improvement gross margin gross margin increase primarily due favorable net impact mix pricing favorable impact foreign currency net gains partially offset higher supply chain costs driven higher material costs increase sga expenses primarily higher fixed expenses driven personnel cost higher transportation costs primarily related increase fuel prices mexico higher advertising expense primarily mexico due incremental media investment color fragrance categories support new product launches second half 2018 impacts partially offset lower net brochure costs asia pacific 2019 compared 2018 amounts table may necessarily sum due rounding effective first quarter 2018 given exited australia new zealand 2018 results australia new zealand reported operating segments business activities periods presented previously results reported asia pacific segment total revenue decreased 7 compared prior period favorably impacted foreign exchange constant basis revenue declined 8 revenue constant revenue declined driven decrease active representatives across markets partially offset higher average representative sales revenue philippines decreased 2 favorably impacted foreign exchange constant basis revenue philippines decreased 4 revenue constant revenue philippines driven decrease active representatives impacted changes sales leader recruitment commercial practices partially offset higher average representative sales primarily due effective pricing segment margin increased 150 basis points 110 basis points constant basis driven primarily improved gross margin gross margin increase primarily due improved pricemix markets benefit higher logistics costs prior year philippines address service disruptions caused inventory system implementation offset higher supply chain costs driven higher material costs sga relatively unchanged asia pacific 2018 compared 2017 amounts table may necessarily sum due rounding total revenue remained relatively unchanged compared prioryear period unfavorably impacted foreign exchange constant basis revenue increased 2 revenue constant revenue included benefit approximately 1 due impact adopting new revenue recognition standard revenue constant revenue benefited higher average order partially offset decrease active representatives significantly malaysia decline ending representatives driven decline philippines malaysia revenue philippines decreased 1 negatively impacted unfavorable impact foreign exchange constant basis revenue philippines increased 4 revenue constant revenue philippines included benefit approximately 2 due impact adopting new revenue recognition standard revenue constant revenue philippines benefited increase active representatives higher average order driven markets initiative grow skincare category mainly second half 2018 segment margin decreased 190 basis points 140 basis points constant basis including decline approximately 30 basis points due impact adopting new revenue recognition standard decrease reported constant segment margin primarily result gross margin decline gross margin decline primarily due higher supply chain costs due higher logistics cost philippines unfavorable impact foreign current transaction losses sga relatively unchanged higher advertising expense primarily china related celebrity digital advertising support growth offset lower fixed expenses primarily due impact constant revenue growth respect fixed expenses offset liquidity capital resources principal sources funding historically cash flows operations public offerings notes bank financings issuance commercial paper borrowings lines credit private placement notes december 31 2019 cash equivalents totaling approximately 651 believe sources funding sufficient satisfy currently anticipated cash requirements least next twelve months may seek retire outstanding debt open market purchases privately negotiated transactions derivative instruments cash tender offers otherwise repurchases debt may funded cash incurrence additional debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt finance ongoing operations meet liquidity needs however credit ratings remain investment grade may impact ability access transactions favorable terms information see risk factors credit ratings investment grade could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness future inability meet obligations indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a 2019 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 19 contingencies 2019 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2019 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2019 approximately 94 compared net cash provided continuing operating activities approximately 93 2018 increase approximately 1 net cash provided continuing operations relatively unchanged despite increase restructuring payments 71 impact onetime items 2018 recur 2019 net 34 offset operational improvements working capital higher cash generated earnings net cash provided continuing operating activities 2018 approximately 93 compared net cash provided continuing operating activities approximately 271 2017 decrease approximately 178 yearoveryear comparison net cash provided continuing operating activities unfavorably impacted lower cashrelated earnings higher inventory purchases unfavorable impacts yearoveryear comparison cash operating activities partially offset judicial deposit receipt approximately 68 relating brazil ipi taxes described fully note 19 contingencies 2019 annual report lower net receivables maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 14 employee benefit plans 2019 annual report funding policy pension plans meet minimum required contributions applicable law accumulate plan assets long run expected approximate present value projected benefit obligations amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 5 10 us defined benefit pension postretirement plans range 0 5 nonus defined benefit pension postretirement plans 2019 net cash continuing investing activities net cash provided continuing investing activities 2019 approximately 50 compared net cash used continuing investing activities approximately 93 2018 approximate 143 increase net cash investing activities primarily due net proceeds sale avon manufacturing guangzhou ltd closed first quarter 2019 sale rye office sale maximin corporation sdn bhd closed second quarter 2019 sale new avon closed third quarter 2019 refer note 3 discontinued operations assets liabilities held sale note 4 investment new avon consolidated financial statements contained herein information relating sale businesses assets net cash used continuing investing activities 2018 approximately 93 compared approximately 70 2017 approximate 23 increase net cash used continuing investing activities primarily due approximate 22 cash distribution received new avon llc third quarter 2017 recur 2018 capital expenditures 2019 approximately 59 compared approximately 95 2018 approximately 97 2017 net cash continuing financing activities net cash provided continuing financing activities 2019 approximately 1 compared net cash used financing activities 307 2018 approximate 308 favorable impact net cash used continuing financing activities primarily due 289 repayment debt 2018 offsetting proceeds debt 2019 debt repayments 388 offset proceeds debt 400 net cash used continuing financing activities 2018 approximately 307 compared zero 2017 approximate 307 unfavorable impact net cash used continuing financing activities primarily due 238 repayment debt second quarter 2018 plus makewhole premium 6 well open market repurchases 48 fourth quarter 2018 purchased approximately 12 million shares common stock 96 2019 compared 11 million shares common stock 32 2018 acquisition stock employees connection tax payments upon vesting restricted stock units upon vesting performance restricted stock units 2018 2017 december 2019 company declared dividend 0016 per share dividend paid january 2020 dividends declared paid 2018 free cash flow provided continuing operations also present free cash flow additional financial measure liquidity believe provides additional perspective trends underlying business results free cash flow sum net cash provided used continuing operating activities net cash provided used continuing investing activities also included proceeds 19 monetization cofins tax credits presented within net cash provided used financing activities continuing operations free cash flow provided continuing operations net inflow 164 net cash outflow 1 respectively years ended december 31 2019 2018 improvements free cash flow compared prior year driven operational improvements earnings working capital cash proceeds asset sales including monetization tax assets funded open avon restructuring helped mitigate impact nonrecurring tax benefits third quarter 2018 debt contractual financial obligations commitments december 31 2019 debt contractual financial obligations commitments due dates follows table assumes debt repayments made line contractual payment terms without need refinancing addition 2016 company sold series c preferred stock cerberus preferred stock contains certain redemption conversion features well dividends details series c preferred stock included note 18 series c convertible preferred stock consolidated financial statements 1amounts based current longterm credit ratings see note 8 debt financing information 2amounts net expected sublease rental income see note 16 leases commitments information 3the amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes future benefit payments respect defined benefit postretirement benefit plans see note 14 employee benefit plans 2019 annual report information table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2019 reserves uncertain income tax positions including interest penalties totaled approximately 110 see note 8 debt financing note 16 leases commitments respectively information debt contractual financial obligations commitments additionally disclosed note 17 restructuring initiatives december 31 2019 liabilities approximately 340 associated restructuring actions primarily associated open avon majority future cash payments associated restructuring liabilities expected made 2020 balance sheet arrangements december 31 2019 material offbalancesheet arrangements capital resources revolving credit facility june 2015 avon international operations inc aio whollyowned domestic subsidiary company entered fiveyear 4000 senior secured revolving credit facility 2015 facility december 31 2019 amounts outstanding 2015 facility february 2019 aic whollyowned foreign subsidiary company entered threeyear €2000 senior secured revolving credit facility 2019 facility december 31 2019 amounted 224 2019 facility replaced 2015 facility 2015 facility terminated time borrowings 2019 facility bear interest option rate per annum equal either libor euribor loan euros plus 225 basis points case subject adjustment based upon leveragedbased pricing grid 2019 facility available general corporate working capital purposes first quarter 2019 20 recorded writeoff unamortized issuance costs related 2015 revolving credit facility first quarter 2019 company also capitalized 110 issue costs relating 2019 revolving credit facility resulted cash outflow presented financing activities within consolidated statement cash flows december 31 2019 amounts outstanding 2019 facility january 3 2020 facility automatically cancelled upon change control result 78 unamortized issuance costs written amount facility available drawn reduced standby letters credit granted obligor december 31 2019 approximately 22 december 31 2019 based applicable exchange rates entire amount remaining 2019 facility approximately €180 million could drawn without violating covenant obligations aic 2019 facility unconditionally guaranteed company aio material us english restricted subsidiary company collectively obligors case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions 2019 facility contained affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements notes thereto contained herein used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures mda description constant dollar constant growth rates nongaap financial measure determined see performance metrics mda definitions performance metrics change active representatives change units sold change ending representatives change average order overview global manufacturer marketer beauty related products business conducted primarily directselling channel strategy expand omnichannel 2020 sales operations 55 countries territories distributed products 25 consolidated revenue derived operations subsidiaries outside united states us reportable segments based geographic operations two regions avon international avon latin america product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion apparel accessories housewares leisure products sales made ultimate consumer principally direct selling representatives independent contractors employees average approximately 4 million active representatives year ended december 31 2020 represents number representatives submitting order sales campaign totaled campaigns year divided number campaigns success business highly dependent recruiting retaining servicing representatives total revenue decreased 24 compared prioryear period impacted certain indirect taxes recognized brazil prior year excluding items adjusted revenue 23 unfavorably impacted foreign exchange driven strengthening us dollar relative multiple currencies primarily brazilian real adjusted constant revenue decreased 14 revenue constant adjusted revenue impacted decrease active representatives 14 across markets average representative sales decreased 10 reported basis unfavorably impacted foreign exchange constant adjusted average representative sales remained flat revenue constant adjusted revenue affected covid19 pandemic negatively impacted initial signs recovery lower representative base 2019 third quarter showed improving trends across markets resulted revenue growth brazil mexico continued fourth quarter avon international impacted new covid19 restriction measures imposed parts europe although extent felt second quarter able continue normal operations manufacturing facilities distribution centers units sold decreased 14 2020 across markets brazil relatively unchanged compared prior year period see segment review mda additional information related changes revenue segment merger natura cosméticos sa may 22 2019 entered agreement plan mergers natura cosméticos sa brazilian corporation sociedade anônima natura cosméticos natura co holding sa brazilian corporation sociedade anônima natura co holding two subsidiaries natura co holding sa natura co pursuant series transactions avon natura cosméticos became direct wholly owned subsidiaries natura co transaction additional information see note 21 agreement plan mergers natura cosméticos sa consolidated financial statements included herein january 3 2020 company consummated transaction became fully owned subsidiary natura co holding connection consummation transaction company notified new york stock exchange nyse trading stock suspended companys common stock subsequently delisted deregistered covid19 pandemic novel strain coronavirus covid19 first identified wuhan china december 2019 subsequently declared pandemic world health organization due uncertain rapidly evolving nature current conditions around world impacts covid19 beyond company’s control continue evolve outcome uncertain therefore unable predict accurately impact covid19 business going forward significant impact covid19 pandemic felt second quarter 2020 many markets subject lockdown restrictions limited ability recruit enroll representatives operate manufacturing facilities distribution centers process deliver orders pandemic primarily resulted reduced revenue turn impacted profitability cash generation third quarter showed signs recovery markets fourth quarter impacted new lockdown measures imposed parts europe although extent felt second quarter able continue normal operations manufacturing facilities distribution centers continue closely monitor evolution covid19 pandemic deciding actions minimize impacts ensure continuity operations promote safety health people involved since beginning virus spread consequent restrictive measures imposed governments closing nonessential trade restricting movement people across borders company implemented measures operations line official measures •incentives remote working •adoption new safety measures operational workers use masks procedures distance people processes •replanning sales cycles prioritizing personal care items •speeding digitization sales channels •we communicated social distancing protocols representatives around world •change minimum order criteria start kit deadlines payment representatives reflecting representatives’ needs market basis •daily monitoring suppliers ensure supply date report unable estimate longterm impact economic paralysis arising efforts curb spread covid19 virus expected reduction activity business results operations financial condition continue review revenue investments expenses cash outflows well adjusting relationships suppliers furthermore actions outlined continuously reevaluated light global developments relating covid19 see also “item 1a risk factorsthe covid19 pandemic adversely affecting expected continue adversely affect operations manufacturing supply chains distribution systems experienced expect continue experience unpredictable negative effects associated pandemic cyber incident june 2020 company became aware exposed cyber incident information technology environment interrupted systems partially affected companys operations engaged leading external cyber security general controls specialists launched comprehensive containment remediation effort started forensic investigation midaugust company reestablished core business processes resumed operations markets including distribution centers cyber incident material impact full year 2020 revenue although resulted shift revenue second quarter third quarter 2020 company fulfilled order backlog created incremental expense incurred result cyber incident material although indication accuracy completeness financial information impacted result incident company performed extensive procedures immediately discovering incident validate accuracy completeness refer item 9a controls procedures conclusions related internal controls natura co avon integration subsequent merger natura avon january 2020 integration plan avon integration established create right global infrastructure support future ambitions natura co group also identifying synergies opportunities leverage combined strength scale reach synergies derived mainly procurement manufacturingdistribution administrative well top line synergies primarily avon latam natura co latin america open avon open grow transformation plan january 2016 initiated transformation plan transformation plan order enable us achieve longterm goals midsingledigit constant revenue growth low doubledigit operating margin restructuring actions taken associated transformation plan beginning third quarter 2018 new restructuring actions approved operate new open avon plan described september 2018 initiated new strategy order return avon growth open avon open avon strategy integral ability return avon growth built around necessity incorporating new approaches various elements business including increased utilization thirdparty providers manufacturing technology fit purpose asset base focus enabling representatives easily interact company achieve relevant earnings savings expected continue achieved restructuring actions may continue result charges related severance contract terminations inventory asset writeoffs well costsavings strategies would result restructuring charges january 2019 announced significant advancements strategy including structural reset inventory processes reduction global workforce may 2020 new leadership avon international refreshed strategy open grow aims return avon international growth next three years open grow replaces builds success open avon strategy launched 2018 strengthen competitiveness enhancing representative experience improving brand position relevance accelerating digital expansion improving costs next three years savings expected continue achieved restructuring actions may continue result charges related severance contract terminations asset writeoffs well costsavings strategies would result restructuring charges additional details restructuring initiatives see note 16 restructuring initiatives consolidated financial statements included herein new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements included herein performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail change average representative salesthis metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average representative sales may impacted combination factors inflation units product mix andor pricing nongaap financial measures supplement financial results presented accordance generally accepted accounting principles us gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue adjusted revenue operating profit adjusted operating profit operating margin adjusted operating margin refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends underlying business results exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rates updated annual basis part budgeting process foreign currency impact determined difference actual growth rates constant growth rates also present revenue gross margin sga percentage revenue operating profit operating margin income loss taxes nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation difference nongaap financial measures financial measures calculated reported accordance gaap see reconciliation nongaap financial measures within results operations consolidated mda quantitative reconciliation company uses nongaap financial measures evaluate operating performance nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period company believes meaningful investors made aware impacts 1 certain brazil indirect taxes 2 cti restructuring initiatives 3 costs related transaction 4 costs associated early termination debt credit facilities 5 onetime tax items associated recurring normal operations special tax items provided 1 2020 includes impact certain brazil indirect taxes recorded selling general administrative expenses net amounts approximately 11 2019 included impact certain brazil indirect taxes recorded product sales income expense net amounts approximately 68 approximately 50 respectively consolidated income statements see note 20 supplemental balance sheet information consolidated financial statements contained herein information corresponding tax impact 23 2018 included impact brazil ipi tax release recorded product sales income expense net amounts approximately 168 approximately 27 respectively consolidated income statements see note 18 contingencies consolidated financial statements contained herein information brazil ipi tax release also included approximately 66 recorded income taxes 2 cti restructuring initiatives includes impact consolidated statements operations periods presented net charges incurred approved restructuring initiatives see note 16 restructuring initiative consolidated financial statements contained herein information 3 2020 company recorded approximately 86 costs related transaction primarily including professional fees incurred approximately 46 severance payments approximately 25 acceleration share based compensation approximately 10 relating terminations triggered change control provisions 2019 company recorded approximately 64 costs related transaction primarily including professional fees impairment losses assets see note 21 agreement plan mergers natura cosméticos sa consolidated financial statements contained herein agreement plan mergers natura cosméticos sa mda information 4 2020 company incurred costs 38 associated early termination debt credit facilities 2019 company incurred costs 9 associated early termination debt 5 effective tax rate discussion includes special tax items including impact provision income taxes consolidated statements operations 2018 due onetime tax reserves approximately 18 associated uncertain tax positions expense approximately 3 associated ownership transfer certain operational assets within consolidated group see note 18 contingencies note 16 restructuring initiatives note 14 segment information note 1 description business summary significant accounting policies note 7 debt financing note 9 income taxes consolidated financial statements included herein see also effective tax rate mda results operations consolidated information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies consolidated financial statements included herein detailed discussion application accounting policies revenue recognition revenue recognized control product service transferred customer generally representative revenue measured based consideration specified contract customer excludes amounts collected behalf third parties value added taxes collected taxing authorities contracts representatives often include multiple promises transfer products andor services representative determining products andor services considered distinct performance obligations accounted separately assessing recognition revenue identified performance obligations management exercised significant judgment following areas estimation variable consideration standalone selling prices ssp promised goods services delivered sales incentives determine allocate transaction price typically included within contract customers variable consideration sales returns late payment fees revenue recorded extent probable reversed therefore revenue adjusted variable consideration judgment required estimate variable consideration company uses expected value method considers possible outcomes weighted probability specifically sales returns refund liability recorded estimated cash refunded products expected returned returns asset recorded products expect returned resold based historical experience estimate sales returns well measurement returns asset refund liability updated end month changes expectations regarding amount salvageable returns reconditioning costs additional decreases value returned products late payment fees recorded uncertainty associated collecting fees resolved ie collected additionally management exercised significant judgment estimation ssp promised goods services delivered sales incentives status programs loyalty points prospective discounts gift purchase among others determine allocate transaction price ssp represents estimated market value estimated amount could charged material right entity sells separately similar circumstances similar customers judgment required determine ssp distinct performance obligation instances ssp directly observable sell product service separately including certain sales incentives determine ssp using information may include market prices observable inputs allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign generally credit representatives meet certain criteria sales campaigns generally three fourweek duration representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data applicable current conditions reasonable supportable forecasts affect collectibility including seasonality changing trends impact covid19 past three years annual bad debt expense 78 2020 115 2019 162 2018 approximately 2 total revenue 2020 2019 approximately 3 total revenue 2018 allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction record provision estimated sales returns based historical experience product returns past three years annual sales returns 101 2020 133 2019 172 2018 24 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence applicable equal difference cost inventory net realizable value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 38 2020 37 2019 114 2018 approximately 1 total revenue 2020 2019 2 total revenue 2018 discussed overview section 2018 includes inventory obsolescence charges 88 related inventory reset program utilized 2019 pension postretirement expense maintain defined benefit pension plans significant uk germany us however us defined benefit pension plan closed employees hired january 1 2015 uk defined benefit pension plan frozen future accruals april 1 2013 closed employees hired september 30 2006 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations certain retired employees us certain foreign countries see note 13 employee benefit plans consolidated financial statements included herein information benefit plans pension postretirement expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants interest crediting rates price inflation costofliving adjustments mortality rates certain demographic assumptions factors use december 31 measurement date employee benefit plans 2020 weighted average assumed rate return pension plan assets 274 compared 529 2019 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts generally evaluate expected longterm rates return annually adjust necessary defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2020 net periodic benefit cost uk defined benefit pension plan 220 addition 2020 rate return assumption uk defined benefit pension plan based asset allocation approximately 78 liability driven investments approximately 22 equity securities emerging market debt high yield securities addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities rate return plan assets uk approximately 114 2020 approximately 164 2019 discount rate used determining present value future pension obligations individual plan based review bonds receive highquality rating recognized rating agency discount rates calculating balance sheet obligations significant plans including uk defined benefit pension plan us defined benefit pension plan based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 153 december 31 2020 215 december 31 2019 determination expected rates return assets discount rates take external actuarial investment advice consideration funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2020 pretax actuarial losses prior service credits totaling approximately 20 us defined benefit pension postretirement plans approximately 206 nonus defined benefit pension postretirement plans yet charged expense actuarial losses charged aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2021 assumption expected rate return assets 415 us defined benefit pension plan 232 nonus defined benefit pension plans includes 210 uk defined benefit pension plan assumptions generally reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2020 pension expense pension benefit obligation december 31 2020 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits inventory writeoffs impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted us foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize deferred tax assets taken consideration december 31 2020 net deferred tax assets approximately 134 net valuation allowances approximately 2328 deferred tax liabilities 91 respect deferred tax assets december 31 2020 recognized deferred tax assets approximately 2020 relating tax loss carryforwards valuation allowance approximately 1932 provided december 31 2020 deferred tax assets approximately 119 primarily relating excess us foreign tax us general business credit carryforwards valuation allowance approximately 119 provided history us source losses excess us foreign tax general business credits primarily resulted greater us source loss recent years reduces ability credit foreign taxes utilize general business credits generate december 31 2020 asserting substantially foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability reverse deferred tax liabilities associated undistributed earnings foreign subsidiaries net impact deferred tax liability associated company’s undistributed earnings decrease 46 resulting deferred tax liability balance zero december 31 2020 company’s undistributed foreign earnings approximately 15 billion would generate approximate 63 income tax repatriated respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets plant property equipment capitalized software evaluate plant property equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate goodwill test goodwill impairment annually frequently circumstances warrant using various fair value methods completed annual goodwill impairment assessment 2020 november determined estimated fair values substantially excess carrying values reporting units impairment analyses performed goodwill require several estimates computing estimated fair value reporting unit part goodwill impairment analysis typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1advertising expenses recorded sga 2change constant adjusted operating margin years presented calculated using currentyear constant rates 2020 compared 2019 revenue total revenue decreased 24 compared prioryear period impacted certain indirect taxes recognized brazil prior year excluding items adjusted revenue 23 unfavorably impacted foreign exchange driven strengthening us dollar relative multiple currencies primarily brazilian real adjusted constant revenue decreased 14 revenue constant adjusted revenue impacted decrease active representatives 14 across markets average representative sales decreased 10 reported basis unfavorably impacted foreign exchange constant adjusted average representative sales remained flat revenue constant adjusted revenue affected covid19 pandemic negatively impacted initial signs recovery lower representative base 2019 third quarter showed improving trends across markets resulted revenue growth brazil mexico continued fourth quarter avon international impacted new covid19 restrictions imposed parts europe although extent felt second quarter able continue normal operations manufacturing facilities distribution centers units sold decreased 14 across markets brazil relatively unchanged compared prior year period see segment review mda additional information related changes revenue segment operating margin operating margin decreased 600 basis points impacted costs related natura transaction current prior year higher cti restructuring charges prior year excluding items adjusted operating margin decreased 620 basis points mostly due impact lower revenue sga expenses well decline gross margin movements operating margin adjusted operating margin discussed gross margin selling general administrative expenses gross margin gross margin decreased 180 basis points impacted certain indirect tax items recognized brazil prior year excluding items adjusted gross margin decreased 150 basis points positive impact pricemix fully offset impact higher supply chain costs primarily due lower volume fixed overhead costs increased material costs unfavorable impact foreign currency unfavorable impact foreign currency largely due currency devaluations brazil argentina selling general administrative expenses sga percentage total revenue increased 420 basis points impacted costs related natura transaction current prior year higher cti restructuring charges prior year adjusted sga percentage adjusted revenue increased 470 basis points compared period 2019 increase sga percentage total revenue adjusted sga percentage adjusted revenue largely due impact covid19 caused deleverage fixed expenses percentage lower revenue addition sga percentage total revenue adjusted sga percentage adjusted revenue impacted increased investment sales leaders field maintain engagement response covid19 drive productivity accelerate revenue recovery well increased distribution costs across multiple markets including enhanced safety actions relating covid19 expenses interest expense decreased approximately 1 interest income decreased approximately 6 compared 2019 loss extinguishment debt credit facilities approximately 38 2020 primarily comprised costs redemption remaining principal amounts 2016 notes due august 15 2022 2019 notes due august 15 2022 november 2020 repurchase portion 695 notes due march 15 2043 september 2020 costs termination 2019 revolving credit facility january 2020 loss extinguishment debt credit facilities approximately 12 2019 consists primarily costs termination portion 2020 bonds repaid third fourth quarters 2019 refer note 7 debt consolidated financial statements included herein information relating extinguishments debt credit facilities expense net 20 decreased approximately 114 compared income net 94 prioryear period prior period income primarily attributable impact interest certain indirect tax items recognized brazil approximately 50 favorable impact foreign exchange net gains 2019 compared losses 2020 gain sale businessassets 2020 2 related primarily sale china wellness plant august 2020 gain sale businessassets 2019 related sale rye office maximin corporation sdn bhd avon manufacturing guangzhou ltd june may february 2019 respectively sale investment new avon august 2019 refer note 3 discontinued operations assets liabilities held sale consolidated financial statements contained herein information relating disposals effective tax rate adjusted effective tax rates effective tax rates 2020 2019 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition adjusted effective tax rates effective tax rates 2020 2019 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead adjusted effective tax rate effective tax rate 2020 impacted approximate net 3 benefit recognized due 13 reduction uncertain tax positions offset net charge approximately 4 associated increase valuation allowances approximately 6 various taxes associated changes tax estimates effective tax rate 2020 also impacted cti restructuring debt extinguishments tax benefits cannot currently claimed affected jurisdictions adjusted effective tax rate effective tax rate 2019 impacted approximate net 13 benefit recognized primarily due reduced costs repatriating subsidiary earnings approximately 7 various net tax benefits associated law changes uncertain tax positions changes tax estimates partially offset net charge approximately 5 primarily associated increase valuation allowances effective tax rate 2019 also impacted accrual nontaxable income associated indirect tax refunds cti restructuring tax benefits cannot currently claimed affected jurisdictions addition adjusted effective tax rates effective tax rates 2020 2019 negatively impacted country mix earnings impact foreign currency compared prioryear period foreign currency 2020 impacted consolidated financial results form •foreign currency transaction net losses classified within cost sga expenses unfavorable impact operating profit adjusted operating profit estimated 60 approximately 130 basis points operating margin adjusted operating margin •foreign currency translation unfavorable impact operating profit adjusted operating profit approximately 35 30 respectively approximately 110 basis points 80 basis points respectively operating margin adjusted operating margin •foreign exchange net losses working capital classified within income expense net consolidated statements operations compared gains prior year resulting unfavorable impact approximately 45 tax reported adjusted basis 2019 compared 2018 revenue total revenue decreased 15 compared prioryear period impacted certain indirect taxes recognized brazil well ipi prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding impact indirect taxes brazil adjusted revenue 13 impacted unfavorable impact foreign exchange adjusted constant revenue decreased 7 revenue adjusted revenue adjusted constant revenue decline primarily driven europe middle east africa markets particular russia negatively impacted decrease active representatives decrease average representative sales revenue constant revenue russia continued impacted lower consumer confidence well weaker sales leader engagement first half year revenue constant revenue impacted decrease active representatives 10 across multiple markets average representative sales decreased 5 reported basis unfavorably impacted foreign exchange adjusted constant average representative sales increased 2 revenue adjusted revenue constant adjusted revenue declined consequence intent improve productivity increasing average representative sales adjusted constant average representative sales impacted improved pricemix addition average representative sales favorably impacted certain indirect tax items well positive impact brazil ipi tax compared prioryear period additional details ipi tax cosmetics brazil see note 18 contingencies consolidated financial statements included herein units sold decreased 14 driven declines brazil russia see segment review mda additional information related changes revenue segment operating margin operating margin decreased 160 basis points significantly impacted certain indirect taxes recognized brazil current year well ipi tax benefit prior year indirect taxes ipi positively impacted operating margin 2019 2018 larger extent 2018 excluding impact indirect taxes brazil adjusted operating margin increased 100 basis points driven improved pricemix savings across multiple cost lines margin improvement delivered despite unfavorable impact foreign currency movements operating margin adjusted operating margin discussed gross margin selling general administrative expenses gross margin gross margin increased 20 basis points adjusted gross margin decreased 40 basis points unfavorable impact foreign currency higher supply chain costs offset positive impact pricemix unfavorable impact 160 basis unfavorable impact 110 basis points offset benefit 240 basis point pricemix improvements driven effective pricing optimized discounts promotions effective incentives favorable product mix markets unfavorable impact foreign currency largely due currency devaluations argentina brazil higher supply chain costs driven higher material costs selling general administrative expenses sga percentage total revenue increased 190 basis points significantly impacted cti restructuring charges adjusted sga percentage total revenue decreased 150 basis points savings sga adjusted sga primarily due lower advertising expenses benefit 80 basis points better bad debt management benefit 50 basis points advertising expense benefited certain indirect tax items brazil well optimizing portfolio concentrating investments selected channels focusing digital advertising reduced bad debt expense primarily brazil continued focus credit control collections processes expenses interest expense decreased approximately 7 interest income decreased approximately 8 compared 2018 loss extinguishment debt credit facilities approximately 12 primarily comprised costs termination portion 2020 bonds repaid third fourth quarters 2019 income expense net 94 increased approximately 101 compared prioryear period current period income primarily attributable impact interest certain indirect tax items recognized brazil approximately 50 favorable impact foreign exchange net gains 2019 compared losses 2018 gain sale businessassets related rye office maximin corporation sdn bhd avon manufacturing guangzhou ltd june may february 2019 respectively sale investment new avon august 2019 refer note 3 discontinued operations assets liabilities held sale consolidated financial statements contained herein information relating disposals effective tax rate adjusted effective tax rates effective tax rates 2019 2018 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition adjusted effective tax rates effective tax rates 2019 2018 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead factors resulted unusually high effective tax rates 2019 2018 adjusted effective tax rate effective tax rate 2019 impacted approximate net 13 benefit recognized primarily due reduced costs repatriating subsidiary earnings approximately 7 various net tax benefits associated law changes uncertain tax positions changes tax estimates partially offset net charge approximately 5 primarily associated increase valuation allowances effective tax rate 2019 also impacted accrual nontaxable income associated indirect tax refunds cti restructuring tax benefits cannot currently claimed affected jurisdictions adjusted effective tax rate effective tax rate 2018 impacted approximate net 25 benefit recognized primarily due avons interpretation case law andor guidance provided 2018 us latin america release valuation allowances approximately 5 associated improved profitability certain markets partially offset net charge approximately 11 primarily associated increase reserves uncertain tax positions effective tax rate 2018 also impacted accrual taxes associated reversal brazil ipi loss contingency cti restructuring tax benefits cannot currently claimed affected jurisdictions addition adjusted effective tax rates effective tax rates 2019 2018 negatively impacted country mix earnings impact foreign currency compared prioryear period foreign currency 2019 impacted consolidated financial results form •foreign currency transaction net losses compared net gains prior year classified within cost sga expenses unfavorable impact operating profit adjusted operating profit estimated 80 approximately 140 basis points 150 basis points respectively operating margin adjusted operating margin •foreign currency translation unfavorable impact compared favorable impact prior year operating profit adjusted operating profit approximately 15 30 respectively approximately 10 basis points 20 basis points respectively operating margin adjusted operating margin •higher foreign exchange net gains working capital classified within income expense net consolidated statements operations compared loss prior year resulting favorable impact approximately 60 tax reported adjusted basis comprehensive loss income comprehensive loss net taxes approximately 94 2020 compared comprehensive loss approximately 9 2019 yearoveryear comparison unfavorably impacted foreign currency translation losses approximately 163 compared losses 1 prior year partially offset favorable impact unrealized gains revaluation longterm intercompany balances 68 compared losses 6 prior year impacts relate certain intercompany loans long term nature foreign currency transaction gains losses accounted translation adjustments equity gains current year primarily attributable longterm euro denominated intercompany loan receivable held entity us dollar functional currency comprehensive loss net taxes approximately 9 2019 compared comprehensive loss approximately 104 2018 yearoveryear comparison favorably impacted unrealized losses revaluation longterm intercompany balances 6 compared 58 prioryear period longterm intercompany balances denominated mexican peso british pound foreign currency translation adjustments favorably impacted comprehensive loss approximately 48 compared 2018 primarily due favorable yearoveryear comparison movements russian ruble segment review company updated reportable segments align business operated managed since merger natura identified two reportable segments based geographic operations avon international avon latin america prior periods company reported four segments europe middle east africa asia pacific south latin america north latin america previously reported segment information recast throughout consolidated financial statements applicable periods presented reflect changes company’s reportable segments determine segment profit deducting related costs expenses segment revenue segment profit excludes certain global expenses cti restructuring initiatives certain significant asset impairment charges items allocated particular segment consistent manner assess performance allocate resources see note 14 segment information consolidated financial statements included herein reconciliation segment profit operating profit summarized financial information concerning reportable segments follows analysis key factors affecting revenue segment profit reportable segment years threeyear period ended december 31 2020 foreign currency impact determined difference actual growth rates constant growth rates refer nongaap financial measures mda information avon international 2020 compared 2019 amounts table may necessarily sum due rounding total revenue decreased 21 compared prioryear period unfavorably impacted foreign exchange driven strengthening us dollar relative multiple currencies primarily russian ruble south african rand turkish lira constant basis revenue decreased 18 primarily driven decrease active representatives across markets revenue constant revenue affected covid19 pandemic negatively impacted initial signs recovery lower representative base 2019 significant impact covid19 pandemic felt second quarter 2020 third quarter showing signs recovery markets fourth quarter impacted new covid19 restriction measures imposed parts europe although extent felt second quarter able continue normal operations manufacturing facilities distribution centers segment margin decreased 610 basis points 570 constant basis mostly due impact lower revenue sga expenses constant adjusted gross margin decreased 40 basis points positive impact pricemix fully offset impact higher supply chain costs primarily due lower volume fixed overhead costs unfavorable impact foreign currency increase constant adjusted sga percentage total revenue largely due impact covid19 caused deleverage fixed expenses percentage lower revenue addition constant adjusted sga percentage total revenue impacted increased investment sales leaders field maintain engagement drive productivity accelerate revenue recovery well increased distribution costs across multiple markets avon international 2019 compared 2018 amounts table may necessarily sum due rounding total revenue decreased 13 compared prioryear period unfavorably impacted foreign exchange driven strengthening us dollar relative multiple currencies primarily russian ruble south african rand turkish lira constant basis revenue decreased 9 primarily driven decrease active representatives across markets russia revenue decreased 17 excluding impact foreign exchange constant revenue decreased 14 revenue constant revenue russia negatively impacted primarily decrease active representatives decrease average representative sales revenue constant revenue russia continued impacted lower consumer confidence well weaker sales leader engagement first half year uk revenue decreased 16 excluding impact foreign exchange constant revenue decreased 13 revenue constant revenue uk entirely impacted lower active representatives result changes commercial practices lower consumer confidence revenue philippines decreased 2 favorably impacted foreign exchange constant basis revenue philippines decreased 4 revenue constant revenue philippines driven decrease active representatives impacted changes sales leader recruitment commercial practices partially offset higher average representative sales primarily due effective pricing segment margin decreased 10 basis points increased 30 constant basis mostly driven lower sga percentage total revenue gross margin relatively unchanged favorable impact pricemix fully offset unfavorable impact foreign currency net losses lower production volumes supply chain costs decrease constant adjusted sga percentage total revenue largely due lower advertising costs partially offset increased investment training avon latin america 2020 compared 2019 amounts table may necessarily sum due rounding total revenue decreased 27 compared prioryear period impacted certain indirect taxes recognized brazil prior year excluding items adjusted revenue region 25 unfavorably impacted foreign exchange driven strengthening us dollar relative multiple currencies primarily brazilian real argentinian peso mexican peso constant basis adjusted revenue declined 10 primarily driven decrease active representatives 10 across markets decline revenue constant adjusted revenue affected covid19 pandemic negatively impacted initial signs recovery lower representative base 2019 third fourth quarters showing improving trends across latin america markets revenue growth brazil mexico revenue brazil decreased 29 significantly impacted certain indirect tax items recognized brazil year ended december 31 2019 excluding items adjusted revenue brazil decreased 25 unfavorably impacted foreign exchange brazils constant adjusted revenue decreased 2 revenue constant adjusted revenue brazil driven minor decrease active representatives average representative sales impacted covid19 pandemic negatively affected initial signs recovery lower representative base 2019 brazil returned growth third quarter driven significant increase fashion home category continued outperform fourth quarter segment margin decreased significantly impacted effects certain indirect tax items recognized brazil year ended december 31 2019 excluding items adjusted segment margin decreased 720 basis points 580 basis points constant basis mostly due impact lower revenue sga expenses well decline gross margin yearonyear comparison segment margin also included certain indirect tax benefits revenue sga prior year adjusted gross margin declined positive impact pricemix fully offset impact higher supply chain costs driven increased material costs lower volume fixed overhead costs unfavorable impact foreign currency increase sga percentage constant adjusted revenue largely due impact covid19 caused deleverage fixed expenses percentage lower revenue additional investments distribution relating covid19 safety actions increase sga percentage constant adjusted revenue also impacted higher sales leaders field investments across markets response covid19 accelerate revenue recovery partially offset reduction bad debt expense driven continued improvements credit control collections processes brazil avon latin america 2019 compared 2018 amounts table may necessarily sum due rounding total revenue decreased 15 compared prioryear period impacted certain indirect taxes recognized brazil well ipi tax benefit prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding impact indirect taxes brazil adjusted revenue region 12 impacted unfavorable impact foreign exchange primarily result strengthening us dollar relative argentinian peso brazilian real adjusted constant revenue decreased 5 adjusted revenue adjusted constant revenue impacted decrease active representatives primarily brazil substantially offset higher average representative sales driven brazil argentina revenue brazil decreased 18 significantly impacted certain indirect tax items current prior year indirect taxes ipi positively impacted revenue 2018 2019 larger extent 2018 excluding indirect tax items adjusted revenue brazil decreased 12 unfavorably impacted foreign exchange brazils constant adjusted revenue decreased 4 revenue adjusted constant revenue brazil negatively impacted decrease active representatives continued negatively impacted competitive pressures strategy improve productivity decrease active representatives offset higher average representative sales impacted improved pricemix addition average representative sales favorably impacted certain indirect tax items well positive impact brazil ipi tax compared prioryear period additional details ipi tax cosmetics brazil see note 18 contingencies consolidated financial statements included herein revenue argentina declined 23 unfavorably impacted foreign exchange constant basis argentinas revenue grew 35 revenue constant revenue argentina benefited higher average representative sales impacted improved revenue growth management including inflationary pricing revenue mexico decreased 4 compared prior year period reported constant basis decline reported constant revenue mexico primarily due decline active representatives partially offset higher average representatives sales driven strategic initiatives focus representative productivity via representative segmentation training segment margin decreased 80 basis points significantly impacted effects indirect tax items current prior years adjusted segment margin increased 200 basis points constant adjusted segment margin increased 280 basis points benefited certain indirect tax items revenue sga well sga benefits offset decline gross margin adjusted gross margin marginally declined result increased supply chain costs driven higher material costs unfavorable impact foreign currency fully offset positive impact pricemix savings sga driven reduction bad debt expense primarily brazil due improved credit control collections processes lower advertising costs lower sales leader field investments linked decrease active representatives brazil ipi tax discussion may 2015 executive decree certain cosmetics went effect brazil increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products subject ipi september 30 2018 due part judicial decisions across industry developments concluded supported opinion legal counsel executive decree unconstitutional therefore assessed ipi tax asc 450 contingencies determined risk loss ongoing judicial reviews reasonably possible probable accordingly released liability accrued september 30 2018 195 considered release liability nongaap adjustment therefore adjusted ipi tax 168 recorded net sales consolidated income statements associated interest 27 recorded income expense net consolidated income statements adjusted nongaap results period ended december 31 2018 accrual brazil ipi tax negatively impacted total revenue nine month period ended september 30 2018 brazil avon latam total avon approximately 45 approximately 2 approximately 1 respectively additional details ipi tax cosmetics increase brazil see note 18 contingencies consolidated financial statements included herein liquidity capital resources principal sources funds historically cash flows operations public offerings notes bank financings issuance commercial paper borrowings lines credit private placement notes furthermore since january 3 2020 part natura co group companies gives us access intercompany funding company cash hand 3649 restricted cash 78 december 31 2020 covid19 pandemic going concern considering uncertain nature possible future covid19 impacts beyond companys control expect negative impact revenue covid19 continue 2021 turn result lower cash generation activities downturn deeper longer anticipate company could take certain actions ease pressure certain cash outflows reducing discretionary expenditure selling noncore assets accessing government pandemic initiatives arranging borrowing facilities thirdparty banks affiliate companies projections indicate sufficient liquidity meet obligations parties natura co affiliates period less 12 months issuance date consolidated financial statements contained herein company received irrevocable commitment natura co holding provide sufficient financial support needed enable company meet obligations come due normal course business period less 12 months date issuance consolidated financial statements contained herein see note 7 debt financing note 15 leases commitments consolidated financial statements included herein respectively information debt contractual financial obligations commitments including loans natura co affiliates maturing within 1 year liquidity matters may seek retire outstanding debt open market purchases existing call mechanisms privately negotiated transactions derivative instruments cash tender offers otherwise repurchases debt may funded cash incurrence additional debt depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt finance ongoing operations meet liquidity needs however credit ratings remain investment grade may impact ability access transactions favorable terms information see risk factors credit ratings investment grade could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 18 contingencies consolidated financial statements included herein see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 balance sheet data cash flows 1during third quarter 2020 identified immaterial classification error consolidated statement cash flows relating year ended december 31 2019 respect cash flows settlement derivative contracts corrected reclassification error revision consolidated statement cash flows year ended december 31 2019 reclassify cash inflows 374 settlement derivative contracts operating activities financing activities additional information see note 1 description business summary significant accounting policies consolidated financial statements included herein net cash continuing operating activities net cash used continuing operating activities 2020 approximately 270 compared net cash provided continuing operating activities approximately 57 2019 increased cash outflow approximately 327 increase net cash used operating activities primarily due lower cash profits impacted lower revenue levels onetime costs linked acquisition natura co holding cash outflows related transaction included professional fees senior officer severance expenses first quarter 2020 information relating transaction included note 21 merger natura cosméticos sa consolidated financial statements included herein addition yearoveryear comparison net cash continuing operating activities unfavorably impacted higher inventory levels primarily support growth avon latin america net cash provided continuing operating activities 2019 approximately 57 compared net cash provided continuing operating activities approximately 93 2018 decrease approximately 36 yearoveryear comparison net cash provided continuing operating activities unfavorably impacted increase restructuring payments 71 impact onetime items 2018 recur 2019 net 34 partially offset operational improvements working capital higher cash generated earnings maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 13 employee benefit plans consolidated financial statements included herein funding policy pension plans meet minimum required contributions applicable law accumulate plan assets long run expected approximate present value projected benefit obligations amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 5 10 fund global defined benefit pension postretirement plans 2021 net cash continuing investing activities net cash used continuing investing activities 2020 approximately 21 compared net cash provided continuing investing activities approximately 50 2019 approximate 71 decrease net cash investing activities driven lower net proceeds sale businesses assets current year compared prior year 2020 net proceeds 11 received sale hungary distribution center gödöllő second quarter 2020 sale china wellness plant avon management shanghai closed third quarter 2020 net cash provided continuing investing activities 2019 approximately 50 compared net cash used continuing investing activities approximately 93 2018 approximate 143 increase net cash investing activities primarily due net proceeds sale avon manufacturing guangzhou ltd closed first quarter 2019 sale rye office sale maximin corporation sdn bhd closed second quarter 2019 sale new avon closed third quarter 2019 refer note 3 discontinued operations assets liabilities held sale consolidated financial statements contained herein information relating sale businesses assets capital expenditures 2020 approximately 45 compared approximately 59 2019 approximately 95 2018 net cash continuing financing activities net cash provided continuing financing activities 2020 approximately 39 compared net cash used financing activities 39 2019 net cash continuing financing activities relatively unchanged favorable impact proceeds debt issued largely offset repayment debt current prior years 2020 proceeds debt issued consisted primarily 960 promissory note provided subsidiary natura co holding sa whilst repayment debt primarily consisted redemption 2016 notes due august 15 2022 2019 notes due august 15 2022 note 7 debt financing consolidated financial statements included herein information items net cash provided continuing financing activities 2019 approximately 39 compared net cash used financing activities 307 2018 approximate 346 favorable impact net cash used continuing financing activities primarily due 289 repayment debt 2018 offsetting proceeds debt 2019 debt repayments 388 offset proceeds debt 400 longer common stock outstanding december 31 2020 purchased stock year 2019 purchased 12 million shares common stock 96 acquisition stock employees connection tax payments upon vesting restricted stock units upon vesting performance restricted stock units 2018 2017 december 2019 company declared dividend 0016 per share dividend paid january 2020 debt contractual financial obligations commitments december 31 2020 debt contractual financial obligations commitments due dates follows table assumes debt repayments made line contractual payment terms without need refinancing 1amounts based current longterm credit ratings see note 7 debt financing consolidated financial statements included herein information 2the amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes future benefit payments respect defined benefit postretirement benefit plans see note 13 employee benefit plans consolidated financial statements included herein information table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2020 reserves uncertain income tax positions including interest penalties totaled approximately 89 see note 7 debt financing note 15 leases commitments consolidated financial statements included herein respectively information debt contractual financial obligations commitments additionally disclosed note 16 restructuring initiatives consolidated financial statements included herein december 31 2020 liabilities approximately 16 associated restructuring actions primarily associated open grow majority future cash payments associated restructuring liabilities expected made 2021 balance sheet arrangements december 31 2020 material offbalancesheet arrangements capital resources january 3 2020 company became wholly owned subsidiary natura co company relies natura co group capital resources revolving credit facility june 2015 avon international operations inc aio whollyowned subsidiary company entered fiveyear 4000 senior secured revolving credit facility 2015 facility february 2019 avon international capital plc aic whollyowned subsidiary company entered threeyear €2000 senior secured revolving credit facility 2019 facility december 31 2019 amounted 224 2019 facility replaced 2015 facility 2015 facility terminated time first quarter 2019 20 recorded writeoff unamortized issuance costs related 2015 revolving credit facility first quarter 2019 company also capitalized 110 issue costs relating 2019 revolving credit facility resulted cash outflow presented financing activities within consolidated statement cash flows december 31 2019 amounts outstanding 2019 facility january 3 2020 facility automatically cancelled upon change control result 78 unamortized issuance costs written item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2013 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures pages 24 25 mda description constant dollar constant growth rates nongaap financial measure determined overview global manufacturer marketer beauty related products business conducted worldwide primarily directselling channel presently sales operations 62 countries territories including united states us distribute products 43 reportable segments based geographic operations include commercial business units latin america europe middle east africa north america asia pacific product categories beauty fashion home beauty consists color fragrance skincare personal care fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling 6 million active independent representatives independent contractors employees success business highly dependent recruiting retaining servicing representatives 2013 approximately 88 consolidated revenue derived operations outside us first quarter 2013 renamed growth active representatives performance metric referred change active representatives addition revised definition metric exclude china previously disclosed business china predominantly retail result believe including china within change active representatives calculation provides relevant indicator underlying business trends changes underlying calculation exclusion china total revenue 2013 compared 2012 declined 6 compared prioryear period partially due unfavorable foreign exchange constant revenue declined 1 2 decrease active representatives partially offset 1 increase average order sales beauty category decreased 7 2 constant basis sales fashion category decreased 7 4 constant basis sales home category increased 3 9 constant basis constant revenue impacted net declines north america asia pacific however declines partially offset improvements latin america europe middle east africa growth latin america driven brazil particularly fashion home venezuela primarily due inflationary pricing partially offset executional challenges mexico second half 2013 europe middle east africa growth driven south africa russia turkey partially offset revenue decline united kingdom north america experienced deteriorating financial results primarily result decline active representatives asia pacifics revenue decline primarily due continuing weak performance china operations operational challenges philippines see “segment review” management’s discussion analysis financial condition results operations refer report mda additional information related changes revenue category segment focused driving profitable growth improving access brands products order achieve growth intend strengthen leverage direct sales core maximize geographic portfolio expand brands channels revenue recovery taking longer expected take time reverse trends caused recent deceleration partially attributed executing consistently two important processes commercial marketing includes pricing merchandising brochure execution field management includes representative recruitment retention activity across key markets 2013 addition expect pressure operating margin first half 2014 partially result gross margin europe middle east africa including negative impact foreign exchange 2012 announced cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth expected achieved restructuring actions well costsavings strategies result restructuring charges 400m cost savings initiative designed reduce operating expenses percentage total revenue help us achieve targeted low doubledigit operating margin 2016 restructuring actions 400m cost savings initiative primarily consist global headcount reductions related actions well restructuring closure certain smaller underperforming markets including exit south korea vietnam republic ireland markets result actions approved todate recorded total costs implement restructuring initiatives 1191 taxes 684 taxes recorded 2013 actions approved todate expect total costs implement restructuring range 140 150 taxes additional charges yet incurred associated actions approved todate approximately 20 30 taxes expected recorded primarily 2014 time unable quantify total costs implement restructuring initiatives incurred time initiative fully implemented connection restructuring actions approved todate associated 400m cost savings initiative expect realize annualized savings approximately 165 170 taxes see note 15 restructuring initiatives pages 2013 annual report information december 2013 decided halt rollout service model transformation smt project beyond pilot market canada light potential risk business disruption result noncash impairment charge capitalized software associated smt 1172 recorded impairment charge recorded component global expenses within selling general administrative expenses consolidated statements income see note 1 description business summary significant accounting policies pages 2013 annual report information regarding smt result 32 devaluation venezuelan currency february 2013 revenue operating margin negatively impacted result using us historic dollar cost basis nonmonetary assets inventory acquired prior devaluation 2013 operating profit net loss negatively impacted 50 due difference historical cost previous official exchange rate 430 official exchange rate 630 addition negative impact operating margin result devaluation venezuelan currency first quarter 2013 recorded onetime aftertax loss 51 34 expense net 17 income taxes primarily reflecting writedown monetary assets liabilities deferred tax benefits see discussion venezuela segment review latin america mda july 2013 completed sale silpada business silpada 85 plus earnout 15 silpada achieves specific earnings targets two years silpada classified within discontinued operations periods presented silpada previously reported within north america segment second quarter 2013 company recorded pretax charge 79 50 net tax reflecting expected loss sale see note 3 discontinued operations pages 2013 annual report information new accounting standards information relating new accounting standards included note 2 new accounting standards consolidated financial statements contained 2013 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric based number unique orders campaign totaled campaigns related period excluding china amount divided number billing days related period exclude impact yeartoyear changes billing days example holiday schedules determine growth active representatives calculation compared calculation corresponding period prior year change units sold metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue operating profit adjusted operating profit operating margin adjusted operating margin also refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rate currency impact determined difference actual growth rates constant currency growth rates also present gross margin selling general administrative expenses percentage revenue total net global expenses operating profit operating margin effective tax rate nongaap basis discussion segments presents operating profit operating margin nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation difference nongaap financial measures financial measures calculated reported accordance gaap company uses nongaap financial measures evaluate operating performance believes meaningful investors made aware periodtoperiod basis impacts 1 costs implement cti restructuring initiatives 2 costs charges related devaluation venezuelan currency february 2013 combined designated highly inflationary economy valuation allowance deferred tax assets related venezuela benefit related release provision associated excess cost acquiring us dollars venezuela venezuelan special items 3 89 accrual potential settlements related fcpa investigations fcpa accrual 4 goodwill intangible asset impairment charges valuation allowance deferred tax assets related china business well capitalized software impairment charge related smt project asset impairment charges 5 costs charges related extinguishment debt loss extinguishment debt 6 additional provision income taxes longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested special tax items company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period venezuelan special items include impact consolidated statements income 2013 caused devaluation venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventory prepaid expenses nonmonetary assets venezuelan special items include earnings impact caused difference historical cost assets previous official exchange rate 430 revised official exchange rate 630 venezuelan special items also include impact consolidated statements income caused valuation allowance deferred tax assets related venezuela recorded fourth quarter 2013 well release provision fourth quarter 2012 associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate asset impairment charges include impact consolidated statements income caused goodwill intangible asset impairment charges valuation allowance deferred tax assets related china business third quarter 2013 goodwill impairment charge related china business third quarter 2012 asset impairment charges also include impact consolidated statements income caused capitalized software impairment charge related smt project fourth quarter 2013 loss extinguishment debt includes impact consolidated statements income first quarter 2013 caused makewhole premium writeoff debt issuance costs associated prepayment private notes defined well writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement defined loss extinguishment debt also includes impact consolidated statements income second quarter 2013 caused makewhole premium writeoff debt issuance costs discounts partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment 2014 notes defined special tax items include impact 2012 provision income taxes consolidated statements income decision longer assert undistributed earnings foreign subsidiaries indefinitely reinvested fourth quarter 2012 determined company may repatriate offshore cash meet certain domestic funding needs see note 15 restructuring initiatives pages 2013 annual report results continuing operations consolidated segment review latin america note 16 contingencies pages 2013 annual report note 17 goodwill intangible assets pages 2013 annual report note 1 description business summary significant accounting policies pages 2013 annual report note 5 debt financing pages 2013 annual report liquidity capital resources note 7 income taxes pages 2013 annual report information items nongaap measures considered isolation substitute superior financial measures calculated accordance gaap critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2013 annual report detailed discussion application accounting policies allowances sales returns policies practices product returns vary jurisdiction within many jurisdictions generally allow unlimited right return record provision estimated sales returns based historical experience product returns past three years annual sales returns 340 2013 386 2012 443 2011 approximately 4 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign sales campaigns generally twoweek duration us two fourweek duration outside us representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance prior campaign paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 239 2013 251 2012 247 2011 approximately 2 total revenue year allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 117 2013 119 2012 128 2011 pension postretirement expense maintain defined benefit pension plans cover substantially employees us portion employees international locations additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations majority retired employees us certain foreign countries see note 12 employee benefit plans pages 2013 annual report information benefit plans pension plan expense requirements funding major pension plans determined based number actuarial assumptions include expected rate return pension plan assets interest crediting rate hybrid plans discount rate applied pension plan obligations 2013 weighted average assumed rate return pension plan assets including us nonus plans 719 compared 728 2012 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts evaluate expected longterm rate return annually adjust necessary significant portion pension plan assets relate us pension plan assumed rate return 2013 us plan 775 based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 2 4 long term approximately 65 equity securities high yield securities expected earn approximately 6 10 long term historical rates return assets us plan approximately 9 recent 10year period approximately 8 20year period us plan asset allocation policy historically favored us equity securities returned approximately 8 10year period approximately 8 20year period rate return plan assets us approximately 13 2013 approximately 15 2012 beginning 2014 investment strategy us pension plan designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments achieve desired market exposures hedge certain risks regulations pension protection act 2006 finalized yet effective require hybrid plans limit maximum interest crediting rate one among several choices crediting rates considered market rates return rate chosen affect total pension obligations discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans including us plan based internal rates return portfolio high quality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus pension plans determined basis 456 december 31 2013 411 december 31 2012 determination expected rate return assets discount rate take consideration external actuarial advice funding requirements may impacted regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2013 pretax actuarial losses prior service credits totaling 347 us pension postretirement plans 285 nonus pension postretirement plans yet charged expense actuarial losses charged accumulated comprehensive loss aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2014 assumption expected rate return assets 750 us pension plan 640 nonus pension plans assumptions reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2013 pension expense pension benefit obligation december 31 2013 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes december 31 2013 net deferred tax assets 1144 net valuation allowances 783 respect deferred tax assets december 31 2013 recognized deferred tax assets relating tax loss carryforwards 756 primarily foreign jurisdictions valuation allowance 718 provided also recognized deferred tax assets 585 relating excess foreign tax credit carryforwards 57 44 54 124 79 227 expire end 2018 2019 2020 2021 2022 2023 respectively history domestic source losses excess foreign tax credits primarily resulted greater domestic source loss recent years reduces foreign source income 2013 domestic source loss included tax losses generated sale silpada business losses extinguishment debt led increase excess foreign tax credit carryforwards generated 2013 expire 2023 ability utilize foreign tax credits dependent future us taxable income december 31 2013 would need generate approximately 17 billion excess net foreign source income order realize deferred tax assets number variables consider determining projected realization excess foreign tax credits including amount domestic source loss type jurisdiction timing foreign source income based projections estimate take several years generate sufficient excess net foreign source income realize excess foreign tax credits expire 10 years created record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted domestic foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration result analysis concluded tax benefits associated excess foreign tax credits “more likely not” realized prior expiration conclusion based forecasted future us taxable income including domestic profitability royalties received foreign subsidiaries potential impact possible tax planning strategies including repatriation foreign earnings acceleration royalties assumptions embedded forecasted future us taxable income include continued international growth stabilization us business reduction corporate expenses extent us taxable income less favorable currently projected ability utilize foreign tax credits may negatively affected respect deferred tax liability fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined may repatriate offshore cash meet certain domestic funding needs accordingly asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes 168 earnings december 31 2012 deferred tax liability amount 225 us tax cost undistributed earnings subsidiaries outside us 31 billion december 31 2013 continue assert undistributed earnings foreign subsidiaries indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account 2013 undistributed earnings foreign subsidiaries earnings actually repatriated us year additionally deferred tax liability reduced due lower cost repatriate undistributed earnings foreign subsidiaries compared 2012 net impact deferred tax liability associated company’s undistributed earnings reduction 82 resulting deferred tax liability balance 143 related incremental us tax cost 26 billion undistributed foreign earnings december 31 2013 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings result utilization foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary venezuela calculation deferred income tax liability local regulations restrict cash distributions denominated us dollars respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2014 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2014 provision income taxes may impacted sharebased compensation sharebased payments issued employees recognized consolidated financial statements based fair value using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options model requires various judgmental assumptions including volatility forfeiture rates expected option life assumptions used model change significantly sharebased compensation may differ materially future historical results loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets capitalized software review capitalized software impairment whenever events changes circumstances indicate related carrying amounts may recoverable december 2013 decided halt rollout smt project beyond pilot market canada light potential risk business disruption result noncash impairment charge capitalized software associated smt 1172 recorded impairment charge recorded component global expenses within selling general administrative expenses consolidated statements income fair value capitalized software associated smt asset determined using riskadjusted discounted cash flow dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates result impairment charge remaining carrying amount smt asset material see note 1 description business summary significant accounting policies pages 2013 annual report information smt goodwill intangible assets test goodwill intangible assets indefinite lives impairment annually frequently circumstances warrant using various fair value methods review finitelived intangible assets subject amortization impairment whenever events changes circumstances indicate related carrying amounts may recoverable completed annual goodwill impairment assessment 2013 yearend close process determined estimated fair values considered substantially excess carrying values reporting units impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors see note 17 goodwill intangible assets pages 2013 annual report information china compared projections used fourth quarter 2012 impairment analysis q4 2012 projections china performed generally line revenue earnings projections first half 2013 assumed q4 2012 projections chinas revenue first half 2013 continued deteriorate versus prioryear period however beginning third quarter 2013 revenue decline significantly excess assumptions result third quarter 2013 became apparent would achieve 2013 longterm forecasted revenue earnings completed interim impairment assessment fair value goodwill related operations china revenue decline china third quarter 2013 resulted recognition operating loss expected operating profit q4 2012 projections third quarter 2013 significantly lowered longterm revenue earnings projections china included dcf model utilized interim impairment assessment result impairment testing recorded noncash impairment charge 421 third quarter 2013 reduce carrying amounts goodwill finitelived intangible assets amounts remaining associated goodwill intangible assets china reporting unit result impairment charge third quarter 2012 completed interim impairment assessment fair value goodwill related operations china based continued decline revenue performance corresponding lowering longterm growth estimates market made changes longterm growth estimates china business achieve revenue earnings cash flows expectations primarily due challenges business model result impairment testing recorded noncash impairment charge 440 third quarter 2012 reduce carrying amount goodwill estimated fair value key assumptions used measuring fair value china impairment assessments included projections revenue resulting cash flows well discount rate based weightedaverage cost capital estimate fair value china forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return chinas cash flows normalized sustainable levels see note 17 goodwill intangible assets pages 2013 annual report information china silpada 2012 yearend close process analysis silpada business indicated impairment carrying value business exceeded estimated fair value finitelived intangible assets recoverable primarily result lower expected financial performance 2012 served baseline longterm projections business lowered longterm revenue earnings projections silpada reflect moderate recovery business believed appropriate due lack sales momentum business continued inability silpada achieve financial performance expectations accordingly noncash impairment charge 209 recorded reduce carrying amounts goodwill indefinitelived intangible asset finitelived intangible asset decline fair values silpada assets driven reduction forecasted growth rates cash flows used estimate respective fair values 2011 yearend close process analysis silpada business indicated impairment carrying value business exceeded estimated fair value accordingly noncash impairment charge 263 recorded fourth quarter 2011 reduce carrying amounts goodwill indefinitelived intangible asset following weaker expected performance fourth quarter 2011 lowered revenue earnings projections silpada largely due rise silver prices nearly doubled since acquisition negative impact pricing revenues margins decline fair values silpada reporting unit underlying trademark driven reduction forecasted growth rates cash flows used estimate respective fair value key assumptions used measuring fair value silpada impairment assessments included discount rate based weightedaverage cost capital revenue growth well silver prices representative growth activity rates estimate fair value silpada forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return silpadas cash flows normalized sustainable levels fair value silpadas indefinitelived trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates fair value silpada finitelived customer relationships determined using dcf model multiperiod excess earnings method impact impairment charges 2012 2011 associated silpada reflected within discontinued operations risk additional impairments associated silpada business sold july 2013 see note 3 discontinued operations pages 2013 annual report information silpada results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses included within selling general administrative expenses 2013 compared 2012 revenue total revenue 2013 compared 2012 declined 6 compared prioryear period partially due unfavorable foreign exchange constant revenue declined 1 2 decrease active representatives partially offset 1 increase average order units sold decreased 5 net impact price mix increased 4 pricing benefited inflationary impacts latin america primarily argentina venezuela category basis revenue growth rates follows constant revenue impacted net declines north america asia pacific however declines partially offset improvements latin america europe middle east africa growth latin america driven brazil particularly fashion home venezuela primarily due inflationary pricing partially offset executional challenges mexico second half 2013 europe middle east africa growth driven south africa russia turkey partially offset revenue decline united kingdom north america experienced deteriorating financial results primarily result decline active representatives asia pacifics revenue decline primarily due continuing weak performance china operations operational challenges philippines see segment review mda additional information related changes revenue segment operating margin operating margin decreased 70 basis points adjusted operating margin increased 130 basis points compared 2012 increase adjusted operating margin includes benefits associated 400m cost savings initiative decrease operating margin increase adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill intangible asset gross margin gross margin adjusted gross margin increased 90 basis points 130 basis points respectively compared 2012 increase adjusted gross margin primarily due following • increase 70 basis points due lower supply chain costs largely due 60 points lower freight costs primarily latin america due reduced usage air freight • increase 70 basis points due favorable net impact mix pricing primarily latin america including benefits pricing due realization price increases advance costs markets experiencing relatively high inflation venezuela argentina mix negatively impacted gross margin due higher growth fashion home • decrease 60 basis points due unfavorable impact foreign exchange • various insignificant items contributed increase gross margin adjusted gross margin selling general administrative expenses selling general administrative expenses 2013 decreased 1761 compared 2012 decrease primarily due favorable impact foreign exchange lower professional related fees associated fcpa investigation compliance reviews lower advertising costs partially offset noncash impairment charge 1172 capitalized software related smt recorded fourth quarter 2013 89 accrual potential settlements related fcpa investigations higher cti restructuring higher distribution costs see note 15 restructuring initiatives pages 2013 annual report information cti restructuring note 1 description business summary significant accounting policies pages 2013 annual report information smt percentage revenue selling general administrative expenses increased 160 basis points adjusted selling general administrative expenses relatively unchanged compared 2012 primary drivers adjusted selling general administrative expenses percentage revenue compared prior year following • increase 30 basis points due higher distribution costs driven increased transportation costs primarily latin america increased costs per unit result lower volume north america • increase 20 basis points due unfavorable impact foreign exchange • decrease 20 basis points lower administrative expenses primarily due lower professional related fees associated fcpa investigation compliance reviews well lower compensation costs • decrease 20 basis points lower net brochure costs primarily europe north america partially driven initiatives reduce cost brochures impairment goodwill intangible asset third quarter 2013 recorded noncash impairment charge 421 goodwill intangible assets compared noncash impairment charge 440 third quarter 2012 goodwill associated china business see note 17 goodwill intangible assets pages 2013 annual report information see “segment review” mda additional information related changes operating margin segment expense interest expense increased 16 compared prioryear period primarily due higher average interest rates partially offset lower outstanding debt balances loss extinguishment debt 2013 comprised 71 makewhole premium writeoff debt issuance costs associated prepayment private notes defined 2 writeoff debt issuance costs associated early repayment 380 outstanding principal amount term loan agreement occurred first quarter 2013 addition second quarter 2013 recorded loss extinguishment debt 13 makewhole premium writeoff debt issuance costs partially offset deferred gain associated termination interestrate swap agreements associated prepayment 2014 notes defined see note 5 debt financing pages 2013 annual report liquidity capital resources mda information interest income increased 72 compared prioryear period primarily impacted benefit 12 interest income recognized fourth quarter 2013 due outofperiod adjustment related judicial deposits brazil outofperiod benefit interest income partially offset lower average interest rates well lower average cash balances 2013 compared 2012 expense net increased compared prioryear period primarily due 34 negative impact first quarter 2013 devaluation venezuelan currency monetary assets liabilities conjunction highly inflationary accounting addition expense net impacted benefit 238 2012 due release provision fourth quarter 2012 associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate provision released company capitalized associated intercompany liabilities see segment review latin america mda discussion venezuela operations effective tax rate effective tax rate 2013 1006 compared 782 2012 fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined company may repatriate offshore cash meet certain domestic funding needs accordingly time asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes 1683 related incremental us taxes associated unremitted foreign earnings increased 2012 tax rate effective tax rate 2012 also unfavorably impacted noncash impairment charges goodwill intangible assets associated china business 440 december 31 2013 continue assert company’s foreign earnings may indefinitely reinvested result domestic liquidity profile regard 2013 effective tax rate favorably impacted primarily due country mix earnings lower expected tax cost repatriate undistributed earnings foreign subsidiaries 2013 effective tax rate also unfavorably impacted noncash impairment charges goodwill intangible assets associated china business 421 rate impacted unfavorably devaluation venezuelan currency conjunction highly inflationary accounting discussed within segment review latin america mda 890 accrual potential settlements related fcpa investigations additionally rate negatively impacted valuation allowance deferred tax assets related china third quarter 92 venezuela fourth quarter 418 valuation allowance venezuela due impact higher expected inflation taxable income negatively impacted likelihood would realize existing deferred tax assets given short life net operating loss carryforward periods markets determined likely would use carryforward losses expire adjusted effective tax rate 2013 303 compared 350 2012 primarily due country mix earnings lower expected tax cost repatriate undistributed earnings foreign subsidiaries 2012 compared 2011 revenue total revenue 2012 compared 2011 decreased 5 due unfavorable foreign exchange constant revenue increased 1 due 1 increase average order active representatives units sold relatively unchanged net impact price mix increased 1 category basis revenue growth rates follows constant revenue impacted improvements latin america particularly brazil mexico venezuela however improvements offset net declines regions europe middle east africa saw revenue decline united kingdom partially reflects continued weak macroeconomic environment competition executional challenges addition north america experienced challenging financial results partially result ongoing impact field transformation redistricting us asia pacifics revenue decline primarily due continuing weak performance china operations see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin decreased 490 basis points 360 basis points respectively compared 2011 decreases operating margin adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill intangible asset gross margin gross margin adjusted gross margin decreased 220 basis points 230 basis points respectively compared 2011 decrease adjusted gross margin primarily due following • decline 100 basis points due higher supply chain costs primarily caused increased product costs partially due inflationary pressures • decline 80 basis points due unfavorable net impact product mix pricing partly due increase smart value offerings well initiatives flow excess inventory • decline 50 basis points due negative impact foreign exchange selling general administrative expenses selling general administrative expenses 2012 decreased 532 compared 2011 decrease primarily due lower distribution costs lower advertising partially offset negative impact foreign exchange higher cti restructuring percentage revenue selling general administrative expenses increased 230 basis points adjusted selling general administrative expenses increased 130 basis points compared 2011 increase adjusted selling general administrative expenses percentage revenue primarily due following • increase 60 basis points due higher overhead expenses primarily associated wage inflation 2012 well higher expenses associated employee incentive compensation plans • increase 60 basis points due higher representative sales leader investment primarily driven investments one simple sales model us partially offset lower investments china • increase 40 basis points due negative impact foreign exchange • decrease 30 basis points due lower advertising costs impairment goodwill intangible asset third quarter 2012 recorded noncash impairment charge 440 third quarter 2012 goodwill associated china business see note 17 goodwill intangible assets pages 2013 annual report information see “segment review” mda additional information related changes operating margin segment expense interest expense increased 12 compared prioryear period primarily due higher outstanding debt balances higher average interest rates interest income decreased 8 compared prioryear period primarily due lower average interest rates partially offset higher average cash balances expense net decreased 80 compared prioryear period primarily due benefit 238 2012 due release provision fourth quarter 2012 associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate provision released company capitalized associated intercompany liabilities see segment review latin america mda discussion venezuela operations effective tax rate effective tax rate 2012 782 compared 311 2011 fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined company may repatriate offshore cash meet certain domestic funding needs accordingly time longer asserted undistributed earnings foreign subsidiaries december 31 2012 indefinitely reinvested therefore recorded additional provision income taxes 1683 increased 2012 tax rate tax rate also unfavorably impacted goodwill impairment charge 440 related operations china tax benefit recorded charge result tax deduction tax basis goodwill adjusted effective tax rate 2012 350 compared 312 2011 effective tax rate 2011 included tax benefits audit settlements statute expirations comprehensive income loss comprehensive income loss net taxes 52 2013 compared 217 2012 primarily due net actuarial gains 806 compared net actuarial losses 584 2013 net actuarial gains us nonus pension postretirement plans benefited primarily due higher discount rate us pension plan well higher asset returns nonus pension plans 2013 compared 2012 partially offsetting benefits unfavorable impact foreign currency translation adjustments 2013 foreign currency translation adjustments negatively impacted 1129 compared 2012 primarily due unfavorable movements colombian peso polish zloty mexican peso comprehensive income loss net taxes 217 2012 compared 2490 2011 primarily due favorable impact foreign currency translation adjustments 2012 foreign currency translation adjustments benefited 1765 compared 2011 primarily due favorable movements polish zloty mexican peso comprehensive loss income net taxes also benefited lower net actuarial losses 450 2012 net actuarial losses us nonus pension plans benefited primarily due higher asset returns 2012 compared 2011 partially offsetting benefit higher asset returns negative impact lower discount rates used determining future pension obligations much lesser extent see note 12 employee benefit plans pages 2013 annual report information segment review analysis key factors affecting revenue operating profit loss reportable segment years threeyear period ended december 31 2013 global expenses global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated fcpa investigations compliance reviews noncash impairment charge capitalized software associated smt accrual potential settlements related fcpa investigations allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigations compliance reviews noncash impairment charge capitalized software associated smt accrual potential settlements related fcpa investigations costs implementing restructuring initiatives related specific segment recorded within segment 1 net global expenses represents total global expenses less amounts allocated segments amounts table may necessarily sum due rounding 2013 compared 2012 total global expenses negatively impacted compared prioryear period noncash impairment charge 1172 capitalized software related smt 89 accrual potential settlements related fcpa investigations higher cti restructuring fourth quarter 2013 decided halt rollout smt project beyond pilot market canada light potential risk business disruption result noncash impairment charge capitalized software associated smt recorded see note 1 description business summary significant accounting policies pages 2013 annual report information adjusted total global expenses decreased compared prioryear period primarily due lower professional related fees associated fcpa investigations compliance reviews well lower consulting fees partially offset higher expenses related smt project amounts allocated segments decreased compared prioryear period primarily due decrease budgeted marketing research development costs allocated segments professional related fees associated fcpa investigations compliance reviews described note 16 contingencies pages 2013 annual report amounted approximately 28 2013 compared approximately 92 2012 fees difficult predict expect ongoing fees may vary course investigations reviews fees allocated segments 2012 compared 2011 total global expenses negatively impacted compared prioryear period higher cti restructuring adjusted total global expenses increased compared prioryear period primarily due higher expenses associated employee incentive compensation plans higher expenses associated global initiatives partially offset lower marketing costs amounts allocated segments decreased compared prioryear period primarily due decrease budgeted marketing global sales costs allocated segments professional related fees associated fcpa investigations compliance reviews described note 16 contingencies pages 2013 annual report amounted approximately 92 2012 compared approximately 93 2011 fees allocated segments respect global expenses discussion years presented please see risk factors pages 10 11 2013 annual report note 16 contingencies pages 2013 annual report information regarding fcpa investigations compliance reviews related matters including expectations respect future professional related fees related fcpa investigations compliance reviews latin america 2013 compared 2012 amounts table may necessarily sum due rounding total revenue decreased 3 compared prioryear period due unfavorable impact foreign exchange including impact venezuelan currency devaluation constant basis revenue grew 6 regions revenue favorably impacted approximately 1 point result aggregate tax credits 22 recognized third quarter 2013 associated change estimate expected recoveries value added tax vat well initial realization government incentive recognized first quarter 2013 associated activity prior years tax credits associated vat government incentive associated excise taxes recorded reduction revenue benefit vat credits government incentive recognized revenue regions constant revenue growth primarily due higher average order benefited pricing including inflationary impacts primarily argentina venezuela new beauty product launches active representatives relatively unchanged revenue venezuela brazil mexico declined 17 1 respectively revenue growth brazil venezuela unfavorably impacted foreign exchange constant revenue increased 9 brazil 16 venezuela declined 4 mexico constant revenue brazil favorably impacted approximately 2 points due benefit aggregate vat credits recognized third quarter 2013 government incentive recognized first quarter 2013 brazils constant revenue growth primarily driven higher average order well increase active representatives higher average order primarily due benefits pricing new beauty product launches continued strength fashion home constant basis brazil’s sales beauty products increased 3 sales fashion home products increased 20 primarily due effective pricing merchandising constant revenue mexico negatively impacted lower average order active representatives relatively unchanged second half 2013 constant revenue mexico negatively impacted executional challenges coupled weaker economy constant revenue growth venezuela due higher average order benefiting inflationary impact pricing partially offset decrease units sold higher average order venezuela partially offset decrease active representatives impacted continued economic political instability well service issues revenue operating profit venezuela negatively impacted 2013 venezuelan currency devaluation additional information venezuela operations discussed detail operating margin negatively impacted 10 point due venezuelan currency devaluation conjunction highly inflationary accounting discussed operating margin benefited 2 points compared prioryear period lower cti restructuring adjusted operating margin increased 18 points 20 points constant basis primarily result • benefit 5 points associated aggregate vat credits brazil recognized third quarter 2013 government incentive brazil recognized first quarter 2013 discussed • benefit 19 points due higher gross margin caused primarily 15 points favorable net impact mix pricing benefits pricing include realization price increases advance costs markets experiencing relatively high inflation venezuela argentina mix negatively impacted gross margin due higher growth fashion home addition various insignificant items favorably impacted gross margin items partially offset 6 points unfavorable impact foreign exchange • decline 5 points higher transportation costs primarily venezuela currency restrictions enacted venezuelan government 2003 impacted ability avon venezuela obtain foreign currency official rate pay imported products since 2003 avon venezuela obtaining foreign currency needs beyond amounts could obtained official rates nongovernment sources exchange rates less favorable official rate parallel market late may 2010 venezuelan government took control previously freelytraded parallel market implementing regulated sitme market early june 2010 sitme market eliminated february 2013 conjunction governments devaluation currency described march 2013 government announced foreign exchange system sicad increases government control allocation us dollars country availability us dollars sicad market avon limited todate still evaluating future access funds sicad similar markets account venezuela highly inflationary economy effective february 13 2013 official exchange rate moved 430 630 devaluation 32 result change official rate 630 recorded onetime aftertax loss 51 34 expense net 17 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits additionally certain nonmonetary assets carried us historic dollar cost subsequent devaluation therefore costs impacted income statement 2013 disproportionate rate devalued based new exchange rates expensed us historic dollar value result using us historic dollar cost basis nonmonetary assets inventory acquired prior devaluation 2013 operating profit net income negatively impacted 50 due difference historical cost previous official exchange rate 430 new official exchange rate 630 results periods prior 2013 impacted change official rate february 2013 december 31 2013 net asset position 252 associated operations venezuela included cash balances 136 approximately 135 denominated bolívares remeasured december 31 2013 official exchange rate 630 252 net asset position approximately 92 associated bolívardenominated monetary net assets prepaid income taxes 2013 avon venezuela represented approximately 5 avon’s consolidated revenue 7 avon’s consolidated adjusted operating profit costs associated acquiring goods required settlement us dollars included within venezuelas operating profit significant 2013 approximately 18 2012 illustrate sensitivity potential future changes official exchange rate venezuela official exchange rate devalued 50 december 31 2013 official rate 63 rate 126 bolívares us dollar results would negatively impacted follows • result use devalued exchange rate remeasurement avon venezuelas revenues profits avons annualized consolidated revenues would likely negatively impacted approximately 2 annualized consolidated operating profit would likely negatively impacted approximately 3 prospectively assuming operational improvements occurred offset negative impact devaluation • avons consolidated operating profit first twelve months following devaluation example would likely negatively impacted approximately 11 assuming offsetting operational improvements larger negative impact operating profit first twelve months compared prospective impact caused costs nonmonetary assets carried historical dollar cost accordance requirement account venezuela highly inflationary economy revenue would remeasured devalued rate • would likely incur immediate charge approximately 37 charge approximately 42 expense net benefit approximately 5 income taxes associated 92 bolívardenominated monetary net assets prepaid income taxes additionally alternative source exchange may include sicad market become widely available 126 bolívares us dollar would represent 50 devaluation official exchange rate existing us dollardenominated liabilities december 31 2013 would likely incur immediate charge approximately 2 may also incur higher ongoing costs december 31 2013 avon venezuela pending requests submitted agency venezuelan government approximately 54 remittance dividends royalties parent company us outstanding requests periodically submitted 2005 2012 currently unable predict likelihood government approvals requests approved estimated time remittance late 2011 argentine government introduced restrictive currency exchange controls unless foreign exchange made readily available official exchange rate avon argentinas operations may negatively impacted december 31 2013 net asset position 83 associated operations argentina 2013 avon argentina represented approximately 4 avon’s consolidated revenue 10 avons consolidated operating profit 6 avon’s consolidated adjusted operating profit illustrate sensitivity potential future changes exchange rate argentina exchange rate devalued approximately 50 average exchange rate argentinas 2013 results using 2013 results avons annualized consolidated revenues would likely negatively impacted approximately 2 annualized consolidated operating profit would likely negatively impacted approximately 3 prospectively sensitivity analysis performed assuming operational improvements occurred offset negative impact devaluation december 31 2013 account argentina highly inflationary economy result potential devaluation would negatively impact earnings respect argentinas monetary nonmonetary assets latin america 2012 compared 2011 amounts table may necessarily sum due rounding total revenue declined 3 due unfavorable foreign exchange constant basis revenue grew 5 due increase active representatives well higher average order average order benefited pricing including inflationary impacts revenue brazil declined 12 negatively impacted foreign exchange revenue mexico grew 1 constant revenue benefited growth 3 brazil 8 mexico venezuela revenue constant revenue grew 13 constant revenue growth brazil driven increase active representatives revenue growth brazil negatively impacted decreased demand partially due increased competition well uncompetitive pricing fashion home first half 2012 brazil’s sales beauty products declined 11 sales fashion home products declined 15 negatively impacted foreign exchange constant basis brazil’s sales beauty products increased 4 sales fashion home products flat constant revenue growth mexico driven increase active representatives well higher average order revenue growth venezuela primarily due higher average order benefiting inflationary impact pricing however venezuela revenue growth restrained latter half 2012 slowing economic activity impact lower inflation pricing operating margin negatively impacted 3 points compared prioryear period higher cti restructuring adjusted operating margin declined 30 points 26 points constant basis primarily result • decline 25 points due lower gross margin caused primarily 9 points higher supply chain costs offset pricing gross margin also negatively impacted 9 points foreign exchange 7 points unfavorable net impact pricing mix • decline 8 points increased overhead primarily due wage inflation outpacing revenue growth • benefit 4 points lower bad debt expense • benefit 3 points lower advertising costs europe middle east africa 2013 compared 2012 amounts table may necessarily sum due rounding total revenue decreased 1 compared prioryear period due unfavorable impact foreign exchange constant basis revenue grew 2 primarily due increase active representatives higher average order region’s constant revenue benefited growth south africa russia turkey growth partially offset decline united kingdom russia revenue declined 1 grew 2 constant basis primarily due increase active representatives partially offset lower average order second half 2013 average order russia negatively impacted product portfolio mix merchandising execution coupled weaker economy united kingdom revenue declined 6 5 constant basis negatively impacted decrease active representatives partially offset higher average order turkey revenue declined 5 unfavorably impacted foreign exchange constant basis turkeys revenue grew 2 higher average order partially offset decrease active representatives south africa revenue declined 8 unfavorably impacted foreign exchange constant basis south africa’s revenue grew 9 primarily due higher average order successful marketing strategies representative mix operating margin negatively impacted 2 points compared prioryear period higher cti restructuring adjusted operating margin increased 35 points 36 points constant basis primarily result • benefit 19 points due higher gross margin caused primarily lower supply chain costs largely due lower material overhead costs together benefits productivity initiatives including facility rationalization items partially offset unfavorable net impact mix pricing 5 points result discounts unfavorable impact foreign exchange • benefit 9 points lower bad debt expense partially due higher provision first quarter 2012 increase reserves bad debts south africa result growth new territories 5 points adjustment associated prior periods bad debt expense also favorably impacted change estimate collection receivables increased bad debt prioryear period recur 2013 • benefit 5 points lower net brochure costs partially impacted initiatives reduce cost brochures various european markets europe middle east africa 2012 compared 2011 amounts table may necessarily sum due rounding total revenue declined 7 primarily due unfavorable foreign exchange constant basis revenue declined 1 impacted approximately 1 point due nonrecurring item prioryear period 2011 united kingdom’s revenue benefited settlement long time dispute associated estimated vat liability region’s constant revenue impacted declines united kingdom turkey partially reflecting continued weak macroeconomic environment competition executional challenges growth south africa partially offset declines russia revenue declined 5 impacted unfavorable foreign exchange russias revenue flat constant basis higher average order offset decrease active representatives united kingdom revenue constant revenue declined 10 revenue united kingdom negatively impacted decrease active representatives well approximately 4 points due benefit vat settlement prioryear period recur 2012 turkey revenue declined 10 3 constant basis due lower average order south africa revenue declined 2 impacted unfavorable foreign exchange constant basis south africa’s revenue grew 11 primarily due higher average order growth active representatives operating margin negatively impacted 2 points compared prioryear period higher cti restructuring adjusted operating margin declined 44 points 39 points constant basis primarily result • nonrecurring benefit 4 points associated vat settlement united kingdom occurred 2011 • decline 20 points due lower gross margin caused primarily 14 points higher supply chain costs due foreign exchange primarily due weakening turkish lira euro well increased product costs fashion home unfavorable net pricing mix negatively impacted gross margin 9 points driven smart value offerings • decline 9 points higher bad debt expense primarily due higher provision increase reserves bad debt south africa result growth new territories 4 points outofperiod adjustment also negatively impacted change estimate collection receivables north america 2013 compared 2012 calculation meaningful amounts table may necessarily sum due rounding second quarter 2013 silpada classified within discontinued operations see note 3 discontinued operations pages 2013 annual report information accordingly amounts north america exclude results silpada periods presented total revenue decreased 17 compared prioryear period 16 constant basis primarily due decrease active representatives active representatives negatively impacted recruitment challenges sales beauty products declined 19 reported constant basis driven primarily skincare sales fashion home products declined 14 13 constant basis second half 2013 revenue canada adversely impacted due significant field disruptions result piloting smt technology platform associated business process changes initiated second quarter 2013 see global expenses mda information smt operating margin benefited 8 points compared prioryear period lower cti restructuring adjusted operating margin declined 48 points 47 points constant basis primarily result • decline 43 points due net impact declining revenue respect fixed expenses partially offset lower expenses primarily resulting cost savings initiatives mainly reductions headcount primarily associated 400m cost savings initiative reduced field spending • decline 9 points respect transportation expenses due net impact declining revenue increased costs per unit result lower volume • decline 6 points due lower gross margin caused primarily 7 points unfavorable supply chain costs partially result 3 points benefited prioryear period outofperiod adjustments associated vendor liabilities impact lower unit volume partially offset productivity initiatives • benefit 6 points lower net brochure costs impacted initiatives reduce cost brochures number brochures printed result lower representative count continue expect weak financial results within north america address continued deterioration business focused restoring field health improving brochure creating sustainable cost base may include additional restructuring actions north america 2012 compared 2011 amounts table may necessarily sum due rounding total revenue decreased 6 reported constant basis primarily due decrease active representatives partially offset larger average order primarily due representative mix sales beauty products declined 8 7 constant basis sales fashion home products declined 6 reported constant basis operating margin negatively impacted 4 points compared prioryear period higher cti restructuring adjusted operating margin declined 25 points reported constant basis primarily result • decline 25 points higher representative sales leader investment primarily due costs related one simple sales model implementation us • decline 16 points due lower gross margin caused primarily approximately 8 points unfavorable net impact mix pricing approximately 7 points higher supply chain costs primarily due higher obsolescence costs partially offset benefit outofperiod adjustments associated vendor liabilities 3 points • decline 4 points higher brochure costs • benefit 17 points lower overhead costs primarily due headcount reduction • benefit 5 points lower advertising costs asia pacific 2013 compared 2012 1 excludes china see overview mda discussion update definition change active representatives rationale exclusion china calculation active representatives calculation meaningful amounts table may necessarily sum due rounding total revenue declined 16 compared prioryear period 15 constant basis driven unfavorable results china operations decrease active representatives asia pacific markets regions revenue also negatively impacted approximately 1 point result decision exit south korea vietnam markets revenue philippines declined 5 4 constant basis operational challenges market contributed decrease active representatives decline unit sales revenue china declined 42 44 constant basis primarily due declines unit sales experienced operational challenges china number beauty boutiques declined additionally began transition retail incentive model third quarter 2012 negatively impacted regions constant revenue first half 2013 second half 2013 also took actions intended reduce inventory levels held beauty boutiques negatively impacted sales beauty boutiques china operating margin negatively impacted 7 points compared prioryear period due larger impact noncash goodwill intangible asset impairment charges associated china business 2013 noncash goodwill intangible assets impairment charge third quarter 2013 recorded based interim impairment analysis completed result significant lowering longterm revenue earnings projections china decline revenue performance china third quarter 2013 significantly excess expectations see note 17 goodwill intangible assets pages 2013 annual report information operating margin benefited 13 points compared prioryear period lower cti restructuring adjusted operating margin decreased 29 points 27 points constant basis primarily result • decline 15 points due lower gross margin caused primarily 10 point unfavorable supply chain costs primarily driven higher material costs impact lower unit volume partially offset productivity initiatives gross margin also negatively impacted net impact mix pricing approximately 9 points partially driven underperformance skincare • decline 6 points due adjustment associated prior periods related bad debt expense philippines • unfavorable impact lower revenue fixed costs significantly offset benefits cost savings initiatives mainly reductions headcount associated 400m cost savings initiative resulting net negative impact adjusted operating margin approximately 10 point asia pacific overall remains challenging expect weak financial results nearterm asia pacific 2012 compared 2011 1 excludes china see overview mda discussion update definition change active representatives rationale exclusion china calculation active representatives amounts table may necessarily sum due rounding total revenue declined 4 5 constant basis primarily due unfavorable results china operations decrease active representatives certain asia pacific markets revenue china declined 22 24 constant due declines unit sales resulting continuing weak performance market revenue philippines grew 7 4 constant driven growth active representatives operating margin negatively impacted 49 points noncash goodwill impairment charge associated china business see note 17 goodwill intangible assets pages 2013 annual report information operating margin also negatively impacted 20 points compared prioryear period higher cti restructuring adjusted operating margin declined 11 points 13 points constant basis primarily result • decline 11 points due lower gross margin caused primarily 7 points unfavorable net impact mix higher pricing primarily due weakness skincare • decline 12 points due wage inflation outpacing revenue growth partially offset restructuring savings • benefit 8 points lower representative sales leader investment primarily due china result transition retail compensation model market liquidity capital resources principal sources funds historically cash flows operations borrowings lines credit public offerings notes bank financings issuance commercial paper private placement december 31 2013 cash equivalents totaling 1108 held cash balances associated venezuela operations denominated bolívares amounting approximately 135 translated official exchange rate december 31 2013 currency restrictions enacted venezuelan government limited ability repatriate dividends royalties venezuelan operations information respect currency restrictions currency devaluation see segment review latin america mda information regarding risks respect currency restrictions see risk factors subject financial risks related international operations including exposure foreign currency fluctuations included item 1a pages 8 17 2013 annual report march 2013 entered revolving credit facility defined capital resources revolving credit facility issued 15 billion aggregate principal amount notes defined capital resources public notes believe improved capital structure extended maturity profile longterm debt proceeds notes used repay existing debt may seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments otherwise repurchases equity debt may funded incurrence additional debt issuance equity convertible securities depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity convertible securities finance ongoing operations meet liquidity needs issuances equity securities convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods information see risk factors downgrade credit ratings may adversely affect business access liquidity working capital risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 8 17 2013 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 16 contingencies pages 2013 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2013 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2013 44 lower 2012 operating cash flow 2013 unfavorably impacted makewhole premiums approximately 90 paid connection prepayment private notes 2014 notes 25 contribution united kingdom pension plan 2013 result decision freeze plan higher payments employee incentive compensation substantially offsetting unfavorable impacts improved adjusted operating profit net cash provided continuing operating activities 2012 841 lower 2011 operating cash flow 2012 negatively impacted primarily lower cash related net income higher payments associated cti restructuring compared 2011 partially offsetting negative impacts improvements working capital lower contributions us pension plan payment 2011 associated longterm incentive compensation plan approximately 36 recur 2012 maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 12 employee benefit plans pages 2013 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 50 55 us pension postretirement plans range 30 35 international pension postretirement plans 2014 net cash continuing investing activities net cash used continuing investing activities 2013 400 lower 2012 primarily due lower capital expenditures well higher proceeds received disposal assets primarily us due sale facilities associated restructuring initiatives net cash used continuing investing activities 2012 540 lower 2011 primarily due lower capital expenditures capital expenditures 2013 1973 compared 2285 2012 driven lower spend associated smt primarily due launch pilot canada lesser extent decision halt rollout smt beyond canada fourth quarter 2013 capital expenditures 2012 2285 compared 2764 2011 included higher investment associated new distribution facilities latin america capital expenditures 2014 currently expected approximately 200 230 expected funded cash operations net cash continuing financing activities net cash used continuing financing activities 4679 2013 compared 4013 2012 primarily due prepayment 5350 principal amount private notes defined prepayment 5000 principal amount 2014 notes defined repayment 4975 outstanding principal amount term loan agreement scheduled repayment 2500 principal amount 480 notes defined scheduled repayment 1250 principal amount 4625 notes defined lower debt issuances various markets partially offset proceeds 15 billion related issuance notes defined first quarter 2013 compared proceeds 5500 related borrowings term loan agreement 2012 well lower repayments commercial paper lower dividend payments 2013 see note 5 debt financing pages 2013 annual report information addition 2013 proceeds 881 related termination interestrate swap agreements designated fair value hedges compared proceeds 436 2012 see note 8 financial instruments risk management pages 2013 annual report information net cash used continuing financing activities 2012 4013 compared 2845 2011 primarily due lower issuances commercial paper partially offset proceeds 5500 related term loan agreement entered 2012 scheduled repayment 5000 principal amount notes 2011 lower dividend payments 2012 proceeds 436 2012 related termination two interestrate swap agreements designated fair value hedges see note 8 financial instruments risk management pages 2013 annual report information purchased approximately 5 million shares common stock 94 2013 compared 5 million shares common stock 88 2012 4 million shares 77 2011 repurchases company connection employee elections use shares pay withholding taxes upon vesting restricted stock units private transactions broker connection stock based obligations deferred compensation plan maintained quarterly dividend 06 per share 2013 full year 2011 first nine months 2012 quarterly dividend payments 23 per share whereas fourth quarter 2012 quarterly dividend payment 06 per share maintained dividend 06 per share first quarter 2014 debt contractual financial obligations commitments december 31 2013 debt contractual financial obligations commitments due dates follows 1 capital lease financing obligations primarily comprised 445 related sale leaseback equipment one distribution facilities north america entered 2009 116 capital leases primarily related automobiles equipment 2 amounts represent expected future benefit payments unfunded pension postretirement benefit plans well expected contributions 2014 funded pension benefit plans able estimate contributions funded pension postretirement plans beyond 2014 3 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2013 reserves uncertain income tax positions including interest penalties totaled 221 see note 5 debt financing note 14 leases commitments pages page respectively 2013 annual report information debt contractual financial obligations commitments additionally disclosed note 15 restructuring initiatives pages 2013 annual report remaining liability 485 associated 400m cost savings initiative december 31 2013 also remaining liability 143 associated restructuring initiatives approved 2012 12 associated restructuring charges recorded todate 2005 2009 restructuring programs december 31 2013 majority future cash payments associated restructuring liabilities expected made 2014 balance sheet arrangements december 31 2013 material offbalancesheet arrangements capital resources revolving credit facility march 2013 entered fouryear 1 billion revolving credit facility “revolving credit facility” expires march 2017 revolving credit facility replaced previous 1 billion revolving credit facility 2010 revolving credit facility terminated march 2013 prior scheduled expiration november 2013 amounts drawn 2010 revolving credit facility date termination early termination penalties incurred first quarter 2013 12 recorded writeoff issuance costs related 2010 revolving credit facility discussed commercial paper program 1 billion available revolving credit facility effectively reduced principal amount commercial paper outstanding borrowings revolving credit facility bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings revolving credit facility may used general corporate purposes december 31 2013 amounts outstanding revolving credit facility december 31 2012 amounts outstanding 2010 revolving credit facility term loan agreement june 29 2012 entered 5000 term loan agreement term loan agreement subsequently august 2 2012 borrowed incremental 500 principal subscriptions new lenders term loan agreement pursuant term loan agreement required repay amount equal 25 aggregate remaining principal amount term loan june 29 2014 remaining outstanding principal amount term loan june 29 2015 amounts repaid prepaid term loan agreement may reborrowed borrowings term loan agreement bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings term loan agreement also provides mandatory prepayments voluntary prepayments subject certain exceptions including issuance commercial paper drawdowns revolving credit facility required prepay term loan amount equal 50 net cash proceeds received incurrence debt borrowed money excess 500 march 2013 entered first amendment term loan agreement amendment primarily related adding provision whereby lenders may discretion decline receipt prepayments ii adding subsidiary debt covenant conforming interest coverage ratio leverage ratio covenants contained revolving credit facility discussed debt covenants later march 2013 repaid 3800 outstanding principal amount term loan agreement portion proceeds issuance notes defined public notes repayment resulted loss first quarter 2013 16 extinguishment debt associated writeoff debt issuance costs related term loan agreement july 25 2013 prepaid 1175 outstanding principal balance term loan agreement without prepayment penalties december 31 2013 525 outstanding term loan agreement debt covenants revolving credit facility term loan agreement collectively debt agreements contain covenants limiting ability incur liens enter mergers consolidations sales substantially assets debt agreements also contain covenants limit subsidiary debt existing subsidiary debt february 28 2013 plus 5000 certain exceptions addition debt agreements contain financial covenants require interest coverage ratio end fiscal quarter equal exceed 41 leverage ratio greater 3751 end fiscal quarter ended december 31 2013 subsequent fiscal quarter prior september 30 2014 351 end fiscal quarter thereafter addition debt agreements contain customary events default crossdefault provisions interest coverage ratio determined dividing consolidated ebit defined debt agreements consolidated interest expense case period four fiscal quarters ending date determination leverage ratio determined dividing amount consolidated funded debt date determination consolidated ebitda defined debt agreements period four fiscal quarters ending date determination calculating interest coverage leverage ratios debt agreements allow us subject certain conditions limitations add back consolidated net income among items extraordinary noncash losses expenses ii onetime fees cash charges cash expenses premiums penalties incurred connection asset sale equity issuance incurrence repayment debt refinancing modification amendment debt instrument iii cash charges cash expenses premiums penalties incurred connection restructuring relating legal regulatory action settlement judgment ruling aggregate amount exceed 4000 period october 1 2012 termination commitments debt agreements provided restructuring charges incurred december 31 2014 shall added back consolidated net income december 31 2013 based applicable interest rates full 1 billion revolving credit facility less principal amount commercial paper outstanding 0 december 31 2013 could drawn without violating covenant compliance interest coverage leverage ratios debt agreements four fiscal quarters ended december 31 2013 indentures governing notes described caption “public notes” contain certain covenants including limitations incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets addition indentures contain customary events default crossdefault provisions would required make offer repurchase 575 notes due march 1 2018 650 notes due march 1 2019 series notes defined price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding credit ratings downgrade investment grade addition indenture governing notes contains interest rate adjustment provisions depending credit ratings private notes november 23 2010 issued private placement exempt registration securities act 1933 amended 1420 principal amount 260 senior notes series due november 23 2015 2900 principal amount 403 senior notes series b due november 23 2020 1030 principal amount 418 senior notes series c due november 23 2022 collectively private notes proceeds sale private notes used repay existing debt general corporate purposes march 29 2013 prepaid private notes prepayment price equal 100 principal amount 5350 plus accrued interest 69 makewhole premium 680 connection prepayment private notes incurred loss extinguishment debt 714 first quarter 2013 included makewhole premium writeoff 34 debt issuance costs related private notes public notes may june 2003 respectively issued public offerings 2500 principal amount 420 notes due july 15 2018 1250 principal amount 4625 notes due may 15 2013 march 2008 issued public offering 2500 principal amount 480 notes due march 1 2013 2500 principal amount 575 notes due march 1 2018 march 2009 issued public offering 5000 principal amount 5625 notes due march 1 2014 notes 3500 principal amount 650 notes due march 1 2019 net proceeds offerings used repay indebtedness outstanding commercial paper program general corporate purposes 480 notes due march 1 2013 repaid full maturity april 15 2013 prepaid 2014 notes prepayment price equal 100 principal amount 5000 plus accrued interest 34 makewhole premium 217 connection prepayment 2014 notes incurred loss extinguishment debt 130 second quarter 2013 consisting 217 makewhole premium 2014 notes writeoff 11 debt issuance costs discounts related initial issuance 2014 notes partially offset deferred gain 98 associated january 2013 interestrate swap agreement termination see note 8 financial instruments risk management pages 2013 annual report information addition 4625 notes due may 15 2013 repaid full maturity march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 5000 principal amount 460 notes due march 15 2020 5000 principal amount 500 notes due march 15 2023 2500 principal amount 695 notes due march 15 2043 collectively notes net proceeds notes used repay 3800 outstanding principal amount term loan agreement prepay private notes 2014 notes plus makewhole premium accrued interest repay 4625 notes due may 15 2013 maturity interest notes payable semiannually march 15 september 15 year commercial paper program also maintain 1 billion commercial paper program supported revolving credit facility program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 1 billion outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment outstanding commercial paper effectively reduces amount available borrowing revolving credit facility beginning 2012 continuing 2013 demand commercial paper declined partially impacted rating agency actions described significant borrowings commercial paper 2013 december 31 2013 outstanding commercial paper program additional information longterm credit ratings baa3 stable outlook moodys bbb negative outlook sp low end investment grade bb negative outlook fitch investment grade february 2013 fitch lowered longterm credit rating bbb negative outlook bb stable outlook moodys lowered longterm credit rating baa1 negative outlook baa2 stable outlook november 2013 fitch lowered longterm credit rating bb stable outlook bb negative outlook moodys placed avons longterm credit rating baa2 stable outlook review possible downgrade february 2014 moody’s lowered longterm credit rating baa2 stable outlook baa3 stable outlook additional rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities well likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements information see risk factors general economic downturn recession globally one geographic regions sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings “risk factors downgrade credit ratings may adversely affect access liquidity working capital” “risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions” included item 1a pages 8 17 2013 annual report please also see note 5 debt financing pages 2013 annual report information relating debt maturities thereof item 7aitem 7 management’s discussion analysis financial condition results operations mda us dollars millions except per share data read following discussion results operations financial condition avon products inc majority wholly owned subsidiaries conjunction information contained consolidated financial statements related notes contained 2016 annual report used discussion terms avon company us mean unless context otherwise indicates avon products inc majority wholly owned subsidiaries see nongaap financial measures pages 28 30 mda description constant dollar constant growth rates nongaap financial measure determined see performance metrics page 28 mda definitions performance metrics change active representatives change units sold change ending representatives change average order overview global manufacturer marketer beauty related products business conducted primarily directselling channel 2016 sales operations 57 countries territories distributed products 18 march 2016 separated north america business consisted companys operations us canada puerto rico business presented discontinued operations periods presented result consolidated revenue derived operations subsidiaries outside us reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare includes personal care fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally direct selling representatives independent contractors employees december 31 2016 approximately 6 million active representatives represents number representatives submitting order sales campaign totaled campaigns year divided number campaigns success business highly dependent recruiting retaining servicing representatives total revenue 2016 declined 7 compared prioryear period primarily due unfavorable foreign exchange constant revenue increased 2 number items affected yearoveryear comparison constant revenue significant sale liz earle completed july 2015 negatively impacted constant revenue growth approximately 1 point items affecting yearoveryear comparison netted immaterial impact addition constant revenue benefited growth argentina south africa russia mexico brazil argentina contributed approximately 1 point avons consolidated constant revenue growth markets results impacted inflationary impact pricing growth constant revenue driven higher average order partially offset 2 decrease active representatives average order benefited net impact price mix increased 6 units sold decreased 4 primarily due declines units sold brazil mexico impact deconsolidation venezuela improving discipline pricing inflation strategically pricing certain markets categories launching products advantageous price points considering potential impact unit sales decrease active representatives primarily due impact deconsolidation venezuela decline asia pacific included impact caused reduction number sales campaigns philippines declines active representatives partially offset growth europe middle east africa significantly russia primarily due sustained momentum recruitment retention see segment review mda additional information related changes revenue segment ending representatives decreased 2 decrease ending representatives december 31 2016 compared prioryear period primarily due impact deconsolidation venezuela negative impact 2 points declines asia pacific decreases partially offset growth europe middle east africa significantly south africa russia well growth south latin america significantly brazil 2016 foreign currency continued significant impact financial results us dollar strengthened relative currencies key avon markets revenue profits reduced translated us dollars margins negatively impacted country mix certain markets historically higher operating margins experienced significant devaluation local currency addition sales costs often denominated different currencies created negative foreign currency transaction impact specifically compared prioryear period foreign currency impacted consolidated financial results form foreign currency transaction losses classified within cost sales selling general administrative expenses unfavorable impact operating profit adjusted operating profit estimated 165 foreign currency translation unfavorable impact operating profit approximately 60 adjusted operating profit approximately 65 foreign exchange losses working capital classified within expense net lower approximately 35 tax 40 tax adjusted basis effective march 31 2016 deconsolidated venezuelan operations operating results first quarter 2016 include results venezuelan operations however recorded charge march 31 2016 writeoff balance sheet accounts associated venezuelan operations since march 31 2016 venezuelan operating results longer included companys consolidated financial statements result change accounting recorded loss approximately 120 first quarter 2016 loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within accumulated comprehensive loss aoci associated foreign currency movements venezuela accounted highly inflationary economy see venezuela discussion mda note 1 description business summary significant accounting policies pages 2016 annual report discussion venezuelan operations transformation plan december 2015 entered definitive agreements affiliates cerberus capital management lp cerberus included 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business including approximately 100 cash subject certain adjustments avon new avon privatelyheld company majorityowned managed affiliate cerberus transactions closed march 1 2016 avon retained approximately 20 ownership new avon see note 3 discontinued operations divestitures page 2016 annual report note 16 series c convertible preferred stock page 2016 annual report information january 2016 announced transformation plan “transformation plan” includes three pillars investing growth reducing costs effort continue improve cost structure improving financial resilience made good progress 2016 first year threeyear transformation plan exceeding cost targets significantly strengthening balance sheet transformation plan continues 2018 invest growth three years began 2016 expect invest 350 business estimated 150 media social selling 200 related service model evolution information technology primarily capital expenditures aimed improving overall representative experience investments funded initially cash hand continued investment three years cost savings improvements well benefits pricing actions launch improved service model depend existing stage technological development systems respective market supporting representatives expect incrementally invest time media shifting media spend digital focus spending top ten markets regards social selling formed team focused social selling 2017 piloting argentina phased implementation additional markets improve cost structure respect cost reductions within transformation plan targeted pretax annualized cost savings approximately 350 three years targeting estimated 200 supply chain reductions rationalizing manufacturing capacity optimizing distribution network global manufacturing footprint evolves reducing costs related transportation physical warehousing distribution sourcing opportunities harmonization direct material purchases generate greater scale purchasing power targeting estimated 150 cost reductions expected achieved primarily reductions headcount initiated transformation plan order enable us achieve longterm goals targeted low doubledigit operating margin mid singledigit constant revenue growth believe track deliver targeted 350 savings related transformation plan threeyear plan period 2016 accelerated certain cost savings initiatives came ahead targeted savings 70 taxes well savings cover stranded costs approximately 20 taxes resulted separation companys north america business 2016 realized estimated savings 120 taxes associated transformation plan including savings restructuring actions well savings costsavings strategies result restructuring charges expect realize annualized savings estimated 180 taxes associated cost savings initiatives taken 2016 connection actions associated savings discussed incurred costs implement cti restructuring initiatives approximately 106 taxes associated transformation plan todate connection restructuring actions approved todate associated transformation plan expect realize annualized savings estimated 95 105 taxes realized estimated 25 taxes savings associated restructuring actions 2016 expected achieve significant majority annualized savings beginning 2017 market closures expected annualized savings represented operating profit loss longer included within avons operating results result longer operating respective market actions result closure market annualized savings represent net reduction expenses longer incurred avon addition part transformation plan transition time location headquarters united kingdom additional details see note 15 restructuring initiatives pages 2016 annual report information improve financial resilience respect improving financial resilience within transformation plan targeted reduce debt approximately 250 2016 exceeded target reducing debt approximately 260 2016 extending maturity profile longterm debt due march 2019 thereby strengthening balance sheet steps taken december 31 2016 include issuance new 500 senior secured notes due august 2022 repayment approximately 720 public notes reduction debt foreign subsidiaries approximately 40 additional details see note 6 debt financing pages 2016 annual report liquidity capital resources pages 52 57 mda additional information new accounting standards information relating new accounting standards included note 2 new accounting standards pages 2016 annual report performance metrics within mda addition key financial metrics revenue operating profit operating margin utilize performance metrics defined assist evaluation business performance metrics definition change active representatives metric measure representative activity based number unique representatives submitting least one order sales campaign totaled campaigns related period determine change active representatives calculation compared calculation corresponding period prior year orders china excluded metric business china predominantly retail liz earle also excluded calculation distribute directselling channel change units sold metric based gross number pieces merchandise sold period compared number period prior year units sold include samples sold products contingent upon purchase another product example gift purchase discount purchase exclude free samples change ending representatives metric based total number representatives eligible place order last sales campaign related period result active roster determine change ending representatives calculation compared calculation corresponding period prior year change ending representatives may impacted combination factors requirements become andor remain representative practices regarding minimum order requirements practices regarding reinstatement representatives believe may indicator future revenue performance change average order metric measure representative productivity calculation difference yearoveryear change revenue constant basis change active representatives change average order may impacted combination factors inflation units product mix andor pricing nongaap financial measures supplement financial results presented accordance generally accepted accounting principles united states gaap disclose operating results adjusted exclude impact changes due translation foreign currencies us dollars including changes revenue operating profit adjusted operating profit operating margin adjusted operating margin also refer adjusted financial measures constant items nongaap financial measures believe measures provide investors additional perspective trends underlying business results exclude impact changes due translation foreign currencies us dollars calculate currentyear results prioryear results constant exchange rates updated annual basis part budgeting process comparing 2015 results 2014 results used constant exchange rates effect 2015 budgeting process foreign currency impact determined difference actual growth rates constant growth rates also present gross margin selling general administrative expenses percentage revenue operating profit operating margin effective tax rate nongaap basis refer nongaap financial measures adjusted provided quantitative reconciliation difference nongaap financial measures financial measures calculated reported accordance gaap see reconciliation nongaap financial measures within results operations consolidated page 36 mda quantitative reconciliation company uses nongaap financial measures evaluate operating performance nongaap measures considered isolation substitute superior financial measures calculated accordance gaap company believes investors find nongaap information helpful understanding ongoing performance operations separate items may disproportionate positive negative impact companys financial results particular period company believes meaningful investors made aware impacts 1 cti restructuring initiatives 2 net proceeds recognized result settling claims relating professional services legal settlement 3 charges related deconsolidation venezuelan operations march 31 2016 devaluations venezuelan currency february 2015 march 2014 combined designated highly inflationary economy venezuelan special items 4 additional 46 accrual 2014 settlements related foreign corrupt practices act fcpa investigations fourth quarter 2014 associated approximate 19 net tax benefit fcpa accrual 5 settlement charges associated us pension plan pension settlement charge 6 goodwill impairment charge related egypt business asset impairment charges 7 various items associated sale liz earle separation north america business debtrelated charges items relates effective tax rate discussion 8 income tax benefits realized 2016 2015 result tax planning strategies income tax benefit second quarter 2016 primarily due release valuation allowance associated russia noncash income tax adjustments associated deferred tax assets recorded 2016 2015 2014 special tax items legal settlement includes impact consolidated statements operations third quarter 2016 associated net proceeds 272 recognized result settling claims relating professional services provided company prior 2013 connection previously disclosed legal matter venezuelan special items include impact consolidated statements operations 2016 caused deconsolidation venezuelan operations recorded loss approximately 120 expense net loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within aoci associated foreign currency changes venezuela accounted highly inflationary economy venezuelan special items include impact consolidated statements operations 2015 2014 caused devaluations venezuelan currency monetary assets liabilities cash receivables payables deferred tax assets liabilities nonmonetary assets inventories nonmonetary assets venezuelan special items include earnings impact caused difference historical us dollar cost assets previous exchange rate revised exchange rate 2015 2014 venezuelan special items also include adjustments approximately 11 approximately 116 respectively reflect certain nonmonetary assets net realizable value 2015 venezuelan special items also include impairment charge approximately 90 reflect writedown longlived assets estimated fair value pension settlement charge includes impact consolidated statements operations third fourth quarters 2015 second third fourth quarters 2014 associated payments made former employees vested participated us defined benefit pension plan payments fully settled pension plan obligation participants elected receive payment asset impairment charges include impact consolidated statements operations caused goodwill impairment charge related egypt business fourth quarter 2015 items include impact 2016 consolidated statements operations due net gain extinguishment debt associated cash tender offers august 2016 debt repurchases october december 2016 prepayment remaining principal amount 420 notes defined capital resources 575 notes defined capital resources november 2016 items also include impact 2015 consolidated statements operations due gain sale liz earle addition items include impact consolidated statements operations fourth quarter 2015 caused transactionrelated costs 31 associated planned separation north america business included continuing operations addition items 2015 include impact consolidated statements operations loss extinguishment debt caused makewhole premium writeoff debt issuance costs discounts associated prepayment 2375 notes defined capital resources items 2015 also include impact expense net consolidated statements operations 25 associated writeoff issuance costs related previous 1 billion revolving credit facility addition effective tax rate discussion includes special tax items including impact fourth quarter 2016 provision income taxes consolidated statements operations due noncash income tax charge approximately 9 associated valuation allowances adjust certain nonus deferred tax assets amount likely realized special tax items also include impact second quarter 2016 provision income taxes consolidated statements operations primarily due release valuation allowance associated russia approximately 7 special tax items also include impact first quarter 2016 fourth quarter 2015 provision income taxes consolidated statements operations due income tax benefits approximately 29 approximately 19 respectively recognized result implementation foreign tax planning strategies special tax items also include impact first second quarters 2015 provision income taxes consolidated statements operations due noncash income tax charge approximately 31 benefit approximately 3 respectively associated valuation allowances adjust us deferred tax assets amount likely realized additional valuation allowance due strengthening us dollar currencies key markets associated effect tax planning strategies partial release valuation allowance due weakening us dollar currencies key markets special tax items also include impact third quarter 2015 provision income taxes consolidated statements operations due noncash income tax charge approximately 642 result establishing valuation allowance full amount us deferred tax assets due impact continued strengthening us dollar currencies key markets associated effect tax planning strategies additionally special tax items include impact third quarter 2015 provision income taxes consolidated statements operations due noncash income tax charge approximately 15 associated valuation allowances adjust certain nonus deferred tax assets amount likely realized nonus valuation allowance included adjustment associated russia primarily result lower earnings significantly impacted foreign exchange losses working capital balances special tax items also include impact fourth quarter 2014 income taxes consolidated statements operations due noncash income tax charge primarily associated valuation allowance reduce us deferred tax assets amount likely realized primarily due strengthening us dollar currencies key markets lesser extent finalization fcpa settlements see note 15 restructuring initiatives pages 2016 annual report note 13 segment information pages 2016 annual report results operations consolidated venezuela discussion note 1 description business summary significant accounting policies pages 2016 annual report note 17 contingencies pages 2016 annual report note 12 employee benefit plans pages 2016 annual report note 18 goodwill pages 2016 annual report note 3 discontinued operations divestitures pages 2016 annual report liquidity capital resources note 6 debt financing pages 2016 annual report note 8 income taxes pages 2016 annual report information items critical accounting estimates believe accounting policies described represent critical accounting policies due estimation processes involved see note 1 description business summary significant accounting policies pages 2016 annual report detailed discussion application accounting policies allowances doubtful accounts receivable representatives contact customers selling primarily use brochures sales campaign generally credit meet certain criteria sales campaigns generally three fourweek duration representative purchases products directly us may sell end user general representative independent contractor remits payment us sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends past three years annual bad debt expense 191 2016 144 2015 171 2014 approximately 3 total revenue 2016 approximately 2 total revenue 2015 2014 allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication end user products beyond representative legal recourse end user collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required allowances sales returns policies practices product returns vary jurisdiction generally allow unlimited right return record provision estimated sales returns based historical experience product returns past three years annual sales returns 187 2016 191 2015 241 2014 approximately 3 total revenue year generally line expectations historical data use calculate estimates approximate future returns due changes marketing promotional strategies reasons additional allowances may required provisions inventory obsolescence record allowance estimated obsolescence applicable equal difference cost inventory estimated market value determining allowance estimated obsolescence classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision actual sales less favorable projected additional inventory allowances may need recorded additional obsolescence annual obsolescence expense 37 2016 45 2015 78 2014 pension postretirement expense maintain defined benefit pension plans cover substantially employees us portion employees international locations however us defined benefit pension plan closed employees hired january 1 2015 additionally unfunded supplemental pension benefit plans current retired executives provide retiree health care benefits subject certain limitations many retired employees us certain foreign countries see note 12 employee benefit plans pages 2016 annual report information benefit plans pension postretirement expense requirements funding major pension plans determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors use december 31 measurement date employee benefit plans 2016 weighted average assumed rate return pension plan assets including us nonus defined benefit pension plans 665 compared 687 2015 determining longterm rates return consider nature plans’ investments expectation plans’ investment strategies historical rates return current economic forecasts generally evaluate expected longterm rate return annually adjust necessary defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments nonus defined benefit pension plans achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee significant portion pension plan assets relate united kingdom uk defined benefit pension plan assumed rate return determining 2016 net costs uk defined benefit pension plan 665 addition current rate return assumption uk defined benefit pension plan based asset allocation approximately 80 corporate government bonds mortgagebacked securities expected earn approximately 2 4 longterm approximately 20 equity securities emerging market debt high yield securities expected earn approximately 6 9 longterm addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure rate return plan assets uk approximately 36 2016 approximately 12 2015 historically pension plan significant pension plan assets us defined benefit pension plan part separation north america business transferred 4996 pension liabilities us defined benefit pension plan associated current former employees north america business certain former avon employees along 3559 assets held us defined benefit pension plan defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations divestitures pages 2016 annual report continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon outside north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates ongoing net periodic benefit costs within global materially impacted separation north america business assumed rate return 2016 us defined benefit pension plan 700 based asset allocation approximately 70 corporate government bonds mortgagebacked securities expected earn approximately 3 4 longterm approximately 30 equity securities high yield securities expected earn approximately 6 8 longterm historical rates return assets us defined benefit pension plan approximately 8 recent 10year period approximately 8 20year period us defined benefit pension plan asset allocation policy historically favored us equity securities returned approximately 7 10year period approximately 8 20year period rate return plan assets us approximately 6 2016 approximately 3 2015 discount rate used determining present value future pension obligations individual plan based review bonds receive highquality rating recognized rating agency discount rates calculating balance sheet obligations significant plans including uk defined benefit pension plan us defined benefit pension plan based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis 281 december 31 2016 392 december 31 2015 determination expected rate return assets discount rate take external actuarial investment advice consideration funding requirements may impacted standards regulations interpretations thereof calculations pension postretirement costs dependent use assumptions including discount rates hybrid plan maximum interest crediting rates expected return plan assets discussed rate compensation increase plan participants interest cost benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods december 31 2016 pretax actuarial losses prior service credits totaling approximately 49 us defined benefit pension postretirement plans approximately 176 nonus defined benefit pension postretirement plans yet charged expense actuarial losses charged accumulated comprehensive loss aoci within shareholders’ equity believe assumptions used reasonable differences actual experience changes assumptions may materially affect pension postretirement obligations future expense 2017 assumption expected rate return assets 550 us defined benefit pension plan 509 nonus defined benefit pension plans includes 515 uk defined benefit pension plan decrease expected rate return assets us defined benefit pension plan largely due elimination derivative instruments portfolio result transfer portion assets held us defined benefit pension plan defined benefit pension plan sponsored new avon decrease expected rate return assets uk defined benefit pension plan driven reduction exposure equity markets obtained derivative instruments simultaneously increasing extent plan assets match pension obligation plan’s funding level improved assumptions generally reviewed determined annual basis 50 basis point change either direction expected rate return plan assets discount rate compensation increases would approximately following effect 2016 pension expense pension benefit obligation december 31 2016 restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs estimated costs grouped specific projects within overall plan monitored quarterly basis finance personnel costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required taxes record valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted us foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize excess foreign tax credits taken consideration december 31 2016 net deferred tax assets approximately 140 net valuation allowances approximately 3277 respect deferred tax assets december 31 2016 recognized deferred tax assets relating tax loss carryforwards approximately 2033 primarily foreign jurisdictions valuation allowance approximately 1994 provided prior december 31 2016 recognized deferred tax assets approximately 874 relating excess us foreign tax us general business credit carryforwards full valuation allowance provided history us source losses excess us foreign tax general business credits primarily resulted greater us source loss recent years reduces ability credit foreign taxes utilize general business credits generate ability realize us deferred tax assets foreign tax general business credit carryforwards dependent future us taxable income within carryforward period december 31 2016 would need generate approximately 25 billion excess net foreign source income order realize us foreign tax general business credits expire fourth quarter 2014 company’s expected net foreign source income reduced significantly primarily due strengthening us dollar currencies key markets lesser extent finalization fcpa settlements strengthening us dollar reduced expected dividends royalties could remitted us foreign subsidiaries particularly russia brazil mexico colombia effectiveness tax planning strategies including repatriation foreign earnings acceleration royalties foreign subsidiaries also negatively impacted strengthening us dollar addition finalization fcpa settlements included 68 fine related avon china connection doj settlement 67 disgorgement prejudgment interest related avon products inc connection sec settlement negatively impacted expected future repatriation foreign earnings reduced current us taxable income respectively result developments determined may generate sufficient taxable income realize us deferred tax assets recorded valuation allowance 441 reduce us deferred tax assets amount likely realized 367 recorded income taxes consolidated statements operations remainder recorded various components comprehensive loss income 2015 company recorded additional valuation allowance remaining us deferred tax assets approximately 670 increase valuation allowance resulted reduced tax benefits expected obtained tax planning strategies associated anticipated accelerated receipt us foreign source income us dollar strengthened currencies key markets 2015 benefits associated company’s tax planning strategies longer sufficient company continue conclude tax planning strategies prudent absence alternative prudent tax planning strategies sources future taxable income determined full valuation allowance recorded although company continues expect generate taxable income tax liability us company expected offset current future tax liability foreign tax credits result expected level future taxable income tax liability adequate realize benefit previously recorded deferred tax assets although company may able recognize financial statement benefit associated deferred tax assets company continue manage plan utilization deferred tax assets avoid expiration deferred tax assets may limited lives addition fourth quarter 2015 recognized benefit approximately 19 associated implementation initial stages foreign tax planning strategies completed implementation tax planning strategies recognized additional benefit approximately 29 first quarter 2016 december 31 2016 result us liquidity profile continue assert foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability account 2016 undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings decrease approximately 2 resulting deferred tax liability balance approximately 87 related incremental tax cost approximately 14 billion undistributed foreign earnings december 31 2016 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings may result utilization portion foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved respect uncertain tax positions recognize benefit tax position likely sustained examination taxing authorities based technical merits position believe assessment likely reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements file income tax returns us federal jurisdiction various state foreign jurisdictions 2017 number open tax years scheduled close due expiration statute limitations possible number tax examinations may completed tax positions ultimately upheld denied possible 2017 provision income taxes well tax related cash receipts payments may impacted loss contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable assessment developed consultation outside counsel advisors based analysis possible outcomes various strategies loss contingency assumptions involve judgments inherently subjective involve matters litigation nature unpredictable believe assessment probability loss contingencies reasonable subjectivity involved unpredictable nature subject matter issue assessment may prove ultimately incorrect could materially impact consolidated financial statements impairment assets plant property equipment capitalized software evaluate plant property equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge approximately 90 selling general administrative expenses recorded reflect writedown longlived assets estimated fair value approximately 16 recorded first quarter 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates discussed note 1 description business summary significant accounting policies concluded effective march 31 2016 deconsolidated venezuelan operations consolidated balance sheets longer includes assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements see note 1 description business summary significant accounting policies pages 2016 annual report information avon venezuela goodwill test goodwill impairment annually frequently circumstances warrant using various fair value methods completed annual goodwill impairment assessment 2016 determined estimated fair values considered substantially excess carrying values reporting units impairment analyses performed goodwill require several estimates computing estimated fair value reporting unit part goodwill impairment analysis typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors 2015 yearend close process analysis egypt business indicated impairment carrying value business exceeded estimated fair value primarily result reducing longterm projections business 2015 egypt performed generally line revenue earnings projections assumed growth compared 2014 however result currency restrictions payment goods egypt lowered longterm revenue earnings projections business accordingly noncash impairment charge approximately 7 recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge key assumptions used measuring fair value egypt impairment assessment included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt forecasted revenue resulting cash flows five years using dcf model included terminal value end projection period believed fiveyear period reasonable amount time order return cash flows egypt normalized sustainable levels see note 18 goodwill pages 2016 annual report information regarding egypt results operations consolidated amounts table may necessarily sum due rounding calculation meaningful 1 advertising expenses included within selling general administrative expenses 2 change constant adjusted operating margin years presented calculated using currentyear constant rates 2016 compared 2015 revenue total revenue 2016 declined 7 compared prioryear period primarily due unfavorable foreign exchange constant revenue increased 2 number items affected yearoveryear comparison constant revenue significant sale liz earle completed july 2015 negatively impacted constant revenue growth approximately 1 point items affecting yearoveryear comparison netted immaterial impact addition constant revenue benefited growth argentina south africa russia mexico brazil argentina contributed approximately 1 point avons consolidated constant revenue growth markets results impacted inflationary impact pricing growth constant revenue driven higher average order partially offset 2 decrease active representatives average order benefited net impact price mix increased 6 units sold decreased 4 primarily due declines units sold brazil mexico impact deconsolidation venezuela improving discipline pricing inflation strategically pricing certain markets categories launching products advantageous price points managing potential impact unit sales decrease active representatives primarily due impact deconsolidation venezuela decline asia pacific included impact caused reduction number sales campaigns philippines declines active representatives partially offset growth europe middle east africa significantly russia primarily due sustained momentum recruitment retention see segment review mda additional information related changes revenue segment ending representatives decreased 2 decrease ending representatives december 31 2016 compared prioryear period primarily due impact deconsolidation venezuela negative impact 2 points declines asia pacific decreases partially offset growth europe middle east africa significantly south africa russia well growth south latin america significantly brazil see venezuela discussion mda note 1 description business summary significant accounting policies pages 2016 annual report consolidated financial statements included herein discussion venezuelan operations see note 3 discontinued operations divestitures pages 2016 annual report note 4 related party transactions pages 2016 annual report information new avon category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin increased 290 basis points 80 basis points respectively compared 2015 increases operating margin adjusted operating margin includes benefits associated costs savings initiatives including transformation plan primarily reductions headcount well cost reductions increases operating margin adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill gross margin gross margin adjusted gross margin increased 20 basis points decreased 30 basis points respectively compared 2015 gross margin comparison impacted approximately 50 basis points prior year devaluation venezuelan currency conjunction highly inflationary accounting approximately 29 recognized prioryear period associated carrying certain nonmonetary assets historical us dollar cost following devaluation see venezuela discussion mda discussion venezuelan operations remaining decrease gross margin decrease 30 basis points adjusted gross margin primarily due following • decrease approximately 260 basis points due unfavorable impact foreign currency transaction losses foreign currency translation • decrease 30 basis points due sales products new avon since separation companys north america business new avon march 1 2016 • various insignificant items decreased gross margin items partially offset following • increase 190 basis points due favorable net impact mix pricing primarily due inflationary strategic pricing south latin america europe middle east africa north latin america • increase 90 basis points due lower supply chain costs primarily lower material costs cost savings initiatives europe middle east africa south latin america see note 4 related party transactions pages 2016 annual report information new avon selling general administrative expenses selling general administrative expenses 2016 decreased approximately 404 compared 2015 decrease primarily due favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported selling general administrative expenses decrease selling general administrative expenses also due approximate 90 impairment charge recorded prioryear period reflect writedown longlived assets estimated fair value associated devaluation venezuelan currency conjunction highly inflationary accounting lower fixed expenses resulting primarily cost savings initiatives lower expenses associated employee incentive compensation plans approximate 27 net proceeds recognized result legal settlement third quarter 2016 lower advertising expense partially offsetting decrease selling general administrative expenses higher bad debt expense higher amount cti restructuring higher foreign currency transaction costs higher representative sales leader field expense selling general administrative expenses percentage revenue adjusted selling general administrative expenses percentage revenue decreased 260 basis points 110 basis points respectively compared 2015 selling general administrative expenses percentage revenue comparison benefited • approximately 150 basis points devaluation venezuelan currency conjunction highly inflationary accounting prioryear period primarily approximate 90 impairment charge recognized prioryear period reflect writedown longlived assets estimated fair value following devaluation • approximately 50 basis points approximate 27 net proceeds recognized result legal settlement third quarter 2016 • approximately 10 basis points approximate 7 aggregate settlement charges associated payments made former employees vested participated us defined benefit pension plan recorded prioryear period occur 2016 • approximately 10 basis points approximately 3 transactionrelated costs associated separation north america included continuing operations recorded prioryear period items partially offset • approximately 50 basis points higher cti restructuring see venezuela discussion mda note 1 description business summary significant accounting policies pages 2016 annual report discussion venezuelan operations note 13 segment information pages 2016 annual report information legal settlement note 12 employee benefit plans pages 2016 annual report discussion pension settlement charges note 15 restructuring initiatives pages 2016 annual report information cti restructuring remaining decrease selling general administrative expenses percentage revenue decrease 110 basis points adjusted selling general administrative expenses percentage revenue primarily due following • decrease 210 basis points primarily due lower fixed expenses well impact constant revenue growth respect fixed expenses lower fixed expenses resulted primarily costs savings initiatives mainly reductions headcount partially offset inflationary impact expenses • decrease 40 basis points due lower expenses associated employee incentive compensation plans • decrease 30 basis points lower advertising expense primarily europe middle east africa items partially offset following • increase 80 basis points higher bad debt expense driven brazil primarily due macroeconomic environment coupled actions taken recruit new representatives • increase approximately 50 basis points due unfavorable impact foreign currency translation foreign currency transaction losses • increase 20 basis points result industrial production tax ipi tax law cosmetics brazil went effect may 2015 reduced revenue raise prices paid representatives extent ipi tax see segment review south latin america mda discussion ipi tax law brazil impairment goodwill fourth quarter 2015 recorded noncash impairment charge approximately 7 goodwill associated egypt business see note 18 goodwill pages 2016 annual report information egypt see “segment review” mda additional information related changes segment margin expense interest expense increased approximately 16 compared prioryear period primarily due interest associated 500 senior secured notes defined capital resources issued august 2016 increase interest rates 2013 notes defined capital resources result downgrades longterm credit ratings items partially offset interest savings associated prepayment remaining principal amount 420 notes defined capital resources 575 notes defined capital resources november 2016 prepayment 250 principal amount 2375 notes defined capital resources third quarter 2015 august 2016 cash tender offers refer note 6 debt pages 2016 annual report liquidity capital resources mda additional information gain extinguishment debt 2016 approximately 1 comprised gain approximately 4 associated cash tender offers august 2016 gain approximately 1 associated debt repurchases december 2016 partially offset loss approximately 3 associated prepayment remaining principal amount 420 notes defined capital resources 575 notes defined capital resources november 2016 loss approximately 1 associated debt repurchases october 2016 loss extinguishment debt 2015 approximately 6 associated prepayment 2375 notes defined capital resources refer note 6 debt financing pages 2016 annual report liquidity capital resources mda additional information interest income increased approximately 3 compared prioryear period expense net increased approximately 97 compared prioryear period primarily due yearonyear impact venezuelan special items recorded loss approximately 120 first quarter 2016 compared benefit approximately 4 first quarter 2015 addition expense net positively impacted lower losses foreign exchange partially offset proportionate share new avons loss approximately 12 foreign exchange losses decreased approximately 40 compared prioryear period despite unfavorable impact approximately 17 result devaluation egyptian pound fourth quarter 2016 see venezuela discussion mda discussion venezuelan operations see note 3 discontinued operations divestitures pages 2016 annual report information new avon gain sale business 2015 result sale liz earle july 2015 refer note 3 discontinued operations divestitures pages 2016 annual report additional information regarding sale liz earle effective tax rate effective tax rates 2016 2015 continue impacted inability recognize additional deferred tax assets various jurisdictions related currentyear operating results addition effective tax rates 2016 2015 continue impacted withholding taxes associated certain intercompany payments including royalties service charges dividends aggregate relatively consistent year due need repatriate funds cover usbased costs interest debt corporate overhead inability recognize additional deferred tax assets various jurisdictions related currentyear operating results along withholding taxes resulted unusually high effective tax rates 2016 2015 effective tax rate 2016 impacted deconsolidation venezuelan operations valuation allowances deferred tax assets outside us approximately 9 cti restructuring partially offset benefit approximately 29 result implementation foreign tax planning strategies net benefit approximately 7 primarily due release valuation allowance associated russia benefit net proceeds recognized result legal settlement effective tax rate 2015 negatively impacted additional valuation allowances us deferred tax assets approximately 670 additional valuation allowances 2015 due continued strengthening us dollar currencies key markets impact benefits tax planning strategies associated realization deferred tax assets addition effective tax rate 2015 negatively impacted valuation allowances deferred tax assets outside us approximately 15 primarily russia largely due lower earnings significantly impacted foreign exchange losses working capital balances 2015 also recognized benefit approximately 19 result implementation initial stages foreign tax planning strategies valuation allowances deferred tax assets 2015 caused income taxes significantly excess income taxes addition effective tax rate 2015 negatively impacted devaluation venezuelan currency conjunction highly inflationary accounting adjusted effective tax rates 2016 2015 negatively impacted country mix earnings inability recognize additional deferred tax assets various jurisdictions related currentyear operating results including impact caused withholding taxes associated certain intercompany payments including royalties service charges dividends see note 8 income taxes pages 2016 annual report information addition see venezuela discussion mda note 1 description business summary significant accounting policies pages 2016 annual report discussion venezuelan operations note 15 restructuring initiatives pages 2016 annual report information cti restructuring note 13 segment information pages 2016 annual report information legal settlement impact foreign currency 2016 foreign currency continued significant impact financial results specifically compared prioryear period foreign currency impacted consolidated financial results form • foreign currency transaction losses classified within cost sales selling general administrative expenses unfavorable impact operating profit adjusted operating profit estimated 165 approximately 270 points operating margin adjusted operating margin • foreign currency translation unfavorable impact operating profit approximately 60 adjusted operating profit approximately 65 approximately 40 points operating margin adjusted operating margin • foreign exchange losses working capital classified within expense net lower approximately 35 tax 40 tax adjusted basis despite unfavorable impact approximately 17 result devaluation egyptian pound fourth quarter 2016 discontinued operations loss discontinued operations net tax approximately 14 compared approximately 349 2015 2016 recorded charges approximately 16 tax approximately 5 tax aggregate associated separation north america business closed march 1 2016 2015 recorded charge approximately 340 tax approximately 340 tax associated estimated loss separation north america business see note 3 discontinued operations divestitures pages 2016 annual report discussion venezuela discussion avon venezuela operates directselling channel offering beauty fashion home products avon venezuela manufacturing facility produces beauty products sells avon venezuela imports many fashion home products raw materials components needed manufacture beauty products currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products 2010 began accounting operations venezuela accounting guidance associated highly inflationary economies us gaap financial statements foreign entity operating highly inflationary economy required remeasured functional currency company’s reporting currency us dollar generally results translation adjustments caused changes exchange rate reported earnings currently monetary assets eg cash accounts receivable liabilities eg accounts payable accrued expenses requires different procedures used translate nonmonetary assets eg inventories fixed assets nonmonetary assets liabilities remeasured historical us dollar cost basis diverges significantly application accounting rules prior designation highly inflationary accounting gains losses would recognized comprehensive income loss shareholders deficit venezuelas restrictive foreign exchange control regulations venezuelan operations increasingly limited access us dollars resulted lack exchangeability venezuelan bolivar us dollar restricted venezuelan operations ability pay dividends settle intercompany obligations severe currency controls imposed venezuelan government significantly limited ability realize benefits earnings venezuelan operations access resulting liquidity provided earnings expected lack exchangeability would continue foreseeable future result concluded effective march 31 2016 condition otherthantemporary longer met accounting criteria control order continue consolidating venezuelan operations result since march 31 2016 account venezuelan operations using cost method accounting result change cost method accounting first quarter 2016 recorded loss approximately 120 expense net loss comprised approximately 39 net assets venezuelan business approximately 81 accumulated foreign currency translation adjustments within aoci associated foreign currency movements venezuela accounted highly inflationary economy net assets venezuelan business comprised inventories approximately 24 property plant equipment net approximately 15 assets approximately 11 accounts receivable approximately 5 cash approximately 4 accounts payable accrued liabilities approximately 20 consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements include income relating venezuelan operations extent receive cash dividends royalties remitted avon venezuela february 2015 venezuelan government announced creation new foreign exchange system referred simadi exchange simadi represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize simadi exchange rate remeasure venezuelan operations result change simadi rate caused recognition devaluation approximately 70 compared exchange rate used previously recorded aftertax benefit approximately 3 benefit approximately 4 expense net loss approximately 1 income taxes first quarter 2015 primarily reflecting writedown net monetary assets addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change simadi rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis caused disproportionate expense assets consumed operations negatively impacting operating profit net income approximately 19 2015 also result change simadi rate determined adjustment approximately 11 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2015 addition february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge approximately 90 selling general administrative expenses needed reflect writedown longlived assets estimated fair value approximately 16 recorded first quarter 2015 february 2014 venezuelan government announced foreign exchange system began operating march 2014 referred sicad ii exchange sicad ii sicad ii represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize sicad ii exchange rate remeasure venezuelan operations effective march 31 2014 result change sicad ii rate caused recognition devaluation approximately 88 compared official exchange rate used previously recorded aftertax loss approximately 42 approximately 54 expense net benefit approximately 12 income taxes first quarter 2014 primarily reflecting writedown net monetary assets addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis caused disproportionate expense assets consumed operations negatively impacting operating profit net income approximately 21 2014 also result determined adjustment approximately 116 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2014 2015 compared 2014 revenue total revenue 2015 declined 19 compared prioryear period primarily due unfavorable foreign exchange constant revenue increased 2 constant revenue negatively impacted approximately 2 points due taxes brazil combined impact recognition value added tax vat credits 2014 recur 2015 along new ipi tax law cosmetics went effect may 2015 constant revenue also negatively impacted approximately 1 point result sale liz earle completed july 2015 constant revenue benefited growth markets experiencing relatively high inflation venezuela argentina contributed approximately 2 points constant revenue growth constant revenue also benefited growth europe middle east africa significantly eastern europe russia ukraine lesser extent south africa underlying growth brazil constant revenue benefited higher average order 1 increase active representatives increase active representatives primarily due growth europe middle east africa significantly russia primarily due sustained momentum recruitment retention partially offset markets experiencing relatively high inflation venezuela argentina net impact price mix increased 4 driven increases segments net impact price mix primarily positively impacted markets experiencing relatively high inflation venezuela argentina markets benefited inflationary impact pricing units sold decreased 2 primarily due declines units sold brazil venezuela partially offset increase units sold russia see segment review south latin america mda discussion tax benefits brazil ending representatives increased 3 increase ending representatives december 31 2015 compared prioryear period primarily due growth europe middle east africa significantly russia south africa well growth south latin america category basis net sales reportable segments associated growth rates follows see segment review mda additional information related changes revenue segment operating margin operating margin adjusted operating margin decreased 300 basis points 360 basis points respectively compared 2014 decrease adjusted operating margin includes benefits associated restructuring actions taken 2015 400m cost savings initiative primarily reductions headcount well cost reductions decrease operating margin adjusted operating margin discussed gross margin selling general administrative expenses impairment goodwill gross margin gross margin adjusted gross margin decreased 40 basis points 150 basis points respectively compared 2014 gross margin comparison impacted approximately 110 basis points lower negative impact devaluation venezuelan currency conjunction highly inflationary accounting approximately 29 recognized currentyear period compared approximately 121 prioryear period primarily associated adjustments reflect certain nonmonetary assets net realizable value see venezuela discussion mda discussion venezuelan operations remaining decrease gross margin decrease 150 basis points adjusted gross margin primarily due following • decrease approximately 270 basis points due unfavorable impact foreign currency transaction losses foreign currency translation • decrease 40 basis points associated net impact vat credits brazil recognized revenue 2014 recur 2015 • decrease 20 basis points result ipi tax law cosmetics brazil went effect may 2015 items partially offset following • increase 130 basis points due favorable net impact mix pricing includes realization price increases markets experiencing relatively high inflation venezuela argentina inventory acquired advance inflation • increase approximately 60 basis points due lower supply chain costs primarily europe middle east africa largely due lower overhead costs negative impact foreign currency transaction losses partially mitigated benefits pricing realized impact inflation certain markets see segment review south latin america mda discussion vat credits ipi tax law brazil selling general administrative expenses selling general administrative expenses 2015 decreased approximately 664 compared 2014 decrease primarily due favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported selling general administrative expenses decrease selling general administrative expenses also due additional 46 accrual recorded first quarter 2014 settlements related fcpa investigations lower amount cti restructuring partially offsetting decrease selling general administrative expenses approximate 90 impairment charge recorded 2015 reflect writedown longlived assets estimated fair value associated devaluation venezuelan currency conjunction highly inflationary accounting higher representative sales leader field expense higher foreign currency transaction costs higher expenses associated longterm employee incentive compensation plans prioryear period includes benefit reversal accruals recur currentyear period selling general administrative expenses adjusted selling general administrative expenses percentage revenue increased 250 basis points 220 basis points respectively compared 2014 selling general administrative expenses percentage revenue comparison negatively impacted • approximately 130 basis points devaluation venezuelan currency conjunction highly inflationary accounting 2015 approximate 90 impairment charge recorded reflect writedown longlived assets estimated fair value following devaluation addition approximately 1 recorded 2015 compared 16 recorded 2014 associated venezuelan operations certain nonmonetary assets carried historical us dollar cost following devaluation venezuelan currency conjunction highly inflationary accounting • approximately 10 basis points approximate 3 transactionrelated costs recorded 2015 associated separation north america included continuing operations items partially offset • approximately 60 basis points additional 46 accrual recorded 2014 settlements related fcpa investigations recur 2015 • approximately 30 basis points lower cti restructuring addition 2015 2014 recorded approximately 7 10 respectively aggregate settlement charges associated payments made former employees vested participated us defined benefit pension plan see venezuela discussion mda note 1 description business summary significant accounting policies pages 2016 annual report discussion venezuelan operations note 17 contingencies pages 2016 annual report information fcpa investigations note 12 employee benefit plans pages 2016 annual report discussion pension settlement charges note 15 restructuring initiatives pages 2016 annual report information cti restructuring remaining increase selling general administrative expenses percentage revenue increase 220 basis points adjusted selling general administrative expenses percentage revenue primarily due following • increase approximately 210 basis points due unfavorable impact foreign currency translation foreign currency transaction losses • increase 60 basis points associated net impact vat credits brazil recognized revenue 2014 recur 2015 • increase 60 basis points result ipi tax law cosmetics brazil reduced revenue raise prices paid representatives extent ipi tax • increase 40 basis points due higher expenses associated longterm employee incentive compensation plans prioryear period includes benefit reversal accruals recur currentyear period items partially offset following • decrease 160 basis points primarily due impact constant revenue growth respect fixed expenses addition lower fixed expenses primarily resulting cost savings initiatives mainly reductions headcount largely offset inflationary impact expenses see segment review south latin america mda discussion vat credits ipi tax law brazil impairment goodwill fourth quarter 2015 recorded noncash impairment charge approximately 7 goodwill associated egypt business see note 18 goodwill pages 2016 annual report information egypt see “segment review” mda additional information related changes segment margin expense interest expense increased approximately 12 compared prioryear period primarily due increase interest rates 2013 notes defined capital resources result downgrades longterm credit ratings loss extinguishment debt 2015 approximately 6 associated prepayment 2375 notes defined capital resources refer note 6 debt financing pages 2016 annual report liquidity capital resources mda additional information interest income decreased approximately 2 compared prioryear period expense net decreased approximately 66 compared prioryear period primarily due yearonyear impact venezuelan special items recorded benefit approximately 4 first quarter 2015 compared loss approximately 54 first quarter 2014 addition decrease expense net partially due lower losses foreign exchange approximately 10 compared prioryear period see venezuela discussion mda discussion venezuelan operations gain sale business 2015 result sale liz earle july 2015 refer note 3 discontinued operations divestitures pages 2016 annual report additional information regarding sale liz earle effective tax rate effective tax rate 2015 negatively impacted additional valuation allowances us deferred tax assets approximately 670 additional valuation allowances 2015 due continued strengthening us dollar currencies key markets impact benefits tax planning strategies associated realization deferred tax assets addition effective tax rate 2015 negatively impacted valuation allowances deferred tax assets outside us approximately 15 primarily russia largely due lower earnings significantly impacted foreign exchange losses working capital balances 2015 also recognized benefit approximately 19 result implementation initial stages foreign tax planning strategies valuation allowances deferred tax assets 2015 caused income taxes significantly excess income taxes effective tax rate 2014 negatively impacted noncash income tax charge approximately 396 largely due valuation allowance recorded fourth quarter 2014 deferred tax assets approximately 375 primarily due strengthening us dollar currencies key markets approximate 375 includes valuation allowance recorded us deferred tax assets approximately 367 well approximately 8 associated foreign subsidiaries addition effective tax rates 2015 2014 negatively impacted devaluations venezuelan currency conjunction highly inflationary accounting discussed within venezuela discussion mda adjusted effective tax rate 2015 negatively impacted country mix earnings inability recognize additional deferred tax assets various jurisdictions related currentyear operating results adjusted effective tax rate 2014 negatively impacted adjustment carrying value state deferred tax balances due changes expected tax rate valuation allowances deferred taxes including impact legislative changes outofperiod adjustments approximately 6 recorded fourth quarter 2014 see note 8 income taxes pages 2016 annual report information impact foreign currency 2015 foreign currency significant impact financial results specifically compared prioryear period foreign currency impacted consolidated financial results form • foreign currency transaction losses classified within cost sales selling general administrative expenses unfavorable impact operating profit adjusted operating profit estimated 210 approximately 280 points operating margin adjusted operating margin • foreign currency translation unfavorable impact approximately 385 approximately 210 related venezuela primarily impact devaluation venezuelan currency conjunction highly inflationary accounting operating profit approximately 265 approximately 90 related venezuela adjusted operating profit approximately 420 points operating margin 200 points adjusted operating margin • foreign exchange losses working capital classified within expense net lower approximately 68 tax approximately 60 related venezuela primarily impact devaluation venezuelan currency conjunction highly inflationary accounting 10 tax adjusted basis see venezuela discussion mda discussion venezuelan operations discontinued operations loss discontinued operations net tax approximately 349 compared approximately 40 2014 2015 recorded charge approximately 340 tax approximately 340 tax associated estimated loss sale north america business addition north america operations achieved higher operating income 2015 compared 2014 despite lower revenues result significant cost savings well lower costs implement restructuring initiatives estimated loss sale comprised following see note 3 discontinued operations divestitures pages 2016 annual report discussion comprehensive income loss comprehensive income loss net taxes approximately 333 2016 compared approximately 151 2015 driven recognition losses 259 comprehensive income loss consolidated statements operations result separation north america business primarily related unamortized losses associated employee benefit plans comprehensive income loss net taxes also favorably impacted foreign currency translation adjustments decreased approximately 240 compared 2015 primarily due favorable yearoveryear comparison movements brazilian real colombian peso argentine peso partially offset unfavorable yearoveryear comparison movements british pound addition comprehensive income loss 2016 compared 2015 favorably impacted approximate 82 impact deconsolidation venezuela favorable impacts comprehensive income loss partially offset unfavorable impacts lower amortization net actuarial losses approximately 64 largely result separation north america business lower net actuarial gains approximately 3 2016 compared net actuarial gains approximately 41 2015 2016 net actuarial gains decreased result lower discount rates nonus us pension plans partially offset higher asset returns us nonus pension plans 2016 compared 2015 comprehensive income loss net taxes approximately 151 2015 compared approximately 348 2014 primarily due net actuarial gains approximately 41 2015 compared net actuarial losses approximately 187 2014 2015 net actuarial gains benefited higher discount rates nonus us pension plans partially offset lower asset returns nonus us pension plans 2015 compared 2014 comprehensive income loss yearoveryear comparison also unfavorably impacted foreign currency translation adjustments increased approximately 27 compared 2014 primarily due unfavorable movements brazilian real partially offset yearoveryear comparison movements polish zloty russian ruble see note 3 discontinued operations divestitures pages 2016 annual report information separation north america business see venezuela discussion mda note 1 description business summary significant accounting policies pages 2016 annual report discussion venezuelan operations see note 12 employee benefit plans pages 2016 annual report information benefit plans segment review determine segment profit deducting related costs expenses segment revenue order ensure comparability periods segment profit includes allocation global marketing expenses based actual revenues segment profit excludes global expenses allocation marketing cti restructuring initiatives certain significant asset impairment charges items allocated particular segment applicable consistent manner assess performance allocate resources refer note 13 segment information pages 2016 annual report reconciliation segment profit operating profit summarized financial information concerning reportable segments follows analysis key factors affecting revenue segment profit reportable segment years threeyear period ended december 31 2016 foreign currency impact determined difference actual growth rates constant growth rates refer nongaap financial measures mda information europe middle east africa 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 4 compared prioryear period due unfavorable impact foreign exchange significantly strengthening us dollar relative british pound russian ruble south african rand constant basis revenue grew 4 primarily driven south africa russia segments constant revenue growth driven primarily increase active representatives well higher average order increase ending representatives driven primarily growth russia south africa russia revenue relatively unchanged unfavorably impacted foreign exchange constant basis russias revenue grew 9 primarily due increase active representatives benefited sustained momentum recruiting retention lesser extent higher average order driven pricing benefits russias constant revenue growth driven strength performance first half 2016 tempered second half 2016 fourth quarter 2016 russias constant revenue declined primarily result increased pricing negatively impacted representative engagement activity united kingdom revenue declined 12 unfavorably impacted foreign exchange constant basis united kingdoms revenue relatively unchanged higher average order offset decrease active representatives south africa revenue grew 6 unfavorably impacted foreign exchange constant basis south africa’s revenue grew 21 primarily due increase active representatives segment margin increased 14 points 13 points constant basis primarily result • net benefit 10 point primarily due impact constant revenue growth respect fixed expenses • benefit 7 points due lower advertising expense significantly russia • decline 3 points due lower gross margin caused primarily estimated 3 points unfavorable impact foreign currency transaction losses partially offset benefits 15 points favorable net impact mix pricing 11 points due lower supply chain costs mix pricing primarily driven inflationary strategic pricing russia lower supply chain costs included benefits lower material costs cost savings initiatives europe middle east africa 2015 compared 2014 amounts table may necessarily sum due rounding total revenue decreased 15 compared prioryear period due unfavorable impact foreign exchange including strengthening us dollar relative russian ruble constant basis revenue grew 8 primarily driven eastern europe increase active representatives drove segments constant revenue growth increase ending representatives driven primarily growth eastern europe largely due russia revenue declined 23 unfavorably impacted foreign exchange constant basis russias revenue grew 23 primarily due increase active representatives benefited sustained momentum recruiting retention higher average order united kingdom revenue declined 12 unfavorably impacted foreign exchange constant basis united kingdoms revenue declined 5 primarily due decrease active representatives turkey revenue declined 15 unfavorably impacted foreign exchange constant basis turkeys revenue grew 5 south africa revenue grew 1 unfavorably impacted foreign exchange constant basis south africa’s revenue grew 19 primarily due increase active representatives higher average order segment margin decreased 25 points 23 points constant basis primarily result • decline 24 points due lower gross margin caused primarily estimated 4 points unfavorable impact foreign currency transaction losses partially offset approximately 10 point lower supply chain costs 10 point favorable net impact mix pricing supply chain costs benefited primarily result lower overhead costs attributable increased productivity favorable net impact mix pricing primarily driven eastern europe • decline 5 points higher representative sales leader field expense • various insignificant items partially offset decrease segment margin south latin america 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 7 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative argentine peso brazilian real constant basis revenue increased 5 segments constant revenue growth negatively impacted estimated 1 point additional vat state taxes brazil implemented late 2015 addition ipi tax law cosmetics brazil went effect may 2015 caused estimated 1 point negative impact segments constant revenue growth segments constant revenue benefited higher average order driven pricing partially offset decrease active representatives segments constant revenue higher average order benefited relatively high inflation argentina markets results impacted inflationary impact pricing argentina contributed approximately 4 points segments constant revenue growth revenue argentina decreased 20 unfavorably impacted foreign exchange constant basis argentinas revenue grew 28 primarily due higher average order partially offset decrease active representatives increase ending representatives primarily driven growth brazil revenue brazil decreased 3 unfavorably impacted foreign exchange brazil’s constant revenue increased 2 despite negative impact estimated 3 points due additional vat state taxes discussed constant revenue brazil also negatively impacted estimated 3 points impact ipi tax discussed negative impact additional vat state taxes ipi tax partially offset higher average order driven pricing addition brazil continued impacted difficult economic environment constant basis brazil’s sales beauty products increased 1 despite negative impact ipi tax additional vat state taxes constant basis brazils sales fashion home products increased 1 segment margin decreased 10 point 8 points constant basis primarily result • decline 20 points higher bad debt expense driven brazil primarily due macroeconomic environment coupled actions taken recruit new representatives including adjustment credit terms • decline 6 points result ipi tax law cosmetics brazil reduction revenue raised prices paid representatives extent ipi tax • decline 4 points higher advertising expense primarily brazil second half 2016 • benefit 7 points primarily due impact constant revenue growth respect fixed expenses • benefit 5 points due higher gross margin caused 26 points favorable net impact mix pricing primarily due inflationary strategic pricing 12 points lower supply chain costs partially offset estimated 32 points unfavorable impact foreign currency transaction losses supply chain costs benefited primarily result lower material costs cost savings initiatives • benefit 3 points primarily due net impact constant revenue growth respect representative sales leader field expense • various insignificant items partially offset decline segment margin result enhancements collection processes tightening recruiting terms anticipate moderated growth ending representatives brazil south latin america 2015 compared 2014 amounts table may necessarily sum due rounding total revenue decreased 24 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative brazilian real constant basis revenue decreased 2 negatively impacted approximately 6 points due taxes brazil combined impact recognition vat credits 2014 along ipi tax discussed 2015 specifically 2014 recognized 85 brazil expected vat recoveries recur 2015 approximate 3 point negative impact segment’s constant growth rate addition ipi tax law cosmetics brazil 2015 caused estimated 3 point negative impact segments constant revenue growth argentina market experiencing relatively high inflation contributed approximately 4 points segments constant revenue growth average order segment benefited inflationary impact pricing argentina active representatives negatively impacted market average order negatively impacted taxes brazil increase ending representatives primarily driven growth brazil revenue brazil decreased 34 unfavorably impacted foreign exchange brazil’s constant revenue decreased 8 negatively impacted approximately 10 points due combined impact vat credits 2014 ipi tax 2015 discussed negative impact tax items partially offset increase active representatives constant basis brazil’s sales beauty products decreased 5 negatively impacted ipi tax negative impact beauty sales partially offset increased sales fragrance benefited alliance coty well new product launches first quarter 2015 ipi tax also negatively impacted brazils beauty units increased prices partially offset new tax constant basis brazils sales fashion home products increased 1 brazil continues impacted difficult economic environment well high levels competition segment margin decreased 51 points 50 points constant basis primarily result • decline 25 points associated net impact vat credits brazil recognized revenue 2014 discussed • decline 18 points result ipi tax law cosmetics brazil reduction revenue raised prices paid representatives extent ipi tax • decline 10 point due lower gross margin caused primarily 23 points unfavorable impact foreign currency transaction losses partially offset 13 points favorable net impact mix pricing includes realization price increases argentina inventory acquired advance inflation north latin america 2016 compared 2015 amounts table may necessarily sum due rounding north latin america consists largely mexico business total revenue decreased 8 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative mexican peso constant basis revenue increased 3 benefited higher average order revenue mexico decreased 11 unfavorably impacted foreign exchange constant basis mexicos revenue grew 5 primarily due higher average order driven primarily pricing partially offset decline units sold segment margin increased 19 points 22 points constant basis primarily result • benefit 11 points due higher gross margin caused primarily benefit 27 points favorable impact mix pricing primarily due inflationary strategic pricing partially offset 15 points unfavorable impact foreign currency transaction losses • benefit 8 points primarily lower fixed expenses includes 6 points result outofperiod adjustment negatively impacted prioryear period well due impact constant revenue growth respect fixed expenses north latin america 2015 compared 2014 amounts table may necessarily sum due rounding total revenue decreased 10 compared prioryear period due unfavorable impact foreign exchange primarily driven strengthening us dollar relative mexican peso constant basis revenue increased 2 segments constant revenue growth benefited increase active representatives higher average order revenue mexico declined 15 unfavorably impacted foreign exchange increased 2 constant basis primarily due higher average order segment margin decreased 9 points 6 points constant basis primarily result • decline 10 points higher representative sales leader field expense primarily mexico • decline 3 points higher fixed expenses includes 6 points result outofperiod adjustment partially offset impact constant revenue growth respect fixed expenses • benefit 4 points due higher gross margin caused primarily 4 points lower supply chain costs 4 points favorable net impact mix pricing partially offset immaterial items unfavorably impacted gross margin lower supply chain costs driven lower material costs productivity initiatives partially offset higher obsolescence • various insignificant items partially offset decline segment margin asia pacific 2016 compared 2015 amounts table may necessarily sum due rounding total revenue decreased 11 compared prioryear period partially due unfavorable impact foreign exchange constant basis revenue decreased 7 due declines markets segments constant revenue decline primarily due decrease active representatives partially offset higher average order revenue philippines decreased 3 grew 2 constant basis primarily due higher average order partially offset decrease active representatives segments philippines active representatives decline impacted reduction number sales campaigns philippines decrease ending representatives driven declines markets included negative impact 1 point due closure thailand segment margin declined 2 points increased 1 point constant basis primarily result • net benefit 3 points primarily lower fixed expenses largely offset unfavorable impact declining revenue respect fixed expenses • decline 8 points due lower gross margin caused primarily 11 points unfavorable impact mix pricing 3 points unfavorable impact foreign currency transaction losses partially offset 7 points lower supply chain costs • various insignificant items benefited segment margin continue evaluate strategic alternatives china asia pacific 2015 compared 2014 amounts table may necessarily sum due rounding total revenue decreased 11 compared prioryear period primarily due unfavorable impact foreign exchange constant basis revenue decreased 5 growth philippines offset declines asia pacific markets led china declined 29 28 constant basis segments constant revenue decline due lower average order primarily driven declines china decrease active representatives revenue philippines increased 3 5 constant basis primarily due higher average order result strength fashion home increase active representatives increase ending representatives primarily driven growth philippines segment margin increased 25 points 26 points constant basis primarily result • net benefit 18 points primarily lower fixed expenses primarily resulted cost savings initiatives mainly reductions headcount partially offsetting lower fixed expenses unfavorable impact declining revenue respect fixed expenses • benefit 9 points due lower advertising spend liquidity capital resources principal sources funding historically cash flows operations public offerings notes bank financings borrowings lines credit issuance commercial paper private placement notes issuance shares preferred stock december 31 2016 cash equivalents totaling approximately 654 believe sources funding sufficient satisfy currently anticipated cash requirements least next twelve months may seek repurchase equity retire outstanding debt open market purchases privately negotiated transactions derivative instruments cash tender offers otherwise repurchases equity debt may funded incurrence additional debt issuance equity including shares preferred stock convertible securities depend prevailing market conditions liquidity requirements contractual restrictions factors amounts involved may material may also elect incur additional debt issue equity including shares preferred stock convertible securities finance ongoing operations meet liquidity needs issuances equity including shares preferred stock convertible securities could dilutive effect ownership interest current shareholders may adversely impact earnings per share future periods credit ratings downgraded 2016 2015 2014 may impact access transactions favorable terms information see risk factors credit ratings downgraded last three years could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness future inability meet obligations indebtedness could adversely affect us reducing flexibility respond changing business economic conditions risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 7 20 2016 annual report liquidity could also negatively impacted restructuring initiatives dividends capital expenditures acquisitions certain contingencies including legal regulatory settlements described fully note 17 contingencies pages 2016 annual report see cautionary statement purposes safe harbor statement private securities litigation reform act 1995 pages 1 2 2016 annual report balance sheet data cash flows net cash continuing operating activities net cash provided continuing operating activities 2016 approximately 37 higher 2015 approximate 37 increase net cash provided continuing operating activities primarily due approximate 67 payment us securities exchange commission connection fcpa settlement 2015 recur 2016 lower operating tax payments primarily brazil higher cashrelated earnings net cash provided continuing operating activities 2016 also benefited approximately 27 proceeds net legal fees related settling claims relating professional services connection previously disclosed legal matter items partially offset timing payments primarily inventory increased levels accounts receivable primarily attributable macroeconomic conditions brazil contribution us pension plan 2016 20 occur 2015 net cash provided continuing operating activities 2015 approximately 198 lower 2014 approximate 198 decrease net cash provided continuing operating activities primarily due lower cashrelated earnings impacted unfavorable impact foreign currency translation lower operating tax payments primarily brazil lower payments employee incentive compensation 2015 compared 2014 partially offset items maintain defined benefit pension plans unfunded supplemental pension benefit plans see note 12 employee benefit plans pages 2016 annual report funding policy plans based legal requirements available cash flows amounts necessary fund future obligations plans could vary depending estimated assumptions detailed critical accounting estimates pension postretirement expense mda future funding plans depend economic conditions employee demographics mortality rates number associates electing take lumpsum distributions investment performance funding decisions based current assumptions expect make contributions range 10 15 us defined benefit pension postretirement plans range 20 25 nonus defined benefit pension postretirement plans 2017 net cash continuing investing activities net cash used continuing investing activities 2016 approximately 83 compared net cash provided continuing investing activities approximately 143 2015 approximate 226 decrease net cash used provided continuing investing activities primarily due net proceeds sale liz earle 2015 approximately 208 net cash provided continuing investing activities 2015 approximately 143 compared net cash used 101 2014 approximate 243 increase net cash provided used continuing investing activities primarily due net proceeds sale liz earle approximately 208 partially offset lower capital expenditures capital expenditures 2016 approximately 93 compared approximately 92 2015 approximately 126 2014 capital expenditures 2017 currently expected range 150 170 expected funded cash operations net cash continuing financing activities net cash provided continuing financing activities 2016 approximately 137 compared net cash used continuing financing activities approximately 431 2015 approximately 568 increase net cash provided used continuing financing activities primarily due net proceeds related 500 principal amount senior secured notes defined liquidity capital resources issued third quarter 2016 net proceeds approximately 426 sale series c preferred stock suspension dividend prepayment 250 principal amount 2375 notes defined liquidity capital resources third quarter 2015 partially offset payments august 2016 cash tender offers approximately 301 prepayment remaining principal amount 420 notes defined liquidity capital resources 575 notes defined liquidity capital resources approximately 238 aggregate payments october december debt repurchases approximately 181 aggregate see note 16 series c convertible preferred shares page 2016 annual report note 6 debt financing pages 2016 annual report information net cash used continuing financing activities approximately 431 2015 compared approximately 209 2014 primarily due prepayment 250 principal amount 2375 notes defined liquidity capital resources third quarter 2015 partially offset repayment remaining 53 outstanding principal amount term loan agreement second quarter 2014 see note 6 debt financing pages 2016 annual report information purchased approximately 14 million shares common stock 56 2016 compared 3 million shares common stock 31 2015 7 million shares 98 2014 acquisition stock employees connection tax payments upon vesting restricted stock units upon vesting performance restricted stock units 2016 well private transactions broker connection stock based obligations deferred compensation plan 2014 declare dividend 2016 suspended dividend effective first quarter 2016 maintained quarterly dividend 06 per share 2015 2014 debt contractual financial obligations commitments december 31 2016 debt contractual financial obligations commitments due dates follows 1 amounts based current longterm credit ratings see note 6 debt financing pages 2016 annual report information 2 amounts net expected sublease rental income see note 14 leases commitments page 2016 annual report information 3 amounts represent expected future benefit payments unfunded defined benefit pension postretirement benefit plans well expected contributions 2017 funded defined benefit pension benefit plans able estimate contributions funded defined benefit pension postretirement plans beyond 2017 4 amount debt contractual financial obligations commitments excludes amounts due derivative transactions table also excludes information nonbinding purchase orders inventory table include reserves uncertain income tax positions unable reasonably predict ultimate amount timing settlement uncertain income tax positions december 31 2016 reserves uncertain income tax positions including interest penalties totaled approximately 51 see note 6 debt financing note 14 leases commitments pages page respectively 2016 annual report information debt contractual financial obligations commitments additionally disclosed note 15 restructuring initiatives pages 2016 annual report december 31 2016 liabilities approximately 51 associated transformation plan approximately 1 associated various restructuring initiatives 2016 approximately 3 associated 400m cost savings initiative majority future cash payments associated restructuring liabilities expected made 2017 balance sheet arrangements december 31 2016 material offbalancesheet arrangements capital resources revolving credit facility june 2015 company avon international operations inc whollyowned domestic subsidiary company “aio” entered fiveyear 4000 senior secured revolving credit facility “2015 facility” borrowings 2015 facility bear interest option rate per annum equal libor plus 250 basis points floating base rate plus 150 basis points case subject adjustment based upon leveragebased pricing grid 2015 facility may used general corporate purposes december 31 2016 amounts outstanding 2015 facility 2015 facility replaced companys previous 1 billion unsecured revolving credit facility 2013 facility second quarter 2015 25 tax recorded writeoff issuance costs related 2013 facility obligations aio 2015 facility unconditionally guaranteed material domestic restricted subsidiary company aio borrower case subject certain exceptions ii fully guaranteed unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions 2015 facility terminate june 2020 provided however shall terminate 91st day prior maturity 650 notes defined 460 notes defined 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2015 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios december 31 2016 compliance interest coverage total leverage ratios 2015 facility amount facility available drawn reduced standby letters credit granted aio december 31 2016 approximately 46 december 31 2016 based applicable interest rates entire amount remaining 2015 facility approximately 354 could drawn without violating covenant decline business results including impact adverse foreign exchange movements significant restructuring charges may reduce borrowing capacity 2015 facility cause us noncompliant interest coverage total leverage ratios noncompliant interest coverage total leverage ratio would longer access 2015 facility credit ratings may downgraded december 31 2016 amounts outstanding 2015 facility public notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes net proceeds 2013 notes used repay outstanding debt interest 2013 notes payable semiannually march 15 september 15 year august 10 2015 prepaid 2375 notes prepayment price equal 100 principal amount 2500 plus accrued interest 31 makewhole premium 50 connection prepayment 2375 notes incurred loss extinguishment debt 55 tax third quarter 2015 consisting 50 makewhole premium 2375 notes writeoff 5 debt issuance costs discounts related initial issuance 2375 notes indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp moodys since issuance 2013 notes interest rates notes increased maximum allowable increase august 2016 completed cash tender offers resulted reduction principal 1086 575 notes due march 1 2018 575 notes 738 420 notes due july 15 2018 420 notes 681 650 notes due march 1 2019 650 notes 501 460 notes connection cash tender offers incurred gain extinguishment debt 39 tax third quarter 2016 consisting deferred gain 128 associated march 2012 january 2013 interestrate swap agreement terminations see note 9 financial instruments risk management pages 2016 annual report partially offset 58 early tender premium paid cash tender offers 12 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 9 financial instruments risk management pages 2016 annual report 10 deal costs writeoff 9 debt issuance costs discounts related initial issuances notes subject cash tender offers october 2016 repurchased 440 650 notes 440 420 notes 400 460 notes 352 575 notes aggregate repurchase price equal principal amount notes plus premium 62 accrued interest 11 connection repurchases debt incurred loss extinguishment debt 10 tax fourth quarter 2016 consisting 62 premium paid repurchases 5 writeoff debt issuance costs discounts related initial issuance notes repurchased 4 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 9 financial instruments risk management pages 2016 annual report partially offset deferred gain approximately 61 associated march 2012 january 2013 interestrate swap agreement terminations see note 9 financial instruments risk management pages 2016 annual report november 30 2016 prepaid remaining principal amount 420 notes 575 notes prepayment price equal remaining principal amount 1322 420 notes 1062 575 notes plus makewhole premium 121 series notes accrued interest 36 series notes connection prepayment 420 notes 575 notes incurred loss extinguishment debt 29 tax fourth quarter 2016 consisting 121 makewhole premium 10 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 9 financial instruments risk management pages 2016 annual report writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset deferred gain 105 associated january 2013 interestrate swap agreement termination see note 9 financial instruments risk management pages 2016 annual report december 2016 repurchased 111 500 notes 62 695 notes aggregate repurchase price equal principal amount notes less discount received 13 plus accrued interest 3 connection repurchase debt incurred gain extinguishment debt 11 tax fourth quarter 2016 consisting 13 discount received repurchases partially offset 2 writeoff debt issuance costs discounts related initial issuance notes repurchased indentures governing outstanding notes described contain certain customary covenants customary events default crossdefault provisions would required make offer repurchase outstanding notes described exception 420 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon time outstanding notes rated investment grade senior secured notes august 2016 aio issued private placement exempt registration securities act 1933 amended 5000 aggregate principal amount 7875 senior secured notes mature august 15 2022 senior secured notes interest senior secured notes payable semiannually february 15 august 15 year obligations aio senior secured notes unconditionally guaranteed current future whollyowned domestic restricted subsidiary company guarantor 2015 facility fully guaranteed unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions indenture governing senior secured notes contains certain customary covenants restrictions well customary events default crossdefault provisions indenture also contains covenant requiring aio restricted subsidiaries end year least certain percentage total assets api restricted subsidiaries subject certain qualifications would required make offer repurchase senior secured notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon longterm credit ratings longterm credit ratings moody’s ratings negative outlook ba3 corporate family debt b1 senior unsecured debt ba1 senior secured notes sp ratings positive outlook b corporate family debt senior unsecured debt bb senior secured notes fitch rating negative outlook b investment grade believe longterm credit ratings material impact nearterm liquidity however rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities likely result increase financing costs less favorable covenants financial terms financing arrangements information see risk factors general economic downturn recession globally one geographic regions markets sudden disruption business conditions challenges may adversely affect business access liquidity capital credit ratings risk factors credit ratings downgraded last three years could limit access financing affect market price financing increase financing costs downgrade credit ratings may adversely affect access liquidity risk factors indebtedness could adversely affect us reducing flexibility respond changing business economic conditions included item 1a pages 7 20 2016 annual report please also see note 6 debt financing pages 2016 annual report information relating debt maturities thereof item 7aitem 7 managements discussion analysis results operations financial condition information incorporated reference managements discussion analysis pages 27 39 avons 1997 annual report shareholders item 8item 7 managements discussion analysis financial condition results operations information incorporated reference managements discussion analysis financial condition results operations pages 1 25 exhibit 13 2004 annual report form 10k pages 25 48 avons 2004 annual report shareholders item 7a nannannannanitem 7a quantitative qualitative disclosures market risk see discussion heading risk management strategies market rate sensitive instruments page 39 note 7 page 52 avons 1998 annual report shareholders information concerning market risk sensitive instruments information incorporated reference form 10k item 8item 7a quantitative qualitative disclosures market risk see discussion heading risk management strategies market rate sensitive instruments page 39 note 7 page 51 avons 1999 annual report shareholders information concerning market risk sensitive instruments information incorporated reference form 10k item 8item 7a quantitative qualitative disclosures market risk information incorporated reference risk management strategies market rate sensitive instruments pages 44 45 note 7 pages 59 60 avons 2000 annual report shareholders information concerning market risk sensitive instruments item 8item 7a quantitative qualitative disclosures market risk information incorporated reference risk management strategies market rate sensitive instruments pages 32 35 note 7 pages 49 51 avons 2001 annual report shareholders information concerning market risk sensitive instruments item 8item 7a quantitative qualitative disclosures market risk information incorporated reference risk management strategies market rate sensitive instruments pages 38 40 note 7 pages 55 58 avons 2002 annual report shareholders information concerning market risk sensitive instruments item 8item 7a quantitative qualitative disclosures market risk information incorporated reference “risk management strategies market rate sensitive instruments” pages 25 28 note 7 pages 48 53 exhibit 13 2003 annual report form 10k item 8item 7a quantitative qualitative disclosures market risk information incorporated reference “risk management strategies market rate sensitive instruments” pages 22 23 exhibit 131 2005 annual report form 10k pages 38 39 avon’s 2005 annual report shareholders item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge certain portion existing forecasted transactions expect loss value hedge instruments generally would offset increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate debt floating interest rate manage interest rate exposure december 31 2006 2005 held interest rate swap agreements effectively converted approximately 30 60 respectively outstanding longterm fixedrate borrowings variable interest rate based libor avon’s total exposure floating interest rates december 31 2006 december 31 2005 approximately 50 80 respectively longterm borrowings interest rate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2006 hypothetical 50 basis point change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk operate globally operations various locations around world past three years approximately 65 75 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2006 primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso polish zloty russian ruble turkish lira venezuelan bolivar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2006 impact 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2006 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poors corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result net writeoff 22 december 31 2006 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge certain portion existing forecasted transactions expect loss value hedge instruments generally would offset increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate debt floating interest rate manage interest rate exposure december 31 2007 2006 held interest rate swap agreements effectively converted approximately 30 outstanding longterm fixedrate borrowings variable interest rate based libor avon’s total exposure floating interest rates december 31 2007 december 31 2006 approximately 60 50 respectively longterm borrowings interest rate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2007 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt august 2007 entered locks notional amounts totaling 5000 expired january 31 2008 locks designated cash flow hedges used hedge exposure possible rise interest rates expect incur longterm debt refinance commercial paper december 31 2007 recorded unrealized losses 253 accumulated comprehensive loss related locks january 31 2008 extended maturity date locks july 31 2008 expect incur longterm debt date changes interest rates affect fair value locks december 31 2007 hypothetical 50 basispoint increase interest rates would result approximately 17 decrease unrealized losses 50 basispoint decrease interest rates would result approximately 18 increase unrealized losses foreign currency risk operate globally operations various locations around world past three years approximately 75 80 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2007 primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso polish zloty russian ruble turkish lira venezuelan bolivar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2007 impact 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2007 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 199 december 31 2007 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge certain portion existing forecasted transactions expect loss value hedge instruments generally would offset increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate debt floating interest rate manage interest rate exposure december 31 2008 2007 held interest rate swap agreements effectively converted approximately 50 30 outstanding longterm fixedrate borrowings variable interest rate based libor respectively avon’s total exposure floating interest rates december 31 2008 december 31 2007 approximately 65 60 respectively longterm borrowings interest rate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2008 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk operate globally operations various locations around world past three years approximately 75 80 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2008 primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso philippine peso polish zloty russian ruble turkish lira ukrainian hryvna venezuelan bolivar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2008 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2008 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 1118 december 31 2008 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate longterm debt floating interest rate manage interest rate exposure december 31 2009 held interest rate swap agreements effectively converted approximately 82 outstanding longterm fixedrate borrowings variable interest rate based libor compared 50 december 31 2008 total exposure floating interest rates 83 december 31 2009 65 december 31 2008 longterm borrowings interest rate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2009 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk operate globally operations various locations around world past three years approximately 80 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2009 primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso philippine peso polish zloty russian ruble turkish lira ukrainian hryvnia venezuelan bolivar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2009 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2009 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poors corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 600 december 31 2009 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger interest rate risk use interest rate swaps manage interest rate exposure interest rate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interest rate swap fixed rate borrowing december 31 2010 held interest rate swap agreements effectively converted approximately 74 outstanding longterm fixedrate borrowings variable interest rate based libor compared 82 december 31 2009 total exposure floating interest rates 81 december 31 2010 83 december 31 2009 longterm borrowings interest rate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2010 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk operate globally operations various locations around world past three years approximately 83 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2010 primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro mexican peso philippine peso polish zloty russian ruble turkish lira ukrainian hryvnia venezuelan bolívar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2010 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2010 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 1359 december 31 2010 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger interest rate risk use interest rate swaps manage interest rate exposure interest rate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interest rate swap fixed rate borrowing december 31 2011 2010 held interest rate swap agreements effectively converted approximately 74 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates 82 december 31 2011 81 december 31 2010 longterm borrowings interest rate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2011 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years approximately 83 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2011 primary currencies net underlying foreign currency exchange rate exposures argentine peso australian dollar brazilian real british pound canadian dollar chinese renminbi colombian peso euro mexican peso philippine peso polish zloty russian ruble south africa rand turkish lira ukrainian hryvnia venezuelan bolívar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2011 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2011 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 1592 december 31 2011 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates see note 8 financial instruments risk management 2011 annual report information item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive interest ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk use interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2012 2011 held interest rate swap agreements effectively converted approximately 62 74 respectively outstanding longterm fixedrate borrowings variable interest rates based libor total exposure floating interest rates approximately 69 december 31 2012 82 december 31 2011 however january 2013 terminated interestrate swap agreements notional amounts totaling 1000 longterm borrowings interestrate swaps analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2012 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years approximately 84 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2012 primary currencies net underlying foreign currency exchange rate exposures argentine peso australian dollar brazilian real british pound canadian dollar chinese renminbi colombian peso czech republic koruna euro mexican peso new zealand dollar peruvian new sol philippine peso polish zloty russian ruble south africa rand turkish lira ukrainian hryvnia venezuelan bolívar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based foreign exchange contracts december 31 2012 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2012 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency interestrate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interestrate agreements would resulted writeoff 997 december 31 2012 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates however mentioned january 2013 terminated interestrate swap agreements notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value debt 904000000 amortized reduction interest expense remaining term underlying debt obligations see note 8 financial instruments risk management pages 2012 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2014 interestrate swap agreements approximately 5 approximately 8 debt portfolio december 31 2014 2013 respectively exposed floating interest rates longterm borrowings analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2014 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years approximately 87 consolidated revenue derived operations subsidiaries outside united states us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2014 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south africa rand turkish lira ukrainian hryvna venezuelan bolívar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2014 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2014 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency interestrate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 6 december 31 2014 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 8 financial instruments risk management pages 2014 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2015 interestrate swap agreements approximately 2 approximately 5 debt portfolio december 31 2015 2014 respectively exposed floating interest rates longterm borrowings analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2015 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years consolidated revenue derived operations subsidiaries outside united states us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2015 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south africa rand turkish lira ukrainian hryvnia may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2015 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2015 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 12 december 31 2015 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 8 financial instruments risk management pages 2015 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2017 interestrate swap agreements approximately 1 debt portfolio december 31 2017 2016 respectively exposed floating interest rates longterm borrowings analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2017 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years consolidated revenue derived operations subsidiaries outside united states us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2017 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south african rand turkish lira ukrainian hryvnia may reduce exposure fluctuations fair value cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2017 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2017 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 2 december 31 2017 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 10 financial instruments risk management pages 2017 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2018 interestrate swap agreements approximately 1 debt portfolio december 31 2018 2017 respectively exposed floating interest rates longterm borrowings analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2018 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based dcf analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years consolidated revenue derived operations subsidiaries outside united states us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2018 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south african rand turkish lira ukrainian hryvnia may reduce exposure fluctuations fair value cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2018 taken hedge underlying foreign currency exposures hypothetical 10 appreciation us dollar foreign exchange contracts would reduce earnings 105 hypothetical 10 depreciation us dollar foreign exchange contracts would increase earnings 128 hypothetical analysis consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2018 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 13 december 31 2018 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 11 financial instruments risk management pages 2018 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2019 interestrate swap agreements approximately 0 1 debt portfolio december 31 2019 2018 respectively exposed floating interest rates longterm borrowings yearend fixed rates interest therefore sensitive interest rate changes foreign currency risk conduct business globally operations various locations around world past four years consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2019 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south african rand turkish lira ukrainian hryvnia may reduce exposure fluctuations fair value cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2019 taken hedge underlying foreign currency exposures hypothetical 10 appreciation us dollar foreign exchange contracts would reduce earnings 71 hypothetical 10 depreciation us dollar foreign exchange contracts would increase earnings 86 hypothetical analysis consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2019 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 56 december 31 2019 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 11 financial instruments risk management 2019 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances interest rate risk approximately 4 0 debt portfolio december 31 2020 2019 respectively exposed floating interest rates longterm borrowings yearend fixed rates interest therefore sensitive interest rate changes foreign currency risk conduct business globally operations various locations around world past four years consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2020 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south african rand turkish lira ukrainian hryvnia may reduce exposure fluctuations fair value cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2020 taken hedge underlying foreign currency exposures hypothetical 10 appreciation us dollar foreign exchange contracts would reduce earnings 16 hypothetical 10 depreciation us dollar foreign exchange contracts would increase earnings 16 hypothetical analysis consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2020 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 28 december 31 2020 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 10 financial instruments risk management consolidated financial statements included herein information item 8item 7a quantitative qualitative disclosures market risk overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2012 held interest rate swap agreements effectively converted approximately 62 outstanding longterm fixedrate borrowings variable interest rates based libor december 31 2013 interestrate swap agreements total exposure floating interest rates approximately 8 december 31 2013 69 december 31 2012 longterm borrowings analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2013 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years approximately 87 consolidated revenue derived operations subsidiaries outside us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments fund ongoing activities december 31 2013 primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south africa rand turkish lira ukranian hryvna venezuelan bolívar may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2013 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2013 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency interestrate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 34 december 31 2013 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 8 financial instruments risk management pages 2013 annual report information item 8item 7a quantitative qualitative disclosures market risk us dollars millions except per share data overall objective financial risk management program reduce potential negative effects changes foreign exchange interest rates arising business activities may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments operational means since may use foreign currency ratesensitive instruments hedge portion existing forecasted transactions expect loss value hedge instruments generally would offset changes value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger interest rate risk past used interestrate swaps manage interest rate exposure interestrate swaps used either convert fixed rate borrowing variable interest rate unwind existing variable interestrate swap fixed rate borrowing december 31 2016 interestrate swap agreements approximately 1 approximately 2 debt portfolio december 31 2016 2015 respectively exposed floating interest rates longterm borrowings analyzed yearend determine sensitivity interest rate changes based outstanding balance financial instruments december 31 2016 hypothetical 50basispoint change either increase decrease interest rates prevailing date sustained one year would represent material potential change fair value earnings cash flows potential change calculated based discounted cash flow analyses using interest rates comparable current cost debt foreign currency risk conduct business globally operations various locations around world past three years consolidated revenue derived operations subsidiaries outside united states us functional currency foreign operations local currency exposed changes financial market conditions normal course operations primarily due international businesses transactions denominated foreign currencies use various financial instruments able project meaningful way possible effect foreign currency fluctuations translated amounts future earnings december 31 2016 primary foreign currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound chilean peso colombian peso euro mexican peso peruvian new sol philippine peso polish zloty romanian leu russian ruble south african rand turkish lira ukrainian hryvnia may reduce exposure fluctuations cash flows associated changes foreign exchange rates creating offsetting positions including use derivative financial instruments hedges foreign currency exposure designed therefore cannot entirely eliminate effect changes foreign exchange rates consolidated financial position results operations cash flows foreigncurrency financial instruments analyzed yearend determine sensitivity foreign exchange rate changes based outstanding foreign exchange contracts december 31 2016 impact hypothetical 10 appreciation 10 depreciation us dollar foreign exchange contracts would represent material potential change fair value earnings cash flows potential change consider underlying foreign currency exposures hypothetical impact calculated open positions using forward rates december 31 2016 adjusted assumed 10 appreciation 10 depreciation us dollar hedging contracts credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 6 december 31 2016 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates see note 9 financial instruments risk management pages 2016 annual report information item 8nanitem 7a quantitative qualitative disclosures market risk information incorporated reference “risk management strategies market rate sensitive instruments” pages 21 23 note 7 pages 42 45 exhibit 13 2004 annual report form 10k pages 44 46 note 7 pages 64 67 avons 2004 annual report shareholders item 8 item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 25 36 together report thereon coopers lybrand page 37 results operations quarter page 24 avons 1993 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 35 50 together report thereon coopers lybrand llp page 51 results operations quarter page 34 avons 1994 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 42 56 together report thereon coopers lybrand llp page 57 results operations quarter page 41 avons 1995 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 42 56 together report thereon coopers lybrand llp page 57 results operations quarter page 41 avons 1996 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 44 59 together report thereon pricewaterhousecoopers llp page 60 results operations quarter page 43 avons 1998 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 43 58 together report thereon pricewaterhousecoopers llp page 59 results operations quarter page 42 avons 1999 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 48 68 together report thereon pricewaterhousecoopers llp page 69 results operations quarter pages 46 47 avons 2000 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 38 60 together report thereon pricewaterhousecoopers llp page 61 results operations quarter page 36 avons 2001 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 44 72 together report thereon pricewaterhousecoopers llp page 73 results operations quarter page 42 avons 2002 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference “consolidated financial statements notes” pages 33 78 together report thereon pricewaterhousecoopers llp page 80 “results operations quarter” page 32 exhibit 13 2003 annual report form 10k item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes together report thereon pricewaterhousecoopers llp included exhibit 132 2005 annual report form 10k pages 40 73 avon’s 2005 annual report shareholders item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data reference made index page consolidated financial statements notes thereto contained herein item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 41 56 together report thereon coopers lybrand llp page 57 results operations quarter page 40 avons 1997 annual report shareholders item 9item 8 financial statements supplementary data information incorporated reference consolidated financial statements notes pages 27 63 together report thereon pricewaterhousecoopers llp page 65 exhibit 13 2004 annual report form 10k pages 50 87 avons 2004 annual report shareholders item 9 nannannannannannannannanitem 15 exhibits financial statement schedule reports form 8k annual report shareholders form 10k page number page number 1 consolidated financial statements avon products inc subsidiaries consolidated statements income years threeyear period ended december 31 2002 44 32 consolidated balance sheets december 31 2002 2001 45 33 consolidated statements cash flows years threeyear period ended december 31 2002 46 34 consolidated statements changes shareholders deficit equity years threeyear period ended december 31 2002 47 35 notes consolidated financial statements 48 72 36 70 report independent accountants pricewaterhousecoopers llp 73 72 2 financial statement schedule report independent accountants financial statement schedule pricewaterhousecoopers llp s1 consent independent accountants pricewaterhousecoopers llp s2 financial statement schedule years threeyear period ended december 31 2002 ii valuation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 8 2000 incorporated reference exhibit 34 avons quarterly report form 10q quarter ended june 30 2000 32 bylaws avon restated effective december 2 1999 incorporated reference exhibit 32 avons annual report form 10k year ended december 31 1999 41 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 3341299 filed december 1 1997 42 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 43 indenture dated may 11 1998 avon products inc issuer chase manhattan bank trustee relating 625 putablecallable notes due may 1 2018 putablecallable may 1 2003 incorporated reference exhibit 43 avons annual report form 10k year ended december 31 2001 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avons registration statement form s4 registration statement 3392333 filed december 8 1999 45 indenture dated july 12 2000 avon issuer chase manhattan bank trustee relating zero coupon convertible senior notes due 2020 incorporated reference exhibit 42 avons registration statement form s3 registration statement 33345808 filed september 14 2000 46 600000000 revolving credit competitive advance facility agreement dated may 1 2001 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended june 30 2001 47 agency agreement dated september 20 2001 avon hsbc bank plc initial principal paying agent relating jpy 9000000000 106 percent notes due 2006 incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 2001 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 amendment avon products inc benefit restoration plan effective december 5 2001 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 2001 108 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated effective july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 3365989 filed october 22 1998 1013 first amendment avon products inc deferred compensation plan amended restated july 1 1998 effective december 6 2001 incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 2001 1014 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1015 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 1999 1016 avon products inc 2000 stock incentive plan incorporated reference appendix companys proxy statement form 14a filed commission march 27 2000 file 104881 1017 amendment avon products inc 2000 stock incentive plan effective january 1 2002 1018 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1019 form employment agreement dated september 1 1994 avon certain senior officers substantially similar employment agreements entered executive officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1020 description consulting arrangement avon fernando lezama effective march 31 2002 incorporated reference exhibit 1019 avons annual report form 10k year ended december 31 2001 1021 avon products inc compensation plan nonemployee directors amended restated june 1 2000 effective may 1 1997 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 2000 1022 first amendment restated avon products inc compensation plan nonemployee directors amended restated june 1 2000 executed september 6 2001 effective january 1 2002 incorporated reference exhibit 1021 avons annual report form 10k year ended december 31 2001 1023 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1024 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1025 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1026 stock option agreement dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 2002 incorporated reference response items 15 8 filing 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney 991 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 992 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 exhibits identified exhibit index asterisk management contracts compensatory plans arrangements b reports form 8k october 2 2002 avon filed form 8k announce recorded special nonrecurring charge third quarter 2002 c avons annual report form 10k year ended december 31 2002 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 26th day february 2003 avon products inc gilbert l klemann ii gilbert l klemann ii senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrea jung chairman board chief executive officer director principal executive officer february 26 2003 susan j kropf president february 26 2003 chief operating officer director robert j corti executive vice president chief financial officer principal financial officer february 26 2003 janice marolda vice president controller principal accounting officer february 26 2003 brenda c barnes director february 26 2003 w cornwell director february 26 2003 edward fogarty director february 26 2003 stanley c gault director february 26 2003 fred hassan director february 26 2003 maria elena lagomasino director february 26 2003 ann moore director february 26 2003 paula stern director february 26 2003 lawrence weinbach director february 26 2003 gilbert l klemann ii gilbert l klemann ii attorneyinfact february 26 2003 certification andrea jung certify 1 reviewed annual report form 10k avon products inc 2 based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date february 26 2003 andrea jung andrea jung chief executive officer certification robert j corti certify 1 reviewed annual report form 10k avon products inc 2 based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date february 26 2003 robert j corti robert j corti chief financial officer report independent accountants financial statement schedule board directors avon products inc audits consolidated financial statements referred report dated january 28 2003 appearing 2002 annual report shareholders avon products inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 28 2003 s1 consent independent accountants consent incorporation reference registration statements form s3 reg 3345808 reg 333103432 form s8 reg nos 3343820 3347209 3365989 3365998 avon products inc report dated january 28 2003 relating financial statements appear 2002 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 28 2003 relating financial statement schedule appears form 10k pricewaterhousecoopers llp new york new york february 26 2003 s2 accounts written net recoveries foreign currency transl ation adjustment b increase valuation allowance tax lo ss tax credit carryforward benefits likely deferred tax assets utilized future c decrease valuation allowance tax lo ss tax credit carryforward benefits likely portion asset balance util ized future s3 securities exchange commission washington dc 20549 form 10k annual report pursuant section 13 15d securities exchange act 1934 fiscal year ended december 31 2002 commission file number 14881 avon products inc exact name registrant specified charter exhibits index exhibits a3 exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 8 2000 incorporated reference exhibit 34 avons quarterly report form 10q quarter ended june 30 2000 32 bylaws avon restated effective december 2 1999 incorporated reference exhibit 32 avons annual report form 10k year ended december 31 1999 41 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 3341299 filed december 1 1997 43 rights agreement dated march 30 1998 rights agreement avon first chicago trust company new york incorporated reference exhibit 4 avons registration statement form 8a filed march 18 1998 43 indenture dated may 11 1998 avon products inc issuer chase manhattan bank trustee relating 625 putablecallable notes due may 1 2018 putablecallable may 1 2003 incorporated reference exhibit 43 avons annual report form 10k year ended december 31 2001 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avons registration statement form s4 registration statement 3392333 filed december 8 1999 45 indenture dated july 12 2000 avon issuer chase manhattan bank trustee relating zero coupon convertible senior notes due 2020 incorporated reference exhibit 42 avons registration statement form s3 registration statement 33345808 filed september 14 2000 46 600000000 revolving credit competitive advance facility agreement dated may 1 2001 among avon capital corporation group banks lenders incorporated reference exhibit 41 avons quarterly report form 10q quarter ended june 30 2001 47 agency agreement dated september 20 2001 avon hsbc bank plc initial principal paying agent relating jpy 9000000000 106 percent notes due 2006 incorporated reference exhibit 41 avons quarterly report form 10q quarter ended september 30 2001 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avons annual report form 10k year ended december 31 1997 105 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avons annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 1994 107 amendment avon products inc benefit restoration plan effective december 5 2001 incorporated reference exhibit 107 avons annual report form 10k year ended december 31 2001 108 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1012 avon products inc deferred compensation plan amended restated effective july 1 1998 incorporated reference exhibit 4b avons registration statement form s8 registration 3365989 filed october 22 1998 1013 first amendment avon products inc deferred compensation plan amended restated july 1 1998 effective december 6 2001 incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 2001 1014 trust agreement dated april 21 1995 avon chemical bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1015 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avons annual report form 10k year ended december 31 1999 1016 avon products inc 2000 stock incentive plan incorporated reference appendix companys proxy statement form 14a filed commission march 27 2000 file 104881 1017 amendment avon products inc 2000 stock incentive plan effective january 1 2002 1018 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1019 form employment agreement dated september 1 1994 avon certain senior officers substantially similar employment agreements entered executive officers incorporated reference exhibit 102 avons quarterly report form 10q quarter ended september 30 1994 1020 description consulting arrangement avon fernando lezama effective march 31 2002 incorporated reference exhibit 1019 avons annual report form 10k year ended december 31 2001 1021 avon products inc compensation plan nonemployee directors amended restated june 1 2000 effective may 1 1997 incorporated reference exhibit 1017 avons annual report form 10k year ended december 31 2000 1022 first amendment restated avon products inc compensation plan nonemployee directors amended restated june 1 2000 executed september 6 2001 effective january 1 2002 incorporated reference exhibit 1021 avons annual report form 10k year ended december 31 2001 1023 avon products inc board directors deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1997 1024 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1025 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1026 stock option agreement dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1998 13 portions annual report shareholders year ended december 31 2002 incorporated reference response items 15 8 filing 21 subsidiaries registrant 23 consent pricewaterhousecoopers llp set forth page s2 annual report form 10k 24 power attorney 991 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 992 certification pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 exhibits identified exhibit index asterisk management contracts compensatory plans arrangementsitem 15 exhibits financial statement schedule reports form 8k form 10k page number 1 consolidated financial statements consolidated statements income years threeyear period ended december 31 2003 consolidated balance sheets december 31 2003 2002 consolidated statements cash flows years threeyear period ended december 31 2003 consolidated statements changes shareholders’ equity deficit years threeyear period ended december 31 2003 notes consolidated financial statements 3778 report management report independent auditors pricewaterhousecoopers llp 2 financial statement schedule report independent auditors financial statement schedule pricewaterhousecoopers llp s1 consent independent accountants pricewaterhousecoopers llp s2 financial statement schedule years threeyear period ended december 31 2003 ii valuation qualifying accounts s3 financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits exhibit number description 31 restated certificate incorporation avon filed secretary state new york may 8 2000 incorporated reference exhibit 34 avon’s quarterly report form 10q quarter ended june 30 2000 32 bylaws avon restated effective december 2 1999 incorporated reference exhibit 32 avon’s annual report form 10k year ended december 31 1999 41 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avon’s registration statement form s4 registration statement 3341299 filed december 1 1997 42 rights agreement dated march 30 1998 “rights agreement” avon first chicago trust company new york incorporated reference exhibit 4 avon’s registration statement form 8a filed march 18 1998 43 indenture dated may 11 1998 avon products inc issuer chase manhattan bank trustee relating 625 putablecallable notes due may 1 2018 putablecallable may 1 2003 incorporated reference exhibit 43 avon’s annual report form 10k year ended december 31 2001 44 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 69 notes due november 15 2004 715 notes due november 15 2009 incorporated reference exhibit 44 avon’s registration statement form s4 registration statement 3392333 filed december 8 1999 45 indenture dated july 12 2000 avon issuer chase manhattan bank trustee relating zero coupon convertible senior notes due 2020 incorporated reference exhibit 42 avon’s registration statement form s3 registration statement 33345808 filed september 14 2000 46 600000000 revolving credit competitive advance facility agreement dated may 1 2001 among avon capital corporation group banks lenders incorporated reference exhibit 41 avon’s quarterly report form 10q quarter ended june 30 2001 47 agency agreement dated september 20 2001 avon hsbc bank plc initial principal paying agent relating jpy 9000000000 106 percent notes due 2006 incorporated reference exhibit 41 avon’s quarterly report form 10q quarter ended september 30 2001 48 indenture dated may 13 2003 avon issuer jp morgan chase bank trustee relating avon’s 1250 aggregate principal amount 4625 notes due 2013 2500 aggregate principal amount 42 notes due 2018 incorporated reference exhibit 41 avon’s quarterly report form 10q quarter ended june 30 2003 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended june 30 1993 file 104881 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avon’s annual report form 10k year ended december 31 1993 file 104881 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avon’s quarterly report form 10q quarter ended september 30 1997 file 104881 104 avon products inc 1997 longterm incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avon’s annual report form 10k year ended december 31 1997 file 104881 105 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avon’s annual report form 10k year ended december 31 1998 106 benefit restoration pension plan avon products inc effective january 1 1994 incorporated reference exhibit 107 avon’s annual report form 10k year ended december 31 1994 file 104881 107 amendment avon products inc benefit restoration plan effective december 5 2001 incorporated reference exhibit 107 avon’s annual report form 10k year ended december 31 2001 108 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 file 104881 109 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended march 31 1993 file 104881 1010 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avon’s quarterly report form 10q quarter ended march 31 1993 file 104881 1011 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avon’s quarterly report form 10q quarter ended march 31 1993 file 104881 1012 avon products inc deferred compensation plan amended restated effective july 1 1998 incorporated reference exhibit 4b avon’s registration statement form s8 registration 3365989 filed october 22 1998 1013 first amendment avon products inc deferred compensation plan amended restated july 1 1998 effective december 6 2001 incorporated reference exhibit 1013 avon’s annual report form 10k year ended december 31 2001 1014 trust agreement dated april 21 1995 avon chemica bank amending restating trust agreement august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avon’s annual report form 10k year ended december 31 1995 file 104881 1015 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avon’s annual report form 10k year ended december 31 1999 1016 avon products inc 2000 stock incentive plan incorporated reference appendix company’s proxy statement form 14a filed commission march 27 2000 1017 amendment avon products inc 2000 stock incentive plan effective january 1 2002 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2002 1018 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avon’s annual report form 10k year ended december 31 1997 file 104881 1019 form employment agreement dated september 1 1994 avon certain senior officers substantially similar employment agreements entered certain executive officers incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended september 30 1994 file 104881 1020 description consulting arrangement avon fernando lezama effective march 31 2002 incorporated reference exhibit 1019 avon’s annual report form 10k year ended december 31 2001 1021 avon products inc compensation plan nonemployee directors effective may 1 1997 amended restated june 1 2000 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2000 1022 first amendment restated avon products inc compensation plan nonemployee directors amended restated june 1 2000 executed september 6 2001 effective january 1 2002 incorporated reference exhibit 1021 avon’s annual report form 10k year ended december 31 2001 1023 avon products inc board directors’ deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avon’s annual report form 10k year ended december 31 1997 file 104881 1024 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avon’s annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 file 104881 1025 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avon’s quarterly report form 10q quarter ended march 31 1993 file 104881 1026 stock option agreement dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended june 30 1998 file 104881 avon’s annual report form 10k year ended december 31 2003 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 4th day march 2004 avon products inc gilbert l klemann ii gilbert l klemann ii senior vice president general counsel secretary pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrea jung chairman board chief executive officer director principal executive officer march 4 2004 susan j kropf president march 4 2004 chief operating officer director robert j corti executive vice president chief financial officer principal financial officer march 4 2004 janice marolda klettner vice president controller principal accounting officer march 4 2004 brenda c barnes director march 4 2004 w cornwell director march 4 2004 edward fogarty director march 4 2004 stanley c gault director march 4 2004 fred hassan director march 4 2004 maria elena lagomasino director march 4 2004 ann moore director march 4 2004 paula stern director march 4 2004 lawrence weinbach director march 4 2004 gilbert l klemann ii gilbert l klemann ii attorneyinfact march 4 2004 report independent auditors financial statement schedule board directors avon products inc audits consolidated financial statements referred report dated january 28 2004 appearing 2003 annual report shareholders avon products inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york january 28 2004 s1 consent independent accountants hereby consent incorporation reference registration statements form s3 reg 333103432 form s8 reg nos 33343820 33347209 33365989 33365998 avon products inc report dated january 28 2004 relating financial statements appears 2003 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated january 28 2004 relating financial statement schedule appears form 10k pricewaterhousecoopers llp new york new york march 4 2004 s2 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 accounts written net recoveries foreign currency translation adjustment b returned product destroyed foreign currency translation adjustment c obsolete inventory destroyed foreign currency translation adjustment increase valuation allowance tax loss tax credit carryforward benefits likely deferred tax assets utilized future s3item 15 exhibits financial statement schedule financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits exhibit number description 21 share purchase agreement dated october 7 2005 avon international holdings company sarastro ltd ldc incorporated reference exhibit 21 avon’s quarterly report form 10q quarter ended september 30 2005 31 restated certificate incorporation avon filed secretary state new york june 3 2005 incorporated reference exhibit 3i avon’s quarterly report form 10q quarter ended june 30 2005 32 bylaws avon restated effective may 5 2005 incorporated reference exhibit 3ii avon’s quarterly report form 10q quarter ended june 30 2005 41 indenture dated august 1 1997 avon issuer chase manhattan bank trustee relating 655 notes due 2007 incorporated reference exhibit 42 avons registration statement form s4 registration statement 33341299 filed december 1 1997 42 indenture dated november 9 1999 avon issuer chase manhattan bank trustee relating 690 notes due 2004 715 notes due 2009 incorporated reference exhibit 42 avon’s registration statement form s4 registration statement 33392333 filed december 8 1999 43 indenture dated may 13 2003 avon issuer jpmorgan chase bank trustee relating avon’s 1250 aggregate principal amount 4625 notes due 2013 2500 aggregate principal amount 420 notes due 2018 5000 aggregate principal amount avon’s 5125 notes due 2011 incorporated reference exhibit 41 avon’s quarterly report form 10q quarter ended june 30 2003 44 rights agreement dated march 30 1998 avon equiserve trust company na successor rights agent first chicago trust company new york incorporated reference exhibit 4 avon’s registration statement form 8a filed march 18 1998 45 agency agreement dated september 20 2001 avon hsbc bank plc initial principal paying agent relating jpy 9000000000 106 percent notes due 2006 incorporated reference exhibit 4 avon’s quarterly report form 10q quarter ended september 30 2001 101 avon products inc 1993 stock incentive plan approved stockholders may 6 1993 incorporated reference exhibit 102 avons quarterly report form 10q quarter ended june 30 1993 102 form stock option agreement avon products inc 1993 stock incentive plan incorporated reference exhibit 102 avons annual report form 10k year ended december 31 1993 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 104 avon products inc 1997 long term incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avon’s annual report form 10k year ended december 31 1997 105 avon products inc year 2000 stock incentive plan incorporated reference appendix company’s proxy statement filed commission march 27 2000 connection avon’s 2000 annual meeting shareholders 106 amendment avon products inc year 2000 stock incentive plan effective january 1 2002 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2002 107 form us stock option agreement avon products inc year 2000 stock incentive plan incorporated reference exhibit 101 avon’s quarterly report form 10q quarter ended september 30 2004 108 form us restricted stock unit award agreement avon products inc year 2000 stock incentive plan incorporated reference exhibit 1039 avon’s annual report form 10k year ended december 31 2005 109 form revised us stock option agreement avon products inc year 2000 stock incentive plan incorporated reference exhibit 991 avon’s current report form 8k filed march 8 2005 1010 form revised us restricted stock unit award agreement avon products inc year 2000 stock incentive plan incorporated reference exhibit 992 avon’s current report form 8k filed march 8 2005 1011 avon products inc 2005 stock incentive plan approved stockholders may 5 2005 incorporated reference appendix g avon’s definitive proxy statement filed may 5 2005 connection avon’s 2005 annual meeting shareholders 1012 form us stock option agreement avon products inc year 2005 stock incentive plan incorporated reference exhibit 991 avon’s current report form 8k filed september 6 2005 1013 form us restricted stock unit award agreement avon products inc year 2005 stock incentive plan incorporated reference exhibit 992 avon’s current report form 8k filed september 6 2005 1014 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avon’s annual report form 10k year ended december 31 1998 1015 first amendment restated supplemental executive retirement life plan avon products inc dated october 26 2000 incorporated reference exhibit 106 avon’s annual report form 10k year ended december 31 2004 1016 avon products inc deferred compensation plan amended restated january 1 2003 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2004 1017 first amendment avon products inc deferred compensation plan effective january 26 2005 incorporated reference exhibit 1018 avon’s annual report form 10k year ended december 31 2004 1018 second amendment avon products inc deferred compensation plan effective january 1 2005 1019 avon products inc compensation plan nonemployee directors restated june 1 2000 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2000 1020 first amendment restated avon products inc compensation plan nonemployee directors effective january 1 2002 incorporated reference exhibit 1021 avon’s annual report form 10k year ended december 31 2001 1021 second amendment restated avon products inc compensation plan nonemployee directors effective january 1 2004 incorporated reference exhibit 1031 avon’s annual report form 10k year ended december 31 2005 1022 third amendment restated avon products inc compensation plan non employee directors effective may 5 2005 incorporated reference exhibit 102 avon’s current report form 8k filed may 11 2005 1023 fourth amendment avon products inc compensation plan nonemployee directors effective january 25 2006 incorporated reference exhibit 101 avon’s current report form 8k filed january 31 2006 1024 board directors avon products inc deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avon’s annual report form 10k year ended december 31 1997 1025 avon products inc executive incentive plan approved shareholders may 1 2003 incorporated reference appendix e avon’s proxy statement filed commission march 27 2003 connection avon’s 2003 annual meeting shareholders 1026 benefit restoration pension plan avon products inc amended restated july 1 1998 incorporated reference exhibit 107 avon’s annual report form 10k year ended december 31 2004 1027 amendment avon products inc benefit restoration plan effective december 5 2001 incorporated reference exhibit 108 avon’s annual report form 10k year ended december 31 2001 1028 second amendment benefit restoration plan avon products inc effective december 5 2000 incorporated reference exhibit 109 avon’s annual report form 10k year ended december 31 2004 1029 third amendment benefit restoration plan avon products inc effective march 25 2002 incorporated reference exhibit 1010 avon’s annual report form 10k year ended december 31 2004 1030 fourth amendment benefit restoration plan avon products inc effective january 26 2005 incorporated reference exhibit 1011 avon’s annual report form 10k year ended december 31 2004 1031 fifth amendment benefit restoration plan avon products inc effective december 1 2005 1032 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 1033 trust agreement dated october 29 1998 avon chase manhattan bank na trustee relating grantor trust incorporated reference exhibit 1012 avon’s annual report form 10k year ended december 31 2004 1034 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 1035 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 1036 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 1037 avon products inc amended restated benefit protection trust agreement dated april 21 1995 avon chemical bank trustee buck consultants inc consulting firm amending restating avon products inc benefit protection trust agreement dated august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 1038 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 1039 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 1040 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 1041 employment agreement dated september 1 1994 avon susan j kropf incorporated reference exhibit 1024 avon’s annual report form 10k year ended december 31 2005 1042 employment agreement dated august 7 1998 avon robert j corti incorporated reference exhibit 1025 avon’s annual report form 10k year ended december 31 2005 1043 employment agreement dated january 1 2001 avon gilbert l klemann ii incorporated reference exhibit 1026 avon’s annual report form 10k year ended december 31 2005 1044 offer letter avon products inc elizabeth smith dated november 1 2004 setting forth material terms ms smith’s compensation summary description perquisites included original letter incorporated reference exhibit 101 avon’s current report form 8k filed january 6 2005 1045 employment letter agreement dated november 13 2005 avon charles w cramb incorporated reference exhibit 101 avon’s current report form 8k filed november 16 2005 1046 separation agreement general release dated november 2 2005 avon robert toth incorporated reference exhibit 101 avon’s current report form 8k filed november 3 2005 1047 description consulting arrangement avon fernando lezama effective march 31 2002 incorporated reference exhibit 1019 avon’s annual report form 10k year ended december 31 2001 1048 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avon’s annual report form 10k year ended december 31 1999 1049 stock option agreement avon products inc 1993 stock incentive plan dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended june 30 1998 1050 description enhanced retirement benefit arrangements jill kaninlovers incorporated reference exhibit 1028 avon’s annual report form 10k year ended december 31 2003 1051 amendment avon products inc restricted stock unit award agreement dated march 11 2004 robert j corti effective february 28 2006 incorporated reference exhibit 101 avon’s current report form 8k filed march 3 2006 1052 description compensation arrangement susan j kropf incorporated reference item 101 avon’s current report form 8k filed march 9 2006 1053 600000000 revolving credit competitive advance facility agreement dated may 1 2001 among avon capital corporation group banks lenders incorporated reference exhibit 4 avon’s quarterly report form 10q quarter ended june 30 2001 1054 credit agreement dated august 23 2005 among avon products inc avon capital corporation bank america na incorporated reference exhibit 101 avon’s current report form 8k filed august 26 2005 1055 credit agreement dated august 23 2005 among avon products inc avon capital corporation citibank na incorporated reference exhibit 102 avon’s current report form 8k filed august 26 2005 1056 revolving credit competitive advance facility agreement dated january 13 2006 among avon products inc avon capital corporation citibank na administrative agent citigroup global markets inc banc america securities llc jp morgan securities inc joint lead arrangers joint bookrunners lenders party thereto incorporated reference exhibit 101 avon’s current report form 8k filed january 13 2006 1057 guarantee avon products inc dated august 31 2005 incorporated reference exhibit 101 avon’s current report form 8k filed september 6 2005 131 portions annual report shareholders year ended december 31 2005 incorporated reference response items 5 6 7 7a annual report form 10k 132 portions annual report shareholders year ended december 31 2005 incorporated reference response items 1 8 annual report form 10k subsidiaries registrant consent pricewaterhousecoopers llp power attorney 311 certification chief executive officer pursuant section 302 sarbanesoxley act 2002 312 certification chief financial officer pursuant section 302 sarbanesoxley act 2002 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 exhibits identified asterisk management contracts compensatory plans arrangements avons annual report form 10k year ended december 31 2005 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 10th day march 2006 avon products inc kevin w byrne kevin w byrne vice president chief accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date andrea jung chairman board chief executive officer march 10 2006 principal executive officer susan j kropf president chief operating officer director march 10 2006 charles w cramb executive vice president finance technology march 10 2006 chief financial officer principal financial officer kevin w byrne vice president chief accounting officer march 10 2006 principal accounting officer w cornwell director march 10 2006 edward fogarty director march 10 2006 stanley c gault director march 10 2006 fred hassan director march 10 2006 maria elena lagomasino director march 10 2006 ann moore director march 10 2006 paul pressler director march 10 2006 paula stern director march 10 2006 lawrence weinbach director march 10 2006 gilbert l klemann ii gilbert l klemann ii attorneyinfact march 10 2006 report independent registered public accounting firm financial statement schedule board directors avon products inc audits consolidated financial statements management’s assessment effectiveness internal control financial reporting effectiveness internal control financial reporting referred report dated february 17 2006 appearing 2005 annual report shareholders avon products inc report consolidated financial statements assessment incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york february 17 2006 s1 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 accounts written net recoveries foreign currency translation adjustment b returned product destroyed foreign currency translation adjustment c obsolete inventory destroyed foreign currency translation adjustment increase valuation allowance tax loss tax credit carryforward benefits likely deferred tax assets utilized future e decrease valuation allowance primarily due decrease foreign tax credit carryforwards valuation allowance provided f increase valuation allowance tax loss capital loss carryforward benefits likely deferred tax assets utilized future s2item 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits identified asterisk management contracts compensatory plans arrangements avons annual report form 10k year ended december 31 2006 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 28th day february 2007 avon products inc richard foggio richard foggio group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated index consolidated financial statements schedule report independent registered public accounting firm consolidated financial statements consolidated statements income years threeyear period ended december 31 2006 consolidated balance sheets december 31 2006 2005 consolidated statements cash flows years threeyear period ended december 31 2006 consolidated statements changes shareholders equity years threeyear period ended december 31 2006 notes consolidated financial statements financial statement schedule ii valuation qualifying accounts report independent registered public accounting firm board directors shareholders avon products inc completed integrated audits avon products inc’s consolidated financial statements internal control financial reporting december 31 2006 accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion accompanying consolidated balance sheets related consolidated statements income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2006 december 31 2005 results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 2 consolidated financial statements 2006 company changed manner accounts pension postretirement benefit plans manner accounts sharebased compensation internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 28 2007 consolidated statements income accompanying notes integral part statements consolidated balance sheets accompanying notes integral part statements consolidated statements cash flows noncash financing activities included change fair market value interest rate swap agreements 218 153 151 2006 2005 2004 respectively see note 4 debt financing accompanying notes integral part statements consolidated statements changes shareholders’ equity accompanying notes integral part statements notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms “avon” “company” “we” “us” mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling manage operations based geographic operations reportable segments north america latin america western europe middle east africa central eastern europe asia pacific china also centrally manage global brand marketing supply chain organizations sales made ultimate customers principally independent avon representatives product categories include beauty consists cosmetics fragrances skin care toiletries beauty plus consists fashion jewelry watches apparel accessories beyond beauty consists home products gift decorative products sales health wellness mark included among three categories based product type principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates preparation financial statements conformity generally accepted accounting principles united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss financial statements subsidiaries operating highly inflationary economies translated using combination current historical exchange rates translation adjustments included current earnings gains losses resulting foreign currency transactions recorded expense net revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances revenue primarily includes shipping handling fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout fifo method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures deferred amortized period benefits expected typically campaign length december 31 2006 2005 prepaid expenses included deferred brochure costs 372 345 respectively property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful lives assets 2006 2005 2004 avon capitalized 10 66 25 interest respectively deferred software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred december 31 2006 2005 assets included unamortized deferred software costs 747 687 respectively investments debt equity securities debt equity securities readily determinable fair value intend hold maturity classified availableforsale carried fair value unrealized holding gains losses net applicable taxes recorded separate component shareholders’ equity net deferred taxes realized gains losses sale availableforsale securities calculated specific identification basis declines fair values investments cost basis judged otherthantemporary recorded expense net determining whether otherthantemporary decline market value occurred consider various factors including duration extent market value cost goodwill intangible assets goodwill amortized rather assessed impairment annually upon occurrence event indicates impairment may occurred intangible assets estimable useful lives amortized using straightline method estimated useful lives assets completed annual goodwill impairment assessment adjustments goodwill necessary 2006 2005 2004 sharebased compensation plans prior january 1 2006 applied disclosureonly provisions statement financial accounting standards “sfas” 123 accounting stockbased compensation “sfas 123” accordance provisions sfas 123 applied apb 25 accounting stock issued employees “apb 25” related interpretations accounting sharebased compensation plans accordingly recognize compensation expense stock options issued options exercise prices equal market value date grant effective january 1 2006 adopted sfas 123 revised 2004 sharebased payment “sfas 123r” revises sfas 123 supersedes apb 25 sfas 123r requires sharebased payments employees recognized financial statements based fair values using optionpricing model date grant elected use modified prospective method adoption requires compensation expense recorded unvested stock options restricted shares beginning first quarter adoption based fair value original grant date prior year financial statements restated elected use alternative shortcut method calculate historical pool windfall tax benefits upon adoption sfas 123r accordance fasb staff position “fsp” fas 123r3 transition election related accounting tax effects sharebased payment awards year ended december 31 2006 determined pool windfall tax benefits impact adoption sfas 123r 2006 including restricted stock units granted connection design changes sharebased compensation plans related adoption decreased income taxes minority interest net income basic diluted earnings per share net cash provided operating activities year ended december 31 2006 492 324 07 81 respectively increased net cash provided financing activities 81 see note 8 sharebased compensation plans longterm incentive plan additional information regarding sharebased compensation plans financial instruments use derivative financial instruments including interest rate swaps forward foreign currency contracts options manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 7 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss carryforwards expire us income taxes provided approximately 21587 undistributed income subsidiaries intended permanently reinvested outside united states selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 7870 2006 2005 7060 2004 6800 shipping handling costs included selling general administrative expenses consolidated statements income advertising costs excluding brochure preparation costs expensed incurred amounted 2489 2006 2005 1359 2004 1276 research development research development costs expensed incurred amounted 658 2006 2005 642 2004 631 research development costs include costs related design development new products salaries benefits supplies materials facilities costs restructuring reserves record severancerelated expenses probable estimable accordance provisions sfas 112 employer’s accounting postemployment benefits severance provided ongoing benefit arrangement onetime benefit arrangements disposal costs primarily contract termination costs accounted provisions sfas 146 accounting costs associated exit disposal activities evaluate impairment issues provisions sfas 144 accounting impairment disposal longlived assets contingencies accordance sfas 5 accounting contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable reclassifications reclassified prior year amounts consolidated financial statements accompanying notes comparative purposes earnings per share compute basic earnings per share “eps” dividing net income weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year three years ended december 31 components basic diluted eps follows december 31 2006 2005 include stock options purchase 129 million shares 121 million shares avon common stock respectively calculations diluted eps exercise prices options greater average market price inclusion would antidilutive note 2 new accounting standards implemented effective january 1 2006 adopted sfas 123 revised 2004 sharebased payment “sfas 123r” see note 1 description business summary significant accounting policies note 8 sharebased compensation plans longterm incentive plan additional information effective december 31 2006 adopted sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r “sfas 158” see note 10 employee benefit plans additional information effective december 31 2006 adopted staff accounting bulletin 108 considering effects prior year misstatements quantifying misstatements current year financial statements “sab 108” provides interpretive guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 allows onetime transitional cumulative effect adjustment beginning retained earnings january 1 2006 errors previously deemed material guidance sab 108 adoption sab 108 impact consolidated financial statements effective january 1 2006 adopted sfas 151 inventory costs “sfas 151” requires certain inventoryrelated costs expensed incurred adoption sfas 151 impact consolidated financial statements standards implemented june 2006 fasb issued fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” fin 48 prescribes consistent recognition threshold measurement attribute well criteria subsequently recognizing derecognizing measuring uncertain tax positions financial statement purposes fin 48 also requires expanded disclosure respect uncertainty income taxes fin 48 effective january 1 2007 avon impact adopting fin48 expected material based work performed date continue assess impact fin48 along implementation guidance issued september 2006 fasb issued sfas 157 fair value measurements “sfas 157” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective january 1 2008 avon currently evaluating impact sfas 157 consolidated financial statements note 3 inventories december 31 consisted following note 4 debt financing debt december 31 consisted following december 31 2006 2005 notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 63 51 respectively longterm debt payable 2010 includes obligations capital leases 118 primarily relate leases automobiles adjustments debt fair value hedges includes adjustments reflect net unrealized losses 218 153 debt fair value hedges december 31 2006 2005 respectively unamortized gains terminated swap agreements swap agreements longer designated fair value hedges 128 172 december 31 2006 2005 respectively see note 7 financial instruments risk management december 31 2006 held interest rate swap contracts swap approximately 30 longterm debt variable rates see note 7 financial instruments risk management january 2006 issued public offering 5000 principal amount notes payable “5125 notes” mature january 15 2011 bear interest payable semiannually per annum rate equal 5125 net proceeds offering used general corporate purposes including repayment shortterm domestic debt carrying value 5125 notes represents 5000 principal amount net unamortized discount face value 5 december 31 2006 june 2003 issued public 2500 principal amount registered senior notes “420 notes” 10000 debt shelf registration statement 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually net proceeds used repay portion convertible notes matured july 2003 carrying value 420 notes represents 2500 principal amount net unamortized discount face value 10 11 december 31 2006 2005 respectively april 2003 call holder 1000 625 notes due may 2018 “notes” embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually “4625 notes” 4625 notes issued 10000 debt shelf registration statement transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes december 31 2006 2005 carrying value 4625 notes represents 1250 principal amount net unamortized discount face value premium related call option associated original notes totaling 149 167 respectively indentures notes issued contain certain covenants including limits incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets december 31 2006 compliance covenants indentures annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2006 follows financing august 2006 entered oneyear japanese yen 110 billion 929 exchange rate december 31 2006 uncommitted credit facility “yen credit facility” bank tokyomitsubishi ufj ltd borrowings yen credit facility bear interest yen libor rate plus applicable margin yen credit facility available general corporate purposes including working capital repayment outstanding indebtedness yen credit facility used repay japanese yen 90 billion note came due september 2006 well general corporate purposes yen credit facility designated hedge net investment japanese subsidiary december 31 2006 929 japanese yen 110 billion outstanding yen credit facility fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings new credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 675 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires avon’s interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 december 31 2006 amounts outstanding credit facility maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2006 commercial paper outstanding 3359 average annual interest rate 526 december 31 2006 compliance covenants indentures contain rating downgrade triggers would accelerate maturity debt december 31 2006 2005 also letters credit outstanding totaling 248 primarily guarantee various insurance activities addition outstanding letters credit various trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels note 5 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following fixedincome portfolio included grantor trust mutual funds used make benefit payments nonqualified benefit plans classified availableforsale recorded current market value see note 10 employee benefit plans cost gross unrealized gains losses market value availableforsale securities december 31 follows 1 december 31 2006 investments scheduled maturities less two years totaled 30 two five years totaled 16 five years totaled 91 2 december 31 2006 investments unrealized losses loss position greater 12 months payments purchases proceeds gross realized gains losses sales securities totaled 262 261 1 respectively 2006 cost gross unrealized gains losses market value availableforsale securities december 31 follows 1 december 31 2005 investments scheduled maturities less two years totaled 34 two five years totaled 12 five years totaled 147 2 december 31 2005 investments unrealized losses loss position greater 12 months payments purchases proceeds gross realized gains losses sales securities totaled 979 28 4 respectively 2005 reclassified 47 unrealized gains accumulated comprehensive loss expense net sale availableforsale securities also reclassified 22 unrealized losses accumulated comprehensive loss expense net declines fair values investments equity securities cost bases judged otherthantemporary equity securities available fund select benefit plan obligations years ended december 31 2006 2005 unrealized gain losses availableforsale securities impacted accumulated comprehensive loss follows note 6 income taxes deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign operating loss capital loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 889 2006 mainly due several foreign entities continuing incur losses 2006 well losses generated result cash management tax strategies thereby increasing net operating loss carryforwards valuation allowance provided income taxes minority interest years ended december 31 follows provision income taxes years ended december 31 follows effective tax rate years ended december 31 follows december 31 2006 foreign operating loss carryforwards approximately 8330 loss carryforwards expiring 2007 2021 976 loss carryforwards expire 7354 also minimum tax credit carryforwards 192 expire capital loss carryforwards 110 expire 2010 note 7 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger accounting policies derivatives recognized balance sheet fair values become party derivative instrument designate instrument either fair value hedge cash flow hedge net investment hedge nonhedge accounting changes fair value gains losses derivative instrument depends whether designated avon qualifies part hedging relationship type hedging relationship • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded accumulated comprehensive loss “aoci” extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item assess hedges inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income include change time value options assessment hedge effectiveness determine derivative highly effective hedge accounting discontinued probable forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate debt floating interest rate manage interest rate exposure december 31 2006 2005 held interest rate swap agreements effectively converted approximately 30 60 respectively outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates december 31 2006 2005 approximately 50 80 respectively december 31 2006 2005 interest rate swaps designated fair value hedges fixedrate debt unrealized losses 239 145 respectively additionally december 31 2006 2005 interest rate swaps designated fair value hedges fair values 138 181 respectively longterm debt december 31 2006 2005 respectively includes net unrealized losses 218 153 respectively interest rate swaps designated fair value hedges longterm debt december 31 2006 2005 also includes remaining unamortized gains 128 172 respectively resulting terminated swap agreements swap agreements longer designated fair value hedges amortized interest expense remaining terms underlying debt hedge ineffectiveness years ended december 31 2006 2005 2004 related interest rate swaps 2005 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated locks hedges reclassified gain 25 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss 2005 lock agreement 19 recorded aoci amortized interest expense five years see note 4 debt financing 2003 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 26 recoded aoci amortized interest expense ten years december 31 2006 2005 aoci includes remaining unamortized losses 33 19 21 13 net taxes respectively resulting treasury lock agreements foreign currency risk use foreign currency forward contracts options hedge portions forecasted foreign currency cash flows resulting intercompany royalties intercompany loans thirdparty intercompany foreign currency transactions high probability anticipated exposures materialize contracts designated cash flow hedges primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso polish zloty russian ruble turkish lira venezuelan bolivar years ended december 31 2006 2005 2004 ineffective portion cash flow foreign currency derivative instruments net gains losses reclassified aoci earnings cash flow hedges discontinued forecasted transactions probable occurring material december 31 2006 maximum remaining term hedging foreign exchange exposures variability cash flows forecasted transactions 12 months december 31 2006 expect reclassify 5 3 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months due foreign currency denominated intercompany royalties b intercompany loan settlements c foreign currency denominated purchases receipts years ended december 31 2006 2005 cash flow hedges impacted aoci follows use foreign currency forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets certain foreign subsidiaries december 31 2006 japanese yendenominated note payable hedge net investment japanese subsidiary see note 4 debt financing years ended december 31 2006 2005 2004 61 73 104 respectively related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets december 31 2006 2005 held foreign currency forward contracts option contracts fair values totaling 79 25 respectively recorded accounts payable credit market risk attempt minimize credit exposure counterparties entering interest rate swap foreign currency forward rate option agreements major international financial institutions higher credit ratings issued standard poors corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 22 december 31 2006 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates fair value financial instruments fair value financial instrument amount instrument could exchanged current transaction willing parties forced sale liquidation methods assumptions used estimate fair value follows fixedincome securities fair values investments based quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined based quoted market prices foreign exchange forward option contracts fair values forward option contracts determined based quoted market prices banks interest rate swap treasury lock agreements fair values interest rate swap treasury lock agreements estimated based quotes market makers instruments represent estimated amounts would expect receive pay terminate agreements asset liability amounts recorded balance sheet carrying amount estimated fair values financial instruments december 31 consisted following note 8 sharebased compensation plans longterm incentive plan avon products inc 2005 stock incentive plan “2005 plan” shareholder approved provides several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance unit awards 2005 plan maximum number shares may awarded 31000000 shares 8000000 shares may used restricted stock awards restricted stock unit awards shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock restricted stock units stock appreciation rights 2005 plan stock option awards granted exercise price equal market price avon’s stock date grant option awards generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock restricted stock units generally vest three years recognized compensation cost 629 101 88 stock options restricted stock restricted stock units stock appreciation rights recorded selling general administrative expenses three years ended december 31 2006 2005 2004 respectively total income tax benefit recognized sharebased arrangements 215 35 31 three years ended december 31 2006 2005 2004 respectively discussed note 1 description business significant accounting policies effective january 1 2006 adopted fair value recognition provisions sfas 123r using modified prospective application method following table summarizes proforma effects net income earnings per share applied fair value recognition provisions sfas 123 sharebased compensation years ended december 31 2005 2004 stock options fair value option award estimated date grant using blackscholesmerton option pricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life ten years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumes current cash dividends 175 165 14 per share quarter avon’s common stock options granted 2006 2005 2004 respectively weightedaverage grantdate fair values per share options granted 2006 2005 2004 675 907 854 respectively summary stock options december 31 2006 changes 2006 follows december 31 2006 approximately 236 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 13 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2006 2005 2004 follows restricted stock restricted stock units fair value restricted stock restricted stock units determined based average high low market prices common stock grant date summary restricted stock restricted stock units december 31 2006 changes 2006 follows total fair value restricted stock restricted stock units vested 2006 82 based upon market prices vesting dates december 31 2006 approximately 336 unrecognized compensation cost related restricted stock restricted stock unit compensation arrangements cost expected recognized weightedaverage period 21 years 20052007 performance cash plan 2005 established threeyear performance cash plan period 20052007 “plan” awards set objective payouts ranging 30 target achievement threshold financial objectives aligned longterm business plan 200 target maximum performance objectives achieved compensation committee board directors designated total revenues operating margin key performance measures plan objectives plan achieved total cash payments range approximately 90 570 would made first quarter 2008 management determined likelihood achieving objectives remote therefore expense recognized 2006 2005 note 9 shareholders equity stock split dividends may 6 2004 annual meeting shareholders approved amendment restated certificate incorporation increase number shares authorized common stock 800 million 15 billion conditioned approval board directors february 2004 declared twoforone stock split form 100 stock dividend payable may 28 2004 shareholders record may 17 2004 stock split recognized reclassifying 25 par value additional shares resulting split retained earnings common stock effect stock split retroactively reflected consolidated statements changes shareholders’ equity periods prior split therefore 2004 shares issued option exercises occurred prior stock split adjusted stock split effect stock split option exercises approximately 17 million shares included line twoforone stock split effected form dividend consolidated statements changes shareholders’ equity references number shares per share amounts elsewhere financial statements related footnotes restated reflect effect split periods presented share rights plan share rights plan one right declared dividend outstanding share common stock right redeemable 005 time option entitles shareholder among things purchase one share avon common stock price equal onehalf current market price certain events occurred right exercisable among events one party obtains beneficial ownership 20 avons voting stock description terms rights set forth rights agreement avon computer share limited stock repurchase program september 2000 board approved share repurchase program may buy 10000 outstanding stock next five years 10000 program completed august 2005 august 2005 announced board directors authorized us repurchase additional 5000 common stock 5000 program completed december 2005 february 2005 announced would begin new fiveyear 10000 share repurchase program upon completion previous share repurchase program december 31 2006 6477 remaining repurchased 10000 share repurchase program announced february 2005 2006 increased sequentially purchases program accelerating pace repurchase program note 10 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan allows eligible participants contribute 25 eligible compensation payroll deductions prior february 2005 matched employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation february 2005 avon temporarily suspended matching contribution matching contributions resumed 2006 prefebruary 2005 levels 2006 2005 2004 matching contributions approximating 127 18 146 respectively made plan cash used plan purchase avon shares open market defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employees years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits majority employees retire retirement plans united states certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r “sfas 158” sfas 158 requires among things recognition funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability initial impact standard due unrecognized prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive loss shareholders’ equity additional minimum pension liabilities related intangible assets also derecognized upon adoption new standard adopted sfas 158 december 31 2006 adoption sfas 158 impact consolidated statement income year ended december 31 2006 prior period presented effect operating results future periods sfas 158’s provisions regarding change measurement date defined benefit postretirement plans impact already using measurement date december 31 pension plans following table summarizes impact initial adoption sfas 158 1 includes effects additional minimum liability would recognized december 31 2006 required adopt sfas 158 reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans us pension plans include funded qualified plans unfunded nonqualified plans december 31 2006 2005 us qualified pension plans benefit obligations 7353 7667 plan assets 7388 6930 respectively believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans components net periodic benefit cost amounts recognized comprehensive income amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2007 follows 2002 2001 plan assets experienced weaker investment returns mostly due unfavorable returns equity securities unfavorable investment returns increased pension costs 2006 2005 2004 addition net periodic pension cost may significantly increase future settlement losses required recorded due increase aggregate benefits paid lump sum distributions settlement losses may result future number eligible participants deciding receive lump sum distributions amount benefits increases curtailment gains losses may result future event occurs significantly reduces number years future service current employees eliminates accrual defined benefits future services significant number employees assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis increased 543 december 31 2006 520 december 31 2005 determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary weightedaverage assumptions used determine net cost recorded consolidated statements income years ended december 31 follows determining net cost year ended december 31 2006 assumed rate return assets globally 755 represents weightedaverage rate return plan assets including us nonus plans majority pension plan assets relate us pension plan assumed rate return determining 2006 net costs us plan 80 historical rates return us plan recent tenyear 20year periods 76 97 respectively us plan asset allocation policy favored us equity securities returned 80 118 respectively tenyear 20year period addition current rate return assumption us plan based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 5 7 long term 65 equity securities expected earn approximately 8 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage rate return 755 determining 2006 net cost plan assets us nonus pension plans target weightedaverage asset allocations december 31 2006 2005 asset category follows overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow actual characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect contribute approximately 230 700 us nonus pension plans respectively 2007 total benefit payments expected paid plans follows postretirement benefits 2006 assumed rate future increases per capita cost health care benefits health care cost trend rate 90 claims gradually decrease year thereafter 50 2012 beyond onepercentage point change assumed health care cost trend rates would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage eligible former employees employment retirement december 31 2006 2005 accrued cost postemployment benefits 537 516 respectively included employee benefit plans supplemental retirement programs offer avon products inc deferred compensation plan “plan” certain key employees plan unfunded unsecured plan obligations paid participants general assets including assets held grantor trust described corporateowned life insurance policies plan allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would made avon personal savings account plan “psa” excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated plan years ended december 31 2006 2005 2004 61 58 42 respectively december 31 2006 accrued cost deferred compensation plan 1015 2005 993 included liabilities maintain supplemental retirement programs consisting supplemental executive retirement life plan “serp” benefits restoration pension plan avon products inc “restoration plan” nonqualified supplemental pension benefits paid higher paid employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost program included determination net periodic benefit cost shown 2006 amounted 125 2005 121 2004 122 benefit obligation program december 31 2006 545 2005 588 included employee benefit plans also maintain supplemental life insurance plan “slip” additional death benefits ranging 4 20 provided certain active retired officers established grantor trust provide assets may used benefits payable serp restoration plan slip obligations plan trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following additionally assets may used benefit payments assets included assets december 31 consisted following assets recorded market value increases decreases corporateowned life insurance policies reflected consolidated statements income fixedincome portfolio held grantor trust mutual funds considered availableforsale securities see note 5 accumulated comprehensive loss note 11 segment information operating segments reportable segments based geographic operations include commercial business units north america latin america western europe middle east africa central eastern europe asia pacific china global expenses include among things costs related executive administrative offices information technology research development marketing allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate income taxes foreign exchange gains losses costs implementing restructuring initiatives related global functions segments costs implementing restructuring initiatives related specific segment recorded within segment europe manufacturing facilities primarily support western europe middle east africa central eastern europe disclosures total assets capital expenditures depreciation amortization allocated amounts associated european manufacturing facilities western europe middle east africa central eastern europe based upon planned sale beauty units similar allocation done asia manufacturing facilities primarily support asia pacific china segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning segments december 31 shown following tables total revenue operating profit total assets major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets colombia’s longlived assets consist primarily goodwill intangible assets associated 2005 acquisition business see note 16 goodwill intangible assets poland’s longlived assets consist primarily property plant equipment related european manufacturing facility revenue product category 1 beauty includes cosmetics fragrances skin care toiletries 2 beauty plus includes fashion jewelry watches apparel accessories 3 beyond beauty includes home products gift decorative products 4 primarily includes shipping handling fees billed representatives note 12 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2006 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 2006 1147 2005 1092 2004 1099 plant construction expansion modernization projects estimated cost complete approximately 764 progress december 31 2006 note 13 restructuring initiatives november 2005 announced multiyear turnaround plan part major drive fuel revenue growth expand profit margins increasing consumer investments part turnaround plan restructuring initiatives include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organization downsizing • implementation global manufacturing strategy facilities realignment • additional supply chain efficiencies distribution • streamlining transactional services outsourcing moves lowcost countries expect incur restructuring charges costs implement initiatives range 5000 taxes incurred significant portion total costs implement initiatives 2006 expect incur additional significant charges next years restructuring charges 2005 december 2005 january 2006 exit disposal activities part multiyear restructuring plan approved specific actions initial phase multiyear restructuring plan included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • exit unprofitable lines business markets including closure unprofitable operations asia primarily indonesia exit product line china exit becoming product line us • move certain services markets within europe lower cost shared service centers actions described completed 2006 except move certain services markets within europe lower cost shared service centers expected completed phases 2008 connection initiatives recorded charges 516 pretax fourth quarter 2005 primarily employee related costs including severance pension termination benefits asset impairment charges cumulative foreign currency translation charges previously recorded directly shareholders’ equity charges included 84 cost sales inventory writeoffs 432 selling general administrative expenses approximately 58 charges resulted cash expenditures additionally incurred costs 49 professional service fees recorded selling general administrative expenses related implementation initiatives resulting total costs implement 2005 565 restructuring charges 2006 january 2007 additional exit disposal activities part restructuring initiatives approved specific actions phase restructuring initiatives included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain key human resource customer service processes • realignment north america distribution operations • exit certain unprofitable operations including closure avon salon spa • reorganization certain functions primarily salesrelated organizations many actions completed 2006 including delayering program majority remaining actions expected completed 2007 outsourcing certain services expected completed phases 2009 realignment north america distribution operations expected completed phases 2012 reorganization one functions expected completed phases 2010 connection initiatives recorded charges 2183 2006 primarily employeerelated costs including severance termination benefits charges included selling general administrative expenses recorded adjustments 161 2006 primarily relating certain employees pursuing reassignments positions higher expected turnover employees leaving prior termination approximately 85 charges expected result future cash expenditures majority cash payments expected made 2007 additionally related implementation initiatives incurred costs implement 249 professional service fees 2006 recorded selling general administrative expenses 17 accelerated depreciation 2006 7 recorded cost sales 10 selling general administrative expenses resulting total costs implement 2006 2288 liability balances initiatives approved date shown noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented inventory writeoffs relate exited businesses following table presents restructuring charges incurred date net adjustments multiyear restructuring plan began fourth quarter 2005 along charges expected incurred initiatives approved date charges net adjustments initiatives approved date reportable business segment follows noted previously expect incur total costs implement range 5000 taxes restructuring initiatives including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording yet met addition charges included tables incur costs implement consulting professional services note 14 contingencies defendant action commenced 1975 supreme court state new york sheldon solow dba solow building company “solow” landlord former headquarters new york city solow alleges misappropriated name former headquarters building seeks damages based purported value one dollar per square foot leased space per year term lease trial action took place may 2005 january 2006 judge issued decision favor solow appealed decision appellate division supreme court state new york possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested blakemore et al v avon products inc et al purported class action pending superior court state california behalf avon sales representatives “since march 24 1999 received products avon order thereafter returned unordered products avon receive credit returned products” complaint seeks unspecified compensatory punitive damages restitution injunctive relief alleged unjust enrichment violation california business professions code action commenced march 2003 january 2006 filed motion strike plaintiffs’ asserted nationwide class february 2006 trial court declined grant motion instead certified issue court appeal interlocutory basis april 2006 court appeal denied motion instructed trial court consider issue subsequent point proceedings believe action dispute purported customer service issues inappropriate subject consideration class action possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested december 2002 brazilian subsidiary received series excise income tax assessments brazilian tax authorities asserting establishment 1995 separate manufacturing distribution companies country done without valid business purpose assessments assert tax deficiencies portions years 1997 1998 approximately 970 exchange rate december 31 2006 plus penalties accruing interest totaling approximately 1750 exchange rate december 31 2006 july 2003 firstlevel appellate body rejected basis income tax assessments representing approximately 78 total assessment 2130 including interest march 2004 rejection confirmed mandatory secondlevel appellate review remaining assessments relating excise taxes approximately 590 affected december 2003 additional assessment received respect excise taxes balance 1998 totaling approximately 1220 exchange rate december 31 2006 asserting different theory liability based purported market sales data january 2005 unfavorable first administrative level decision received respect appeal assessment appeal taken december 2004 additional assessment received respect excise taxes period january 1999 december 2001 totaling approximately 2670 exchange rate december 31 2006 asserting theory liability december 2003 assessment appealed assessment september 2005 unfavorable first administrative level decision received respect appeal december 2004 assessment appeal taken event assessments upheld earlier stages review may necessary us provide security pursue appeals depending circumstances may result charge income possible make reasonable estimate amount range expense could result unfavorable outcome respect additional assessments may issued subsequent periods structure adopted 1995 comparable used many companies brazil believe appropriate operationally legally assessments unfounded matter vigorously contested opinion outside counsel likelihood assessments ultimately upheld remote management believes likelihood assessments material impact consolidated financial position results operations cash flows correspondingly remote kendall v employees’ retirement plan avon products retirement board purported class action commenced april 2003 united states district court southern district new york plaintiff retired employee avon retirement paid disability leave approximately 19 years initial complaint alleged employees’ retirement plan avon products “retirement plan” violated employee retirement income security act “erisa” consequence unlawfully reduced amount plaintiff’s pension plaintiff sought reformation retirement plan recalculation benefits terms retirement plan reformed plaintiff purported class november 2003 plaintiff filed amended complaint alleging additional retirement plan violations erisa seeking among things elimination social security offset retirement plan purported class includes “all plan participants whether active inactive retired beneficiaries andor estates one hour service january 1 1976 whose accrued benefits pensions survivor’s benefits calculated paid based plan’s unlawful provisions” february 2004 filed motion dismiss amended complaint motion still pending court possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested roqueta v avon products inc et al purported class action commenced april 2005 circuit court eleventh judicial circuit miamidade county florida action seeks general damages special damages punitive damages alleged violations florida deceptive unfair trade practices act florida statutes regarding misleading advertisements negligent fraudulent misrepresentation purported class includes “all persons purchased skin care products defendant falsely advertised ‘anticellulite’ cellulite reducing effect” removed action united states district court southern district florida moved dismiss complaint failure state claim upon relief granted august 2005 court dismissed plaintiff’s claims negligent fraudulent misrepresentation prejudice court also dismissed plaintiff’s remaining claims granted plaintiff leave amend complaint done july 2006 court issued order denying motion plaintiff certify action class action plaintiff indicated intention voluntarily dismiss matter yet done possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested august 2005 reported filing class action complaints alleged violations federal securities laws actions entitled nilesh patel v avon products inc et al michael cascio v avon products inc et al respectively subsequently consolidated amended class action complaint alleged violations federal securities laws filed consolidated action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc securities litigation naming avon officer two officerdirectors consolidated action brought behalf purchasers common stock february 3 2004 september 20 2005 seeks damages alleged false misleading statements “concerning avon’s operations performance china united states mexico” consolidated amended complaint also asserts class period certain officers directors sold shares common stock february 2006 filed motion dismiss consolidated amended class action complaint asserting among things failed state claim upon relief may granted plaintiffs opposed motion august 2005 reported filing complaint shareholder derivative action purportedly brought behalf avon entitled robert l garber derivatively behalf avon products inc v andrea jung et al defendants avon products inc nominal defendant amended complaint filed action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc securities litigation naming certain officers directors amended complaint alleges defendants’ violations state law including breaches fiduciary duties abuse control gross mismanagement waste corporate assets unjust enrichment february 2004 present caused losses avon february 2006 filed motion dismiss amended complaint asserting among things failed state claim upon relief may granted plaintiffs opposed motion october 2005 reported filing class action complaints alleged violations employee retirement income security act “erisa” actions entitled john rogati v andrea jung et al carolyn jane perry v andrea jung et al respectively subsequently consolidated class action complaint alleged violations erisa filed consolidated action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc erisa litigation naming avon certain officers avon’s retirement board others consolidated action purports brought behalf avon products inc personal savings account plan avon products inc personal retirement account plan collectively “plan” behalf participants beneficiaries plan “for whose individual accounts plan purchased held interest avon products inc common stock february 20 2004 present” consolidated complaint asserts breaches fiduciary duties prohibited transactions violation erisa arising inter alia alleged false misleading public statements regarding avon’s business made class period investments avon stock plan participants february 2006 filed motion dismiss consolidated complaint asserting failed state claim upon relief may granted plaintiffs opposed motion possible predict outcome litigation reasonably possible could unfavorable outcomes avon products inc securities litigation avon products inc securities litigation derivative action avon products inc erisa litigation matters management unable make meaningful estimate amount range loss could result unfavorable outcomes circumstances adverse awards could material consolidated financial position results operations cash flows various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon management’s opinion based review information available time total cost resolving contingencies december 31 2006 material adverse effect consolidated financial position results operations cash flows note 15 supplemental income statement information years ended december 31 2006 2005 2004 components expense net follows note 16 goodwill intangible assets august 2006 purchased remaining 6155 outstanding shares two joint venture subsidiaries china minority interest shareholders approximately 391 previously owned 93845 subsidiaries consolidated results recording minority interest portion owned upon completion transaction eliminated minority interest net assets subsidiaries purchase shares material impact consolidated net income avon china standalone operating segment purchase price allocation resulted goodwill 333 customer relationships 19 tenyear weightedaverage useful life october 18 2005 purchased avon directselling business licensee colombia approximately 1540 cash pursuant share purchase agreement avon international holdings company whollyowned subsidiary company entered sarastro ltd ldc october 7 2005 acquired business operated new whollyowned subsidiary name “avon colombia” included latin america operating segment preexisting license arrangement acquired business negotiated terms license agreement considered market rates therefore settlement gain loss recognized upon acquisition fourth quarter 2005 recorded preliminary purchase price allocation resulted goodwill 948 licensing agreement 320 fouryear useful life customer relationships 351 sevenyear weightedaverage useful life noncompete agreement 39 threeyear useful life 2006 gathered additional data refine certain assumptions valuation revised purchase price allocation resulted goodwill 946 licensing agreement 360 fouryear useful life customer relationships 286 fiveyear weightedaverage useful life noncompete agreement 39 threeyear useful life goodwill impairment losses relate writeoff goodwill associated closure unprofitable operations asia pacific result implementation certain restructuring initiatives see note 13 restructuring initiatives intangible assets note 17 results operations quarter unaudited 1 sum per share amounts quarters necessarily equal year computations made independently first second third fourth quarter 2006 include costs implement restructuring initiatives 1201 494 156 437 respectively 5 2 5 reflected cost sales respectively 1206 492 161 432 reflected selling general administrative expenses respectively fourth quarter 2005 includes costs implement restructuring initiatives 565 84 reflected cost sales 481 reflected selling general administrative expenses note 18 subsequent events february 1 2007 announced increase quarterly cash dividend 185 per share 175 per share first dividend new rate paid march 1 2007 shareholders record february 15 2007 increase indicated annual dividend rate 74 per share schedule ii valuation qualifying accounts years ended december 31 2006 2005 2004 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance tax loss tax credit carryforward benefits likely deferred tax assets utilized future 5 decrease valuation allowance primarily due decrease foreign tax credit carryforwards valuation allowance provideditem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits identified asterisk management contracts compensatory plans arrangements avon’s annual report form 10k year ended december 31 2007 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 21st day february 2008 avon products inc richard foggio richard foggio group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2007 december 31 2006 results operations cash flows three years period ended december 31 2007 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements 2007 company changed manner accounts uncertain tax positions 2006 company changed manner accounts pension postretirement benefit plans manner accounts sharebased compensation company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 21 2008 avon products inc consolidated statements income millions except per share data accompanying notes integral part statements avon products inc consolidated balance sheets millions except per share data accompanying notes integral part statements avon products inc consolidated statements cash flows millions noncash financing activities included change fair market value interest rate swap agreements 84 218 153 2007 2006 2005 respectively see note 4 debt financing accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity millions except per share data accompanying notes integral part statements avon products inc notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms “avon” “company” “we” “us” mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling manage operations based geographic operations reportable segments north america latin america western europe middle east africa central eastern europe asia pacific china also centrally manage global brand marketing supply chain organizations sales made ultimate customers principally independent avon representatives product categories include beauty consists cosmetics fragrances skin care toiletries beauty plus consists fashion jewelry watches apparel accessories beyond beauty consists home products gift decorative products sales health wellness mark included among three categories based product type principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates preparation financial statements conformity generally accepted accounting principles united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss financial statements subsidiaries operating highly inflationary economies translated using combination current historical exchange rates translation adjustments included current earnings gains losses resulting foreign currency transactions recorded expense net revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances avon products inc notes consolidated financial statements continued revenue primarily includes shipping handling fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout “fifo” method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures deferred amortized period benefits expected typically campaign length december 31 2007 2006 prepaid expenses included deferred brochure costs 408 372 respectively property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful lives assets 2007 avon capitalize interest 2006 2005 avon capitalized 10 66 interest respectively deferred software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred december 31 2007 2006 assets included unamortized deferred software costs 959 747 respectively investments debt equity securities debt equity securities readily determinable fair value intend hold maturity classified availableforsale carried fair value unrealized holding gains losses net applicable taxes recorded separate component shareholders’ equity net deferred taxes realized gains losses sale availableforsale securities calculated specific identification basis declines fair values investments cost basis judged otherthantemporary recorded expense net determining whether otherthantemporary decline market value occurred consider various factors including duration extent market value cost goodwill intangible assets goodwill amortized rather assessed impairment annually upon occurrence event indicates impairment may occurred intangible assets estimable useful lives amortized using straightline method estimated useful lives assets completed annual goodwill impairment assessment adjustments goodwill necessary years ended december 31 2007 2006 2005 sharebased compensation plans prior january 1 2006 applied disclosureonly provisions statement financial accounting standards “sfas” 123 accounting stockbased compensation “sfas 123” accordance avon products inc notes consolidated financial statements continued provisions sfas 123 applied apb 25 accounting stock issued employees “apb 25” related interpretations accounting sharebased compensation plans accordingly recognize compensation expense stock options issued options exercise prices equal market value date grant effective january 1 2006 adopted sfas 123 revised 2004 sharebased payment “sfas 123r” revises sfas 123 supersedes apb 25 sfas 123r requires sharebased payments employees recognized financial statements based fair values using optionpricing model date grant elected use modified prospective method adoption required compensation expense recorded unvested stock options restricted shares beginning first quarter adoption based fair value original grant date 2005 financial statements restated elected use alternative shortcut method calculate historical pool windfall tax benefits upon adoption sfas 123r accordance fasb staff position “fsp” fas 123r3 transition election related accounting tax effects sharebased payment awards years ended december 31 2007 2006 determined pool windfall tax benefits impact adoption sfas 123r 2006 including restricted stock units granted connection design changes sharebased compensation plans related adoption decreased income taxes minority interest net income basic diluted earnings per share net cash provided operating activities year ended december 31 2006 492 324 07 81 respectively increased net cash provided financing activities 81 see note 8 sharebased compensation plans longterm incentive plan additional information regarding sharebased compensation plans financial instruments use derivative financial instruments including interest rate swaps treasury lock agreements forward foreign currency contracts options manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 7 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested us income taxes provided approximately 21026 undistributed income subsidiaries intended indefinitely reinvested outside us uncertain tax positions effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” accordance fin 48 recognize benefit tax position likely sustained audit based technical merits position avon products inc notes consolidated financial statements continued selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 9139 2007 2006 8100 2005 7399 shipping handling costs included selling general administrative expenses consolidated statements income advertising costs excluding brochure preparation costs expensed incurred amounted 3684 2007 2006 2489 2005 1359 research development research development costs expensed incurred amounted 718 2007 2006 658 2005 642 research development costs include costs related design development new products salaries benefits supplies materials facilities costs restructuring reserves record severancerelated expenses probable estimable accordance provisions sfas 112 employer’s accounting postemployment benefits severance provided ongoing benefit arrangement onetime involuntary benefit arrangements disposal costs primarily contract termination costs accounted provisions sfas 146 accounting costs associated exit disposal activities onetime voluntary benefit arrangements accounted provisions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits evaluate impairment issues provisions sfas 144 accounting impairment disposal longlived assets contingencies accordance sfas 5 accounting contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable reclassifications reclassified prior year amounts consolidated financial statements accompanying notes comparative purposes reclassified taxes payable 249 sales taxes income longterm income taxes december 31 2006 consolidated balance sheet order consistently report certain distribution sourcing costs across segments reclassified net amounts 181 205 cost sales selling general administrative expenses consolidated statements income years ended december 31 2006 2005 respectively also reclassified 64 94 changes inventory obsolescence expense consolidated statements cash flows years ended december 31 2006 2005 respectively earnings per share compute basic earnings per share “eps” dividing net income weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows december 31 2007 2006 include stock options purchase 74 million shares 129 million shares avon common stock respectively calculations diluted eps exercise prices options greater average market price inclusion would antidilutive note 2 new accounting standards implemented effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” see note 6 income taxes additional information effective january 1 2006 adopted sfas 123 revised 2004 sharebased payment “sfas 123r” see note 1 description business summary significant accounting policies note 8 sharebased compensation plans longterm incentive plan additional information effective december 31 2006 adopted sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r “sfas 158” see note 10 employee benefit plans additional information effective december 31 2006 adopted staff accounting bulletin 108 considering effects prior year misstatements quantifying misstatements current year financial statements “sab 108” provides interpretive guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 allows onetime transitional cumulative effect adjustment beginning retained earnings january 1 2007 errors previously deemed material guidance sab 108 adoption sab 108 impact consolidated financial statements effective january 1 2006 adopted sfas 151 inventory costs “sfas 151” requires certain inventoryrelated costs expensed incurred adoption sfas 151 impact consolidated financial statements standards implemented december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 avon applied prospectively impact adopting sfas 141r depend nature terms future acquisitions december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements “sfas” changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders equity sfas 160 avon products inc notes consolidated financial statements continued effective january 1 2009 avon requires retroactive adoption presentation disclosure requirements existing minority interests believe adoption sfas 160 material impact consolidated financial statements december 31 2007 2006 liabilities included minority interests 382 370 respectively february 2007 fasb issued statement financial accounting standards “sfas” 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 “sfas 159” permits entities choose measure many financial instruments certain items fair value currently required measured fair value sfas 159 effective january 1 2008 avon february 2008 fasb issued staff position 157b effective date fasb statement 157 delays effective date sfas 157 nonfinancial assets nonfinancial liabilities january 1 2009 avon believe adoption sfas 159 impact consolidated financial statements september 2006 fasb issued sfas 157 fair value measurements “sfas 157” defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements sfas 157 effective january 1 2008 avon believe adoption sfas 157 material impact consolidated financial statements note 3 inventories december 31 consisted following note 4 debt financing debt december 31 consisted following avon products inc notes consolidated financial statements continued december 31 2007 2006 notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 46 63 respectively longterm debt payable 2013 includes obligations capital leases 136 primarily relate leases automobiles adjustments debt fair value hedges includes adjustments reflect net unrealized losses 94 218 debt fair value hedges december 31 2007 2006 respectively unamortized gains terminated swap agreements swap agreements longer designated fair value hedges 84 128 december 31 2007 2006 respectively see note 7 financial instruments risk management december 31 2007 2006 held interest rate swap contracts swap approximately 30 longterm debt variable rates see note 7 financial instruments risk management january 2006 issued public offering 5000 principal amount notes payable “5125 notes” mature january 15 2011 bear interest payable semiannually per annum rate equal 5125 net proceeds offering used general corporate purposes including repayment shortterm domestic debt carrying value 5125 notes represents 5000 principal amount net unamortized discount face value 4 5 december 31 2007 2006 respectively june 2003 issued public 2500 principal amount registered senior notes “420 notes” 10000 debt shelf registration statement 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually net proceeds used repay portion convertible notes matured july 2003 carrying value 420 notes represents 2500 principal amount net unamortized discount face value 9 10 december 31 2007 2006 respectively april 2003 call holder 1000 625 notes due may 2018 “notes” embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually “4625 notes” 4625 notes issued 10000 debt shelf registration statement transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes december 31 2007 2006 carrying value 4625 notes represents 1250 principal amount net unamortized discount face value premium related call option associated original notes totaling 130 149 respectively indentures notes issued contain certain covenants including limits incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets december 31 2007 compliance covenants indentures annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2007 follows avon products inc notes consolidated financial statements continued financing fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 675 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires avon’s interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 december 31 2007 amounts outstanding credit facility maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2007 commercial paper outstanding 7016 average annual interest rate 505 april 2007 entered oneyear euro 50 million 729 exchange rate december 31 2007 uncommitted credit facility “euro credit facility” bank tokyomitsubishi ufj ltd borrowings euro credit facility bear interest euro libor rate plus applicable margin euro credit facility available general corporate purposes euro credit facility designated hedge investments eurodenominated functional currency subsidiaries december 31 2007 328 euro 225 million outstanding euro credit facility august 2006 entered oneyear japanese yen 110 billion 963 exchange rate december 31 2007 uncommitted credit facility “yen credit facility” bank tokyomitsubishi ufj ltd borrowings yen credit facility bear interest yen libor rate plus applicable margin yen credit facility available general corporate purposes including working capital repayment outstanding indebtedness yen credit facility used repay japanese yen 90 billion note came due september 2006 well general corporate purposes yen credit facility designated hedge net investment japanese subsidiary august 2007 entered amendment oneyear japanese yen 110 billion 963 exchange rate december 31 2007 uncommitted credit facility bank tokyomitsubishi ufj ltd amendment provides extension yen credit facility august 2008 december 31 2007 963 japanese yen 110 billion outstanding yen credit family december 31 2007 international committed line credit 51 amount outstanding fees line 25 unused portion greater canadian prime rate canadian 30day b plus 58 outstanding amounts december 31 2007 compliance covenants indentures contain rating downgrade triggers would accelerate maturity debt december 31 2007 2006 also letters credit outstanding totaling 184 248 respectively primarily guarantee various insurance activities addition outstanding letters credit various trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels avon products inc notes consolidated financial statements continued note 5 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following foreign exchange losses 81 resulting translation unrealized actuarial losses prior service credit translation obligation recorded aoci included foreign currency translation adjustments rollforward aoci consolidated statements changes shareholders equity fixedincome portfolio included grantor trust mutual funds used make benefit payments nonqualified benefit plans classified availableforsale recorded current market value see note 10 employee benefit plans cost gross unrealized gains losses market value availableforsale securities december 31 follows 1 december 31 2007 investments scheduled maturities less two years totaled 20 two five years totaled 25 five years totaled 105 2 december 31 2007 investments unrealized losses loss position greater 12 months payments purchases proceeds gross realized gains losses sales securities totaled 470 461 1 respectively 2007 avon products inc notes consolidated financial statements continued cost gross unrealized gains losses market value availableforsale securities december 31 follows 1 december 31 2006 investments scheduled maturities less two years totaled 30 two five years totaled 16 five years totaled 91 2 december 31 2006 investments unrealized losses loss position greater 12 months payments purchases proceeds gross realized gains losses sales securities totaled 262 261 1 respectively 2006 years ended december 31 2007 2006 unrealized gains availableforsale securities impacted accumulated comprehensive loss follows avon products inc notes consolidated financial statements continued note 6 income taxes deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign operating loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 442 2007 mainly due several foreign entities continuing incur losses 2007 thereby increasing net operating loss carryforwards valuation allowance provided avon products inc notes consolidated financial statements continued income taxes minority interest years ended december 31 follows provision income taxes years ended december 31 follows effective tax rate years ended december 31 follows december 31 2007 foreign operating loss carryforwards approximately 9949 loss carryforwards expiring 2008 2022 1008 loss carryforwards expire 8941 also minimum tax credit carryforwards 249 expire capital loss carryforwards 112 expire 2010 foreign tax credit carryforwards 286 expire 2016 2017 avon products inc notes consolidated financial statements continued uncertain tax positions effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” result implementation fin 48 recognized 183 increase liability unrecognized tax benefits including interest penalties accounted reduction january 1 2007 balance retained earnings december 31 2007 1543 total gross unrecognized tax benefits approximately 141 would impact effective tax rate recognized reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes december 31 2007 297 accrued interest penalties net tax benefit 2007 recorded 33 interest penalties net tax benefit file income tax returns us federal jurisdiction various states foreign jurisdictions december 31 2007 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 65 85 within next 12 months due closure tax years expiration statute limitations audit settlements note 7 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger accounting policies derivatives recognized balance sheet fair values become party derivative instrument designate instrument either fair value hedge cash flow hedge net investment hedge avon products inc notes consolidated financial statements continued nonhedge accounting changes fair value gains losses derivative instrument depends whether designated avon qualifies part hedging relationship type hedging relationship • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded accumulated comprehensive loss “aoci” extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income include change time value options assessment hedge effectiveness determine derivative highly effective hedge accounting discontinued probable forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate debt floating interest rate manage interest rate exposure december 31 2007 2006 held interest rate swap agreements effectively converted approximately 30 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates december 31 2007 2006 approximately 60 50 respectively december 31 2007 2006 interest rate swaps designated fair value hedges fixedrate debt unrealized losses 108 239 respectively additionally december 31 2007 2006 interest rate swaps designated fair value hedges unrealized gains 97 138 respectively longterm debt december 31 2007 2006 respectively includes net unrealized losses 94 218 respectively interest rate swaps designated fair value hedges longterm debt december 31 2007 2006 also includes remaining unamortized gains 84 128 respectively resulting terminated swap agreements swap agreements longer designated fair value hedges amortized interest expense remaining terms underlying debt hedge ineffectiveness years ended december 31 2007 2006 2005 related interest rate swaps august 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 expired january 31 2008 locks designated cash flow hedges used hedge exposure possible rise interest rates expect incur longterm debt refinance commercial paper december 31 2007 recorded unrealized losses 253 aoci related locks january 31 2008 extended maturity date locks july 31 2008 expect incur longterm debt date 2005 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated locks hedges reclassified gain 25 locks aoci expense net avon products inc notes consolidated financial statements continued upon change strategy december 2005 entered treasury lock agreement notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss 2005 lock agreement 19 recorded aoci amortized interest expense five years see note 4 debt financing 2003 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 26 recorded aoci amortized interest expense ten years december 31 2007 2006 aoci includes remaining unamortized losses 279 33 181 21 net taxes respectively resulting treasury lock agreements foreign currency risk use foreign currency forward contracts options hedge portions forecasted foreign currency cash flows resulting intercompany royalties intercompany loans thirdparty intercompany foreign currency transactions high probability anticipated exposures materialize contracts designated cash flow hedges primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso polish zloty russian ruble turkish lira venezuelan bolivar years ended december 31 2007 2006 2005 ineffective portion cash flow foreign currency derivative instruments net gains losses reclassified aoci earnings cash flow hedges discontinued forecasted transactions probable occurring material december 31 2007 maximum remaining term hedging foreign exchange exposures variability cash flows forecasted transactions 12 months december 31 2007 expect reclassify 177 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months due foreign currency denominated intercompany royalties b intercompany loan settlements c foreign currency denominated purchases receipts years ended december 31 2007 2006 cash flow hedges impacted aoci follows use foreign currency forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets certain foreign subsidiaries december 31 2007 japanese yendenominated note payable hedge net investment japanese subsidiary see note 4 debt financing years ended december 31 2007 2006 2005 97 61 73 respectively related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets december 31 2007 2006 held foreign currency forward contracts option contracts fair values totaling 28 79 respectively recorded accounts payable credit market risk attempt minimize credit exposure counterparties entering interest rate swap foreign currency forward rate option agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material avon products inc notes consolidated financial statements continued nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 199 december 31 2007 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates fair value financial instruments fair value financial instrument amount instrument could exchanged current transaction willing parties forced sale liquidation methods assumptions used estimate fair value follows fixedincome securities fair values investments based quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined based quoted market prices foreign exchange forward option contracts fair values forward option contracts determined based quoted market prices banks interest rate swap treasury lock agreements fair values interest rate swap treasury lock agreements estimated based quotes market makers instruments represent estimated amounts would expect receive pay terminate agreements asset liability amounts recorded balance sheet carrying amount estimated fair values financial instruments december 31 consisted following note 8 sharebased compensation plans longterm incentive plan avon products inc 2005 stock incentive plan “2005 plan” shareholder approved provides several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance unit awards 2005 plan maximum number shares may awarded 31000000 shares 8000000 shares may used restricted stock awards restricted stock unit awards shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock restricted stock units stock appreciation rights 2005 plan stock option awards granted exercise price equal market price avon’s stock date grant option awards generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock restricted stock units generally vest three years recognized compensation cost 616 629 101 stock options restricted stock restricted stock units stock appreciation rights recorded selling general administrative expenses avon products inc notes consolidated financial statements continued three years ended december 31 2007 2006 2005 respectively total income tax benefit recognized sharebased arrangements 207 215 35 three years ended december 31 2007 2006 2005 respectively discussed note 1 description business significant accounting policies effective january 1 2006 adopted fair value recognition provisions sfas 123r using modified prospective application method following table summarizes proforma effects net income earnings per share applied fair value recognition provisions sfas 123 sharebased compensation year ended december 31 2005 stock options fair value option award estimated date grant using blackscholesmerton option pricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life ten years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumes current cash dividends 185 175 165 per share quarter avon’s common stock options granted 2007 2006 2005 respectively weightedaverage grantdate fair values per share options granted 2007 2006 2005 841 675 907 respectively avon products inc notes consolidated financial statements continued summary stock options december 31 2007 changes 2007 follows december 31 2007 approximately 134 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 13 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2007 2006 2005 follows restricted stock restricted stock units fair value restricted stock restricted stock units granted prior january 1 2007 determined based average high low market prices common stock grant date effective january 1 2007 fair value restricted stock restricted stock units granted determined based closing price common stock date grant summary restricted stock restricted stock units december 31 2007 changes 2007 follows total fair value restricted stock restricted stock units vested 2007 143 based upon market prices vesting dates december 31 2007 approximately 439 unrecognized compensation cost related restricted stock restricted stock unit compensation arrangements cost expected recognized weightedaverage period 20 years 20052007 performance cash plan 2005 established threeyear performance cash plan period 20052007 “plan” awards set objective payouts ranging 30 target achievement threshold financial objectives aligned longterm business plan 200 target maximum performance objectives achieved compensation committee board directors designated total revenues operating margin key avon products inc notes consolidated financial statements continued performance measures plan december 31 2007 objectives achieved therefore expense recognized 2007 2006 2005 management determined likelihood achieving objectives remote therefore expense recognized 2006 2005 respectively note 9 shareholders’ equity share rights plan share rights plan one right declared dividend outstanding share common stock right redeemable 005 time option entitles shareholder among things purchase one share avon common stock price equal onehalf current market price certain events occurred right exercisable among events one party obtains beneficial ownership 20 avon’s voting stock description terms rights set forth rights agreement avon computer share limited stock repurchase program september 2000 board approved fiveyear 10000 share repurchase program completed august 2005 august 2005 board directors authorized us repurchase additional 5000 common stock 5000 program completed december 2005 february 2005 board approved new fiveyear 10000 share repurchase program begin upon completion previous share repurchase program 10000 program completed december 2007 october 2007 board directors approved fiveyear 20000 share repurchase program “20 billion program” begin upon completion previous 10000 share repurchase program repurchased approximately 322000 shares 129 20 billion program december 2007 note 10 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan allows eligible participants contribute 25 eligible compensation payroll deductions prior february 2005 matched employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation february 2005 avon temporarily suspended matching contribution matching contributions resumed 2006 prefebruary 2005 levels 2007 2006 2005 matching contributions approximating 128 127 18 respectively made plan cash used plan purchase avon shares open market defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits majority employees retire retirement plans us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r “sfas 158” sfas 158 requires among things recognition funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability initial impact standard due unrecognized prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive loss shareholders’ equity additional minimum pension liabilities related intangible assets also derecognized upon adoption new standard avon products inc notes consolidated financial statements continued adopted sfas 158 december 31 2006 adoption sfas 158 impact consolidated statement income years ended december 31 2007 2006 2005 sfas 158’s provisions regarding change measurement date defined benefit postretirement plans impact already using measurement date december 31 pension plans following table summarizes impact initial adoption sfas 158 1 includes effects additional minimum liability would recognized december 31 2006 required adopt sfas 158 reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued us pension plans include funded qualified plans unfunded nonqualified plans december 31 2007 2006 us qualified pension plans benefit obligations 6833 7353 plan assets 7133 7388 respectively believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans components net periodic benefit cost amounts recognized comprehensive income avon products inc notes consolidated financial statements continued 2002 2001 plan assets experienced weaker investment returns mostly due unfavorable returns equity securities unfavorable investment returns increased pension costs 2007 2006 2005 addition net periodic pension cost may significantly increase future settlement losses required recorded due increase aggregate benefits paid lump sum distributions settlement losses may result future number eligible participants deciding receive lump sum distributions amount benefits increases curtailment gains losses may result future event occurs significantly reduces number years future service current employees eliminates accrual defined benefits future services significant number employees funding requirements may impacted regulations interpretations thereof relating transitioning pension plan traditional defined benefit plan cash balance plan amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2008 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis increased 588 december 31 2007 543 december 31 2006 determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary weightedaverage assumptions used determine net cost recorded consolidated statements income years ended december 31 follows determining net cost year ended december 31 2007 assumed rate return assets globally 75 represents weightedaverage rate return plan assets including us nonus plans avon products inc notes consolidated financial statements continued majority pension plan assets relate us pension plan assumed rate return determining 2007 net costs us plan 80 historical rates return us plan recent tenyear 20year periods 662 991 respectively us plan asset allocation policy favored us equity securities returned 58 1197 respectively tenyear 20year period addition current rate return assumption us plan based asset allocation approximately 33 corporate government bonds mortgagebacked securities expected earn approximately 5 7 long term 67 equity securities expected earn approximately 8 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage rate return 800 determining 2007 net cost plan assets us nonus pension plans target weightedaverage asset allocations december 31 2007 2006 asset category follows overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow actual characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk avon products inc notes consolidated financial statements continued cash flows expect contribute approximately 9 23 us nonus pension plans respectively 2008 total benefit payments expected paid plans follows postretirement benefits 2007 assumed rate future increases per capita cost health care benefits health care cost trend rate 80 claims gradually decrease year thereafter 50 2012 beyond onepercentage point change assumed health care cost trend rates would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage eligible former employees employment retirement december 31 2007 2006 accrued cost postemployment benefits 579 537 respectively included employee benefit plans liability supplemental retirement programs offer avon products inc deferred compensation plan “plan” certain key employees plan unfunded unsecured plan obligations paid participants general assets including assets held grantor trust described corporateowned life insurance policies plan allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would made avon personal savings account plan “psa” excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated plan years ended december 31 2007 2006 2005 68 61 58 respectively december 31 2007 accrued cost deferred compensation plan 980 2006 1015 included liabilities maintain supplemental retirement programs consisting supplemental executive retirement life plan avon products inc “serp” benefits restoration pension plan avon products inc “restoration plan” nonqualified supplemental pension benefits paid higher paid employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost program included determination net periodic benefit cost shown 2007 amounted 95 2006 125 2005 121 benefit obligation program december 31 2007 737 2006 545 included employee benefit plans also maintain supplemental life insurance plan “slip” additional death benefits ranging 4 20 provided certain active retired officers avon products inc notes consolidated financial statements continued established grantor trust provide assets may used benefits payable serp slip obligations plan trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following additionally assets may used benefit payments assets included assets december 31 consisted following assets recorded market value increases decreases corporateowned life insurance policies reflected consolidated statements income fixedincome portfolio held grantor trust mutual funds considered availableforsale securities see note 5 accumulated comprehensive loss note 11 segment information operating segments reportable segments based geographic operations include commercial business units north america latin america western europe middle east africa central eastern europe asia pacific china global expenses include among things costs related executive administrative offices information technology research development marketing allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments income taxes foreign exchange gains losses costs implementing restructuring initiatives related global functions costs implementing restructuring initiatives related specific segment recorded within segment europe manufacturing facilities primarily support western europe middle east africa central eastern europe disclosures total assets capital expenditures depreciation amortization allocated amounts associated european manufacturing facilities western europe middle east africa central eastern europe based upon planned sale beauty units similar allocation done asia manufacturing facilities primarily support asia pacific china segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations avon products inc notes consolidated financial statements continued summarized financial information concerning segments december 31 shown following tables total revenue operating profit total assets avon products inc notes consolidated financial statements continued depreciation amortization major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets us brazil’s longlived assets consist primarily property plant equipment related manufacturing distribution facilities colombia’s longlived assets consist primarily goodwill intangible assets associated 2005 acquisition business see note 16 goodwill intangible assets revenue product category 1 beauty includes cosmetics fragrances skin care toiletries 2 beauty plus includes fashion jewelry watches apparel accessories 3 beyond beauty includes home products gift decorative products 4 primarily includes shipping handling fees billed representatives sales health wellness products mark included among categories based product type avon products inc notes consolidated financial statements continued note 12 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2007 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 2007 1185 2006 1147 2005 1092 plant construction expansion modernization projects estimated cost complete approximately 3084 progress december 31 2007 note 13 restructuring initiatives november 2005 announced multiyear turnaround plan restore sustainable growth part turnaround plan restructuring initiatives include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organization downsizing • implementation global manufacturing strategy facilities realignment • additional supply chain efficiencies distribution • streamlining transactional services outsourcing moves lowcost countries fourth quarter 2007 announced final initiatives part restructuring plan expect record restructuring charges costs implement restructuring initiatives approximately 530 taxes recorded total costs implement net adjustments 4436 1583 2007 2288 2006 565 2005 actions associated restructuring initiatives expect record majority remaining costs end 2009 restructuring charges 2005 december 2005 january 2006 exit disposal activities part multiyear restructuring plan approved specific actions initial phase multiyear restructuring plan included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • exit unprofitable lines business markets including closure unprofitable operations asia primarily indonesia exit product line china exit becoming product line us • move certain services markets within europe lower cost shared service centers actions described completed 2006 except move certain services markets within europe lower cost shared service centers expected completed phases 2008 avon products inc notes consolidated financial statements continued connection initiatives approved date recorded total costs implement 2005 565 costs consisted following • charges 432 employeerelated costs including severance pension termination benefits asset impairment charges cumulative foreign currency translation charges previously recorded directly shareholders’ equity • charges 84 inventory writeoff • costs implement 49 professional service fees related implementation initiatives total costs implement 481 recorded selling general administrative expenses 2005 84 recorded cost sales 2005 approximately 58 charges resulted cash expenditures majority cash payments made 2006 restructuring charges 2006 january 2007 additional exit disposal activities part restructuring initiatives approved specific actions phase restructuring initiatives included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain key human resource customer service processes • realignment certain north america distribution operations • exit certain unprofitable operations including closure avon salon spa • reorganization certain functions primarily salesrelated organizations many actions completed 2006 including delayering program majority remaining actions completed 2007 outsourcing certain services expected completed phases 2009 realignment certain north america distribution operations expected completed phases 2012 reorganization one functions expected completed phases 2010 connection initiatives approved date recorded total costs implement 2006 2288 costs consisted following • charges 2183 employeerelated costs including severance pension termination benefits • favorable adjustments 161 primarily relating higher expected number employees successfully pursuing reassignments positions higher expected turnover employees leaving prior termination • costs implement 249 17 professional service fees related implementation initiatives accelerated depreciation respectively total costs implement 2291 recorded selling general administrative expenses 2006 favorable adjustment 3 recorded cost sales 2006 approximately 85 charges resulted cash expenditures majority cash payments made 2007 restructuring charges 2007 january 2008 exit disposal activities part multiyear restructuring plan approved specific actions phase multiyear restructuring plan included • reorganization certain functions primarily salesrelated organizations avon products inc notes consolidated financial statements continued • restructure certain international direct selling operations • realignment certain distribution manufacturing operations including realignment certain latin america distribution operations • automation certain distribution processes • outsourcing certain finance customer service information technology processes actions described expected completed end 2009 outsourcing certain information technology processes realignment certain latin america distribution operations expected completed end 2011 connection initiatives approved date recorded total costs implement 2007 1583 costs consisted following • charges 1180 employeerelated costs including severance pension termination benefits • favorable adjustments 80 primarily relating certain employees pursuing reassignments positions higher expected turnover employees leaving prior termination • costs implement 483 professional service fees associated initiatives outsource certain human resource finance customer service information technology processes accelerated depreciation associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 1573 recorded selling general administrative expenses 10 recorded cost sales 2007 approximately 95 charges expected result future cash expenditures majority cash payments expected made 2008 liability balances initiatives approved date shown avon products inc notes consolidated financial statements continued noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented inventory writeoffs relate exited businesses following table presents restructuring charges incurred date net adjustments multiyear restructuring plan began fourth quarter 2005 along charges expected incurred plan charges net adjustments initiatives approved date reportable business segment follows noted previously expect record total costs implement approximately 530 taxes restructuring initiatives including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording yet met addition charges included tables incur costs implement consulting professional services accelerated depreciation note 14 contingencies defendant action commenced 1975 supreme court state new york sheldon solow dba solow building company “solow” landlord former headquarters new york city solow alleges misappropriated name former headquarters building seeks damages based purported value one dollar per square foot leased space per year term lease trial action took place may 2005 january 2006 judge issued decision favor solow appealed decision appellate division supreme court state new york june 2007 appellate division affirmed trial court’s decision july 2007 solow filed notice motion appellate division reargument alternatively leave appeal new york court appeals september 2007 appellate division denied solow’s motion october 2007 solow filed motion court appeals leave appeal court appeals december 2007 court appeals denied solow’s motion possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested avon products inc notes consolidated financial statements continued blakemore et al v avon products inc et al purported class action pending superior court state california behalf avon sales representatives “since march 24 1999 received products avon order thereafter returned unordered products avon receive credit returned products” complaint seeks unspecified compensatory punitive damages restitution injunctive relief alleged unjust enrichment violation california business professions code action commenced march 2003 january 2006 filed motion strike plaintiffs’ asserted nationwide class february 2006 trial court declined grant motion instead certified issue court appeal interlocutory basis april 2006 court appeal denied motion instructed trial court consider issue subsequent point proceedings september 2007 plaintiffs filed motion seeking class certification behalf “all avon sales representatives since march 24 1999 residing california received products avon order returned unordered products avon paid unordered products andor paid shipping costs return receive reimbursement therefore avon initially made reimbursement therefore means credit later reversed credit” avon intends oppose motion believe action dispute purported customer service issues inappropriate subject consideration class action possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested december 2002 brazilian subsidiary received series excise income tax assessments brazilian tax authorities asserting establishment 1995 separate manufacturing distribution companies country done without valid business purpose assessments assert tax deficiencies portions years 1997 1998 approximately 1175 exchange rate december 31 2007 plus penalties accruing interest totaling approximately 2166 exchange rate december 31 2007 july 2003 firstlevel appellate body rejected basis income tax assessments representing approximately 77 total assessment 2579 including interest march 2004 rejection confirmed mandatory secondlevel appellate review remaining assessments relating excise taxes approximately 762 affected awaiting decision first administrative level december 2003 additional assessment received respect excise taxes balance 1998 totaling approximately 1539 exchange rate december 31 2007 asserting different theory liability based purported market sales data january 2005 unfavorable first administrative level decision received respect appeal assessment appeal taken december 2004 additional assessment received respect excise taxes period january 1999 december 2001 totaling approximately 3405 exchange rate december 31 2007 asserting theory liability december 2003 assessment appealed assessment september 2005 unfavorable first administrative level decision received respect appeal december 2004 assessment appeal taken assessments issued 2003 2004 awaiting decision second administrative level event assessments upheld earlier stages review may necessary us provide security pursue appeals depending circumstances may result charge income possible make reasonable estimate amount range expense could result unfavorable outcome respect additional assessments may issued subsequent periods structure adopted 1995 comparable used many companies brazil believe appropriate operationally legally assessments unfounded matter vigorously contested opinion outside counsel likelihood assessments ultimately upheld remote management believes likelihood assessments material impact consolidated financial position results operations cash flows correspondingly remote kendall v employees’ retirement plan avon products retirement board purported class action commenced april 2003 united states district court southern district new york plaintiff retired employee avon retirement paid disability leave approximately 19 years initial complaint alleged employees’ retirement plan avon products “retirement plan” violated employee retirement income security act “erisa” consequence unlawfully reduced amount plaintiff’s pension plaintiff sought reformation retirement plan recalculation benefits terms retirement plan reformed plaintiff purported avon products inc notes consolidated financial statements continued class november 2003 plaintiff filed amended complaint alleging additional retirement plan violations erisa seeking among things elimination social security offset retirement plan purported class includes “all plan participants whether active inactive retired beneficiaries andor estates one hour service january 1 1976 whose accrued benefits pensions survivor’s benefits calculated paid based plan’s unlawful provisions” february 2004 filed motion dismiss amended complaint september 2007 trial court granted motion dismiss plaintiff thereafter appealed decision united states court appeals second circuit possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested august 2005 reported filing class action complaints alleged violations federal securities laws actions entitled nilesh patel v avon products inc et al michael cascio v avon products inc et al respectively subsequently consolidated amended class action complaint alleged violations federal securities laws filed consolidated action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc securities litigation naming avon officer two officerdirectors consolidated action brought behalf purchasers common stock february 3 2004 september 20 2005 seeks damages alleged false misleading statements “concerning avon’s operations performance china united states mexico” consolidated amended complaint also asserts class period certain officers directors sold shares common stock february 2006 filed motion dismiss consolidated amended class action complaint asserting among things failed state claim upon relief may granted plaintiffs opposed motion august 2005 reported filing complaint shareholder derivative action purportedly brought behalf avon entitled robert l garber derivatively behalf avon products inc v andrea jung et al defendants avon products inc nominal defendant amended complaint filed action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc securities litigation naming certain officers directors amended complaint alleges defendants’ violations state law including breaches fiduciary duties abuse control gross mismanagement waste corporate assets unjust enrichment february 2004 present caused losses avon february 2006 filed motion dismiss amended complaint asserting among things failed state claim upon relief may granted plaintiffs opposed motion october 2005 reported filing class action complaints alleged violations employee retirement income security act “erisa” actions entitled john rogati v andrea jung et al carolyn jane perry v andrea jung et al respectively subsequently consolidated class action complaint alleged violations erisa filed consolidated action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc erisa litigation naming avon certain officers avon’s retirement board others consolidated action purports brought behalf avon products inc personal savings account plan avon products inc personal retirement account plan collectively “plan” behalf participants beneficiaries plan “for whose individual accounts plan purchased held interest avon products inc common stock february 20 2004 present” consolidated complaint asserts breaches fiduciary duties prohibited transactions violation erisa arising inter alia alleged false misleading public statements regarding avon’s business made class period investments avon stock plan participants february 2006 filed motion dismiss consolidated complaint asserting failed state claim upon relief may granted plaintiffs opposed motion possible predict outcome litigation reasonably possible could unfavorable outcomes avon products inc securities litigation avon products inc securities litigation derivative action avon products inc erisa litigation matters management unable make meaningful estimate amount range loss could result unfavorable outcomes circumstances adverse awards could material consolidated financial position results operations cash flows avon products inc notes consolidated financial statements continued various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon management’s opinion based review information available time total cost resolving contingencies december 31 2007 material adverse effect consolidated financial position results operations cash flows note 15 supplemental balance sheet income statement information december 31 2007 2006 assets included following years ended december 31 2007 2006 2005 components expense net follows note 16 goodwill intangible assets april 2 2007 acquired licensee egypt approximately 17 cash acquired business operated new whollyowned subsidiary included western europe middle east africa operating segment purchase price allocation resulted goodwill 93 customer relationships 10 sevenyear useful life august 2006 purchased remaining 6155 outstanding shares two jointventure subsidiaries china minority interest shareholders approximately 391 previously owned 93845 subsidiaries consolidated results recording minority interest portion owned upon completion transaction eliminated minority interest net assets subsidiaries purchase shares material impact consolidated net income avon china standalone operating segment purchase price allocation resulted goodwill 333 customer relationships 19 tenyear weightedaverage useful life october 18 2005 purchased avon directselling business licensee colombia approximately 1540 cash pursuant share purchase agreement avon international holdings company wholly owned subsidiary company entered sarastro ltd ldc october 7 2005 acquired business operated new whollyowned subsidiary name “avon colombia” included latin america operating segment preexisting license arrangement acquired business negotiated terms license agreement considered market rates therefore settlement gain loss recognized upon acquisition fourth quarter 2005 recorded preliminary purchase price allocation resulted goodwill 948 licensing agreement 320 fouryear useful life customer relationships 351 sevenyear weightedaverage useful life noncompete agreement 39 threeyear useful life avon products inc notes consolidated financial statements continued 2006 gathered additional data refine certain assumptions valuation revised purchase price allocation resulted goodwill 946 licensing agreement 360 fouryear useful life customer relationships 286 fiveyear weightedaverage useful life noncompete agreement 39 threeyear useful life goodwill intangible assets avon products inc notes consolidated financial statements continued note 17 results operations quarter unaudited 1 sum per share amounts quarters necessarily equal year computations made independently first second third fourth quarter 2007 include costs implement restructuring initiatives 97 205 272 1009 respectively 7 0 4 7 reflected cost sales respectively 90 205 276 1002 reflected selling general administrative expenses respectively first second third fourth quarter 2006 include costs implement restructuring initiatives 1201 494 156 437 respectively 5 2 5 reflected cost sales respectively 1206 492 161 432 reflected selling general administrative expenses respectively note 18 subsequent events february 7 2008 announced increase quarterly cash dividend 200 per share 185 per share first dividend new rate paid march 3 2008 shareholders record february 21 2008 increase indicated annual dividend rate 80 per share schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2007 2006 millions 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance tax loss carry forward benefits likely deferred tax assets utilized future 5 release valuation allowance deferred tax assets likely utilized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits identified asterisk management contracts compensatory plans arrangements avon’s annual report form 10k year ended december 31 2008 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 20th day february 2009 avon products inc simon nr harford simon nr harford group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2008 december 31 2007 results operations cash flows three years period ended december 31 2008 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements 2007 company changed manner accounts uncertain tax positions 2006 company changed manner accounts pension postretirement benefit plans company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 20 2009 avon products inc consolidated statements income millions except per share data accompanying notes integral part statements avon products inc consolidated balance sheets millions except per share data accompanying notes integral part statements avon products inc consolidated statements cash flows millions noncash financing activities included change fair market value interest rate swap agreements 836 84 218 2008 2007 2006 respectively see note 4 debt financing accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity millions except per share data accompanying notes integral part statements avon products inc notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms “avon” “company” “we” “our” “us” mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling manage operations based geographic operations reportable segments latin america north america central eastern europe western europe middle east africa asia pacific china also centrally manage global brand marketing supply chain sales organizations beginning fourth quarter 2008 changed product categories beauty plus beyond beauty fashion home beauty consists cosmetics fragrances skin care toiletries “cft” fashion consists fashion jewelry watches apparel footwear accessories home consists gift decorative products housewares entertainment leisure children’s nutritional products sales health wellness products mark global cosmetics brand focuses market young women included among three categories based product type sales made ultimate consumer principally independent avon representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates preparation financial statements conformity generally accepted accounting principles united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss financial statements subsidiaries operating highly inflationary economies translated using combination current historical exchange rates translation adjustments included current earnings gains losses resulting foreign currency transactions recorded expense net revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances avon products inc notes consolidated financial statements continued revenue primarily includes shipping handling fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout “fifo” method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures deferred amortized period benefits expected typically sales campaign length two four weeks december 31 2008 2007 prepaid expenses included deferred brochure costs 440 408 respectively additionally paper stock purchased advance creating brochures december 31 2008 2007 prepaid expenses included paper supply 316 147 respectively property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful lives assets 2008 2007 2006 avon capitalized 49 0 10 interest respectively deferred software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred december 31 2008 2007 assets included unamortized deferred software costs 983 959 respectively investments debt equity securities debt equity securities readily determinable fair value intend hold maturity classified availableforsale carried fair value unrealized holding gains losses net applicable taxes recorded separate component shareholders’ equity net deferred taxes realized gains losses sale availableforsale securities calculated specific identification basis declines fair values investments cost basis judged otherthantemporary recorded expense net determining whether otherthantemporary decline market value occurred consider various factors including duration extent market value cost goodwill intangible assets goodwill amortized rather assessed impairment annually upon occurrence event indicates impairment may occurred intangible assets estimable useful lives amortized using straightline method estimated useful lives assets completed annual goodwill impairment assessments adjustments goodwill necessary years ended december 31 2008 2007 2006 avon products inc notes consolidated financial statements continued financial instruments use derivative financial instruments including interest rate swaps treasury lock agreements forward foreign currency contracts options manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 7 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested us income taxes provided approximately 24631 undistributed income subsidiaries intended indefinitely reinvested outside us uncertain tax positions effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” accordance fin 48 recognize benefit tax position likely sustained audit based technical merits position selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 9721 2008 2007 9139 2006 8100 shipping handling costs included selling general administrative expenses consolidated statements income advertising costs excluding brochure preparation costs expensed incurred amounted 3905 2008 2007 3684 2006 2489 research development research development costs expensed incurred amounted 700 2008 2007 718 2006 658 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options restructuring reserves record severancerelated expenses probable estimable accordance provisions statement financial accounting standard “sfas” 112 employer’s accounting postemployment benefits severance provided ongoing benefit arrangement onetime involuntary benefit arrangements disposal costs primarily contract termination costs accounted provisions sfas 146 accounting costs associated exit disposal activities onetime voluntary benefit arrangements accounted provisions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits evaluate impairment issues provisions sfas 144 accounting impairment disposal longlived assets avon products inc notes consolidated financial statements continued contingencies accordance sfas 5 accounting contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable reclassifications reclassified prior year amounts consolidated financial statements accompanying notes comparative purposes reclassified 454 accounts receivable prepaid expenses consolidated balance sheet year ended december 31 2007 also reclassified 179 80 changes accounts receivable changes prepaid expenses consolidated statements cash flows years ended december 31 2007 2006 respectively earnings per share compute basic earnings per share “eps” dividing net income weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year three years ended december 31 components basic diluted eps follows years ended december 31 2008 2007 2006 include stock options purchase 213 million shares 74 million 129 million shares avon common stock respectively calculations diluted eps exercise prices options greater average market price inclusion would antidilutive note 2 new accounting standards implemented effective january 1 2008 adopted financial accounting standards board “fasb” sfas 157 fair value measurements “sfas 157” exception application statement nonrecurring nonfinancial assets liabilities sfas 157 defines fair value establishes framework measuring fair value accordance generally accepted accounting principles expands disclosures fair value measurements february 2008 fasb issued staff position 1572 effective date fasb statement 157 delays effective date sfas 157 nonfinancial assets liabilities except recognized disclosed fair value financial statements recurring basis january 1 2009 adoption sfas 157 material impact consolidated financial statements see note 8 fair value additional information effective january 1 2008 adopted sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 “sfas 159” permits entities choose measure many financial instruments certain items fair value currently required measured fair value adoption sfas 159 impact consolidated financial statements choose measure items fair value avon products inc notes consolidated financial statements continued effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” see note 6 income taxes additional information effective december 31 2006 adopted sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r “sfas 158” see note 11 employee benefit plans additional information effective december 31 2006 adopted staff accounting bulletin “sab” 108 considering effects prior year misstatements quantifying misstatements current year financial statements “sab 108” provides interpretive guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 allows onetime transitional cumulative effect adjustment beginning retained earnings january 1 2007 errors previously deemed material guidance sab 108 adoption sab 108 impact consolidated financial statements standards implemented december 2008 fasb issued staff position “fsp” fas 132r1 employers’ disclosures postretirement benefit plan assets fsp require additional disclosures major categories plan assets concentrations risk well disclosure fair value levels similar disclosure requirements sfas 157 enhanced disclosures plan assets required fsp must provided 2009 annual report form 10k february 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment fasb statement 133 “sfas 161” changes among things disclosure requirements derivative instruments hedging activities required provide enhanced disclosures use derivative instruments accounted affect financial performance sfas 161 effective january 1 2009 avon june 2008 fasb issued fsp emerging issues task force “eitf” 0361 determining whether instruments granted sharebased payment transactions participating securities “fsp eitf 0361” addresses whether instruments granted sharebased payment awards participating securities prior vesting therefore need included earnings allocation computing earnings per share “eps” twoclass method fsp eitf 0361 effective january 1 2009 avon requires prior period eps presented adjusted retrospectively grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents considered participating securities defined fsp eitf 0361 included computing earnings per share using twoclass method beginning first quarter 2009 form 10q adoption fsp eitf 0361 material impact calculation basic diluted earnings per share december 2007 fasb issued sfas 141 revised 2007 business combinations “sfas 141r” changes business combinations accounted impact financial statements acquisition date subsequent periods sfas 141r effective january 1 2009 avon applied prospectively impact adopting sfas 141r depend nature terms future acquisitions december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements “sfas 160” changes accounting reporting standards noncontrolling interests subsidiary consolidated financial statements sfas 160 recharacterizes minority interests noncontrolling interests requires noncontrolling interests classified component shareholders’ equity sfas 160 effective january 1 2009 avon requires retroactive adoption presentation disclosure requirements existing minority interests believe adoption sfas 160 material impact consolidated financial statements december 31 2008 2007 liabilities included minority interest liabilities 374 382 respectively avon products inc notes consolidated financial statements continued note 3 inventories december 31 consisted following note 4 debt financing debt december 31 consisted following december 31 2008 2007 notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 76 46 respectively december 31 2008 2007 longterm debt payable 2013 included obligations capital leases 114 136 respectively primarily relate leases automobiles equipment adjustments debt fair value hedges includes adjustments reflect net unrealized gains 800 losses 94 debt fair value hedges december 31 2008 2007 respectively unamortized gains terminated swap agreements swap agreements longer designated fair value hedges 39 84 december 31 2008 2007 respectively see note 7 financial instruments risk management december 31 2008 2007 held interest rate swap contracts swap approximately 50 30 respectively longterm debt variable rates see note 7 financial instruments risk management march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 480 payable semiannually mature march 1 2013 unless previously redeemed “2013 notes” 2500 notes bear interest per avon products inc notes consolidated financial statements continued annum coupon rate 575 payable semiannually mature march 1 2018 unless previously redeemed “2018 notes” net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2013 notes represents 2500 principal amount net unamortized discount face value 8 december 31 2008 carrying value 2018 notes represents 2500 principal amount net unamortized discount face value 8 december 31 2008 january 2006 issued public offering 5000 principal amount notes payable “5125 notes” mature january 15 2011 bear interest payable semiannually per annum rate equal 5125 net proceeds offering used general corporate purposes including repayment shortterm domestic debt carrying value 5125 notes represents 5000 principal amount net unamortized discount face value 3 4 december 31 2008 2007 respectively june 2003 issued public 2500 principal amount registered senior notes “420 notes” 10000 debt shelf registration statement 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually carrying value 420 notes represents 2500 principal amount net unamortized discount face value 3 9 december 31 2008 2007 respectively april 2003 call holder 1000 625 notes due may 2018 “notes” embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually “4625 notes” 4625 notes issued 10000 debt shelf registration statement transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes december 31 2008 2007 carrying value 4625 notes represents 1250 principal amount net unamortized discount face value premium related call option associated original notes totaling 109 130 respectively annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2008 follows financing fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 7 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires avon’s interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 december 31 2008 2007 amounts outstanding credit facility maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment avon products inc notes consolidated financial statements continued commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2008 commercial paper outstanding 4997 average annual interest rate 23 december 31 2007 commercial paper outstanding 7016 average annual interest rate 505 april 2007 entered oneyear euro 50 million 729 exchange rate december 31 2007 uncommitted credit facility “euro credit facility” bank tokyomitsubishi ufj ltd expired april 2008 borrowings euro credit facility bore interest euro libor rate plus applicable margin euro credit facility available general corporate purposes euro credit facility designated hedge investments eurodenominated functional currency subsidiaries december 31 2007 328 euro 225 million outstanding euro credit facility august 2006 entered oneyear japanese yen 110 billion 1220 exchange rate december 31 2008 uncommitted credit facility “yen credit facility” bank tokyomitsubishi ufj ltd borrowings yen credit facility bear interest yen libor rate plus applicable margin yen credit facility available general corporate purposes including working capital repayment outstanding indebtedness yen credit facility used repay japanese yen 90 billion note came due september 2006 well general corporate purposes yen credit facility designated hedge net investment japanese subsidiary august 2007 entered amendment yen credit facility provides extension yen credit facility august 2008 august 2008 entered another amendment yen credit facility provides extension yen credit facility august 2009 december 31 2008 2007 1020 japanese yen 92 billion 963 japanese yen 110 billion respectively outstanding yen credit facility indentures notes issued contain certain covenants including limits incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets december 31 2008 compliance covenants indentures contain rating downgrade triggers would accelerate maturity debt however would required make offer repurchase 2013 notes 2018 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding ratings downgrade investment grade december 31 2008 also letters credit outstanding totaling 196 primarily guarantee various insurance activities addition outstanding letters credit various trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels note 5 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following foreign exchange gains losses 254 81 resulting translation unrealized actuarial losses prior service credit translation obligation recorded aoci included foreign currency translation adjustments rollforward aoci consolidated statements changes shareholders equity 2008 2007 respectively avon products inc notes consolidated financial statements continued note 6 income taxes deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following valuation allowance primarily represents amounts foreign operating loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 58 2008 mainly due several foreign entities continuing incur losses 2008 thereby increasing net operating loss carryforwards valuation allowance provided avon products inc notes consolidated financial statements continued income taxes minority interest years ended december 31 follows december 31 2008 foreign operating loss carryforwards approximately 10092 loss carryforwards expiring 2009 2023 1151 loss carryforwards expire 8941 also minimum tax credit carryforwards 325 expire capital loss carryforwards 71 expire 2010 foreign tax credit carryforwards 939 expire 2016 2018 uncertain tax positions effective january 1 2007 adopted financial accounting standards board “fasb” interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” result implementation fin 48 recognized 183 increase liability unrecognized tax benefits including interest penalties accounted reduction january 1 2007 balance retained earnings december 31 2008 2007 1043 1543 total gross unrecognized tax benefits respectively approximately 91 141 would impact effective tax rate recognized avon products inc notes consolidated financial statements continued reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 225 297 accrued interest penalties net tax benefit december 31 2008 2007 respectively 2008 2007 recorded benefit 32 expense 33 interest penalties net taxes respectively file income tax returns us federal jurisdiction various states foreign jurisdictions december 31 2008 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 10 15 within next 12 months due closure tax years expiration statute limitations audit settlements note 7 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger accounting policies derivatives recognized balance sheet fair values become party derivative instrument designate instrument either fair value hedge cash flow hedge net investment hedge avon products inc notes consolidated financial statements continued nonhedge accounting changes fair value gains losses derivative instrument depends whether designated avon qualifies part hedging relationship type hedging relationship • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded accumulated comprehensive loss “aoci” extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income include change time value options assessment hedge effectiveness determine derivative highly effective hedge accounting discontinued probable forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk longterm fixedrate borrowings subject interest rate risk use interest rate swaps effectively convert fixed rate debt floating interest rate manage interest rate exposure december 31 2008 2007 held interest rate swap agreements effectively converted approximately 50 30 outstanding longterm fixedrate borrowings variable interest rate based libor respectively total exposure floating interest rates december 31 2008 2007 approximately 65 60 respectively december 31 2008 2007 interest rate swaps designated fair value hedges fixedrate debt unrealized gains losses 837 108 respectively additionally december 31 2008 2007 interest rate swaps designated fair value hedges unrealized gains 39 97 respectively longterm debt december 31 2008 2007 respectively included net unrealized gains losses 800 94 respectively interest rate swaps designated fair value hedges longterm debt december 31 2008 2007 also included remaining unamortized gains 39 84 respectively resulting terminated swap agreements swap agreements longer designated fair value hedges amortized interest expense remaining terms underlying debt hedge ineffectiveness years ended december 31 2008 2007 2006 related interest rate swaps 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 expired january 31 2008 january 31 2008 extended maturity date locks july 31 2008 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses locks 380 recorded accumulated comprehensive loss 192 188 losses amortized interest expense five years ten years respectively 2005 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 de avon products inc notes consolidated financial statements continued designated locks hedges reclassified gain 25 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss 2005 lock agreement 19 recorded aoci amortized interest expense five years 2003 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 26 recorded aoci amortized interest expense ten years december 31 2008 2007 aoci includes remaining unamortized losses 352 279 229 181 net taxes respectively resulting treasury lock agreements foreign currency risk primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso philippine peso polish zloty russian ruble turkish lira ukrainian hryvna venezuelan bolivar use foreign currency forward contracts options hedge portions forecasted foreign currency cash flows resulting intercompany royalties thirdparty intercompany foreign currency transactions high probability anticipated exposures materialize contracts designated cash flow hedges years ended december 31 2008 2007 2006 ineffective portion cash flow foreign currency derivative instruments net gains losses reclassified aoci earnings cash flow hedges discontinued forecasted transactions probable occurring material december 31 2008 maximum remaining term hedging foreign exchange exposures variability cash flows forecasted transactions 12 months december 31 2008 expect reclassify 272 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months due foreign currency denominated intercompany royalties b intercompany loan settlements c foreign currency denominated purchases receipts years ended december 31 2008 2007 cash flow hedges impacted aoci follows certain forward contracts used manage foreign currency exposure intercompany loans designated hedges cases change value contracts designed offset foreign currency impact underlying exposure change fair value instruments immediately recognized earnings use foreign currency forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets certain foreign subsidiaries december 31 2008 japanese yendenominated note payable hedge net investment japanese subsidiary see note 4 debt financing years ended december 31 2008 2007 2006 336 97 61 respectively related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets december 31 2008 2007 held foreign currency forward contracts fair values 188 28 respectively recorded accounts payable 81 0 respectively recorded prepaid expenses credit market risk attempt minimize credit exposure counterparties entering interest rate swap foreign currency forward rate option agreements major international financial institutions “a” avon products inc notes consolidated financial statements continued higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 1118 december 31 2008 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates note 8 fair value assets liabilities measured fair value adopted sfas 157 january 1 2008 exception application statement nonrecurring nonfinancial assets liabilities becomes effective january 1 2009 adoption sfas 157 material impact fair value measurements sfas 157 defines fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date sfas 157 establishes fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2008 availableforsale securities held trust order fund future benefit payments nonqualified retirement plans see note 11 employee benefit plans december 31 2008 recorded net unrealized loss 3 accumulated comprehensive loss within shareholders’ equity associated availableforsale securities see note 5 accumulated comprehensive loss foreign exchange forward contracts interest rate swap agreements hedges either recorded assets liabilities anticipated transactions changes values underlying hedged assets liabilities anticipated transactions reflected table avon products inc notes consolidated financial statements continued fair value financial instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values financial instruments december 31 consisted following methods assumptions used estimate fair value follows availableforsale securities fair values investments based quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined based quoted market prices foreign exchange forward contracts fair values forward contracts based quoted forward foreign exchange prices reporting date interest rate swap treasury lock agreements fair values interest rate swap treasury lock agreements estimated based libor yield curves reporting date note 9 sharebased compensation plans avon products inc 2005 stock incentive plan “2005 plan” shareholder approved provides several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance unit awards 2005 plan maximum number shares may awarded 31000000 shares 8000000 shares may used restricted stock awards restricted stock unit awards shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock restricted stock units stock appreciation rights 2005 plan stock option awards granted exercise price equal closing market price avon’s stock date grant option awards generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock restricted stock units generally vest three years recognized compensation cost 548 616 629 stock options restricted stock restricted stock units stock appreciation rights recorded selling general administrative expenses three years ended december 31 2008 2007 2006 respectively total income tax benefit recognized sharebased arrangements 188 207 215 three years ended december 31 2008 2007 2006 respectively years ended december 31 2008 2007 determined pool windfall tax benefits avon products inc notes consolidated financial statements continued stock options fair value option award estimated date grant using blackscholesmerton option pricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life ten years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumes current cash dividends 20 185 175 per share quarter avon’s common stock options granted 2008 2007 2006 respectively weightedaverage grantdate fair values per share options granted 2008 2007 2006 804 841 675 respectively summary stock options december 31 2008 changes 2008 follows options granted 2008 include 600000 options market condition estimated fair value options using montecarlo simulation model december 31 2008 approximately 236 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 16 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2008 2007 2006 follows avon products inc notes consolidated financial statements continued restricted stock restricted stock units fair value restricted stock restricted stock units granted prior january 1 2007 determined based average high low market prices common stock grant date effective january 1 2007 fair value restricted stock restricted stock units granted determined based closing price common stock date grant summary restricted stock restricted stock units december 31 2008 changes 2008 follows total fair value restricted stock restricted stock units vested 2008 172 based upon market prices vesting dates december 31 2008 approximately 342 unrecognized compensation cost related restricted stock restricted stock unit compensation arrangements cost expected recognized weightedaverage period 17 years note 10 shareholders’ equity stock repurchase program february 2005 board approved fiveyear 10000 share repurchase program begin upon completion previous share repurchase program 10000 program completed december 2007 october 2007 board directors approved fiveyear 20000 share repurchase program “20 billion program” began december 2007 repurchased approximately 47 million shares 1785 20 billion program december 31 2008 avon products inc notes consolidated financial statements continued note 11 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan “psa” allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation 2008 2007 2006 matching contributions approximating 130 128 127 respectively made psa cash used psa purchase avon shares open market defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits majority employees retire retirement plans us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r “sfas 158” sfas 158 requires among things recognition funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability initial impact standard due unrecognized prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive loss shareholders’ equity additional minimum pension liabilities related intangible assets also derecognized upon adoption new standard adoption sfas 158 resulted decrease accumulated comprehensive loss 2547 taxes december 31 2006 adoption sfas 158 impact consolidated statement income year ended december 31 2006 sfas 158’s provisions regarding change measurement date defined benefit postretirement plans impact already using measurement date december 31 pension plans reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued avon products inc notes consolidated financial statements continued us pension plans include funded qualified plans unfunded nonqualified plans december 31 2008 2007 us qualified pension plans benefit obligations 6356 6833 plan assets 4491 7133 respectively believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans components net periodic benefit cost amounts recognized comprehensive income amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2009 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis increased 611 december 31 2008 588 december 31 2007 determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary avon products inc notes consolidated financial statements continued weightedaverage assumptions used determine net cost recorded consolidated statements income years ended december 31 follows determining net cost year ended december 31 2008 assumed rate return assets globally 766 represents weightedaverage rate return plan assets including us nonus plans majority pension plan assets relate us pension plan assumed rate return determining 2008 net costs us plan 80 historical rates return us plan recent 10year 20year periods 20 76 respectively us plan asset allocation policy favored us equity securities lost 7 returned 84 respectively tenyear 20year period addition current rate return assumption us plan based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 65 equity securities expected earn approximately 8 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage rate return 766 determining 2008 net cost plan assets us nonus pension plans target weightedaverage asset allocations december 31 2008 2007 asset category follows overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number avon products inc notes consolidated financial statements continued participants company contributions cash flow actual characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 60 100 us pension plans range 20 30 international pension plans 2009 total benefit payments expected paid plans follows postretirement benefits 2008 assumed rate future increases per capita cost health care benefits health care cost trend rate 80 claims gradually decrease year thereafter 50 2015 beyond onepercentage point change assumed health care cost trend rates would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage eligible former employees employment retirement december 31 2008 2007 accrued cost postemployment benefits 749 579 respectively included employee benefit plans liability supplemental retirement programs offer avon products inc deferred compensation plan “dcp” certain key employees dcp unfunded unsecured plan obligations paid participants general assets including assets held grantor trust described corporateowned life insurance policies dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would made avon personal savings account plan “psa” excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated dcp years ended december 31 2008 2007 2006 46 68 61 respectively december 31 2008 accrued cost dcp 941 2007980 included liabilities avon products inc notes consolidated financial statements continued maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc “serp” benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost programs included determination net periodic benefit cost shown 2008 amounted 79 200795 2006125 benefit obligation programs december 31 2008 731 2007737 included employee benefit plans also maintain supplemental life plan “slip” additional death benefits ranging 4 20 provided certain active retired officers established grantor trust provide assets may used benefits payable serp slip obligations dcp trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following additionally assets may used benefit payments assets included assets december 31 consisted following assets recorded market value increases decreases corporateowned life insurance policies reflected consolidated statements income fixedincome portfolio held grantor trust mutual funds classified availableforsale securities cost gross unrealized gains losses market value availableforsale securities december 31 follows 1 december 31 2008 investments scheduled maturities less two years totaled 2 two five years totaled 0 five years totaled 6 2 december 31 2008 investments unrealized losses loss position greater 12 months payments purchases proceeds gross realized gains losses sales securities totaled 421 414 1 6 respectively 2008 avon products inc notes consolidated financial statements continued cost gross unrealized gains losses market value availableforsale securities december 31 follows 1 december 31 2007 investments scheduled maturities less two years totaled 20 two five years totaled 25 five years totaled 105 2 december 31 2007 investments unrealized losses loss position greater 12 months payments purchases proceeds gross realized gains losses sales securities totaled 470 461 1 respectively 2007 years ended december 31 2008 2007 unrealized gains availableforsale securities impacted accumulated comprehensive loss follows note 12 segment information operating segments reportable segments based geographic operations include commercial business units latin america north america central eastern europe western europe middle east africa asia pacific china global expenses include among things costs related executive administrative offices information technology research development marketing allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments income taxes foreign exchange gains losses costs implementing restructuring initiatives related global functions costs implementing restructuring initiatives related specific segment recorded within segment europe manufacturing facilities primarily support western europe middle east africa central eastern europe disclosures total assets capital expenditures depreciation amortization allocated amounts associated european manufacturing facilities western europe middle east africa central eastern europe based upon planned beauty unit volume similar allocation done asia manufacturing facilities primarily support asia pacific china segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning segments december 31 shown following tables avon products inc notes consolidated financial statements continued total revenue operating profit total assets avon products inc notes consolidated financial statements continued depreciation amortization major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets us brazil’s longlived assets consist primarily property plant equipment related manufacturing distribution facilities colombia’s longlived assets consist primarily goodwill intangible assets associated 2005 acquisition business revenue product category 1 beauty includes cosmetics fragrances skin care toiletries 2 fashion includes fashion jewelry watches apparel footwear accessories 3 home includes gift decorative products housewares entertainment leisure children’s nutritional products 4 revenue primarily includes shipping handling fees billed representatives sales health wellness products mark included among categories based product type avon products inc notes consolidated financial statements continued beginning fourth quarter 2008 changed product categories beauty plus beyond beauty fashion home note 13 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2008 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 2008 1204 20071185 20061147 plant construction expansion modernization projects estimated cost complete 4302 progress december 31 2008 note 14 restructuring initiatives 2005 program november 2005 announced multiyear turnaround plan restore sustainable growth part turnaround plan launched restructuring program late 2005 “2005 program” restructuring initiatives program include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organization downsizing • implementation global manufacturing strategy facilities realignment • additional supply chain efficiencies distribution • streamlining transactional services outsourcing moves lowcost countries january 2008 announced final initiatives part 2005 program expect record restructuring charges costs implement restructuring initiatives approximately 530 taxes december 31 2008 recorded total costs implement net adjustments 5042 606 2008 1583 2007 2288 2006 565 2005 actions associated restructuring initiatives expect record majority remaining costs end 2009 program february 2009 announced new restructuring program multiyear turnaround plan “2009 program” restructuring initiatives 2009 program expected focus restructuring global supply chain operations realigning certain local business support functions regional basis drive increased efficiencies streamlining transactionrelated services including selective outsourcing expect incur restructuring charges costs implement initiatives range 300 400 taxes next several years avon products inc notes consolidated financial statements continued restructuring charges 2005 december 2005 january 2006 exit disposal activities part multiyear restructuring plan approved specific actions initial phase multiyear restructuring plan included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • exit unprofitable lines business markets including closure unprofitable operations asia primarily indonesia exit product line china exit becoming product line us • move certain services markets within europe lower cost shared service centers actions described completed 2006 except move certain services markets within europe lower cost shared service centers completed 2008 connection initiatives approved date recorded total costs implement 2005 565 costs consisted following • charges 432 employeerelated costs including severance pension termination benefits asset impairment charges cumulative foreign currency translation charges previously recorded directly shareholders’ equity • charges 84 inventory writeoff • costs implement 49 professional service fees related implementation initiatives total costs implement 481 recorded selling general administrative expenses 2005 84 recorded cost sales 2005 approximately 58 charges resulted cash expenditures majority cash payments made 2006 restructuring charges 2006 january 2007 additional exit disposal activities part restructuring initiatives approved specific actions phase restructuring initiatives included • organization realignment downsizing region global process called “delayering” taking layers bring senior management closer operations • phased outsourcing certain services including certain key human resource customer service processes • realignment certain north america distribution operations • exit certain unprofitable operations including closure avon salon spa • reorganization certain functions primarily salesrelated organizations many actions completed 2006 including delayering program majority remaining actions completed 2007 outsourcing certain services expected completed phases 2009 realignment certain north america distribution operations expected completed phases 2012 reorganization one functions expected completed phases 2010 connection initiatives approved date recorded total costs implement 2006 2288 costs consisted following • charges 2183 employeerelated costs including severance pension termination benefits • favorable adjustments 161 primarily relating higher expected number employees successfully pursuing reassignments positions higher expected turnover employees leaving prior termination • costs implement 249 17 professional service fees related implementation initiatives accelerated depreciation respectively total costs implement 2291 recorded selling general administrative expenses 2006 favorable adjustment 3 recorded cost sales 2006 approximately 85 charges resulted cash expenditures majority cash payments made 2007 avon products inc notes consolidated financial statements continued restructuring charges 2007 january 2008 exit disposal activities part multiyear restructuring plan approved specific actions phase multiyear restructuring plan included • reorganization certain functions primarily salesrelated organizations • restructure certain international direct selling operations • realignment certain distribution manufacturing operations including realignment certain latin america distribution operations • automation certain distribution processes • outsourcing certain finance customer service information technology processes actions described expected completed end 2009 outsourcing certain information technology processes realignment certain latin america distribution operations expected completed end 2011 connection initiatives approved date recorded total costs implement 2007 1583 costs consisted following • charges 1180 employeerelated costs including severance pension termination benefits • favorable adjustments 80 primarily relating certain employees pursuing reassignments positions higher expected turnover employees leaving prior termination • costs implement 483 professional service fees associated initiatives outsource certain human resource finance customer service information technology processes accelerated depreciation associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 1573 recorded selling general administrative expenses 10 recorded cost sales 2007 approximately 95 charges expected result future cash expenditures majority cash payments made 2008 restructuring charges 2008 recorded total costs implement associated previously approved initiatives part multiyear restructuring plan 606 costs consisted following • net charges 191 primarily severance pension benefits • implementation costs 305 professional service fees primarily associated initiatives outsource certain finance human resource processes • accelerated depreciation 110 associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 575 recorded selling general administrative expenses 31 recorded cost sales 2008 avon products inc notes consolidated financial statements continued liability balances initiatives approved date shown noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented inventory writeoffs relate exited businesses following table presents restructuring charges incurred date net adjustments multiyear restructuring plan began fourth quarter 2005 along charges expected incurred plan avon products inc notes consolidated financial statements continued charges net adjustments initiatives approved date reportable business segment follows noted previously expect record total costs implement approximately 530 range 300 400 taxes restructuring initiatives 2005 2009 programs respectively including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording yet met addition charges included tables incur costs implement consulting professional services accelerated depreciation note 15 contingencies december 2002 brazilian subsidiary received series excise income tax assessments brazilian tax authorities asserting establishment 1995 separate manufacturing distribution companies country done without valid business purpose assessments assert tax deficiencies portions years 1997 1998 approximately 866 exchange rate december 31 2008 plus penalties accruing interest totaling approximately 1620 exchange rate december 31 2008 july 2003 firstlevel appellate body rejected basis income tax assessments representing approximately 76 total assessment 1891 including interest march 2004 rejection confirmed mandatory secondlevel appellate review remaining assessments relating excise taxes approximately 594 affected awaiting decision first administrative level december 2003 additional assessment received respect excise taxes balance 1998 totaling approximately 1202 exchange rate december 31 2008 asserting different theory liability based purported market sales data january 2005 unfavorable first administrative level decision received respect appeal assessment appeal taken december 2004 additional assessment received respect excise taxes period january 1999 december 2001 totaling approximately 2673 exchange rate december 31 2008 asserting theory liability december 2003 assessment appealed assessment september 2005 unfavorable first administrative level decision received respect appeal december 2004 assessment appeal taken assessments issued 2003 2004 awaiting decision second administrative level event assessments upheld earlier stages review may necessary us provide security pursue appeals depending circumstances may result charge income possible make reasonable estimate amount range expense could result unfavorable outcome respect additional assessments may issued subsequent periods structure adopted 1995 comparable used many companies brazil believe appropriate operationally legally assessments unfounded matter vigorously contested opinion outside counsel likelihood assessments ultimately upheld remote management believes likelihood assessments material impact consolidated financial position results operations cash flows correspondingly remote avon products inc notes consolidated financial statements continued kendall v employees’ retirement plan avon products retirement board purported class action commenced april 2003 united states district court southern district new york plaintiff retired employee avon retirement paid disability leave approximately 19 years initial complaint alleged employees’ retirement plan avon products “retirement plan” violated employee retirement income security act “erisa” consequence unlawfully reduced amount plaintiff’s pension plaintiff sought reformation retirement plan recalculation benefits terms retirement plan reformed plaintiff purported class november 2003 plaintiff filed amended complaint alleging additional retirement plan violations erisa seeking among things elimination social security offset retirement plan purported class includes “all plan participants whether active inactive retired beneficiaries andor estates one hour service january 1 1976 whose accrued benefits pensions survivor’s benefits calculated paid based plan’s unlawful provisions” february 2004 filed motion dismiss amended complaint september 2007 trial court granted motion dismiss plaintiff thereafter appealed decision united states court appeals second circuit possible predict outcome litigation management believes meritorious defenses claims asserted action material adverse effect consolidated financial position results operations cash flows action vigorously contested august 2005 reported filing class action complaints alleged violations federal securities laws actions entitled nilesh patel v avon products inc et al michael cascio v avon products inc et al respectively subsequently consolidated amended class action complaint alleged violations federal securities laws filed consolidated action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc securities litigation naming avon officer two officerdirectors consolidated action brought behalf purchasers common stock february 3 2004 september 20 2005 seeks damages alleged false misleading statements “concerning avon’s operations performance china united states mexico” consolidated amended complaint also asserts class period certain officers directors sold shares common stock february 2006 filed motion dismiss consolidated amended class action complaint asserting among things failed state claim upon relief may granted plaintiffs opposed motion august 2005 reported filing complaint shareholder derivative action purportedly brought behalf avon entitled robert l garber derivatively behalf avon products inc v andrea jung et al defendants avon products inc nominal defendant amended complaint filed action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc securities litigation naming certain officers directors amended complaint alleges defendants’ violations state law including breaches fiduciary duties abuse control gross mismanagement waste corporate assets unjust enrichment february 2004 present caused losses avon february 2006 filed motion dismiss amended complaint asserting among things failed state claim upon relief may granted plaintiff opposed motion february 2009 plaintiff garber filed unopposed motion voluntary dismissal action court granted order dated february 13 2009 october 2005 reported filing class action complaints alleged violations employee retirement income security act “erisa” actions entitled john rogati v andrea jung et al carolyn jane perry v andrea jung et al respectively subsequently consolidated class action complaint alleged violations erisa filed consolidated action december 2005 united states district court southern district new york master file number 05cv06803 caption avon products inc erisa litigation naming avon certain officers avon’s retirement board others consolidated action purports brought behalf avon products inc personal savings account plan avon products inc personal retirement account plan collectively “plan” behalf participants beneficiaries plan “for whose individual accounts plan purchased held interest avon products inc common stock february 20 2004 present” consolidated complaint asserts breaches fiduciary duties prohibited transactions violation erisa arising inter alia alleged false misleading public statements regarding avon’s business made class period investments avon stock plan participants february 2006 filed motion dismiss consolidated complaint asserting failed state claim upon relief may granted plaintiffs opposed motion avon products inc notes consolidated financial statements continued possible predict outcome litigation reasonably possible could unfavorable outcomes avon products inc securities litigation avon products inc securities litigation derivative action avon products inc erisa litigation matters management unable make meaningful estimate amount range loss could result unfavorable outcomes circumstances adverse awards could material consolidated financial position results operations cash flows voluntarily conducting internal investigation china operations focusing compliance foreign corrupt practices act internal investigation conducted oversight audit committee commenced june 2008 received allegation certain travel entertainment expenses may improperly incurred connection china operations voluntarily contacted securities exchange commission united states department justice advise agencies internal investigation underway internal investigation early stage cannot predict resulting consequences may impact internal controls business results operations financial position various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon management’s opinion based review information available time total cost resolving contingencies december 31 2008 material adverse effect consolidated financial position results operations cash flows note 16 goodwill intangible assets april 2 2007 acquired licensee egypt approximately 17 cash acquired business operated new whollyowned subsidiary included western europe middle east africa operating segment purchase price allocation resulted goodwill 93 customer relationships 10 sevenyear useful life august 2006 purchased remaining 6155 outstanding shares two jointventure subsidiaries china minority interest shareholders approximately 391 previously owned 93845 subsidiaries consolidated results recording minority interest portion owned upon completion transaction eliminated minority interest net assets subsidiaries purchase shares material impact consolidated net income avon china standalone operating segment purchase price allocation resulted goodwill 333 customer relationships 19 tenyear weightedaverage useful life goodwill avon products inc notes consolidated financial statements continued intangible assets note 17 supplemental balance sheet information december 31 2008 2007 prepaid expenses included following december 31 2008 2007 assets included following avon products inc notes consolidated financial statements continued note 18 results operations quarter unaudited 1 sum per share amounts quarters necessarily equal year computations made independently first second third fourth quarter 2008 include costs implement restructuring initiatives 255 133 144 74 respectively 0 3 26 2 reflected cost sales respectively 255 130 118 72 reflected selling general administrative expenses respectively second quarter 2008 includes benefits approximately 13 changes estimates disposition policy product line simplifications “pls” program first second third fourth quarter 2007 include costs implement restructuring initiatives 97 205 272 1009 respectively 7 0 4 7 reflected cost sales respectively 90 205 276 1002 reflected selling general administrative expenses respectively first second third fourth quarter 2007 include costs related pls program 173 609 59 1037 respectively note 19 subsequent events february 3 2009 announced increase quarterly cash dividend 21 per share 20 per share first dividend new rate paid march 2 2009 shareholders record february 17 2009 increase indicated annual dividend rate 84 per share february 2009 announced new restructuring program multiyear turnaround plan restructuring initiatives new program expected focus restructuring global supply chain operations realigning certain local business support functions regional basis drive increased efficiencies streamlining transactionrelated services including selective outsourcing expect incur restructuring charges costs implement initiatives range 300 400 taxes next several years schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2008 2007 2006 millions 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance tax loss carryforward benefits likely deferred tax assets utilized future 5 release valuation allowance deferred tax assets likely utilized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits 101 following materials formatted extensible business reporting language xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements cash flows iv consolidated statements changes shareholders’ equity v notes consolidated financial statements tagged blocks text vi schedule valuation qualifying accounts tagged block text exhibits identified asterisk management contracts compensatory plans arrangements furnished filed avon’s annual report form 10k year ended december 31 2009 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 25th day february 2010 avon products inc stephen ibbotson stephen ibbotson group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2009 december 31 2008 results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements 2009 company changed manner accounts noncontrolling interests subsidiaries 2007 company changed manner accounts uncertain tax positions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 25 2010 avon products inc consolidated statements income accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interest rate swap agreements 557 2009 836 2008 84 2007 see note 4 debt financing accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity accompanying notes integral part statements avon products inc notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms “avon” “company” “we” “our” “us” mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling reportable segments based geographic operations six regions latin america north america central eastern europe western europe middle east africa asia pacific china centralized operations global brand marketing global sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists fashion jewelry watches apparel footwear accessories home consists gift decorative products housewares entertainment leisure products children’s nutritional products sales health wellness products mark global cosmetics brand focuses market young women included among three categories based product type sales made ultimate consumer principally independent avon representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss financial statements subsidiaries operating highly inflationary economies translated using combination current historical exchange rates translation adjustments included current earnings gains losses resulting foreign currency transactions recorded expense net revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances avon products inc notes consolidated financial statements continued revenue primarily includes shipping handling fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout “fifo” method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures deferred amortized period benefits expected typically sales campaign length two four weeks prepaid expenses included deferred brochure costs 469 december 31 2009 440 december 31 2008 additionally paper stock purchased advance creating brochures prepaid expenses included paper supply 212 december 31 2009 316 december 31 2008 property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful lives assets capitalized interest 49 2009 49 2008 0 2007 deferred software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets included unamortized deferred software costs 1120 december 31 2009 983 december 31 2008 investments debt equity securities debt equity securities readily determinable fair value intend hold maturity classified availableforsale carried fair value unrealized holding gains losses net applicable taxes recorded separate component shareholders’ equity net deferred taxes realized gains losses sale availableforsale securities calculated specific identification basis declines fair values investments cost basis judged otherthantemporary recorded expense net determining whether otherthantemporary decline fair market value occurred consider various factors including duration extent market value cost goodwill intangible assets goodwill amortized rather assessed impairment annually occurrence event indicates impairment may occurred intangible assets estimable useful lives amortized using straightline method estimated useful lives assets completed annual goodwill impairment assessments adjustments goodwill necessary years ended december 31 2009 2008 2007 avon products inc notes consolidated financial statements continued financial instruments use derivative financial instruments including interestrate swap agreements forward foreign currency contracts options manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 7 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested december 31 2009 us income taxes provided 22468 undistributed income subsidiaries intended indefinitely reinvested outside us uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 9391 2009 9721 2008 9139 2007 shipping handling costs included selling general administrative expenses consolidated statements income advertising costs excluding brochure preparation costs expensed incurred amounted 3527 2009 3905 2008 3684 2007 research development research development costs expensed incurred amounted 667 2009 700 2008 718 2007 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options restructuring reserves record severancerelated expenses provided ongoing benefit arrangement probable estimable onetime involuntary benefit arrangements disposal costs primarily contract termination costs recorded benefits communicated employees onetime voluntary benefit arrangements recorded employee accepts offered benefit arrangement evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset avon products inc notes consolidated financial statements continued contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable reclassifications reclassified prior year amounts consolidated financial statements accompanying notes comparative purposes reclassified minority interest 374 liabilities shareholders’ equity consolidated balance sheet december 31 2008 result adoption new accounting guidance see note 2 information earnings per share compute earnings per share “eps” using twoclass method earnings allocation formula determines earnings per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net income allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year three years ended december 31 components basic diluted eps follows include stock options purchase 168 million shares year ended december 31 2009 213 million shares 2008 74 million shares 2007 avon common stock calculations diluted eps exercise prices options greater average market price inclusion would antidilutive note 2 new accounting standards june 2009 financial accounting standards board “fasb” issued fasb accounting standards codification “codification” established codification authoritative source nongovernmental accounting principles applied financial statements prepared accordance gaap standards implemented effective january 1 2009 adopted fair value measurement provisions required fair value measurements disclosures topic codification relates measurement nonfinancial assets liabilities nonrecurring basis adoption provisions impact consolidated financial statements effective january 1 2009 adopted enhanced disclosures use derivative instruments accounted affect financial performance required derivatives hedging topic codification see note 7 financial instruments risk management avon products inc notes consolidated financial statements continued effective january 1 2009 adopted provisions required eps topic codification specific provisions address whether instruments granted sharebased payment awards participating securities prior vesting therefore need included earnings allocation computing eps twoclass method prior periods eps adjusted retrospectively caused december 31 2008 basic eps adjusted 205 204 diluted eps adjusted 204 203 impact eps year ended december 31 2007 see note 1 description business summary significant accounting policies effective january 1 2009 adopted provisions relating accounting business combinations required business combinations topic codification provisions impact financial statements acquisition date subsequent periods applied prospectively impact adopting provisions depend nature terms future acquisitions effective january 1 2009 adopted provisions accounting reporting noncontrolling interests subsidiary consolidated financial statements required consolidations topic codification provisions recharacterize minority interests noncontrolling interests require noncontrolling interests classified component shareholders’ equity provisions require retroactive adoption presentation disclosure requirements existing minority interests result adoption provisions reclassified minority interest 374 liabilities shareholders’ equity consolidated balance sheet december 31 2008 effective june 30 2009 adopted subsequent event provisions codification provisions provide guidance management’s assessment subsequent events adoption provisions impact consolidated financial statements effective december 31 2009 adopted provisions compensation retirement benefits topic codification relate employer’s disclosures postretirement benefit plan assets provisions required additional disclosures major categories plan assets concentrations risk well disclosure fair value levels see note 11 employee benefit plans standards implemented january 2010 fasb issued accounting standards update “asu” 201006 improving disclosures fair value measurements asu amends fasb codification topic 820 fair value measurements disclosures require additional disclosures regarding fair value measurements asu 201006 effective december 31 2010 avon note 3 inventories december 31 consisted following avon products inc notes consolidated financial statements continued note 4 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 58 december 31 2009 76 december 31 2008 longterm debt payable 2019 included obligations capital leases 153 december 31 2009 114 december 31 2008 primarily relate leases automobiles equipment addition longterm debt payable 2019 december 31 2009 included financing lease obligations entered 2009 721 primarily relates sale leaseback equipment software one distribution facilities north america adjustments debt fair value hedges includes adjustments reflect net unrealized gains 276 december 31 2009 net unrealized gains 800 december 31 2008 debt fair value hedges unamortized gains terminated swap agreements swap agreements longer designated fair value hedges 0 december 31 2009 39 december 31 2008 see note 7 financial instruments risk management held interestrate swap contracts swap approximately 82 december 31 2009 50 december 31 2008 longterm debt variable rates see note 7 financial instruments risk management march 2009 issued 8500 principal amount notes payable public offering 5000 notes bear interest per annum coupon rate equal 5625 payable semiannually mature march 1 2014 “2014 notes” 3500 notes bear interest per annum coupon rate equal 650 payable semiannually mature march 1 2019 “2019 notes” net proceeds offering 8376 used repay outstanding indebtedness commercial paper program general corporate purposes connection offering 2014 notes entered fiveyear interestrate swap agreements notional amounts totaling 5000 effectively convert fixed interest rate 2014 notes variable interest rate based libor carrying value 2014 notes represents 5000 principal amount net unamortized discount face value 23 december 31 2009 carrying value 2019 notes represents 3500 principal amount net unamortized discount face value 41 december 31 2009 avon products inc notes consolidated financial statements continued march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 480 payable semiannually mature march 1 2013 unless previously redeemed “2013 notes” 2500 notes bear interest per annum coupon rate 575 payable semiannually mature march 1 2018 unless previously redeemed “2018 notes” net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2013 notes represents 2500 principal amount net unamortized discount face value 2 december 31 2009 3 december 31 2008 carrying value 2018 notes represents 2500 principal amount net unamortized discount face value 7 december 31 2009 8 december 31 2008 january 2006 issued public offering 5000 principal amount notes payable “5125 notes” mature january 15 2011 bear interest payable semiannually per annum rate equal 5125 net proceeds offering used general corporate purposes including repayment shortterm domestic debt carrying value 5125 notes represents 5000 principal amount net unamortized discount face value 2 december 31 2009 3 december 31 2008 june 2003 issued public 2500 principal amount registered senior notes “420 notes” 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually carrying value 420 notes represents 2500 principal amount net unamortized discount face value 7 8 december 31 2009 2008 respectively april 2003 call holder 1000 principal amount 625 notes due may 2018 “notes” embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually “4625 notes” transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes carrying value 4625 notes represents 1250 principal amount net unamortized discount face value premium related call option associated original notes totaling 87 december 31 2009 109 december 31 2008 annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2009 follows financing fiveyear 10000 revolving credit competitive advance facility “credit facility” expires january 2011 credit facility may used general corporate purposes interest rate borrowings credit facility based libor higher prime 12 plus federal funds rate credit facility annual fee 7 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 amounts outstanding credit facility december 31 2009 december 31 2008 respectively avon products inc notes consolidated financial statements continued maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported credit facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2009 amounts outstanding commercial paper program december 31 2008 commercial paper outstanding 4997 average annual interest rate 23 indentures notes issued contain certain covenants including limits incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets december 31 2009 compliance covenants indentures contain rating downgrade triggers would accelerate maturity debt however would required make offer repurchase 2013 notes 2014 notes 2018 notes 2019 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding ratings downgrade investment grade december 31 2009 also letters credit outstanding totaling 397 primarily guarantee various insurance activities addition outstanding letters credit various trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels note 5 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following foreign exchange gains losses 145 2009 254 2008 resulting translation actuarial losses prior service credit translation obligation recorded accumulated comprehensive income “aoci” included foreign currency translation adjustments rollforward accumulated comprehensive loss consolidated statements changes shareholders equity avon products inc notes consolidated financial statements continued note 6 income taxes deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign tax loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 1100 2009 mainly due several foreign entities continuing incur losses 2009 thereby increasing tax loss carryforwards valuation allowance provided avon products inc notes consolidated financial statements continued income taxes years ended december 31 follows provision income taxes years ended december 31 follows effective tax rate years ended december 31 follows december 31 2009 foreign tax loss carryforwards 12554 loss carryforwards expiring 2010 2024 1107 loss carryforwards expire 11447 also minimum tax credit carryforwards 329 expire capital loss carryforwards 40 expire 2010 2013 foreign tax credit carryforwards 1442 expire 2016 2019 uncertain tax positions effective january 1 2007 adopted provisions recognizing measuring tax positions taken expected taken tax return affect amounts reported financial statements required income taxes topic codification result implementation recognized 183 increase liability unrecognized tax benefits including interest penalties accounted reduction january 1 2007 balance retained earnings december 31 2009 1134 total gross unrecognized tax benefits approximately 102 would impact effective tax rate recognized avon products inc notes consolidated financial statements continued reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 259 december 31 2009 225 december 31 2008 accrued interest penalties net tax benefit recorded expense 16 2009 benefit 32 2008 expense 33 2007 interest penalties net taxes file income tax returns us federal jurisdiction various states foreign jurisdictions december 31 2009 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 45 55 within next 12 months due closure tax years expiration statute limitations audit settlements note 7 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger avon products inc notes consolidated financial statements continued derivatives recognized balance sheet fair values following table presents fair value derivative instruments outstanding december 31 2009 accounting policies derivatives recognized balance sheet fair values become party derivative instrument designate financial reporting purposes instrument fair value hedge cash flow hedge net investment hedge nonhedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income include change time value options assessment hedge effectiveness determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk longterm fixedrate borrowings subject interest rate risk use interestrate swap agreements effectively convert fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges held interestrate swap agreements effectively converted approximately 82 december 31 2009 50 december 31 2008 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates approximately 83 december 31 2009 65 december 31 2008 avon products inc notes consolidated financial statements continued interestrate swap agreements designated fair value hedges fixedrate debt notional amounts totaling 1875 december 31 2009 unrealized gains 439 december 31 2009 837 december 31 2008 2009 recorded net loss 524 interest expense interestrate swap agreements designated fair value hedges impact interest expense interestrate swap agreements offset equal offsetting impact interest expense fixedrate debt times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepayfixed interestrate swap agreements designed offset gain loss dedesignated contract december 31 2009 interestrate swap agreements designated hedges notional amounts totaling 250 unrealized gains agreements 0 december 31 2009 39 december 31 2008 2009 recorded net loss 32 expense net associated undesignated interestrate swap agreements longterm debt included net unrealized gains 276 december 31 2009 800 december 31 2008 interest rate swaps designated fair value hedges longterm debt also included remaining unamortized gains 0 december 31 2009 39 december 31 2008 resulting terminated swap agreements swap agreements longer designated fair value hedges amortized interest expense remaining terms underlying debt hedge ineffectiveness years ended december 31 2009 2008 2007 related interest rate swaps 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 expired july 31 2008 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses locks 380 recorded aoci 192 losses amortized interest expense five years 188 amortized ten years 2005 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated locks hedges reclassified gain 25 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss 2005 lock agreement 19 recorded aoci amortized interest expense five years 2003 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 26 recorded aoci amortized interest expense ten years aoci included remaining unamortized losses 288 187 net taxes december 31 2009 352 229 net taxes december 31 2008 resulting treasury lock agreements foreign currency risk primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro japanese yen mexican peso philippine peso polish zloty russian ruble turkish lira ukrainian hryvnia venezuelan bolivar use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2009 outstanding foreign exchange forward contracts notional amounts totaling approximately 2852 euro hungarian forint peruvian new sol czech republic koruna romanian leu canadian dollar australian dollar new zealand dollar polish zloty british pound avon products inc notes consolidated financial statements continued use foreign exchange forward contracts hedge portions forecasted foreign currency cash flows resulting intercompany royalties thirdparty intercompany foreign currency transactions high probability anticipated exposures materialize contracts designated cash flow hedges effective portion gain loss derivative recorded accumulated comprehensive income extent effective reclassified earnings period periods transaction hedged derivative also affects earnings ineffective portion gain loss derivative recorded expense net ineffective portion cash flow foreign currency derivative instruments net gains losses reclassified aoci earnings cash flow hedges discontinued forecasted transactions probable occurring material december 31 2009 expect reclassify 188 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months due foreign currency denominated intercompany royalties b intercompany loan settlements c foreign currency denominated purchases receipts years ended december 31 2009 2008 cash flow hedges impacted aoci follows also use foreign exchange forward contracts manage foreign currency exposure intercompany loans contracts designated hedges financial reporting purposes change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating intercompany loans 2009 recorded gain 83 expense net related undesignated foreign exchange forward contracts also 2009 recorded loss 29 related intercompany loans caused changes foreign currency exchange rates used foreign exchange forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets foreign subsidiary loss 16 foreign currencydenominated debt effective hedge net assets foreign subsidiary recorded accumulated comprehensive income 2009 japanese yendenominated note payable hedge net investment japanese subsidiary debt repaid 2009 238 2009 336 2008 97 2007 related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets 2009 ineffective portion loss 3 foreign currencydenominated debt recorded expense net credit market risk attempt minimize credit exposure counterparties entering interest rate swap foreign currency forward rate option agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 60 december 31 2009 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates avon products inc notes consolidated financial statements continued note 8 fair value assets liabilities measured fair value adopted fair value measurement provisions required fair value measurements disclosures topic codification january 1 2008 exception application nonfinancial assets liabilities measured fair value nonrecurring basis adopted january 1 2009 impact consolidated financial statements adoption fair value measurement provisions material impact fair value measurements fair value measurement provisions define fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date addition fair value measurement provisions establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2009 table excludes pension postretirement plan assets refer note 11 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 11 employee benefit plans foreign exchange forward contracts interestrate swap agreements hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table avon products inc notes consolidated financial statements continued fair value financial instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values financial instruments december 31 consisted following methods assumptions used estimate fair value follows cash equivalents grantor trust cash equivalents short term investments given short term nature financial instruments stated cost approximates fair value availableforsale securities fair values investments based quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined based quoted market prices foreign exchange forward contracts fair values forward contracts based quoted forward foreign exchange prices reporting date interestrate swap agreements fair values interestrate swap agreements estimated based libor yield curves reporting date note 9 sharebased compensation plans avon products inc 2005 stock incentive plan “2005 plan” shareholder approved provides several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance unit awards 2005 plan maximum number shares may awarded 31000000 shares 8000000 shares may used restricted stock awards restricted stock unit awards shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock restricted stock units stock appreciation rights 2005 plan stock option awards granted exercise price equal closing market price stock date grant option awards generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock restricted stock units generally vest three years ended december 31 avon products inc notes consolidated financial statements continued compensation cost stock options restricted stock restricted stock units stock appreciation rights 2009 2008 2007 recorded selling general administrative expenses years ended december 31 2009 2008 determined pool windfall tax benefits stock options fair value option award estimated date grant using blackscholesmerton option pricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life ten years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumed current cash dividends 21 2009 20 2008 185 2007 per share quarter common stock options granted years weightedaverage grantdate fair values per share options granted 318 2009 804 2008 841 2007 summary stock options december 31 2009 changes 2009 follows december 31 2009 approximately 190 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 13 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2009 2008 2007 follows avon products inc notes consolidated financial statements continued restricted stock restricted stock units fair value restricted stock restricted stock units granted determined based closing price common stock date grant summary restricted stock restricted stock units december 31 2009 changes 2009 follows total fair value restricted stock restricted stock units vested 2009 181 based upon market prices vesting dates december 31 2009 approximately 317 unrecognized compensation cost related restricted stock restricted stock unit compensation arrangements cost expected recognized weightedaverage period 18 years note 10 shareholders’ equity stock repurchase program february 2005 board approved fiveyear 10000 share repurchase program begin upon completion previous share repurchase program 10000 program completed december 2007 october 2007 board directors approved fiveyear 20000 share repurchase program “20 billion program” began december 2007 repurchased approximately 48 million shares 1802 20 billion program december 31 2009 avon products inc notes consolidated financial statements continued note 11 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan “psa” allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 121 2009 130 2008 128 2007 used psa purchase shares open market defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits majority employees retire retirement plans us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive income shareholders’ equity reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued avon products inc notes consolidated financial statements continued us pension plans include funded qualified plans unfunded nonqualified plans december 31 2009 us qualified pension plans benefit obligations 6155 plan assets 4706 december 31 2008 us qualified pension plans benefit obligations 6356 plan assets 4491 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans components net periodic benefit cost amounts recognized comprehensive income amounts represent pretax effect included within comprehensive income net tax amounts included within consolidated statements changes shareholders’ equity amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2010 follows avon products inc notes consolidated financial statements continued assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis decreased 561 december 31 2009 611 december 31 2008 weightedaverage assumptions used determine net benefit cost recorded consolidated statements income years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2009 assumed rate return assets globally 76 represents weightedaverage rate return plan assets including us nonus plans majority pension plan assets relate us pension plan assumed rate return determining 2009 net costs us plan 8 addition current rate return assumption us plan based asset allocation approximately 32 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 68 equity securities expected earn approximately 7 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage rate return 718 determining 2009 net cost avon products inc notes consolidated financial statements continued plan assets us nonus funded pension postretirement plans target weightedaverage asset allocations december 31 2009 2008 asset category follows following table presents fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2009 avon products inc notes consolidated financial statements continued reconciliation beginning ending balances level 3 investments follows investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment letting transactions similar types property supplemented third party surveyors overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow actual characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 15 20 us pension postretirement plans range 30 40 international pension postretirement plans 2010 total benefit payments expected paid plans follows avon products inc notes consolidated financial statements continued postretirement benefits 2009 assumed rate future increases per capita cost health care benefits health care cost trend rate 80 claims gradually decrease year thereafter 50 2017 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage eligible former employees employment retirement accrued cost postemployment benefits 672 december 31 2009 749 december 31 2008 included employee benefit plans liability supplemental retirement programs offer nonqualified deferred compensation plan avon products inc deferred compensation plan “dcp” certain key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would made avon personal savings account plan “psa” excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated dcp 66 2009 46 2008 68 2007 accrued liability dcp 908 december 31 2009 941 december 31 2008 included liabilities maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc “serp” benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost programs included determination net periodic benefit cost shown previously amounted 74 2009 79 2008 95 2007 benefit obligation programs 698 december 31 2009 731 december 31 2008 included employee benefit plans also maintain supplemental life plan “slip” additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers 2009 established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date changes cash surrender value period recorded gain loss consolidated statements income fixedincome portfolio held grantor trust classified availableforsale securities avon products inc notes consolidated financial statements continued note 12 segment information operating segments reportable segments based geographic operations include commercial business units latin america north america central eastern europe western europe middle east africa asia pacific china global expenses include among things costs related executive administrative offices information technology research development marketing allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments income taxes foreign exchange gains losses costs implementing restructuring initiatives related global functions costs implementing restructuring initiatives related specific segment recorded within segment europe manufacturing facilities primarily support western europe middle east africa central eastern europe disclosures total assets capital expenditures depreciation amortization allocated amounts associated european manufacturing facilities western europe middle east africa central eastern europe based upon planned beauty unit volume similar allocation done asia manufacturing facilities primarily support asia pacific china segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning reportable segments december 31 shown following tables total revenue operating profit total assets avon products inc notes consolidated financial statements continued capital expenditures depreciation amortization total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets us brazil’s longlived assets consist primarily property plant equipment related manufacturing distribution facilities avon products inc notes consolidated financial statements continued revenue product category 1 beauty includes color cosmetics fragrances skin care personal care 2 fashion includes fashion jewelry watches apparel footwear accessories 3 home includes gift decorative products housewares entertainment leisure products children’s nutritional products 4 revenue primarily includes shipping handling fees billed representatives sales health wellness products mark included among categories based product type note 13 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2009 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 1161 2009 1204 2008 1185 2007 plant construction expansion modernization projects estimated cost complete approximately 4898 progress december 31 2009 note 14 restructuring initiatives 2005 restructuring program november 2005 announced multiyear turnaround plan restore sustainable growth part turnaround plan launched restructuring program late 2005 “2005 restructuring program” restructuring initiatives program include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organization downsizing • implementation global manufacturing strategy facilities realignment • implementation additional supply chain efficiencies distribution • streamlining transactional services outsourcing moves lowcost countries avon products inc notes consolidated financial statements continued approved announced initiatives part 2005 restructuring program expect record total restructuring charges costs implement restructuring initiatives approximately 530 taxes december 31 2009 recorded total costs implement net adjustments 5243 201 2009 606 2008 1583 2007 2288 2006 565 2005 actions associated restructuring initiatives restructuring charges 2007 january 2008 exit disposal activities part 2005 restructuring program approved specific actions phase multiyear restructuring plan included • reorganization certain functions primarily salesrelated organizations • restructure certain international direct selling operations • realignment certain distribution manufacturing operations including realignment certain latin america distribution operations • automation certain distribution processes • outsourcing certain finance customer service information technology processes outsourcing information technology processes realignment latin america distribution operations expected completed end 2011 actions described completed end 2009 2007 recorded total costs implement 2007 1583 associated 2005 restructuring program costs consisted following • charges 1180 employeerelated costs including severance pension termination benefits • favorable adjustments 80 primarily relating certain employees pursuing reassignments positions higher expected turnover employees leaving prior termination • costs implement 483 professional service fees associated initiatives outsource certain human resource finance customer service information technology processes accelerated depreciation associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 1573 recorded selling general administrative expenses 10 recorded cost sales 2007 approximately 95 charges expected result future cash expenditures majority cash payments made 2009 restructuring charges 2008 recorded total costs implement 606 associated previously approved initiatives part 2005 restructuring program costs consisted following • net charges 191 primarily employeerelated costs including severance pension benefits • implementation costs 305 professional service fees primarily associated initiatives outsource certain finance human resource processes • accelerated depreciation 110 associated initiatives realign distribution operations close manufacturing operations total costs implement 575 recorded selling general administrative expenses 31 recorded cost sales 2008 restructuring charges 2009 recorded total costs implement 201 associated previously approved initiatives part 2005 restructuring program costs consisted following • net charges 47 primarily employeerelated costs including severance pension benefits • implementation costs 96 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations • accelerated depreciation 58 associated initiatives realign distribution operations avon products inc notes consolidated financial statements continued total costs implement 198 recorded selling general administrative expenses 3 recorded cost sales 2009 liability balances initiatives 2005 restructuring program shown noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented inventory writeoffs relate exited businesses avon products inc notes consolidated financial statements continued following table presents restructuring charges incurred date net adjustments 2005 restructuring program along charges expected incurred plan charges net adjustments initiatives approved date 2005 restructuring program reportable business segment follows noted previously expect record total costs implement approximately 530 taxes restructuring initiatives 2005 restructuring program including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incur costs implement restructuring initiatives consulting professional services accelerated depreciation 2009 restructuring program february 2009 announced new restructuring program “2009 restructuring program” targets increasing levels efficiency organizational effectiveness across global operations 2009 restructuring program initiatives expected include • restructuring global supply chain operations • realigning certain local business support functions regional basis drive increased efficiencies • streamlining transactionrelated services including selective outsourcing expect record total restructuring charges costs implement restructuring initiatives range 300 400 taxes 2009 restructuring program actions completed 20122013 avon products inc notes consolidated financial statements continued restructuring charges 2009 recorded total costs implement 1513 associated approved initiatives part 2009 restructuring program costs consisted following • net charges 1260 primarily employeerelated costs including severance pension benefits • implementation costs 189 professional service fees primarily associated initiatives realign certain support functions regional basis realignment certain manufacturing facilities • accelerated depreciation 64 associated initiatives realign distribution operations close manufacturing operations total costs implement 1449 recorded selling general administrative expenses 64 recorded cost sales 2009 costs implement expected result future cash expenditure majority cash payments made 2010 2011 liability balances initiatives 2009 restructuring program shown noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented charges net adjustments initiatives approved date 2009 restructuring program reportable business segment follows noted previously expect record total costs implement range 300 400 taxes restructuring initiatives 2009 restructuring program including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incur costs implement restructuring initiatives consulting professional services accelerated depreciation avon products inc notes consolidated financial statements continued note 15 contingencies 2002 2003 2004 brazilian subsidiary received series excise tax assessments brazilian tax authorities alleged tax deficiencies years 19972001 asserting establishment 1995 separate manufacturing distribution companies country done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax based purported market sales data structure adopted 1995 comparable used companies brazil believe brazilian corporate structure appropriate operationally legally assessments unfounded matter vigorously contested opinion outside counsel likelihood assessments ultimately upheld remote management believes likelihood assessments material impact consolidated financial position results operations cash flows correspondingly remote december 31 2009 total assessments related remote contingencies including penalties accruing interest amounted approximately 620 exchange rate december 31 2009 event assessments upheld earlier stages review may necessary us provide security pursue appeals depending circumstances may result charge income currently awaiting decisions first administrative level 2002 assessment second administrative level 2003 2004 assessments possible make reasonable estimate amount range expense could result unfavorable outcome respect additional assessments may issued subsequent periods previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance foreign corrupt practices act related us foreign laws china additional countries internal investigation compliance reviews conducted oversight audit committee began june 2008 voluntarily contacted united states securities exchange commission united states department justice advise agencies internal investigation compliance reviews done beginning internal investigation continuing cooperate agencies signed tolling agreements internal investigation compliance reviews started china focused reviewing certain expenses books records processes including limited travel entertainment gifts payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters ongoing point unable predict duration scope results internal investigation compliance reviews various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon management’s opinion based review information available time total cost resolving contingencies december 31 2009 material adverse effect consolidated financial position results operations cash flows note 16 goodwill intangible assets april 2 2007 acquired licensee egypt approximately 17 cash acquired business operated new whollyowned subsidiary included western europe middle east africa operating segment purchase price allocation resulted goodwill 93 customer relationships 10 sevenyear useful life august 2006 purchased remaining 6155 outstanding shares two jointventure subsidiaries china minority interest shareholders approximately 391 previously owned 93845 subsidiaries consolidated results recording minority interest portion owned upon completion transaction eliminated minority interest net assets subsidiaries purchase shares material impact consolidated net income avon china standalone operating segment purchase price allocation resulted goodwill 333 customer relationships 19 tenyear weightedaverage useful life avon products inc notes consolidated financial statements continued goodwill intangible assets aggregate amortization expense estimated amortization expense note 17 supplemental balance sheet information december 31 2009 2008 prepaid expenses included following avon products inc notes consolidated financial statements continued accordance accounting guidance issued international practices task force subsidiary venezuela purchases us dollar denominated cash parallel market exchange rate venezuelan subsidiary remeasure cash parallel market exchange rate subsidiary translate cash well remainder net assets official rate expected rate available dividend remittances since remeasurement translation occur different exchange rates difference arises actual us dollar denominated cash balance “as translated” balance deferred charge table represents difference us dollar denominated cash held venezuelan subsidiary december 31 2009 2008 assets included following 2009 redeemed approximately 46 corporateowned life insurance policies recorded assets note 18 results operations quarter unaudited 1 sum per share amounts quarters necessarily equal year computations made independently avon products inc notes consolidated financial statements continued results operations quarter impacted following note 19 subsequent events management evaluated subsequent events february 25 2010 date financial statements issued effective january 1 2010 avon treat venezuela highly inflationary economy accounting purposes effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services although official rules yet issued avon’s imports expected fall nonessential classification february 9 2010 announced increase quarterly cash dividend 22 per share 21 per share beginning firstquarter dividend payable march 1 2010 shareholders record february 23 2010 increase indicated annual dividend rate 88 per share schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2009 2008 2007 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance tax loss carryforward benefits likely deferred tax assets realized future 5 release valuation allowance deferred tax assets likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits identified asterisk management contracts compensatory plans arrangements furnished filed avon’s annual report form 10k year ended december 31 2010 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 24th day february 2011 avon products inc stephen ibbotson stephen ibbotson group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2010 december 31 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp new york new york february 24 2011 avon products inc consolidated statements income accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interest rate swap agreements 668 2010 557 2009 836 2008 see note 5 debt financing 1 includes cash equivalent discontinued operations 135 32 99 beginning year 2010 2009 2008 respectively 2 includes cash equivalents discontinued operations 135 32 end year 2009 2008 respectively accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity accompanying notes integral part statements avon products inc notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms “avon” “company” “we” “our” “us” mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling reportable segments based geographic operations six regions latin america north america central eastern europe western europe middle east africa asia pacific china centralized operations global brand marketing global sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists fashion jewelry watches apparel footwear accessories children’s products home consists gift decorative products housewares entertainment leisure products nutritional products sales made ultimate consumer principally independent representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses valuation intangible assets contingent consideration foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss “aoci” gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded “other expense net” financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities “other expense net” similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded “income taxes” consolidated statement income nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities venezuela currency effective january 1 2010 began account venezuela highly inflationary economy effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services effective december 30 2010 venezuelan government eliminated 260 rate available import essential goods substantially imports subsidiary venezuela “avon venezuela” falls nonessential classification avon products inc notes consolidated financial statements continued use nonessentials rate 430 remeasure bolívare denominated assets liabilities us dollars reporting date since rate expected available dividend remittances record loss within operating profit believe going convert bolívare denominated assets settle us dollar denominated liabilities sources exchange rate less favorable official rate result change official rate 430 conjunction accounting operations venezuela highly inflationary accounting guidelines first quarter 2010 recorded net charges 461 million “other expense net” 127 million “income taxes” revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances revenue primarily includes shipping handling order processing fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout “fifo” method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures deferred prepaid expenses incurred fees charged representatives sale brochures netted costs prepare brochures net brochure cost associated sales campaign expensed selling general administrative expenses campaign length prepaid expenses included deferred brochure costs 448 december 31 2010 457 december 31 2009 additionally paper stock purchased advance creating brochures prepaid expenses included paper supply 191 december 31 2010 212 december 31 2009 property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset avon products inc notes consolidated financial statements continued capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful lives assets capitalized interest 47 2010 49 2009 49 2008 deferred software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets included unamortized deferred software costs 1406 december 31 2010 1116 december 31 2009 goodwill intangible assets goodwill amortized rather assessed impairment annually occurrence event indicates impairment may occurred intangible assets estimable useful lives amortized using straightline method estimated useful lives assets completed annual goodwill impairment assessments adjustments goodwill necessary years ended december 31 2010 2009 2008 financial instruments use derivative financial instruments including interestrate swap agreements forward foreign currency contracts manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 8 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested december 31 2010 us income taxes provided 24232 undistributed income subsidiaries intended indefinitely reinvested outside us uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 9688 2010 9200 2009 9501 2008 advertising costs excluding brochure preparation costs expensed incurred amounted 4004 2010 3527 2009 3905 2008 avon products inc notes consolidated financial statements continued net brochure costs brochure costs amounted 4727 2010 4812 2009 4471 2008 offset brochure fees 2910 2010 2700 2009 2642 2008 research development research development costs expensed incurred amounted 726 2010 654 2009 697 2008 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options restructuring reserves record severancerelated expenses provided ongoing benefit arrangement probable estimable onetime involuntary benefit arrangements disposal costs primarily contract termination costs recorded benefits communicated employees onetime voluntary benefit arrangements recorded employee accepts offered benefit arrangement contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable revisions revised immaterial amounts consolidated financial statements accompanying notes reclassified 307 293 order processing fees selling general administrative expenses revenue consolidated statements income twelve months ended december 31 2009 2008 respectively reclassified 262 noncurrent deferred taxes longterm income taxes assets consolidated statements balance sheet december 31 2009 reclassified 169 interest receivable interest rate swaps accrued liabilities prepaid expenses consolidated statements balance sheet december 31 2009 revisions impact consolidated statements income cash flows operating investing financing activities earnings per share compute earnings per share “eps” using twoclass method earnings allocation formula determines earnings per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net income allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows include stock options purchase 185 million shares year ended december 31 2010 168 million shares 2009 213 million shares 2008 avon common stock calculations diluted eps exercise prices options greater average market price inclusion would antidilutive note 2 new accounting standards implemented january 2010 fasb issued accounting standards update “asu” 201006 improving disclosures fair value measurements asu amends fasb codification topic 820 fair value measurements disclosures require additional disclosures regarding fair value measurements asu 201006 related enhanced disclosures regarding significant transfers level 1 2 fair value measurements effective december 31 2010 avon impact financial statements required disclosures related activity level 3 fair value measurements effective beginning january 1 2011 avon expected significant impact financial statements june 2009 financial accounting standards board “fasb” amended accounting guidance consolidation variable interest entities “vie” among things new guidance requires qualitative rather quantitative assessment determine primary beneficiary vie based whether entity 1 power direct matters significantly impact activities vie 2 obligation absorb losses right receive benefits vie could potentially significant vie addition amended guidance requires ongoing reconsideration primary beneficiary provisions new guidance effective january 1 2010 avon impact financial statements december 2010 fasb issued accounting standards update “asu” 201029 business combinations topic 805 disclosures supplementary pro forma information business combinations consensus fasb emerging issues task force asu specifies public entity presents comparative financial statements entity disclose revenue earnings combined entity though business combination occurred current year occurred beginning comparable prior annual reporting period amendments update also expand supplemental pro forma disclosures topic 805 include description nature amount material nonrecurring pro forma adjustments directly attributable business combination included reported pro forma revenue earnings asu 201029 effective prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2010 implemented provisions new guidance refer note 17 goodwill intangible assets avon products inc notes consolidated financial statements continued note 3 discontinued operations november 8 2010 company announced avon international operations inc “aio” whollyowned subsidiary company agreed sell ownership interest avon products company limited “avon japan” held aio pursuant tender offer bid agreement aio devon holdings kk affiliate tpg capital “buyer” transaction included sale company’s stake avon japan well certain prepaid royalties connection intellectual property licenses aggregate cash consideration approximately 90 avon japan previously reported within asia pacific segment transaction closed december 29 2010 total cash consideration received 81 recognized december 2010 resulting net tax gain 10 remaining 9 consideration received related use avon’s global brands formulas products use avon name japan five year period portion royalty recognized straight line basis five years within continuing operations note 4 inventories december 31 consisted following note 5 debt financing debt december 31 consisted following avon products inc notes consolidated financial statements continued notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 56 december 31 2010 58 december 31 2009 total notes payable include 582 bank overdrafts december 31 2010 longterm debt payable 2019 included obligations capital leases 152 december 31 2010 151 december 31 2009 primarily relate leases automobiles equipment addition longterm debt payable 2019 december 31 2010 included financing lease obligations entered 2009 655 primarily relates sale leaseback equipment software one distribution facilities north america adjustments debt fair value hedges include adjustments reflect net unrealized gains 944 276 december 31 2010 2009 respectively see note 8 financial instruments risk management held interestrate swap contracts swap approximately 74 82 december 31 2010 2009 respectively longterm debt variable rates see note 8 financial instruments risk management november 23 2010 company sold issued private placement exempt registration securities act 1933 amended 1420 aggregate principal amount senior notes series “series notes” 2900 aggregate principal amount senior notes series b “series b notes” 1030 aggregate principal amount senior notes series c ‘series c notes” collectively series notes series b notes “notes” series notes bear interest rate 260 per annum payable semiannually mature november 23 2015 series b notes bear interest rate 403 per annum payable semiannually mature november 23 2020 series c notes bear interest rate 418 per annum payable semiannually mature november 23 2022 notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness company unconditionally guaranteed one company’s whollyowned subsidiaries notes contain certain covenants effect limiting certain circumstances ability company certain subsidiaries among things merge entities create new liens incur additional indebtedness substantially change general nature business company subsidiaries taken whole notes also require company comply interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 contain customary default provisions including crossdefault provisions proceeds sale notes used repay existing debt general corporate purposes march 2009 issued 8500 principal amount notes payable public offering 5000 notes bear interest per annum coupon rate equal 5625 payable semiannually mature march 1 2014 “2014 notes” 3500 notes bear interest per annum coupon rate equal 650 payable semiannually mature march 1 2019 “2019 notes” net proceeds offering 8376 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2014 notes represents 5000 principal amount net unamortized discount face value 17 december 31 2010 carrying value 2019 notes represents 3500 principal amount net unamortized discount face value 36 december 31 2010 march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 480 payable semiannually mature march 1 2013 “2013 notes” 2500 notes bear interest per annum coupon rate 575 payable semiannually mature march 1 2018 “2018 notes” net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2013 notes represents 2500 principal amount net unamortized discount face value 2 december 31 2010 2 december 31 2009 carrying value 2018 notes represents 2500 principal amount net unamortized discount face value 6 december 31 2010 7 december 31 2009 avon products inc notes consolidated financial statements continued january 2006 issued public offering 5000 principal amount notes payable “5125 notes” mature january 15 2011 bear interest payable semiannually per annum rate equal 5125 net proceeds offering used general corporate purposes including repayment shortterm domestic debt carrying value 5125 notes represents 5000 principal amount net unamortized discount face value 2 december 31 2009 5125 notes paid january 2011 june 2003 issued public 2500 principal amount registered senior notes “420 notes” 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually carrying value 420 notes represents 2500 principal amount net unamortized discount face value 6 7 december 31 2010 2009 respectively april 2003 call holder 1000 principal amount 625 notes due may 2018 “notes” embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually “4625 notes” transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes carrying value 4625 notes represents 1250 principal amount net unamortized discount face value premium related call option associated original notes totaling 63 december 31 2010 87 december 31 2009 indentures notes issued contain certain covenants including limits incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets december 31 2010 compliance covenants indentures contain rating downgrade triggers would accelerate maturity debt however would required make offer repurchase 2013 notes 2014 notes 2018 notes 2019 notes series notes series b notes series c notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding ratings downgrade investment grade annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2010 follows financing maintain threeyear 10000 revolving credit competitive advance facility expires november 2013 interest rate borrowings credit facility based libor plus appropriate margin reflecting credit default swap rate minimum maximum based credit rating “cds spread” also maintain 3000 364 day credit facility together threeyear 10000 revolving credit facility “credit facilities” expires december 13 2011 interest rate borrowings credit facility based libor plus fixed margin credit facilities also allow borrowing interest rate based cds spread minus 1 less 0 per annum plus highest prime 5 plus federal funds rate 1 plus one month libor threeyear credit facility annual fee 15 payable quarterly based current credit ratings 364 day credit facility annual fee 02 payable quarterly credit facilities contain various covenants including financial covenant requires interest coverage ratio determined relation consolidated pretax avon products inc notes consolidated financial statements continued income interest expense equal exceed 41 threeyear credit facility also provides possible increases aggregate incremental principal amount 2500 subject consent affected lenders credit facility credit facilities may used general corporate purposes amounts outstanding credit facilities december 31 2010 maintain 10000 commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 10000 outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported threeyear 10000 revolving credit competitive advance facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2010 december 31 2009 amounts outstanding commercial paper program december 31 2010 also letters credit outstanding totaling 164 primarily guarantee various insurance activities addition outstanding letters credit various trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels note 6 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following foreign exchange losses 56 2010 145 2009 resulting translation actuarial losses prior service credit translation obligation recorded accumulated comprehensive income “aoci” included foreign currency translation adjustments rollforward accumulated comprehensive loss consolidated statements changes shareholders equity 2010 16 accumulated foreign currency translation adjustments 90 pension adjustments realized upon completion sale avon japan note 7 income taxes deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following avon products inc notes consolidated financial statements continued deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign tax loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 925 2010 mainly due several foreign entities continuing incur losses 2010 thereby increasing tax loss carryforwards valuation allowance provided income continuing operations taxes years ended december 31 follows provision income taxes years ended december 31 follows avon products inc notes consolidated financial statements continued effective tax rate years ended december 31 follows december 31 2010 tax loss carryforwards 16127 loss carryforwards expiring 2011 2025 1282 loss carryforwards expire 14845 also minimum tax credit carryforwards 326 expire business credit carryforwards 100 expire 2020 2030 foreign tax credit carryforwards 1788 expire 2016 2020 uncertain tax positions december 31 2010 843 total gross unrecognized tax benefits approximately 79 would impact effective tax rate recognized reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 201 december 31 2010 259 december 31 2009 accrued interest penalties net tax benefit recorded benefit 45 2010 expense 16 2009 benefit 32 2008 interest penalties net taxes avon products inc notes consolidated financial statements continued file income tax returns us federal jurisdiction various states foreign jurisdictions december 31 2010 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 45 55 within next 12 months due closure tax years expiration statute limitations audit settlements note 8 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger derivatives recognized balance sheet fair values following table presents fair value derivative instruments outstanding december 31 2010 following table presents fair value derivative instruments outstanding december 31 2009 avon products inc notes consolidated financial statements continued accounting policies derivatives recognized balance sheet fair values become party derivative instrument designate financial reporting purposes instrument fair value hedge cash flow hedge net investment hedge nonhedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk borrowings subject interest rate risk use interestrate swap agreements effectively convert fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges held interestrate swap agreements effectively converted approximately 74 december 31 2010 82 december 31 2009 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates approximately 81 december 31 2010 83 december 31 2009 interestrate swap agreements designated fair value hedges fixedrate debt notional amounts totaling 2225 december 31 2010 unrealized gains 1149 december 31 2010 439 december 31 2009 2010 recorded net gain 668 interest expense interestrate swap agreements designated fair value hedges impact interest expense interestrate swap agreements offset equal offsetting impact interest expense fixedrate debt times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepayfixed interestrate swap agreements december 31 2010 interestrate swap agreements designated hedges notional amounts totaling 250 unrealized gains agreements 0 december 31 2010 0 december 31 2009 2010 recorded net gain 0 expense net associated undesignated interestrate swap agreements longterm debt included net unrealized gains 944 december 31 2010 276 december 31 2009 interest rate swaps designated fair value hedges avon products inc notes consolidated financial statements continued hedge ineffectiveness years ended december 31 2010 2009 2008 related interest rate swaps 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 expired july 31 2008 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses locks 380 recorded aoci 192 losses amortized interest expense five years 188 amortized ten years 2005 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated locks hedges reclassified gain 25 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss 2005 lock agreement 19 recorded aoci amortized interest expense five years 2003 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 26 recorded aoci amortized interest expense ten years aoci included remaining unamortized losses 225 146 net taxes december 31 2010 288 188 net taxes december 31 2009 resulting treasury lock agreements foreign currency risk primary currencies net underlying foreign currency exchange rate exposures argentine peso brazilian real british pound canadian dollar chinese renminbi colombian peso euro mexican peso philippine peso polish zloty russian ruble turkish lira ukrainian hryvnia venezuelan bolívar use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2010 outstanding foreign exchange forward contracts notional amounts totaling approximately 4939 euro hungarian forint peruvian new sol czech republic koruna romanian leu canadian dollar australian dollar new zealand dollar japanese yen british pound use foreign exchange forward contracts hedge portions forecasted foreign currency cash flows resulting intercompany royalties thirdparty intercompany foreign currency transactions high probability anticipated exposures materialize contracts designated cash flow hedges effective portion gain loss derivative recorded accumulated comprehensive income extent effective reclassified earnings period periods transaction hedged derivative also affects earnings ineffective portion gain loss derivative recorded expense net ineffective portion cash flow foreign currency derivative instruments net gains losses reclassified aoci earnings cash flow hedges discontinued forecasted transactions probable occurring material december 31 2010 expect reclassify 39 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months years ended december 31 2010 2009 cash flow hedges treasury lock agreements impacted aoci follows avon products inc notes consolidated financial statements continued also use foreign exchange forward contracts manage foreign currency exposure intercompany loans contracts designated hedges financial reporting purposes change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating intercompany loans 2010 recorded loss 21 expense net related undesignated foreign exchange forward contracts also 2010 recorded gain 60 related intercompany loans caused changes foreign currency exchange rates used foreign exchange forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets foreign subsidiaries losses 37 2010 238 2009 336 2008 related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets 2010 loss 201 reclassified aoci discontinued operations due sale avon japan credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 1359 december 31 2010 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates note 9 fair value assets liabilities measured fair value adopted fair value measurement provisions required fair value measurements disclosures topic codification january 1 2008 exception application nonfinancial assets liabilities measured fair value nonrecurring basis adopted january 1 2009 impact consolidated financial statements adoption fair value measurement provisions material impact fair value measurements fair value measurement provisions define fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date addition fair value measurement provisions establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions avon products inc notes consolidated financial statements continued following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2010 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2009 table excludes pension postretirement plan assets refer note 12 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 12 employee benefit plans foreign exchange forward contracts interestrate swap agreements hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table fair value financial instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values financial instruments december 31 consisted following avon products inc notes consolidated financial statements continued methods assumptions used estimate fair value follows cash equivalents grantor trust cash equivalents short term investments given short term nature financial instruments stated cost approximates fair value availableforsale securities fair values investments based quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined based quoted market prices foreign exchange forward contracts fair values forward contracts based quoted forward foreign exchange prices reporting date interestrate swap agreements fair values interestrate swap agreements estimated based libor yield curves reporting date note 10 sharebased compensation plans avon products inc 2005 stock incentive plan “2005 plan” avon products inc 2010 stock incentive plan “2010 plan” shareholder approved provide several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance unit awards 2005 plan maximum number shares may awarded 31000000 shares 8000000 shares may used restricted stock awards restricted stock unit awards 2010 plan maximum number shares may awarded 32000000 shares maximum number shares reduced follows case grant award option stock appreciation right “sar” share stock subject award ii case grant award payable stock option sar 233 multiplied share stock subject award shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock restricted stock units stock appreciation rights 2005 plan 2010 plan stock option awards granted exercise price equal closing market price stock date grant option awards generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock restricted stock units generally vest three years ended december 31 compensation cost stock options restricted stock restricted stock units stock appreciation rights 2010 2009 2008 recorded selling general administrative expenses years ended december 31 2010 2009 determined pool windfall tax benefits avon products inc notes consolidated financial statements continued stock options fair value option award estimated date grant using blackscholesmerton option pricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life ten years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumed current cash dividends 22 2010 21 2009 20 2008 per share quarter common stock options granted years weightedaverage grantdate fair values per share options granted 791 2010 318 2009 804 2008 summary stock options december 31 2010 changes 2010 follows december 31 2010 approximately 153 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 13 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2010 2009 2008 follows restricted stock restricted stock units fair value restricted stock restricted stock units granted determined based closing price common stock date grant avon products inc notes consolidated financial statements continued summary restricted stock restricted stock units december 31 2010 changes 2010 follows total fair value restricted stock restricted stock units vested 2010 372 based upon market prices vesting dates december 31 2010 approximately 291 unrecognized compensation cost related restricted stock restricted stock unit compensation arrangements cost expected recognized weightedaverage period 19 years note 11 stock repurchase program october 2007 board directors approved fiveyear 20000 share repurchase program “20 billion program” began december 2007 repurchased approximately 48 million shares 1802 20 billion program december 31 2010 note 12 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan “psa” allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 125 2010 121 2009 130 2008 used psa purchase shares open market defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits majority employees retire retirement plans us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive income shareholders’ equity avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued us pension plans include funded qualified plans unfunded nonqualified plans december 31 2010 us qualified pension plans benefit obligations 6302 plan assets 4517 december 31 2009 us qualified pension plans benefit obligations 6155 plan assets 4706 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans components net periodic benefit cost amounts recognized comprehensive income amounts represent pretax effect included within comprehensive income net tax amounts included within consolidated statements changes shareholders’ equity amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2011 follows avon products inc notes consolidated financial statements continued assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis decreased 521 december 31 2010 570 december 31 2009 weightedaverage assumptions used determine net benefit cost recorded consolidated statements income years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2010 assumed rate return assets globally 765 represents weightedaverage rate return plan assets including us nonus plans assumed rate return determining 2010 net costs us plan 8 addition current rate return assumption us plan based asset allocation approximately 40 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 60 equity securities high yield securities expected earn approximately 7 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage rate return 731 determining 2010 net cost avon products inc notes consolidated financial statements continued plan assets us nonus funded pension postretirement plans target weightedaverage asset allocations december 31 2010 2009 asset category follows following tables present fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2010 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2009 reconciliation beginning ending balances level 3 investments follows investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals avon products inc notes consolidated financial statements continued overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 90 100 us pension postretirement plans range 40 45 international pension postretirement plans 2011 total benefit payments expected paid plans follows avon products inc notes consolidated financial statements continued postretirement benefits 2010 assumed rate future increases per capita cost health care benefits health care cost trend rate 80 claims gradually decrease year thereafter 51 2017 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage eligible former employees employment retirement accrued cost postemployment benefits 671 december 31 2010 672 december 31 2009 included employee benefit plans liability supplemental retirement programs offer nonqualified deferred compensation plan avon products inc deferred compensation plan “dcp” certain key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would made avon personal savings account plan “psa” excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated dcp 37 2010 66 2009 46 2008 accrued liability dcp 856 december 31 2010 908 december 31 2009 included liabilities maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc “serp” benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost programs included determination net periodic benefit cost shown previously amounted 57 2010 74 2009 79 2008 benefit obligation programs 626 december 31 2010 698 december 31 2009 included employee benefit plans also maintain supplemental life plan “slip” additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers since january 1 2010 established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date changes cash surrender value period recorded gain loss consolidated statements income fixedincome portfolio held grantor trust classified availableforsale securities avon products inc notes consolidated financial statements continued note 13 segment information segments based geographic operations include commercial business units latin america north america central eastern europe western europe middle east africa asia pacific china global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated fcpa investigation compliance reviews allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments income taxes foreign exchange gains losses costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigation compliance reviews costs implementing restructuring initiatives related specific segment recorded within segment europe manufacturing facilities primarily support western europe middle east africa central eastern europe disclosures total assets capital expenditures depreciation amortization allocated amounts associated european manufacturing facilities western europe middle east africa central eastern europe based upon planned beauty unit volume similar allocation done asia manufacturing facilities primarily support asia pacific china segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning reportable segments december 31 shown following tables total revenue operating profit total assets avon products inc notes consolidated financial statements continued major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets us brazil’s longlived assets consist primarily property plant equipment related manufacturing distribution facilities avon products inc notes consolidated financial statements continued revenue product category 1 beauty includes color cosmetics fragrances skin care personal care 2 fashion includes fashion jewelry watches apparel footwear accessories children’s products 3 home includes gift decorative products housewares entertainment leisure products nutritional products 4 revenue primarily includes shipping handling order processing fees billed representatives sales health wellness products mark included among categories based product type note 14 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2010 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 1137 2010 1135 2009 1178 2008 plant construction expansion modernization projects estimated cost complete approximately 5001 progress december 31 2010 note 15 restructuring initiatives 2005 restructuring program november 2005 announced multiyear turnaround plan restore sustainable growth part turnaround plan launched restructuring program late 2005 “2005 restructuring program” restructuring initiatives program include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organization downsizing • implementation global manufacturing strategy facilities realignment • implementation additional supply chain efficiencies distribution • streamlining transactional services outsourcing moves lowcost countries approved announced initiatives part 2005 restructuring program expect record total restructuring charges costs implement restructuring initiatives approximately 519 taxes december 31 2010 recorded total costs implement net adjustments 5137 32 2010 201 2009 593 2008 1575 2007 2171 2006 565 2005 actions associated restructuring initiatives avon products inc notes consolidated financial statements continued restructuring charges 2008 recorded total costs implement 593 associated previously approved initiatives part 2005 restructuring program costs consisted following • net charges 178 primarily employeerelated costs including severance pension benefits • implementation costs 305 professional service fees primarily associated initiatives outsource certain finance human resource processes • accelerated depreciation 110 associated initiatives realign distribution operations close manufacturing operations total costs implement 562 recorded selling general administrative expenses 31 recorded cost sales 2008 restructuring charges 2009 recorded total costs implement 201 associated previously approved initiatives part 2005 restructuring program costs consisted following • net charges 47 primarily employeerelated costs including severance pension benefits • implementation costs 96 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations • accelerated depreciation 58 associated initiatives realign distribution operations total costs implement 198 recorded selling general administrative expenses 3 recorded cost sales 2009 restructuring charges 2010 recorded total costs implement 32 associated previously approved initiatives part 2005 restructuring program costs consisted following • net benefit 48 primarily employeerelated costs including severance pension benefits • implementation costs 65 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations • accelerated depreciation 15 associated initiatives realign distribution operations total costs implement 31 recorded selling general administrative expenses 1 recorded cost sales 2010 liability balances initiatives 2005 restructuring program shown avon products inc notes consolidated financial statements continued noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented inventory writeoffs relate exited businesses following table presents restructuring charges incurred date net adjustments 2005 restructuring program along charges expected incurred plan charges net adjustments initiatives approved date 2005 restructuring program reportable business segment follows noted previously expect record total costs implement approximately 519 taxes restructuring initiatives 2005 restructuring program including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incur costs implement restructuring initiatives consulting professional services accelerated depreciation avon products inc notes consolidated financial statements continued 2009 restructuring program february 2009 announced new restructuring program “2009 restructuring program” targets increasing levels efficiency organizational effectiveness across global operations approved announced initiatives part 2009 restructuring program 2009 restructuring program initiatives include • restructuring global supply chain operations • realigning certain local business support functions regional basis drive increased efficiencies • streamlining transactionrelated services including selective outsourcing expect record total restructuring charges costs implement restructuring initiatives range 300 310 taxes 2009 restructuring program actions completed 20122013 december 31 2010 recorded total costs implement net adjustments 2283 775 2010 1508 2009 actions associated restructuring initiatives restructuring charges 2009 recorded total costs implement 1508 associated approved initiatives part 2009 restructuring program costs consisted following • net charges 1256 primarily employeerelated costs including severance pension benefits • implementation costs 188 professional service fees primarily associated initiatives realign certain support functions regional basis realignment certain manufacturing facilities • accelerated depreciation 64 associated initiatives realign distribution operations close manufacturing operations total costs implement 1444 recorded selling general administrative expenses 64 recorded cost sales 2009 restructuring charges 2010 recorded total costs implement 775 associated approved initiatives part 2009 restructuring program costs consisted following • net charges 461 primarily employeerelated costs including severance pension benefits • implementation costs 212 professional service fees primarily associated initiatives realign certain support functions regional basis realignment certain manufacturing facilities • accelerated depreciation 102 associated initiatives realign distribution operations close manufacturing operations total costs implement 681 recorded selling general administrative expenses 94 recorded cost sales 2010 costs implement expected result future cash expenditure majority cash payments made 2011 2012 liability balances initiatives 2009 restructuring program shown avon products inc notes consolidated financial statements continued noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented following table presents restructuring charges incurred date net adjustments 2009 restructuring program along charges expected incurred plan charges net adjustments initiatives approved date 2009 restructuring program reportable business segment follows noted previously expect record total costs implement range 300 310 taxes restructuring initiatives 2009 restructuring program including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incur costs implement restructuring initiatives consulting professional services accelerated depreciation avon products inc notes consolidated financial statements continued note 16 contingencies 2002 2003 2004 brazilian subsidiary received series excise tax assessments brazilian tax authorities alleged tax deficiencies years 19972001 asserting establishment 1995 separate manufacturing distribution companies country done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax based purported market sales data structure adopted 1995 comparable used companies brazil believe brazilian corporate structure appropriate operationally legally assessments unfounded matter vigorously contested opinion outside counsel likelihood assessments ultimately upheld remote management believes likelihood assessments material impact consolidated financial position results operations cash flows correspondingly remote appeals 2003 2004 assessments granted favor april may 2010 respectively second administrative level assessments including penalties accruing interest amounted approximately 567 exchange rate december 31 2010 october 2010 2003 assessment amounted approximately 173 exchange rate december 31 2010 officially closed favor brazilian tax authorities pursue appeal decision january 2011 motion filed tax authorities seeking clarification certain point decision 2004 assessment motion seek cannot change decision granted favor may 2010 however may 2010 decision may appealed third last administrative level second administrative level rules motion seeking clarification 2004 assessment including penalties accruing interest amounted approximately 394 exchange rate december 31 2010 october 2010 2002 assessment upheld first administrative level amount reduced 37 83 including penalties accruing interest exchange rate december 31 2010 appealed decision second administrative level event 2004 2002 assessment upheld third last administrative level may necessary us provide security pursue appeals depending circumstances may result charge income possible make reasonable estimate amount range expense could result unfavorable outcome respect additional assessments may issued subsequent periods previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance foreign corrupt practices act “fcpa” related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 reported october 2008 voluntarily contacted united states securities exchange commission united states department justice advise agencies internal investigation continuing cooperate agencies inquiries including limited signing tolling agreements translating producing documents assisting interviews previously reported july 2009 connection internal investigation commenced compliance reviews regarding fcpa related us foreign laws additional countries order evaluate compliance efforts conducting compliance reviews number countries selected represent company’s four international geographic segments internal investigation compliance reviews focused reviewing certain expenses books records processes including limited travel entertainment gifts use third party vendors consultants related due diligence joint ventures acquisitions payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters ongoing continue cooperate agencies respect matters point unable predict duration scope developments results consequences internal investigation compliance reviews beginning july august 2010 several derivative actions filed certain present former officers andor directors company allege breach fiduciary duty certain complaints abuse control waste corporate assets unjust enrichment andor proxy disclosure violations relating avon products inc notes consolidated financial statements continued company’s compliance fcpa relief sought one derivative complaints includes certain declaratory equitable relief restitution unspecified damages exemplary damages interest company named nominal defendant actions include carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 murray c white derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed united states district court southern district new york 10cv5560 county york employees retirement plan derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant originally filed new york supreme court new york county index 6510652010 refiled united states district court southern district new york 10civ5933 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 ibew local 1919 pension fund derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed united states district court southern district new york 10civ6256 unable predict outcome matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon management’s opinion based review information available time total cost resolving contingencies december 31 2010 material adverse effect consolidated financial position results operations cash flows note 17 goodwill intangible assets july 2010 acquired substantially assets liabilities silpada designs inc “silpada” approximately 650 cash plus potential additional payment early 2015 based achievement earnings growth silpada north america business periods 2012 2014 silpada included within north america segment date acquisition liability approximately 26 recorded associated potential additional consideration “contingent consideration” based valuation estimated fair value liability probabilityweighting discounting various potential payments avon acquired control business july 28 2010 financial results acquired operations included financial statements beginning date net sales net income taxes acquired operations including acquisition integration expenses since acquisition approximately 109 26 respectively acquisition funded cash commercial paper borrowings purchase price allocation resulted goodwill 3144 indefinite lived trademarks 1500 customer relationships 1728 customer relationships average 10year useful life december 31 2010 estimated potential additional payment associated contingent consideration could range 0 approximately 35 estimated fair value contingent consideration liability 11 change fair value contingent consideration recorded within selling general administrative expenses primarily due decrease estimates ultimate earnout march 2010 acquired liz earle beauty co limited “liz earle” acquired business included western europe middle east africa operating segment purchase price allocation resulted goodwill 1236 indefinite lived trademarks 228 licensing agreements 87 customer relationships 47 licensing agreements customer relationships weighted average 8year useful life following unaudited pro forma summary presents company’s consolidated information silpada liz earle acquired january 1 2009 january 1 2010 completed annual goodwill impairment test november 30 2010 indicated impairment goodwill estimated fair value substantially exceeded carrying values reporting units exception silpada estimated fair value similar carrying value since reporting unit recently acquired avon products inc notes consolidated financial statements continued goodwill intangible assets avon products inc notes consolidated financial statements continued note 18 supplemental balance sheet information december 31 2010 2009 prepaid expenses included following accordance guidance published international practices task force subsidiary venezuela purchases us dollar denominated cash parallel market exchange rate venezuelan subsidiary remeasure cash parallel market exchange rate subsidiary translate cash well remainder net assets official rate expected rate available dividend remittances since remeasurement translation occur different exchange rates difference arises actual us dollar denominated cash balance “as translated” balance deferred charge table represents difference us dollar denominated cash held venezuelan subsidiary december 31 2010 2009 assets included following note 19 results operations quarter unaudited avon products inc notes consolidated financial statements continued 1 sum per share amounts quarters necessarily equal year computations made independently results operations quarter impacted following note 20 subsequent events february 3 2011 announced increase quarterly cash dividend 23 per share 22 per share beginning firstquarter dividend payable march 1 2011 shareholders record february 17 2011 increase indicated annual dividend rate 92 per share schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2010 2009 2008 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance tax loss carryforward benefits likely deferred tax assets realized future 5 release valuation allowance deferred tax assets likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits following materials formatted extensible business reporting language xbrl consolidated statements income ii consolidated balance sheets iii consolidated statements cash flows iv consolidated statements changes shareholders equity v notes consolidated financial statements vi schedule valuation qualifying accounts exhibits identified asterisk management contracts compensatory plans arrangements avons annual report form 10k year ended december 31 2011 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 29th day february 2012 avon products inc stephen ibbotson stephen ibbotson group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2011 december 31 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate avon products inc consolidated statements income accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interestrate swap agreements 532 2011 668 2010 557 2009 see note 5 debt financing 1 includes cash equivalents discontinued operations 135 32 beginning year 2010 2009 respectively 2 includes cash equivalents discontinued operations 135 end year 2009 accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity accompanying notes integral part statements avon products inc notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms “avon” “company” “we” “our” “us” mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling reportable segments based geographic operations five regions latin america north america central eastern europe western europe middle east africa asia pacific centralized operations global brand marketing global sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists jewelry watches apparel footwear accessories children’s products home consists gift decorative products housewares entertainment leisure products nutritional products sales made ultimate consumer principally independent representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses valuation intangible assets contingent consideration foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss “aoci” gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded “other expense net” financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities “other expense net” similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded “income taxes” consolidated statement income nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities venezuela currency effective january 1 2010 began account venezuela highly inflationary economy effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services effective december 30 2010 venezuelan government eliminated 260 rate available import essential goods substantially imports subsidiary venezuela “avon venezuela” falls nonessential classification use nonessentials rate 430 remeasure bolívare denominated assets liabilities us dollars reporting date since rate expected available dividend remittances record loss within operating profit avon products inc notes consolidated financial statements continued believe going convert bolívare denominated assets settle us dollar denominated liabilities sources exchange rate less favorable official rate result change official rate 430 conjunction accounting operations venezuela highly inflationary accounting guidelines first quarter 2010 recorded net charges 461 million “other expense net” 127 million “income taxes” revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances revenue primarily includes shipping handling order processing fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures deferred prepaid expenses incurred fees charged representatives sale brochures netted costs prepare brochures net brochure cost associated sales campaign expensed selling general administrative expenses campaign length prepaid expenses included deferred brochure costs 458 december 31 2011 448 december 31 2010 additionally paper stock purchased advance creating brochures prepaid expenses included paper supply 253 december 31 2011 191 december 31 2010 property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset avon products inc notes consolidated financial statements continued capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful lives assets capitalized interest 04 2011 53 2010 49 2009 deferred software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets included unamortized deferred software costs 1767 december 31 2011 1406 december 31 2010 goodwill intangible assets goodwill amortized rather assessed impairment annually occurrence event indicates impairment may occurred intangible assets estimable useful lives amortized using straightline method estimated useful lives assets completed annual goodwill indefinitelived intangible assets impairment assessments 2011 yearend close process determined estimated fair values substantially exceeded carrying values reporting units exception silpada reporting unit analysis silpada business indicated impairment carrying value business exceeded estimated fair value accordingly estimated noncash impairment charge 2630 recorded fourth quarter 2011 reduce carrying amounts goodwill indefinitelived intangible asset see note 17 goodwill intangible assets years ended december 31 2010 2009 completed annual goodwill indefinitelived intangible assets impairment assessments adjustments necessary financial instruments use derivative financial instruments including interestrate swap agreements forward foreign currency contracts manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 8 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested practicable determine amount unrecognized deferred taxes respect unremitted earnings deferred taxes provided earnings considered indefinitely reinvested december 31 2011 us income taxes provided 25307 undistributed income subsidiaries intended indefinitely reinvested outside us uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 10717 2011 9688 2010 9200 2009 avon products inc notes consolidated financial statements continued advertising costs excluding brochure preparation costs expensed incurred amounted 3112 2011 4004 2010 3527 2009 net brochure costs brochure costs amounted 5077 2011 4727 2010 4812 2009 offset brochure fees 2935 2011 2910 2010 2700 2009 research development research development costs expensed incurred amounted 777 2011 726 2010 654 2009 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair values using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment property plant equipment qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine adjustment required contingencies determine whether disclose accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable revisions revised immaterial amounts consolidated financial statements accompanying notes reclassified 55 noncurrent assets liabilities proceeds sale investments consolidated statements cash flows twelve months ended december 31 2010 reclassified 307 order processing fees selling general administrative expenses revenue consolidated statements income twelve months ended december 31 2009 impact consolidated statements income outofperiod items first quarter 2011 determined net tax gain sale avon products company limited “avon japan” reported financial statements year ended december 31 2010 reported net tax loss approximately 3 correctly include balances relating avon japan previously included accumulated comprehensive loss “aoci” addition first quarter 2011 company released liability relating previously owned health care business released prior period resulting approximate 4 increase net income results businesses originally reported within discontinued operations upon disposition net impact two items decreased net income first quarter 2011 approximately 9 also identified recorded various outofperiod adjustments 2011 primarily related cost sales selling general administrative expenses related prior years net impact items decreased net income 2011 approximately 14 evaluated total outofperiod adjustments impacting 2011 approximately 23 individually aggregate relation current period corrected well periods originated concluded adjustments immaterial consolidated annual financial statements impacted periods see note 19 results operations quarter unaudited discussion outofperiod adjustments within 2011 impact interim periods avon products inc notes consolidated financial statements continued earnings per share compute earnings per share “eps” using twoclass method earnings allocation formula determines earnings per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net income allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year three years ended december 31 components basic diluted eps follows include stock options purchase 229 million shares year ended december 31 2011 185 million shares 2010 168 million shares 2009 avon common stock calculations diluted eps exercise prices options greater average market price inclusion would antidilutive note 2 new accounting standards implemented january 2010 fasb issued accounting standards update “asu” 201006 improving disclosures fair value measurements asu 201006 amends fasb codification topic 820 fair value measurements disclosures require additional disclosures regarding fair value measurements effective january 1 2011 asu 201006 required additional disclosures regarding activity level 3 fair value measurements disclosure requirement impact fair value disclosures standards implemented may 2011 fasb issued asu 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 provides consistent definition fair value ensures fair value measurement disclosure requirements similar us gaap avon products inc notes consolidated financial statements continued international financial reporting standards asu 201104 changes certain fair value measurement principles enhances disclosure requirements particularly level 3 fair value measurements asu 201104 effective avon january 1 2012 applied prospectively avon evaluating impact adopting asu 201104 believes significant impact consolidated financial statements june 2011 fasb issued asu 201105 presentation comprehensive income asu 201105 requires entities present items net income comprehensive income either one continuous statement referred statement comprehensive income two separate consecutive statements net income comprehensive income addition december 2011 fasb issued asu 201112 deferral effective date amendments presentation reclassifications items accumulated comprehensive income accounting standards update 201105 asu 201112 defers requirement present components reclassifications comprehensive income statement comprehensive income requirements asu 201105 unaffected asu 201105 201112 effective january 1 2012 avon expected significant impact financial statements presentation september 2011 fasb issued asu 201108 testing goodwill impairment asu 201108 provides entities option perform qualitative assessment determine whether impairment testing necessary asu 201108 effective annual interim goodwill impairment tests performed fiscal years beginning december 15 2011 early adoption permitted standard expected significant impact financial statements note 3 discontinued operations november 8 2010 company announced avon international operations inc “aio” whollyowned subsidiary company agreed sell ownership interest avon products company limited “avon japan” held aio pursuant tender offer bid agreement aio devon holdings kk affiliate tpg capital “buyer” transaction included sale company’s stake avon japan well certain prepaid royalties connection intellectual property licenses aggregate cash consideration approximately 90 avon japan previously reported within asia pacific segment transaction closed december 29 2010 total cash consideration received 81 recognized december 2010 resulting net tax gain 10 remaining 9 consideration received related use avon’s global brands formulas products use avon name japan five year period portion royalty recognized straight line basis five years within continuing operations 2011 determined net tax gain sale avon japan reported net tax loss 3 correctly include balances relating avon japan previously included accumulated comprehensive loss “aoci” see note 1 description business summary significant accounting policies information note 4 inventories december 31 consisted following avon products inc notes consolidated financial statements continued note 5 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 109 december 31 2011 56 december 31 2010 total notes payable include 174 bank overdrafts december 31 2011 582 december 31 2010 longterm debt payable 2015 included obligations capital leases 190 december 31 2011 152 december 31 2010 primarily relate leases automobiles equipment addition longterm debt payable 2015 december 31 2011 2010 included financing lease obligations entered 2009 585 655 respectively primarily relates sale leaseback equipment software one distribution facilities north america adjustments debt fair value hedges include adjustments reflect net unrealized gains 1476 944 december 31 2011 2010 respectively see note 8 financial instruments risk management held interestrate swap contracts swap approximately 74 december 31 2011 2010 longterm debt variable rates see note 8 financial instruments risk management november 23 2010 company sold issued private placement exempt registration securities act 1933 amended 1420 aggregate principal amount senior notes series “series notes” 2900 aggregate principal amount senior notes series b “series b notes” 1030 aggregate principal amount senior notes series c ‘series c notes” collectively series notes series b notes “notes” series notes bear interest rate 260 per annum payable semiannually mature november 23 2015 series b notes bear interest rate 403 per annum payable semiannually mature november 23 2020 series c notes bear interest rate 418 per annum payable semiannually mature november 23 2022 notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness company unconditionally guaranteed one company’s whollyowned subsidiaries notes contain certain covenants effect limiting certain circumstances ability company certain subsidiaries among things merge entities create new liens incur additional indebtedness substantially change general nature business company subsidiaries taken avon products inc notes consolidated financial statements continued whole notes also require company comply interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 contain customary default provisions including crossdefault provisions proceeds sale notes used repay existing debt general corporate purposes march 2009 issued 8500 principal amount notes payable public offering 5000 notes bear interest per annum coupon rate equal 5625 payable semiannually mature march 1 2014 “2014 notes” 3500 notes bear interest per annum coupon rate equal 650 payable semiannually mature march 1 2019 “2019 notes” net proceeds offering 8376 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2014 notes represents 5000 principal amount net unamortized discount face value 12 december 31 2011 17 december 31 2010 carrying value 2019 notes represents 3500 principal amount net unamortized discount face value 31 december 31 2011 36 december 31 2010 march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 480 payable semiannually mature march 1 2013 “2013 notes” 2500 notes bear interest per annum coupon rate 575 payable semiannually mature march 1 2018 “2018 notes” net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2013 notes represents 2500 principal amount net unamortized discount face value 1 december 31 2011 2 december 31 2010 carrying value 2018 notes represents 2500 principal amount net unamortized discount face value 5 december 31 2011 6 december 31 2010 january 2006 issued public offering 5000 principal amount notes payable “5125 notes” matured january 15 2011 bore interest payable semiannually per annum rate equal 5125 net proceeds offering used general corporate purposes including repayment shortterm domestic debt december 31 2010 carrying value 5125 notes represented 5000 principal amount 5125 notes paid january 2011 june 2003 issued public 2500 principal amount registered senior notes “420 notes” 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually carrying value 420 notes represents 2500 principal amount net unamortized discount face value 5 6 december 31 2011 2010 respectively april 2003 call holder 1000 principal amount 625 notes due may 2018 “notes” embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually “4625 notes” transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes carrying value 4625 notes represents 1250 principal amount net unamortized discount face value premium related call option associated original notes totaling 37 december 31 2011 63 december 31 2010 indentures note purchase agreement notes issued contain certain covenants including limits incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets december 31 2011 compliance covenants indentures note purchase agreement indentures note purchase agreement contain rating downgrade triggers would accelerate maturity debt however would required make offer repurchase 2013 notes 2014 notes 2018 notes 2019 notes series notes series b notes series c notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding ratings downgrade investment grade avon products inc notes consolidated financial statements continued annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2011 follows financing maintain threeyear 1 billion revolving credit competitive advance facility credit facility expires november 2013 interest rate borrowings credit facility based libor plus appropriate margin reflecting credit default swap rate minimum maximum based credit rating “cds spread” credit facility also allows borrowing interest rate based cds spread minus 1 less 0 per annum plus highest prime 5 plus federal funds rate 1 plus one month libor credit facility annual fee 17 payable quarterly based current credit ratings credit facility contains various covenants including financial covenant requires interest coverage ratio determined relation consolidated pretax income interest expense equal exceed 41 credit facility also provides possible increases aggregate incremental principal amount 2500 subject consent affected lenders credit facility credit facility may used general corporate purposes amounts outstanding credit facility december 31 2011 december 31 2010 maintain 1 billion commercial paper program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 1 billion outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment commercial paper program supported threeyear 1 billion revolving credit competitive advance facility outstanding commercial paper effectively reduces amount available borrowing credit facility december 31 2011 7090 outstanding commercial paper program december 31 2011 december 31 2010 also letters credit outstanding totaling 234 164 respectively primarily guarantee various insurance activities addition outstanding letters credit trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels note 6 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following foreign exchange losses 20 2011 56 2010 resulting translation actuarial losses prior service credit translation obligation recorded accumulated comprehensive loss “aoci” included foreign currency translation adjustments rollforward accumulated comprehensive loss consolidated statements changes shareholders equity 2010 16 accumulated foreign currency translation adjustments 90 pension adjustments realized upon completion sale avon japan 2011 identified outofperiod adjustment relating balances included aoci relating avon japan see note 1 description business summary significant accounting policies information avon products inc notes consolidated financial statements continued note 7 income taxes deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign tax loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 834 2011 mainly due several foreign entities continuing incur losses 2011 thereby increasing tax loss carryforwards valuation allowance provided avon products inc notes consolidated financial statements continued income continuing operations taxes years ended december 31 follows provision income taxes years ended december 31 follows effective tax rate years ended december 31 follows december 31 2011 tax loss carryforwards 19725 loss carryforwards expiring 2012 2026 1308 loss carryforwards expire 18417 also minimum tax credit carryforwards 359 expire business credit carryforwards 111 expire 2020 2031 foreign tax credit carryforwards 2821 expire 2018 2021 avon products inc notes consolidated financial statements continued uncertain tax positions december 31 2011 360 total gross unrecognized tax benefits approximately 33 would impact effective tax rate recognized reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 129 december 31 2011 201 december 31 2010 accrued interest penalties net tax benefit recorded benefit 38 2011 benefit 45 2010 expense 16 2009 interest penalties net taxes file income tax returns us federal jurisdiction various states foreign jurisdictions december 31 2011 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 10 15 within next 12 months due closure tax years expiration statute limitations audit settlements avon products inc notes consolidated financial statements continued note 8 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity “materially weaker” avon prior merger derivatives recognized balance sheet fair values following table presents fair value derivative instruments outstanding december 31 2011 following table presents fair value derivative instruments outstanding december 31 2010 accounting policies derivatives recognized balance sheet fair values become party derivative instrument designate financial reporting purposes instrument fair value hedge cash flow hedge net investment hedge nonhedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings avon products inc notes consolidated financial statements continued • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 85 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk borrowings subject interest rate risk use interestrate swap agreements effectively convert fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges held interestrate swap agreements effectively converted approximately 74 december 31 2011 2010 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates approximately 82 december 31 2011 81 december 31 2010 interestrate swap agreements designated fair value hedges fixedrate debt notional amounts totaling 1725 december 31 2011 unrealized gains 1476 december 31 2011 944 december 31 2010 included within longterm debt 2011 recorded net gain 532 interest expense interestrate swap agreements designated fair value hedges 2010 recorded net gain 668 interest expense interestrate swap agreements designated fair value hedges impact interest expense interestrate swap agreements offset equal offsetting impact interest expense fixedrate debt times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepayfixed interestrate swap agreements designated offset gain loss dedesignated contract december 31 2011 interestrate swap agreements designated hedges notional amounts totaling 250 unrealized losses agreements immaterial december 31 2011 2010 2011 recorded immaterial net loss expense net associated undesignated interestrate swap agreements hedge ineffectiveness years ended december 31 2011 2010 2009 related interest rate swaps 2007 entered treasury lock agreements “locks” notional amounts totaling 5000 expired july 31 2008 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses locks 380 recorded aoci 192 losses amortized interest expense five years 188 amortized ten years 2005 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated locks hedges reclassified gain 25 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss 2005 lock agreement 19 recorded aoci amortized interest expense five years 2003 entered treasury lock agreements designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 26 recorded aoci amortized interest expense ten years avon products inc notes consolidated financial statements continued december 31 2011 expect reclassify 39 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months years ended december 31 2011 2010 treasury lock agreements impacted aoci follows foreign currency risk primary currencies net underlying foreign currency exchange rate exposures argentine peso australian dollar brazilian real british pound canadian dollar chinese renminbi colombian peso euro mexican peso philippine peso polish zloty russian ruble south africa rand turkish lira ukrainian hryvnia venezuelan bolívar use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2011 outstanding foreign exchange forward contracts notional amounts totaling approximately 2642 euro british pound russian ruble peruvian new sol hungarian forint romanian leu czech republic koruna new zealand dollar use foreign exchange forward contracts manage foreign currency exposure intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating intercompany loans 2011 2010 recorded gain 87 loss 21 respectively expense net related undesignated foreign exchange forward contracts also 2011 2010 recorded loss 32 gain 60 respectively related intercompany loans caused changes foreign currency exchange rates also used foreign exchange forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets foreign subsidiaries gain 28 2011 losses 37 2010 238 2009 related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets 2010 loss 201 reclassified aoci discontinued operations due sale avon japan 2011 identified outofperiod adjustment relating balances included aoci relating avon japan see note 1 description business summary significant accounting policies information credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions “a” higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would result writeoff 1592 december 31 2011 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates avon products inc notes consolidated financial statements continued note 9 fair value assets liabilities measured fair value adopted fair value measurement provisions required fair value measurements disclosures topic codification january 1 2008 exception application nonfinancial assets liabilities measured fair value nonrecurring basis adopted january 1 2009 impact consolidated financial statements adoption fair value measurement provisions material impact fair value measurements fair value measurement provisions define fair value price would received sell asset paid transfer liability principal advantageous market asset liability orderly transaction market participants measurement date addition fair value measurement provisions establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2011 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2010 table excludes pension postretirement plan assets refer note 12 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 12 employee benefit plans foreign exchange forward contracts interestrate swap agreements hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table avon products inc notes consolidated financial statements continued fair value financial instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values financial instruments december 31 consisted following methods assumptions used estimate fair value follows cash equivalents grantor trust cash equivalents short term investments given short term nature financial instruments stated cost approximates fair value availableforsale securities fair values investments based quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined based quoted market prices foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date interestrate swap agreements fair values interestrate swap agreements estimated based libor yield curves reporting date note 10 sharebased compensation plans avon products inc 2010 stock incentive plan “2010 plan” shareholder approved provides several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance restricted stock units 2010 plan maximum number shares may awarded 32000000 shares maximum number shares reduced follows case grant award option stock appreciation right “sar” share stock subject award ii case grant award payable stock option sar 233 multiplied share stock subject award shares issued sharebased awards primarily funded issuance new shares issued stock options stock appreciation rights restricted stock units performance restricted stock units 2010 plan stock option awards granted exercise price equal closing market price stock date grant option awards stock appreciation rights generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units generally vest settle three years performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 compensation cost stock options stock appreciation rights restricted stock units 2011 2010 2009 recorded selling general administrative expenses years ended december 31 2011 2010 2009 determined pool windfall tax benefits avon products inc notes consolidated financial statements continued stock options stock appreciation rights fair value option stock appreciation right award estimated date grant using blackscholesmerton option pricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option stock appreciation right based historical employee exercise behavior vesting terms respective option stock appreciation right contractual life ten years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumed current cash dividends 23 2011 22 2010 21 2009 per share quarter common stock options stock appreciation rights granted years weightedaverage grantdate fair values per share options stock appreciation rights granted 651 2011 791 2010 318 2009 summary stock options stock appreciation rights december 31 2011 changes 2011 follows december 31 2011 approximately 68 unrecognized compensation cost related stock options stock appreciation rights outstanding cost expected recognized weightedaverage period 12 years recognize expense stock options stock appreciation rights using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options stock appreciation rights exercised 2011 2010 2009 follows restricted stock restricted stock units performance restricted stock units fair value restricted stock units performance restricted stock units granted determined based closing price common stock date grant march 2011 granted performance restricted stock units vest three years upon satisfaction certain performance conditions accrue compensation cost probable performance conditions achieved avon products inc notes consolidated financial statements continued reassess whether achievement performance conditions probable reporting period fourth quarter 2011 assessed longer probable would meet specified performance conditions reversed compensation cost recognized todate summary restricted stock restricted stock units performance restricted stock units december 31 2011 changes 2011 follows total fair value restricted stock units vested 2011 209 based upon market prices vesting dates december 31 2011 approximately 334 unrecognized compensation cost related restricted stock units performance restricted stock units compensation arrangements cost expected recognized weightedaverage period 20 years note 11 stock repurchase program october 2007 board directors approved fiveyear 20000 share repurchase program “20 billion program” began december 2007 repurchased approximately 48 million shares 1804 20 billion program december 31 2011 note 12 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan “psa” allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 126 2011 125 2010 121 2009 used psa purchase shares open market june 30 2011 beginning july 1 2011 matching contributions follow allocation participant selected contributions defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits majority employees retire retirement plans us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive income shareholders’ equity avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans us pension plans include funded qualified plans unfunded nonqualified plans december 31 2011 us qualified pension plans benefit obligations 6835 plan assets 4934 december 31 2010 us qualified pension plans benefit obligations 6302 plan assets 4517 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans avon products inc notes consolidated financial statements continued components net periodic benefit cost amounts recognized comprehensive loss amounts represent pretax effect included within comprehensive loss net tax amounts included within consolidated statements changes shareholders’ equity amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2012 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans avon products inc notes consolidated financial statements continued based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis decreased 469 december 31 2011 521 december 31 2010 weightedaverage assumptions used determine net benefit cost recorded consolidated statements income years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2011 assumed rate return assets globally 754 represents weightedaverage rate return plan assets including us nonus plans assumed rate return determining 2011 net costs us plan 8 addition current rate return assumption us plan based asset allocation approximately 40 corporate government bonds mortgagebacked securities expected earn approximately 4 6 long term 60 equity securities high yield securities expected earn approximately 7 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage rate return 716 determining 2011 net cost plan assets us nonus funded pension postretirement plans target weightedaverage asset allocations december 31 2011 2010 asset category follows avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2011 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2010 reconciliation beginning ending balances level 3 investments follows investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds avon products inc notes consolidated financial statements continued valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 40 45 us pension postretirement plans range 40 45 international pension postretirement plans 2012 total benefit payments expected paid plans follows postretirement benefits 2011 assumed rate future increases per capita cost health care benefits health care cost trend rate 77 claims gradually decrease year thereafter 51 2017 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage eligible former employees employment retirement accrued cost postemployment benefits 695 december 31 2011 671 december 31 2010 included employee benefit plans liability avon products inc notes consolidated financial statements continued supplemental retirement programs offer nonqualified deferred compensation plan avon products inc deferred compensation plan “dcp” certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral performance restricted stock units certain employees deferral contributions would normally made avon personal savings account plan “psa” deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated dcp 18 2011 37 2010 66 2009 accrued liability dcp 796 december 31 2011 856 december 31 2010 included liabilities maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc “serp” benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost programs included determination net periodic benefit cost shown previously amounted 98 2011 100 2010 115 2009 benefit obligation programs 684 december 31 2011 724 december 31 2010 included employee benefit plans accrued compensation also maintain supplemental life plan “slip” additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers since january 1 2010 established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date changes cash surrender value period recorded gain loss consolidated statements income note 13 segment information segments based geographic operations include commercial business units latin america north america central eastern europe western europe middle east africa asia pacific beginning first quarter 2011 results asia pacific china managed single operating segment accordingly asia pacific amounts include results china periods presented global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated fcpa investigation compliance reviews allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments income taxes foreign exchange gains losses costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigation compliance reviews costs implementing restructuring initiatives related specific segment recorded within segment europe manufacturing facilities primarily support western europe middle east africa central eastern europe disclosures total assets capital expenditures depreciation amortization allocated amounts associated european manufacturing facilities western europe middle east africa central eastern europe based upon planned beauty unit volume segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations avon products inc notes consolidated financial statements continued summarized financial information concerning reportable segments december 31 shown following tables avon products inc notes consolidated financial statements continued major country defined one total revenues greater 10 consolidated total revenues major country defined one longlived assets greater 10of consolidated longlived assets longlived assets primarily include property plant equipment intangible assets us brazil’s longlived assets consist primarily property plant equipment related manufacturing distribution facilities 1 beauty includes color cosmetics fragrances skin care personal care 2 fashion includes fashion jewelry watches apparel footwear accessories children’s products 3 home includes gift decorative products housewares entertainment leisure products nutritional products 4 revenue primarily includes shipping handling order processing fees billed representatives sales health wellness products mark included among categories based product type avon products inc notes consolidated financial statements continued note 14 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2011 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 1139 2011 1137 2010 1135 2009 plant construction expansion modernization projects estimated cost complete approximately 5549 progress december 31 2011 note 15 restructuring initiatives 2005 2009 restructuring programs launched restructuring programs late 2005 “2005 restructuring program” february 2009 restructuring program 2005 2009 restructuring programs initiatives include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organization downsizing • implementation global manufacturing strategy facilities realignment • implementation additional supply chain efficiencies distribution • restructuring global supply chain operations • realigning certain local business support functions regional basis drive increased efficiencies • streamlining transactional services outsourcing moves lowercost countries reorganizing certain functions approved announced initiatives part 2005 2009 restructuring programs expect record total restructuring charges costs implement restructuring initiatives approximately 510 taxes 2005 restructuring program december 31 2011 recorded total costs implement net adjustments 5260 123 2011 32 2010 201 2009 593 2008 1575 2007 2171 2006 565 2005 actions associated restructuring initiatives 2005 restructuring program expect record total restructuring charges costs implement restructuring initiatives range 300 310 taxes 2009 restructuring program actions completed 20122013 incur costs implement restructuring initiatives professional services accelerated depreciation future costs expected offset gains sales properties exited due restructuring initiatives december 31 2011 recorded total costs implement net adjustments 2560 277 2011 775 2010 1508 2009 actions associated restructuring initiatives 2009 restructuring program restructuring charges 2009 recorded total costs implement 1709 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net charge 1303 primarily employeerelated costs including severance pension benefits • implementation costs 284 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations realign certain support functions regional basis realignment certain manufacturing facilities avon products inc notes consolidated financial statements continued • accelerated depreciation 122 associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 1642 recorded selling general administrative expenses 67 recorded cost sales 2009 restructuring charges 2010 recorded total costs implement 807 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net charge 413 primarily employeerelated costs including severance pension benefits • implementation costs 277 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations realign certain support functions regional basis realignment certain manufacturing facilities • accelerated depreciation 117 associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 712 recorded selling general administrative expenses 95 recorded cost sales 2010 restructuring charges 2011 recorded total costs implement 400 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net charge 34 primarily employeerelated costs including severance pension benefits • implementation costs 272 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations realign certain support functions regional basis realignment certain manufacturing facilities • accelerated depreciation 146 associated initiatives realign certain distribution operations close certain manufacturing operations offset net gain 52 primarily due sale land building germany total costs implement 288 recorded selling general administrative expenses 112 recorded cost sales 2011 costs implement expected result future cash expenditure majority cash payments made 2012 avon products inc notes consolidated financial statements continued liability balances initiatives 2005 2009 restructuring programs shown noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented inventory writeoffs relate exited businesses following table presents restructuring charges incurred date net adjustments 2005 2009 restructuring programs along charges expected incurred plan avon products inc notes consolidated financial statements continued charges net adjustments initiatives approved date 2005 2009 restructuring programs reportable business segment follows noted previously expect record total costs implement approximately 510 taxes restructuring initiatives 2005 restructuring program range 300 310 taxes restructuring initiatives 2009 restructuring program case including restructuring charges costs implement amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incur costs implement restructuring initiatives professional services accelerated depreciation future costs expected offset gains sales properties exited due restructuring initiatives note 16 contingencies 2002 brazilian subsidiary received excise tax assessment brazilian tax authorities alleged tax deficiencies years 19971998 asserting establishment 1995 separate manufacturing distribution companies country done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2002 assessment unfounded matter vigorously contested opinion outside counsel likelihood assessment ultimately upheld remote management believes likelihood assessment material impact consolidated financial position results operations cash flows correspondingly remote similar excise tax assessments involving different periods canceled officially closed favor second administrative level october 2010 2002 assessment upheld first administrative level amount reduced 34 80 including penalties accruing interest exchange rate december 31 2011 appealed decision second administrative level event 2002 assessment upheld third last administrative level may necessary us provide security pursue appeals depending circumstances may result charge income possible make estimate amount range loss reasonably possible could incur unfavorable outcome respect additional assessments may issued subsequent periods previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance foreign corrupt practices act “fcpa” related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 reported october 2008 voluntarily contacted united states securities exchange commission sec united states department justice advise agencies internal investigation continuing cooperate agencies inquiries including limited signing tolling agreements translating producing documents assisting interviews previously reported july 2009 connection internal investigation commenced compliance reviews regarding fcpa related us foreign laws additional countries order evaluate compliance efforts conducting compliance reviews number countries selected represent companys avon products inc notes consolidated financial statements continued international geographic segments internal investigation compliance reviews focused reviewing certain expenses books records processes including limited travel entertainment gifts use third party vendors consultants related due diligence joint ventures acquisitions payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters ongoing continue cooperate agencies respect matters connection internal investigation compliance reviews continue enhance ethics compliance program including policies procedures fcpa compliancerelated training fcpa third party due diligence program compliancerelated resources october 26 2011 company received subpoena sec requesting documents information connection regulation fd investigation companys contacts communications certain financial analysts representatives financial community 2010 2011 company also advised formal order investigation issued sec relating fcpa matters described regulation fd matters referenced subpoena company intends cooperate fully secs investigation also commenced internal investigation conducted outside counsel oversight audit committee connection regulation fd matters connection ongoing internal investigations compliance reviews described certain personnel actions taken additional personnel actions may taken future point unable predict duration scope developments results consequences internal investigations compliance reviews governments investigation light fact among things internal investigations compliance reviews ongoing unable make estimate amount range loss reasonably possible could incur unfavorable outcome beginning july august 2010 several derivative actions filed certain present former officers andor directors company two actions filed state court carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 actions allege breach fiduciary duty abuse control waste corporate assets one complaint unjust enrichment relating companys compliance fcpa including adequacy companys internal controls relief sought one derivative complaints includes certain declaratory equitable relief restitution damages exemplary damages interest unable predict outcome matters three federal court derivative actions also filed consolidated murray c white derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed united states district court southern district new york 10cv5560 county york employees retirement plan derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant originally filed new york supreme court new york county index 6510652010 refiled united states district court southern district new york 10civ5933 ibew local 1919 pension fund derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed united states district court southern district new york 10civ6256 amended consolidated shareholder derivative complaint alleged breach fiduciary duty unjust enrichment proxy disclosure violations sought rescission compensation account proxy violations relating companys compliance fcpa including adequacy companys internal controls relief sought included certain declaratory equitable relief restitution damages including rescission february 14 2012 motion plaintiffs court dismissed claims without prejudice july 6 2011 purported shareholders class action complaint city brockton retirement system v avon products inc et al 11civ4665 filed united states district court southern district new york certain present former officers andor directors company complaint brought behalf purported class consisting persons entities either 1 avon shareholders close business march 17 2011 march 17 2010 march 18 2009 march 14 2008 march 15 2007 therefore eligible vote proxies 2 purchased otherwise acquired shares avons common stock july 31 2006 including may 24 2011 complaint asserts violations sections 10b 14a 20a securities exchange act 1934 based allegedly false misleading statements omissions respect among things companys compliance fcpa including adequacy companys internal controls september 29 2011 court appointed lbbw asset management investmentgesellschaft mbh sgss deutschland kapitalanlagegesellschaft mbh lead plaintiffs motley rice llc lead counsel pursuant stipulated scheduling order lead plaintiffs file amended complaint later march 16 2012 schedule set defendants answer move dismiss otherwise respond light among avon products inc notes consolidated financial statements continued things early stage litigation unable predict outcome matter unable make estimate amount range loss reasonably possible could incur unfavorable outcome respect abovedescribed internal investigations compliance reviews governments investigation derivative class action matters circumstances adverse outcomes could material consolidated financial position results operations cash flows various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2011 material adverse effect consolidated financial position results operations cash flows note 17 goodwill intangible assets july 2010 acquired substantially assets liabilities silpada designs inc “silpada” approximately 650 cash plus potential additional payment early 2015 based achievement earnings growth silpada north america business periods 2012 2014 silpada included within north america segment purchase price allocation resulted goodwill 3147 indefinitelived trademarks 1500 customer relationships 1728 customer relationships average 10year useful life date acquisition liability approximately 26 recorded associated potential additional consideration “contingent consideration” based valuation estimated fair value liability probabilityweighting discounting various potential payments december 31 2010 estimated fair value contingent consideration liability 11 zero december 31 2011 changes fair value contingent consideration recorded within selling general administrative expenses respective periods march 2010 acquired liz earle beauty co limited “liz earle” acquired business included western europe middle east africa operating segment purchase price allocation resulted goodwill 1236 indefinitelived trademarks 228 licensing agreements 87 customer relationships 47 licensing agreements customer relationships weighted average 8year useful life following unaudited pro forma summary presents company’s consolidated information silpada liz earle acquired january 1 2009 january 1 2010 second quarter 2011 due impact rising silver prices declines revenues relative internal forecasts completed interim impairment assessment fair value goodwill indefinitelived intangible asset related silpada based upon interim analysis estimated fair value silpada reporting unit trademark exceeded respective carrying value third quarter 2011 considered whether circumstances existed would likely reduce estimated fair values silpada reporting unit trademark respective carrying values concluded another interim impairment analysis considered necessary yearend 2011 close process completed annual goodwill indefinitelived intangible assets impairment assessments november 30 2011 subsequently determined goodwill associated silpada impaired specifically results annual impairment testing quarter ended december 31 2011 indicated estimated fair value silpada reporting unit less respective carrying amount test evaluate goodwill impairment two step process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting units goodwill second step impairment analysis requires valuation reporting units tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting units goodwill less carrying value difference represents impairment result impairment testing recorded estimated noncash tax impairment charge 1980 1251 tax reduce carrying amount goodwill silpada estimated fair value following impairment charge carrying value silpada goodwill 1167 avon products inc notes consolidated financial statements continued impairment testing indefinite lived intangible assets quarter ended december 31 2011 also indicated decline fair value silpada trademark intangible asset respective carrying value resulted noncash tax impairment charge 650 411 tax reduce carrying amount asset respective fair value following impairment charge carrying value silpada trademark 850 impairment analyses performed goodwill indefinitelived intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach market place participant would use estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions among factors key assumptions used measuring fair value silpada included discount rate based weightedaverage cost capital revenue growth silver prices representative growth activity rates fair value silpada trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates decline silpada expected future cash flows growth rates change riskadjusted discount rate used fair value expected future cash flows may result additional impairment charges goodwill indefinitelived trademark following weaker expected performance fourth quarter lowered revenue earnings projections silpada largely due rise silver prices nearly doubled since acquisition negative impact pricing revenues margins decline fair values silpada reporting unit underlying trademark driven reduction forecasted growth rates cash flows used estimate fair value goodwill intangible assets avon products inc notes consolidated financial statements continued note 18 supplemental balance sheet information december 31 2011 2010 prepaid expenses included following december 31 2011 2010 assets included following note 19 results operations quarter unaudited avon products inc notes consolidated financial statements continued 1 discussed note 1 description business summary significant accounting policies recorded outofperiod adjustments first quarter 2011 associated discontinued operations net tax prior periods resulting charge approximately 9 would decreased discontinued operations net tax fourth quarter 2010 approximately 13 increased prior period approximately 4 fourth quarter 2011 recorded adjustments approximately 25 tax 17 tax approximately 14 tax 10 tax related prior quarters 2011 primarily associated inventory brazil operations remaining fourth quarter outofperiod adjustments approximately 11 tax 7 tax related prior years quarters 2011 also recorded outofperiod adjustments aggregate approximately 10 tax 7 tax related prior years evaluated outofperiod adjustments individually aggregate relation periods corrected well periods originated concluded adjustments immaterial consolidated quarterly annual financial statements impacted periods 2 operating profit quarter impacted following 3 sum per share amounts quarters necessarily equal year computations made independently schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2011 2010 2009 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance tax loss carryforward benefits likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2012 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 28th day february 2013 avon products inc robert loughran robert loughran vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc subsidiaries december 31 2012 december 31 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate avon products inc consolidated statements income accompanying notes integral part statements avon products inc consolidated statements comprehensive income accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interestrate swap agreements 84 2012 532 2011 668 2010 see note 5 debt financing 1 includes cash equivalents discontinued operations 135 beginning year 2010 accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity accompanying notes integral part statements avon products inc notes consolidated financial statements millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling reportable segments based geographic operations four regions latin america europe middle east africa north america asia pacific centralized operations global brand marketing global sales also regional operations marketing sales supply chain product categories beauty fashion home beauty consists color cosmetics fragrances skin care personal care fashion consists jewelry watches apparel footwear accessories children’s products home consists gift decorative products housewares entertainment leisure products childrens products nutritional products sales made ultimate consumer principally independent representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related restructuring reserves allowances doubtful accounts receivable allowances sales returns provisions inventory obsolescence income taxes tax valuation reserves sharebased compensation loss contingencies determination discount rate actuarial assumptions pension postretirement postemployment benefit expenses valuation goodwill intangible assets contingent consideration foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statement income nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities venezuela currency effective january 1 2010 began account venezuela highly inflationary economy effective january 11 2010 venezuelan government devalued currency moved twotier exchange structure official exchange rate moved 215 260 essential goods 430 nonessential goods services effective december 30 2010 venezuelan government eliminated 260 rate available import essential goods substantially imports subsidiary venezuela avon venezuela classified nonessential avon products inc notes consolidated financial statements continued used official rate 430 remeasure bolívar denominated assets liabilities us dollars reporting date since rate expected available dividend remittances record loss within operating profit believe going convert bolívar denominated assets settle us dollar denominated liabilities sources exchange rate less favorable official rate result change official rate 430 conjunction accounting operations venezuela highly inflationary accounting guidelines first quarter 2010 recorded net charges 461 expense net 127 income taxes effective february 13 2013 venezuelan government devalued currency approximately 32 official exchange rate moved 430 630 regulated sitme market eliminated revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances revenue primarily includes shipping handling order processing fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures initially deferred prepaid expenses expensed selling general administrative expenses campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses recorded reduction selling general administrative expenses campaign length campaign length typically two weeks us two four weeks markets outside us brochure costs associated fees presented prepaid expenses 457 december 31 2012 458 december 31 2011 additionally paper stock purchased advance creating brochures prepaid expenses include paper supply 135 december 31 2012 253 december 31 2011 brochure costs expensed selling general administrative expenses amounted 5093 2012 5077 2011 4727 2010 fees charged representatives recorded reduction selling general administrative expenses amounted 2867 2012 2935 2011 2910 2010 property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter avon products inc notes consolidated financial statements continued lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful life related asset capitalized interest 20 2012 4 2011 53 2010 capitalized software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project generally exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets included unamortized capitalized software costs 2354 december 31 2012 1767 december 31 2011 goodwill intangible assets goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach marketplace participant would use indefinitelived intangible assets amortized rather assessed impairment annually fourth quarter occurrence event indicates impairment may occurred testing indefinitelived intangible assets impairment perform either qualitative quantitative assessment qualitative analysis results likely probability impairment quantitative assessment required quantitative test evaluate indefinitelived intangible assets impairment compares fair value intangible asset carrying value fair value asset less carrying value difference represents impairment analysis performed indefinitelived intangible asset requires several estimates computing estimated fair value asset use riskadjusted dcf model relieffromroyalty method finitelived intangible assets amortized using straightline method estimated useful lives assets intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future undiscounted cash flows expected result use asset eventual disposition compared carrying amount sum expected cash flows less carrying amount impairment charge recorded impairment charge measured amount carrying amount exceeds fair value asset fair value asset determined using probability weighted expected cash flow estimates quoted market prices available appraisals appropriate avon products inc notes consolidated financial statements continued applicable impairment testing performed following order indefinitelived intangible assets finitelived intangible assets goodwill completed annual goodwill indefinitelived intangible assets impairment assessments 2012 yearend close process analysis silpada business indicated impairment carrying value business exceeded estimated fair value finitelived intangible assets recoverable accordingly noncash impairment charge 2090 recorded fourth quarter 2012 reduce carrying amounts goodwill indefinitelived intangible asset finitelived intangible asset respective estimated fair value based continued decline revenue performance china third quarter 2012 corresponding lowering longterm growth estimates china completed interim impairment assessment fair value goodwill related operations china changes longterm growth estimates based state china business predominantly retail time result impairment testing recorded noncash impairment charge 440 third quarter 2012 reduce carrying amount goodwill china estimated fair value completed annual goodwill indefinitelived intangible assets impairment assessments 2011 yearend close process analysis silpada business indicated impairment carrying value business exceeded estimated fair value accordingly noncash impairment charge 2630 recorded fourth quarter 2011 reduce carrying amounts goodwill indefinitelived intangible asset see note 17 goodwill intangible assets financial instruments use derivative financial instruments including interestrate swap agreements forward foreign currency contracts manage interest rate foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 8 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided deferred tax assets likely items realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire deferred taxes provided portion unremitted earnings subsidiaries outside us management concludes earnings indefinitely reinvested deferred taxes provided earnings considered indefinitely reinvested prior fourth quarter 2012 recognized deferred income tax liability related incremental us taxes approximately 25 billion undistributed foreign earnings deemed indefinitely reinvested fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile determined company may repatriate offshore cash meet certain domestic funding needs accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested therefore recorded additional provision income taxes earnings see note 7 income taxes uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 10303 2012 10717 2011 9688 2010 avon products inc notes consolidated financial statements continued advertising costs excluding brochure preparation costs expensed incurred amounted 2536 2012 3112 2011 4004 2010 research development research development costs expensed incurred amounted 752 2012 777 2011 726 2010 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value using optionpricing model date grant use blackscholesmerton optionpricing model calculate fair value options restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required pension postretirement expense pension postretirement expense determined based number actuarial assumptions reviewed determined annual basis assumptions include discount rates hybrid plan maximum interest crediting rates expected return plan assets rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive income net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable outofperiod items first quarter 2012 recorded outofperiod adjustment decreased earnings approximately 14 tax 10 tax related 2011 associated bad debt expense south africa operations evaluated total outofperiod adjustments impacting 2012 approximately 13 tax 15 tax individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods first quarter 2011 determined net aftertax gain sale avon products company limited avon japan reported financial statements year ended december 31 2010 reported net aftertax loss approximately 3 correctly include balances relating avon japan previously included aoci addition first quarter 2011 company released liability relating previously owned health care business released prior period resulting approximate 4 increase net income results avon products inc notes consolidated financial statements continued businesses originally reported within discontinued operations upon disposition net impact two items decreased net income first quarter 2011 approximately 9 also identified recorded various outofperiod adjustments 2011 primarily related cost sales selling general administrative expenses related prior years net impact items decreased net income 2011 approximately 14 evaluated total outofperiod adjustments impacting 2011 approximately 23 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods see note 19 results operations quarter unaudited discussion outofperiod adjustments within 2012 2011 impact interim periods loss earnings per share compute loss earnings per share eps using twoclass method loss earnings allocation formula determines loss earnings per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net income allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year three years ended december 31 components basic diluted eps follows include stock options purchase 220 million shares year ended december 31 2012 229 million shares 2011 185 million shares 2010 avon common stock calculations diluted eps exercise prices options greater average market price inclusion would antidilutive also include stock options purchase 6 million shares year ended december 31 2012 net loss attributable avon inclusion shares would decrease net loss per share since would antidilutive shares excluded calculation avon products inc notes consolidated financial statements continued note 2 new accounting standards implemented may 2011 financial accounting standards board ”fasb” issued accounting standards update ”asu” 201104 fair value measurement topic 820 amendments achieve common fair value measurement disclosure requirements us gaap ifrs asu 201104 provides consistent definition fair value ensures fair value measurement disclosure requirements similar us gaap international financial reporting standards asu 201104 changes certain fair value measurement principles enhances disclosure requirements particularly level 3 fair value measurements asu 201104 effective avon january 1 2012 significant impact financial statements june 2011 fasb issued asu 201105 presentation comprehensive income asu 201105 requires entities present items net income comprehensive income either one continuous statement referred statement comprehensive income two separate consecutive statements net income comprehensive income addition december 2011 fasb issued asu 201112 deferral effective date amendments presentation reclassifications items accumulated comprehensive income accounting standards update 201105 asu 201112 defers requirement present components reclassifications comprehensive income statement comprehensive income requirements asu 201105 unaffected asu 201105 201112 effective january 1 2012 avon significant impact financial statements presentation september 2011 fasb issued asu 201108 testing goodwill impairment asu 201108 provides entities option perform qualitative assessment determine whether impairment testing necessary asu 201108 effective annual interim goodwill impairment tests avon january 1 2012 significant impact financial statements july 2012 fasb issued asu 201202 testing indefinitelived intangible assets impairment asu 201202 provides entities option perform qualitative assessment determine whether impairment testing necessary elected early adopt asu 201202 fourth quarter 2012 significant impact financial statements note 3 discontinued operations november 8 2010 company announced avon international operations inc aio whollyowned subsidiary company agreed sell ownership interest avon products company limited avon japan held aio pursuant tender offer bid agreement aio devon holdings kk affiliate tpg capital buyer transaction included sale company’s stake avon japan well certain prepaid royalties connection intellectual property licenses aggregate cash consideration approximately 90 avon japan previously reported within asia pacific segment transaction closed december 29 2010 total cash consideration received 81 recognized december 2010 resulting net aftertax gain 10 remaining 9 consideration received related use avon’s global brands formulas products use avon name japan fiveyear period portion royalty recognized straight line basis five years within continuing operations 2011 determined net aftertax gain sale avon japan reported net aftertax loss 3 correctly include balances relating avon japan previously included accumulated comprehensive loss aoci see note 1 description business summary significant accounting policies information note 4 inventories december 31 consisted following avon products inc notes consolidated financial statements continued note 5 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 86 december 31 2012 105 december 31 2011 total notes payable include 359 bank overdrafts december 31 2012 174 december 31 2011 longterm debt payable 2019 included obligations capital leases 139 december 31 2012 153 december 31 2011 primarily relate leases automobiles equipment addition longterm debt payable 2019 december 31 2012 2011 included financing obligations 617 622 respectively 484 585 respectively relates sale leaseback equipment one distribution facilities north america entered 2009 adjustments debt fair value hedges include adjustments reflect net unrealized gains 931 1476 december 31 2012 2011 respectively see note 8 financial instruments risk management held interestrate swap contracts effectively converted approximately 62 december 31 2012 74 december 31 2011 longterm fixedrate borrowings variable interest rate based libor january 2013 terminated eight interestrate swap agreements designated fair value hedges notional amounts totaling 1000 see note 8 financial instruments risk management term loan agreement june 29 2012 entered 5000 term loan agreement term loan agreement subsequently august 2 2012 borrowed incremental 500 principal subscriptions new lenders term loan agreement december 31 2012 5500 remained outstanding term loan agreement term loan agreement contains covenants limiting ability incur liens enter mergers consolidations sales substantially assets addition term loan agreement contains financial covenants require interest coverage ratio end fiscal quarter equal exceed 41 leverage ratio greater 41 end fiscal quarter prior march 31 2013 3751 end fiscal quarter prior december 31 2013 351 end fiscal quarter thereafter interest coverage ratio determined dividing consolidated avon products inc notes consolidated financial statements continued ebit defined term loan agreement consolidated interest expense case period four fiscal quarters ending date determination leverage ratio determined dividing amount consolidated funded debt date determination consolidated ebitda defined term loan agreement period four fiscal quarters ending date determination purposes calculating ratios consolidated ebit consolidated ebitda adjusted noncash expenses addition term loan agreement contains customary events default crossdefault provisions compliance interest coverage leverage ratios term loan agreement four fiscal quarters ended december 31 2012 pursuant term loan agreement required repay amount equal 25 aggregate principal amount term loan june 29 2014 remaining outstanding principal amount term loan june 29 2015 amounts repaid prepaid term loan agreement may reborrowed borrowings term loan agreement bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings term loan agreement also provides mandatory prepayments voluntary prepayments subject certain exceptions including issuance commercial paper drawdowns revolving credit facility required prepay term loan amount equal 50 net cash proceeds received incurrence debt borrowed money excess 500 private notes november 23 2010 issued private placement exempt registration securities act 1933 amended 1420 principal amount 260 senior notes series due november 23 2015 2900 principal amount 403 senior notes series b due november 23 2020 1030 principal amount 418 senior notes series c due november 23 2022 collectively private notes private notes senior unsecured obligations company rank equal right payment senior unsecured indebtedness unconditionally guaranteed one whollyowned subsidiaries proceeds sale private notes used repay existing debt general corporate purposes total 535 principal amount private notes issued pursuant note purchase agreement contains covenants limiting among things ability subsidiaries incur indebtedness subsidiaries’ ability incur liens subsidiary guarantor’s ability enter mergers consolidations sales substantially assets addition note purchase agreement contains financial covenant requires interest coverage ratio end fiscal quarter equal exceed 41 interest coverage ratio determined dividing consolidated pretax income consolidated interest expense case period four fiscal quarters ending date determination except set forth note purchase agreement provide adjustments consolidated pretax income certain onetime charges noncash impairments currency devaluations legal regulatory settlements calculating interest coverage ratio note purchase agreement contains customary events default crossdefault provisions prepayment private note option would require payment makewhole premium july 31 2012 obtained waiver holders private notes allowed us exclude noncash impairment charge associated silpada business recorded fourth quarter 2011 interest coverage ratio calculation pursuant note purchase agreement four fiscal quarters ended september 30 2012 august 15 2012 entered first amendment note purchase agreement among things add financial covenant requiring leverage ratio calculated manner term loan agreement greater 41 end fiscal quarter prior march 31 2013 3751 end fiscal quarter thereafter unless bank credit agreement principal credit facility contains leverage ratio favorable holders private notes favorable ratio apply fiscal quarters ended march 31 2014 thereafter ii amend interest coverage ratio subject favored lender provision add back consolidated pretax income actual noncash impairment charges related solely silpada business amount exceed 1250 aggregate addition 2630 noncash silpada impairment charge already recorded 2011 yearend close process excluded calculation four fiscal quarters ended september 30 2012 term note purchase agreement iii add favored lender provision respect financial covenants favor lenders iv provide 150 basis point step applicable interest rate unsecured unsubordinated debt rated investment grade certain number rating agencies compliance interest coverage leverage ratios note purchase agreement four fiscal quarters ended december 31 2012 interest coverage ratio note purchase agreement four fiscal quarters ended december 31 2012 4251 excludes noncash silpada impairment charges pursuant august 2012 amendment february 2013 issued notice prepayment entire 535 outstanding principal amount private notes prepayment price equal 100 principal amount plus accrued interest approximately 7 makewhole avon products inc notes consolidated financial statements continued premium estimated approximately 65 estimate accrued interest based applicable interest rate notes factors longterm credit ratings estimate makewhole premium based applicable interest rate notes factors longterm credit ratings prices relevant us treasury securities date notice prepayment accordingly amounts may change make final calculation prepayment price two business days advance prepayment date march 29 2013 public notes march 2009 issued 8500 principal amount notes payable public offering 5000 notes bear interest per annum coupon rate equal 5625 payable semiannually mature march 1 2014 notes 3500 notes bear interest per annum coupon rate equal 650 payable semiannually mature march 1 2019 notes net proceeds offering 8376 used repay outstanding indebtedness commercial paper program general corporate purposes carrying value 2014 notes represents 5000 principal amount net unamortized discount face value 6 december 31 2012 12 december 31 2011 carrying value 2019 notes represents 3500 principal amount net unamortized discount face value 27 december 31 2012 31 december 31 2011 march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum coupon rate equal 480 payable semiannually mature march 1 2013 notes 2500 notes bear interest per annum coupon rate 575 payable semiannually mature march 1 2018 notes net proceeds offering 4963 used repay outstanding indebtedness commercial paper program general corporate purposes december 31 2012 carrying value 2013 notes represents 2500 principal amount net immaterial amount unamortized discount face value december 31 2011 carrying value represents 2500 principal amount net unamortized discount face value 1 carrying value 2018 notes represents 2500 principal amount net unamortized discount face value 4 december 31 2012 5 december 31 2011 june 2003 issued public 2500 principal amount registered senior notes 420 notes 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually carrying value 420 notes represents 2500 principal amount net unamortized discount face value 4 5 december 31 2012 2011 respectively april 2003 call holder 1000 principal amount 625 notes due may 2018 notes embedded put call option features exercised call option associated notes thus became sole note holder notes pursuant agreement sole note holder modified notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes mature may 15 2013 bear interest per annum rate 4625 payable semiannually 4625 notes transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes carrying value 4625 notes represents 1250 principal amount net unamortized discount face value 10 37 december 31 2012 2011 respectively maturities longterm debt annual maturities longterm debt including unamortized discounts premiums excluding adjustments debt fair value hedges outstanding december 31 2012 follows financing revolving credit facility maintain 1 billion revolving credit facility revolving credit facility expires november 2013 discussed 1 billion available revolving credit facility effectively reduced principal amount commercial paper outstanding borrowings revolving credit facility bear interest option rate per annum equal floating base rate libor plus applicable margin varies within specified band based upon credit ratings revolving credit facility annual fee 20 payable quarterly based current credit ratings avon products inc notes consolidated financial statements continued revolving credit facility may used general corporate purposes december 31 2012 2011 amounts outstanding revolving credit facility revolving credit facility contains covenants limiting ability among things incur liens enter mergers consolidations sales substantially assets financial covenant requires interest coverage ratio end fiscal quarter equal exceed 41 addition revolving credit facility contains customary events default crossdefault provisions interest coverage ratio determined dividing consolidated pretax income consolidated interest expense case period four fiscal quarters ending date determination july 31 2012 obtained waiver lenders revolving credit facility allowed us exclude noncash impairment charge associated silpada business recorded fourth quarter 2011 interest coverage ratio calculation pursuant revolving credit facility four fiscal quarters ended september 30 2012 december 21 2012 entered amendment revolving credit facility primarily relating calculation components interest coverage ratio allows us subject certain conditions limitations add back consolidated net income extraordinary noncash losses expenses ii onetime fees cash charges cash expenses premiums penalties incurred connection asset sale equity issuance incurrence repayment debt refinancing amendment debt instrument iii cash charges cash expenses premiums penalties incurred connection restructuring relating legal regulatory action settlement judgment ruling aggregate amount exceed 4000 period october 1 2012 termination commitments revolving credit facility december 31 2012 based interest rates approximately 250 1 billion revolving credit facility less principal amount commercial paper outstanding zero december 31 2012 could drawn without violating covenant restrictive interest coverage ratio calculation private notes pursuant notice required prepaid march 29 2013 see would able draw entire 1 billion revolving credit facility december 31 2012 without violating covenant interest coverage ratio revolving credit facility four fiscal quarters ended december 31 2012 6641 excludes certain cash noncash charges pursuant december 2012 amendment commercial paper program also maintain 1 billion commercial paper program supported revolving credit facility program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 1 billion outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment outstanding commercial paper effectively reduces amount available borrowing revolving credit facility december 31 2012 outstanding commercial paper program 2012 demand commercial paper declined partially impacted rating agency action described letters credit december 31 2012 december 31 2011 also letters credit outstanding totaling 214 234 respectively primarily guarantee various insurance activities addition outstanding letters credit trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels additional information longterm credit ratings baa2 stable outlook moodys bbb negative outlook sp low end investment grade bb stable outlook fitch investment grade february 2013 fitch lowered longterm credit rating bbb negative outlook bb stable outlook moodys lowered longterm credit rating baa1 negative outlook baa2 stable outlook additional rating agency reviews could result change outlook downgrade would likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements reduced access lending sources including commercial paper market information regarding risks associated ability refinance debt access certain debt markets including commercial paper market see risk factors indebtedness debt service obligations could materially adversely affect business prospects financial condition liquidity results operations cash flows risk factors service debt obligations require significant amount cash ability generate cash depends many factors beyond control failure meet debt service obligations refinance repay outstanding indebtedness matures could materially adversely impact business prospects financial condition liquidity results operations cash flows risk factors general economic downturn recession globally one geographic regions sudden disruption business conditions avon products inc notes consolidated financial statements continued challenges may adversely affect business access liquidity capital credit ratings included item 1a pages 8 18 2012 annual report note 6 accumulated comprehensive loss accumulated comprehensive loss december 31 consisted following foreign exchange net gains 77 2012 net losses 20 2011 resulting translation actuarial losses prior service credit translation obligation recorded aoci included foreign currency translation adjustments rollforward accumulated comprehensive loss consolidated statements changes shareholders equity 2011 identified outofperiod adjustment relating balances included aoci relating avon japan see note 1 description business summary significant accounting policies information note 7 income taxes prior fourth quarter 2012 recognized deferred income tax liability related incremental us taxes approximately 25 billion undistributed foreign earnings deemed indefinitely reinvested fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile determined company may repatriate offshore cash meet certain domestic funding needs accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested therefore recorded additional provision income taxes 1683 earnings december 31 2012 deferred income tax liability 2248 us income taxes undistributed earnings subsidiaries outside us recorded us income tax benefit 1587 undistributed earnings subsidiary venezuela local regulations restrict cash distributions avon products inc notes consolidated financial statements continued deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign tax loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 813 2012 mainly due several foreign entities continuing incur losses 2012 thereby increasing tax loss carryforwards valuation allowance provided income continuing operations taxes years ended december 31 follows avon products inc notes consolidated financial statements continued provision income taxes years ended december 31 follows foreign provision income taxes includes us tax cost foreign earnings 1568 247 243 years ended december 31 2012 2011 2010 respectively effective tax rate years ended december 31 follows december 31 2012 tax loss carryforwards 21837 loss carryforwards expiring 2013 2032 1683 loss carryforwards expire 20154 also minimum tax credit carryforwards 359 expire business credit carryforwards 116 expire 2020 2031 foreign tax credit carryforwards 3560 expire 2018 2022 uncertain tax positions december 31 2012 360 total gross unrecognized tax benefits approximately 90 would impact effective tax rate recognized avon products inc notes consolidated financial statements continued reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 62 december 31 2012 129 december 31 2011 accrued interest penalties net tax benefit recorded benefits 11 38 45 interest penalties net taxes 2012 2011 2010 respectively file income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2012 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 15 25 within next 12 months due closure tax years expiration statute limitations audit settlements note 8 financial instruments risk management operate globally manufacturing distribution facilities various locations around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments since use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger avon products inc notes consolidated financial statements continued derivatives recognized balance sheet fair values following table presents fair value derivative instruments outstanding december 31 2012 following table presents fair value derivative instruments outstanding december 31 2011 accounting policies derivatives recognized balance sheet fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following accounting policies • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item derivatives designated hedges assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items avon products inc notes consolidated financial statements continued highly effective means cumulative changes fair value derivative 85 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income addition determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income interest rate risk borrowings subject interest rate risk use interestrate swap agreements effectively convert fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges held interestrate swap agreements effectively converted approximately 62 december 31 2012 74 december 31 2011 outstanding longterm fixedrate borrowings variable interest rate based libor total exposure floating interest rates approximately 69 december 31 2012 82 december 31 2011 however january 2013 terminated eight interestrate swap agreements designated fair value hedges notional amounts totaling 1000 march 2012 terminated two interestrate swap agreements designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 incurred termination fees 25 recorded expense net year ended december 31 2012 net impact gain amortization 44 interestrate swap agreements terminated order increase ratio fixedrate debt december 31 2012 interestrate swap agreements designated fair value hedges fixedrate debt notional amounts totaling 1375 unrealized gains 931 december 31 2012 903 included within longterm debt 28 included within debt maturing within one year unrealized gains 1476 december 31 2011 included within longterm debt 2012 2011 recorded net loss 84 net gain 532 respectively interest expense interestrate swap agreements designated fair value hedges impact interest expense interestrate swap agreements offset equal offsetting impact interest expense fixedrate debt times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepayfixed interestrate swap agreements designated offset gain loss dedesignated contract december 31 2012 interestrate swap agreements designated hedges notional amounts totaling 250 unrealized losses agreements immaterial december 31 2012 2011 2012 recorded immaterial net gain expense net associated undesignated interestrate swap agreements hedge ineffectiveness years ended december 31 2012 2011 2010 related interestrate swaps 2007 entered treasury lock agreements 2007 locks notional amounts totaling 5000 expired july 31 2008 2007 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses 2007 locks 380 recorded aoci 192 losses amortized interest expense five years 188 amortized ten years 2005 entered treasury lock agreements 2005 locks designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated 2005 locks hedges reclassified gain 25 2005 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement additional 2005 locks notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss additional 2005 locks 19 recorded aoci amortized interest expense five years 2003 entered treasury lock agreements 2003 locks designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 2003 locks 26 recorded aoci amortized interest expense ten years avon products inc notes consolidated financial statements continued december 31 2012 expect reclassify 17 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months years ended december 31 2012 2011 treasury lock agreements impacted aoci follows foreign currency risk december 31 2012 primary currencies net underlying foreign currency exchange rate exposures argentine peso australian dollar brazilian real british pound canadian dollar chinese renminbi colombian peso czech republic koruna euro mexican peso new zealand dollar peruvian new sol philippine peso polish zloty russian ruble south africa rand turkish lira ukrainian hryvnia venezuelan bolívar use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2012 outstanding foreign exchange forward contracts notional amounts totaling approximately 3153 euro british pound mexican peso peruvian new sol czech republic koruna polish zloty romanian leu new zealand dollar use foreign exchange forward contracts manage foreign currency exposure intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating intercompany loans 2012 2011 recorded gains 76 87 respectively expense net related undesignated foreign exchange forward contracts also 2012 2011 recorded losses 46 32 respectively related intercompany loans caused changes foreign currency exchange rates also used foreign exchange forward contracts foreign currencydenominated debt hedge foreign currency exposure related net assets foreign subsidiaries effective hedges gains 43 2012 28 2011 loss 37 2010 related effective portions hedges included foreign currency translation adjustments within aoci consolidated balance sheets 2010 loss 201 reclassified aoci discontinued operations due sale avon japan 2011 identified outofperiod adjustment relating balances included aoci relating avon japan see note 1 description business summary significant accounting policies information credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange interest rate agreements would resulted writeoff 997 december 31 2012 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange interest rates however mentioned january 2013 terminated eight interestrate swap agreements designated fair value hedges notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value debt 904 amortized reduction interest expense remaining term underlying debt obligations note 9 fair value assets liabilities recorded fair value fair value measurement provisions required fair value measurements disclosures topic codification establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities avon products inc notes consolidated financial statements continued • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2012 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2011 tables exclude pension postretirement plan assets refer note 12 employee benefit plans fair value hierarchy plan assets money market funds held healthcare trust order fund future benefit payments active retiree benefit plans see note 12 employee benefit plans availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 12 employee benefit plans foreign exchange forward contracts interestrate swap agreements hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table see note 8 financial instruments risk management assets liabilities recorded fair value nonrecurring basis december 31 2012 silpada following table presents fair value hierarchy assets liabilities measured fair value nonrecurring basis december 31 2012 indicates placement fair value hierarchy valuation techniques utilized determine fair value avon products inc notes consolidated financial statements continued fourth quarter 2012 completed annual goodwill indefinitelived intangible assets impairment assessments subsequently determined goodwill indefinitelived trademark finitelived customer relationships associated silpada impaired result carrying amount silpada’s goodwill reduced 1167 estimated fair value 446 resulting noncash impairment charge 721 addition carrying amount silpada’s indefinitelived trademark reduced 850 estimated fair value 400 resulting noncash impairment charge 450 carrying amount silpada’s finitelived customer relationships reduced 1319 estimated fair value 400 resulting noncash impairment charge 919 september 30 2012 china following table presents fair value hierarchy assets liabilities measured fair value nonrecurring basis september 30 2012 indicates placement fair value hierarchy valuation techniques utilized determine fair value third quarter 2012 completed interim impairment assessment fair value goodwill related china subsequently determined goodwill associated china impaired result carrying amount china’s goodwill reduced 813 estimated fair value 373 resulting noncash impairment charge 440 december 31 2011 silpada following table presents fair value hierarchy assets liabilities measured fair value nonrecurring basis december 31 2011 indicates placement fair value hierarchy valuation techniques utilized determine fair value fourth quarter 2011 completed annual goodwill indefinitelived intangible assets impairment assessments subsequently determined goodwill indefinitelived trademark associated silpada impaired result carrying amount silpada’s goodwill reduced 3147 estimated fair value 1167 resulting noncash impairment charge 1980 addition carrying amount silpada’s indefinitelived trademark reduced 1500 estimated fair value 850 resulting noncash impairment charge 650 fair value measurement silpada china impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach marketplace participant would use estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions among factors key assumptions used measuring fair values silpada china included discount rate based weightedaverage cost capital revenue growth well silver prices representative growth activity rates silpada fair value silpadas indefinitelived trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates fair value silpada finitelived customer relationships determined using dcf model multiperiod excess earnings method significant decline expected future cash flows growth rates change discount rate used fair value expected future cash flows may result future impairment charges see note 17 goodwill intangible assets information silpada china avon products inc notes consolidated financial statements continued fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments money market funds accounts receivable loans receivable debt maturing within one year accounts payable longterm debt foreign exchange forwards contracts interestrate swap agreements carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt net related discount premium well unrealized gains interestrate swap agreements methods assumptions used estimate fair value follows availableforsale securities money market funds fair values investments quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date interestrate swap agreements fair values interestrate swap agreements estimated based libor yield curves reporting date note 10 sharebased compensation plans avon products inc 2010 stock incentive plan 2010 plan shareholder approved plan provides several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance restricted stock units 2010 plan maximum number shares may awarded 32000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share stock subject award ii case grant award payable stock option sar 233 multiplied share stock subject award shares issued sharebased awards primarily funded issuance new shares issued stock options stock appreciation rights restricted stock units performance restricted stock units 2010 plan stock option awards granted exercise price equal closing market price stock date grant option awards stock appreciation rights generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors generally vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 avon products inc notes consolidated financial statements continued compensation cost stock options stock appreciation rights restricted stock units 2012 2011 2010 recorded selling general administrative expenses years ended december 31 2012 2011 2010 determined pool windfall tax benefits stock options fair value option estimated date grant using blackscholesmerton optionpricing model following weightedaverage assumptions options granted years ended december 31 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life 10 years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumed thencurrent cash dividends 23 2012 23 2011 22 2010 per share quarter common stock options granted years weightedaverage grantdate fair values per share options granted 355 2012 651 2011 791 2010 summary stock options december 31 2012 changes 2012 follows december 31 2012 approximately 38 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 13 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2012 2011 2010 follows restricted stock restricted stock units performance restricted stock units fair value restricted stock units performance restricted stock units granted determined based closing price common stock date grant avon products inc notes consolidated financial statements continued march 2011 granted performance restricted stock units vest three years upon satisfaction certain performance conditions accrue compensation cost probable performance conditions achieved reassess whether achievement performance conditions probable reporting period fourth quarter 2011 assessed longer probable would meet specified performance conditions reversed compensation cost recognized todate march 2012 granted performance restricted stock units vest three years upon satisfaction certain performance conditions later march 2012 amended one performance conditions associated award result incremental compensation cost associated modification totaled 9 3 recognized 2012 currently believe achievement performance conditions probable summary restricted stock restricted stock units december 31 2012 changes 2012 follows summary performance restricted stock units december 31 2012 changes 2012 follows 1 based target payout total fair value restricted stock units vested 2012 228 based upon market prices vesting dates december 31 2012 approximately 437 unrecognized compensation cost related restricted stock restricted stock units performance restricted stock units compensation arrangements cost expected recognized weightedaverage period 18 years addition amounts table april 2012 granted 200000 restricted stock units funded treasury shares outside 2010 plan reliance upon new york stock exchange rules restricted stock units weightedaverage grantdate fair value 2169 vest settle ratably five years 2012 recognized compensation cost 14 restricted stock units december 31 2012 29 unrecognized compensation cost related restricted stock units note 11 stock repurchase program october 2007 board directors approved fiveyear 20000 share repurchase program 20 billion program began december 2007 program expired december 17 2012 repurchased approximately 48 million shares 1808 20 billion program expiration note 12 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 122 2012 126 2011 125 2010 used psa purchase shares open market june 30 2011 avon products inc notes consolidated financial statements continued beginning july 1 2011 matching contributions follow allocation participant selected contributions defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care life insurance benefits end 2012 subject certain limitations majority retired employees us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive income net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued us pension plans include funded qualified plans unfunded nonqualified plans december 31 2012 us qualified pension plans benefit obligations 7288 plan assets 5292 december 31 2011 us qualified pension plans benefit obligations 6835 plan assets 4934 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans second quarter 2012 approximately 40 assets previously designated intended used solely postretirement benefits transferred trust funds active retiree benefits healthcare trust treated transfer assets negative contribution net benefit obligation december 31 2012 balance healthcare trust 269 avon products inc notes consolidated financial statements continued components net periodic benefit cost amounts recognized comprehensive loss amounts represent pretax effect included within comprehensive loss net tax amounts included within consolidated statements changes shareholders’ equity amounts accumulated comprehensive loss expected recognized components net periodic benefit cost 2013 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected avon products inc notes consolidated financial statements continued future benefit payment obligations plan weightedaverage discount rate us nonus plans determined basis decreased 411 december 31 2012 469 december 31 2011 weightedaverage assumptions used determine net benefit cost recorded consolidated statements income years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2012 assumed rate return assets globally 728 represents weightedaverage rate return plan assets including us nonus plans assumed rate return determining 2012 net costs us plan 775 addition current rate return assumption us plan based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 2 4 long term approximately 65 equity securities high yield securities expected earn approximately 6 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage assumed rate return 685 determining 2012 net cost plan assets us nonus funded pension postretirement plans target weightedaverage asset allocations december 31 2012 2011 asset category follows avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2012 mentioned second quarter 2012 approximately 40 assets previously designated intended used solely postretirement benefits transferred trust funds active retiree benefits healthcare trust december 31 2012 us nonus postretirement assets avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension postretirement assets measured fair value recurring basis december 31 2011 december 31 2011 nonus postretirement assets reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market avon products inc notes consolidated financial statements continued prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 55 60 us pension postretirement plans range 40 45 international pension postretirement plans 2013 total benefit payments expected paid plans follows postretirement benefits 2012 assumed rate future increases per capita cost health care benefits health care cost trend rate 97 claims assumed gradually decrease year thereafter 51 2017 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits life insurance coverage end 2012 eligible former employees employment avon products inc notes consolidated financial statements continued retirement accrued cost postemployment benefits 522 december 31 2012 695 december 31 2011 included employee benefit plans liability supplemental retirement programs offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral performance restricted stock units certain employees deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated dcp 17 2012 14 2011 33 2010 accrued liability dcp 697 december 31 2012 757 december 31 2011 included liabilities maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost programs included determination net periodic benefit cost shown previously amounted 84 2012 98 2011 100 2010 benefit obligation programs 639 december 31 2012 684 december 31 2011 included employee benefit plans accrued compensation also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers since january 1 2010 established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss consolidated statements income note 13 segment information reportable segments based geographic operations include commercial business units latin america europe middle east africa north america asia pacific segments similar business characteristics offers similar products similar customer access methods conjunction organizational changes effective second quarter 2012 results central eastern europe western europe middle east africa managed single operating segment accordingly europe middle east africa amounts include results central eastern europe western europe middle east africa periods presented conjunction organizational changes effective second quarter 2012 dominican republic included latin america whereas prior periods included north america impact material either segment accordingly dominican republic included latin america excluded north america periods presented global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated foreign corrupt practices act fcpa investigations compliance reviews allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigations compliance reviews costs implementing restructuring initiatives related specific segment recorded within segment avon products inc notes consolidated financial statements continued accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning reportable segments december 31 shown following tables avon products inc notes consolidated financial statements continued major country defined one total revenues greater 10 consolidated total revenues major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets us brazil’s longlived assets consist primarily property plant equipment related manufacturing distribution facilities 1 beauty includes color cosmetics fragrances skin care personal care 2 fashion includes fashion jewelry watches apparel footwear accessories children’s products 3 home includes gift decorative products housewares entertainment leisure products children’s products nutritional products 4 revenue primarily includes shipping handling order processing fees billed representatives note 14 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2012 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 1333 2012 1388 2011 1261 2010 plant construction expansion modernization projects estimated cost complete approximately 1106 progress december 31 2012 avon products inc notes consolidated financial statements continued note 15 restructuring initiatives 2005 2009 restructuring programs launched restructuring programs late 2005 restructuring program february 2009 restructuring program 2005 2009 restructuring programs initiatives include • enhancement organizational effectiveness including efforts flatten organization bring senior management closer consumers substantial organizational downsizing • implementation global manufacturing strategy facilities realignment • implementation additional supply chain efficiencies distribution • restructuring global supply chain operations • realigning certain local business support functions regional base drive increased efficiencies • streamlining transactional services outsourcing moves lowercost countries reorganizing certain functions approved announced initiatives part 2005 2009 restructuring programs believe substantially realized anticipated savings associated 2005 restructuring program track achieve anticipated savings associated 2009 restructuring program savings achieved restructuring programs offset investments representative value proposition advertising since 2005 recorded total costs implement restructuring initiatives 5271 taxes actions associated 2005 restructuring program expect total costs fully implemented approximately 525 taxes considering historical future costs along expected gains sales properties regards 2009 restructuring program recorded total costs implement restructuring initiatives 2550 taxes expect total costs implement reach approximately 260 taxes incurred incur costs implement restructuring initiatives professional services accelerated depreciation future costs expected partially offset expected gains sales properties exited due restructuring initiatives restructuring charges 2010 recorded total costs implement 807 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net charge 413 primarily employeerelated costs including severance pension benefits • implementation costs 277 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations realign certain support functions regional basis realign certain manufacturing facilities • accelerated depreciation 117 associated initiatives realign certain distribution operations close certain manufacturing operations total costs implement 712 recorded selling general administrative expenses 95 recorded cost sales 2010 restructuring charges 2011 recorded total costs implement 400 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net charge 34 primarily employeerelated costs including severance pension benefits • implementation costs 272 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations realign certain support functions regional basis realign certain manufacturing facilities • accelerated depreciation 146 associated initiatives realign certain distribution operations close certain manufacturing operations offset net gain 52 primarily due sale facility germany total costs implement 288 recorded selling general administrative expenses 112 recorded cost sales 2011 avon products inc notes consolidated financial statements continued restructuring charges 2012 recorded total costs implement 1 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net benefit 121 result adjustments reserve partially offset employeerelated costs • implementation costs 89 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations • accelerated depreciation 47 associated initiatives realign certain distribution operations close certain manufacturing operations offset net gain 14 due sale machinery equipment germany total cost implement net benefit 30 recorded selling general administrative expenses total costs implement 31 recorded cost sales 2012 liability balances primarily consist employeerelated costs initiatives 2005 2009 restructuring programs shown noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented following table presents restructuring charges incurred date net adjustments 2005 2009 restructuring programs charges net adjustments initiatives 2005 2009 restructuring programs reportable business segment follows avon products inc notes consolidated financial statements continued amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable additional restructuring charges 2012 effort improve operating performance identified certain actions 2012 believe enhance operating model reduce costs improve efficiencies addition management approved relocation corporate headquarters new york city result analysis actions taken 2012 recorded total costs implement various restructuring initiatives 739 taxes associated approved initiatives costs consisted following • net charge 534 primarily employeerelated costs including severance pension benefits • contract termination costs 120 associated relocation corporate headquarters • implementation costs 58 professional service fees • accelerated depreciation 27 associated relocation corporate headquarters total costs implement recorded selling general administrative expenses year ended december 31 2012 majority future cash payments associated charges expected made 2013 liability balance various restructuring initiatives december 31 2012 follows noncash writeoffs associated employeerelated costs result settlement curtailment special termination benefit charges pension plans postretirement due initiatives implemented charges approved date additional restructuring initiatives reportable business segment follows 138 latin america 102 europe middle east africa 47 north america 43 asia pacific 324 corporate 400m cost savings initiative december 11 2012 announced initial steps cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth 400m cost savings initiative includes global headcount reduction related actions well exit south korea vietnam markets part 400m cost savings initiative identified certain actions fourth quarter 2012 majority expected take effect 2013 believe accelerate top line growth reduce costs result actions recorded total costs implement restructuring initiatives 507 taxes associated approved initiatives approved date expect total costs implement range 70 80 taxes time avon products inc notes consolidated financial statements continued unable quantify total costs initiative fully implemented connection initial steps 400m cost savings initiative expect realize annualized savings approximately 70 taxes total cost implement recorded 2012 related initiatives consisted following • net charge 452 primarily employeerelated costs including severance pension benefits • accelerated depreciation 22 associated closure rationalization certain facilities • net charge 19 primarily related contract termination costs associated closure certain facilities exit south korea market • inventory writeoffs 14 associated exit south korea vietnam markets total cost implement 493 recorded selling general administrative expenses 14 recorded cost sales 2012 cash payments associated charges expected made primarily 2013 liability balance 400m cost savings initiative december 31 2012 follows following table presents restructuring charges incurred date net adjustments 400m cost savings initiative along charges expected incurred plan charges net adjustments initiatives 400m cost savings initiative reportable business segment follows noted previously initiatives approved date expect record total costs implement range 70 80 taxes 400m cost savings initiative amounts shown tables charges recorded date relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded date plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incurred incur costs implement restructuring initiatives professional services accelerated depreciation avon products inc notes consolidated financial statements continued note 16 contingencies fcpa investigations previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance foreign corrupt practices act fcpa related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 previously reported july 2009 connection internal investigation commenced compliance reviews regarding fcpa related us foreign laws additional countries order evaluate compliance efforts conducting compliance reviews number countries selected represent companys international geographic segments internal investigation compliance reviews focused reviewing certain expenses books records processes including limited travel entertainment gifts use thirdparty vendors consultants related due diligence joint ventures acquisitions payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters ongoing connection internal investigation compliance reviews certain personnel actions including termination employment certain senior members management taken additional personnel actions may taken future connection internal investigation compliance reviews continue enhance ethics compliance program including policies procedures fcpa compliancerelated training fcpa thirdparty due diligence program compliancerelated resources previously reported october 2008 voluntarily contacted united states securities exchange commission sec united states department justice doj advise agencies internal investigationwe cooperated continue cooperate investigations matters sec doj among things signed tolling agreements responded inquiries translated produced documents assisted interviews provided information internal investigation compliance reviews personnel actions taken steps taken enhance ethics compliance program previously reported august 2012 discussions sec doj regarding resolving government investigations discussions ongoing assurance settlement sec doj reached settlement reached timing settlement terms settlement expect settlement may include civil andor criminal fines penalties well nonmonetary remedies oversight requirements additional remediation compliance requirements may required incur significant future costs comply nonmonetary terms settlement sec doj certain circumstances may also required advance significant professional fees expenses certain current former company employees connection matters settlement resolution matters expect continue incur costs primarily professional fees expenses may significant connection government investigations point unable predict developments outcome economic consequences government investigations impact earnings cash flow liquidity financial condition ongoing business however based recent communications doj sec company believes probable company incur loss related government investigations unable reasonably estimate amount range loss however loss could material litigation matters july august 2010 derivative actions filed state court certain present former officers andor directors company carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 actions allege breach fiduciary duty abuse control waste corporate assets one complaint unjust enrichment relating companys compliance fcpa including adequacy companys internal controls relief sought individual defendants one derivative complaints includes certain declaratory equitable relief restitution damages exemplary damages interest company nominal defendant relief sought company parker case plaintiff agreed defendants time file answer motion dismiss response adjourned plaintiff files amended pleading schwartz parties agreed defer filing amended complaint defendants response thereto parties submit stipulation addressing scheduling proceedings may 14 2012 county york retirement plan county york plaintiff previouslyfiled discontinued derivative action filed complaint company seeking enforcement demands inspection certain avon products inc notes consolidated financial statements continued companys books records county york retirement plan v avon products inc new york supreme court new york county index 6516732012 july 10 2012 company moved dismiss county yorks complaint unable predict outcome matters july 6 2011 purported shareholders class action complaint city brockton retirement system v avon products inc et al 11civ4665 filed united states district court southern district new york certain present former officers andor directors company september 29 2011 court appointed lbbw asset management investmentgesellschaft mbh sgss deutschland kapitalanlagegesellschaft mbh lead plaintiffs motley rice llc lead counsel lead plaintiffs filed amended complaint behalf purported class consisting persons entities purchased otherwise acquired shares avons common stock july 31 2006 including october 26 2011 amended complaint names company two individual defendants asserts violations sections 10b 20a exchange act based allegedly false misleading statements omissions respect among things companys compliance fcpa including adequacy companys internal controls plaintiffs seek compensatory damages well injunctive relief defendants moved dismiss amended complaint june 14 2012 light among things early stage litigation unable predict outcome matter however reasonably possible may incur loss connection matter unable reasonably estimate amount range reasonably possible loss april 2012 several purported shareholders actions filed company certain present former directors company new york supreme court new york county pritika v jung et al index 6510722012 feinman v avon products inc et al index 6510872012 gaines v jung et al index 6510972012 schwartz v avon products inc et al index 6511522012 robaczynki individually behalf others similarly situated derivatively behalf avon products inc v jung et al index 6511762012 april 26 2012 actions consolidated new york supreme court new york county avon products inc shareholder litigation consolidated index 6510872012e amended consolidated complaint filed may 18 2012 amended consolidated complaint asserts derivative claim individual defendants based alleged breaches fiduciary duties connection indications interest coty inc acquiring company named nominal defendant purported derivative claim relief appears sought company claim amended consolidated complaint also asserts purported direct claim behalf class shareholders individual defendants based alleged breaches fiduciary duties plaintiffs seek compensatory damages well injunctive relief june 27 2012 defendants moved dismiss consolidated action light among things early stage litigation unable predict outcome matter however reasonably possible may incur loss connection matter unable reasonably estimate amount range reasonably possible loss circumstances losses incurred connection adverse outcomes litigation matters described could material brazilian tax matters 2002 brazilian subsidiary received excise tax ipi assessment brazilian tax authorities alleged tax deficiencies years 19971998 december 2012 additional assessments received year 2008 respect excise tax ipi taxes charged gross receipts pis cofins totaling approximately 392 58 271 including penalties accrued interest exchange rate december 31 2012 2002 2012 assessments assert establishment 1995 separate manufacturing distribution companies country done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2002 2012 assessments unfounded matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 assessments october 2010 2002 assessment upheld first administrative level amount reduced 32 75 including penalties accrued interest exchange rate december 31 2012 appealed decision second administrative level event 2002 2012 assessments upheld third last administrative level may necessary us provide security pursue appeals depending circumstances may result charge income possible reasonably estimate amount range potential loss could incur related 2002 2012 assessments additional assessments may issued subsequent periods tax years 2007 closed statute however similar excise tax ipi assessments involving different periods 19982001 canceled avon products inc notes consolidated financial statements continued officially closed favor second administrative level management believes likelihood 2002 2012 assessments upheld remote matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2012 expected material adverse effect consolidated financial position results operations cash flows note 17 goodwill intangible assets acquisitions july 2010 acquired substantially assets liabilities silpada designs inc silpada approximately 650 cash plus potential additional payment early 2015 based achievement earnings growth silpada north america business periods 2012 2014 silpada included within north america segment purchase price allocation resulted goodwill 3147 indefinitelived trademark 1500 customer relationships 1728 customer relationships average 10year useful life date acquisition liability approximately 26 recorded associated potential additional consideration contingent consideration based valuation estimated fair value liability probabilityweighting discounting various potential payments december 31 2010 estimated fair value contingent consideration liability 11 zero december 31 2011 2012 changes fair value contingent consideration recorded within selling general administrative expenses respective periods march 2010 acquired liz earle beauty co limited liz earle acquired business included europe middle east africa operating segment purchase price allocation resulted goodwill 1236 indefinitelived trademarks 228 licensing agreements 87 customer relationships 47 licensing agreements customer relationships weighted average 8year useful life following unaudited pro forma summary presents company’s consolidated information silpada liz earle acquired january 1 2010 impairment assessment methods assumptions quantitative test evaluate goodwill impairment two step process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach marketplace participant would use estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors key assumptions used measuring fair values silpada china included discount rate based weightedaverage cost capital revenue growth well silver prices representative growth activity rates silpada fair value silpadas indefinitelived trademark determined using riskadjusted dcf model relieffromroyalty method royalty rate used based consideration market rates fair value silpada finitelived customer relationships determined using dcf model multiperiod excess earnings method significant decline expected future cash flows growth rates change discount rate used fair value expected future cash flows may result future impairment charges avon products inc notes consolidated financial statements continued 2012 silpada impairment assessment yearend 2012 close process completed annual goodwill impairment assessment november 30 2012 subsequently determined goodwill associated silpada impaired specifically results annual impairment testing quarter ended december 31 2012 indicated estimated fair value silpada reporting unit less respective carrying amount primarily result weaker expected performance fourth quarter 2012 largely due lower representative counts activity rates result lowered revenue earnings projections silpada decline fair values silpada reporting unit trademark customer relationships driven reduction forecasted growth rates cash flows used estimate fair value result impairment testing recorded noncash tax impairment charge 721 456 tax reduce carrying amount goodwill silpada estimated fair value following impairment charge carrying value silpada goodwill 446 impairment testing indefinitelived intangible assets november 30 2012 also indicated decline fair value silpada trademark intangible asset respective carrying value resulted noncash tax impairment charge 450 285 tax reduce carrying amount asset estimated fair value following impairment charge carrying value silpada trademark 400 also performed impairment test silpada finitelived intangible assets november 30 2012 indicated carrying value silpada customer relationships asset exceeded estimated future undiscounted cash flows business resulted noncash tax impairment charge 919 581 tax reduce carrying amount asset estimated fair value following impairment charge carrying value silpada customer relationships 400 2012 china impairment assessment based continued decline revenue performance china third quarter 2012 corresponding lowering longterm growth estimates china completed interim impairment assessment fair value goodwill related operations china changes longterm growth estimates based state china business predominantly retail time still analyzing longterm strategic plan china changes longterm strategic plan may impact expectations future financial performance based upon interim analysis determined goodwill related operations china impaired specifically results interim impairment test indicated estimated fair value china reporting unit less respective carrying amount result impairment testing recorded noncash impairment charge 440 tax reduce carrying amount goodwill china estimated fair value following impairment charge carrying value china goodwill approximately 373 2011 silpada impairment assessment second quarter 2011 due impact rising silver prices declines revenues relative internal forecasts completed interim impairment assessment fair value goodwill indefinitelived intangible asset related silpada based upon interim analysis estimated fair value silpada reporting unit trademark exceeded respective carrying value third quarter 2011 considered whether circumstances existed would likely reduce estimated fair values silpada reporting unit trademark respective carrying values concluded another interim impairment analysis considered necessary yearend 2011 close process completed annual goodwill impairment assessment november 30 2011 subsequently determined goodwill associated silpada impaired specifically results annual impairment testing quarter ended december 31 2011 indicated estimated fair value silpada reporting unit less respective carrying amount result impairment testing recorded noncash tax impairment charge 1980 1251 tax reduce carrying amount goodwill silpada estimated fair value following impairment charge carrying value silpada goodwill 1167 impairment testing indefinitelived intangible assets november 30 2011 also indicated decline fair value silpada trademark intangible asset respective carrying value resulted noncash tax impairment charge 650 411 tax reduce carrying amount asset estimated fair value following impairment charge carrying value silpada trademark 850 avon products inc notes consolidated financial statements continued following weaker expected performance fourth quarter lowered revenue earnings projections silpada largely due rise silver prices nearly doubled since acquisition negative impact pricing revenues margins decline fair values silpada reporting unit underlying trademark driven reduction forecasted growth rates cash flows used estimate fair value goodwill 1 primarily comprised foreign currency translation intangible assets actual amortization expense may differ amounts due among things future acquisitions disposals impairments accelerated amortization fluctuations foreign currency exchange rates aggregate amortization expense 258 215 131 years ended december 31 2012 2011 2010 respectively avon products inc notes consolidated financial statements continued note 18 supplemental balance sheet information december 31 2012 2011 prepaid expenses included following december 31 2012 2011 assets included following note 19 results operations quarter unaudited avon products inc notes consolidated financial statements continued 1 discussed note 1 description business summary significant accounting policies recorded outofperiod adjustments 2012 2011 related prior periods first quarter 2012 recorded outofperiod adjustment decreased earnings approximately 14 tax 10 tax related 2011 associated bad debt expense south africa operations second quarter 2012 recorded outofperiod adjustment increased earnings approximately 5 tax 3 tax related prior years associated vendor liabilities north america second quarter 2012 recorded outofperiod adjustment decreased earnings approximately 4 tax 4 tax related prior years associated brochure costs poland addition adjustments previously mentioned 2012 also recorded outofperiod adjustments aggregate approximately 1 tax 5 tax related prior years first quarter 2011 recorded outofperiod adjustments associated discontinued operations net tax prior periods resulting charge approximately 9 would decreased discontinued operations net tax fourth quarter 2010 approximately 13 increased prior period approximately 4 fourth quarter 2011 recorded adjustments approximately 25 tax 17 tax approximately 14 tax 10 tax related prior quarters 2011 primarily associated inventory brazil operations remaining fourth quarter outofperiod adjustments approximately 11 tax 7 tax related prior years quarters 2011 also recorded outofperiod adjustments aggregate approximately 10 tax 7 tax related prior years evaluated outofperiod adjustments 2012 2011 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods 2 operating profit impacted following 3 addition items impacting operating profit income loss continuing operations 2012 impacted benefit 238 expense net 2012 due release provision fourth quarter associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate provision released company capitalized associated intercompany liabilities 4 income loss continuing operations net tax 2012 impacted additional provision income taxes 1683 fourth quarter 2012 determined company may repatriate offshore cash meet certain domestic funding needs accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested 5 sum per share amounts quarters necessarily equal year computations made independently avon products inc notes consolidated financial statements continued note 20 subsequent events january 2013 terminated interestrate swap agreements notional amounts totaling 1000 net proceeds 881 see note 8 financial instruments risk management effective february 13 2013 venezuelan government devalued currency approximately 32 official exchange rate moved 430 630 regulated sitme market eliminated result charge first quarter 2013 associated writedown monetary net assets addition 2013 operating margin negatively impacted february 2013 issued notice prepayment entire 535 outstanding principal amount private notes prepayment price equal 100 principal amount plus accrued interest approximately 7 makewhole premium estimated approximately 65 see note 5 debt financing schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2012 2011 2010 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance primarily tax loss carryforward benefits likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2014 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 24th day february 2015 avon products inc robert loughran robert loughran acting chief financial officer vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc december 31 2014 december 31 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate avon products inc consolidated statements income accompanying notes integral part statements avon products inc consolidated statements comprehensive income accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interestrate swap agreements 7 2013 84 2012 see note 8 financial instruments risk management 1 includes cash equivalents discontinued operations 27 69 beginning year 2013 2012 respectively 2 includes cash equivalents discontinued operations 27 end year 2012 accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling reportable segments based geographic operations four regions latin america europe middle east africa north america asia pacific product categories beauty fashion home beauty consists skincare includes personal care fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rate actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes tax valuation allowances sharebased compensation loss contingencies evaluation goodwill intangible assets capitalized software potential impairment foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies united states us dollar required used functional currency december 31 2014 venezuela avon subsidiary considered operating highly inflationary economy highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements income nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities venezuela currency account venezuela highly inflationary economy february 2014 venezuelan government announced foreign exchange system sicad ii began operating march 24 2014 multiple legal mechanisms venezuela exchange currency sicad ii represented rate better reflected economics avon venezuelas business activity concluded utilize sicad ii exchange rate remeasure venezuelan operations effective march 31 2014 result change sicad ii rate caused recognition devaluation approximately 88 compared official exchange rate used previously recorded aftertax loss 418 537 expense net benefit 119 income taxes first quarter 2014 primarily reflecting writedown monetary assets liabilities addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate avon products inc notes consolidated financial statements continued time acquisition remeasurement nonmonetary assets historical us dollar cost basis causes disproportionate expense assets consumed operations negatively impacting operating profit net income 2014 also result determined adjustment 1157 cost sales needed reflect certain nonmonetary assets net realizable value recorded first quarter 2014 addition march 31 2014 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable determined impairment avon venezuelas longlived assets required february 2015 venezuelan government announced sicad ii market would longer available new open market foreign exchange system simadi created believe significant uncertainty exists regarding foreign exchange mechanisms venezuela well mechanisms operate future availability us dollars mechanism still evaluating future access funds simadi similar markets effective february 13 2013 venezuelan government devalued currency approximately 32 recorded onetime aftertax loss 507 341 expense net 166 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits addition result using historical us dollar cost basis nonmonetary assets inventories acquired prior devaluation operating profit net loss 2013 negatively impacted revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also record provision estimated sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances revenue primarily comprised shipping handling order processing fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures initially deferred prepaid expenses expensed selling general administrative expenses campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses recorded reduction selling general administrative expenses campaign length campaign length typically two weeks us two four weeks markets outside us brochure costs associated fees presented prepaid expenses 299 december 31 2014 383 december 31 2013 additionally paper stock purchased advance creating brochures prepaid expenses include paper supply 85 december 31 2014 91 december 31 2013 brochure costs expensed selling general administrative expenses amounted 3897 2014 4617 2013 5063 2012 fees charged representatives recorded reduction selling general administrative expenses amounted 2433 2014 2741 2013 2859 2012 avon products inc notes consolidated financial statements continued property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful life related asset capitalize interest 2014 capitalized interest 14 2013 20 2012 capitalized software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project generally exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 1013 december 31 2014 1229 december 31 2013 amortization expense associated capitalized software 484 554 412 years ended december 31 2014 2013 2012 respectively addition recorded capitalized software impairment charge 1172 2013 capitalized software reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future pretax undiscounted cash flows expected result use asset eventual disposition compared carrying amount sum expected cash flows less carrying amount impairment charge recorded impairment charge measured amount carrying amount exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate december 2013 decided halt rollout service model transformation smt project smt global program initiated 2009 improve order management system enable changes way representatives interact us smt piloted canada 2013 caused significant business disruption market decision halt rollout smt made light potential risk disruption addition smt show clear return investment canada market expected utilize capitalized software associated smt asset accounting guidance requires impairment assessment consider cash flows canadian business includes ongoing costs associated smt expected cash flows sufficient supporting carrying value associated asset group includes smt asset fourth quarter 2013 recorded noncash impairment charge 1172 tax 741 tax reflecting writedown capitalized software impairment charge recorded component global expenses within selling general administrative expenses consolidated statements income fair value smt asset determined using riskadjusted discounted cash flow dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates result impairment charge remaining carrying amount smt asset material goodwill intangible assets goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit avon products inc notes consolidated financial statements continued qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors indefinitelived intangible assets amortized rather assessed impairment annually fourth quarter occurrence event indicates impairment may occurred testing indefinitelived intangible assets impairment perform either qualitative quantitative assessment qualitative analysis results likely probability impairment quantitative assessment required quantitative test evaluate indefinitelived intangible assets impairment compares fair value intangible asset carrying value fair value asset less carrying value difference represents impairment analysis performed indefinitelived intangible asset requires several estimates computing estimated fair value asset use riskadjusted dcf model relieffromroyalty method finitelived intangible assets amortized using straightline method estimated useful lives intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future pretax undiscounted cash flows expected result use asset eventual disposition compared carrying amount sum expected cash flows less carrying amount impairment charge recorded impairment charge measured amount carrying amount exceeds fair value asset fair value asset determined using probability weighted expected cash flow estimates quoted market prices available appraisals appropriate applicable impairment testing performed following order indefinitelived intangible assets finitelived intangible assets goodwill see note 16 goodwill intangible assets information china note 3 discontinued operations information silpada financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings avon products inc notes consolidated financial statements continued • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent nature underlying hedged item derivatives designated hedges assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income addition determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire see note 7 income taxes information uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements income selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 8617 2014 9901 2013 10277 2012 advertising costs excluding brochure preparation costs expensed incurred amounted 1771 2014 2019 2013 2513 2012 research development research development costs expensed incurred amounted 625 2014 672 2013 733 2012 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value date grant applicable use blackscholesmerton optionpricing model calculate fair value options restructuring expense record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required avon products inc notes consolidated financial statements continued pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rates hybrid plan maximum interest crediting rates expected rate return plan assets rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods required among things recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable revisions first quarter 2014 revised consolidated financial statements reflect tooling balances assets previously reported inventories believe better presentation tooling assets tooling assets plates molds used manufacturing process beauty products revision impact cash flows operating activities consolidated statements income consolidated statements comprehensive income consolidated statements changes shareholders equity determined effect revision material previously issued financial statements outofperiod items 2014 recorded outofperiod adjustments latin america segment primarily related revenue selling general administrative expenses increased earnings approximately 15 tax total outofperiod adjustments increasing earnings 2014 approximately 13 tax approximately 1 tax decreasing earnings 2014 evaluated total outofperiod adjustments impacting 2014 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods first quarter 2012 recorded outofperiod adjustment decreased earnings approximately 14 tax 10 tax related 2011 associated bad debt expense south africa operations evaluated total outofperiod adjustments impacting 2012 approximately 13 tax approximately 15 tax individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods loss earnings per share compute loss earnings per share eps using twoclass method loss earnings allocation formula determines loss earnings per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net loss income allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows amounts table may necessarily sum due rounding years ended december 31 2014 2013 include stock options purchase 180 million shares 183 million shares avon common stock respectively calculations diluted eps loss continuing operations net tax inclusion shares would decrease net loss per share since inclusion shares would antidilutive excluded calculation income continuing operations net tax would included 8 million shares year ended december 31 2013 average market price higher exercise prices options year ended december 31 2012 include stock options purchase 220 million shares avon common stock calculation diluted eps exercise prices options greater average market price therefore inclusion would antidilutive note 2 new accounting standards implemented may 2014 financial accounting standards board fasb issued accounting standards update 201409 revenue contracts customers issued new topic accounting standards codification topic 606 core principle guidance company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services standard effective beginning 2017 adopted either retrospectively cumulativeeffect adjustment date adoption currently evaluating effect adopting new accounting guidance consolidated financial statements note 3 discontinued operations silpada june 30 2013 company entered agreement sell silpada jewelry business “silpada” 85 plus earnout 15 silpada achieves specific earnings targets two years silpada previously reported within north america segment classified within discontinued operations periods presented transaction closed july 3 2013 proceeds sale used general corporate purposes including repayment outstanding debt benefit associated earnout recorded discontinued operations becomes realizable avon december 31 2014 believe financial performance silpada result achievement earnout fiscal year 2014 2013 recorded loss sale 794 tax 504 tax represented difference carrying value silpada business proceeds total loss sale 790 tax 500 tax recorded second quarter 2013 reflecting expected loss sale time first quarter 2013 company disclosed reviewing strategic alternatives silpada connection review ran broad auction process included potential financial strategic buyers initial offers received april 2013 lower carrying value silpada time believe offers representative underlying fair value silpada business june 2013 company received final offers silpada business also level previously expected fair value business company decided agree offer emerged time highest bid based part consideration timeline investment required return business historical levels profitability b deterioration silpadas business performance second quarter 2013 company also considered divestiture would allow greater focus time resources core avon business transaction approved board directors june 26 2013 subject certain conditions satisfied june 30 2013 summarized financial information discontinued operations shown 1 operating loss year ended december 31 2013 includes charge 790 tax recorded second quarter 2013 reflecting expected loss sale time well additional loss sale 4 tax recorded third quarter 2013 operating loss year ended december 31 2012 includes impairment charge 2090 tax recorded fourth quarter 2012 discussed silpada acquired july 2010 silpada historically generated positive cash flows expected continue generate positive cash flows however expected cash flows business date impairment analysis level sufficient support carrying value business since acquisition 2010 silpada business achieve revenue earnings cash flows expectations primarily due lower consumer spending higher silver prices increased competition compared initial projections business time acquisition future expectations silpada utilized 2012 impairment analysis represented significant decrease future cash flows expected generated silpada reduction future expectations led material impairment 2090 recorded fourth quarter 2012 silpada impairment assessment fourth quarter 2012 completed annual goodwill indefinitelived intangible assets impairment assessments subsequently determined goodwill indefinitelived trademark finitelived customer relationships associated silpada impaired result carrying amount silpada’s goodwill reduced 1167 estimated fair value 446 resulting noncash impairment charge 721 addition carrying amount silpada’s indefinitelived trademark reduced 850 estimated fair value 400 resulting noncash impairment charge 450 carrying amount silpada’s finitelived customer relationships reduced 1319 estimated fair value 400 resulting noncash impairment charge 919 throughout first nine months 2012 silpada continued perform generally line revenue earnings forecast significant changes longterm outlook business revenue earnings forecast 2012 projected improvements trends ie reduction yearoveryear revenue declines latter portion 2012 effort promote sales grow business made changes certain members silpada management team including bringing personnel previously managed avon businesses among initiatives implemented new silpada management team recruiting incentive program believed would benefit representative counts representative productivity primarily latter portion 2012 turn improve performance business saw improvement representative additions recruiting incentive program result expected representative productivity fourth quarter 2012 generally quarter largest dollar value revenue silpada business became apparent would achieve forecasted revenue earnings 2012 partially due recruiting incentive program driving expected representative productivity result silpada experienced weaker expected performance fourth quarter 2012 based continued trends latter part fourth quarter 2012 conjunction 2013 planning process early stages evaluation strategic alternatives business lowered longterm revenue earnings projections silpada dcf model reflect moderate recovery business moderate recovery business believed appropriate due lack sales momentum business continued inability silpada achieve financial performance expectations decline fair values silpada reporting unit trademark customer relationships primarily driven reduction forecasted longterm growth rates cash flows used estimate fair value lower expected financial results fiscal year 2012 served baseline longterm projections business fiscal year 2012 revenue silpada approximately 19 less fiscal year 2011 results forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period note 4 inventories december 31 consisted following note 5 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 42 december 31 2014 65 december 31 2013 debt payable 2024 included obligations capital leases 116 december 31 2014 116 december 31 2013 primarily relate leases automobiles equipment addition debt payable avon products inc notes consolidated financial statements continued 2024 december 31 2014 2013 included financing obligations 458 563 respectively 404 445 respectively relates sale leaseback equipment one distribution facilities north america entered 2009 payable 2019 public notes april 15 2013 prepaid 5625 notes due march 1 2014 notes prepayment price equal 100 principal amount 5000 plus accrued interest 34 makewhole premium 217 connection prepayment 2014 notes incurred loss extinguishment debt 130 second quarter 2013 consisting 217 makewhole premium 2014 notes writeoff 11 debt issuance costs discounts related initial issuance 2014 notes partially offset deferred gain 98 associated january 2013 interestrate swap agreement termination see note 8 financial instruments risk management information addition 2500 principal amount 480 notes due march 1 2013 1250 principal amount 4625 notes due may 15 2013 repaid full maturity march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 notes 5000 principal amount 460 notes due march 15 2020 notes 5000 principal amount 500 notes due march 15 2023 notes 2500 principal amount 695 notes due march 15 2043 notes collectively notes net proceeds notes used repay 3800 outstanding principal amount term loan agreement defined prepay private notes defined 2014 notes plus makewhole premium accrued interest prepayments repay 4625 notes due may 15 2013 maturity interest notes payable semiannually march 15 september 15 year result longterm credit rating downgrades sp bb stable outlook moodys ba1 stable outlook discussed interest rates notes increase 50 effective march 15 2015 carrying value 2016 notes represented 2500 principal amount net unamortized discount face value 1 december 31 2014 2013 respectively carrying value 2020 notes represented 5000 principal amount net unamortized discount face value 6 7 december 31 2014 2013 respectively carrying value 2023 notes represented 5000 principal amount net unamortized discount face value 40 45 december 31 2014 2013 respectively carrying value 2043 notes represented 2500 principal amount net unamortized discount face value 7 december 31 2014 2013 respectively december 31 2014 also outstanding 2500 principal amount 575 notes due march 1 2018 notes 2500 principal amount 420 notes due july 15 2018 420 notes 3500 principal amount 650 notes due march 1 2019 notes interest 2018 notes 420 notes 2019 notes payable semiannually carrying value 2018 notes represented 2500 principal amount net unamortized discount face value 3 4 december 31 2014 2013 respectively carrying value 420 notes represented 2500 principal amount net unamortized discount face value 3 4 december 31 2014 2013 respectively carrying value 2019 notes represented 3500 principal amount net unamortized discount face value 18 23 december 31 2014 2013 respectively indentures governing outstanding notes described contain certain covenants including limitations incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets addition indentures contain customary events default crossdefault provisions would required make offer repurchase 2018 notes 2019 notes series notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding credit ratings downgrade investment grade addition indenture governing notes contains interest rate adjustment provisions depending credit ratings sp moodys described indenture interest rates notes increase 25 onenotch downgrade investment grade longterm credit ratings sp moodys adjustments limited total increase 2 respective interest rates effect date issuance notes result longterm credit rating downgrades sp bb stable outlook moodys ba1 stable outlook discussed interest rates notes increase 50 effective march 15 2015 term loan agreement june 29 2012 entered 5000 term loan agreement term loan agreement subsequently august 2 2012 borrowed incremental 500 principal subscriptions new lenders term loan agreement borrowings term loan agreement bore interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings march 2013 repaid 3800 outstanding principal amount term loan agreement portion proceeds issuance notes repayment resulted loss first quarter 2013 16 extinguishment debt avon products inc notes consolidated financial statements continued associated writeoff debt issuance costs related term loan agreement july 25 2013 prepaid 1175 outstanding principal balance term loan agreement without prepayment penalties june 30 2014 paid 525 remaining outstanding principal balance term loan agreement 394 yet due without prepayment penalties effectively terminating term loan agreement since amounts thereunder may reborrowed private notes march 29 2013 prepaid 5350 senior notes issued 2010 private placement exempt registration securities act 1933 amended private notes connection prepayment private notes incurred loss extinguishment debt 714 first quarter 2013 included makewhole premium 680 writeoff 34 debt issuance costs related private notes maturities longterm debt annual maturities longterm debt includes notes including unamortized discounts premiums capital leases financing obligations outstanding december 31 2014 follows financing revolving credit facility march 2013 entered fouryear 1 billion revolving credit facility “revolving credit facility” expires march 2017 revolving credit facility replaced previous 1 billion revolving credit facility 2010 revolving credit facility terminated march 2013 prior scheduled expiration november 2013 amounts drawn 2010 revolving credit facility date termination early termination penalties incurred first quarter 2013 12 recorded writeoff issuance costs related 2010 revolving credit facility borrowings revolving credit facility bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings revolving credit facility annual fee approximately 30 payable quarterly based current credit ratings revolving credit facility may used general corporate purposes december 31 2014 amounts outstanding revolving credit facility revolving credit facility contains covenants limiting ability incur liens enter mergers consolidations sales substantially assets revolving credit facility also contains covenant limits subsidiary debt existing subsidiary debt february 28 2013 plus 5000 certain exceptions addition revolving credit facility contains financial covenants require interest coverage ratio end fiscal quarter equal exceed 41 leverage ratio greater 351 end fiscal quarter ended december 31 2014 fiscal quarter thereafter addition revolving credit facility contains customary events default crossdefault provisions interest coverage ratio determined dividing consolidated ebit defined revolving credit facility consolidated interest expense case period four fiscal quarters ending date determination leverage ratio determined dividing amount consolidated funded debt date determination consolidated ebitda defined revolving credit facility period four fiscal quarters ending date determination calculating interest coverage leverage ratios revolving credit facility allows us subject certain conditions limitations add back consolidated net income among items extraordinary noncash losses expenses ii onetime fees cash charges cash expenses premiums penalties incurred connection asset sale equity issuance incurrence repayment debt refinancing modification amendment debt instrument iii cash charges cash expenses premiums penalties incurred connection restructuring relating legal regulatory action settlement judgment ruling aggregate amount exceed 4000 period october 1 2012 termination commitments revolving credit facility expires march 2017 provided cash restructuring charges incurred december 31 2014 shall added back consolidated net income beginning january 1 2015 charges taken cash restructuring cannot added back consolidated net income december 31 2014 less 10 remaining items cash charges cash expenses premiums penalties incurred relating legal regulatory action settlement judgment ruling compliance interest coverage leverage ratios revolving credit facility four fiscal quarters ended december 31 2014 december 31 2014 based applicable interest rates approximately 825 1 billion revolving credit facility could drawn without violating covenant continued decline business results including impact adverse foreign exchange movements significant restructuring charges significant legal regulatory settlements may reduce borrowing capacity avon products inc notes consolidated financial statements continued revolving credit facility cause us noncompliant interest coverage leverage ratios noncompliant interest coverage leverage ratio would longer access revolving credit facility december 31 2014 amounts outstanding revolving credit facility commercial paper program november 2014 terminated 1 billion commercial paper program supported revolving credit facility current credit ratings essentially eliminated demand commercial paper sought issue commercial paper since march 2013 public offering letters credit december 31 2014 december 31 2013 also letters credit outstanding totaling 129 199 respectively primarily guarantee various insurance activities addition outstanding letters credit trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels additional information longterm credit ratings ba1 stable outlook moodys bb stable outlook sp bb negative outlook fitch investment grade november 2014 sp lowered longterm credit rating bbb negative outlook bb stable outlook october 2014 moodys lowered longterm credit rating baa3 negative outlook ba1 stable outlook believe longterm credit rating downgrades material impact nearterm liquidity however additional rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities well likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements note 6 accumulated comprehensive loss tables present changes aoci component reclassifications aoci 2014 2013 1 gross amount reclassified interest expense related taxes reclassified income taxes 2 gross amount reclassified pension postretirement expense within selling general administrative expenses related taxes reclassified income taxes foreign exchange net loss 182 2014 net gains 2 77 2013 2012 respectively resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income note 7 income taxes december 31 2014 recognized deferred tax assets relating tax loss carryforwards 7262 primarily foreign jurisdictions valuation allowance 7179 provided prior december 31 2014 recognized deferred tax assets 6177 relating excess us foreign tax credit carryforwards expire 20182024 period fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined may repatriate offshore cash meet certain domestic funding needs accordingly asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes 1683 earnings december 31 2012 deferred tax liability amount 2248 us tax cost undistributed earnings subsidiaries outside us 31 billion december 31 2014 continue assert foreign earnings indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account 2014 undistributed earnings foreign subsidiaries earnings actually repatriated us year additionally deferred tax liability reduced due lower cost repatriate undistributed earnings foreign subsidiaries compared 2013 net impact deferred tax liability associated company’s undistributed earnings reduction 1285 resulting deferred tax liability balance 143 related incremental tax cost 19 billion undistributed foreign earnings december 31 2014 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings result utilization foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary venezuela calculation deferred income tax liability local regulations restrict cash distributions denominated us dollars avon products inc notes consolidated financial statements continued deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts us deferred tax assets foreign tax loss carryforwards basis used recognition deferred tax assets included tax planning strategies current future profitability operations related deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards carryover periods net increase valuation allowance 4252 2014 mainly due recording valuation allowance 441 reduce us deferred tax assets discussed addition net increase valuation allowance attributable several foreign entities continuing incur losses 2014 thereby increasing tax loss carryforwards valuation allowance also provided well favorable impact foreign currency translation strengthening us dollar many foreign currencies resulted lower reported valuation allowances fourth quarter 2014 company’s expected net foreign source income reduced significantly primarily due strengthening us dollar currencies key markets lesser extent finalization avon products inc notes consolidated financial statements continued foreign corrupt practices act fcpa settlements strengthening us dollar reduced expected dividends royalties could remitted us foreign subsidiaries particularly russia brazil mexico colombia effectiveness tax planning strategies including repatriation foreign earnings acceleration royalties foreign subsidiaries also negatively impacted strengthening us dollar addition finalization fcpa settlements included 68 fine related avon china connection us department justice doj settlement 67 disgorgement prejudgment interest related avon products inc connection us securities exchange commission sec settlement negatively impacted expected future repatriation foreign earnings reduced current us taxable income respectively result developments may generate sufficient taxable income realize us deferred tax assets recorded valuation allowance 441 reduce us deferred tax assets amount likely realized 367 recorded income taxes consolidated statements income remainder recorded various components comprehensive loss income loss income continuing operations taxes years ended december 31 follows us loss continuing operations taxes years ended december 31 2014 2013 2012 include dividend income foreign subsidiaries provision income taxes years ended december 31 follows foreign provision income taxes includes us tax benefit foreign earnings 35 us tax cost foreign earnings 99 1568 years ended december 31 2014 2013 2012 respectively avon products inc notes consolidated financial statements continued effective tax rate years ended december 31 follows fourth quarter 2014 result finalization fcpa settlements recorded net tax benefit 185 see note 15 contingencies discussion fcpa settlements december 31 2014 tax loss carryforwards 24862 loss carryforwards expiring 2015 2029 1770 loss carryforwards expire 23092 also minimum tax credit carryforwards 390 expire business credit carryforwards 180 expire 2021 2034 foreign tax credit carryforwards 6177 expire 2018 2024 uncertain tax positions december 31 2014 587 total gross unrecognized tax benefits approximately 336 would impact effective tax rate recognized reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 49 december 31 2014 44 december 31 2013 accrued interest penalties net tax benefit recorded expense 10 benefits 1 11 interest penalties net taxes 2014 2013 2012 respectively avon products inc notes consolidated financial statements continued file income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2014 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 1 18 within next twelve months due closure tax years expiration statute limitations audit settlements note 8 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions december 31 2014 interestrate swap agreements enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger derivatives recognized consolidated balance sheets fair values following table presents fair value derivative instruments outstanding december 31 2014 following table presents fair value derivative instruments outstanding december 31 2013 interest rate risk portion borrowings subject interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2014 2013 designated interestrate swap agreements terminated either conjunction repayment associated debt january 2013 march 2012 transactions described approximately 5 approximately 8 debt portfolio december 31 2014 2013 respectively exposed floating interest rates january 2013 terminated eight interestrate swap agreements previously designated fair value hedges notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 904 amortized reduction interest expense remaining term underlying debt obligations incurred termination fees 23 recorded expense net consolidated statements income years ended december 31 2014 december 31 2013 net impact gain amortization 144 261 respectively interestrate swap agreements terminated order improve capital structure including increasing ratio fixedrate debt december 31 2014 unamortized deferred gain associated january 2013 interestrate swap termination 500 included within longterm debt consolidated balance sheets march 2012 terminated two interestrate swap agreements previously designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 incurred termination fees 25 recorded expense net consolidated statements income years ended december 31 2014 2013 net impact gain amortization 63 60 respectively interestrate swap agreements terminated order increase ratio fixedrate debt december 31 2014 unamortized deferred gain associated march 2012 interestrate swap termination 294 included within longterm debt consolidated balance sheets 2013 recorded net loss 7 interest expense consolidated statements income interestrate swap agreements previously designated fair value hedges however net gain loss recorded 2014 interestrate swaps terminated second quarter 2013 impact interest expense interestrate swap agreements offset equal offsetting impact interest expense fixedrate debt times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepayfixed interestrate swap agreements designated offset gain loss dedesignated contract december 31 2014 undesignated interestrate swap agreements remaining undesignated interestrate swap agreements terminated conjunction repayment associated debt second quarter 2013 net gain loss recorded 2014 2013 recorded immaterial net loss expense net consolidated statements income associated undesignated interestrate swap agreements hedge ineffectiveness years ended december 31 2013 2012 related interestrate swaps 2007 entered treasury lock agreements 2007 locks notional amounts totaling 5000 expired july 31 2008 2007 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses 2007 locks 380 recorded aoci 192 losses amortized interest expense consolidated statements income five years 188 amortized ten years 2003 entered treasury lock agreements 2003 locks designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 2003 locks 26 recorded aoci amortized interest expense consolidated statements income ten years december 31 2014 expect reclassify 19 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next twelve months years ended december 31 2014 2013 treasury lock agreements impacted aoci follows foreign currency risk use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2014 outstanding foreign exchange forward contracts notional amounts totaling approximately 1739 various currencies use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans 2014 2013 recorded losses 133 35 respectively expense net consolidated statements income related undesignated foreign exchange forward contracts also 2014 2013 recorded gains 147 48 respectively related intercompany loans caused changes foreign currency exchange rates also used foreign exchange forward contract hedge foreign currency exposure related net assets foreign subsidiaries effective hedges gain 43 2012 related effective portions foreign exchange forward contract included foreign currency translation adjustments within aoci foreign exchange forward contract terminated january 2012 therefore gain loss recorded 2014 2013 credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 6 december 31 2014 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates note 9 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2014 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2013 avon products inc notes consolidated financial statements continued tables exclude defined benefit pension postretirement plan assets see note 11 employee benefit plans fair value hierarchy plan assets money market funds held healthcare trust order fund future benefit payments active retiree benefit plans see note 11 employee benefit plans availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 11 employee benefit plans foreign exchange forward contracts hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table see note 8 financial instruments risk management assets liabilities recorded fair value nonrecurring basis december 31 2013 smt december 2013 decided halt rollout smt project beyond pilot program canada light potential risk business disruption result fourth quarter 2013 completed impairment assessment smt asset subsequently determined smt asset impaired result noncash impairment charge 1172 tax 741 tax remaining carrying amount smt asset material fair value smt asset determined using riskadjusted dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates see note 1 description business summary significant accounting policies information smt september 30 2013 china third quarter 2013 completed interim impairment assessment fair value goodwill related china subsequently determined goodwill associated china impaired result carrying amount chinas goodwill reduced 384 0 resulting noncash impairment charge 384 addition carrying amount chinas finitelived intangible assets reduced 37 0 resulting noncash impairment charge 37 impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit finitelived intangible assets part goodwill impairment analysis typically use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors key assumptions used measuring fair value china included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value china forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return chinas cash flows normalized sustainable levels see note 16 goodwill intangible assets information china fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments money market funds accounts receivable loans receivable debt maturing within one year accounts payable longterm debt foreign exchange forwards contracts carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments avon products inc notes consolidated financial statements continued net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt includes related discount premium unamortized deferred gains terminated interestrate swap agreements applicable methods assumptions used estimate fair value follows availableforsale securities money market funds fair values investments quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 10 sharebased compensation plans avon products inc 2010 stock incentive plan 2010 plan avon products inc 2013 stock incentive plan “2013 plan” shareholder approved plans provide several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance restricted stock units following shareholder approval 2013 plan may 2013 awards made 2010 plan 2010 plan maximum number shares may awarded 32000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share stock subject award ii case grant award payable stock option sar 233 multiplied share stock subject award 2013 plan maximum number shares may awarded 42000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 313 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options stock appreciation rights 2010 plan restricted stock units performance restricted stock units 2010 plan 2013 plan stock option awards granted exercise price equal closing market price stock date grant option awards stock appreciation rights generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 compensation cost stock options stock appreciation rights performance restricted stock units restricted stock units 2014 2013 2012 recorded selling general administrative expenses consolidated statements income stock options fair value option estimated date grant using blackscholesmerton optionpricing model following weightedaverage assumptions options granted years ended december 31 stock options granted 2014 2013 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life 10 years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumed thencurrent cash dividends 23 2012 per share quarter common stock options granted year weightedaverage grantdate fair values per share options granted 355 2012 summary stock options december 31 2014 changes 2014 follows december 31 2014 approximately 1 unrecognized compensation cost related stock options outstanding expected recognized 2015 recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax obligations intrinsic value related total stock options exercised 2014 2013 2012 follows restricted stock restricted stock units performance restricted stock units fair value restricted stock units performance restricted stock units granted determined based closing price common stock date grant 2012 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions several weeks original grant date amended one performance conditions associated award result incremental compensation cost associated modification totaled 9 3 recognized 2012 accrue compensation cost probable performance conditions achieved reassess whether achievement performance conditions probable reporting period assessed longer probable would meet specified performance conditions reversed compensation cost recognized todate 2013 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions adjusted compensation cost recognized todate reflect estimated performance 2014 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions currently believe achievement performance conditions probable summary restricted stock restricted stock units december 31 2014 changes 2014 follows summary performance restricted stock units december 31 2014 changes 2014 follows 1 based initial target payout total fair value restricted stock units vested 2014 219 based upon market prices vesting dates december 31 2014 approximately 647 unrecognized compensation cost related restricted stock restricted stock units performance restricted stock units compensation arrangements cost expected recognized weightedaverage period 18 years addition amounts table april 2012 granted 200000 restricted stock units funded treasury shares outside 2010 plan reliance upon new york stock exchange rules restricted stock units weightedaverage grantdate fair value 2169 vest settle ratably five years 2014 40000 restricted stock units vested 120000 restricted stock units outstanding december 31 2014 2013 2012 recognized compensation cost 8 14 respectively restricted stock units december 31 2014 8 unrecognized compensation cost related restricted stock units note 11 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 94 2014 106 2013 118 2012 follow investment allocation participant selected contributions us employees hired january 1 2015 make additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service avon products inc notes consolidated financial statements continued defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits us employees hired january 1 2015 provided solely psa described provide health care benefits subject certain limitations many retired employees us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan required among things recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans us pension plans include funded qualified plan unfunded nonqualified plans december 31 2014 us qualified pension plan benefit obligations 6731 plan assets 5065 december 31 2013 us qualified pension plan benefit obligations 6241 plan assets 5311 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans avon products inc notes consolidated financial statements continued components net periodic benefit cost amounts recognized comprehensive loss amounts represent pretax effect included within comprehensive loss income net tax amounts included within consolidated statements comprehensive income effort reduce pension benefit obligations march 2014 offered former employees vested participate pra payment would fully settle pension plan obligation participants elected receive payment election period ended second quarter 2014 payments made june 2014 plan assets result lumpsum payments made second quarter 2014 recorded settlement charge 235 settlement threshold exceeded second quarter 2014 settlement charges 54 75 also recorded third fourth quarters 2014 respectively result additional payments pra settlement charges allocated global expenses operating results north america amounts aoci expected recognized components net periodic benefit cost 2015 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows avon products inc notes consolidated financial statements continued discount rate used determining future pension obligations individual defined benefit pension plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis decreased 355 december 31 2014 456 december 31 2013 weightedaverage assumptions used determine net benefit cost recorded consolidated statements income years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2014 assumed rate return assets globally 686 represents weightedaverage rate return plan assets including us nonus defined benefit pension plans assumed rate return determining 2014 net costs us defined benefit pension plan 750 addition current rate return assumption us defined benefit pension plan based asset allocation approximately 70 corporate government bonds mortgagebacked securities expected earn approximately 2 3 long term approximately 30 equity securities high yield securities expected earn approximately 6 9 long term addition physical assets asset portfolio derivative instruments increase exposure higher yielding securities similar assessments performed determining rates return nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 641 determining 2014 net cost plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2014 2013 asset category follows avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2014 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2013 reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types avon products inc notes consolidated financial statements continued property supplemented third party appraisals derivative instruments held us pension trust publicly traded derivative contract specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices overall objective pra provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time beginning 2014 adopted investment strategy pra designed match movements pension liability increased allocation towards debt securities addition also begun utilize derivative instruments achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans management team 2015 similar investment strategies expected implemented nonus defined benefit pension plans pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects pra including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 50 55 us defined benefit pension postretirement plans range 25 30 nonus defined benefit pension postretirement plans 2015 total benefit payments expected paid plans follows postretirement benefits 2014 assumed rate future increases per capita cost health care benefits health care cost trend rate 87 claims assumed gradually decrease year thereafter 50 2022 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects avon products inc notes consolidated financial statements continued postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees employment retirement accrued cost postemployment benefits 262 december 31 2014 391 december 31 2013 included employee benefit plans consolidated balance sheets supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral performance restricted stock units certain employees end 2012 deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 13 2014 12 2013 17 2012 benefit obligation dcp 455 december 31 2014 579 december 31 2013 included liabilities accrued compensation consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last six years annual cost programs included determination net periodic benefit cost shown previously amounted 71 2014 76 2013 84 2012 benefit obligation programs 321 december 31 2014 442 december 31 2013 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers last five years established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within selling general administrative expenses consolidated statements income note 12 segment information reportable segments based geographic operations include commercial business units latin america europe middle east africa north america asia pacific segments similar business characteristics offers similar products similar customer access methods global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated fcpa investigations compliance reviews accrual settlements related fcpa investigations noncash impairment charge capitalized software associated smt pension settlement charges allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigations compliance reviews accrual settlements related fcpa investigations noncash impairment charge capitalized software associated smt settlement charges associated us pension plan costs implementing restructuring initiatives related specific segment recorded within segment accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning reportable segments december 31 shown following tables total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets longlived assets us brazil consist primarily property plant equipment related manufacturing distribution facilities note 13 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2014 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 1065 2014 1251 2013 1331 2012 plant construction expansion modernization projects estimated cost complete approximately 598 progress december 31 2014 note 14 restructuring initiatives 400m cost savings initiative 2012 announced cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth expected achieved restructuring actions well costsavings strategies result restructuring charges 400m cost savings initiative designed reduce operating expenses percentage total revenue help us achieve targeted low doubledigit operating margin restructuring actions 400m cost savings initiative primarily consist global headcount reductions related actions well closure certain smaller underperforming markets including south korea vietnam republic ireland bolivia france costs implement restructuring initiatives consist primarily professional service fees accelerated depreciation also include professional service fees associated north america business portion professional service fees associated north america business contingent upon achievement operating profit targets fees recognized period services provided based upon estimate total amount expected paid may change based actual results avon products inc notes consolidated financial statements continued result restructuring actions associated 400m cost savings initiative recorded total costs implement restructuring initiatives 2304 taxes 1113 taxes recorded 2014 restructuring actions expect total costs implement restructuring approximately 250 taxes additional charges yet incurred associated restructuring actions approved todate approximately 20 taxes expected recorded primarily 2015 connection restructuring actions associated 400m cost savings initiative expect realize annualized savings approximately 275 285 taxes market closures annualized savings represent foregone selling general administrative expenses result longer operating respective markets actions result closure market annualized savings represent net reduction expenses longer incurred avon annualized savings incorporate impact decline revenue associated actions including market closures expected material restructuring charges 2014 recorded total costs implement 1113 related 400m cost savings initiative selling general administrative expenses consolidated statements income related 400m cost savings initiative costs consisted following • net charge 720 primarily employeerelated costs including severance benefits • accelerated depreciation 130 associated closure rationalization certain facilities assets • contract termination net charges 63 primarily related costs associated closure france market exit service model transformation smt facility • charge 37 primarily related accumulated foreign currency translation adjustments associated closure france market • implementation costs 163 primarily related professional service fees associated north america business majority cash payments applicable associated charges made 2014 remaining expected made 2015 restructuring charges 2013 recorded total costs implement 684 related 400m cost savings initiative costs consisted following • net charge 504 primarily employeerelated costs including severance pension postretirement benefits • accelerated depreciation 139 associated closure rationalization certain facilities • contract termination charges 48 primarily related costs associated exit republic ireland market • net benefit 35 due accumulated foreign currency translation adjustments second quarter 2013 primarily associated exit vietnam market • implementation costs 33 professional service fees • net benefit 7 due inventory adjustments first second quarters 2013 • net loss 2 due sale facility us total costs implement 691 recorded selling general administrative expenses net benefit 7 recorded cost sales consolidated statements income restructuring charges 2012 recorded total costs implement 507 related 400m cost savings initiative costs consisted following • net charge 452 primarily employeerelated costs including severance pension postretirement benefits • accelerated depreciation 22 associated closure rationalization certain facilities • contract termination charges 19 primarily related closure certain facilities exit south korea market • inventory writeoffs 14 associated exit south korea vietnam markets avon products inc notes consolidated financial statements continued total costs implement 493 recorded selling general administrative expenses 14 recorded cost sales consolidated statements income liability balance 400m cost savings initiative december 31 2014 follows noncash writeoffs associated employeerelated costs result settlements curtailments special termination benefits pension postretirement benefits plans due initiatives implemented following table presents restructuring charges incurred todate net adjustments 400m cost savings initiative along estimated charges expected incurred approved initiatives plan charges net adjustments initiatives 400m cost savings initiative reportable business segment follows noted previously expect record total costs implement restructuring approximately 250 taxes 400m cost savings initiative amounts shown tables charges recorded todate relate initiatives approved recorded financial statements costs probable estimable amounts shown avon products inc notes consolidated financial statements continued tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incurred incur costs implement restructuring initiatives professional services accelerated depreciation additional restructuring charges 2012 effort improve operating performance identified certain actions 2012 believe enhance operating model reduce costs improve efficiencies addition relocated corporate headquarters new york city restructuring charges 2014 result analysis actions taken 2014 recorded total costs implement 18 selling general administrative expenses consolidated statements income primarily consisting contract termination costs associated relocation corporate headquarters restructuring charges 2013 result analysis actions taken 2013 recorded total costs implement 50 selling general administrative expenses consolidated statements income primarily consisting contract termination costs 61 associated relocation corporate headquarters partially offset immaterial adjustments reserve employeerelated costs restructuring charges 2012 recorded total costs implement 739 selling general administrative expenses consolidated statements income costs consisted following • net charge 534 primarily employeerelated costs including severance pension benefits • contract termination costs 120 associated relocation corporate headquarters • implementation costs 58 professional service fees • accelerated depreciation 27 associated relocation corporate headquarters liability balance various restructuring initiatives december 31 2014 follows actions associated various restructuring initiatives substantially complete addition 2014 recorded total costs implement 11 2013 net benefit result adjustments reserve 75 primarily selling general administrative expenses consolidated statements income associated restructuring programs launched 2005 2009 substantially complete net benefit 2013 primarily consisted net gain 49 due sale facility us well adjustments reserve employeerelated costs 2012 recorded total costs implement 1 net benefit 30 recorded avon products inc notes consolidated financial statements continued selling general administrative expenses total costs implement 31 recorded cost sales consolidated statements income associated restructuring programs launched 2005 2009 total costs implement 2012 consisted following • net benefit 121 result adjustments reserve partially offset employeerelated costs • implementation costs 89 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations • accelerated depreciation 47 associated initiatives realign certain distribution operations close certain manufacturing operations • net gain 14 due sale machinery equipment germany note 15 contingencies settlements fcpa investigations previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance fcpa related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 internal investigation compliance reviews focused reviewing certain expenses books records processes including limited travel entertainment gifts use thirdparty vendors consultants related due diligence joint ventures acquisitions payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters complete connection internal investigation compliance reviews certain personnel actions including termination employment certain senior members management taken connection internal investigation compliance reviews enhanced ethics compliance program including policies procedures fcpa compliancerelated training fcpa thirdparty due diligence program compliancerelated resources previously reported october 2008 voluntarily contacted sec doj advise agencies internal investigation cooperated investigations matters sec doj previously reported december 2014 united states district court southern district new york usdc approved deferred prosecution agreement dpa entered company doj related charges violations books records internal controls provisions fcpa addition avon products china co ltd subsidiary company operating china pleaded guilty conspiring violate books records provision fcpa sentenced usdc pay 68 fine sec also filed complaint company charging violations books records internal controls provisions fcpa consent settlement consent approved judgment entered usdc january 2015 included 67 disgorgement prejudgment interest dpa abovementioned guilty plea consent resolved sec’s doj’s investigations company’s compliance fcpa related us laws china additional countries fine paid december 2014 payment sec made january 2015 previously accrued december 31 2014 dpa doj defer criminal prosecution company term three years doj determines company knowingly violated dpa doj may commence prosecution extend term dpa including monitoring provisions described one year company remains compliance dpa term charges company dismissed prejudice dpa consent among things company agreed compliance monitor approval doj sec monitor replaced 18 months monitor’s retention company pursuant agreement undertake selfreporting obligations remainder monitoring period monitoring period expires later three years date retention monitor expiration dpa process retaining monitor whose selection subject approval doj sec assurance monitor approved whether doj sec approve replacing monitorship company’s selfreporting dpa company also represented implemented agreed continue implement compliance ethics program designed prevent detect violations fcpa applicable anticorruption laws throughout operations monitor assess monitor companys compliance terms dpa consent evaluating among things companys internal accounting controls recordkeeping financial reporting policies procedures monitor may recommend changes policies procedures must adopt unless unduly burdensome otherwise inadvisable case may propose alternatives doj sec may accept addition operating oversight monitor may result burdens members management divert time operation business assuming monitorship replaced selfreporting period company’s selfreporting obligations may continue costly burdensome currently cannot estimate costs likely incur connection compliance dpa consent including retention monitor costs applicable selfreporting costs implementing changes policies procedures required monitor however costs burdens monitoring process could significant fcparelated litigation matters july august 2010 derivative actions filed state court certain present former officers andor directors company carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 november 22 2013 derivative action filed federal court certain present former officers andor directors company sylvia pritika derivatively behalf avon products inc v ann moore et al avon products inc nominal defendant filed united states district court southern district new york 13cv8369 claims asserted one actions include alleged breach fiduciary duty abuse control waste corporate assets unjust enrichment relating companys compliance fcpa including adequacy companys internal controls relief sought individual defendants one derivative actions include certain declaratory equitable relief restitution damages exemplary damages interest company nominal defendant relief sought company parker case plaintiff agreed defendants time file answer motion dismiss response adjourned plaintiff files amended pleading schwartz parties agreed stipulated schedule proceedings provides among things plaintiffs file amended complaint defendants file motion dismiss pritika defendants moved dismiss complaint march 7 2014 unable predict outcome matters july 6 2011 purported shareholders class action complaint city brockton retirement system v avon products inc et al 11civ4665 filed united states district court southern district new york company certain present former officers andor directors company september 29 2011 court appointed lbbw asset management investmentgesellschaft mbh sgss deutschland kapitalanlagegesellschaft mbh lead plaintiffs motley rice llc lead counsel lead plaintiffs filed amended complaint defendants moved dismiss amended complaint june 14 2012 september 29 2014 court granted defendants motion dismiss also granted plaintiffs leave amend complaint october 24 2014 plaintiffs filed second amended complaint behalf purported class consisting persons entities purchased otherwise acquired shares avons common stock july 31 2006 including october 26 2011 second amended complaint names defendants company two individuals asserts violations sections 10b 20a exchange act based allegedly false misleading statements omissions respect among things companys compliance fcpa including adequacy companys internal controls plaintiffs seek compensatory damages declaratory injunctive equitable relief defendants moved dismiss second amended complaint november 21 2014 unable predict outcome matter however reasonably possible may incur loss connection matter unable reasonably estimate amount range reasonably possible loss december 23 2014 purported class action poovathur v avon products inc et al 14cv10083 filed united states district court southern district new york company certain present former company employees pursuant employee retirement income security act “erisa” 29 usc § 1132 amended complaint filed january 28 2015 purported class consists participants beneficiaries avon personal savings account plan “plan” invested andor held shares avon common stock fund july 31 2006 january 1 2015 claims asserted action include inter alia alleged breach fiduciary duties connection administration management plan appointment evaluation monitoring plan fiduciaries plaintiffs seek inter alia certain monetary relief damages declaratory injunctive equitable relief unable predict outcome matter however reasonably possible may incur loss connection matter unable reasonably estimate amount range reasonably possible loss circumstances losses incurred connection adverse outcomes litigation matters described could material brazilian tax matters 2002 brazilian subsidiary received excise tax ipi assessment brazilian tax authorities alleged tax deficiencies years 19971998 december 2012 additional assessments received year 2008 respect excise tax ipi taxes charged gross receipts pis cofins second quarter 2014 pis cofins assessments officially closed favor avon brazil 2002 2012 ipi assessments assert establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2002 2012 ipi assessments unfounded matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 ipi assessment july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level 2012 ipi assessment totals approximately 322 including penalties accrued interest october 2010 2002 ipi assessment upheld first administrative level amount reduced approximately 25 approximately 59 including penalties accrued interest appealed decision second administrative level event 2002 2012 ipi assessments upheld last administrative level may necessary us provide security pursue appeals depending circumstances may result charge earnings possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2007 closed statute however similar ipi assessments involving different periods 19982001 canceled officially closed favor second administrative level believe likelihood 2002 assessment upheld remote likelihood 2012 ipi assessment upheld reasonably possible stated believe 2002 2012 ipi assessments unfounded matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2014 expected material adverse effect consolidated financial position results operations cash flows note 16 goodwill intangible assets q3 2012 china impairment assessment based continued decline revenue performance china third quarter 2012 corresponding lowering longterm growth estimates china completed interim impairment assessment fair value goodwill related operations china changes longterm growth estimates based state china business china business achieve revenue earnings cash flows expectations primarily due challenges business model based upon interim analysis determined goodwill related operations china impaired specifically results interim impairment test indicated estimated fair value china reporting unit less respective carrying amount result impairment testing recorded noncash impairment charge 440 tax third quarter 2012 reduce carrying amount goodwill china estimated fair value q3 2013 china impairment assessment compared projections used fourth quarter 2012 impairment analysis q4 2012 projections china performed generally line revenue earnings projections first half 2013 assumed q4 2012 projections chinas revenue first half 2013 continued deteriorate versus prioryear period however beginning third quarter 2013 revenue decline significantly excess assumptions revenue third quarter 2013 declined 67 versus third quarter 2012 compared revenue decline 28 first half 2013 versus first half 2012 result third quarter 2013 became apparent would achieve 2013 longterm forecasted revenue earnings completed interim impairment assessment fair value goodwill related operations china chinas revenue performance third quarter 2013 approximately 67 less excluding impact foreign currency revenue q4 2012 projections revenue decline china third quarter 2013 resulted recognition operating loss expected operating profit q4 2012 projections third quarter 2013 significantly lowered longterm revenue earnings projections china included dcf model utilized interim impairment assessment based upon interim analysis determined goodwill related operations china impaired specifically results interim impairment analysis indicated estimated fair value china reporting unit less respective carrying amount result impairment testing recorded noncash tax impairment charge 384 tax reduce carrying amount goodwill remaining china reporting unit result impairment decline fair value china reporting unit primarily driven significant reduction forecasted longterm growth rates cash flows used estimate fair value fiscal year 2013 revenue china expected approximately 38 less revenue q4 2012 projections 47 less fiscal year 2012 results also performed interim impairment analysis china finitelived intangible assets indicated carrying value intangible assets exceeded estimated future undiscounted cash flows business resulted noncash tax impairment charge 37 28 tax reduce carrying amount assets intangible assets remaining china result impairment charge china historically generated positive cash flows expected generate positive cash flows 2013 number years thereafter need investment previously anticipated result expected cash flows business date impairment analysis level sufficient support carrying value business compared prior years projections china future expectations declined significantly 2012 2013 impairment analyses reduction future expectations led impairments 440 421 recorded third quarters 2012 2013 respectively key assumptions china key assumptions used measuring fair value china impairment assessments included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value china forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return chinas cash flows normalized sustainable levels goodwill intangible assets actual amortization expense may differ amounts due among things future acquisitions disposals impairments accelerated amortization fluctuations foreign currency exchange rates aggregate amortization expense 44 95 years ended december 31 2013 2012 respectively aggregate amortization expense material year ended december 31 2014 expected material future periods note 17 supplemental balance sheet information december 31 2014 2013 prepaid expenses included following december 31 2014 2013 assets included following note 18 results operations quarter unaudited 1 operating profit loss impacted following 2 addition items impacting operating profit loss income loss continuing operations taxes 2014 impacted onetime aftertax loss 418 537 expense net benefit 119 income taxes recorded first quarter primarily reflecting writedown monetary assets liabilities due change sicad ii rate addition income loss continuing operations taxes 2013 impacted onetime aftertax loss 507 341 expense net 166 income taxes recorded first quarter primarily reflecting writedown monetary assets liabilities deferred tax benefits due devaluation venezuelan currency income loss continuing operations taxes 2013 also impacted loss extinguishment debt 730 tax first quarter 2013 caused makewhole premium writeoff debt issuance costs associated prepayment private notes defined note 5 debt financing well writeoff debt issuance costs associated early repayment 3800 outstanding principal amount term loan agreement defined note 5 debt financing addition income loss continuing operations taxes 2013 impacted loss extinguishment debt 130 tax second quarter 2013 caused makewhole premium writeoff debt issuance costs discounts partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment 2014 notes defined note 5 debt financing 3 loss income continuing operations net tax 2014 negatively impacted noncash income tax charge 4049 primarily due valuation allowance 3835 reduce deferred tax assets amount likely realized recorded fourth quarter 2014 addition loss income continuing operations net tax 2014 favorably impacted 185 net tax benefit recorded fourth quarter 2014 related finalization fcpa settlements addition loss income continuing operations net tax 2013 impacted valuation allowances deferred tax assets 418 related venezuela fourth quarter 2013 92 related china business third quarter 2013 4 sum per share amounts quarters necessarily equal year computations made independently see note 15 restructuring initiatives results operations consolidated within mda pages 32 39 segment review latin america within mda pages 40 44 note 15 contingencies note 11 employee benefit plans note 16 goodwill intangibles note 1 description business summary significant accounting policies note 5 debt financing note 7 income taxes information items schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2014 2013 2012 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance primarily deferred tax assets likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2015 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 23rd day february 2016 avon products inc robert loughran robert loughran group vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc december 31 2015 december 31 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal reporting appearing item 9a responsibility express opinions financial statements financial statement schedule companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 2 consolidated financial statements company changed manner presents deferred taxes 2015 due adoption accounting standards update 201517 balance sheet classification deferred taxes company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate avon products inc consolidated statements operations accompanying notes integral part statements avon products inc consolidated statements comprehensive income loss accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interestrate swap agreements 7 2013see note 8 financial instruments risk management 1 includes cash equivalents discontinued operations 241 179 199 beginning year 2015 2014 2013 respectively 2 includes cash equivalents discontinued operations 22 241 179 end year 2015 2014 2013 respectively accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity deficit accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted primarily one channel direct selling reportable segments based geographic operations three regions latin america europe middle east africa asia pacific addition operate business north america presented discontinued operations periods presented discussed product categories beauty fashion home beauty consists skincare includes personal care fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives december 2015 entered definitive agreements affiliates controlled cerberus capital management cerberus include 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business avon privatelyheld company majorityowned managed affiliate cerberus avon retain approximately 20 ownership new privatelyheld company transactions expected close concurrently first half 2016 north america previously reportable segment presented discontinued operations periods presented refer note 3 discontinued operations divestitures additional information regarding investment affiliate cerberus separation north america business principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rate actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes tax valuation allowances sharebased compensation loss contingencies evaluation goodwill intangible assets property plant equipment capitalized software potential impairment foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive income loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies united states us dollar required used functional currency december 31 2015 venezuela avon subsidiary considered operating highly inflationary economy highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements operations nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities avon products inc notes consolidated financial statements continued venezuela currency account venezuela highly inflationary economy february 2015 venezuelan government announced new foreign exchange system created referred simadi exchange simadi began operating february 12 2015 multiple legal mechanisms venezuela exchange currency simadi represents rate better reflects economics avon venezuelas business activity comparison available exchange rates concluded utilize simadi exchange rate remeasure venezuelan operations effective february 12 2015 result change simadi rate caused recognition devaluation approximately 70 compared exchange rate used previously recorded aftertax benefit 34 benefit 42 expense net loss 8 income taxes first quarter 2015 primarily reflecting writedown monetary assets liabilities addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change simadi rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis causes disproportionate expense assets consumed operations negatively impacting operating profit net income 185 2015 also result change simadi rate determined adjustment 114 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2015 addition february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge 903 selling general administrative expenses recorded reflect writedown longlived assets estimated fair value 157 recorded first quarter 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates february 2014 venezuelan government announced foreign exchange system began operating march 24 2014 referred sicad ii exchange sicad ii sicad ii represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize sicad ii exchange rate remeasure venezuelan operations effective march 31 2014 result change sicad ii rate caused recognition devaluation approximately 88 compared official exchange rate used previously recorded aftertax loss 418 537 expense net benefit 119 income taxes first quarter 2014 primarily reflecting writedown monetary assets liabilities addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis causes disproportionate expense assets consumed operations negatively impacting operating profit net income 214 2014 also result determined adjustment 1157 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2014 effective february 13 2013 venezuelan government devalued currency approximately 32 recorded aftertax loss 507 341 expense net 166 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits addition result using historical us dollar cost basis nonmonetary assets inventories acquired prior devaluation operating profit net loss 2013 negatively impacted 496 revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also record provision estimated sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances revenue primarily comprised shipping handling order processing fees billed representatives avon products inc notes consolidated financial statements continued cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures initially deferred prepaid expenses expensed selling general administrative expenses campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses recorded reduction selling general administrative expenses campaign length campaign length typically three four weeks markets brochure costs associated fees presented prepaid expenses 258 december 31 2015 278 december 31 2014 additionally paper stock purchased advance creating brochures prepaid expenses include paper supply 38 december 31 2015 62 december 31 2014 brochure costs expensed selling general administrative expenses amounted 2566 2015 3094 2014 3480 2013 fees charged representatives recorded reduction selling general administrative expenses amounted 1419 2015 1732 2014 1881 2013 property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset see information avon venezuelas longlived assets capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful life related asset capitalize interest 2015 2014 2013 capitalized software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project generally exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 824 december 31 2015 916 december 31 2014 amortization expense associated capitalized software 310 448 508 years ended december 31 2015 2014 2013 respectively capitalized software reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future pretax undiscounted cash flows expected result use asset eventual disposition compared carrying amount carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate avon products inc notes consolidated financial statements continued goodwill intangible assets goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors indefinitelived intangible assets amortized rather assessed impairment annually fourth quarter occurrence event indicates impairment may occurred testing indefinitelived intangible assets impairment perform either qualitative quantitative assessment qualitative analysis results likely probability impairment quantitative assessment required quantitative test evaluate indefinitelived intangible assets impairment compares fair value intangible asset carrying value fair value asset less carrying value difference represents impairment analysis performed indefinitelived intangible asset requires several estimates computing estimated fair value asset use riskadjusted dcf model relieffromroyalty method finitelived intangible assets amortized using straightline method estimated useful lives intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future pretax undiscounted cash flows expected result use asset eventual disposition compared carrying amount sum expected cash flows less carrying amount impairment charge recorded impairment charge measured amount carrying amount exceeds fair value asset fair value asset determined using probability weighted expected cash flow estimates quoted market prices available appraisals appropriate applicable impairment testing would performed following order indefinitelived intangible assets finitelived intangible assets goodwill see note 16 goodwill intangible assets information china egypt financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings avon products inc notes consolidated financial statements continued • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements operations realized gains losses derivative reported consolidated statements cash flows consistent nature underlying hedged item derivatives designated hedges assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements operations addition determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements operations deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire see note 7 income taxes information uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements operations selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 5388 2015 6958 2014 7845 2013 advertising costs excluding brochure preparation costs expensed incurred amounted 1280 2015 1664 2014 1743 2013 research development research development costs expensed incurred amounted 619 2015 647 2014 669 2013 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value date grant applicable use montecarlo simulation calculate fair value performance restricted stock units market conditions blackscholesmerton optionpricing model calculate fair value options avon products inc notes consolidated financial statements continued restructuring expense record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rates hybrid plan maximum interest crediting rates expected rate return plan assets rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number participants certain demographics factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods required among things recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable revisions revised consolidated statements cash flows correct presentation certain financing activities specifically decrease 656 repayment debt decrease 700 proceeds debt increase 44 debt net year ended december 31 2014 revision impact cash flows operating activities consolidated statements operations consolidated statements comprehensive income loss consolidated balance sheets determined effect revision material previously issued financial statements outofperiod items 2015 recorded outofperiod adjustments decreased income continuing operations approximately 8 tax approximately 14 tax evaluated total outofperiod adjustments impacting 2015 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods 2014 recorded outofperiod adjustments latin america segment primarily related revenue selling general administrative expenses increased income continuing operations approximately 15 tax total outofperiod adjustments increasing income continuing operations 2014 approximately 13 tax approximately 6 tax total outofperiod adjustments decreasing income discontinued operations 2014 approximately 7 tax evaluated total outofperiod adjustments impacting 2014 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods earnings loss per share compute earnings loss per share eps using twoclass method earnings loss allocation formula determines earnings loss per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net income loss allocated common shareholders weightedaverage number shares outstanding avon products inc notes consolidated financial statements continued year diluted eps calculated give effect potentially dilutive common shares outstanding year three years ended december 31 components basic diluted eps follows amounts table may necessarily sum due rounding years ended december 31 2015 2014 include stock options purchase 127 million shares 180 million shares avon common stock respectively calculations diluted eps loss continuing operations net tax inclusion shares would decrease net loss per share since inclusion shares would antidilutive excluded calculation year ended december 31 2013 include stock options purchase 175 million shares avon common stock calculation diluted eps exercise prices options greater average market price therefore inclusion would antidilutive note 2 new accounting standards implemented november 2015 financial accounting standards board fasb issued accounting standards update asu 201517 income taxes balance sheet classification deferred taxes asu 201517 simplifies presentation deferred taxes requiring deferred tax assets liabilities classified noncurrent balance sheet elected early adopt asu 201517 fourth quarter 2015 prospective basis impact consolidated financial statements balance sheet presentation december 31 2015 prior periods retrospectively adjusted standards implemented may 2014 fasb issued asu 201409 revenue contracts customers issued new topic accounting standards codification topic 606 core principle guidance company recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services august 2015 fasb issued asu 201514 deferral effective avon products inc notes consolidated financial statements continued date resulted standard effective beginning 2018 early adoption permitted beginning 2017 standard adopted either retrospectively cumulativeeffect adjustment date adoption currently evaluating effect adopting new accounting guidance consolidated financial statements note 3 discontinued operations divestitures discontinued operations north america december 17 2015 company entered definitive agreements affiliates controlled cerberus agreements include investment agreement providing 435 investment cleveland apple investor llc “cleveland investor” affiliate cerberus company purchase perpetual convertible preferred stock separation investment agreement providing separation companys north america business represents companys operations united states canada puerto rico company privatelyheld company “newco” majorityowned managed cleveland na investor llc “cleveland na” affiliate cerberus result issuance cleveland na ownership interests newco cleveland na contribute 170 cash newco exchange 801 ownership interests contribute north america business certain pension postretirement liabilities 100 cash newco 199 newco’s ownership interests 435 investment cleveland investor company exchange perpetual convertible preferred stock optional conversion price holders 500 per share dividend accrues rate 5 per annum subject increase upon certain events dividend payable companys option cash ii subject certain conditions common shares iii subject certain conditions upon conversion shares series c preferred stock shares nonvoting nonconvertible series preferred stock par value 100 per share series preferred stock shares series preferred stock issued would similar preferential rights close transactions company make changes board directors including certain current directors stepping directors joining cerberus addition new independent directors jointly selected company cerberus appointed soon practicable close transactions expected close concurrently first half 2016 proceeds sale perpetual convertible preferred stock intended used fund 100 cash contribution newco approximately 250 may used reduce debt remainder used restructuring reinvestment business company considered transactions affiliates cerberus help drive enhanced focus avons international markets revitalize north america business deliver longterm value shareholders north america business previously reportable segment presented discontinued operations periods presented separation represented significant strategic shift determined major effect operations financial results amounts previously allocated global expenses north america moved global expenses periods presented represent costs associated functions companys continuing operations carrying value exceeded estimated fair value less costs sell fourth quarter 2015 recorded estimated loss sale discontinued operations approximately 340 tax approximately 340 tax estimated loss sale represents net assets contributed newco including certain pension postretirement benefit plan liabilities amounts aoci associated north america business primarily unrecognized losses associated us defined benefit pension plan costs sell compared implied value ownership interests newco 43 actual total loss sale dependent number factors including discount rates actual return plan assets postseparation company account ownership interests newco using equity method accounting result company recognizing proportionate share newcos income loss newco enter perpetual irrevocable royaltyfree licensing agreement company use avon brand certain intellectual property also transition services agreements include among things information technology human resources supply chain services commercial agreements including research development manufacturing major classes financial statement components comprising loss discontinued operations tax north america shown 1 includes capitalized software impairment charge 1172 2013 discussed carrying amount major classes assets liabilities north america discontinued operations december 31 2015 2014 shown 2 represents expected cash contribution company newco made close transactions 3 includes accrual estimated loss sale december 31 2015 december 31 2015 december 31 2014 also approximately 194 156 net deferred tax assets 194 91 related valuation allowances reflected discontinued operations associated separation north america december 2013 decided halt rollout service model transformation smt project smt global program initiated 2009 improve order management system enable changes way representatives interact us smt piloted canada 2013 caused significant business disruption market decision halt rollout smt made light potential risk disruption addition smt show clear return investment canada market expected utilize capitalized software associated smt asset accounting guidance requires impairment assessment consider cash flows canadian business includes ongoing costs associated smt expected cash flows sufficient supporting carrying value associated asset group includes smt asset fourth quarter 2013 recorded noncash impairment charge 1172 tax 741 tax reflecting writedown capitalized software fair value smt asset determined using riskadjusted dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates result impairment charge remaining carrying amount smt asset material silpada june 30 2013 company entered agreement sell silpada jewelry business “silpada” 85 plus earnout 15 silpada achieves specific earnings targets two years silpada previously reported within north america segment presented discontinued operations periods presented transaction closed july 3 2013 proceeds sale used general corporate purposes including repayment outstanding debt earnout achieved silpada fiscal year 2014 december 31 2015 believe financial performance silpada result achievement earnout fiscal year 2015 2013 recorded loss sale 794 tax 504 tax representing difference carrying value silpada business proceeds total loss sale 790 tax 500 tax recorded second quarter 2013 reflecting expected loss sale time first quarter 2013 company disclosed reviewing strategic alternatives silpada connection review ran broad auction process included potential financial strategic buyers initial offers received april 2013 lower carrying value silpada time believe offers representative underlying fair value silpada business june 2013 company received final offers silpada business also level previously expected fair value business company decided agree offer emerged time highest bid based part consideration timeline investment required return business historical levels profitability b deterioration silpadas business performance second quarter 2013 company also considered divestiture would allow greater focus time resources core avon business transaction approved board directors june 26 2013 subject certain conditions satisfied june 30 2013 summarized financial information silpada discontinued operations shown 4 operating loss includes charge 790 tax recorded second quarter 2013 reflecting expected loss sale time well additional loss sale 4 tax recorded third quarter 2013 divestitures liz earle july 9 2015 company sold liz earle beauty co limited “liz earle” approximately 215 less expenses approximately 5 liz earle previously reported within europe middle east africa segment 2015 recorded gain sale 449 tax reported separately consolidated statements operations 516 tax representing difference proceeds including expected working capital settlement carrying value liz earle business date sale proceeds sale liz earle used fund portion company’s redemption 250 principal amount 2375 notes due march 15 2016 occurred august 10 2015 see note 5 debt financing additional information note 4 inventories december 31 consisted following note 5 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 40 december 31 2015 42 december 31 2014 debt included obligations capital leases 117 december 31 2015 116 december 31 2014 primarily relate leases automobiles equipment public notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes net proceeds 2013 notes used repay outstanding debt interest 2013 notes payable semiannually march 15 september 15 year august 10 2015 prepaid 2375 notes prepayment price equal 100 principal amount 2500 plus accrued interest 31 makewhole premium 50 connection prepayment 2375 notes incurred loss extinguishment debt 55 third quarter 2015 consisting 50 makewhole premium 2375 notes writeoff 5 debt issuance costs discounts related initial issuance 2375 notes indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp november 2014 bb february 2015 bb june 2015 b moodys october 2014 ba1 may 2015 ba3 avon products inc notes consolidated financial statements continued senior unsecured debt interest rates 2013 notes increased 175 75 effective march 15 2015 10 effective september 15 2015 carrying value 2375 notes represented 2500 principal amount net unamortized discount face value 1 december 31 2014 carrying value 460 notes represented 5000 principal amount net unamortized discount face value 4 6 december 31 2015 2014 respectively carrying value 500 notes represented 5000 principal amount net unamortized discount face value 35 40 december 31 2015 2014 respectively carrying value 695 notes represented 2500 principal amount net unamortized discount face value 7 december 31 2015 2014 respectively december 31 2015 also outstanding 2500 principal amount 575 notes due march 1 2018 notes 2500 principal amount 420 notes due july 15 2018 420 notes 3500 principal amount 650 notes due march 1 2019 notes interest series notes payable semiannually carrying value 2018 notes represented 2500 principal amount net unamortized discount face value 2 3 december 31 2015 2014 respectively carrying value 420 notes represented 2500 principal amount net unamortized discount face value 2 3 december 31 2015 2014 respectively carrying value 2019 notes represented 3500 principal amount net unamortized discount face value 14 18 december 31 2015 2014 respectively indentures governing outstanding notes described contain certain covenants including limitations incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets addition indentures contain customary events default crossdefault provisions would required make offer repurchase outstanding notes described exception 420 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding credit ratings downgrade investment grade april 15 2013 prepaid 5625 notes due march 1 2014 notes prepayment price equal 100 principal amount 5000 plus accrued interest 34 makewhole premium 217 connection prepayment 2014 notes incurred loss extinguishment debt 130 second quarter 2013 consisting 217 makewhole premium 2014 notes writeoff 11 debt issuance costs discounts related initial issuance 2014 notes partially offset deferred gain 98 associated january 2013 interestrate swap agreement termination see note 8 financial instruments risk management information addition 2500 principal amount 480 notes due march 1 2013 1250 principal amount 4625 notes due may 15 2013 repaid full maturity term loan agreement 2012 borrowed 5500 term loan agreement term loan agreement march 2013 repaid 3800 outstanding principal amount term loan agreement portion proceeds issuance 2013 notes repayment resulted loss first quarter 2013 16 extinguishment debt associated writeoff debt issuance costs related term loan agreement july 25 2013 prepaid 1175 outstanding principal balance term loan agreement without prepayment penalties june 30 2014 paid 525 remaining outstanding principal balance term loan agreement 394 yet due without prepayment penalties effectively terminating term loan agreement since amounts thereunder may reborrowed private notes march 29 2013 prepaid 5350 senior notes issued 2010 private placement exempt registration securities act 1933 amended private notes connection prepayment private notes incurred loss extinguishment debt 714 first quarter 2013 included makewhole premium 680 writeoff 34 debt issuance costs related private notes maturities longterm debt annual maturities longterm debt includes notes including unamortized discounts premiums capital leases outstanding december 31 2015 follows avon products inc notes consolidated financial statements continued financing revolving credit facility june 2015 company avon international operations inc whollyowned domestic subsidiary company “aio” entered new fiveyear 4000 senior secured revolving credit facility “2015 revolving credit facility” company terminated previous 1 billion unsecured revolving credit facility “2013 revolving credit facility” june 2015 prior scheduled expiration march 2017 amounts drawn 2013 revolving credit facility date termination early termination penalties incurred second quarter 2015 25 recorded writeoff issuance costs related 2013 revolving credit facility borrowings 2015 revolving credit facility bear interest option rate per annum equal libor plus 250 basis points floating base rate plus 150 basis points case subject adjustment based upon leveragebased pricing grid 2015 revolving credit facility may used general corporate purposes december 31 2015 amounts outstanding 2015 revolving credit facility obligations aio 2015 revolving credit facility unconditionally guaranteed material domestic restricted subsidiary company aio borrower case subject certain exceptions ii guaranteed limited recourse basis company obligations aio guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors certain assets company case subject certain exceptions 2015 revolving credit facility terminate june 2020 provided however shall terminate 91st day prior maturity 2018 notes 420 notes 2019 notes 460 notes 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2015 revolving credit facility contains affirmative negative covenants customary financings type including among things limits ability company aio restricted subsidiary subject certain exceptions incur liens incur debt make restricted payments make investments merge consolidate dispose substantially assets addition 2015 revolving credit facility contains customary events default crossdefault provisions well financial covenants interest coverage total leverage ratios december 31 2015 compliance interest coverage total leverage ratios 2015 revolving credit facility based applicable interest rates entire 4000 2015 revolving credit facility could drawn without violating covenant letters credit december 31 2015 december 31 2014 also letters credit outstanding totaling 129 primarily guarantee various insurance activities addition outstanding letters credit trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels longterm credit ratings longterm credit ratings ba2 negative outlook corporate family debt ba3 negative outlook senior unsecured debt moodys b stable outlook sp b negative outlook fitch investment grade believe longterm credit ratings material impact nearterm liquidity however rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements note 6 accumulated comprehensive income loss tables present changes aoci component reclassifications aoci 2015 2014 1 gross amount reclassified interest expense related taxes reclassified income taxes 2 gross amount reclassified pension postretirement expense within selling general administrative expenses related taxes reclassified income taxes foreign exchange net losses 219 182 2015 2014 respectively net gain 2 2013 resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income loss note 7 income taxes loss income continuing operations taxes years ended december 31 follows us loss taxes years ended december 31 2015 2014 2013 include dividend income foreign subsidiaries avon products inc notes consolidated financial statements continued provision income taxes years ended december 31 follows foreign provision income taxes includes us tax benefit foreign earnings 0 35 us tax cost foreign earnings 99 years ended december 31 2015 2014 2013 respectively effective tax rate years ended december 31 follows fourth quarter 2015 company recognized benefit 187 associated implementation foreign tax planning strategies reflected within reorganizations line completed implementation tax planning strategies expect recognize additional benenfit approximately 30 first quarter 2016 avon products inc notes consolidated financial statements continued deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following december 31 2014 presentation deferred tax balances revised include 1206 state net operating loss deferred tax asset related valuation allowance 1206 well 390 net state deferred tax assets various temporary differences related valuation allowance 390 impact consolidated balance sheet periods presented deferred tax assets liabilities december 31 classified follows see note 2 new accounting standards discussion adoption asu 201517 income taxes balance sheet classification deferred taxes december 31 2015 recognized deferred tax assets 7461 relating us business credit carryforwards excess foreign tax credits minimum tax credits research experimentation credits investment tax credits valuation avon products inc notes consolidated financial statements continued allowance 7461 provided deferred tax assets relating foreign tax loss carryforwards 6569 valuation allowance 6517 provided deferred tax assets relating state tax loss carryforwards 1250 valuation allowance 1250 provided foreign tax loss carryforwards december 31 2015 23021 21346 subject expiration 1675 subject expiration 2016 2030 state tax loss carryforwards december 31 2015 17500 subject expiration 2016 2035 us foreign tax credit carryforwards 6896 subject expiration 2018 2025 us minimum tax credits 359 subject expiration us research experimentation credits 163 subject expiration 2027 2035 us investment tax credits 43 subject expiration 2020 2030 december 31 2015 continue assert foreign earnings indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account balance undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year also adjusted deferred tax liability exclude deferred tax assets 949 associated foreign earnings plan repatriate within foreseeable future deferred tax liability associated company’s undistributed earnings increased 749 resulting deferred tax liability balance 892 related incremental tax cost 14 billion undistributed foreign earnings december 31 2015 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings may result utilization portion excess foreign tax credit carryforwards year repatriation therefore utilization foreign tax credit carryforwards dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary venezuela calculation deferred tax liability local regulations restrict cash distributions denominated us dollars december 31 2015 valuation allowance primarily represents amounts us deferred tax assets certain foreign tax loss carryforwards certain foreign deferred tax assets recognition deferred tax assets based evaluation current estimated future profitability operations reversal deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards tax planning strategies also considered evaluated support realization deferred tax assets sources income existed along sufficient positive evidence indicated likely sources income could relied upon deferred tax assets reduced valuation allowance net increase valuation allowance 2015 6095 primarily due recording valuation allowances us deferred tax assets discussed partially offset increase deferred tax liability unremitted earnings foreign subsidiaries discussed addition net increase valuation allowance also attributable additional valuation allowances deferred tax assets outside us primarily russia largely due lower earnings impact foreign exchange losses working capital balances first second quarters 2015 company recorded 313 charge 32 benefit respectively associated valuation allowances adjust us deferred tax assets amount “more likely not” realized adjustments primarily caused fluctuations us dollar currencies key markets third quarter 2015 recorded additional valuation allowance remaining us deferred tax assets 6495 increase valuation allowance resulted management’s determination longer likely realize tax benefits expected obtained tax planning strategies associated anticipated accelerated receipt us foreign source income us dollar strengthened currencies key markets third quarter 2015 benefits associated company’s tax planning strategies longer sufficient company continue conclude tax planning strategies prudent absence alternative prudent tax planning strategies sources future taxable income determined full valuation allowance recorded although company continues expect generate taxable income tax liability us company expected offset current future tax liability foreign tax credits result expected level future taxable income tax liability adequate realize benefit previously recorded deferred tax assets although company may able recognize financial statement benefit associated deferred tax assets company continue manage plan utilization deferred tax assets avoid expiration deferred tax assets limited lives conjunction expected separation north america approximately 2350 deferred tax assets related valuation allowance 2350 reflected deferred tax asset associated company’s investment newco also us state net operating loss investment tax credit deferred tax assets 1293 related valuation allowance 1293 may capable fully utilized expiration company separation north america due elimination us operations substantially state taxing jurisdictions avon products inc notes consolidated financial statements continued uncertain tax positions december 31 2015 530 total gross unrecognized tax benefits approximately 337 would favorably impact provision income taxes recognized reconciliation beginning ending amount unrecognized tax benefits follows accrue interest penalties related unrecognized tax benefits provision income taxes recorded expense 28 9 interest penalties net taxes 2015 2014 2013 respectively december 31 2015 december 31 2014 66 44 recorded interest penalties net tax benefit file income tax returns us foreign jurisdictions december 31 2015 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 1 181 within next twelve months due closure tax years expiration statute limitations audit settlements note 8 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions december 31 2015 interestrate swap agreements enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger avon products inc notes consolidated financial statements continued early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger derivatives recognized consolidated balance sheets fair values following table presents fair value derivative instruments outstanding december 31 2015 following table presents fair value derivative instruments outstanding december 31 2014 interest rate risk portion borrowings subject interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2015 2014 designated interestrate swap agreements terminated either conjunction repayment associated debt january 2013 march 2012 transactions described approximately 2 approximately 5 debt portfolio december 31 2015 2014 respectively exposed floating interest rates january 2013 terminated eight interestrate swap agreements previously designated fair value hedges notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 904 amortized reduction interest expense remaining term underlying debt obligations incurred termination fees 23 recorded expense net consolidated statements operations years ended december 31 2015 december 31 2014 net impact gain amortization 146 144 respectively interestrate swap agreements terminated order improve capital structure including increasing ratio fixedrate debt december 31 2015 unamortized deferred gain associated january 2013 interestrate swap termination 354 classified within longterm debt consolidated balance sheets march 2012 terminated two interestrate swap agreements previously designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 incurred termination fees 25 recorded expense net consolidated statements operations years ended december 31 2015 2014 net impact gain amortization 66 63 respectively interestrate swap agreements terminated order increase ratio fixedrate debt december 31 2015 unamortized deferred gain associated march 2012 interestrate swap termination 228 classified within longterm debt consolidated balance sheets times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepay fixed interestrate swap agreements designated offset gain loss dedesignated contract december 31 2015 2014 undesignated interestrate swap agreements 2007 entered treasury lock agreements 2007 locks notional amounts totaling 5000 expired july 31 2008 2007 locks designated cash flow hedges anticipated interest payments 2500 principal amount notes due 2013 2500 principal amount 2018 notes losses 2007 locks 380 avon products inc notes consolidated financial statements continued recorded aoci 192 losses amortized interest expense consolidated statements operations five years 188 amortized ten years december 31 2015 expect reclassify 19 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next twelve months years ended december 31 2015 2014 treasury lock agreements impacted aoci follows 1 amounts exclude taxes 27 period presented recognized earnings end tenyear amortization period foreign currency risk use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2015 outstanding foreign exchange forward contracts notional amounts totaling approximately 1279 various currencies use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans 2015 2014 recorded losses 27 149 respectively expense net consolidated statements operations related undesignated foreign exchange forward contracts also 2015 2014 recorded loss 25 gain 166 respectively related intercompany loans caused changes foreign currency exchange rates credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 12 december 31 2015 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates note 9 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2015 avon products inc notes consolidated financial statements continued following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2014 tables exclude defined benefit pension postretirement plan assets see note 11 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 11 employee benefit plans foreign exchange forward contracts hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table see note 8 financial instruments risk management assets liabilities recorded fair value nonrecurring basis december 31 2015 egypt goodwill 2015 yearend close process completed annual impairment assessment fair value goodwill related egypt subsequently determined goodwill associated egypt impaired accordingly noncash impairment charge 69 recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit indefinitelived intangible asset finitelived intangible asset part goodwill impairment analysis typically use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors key assumptions used measuring fair value egypt impairment assessment included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt forecasted revenue resulting cash flows five years using dcf model included terminal value end projection period believed fiveyear period reasonable amount time order return egypts cash flows normalized sustainable levels march 31 2015 venezuela longlived assets following table presents fair value hierarchy assets liabilities measured fair value nonrecurring basis march 31 2015 indicates placement fair value hierarchy valuation techniques utilized avon products inc notes consolidated financial statements continued determine fair value february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge 903 selling general administrative expenses latin america segment recorded reflect writedown longlived assets estimated fair value 157 march 31 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments money market funds accounts receivable loans receivable debt maturing within one year accounts payable longterm debt foreign exchange forwards contracts carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt includes related discount premium unamortized deferred gains terminated interestrate swap agreements applicable methods assumptions used estimate fair value follows availableforsale securities fair values investments quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 10 sharebased compensation plans avon products inc 2010 stock incentive plan 2010 plan avon products inc 2013 stock incentive plan amended restated “2013 plan” shareholder approved plans provide several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance restricted stock units following shareholder approval 2013 plan may 2013 awards made 2010 plan 2010 plan maximum number shares may awarded 32000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share stock subject award ii case grant award payable stock option sar 233 multiplied share stock subject award 2013 plan maximum number shares may awarded 55000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 313 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares avon products inc notes consolidated financial statements continued issued stock options stock appreciation rights 2010 plan restricted stock units performance restricted stock units 2010 plan 2013 plan stock option awards granted exercise price equal closing market price stock date grant option awards stock appreciation rights generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 compensation cost stock options stock appreciation rights performance restricted stock units restricted stock units including funded treasury shares resulted fair value measurement date 2015 2014 2013 recorded selling general administrative expenses consolidated statements operations stock options stock options granted since 2012 summary stock options december 31 2015 changes 2015 follows recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates december 31 2015 unrecognized compensation cost related stock options outstanding avon products inc notes consolidated financial statements continued cash proceeds tax obligations intrinsic value related total stock options exercised 2014 2013 follows restricted stock restricted stock units performance restricted stock units fair value restricted stock units performance restricted stock units granted 2013 2014 determined based closing price common stock date grant fair value performance restricted stock units granted 2015 determined using montecarlo simulation estimates fair value based companys share price activity expected term award riskfree interest rate expected dividends expected volatility stock company 2013 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions three years adjusted compensation cost recognized todate reflect estimated performance 2014 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions three years adjusted compensation cost recognized todate reflect estimated performance 2015 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions two years 2015 prsus addition performance conditions achieved target performance restricted stock units subject market condition number performance restricted stock units vest limited target amount company’s absolute total shareholder return threeyear service period negative performance conditions achieved range possible payouts performance restricted stock units limited minimum 50 target maximum 150 target currently believe achievement performance conditions probable summary restricted stock restricted stock units december 31 2015 changes 2015 follows summary performance restricted stock units december 31 2015 changes 2015 follows 1 based initial target payout total fair value restricted stock units vested 2015 101 based upon market prices vesting dates december 31 2015 approximately 454 unrecognized compensation cost related restricted stock restricted stock units performance restricted stock units compensation arrangements cost expected recognized weightedaverage period 17 years avon products inc notes consolidated financial statements continued addition amounts table later 2015 granted 1123183 performance restricted stock units would vest settle 2016 upon satisfaction certain performance conditions 2015 december 31 2015 terms award yet resulted fair value measurement date 2015 recognized compensation cost 16 performance restricted stock units december 31 2015 30 unrecognized compensation cost related performance restricted stock units restricted stock units performance restricted stock units funded treasury shares march 2015 april 2012 granted 489596 200000 restricted stock units respectively funded treasury shares outside 2013 plan 2010 plan reliance upon new york stock exchange rules restricted stock units granted march 2015 weightedaverage grantdate fair value 900 vest settle ratably three years restricted stock units granted april 2012 weightedaverage grantdate fair value 2169 vest settle ratably five years 2015 40000 restricted stock units vested 569596 restricted stock units outstanding december 31 2015 2014 2013 recognized compensation cost 27 8 14 respectively restricted stock units december 31 2015 25 unrecognized compensation cost related restricted stock units march 2015 granted 121951 performance restricted stock units funded treasury shares outside 2013 plan reliance upon new york stock exchange rules performance restricted stock units weightedaverage grantdate fair value 749 terms exist awards 2015 prsus discussed performance restricted stock units outstanding december 31 2015 recognized compensation cost 2 performance restricted stock units december 31 2015 7 unrecognized compensation cost related performance restricted stock units note 11 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 40 2015 50 2014 55 2013 follow investment allocation participant selected contributions us employees hired january 1 2015 made additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits us employees hired january 1 2015 provided solely psa described part separation north america business transfer certain pension liabilities pra associated current former employees north america business certain former avon employees along portion assets held us defined benefit pension plan defined benefit pension plan sponsored new privatelyheld company also transfer certain postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon outside north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global expenses plan includes north america us corporate avon associates provide health care benefits subject certain limitations many retired employees us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 336 associated discontinued avon products inc notes consolidated financial statements continued operations amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan october 2015 announced changes postretirement medical benefits offered us retirees effective january 1 2016 changes retiree medical benefits reduced plan’s obligations 90 83 associated discontinued operations amount amortized negative prior service cost average future service active participants approximately 8 years required among things recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans 1 includes 1457 1480 us pension plans december 31 2015 2014 respectively 536 686 postretirement benefit plans net liability related us december 31 2015 2014 respectively included discontinued operations amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table avon products inc notes consolidated financial statements continued us pension plans include funded qualified plan unfunded nonqualified plans december 31 2015 us qualified pension plan benefit obligations 5784 plan assets 4083 5076 3748 respectively included discontinued operations december 31 2014 us qualified pension plan benefit obligations 6731 plan assets 5065 5447 4116 respectively included discontinued operations believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans components net periodic benefit cost amounts recognized comprehensive loss 2 includes 537 626 352 us pension plans 2015 2014 2013 respectively immaterial amounts postretirement benefit plans related us 2015 2014 2013 included discontinued operations amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table amounts represent pretax effect classified within comprehensive loss income net tax amounts classified within consolidated statements comprehensive income loss result lumpsum payments made former employees vested participated pra third quarter 2015 recorded settlement charge 238 lump sum payments made plan assets result specific offer participants pra described settlement threshold exceeded third quarter 2015 settlement charge 41 also recorded fourth quarter 2015 result additional payments pra settlement charges allocated global expenses discontinued operations effort reduce pension benefit obligations march 2014 offered former employees vested participated pra payment would fully settle pension plan obligation participants elected receive payment election period ended second quarter 2014 payments made june 2014 plan assets result lumpsum payments made second quarter 2014 recorded settlement charge 235 settlement threshold exceeded second quarter 2014 settlement charges 54 75 also recorded third fourth quarters 2014 respectively result additional payments pra settlement charges allocated global expenses discontinued operations avon products inc notes consolidated financial statements continued amounts aoci expected recognized components net periodic benefit cost 2016 follows 3 table reflects amounts aoci would recognized components net periodic benefit cost 2016 avon north america owned entire year estimated loss sale includes approximately 260 net actuarial losses partially offset approximately 1 prior service costs related us pension plans approximately 14 net actuarial losses offset approximately 26 prior service costs related us postretirement benefit plans amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table see note 3 discontinued operations divestitures assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining present value future pension obligations individual defined benefit pension plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including pra based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis increased 392 december 31 2015 354 december 31 2014 amounts associated pension plan canada postretirement benefit plans canada puerto rico associated discontinued operations excluded amounts weightedaverage assumptions used determine net benefit cost recorded consolidated statements operations years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2015 assumed rate return assets globally 687 represents weightedaverage rate return plan assets including us nonus defined benefit pension plans amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico associated discontinued operations excluded amounts assumed rate return determining 2015 net costs us defined benefit pension plan 725 addition current rate return assumption us defined benefit pension plan based asset allocation approximately 70 corporate government bonds mortgagebacked securities expected earn approximately 3 5 long term approximately 30 equity securities high yield securities expected earn approximately 5 7 long term addition physical assets asset portfolio derivative instruments increase exposure higher yielding securities similar assessments performed determining rates return avon products inc notes consolidated financial statements continued nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 655 determining 2015 net cost plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2015 2014 asset category follows amounts associated pension plan canada included discontinued operations excluded amounts table following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2015 4 includes 3748 included discontinued operations december 31 2015 avon products inc notes consolidated financial statements continued amounts associated pension plan canada included discontinued operations excluded amounts table following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2014 5 includes 4116 included discontinued operations december 31 2014 avon products inc notes consolidated financial statements continued amounts associated pension plan canada included discontinued operations excluded amounts table reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals derivative instruments held us pension trust publicly traded derivative contract specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices overall objective pra provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time beginning 2014 adopted investment strategy pra designed match movements pension liability increased allocation towards debt securities addition also begun utilize derivative instruments achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee 2015 similar investment strategies implemented nonus defined benefit pension plans pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable avon products inc notes consolidated financial statements continued asset allocation decision includes consideration noninvestment aspects pra including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions related continuing operations range 25 30 us defined benefit pension postretirement plans range 20 25 nonus defined benefit pension postretirement plans 2016 total benefit payments expected paid plans follows 6approximately 80 expected us pension plan benefit payments approximately 70 expected postretirement benefit payments included table associated discontinued operations amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico associated discontinued operations excluded amounts table postretirement benefits 2015 assumed rate future increases per capita cost health care benefits health care cost trend rate 86 claims assumed gradually decrease year thereafter 51 2022 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees employment retirement accrued cost postemployment benefits 182 december 31 2015 252 december 31 2014 60 90 respectively included discontinued operations remaining included employee benefit plans consolidated balance sheets amounts associated postemployment benefits canada included discontinued operations excluded amounts supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 avon products inc notes consolidated financial statements continued incentive compensation bonuses deferral performance restricted stock units certain employees end 2012 deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 5 2015 13 2014 12 2013 benefit obligation dcp 345 december 31 2015 455 december 31 2014 included liabilities accrued compensation consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last six years annual cost programs included determination net periodic benefit cost shown previously amounted 63 2015 71 2014 76 2013 benefit obligation programs 284 december 31 2015 321 december 31 2014 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers last five years established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within selling general administrative expenses consolidated statements operations note 12 segment information reportable segments based geographic operations include commercial business units latin america europe middle east africa asia pacific segments similar business characteristics offers similar products similar customer access methods global expenses include among things costs related executive administrative offices information technology research development marketing costs connection ongoing compliance deferred prosecution agreement dpa consent settlement consent prior professional related fees associated foreign corrupt practices act fcpa investigations compliance reviews prior accrual settlements related fcpa investigations settlement charges associated us pension plan allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions costs connection ongoing compliance dpa consent prior professional related fees associated fcpa investigations compliance reviews prior accrual settlements related fcpa investigations settlement charges associated us pension plan costs implementing restructuring initiatives related specific segment recorded within segment accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations avon products inc notes consolidated financial statements continued summarized financial information concerning reportable segments december 31 shown following tables total assets discontinued operations total assets december 31 2015 2014 table exclude 1000 receivable continuing operations presented within current assets discontinued operations see note 3 discontinued operations divestitures avon products inc notes consolidated financial statements continued total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets also includes country domicile us longlived assets primarily includes property plant equipment associated continuing operations longlived assets brazil consist primarily property plant equipment related manufacturing distribution facilities longlived assets us consist primarily property plant equipment including global research development facility note 13 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2015 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 744 2015 907 2014 1096 2013 plant construction expansion modernization projects estimated cost complete approximately 399 progress december 31 2015 note 14 restructuring initiatives transformation plan january 2016 announced transformation plan transformation plan includes cost reduction efforts continue improve cost structure enable us reinvest growth result plan targeted pretax annualized cost savings approximately 350 three years estimated 200 supply chain reductions estimated 150 cost reductions expected achieved restructuring actions well costsavings strategies result restructuring charges plan reinvest portion cost savings growth initiatives including media social selling information technology systems help us modernize business initiated transformation plan order enable us achieve longterm goals doubledigit operating margin mid singledigit constantdollar revenue growth part transformation plan identified certain actions beginning fourth quarter 2015 believe reduce ongoing costs primarily consisting global headcount reductions relating information technology infrastructure outsourcing initiative avon products inc notes consolidated financial statements continued result restructuring actions approvedtodate recorded total costs implement restructuring initiatives 224 taxes 2015 selling general administrative expenses consolidated statements operations costs implement consisted 214 employeerelated costs due severance benefits 10 implementation costs professional service fees recorded corporate liability balance employeerelated costs associated restructuring actions december 31 2015 214 majority cash payments applicable associated charges expected made 2016 additional charges yet incurred associated restructuring actions approved todate approximately 10 taxes expected recorded primarily 2016 connection restructuring actions approved todate associated transformation plan expect realize annualized savings approximately 10 15 tax expect begin realize savings 2018 expected achieve annualized savings beginning 2019 annualized savings represent net reduction expenses longer incurred avon time unable quantify total costs implement restructuring initiatives incurred time transformation plan fully implemented additional restructuring charges 2015 result thencurrent economic environment including impact foreign currency movements inflation expenses effort continue improve cost structure identified certain actions 2015 believe reduce ongoing costs actions primarily consisted global headcount reductions result restructuring actions recorded total costs implement restructuring initiatives 297 taxes 2015 selling general administrative expenses consolidated statements operations material remaining costs restructuring actions approvedtodate actions associated various restructuring initiatives substantially complete connection restructuring actions expect realize annualized savings approximately 30 taxes began realize savings second quarter 2015 achieved annualized savings beginning third quarter 2015 annualized savings represent net reduction expenses longer incurred avon costs implement 297 recorded 2015 consisted following • charge 221 employeerelated costs due severance benefits • implementation costs 76 primarily professional service fees associated corporate asia pacific majority cash payments applicable associated charges made 2015 liability balance primarily consists employeerelated costs various restructuring initiatives december 31 2015 follows charges approved date various restructuring initiatives reportable business segment follows addition charges included tables incurred costs implement restructuring initiatives professional services fees 400m cost savings initiative 2012 announced cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth expected achieved restructuring actions well costsavings strategies result restructuring charges 400m cost savings initiative designed reduce operating expenses percentage total revenue help us achieve targeted low doubledigit operating margin avon products inc notes consolidated financial statements continued included north america business since presented discontinued operations periods presented restructuring actions 400m cost savings initiative primarily consist global headcount reductions related actions well closure certain smaller underperforming markets including south korea vietnam republic ireland bolivia france costs implement restructuring initiatives consist primarily professional service fees accelerated depreciation result restructuring actions associated 400m cost savings initiative recorded total costs implement restructuring initiatives 1657 taxes significant remaining costs restructuring actions approvedtodate actions associated 400m cost savings initiative substantially complete connection restructuring actions associated 400m cost savings initiative realized substantially annualized savings approximately 215 225 taxes part 400m cost savings initiative also realized benefits costsavings strategies result restructuring charges including reductions legal costs market closures annualized savings represented foregone selling general administrative expenses result longer operating respective markets actions result closure market annualized savings represented net reduction expenses longer incurred avon annualized savings incorporate impact decline revenue associated actions including market closures material restructuring charges 2015 recorded benefit 35 related 400m cost savings initiative selling general administrative expenses consolidated statements operations costs consisted following • net benefit 44 primarily employeerelated benefits associated severance • implementation costs 9 primarily related professional service fees associated europe middle east africa asia pacific businesses • benefit 4 primarily related accumulated foreign currency translation adjustments associated asia pacific markets • accelerated depreciation 3 associated closure rationalization certain facilities • contract termination charge 1 primarily related asia pacific majority cash payments applicable associated charges made 2015 remaining expected made 2016 restructuring charges 2014 recorded total costs implement 839 related 400m cost savings initiative selling general administrative expenses consolidated statements operations costs consisted following • net charge 579 primarily employeerelated costs including severance benefits • accelerated depreciation 122 associated closure rationalization certain facilities assets • contract termination charges 63 primarily related costs associated closure france market exit service model transformation smt facility • implementation costs 38 primarily related professional service fees • charge 37 primarily related accumulated foreign currency translation adjustments associated closure france market restructuring charges 2013 recorded total costs implement 526 related 400m cost savings initiative costs consisted following • net charge 453 primarily employeerelated costs including severance pension benefits • contract termination charges 46 primarily related costs associated exit republic ireland market • accelerated depreciation 34 associated closure rationalization certain facilities • net benefit 35 due accumulated foreign currency translation adjustments second quarter 2013 primarily associated exit vietnam market avon products inc notes consolidated financial statements continued • implementation costs 35 professional service fees • net benefit 7 due inventory adjustments first second quarters 2013 total costs implement 533 recorded selling general administrative expenses net benefit 7 recorded cost sales consolidated statements operations liability balance 400m cost savings initiative december 31 2015 follows noncash writeoffs associated employeerelated costs result settlements curtailments special termination benefits pension postretirement benefits plans due initiatives implemented following table presents restructuring charges incurred todate net adjustments 400m cost savings initiative charges net adjustments initiatives 400m cost savings initiative reportable business segment follows noted previously recorded total costs implement 1657 taxes 400m cost savings initiative amounts shown tables total charges incurred relate initiatives approved avon products inc notes consolidated financial statements continued recorded financial statements material additional charges expected incurred addition charges included tables incurred costs implement restructuring initiatives professional services accelerated depreciation restructuring initiatives 2015 2014 2013 recorded net charges 5 21 8 respectively selling general administrative expenses consolidated statements operations associated restructuring programs launched 2005 2009 restructuring initiative launched 2012 restructuring initiatives substantially complete liability balance associated restructuring initiatives primarily consists contract termination costs december 31 2015 material note 15 contingencies settlements fcpa investigations previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance fcpa related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 internal investigation compliance reviews focused reviewing certain expenses books records processes including limited travel entertainment gifts use thirdparty vendors consultants related due diligence joint ventures acquisitions payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters complete connection internal investigation compliance reviews certain personnel actions including termination employment certain senior members management taken connection internal investigation compliance reviews enhanced ethics compliance program including policies procedures fcpa compliancerelated training fcpa thirdparty due diligence program compliancerelated resources previously reported october 2008 voluntarily contacted us securities exchange commission sec us department justice doj advise agencies internal investigation cooperated investigations matters sec doj previously reported december 2014 united states district court southern district new york usdc approved dpa entered company doj related charges violations books records internal controls provisions fcpa addition avon products china co ltd subsidiary company operating china pleaded guilty conspiring violate books records provision fcpa sentenced usdc pay 68 fine sec also filed complaint company charging violations books records internal controls provisions fcpa consent approved judgment entered usdc january 2015 included 67 disgorgement prejudgment interest dpa abovementioned guilty plea consent resolved sec’s doj’s investigations company’s compliance fcpa related us laws china additional countries fine paid december 2014 payment sec made january 2015 previously accrued december 31 2014 dpa doj defer criminal prosecution company term three years company remains compliance dpa term charges company dismissed prejudice dpa company also represented implemented agreed continue implement compliance ethics program designed prevent detect violations fcpa applicable anticorruption laws throughout operations dpa consent among things company agreed compliance monitor july 2015 company engaged monitor approved doj sec approval doj sec monitor replaced company 18 months company agrees undertake selfreporting obligations remainder monitoring period monitoring period scheduled expire july 2018 assurance whether doj sec approve replacing monitor company’s selfreporting doj determines company knowingly violated dpa doj may commence prosecution extend term dpa including monitoring provisions described one year monitor assessing monitoring companys compliance terms dpa consent evaluating among things companys internal accounting controls recordkeeping financial reporting policies procedures monitor may recommend changes policies procedures must adopt unless unduly burdensome otherwise inadvisable case may propose alternatives doj sec may accept addition operating oversight monitor may result additional time attention matters members avon products inc notes consolidated financial statements continued management may divert time operation business assuming monitor replaced selfreporting period company’s selfreporting obligations may costly timeconsuming costs significant date currently cannot estimate costs likely incur connection ongoing compliance dpa consent including monitorship costs applicable selfreporting costs implementing changes policies procedures required monitor costs could significant litigation matters july august 2010 derivative actions filed state court certain present former officers andor directors company carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 november 22 2013 derivative action filed federal court certain present former officers andor directors company following federal courts dismissal additional action subsequently filed new york state court may 1 2015 sylvia pritika derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6514792015 claims asserted one actions include alleged breach fiduciary duty abuse control waste corporate assets unjust enrichment relating companys compliance fcpa including adequacy companys internal controls relief sought individual defendants one derivative actions include certain declaratory equitable relief restitution damages exemplary damages interest company nominal defendant relief sought company april 28 2015 action filed seek enforcement demands inspection certain company’s books records belle cohen v avon products inc filed new york supreme court new york county index 6514182015 parties reached agreements settle derivative books records actions terms settlement include certain corporate governance measures well releases claims company accrued approximately 4 respect matters company expects paid insurance settlement conditioned upon court approval proposed resolution derivative actions event court approve settlement derivative actions agreements otherwise terminated becoming final unable predict outcome matters july 6 2011 purported shareholders class action complaint city brockton retirement system v avon products inc et al 11civ4665 filed united states district court southern district new york company certain present former officers andor directors company september 29 2011 court appointed lbbw asset management investmentgesellschaft mbh sgss deutschland kapitalanlagegesellschaft mbh lead plaintiffs motley rice llc lead counsel lead plaintiffs filed amended complaint defendants moved dismiss amended complaint june 14 2012 september 29 2014 court granted defendants motion dismiss also granted plaintiffs leave amend complaint october 24 2014 plaintiffs filed second amended complaint behalf purported class consisting persons entities purchased otherwise acquired shares avons common stock july 31 2006 including october 26 2011 second amended complaint names defendants company two individuals asserts violations sections 10b 20a exchange act based allegedly false misleading statements omissions respect among things companys compliance fcpa including adequacy companys internal controls plaintiffs seek compensatory damages declaratory injunctive equitable relief defendants moved dismiss second amended complaint november 21 2014 parties reached agreement settlement class action terms settlement include releases members class claims company individual defendants payment 62 terms settlement approximately 60 settlement paid companys insurers approximately 2 paid company represented remaining deductible company’s applicable insurance policy escrow august 21 2015 court granted preliminary approval settlement december 1 2015 court held hearing consider final approval settlement expressed intent grant final approval however court yet entered final judgment approving settlement approved court otherwise terminated finalized company unable predict outcome matter furthermore event reasonably possible company may incur loss connection matter company unable reasonably estimate december 23 2014 march 12 2015 two purported class actions filed united states district court southern district new york poovathur v avon products inc et al 14cv10083 mccoy et al v avon products inc et al 15cv01828 asserting claims employee retirement income security act erisa company plans administrator benefits board investment committee certain individuals alleged served plan fiduciaries april 8 2015 court consolidated two actions recaptioned consolidated case 2014 avon products inc erisa litigation 14cv10083 may 8 2015 plaintiffs filed consolidated complaint avon products inc notes consolidated financial statements continued asserting claims alleged breach fiduciary duty failure monitor erisa behalf purported class participants beneficiaries plan invested andor held shares avon common stock fund july 31 2006 may 1 2014 december 14 2011 present plaintiffs seek inter alia certain monetary relief damages declaratory injunctive equitable relief july 9 2015 defendants moved dismiss consolidated complaint parties reached agreement settlement class action terms settlement include releases members class claims company individual defendants payment approximately 6 terms settlement approximately 5 settlement paid company’s insurer approximately 1 paid company represents remaining deductible company’s applicable insurance policy certain documentation relating settlement yet finalized settlement subject court approval settlement approved court otherwise terminated finalized company unable predict outcome matter furthermore event reasonably possible company may incur loss connection matter company unable reasonably estimate circumstances losses incurred connection adverse outcomes litigation matters described could material brazilian tax matters 2002 brazilian subsidiary received excise tax ipi assessment brazilian tax authorities alleged tax deficiencies years 19971998 december 2012 additional assessments received year 2008 respect excise tax ipi taxes charged gross receipts pis cofins second quarter 2014 pis cofins assessments officially closed favor avon brazil 2002 2012 ipi assessments assert establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2002 2012 ipi assessments unfounded matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 ipi assessment july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level 2012 ipi assessment totals approximately 258 including penalties accrued interest october 2010 2002 ipi assessment upheld first administrative level amount reduced approximately 23 approximately 55 including penalties accrued interest appealed decision second administrative level ruled favor avon march 2015 canceled 2002 ipi assessment 2002 ipi assessment remains subject appeal government event 2002 2012 ipi assessments upheld last administrative level may necessary us provide security pursue appeals depending circumstances may result charge earnings possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2009 closed statute however similar ipi assessments involving different periods 19982001 canceled officially closed favor second administrative level believe likelihood 2002 ipi assessment upheld appeal remote likelihood 2012 ipi assessment upheld reasonably possible stated believe 2002 2012 ipi assessments unfounded matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2015 expected material adverse effect consolidated financial position results operations cash flows note 16 goodwill intangible assets q4 2015 egypt impairment assessment 2015 yearend close process analysis egypt business indicated impairment carrying value business exceeded estimated fair value primarily result reducing longterm projections business 2015 egypt performed generally line revenue earnings projections assumed growth compared 2014 however result currency restrictions payment goods egypt lowered longterm revenue earnings projections business accordingly noncash tax impairment charge 69 tax recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge avon products inc notes consolidated financial statements continued q3 2015 liz earle divestiture result sale liz earle july 2015 disposed goodwill intangible assets net 1243 282 respectively intangible assets net included indefinitelived trademarks 236 licensing agreements 30 customer relationships 16 see note 3 discontinued operations divestitures additional information q3 2013 china impairment assessment first half 2013 china performed generally line revenue earnings projections assumed projections chinas revenue first half 2013 continued deteriorate versus prioryear period however beginning third quarter 2013 revenue decline significantly excess assumptions revenue third quarter 2013 declined 67 versus third quarter 2012 compared revenue decline 28 first half 2013 versus first half 2012 result third quarter 2013 became apparent would achieve 2013 longterm forecasted revenue earnings completed interim impairment assessment fair value goodwill related operations china chinas revenue performance third quarter 2013 approximately 67 less excluding impact foreign currency revenue projections revenue decline china third quarter 2013 resulted recognition operating loss expected operating profit projections third quarter 2013 significantly lowered longterm revenue earnings projections china included dcf model utilized interim impairment assessment based upon interim analysis determined goodwill related operations china impaired specifically results interim impairment analysis indicated estimated fair value china reporting unit less respective carrying amount result impairment testing recorded noncash tax impairment charge 384 tax reduce carrying amount goodwill remaining china reporting unit result impairment decline fair value china reporting unit primarily driven significant reduction forecasted longterm growth rates cash flows used estimate fair value fiscal year 2013 revenue china expected approximately 38 less revenue projections 47 less fiscal year 2012 results also performed interim impairment analysis china finitelived intangible assets indicated carrying value intangible assets exceeded estimated future undiscounted cash flows business resulted noncash tax impairment charge 37 28 tax reduce carrying amount assets intangible assets remaining china result impairment charge china historically generated positive cash flows expected generate positive cash flows 2013 number years thereafter need investment previously anticipated result expected cash flows business date impairment analysis level sufficient support carrying value business compared prior years projections china future expectations declined significantly 2013 impairment analysis reduction future expectations led impairment 421 recorded third quarter 2013 key assumptions egypt china key assumptions used measuring fair value egypt china impairment assessments included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt china forecasted revenue resulting cash flows five years ten years respectively using dcf model included terminal value end projection period believed fiveyear period tenyear period reasonable amount time order return cash flows egypt china respectively normalized sustainable levels avon products inc notes consolidated financial statements continued goodwill intangible assets aggregate amortization expense 44 year ended december 31 2013 aggregate amortization expense material years ended december 31 2015 2014 expected material future periods note 17 supplemental balance sheet information december 31 2015 2014 prepaid expenses included following avon products inc notes consolidated financial statements continued december 31 2015 2014 assets included following note 18 results operations quarter unaudited avon products inc notes consolidated financial statements continued 1 operating loss profit impacted following 2 addition items impacting operating loss profit loss income continuing operations taxes 2015 impacted aftertax benefit 34 benefit 42 expense net loss 8 income taxes recorded first quarter primarily reflecting writedown monetary assets liabilities due change simadi rate addition loss income continuing operations taxes 2015 impacted gain sale liz earle 449 tax 516 tax primarily recorded third quarter addition loss income continuing operations taxes 2015 impacted loss extinguishment debt 55 tax third quarter caused makewhole premium writeoff debt issuance costs discounts associated prepayment 2375 notes defined note 5 debt financing 25 tax second quarter 2015 associated writeoff issuance costs related previous 1 billion revolving credit facility addition loss income continuing operations taxes 2014 impacted aftertax loss 418 537 expense net benefit 119 income taxes recorded first quarter primarily reflecting writedown monetary assets liabilities due change sicad ii rate 3 loss income continuing operations net tax 2015 negatively impacted aggregate noncash income tax charge 6851 primarily due additional valuation allowances us deferred tax assets 6416 313 recorded third first quarters 2015 respectively partially offset partial release valuation allowance deferred tax assets 32 recorded second quarter 2015 additional valuation allowances third first quarters 2015 due continued strengthening us dollar currencies key markets impact benefits tax planning strategies associated realization deferred tax assets partial release valuation allowance second quarter 2015 due weakening us dollar currencies key markets addition noncash income tax charge due additional valuation allowances deferred tax assets outside us 154 primarily russia recorded third quarter 2015 largely due lower earnings significantly impacted foreign exchange losses working capital balances addition loss income continuing operations taxes 2015 impacted income tax benefit 187 recorded fourth quarter 2015 recognized result implementation foreign tax planning strategies addition loss income continuing operations net tax 2014 negatively impacted noncash income tax charge 4049 primarily due valuation allowance 3835 reduce deferred tax assets amount likely realized recorded fourth quarter 2014 addition loss income continuing operations net tax 2014 favorably impacted 185 net tax benefit recorded fourth quarter 2014 related finalization fcpa settlements 4 sum per share amounts quarters necessarily equal year computations made independently avon products inc notes consolidated financial statements continued see note 15 restructuring initiatives results operations consolidated within mda pages 37 45 segment review latin america within mda pages 46 50 note 1 description business summary significant accounting policies note 11 employee benefit plans note 16 goodwill intangible assets note 15 contingencies note 3 discontinued operations divestitures note 7 income taxes information items schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2015 2014 2013 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance primarily deferred tax assets likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2017 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 22nd day february 2018 avon products inc laura barbrook laura barbrook vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion financial statements internal control financial reporting audited accompanying consolidated balance sheet avon products inc subsidiaries december 31 2017 related consolidated statements operations comprehensive income changes shareholders’ equity cash flows year ended december 31 2017 including related notes financial statement schedule listed accompanying index appearing item 15a2 collectively referred “consolidated financial statements” also audited companys internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2017 results operations cash flows year ended december 31 2017 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued coso basis opinion companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting responsibility express opinion company’s consolidated financial statements companys internal control financial reporting based audit public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audit consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audit also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp united kingdom served company’s auditor since 2017 report independent registered public accounting firm board directors shareholders avon products inc opinion consolidated balance sheet december 31 2016 related consolidated statements operations comprehensive income shareholders’ equity cash flows two years period ended december 31 2016 present fairly material respects financial position avon products inc subsidiaries december 31 2016 results operations cash flows two years period ended december 31 2016 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 15a2 two years period ended december 31 2016 presents fairly material respects information set forth read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits financial statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion avon products inc consolidated statements operations accompanying notes integral part statements avon products inc consolidated statements comprehensive income loss accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows 1 includes cash equivalents discontinued operations 22 241 beginning year 2016 2015 respectively 2 includes cash equivalents discontinued operations 22 end year 2015 accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity deficit accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted primarily one channel direct selling reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives december 2015 entered definitive agreements affiliates cerberus capital management lp cerberus included 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business including approximately 100 cash subject certain adjustments avon new avon llc new avon privatelyheld company majorityowned managed affiliate cerberus transactions closed march 2016 avon retained approximately 20 ownership new avon north american business represented companys operations united states us canada puerto rico previously reportable segment presented discontinued operations periods refer note 3 discontinued operations divestitures additional information regarding investment affiliate cerberus separation north america business result transaction consolidated revenue derived operations subsidiaries outside us principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rates actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes tax valuation allowances sharebased compensation loss contingencies evaluation goodwill property plant equipment capitalized software potential impairment foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive income loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency december 31 2017 none consolidated avon subsidiaries considered operating highly inflationary economy highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements operations nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities avon products inc notes consolidated financial statements continued venezuela currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products 2010 began accounting operations venezuela accounting guidance associated highly inflationary economies venezuelas restrictive foreign exchange control regulations venezuelan operations increasingly limited access us dollars resulted lack exchangeability venezuelan bolivar us dollar restricted venezuelan operations ability pay dividends settle intercompany obligations severe currency controls imposed venezuelan government significantly limited ability realize benefits earnings venezuelan operations access resulting liquidity provided earnings expected lack exchangeability would continue foreseeable future result concluded effective march 31 2016 condition otherthantemporary longer met accounting criteria control order continue consolidating venezuelan operations result since march 31 2016 accounted venezuelan operations using cost method accounting result change cost method accounting first quarter 2016 recorded loss 1205 expense net loss comprised 392 net assets venezuelan business 813 accumulated foreign currency translation adjustments within aoci shareholders deficit associated foreign currency changes venezuela accounted highly inflationary economy net assets venezuelan business comprised inventories 237 property plant equipment net 150 assets 114 accounts receivable 46 cash 45 accounts payable accrued liabilities 200 consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements include income relating venezuelan operations extent receive cash dividends royalties remitted avon venezuela february 2015 venezuelan government announced creation new foreign exchange system referred simadi exchange simadi represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize simadi exchange rate remeasure venezuelan operations result change simadi rate caused recognition devaluation approximately 70 compared exchange rate used previously recorded aftertax benefit 34 benefit 42 expense net loss 8 income taxes first quarter 2015 primarily reflecting writedown net monetary assets addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change simadi rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis caused disproportionate expense assets consumed operations negatively impacting operating profit net income 185 2015 also result change simadi rate determined adjustment 114 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2015 addition february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge 903 selling general administrative expenses needed reflect writedown longlived assets estimated fair value 157 recorded first quarter 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also record provision estimated sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances avon products inc notes consolidated financial statements continued revenue primarily comprised shipping handling order processing fees billed representatives well revenue sale products new avon since separation companys north america business new avon march 1 2016 ongoing royalties licensing name products cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost net realizable value cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision prepaid brochure costs prepare brochures initially deferred prepaid expenses expensed selling general administrative expenses campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses recorded reduction selling general administrative expenses campaign length campaign length typically three four weeks brochure costs associated fees presented prepaid expenses 266 december 31 2017 272 december 31 2016 additionally paper stock purchased advance creating brochures prepaid expenses include paper supply 56 december 31 2017 43 december 31 2016 brochure costs expensed selling general administrative expenses amounted 2440 2017 2447 2016 2566 2015 fees charged representatives recorded reduction selling general administrative expenses amounted 1394 2017 1386 2016 1419 2015 property plant equipment capitalized software property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project generally exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 852 december 31 2017 839 december 31 2016 amortization expense associated capitalized software 295 305 310 years ended december 31 2017 2016 2015 respectively evaluate property plant equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate see information avon venezuelas longlived assets goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions avon products inc notes consolidated financial statements continued industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors see note 19 goodwill information regarding goodwill impairment egypt 2015 financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements operations realized gains losses derivative reported consolidated statements cash flows consistent nature underlying hedged item derivatives designated hedges assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements operations addition determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements operations deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods avon products inc notes consolidated financial statements continued temporary differences become deductible net operating loss tax credit carryforwards expire see note 9 income taxes information accordance guidance issued financial accounting standards board fasb provisional basis choosing treat us income tax consequences global intangible lowtaxed income gilti period cost future years result december 31 2017 deferred income taxes provided company continue monitor election make final determination prospective permanent temporary treatment gilti oneyear measurement period ending december 22 2018 allowed accordance securities exchange commission staff accounting bulletin 118 income tax accounting implications tax cuts jobs act “sab 118” uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements operations selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 5308 2017 4893 2016 5388 2015 advertising costs excluding brochure preparation costs expensed incurred amounted 1184 2017 1089 2016 1280 2015 research development research development costs expensed incurred amounted 529 2017 521 2016 619 2015 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value date grant applicable use montecarlo simulation calculate fair value performance restricted stock units market conditions fair value premiumpriced stock options account forfeitures sharebased payments occur restructuring expense record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan avon products inc notes consolidated financial statements continued assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable outofperiod items 2015 recorded outofperiod adjustments decreased income continuing operations approximately 8 tax approximately 14 tax evaluated total outofperiod adjustments impacting 2015 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods earnings loss per share compute earnings loss per share eps using twoclass method earnings loss allocation formula determines earnings loss per share common stock earnings loss allocated convertible preferred stock participating securities appropriate earnings allocated convertible preferred stock larger 1 preferred dividends accrued year 2 percentage earnings continuing operations allocable preferred stock converted common stock participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents extent dividends declared paid common stock compute basic eps dividing net income loss allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows amounts table may necessarily sum due rounding years ended december 31 2017 include stock options purchase 169 million shares avon common stock calculation diluted eps exercise prices options greater average market price therefore inclusion would antidilutive years ended december 31 2016 2015 include stock options purchase 142 million shares 127 million shares avon common stock respectively calculations diluted eps loss continuing operations net tax inclusion shares would decrease net loss per share since inclusion shares would antidilutive excluded calculation years ended december 31 2017 2016 dilutive assume series c convertible preferred stock converted common stock therefore weightedaverage shares outstanding adjusted asif converted series c convertible preferred stock effect would antidilutive inclusion series c convertible preferred stock would increase net earnings per share year ended december 31 2017 decrease net loss per share year ended december 31 2016 asif converted series c convertible preferred stock dilutive approximately 871 million additional shares would included diluted weighted average number shares outstanding years ended december 31 2017 2016 shares series c convertible preferred stock outstanding year ended december 31 2015 see note 17 series c convertible preferred stock avon products inc notes consolidated financial statements continued note 2 new accounting standards new accounting standards implemented march 2016 fasb issued accounting standards update asu 201609 compensation stock compensation intended simplify accounting sharebased payment transactions new guidance changes several aspects accounting sharebased payment transactions including accounting income taxes forfeitures employertax withholding requirements asu 201609 also clarifies statements cash flows presentation certain components sharebased payment awards adopted new accounting guidance first quarter 2017 material impact consolidated financial statements accounting standards implemented asu 201409 revenue contracts customers may 2014 fasb issued asu 201409 revenue contracts customers new topic accounting standards codification topic asc 606 core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services new accounting guidance may adopted either retrospectively cumulativeeffect adjustment date adoption adopting new accounting guidance cumulativeeffect adjustment equity january 1 2018 based evaluation expect • consider sales incentive programs separate deliverable allocate portion sales transaction price deliverable thus defer portion sales transaction price incentive prize redeemed • consider prospective discounts achieved based sales targets separate deliverable allocate portion sales transaction prices deliverable thus deferring portion sales transaction price future discounts realized • adjust manner present allowance sales returns consolidated balance sheets reflect refund liability returns asset • reflect fees paid representatives company items brochures sales aids late payments revenue rather reduction selling general administrative expenses sga represent separate performance obligations • reflect certain costs associated fees paid representative cost sales rather sga • recharacterize certain costs related sales incentives brochures sales aids consolidated balance sheets prepaid expenses inventories estimate cumulativeeffect adjustment upon adoption new revenue recognition standard january 1 2018 • reduction equity approximately 50 60 taxes 35 45 tax corresponding impact deferred taxes approximately 10 20 • reduction prepaid expenses approximately 50 60 • increase inventories approximately 35 45 • increase accrued liabilities approximately 35 45 due net impact establishment contract liability deferred revenue satisfaction performance obligation yet complete partially offset reduction sales incentive accrual cumulativeeffect adjustment impacting consolidated balance sheets primarily driven sales incentives brochures changes resulting new revenue recognition standard estimated material result adopting new accounting guidance estimate adopted new standard january 1 2017 impact fullyear 2017 consolidated statement operations would •an increase total revenue approximately 5 •a decrease gross margin approximately 300 450 basis points •a decrease operating margin approximately 10 30 basis points impacts associated reclassifications items consolidated statements operations impact operating profit impacts reflect impact due change timing recognition revenue avon products inc notes consolidated financial statements continued associated costs would deferred sales incentive programs prospective discounts fulfilled believe material estimated 2017 impacts discussed adopted new standard january 1 2017 believe cumulativeeffect adjustment time would reasonably approximate cumulativeeffect adjustment calculated january 1 2018 noted addition upon adoption expect change timing recognition revenue associated costs significant impact fullyear consolidated statements operations however impact may vary depending types incentive programs volume incentives offered timing programs asu 201707 compensation retirement benefits march 2017 fasb issued asu 201707 compensation retirement benefits new guidance requires entities 1 disaggregate service cost component components net periodic benefit costs present current employee compensation costs consolidated statements operations 2 present components net periodic benefit costs operating profit expense net intend adopt new accounting guidance effective january 1 2018 new accounting guidance applied retrospectively increase operating profit 79 21 years ended december 31 2017 2016 respectively impact net income loss asu 201602 leases february 2016 fasb issued asu 201602 leases requires assets liabilities arising leases recognized consolidated balance sheets intend adopt new accounting guidance effective january 1 2019 still evaluating full effect adopting new accounting guidance consolidated financial statements believe significantly increase assets liabilities consolidated balance sheets note 3 discontinued operations divestitures discontinued operations north america december 17 2015 company entered definitive agreements affiliates controlled cerberus agreements include investment agreement providing 4350 investment cleveland apple investor lp “cerberus investor” affiliate cerberus company purchase perpetual convertible preferred stock see note 17 series c convertible preferred stock separation investment agreement providing separation companys north america business represented companys operations us canada puerto rico company new avon privatelyheld company majorityowned managed cerberus na investor llc “cerberus na” affiliate cerberus transactions closed march 1 2016 proceeds sale perpetual convertible preferred stock used fund 100 cash contribution new avon approximately 250 used reduce debt remainder used restructuring reinvestment business company considered transactions affiliates cerberus help drive enhanced focus avons international markets revitalize north america business deliver longterm value shareholders 2016 cerberus na contributed approximately 170 cash new avon exchange 801 ownership interests company contributed assets primarily related north america business including approximately 100 cash subject certain adjustments ii certain assumed liabilities primarily pension postretirement liabilities north america business iii employees north america business new avon exchange 199 ownership interest new avon company received approximately 6 cash new avon part customary working capital adjustment north america business previously reportable segment presented discontinued operations periods presented separation represented significant strategic shift determined major effect operations financial results fourth quarter 2015 company recorded estimated loss sale discontinued operations 3400 tax 3400 tax carrying value exceeded estimated fair value less costs sell 2016 company recognized additional loss sale 156 tax 54 tax respectively cumulative loss sale 3556 tax 3454 tax represents net assets contributed new avon including certain pension postretirement benefit plan liabilities amounts aoci associated north america business primarily unrecognized losses associated us defined benefit pension plan costs sell compared implied value ownership interests new avon closing 425 2016 new avon entered perpetual irrevocable royaltyfree licensing agreement company use avon brand certain intellectual property also 2016 avon new avon also entered transition services agreement covers among things information technology financial services human resources well avon products inc notes consolidated financial statements continued commercial agreements including research development product supply sublease office space avon new avon see note 5 related party transactions major classes financial statement components comprising loss discontinued operations net tax north america shown amounts recorded discontinued operations year ended december 31 2017 divestitures liz earle july 9 2015 company sold liz earle beauty co limited “liz earle” approximately 215 less expenses approximately 5 liz earle previously reported within europe middle east africa segment 2015 recorded gain sale 449 tax reported separately consolidated statements operations 516 tax representing difference proceeds including expected working capital settlement carrying value liz earle business date sale proceeds sale liz earle used fund portion company’s redemption 250 principal amount 2375 notes due march 15 2016 occurred august 10 2015 see note 7 debt financing additional information note 4 investment new avon connection separation companys north america business discussed note 3 discontinued operations divestitures closed march 1 2016 company retained 199 ownership interest new avon company accounted ownership interest new avon using equity method accounting resulted company recognizing proportionate share new avons income loss comprehensive income loss recorded investment balance new avon december 31 2017 zero years ended december 31 2017 2016 companys proportionate share losses new avon 202 119 115 119 respectively amounts recorded within expense net addition third quarter 2017 company received cash distribution 220 new avon reduced recorded investment balance new avon third quarter 2017 recorded 17 companys proportionate share losses new avon reduced recorded investment balance new avon zero result record proportionate share new avons loss fourth quarter 2017 new avon experiences future losses recorded investment balance zero would record proportionate share loss addition companys proportionate share postseparation comprehensive income new avon benefits 1 22 years ended december 31 2017 2016 respectively recorded within comprehensive income loss company also recorded additional loss 5 within expense net benefit 11 within comprehensive income loss year ended december 31 2017 primarily associated purchase accounting adjustments reported new avon products inc notes consolidated financial statements continued note 5 related party transactions following tables present related party transactions new avon affiliates cerberus related party transactions new avon majority owned managed cerberus na see note 3 discontinued operations note 4 investment new avon details 1 company supplies product new avon part manufacturing supply agreement company recorded revenue 325 292 within revenue gross profit 19 23 associated agreement years ended december 31 2017 2016 respectively 2 new avon also supplies product company part manufacturing supply agreement noted company purchased 32 56 new avon associated agreement years ended december 31 2017 2016 respectively recorded 38 46 associated purchases within cost sales years ended december 31 2017 2016 respectively 3 company also entered transition services agreement provide certain services new avon well intellectual property ip license agreement technical support innovation subleases office space addition new avon performed certain services company similar transition services agreement expired third quarter 2017 company recorded net 322 353 reduction selling general administrative expenses associated agreements years ended december 31 2017 2016 respectively generally represents recovery related costs 4 company also entered agreements affiliate cerberus provide secondment cerberus affiliate personnel companys project management team responsible assisting execution transformation plan transformation plan announced january 2016 company recorded 26 27 selling general administrative expenses associated agreements years ended december 31 2017 2016 respectively see note 16 restructuring initiatives additional information related transformation plan 5 inventories relate purchases new avon associated manufacturing supply agreement yet sold classified within inventories consolidated balance sheets 6 receivables due new avon relate agreements transition services ip license research development subleases office space well manufacturing supply agreement classified within prepaid expenses consolidated balance sheets 7 payables due new avon relate manufacturing supply agreement classified within accrued liabilities consolidated balance sheets avon products inc notes consolidated financial statements continued 8 payables due affiliate cerberus relate agreement project management team classified within accrued liabilities consolidated balance sheets addition company also issued standby letters credit lessors certain equipment lease transferred new avon connection separation companys north america business initial liability estimated value standby letters credit 21 included additional loss sale north america business recognized loss discontinued operations net tax consolidated statements operations year ended december 31 2016 december 31 2017 2016 company liability 14 16 respectively estimated value standby letters credit reduction estimated liability 2 5 recognized expense net consolidated statements operations years ended december 31 2017 2016 respectively see note 17 series c convertible preferred stock discussion preferred shares issued cerberus investor note 6 inventories december 31 consisted following note 7 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 230 december 31 2017 110 december 31 2016 debt included obligations capital leases 40 december 31 2017 76 december 31 2016 primarily relate leases automobiles equipment public notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes march 2008 issued 3500 principal amount 650 notes due march 1 2019 650 notes interest 2013 notes payable semiannually march 15 september 15 year interest 650 notes payable semiannually march 1 september 1 year avon products inc notes consolidated financial statements continued august 2015 prepaid entire principal amount 2375 notes plus accrued interest 31 makewhole premium 50 connection prepayment 2375 notes incurred loss extinguishment debt 55 tax third quarter 2015 consisting 50 makewhole premium 2375 notes writeoff 5 debt issuance costs discounts related initial issuance 2375 notes indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp moodys since issuance 2013 notes interest rates notes increased maximum allowable increase august 2016 completed cash tender offers resulted reduction principal 1086 575 notes due march 1 2018 575 notes 738 420 notes due july 15 2018 420 notes 681 650 notes 501 460 notes connection cash tender offers incurred gain extinguishment debt 39 tax third quarter 2016 consisting deferred gain 128 associated march 2012 january 2013 interestrate swap agreement terminations see note 10 financial instruments risk management partially offset 58 early tender premium paid cash tender offers 12 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 10 financial instruments risk management 10 deal costs writeoff 9 debt issuance costs discounts related initial issuances notes subject cash tender offers october 2016 repurchased 440 650 notes 440 420 notes 400 460 notes 352 575 notes aggregate repurchase price equal principal amount notes plus premium 62 accrued interest 11 connection repurchases debt incurred loss extinguishment debt 10 tax fourth quarter 2016 consisting 62 premium paid repurchases 5 writeoff debt issuance costs discounts related initial issuance notes repurchased 4 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 10 financial instruments risk management partially offset deferred gain approximately 61 associated march 2012 january 2013 interestrate swap agreement terminations see note 10 financial instruments risk management november 30 2016 prepaid remaining principal amount 420 notes 575 notes prepayment price equal remaining principal amount 1322 420 notes 1062 575 notes plus makewhole premium 121 series notes accrued interest 36 series notes connection prepayment 420 notes 575 notes incurred loss extinguishment debt 29 tax fourth quarter 2016 consisting 121 makewhole premium 10 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 10 financial instruments risk management writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset deferred gain 105 associated january 2013 interestrate swap agreement termination see note 10 financial instruments risk management december 2016 repurchased 111 500 notes 62 695 notes aggregate repurchase price equal principal amount notes less discount received 13 plus accrued interest 3 connection repurchase debt incurred gain extinguishment debt 11 tax fourth quarter 2016 consisting 13 discount received repurchases partially offset 2 writeoff debt issuance costs discounts related initial issuance notes repurchased december 31 2017 2016 carrying values public notes comprised following indentures governing outstanding notes described contain certain customary covenants customary events default crossdefault provisions would required make offer repurchase outstanding notes avon products inc notes consolidated financial statements continued described price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon time outstanding notes rated investment grade senior secured notes august 2016 avon international operations inc “aio” whollyowned domestic subsidiary company issued private placement exempt registration securities act 1933 amended 5000 aggregate principal amount 7875 senior secured notes mature august 15 2022 senior secured notes interest senior secured notes payable semiannually february 15 august 15 year carrying value senior secured notes represented 5000 principal amount net unamortized debt issuance costs 74 90 december 31 2017 2016 respectively represents total debt aio december 31 2017 2016 obligations aio senior secured notes unconditionally guaranteed current future whollyowned domestic restricted subsidiary company guarantor 2015 facility fully guaranteed unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions indenture governing senior secured notes contains certain customary covenants restrictions well customary events default crossdefault provisions indenture also contains covenant requiring aio restricted subsidiaries end year least certain percentage total assets api restricted subsidiaries subject certain qualifications would required make offer repurchase senior secured notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon maturities longterm debt annual maturities longterm debt includes notes capital leases outstanding december 31 2017 follows financing revolving credit facility june 2015 aio entered fiveyear 4000 senior secured revolving credit facility “2015 facility” borrowings 2015 facility bear interest option rate per annum equal libor plus 250 basis points floating base rate plus 150 basis points case subject adjustment based upon leveragebased pricing grid december 2017 aio entered amendment 2015 facility among things modified financial covenants interest coverage total leverage ratios provide company additional flexibility 2015 facility may used general corporate purposes december 31 2017 amounts outstanding 2015 facility 2015 facility replaced companys previous 1 billion unsecured revolving credit facility 2013 facility second quarter 2015 25 tax recorded writeoff issuance costs related 2013 facility obligations aio 2015 facility unconditionally guaranteed material domestic restricted subsidiary company aio borrower case subject certain exceptions ii fully guaranteed unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions 2015 facility terminate june 2020 provided however shall terminate 91st day prior maturity 650 notes defined 460 notes defined 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2015 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios december 31 2017 compliance interest coverage total leverage ratios 2015 facility amended amount facility available drawn reduced standby letters credit granted aio december 31 2017 approximately 38 december 31 2017 based applicable interest rates entire amount remaining 2015 facility approximately 362 could drawn without violating covenant avon products inc notes consolidated financial statements continued letters credit december 31 2017 december 31 2016 also letters credit outstanding totaling 377 459 respectively balances december 31 2017 2016 primarily relate letters credit issued lessors certain equipment lease transferred new avon connection separation companys north america business balances december 31 2017 december 31 2016 also include letters credit guarantee various insurance activities longterm credit ratings longterm credit ratings moody’s ratings stable outlook b1 corporate family debt b3 senior unsecured debt ba1 senior secured notes sp ratings stable outlook b corporate family debt senior unsecured debt bb senior secured notes fitch rating negative outlook b investment grade believe longterm credit ratings material impact nearterm liquidity however rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities likely result increase financing costs less favorable covenants financial terms financing arrangements note 8 accumulated comprehensive income loss tables present changes aoci component reclassifications aoci 2017 2016 1 gross amount reclassified pension postretirement expense within selling general administrative expenses related taxes reclassified income taxes 2 gross amount reclassified interest expense related taxes reclassified income taxes avon products inc notes consolidated financial statements continued foreign exchange net gain 163 2017 net losses 237 219 2016 2015 respectively resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income loss note 9 income taxes loss income continuing operations taxes years ended december 31 follows provision income taxes years ended december 31 follows effective tax rate years ended december 31 follows result enactment tax cuts jobs act us company recognized net income tax benefit 299 associated following items reflected “us tax reform” line 335 valuation allowance release associated minimum tax credits utilized andor refunded future 36 uncertain tax position potential withholding taxes repatriation unremitted earnings addition impact financial position results associated following writeoff deferred tax assets due rate change 35 21 associated valuation allowance 1614 reversal deferred tax liabilities recording valuation allowance 667 associated unremitted earnings establishment deferred tax assets miscellaneous withholding tax items associated valuation allowance 55 onetime tax offshore earnings associated utilization foreign tax credits 29 avon products inc notes consolidated financial statements continued included net change valuation allowance released valuation allowances 255 associated number markets europe middle east africa result business model change related move companys headquarters us uk fourth quarter 2015 company recognized benefit 187 associated initial stages implementation foreign tax planning strategies reflected within reorganizations line completed implementation tax planning strategies recognized additional benefit 293 first quarter 2016 deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows december 31 2017 recognized deferred tax assets 9810 relating tax credit carryforwards us foreign tax credits minimum tax credits research experimentation credits tax credits valuation allowance 9467 provided tax credit carryforwards consist us foreign tax credits 9126 subject expiration 2018 2027 us minimum tax credits 359 subject expiration us research experimentation credits 196 subject expiration 2027 2037 tax credits 129 subject expiration 2018 2032 december 31 2017 recognized deferred tax assets 20221 relating foreign state tax loss carryforwards valuation allowance 19615 provided deferred tax assets relating tax loss carryforwards consist 19222 foreign tax loss carryforwards valuation allowance 18616 provided 999 state tax loss carryforwards valuation allowance 999 provided foreign tax loss carryforwards december 31 2017 74484 70604 subject expiration 3880 subject expiration 2018 2034 state tax loss carryforwards december 31 2017 taking consideration estimated effects preapportionment states 15124 subject expiration 2018 2037 december 31 2017 result us liquidity profile continue assert foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability account 2017 undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings decrease 644 resulting deferred tax liability balance 226 related incremental tax cost approximately 15 billion undistributed foreign earnings december 31 2017 644 decrease primarily result enactment tax cuts jobs act us december 31 2017 valuation allowance primarily represents amounts substantially us deferred tax assets certain foreign tax loss carryforwards certain foreign deferred tax assets recognition deferred tax assets based evaluation current estimated future profitability operations reversal deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards tax planning strategies also considered evaluated avon products inc notes consolidated financial statements continued support realization deferred tax assets sources income existed along sufficient positive evidence indicated likely sources income could relied upon deferred tax assets reduced valuation allowance following valuation allowance recorded 2014 reduce us deferred tax assets amount likely realized 2015 company recorded additional valuation allowance remaining us deferred tax assets 6697 increase valuation allowance resulted management’s determination longer likely realize tax benefits expected obtained tax planning strategies associated anticipated accelerated receipt us foreign source income us dollar strengthened currencies key markets 2015 benefits associated company’s tax planning strategies longer sufficient company continue conclude tax planning strategies prudent absence alternative prudent tax planning strategies sources future taxable income determined full valuation allowance recorded although company continues expect generate taxable income intercompany transactions consequently tax liability us company expected offset current future tax liability foreign tax credits result expected level future taxable income tax liability adequate realize benefit previously recorded deferred tax assets although company may able recognize financial statement benefit associated deferred tax assets company continue manage plan utilization deferred tax assets avoid expiration deferred tax assets limited lives uncertain tax positions december 31 2017 486 total gross unrecognized tax benefits approximately 460 would favorably impact provision income taxes recognized reconciliation beginning ending amount unrecognized tax benefits follows accrue interest penalties related unrecognized tax benefits provision income taxes record expenses interest penalties net taxes year ended december 31 2017 recorded expenses 25 28 interest penalties net taxes years ended december 31 2016 2015 respectively december 31 2017 december 31 2016 99 93 respectively recorded interest penalties net tax benefit unrecognized tax benefits including interest penalties classified within longterm income taxes consolidated balance sheets avon products inc notes consolidated financial statements continued file income tax returns us foreign jurisdictions december 31 2017 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 5 8 within next twelve months due closure tax years expiration statute limitations audit closures settlements given timing enactment tax cuts jobs act december 22 2017 sec issued guidance sab 118 directing taxpayers consider impact new legislation “provisional” necessary information available prepared analyzed including computations reasonable detail complete accounting effects resulting change law except impact remeasuring deferred tax assets 21 rate accounted impacts new legislation including limited effects existing deferred taxes valuation allowances onetime tax offshore earnings potential changes impact indefinite reinvestment assertion measurement deferred taxes foreign unremitted earnings provisional basis financial statements amounts reported represent best estimate given data available based interpretation us legislation us treasury expected issue guidance application certain provisions may impact calculations still accumulating data finalize underlying calculations finalize provisional amounts taking account clarifying interpretations expected treasury december 22 2018 accordance sab 118 note 10 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger derivatives recognized consolidated balance sheets fair values derivative instruments outstanding immaterial december 31 2017 2016 interest rate risk portion borrowings subject interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2017 2016 interestrate swap agreements approximately 1 debt portfolio december 31 2017 2016 respectively exposed floating interest rates january 2013 terminated eight interestrate swap agreements previously designated fair value hedges notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 904 amortized reduction interest expense remaining term underlying debt obligations year ended december 31 2016 net impact gain amortization 354 including 236 related extinguishment debt see note 7 debt financing december 31 2017 unamortized deferred gain associated january 2013 interestrate swap termination underlying debt obligations paid avon products inc notes consolidated financial statements continued march 2012 terminated two interestrate swap agreements previously designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 years ended december 31 2017 2016 net impact gain amortization 49 119 respectively including 58 related extinguishment debt year ended december 31 2016 see note 7 debt financing december 31 2017 unamortized deferred gain associated march 2012 interestrate swap termination 60 classified within longterm debt consolidated balance sheets 2007 entered treasury lock agreements 2007 locks notional amounts totaling 5000 expired july 31 2008 2007 locks designated cash flow hedges anticipated interest payments 2500 principal amount notes due 2013 2500 principal amount 2018 notes losses 2007 locks 380 recorded aoci 192 losses amortized interest expense consolidated statements operations five years 188 amortized ten years year ended december 31 2016 accelerated recognition 26 losses 2007 locks related extinguishment debt see note 7 debt financing result unamortized deferred losses relating treasury lock agreements aoci year ended december 31 2016 treasury lock agreements impacted aoci follows 1 amounts exclude taxes 27 beginning year 2016 foreign currency risk may use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2017 outstanding foreign exchange forward contracts notional amounts totaling approximately 39 various currencies may use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans years ended december 31 2017 2016 recorded gain 30 loss 135 respectively expense net consolidated statements operations related undesignated foreign exchange forward contracts also years ended december 31 2017 2016 recorded loss 52 gain 104 respectively related associated intercompany loans caused changes foreign currency exchange rates credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 2 december 31 2017 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates note 11 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions avon products inc notes consolidated financial statements continued assets liabilities recorded fair value recurring basis defined benefit pension postretirement plan assets liabilities measured fair value recurring basis comprised foreign exchange forward contracts see note 10 financial instruments risk management availableforsale securities immaterial december 31 2017 2016 see note 13 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 13 employee benefit plans fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments accounts receivable debt maturing within one year accounts payable longterm debt foreign exchange forward contracts carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt presented net debt issuance costs includes related discount premium unamortized deferred gains terminated interestrate swap agreements applicable methods assumptions used estimate fair value follows • availableforsale securities fair values investments quoted market prices issues listed securities exchanges • debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices • foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 12 sharebased compensation plans avon products inc 2013 stock incentive plan amended restated “2013 plan” avon products inc 2016 omnibus incentive plan 2016 plan shareholderapproved plans provide several types sharebased incentive compensation awards including stock options restricted stock restricted stock units performance restricted stock units following shareholder approval 2016 plan may 2016 awards made 2013 plan 2013 plan maximum number shares may awarded 55000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share subject award ii case grant award payable shares option sar 313 multiplied share subject award 2016 plan maximum number shares may awarded 48000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 24 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options 2016 plan restricted stock units performance restricted stock units 2013 plan 2016 plan also outstanding stock options prior shareholderapproved plans stock option awards granted exercise price generally equal closing market price stock date grant stock options generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions avon products inc notes consolidated financial statements continued years ended december 31 compensation cost stock options performance restricted stock units restricted stock units including funded treasury shares 2017 2016 2015 recorded selling general administrative expenses consolidated statements operations stock options 2017 2016 granted premiumpriced stock options exercise price equal 25 premium 30 premium respectively closing market price stock price date grant premiumpriced stock options vest threeyear graded vesting schedule fair value premiumpriced stock option estimated date grant using montecarlo simulation estimating fair value option used following weightedaverage assumptions options granted years ended december 31 2017 2016 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based vesting terms respective option contractual life 10 years 3 expected avon volatility based daily historical volatility stock price period similar expected life option weightedaverage grantdate fair value per share options granted 154 137 2017 2016 respectively stock options granted 2015 summary stock options december 31 2017 changes 2017 follows recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates december 31 2017 48 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 20 years stock options exercised 2017 2016 2015 restricted stock restricted stock units performance restricted stock units 2017 2016 granted performance restricted stock units would vest settle three years based relative total shareholder return common stock companies included sp 400 index date grant three year performance period 2017 prsus 2016 prsus respectively grant date fair value per share awards already reflects estimated probability achieving market condition therefore record expense ratably performance period avon products inc notes consolidated financial statements continued 2015 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions two years 2015 prsus addition performance conditions achieved target performance restricted stock units subject market condition number performance restricted stock units vest limited target amount company’s absolute total shareholder return threeyear service period negative adjusted compensation cost recognized todate reflect performance reflects estimated payout target absolute total shareholder return market condition impact number performance restricted stock units vest fair value 2017 prsus 2016 prsus 2015 prsus estimated date grant using montecarlo simulation estimates fair value based companys share price activity expected term award riskfree interest rate expected dividends expected volatility stock company estimating fair value 2017 prsus 2016 prsus 2015 prsus used following weightedaverage assumptions 1 riskfree rate based upon rate zero coupon us treasury bill periods within three year performance period effect time grant 2 expected avon volatility based weekly historical volatility stock price period similar three year performance period 2017 prsus 2016 prsus three year service period 2015 prsus 3 expected average volatility based weekly historical volatility stock prices member companies included sp 400 index date grant period similar three year performance period 2017 prsus 2016 prsus weightedaverage grantdate fair value per share 2017 prsus 2016 prsus 2015 prsus 452 442 749 respectively summary restricted stock restricted stock units december 31 2017 changes 2017 follows summary performance restricted stock units december 31 2017 changes 2017 follows 1 based initial target payout total fair value restricted stock units performance restricted stock units vested 2017 152 based upon market prices vesting dates december 31 2017 140 unrecognized compensation cost related restricted stock restricted stock units performance restricted stock units compensation arrangements outstanding cost expected recognized weightedaverage period 18 years later 2015 granted 1123183 performance restricted stock units vested settled 2016 upon satisfaction certain performance conditions 2015 terms award result fair value measurement avon products inc notes consolidated financial statements continued date 2016 2015 recognized compensation cost 20 16 respectively performance restricted stock units award vested settled 2016 additional compensation cost recognized 2017 restricted stock units performance restricted stock units funded treasury shares march 2015 april 2012 granted 489596 200000 restricted stock units respectively funded treasury shares outside shareholderapproved plans reliance upon new york stock exchange rules restricted stock units granted march 2015 weightedaverage grantdate fair value 900 vest settle ratably three years restricted stock units granted april 2012 weightedaverage grantdate fair value 2169 vested settled ratably five years 2017 366397 restricted stock units vested restricted stock units outstanding december 31 2017 2016 2015 recognized compensation cost 8 17 27 respectively restricted stock units december 31 2017 unrecognized compensation cost related restricted stock units awards vested march 2015 granted 121951 performance restricted stock units funded treasury shares outside 2013 plan reliance upon new york stock exchange rules performance restricted stock units weightedaverage grantdate fair value 749 terms exist awards 2015 prsus discussed 101625 performance restricted stock units outstanding december 31 2017 2016 2015 recognized compensation cost 1 2 respectively performance restricted stock units december 31 2017 immaterial amount unrecognized compensation cost related performance restricted stock units note 13 employee benefit plans defined contribution plans offer defined contribution plan employees united kingdom uk allows eligible participants contribute eligible compensation payroll deductions double employee contributions first 5 eligible compensation therefore maximum level provided avon 10 eligible compensation made matching contributions cash uk defined contribution plan 67 2017 65 2016 76 2015 follow investment allocation participant selected contributions also offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 26 2017 38 2016 40 2015 follow investment allocation participant selected contributions prior separation north america business costs associated contributions psa allocated discontinued operations global plan included north america us corporate avon associates see note 3 discontinued operations divestitures usbased employees hired january 1 2015 made additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow largest nonus defined benefit pension plan uk defined benefit pension plan closed employees hired april 1 2013 us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits usbased employees hired january 1 2015 provided solely psa described part separation north america business 2016 transferred 4996 pension liabilities pra associated current former employees north america business certain former avon employees along 3559 assets held pra defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations divestitures continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon us providing avon products inc notes consolidated financial statements continued services respect north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates provide health care benefits subject certain limitations certain retired associates us certain foreign countries us health care benefits corporate avon associates hired january 1 2005 form health reimbursement account us corporate avon associates hired january 1 2005 eligible retiree health care benefits retiree health care benefits current former employees north america business certain former avon employees based us transferred new avon recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans us pension plans include funded qualified plan pra unfunded nonqualified plans december 31 2017 pra benefit obligations 767 plan assets 631 december 31 2016 pra benefit obligations 755 plan assets 514 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans nonus pension plans include funded qualified pension plan uk december avon products inc notes consolidated financial statements continued 31 2017 uk qualified pension plan benefit obligations 4940 plan assets 5736 december 31 2016 uk qualified pension plan benefit obligations 4486 plan assets 5020 components net periodic benefit cost amounts recognized comprehensive loss 1 includes 44 537 us pension plans 2016 2015 respectively immaterial amounts postretirement benefit plans related us 2016 2015 included discontinued operations amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table amounts represent pretax effect classified within comprehensive loss income net tax amounts classified within consolidated statements comprehensive income loss addition amounts table second quarter 2017 recorded 182 charge loss contingency related nonus pension plan amendment plan occurred prior year may appropriately implemented result lumpsum payments made former employees vested participated pra third quarter 2015 recorded settlement charge 238 lump sum payments made plan assets result specific offer participants pra described settlement threshold exceeded third quarter 2015 settlement charge 41 also recorded fourth quarter 2015 result additional payments pra payments fully settled pension plan obligation participants elected receive payment settlement charges allocated global discontinued operations amounts aoci expected recognized components net periodic benefit cost 2018 follows avon products inc notes consolidated financial statements continued assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining present value future pension obligations individual defined benefit pension plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including uk defined benefit pension plan pra based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis decreased 266 december 31 2017 281 december 31 2016 effective january 1 2018 changing method use estimate service interest cost components net periodic benefit cost pra majority significant nonus pension plans including uk defined benefit pension plan historically including 2017 estimated service interest cost components using single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period beginning 2018 elected use full yield curve approach estimation components net periodic benefit cost applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows made change improve correlation projected benefit cash flows corresponding yield curve spot rates believe result precise measurement service interest costs change affect measurement benefit obligation impact 2017 net periodic benefit cost account change estimate prospective basis beginning 2018 expect change result material reduction future net periodic benefit costs weightedaverage assumptions used determine net benefit cost recorded consolidated statements operations years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors generally evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2017 assumed rate return assets globally 512 represents weightedaverage rate return plan assets amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico associated discontinued operations excluded amounts significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2017 net periodic benefit cost uk defined benefit pension plan 515 addition 2018 rate return assumption uk defined benefit pension plan based asset allocation approximately 80 corporate government bonds mortgagebacked securities expected earn approximately 2 4 longterm approximately 20 equity securities emerging market debt high yield securities expected earn approximately 5 9 longterm addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure historically pension plan significant pension plan assets pra assumed rate return determining 2017 net periodic benefit cost pra 550 addition 2018 rate return assumption pra based asset allocation approximately 70 corporate government bonds expected earn approximately 3 5 longterm approximately 30 equity securities expected earn approximately 6 8 longterm avon products inc notes consolidated financial statements continued similar assessments performed determining rates return nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 509 determining 2017 net cost nonus defined benefit pension plan assets plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2017 2016 asset category follows following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2017 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2016 reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals derivative instruments publicly traded derivative contract avon products inc notes consolidated financial statements continued specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices overall objective plan assets associated pra uk defined benefit pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects pra uk defined benefit pension plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation factors discussed cash flows expect make contributions related continuing operations range 10 15 us defined benefit pension postretirement plans range 20 25 nonus defined benefit pension postretirement plans 2018 total benefit payments expected paid plans follows postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees accrued cost postemployment benefits 97 150 december 31 2017 2016 respectively included employee benefit plans consolidated balance sheets supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 avon products inc notes consolidated financial statements continued incentive compensation bonuses deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 14 2017 10 2016 5 2015 benefit obligation dcp 210 december 31 2017 261 december 31 2016 included liabilities accrued compensation consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc brp nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last eight years brp closed employees hired january 1 2015 conjunction closure pra annual cost programs included determination net periodic benefit cost shown previously amounted 30 2017 39 2016 63 2015 benefit obligation programs 123 december 31 2017 121 december 31 2016 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers seven years established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within selling general administrative expenses consolidated statements operations note 14 segment information reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues segment profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location determine segment profit deducting related costs expenses segment revenue order ensure comparability periods segment profit includes allocation global marketing expenses based actual revenues segment profit excludes global expenses allocation marketing costs implement cti restructuring initiatives see note 16 restructuring initiatives loss contingency related nonus pension plan see note 13 employee benefit plans certain significant asset impairment charges see note 19 goodwill items allocated particular segment applicable consistent manner assess performance allocate resources operating segments business activities include business results liz earle sold july 2015 venezuela deconsolidated effective march 31 2016 well markets exited effective first quarter 2017 given exited thailand 2016 results thailand reported operating segments business activities periods presented previously results reported asia pacific operating segments business activities also include revenue sale products new avon since separation companys north america business new avon march 1 2016 ongoing royalties licensing name products avon products inc notes consolidated financial statements continued summarized financial information concerning reportable segments december 31 shown following tables 1 third quarter 2016 settled claims relating professional services provided company prior 2013 connection previously disclosed legal matter proceeds net legal fees 272 tax 272 tax recognized reduction sga third quarter 2016 subsequently received company fourth quarter 2016 2 total assets discontinued operations total assets december 31 2015 table exclude 1000 receivable continuing operations presented within current assets discontinued operations see note 3 discontinued operations divestitures avon products inc notes consolidated financial statements continued total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets also includes country domicile us longlived assets primarily include property plant equipment associated continuing operations longlived assets brazil consist primarily property plant equipment related manufacturing distribution facilities longlived assets us consist primarily property plant equipment including global research development facility avon products inc notes consolidated financial statements continued note 15 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2017 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 662 2017 750 2016 744 2015 plant construction expansion modernization projects estimated cost complete 330 progress december 31 2017 note 16 restructuring initiatives transformation plan january 2016 initiated transformation plan transformation plan included cost reduction efforts continue improve cost structure enable us reinvest growth plan targeted pretax annualized cost savings approximately 350 three years estimated 200 supply chain reductions estimated 150 cost reductions expected achieved restructuring actions well costsavings strategies would result restructuring charges reinvested continue plan reinvest portion cost savings growth initiatives including media social selling information technology systems help us modernize business initiated transformation plan attempt enable us achieve longterm goals midsingledigit constantdollar revenue growth low doubledigit operating margin part transformation plan identified certain actions believe reduce ongoing costs primarily consisting global headcount reductions relating operating model changes well closure australia new zealand thailand smaller underperforming markets operating model changes include streamlining corporate functions align current future needs business information technology infrastructure outsourcing initiative result restructuring actions approvedtodate recorded total costs implement restructuring initiatives 1669 taxes 608 recorded year ended december 31 2017 consolidated statements operations additional charges yet incurred associated restructuring actions approved todate approximately 15 20 taxes expected recorded primarily 2018 time unable quantify total costs implement restructuring initiatives incurred time transformation plan fully implemented yet identified actions taken restructuring charges 2017 year ended december 31 2017 recorded costs implement 608 related transformation plan consolidated statements operations costs consisted following • net charge 269 employeerelated costs including severance benefits 79 associated closure australia new zealand markets • contract termination net charges 273 associated vacating previous corporate headquarters including impairment fixed assets • implementation costs 41 primarily related professional service fees • accelerated depreciation 19 • inventory writeoff 6 primarily associated closure australia new zealand markets total costs implement year ended december 31 2017 602 recorded selling general administrative expenses 6 recorded cost sales avon products inc notes consolidated financial statements continued restructuring charges 2016 year ended december 31 2016 recorded costs implement 837 related transformation plan consolidated statements operations costs consisted following • net charge 626 employeerelated costs including severance benefits • contract termination net charges 87 • implementation costs 74 primarily related professional service fees • charge 27 due accumulated foreign currency translation adjustments associated closure thailand market • accelerated depreciation 19 • inventory writeoff 4 total costs implement year ended december 31 2016 833 recorded selling general administrative expenses 4 recorded cost sales restructuring charges 2015 recorded costs implement 224 related transformation plan selling general administrative expenses consolidated statements operations costs consisted 214 employeerelated costs due severance benefits 10 implementation costs professional service fees liability balance transformation plan december 31 2017 follows majority cash payments applicable associated yearend liability expected made 2018 following table presents restructuring charges incurred date transformation plan along estimated charges expected incurred approved initiatives plan avon products inc notes consolidated financial statements continued charges net adjustments initiatives transformation plan along estimated charges expected incurred approved initiatives plan reportable segment follows charges included segment profit excludes costs implement restructuring initiatives expect total costs implement restructuring approved initiatives estimated 180 185 taxes transformation plan amounts shown tables charges recorded todate relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incurred continue incur costs implement restructuring initiatives professional services fees accelerated depreciation additional restructuring charges 2015 result thencurrent economic environment including impact foreign currency movements inflation expenses effort continue improve cost structure identified certain actions 2015 believe would reduce ongoing costs actions primarily consisted global headcount reductions result restructuring actions recorded costs implement 287 taxes net benefit 2 recorded 2017 selling general administrative expenses consolidated statements operations material remaining costs restructuring actions approvedtodate restructuring charges 2017 recorded net benefit 2 selling general administrative expenses consolidated statements operations primarily employeerelated costs due severance benefits restructuring charges 2016 recorded net benefit 8 selling general administrative expenses consolidated statements operations primarily employeerelated costs due severance benefits restructuring charges 2015 recorded costs implement 297 selling general administrative expenses consolidated statements operations costs consisted following • charge 221 employeerelated costs due severance benefits • implementation costs 76 primarily professional service fees associated global asia pacific avon products inc notes consolidated financial statements continued liability balance primarily consists employeerelated costs various restructuring initiatives december 31 2017 follows majority cash payments applicable associated liability expected made 2018 charges approved date various restructuring initiatives reportable business segment follows addition charges included tables incurred costs implement restructuring initiatives professional services fees restructuring initiatives 2017 2016 2015 recorded net benefits 4 55 30 respectively primarily selling general administrative expenses consolidated statements operations associated restructuring programs launched 2005 2009 restructuring initiative launched 2012 restructuring initiatives substantially complete net benefit 2016 primarily consisted net gain 37 due sale distribution center us liability balance associated restructuring initiatives material december 31 2017 note 17 series c convertible preferred stock march 1 2016 company issued sold cerberus investor 435000 shares newly issued series c preferred stock aggregate purchase price 4350 pursuant investment agreement dated december 17 2015 company cerberus investor connection issuance series c preferred stock company incurred direct incremental expenses 87 comprised financial advisory fees legal expenses reduced carrying value series c preferred stock cumulative preferred dividends accrue daily series c preferred stock rate 125 per quarter series c preferred stock accrued unpaid dividends 415 december 31 2017 dividends declared years ended december 31 2017 2016 dividend rights series c preferred stock ranks senior shares common stock respect dividend rights distribution assets liquidation dissolution winding affairs series c preferred stock liquidation preference 1000 per share representing aggregate liquidation preference 4350 upon issuance holders series c preferred stock entitled participate asconverted basis dividends paid holders shares company’s common stock addition cumulative preferred dividends accrue daily series c preferred stock payable rate 125 per quarter net dividends company’s common stock subject increase maximum rate 500 per quarter company breaches certain obligations except extent otherwise previously paid company preferred dividends payable seventh anniversary issuance date series c preferred stock declared board directors end quarter thereafter accrued avon products inc notes consolidated financial statements continued unpaid preferred dividends may paid company’s option cash ii subject certain conditions shares company’s common stock iii upon conversion shares series c preferred stock shares company’s nonvoting nonconvertible series preferred stock shares series preferred stock issued would similar preferential rights conversion features series c preferred stock convertible option holders time shares company’s common stock initial conversion price 500 per share subject certain antidilution adjustments prior receipt applicable shareholder approval shares series c preferred stock convertible 1999 number shares common stock outstanding immediately prior issuance series c preferred stock subject certain antidilution adjustments december 31 2017 series c preferred stock convertible 87051524 shares common stock time volume weighted average price common stock exceeds 1000 per share subject certain antidilution adjustments period 30 consecutive trading days company may cause series c preferred stock converted shares common stock based applicable conversion price voting rights holders series c preferred stock entitled vote generally holders common stock asconverted basis holders series c preferred stock also entitled separate class vote respect election three directors board directors subject maintaining certain levels beneficial ownership series c preferred stock andor common stock ii amendments company’s organizational documents adverse effect series c preferred stock iii issuances company securities senior equal priority series c preferred stock iv delisting company’s common stock connection change control event change control put upon certain change control events involving company holders series c preferred stock require company repurchase series c preferred stock amount equal greater amount cash equal 100 liquidation preference thereof plus accrued unpaid dividends ii consideration holders would received converted shares series c preferred stock common stock immediately prior change control event note 18 contingencies settlements fcpa investigations previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance foreign corrupt practices act fcpa related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 along compliance reviews completed 2014 following voluntary reporting internal investigation us department justice doj us securities exchange commission sec subsequent cooperation agencies united states district court southern district new york usdc approved december 2014 deferred prosecution agreement “dpa” entered company doj related charges violations books records internal controls provisions fcpa addition avon products china co ltd subsidiary company operating china pleaded guilty conspiring violate books records provision fcpa sentenced usdc pay 68 fine sec also filed complaint company charging violations books records internal controls provisions fcpa consent settlement consent approved judgment entered usdc january 2015 included 67 disgorgement prejudgment interest dpa abovementioned guilty plea consent resolved sec’s doj’s investigations company’s compliance fcpa related us laws china additional countries fine paid december 2014 payment sec made january 2015 dpa expired charges company dismissed prejudice february 5 2018 dpa consent among things company agreed compliance monitor july 2015 company engaged monitor approved doj sec monitor recommended changes policies procedures adopted august 2017 monitor certified companys compliance program reasonably designed implemented detect prevent violations anticorruption laws functioning effectively consistent requirements dpa consent monitor replaced company undertaken selfreporting obligations remainder monitoring period company submitted first selfreport doj sec january 2018 company continue selfreporting sec monitoring period expires scheduled consent occur july 2018 avon products inc notes consolidated financial statements continued thirdparty costs incurred connection ongoing compliance selfreporting consent material date anticipate material costs going forward companys selfreporting obligations may costly andor timeconsuming brazilian tax assessments 2002 brazilian subsidiary received excise tax ipi assessment brazilian tax authorities alleged tax deficiencies years 19971998 officially closed favor avon brazil july 2017 december 2012 additional assessments received year 2008 respect excise tax ipi taxes charged gross receipts pis cofins second quarter 2014 pis cofins assessments officially closed favor avon brazil 2002 ipi case 2012 ipi assessment asserts establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2012 ipi assessment unfounded matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 ipi assessment july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level 2012 ipi assessment totals approximately 347 including penalties accrued interest october 3 2017 avon brazil received new tax assessment notice regarding ipi 2014 2017 ipi assessment totals approximately 266 including penalties accrued interest line assessments received past brazilian tax authorities assert structure adopted 2005 valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax avon vigorously contest assessment presented first defense november 1 2017 event 2012 2017 ipi assessments upheld may necessary us provide security pursue appeals depending circumstances may result charge earnings adverse effect companys consolidated statements cash flows possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2010 closed statute however similar ipi assessments involving different periods 19982001 canceled officially closed favor second administrative level july 2017 received official cancellation 2002 assessment pursuant favorable decision discussed believe likelihood 2012 2017 ipi assessments upheld reasonably possible stated believe 2012 2017 ipi assessments unfounded december 31 2017 recognized liability 2012 2017 ipi assessments brazil ipi tax cosmetics may 2015 executive decree certain cosmetics went effect brazil increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products subject ipi avon brazil filed objection ipi tax increase basis constitutional december 2016 avon brazil received favorable decision federal district court regarding objection decision appealed tax authorities may 2015 april 2016 avon brazil remitted taxes associated ipi tax increase judicial deposit would remitted taxing authorities event successful objection tax increase may 2016 avon brazil received favorable preliminary decision objection tax granted preliminary injunction result beginning may 2016 avon brazil longer required remit taxes associated ipi judicial deposit increasing number recent preliminary decisions favor taxpayer december 31 2017 concluded appropriate continue recognize associated ipi taxes liability december 31 2017 liability taxing authorities ipi tax increase approximately 193 classified within longterm sales taxes income consolidated balance sheets judicial deposit approximately 74 classified within assets consolidated balance sheets net liability corresponding judicial deposit approximately 119 december 31 2017 interest associated net liability continue recognized expense net cash flow operations benefited compared earnings recognized expense associated interest related ipi tax consolidated statements operations however since may 2016 made corresponding cash payment judicial deposit based preliminary injunction still force unfavorable ruling objection ipi tax increase would adverse effect companys consolidated statements cash flows avon brazil would remit liability owed taxing authorities amount would partially offset amount judicial deposit held avon brazil able reliably predict timing outcome objection tax increase avon products inc notes consolidated financial statements continued talcrelated litigation company named defendant numerous personal injury lawsuits filed us courts alleging certain talc products company sold past contaminated asbestos many actions involve number codefendants variety different industries including manufacturers cosmetics manufacturers products unlike company’s products designed contain asbestos believe claims us without merit defending vigorously claims continue date findings liability company cases unable predict ultimate outcome case additional similar cases arising use companys talc products reasonably anticipated time unable estimate reasonably possible losses also light litigation’s inherent uncertainties potential costs litigate cases known may significant though costs covered insurance brazilian laborrelated litigation ongoing basis company subject numerous diverse laborrelated lawsuits filed employees brazil cases assessed aggregated ongoing basis based historical outcomes similar cases claims made often significantly larger sums historically paid company practice continues recognize liability based assessment historical payments similar cases best estimate probable loss current cases december 31 2017 approximately 17 accordingly recognized liability amount matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2017 expected material adverse effect consolidated financial position results operations cash flows note 19 goodwill q4 2015 egypt impairment assessment 2015 yearend close process analysis egypt business indicated impairment carrying value business exceeded estimated fair value primarily result reducing longterm projections business 2015 egypt performed generally line revenue earnings projections assumed growth compared 2014 however result currency restrictions payment goods egypt lowered longterm revenue earnings projections business accordingly noncash tax impairment charge 69 tax recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge key assumptions used measuring fair value egypt impairment assessment included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt forecasted revenue resulting cash flows five years using dcf model included terminal value end projection period believed fiveyear period reasonable amount time order return cash flows egypt normalized sustainable levels goodwill avon products inc notes consolidated financial statements continued note 20 supplemental balance sheet information december 31 2017 2016 prepaid expenses included following december 31 2017 2016 assets included following note 21 results operations quarter unaudited avon products inc notes consolidated financial statements continued 1 operating profit loss impacted following addition items impacting operating profit loss 2 loss income continuing operations taxes 2016 impacted • deconsolidation venezuelan operations result change cost method accounting first quarter 2016 recorded loss 1205 expense net loss comprised 392 net assets venezuelan business 813 accumulated foreign currency translation adjustments within aoci associated foreign currency movements venezuela accounted highly inflationary economy • gain extinguishment debt 39 tax third quarter caused deferred gain associated interestrate swap agreement terminations partially offset early tender premium paid deferred loss associated treasury lock agreements deal costs writeoff debt issuance costs discounts associated cash tender offers august 2016 • loss extinguishment debt 10 tax fourth quarter caused premium paid repurchases writeoff debt issuance costs discounts deferred loss associated treasury lock agreements partially offset deferred gain associated interestrate swap agreement terminations associated debt repurchases october 2016 • loss extinguishment debt 29 tax fourth quarter caused makewhole premium deferred loss associated treasury lock agreements writeoff debt issuance costs discounts partially offset deferred gain associated interestrate swap agreement terminations associated prepayment remaining principal amount 420 notes defined note 7 debt financing 575 notes defined note 7 debt financing • gain extinguishment debt 11 tax fourth quarter consisting discount received repurchases partially offset writeoff debt issuance costs discounts associated debt repurchases december 2016 3 loss income continuing operations net tax 2017 impacted 299 net income tax benefit recognized fourth quarter result enactment tax cuts jobs act us release valuation allowances 255 associated number markets europe middle east africa result business model change related move companys headquarters us uk 104 benefit result favorable court decision brazil partially offset charge 160 associated valuation allowances adjust deferred tax assets mexico loss income continuing operations net tax 2016 impacted charge valuation allowances deferred tax assets outside us 86 recorded fourth quarter release valuation allowance associated russia 71 recorded second quarter income tax benefit 293 recognized result implementation foreign tax planning strategies recorded first quarter 4 sum per share amounts quarters necessarily equal year computations made independently see note 16 restructuring initiatives results operations consolidated within mda pages 36 45 note 14 segment information venezuela discussion within mda pages 40 41 note 1 description business summary significant accounting policies note 13 employee benefit plans note 18 contingencies note 7 debt financing note 8 income taxes information items schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2017 2016 2015 1 accounts written net recoveries foreign currency translation adjustment 2 returned product reused destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 decrease valuation allowance primarily related partial release us valuation allowance result enactment tax cuts jobs act us impact business model change related move companys headquarters us uk 5 increase valuation allowance primarily deferred tax assets likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 following materials formatted extensible business reporting language xbrl consolidated statements operations ii consolidated statements comprehensive income loss iii consolidated balance sheets iv consolidated statements cash flows v consolidated statements changes shareholders’ equity deficit vi notes consolidated financial statements vi schedule valuation qualifying accounts exhibits identified asterisk management contracts compensatory plans arrangements avon’s annual report form 10k year ended december 31 2018 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 21st day february 2019 avon products inc laura barbrook laura barbrook vice president corporate controller principal accounting officer pursuant requirements exchange act report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets avon products inc subsidiaries “company” december 31 2018 december 31 2017 related consolidated statements operations comprehensive income loss cash flows changes shareholders’ equity deficit two years period ended december 31 2018 including related notes financial statement schedule listed index appearing item 15a2 collectively referred “consolidated financial statements” also audited companys internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2018 december 31 2017 results operations cash flows two years period ended december 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued coso basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting item 9a responsibility express opinions company’s consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp united kingdom served company’s auditor since 2017 report independent registered public accounting firm board directors shareholders avon products inc opinion consolidated statements operations comprehensive income changes shareholders’ equity deficit cash flows period january 1 2016 december 31 2016 present fairly material respects results operations cash flows avon products inc subsidiaries period january 1 2016 december 31 2016 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 15a2 year ended december 31 2016 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audit conducted audit financial statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion avon products inc consolidated statements operations accompanying notes integral part statements avon products inc consolidated statements comprehensive income loss accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products incconsolidated statements cash flows 1 includes cash equivalents discontinued operations 22 beginning year 2016 2 includes cash equivalents 37 classified held sale assets consolidated balance sheets end year 2018 accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity deficit accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted primarily one channel direct selling reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives december 2015 entered definitive agreements affiliates cerberus capital management lp cerberus included 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business including approximately 100 cash subject certain adjustments avon new avon llc new avon privatelyheld company majorityowned managed affiliate cerberus transactions closed march 2016 avon retained approximately 20 ownership new avon north american business represented companys operations united states us canada puerto rico previously reportable segment presented discontinued operations periods refer note 3 discontinued operations assets liabilities held sale additional information regarding investment affiliate cerberus separation north america business result transaction consolidated revenue derived operations subsidiaries outside us principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related standalone selling prices ssp promised goods services delivered sales incentives allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rates actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes tax valuation allowances sharebased compensation loss contingencies evaluation goodwill property plant equipment capitalized software potential impairment foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive income loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency december 31 2018 argentinian subsidiary considered operating highly inflationary economy highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements operations nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities avon products inc notes consolidated financial statements continued argentina currency quarter ended june 30 2018 based published official exchange rates indicate argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina become highly inflationary economy july 1 2018 applied highly inflationary accounting argentinian subsidiary functional currency argentina changed us dollar consolidated groups reporting currency entity operates highly inflationary economy exchange gains losses associated monetary assets liabilities resulting changes exchange rate recorded income nonmonetary assets liabilities include inventories property plant equipment contract liabilities carried forward historical dollar cost calculated using exchange rate june 30 2018 result devaluation argentinian peso approximately 25 june 30 2018 december 31 2018 operating profit negatively impacted approximately 8 largely cost sales consolidated income statements primarily due inventory accounted historical dollar cost six months ended december 31 2018 also recorded benefit period approximately 6 expense net primarily associated net monetary liability position argentina approximate 2 positive impact income taxes consolidated income statements december 31 2018 net argentine pesodenominated monetary liability position argentina 33 net argentine pesodenominated nonmonetary asset position 50 primarily consisting inventory balances 32 venezuela currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products 2010 began accounting operations venezuela accounting guidance associated highly inflationary economies venezuelas restrictive foreign exchange control regulations venezuelan operations increasingly limited access us dollars resulted lack exchangeability venezuelan bolivar us dollar restricted venezuelan operations ability pay dividends settle intercompany obligations severe currency controls imposed venezuelan government significantly limited ability realize benefits earnings venezuelan operations access resulting liquidity provided earnings expected lack exchangeability would continue foreseeable future result concluded effective march 31 2016 condition otherthantemporary longer met accounting criteria control order continue consolidating venezuelan operations result since march 31 2016 accounted venezuelan operations using cost method accounting result change cost method accounting first quarter 2016 recorded loss 1205 expense net loss comprised 392 net assets venezuelan business 813 accumulated foreign currency translation adjustments within aoci shareholders deficit associated foreign currency changes venezuela accounted highly inflationary economy net assets venezuelan business comprised inventories 237 property plant equipment net 150 assets 114 accounts receivable 46 cash 45 accounts payable accrued liabilities 200 consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements include income relating venezuelan operations extent receive cash dividends royalties remitted avon venezuela revenue recognition nature goods services global manufacturer marketer beauty related products product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products business conducted primarily one channel direct selling reportable segments based geographic operations four regions europe middle east africa; south latin america; north latin america; asia pacific primarily sell products ultimate consumer direct selling channel principally representatives independent contractors employees avon products inc notes consolidated financial statements continued revenue recognition revenue recognized control product service transferred customer generally representative revenue measured based consideration specified contract customer excludes amounts collected behalf third parties value added taxes “vat” collected taxing authorities principal revenue streams significant judgments principal revenue streams distinguished sale beauty fashion home products representatives recorded net sales ii representative fees primarily sale brochures representatives fulfillment activities related contract include fees shipping handling recorded revenue iii includes sale products new avon royalties licensing name products recorded revenue sale beauty fashion home products representatives generate majority revenue sale beauty fashion home products representative contacts customers directly selling primarily brochure whether paper online highlights new products special promotions incentives sales campaign sense representative together brochure store products sold brochure introducing new sales campaign typically generated every three four weeks purchase order processed products picked distribution center delivered representative usually combination local national delivery companies generally representative delivers merchandise collects payment customer account representative generally receives refund price representative paid product representative chooses return representative agreement outlines basic terms agreement avon representative combined purchase order constitutes contract purposes accounting standards codification topic “asc” revenue contracts customers asc 606 revenue contracts customers account individual products services separately contract distinct ie product service separately identifiable items contract representative benefit product service resources readily available recognized point time control product transferred representative addition offer incentives representatives support sales growth certain sales incentives distinct promises representative therefore separate performance obligation result revenue allocated performance obligation sales incentives deferred balance sheet associated performance obligations satisfied typically included within contract variable consideration sales returns late payment fees revenue recorded extent probable reversed therefore revenue adjusted variable consideration variable consideration generally estimated using expected value method considers possible outcomes weighted probability specifically sales returns refund liability recorded estimated cash refunded products expected returned returns asset recorded products expect returned resold based historical experience estimate sales returns well measurement returns asset refund liability updated end month changes expectations regarding amount salvageable returns reconditioning costs additional decreases value returned products late payment fees recorded uncertainty associated collecting fees resolved ie collected representative generally receives credit period one sales campaign meet certain criteria however specific credit terms outlined representative agreement generally representative remits payment sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment contracts representatives often include multiple promises transfer products andor services representative determining products andor services considered distinct performance obligations accounted separately addition assessing recognition revenue following performance obligations management exercised significant judgment following areas estimation variable consideration ssp promised goods services order determine allocate transaction price performance obligation avon products appointment kits representative purchases avon products appointment kits purchase order avon offers appointment kits purchase representatives may contain various avon products recognize revenue avon products appointment kits net sales consolidated statements operations representative obtains control avon products inc notes consolidated financial statements continued products occurs upon delivery product representative transaction price amount expect receive exchange products adjusted variable consideration discussed estimated ssp performance obligations discussed cost products appointment kits recognized cost sales consolidated statements operations performance obligation sales incentives types sales incentives include status programs loyalty points prospective discounts gift purchase among others representative eligible certain status programs specified sales levels met status programs offer additional benefits free discounted products services loyalty points offer option redeem additional avon products services prospective discounts offered countries certain sales levels reached given time period revenue attributable prospective discount performance obligation option purchase additional product discounted amount certain benefits within status programs loyalty points prospective discounts certain sales incentives constitute material right therefore distinct performance obligation contract representative transaction price allocated material right performance obligation based estimated ssp deferred balance sheet associated performance obligations satisfied cost incentives presented inventories consolidated balance sheets recognize revenue allocated material right net sales consolidated statements operations point time representative receives benefits material right obtains control products occurs upon delivery representative upon expiration material right sales incentives delivered associated products order gift purchase deferral required ssp represents estimated market value estimated amount could charged material right entity sells separately similar circumstances similar customers judgment required determine ssp distinct performance obligation instances ssp directly observable sell product service separately including certain sales incentives determine ssp using information may include market prices observable inputs ii representative fees primarily sale brochures representatives fulfillment activities related contract representative fees purchase order contract representative explicitly identifies activities perform includes fees charge representatives primarily sale brochures representatives fulfillment activities also includes late payment fees discussed brochures represent promotional materials given directly representatives customers marketing activity asc 606 brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures allocate consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized selling general administrative expenses consolidated statements operations often charge representative shipping handling including order processing payment processing activities invoice activities considered fulfillment costs consideration received represents part transaction price contract allocated performance obligations contract recognize revenue fulfillment activities revenue consolidated statements operations services provided representative cost activities recognized sga expenses consolidated statements operations iii revenue also recognize revenue sale products new avon llc new avon part manufacturing supply agreement since separation companys north america business new avon march 1 2016 royalties licensing name products revenue consolidated statements operations cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories avon products inc notes consolidated financial statements continued inventories stated lower cost net realizable value cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision brochure costs brochures represent promotional materials given directly representatives customers marketing activity brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures avon allocates consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized sga expenses consolidated statements operations brochure costs associated fees presented inventory 132 december 31 2018 zero december 31 2017 increase driven implementation asu 606 brochure costs associated fees presented prepaid expenses 59 december 31 2018 266 december 31 2017 decrease driven implementation asu 606 brochure costs expensed cogs sga 2018 amounted 1135 1062 respectively 2017 2016 brochures costs 2440 2447 respectively expensed sga previous asu 605 fees charged representatives brochures sold recorded revenue 2018 amounted 1170 2017 2016 fees charged representatives recorded reduction sga expenses amounted 1062 2018 1394 1386 respectively property plant equipment capitalized software property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred certain systems development costs related purchase development installation computer software implementation costs incurred hosting arrangement service contract capitalized amortized estimated useful life related project costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 893 december 31 2018 852 december 31 2017 amortization expense associated capitalized software 265 295 305 years ended december 31 2018 2017 2016 respectively evaluate property plant equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate assets liabilities held sale longlived asset disposal group classified held sale carrying amount recovered principally sale transaction rather continuing use sale considered highly probable within year longlived asset disposal group classified held sale initially measured lower carrying amount fair value less cost sell impairment loss recognized initial subsequent writedown longlived asset disposal group fair value less costs sell gain loss previously recognized date sale longlived asset disposal group recognized date derecognition longlived assets including part disposal group depreciated amortized classified held sale longlived assets classified held sale assets disposal group classified held sale avon products inc notes consolidated financial statements continued presented separately assets balance sheet liabilities disposal group classified held sale presented separately liabilities balance sheet goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements operations present earnings effect hedging instrument consolidated statements operations income statement line item earnings effect hedged item reported derivatives designated cash flow hedges conclude hedging relationship perfectly effective inception detailed effectiveness assessment period required long critical terms hedging instrument completely match related terms hedged item ii considered probable counterparties hedging instrument hedged item default iii hedged cash flows remain probable conditions met assess prospective retrospective effectiveness using cumulative dollaroffset method compares change fair value present value cash flows hedging instrument changes avon products inc notes consolidated financial statements continued fair value present value cash flows hedged item result quantification demonstrates hedge still highly effective meaning cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item revert qualitative assessments hedge effectiveness subsequent periods expectation high effectiveness qualitative basis subsequent periods reasonably supported effectiveness within 80 125 range hedge accounting discontinued changes fair value hedging instrument recorded earnings date hedge longer considered highly effective deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire see note 10 income taxes information accordance guidance issued financial accounting standards board fasb choosing treat us income tax consequences global intangible lowtaxed income gilti period cost result december 31 2018 deferred income taxes provided uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements operations sga expenses sga expenses include costs associated selling marketing distribution including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 5035 2018 5308 2017 4893 2016 advertising costs excluding brochure preparation costs expensed incurred amounted 1276 2018 1184 2017 1089 2016 research development research development costs expensed incurred amounted 480 2018 529 2017 521 2016 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value date grant applicable use montecarlo simulation calculate fair value performance restricted stock units market conditions fair value premiumpriced stock options account forfeitures sharebased payments occur restructuring expense record estimated expense restructuring initiatives transformation plan open avon costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits inventory writeoffs impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required avon products inc notes consolidated financial statements continued pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans service cost presented sga consolidated statements operations components net periodic benefit costs service cost presented expense net consolidated statements operations contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable earnings loss per share compute earnings loss per share eps using twoclass method earnings loss allocation formula determines earnings loss per share common stock earnings loss allocated convertible preferred stock participating securities appropriate earnings allocated convertible preferred stock larger 1 preferred dividends accrued year 2 percentage earnings continuing operations allocable preferred stock converted common stock participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents extent dividends declared paid common stock compute basic eps dividing net income loss allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows amounts table may necessarily sum due rounding years ended december 31 2018 2017 2016 include stock options purchase 178 million shares 169 million shares 142 million shares avon common stock respectively calculation diluted eps loss continuing operations net tax inclusion shares would decrease net loss per share since inclusion shares would antidilutive excluded calculation years ended december 31 2018 2017 dilutive assume series c convertible preferred stock converted common stock therefore weightedaverage shares outstanding adjusted asif converted series c convertible preferred stock effect would antidilutive inclusion series c convertible preferred stock would decrease net loss per share years ended december 31 2018 2017 asif converted series c convertible preferred stock dilutive approximately 871 million additional shares would included diluted weighted average number shares outstanding years ended december 31 2018 2017 shares series c convertible preferred stock outstanding year ended december 31 2016 see note 18 series c convertible preferred stock note 2 new accounting standards new accounting standards implemented asu 201409 revenue contracts customers except changes consistently applied accounting policies periods presented consolidated financial statements adopted asc 606 date initial application january 1 2018 cumulativeeffect adjustment retained earnings therefore comparative information prior periods adjusted continues reported asc 605 revenue recognition applied asc 606 outstanding contracts january 1 2018 recorded cumulativeeffect adjustment upon adoption new revenue recognition standard january 1 2018 comprised following • reduction retained earnings 527 taxes 411 tax corresponding impact deferred income taxes 116 • reduction prepaid expenses 549 • increase inventories 393 • increase accrued liabilities 371 due net impact establishment contract liability 918 deferred revenue performance obligations yet satisfied partially offset reduction sales incentive accrual 547 cumulativeeffect adjustment impacting consolidated balance sheets primarily driven sales incentives brochures changes resulting new revenue recognition standard material details significant changes accounting policy revenue recognition quantitative impact changes consolidated financial statements set performance obligations avon products appointment kits recognize revenue avon products appointment kits net sales consolidated statements operations representative obtains control products occurs upon delivery product representative transaction price amount expect receive exchange products adjusted variable consideration sales returns past due fees estimated ssp performance obligations sales incentives revenue allocated material right performance obligation sales incentives deferred balance sheet associated performance obligations satisfied cost products appointment kits recognized cost sales consolidated statements operations historical accounting recognized revenue avon products net sales consolidated statements operations upon delivery product representative recognized revenue appointment kits sold representatives reduction sga expenses consolidated statements operations associated cost recognized sga expenses consolidated statements operations revenue adjusted expected sales returns performance obligations material rights sales incentives certain benefits within status programs loyalty points prospective discounts certain sales incentives constitute material right therefore distinct performance obligation contract representative transaction price allocated material right based estimated ssp deferred balance sheet associated performance obligations satisfied cost sales incentives presented inventories consolidated balance sheets recognize revenue allocated material right net sales associated cost sales incentives recognized cost sales consolidated statements operations point time representative receives benefits material right obtains control products occurs upon delivery representative upon expiration material right sales incentives delivered associated products order gift purchase deferral required historical accounting cost sales incentives generally presented accrued liabilities prepaid expenses consolidated balance sheets recognized sga expenses consolidated statements operations period sales incentive earned representative fees primarily sale brochures representatives fulfillment activities related contract includes fees charge representatives primarily sale brochures representatives fulfillment activities also includes late payment fees brochures represent promotional materials given directly representatives customers marketing activity asc 606 brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon products inc notes consolidated financial statements continued representative although brochures used similar marketing materials representative generally orders pays brochures avon allocates consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized sga expenses consolidated statements operations historical accounting brochure costs initially deferred prepaid expenses consolidated balance sheets charged sga expenses consolidated statements operations campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses consolidated balance sheets recorded reduction sga expenses consolidated statements operations campaign length fulfillment activities late payment fees often charge representative shipping handling including order processing payment processing activities invoice activities considered fulfillment costs consideration received represents part transaction price contract allocated performance obligations contract recognize revenue fulfillment activities revenue consolidated statements operations services provided representative cost activities recognized sga expenses consolidated statements operations late payment fees recorded revenue consolidated statements operations collected historical accounting revenue shipping handling including order processing activities recorded revenue consolidated statements operations however revenue payment processing activities late payment fees recognized reduction sga expenses consolidated statements operations cost activities recognized sga expenses consolidated statements operations impacts consolidated financial statements following tables summarize impacts adopting asc 606 companys consolidated financial statements twelve months ended december 31 2018 1 primarily relates appointment kits reclassified sga partially offset timing recognition sales incentives 2 relates representative fees primarily brochure fees late payment fees certain fees reclassified sga brochure fees also impacted timing recognition 3 primarily relates cost sales incentives cost brochures paid representatives cost appointment kits reclassified sga cost sales incentives cost brochures also impacted timing recognition 4 relates cost sales incentives reclassified cost sales also impacted timing recognition partially offset representative fees reclassified revenue appointment kits reclassified net sales cost sales avon products inc notes consolidated financial statements continued 1 relates sales returns reclassified reduction accounts receivable refund liability within accrued liabilities returns asset within prepaid expenses 2 primarily relates sales incentives brochures reclassified prepaid expenses inventories also impacted timing recognition addition prepaid expenses impacted timing recognition brochures well reclassification sales returns described 3 relates deferred tax assets associated cumulativeeffect adjustment 4 primarily relates contract liability sales incentives partially offset lower accrual sales incentives addition accrued liabilities impacted reclassification sales returns described 5 relates 411 cumulativeeffect adjustment upon adoption asc 606 partially offset yeartodate 86 net loss adjustment avon products inc notes consolidated financial statements continued asu 201609 compensation stock compensation march 2016 fasb issued accounting standards update asu 201609 compensation stock compensation intended simplify accounting sharebased payment transactions new guidance changes several aspects accounting sharebased payment transactions including accounting income taxes forfeitures employertax withholding requirements asu 201609 also clarifies statements cash flows presentation certain components sharebased payment awards adopted new accounting guidance first quarter 2017 material impact consolidated financial statements asu 201707 compensation retirement benefits march 2017 fasb issued asu 201707 compensation retirement benefits new guidance requires entities 1 disaggregate service cost component components net periodic benefit costs present current employee compensation costs consolidated statements operations 2 present components net periodic benefit costs operating profit expense net adopted new accounting guidance effective january 1 2018 new accounting guidance applied retrospectively increased operating profit 2017 2016 80 19 respectively impact net loss following tables summarize impacts adopting asc 201707 companys consolidated financial statements twelve months ended december 31 2017 2016 asu 201712 derivatives hedging targeted improvements accounting hedging activities august 2017 fasb issued asu 201712 derivatives hedging targeted improvements accounting hedging activities align hedge accounting model closely risk management practices simplify application among things new guidance eliminates requirement separately measure report hedge ineffectiveness new guidance effective interim annual reporting periods beginning december 15 2018 new guidance must adopted using modified retrospective transition cumulative effect adjustment recorded opening retained earnings initial adoption date early adopted asu 201712 effective july 1 2018 initiated new hedging program third quarter 2018 hedge foreign exchange risk relating forecasted transactions adoption material impact consolidated financial statements asu 201815 intangibles goodwill otherinternal use software customer’s accounting implementation costs incurred cloud computing arrangement service contract avon products inc notes consolidated financial statements continued august 2018 fasb issued asu 201815 intangibles goodwill internaluse software customer’s accounting implementation costs incurred cloud computing arrangement service contract new guidance aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software accounting service element hosting arrangement service contract affected amendment early adopted asu 201815 effective october 1 2018 material impact consolidated financial statements accounting standards implemented asu 201602 leases february 2016 fasb issued asu 201602 leases requires assets liabilities arising leases recognized consolidated balance sheets intend adopt new accounting guidance effective january 1 2019 july 2018 fasb added optional transition method elect upon adoption new standard allows us recognize measure leases existing january 1 2019 without restating comparative information addition elect apply package practical expedients permitted transition guidance within new standard among things allows us carry forward historical lease classification standard material impact consolidated balance sheets material impact consolidated income statements significant impact recognition rightofuse rou assets lease liabilities operating leases accounting finance leases remains substantially unchanged adoption standard result recognition additional rou assets lease liabilities operating leases approximately 200 approximately 195 january 1 2019 difference amounts recorded adjustment retained earnings asu 201802 income statement reporting comprehensive income february 2018 fasb issued asu 201802 income statement reporting comprehensive income permits entities reclassify disproportionate income tax effects 2017 enactment us tax reform legislation act items within aoci loss retained earnings intend adopt new accounting guidance effective january 1 2019 elected reclassify disproportionate income tax effects act aoci loss retained earnings asu 201613 financial instruments credit losses january 2016 fasb issued asu 201613 financial instruments credit losses requires measurement recognition expected credit losses financial assets held intend adopt new accounting guidance effective january 1 2020 currently assessing impact consolidated financial statements note 3 discontinued operations assets liabilities held sale discontinued operations north america december 17 2015 company entered definitive agreements affiliates controlled cerberus agreements include investment agreement providing 4350 investment cleveland apple investor lp “cerberus investor” affiliate cerberus company purchase perpetual convertible preferred stock see note 18 series c convertible preferred stock separation investment agreement providing separation companys north america business represented companys operations us canada puerto rico company new avon privatelyheld company majorityowned managed cerberus na investor llc “cerberus na” affiliate cerberus transactions closed march 1 2016 proceeds sale perpetual convertible preferred stock used fund 100 cash contribution new avon approximately 250 used reduce debt remainder used restructuring reinvestment business company considered transactions affiliates cerberus help drive enhanced focus avons international markets revitalize north america business deliver longterm value shareholders 2016 cerberus na contributed approximately 170 cash new avon exchange 801 ownership interests company contributed assets primarily related north america business including approximately 100 cash subject certain adjustments ii certain assumed liabilities primarily pension postretirement liabilities north america business iii employees north america business new avon exchange 199 ownership interest new avon company received approximately 6 cash new avon part customary working capital adjustment avon products inc notes consolidated financial statements continued north america business previously reportable segment presented discontinued operations periods presented separation represented significant strategic shift determined major effect operations financial results fourth quarter 2015 company recorded estimated loss sale discontinued operations 3400 tax 3400 tax carrying value exceeded estimated fair value less costs sell 2016 company recognized additional loss sale 156 tax 54 tax respectively cumulative loss sale 3556 tax 3454 tax represents net assets contributed new avon including certain pension postretirement benefit plan liabilities amounts aoci associated north america business primarily unrecognized losses associated us defined benefit pension plan costs sell compared implied value ownership interests new avon closing 425 2016 new avon entered perpetual irrevocable royaltyfree licensing agreement company use avon brand certain intellectual property also 2016 avon new avon also entered transition services agreement expired october 31 2018 covered among things information technology financial services human resources well commercial agreements including research development product supply sublease office space avon new avon see note 5 related party transactions major classes financial statement components comprising loss discontinued operations net tax north america shown amounts recorded discontinued operations year ended december 31 2018 2017 assets liabilities held sale major classes assets liabilities comprising held sale assets held sale liabilities consolidated balance sheet december 31 2018 shown following table assets liabilities held sale december 31 2017 2016 avon products inc notes consolidated financial statements continued china manufacturing january 8 2019 avon asia holdings company avon products china co ltd executed equity purchase agreement sale equity interests avon manufacturing guangzhou ltd thefaceshop co ltd affiliate lg household health care ltd total purchase price 71 avon manufacturing guangzhou ltd met held sale criteria asc 360 plant property equipment asc 360 december 31 2018 entitys assets liabilities classified held sale february 15 2019 completed sale thefaceshop co ltd affiliate lg household health care ltd equity interests avon manufacturing guangzhou ltd total purchase price 710 million net cash proceeds pretax 470 required repayment company certain outstanding intercompany loans 233 deducting cash hand avon manufacturing guangzhou ltd 7 rye office september 19 2018 avon issued press release entitled “avon products inc create leaner new york operations press release avon announced intention complete sale rye office 2019 step ongoing plan streamline business fuel growth consolidating us operations existing facilities suffern new york prior december 31 2018 entered letter intent third party sell rye office due diligence period currently ongoing rye office met held sale criteria asc 360 december 31 2018 classified asset held sale february 2019 signed agreement sell rye office transaction expected close end second quarter 2019 malaysia maximin november 12 2018 company approved sale principal maximin corporation sdn bhd “maximin” owns malaysia office warehouse line current strategy early december company entered letter intent third party refer note 23 subsequent events additional information developments relating sale maximin met held sale criteria asc 360 december 31 2018 entitys assets liabilities classified held sale february 2019 signed agreement sell maximin transaction expected close end first quarter 2019 note 4 investment new avon connection separation companys north america business discussed note 3 discontinued operations assets liabilities held sale closed march 1 2016 company retained 199 ownership interest new avon privatelyheld company majorityowned managed affiliate cerberus capital management lp cerberus company accounted ownership interest new avon using equity method accounting resulted company recognizing proportionate share new avons income loss comprehensive income loss recorded investment balance new avon december 31 2018 december 31 2017 zero years ended december 31 2017 2016 companys proportionate share losses new avon 202 119 115 119 respectively amounts recorded within expense net addition third quarter 2017 company received cash distribution 220 new avon reduced recorded investment balance new avon third quarter 2017 recorded 17 companys proportionate share losses new avon reduced recorded investment balance new avon zero result recorded proportionate share new avons losses since fourth quarter 2017 new avon experiences future losses recorded investment balance zero would record proportionate share loss addition companys proportionate share postseparation comprehensive income new avon benefits 1 22 years ended december 31 2017 2016 respectively recorded within comprehensive income loss company also recorded additional loss 5 within expense net benefit 11 within comprehensive income loss year ended december 31 2017 primarily associated purchase accounting adjustments reported new avon products inc notes consolidated financial statements continued note 5 related party transactions following tables present related party transactions new avon affiliates cerberus instituto avon brazil related party transactions new avon majority owned managed cerberus na see note 3 discontinued operations assets liabilities held sale note 4 investment new avon details 1 company supplies product new avon part manufacturing supply agreement company recorded revenue 257 325 within revenue gross profit 16 19 associated agreement years ended december 31 2018 2017 respectively 2 new avon also supplies product company part manufacturing supply agreement noted company purchased 28 32 new avon associated agreement years ended december 31 2018 2017 respectively recorded 29 38 associated purchases within cost sales years ended december 31 2018 2017 respectively 3 company also entered transition services agreement provide certain services new avon expired october 31 2018 well intellectual property ip license agreement technical support innovation subleases office space addition new avon performed certain services company similar transition services agreement expired third quarter 2017 company recorded net 59 322 reduction sga expenses associated agreements years ended december 31 2018 2017 respectively generally represents recovery related costs 4 company also entered agreements affiliate cerberus provide secondment cerberus affiliate personnel companys project management team responsible assisting execution transformation plan transformation plan announced january 2016 open avon strategy “open avon” announced september 2018 company recorded 12 26 sga expenses associated agreements years ended december 31 2018 2017 respectively see note 17 restructuring initiatives additional information related transformation plan open avon 5 second quarter 2018 company entered agreement loan instituto avon independent nongovernment charitable organization brazil 36 unsecured 5year term fixed interest rate 7 per annum paid back 5 equal annual installments instituto avon created avon subsidiary brazil board executive team comprise avon brazil management purpose loan provide instituto avon means donate funds fundação pio xii leading cancer prevention treatment organization brazil owner avon products inc notes consolidated financial statements continued hospital câncer de barretos order invest equipment objective expanding breast cancer prevention treatment 6 inventories relate purchases new avon associated manufacturing supply agreement yet sold classified within inventories consolidated balance sheets 7 receivables due new avon relate agreements transition services ip license research development subleases office space well manufacturing supply agreement classified within prepaid expenses consolidated balance sheets 8 payables due new avon relate manufacturing supply agreement classified within accrued liabilities consolidated balance sheets 9 payables due affiliate cerberus relate agreement project management team classified within accrued liabilities consolidated balance sheets addition company also issued standby letters credit lessors certain equipment lease transferred new avon connection separation companys north america business initial liability estimated value standby letters credit 21 included additional loss sale north america business recognized loss discontinued operations net tax consolidated statements operations year ended december 31 2016 december 31 2018 2017 company liability 14 estimated value standby letters credit reduction estimated liability 2 years ended december 31 2017 recognized expense net consolidated statements operations see note 18 series c convertible preferred stock discussion preferred shares issued cerberus investor note 6 revenue disaggregation revenue following table revenue disaggregated product service type revenue recognized point time control product transferred customer includes impact brazil ipi tax release recorded net sales income expense net amounts approximately 168 approximately 27 respectively consolidated income statements see note 19 contingencies information avon products inc notes consolidated financial statements continued contract balances timing revenue recognition generally different timing promise made representative result contract liabilities primarily relate advance consideration received representatives prior transfer related good service material rights loyalty points status programs primarily classified within accrued liabilities longterm portion liabilities consolidated balance sheets generally record accounts receivable invoice representative addition record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication ultimate consumer products beyond representative legal recourse ultimate consumer collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required following table provides information receivables contract liabilities contracts customers december 31 2018 january 1 2018 december 31 2018 contract liability 918 844 respectively relating certain material rights loyalty points status program prospective discounts twelve months ended december 31 2018 recognized 895 revenue related contract liability balance january 1 2018 result performance obligations satisfied addition deferred additional 823 related certain material rights granted period performance obligations yet satisfied amount deferred period substantially recognized within year significant majority captured within quarter remaining movement contract liability balance attributable foreign exchange differences arising translation balance december 31 2018 compared december 31 2017 contract costs incremental costs obtain contracts bonuses commissions recognized asset entity expects recover however asc 34040 assets deferred costs offers practical expedient recognize incremental costs obtaining contract expense incurred amortization period asset entity otherwise would recognized one year less elected practical expedient expense costs obtain contracts incurred amortization period one year less costs fulfill contracts representatives comprised shipping handling including order processing payment processing services expensed incurred fees services included transaction price note 7 inventories december 31 consisted following amounts net allowance inventory obsolescence include impact incremental oneoff inventory obsolescence expense recognized december 31 2018 resulting structural reset inventory announced january 2019 refer note 17 restructuring initiatives additional information regarding open avon structural reset inventory avon products inc notes consolidated financial statements continued note 8 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 190 december 31 2018 230 december 31 2017 debt included obligations capital leases 25 december 31 2018 40 december 31 2017 primarily relate leases automobiles equipment public notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes march 2008 issued 3500 principal amount 650 notes due march 1 2019 650 notes interest 2013 notes payable semiannually march 15 september 15 year interest 650 notes payable semiannually march 1 september 1 year august 2015 prepaid entire principal amount 2375 notes indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp moodys since issuance 2013 notes interest rates notes increased maximum allowable increase august 2016 completed cash tender offers resulted reduction principal 1086 575 notes due march 1 2018 575 notes 738 420 notes due july 15 2018 420 notes 681 650 notes 501 460 notes connection cash tender offers incurred gain extinguishment debt 39 tax third quarter 2016 consisting deferred gain 128 associated march 2012 january 2013 interestrate swap agreement terminations see note 11 financial instruments risk management partially offset 58 early tender premium paid cash tender offers 12 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 11 financial instruments risk management 10 deal costs writeoff 9 debt issuance costs discounts related initial issuances notes subject cash tender offers october 2016 repurchased 440 650 notes 440 420 notes 400 460 notes 352 575 notes aggregate repurchase price equal principal amount notes plus premium 62 accrued interest 11 connection repurchases debt incurred loss extinguishment debt 10 tax fourth quarter 2016 consisting 62 premium paid repurchases 5 writeoff debt issuance costs discounts related initial issuance notes repurchased 4 deferred loss avon products inc notes consolidated financial statements continued associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 11 financial instruments risk management partially offset deferred gain approximately 61 associated march 2012 january 2013 interestrate swap agreement terminations see note 11 financial instruments risk management november 30 2016 prepaid remaining principal amount 420 notes 575 notes prepayment price equal remaining principal amount 1322 420 notes 1062 575 notes plus makewhole premium 121 series notes accrued interest 36 series notes connection prepayment 420 notes 575 notes incurred loss extinguishment debt 29 tax fourth quarter 2016 consisting 121 makewhole premium 10 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 11 financial instruments risk management writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset deferred gain 105 associated january 2013 interestrate swap agreement termination see note 10 financial instruments risk management december 2016 repurchased 111 500 notes 62 695 notes aggregate repurchase price equal principal amount notes less discount received 13 plus accrued interest 3 connection repurchase debt incurred gain extinguishment debt 11 tax fourth quarter 2016 consisting 13 discount received repurchases partially offset 2 writeoff debt issuance costs discounts related initial issuance notes repurchased june 2018 prepaid remaining principal amount 650 notes prepayment price equal remaining principal amount 2378 plus makewhole premium 62 accrued interest 46 connection prepayment incurred loss extinguishment debt 29 tax second quarter 2018 consisting 62 makewhole premium writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset write deferred gain 36 associated march 2012 interestrate swap agreement termination see note 11 financial instruments risk management fourth quarter 2018 repurchased 230 460 notes 270 500 notes aggregate repurchase price equal principal amount notes less discount received 24 accrued interest 7 connection repurchases debt incurred gain extinguishment debt 21 tax fourth quarter 2018 consisting 24 discount received repurchases partially offset 03 writeoff debt issuance costs discounts related initial issuance notes repurchased december 31 2018 2017 carrying values public notes comprised following indentures governing outstanding notes described contain certain customary covenants customary events default crossdefault provisions would required make offer repurchase outstanding notes described price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon time outstanding notes rated investment grade senior secured notes august 2016 avon international operations inc “aio” whollyowned domestic subsidiary company issued private placement exempt registration securities act 1933 amended 5000 aggregate principal amount 7875 senior secured notes mature august 15 2022 senior secured notes interest senior secured notes payable semiannually february 15 august 15 year carrying value senior secured notes represented 5000 principal amount net unamortized debt issuance costs 58 74 december 31 2018 2017 respectively represents total debt aio december 31 2018 2017 obligations aio senior secured notes unconditionally guaranteed company aio material united states english restricted subsidiary company collectively “obligors” case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions avon products inc notes consolidated financial statements continued indenture governing senior secured notes contains certain customary covenants restrictions well customary events default crossdefault provisions indenture also contains covenant requiring aio restricted subsidiaries end year least certain percentage total assets api restricted subsidiaries subject certain qualifications would required make offer repurchase senior secured notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon maturities longterm debt annual maturities longterm debt includes notes capital leases outstanding december 31 2018 follows financing revolving credit facility june 2015 avon international operations inc aio whollyowned domestic subsidiary company entered fiveyear 4000 senior secured revolving credit facility “2015 facility” december 2017 aio entered amendment 2015 facility among things modified financial covenants interest coverage total leverage ratios provide company additional flexibility december 31 2018 amounts outstanding 2015 facility february 2019 avon international capital plc aic whollyowned foreign subsidiary company entered threeyear €2000 senior secured revolving credit facility “2019 facility” 2019 facility replaced 2015 facility 2015 facility terminated time borrowings 2019 facility bear interest option rate per annum equal either libor euribor loan euros plus 225 basis points case subject adjustment based upon leveragedbased pricing grid 2019 facility may used general corporate working capital purposes amounts outstanding 2019 facility amount available drawn 2019 facility reduced standby letters credit granted aic obligor 2019 facility including standby letters credit granted aio 2015 facility rolled 2019 facility december 31 2018 approximately 29 million obligations aic 2019 facility unconditionally guaranteed company aio material united states english restricted subsidiary company collectively “obligors” case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions 2019 facility terminate february 2022 provided however shall terminate 91st day prior maturity 460 notes 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2019 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios depending business results including impact adverse foreign exchange movements significant restructuring charges possible may become noncompliant interest coverage total leverage ratio absent company undertaking alternatives avoid noncompliance obtaining additional amendments 2019 facility repurchasing certain debt noncompliant interest coverage total leverage ratio would longer access 2019 facility credit ratings may downgraded letters credit december 31 2018 december 31 2017 also letters credit outstanding revolving credit facility totaling 294 377 respectively balances december 31 2018 2017 primarily relate letters credit issued lessors certain equipment lease transferred new avon connection separation companys north america business balances december 31 2018 december 31 2017 also include letters credit guarantee various insurance activities longterm credit ratings longterm credit ratings moody’s ratings stable outlook b1 corporate family debt b3 senior unsecured debt ba1 senior secured notes sp ratings stable outlook b corporate family debt senior avon products inc notes consolidated financial statements continued unsecured debt bb senior secured notes fitch rating stable outlook b investment grade believe longterm credit ratings material impact nearterm liquidity however rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities likely result increase financing costs less favorable covenants financial terms financing arrangements note 9 accumulated comprehensive income loss tables present changes aoci component reclassifications aoci 2018 2017 1 gross amount reclassified expense net related taxes reclassified income taxes foreign exchange net loss 69 2018 gain 163 2017 net loss 237 2016 resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income loss note 10 income taxes income continuing operations taxes years ended december 31 follows avon products inc notes consolidated financial statements continued provision income taxes years ended december 31 follows effective tax rate years ended december 31 follows 2018 result continued business model changes related move company’s headquarters us uk company recognized one time tax benefits 987 reflected “reorganizations” line associated primarily rationalization realignment company’s legal entity structure ownership transfer certain operational assets within consolidated group tax benefit associated foreign derived intangible income provisions tax cuts jobs act us 2018 net change valuation allowances line rate reconciliation includes 1386 increases valuation allowances primarily associated deferred tax assets generated 2018 reductions valuation allowances 930 reflected captions rate reconciliation net associated deferred tax assets expensed written 2018 follows 572 excess tax basis deconsolidated subsidiaries reallocated investments consolidated subsidiaries 153 reduction future tax benefits anticipated state deferred tax assets 117 deferred tax assets reduction 88 deferred tax assets associated repatriation earnings consolidated subsidiaries 2017 result enactment tax cuts jobs act us company recognized net income tax benefit 299 associated following items reflected “us tax reform” line 335 valuation allowance release associated minimum tax credits utilized andor refunded future 36 uncertain tax position potential withholding taxes repatriation unremitted earnings addition impact financial position results associated following writeoff deferred tax assets associated valuation allowance 1614 due rate change 35 21 reversal deferred tax liabilities avon products inc notes consolidated financial statements continued recording valuation allowance 667 associated unremitted earnings establishment deferred tax assets miscellaneous withholding tax items associated valuation allowance 55 onetime tax offshore earnings associated utilization foreign tax credits 29 included net change valuation allowance noted 2017 released valuation allowances 255 associated number markets europe middle east africa result business model change related move companys headquarters us uk deferred tax assets liabilities december 31 consisted following deferred tax assets liabilities december 31 classified follows 2018 company also recorded net increase valuation allowance 456 income tax expense primarily deferred tax assets generated 2018 currently likely realized future company continue evaluate whether financial results allow valuation allowances released release valuation allowance future would occur deferred tax assets associated valuation allowance determined likely realized december 31 2018 exclusive asu 201311 reductions recognized deferred tax assets 8425 relating tax credit carryforwards us foreign tax credits minimum tax credits research experimentation credits tax credits valuation allowance 8125 provided tax credit carryforwards consist us foreign tax credits 7938 subject expiration 2020 2027 us minimum tax credits 180 subject expiration us research experimentation credits 210 subject expiration 2027 2038 tax credits 97 subject expiration 2019 2033 december 31 2018 exclusive asu 201311 reductions recognized deferred tax assets 21662 relating foreign state tax loss carryforwards valuation allowance 20733 provided deferred tax assets relating tax loss carryforwards consist 20455 foreign tax loss carryforwards valuation allowance 19745 provided 988 state tax loss carryforwards valuation allowance 988 provided foreign tax loss carryforwards december 31 2018 86162 69275 subject expiration 16887 subject expiration 2019 2048 state tax loss carryforwards december 31 2018 taking consideration estimated effects preapportionment states 13967 subject expiration 2019 2038 december 31 2018 result us liquidity profile continue assert foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability account 2018 undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings decrease 51 resulting deferred avon products inc notes consolidated financial statements continued tax liability balance 175 related incremental tax cost approximately 11 billion undistributed foreign earnings december 31 2018 december 31 2018 valuation allowance primarily represents amounts substantially us deferred tax assets certain foreign tax loss carryforwards certain foreign deferred tax assets recognition deferred tax assets based evaluation current estimated future profitability operations reversal deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards tax planning strategies also considered evaluated support realization deferred tax assets sources income existed along sufficient positive evidence indicated likely sources income could relied upon deferred tax assets reduced valuation allowance uncertain tax positions december 31 2018 1376 total gross unrecognized tax benefits approximately 1232 would favorably impact provision income taxes recognized reconciliation beginning ending amount unrecognized tax benefits follows accrue interest penalties related unrecognized tax benefits provision income taxes reversed previously recorded expenses interest penalties net taxes 13 year ended december 31 2018 recorded expenses 00 25 interest penalties net taxes years ended december 31 2017 2016 respectively december 31 2018 december 31 2017 74 99 respectively recorded interest penalties net tax benefit unrecognized tax benefits including interest penalties classified within longterm income taxes consolidated balance sheets avon products inc notes consolidated financial statements continued file income tax returns us foreign jurisdictions december 31 2018 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits change materially within next twelve months given timing enactment tax cuts jobs act december 22 2017 sec issued guidance sab 118 directing taxpayers consider impact new legislation “provisional” necessary information available prepared analyzed including computations reasonable detail complete accounting effects resulting change law december 22 2017 except impact remeasuring deferred tax assets 21 rate accounted impacts new legislation including limited effects existing deferred taxes valuation allowances onetime tax offshore earnings potential changes impact indefinite reinvestment assertion measurement deferred taxes foreign unremitted earnings provisional basis financial statements amounts reported time represented best estimate given data available based interpretation us legislation 2018 us treasury issued various guidance application certain provisions may impact calculations december 31 2018 company completed accounting impact tax cuts jobs act including necessary adjustments “provisional” amounts previously recorded recording additional adjustments material impact financial position results note 11 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger derivatives recognized consolidated balance sheets fair values fair value derivative instruments outstanding immaterial december 31 2018 2017 interest rate risk portion borrowings subject interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2018 2017 interestrate swap agreements approximately 1 debt portfolio december 31 2018 2017 respectively exposed floating interest rates january 2013 terminated eight interestrate swap agreements previously designated fair value hedges notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 904 amortized reduction interest expense remaining term underlying debt obligations year ended december 31 2016 net impact gain amortization 354 including 236 related extinguishment debt see note 8 debt financing december 31 2018 unamortized deferred gain associated january 2013 interestrate swap termination underlying debt obligations paid march 2012 terminated two interestrate swap agreements previously designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 years ended december 31 2018 2017 net impact gain amortization 60 49 respectively including 36 related extinguishment debt year ended december 31 2018 see note 8 debt financing december 31 2018 unamortized deferred gain associated march 2012 interestrate swap termination underlying debt obligations paid foreign currency risk may use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2018 outstanding foreign exchange forward contracts notional amounts totaling approximately 1275 various currencies 22 designated cash flow hedges may use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans years ended december 31 2018 2017 recorded gain 15 gain 30 respectively expense net consolidated statements operations related undesignated foreign exchange forward contracts also years ended december 31 2018 2017 recorded gain 22 loss 52 respectively related associated intercompany loans caused changes foreign currency exchange rates initiated new hedging program hedge foreign exchange risk relating forecasted transactions third quarter 2018 material impact consolidated financial statements credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 13 december 31 2018 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates note 12 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions assets liabilities recorded fair value recurring basis defined benefit pension postretirement plan assets liabilities measured fair value recurring basis comprised foreign exchange forward contracts see note 11 financial instruments risk management availableforsale securities immaterial december 31 2018 2017 see note 14 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 14 employee benefit plans fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments accounts receivable debt maturing within one year accounts payable longterm debt foreign exchange forward contracts avon products inc notes consolidated financial statements continued carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt presented net debt issuance costs includes related discount premium unamortized deferred gains terminated interestrate swap agreements applicable methods assumptions used estimate fair value follows • availableforsale securities fair values investments quoted market prices issues listed securities exchanges • debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices • foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 13 sharebased compensation plans avon products inc 2013 stock incentive plan amended restated “2013 plan” avon products inc 2016 omnibus incentive plan 2016 plan shareholderapproved plans provide several types sharebased incentive compensation awards including stock options restricted stock restricted stock units performance restricted stock units following shareholder approval 2016 plan may 2016 awards made 2013 plan 2013 plan maximum number shares may awarded 55000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share subject award ii case grant award payable shares option sar 313 multiplied share subject award 2016 plan maximum number shares may awarded 48000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 24 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options 2016 plan restricted stock units performance restricted stock units 2013 plan 2016 plan also outstanding stock options prior shareholderapproved plans stock option awards granted exercise price generally premium closing market price stock date grant stock options generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 compensation cost stock options performance restricted stock units restricted stock units including funded treasury shares 2018 2017 2016 recorded sga expenses consolidated statements operations avon products inc notes consolidated financial statements continued stock options 2018 2017 2016 granted premiumpriced stock options exercise price equal 25 premium 30 premium respectively closing market price stock price date grant premiumpriced stock options vest threeyear graded vesting schedule fair value premiumpriced stock option estimated date grant using montecarlo simulation estimating fair value option used following weightedaverage assumptions options granted years ended december 31 2018 2017 2016 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based vesting terms respective option contractual life 10 years 3 expected avon volatility based daily historical volatility stock price period similar expected life option weightedaverage grantdate fair value per share options granted 104 154 137 2018 2017 2016 respectively summary stock options december 31 2018 changes 2018 follows recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates december 31 2018 61 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 18 years stock options exercised 2018 2017 2016 restricted stock units performance restricted stock units 2018 2017 2016 granted performance restricted stock units would vest settle three years based relative total shareholder return common stock companies included sp 400 index date grant three year performance period 2018 prsus 2017 prsus 2016 prsus respectively grant date fair value per share awards already reflects estimated probability achieving market condition therefore record expense ratably performance period 2015 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions two years 2015 prsus addition performance conditions achieved target performance restricted stock units subject market condition number performance restricted stock units vest limited target amount company’s absolute total shareholder return threeyear service period negative adjusted compensation cost recognized todate reflect performance reflects estimated payout target absolute total shareholder return market condition impact number performance restricted stock units vest fair value 2018 prsus 2017 prsus 2016 prsus 2015 prsus estimated date grant using montecarlo simulation estimates fair value based companys share price activity expected term award riskfree interest rate expected dividends expected volatility stock company estimating fair avon products inc notes consolidated financial statements continued value 2018 prsus 2017 prsus 2016 prsus 2015 prsus used following weightedaverage assumptions 1 riskfree rate based upon rate zero coupon us treasury bill periods within three year performance period effect time grant 2 expected avon volatility based weekly historical volatility stock price period similar three year performance period 2018 prsus 2017 prsus 2016 prsus three year service period 2016 prsus 3 expected average volatility based weekly historical volatility stock prices member companies included sp 400 index date grant period similar three year performance period 2018 prsus 2017 prsus 2016 prsus weightedaverage grantdate fair value per share 2018 prsus 2017 prsus 2016 prsus 2015 prsus 263 452 442 749 respectively summary restricted stock units december 31 2018 changes 2018 follows summary performance restricted stock units december 31 2018 changes 2018 follows 1 based initial target payout total fair value restricted stock units performance restricted stock units vested 2018 72 based upon market prices vesting dates december 31 2018 95 unrecognized compensation cost related restricted stock units performance restricted stock units compensation arrangements outstanding cost expected recognized weightedaverage period 17 years later 2015 granted 1123183 performance restricted stock units vested settled 2016 upon satisfaction certain performance conditions 2015 terms award result fair value measurement date 2016 recognized compensation cost 20 performance restricted stock units award vested settled 2016 additional compensation cost recognized 2018 2017 restricted stock units performance restricted stock units funded treasury shares march 2018 granted 200000 performance restricted stock units funded treasury shares outside 2016 plan reliance upon new york stock exchange rules performance restricted stock units weightedaverage grantdate fair value 279 would vest settle three years upon satisfaction certain performance conditions one year 2018 none performance restricted stock units vested 200000 avon products inc notes consolidated financial statements continued performance restricted stock units outstanding december 31 2018 recognized compensation cost 1 performance restricted stock units december 31 2018 4 unrecognized compensation cost related performance restricted stock units february 2018 granted 600000 restricted stock units funded treasury shares outside shareholderapproved plans reliance upon new york stock exchange rules restricted stock units granted february 2018 weightedaverage grantdate fair value 225 vest settle full three years 2018 none restricted stock units vested 600000 restricted stock units outstanding december 31 2018 recognized compensation cost 4 restricted stock units december 31 2018 9 unrecognized compensation cost related restricted stock units march 2015 granted 121951 performance restricted stock units funded treasury shares outside 2013 plan reliance upon new york stock exchange rules performance restricted stock units weightedaverage grantdate fair value 749 terms exist awards 2015 prsus discussed 2018 121951 restricted stock units vested performance restricted stock units outstanding december 31 2018 2017 2016 recognized compensation cost 0 1 respectively performance restricted stock units december 31 2018 unrecognized compensation cost related performance restricted stock units march 2015 april 2012 granted 489596 200000 restricted stock units respectively funded treasury shares outside shareholderapproved plans reliance upon new york stock exchange rules restricted stock units granted march 2015 weightedaverage grantdate fair value 900 vest settle ratably three years restricted stock units granted april 2012 weightedaverage grantdate fair value 2169 vested settled ratably five years 2018 163198 restricted stock units vested restricted stock units outstanding december 31 2018 2017 2016 recognized compensation cost 1 8 17 respectively restricted stock units december 31 2018 unrecognized compensation cost related restricted stock units awards vested note 14 employee benefit plans defined contribution plans offer defined contribution plan employees united kingdom uk allows eligible participants contribute eligible compensation payroll deductions double employee contributions first 5 eligible compensation therefore maximum level provided avon 10 eligible compensation made matching contributions cash uk defined contribution plan 59 2018 67 2017 65 2016 follow investment allocation participant selected contributions also offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 22 2018 26 2017 38 2016 follow investment allocation participant selected contributions prior separation north america business costs associated contributions psa allocated discontinued operations global plan included north america us corporate avon associates see note 3 discontinued operations assets liabilities held sale usbased employees hired january 1 2015 made additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow largest nonus defined benefit pension plan uk defined benefit pension plan frozen future accruals april 1 2013 us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits usbased employees hired january 1 2015 provided solely psa described avon products inc notes consolidated financial statements continued part separation north america business 2016 transferred 4996 pension liabilities pra associated current former employees north america business certain former avon employees along 3559 assets held pra defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations assets liabilities held sale continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon us providing services respect north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates provide health care benefits subject certain limitations certain retired associates us certain foreign countries us health care benefits corporate avon associates hired january 1 2005 form health reimbursement account us corporate avon associates hired january 1 2005 eligible retiree health care benefits certain retiree health care obligations current former employees north america business certain former avon employees based us transferred new avon recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans us pension plans include funded qualified plan pra unfunded nonqualified plans december 31 2018 pra benefit obligations 654 plan assets 627 december 31 2017 pra benefit obligations 767 plan assets 630 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans nonus pension plans include funded qualified pension plan uk december 31 2018 uk qualified pension plan benefit obligations 4165 plan assets 5017 december 31 2017 uk qualified pension plan benefit obligations 4940 plan assets 5736 avon products inc notes consolidated financial statements continued components net periodic benefit cost amounts recognized comprehensive loss 1 includes 44 us pension plans 2016 immaterial amounts postretirement benefit plans related us 2016 included discontinued operations amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table amounts represent pretax effect classified within comprehensive loss income net tax amounts classified within consolidated statements comprehensive income loss addition amounts table second quarter 2017 recorded 182 charge loss contingency related nonus pension plan amendment plan occurred prior year may appropriately implemented amounts aoci expected recognized components net periodic benefit cost 2019 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows avon products inc notes consolidated financial statements continued discount rate used determining present value future pension obligations individual defined benefit pension plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including uk defined benefit pension plan pra based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis increased 306 december 31 2018 266 december 31 2017 effective january 1 2018 changed method use estimate service interest cost components net periodic benefit cost pra majority significant nonus pension plans including uk defined benefit pension plan historically including 2017 estimated service interest cost components using single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period beginning 2018 elected use full yield curve approach estimation components net periodic benefit cost applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows made change improve correlation projected benefit cash flows corresponding yield curve spot rates believe results precise measurement service interest costs weightedaverage assumptions used determine net benefit cost recorded consolidated statements operations years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors generally evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2018 assumed rate return assets globally 523 represents weightedaverage rate return plan assets amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico associated discontinued operations excluded amounts significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2018 net periodic benefit cost uk defined benefit pension plan 520 addition 2018 rate return assumption uk defined benefit pension plan based asset allocation approximately 80 corporate government bonds mortgagebacked securities expected earn approximately 2 4 longterm approximately 20 equity securities emerging market debt high yield securities expected earn approximately 5 9 longterm addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure historically pension plan significant pension plan assets pra assumed rate return determining 2018 net periodic benefit cost pra 550 addition 2018 rate return assumption pra based asset allocation approximately 70 corporate government bonds expected earn approximately 3 5 longterm approximately 30 equity securities expected earn approximately 6 8 longterm similar assessments performed determining rates return nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 520 determining 2018 net cost nonus defined benefit pension plan assets plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2018 2017 asset category follows avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2018 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2017 reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals derivative instruments publicly traded derivative contract avon products inc notes consolidated financial statements continued specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices overall objective plan assets associated pra uk defined benefit pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects pra uk defined benefit pension plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation factors discussed cash flows expect make contributions related continuing operations range 5 10 us defined benefit pension postretirement plans range 10 15 nonus defined benefit pension postretirement plans 2019 total benefit payments expected paid plans follows postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees accrued cost postemployment benefits 92 97 december 31 2018 2017 respectively included employee benefit plans consolidated balance sheets supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 avon products inc notes consolidated financial statements continued incentive compensation bonuses deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 1 2018 14 2017 10 2016 benefit obligation dcp 164 december 31 2018 210 december 31 2017 included liabilities accrued compensation consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc brp nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last eight years brp closed employees hired january 1 2015 conjunction closure pra annual cost programs included determination net periodic benefit cost shown previously amounted 21 2018 30 2017 39 2016 benefit obligation programs 93 december 31 2018 123 december 31 2017 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers eight years established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within sga expenses consolidated statements operations note 15 segment information reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues segment profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location determine segment profit deducting related costs expenses segment revenue order ensure comparability periods segment profit includes allocation global marketing expenses based actual revenues segment profit excludes global expenses allocation marketing costs implement cti restructuring initiatives see note 17 restructuring initiatives loss contingency related nonus pension plan see note 14 employee benefit plans certain significant asset impairment charges see note 20 goodwill items allocated particular segment applicable consistent manner assess performance allocate resources operating segments business activities include business results venezuela deconsolidated effective march 31 2016 well markets exited effective first quarter 2017 given exited thailand 2016 results thailand reported operating segments business activities periods presented previously results reported asia pacific effective first quarter 2018 given exited australia new zealand 2018 results australia new zealand reported operating segments business activities periods presented previously results reported asia pacific operating segments business activities also include revenue sale products new avon since separation companys north america business new avon march 1 2016 ongoing royalties licensing name products avon products inc notes consolidated financial statements continued summarized financial information concerning reportable segments december 31 shown following tables 1 third quarter 2016 settled claims relating professional services provided company prior 2013 connection previously disclosed legal matter proceeds net legal fees 272 tax 272 tax recognized reduction sga third quarter 2016 subsequently received company fourth quarter 2016 2 includes impact brazil ipi tax release recorded net sales income expense net amounts approximately 168 approximately 27 respectively consolidated income statements see note 19 contingencies information avon products inc notes consolidated financial statements continued total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets also includes country domicile us longlived assets primarily include property plant equipment associated continuing operations longlived assets brazil consist primarily property plant equipment related manufacturing distribution facilities longlived assets us consist primarily property plant equipment including global research development facility avon products inc notes consolidated financial statements continued note 16 leases commitments minimum rental commitments noncancelable operating leases primarily equipment office facilities december 31 2018 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 617 2018 662 2017 750 2016 plant construction expansion modernization projects estimated cost complete 318 progress december 31 2018 note 17 restructuring initiatives transformation plan open avon transformation plan january 2016 initiated transformation plan transformation plan order enable us achieve longterm goals midsingledigit constantdollar constant revenue growth low doubledigit operating margin transformation plan included three pillars invest growth reduce costs effort continue improve cost structure improve financial resilience plan targeted pretax annualized cost savings approximately 350 three years exceeded restructuring actions well costsavings strategies result restructuring charges part transformation plan identified certain actions believe reduce ongoing costs primarily consisting global headcount reductions relating operating model changes well closure australia new zealand thailand smaller underperforming markets result restructuring actions approved todate recorded total costs implement restructuring initiatives 2054 taxes 380 recorded twelve months ended december 31 2018 consolidated statements operations restructuring actions taken associated transformation plan beginning third quarter 2018 new restructuring actions approved operate new open avon plan described open avon september 2018 initiated new strategy order return avon growth open avon one element plan targeting pretax annualized cost savings approximately 400 2021 generated efficiencies manufacturing sourcing distribution general administrative activities back office functions well revenue management interest tax savings expected achieved restructuring actions may result charges related severance contract terminations inventory asset writeoffs well costsavings strategies would result restructuring charges january 2019 announced significant advancements strategy including structural reset inventory processes aggregate 18 reduction global workforce structural reset inventory processes includes 15 reduction inventory levels 25 reduction stock keeping units skus structural reset resulted incremental oneoff inventory obsolescence expense 88 million recognized december 31 2018 result open avon restructuring actions approved todate recorded total costs implement restructuring initiatives 1432 taxes recorded year ended december 31 2018 consolidated statements operations restructuring charges 2018 year ended december 31 2018 recorded costs implement 1812 380 related transformation plan 1432 related open avon consolidated statements operations costs consisted following • net charges 433 employeerelated costs including severance benefits • implementation costs 309 primarily related professional service fees • accelerated depreciation 52 • asset impairment 40 primarily related manufacturing equipment • inventory writeoff 898 • foreign currency translation adjustment charges 7 • dual running costs 41 • contract termination costs 32 total costs implement year ended december 31 2018 897 recorded sga expenses 915 recorded cost sales restructuring charges 2017 year ended december 31 2017 recorded costs implement 608 related transformation plan consolidated statements operations costs consisted following • net charge 269 employeerelated costs including severance benefits 79 associated closure australia new zealand markets avon products inc notes consolidated financial statements continued • contract termination net charges 273 associated vacating previous corporate headquarters including impairment fixed assets • implementation costs 41 primarily related professional service fees • accelerated depreciation 19 • inventory writeoff 6 primarily associated closure australia new zealand markets total costs implement year ended december 31 2017 602 recorded sga expenses 6 recorded cost sales restructuring charges 2016 year ended december 31 2016 recorded costs implement 837 related transformation plan consolidated statements operations costs consisted following • net charge 626 employeerelated costs including severance benefits • contract termination net charges 87 • implementation costs 74 primarily related professional service fees • charge 27 due accumulated foreign currency translation adjustments associated closure thailand market • accelerated depreciation 19 • inventory writeoff 4 total costs implement year ended december 31 2016 833 recorded sga expenses 4 recorded cost sales tables include restructuring costs employeerelated costs inventory writeoffs foreign currency translation writeoffs contract terminations include costs implement restructuring initiatives professional services fees accelerated depreciation liability balance restructuring actions primarily associated transformation plan december 31 2018 follows liability balance restructuring actions primarily associated open avon december 31 2018 follows avon products inc notes consolidated financial statements continued majority cash payments applicable associated yearend liability expected made 2019 following table presents restructuring charges incurred date transformation plan open avon along estimated charges expected incurred approved initiatives plans charges net adjustments initiatives transformation plan along estimated charges expected incurred approved initiatives plans reportable segment follows avon products inc notes consolidated financial statements continued charges included segment profit excludes costs implement restructuring initiatives amounts shown tables charges recorded todate relate initiatives approved recorded consolidated financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met restructuring initiatives 2018 2017 2016 recorded net benefits 7 4 55 respectively primarily sga expenses consolidated statements operations associated restructuring programs launched 2005 2009 restructuring initiative launched 2012 restructuring initiatives substantially complete net benefit 2016 primarily consisted net gain 37 due sale distribution center us liability balance associated restructuring initiatives material december 31 2018 avon products inc notes consolidated financial statements continued note 18 series c convertible preferred stock march 1 2016 company issued sold cerberus investor 435000 shares newly issued series c preferred stock aggregate purchase price 435 pursuant investment agreement dated december 17 2015 company cerberus investor connection issuance series c preferred stock company incurred direct incremental expenses 87 comprised financial advisory fees legal expenses reduced carrying value series c preferred stock cumulative preferred dividends accrue daily series c preferred stock rate 125 per quarter series c preferred stock accrued unpaid dividends 658 december 31 2018 dividends declared years ended december 31 2018 2017 dividend rights series c preferred stock ranks senior shares common stock respect dividend rights distribution assets liquidation dissolution winding affairs series c preferred stock liquidation preference 1000 per share representing aggregate liquidation preference 4350 upon issuance holders series c preferred stock entitled participate asconverted basis dividends paid holders shares company’s common stock addition cumulative preferred dividends accrue daily series c preferred stock payable rate 125 per quarter net dividends company’s common stock subject increase maximum rate 500 per quarter company breaches certain obligations except extent otherwise previously paid company preferred dividends payable seventh anniversary issuance date series c preferred stock declared board directors end quarter thereafter accrued unpaid preferred dividends may paid company’s option cash ii subject certain conditions shares company’s common stock iii upon conversion shares series c preferred stock shares company’s nonvoting nonconvertible series preferred stock shares series preferred stock issued would similar preferential rights conversion features series c preferred stock convertible option holders time shares company’s common stock initial conversion price 500 per share subject certain antidilution adjustments prior receipt applicable shareholder approval shares series c preferred stock convertible 1999 number shares common stock outstanding immediately prior issuance series c preferred stock subject certain antidilution adjustments december 31 2018 series c preferred stock convertible 87051524 shares common stock time volume weighted average price common stock exceeds 1000 per share subject certain antidilution adjustments period 30 consecutive trading days company may cause series c preferred stock converted shares common stock based applicable conversion price voting rights holders series c preferred stock entitled vote generally holders common stock asconverted basis holders series c preferred stock also entitled separate class vote respect election three directors board directors subject maintaining certain levels beneficial ownership series c preferred stock andor common stock ii amendments company’s organizational documents adverse effect series c preferred stock iii issuances company securities senior equal priority series c preferred stock iv delisting company’s common stock connection change control event change control put upon certain change control events involving company holders series c preferred stock require company repurchase series c preferred stock amount equal greater amount cash equal 100 liquidation preference thereof plus accrued unpaid dividends ii consideration holders would received converted shares series c preferred stock common stock immediately prior change control event note 19 contingencies settlements fcpa investigations previously reported united states district court southern district new york usdc approved december 2014 deferred prosecution agreement “dpa” entered company us department justice related charges violations books records internal controls provisions foreign corrupt practices act “fcpa” addition avon products china co ltd subsidiary company operating china pleaded guilty conspiring violate books records provision fcpa usdc also entered judgment january 2015 approving consent agreement us securities exchange commission “sec” consent settle sec’s complaint charging violations books records internal control provisions fcpa part resolutions company agreed among things pay fines disgorgement prejudgment interest aggregate amount 135 compliance monitor dpa expired charges company avon products inc notes consolidated financial statements continued dismissed prejudice february 5 2018 terms consent company subject continued selfmonitoring period july 2018 concluded brazilian tax assessments december 2012 brazilian subsidiary received excise ipi tax assessment year 2008 respect excise tax ipi taxes charged gross receipts pis cofins brazilian tax authorities second quarter 2014 pis cofins assessments officially closed favor avon brazil prior ipi cases settled avon’s favor 2012 ipi assessment asserts establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2012 ipi assessment unfounded matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 ipi assessment july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level 2012 ipi assessment totals approximately 306 including penalties accrued interest april 18 2018 avon received official notification second administrative level issued partially favorable partially unfavorable decision original assessment reduced approximately 63 including associated penalty interest subject federal revenue appeal remaining 243 assessment upheld second administrative level april 20 2018 appealed decision third administrative level october 3 2017 avon brazil received new tax assessment notice regarding ipi 2014 2017 ipi assessment totals approximately 236 including penalties accrued interest line assessments received past brazilian tax authorities assert structure adopted 2005 valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax april 2 2018 avon notified unfavorable decision first administrative level april 27 2018 filed appeal second administrative level event 2012 2017 ipi assessments upheld third final administrative level may necessary us provide security pursue appeals judicial levels depending circumstances may result charge earnings adverse effect companys consolidated statements cash flows possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2010 closed statute believe 2012 2017 ipi assessments unfounded however based likelihood upheld assess risks disclosed reasonably possible december 31 2018 recognized liability 2012 2017 ipi assessments brazil ipi tax cosmetics may 2015 executive decree certain cosmetics went effect brazil increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products subject ipi avon brazil filed objection ipi tax increase basis constitutional december 2016 avon brazil received favorable decision federal district court regarding objection decision appealed tax authorities may 2015 april 2016 avon brazil remitted taxes associated ipi tax increase judicial deposit would remitted taxing authorities event successful objection tax increase may 2016 avon brazil received favorable preliminary decision objection tax granted preliminary injunction result beginning may 2016 avon brazil longer required remit taxes associated ipi judicial deposit june 12 2018 received decision authorizing avon withdraw amount held judicial deposit substituting letter guarantee presented june 29 2018 tax authorities presented appeal decision july 30 2018 funds received bank account september 30 2018 due part judicial decisions across industry developments concluded supported opinion legal counsel executive decree unconstitutional therefore assessed ipi tax asc 450 contingencies determined risk loss ongoing judicial reviews reasonably possible probable accordingly released associated liability september 30 2018 approximately 195 ceased accruing ipi taxes october 1 2018 liability classified within longterm sales taxes income consolidated balance sheet release recorded net sales income expense amounts approximately 168 approximately 27 respectively consolidated income statements unfavorable ruling objection ipi tax increase would adverse effect companys consolidated income statements consolidated statements cash flows avon brazil would remit reasonably possible amount 220 taxing authorities including judicial deposit returned us july 30 2018 able reliably predict timing outcome objection tax increase favorable judicial ruling avon products inc notes consolidated financial statements continued objection ipi tax would adverse effect companys consolidated statements cash flows avon brazil would remit portion associated income tax liability taxing authorities company accruing tax reserve amounts approximately 73 december 31 2018 reserve settled final adjudication law combination cash use deferred tax assets talcrelated litigation company named defendant numerous personal injury lawsuits filed us courts alleging certain talc products company sold past contaminated asbestos many actions involve number codefendants variety different industries including manufacturers cosmetics manufacturers products unlike company’s products designed contain asbestos believe claims us without merit defending vigorously claims continue date findings liability company cases unable predict ultimate outcome case adverse outcome individually aggregate could material additional similar cases arising use companys talc products reasonably anticipated time unable estimate reasonably possible losses also light inherent litigation uncertainties potential costs litigate cases known may significant though costs covered insurance brazilian laborrelated litigation ongoing basis company subject numerous diverse laborrelated lawsuits filed employees brazil cases assessed aggregated ongoing basis based historical outcomes similar cases claims made often significantly larger sums historically paid company practice continues recognize liability based assessment historical payments similar cases best estimate probable loss current cases december 31 2018 approximately 11 accordingly recognized liability amount shareholder litigation february 14 2019 purported shareholder’s class action complaint bevinal v avon products inc et al 19cv1420 filed united states district court southern district new york company certain present former officers company complaint brought behalf purported class consisting purchasers avon common stock august 2 2016 august 2 2017 inclusive complaint asserts violations sections 10b 20a exchange act based allegedly false misleading statements alleged market manipulation respect among things changes made avon’s credit terms representatives brazil light early stage litigation unable predict outcome matter unable make meaningful estimate amount range loss could result unfavorable outcome matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2018 expected material adverse effect consolidated financial position results operations cash flows avon products inc notes consolidated financial statements continued note 20 goodwill note 21 supplemental balance sheet information december 31 2018 2017 prepaid expenses included following december 31 2018 2017 assets included following avon products inc notes consolidated financial statements continued note 22 results operations quarter unaudited 1 operating profit loss impacted following addition items impacting operating profit loss 2 loss income continuing operations net tax 2018 impacted onetime tax reserves approximately 18 associated uncertain tax positions expense approximately 3 associated ownership transfer certain operational assets within consolidated group 3 loss income continuing operations net tax 2017 impacted 299 net income tax benefit recognized fourth quarter result enactment tax cuts jobs act us release valuation allowances 255 associated number markets europe middle east africa result business model change related move companys headquarters us uk 104 benefit result favorable court decision brazil partially offset charge 160 associated valuation allowances adjust deferred tax assets mexico avon products inc notes consolidated financial statements continued 4 sum per share amounts quarters necessarily equal year computations made independently see note 17 restructuring initiatives results operations consolidated within mda pages 35 43 note 15 segment information venezuela discussion within mda pages 42 43 note 1 description business summary significant accounting policies note 14 employee benefit plans note 19 contingencies note 8 debt financing note 10 income taxes information items note 23 subsequent events global headcount reduction january 2019 announced significant advancements open avon strategy including structural reset inventory processes aggregate 18 reduction global workforce structural reset resulted incremental oneoff inventory obsolescence expense 88 recognized december 31 2018 refer note 17 restructuring initiatives additional information regarding structural reset inventory global workforce reduced 2019 approximately 10 align ongoing operating model changes create leaner organization better aligned avon’s current future business focus reduction incremental 8 reduction global workforce completed 2018 expect incur restructuring charge approximately 100 2019 relating global workforce reduction wasnt approved board directors january 2019 revolving credit facility february 2019 avon international capital plc aic whollyowned foreign subsidiary company entered threeyear €2000 senior secured revolving credit facility “2019 facility” 2019 facility may used working capital general corporate purposes 2019 facility replaced 2015 facility obligations aic 2019 facility unconditionally guaranteed company aio material united states english restricted subsidiary company collectively “obligors” case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions 2019 facility terminate february 2022 provided however shall terminate 91st day prior maturity 460 notes 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2019 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios divestitures china manufacturing february 2019 completed sale thefaceshop co ltd affiliate lg household health care ltd equity interests avon manufacturing guangzhou ltd total purchase price 710 million net cash proceeds pretax 470 required repayment company certain outstanding intercompany loans 233 deducting cash hand avon manufacturing guangzhou ltd 7 rye office february 2019 signed agreement sell rye office transaction expected close end second quarter 2019 malaysia maximin february 2019 signed agreement sell legal entity maximin corporation sdn bhd owns malaysia office warehouse transaction expected close end first quarter 2019 schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2018 2017 2016 1 accounts written net recoveries foreign currency translation adjustment 2 returned product reused destroyed foreign currency translation adjustment 3 due adoption asc 606 revenue contracts customers january 1 2018 allowance sales returns reclassified reduction accounts receivable refund liability within accrued liabilities 4 includes oneoff inventory obsolescence expense 88 recognized december 31 2018 relating structural reset inventory refer note 17 restructuring initiatives additional information regarding structural reset inventory 5 obsolete inventory destroyed foreign currency translation adjustment 6 decrease valuation allowance primarily related partial release us valuation allowance result enactment tax cuts jobs act us impact business model change related move companys headquarters us uk 7 increase valuation allowance primarily deferred tax assets likely realized futureitem 15exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2019 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 5th day march 2020 avon products inc laura barbrook laura barbrook vice president corporate controller principal accounting officer pursuant requirements exchange act report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion financial statements audited accompanying consolidated balance sheets avon products inc subsidiaries “company” december 31 2019 december 31 2018 related consolidated statements operations comprehensive loss income cash flows changes shareholders’ deficit three years period ended december 31 2019 including related notes financial statement schedule listed accompanying index collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2019 december 31 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility company’s management responsibility express opinion company’s consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits consolidated financial statements accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion served company’s auditor since 2017 avon products inc consolidated statements operations accompanying notes integral part statements avon products inc consolidated statements comprehensive loss income accompanying notes integral part statements avon products inc consolidate balance sheets accompanying notes integral part statements avon products incconsolidated statements cash flows 1the balance beginning twelve month period ended december 31 2019 includes cash equivalents 37 classified assets held sale companys consolidated balance sheets end year 2018 2the following table provides reconciliation cash equivalents restricted cash reported within consolidated balance sheet sum total amounts shown consolidated statement cash flows twelve month period ended december 31 2019 2018 1 longterm restricted cash presented assets consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ deficit accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted primarily one channel direct selling reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives december 2015 entered definitive agreements affiliates cerberus capital management lp cerberus included 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business including approximately 100 cash subject certain adjustments avon new avon llc new avon privatelyheld company majorityowned managed affiliate cerberus transactions closed march 2016 avon retained approximately 20 ownership new avon april 2019 avon cerberus signed agreement lg household health care ltd sale new avon including 20 ownership interest transaction closed august 14 2019 see note 3 discontinued operations assets liabilities held sale additional information north american business represented companys operations united states us canada puerto rico previously reportable segment presented discontinued operations periods result transaction consolidated revenue derived operations subsidiaries outside us may 22 2019 entered agreement plan mergers natura cosméticos sa brazilian corporation sociedade anônima natura cosméticos natura co holding sa brazilian corporation sociedade anônima natura co holding two subsidiaries natura co holding natura co pursuant series transactions avon natura cosméticos become direct wholly owned subsidiaries natura co transaction additional information see note 23 agreement plan mergers natura cosméticos sa consolidated financial statements included herein january 3 2020 company consummated transaction became fully owned subsidiary natura co holding connection consummation transaction company notified nyse trading stock suspended companys common stock subsequently delisted deregistered company files financial statements sec voluntary filer comply terms certain debt instruments december 2019 company declared dividend 0016 per share equating 9 dividend subsequently paid january 2020 company principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related standalone selling prices ssp promised goods services delivered sales incentives allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rates actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes tax valuation allowances sharebased compensation loss contingencies evaluation goodwill property plant equipment capitalized software potential impairment foreign currency avon products inc notes consolidated financial statements continued financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive income loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency december 31 2019 argentinian subsidiary considered operating highly inflationary economy highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements operations nonmonetary assets liabilities inventory property plant equipment prepaid expenses carried forward historical dollar cost calculated using exchange rate date hyperinflationary accounting implemented argentina currency quarter ended june 30 2018 based published official exchange rates indicate argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina become highly inflationary economy july 1 2018 applied highly inflationary accounting argentinian subsidiary functional currency argentina changed us dollar consolidated groups reporting currency entity operates highly inflationary economy exchange gains losses associated monetary assets liabilities resulting changes exchange rate recorded income nonmonetary assets liabilities include inventories property plant equipment contract liabilities carried forward historical dollar cost calculated using exchange rate june 30 2018 result devaluation argentinian peso approximately 36 year end december 31 2019 operating profit negatively impacted approximately 11 largely cost sales consolidated income statements primarily due inventory accounted historical dollar cost year ended december 31 2019 also recorded benefit period approximately 7 expense net primarily associated net monetary liability position argentina approximate 3 positive impact income taxes consolidated income statements december 31 2019 net argentine pesodenominated monetary liability position argentina 8 net argentine pesodenominated nonmonetary asset position 45 primarily consisting inventory balances 23 result devaluation argentinian peso approximately 25 june 30 2018 december 31 2018 operating profit negatively impacted approximately 8 largely cost sales consolidated income statements primarily due inventory accounted historical dollar cost six months ended december 31 2018 also recorded benefit period approximately 6 expense net primarily associated net monetary liability position argentina approximate 2 positive impact income taxes consolidated income statements december 31 2018 net argentine pesodenominated monetary liability position argentina 33 net argentine pesodenominated nonmonetary asset position 50 primarily consisting inventory balances 32 revenue recognition nature goods services global manufacturer marketer beauty related products product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products business conducted primarily one channel direct selling reportable segments based geographic operations four regions europe middle east africa; south latin america; north latin america; asia pacific primarily sell products ultimate consumer direct selling channel principally representatives independent contractors employees revenue recognition revenue recognized control product service transferred customer generally representative revenue measured based consideration specified contract customer excludes amounts collected behalf third parties value added taxes vat collected taxing authorities avon products inc notes consolidated financial statements continued principal revenue streams significant judgments principal revenue streams distinguished sale beauty fashion home products representatives recorded net sales ii representative fees primarily sale brochures representatives fulfillment activities related contract include fees shipping handling recorded revenue iii includes sale products new avon llc new avon royalties licensing name products recorded revenue sale beauty fashion home products representatives generate majority revenue sale beauty fashion home products representative contacts customers directly selling primarily brochure whether paper online highlights new products special promotions incentives sales campaign sense representative together brochure store products sold brochure introducing new sales campaign typically generated every three four weeks purchase order processed products picked distribution center delivered representative usually combination local national delivery companies generally representative delivers merchandise collects payment customer account representative generally receives refund price representative paid product representative chooses return representative agreement outlines basic terms agreement avon representative combined purchase order constitutes contract purposes accounting standards codification topic asc revenue contracts customers asc 606 revenue contracts customers account individual products services separately contract distinct ie product service separately identifiable items contract representative benefit product service resources readily available recognized point time control product transferred representative addition offer incentives representatives support sales growth certain sales incentives distinct promises representative therefore separate performance obligation result revenue allocated performance obligation sales incentives deferred balance sheet associated performance obligations satisfied typically included within contract variable consideration sales returns late payment fees revenue recorded extent probable reversed therefore revenue adjusted variable consideration variable consideration generally estimated using expected value method considers possible outcomes weighted probability specifically sales returns refund liability recorded estimated cash refunded products expected returned returns asset recorded products expect returned resold based historical experience estimate sales returns well measurement returns asset refund liability updated end month changes expectations regarding amount salvageable returns reconditioning costs additional decreases value returned products late payment fees recorded uncertainty associated collecting fees resolved ie collected representative generally receives credit period one sales campaign meet certain criteria however specific credit terms outlined representative agreement generally representative remits payment sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment contracts representatives often include multiple promises transfer products andor services representative determining products andor services considered distinct performance obligations accounted separately addition assessing recognition revenue following performance obligations management exercised significant judgment following areas estimation variable consideration ssp promised goods services order determine allocate transaction price performance obligation avon products appointment kits representative purchases avon products appointment kits purchase order avon offers appointment kits purchase representatives may contain various avon products recognize revenue avon products appointment kits net sales consolidated statements operations representative obtains control products occurs upon delivery product representative transaction price amount expect receive exchange products adjusted variable consideration discussed estimated ssp performance obligations discussed cost products appointment kits recognized cost sales consolidated statements operations avon products inc notes consolidated financial statements continued performance obligation sales incentives types sales incentives include status programs loyalty points prospective discounts gift purchase among others representative eligible certain status programs specified sales levels met status programs offer additional benefits free discounted products services loyalty points offer option redeem additional avon products services prospective discounts offered countries certain sales levels reached given time period revenue attributable prospective discount performance obligation option purchase additional product discounted amount certain benefits within status programs loyalty points prospective discounts certain sales incentives constitute material right therefore distinct performance obligation contract representative transaction price allocated material right performance obligation based estimated ssp deferred balance sheet associated performance obligations satisfied cost incentives presented inventories consolidated balance sheets recognize revenue allocated material right net sales consolidated statements operations point time representative receives benefits material right obtains control products occurs upon delivery representative upon expiration material right sales incentives delivered associated products order gift purchase deferral required ssp represents estimated market value estimated amount could charged material right entity sells separately similar circumstances similar customers judgment required determine ssp distinct performance obligation instances ssp directly observable sell product service separately including certain sales incentives determine ssp using information may include market prices observable inputs ii representative fees primarily sale brochures representatives fulfillment activities related contract representative fees purchase order contract representative explicitly identifies activities perform includes fees charge representatives primarily sale brochures representatives fulfillment activities also includes late payment fees discussed brochures represent promotional materials given directly representatives customers marketing activity asc 606 brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures allocate consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized selling general administrative expenses consolidated statements operations often charge representative shipping handling including order processing payment processing activities invoice activities considered fulfillment costs consideration received represents part transaction price contract allocated performance obligations contract recognize revenue fulfillment activities revenue consolidated statements operations services provided representative cost activities recognized sga expenses consolidated statements operations iii revenue also recognize revenue sale products new avon part manufacturing supply agreement since separation companys north america business new avon march 1 2016 royalties licensing name products revenue consolidated statements operations cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost net realizable value cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision avon products inc notes consolidated financial statements continued brochure costs brochures represent promotional materials given directly representatives customers marketing activity brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures avon allocates consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized sga expenses consolidated statements operations brochure costs associated fees presented inventory 89 december 31 2019 132 december 31 2018 brochure costs associated fees presented prepaid expenses 48 december 31 2019 59 december 31 2018 brochure costs expensed cogs sga 2019 amounted 1011 939 respectively 2018 brochure costs expensed cogs sga 1135 1062 respectively 2017 brochure costs 2440 expensed sga previous accounting standards update asu 605 revenue recognition fees charged representatives brochures sold recorded revenue 2019 2018 amounted 969 1170 respectively 2017 fees charged representatives recorded reduction sga expenses amounted 1394 property plant equipment capitalized software property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred certain systems development costs related purchase development installation computer software implementation costs incurred hosting arrangement service contract capitalized amortized estimated useful life related project costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 831 december 31 2019 893 december 31 2018 amortization expense associated capitalized software 247 265 295 years ended december 31 2019 2018 2017 respectively evaluate property plant equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate leases determine arrangement lease commencement date addition lease agreements review material new vendor arrangements potential embedded lease obligations asset balance related operating finance leases presented within rightofuse rou asset property plant equipment respectively consolidated balance sheet shortterm liability balance related operating finance leases presented within accrued liabilities consolidated balance sheets longterm liability balance presented within longterm operating lease liability longterm debt consolidated balance sheets operating finance leases respectively lease liability recognized based present value remaining fixed insubstance fixed lease payments discounted using incremental borrowing rates use specific incremental borrowing rate material leases determined based geography nature asset term lease rates determined based inputs provided external banks updated periodically lease liability includes exercise purchase option reasonably certain exercise commencement date lease residual value guarantee amount included lease liability calculation extent payment probable lessor commencement lease rou asset calculated based lease liability adjusted lease payments paid lessor avon products inc notes consolidated financial statements continued commencement date ie prepaid rent initial direct costs incurred avon excluding lease incentives received lessor variable lease payments lessor included lease liability calculation define variable lease payments made avon lessor right use leased asset vary changes facts circumstances changes index rate volume usage etc occurring lease commencement date predetermined contractual changes due passage time example predetermined rent increase amounts set contract variable lease payments charges accounted incurred lease term purposes lease accounting may include options extend terminate lease reasonably certain exercise option commencement date lease operating leases lease expense recognized straightline basis lease term finance leases company amortizes rou asset straightline basis records interest expense lease liability created lease commencement lease term account lease nonlease components single component asset classes therefore included calculation lease liability recognized consolidated balance sheets however certain lease asset classes related identified embedded leases account lease nonlease components separately therefore nonlease component included lease liability leases initial term twelve months less recorded consolidated balance sheet recognize lease expense leases lease term assets liabilities held sale longlived asset disposal group classified held sale carrying amount recovered principally sale transaction rather continuing use sale considered highly probable within year longlived asset disposal group classified held sale initially measured lower carrying amount fair value less cost sell impairment loss recognized initial subsequent writedown longlived asset disposal group fair value less costs sell gain loss previously recognized date sale longlived asset disposal group recognized date derecognition longlived assets including part disposal group depreciated amortized classified held sale longlived assets classified held sale assets disposal group classified held sale presented separately assets balance sheet liabilities disposal group classified held sale presented separately liabilities balance sheet goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors avon products inc notes consolidated financial statements continued financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following •changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings •changes fair value derivative designated cash flow hedge recorded aoci reclassified earnings period periods transaction hedged derivative also affects earnings •changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci •changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements operations present earnings effect hedging instrument consolidated statements operations income statement line item earnings effect hedged item reported derivatives designated cash flow hedges conclude hedging relationship perfectly effective inception detailed effectiveness assessment period required long critical terms hedging instrument completely match related terms hedged item ii considered probable counterparties hedging instrument hedged item default iii hedged cash flows remain probable conditions met assess prospective retrospective effectiveness using cumulative dollaroffset method compares change fair value present value cash flows hedging instrument changes fair value present value cash flows hedged item result quantification demonstrates hedge still highly effective meaning cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item revert qualitative assessments hedge effectiveness subsequent periods expectation high effectiveness qualitative basis subsequent periods reasonably supported effectiveness within 80 125 range hedge accounting discontinued changes fair value hedging instrument recorded earnings date hedge longer considered highly effective deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire see note 10 income taxes information accordance guidance issued financial accounting standards board fasb choosing treat us income tax consequences global intangible lowtaxed income gilti period cost result december 31 2019 deferred income taxes provided uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements operations sga expenses sga expenses include costs associated selling marketing distribution including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling avon products inc notes consolidated financial statements continued shipping handling costs expensed incurred amounted 4321 2019 5035 2018 5308 2017 advertising costs excluding brochure preparation costs expensed incurred amounted 729 2019 1276 2018 1184 2017 research development research development costs expensed incurred amounted 406 2019 480 2018 529 2017 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation applicable sharebased payments employees recognized financial statements based fair value date grant applicable use montecarlo simulation calculate fair value performance restricted stock units market conditions fair value premiumpriced stock options account forfeitures sharebased payments occur terms equitysettled award modified minimum expense recognized grant date fair value unmodified award provided original vesting terms award met additional expense measured date modification recognized modification increases total fair value sharebased payment award cancelled unamortized compensation cost expensed immediately restructuring expense record estimated expense restructuring initiatives transformation plan open avon costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits inventory writeoffs impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required avon products inc notes consolidated financial statements continued pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans service cost presented sga consolidated statements operations components net periodic benefit costs service cost presented expense net consolidated statements operations contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable note 2 new accounting standards new accounting standards implemented except changes consistently applied accounting policies periods presented consolidated financial statements asu 201602 leases february 2016 fasb issued asu 201602 leases requires assets liabilities arising leases recognized consolidated balance sheets adopted new accounting guidance effective january 1 2019 july 2018 fasb added optional transition method elected upon adoption new standard allows us recognize measure leases existing january 1 2019 without restating comparative information addition elected apply package practical expedients permitted transition guidance within new standard among things allows us carry forward historical lease classification standard material impact consolidated balance sheets material impact consolidated income statements significant impact recognition rightofuse rou assets lease liabilities operating leases presented separately consolidated balance sheet accounting finance leases remains substantially unchanged leased assets included property plant equipment lease liabilities included within debt adoption standard resulted recognition additional rou assets lease liabilities operating leases 191 204 respectively january 1 2019 difference amounts recorded adjustment retained earnings see note 16 leases commitments annual report information asu 201802 income statement reporting comprehensive income february 2018 fasb issued asu 201802 income statement reporting comprehensive income permits entities reclassify disproportionate income tax effects 2017 enactment us tax reform legislation act items within aoci loss retained earnings adopted new accounting guidance effective january 1 2019 elected reclassify disproportionate income tax effects act aoci loss retained earnings asu 201409 revenue contracts customers adopted asc 606 date initial application january 1 2018 cumulativeeffect adjustment retained earnings therefore comparative information prior periods adjusted continues reported asc 605 revenue recognition applied asc 606 outstanding contracts january 1 2018 avon products inc notes consolidated financial statements continued recorded cumulativeeffect adjustment upon adoption new revenue recognition standard january 1 2018 comprised following •a reduction retained earnings 527 taxes 411 tax corresponding impact deferred income taxes 116 •a reduction prepaid expenses 549 •an increase inventories 393 •an increase accrued liabilities 371 due net impact establishment contract liability 918 deferred revenue performance obligations yet satisfied partially offset reduction sales incentive accrual 547 cumulativeeffect adjustment impacting consolidated balance sheets primarily driven sales incentives brochures changes resulting new revenue recognition standard material details significant changes accounting policy revenue recognition quantitative impact changes consolidated financial statements set performance obligations avon products appointment kits recognize revenue avon products appointment kits net sales consolidated statements operations representative obtains control products occurs upon delivery product representative transaction price amount expect receive exchange products adjusted variable consideration sales returns past due fees estimated ssp performance obligations sales incentives revenue allocated material right performance obligation sales incentives deferred balance sheet associated performance obligations satisfied cost products appointment kits recognized cost sales consolidated statements operations historical accounting recognized revenue avon products net sales consolidated statements operations upon delivery product representative recognized revenue appointment kits sold representatives reduction sga expenses consolidated statements operations associated cost recognized sga expenses consolidated statements operations revenue adjusted expected sales returns performance obligations material rights sales incentives certain benefits within status programs loyalty points prospective discounts certain sales incentives constitute material right therefore distinct performance obligation contract representative transaction price allocated material right based estimated ssp deferred balance sheet associated performance obligations satisfied cost sales incentives presented inventories consolidated balance sheets recognize revenue allocated material right net sales associated cost sales incentives recognized cost sales consolidated statements operations point time representative receives benefits material right obtains control products occurs upon delivery representative upon expiration material right sales incentives delivered associated products order gift purchase deferral required historical accounting cost sales incentives generally presented accrued liabilities prepaid expenses consolidated balance sheets recognized sga expenses consolidated statements operations period sales incentive earned representative fees primarily sale brochures representatives fulfillment activities related contract includes fees charge representatives primarily sale brochures representatives fulfillment activities also includes late payment fees brochures represent promotional materials given directly representatives customers marketing activity asc 606 brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures avon allocates consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized sga expenses consolidated statements operations avon products inc notes consolidated financial statements continued historical accounting brochure costs initially deferred prepaid expenses consolidated balance sheets charged sga expenses consolidated statements operations campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses consolidated balance sheets recorded reduction sga expenses consolidated statements operations campaign length fulfillment activities late payment fees often charge representative shipping handling including order processing payment processing activities invoice activities considered fulfillment costs consideration received represents part transaction price contract allocated performance obligations contract recognize revenue fulfillment activities revenue consolidated statements operations services provided representative cost activities recognized sga expenses consolidated statements operations late payment fees recorded revenue consolidated statements operations collected historical accounting revenue shipping handling including order processing activities recorded revenue consolidated statements operations however revenue payment processing activities late payment fees recognized reduction sga expenses consolidated statements operations cost activities recognized sga expenses consolidated statements operations impacts consolidated financial statements following tables summarize impacts adopting asc 606 companys consolidated financial statements twelve months ended december 31 2018 1primarily relates appointment kits reclassified sga partially offset timing recognition sales incentives 2relates representative fees primarily brochure fees late payment fees certain fees reclassified sga brochure fees also impacted timing recognition 3primarily relates cost sales incentives cost brochures paid representatives cost appointment kits reclassified sga cost sales incentives cost brochures also impacted timing recognition 4relates cost sales incentives reclassified cost sales also impacted timing recognition partially offset representative fees reclassified revenue appointment kits reclassified net sales cost sales avon products inc notes consolidated financial statements continued 1relates sales returns reclassified reduction accounts receivable refund liability within accrued liabilities returns asset within prepaid expenses 2primarily relates sales incentives brochures reclassified prepaid expenses inventories also impacted timing recognition addition prepaid expenses impacted timing recognition brochures well reclassification sales returns described 3relates deferred tax assets associated cumulativeeffect adjustment 4primarily relates contract liability sales incentives partially offset lower accrual sales incentives addition accrued liabilities impacted reclassification sales returns described 5relates 411 cumulativeeffect adjustment upon adoption asc 606 partially offset yeartodate 86 net loss adjustment avon products inc notes consolidated financial statements continued asu 201815 intangibles goodwill otherinternal use software customer’s accounting implementation costs incurred cloud computing arrangement service contract august 2018 fasb issued asu 201815 intangibles goodwill internaluse software customer’s accounting implementation costs incurred cloud computing arrangement service contract new guidance aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software accounting service element hosting arrangement service contract affected amendment early adopted asu 201815 effective october 1 2018 material impact consolidated financial statements asu 201712 derivatives hedging targeted improvements accounting hedging activities august 2017 fasb issued asu 201712 derivatives hedging targeted improvements accounting hedging activities align hedge accounting model closely risk management practices simplify application among things new guidance eliminates requirement separately measure report hedge ineffectiveness new guidance effective interim annual reporting periods beginning december 15 2018 new guidance must adopted using modified retrospective transition cumulative effect adjustment recorded opening retained earnings initial adoption date early adopted asu 201712 effective july 1 2018 adoption material impact consolidated financial statements asu 201707 compensation retirement benefits march 2017 fasb issued asu 201707 compensation retirement benefits new guidance requires entities 1 disaggregate service cost component components net periodic benefit costs present current employee compensation costs consolidated statements operations 2 present components net periodic benefit costs operating profit expense net adopted new accounting guidance effective january 1 2018 new accounting guidance applied retrospectively increased operating profit 2017 2016 80 19 respectively impact net loss following tables summarize impacts adopting asc 201707 companys consolidated financial statements twelve months ended december 31 2017 2016 avon products inc notes consolidated financial statements continued asu 2017 04 intangibles goodwill topic 350 january 2017 fasb issued accounting standards update asu 201704 intangibles goodwill simplifies test goodwill impairment update eliminates step 2 goodwill impairment test computing implied fair value goodwill step 2 entity perform procedures determine fair value impairment testing date assets liabilities including unrecognized assets liabilities following procedure would required determining fair value assets acquired liabilities assumed business combination instead entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting units fair value however loss recognized exceed total amount goodwill allocated reporting unit amendments update effective company fiscal years beginning december 15 2019 interim periods within fiscal years early adoption permitted including adoption interim period company process evaluating impact standard update consolidated financial statements related disclosures asu 201609 compensation stock compensation march 2016 fasb issued accounting standards update asu 201609 compensation stock compensation intended simplify accounting sharebased payment transactions new guidance changes several aspects accounting sharebased payment transactions including accounting income taxes forfeitures employertax withholding requirements asu 201609 also clarifies statements cash flows presentation certain components sharebased payment awards adopted new accounting guidance first quarter 2017 material impact consolidated financial statements accounting standards implemented asu 201613 financial instruments credit losses january 2016 fasb issued asu 201613 financial instruments credit losses requires measurement recognition expected credit losses financial assets held intend adopt new accounting guidance effective january 1 2020 assessed impact adopting standard reduce long term receivables within assets approximately 2 january 1 2020 adjustment retained earnings implementation standard result additional allowances related trade accounts receivable asu 201912 simplifying accounting income taxes december 2019 fasb issued asu 201912 income taxes intended simplify accounting standard improve usefulness information provided financial statements intend implement new accounting guidance effective january 1 2021 however early adoption permitted currently assessing impact new accounting guidance financial statements note 3 discontinued operations assets liabilities held sale discontinued operations december 17 2015 company entered definitive agreements affiliates controlled cerberus agreements resulted separation companys north america business represented companys operations united states canada puerto rico company new avon company formerly new avon privatelyheld company majorityowned managed cerberus na investor llc affiliate cerberus company retained investment 199 ownership interest new avon transactions closed march 1 2016 date resolution contingent liabilities relating avons ownership operation north america business prior separation company new avon treated discontinued operations refer divestitures section information relating sale new avon company incurred costs year ended december 31 2019 following resolution certain contingent liabilities related ownership operation north america business prior separation new avon major classes financial statement components comprising loss discontinued operations net tax new avon shown avon products inc notes consolidated financial statements continued amounts recorded discontinued operations years ended december 31 2018 december 31 2017 assets liabilities held sale major classes assets liabilities comprising held sale assets held sale liabilities consolidated balance sheet december 31 2019 december 31 2018 shown following table 2019 company line open avon strategy identified five properties sold met held sale criteria asc 360 december 31 2019 company expects close transactions within year divestitures rye office june 26 2019 completed sale rye office selling price 232 less expenses approximately 08 resulting proceeds 224 proceeds presented investing activities consolidated statement cash flows second quarter 2019 recorded gain sale 99 tax reported separately consolidated statements operations gain recorded represents difference proceeds carrying value rye office date sale first quarter 2019 refined calculation held sale assets gave rise additional 2 assets malaysia maximin may 9 2019 completed sale equity interests malaysia maximin total selling price 78 cash proceeds 76 net expenses presented within investing activities consolidated statement cash flows second quarter 2019 recorded gain sale 33 tax reported separately consolidated statements operations 30 tax gain recorded represents difference proceeds carrying value malaysia maximin date sale second quarter 2019 refined calculation held sale assets gave rise additional 14 assets china manufacturing february 15 2019 completed sale thefaceshop co ltd affiliate lg household health care ltd thefaceshop equity interests avon manufacturing guangzhou ltd total selling price 710 less expenses approximately 11 selling price included 235 relating outstanding intercompany loans payable avon products inc notes consolidated financial statements continued manufacturing guangzhou ltd avon subsidiaries presented financing activities consolidated statement cash flows subsequently settled april 2019 cash proceeds 464 net loan amounts presented investing activities consolidated statement cash flows includes 76 restricted cash december 31 2019 first quarter 2019 recorded gain sale 103 tax reported separately consolidated statements operations 82 tax representing difference proceeds including settlement intercompany loans carrying value avon manufacturing guangzhou ltd date sale new avon april 2019 signed agreement lg household health care ltd sell 199 ownership interest new avon august 2019 completed sale new avon selling price 245 expenses approximately 11 resulting cash proceeds 234 proceeds presented investing activities consolidated statement cash flows third quarter 2019 recorded gain sale 268 tax reported consolidated statements operations gain sale businessasset gain recorded represents total proceeds release aoci 34 recorded investment balance new avon december 31 2019 december 31 2018 zero note 4 investment new avon connection separation companys north america business closed march 1 2016 company retained 199 ownership interest new avon privatelyheld company majorityowned managed affiliate cerberus april 2019 avon cerberus signed agreement lg household health care ltd sale new avon including 199 ownership interest april 2019 avon cerberus signed agreement lg household health care ltd sale new avon including 199 ownership interest transaction closed august 14 2019 see note 3 discontinued operations assets liabilities held sale additional information since march 1 2016 company accounted ownership interest new avon using equity method accounting resulted company recognizing proportionate share new avons income loss comprehensive income loss recorded investment balance new avon august 14 2019 december 31 2018 zero year ended december 31 2017 companys proportionate share losses new avon 202 115 recorded within expense net addition third quarter 2017 company received cash distribution 220 new avon reduced recorded investment balance new avon third quarter 2017 recorded 17 companys proportionate share losses new avon reduced recorded investment balance new avon zero result record proportionate share new avons losses fourth quarter 2017 onwards addition companys proportionate share postseparation comprehensive income new avon benefits 1 year ended december 31 2017 recorded within comprehensive income loss company also recorded additional loss 5 within expense net benefit 11 within comprehensive income loss year ended december 31 2017 primarily associated purchase accounting adjustments reported new avon products inc notes consolidated financial statements continued note 5 related party transactions following tables present related party transactions new avon affiliates cerberus instituto avon brazil related party transactions august 14 2019 sold investment new avon lg household health care ltd upon completion sale new avon longer related party purposes disclosure transactions new avon period related party disclosed see note 3 discontinued operation assets liabilities held sale consolidated financial statements contained herein details 1 company supplies product new avon part manufacturing supply agreement august 14 2019 company sold investment new avon lg household health care ltd point new avon longer related party transactions entered new avon period related party 2019 twelve month period ended december 31 2018 disclosed 2 new avon supplies products company part manufacturing supply agreement discussed footnote 1 company purchased 16 28 new avon associated agreement years ended december 31 2019 2018 respectively recorded 21 29 associated purchases within cost sales years ended december 31 2019 2018 respectively august 14 2019 company sold investment new avon lg household health care ltd point new avon longer related party transactions entered new avon period related party 2019 twelve month period ended december 31 2018 disclosed 3 company also entered transition services agreement provide certain services new avon expired october 31 2018 well intellectual property license agreement technical support innovation subleases office space addition new avon performed certain services company similar transition services agreement expired third quarter 2017 company recorded net 05 59 reduction sga expenses associated agreements years ended december 31 2019 2018 respectively generally represents recovery related costs 4 company also entered agreements affiliate cerberus provide secondment cerberus affiliate personnel companys project management team responsible assisting execution transformation plan transformation plan announced january 2016 open avon strategy open avon announced september 2018 company recorded 40 12 sga expenses associated agreements years ended december 31 2019 2018 respectively see note 17 restructuring initiatives additional information related transformation plan open avon products inc notes consolidated financial statements continued 5 second quarter 2018 company entered agreement loan instituto avon independent nongovernment charitable organization brazil r12 million brazilian real unsecured 5year term fixed interest rate 7 per annum paid back five equal annual installments instituto avon created avon subsidiary brazil board executive team comprised avon brazil management purpose loan provide instituto avon means donate funds fundação pio xii leading cancer prevention treatment organization brazil owner hospital câncer de barretos order invest equipment objective expanding breast cancer prevention treatment period ended december 31 2019 institutio avon repaid 1 million loan 6 august 14 2019 company sold investment new avon lg household health care ltd point new avon longer related party therefore december 31 2019 related party balances new avon 7 payables due affiliate cerberus relate agreement project management team classified within accrued liabilities consolidated balance sheets addition company also issued standby letters credit lessors certain equipment lease transferred new avon connection separation companys north america business initial liability estimated value standby letters credit 21 included additional loss sale north america business recognized loss discontinued operations net tax consolidated statements operations year ended december 31 2016 december 31 2019 2018 company liability 04 14 respectively estimated value standby letters credit reduction estimated liability 10 years ended december 31 2019 2018 recognized expense net consolidated statements operations see note 18 series c convertible preferred stock discussion preferred shares issued cleveland apple investor lp cerberus investor affiliate cerberus note 6 revenue disaggregation revenue following tables revenue disaggregated product service type revenue recognized point time control product transferred customer avon products inc notes consolidated financial statements continued 2019 includes impact certain brazil indirect taxes recorded product sales approximately 68 consolidated income statements see note 21 supplemental balance sheet information consolidated financial statements contained herein information 2018 includes impact brazil ipi recorded product sales approximately 168 consolidated income statements see note 19 contingencies consolidated financial statements contained herein information contract balances timing revenue recognition generally different timing promise made representative result contract liabilities primarily relate advance consideration received representatives prior transfer related good service material rights loyalty points status programs primarily classified within accrued liabilities longterm portion liabilities consolidated balance sheets generally record accounts receivable invoice representative addition record estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances including seasonality changing trends allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication ultimate consumer products beyond representative legal recourse ultimate consumer collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required following table provides information receivables contract liabilities contracts customers december 31 2019 2018 contract liability balances relate certain material rights loyalty points status program prospective discounts twelve months ended december 31 2019 recognized 695 revenue related contract liability balance december 31 2018 result performance obligations satisfied addition deferred additional 366 related certain material rights granted period performance obligations yet satisfied amount deferred period substantially recognized within year significant majority captured within avon products inc notes consolidated financial statements continued quarter remaining movement contract liability balance attributable foreign exchange differences arising translation balance december 31 2019 compared december 31 2018 contract costs incremental costs obtain contracts bonuses commissions recognized asset entity expects recover however asc 34040 assets deferred costs offers practical expedient recognize incremental costs obtaining contract expense incurred amortization period asset entity otherwise would recognized one year less elected practical expedient expense costs obtain contracts incurred amortization period one year less costs fulfill contracts representatives comprised shipping handling including order processing payment processing services expensed incurred fees services included transaction price note 7 inventories december 31 consisted following amounts net allowance inventory obsolescence include impact incremental oneoff inventory obsolescence expense 88 recognized december 31 2018 resulting structural reset inventory announced january 2019 note 8 debt financing debt december 31 consisted following carrying value debt maturing within one year longterm debt presented net debt issuance costs includes related discount premium unamortized deferred gains terminated interestrate swap arrangements applicable notes payable included shortterm borrowings international subsidiaries unsecured notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes march 2008 issued 3500 principal amount 650 notes due march 1 2019 avon products inc notes consolidated financial statements continued 650 notes interest 2013 notes payable semiannually march 15 september 15 year interest 650 notes payable semiannually march 1 september 1 year indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp moodys since issuance 2013 notes interest rates notes increased maximum allowable increase august 2016 completed cash tender offers resulted reduction principal 1086 575 notes due march 1 2018 575 notes 738 420 notes due july 15 2018 420 notes 681 650 notes 501 460 notes october 2016 repurchased 440 650 notes 440 420 notes 400 460 notes 352 575 notes aggregate repurchase price equal principal amount notes plus premium 62 accrued interest 11 december 2016 repurchased 111 500 notes 62 695 notes aggregate repurchase price equal principal amount notes less discount received 13 plus accrued interest 3 june 2018 prepaid remaining principal amount 650 notes prepayment price equal remaining principal amount 2378 plus makewhole premium 62 accrued interest 46 connection prepayment incurred loss extinguishment debt 29 tax second quarter 2018 consisting 62 makewhole premium writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset write deferred gain 36 associated march 2012 interestrate swap agreement termination see note 11 financial instruments risk management fourth quarter 2018 repurchased 230 460 notes 270 500 notes aggregate repurchase price equal principal amount notes less discount received 24 accrued interest 7 connection repurchases debt incurred gain extinguishment debt 21 tax fourth quarter 2018 consisting 24 discount received repurchases partially offset 03 writeoff debt issuance costs discounts related initial issuance notes repurchased july 2019 repurchased 2748 460 notes way tender offer aggregate repurchase price equal principal amount 2748 less discount received 06 plus early tender premium 82 accrued interest 54 december 2019 prepaid remaining principal amount 46 notes prepayment price equal remaining principal amount 1122 plus makewhole premium 14 accrued interest 17 connection repurchases debt incurred loss extinguishment debt 81 tax third quarter 15 tax fourth quarter 2019 december 31 2019 2018 carrying values unsecured notes comprised following indentures governing outstanding notes described contain certain customary covenants customary events default crossdefault provisions change control provisions july september 2019 bondholder consents 5 notes 695 notes respectively obtained amend definition change control permit acquisition avon natura repayment notes triggered transaction natura co senior secured notes august 2016 avon international operations inc aio whollyowned domestic subsidiary company issued private placement exempt registration securities act 1933 amended 5000 aggregate principal amount 7875 senior secured notes mature august 15 2022 2016 notes interest 2016 notes payable semiannually february 15 august 15 year represents total debt aio december 31 2019 2018 avon products inc notes consolidated financial statements continued july 2019 avon international capital plc aic whollyowned foreign subsidiary company issued private placement exempt registration securities act 1933 amended 4000 aggregate principal amount 65 senior secured notes mature august 15 2022 2019 notes interest 2019 notes payable semiannually february 15 august 15 year 2019 notes listed international stock exchange represents total debt aic december 31 2019 aic incorporated january 2019 therefore 2018 comparison obligations aio aic senior secured notes unconditionally guaranteed company aio material us english restricted subsidiary company collectively obligors case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions aio aic indentures governing senior secured notes contains certain customary covenants restrictions customary events default crossdefault provisions change control provisions indentures also contain covenant requiring aio restricted subsidiaries end year least certain percentage total assets api restricted subsidiaries subject certain qualifications see note 24 subsequent events annual report information change control involving avon repayment notes triggered transaction natura co december 31 2019 2018 carrying values senior secured notes comprised following maturities longterm debt annual maturities longterm debt includes notes capital leases outstanding december 31 2019 follows financing revolving credit facility june 2015 avon international operations inc aio whollyowned domestic subsidiary company entered fiveyear 4000 senior secured revolving credit facility 2015 facility december 31 2019 amounts outstanding 2015 facility february 2019 aic whollyowned foreign subsidiary company entered threeyear €2000 senior secured revolving credit facility 2019 facility december 31 2019 amounted 224 2019 facility replaced 2015 facility 2015 facility terminated time borrowings 2019 facility bear interest option rate per annum equal either libor euribor loan euros plus 225 basis points case subject adjustment based upon leveragedbased pricing grid 2019 facility available general corporate working capital purposes first quarter 2019 20 recorded writeoff unamortized issuance costs related 2015 revolving credit facility first quarter 2019 company capitalized 110 issue costs relating new revolving credit facility cash outflow presented financing activities within consolidated statement cash flows december 31 2019 amounts outstanding 2019 facility january 3 2020 facility automatically cancelled upon change control result 78 unamortized issuance costs written see note 23 agreement plan mergers natura cosméticos sa consolidated financial statements included herein amount facility available drawn reduced standby letters credit granted obligor december 31 2019 approximately 22 december 31 2019 based applicable exchange rates avon products inc notes consolidated financial statements continued entire amount remaining 2019 facility approximately €180 million could drawn without violating covenant obligations aic 2019 facility unconditionally guaranteed obligors case subject certain exceptions obligations obligors secured first priority liens security interests substantially assets obligors case subject certain exceptions 2019 facility contained affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios letters credit december 31 2019 december 31 2018 also letters credit outstanding revolving credit facility totaling 222 294 respectively balances december 31 2019 2018 primarily relate letters credit issued lessors certain equipment lease transferred new avon connection separation companys north america business balances december 31 2019 december 31 2018 also include letters credit guarantee various insurance activities longterm credit ratings longterm credit ratings moody’s ratings negative outlook b1 corporate family debt b3 senior unsecured debt ba1 senior secured notes sp ratings stable outlook b corporate family debt senior unsecured debt bb senior secured notes fitch rating positive outlook b investment grade however credit ratings remain investment grade may impact ability access transactions favorable terms note 9 accumulated comprehensive income loss tables present changes aoci component reclassifications aoci 2019 2018 avon products inc notes consolidated financial statements continued 1 gross amount reclassified expense net related taxes reclassified income taxes foreign exchange net gain 8 2019 net loss 69 2018 net gain 163 2017 resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income loss note 10 income taxes income continuing operations taxes years ended december 31 follows provision income taxes years ended december 31 follows continuing operations effective tax rate years ended december 31 follows 2019 result continued business model changes related move company’s headquarters us uk company recognized one time tax charges 2569 reflected reorganizations line associated primarily rationalization realignment company’s legal entity structure resulted use approximately 2569 foreign tax credits deferred tax assets tax attributes 2019 net change valuation allowances line rate reconciliation includes 1 2325 decreases valuation allowances primarily associated utilization foreign tax credits deferred tax assets offsetting onetime tax charges 2569 noted reorganizations line 2 665 decreases due tax rate change offsetting equivalent associated writeoffs deferred tax assets reflected “tax foreign income” line avon products inc notes consolidated financial statements continued 2018 result continued business model changes related move company’s headquarters us uk company recognized onetime tax benefits 987 reflected reorganizations line associated primarily rationalization realignment company’s legal entity structure ownership transfer certain operational assets within consolidated group tax benefit associated foreign derived intangible income provisions tax cuts jobs act us 2018 net change valuation allowances line rate reconciliation includes 1386 increases valuation allowances primarily associated deferred tax assets generated 2018 reductions valuation allowances 930 reflected captions rate reconciliation net associated deferred tax assets expensed written 2018 follows 572 excess tax basis deconsolidated subsidiaries reallocated investments consolidated subsidiaries 153 reduction future tax benefits anticipated state deferred tax assets 117 deferred tax assets reduction 88 deferred tax assets associated repatriation earnings consolidated subsidiaries 2017 result enactment tax cuts jobs act us company recognized net income tax benefit 299 associated following items reflected us tax reform line 335 valuation allowance release associated minimum tax credits utilized andor refunded future 36 uncertain tax position potential withholding taxes repatriation unremitted earnings addition impact financial position results associated following writeoff deferred tax assets associated valuation allowance 1614 due rate change 35 21 reversal deferred tax liabilities recording valuation allowance 667 associated unremitted earnings establishment deferred tax assets miscellaneous withholding tax items associated valuation allowance 55 onetime tax offshore earnings associated utilization foreign tax credits 29 included net change valuation allowance noted 2017 released valuation allowances 255 associated number markets europe middle east africa result business model change related move companys headquarters us uk given timing enactment tax cuts jobs act december 22 2017 sec issued guidance sab 118 directing taxpayers consider impact new legislation provisional necessary information available prepared analyzed including computations reasonable detail complete accounting effects resulting change law december 22 2017 except impact remeasuring deferred tax assets 21 rate accounted impacts new legislation including limited effects existing deferred taxes valuation allowances onetime tax offshore earnings potential changes impact indefinite reinvestment assertion measurement deferred taxes foreign unremitted earnings provisional basis financial statements amounts reported time represented best estimate given data available based interpretation us legislation 2018 us treasury issued various guidance application certain provisions may impact calculations december 31 2018 company completed accounting impact tax cuts jobs act including necessary adjustments provisional amounts previously recorded recording additional adjustments material impact financial position results deferred tax assets liabilities december 31 consisted following deferred tax assets liabilities december 31 classified follows avon products inc notes consolidated financial statements continued 2019 company recorded net decrease valuation allowance 2975 primarily related usage certain tax credits tax attributes associated rationalization realignment company’s legal entity structure change applicable tax rates expiration tax attribute carryforwards credit loss carryforwards future company continue evaluate whether financial results allow valuation allowances released release valuation allowance future would occur deferred tax assets associated valuation allowance determined likely realized december 31 2019 valuation allowance primarily represents amounts substantially us deferred tax assets certain foreign tax loss carryforwards certain foreign deferred tax assets recognition deferred tax assets based evaluation current estimated future profitability operations reversal deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards tax planning strategies also considered evaluated support realization deferred tax assets sources income existed along sufficient positive evidence indicated likely sources income could relied upon deferred tax assets reduced valuation allowance december 31 2019 exclusive asu 201311 reductions recognized deferred tax assets 6703 relating tax credit carryforwards us foreign tax credits minimum tax credits research experimentation credits tax credits valuation allowance 6495 provided 119 also offset accordance asu201311 tax credit carryforwards consist us foreign tax credits 6295 subject expiration 2022 2027 us research experimentation credits 216 subject expiration 2027 2039 us minimum tax credits 89 subject expiration tax credits 103 subject expiration 2020 2034 december 31 2019 exclusive asu 201311 reductions recognized deferred tax assets 21365 relating foreign state tax loss carryforwards valuation allowance 20186 provided 250 also offset accordance asu201311 deferred tax assets relating tax loss carryforwards consist 20115 foreign tax loss carryforwards valuation allowance 19185 provided 1000 state tax loss carryforwards valuation allowance 1000 provided december 31 2019 foreign tax loss carryforwards 95533 76116 subject expiration 19415 subject expiration 2020 2049 december 31 2019 state tax loss carryforwards taking consideration estimated effects preapportionment states 14437 subject expiration 2020 2039 december 31 2019 result us liquidity profile continue assert substantially foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability december 31 2019 account undistributed earnings foreign subsidiaries outstanding yearend tax effect earnings actually repatriated us year net impact deferred tax liability associated company’s undistributed earnings decrease 125 resulting deferred tax liability balance 61 related incremental tax cost approximately 12 billion undistributed foreign earnings december 31 2019 uncertain tax positions december 31 2019 3317 total gross unrecognized tax benefits approximately 1309 would favorably impact provision income taxes recognized reconciliation beginning ending amount unrecognized tax benefits follows avon products inc notes consolidated financial statements continued accrue interest penalties related unrecognized tax benefits provision income taxes reversed previously recorded expenses interest penalties net taxes 10 net taxes years ended december 31 2019 2018 2017 respectively december 31 2019 2018 63 74 respectively recorded interest penalties net tax benefit unrecognized tax benefits including interest penalties classified within longterm income taxes consolidated balance sheets file income tax returns us foreign jurisdictions december 31 2019 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits change materially within next twelve months note 11 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger avon products inc notes consolidated financial statements continued derivatives recognized consolidated balance sheets fair values following table presents fair value derivative instruments december 31 2019 fair value derivative instruments outstanding immaterial december 31 2018 interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2019 2018 interestrate swap agreements approximately 1 debt portfolio december 31 2019 2018 respectively exposed floating interest rates march 2012 terminated two interestrate swap agreements previously designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 years ended december 31 2019 2018 net impact gain amortization zero 60 respectively including 36 related extinguishment debt year ended december 31 2018 see note 8 debt financing december 31 2019 unamortized deferred gain associated march 2012 interestrate swap termination underlying debt obligations paid foreign currency risk may use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2019 outstanding foreign exchange forward contracts notional amounts totaling approximately 816 various currencies 37 designated cash flow hedges may use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans years ended december 31 2019 2018 recorded gains 421 26 respectively expense net consolidated statements operations related undesignated foreign exchange forward contracts first quarter 2019 discontinued program hedge foreign exchange risk relating forecasted operational transactions last designated cash flow hedges expire first quarter 2020 designated hedges material impact consolidated financial statements year ended december 31 2019 credit risk financial instruments foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 56 december 31 2019 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates avon products inc notes consolidated financial statements continued note 12 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows •level 1 quoted prices active markets identical assets liabilities •level 2 inputs quoted prices active markets observable either directly indirectly •level 3 unobservable inputs based assumptions assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2019 assets liabilities measured fair value recurring basis immaterial december 31 2018 defined benefit pension postretirement plan assets liabilities measured fair value recurring basis comprised foreign exchange forward contracts see note 11 financial instruments risk management availableforsale securities immaterial december 31 2019 2018 see note 14 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 14 employee benefit plans fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments accounts receivable debt maturing within one year accounts payable longterm debt foreign exchange forward contracts carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt presented net debt issuance costs includes related discount premium unamortized deferred gains terminated interestrate swap agreements applicable methods assumptions used estimate fair value follows •availableforsale securities fair values investments quoted market prices issues listed securities exchanges avon products inc notes consolidated financial statements continued •debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices •foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 13 sharebased compensation plans avon products inc 2013 stock incentive plan amended restated 2013 plan avon products inc 2016 omnibus incentive plan 2016 plan shareholderapproved plans provide several types sharebased incentive compensation awards including stock options restricted stock restricted stock units performance restricted stock units following shareholder approval 2016 plan may 2016 awards made 2013 plan 2013 plan maximum number shares may awarded 55000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share subject award ii case grant award payable shares option sar 313 multiplied share subject award 2016 plan maximum number shares may awarded 48000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 24 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares 2016 plan amended restated “amended restated 2016 plan” following shareholder approval may 2019 amended restated 2016 plan maximum number shares amended 20451976 shares common stock includes 5000000 additional shares 15451976 unused shares 2016 plan march 15 2019 maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 135 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock 2016 plan including amended restated 2016 plan restricted stock units performance restricted stock units 2013 plan 2016 plan including amended restated 2016 plan also outstanding stock options prior shareholderapproved plans stock option awards granted exercise price generally premium closing market price stock date grant stock options generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain market performance conditions years ended december 31 compensation cost stock options performance restricted stock units restricted stock units restricted including funded treasury shares 2019 2018 2017 recorded sga expenses consolidated statements operations stock options 2019 2018 2017 granted premiumpriced stock options exercise price equal 25 premium 25 premium 30 premium respectively closing market price stock price date grant premiumpriced stock options vest threeyear graded vesting schedule fair value premiumpriced stock option estimated date grant using montecarlo simulation estimating fair value option used following weightedaverage assumptions options granted years ended december 31 2019 2018 2017 avon products inc notes consolidated financial statements continued 1the riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2the expected term option based vesting terms respective option contractual life 10 years 3expected avon volatility based daily historical volatility stock price period similar expected life option weightedaverage grantdate fair value per share options granted 113 104 154 2019 2018 2017 respectively summary stock options december 31 2019 changes 2019 follows recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates december 31 2019 35 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 19 years stock options exercised 2019 2018 2017 restricted stock units performance restricted stock units 2019 2018 2017 2016 granted performance restricted stock units would vest settle three years based relative total shareholder return common stock companies included sp 400 index date grant three year performance period 2019 prsus 2018 prsus 2017 prsus 2016 prsus respectively grant date fair value per share awards already reflects estimated probability achieving market condition therefore record expense ratably performance period 2015 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions two years 2015 prsus addition performance conditions achieved target performance restricted stock units subject market condition number performance restricted stock units vest limited target amount company’s absolute total shareholder return threeyear service period negative adjusted compensation cost recognized todate reflect performance reflects estimated payout target absolute total shareholder return market condition impact number performance restricted stock units vest fair value prsus estimated date grant using montecarlo simulation estimates fair value based companys share price activity expected term award riskfree interest rate expected dividends expected volatility stock company estimating fair value prsus used following weightedaverage assumptions 1the riskfree rate based upon rate zero coupon us treasury bill periods within three year performance period effect time grant 2expected avon volatility based weekly historical volatility stock price period similar three year performance period 2019 prsus 2018 prsus 2017 prsus 2016 prsus three year service period 2015 prsus avon products inc notes consolidated financial statements continued 3expected average volatility based weekly historical volatility stock prices member companies included sp 400 index date grant period similar three year performance period 2019 prsus 2018 prsus 2017 prsus 2016 prsus weightedaverage grantdate fair value per share 2019 prsus 2018 prsus 2017 prsus 2016 prsus 2015 prsus 263 452 442 749 respectively summary restricted stock units december 31 2019 changes 2019 follows summary performance restricted stock units december 31 2019 changes 2019 follows 1 based initial target payout total fair value restricted stock units performance restricted stock units vested 2019 84 based upon market prices vesting dates december 31 2019 138 unrecognized compensation cost related restricted stock units performance restricted stock units compensation arrangements outstanding cost expected recognized weightedaverage period 198 years restricted stock december 2019 2083872 rsus 3276774 prsus exchanged 4808534 restricted stock exchange done advance transaction natura co holdings company accounted modification type probabletoprobable modification incremental fair value approximately 15 recognized remaining service period awards restricted stock would vest settle three years grant date original award company retained cancelled 1400010 restricted stock satisfy withholding tax obligations grantees cancellation resulted acceleration recognition 17 compensation cost included part 44 transaction related costs december 31 2019 3408524 restricted stock outstanding 57 unrecognized compensation cost related awards see note 23 agreement plan mergers natura cosméticos sa restricted stock units performance restricted stock units funded treasury shares march 2019 march 2018 granted 200000 performance restricted stock units respectively funded treasury shares outside 2016 plan reliance upon nyse rules performance restricted stock units weightedaverage grantdate fair value 298 279 2019 2018 grants respectively would vest settle end 2020 upon satisfaction certain performance conditions one year performance period 2019 2018 none performance restricted stock units vested 400000 performance restricted stock units outstanding december 31 2019 2018 recognized compensation cost 5 1 respectively performance restricted stock units december 31 2019 unrecognized compensation cost related restricted stock units awards exchanged restricted stock described february 2018 granted 600000 restricted stock units funded treasury shares outside shareholderapproved plans reliance upon nyse rules restricted stock units granted february 2018 weightedaverage grantdate fair value 225 vest settle full three years 2019 2018 none restricted stock avon products inc notes consolidated financial statements continued units vested 600000 restricted stock units outstanding december 31 2019 2018 recognized compensation cost 4 respectively restricted stock units december 31 2019 unrecognized compensation cost related restricted stock units awards exchanged restricted stock described march 2015 granted 121951 performance restricted stock units funded treasury shares outside 2013 plan reliance upon nyse rules performance restricted stock units weightedaverage grantdate fair value 749 terms exist awards 2015 prsus discussed 2018 121951 restricted stock units vested performance restricted stock units outstanding december 31 2018 2017 recognized compensation cost 0 1 respectively performance restricted stock units december 31 2019 unrecognized compensation cost related performance restricted stock units awards vested march 2015 april 2012 granted 489596 200000 restricted stock units respectively funded treasury shares outside shareholderapproved plans reliance upon nyse rules restricted stock units granted march 2015 weightedaverage grantdate fair value 900 vest settle ratably three years restricted stock units granted april 2012 weightedaverage grantdate fair value 2169 vested settled ratably five years 2018 163198 restricted stock units vested restricted stock units outstanding december 31 2018 2019 2018 2017 recognized compensation cost zero 1 8 respectively restricted stock units december 31 2019 unrecognized compensation cost related restricted stock units awards vested note 14 employee benefit plans defined contribution plans offer defined contribution plan employees united kingdom uk allows eligible participants contribute eligible compensation payroll deductions double employee contributions first 5 eligible compensation therefore maximum level provided avon 10 eligible compensation made matching contributions cash uk defined contribution plan 75 2019 59 2018 67 2017 follow investment allocation participant selected contributions also offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 13 2019 22 2018 26 2017 follow investment allocation participant selected contributions prior separation north america business costs associated contributions psa allocated discontinued operations global plan included north america us corporate avon associates see note 3 discontinued operations assets liabilities held sale usbased employees hired january 1 2015 made additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow largest nonus defined benefit pension plan uk defined benefit pension plan frozen future accruals april 1 2013 us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits usbased employees hired january 1 2015 provided solely psa described part separation north america business 2016 transferred 4996 pension liabilities pra associated current former employees north america business certain former avon employees along 3559 assets held pra defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations assets liabilities held sale continue retain certain avon products inc notes consolidated financial statements continued us pension postretirement liabilities primarily associated employees actively employed avon us providing services respect north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates provide health care benefits subject certain limitations certain retired associates us certain foreign countries us health care benefits corporate avon associates hired january 1 2005 form health reimbursement account us corporate avon associates hired january 1 2005 eligible retiree health care benefits certain retiree health care obligations current former employees north america business certain former avon employees based us transferred new avon recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued us pension plans include funded qualified plan pra unfunded nonqualified plans december 31 2019 pra benefit obligations 641 plan assets 633 december 31 2018 pra benefit obligations 654 plan assets 627 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans nonus pension plans include funded qualified pension plan uk avon products inc notes consolidated financial statements continued december 31 2019 uk qualified pension plan benefit obligations 4828 plan assets 5821 december 31 2018 uk qualified pension plan benefit obligations 4165 plan assets 5017 components net periodic benefit cost amounts recognized comprehensive loss amounts represent pretax effect classified within comprehensive loss income net tax amounts classified within consolidated statements comprehensive income loss addition amounts table second quarter 2017 recorded 182 charge loss contingency related nonus pension plan amendment plan occurred prior year may appropriately implemented amounts aoci expected recognized components net periodic benefit cost 2020 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining present value future pension obligations individual defined benefit pension plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including uk defined benefit pension plan pra based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment avon products inc notes consolidated financial statements continued obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis decreased 215 december 31 2019 306 december 31 2018 effective january 1 2018 changed method use estimate service interest cost components net periodic benefit cost pra majority significant nonus pension plans including uk defined benefit pension plan historically including 2017 estimated service interest cost components using single weightedaverage discount rate derived yield curve used measure benefit obligation beginning period beginning 2018 elected use full yield curve approach estimation components net periodic benefit cost applying specific spot rates along yield curve used determination benefit obligation relevant projected cash flows made change improve correlation projected benefit cash flows corresponding yield curve spot rates believe results precise measurement service interest costs weightedaverage assumptions used determine net benefit cost recorded consolidated statements operations years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors generally evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2019 assumed rate return assets globally 529 represents weightedaverage rate return plan assets amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico associated discontinued operations excluded amounts significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2019 net periodic benefit cost uk defined benefit pension plan 520 addition 2019 rate return assumption uk defined benefit pension plan based asset allocation approximately 80 liability driven investments approximately 5 corporate government bonds mortgagebacked securities approximately 15 equity securities emerging market debt high yield securities addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure similar assessments performed determining rates return nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 527 determining 2019 net cost nonus defined benefit pension plan assets plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2019 2018 asset category follows following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2019 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2018 avon products inc notes consolidated financial statements continued reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals derivative instruments publicly traded derivative contract specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices overall objective plan assets associated pra uk defined benefit pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable avon products inc notes consolidated financial statements continued asset allocation decision includes consideration noninvestment aspects pra uk defined benefit pension plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation factors discussed cash flows expect make contributions related continuing operations range 5 10 us defined benefit pension postretirement plans range 0 5 nonus defined benefit pension postretirement plans 2020 total benefit payments expected paid plans follows postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees accrued cost postemployment benefits 92 december 31 2019 2018 included employee benefit plans consolidated balance sheets supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 8 2019 1 2018 14 2017 benefit obligation dcp 131 december 31 2019 164 december 31 2018 included liabilities accrued compensation consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc brp nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last nine years brp closed employees hired january 1 2015 conjunction closure pra annual cost programs included determination net periodic benefit cost shown previously amounted 13 2019 21 2018 30 2017 benefit obligation programs 73 december 31 2019 93 december 31 2018 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers nine years avon products inc notes consolidated financial statements continued established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within sga expenses consolidated statements operations note 15 segment information reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues segment profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location determine segment profit deducting related costs expenses segment revenue segment profit excludes certain unallocated global expenses costs implement cti restructuring initiatives see note 17 restructuring initiatives loss contingency related nonus pension plan see note 14 employee benefit plans certain significant asset impairment charges see note 20 goodwill items allocated particular segment consistent manner assess performance allocate resources effective first quarter 2017 given exited thailand 2016 results thailand reported operating segments business activities periods presented previously results reported asia pacific effective first quarter 2018 given exited australia new zealand 2018 results australia new zealand reported operating segments business activities periods presented previously results reported asia pacific operating segments business activities also include revenue sale products new avon since separation companys north america business new avon march 1 2016 ongoing royalties licensing name products summarized financial information concerning reportable segments december 31 shown following tables avon products inc notes consolidated financial statements continued 12019 includes impact certain brazil indirect taxes recorded product sales approximately 68 consolidated income statements see note 21 supplemental balance sheet information consolidated financial statements contained herein information 2018 includes impact brazil ipi recorded product sales approximately 168 consolidated income statements see note 19 contingencies consolidated financial statements contained herein information 2other expenses incurred relation transaction primarily professional fees impairment losses assets see note 23 agreement plan mergers natura cosméticos sa consolidated financial statements contained herein agreement plan mergers natura cosméticos sa mda 2019 annual report information 3other operating segments business activities include markets exited effective first quarter 2018 given exited australia new zealand 2018 results australia new zealand reported operating segments business activities periods presented previously results reported asia pacific segment operating segments business activities also include revenue sale products new avon since separation companys north america business new avon march 1 2016 ongoing royalties licensing name products avon products inc notes consolidated financial statements continued total revenue major country major country defined one total revenues greater 10 consolidated total revenues 1 mexicos revenue greater 10 consolidated revenues 2019 longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets also includes country domicile us longlived assets primarily include property plant equipment associated continuing operations longlived assets brazil consist primarily property plant equipment related manufacturing distribution facilities longlived assets us consist primarily property plant equipment including global research development facility 1 polands longlived asset population greater 10 consolidated longlived assets 2019 note 16 leases commitments operating finance leases corporate market offices warehouses automotive equipment leases may include options extend terminate lease certain leases also include options purchase leased property depreciable life assets leasehold improvements limited expected lease term unless transfer title purchase option reasonably certain exercise avon products inc notes consolidated financial statements continued table shows lease income expenses recorded consolidated statement operations incurred year ended december 31 2019 1 includes variable lease costs immaterial presented selling general administrative expenses consolidated statements operations 2 sublease portfolio consists sublease previous principal executive office located 777 third avenue new york ny maturity analysis finance operating lease liabilities reflected table also reflects reconciliation undiscounted cash flows discounted finance operating lease liabilities recognized december 31 2019 consolidated balance sheet avon products inc notes consolidated financial statements continued december 31 2018 operating finance lease obligations due dates follows 1 total lease payments 2366 represent undiscounted cash flows therefore reconcile total discounted lease liability 2043 january 1 2019 shown company calculated weightedaverage remaining lease term presented years weightedaverage discount rate operating finance lease population noted lease accounting policy see note 1 description business summary significant accounting policies consolidated financial statements contained herein company uses incremental borrowing rate lease discount rate table sets classification lease payments consolidated statement cash flows rou assets obtained exchange new finance operating lease liabilities represent new operating finance leases entered year ended december 31 2019 avon products inc notes consolidated financial statements continued note 17 restructuring initiatives transformation plan open avon open avon september 2018 initiated open avon open avon strategy integral ability return avon growth built around necessity incorporating new approaches various elements business including increased utilization thirdparty providers manufacturing technology fit purpose asset base focus enabling representatives easily interact company achieve relevant earnings commercial elements strategy developed help increase representative earnings thereby retention elements representative strategy include improvements service functions increased training utilization digital tools expand consumer reach product bundling regimens designed help improve earnings opportunity sharper targeted product innovation drive brand relevancy cost savings plan expected generated efficiencies manufacturing sourcing distribution general administrative activities back office functions well revenue management interest tax savings expected achieved restructuring actions may result charges related severance contract terminations inventory asset writeoffs well costsavings strategies would result restructuring charges january 2019 announced significant advancements strategy including structural reset inventory processes resulting incremental oneoff inventory obsolescence expense 88 recognized december 31 2018 result open avon restructuring actions approved todate recorded total costs implement restructuring initiatives 2498 taxes 1066 1432 recorded twelve months ended december 31 2019 2018 respectively consolidated statements operations transformation plan january 2016 initiated transformation plan order enable us achieve longterm goals midsingledigit constantdollar constant revenue growth low doubledigit operating margin result restructuring actions approved todate recorded total costs implement restructuring initiatives 2147 taxes 93 380 recorded twelve months ended december 31 2019 2018 respectively consolidated statements operations restructuring actions taken associated transformation plan beginning third quarter 2018 new restructuring actions approved operate new open avon plan described costs implement restructuring initiatives twelve months ended december 31 2019 2018 twelve months ended december 31 2019 recorded net costs implement 1160 1066 related open avon 93 related transformation plan 1 related restructuring initiatives consolidated statements operations twelve months ended december 31 2018 recorded costs implement 1805 1432 related open avon 380 related transformation plan benefit 7 related restructuring initiatives consolidated statements operations costs twelve months ended december 31 2019 2018 consisted following avon products inc notes consolidated financial statements continued tables include restructuring costs employeerelated costs inventory asset writeoffs foreign currency translation writeoffs contract terminations include costs implement restructuring initiatives professional services fees dual running costs accelerated depreciation gain sale business liability balance included accrued liabilities consolidated balance sheet restructuring actions associated open avon december 31 2019 follows avon products inc notes consolidated financial statements continued liability balance included accrued liabilities consolidated balance sheet restructuring actions associated transformation plan december 31 2019 follows majority cash payments applicable associated yearend liability expected made 2020 following table presents restructuring charges incurred date open avon transformation plan along estimated charges expected incurred approved initiatives plans avon products inc notes consolidated financial statements continued charges net adjustments initiatives open avon transformation plan along estimated charges expected incurred approved initiatives plans reportable segment follows charges included segment profit excludes costs implement restructuring initiatives amounts shown tables charges recorded todate relate initiatives approved recorded consolidated financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met note 18 series c convertible preferred stock march 1 2016 company issued sold cerberus investor 435000 shares newly issued series c preferred stock aggregate purchase price 435 pursuant investment agreement dated december 17 2015 company cerberus investor connection issuance series c preferred stock company incurred direct incremental expenses 87 comprised financial advisory fees legal expenses reduced carrying value series c preferred stock cumulative preferred dividends accrue daily series c preferred stock rate 125 per quarter series c preferred stock accrued unpaid dividends 913 december 31 2019 dividends paid relation series c preferred stock years ended december 31 2019 2018 avon products inc notes consolidated financial statements continued december 19 2019 company natura co holding announced date regulatory approvals required merger agreement complete transactions obtained result series c preferred stock probable becoming redeemable redemption value adjusted subsequently december 30 2019 cerberus elected convert series c preferred stock described series c preferred stock longer probable becoming redeemable recognize changes redemption value immediately occur carrying value security adjusted equal redemption amount would redemption occur end reporting date based conditions exist date result recognized increase 609 carrying value series c preferred stock year ended december 31 2019 december 30 2019 cerberus elected convert 435000 shares series c preferred stock representing shares series c preferred stock outstanding shares company’s common stock par value us025 per share pursuant holder company’s series c preferred stock’s rights company’s certificate incorporation foregoing election conditioned upon filing certificates merger respect first merger conversion condition january 3 2020 company consummated transaction become wholly owned subsidiary natura co holding upon consummation transaction companys common stock converted natura co holding common stock natura co holding subsequently paid accrued dividend 915 cerberus january 2020 see note 23 agreement plan mergers natura cosméticos sa note 24 subsequent events dividend rights series c preferred stock ranks senior shares common stock respect dividend rights distribution assets liquidation dissolution winding affairs series c preferred stock liquidation preference 1000 per share representing aggregate liquidation preference 4350 upon issuance holders series c preferred stock entitled participate asconverted basis dividends paid holders shares company’s common stock addition cumulative preferred dividends accrue daily series c preferred stock payable rate 125 per quarter net dividends company’s common stock subject increase maximum rate 500 per quarter company breaches certain obligations except extent otherwise previously paid company preferred dividends payable seventh anniversary issuance date series c preferred stock declared board directors end quarter thereafter accrued unpaid preferred dividends may paid company’s option cash ii subject certain conditions shares company’s common stock iii upon conversion shares series c preferred stock shares company’s nonvoting nonconvertible series preferred stock shares series preferred stock issued would similar preferential rights conversion features series c preferred stock convertible option holders time shares company’s common stock initial conversion price 500 per share subject certain antidilution adjustments prior receipt applicable shareholder approval shares series c preferred stock convertible 1999 number shares common stock outstanding immediately prior issuance series c preferred stock subject certain antidilution adjustments december 31 2019 series c preferred stock convertible 87051524 shares common stock time volume weighted average price common stock exceeds 1000 per share subject certain antidilution adjustments period 30 consecutive trading days company may cause series c preferred stock converted shares common stock based applicable conversion price voting rights holders series c preferred stock entitled vote generally holders common stock asconverted basis holders series c preferred stock also entitled separate class vote respect election three directors board directors subject maintaining certain levels beneficial ownership series c preferred stock andor common stock ii amendments company’s organizational documents adverse effect series c preferred stock iii issuances company securities senior equal priority series c preferred stock iv delisting company’s common stock connection change control event change control put upon certain change control events involving company holders series c preferred stock require company repurchase series c preferred stock amount equal greater amount cash equal 100 liquidation preference thereof plus accrued unpaid dividends ii consideration holders would received converted shares series c preferred stock common stock immediately prior change control event see note 23 agreement plan mergers natura cosméticos sa note 24 subsequent events consolidated financial statements included herein avon products inc notes consolidated financial statements continued note 19 contingencies brazilian tax assessments december 2012 brazilian subsidiary avon industrial ltda avon brazil manufacturing received excise tax ipi assessment year 2008 assessment totals approximately 305 including penalties accrued interest prior ipi cases resolved avon’s favor assessment asserts establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil manufacturing observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2012 ipi assessment unfounded matters vigorously contested july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level april 18 2018 avon received official notification second administrative level issued partially favorable partially unfavorable decision original assessment reduced approximately 64 including associated penalty interest subject federal revenue appeal remaining 241 assessment upheld second administrative level april 2018 appealed decision third administrative level december 2019 received unfavorable decision third administrative level waiting formal notification present motion clarification motion presented case continue judicial level october 3 2017 avon brazil manufacturing received new tax assessment notice regarding ipi 2014 grounds similar 2012 assessment 2017 ipi assessment totals approximately 238 including penalties accrued interest april 2 2018 avon notified unfavorable decision first administrative level february 25 2019 ipi assessment upheld second administrative level april 11 2019 appealed decision third administrative level december 2019 received unfavorable decision third administrative level appeal presented pending resolution structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2017 ipi assessment unfounded event 2012 2017 ipi assessments upheld third final administrative level may necessary us provide monetary security full amount debt pursue appeals judicial levels depending circumstances may result charge earnings adverse effect companys consolidated statements cash flows possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2014 closed statute believe 2012 2017 ipi assessments unfounded however based likelihood upheld assess risks disclosed reasonably possible december 30 2019 recognized liability 2012 2017 ipi assessments brazil ipi tax cosmetics separate tax assessments received avon brazil manufacturing avon cosmeticos ltda avon brazil involved litigation related executive decree issued may 2015 decree increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products avon brazil filed objection ipi tax increase basis constitutional december 2016 avon brazil received favorable decision federal district court regarding objection decision appealed tax authorities may 2015 april 2016 avon brazil remitted taxes associated ipi tax increase judicial deposit would remitted taxing authorities event successful objection tax increase may 2016 avon brazil received favorable preliminary decision objection tax granted preliminary injunction result beginning may 2016 avon brazil longer required remit taxes associated ipi judicial deposit june 12 2018 received decision authorizing avon withdraw amount held judicial deposit substituting letter guarantee presented june 29 2018 tax authorities presented appeal decision july 30 2018 funds received bank account september 30 2018 due part recent judicial decisions across industry developments concluded supported opinion legal counsel executive decree unconstitutional therefore assessed ipi tax asc 450 contingencies determined risk loss reasonably possible probable accordingly released associated liability september 30 2018 approximately 195 ceased accruing ipi taxes october 1 2018 liability classified within longterm sales taxes income consolidated balance sheet release recorded product sales income expense net amounts approximately 168 approximately 27 respectively consolidated income statements quarter ended september 30 2018 avon products inc notes consolidated financial statements continued unfavorable ruling objection ipi tax increase would adverse effect companys consolidated income statements consolidated statements cash flows avon brazil would remit reasonably possible amount 267 taxing authorities including judicial deposit returned us july 30 2018 able reliably predict timing outcome objection tax increase favorable judicial ruling objection ipi tax would also adverse effect companys consolidated statements cash flows avon brazil would remit portion associated income tax liability taxing authorities company accruing tax reserve amounts approximately 83 december 31 2019 reserve would settled final adjudication law combination cash use deferred tax assets talcrelated litigation company named defendant numerous personal injury lawsuits filed us courts alleging certain talc products company sold past contaminated asbestos many actions involve number codefendants variety different industries including manufacturers cosmetics manufacturers products unlike company’s products designed contain asbestos december 31 2019 124 individual cases pending company three months ended december 31 2019 21 new cases filed three cases dismissed settled otherwise resolved value settlements area thus far material either individually aggregate additional similar cases arising use companys talc products reasonably anticipated believe claims asserted us cases without merit defending vigorously claims continue date company proceeded trial case filed findings liability enforceable company however nationwide trial results similar cases filed manufacturers cosmetic talc products ranged outright dismissals large jury awards compensatory punitive damages given inherent uncertainties litigation cannot predict outcome individual cases pending company able make reasonable estimate small number individual cases advanced later stages legal proceedings remaining cases provide estimate exposure aggregated ongoing basis takes account historical outcomes cases resolved date accruals currently recorded company’s balance sheet respect cases material accruals time unable estimate reasonably possible probable losses however adverse outcomes either individual case aggregate could material future costs litigate cases expense incurred known may significant though costs covered insurance brazilian laborrelated litigation ongoing basis company subject numerous diverse laborrelated lawsuits filed employees brazil cases assessed aggregated ongoing basis based historical outcomes similar cases claims made often significantly larger sums historically paid company practice continues recognize liability based assessment historical payments similar cases best estimate probable loss current cases december 31 2019 approximately 10 accordingly recognized liability amount shareholder litigation february 14 2019 purported shareholder’s class action complaint bevinal v avon products inc et al 19cv1420 filed usdc southern district new york company certain former officers company june 3 2019 court appointed lead plaintiff class counsel complaint subsequently amended june 28 2019 recaptioned avon products inc securities litigation july 8 2019 july 24 2019 plaintiffs filed amended complaint amended complaint brought behalf purported class consisting purchasers acquirers avon common stock january 21 2016 november 1 2017 inclusive complaint asserts violations sections 10b 20a securities exchange act 1934 based allegedly false misleading statements alleged market manipulation respect among things changes made avon’s credit terms representatives brazil july 26 2019 avon individual defendants filed motion dismiss november 18 2019 court denied motion accordingly december 16 2019 avon individual defendants filed answer amended complaint february 14 2020 plaintiffs filed motion class certification parties currently engaged discovery avon provided notice matter company’s insurers light early stage litigation unable predict outcome matter unable assess likelihood loss make reasonable estimate amount range loss could result unfavorable outcome matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time avon products inc notes consolidated financial statements continued total cost resolving contingencies december 31 2019 expected material adverse effect consolidated financial position results operations cash flows note 20 goodwill note 21 supplemental balance sheet information december 31 2019 2018 prepaid expenses included following december 31 2019 2018 assets included following 1 deferred tax asset balance december 31 2018 presented separately consolidated balance sheet longterm receivables includes approximately 118 certain brazil indirect taxes cofins recognized year ended december 31 2019 approximately 68 50 recorded product sales income expense net respectively consolidated income statements following favorable judicial decisions 2019 corresponding tax charge transaction approximately 23 included deferred tax asset balance december 31 2019 presented separately consolidated balance sheet third quarter 2019 entered arrangement sell rights portion credits amount approximately 80 company option repurchase credits period three years transaction resulted cash inflow approximately 19 presented financing activity consolidated statements cash flows sale credits accounted financing arrangement therefore receivables derecognized financing liability approximately 19 recognized avon products inc notes consolidated financial statements continued note 22 results operations quarter unaudited 1operating profit loss impacted following addition items impacting operating profit loss 2loss income continuing operations net tax 2019 impacted certain indirect tax items brazil approximately 68 3loss income continuing operations net tax 2018 impacted onetime tax reserves approximately 18 associated uncertain tax positions expense approximately 3 associated ownership transfer certain operational assets within consolidated group see note 17 restructuring initiatives results operations consolidated within mda note 15 segment information note 1 description business summary significant accounting policies note 14 employee benefit plans note 19 contingencies note 8 debt financing note 10 income taxes 2019 annual report information items note 23 agreement plan merger natura cosmeticos sa may 22 2019 company entered merger agreement natura cosméticos sa brazilian corporation sociedade anônima natura cosméticos natura co holding sa brazilian corporation sociedade anônima natura co holding nectarine merger sub inc delaware corporation direct wholly owned subsidiary natura co holding merger sub nectarine merger sub ii inc delaware corporation direct wholly owned subsidiary merger sub merger sub ii pursuant natura co holding completion certain restructuring steps hold issued outstanding shares natura cosméticos ii merger sub ii merge avon surviving merger iii merger sub merge natura co holding natura co holding surviving merger result avon become wholly owned direct subsidiary natura co holding collectively transaction avon products inc notes consolidated financial statements continued transaction consummated january 3 2020 time company became wholly owned subsidiary natura co holding completion transaction share avon common stock issued outstanding immediately prior consummation transaction converted right receive election holder thereof 0300 validly issued allotted fully paidup american depositary shares natura co holding representing one natura co holding share natura co holding adss deposit two shares common stock natura co holding natura co holding shares subject adjustment accordance terms merger agreement cash lieu fractional natura co holding adss ii 0600 validly issued allotted fully paidup natura co holding shares subject adjustment accordance terms merger agreement cash lieu fractional natura co holding shares avons series c preferred stock held cerberus investor converted common stock prior consummation transaction therefore automatically converted common stock natura co natura co holding shares listed b3 sa brasil bolsa balcão stock exchange natura co holding adss listed nyse additionally upon consummation transaction avon common stock ceased traded nyse company incurred costs 44 relation transaction primarily professional fees 31 december 2019 note 24 subsequent events may 22 2019 entered merger agreement natura cosméticos natura co two subsidiaries natura co january 3 2020 company consummated transaction became fully owned subsidiary natura co connection consummation transaction company notified nyse trading stock suspended companys common stock subsequently delisted deregistered consummation transaction common stock company converted common stock natura co prior consummation transaction cerberus elected convert series c preferred stock common stock company subsequently converted natura co holding stock january 3 2020 natura co holding paid 915 accrued dividends cerberus january 2020 connection transaction company incurred professional fees 43 contingent successful completion transaction professional fees paid january 2020 january 2020 announced employment certain senior officers company would terminated connection transaction company incurred approximately 21 relating terminations triggered change control provisions addition company made payments approximately 25 related options restricted stock units held certain employees directors company consummation transaction deferred compensation scheme relating former employees company became payable resulted cash outflow approximately 13m january 2020 upon completion transaction companys revolving credit facility cancelled triggered change control provisions result transaction company longer access certain tax attributes approximately 480 approximately 550 million certain taxing jurisdictions schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2019 2018 2017 1accounts written net recoveries foreign currency translation adjustment 2returned product reused destroyed foreign currency translation adjustment 3due adoption asc 606 revenue contracts customers january 1 2018 allowance sales returns reclassified reduction accounts receivable refund liability within accrued liabilities 4includes oneoff inventory obsolescence expense 88 recognized december 31 2018 relating structural reset inventory refer note 17 restructuring initiatives additional information regarding structural reset inventory 5obsolete inventory destroyed foreign currency translation adjustment deductions 2018 corrected 2019 recast financial statements schedule impact financial statements net inventory number correctly presented given primary statements impacted concluded correction quantitatively qualitatively material 6decrease valuation allowance primarily related partial release us valuation allowance result enactment tax cuts jobs act us impact business model change related move companys headquarters us ukitem 15exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s form 10k year ended december 31 2020 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 5th day march 2021 avon products inc elena casap elena casap controller principal accounting officer pursuant requirements exchange act report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion financial statements audited accompanying consolidated balance sheets avon products inc subsidiaries “company” december 31 2020 december 31 2019 related consolidated statements operations comprehensive loss income cash flows changes shareholders’ deficit three years period ended december 31 2020 including related notes financial statement schedule listed accompanying index collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2020 december 31 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america basis opinion consolidated financial statements responsibility company’s management responsibility express opinion company’s consolidated financial statements based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits consolidated financial statements accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud company required engaged perform audit internal control financial reporting part audits required obtain understanding internal control financial reporting purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audits included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates realizability deferred tax assets described notes 1 9 consolidated financial statements company’s consolidated deferred tax asset balance 225 million net valuation allowances december 31 2020 ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire company records valuation allowance reduce deferred tax assets amount likely realized evaluating need quantifying valuation allowance often requires significant judgment extensive analysis weighted positive negative evidence available company order determine whether portion deferred tax assets realized performing analysis company’s forecasted us foreign taxable income existence potential prudent feasible tax planning strategies would enable company utilize deferred tax assets taken consideration principal considerations determination performing procedures relating realizability deferred tax assets critical audit matter significant judgment management assessing realizability deferred tax assets existence feasible tax planning strategies led high degree auditor judgment subjectivity effort performing procedures management’s assessment tax planning strategies enable utilization deferred tax assets us foreign jurisdictions evaluation audit evidence available support realizability us foreign tax loss tax credit carryforwards complex subjective therefore required significant auditor judgment addition audit effort involved use professionals specialized skill knowledge addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating recognition us foreign tax loss tax credit carryforwards review tax planning strategies procedures also included among others evaluating reasonableness management’s assessment tax planning strategies amount likely realized ii testing completeness accuracy tax loss tax credit carryforwards iii evaluating appropriateness realizability net operating loss credit carryforwards relevant deferred tax assets recognized iv evaluating completeness accuracy sufficiency disclosures served company’s auditor since 2017 avon products inc consolidated statements operations accompanying notes integral part statements avon products inc consolidated statements comprehensive loss income accompanying notes integral part statements avon products inc consolidated balance sheets 1 december 30 2019 affiliate cerberus capital management lp cerberus elected convert 435000 shares series c preferred stock 87000000 shares company’s common stock par value us025 per share conditioned conversion condition defined see note 17 series c convertible preferred stock 2 january 2020 subsequent transaction company restated certificate incorporation effect change capitalization company changing number authorized shares stock 1525000000 shares 1500000000 shares par value 025 per share common stock ii 25000000 shares par value 100 per share preferred stock 1000 shares common stock par value 001 per share result merger issued outstanding common stock company 550890788 canceled converted see note 21 mergers natura cosméticos sa accompanying notes integral part statements avon products incconsolidated statements cash flows 1the balance year ended december 31 2018 2020 includes cash equivalents classified assets held sale companys consolidated balance sheets following table provides reconciliation cash equivalents restricted cash reported within consolidated balance sheet sum total amounts shown consolidated statement cash flows years ended december 31 2018 2019 2020 2longterm restricted cash presented assets consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ deficit accompanying notes integral part statements 1 january 2020 natura co holding paid accrued dividends shares series c preferred stock amount equal us 915 cerberus resulting payable due affiliate natura co holding amount see note 17 series c convertible preferred stock discussion preferred shares issued cleveland apple investor lp “cerberus investor” 2020 payable due natura co capitalized recorded capital contribution additional paid capital 2 december 30 2019 affiliate cerberus capital management lp cerberus elected convert 435000 shares series c preferred stock 87000000 shares company’s common stock par value us025 per share conditioned conversion condition defined see note 17 series c convertible preferred stock 3 january 2020 subsequent transaction company restated certificate incorporation effect change capitalization company changing number authorized shares stock 1525000000 shares 1500000000 shares par value 025 per share common stock ii 25000000 shares par value 100 per share preferred stock 1000 shares common stock par value 001 per share result merger issued outstanding common stock company 550890788 canceled converted see note 21 mergers natura cosméticos sa 4 number shares common stock par value 001 per share outstanding december 31 2020 10134 avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted primarily one channel direct selling reportable segments based geographic operations two regions avon international avon latin america product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives december 2015 entered definitive agreements affiliates cerberus capital management lp cerberus included 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business including approximately 100 cash subject certain adjustments avon new avon llc new avon privatelyheld company majorityowned managed affiliate cerberus transactions closed march 2016 avon retained approximately 20 ownership new avon april 2019 avon cerberus signed agreement lg household health care ltd sale new avon including 20 ownership interest transaction closed august 14 2019 see note 3 discontinued operations assets liabilities held sale additional information north american business represented companys operations united states us canada puerto rico previously reportable segment presented discontinued operations periods result transaction consolidated revenue derived operations subsidiaries outside us may 22 2019 entered agreement plan mergers natura cosméticos sa brazilian corporation sociedade anônima natura cosméticos natura co holding sa brazilian corporation sociedade anônima natura co holding two subsidiaries natura co holding natura co pursuant series transactions avon natura cosméticos became direct wholly owned subsidiaries natura co transaction january 3 2020 company consummated transaction became fully owned subsidiary natura co holding connection consummation transaction company notified nyse trading stock suspended companys common stock subsequently delisted deregistered company files financial statements sec voluntary filer comply terms certain debt instruments additional information see note 21 agreement plan mergers natura cosméticos sa company updated reportable segments align business operated managed since merger natura co holding identified two reportable segments based geographic operations avon international avon latin america prior periods company reported four segments europe middle east africa asia pacific south latin america north latin america previously reported segment information recast throughout consolidated financial statements applicable periods presented reflect changes company’s reportable segments refer note 14 segment information december 2019 company declared dividend 0016 per share equating 9 dividend subsequently paid january 2020 company principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated basis presentation use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related standalone selling prices ssp promised goods services delivered sales incentives allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rates actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes avon products inc notes consolidated financial statements continued tax valuation allowances sharebased compensation loss contingencies evaluation goodwill property plant equipment capitalized software potential impairment reclassifications certain prior year amounts reclassified conform current year presentation consolidated balance sheets december 31 2020 december 31 2019 company tooling net amortization 74 129 respectively tooling balance december 31 2019 representing cost 944 accumulated depreciation 815 previously included longterm assets reclassified property plant equipment conform current year presentation third quarter 2020 identified immaterial classification error consolidated statement cash flows relating year ended december 31 2019 respect cash flows settlement derivative contracts accounting policy classify derivative cash flows operating investing financing consistent nature underlying hedged item however identified cash flows relating derivative contracts economically hedge foreign exchange gains losses intercompany loans incorrectly classified operating activities rather financing activities corrected reclassification error revision consolidated statement cash flows year ended december 31 2019 reclassify cash inflows 374 settlement derivative contracts operating activities financing activities covid19 pandemic novel strain coronavirus covid19 first identified wuhan china december 2019 subsequently declared pandemic world health organization due uncertain rapidly evolving nature current conditions around world impacts covid19 beyond company’s control continue evolve outcome uncertain therefore unable predict accurately impact covid19 business going forward significant impact covid19 pandemic felt second quarter 2020 many markets subject lockdown restrictions limited ability recruit enroll representatives operate manufacturing facilities distribution centers process deliver orders pandemic primarily resulted reduced revenue turn impacted profitability cash generation third quarter showed signs recovery markets fourth quarter impacted new lockdown measures imposed parts europe although extent felt second quarter able continue normal operations manufacturing facilities distribution centers continue closely monitor evolution covid19 pandemic deciding actions minimize impacts ensure continuity operations promote safety health people involved since beginning virus spread consequent restrictive measures imposed governments closing nonessential trade restricting movement people across borders company implemented measures operations line official measures •incentives remote working •adoption new safety measures operational workers use masks procedures distance people processes •replanning sales cycles prioritizing personal care items •speeding digitization sales channels •we communicated social distancing protocols representatives around world •change minimum order criteria start kit deadlines payment representatives reflecting representatives’ needs market basis •daily monitoring suppliers ensure supply date report unable estimate longterm impact economic paralysis arising efforts curb spread covid19 virus expected reduction activity business results operations financial condition continue review revenue investments expenses cash outflows well adjusting relationships suppliers furthermore actions outlined continuously reevaluated light global developments relating covid19 going concern considering uncertain nature possible future covid19 impacts beyond company’s control expect negative impact revenue covid19 continue 2021 turn result lower cash generation activities downturn deeper longer anticipate company could take certain actions ease pressure certain cash outflows reducing discretionary expenditure selling noncore assets accessing government pandemic initiatives arranging borrowing facilities thirdparty banks affiliate companies projections indicate sufficient liquidity meet obligations parties natura co avon products inc notes consolidated financial statements continued affiliates period less 12 months issuance date consolidated financial statements company received irrevocable commitment natura co holding provide sufficient financial support needed enable company meet obligations come due normal course business period less 12 months date issuance consolidated financial statements see note 7 debt financing note 15 leases commitments respectively information debt contractual financial obligations commitments including loans natura co affiliates maturing within 1 year foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive income loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements operations nonmonetary assets liabilities inventory property plant equipment prepaid expenses carried forward historical dollar cost calculated using exchange rate date hyperinflationary accounting implemented argentina currency quarter ended june 30 2018 based published official exchange rates indicate argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina become highly inflationary economy july 1 2018 applied highly inflationary accounting argentinian subsidiary functional currency argentina changed us dollar consolidated groups reporting currency result highly inflationary accounting argentinian subsidiary significant impacts consolidated income statements cost sales primarily due inventory accounted historical dollar cost expense income net primarily associated net monetary position argentina however impacts considered material consolidated income statements revenue recognition nature goods services global manufacturer marketer beauty related products product categories beauty fashion home beauty consists skincare fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products business conducted primarily one channel direct selling reportable segments based geographic operations two regions avon international avon latin america primarily sell products ultimate consumer direct selling channel principally representatives independent contractors employees revenue recognition revenue recognized control product service transferred customer generally representative revenue measured based consideration specified contract customer excludes amounts collected behalf third parties value added taxes vat collected taxing authorities principal revenue streams significant judgments principal revenue streams distinguished sale beauty fashion home products representatives recorded net sales ii representative fees primarily sale brochures representatives fulfillment activities related contract include fees shipping handling recorded revenue iii includes sale products new avon llc new avon royalties licensing name products recorded revenue sale beauty fashion home products representatives avon products inc notes consolidated financial statements continued generate majority revenue sale beauty fashion home products representative contacts customers directly selling primarily brochure whether paper online highlights new products special promotions incentives sales campaign sense representative together brochure store products sold brochure introducing new sales campaign typically generated every three four weeks purchase order processed products picked distribution center delivered representative usually combination local national delivery companies generally representative delivers merchandise collects payment customer account representative generally receives refund price representative paid product representative chooses return representative agreement outlines basic terms agreement avon representative combined purchase order constitutes contract purposes accounting standards codification topic asc revenue contracts customers asc 606 revenue contracts customers account individual products services separately contract distinct ie product service separately identifiable items contract representative benefit product service resources readily available recognized point time control product transferred representative addition offer incentives representatives support sales growth certain sales incentives distinct promises representative therefore separate performance obligation result revenue allocated performance obligation sales incentives deferred balance sheet associated performance obligations satisfied typically included within contract variable consideration sales returns late payment fees revenue recorded extent probable reversed therefore revenue adjusted variable consideration variable consideration generally estimated using expected value method considers possible outcomes weighted probability specifically sales returns refund liability recorded estimated cash refunded products expected returned returns asset recorded products expect returned resold based historical experience estimate sales returns well measurement returns asset refund liability updated end month changes expectations regarding amount salvageable returns reconditioning costs additional decreases value returned products late payment fees recorded uncertainty associated collecting fees resolved ie collected representative generally receives credit period one sales campaign meet certain criteria however specific credit terms outlined representative agreement generally representative remits payment sales campaign relates prior campaign cycle representative generally precluded submitting order current sales campaign accounts receivable balance past due prior campaigns paid however circumstances representative fails make required payment contracts representatives often include multiple promises transfer products andor services representative determining products andor services considered distinct performance obligations accounted separately addition assessing recognition revenue following performance obligations management exercised significant judgment following areas estimation variable consideration ssp promised goods services order determine allocate transaction price performance obligation avon products appointment kits representative purchases avon products appointment kits purchase order avon offers appointment kits purchase representatives may contain various avon products recognize revenue avon products appointment kits net sales consolidated statements operations representative obtains control products occurs upon delivery product representative transaction price amount expect receive exchange products adjusted variable consideration discussed estimated ssp performance obligations discussed cost products appointment kits recognized cost sales consolidated statements operations performance obligation sales incentives types sales incentives include status programs loyalty points prospective discounts gift purchase among others representative eligible certain status programs specified sales levels met status programs offer additional benefits free discounted products services loyalty points offer option redeem additional avon products services prospective discounts offered countries certain sales levels reached given time period revenue attributable prospective discount performance obligation option purchase additional product discounted amount avon products inc notes consolidated financial statements continued certain benefits within status programs loyalty points prospective discounts certain sales incentives constitute material right therefore distinct performance obligation contract representative transaction price allocated material right performance obligation based estimated ssp deferred balance sheet associated performance obligations satisfied cost incentives presented inventories consolidated balance sheets recognize revenue allocated material right net sales consolidated statements operations point time representative receives benefits material right obtains control products occurs upon delivery representative upon expiration material right sales incentives delivered associated products order gift purchase deferral required ssp represents estimated market value estimated amount could charged material right entity sells separately similar circumstances similar customers judgment required determine ssp distinct performance obligation instances ssp directly observable sell product service separately including certain sales incentives determine ssp using information may include market prices observable inputs ii representative fees primarily sale brochures representatives fulfillment activities related contract representative fees purchase order contract representative explicitly identifies activities perform includes fees charge representatives primarily sale brochures representatives fulfillment activities also includes late payment fees discussed brochures represent promotional materials given directly representatives customers marketing activity asc 606 brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures allocate consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized selling general administrative expenses consolidated statements operations often charge representative shipping handling including order processing payment processing activities invoice activities considered fulfillment costs consideration received represents part transaction price contract allocated performance obligations contract recognize revenue fulfillment activities revenue consolidated statements operations services provided representative cost activities recognized sga expenses consolidated statements operations iii revenue also recognize revenue sale products new avon part manufacturing supply agreement since separation companys north america business new avon march 1 2016 royalties licensing name products revenue consolidated statements operations contract costs incremental costs obtain contracts bonuses commissions recognized asset entity expects recover however asc 34040 assets deferred costs offers practical expedient recognize incremental costs obtaining contract expense incurred amortization period asset entity otherwise would recognized one year less elected practical expedient expense costs obtain contracts incurred amortization period one year less costs fulfill contracts representatives comprised shipping handling including order processing payment processing services expensed incurred fees services included transaction price cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost net realizable value cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans avon products inc notes consolidated financial statements continued disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision brochure costs brochures represent promotional materials given directly representatives customers marketing activity brochures sold avon representatives purchase orders represent separate performance obligations contract promises made avon representative although brochures used similar marketing materials representative generally orders pays brochures avon allocates consideration purposes revenue recognition revenue associated brochures sold representatives recognized revenue related cost recognized cost sales consolidated statements operations recognize revenue representative obtains control brochures occurs upon delivery representative brochures given away free representatives promotional items cost recognized sga expenses consolidated statements operations brochure costs associated fees presented inventory 76 december 31 2020 89 december 31 2019 brochure costs associated fees presented prepaid expenses 67 december 31 2020 48 december 31 2019 brochure costs expensed cogs sga 2020 amounted 758 771 respectively 2019 brochure costs expensed cogs sga 1011 939 respectively 2018 brochure costs expensed cogs sga 1135 1062 respectively fees charged representatives brochures sold recorded revenue 2020 2019 amounted 668 969 respectively 2018 fees charged representatives recorded reduction sga expenses amounted 1170 property plant equipment capitalized software property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred certain systems development costs related purchase development installation computer software implementation costs incurred hosting arrangement service contract capitalized amortized estimated useful life related project costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 760 december 31 2020 831 december 31 2019 amortization expense associated capitalized software 245 247 265 years ended december 31 2020 2019 2018 respectively evaluate property plant equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate leases determine arrangement lease commencement date addition lease agreements review material new vendor arrangements potential embedded lease obligations asset balance related operating finance leases presented within rightofuse rou asset property plant equipment respectively consolidated balance sheet shortterm liability balance related operating finance leases presented within accrued liabilities consolidated balance sheets longterm liability balance presented within longterm operating lease liability longterm debt consolidated balance sheets operating finance leases respectively lease liability recognized based present value remaining fixed insubstance fixed lease payments discounted using incremental borrowing rates use specific incremental borrowing rate material leases determined based geography nature asset term lease rates determined based inputs provided external banks updated periodically lease liability includes exercise purchase option reasonably certain exercise commencement date lease residual value guarantee amount avon products inc notes consolidated financial statements continued included lease liability calculation extent payment probable lessor commencement lease rou asset calculated based lease liability adjusted lease payments paid lessor commencement date ie prepaid rent initial direct costs incurred avon excluding lease incentives received lessor variable lease payments lessor included lease liability calculation define variable lease payments made avon lessor right use leased asset vary changes facts circumstances changes index rate volume usage etc occurring lease commencement date predetermined contractual changes due passage time example predetermined rent increase amounts set contract variable lease payments charges accounted incurred lease term purposes lease accounting may include options extend terminate lease reasonably certain exercise option commencement date lease operating leases lease expense recognized straightline basis lease term finance leases company amortizes rou asset straightline basis records interest expense lease liability created lease commencement lease term account lease nonlease components single component asset classes therefore included calculation lease liability recognized consolidated balance sheets however certain lease asset classes related identified embedded leases account lease nonlease components separately therefore nonlease component included lease liability leases initial term twelve months less recorded consolidated balance sheet recognize lease expense leases lease term assets liabilities held sale longlived asset disposal group classified held sale carrying amount recovered principally sale transaction rather continuing use sale considered highly probable within year longlived asset disposal group classified held sale initially measured lower carrying amount fair value less cost sell impairment loss recognized initial subsequent writedown longlived asset disposal group fair value less costs sell gain loss previously recognized date sale longlived asset disposal group recognized date derecognition longlived assets including part disposal group depreciated amortized classified held sale longlived assets classified held sale assets disposal group classified held sale presented separately assets balance sheet liabilities disposal group classified held sale presented separately liabilities balance sheet goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment quantitative test described required perform quantitative test evaluate goodwill impairment comparing fair value reporting unit carrying amount carrying amount exceeds reporting unit’s fair value difference represents impairment however loss recognized exceed total amount goodwill allocated reporting unit impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors avon products inc notes consolidated financial statements continued financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following •changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings •changes fair value derivative designated cash flow hedge recorded aoci reclassified earnings period periods transaction hedged derivative also affects earnings •changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci •changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements operations present earnings effect hedging instrument consolidated statements operations income statement line item earnings effect hedged item reported classify derivative cash flows operating investing financing consistent nature underlying hedged item derivatives designated cash flow hedges conclude hedging relationship perfectly effective inception detailed effectiveness assessment period required long critical terms hedging instrument completely match related terms hedged item ii considered probable counterparties hedging instrument hedged item default iii hedged cash flows remain probable conditions met assess prospective retrospective effectiveness using cumulative dollaroffset method compares change fair value present value cash flows hedging instrument changes fair value present value cash flows hedged item result quantification demonstrates hedge still highly effective meaning cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item revert qualitative assessments hedge effectiveness subsequent periods expectation high effectiveness qualitative basis subsequent periods reasonably supported effectiveness within 80 125 range hedge accounting discontinued changes fair value hedging instrument recorded earnings date hedge longer considered highly effective deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire see note 9 income taxes information accordance guidance issued financial accounting standards board fasb choosing treat us income tax consequences global intangible lowtaxed income gilti period cost result december 31 2020 deferred income taxes provided uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements operations sga expenses sga expenses include costs associated selling marketing distribution including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions avon products inc notes consolidated financial statements continued shipping handling shipping handling costs expensed incurred amounted 3731 2020 4321 2019 5035 2018 advertising costs excluding brochure preparation costs expensed incurred amounted 599 2020 729 2019 1276 2018 research development research development costs expensed incurred amounted 365 2020 406 2019 480 2018 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation applicable sharebased payments employees recognized financial statements based fair value date grant applicable use montecarlo simulation calculate fair value performance restricted stock units market conditions fair value premiumpriced stock options account forfeitures sharebased payments occur terms equitysettled award modified minimum expense recognized grant date fair value unmodified award provided original vesting terms award met additional expense measured date modification recognized modification increases total fair value sharebased payment award cancelled unamortized compensation cost expensed immediately subsequent transaction natura co employees considered employees parent company purposes applying asc 718 compensationstock compensation sharebased payments made natura co employees recognized financial statements based fair value date grant restructuring expense record estimated expense restructuring initiatives transformation plan open grow avon integration costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits inventory writeoffs impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans service cost presented sga consolidated statements operations components net periodic benefit costs service cost presented expense net consolidated statements operations contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable avon products inc notes consolidated financial statements continued note 2 new accounting standards new accounting standards implemented except changes consistently applied accounting policies periods presented consolidated financial statements asu 201613 financial instruments credit losses june 2016 fasb issued asu 201613 financial instruments credit losses requires measurement recognition expected credit losses financial assets held adopted new accounting guidance effective january 1 2020 using modified retrospective transition approach adoption material impact condensed consolidated financial statements disclosures significantly impact company’s accounting policies estimation methods related allowance doubtful accounts adoption resulted cumulative effect decrease retained earnings approximately 2 reflect change allowance doubtful accounts asu 201814 compensation retirement benefits defined benefit plans august 2018 fasb issued asu 201814 compensation retirement benefits defined benefit plans general asu 201814 modifies disclosure requirements employers sponsor defined benefit pension postretirement plans early adoption permitted amendments update effective fiscal years ending december 15 2020 therefore adopted standard effective december 31 2020 adoption material impact consolidated financial statements asu 201704 intangibles goodwill topic 350 january 2017 fasb issued accounting standards update asu 201704 intangibles goodwill simplifies test goodwill impairment update eliminates step 2 goodwill impairment test computing implied fair value goodwill step 2 entity perform procedures determine fair value impairment testing date assets liabilities including unrecognized assets liabilities following procedure would required determining fair value assets acquired liabilities assumed business combination instead entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount entity recognize impairment charge amount carrying amount exceeds reporting units fair value however loss recognized exceed total amount goodwill allocated reporting unit guidance requires prospective adoption adopted guidance goodwill impairment test conducted 2020 adoption guidance significant impact financial statements accounting standards implemented asu 201912 simplifying accounting income taxes december 2019 fasb issued asu 201912 income taxes intended simplify accounting standard improve usefulness information provided financial statements intend implement new accounting guidance effective january 1 2021 assessed impact adopting standard expect impact financial statements material note 3 discontinued operations assets liabilities held sale discontinued operations december 17 2015 company entered definitive agreements affiliates controlled cerberus agreements resulted separation companys north america business represented companys operations united states canada puerto rico company avon company formerly new avon new avon privatelyheld company majorityowned managed cerberus na investor llc affiliate cerberus company retained investment 199 ownership interest new avon transactions closed march 1 2016 date resolution contingent liabilities relating avons ownership operation north america business prior separation company new avon treated discontinued operations april 2019 signed agreement lg household health care ltd sell 199 ownership interest new avon completed august 2019 refer divestitures section information relating sale new avon company incurred costs years ended december 31 2020 2019 following resolution certain contingent liabilities related ownership operation north america business prior separation new avon products inc notes consolidated financial statements continued major classes financial statement components comprising loss discontinued operations net tax new avon shown amounts recorded discontinued operations year ended december 31 2018 assets liabilities held sale major classes assets liabilities comprising held sale assets held sale liabilities consolidated balance sheet december 31 2020 december 31 2019 shown following table december 31 2019 line open avon strategy increase utilization seeking better fit purpose asset base company classified five properties met held sale criteria asc 360 held sale 2020 sold two properties decided proceed sale one property avon international segment carrying value 46 time reclassification recorded true depreciation resulting immaterial impact consolidated statements operations addition 2020 company decided proceed sale one additional business avon international segment result reclassified balances within assets liabilities held sale depreciation ceased december 31 2020 assets held sale include one property one business avon international segment one property avon latin america segment divestitures avon shanghai august 2020 signed agreement sell avon management shanghai avon shanghai affiliate natura co selling price 29 august 2020 completed sale entity received proceeds 29 proceeds presented investing activities consolidated statement cash flows sale affiliate common control natura co gain sale 14 recorded directly retained earnings hungary distribution center gödöllő april 2020 signed agreement sell hungary distribution center gödöllő selling price 34 received deposit 3 june 2020 completed sale asset remaining proceeds 31 received proceeds presented investing activities consolidated statement cash flows avon products inc notes consolidated financial statements continued second quarter 2020 recorded gain 1 tax reported separately consolidated statements operations gain represents difference proceeds carrying value hungary distribution center date sale china wellness plant march 2020 signed agreement sell china wellness plant total selling price 66 expenses sixmonth period ended june 30 2020 received cash deposit selling price 66 included 33 restricted cash held escrow august 2020 completed sale china wellness plant 33 restricted cash escrow transferred avon third quarter 2020 recorded gain 14 tax reported separately consolidated statements operations gain represents difference net proceeds associated expenses carrying value china wellness plant date sale rye office june 26 2019 completed sale rye office selling price 232 less expenses approximately 8 resulting proceeds 224 proceeds presented investing activities consolidated statement cash flows second quarter 2019 recorded gain sale 99 tax reported separately consolidated statements operations gain recorded represents difference proceeds carrying value rye office date sale malaysia maximin may 9 2019 completed sale equity interests maximin corporation sdn bhd malaysia maximin total selling price 78 cash proceeds 76 net expenses presented within investing activities consolidated statement cash flows second quarter 2019 recorded gain sale 33 tax reported separately consolidated statements operations 30 tax gain recorded represents difference proceeds carrying value malaysia maximin date sale china manufacturing february 15 2019 completed sale thefaceshop co ltd affiliate lg household health care ltd thefaceshop equity interests avon manufacturing guangzhou ltd total selling price 710 less expenses approximately 11 selling price included 235 relating outstanding intercompany loans payable avon manufacturing guangzhou ltd avon subsidiaries presented financing activities consolidated statement cash flows subsequently settled april 2019 cash proceeds 464 net loan amounts presented investing activities consolidated statement cash flows includes 76 restricted cash december 31 2019 subsequently reclassified shortterm restricted cash three month period ended march 31 2020 first quarter 2019 recorded gain sale 103 tax reported separately consolidated statements operations 82 tax representing difference proceeds including settlement intercompany loans carrying value avon manufacturing guangzhou ltd date sale new avon april 2019 signed agreement lg household health care ltd sell 199 ownership interest new avon august 2019 completed sale new avon selling price 245 expenses approximately 11 resulting cash proceeds 234 proceeds presented investing activities consolidated statement cash flows third quarter 2019 recorded gain sale 268 tax reported consolidated statements operations gain sale businessasset gain recorded represents total proceeds release aoci 34 recorded investment balance new avon august 14 2019 december 31 2018 zero avon products inc notes consolidated financial statements continued note 4 related party transactions january 3 2020 company became wholly owned subsidiary natura co holding point natura co holding subsidiaries affiliates became related parties company following tables present related party transactions natura co affiliates new avon affiliates cerberus instituto avon brazil related party transactions august 14 2019 sold investment new avon lg household health care ltd upon completion sale new avon longer related party furthermore upon consummation transaction natura co holding january 2020 cerberus ceased related party 1 company supplies product new avon part manufacturing supply agreement august 14 2019 company sold investment new avon lg household health care ltd point new avon longer related party transactions entered new avon period related party 2019 twelve month period ended december 31 2019 disclosed 2 new avon supplies products company part manufacturing supply agreement discussed footnote 1 company purchased 16 new avon associated agreement years ended december 31 2019 recorded 21 associated purchases within cost sales year ended december 31 2019 august 14 2019 company sold investment new avon lg household health care ltd point new avon longer related party transactions entered new avon period related party disclosed 3 company also entered agreements affiliate cerberus provided secondment cerberus affiliate personnel companys project management team responsible assisting execution implementation company’s strategic initiatives furthermore upon consummation transaction natura co holding january 2020 cerberus ceased related party company recorded 40 sga expenses associated agreements year ended december 31 2019 payables due affiliate cerberus related agreement project management team classified within accrued liabilities consolidated balance sheets 4 second quarter 2018 company entered agreement loan instituto avon independent nongovernment charitable organization brazil r12 million brazilian real unsecured 5year term fixed interest rate avon products inc notes consolidated financial statements continued 7 per annum paid back five equal annual installments instituto avon created avon subsidiary brazil board executive team comprised avon brazil management purpose loan provide instituto avon means donate funds fundação pio xii leading cancer prevention treatment organization brazil owner hospital câncer de barretos order invest equipment objective expanding breast cancer prevention treatment 5 loans affiliates natura co holding december 31 2020 10086 include 965 outstanding promissory note avon international operations inc subsidiary natura co holding sa loans affiliates natura co holding december 31 2020 also include 416 outstanding revolving credit facility avon luxembourg holdings sà rl natura co international sà rl see note 7 debt financing information relating loans 6 second quarter 2020 company entered manufacturing agreements affiliates natura co holding company recorded revenue related party 67 associated agreements year ended december 31 2020 company recorded gross profit related party 8 associated agreements year ended december 31 2020 receivables natura co holding relate manufacturing agreements note 5 revenue disaggregation revenue adopted asc 606 revenue contracts customers date initial application january 1 2018 cumulativeeffect adjustment retained earnings following tables revenue disaggregated product service type revenue recognized point time control product transferred customer avon products inc notes consolidated financial statements continued 2019 includes impact certain brazil indirect taxes recorded product sales approximately 68 consolidated income statements see note 20 supplemental balance sheet information avon products inc notes consolidated financial statements continued 2018 includes impact brazil ipi recorded product sales approximately 168 consolidated income statements see note 18 contingencies consolidated financial statements contained herein information contract balances timing revenue recognition generally different timing promise made representative result contract liabilities primarily relate advance consideration received representatives prior transfer related good service material rights loyalty points status programs primarily classified within accrued liabilities longterm portion liabilities consolidated balance sheets generally record accounts receivable invoice representative addition record estimate allowance doubtful accounts receivable balances based analysis historical data applicable current conditions reasonable supportable forecasts affect collectibility including seasonality changing trends impact covid19 allowance doubtful accounts reviewed adequacy minimum quarterly basis generally detailed information concerning communication ultimate consumer products beyond representative legal recourse ultimate consumer collection accounts receivable balances due representative us financial condition representatives deteriorate resulting inability make payments additional allowances may required following table provides information receivables contract liabilities contracts customers december 31 2020 2019 contract liability balances relate certain material rights loyalty points status program prospective discounts twelve months ended december 31 2020 recognized 406 revenue related contract liability balance december 31 2019 result performance obligations satisfied addition deferred additional 417 related certain material rights granted period performance obligations yet satisfied amount deferred period substantially recognized within year significant majority captured within quarter remaining movement contract liability balance attributable foreign exchange differences arising translation balance december 31 2020 compared december 31 2019 note 6 inventories december 31 consisted following avon products inc notes consolidated financial statements continued note 7 debt financing debt december 31 consisted following carrying value longterm debt presented net debt issuance costs includes related discount premium applicable unsecured notes march 2013 issued public offering 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes march 2008 issued 3500 principal amount 650 notes due march 1 2019 650 notes interest 2013 notes payable semiannually march 15 september 15 year indenture governing 2013 notes contains interest rate adjustment provisions depending credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase decrease 25 onenotch movement investment grade credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes august 2016 completed cash tender offers resulted reduction principal 681 650 notes 501 460 notes fourth quarter 2016 repurchased 440 650 notes 400 460 notes 111 500 notes 62 695 notes june 2018 prepaid remaining principal amount 650 notes prepayment price equal remaining principal amount 2378 plus makewhole premium 62 accrued interest 46 connection prepayment incurred loss extinguishment debt 29 tax second quarter 2018 consisting 62 makewhole premium writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset write deferred gain 36 associated march 2012 interestrate swap agreement termination fourth quarter 2018 repurchased 230 460 notes 270 500 notes aggregate repurchase price equal principal amount notes less discount received 24 accrued interest 7 connection repurchases debt incurred gain extinguishment debt 21 tax fourth quarter 2018 consisting 24 discount received repurchases partially offset 3 writeoff debt issuance costs discounts related initial issuance notes repurchased july 2019 repurchased 2748 460 notes way tender offer aggregate repurchase price equal principal amount 2748 less discount received 6 plus early tender premium 82 accrued interest 54 december 2019 prepaid remaining principal amount 46 notes prepayment price equal remaining principal amount 1122 plus makewhole premium 14 accrued interest 17 connection repurchases debt incurred loss extinguishment debt 81 tax third quarter 15 tax fourth quarter 2019 september 2020 repurchased 278 695 notes due march 15 2043 aggregate repurchase price equal principal amount notes plus premium 38 accrued interest 12 connection repurchase avon products inc notes consolidated financial statements continued incurred loss extinguishment debt 41 tax third quarter 2020 consisting 38 premium paid repurchases 3 writeoff debt issuance costs discounts related initial issuance notes repurchased december 31 2020 2019 carrying values unsecured notes comprised following indentures governing outstanding notes described contain certain customary covenants customary events default crossdefault provisions change control provisions july september 2019 bondholder consents 5 notes 695 notes respectively obtained amend definition change control permit acquisition avon natura repayment notes triggered transaction natura co december 31 2020 2019 recorded accrued interest unsecured notes 152 159 respectively classified within accrued liabilities consolidated balance sheets senior secured notes august 2016 avon international operations inc aio whollyowned subsidiary company issued private placement exempt registration securities act 1933 amended 5000 aggregate principal amount 7875 senior secured notes maturity date august 15 2022 2016 notes july 2019 avon international capital plc aic whollyowned subsidiary company issued private placement exempt registration securities act 1933 amended 4000 aggregate principal amount 65 senior secured notes maturity date august 15 2022 2019 notes november 2020 connection natura co promissory note redeemed outstanding principal amount 2016 notes due august 15 2022 outstanding principal amount 2019 notes due august 15 2022 respect 2016 notes aggregate redemption amount paid equal outstanding principal amount 500 plus premium 98 accrued interest 84 respect 2019 notes aggregate redemption amount paid equal outstanding principal amount 400 plus premium 79 accrued interest 56 connection redemption incurred loss extinguishment debt 256 tax fourth quarter 2020 consisting 177 premiums writeoff 79 debt issuance costs related initial issuances notes redeemed certain hedging cash management obligations company certain subsidiaries secured first priority security interests substantially assets subject certain exceptions december 31 2020 2019 carrying values senior secured notes comprised following december 31 2019 recorded accrued interest senior secured notes 247 classified within accrued liabilities consolidated balance sheets maturities longterm debt annual maturities longterm debt includes notes capital leases outstanding december 31 2020 follows avon products inc notes consolidated financial statements continued financing related party loans november 2020 aio entered promissory note subsidiary natura co holding sa affiliate company amount 960 promissory note bears interest rate per annum 313 matures november 2 2021 “the natura co loan” december 31 2020 9650 including accrued interest 50 outstanding promissory note may 2020 company’s subsidiary avon luxembourg holdings sà rl entered revolving credit facility agreement subsidiary natura co holding sa affiliate company amount 100 may used working capital general corporate purposes facility borrowings facility bear interest rate per annum libor plus 77 facility matures may 31 2022 2020 drew 597 repaid 198 including interest december 31 2020 416 including accrued interest 16 outstanding facility see note 22 subsequent events information relating modification additional draw subsequent december 31 2020 shortterm financing december 31 2020 utilized approximately 28 shortterm financing thirdparty banks across multiple markets revolving credit facility june 2015 aio whollyowned subsidiary company entered fiveyear 4000 senior secured revolving credit facility 2015 facility february 2019 aic whollyowned subsidiary company entered threeyear €2000 senior secured revolving credit facility 2019 facility 2019 facility replaced 2015 facility 2015 facility terminated time first quarter 2019 20 recorded writeoff unamortized issuance costs related 2015 revolving credit facility first quarter 2019 company capitalized 110 issue costs relating new revolving credit facility cash outflow presented financing activities within consolidated statement cash flows december 31 2019 amounts outstanding 2019 facility january 3 2020 facility automatically cancelled upon change control result 78 unamortized issuance costs written see note 21 agreement plan mergers natura cosméticos sa consolidated financial statements included herein letters credit december 31 2020 december 31 2019 also letters credit outstanding totaling 169 222 respectively balances december 31 2020 december 31 2019 primarily relate letter credit issued lessor certain equipment lease transferred new avon connection separation companys north america business balances december 31 2020 december 31 2019 also include letters credit guarantee various insurance activities longterm credit ratings longterm credit ratings moody’s ratings stable outlook ba3 corporate family debt sp ratings stable outlook bb corporate family debt senior unsecured debt fitch rating stable outlook bb corporate family unsecured debt credit ratings remain investment grade may impact ability access financing transactions favorable terms avon products inc notes consolidated financial statements continued note 8 accumulated comprehensive income loss tables present changes aoci component reclassifications aoci 2020 2019 1 gross amount reclassified expense net related taxes reclassified income taxes foreign exchange net gain 88 2020 net gain 8 2019 net loss 69 2018 resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income loss note 9 income taxes income continuing operations taxes years ended december 31 follows avon products inc notes consolidated financial statements continued provision income taxes years ended december 31 follows continuing operations effective tax rate years ended december 31 follows 2020 company’s effective tax rate continues impacted country mix earnings country mix includes losses certain jurisdictions cannot benefited income tax expense certain jurisdictions taxable income generated 2020 company adjusted reserves uncertain tax positions associated current year activity events primarily due expiration statutes limitation included tax foreign income effect tax rate changes including increase united kingdom tax rate 17 19 resulted deferred tax benefit 210 included reorganizations line effect trueup change estimate 305 regarding amount net operating losses generated part 2018 restructuring transactions 2020 net change valuation allowances line rate reconciliation includes 651 net benefits could recognized 651 benefits recognized consisted following key items 1 699 increased valuation allowances due additional deferred tax assets generated 2020 cannot benefitted 2 210 increased valuation allowances deferred tax assets due tax rate change offsetting equivalent associated accruals deferred tax benefits reflected “tax foreign income” line 3 47 increased valuation allowances due changes judgment regarding ability use certain deferred tax assets existed beginning 2020 4 305 decrease offsets trueup effect change estimate benefit net operating losses generated part 2018 restructuring transactions 2019 result continued business model changes related move company’s headquarters us uk company recognized onetime tax charges 2569 reflected reorganizations line associated primarily rationalization realignment company’s legal entity structure resulted use approximately 2569 foreign tax credits deferred tax assets tax attributes 2019 net change valuation allowances line rate reconciliation includes 1 2325 decreases valuation allowances primarily associated utilization foreign tax credits deferred tax assets offsetting one avon products inc notes consolidated financial statements continued time tax charges 2569 noted reorganizations line 2 665 decreases due tax rate change offsetting equivalent associated writeoffs deferred tax assets reflected “tax foreign income” line 2018 result continued business model changes related move company’s headquarters us uk company recognized onetime tax benefits 987 reflected reorganizations line associated primarily rationalization realignment company’s legal entity structure ownership transfer certain operational assets within consolidated group tax benefit associated foreign derived intangible income provisions tax cuts jobs act us 2018 net change valuation allowances line rate reconciliation includes 1386 increases valuation allowances primarily associated deferred tax assets generated 2018 reductions valuation allowances 930 reflected captions rate reconciliation net associated deferred tax assets expensed written 2018 follows 572 excess tax basis deconsolidated subsidiaries reallocated investments consolidated subsidiaries 153 reduction future tax benefits anticipated state deferred tax assets 117 deferred tax assets reduction 88 deferred tax assets associated repatriation earnings consolidated subsidiaries given timing enactment tax cuts jobs act december 22 2017 sec issued guidance sab 118 directing taxpayers consider impact new legislation provisional necessary information available prepared analyzed including computations reasonable detail complete accounting effects resulting change law december 22 2017 except impact remeasuring deferred tax assets 21 rate accounted impacts new legislation including limited effects existing deferred taxes valuation allowances onetime tax offshore earnings potential changes impact indefinite reinvestment assertion measurement deferred taxes foreign unremitted earnings provisional basis financial statements amounts reported time represented best estimate given data available based interpretation us legislation 2018 us treasury issued various guidance application certain provisions may impact calculations december 31 2018 company completed accounting impact tax cuts jobs act including necessary adjustments provisional amounts previously recorded recording additional adjustments material impact financial position results deferred tax assets liabilities december 31 consisted following excluded table approximately 635 worthless deferred tax assets previously offset full valuation allowance approximately 465 deferred tax assets cannot used due change control limitation resulting merger natura remaining 170 primarily associated us foreign tax credits 70 state net operatingcapital losses 100 company determined use deferred tax assets would remote deferred tax assets liabilities december 31 classified follows 2020 excluding reductions associated worthless deferred tax assets noted company recorded net increase valuation allowances 26 includes effect 651 benefits related operations avon products inc notes consolidated financial statements continued activity could recognized noted rate reconciliation offset writeoff 818 valuation allowance associated deferred tax assets longer utilized due change control restrictions resulting natura merger 194 increases primarily driven currency translation miscellaneous effects company continuously assesses available positive negative evidence estimate whether sufficient future taxable income generated utilize existing deferred tax assets subject valuation allowance december 31 2020 covid19 pandemic negative evidence company must consider december 31 2020 increase negative evidence due covid19 primarily lower revenue profit performance resulted approximately 43 valuation allowances recorded deferred tax assets company continue monitor covid19 pandemic effects could impact conclusions regarding realizability remaining deferred tax assets potential negative evidence including things worsening economies markets operate reduced profitability markets could give rise need valuation allowance reduce deferred tax assets upcoming quarters december 31 2020 valuation allowance primarily represents amounts certain foreign tax loss carryforwards substantially us deferred tax assets certain foreign deferred tax assets recognition deferred tax assets based evaluation current estimated future profitability operations reversal deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards tax planning strategies also considered evaluated support realization deferred tax assets sources income existed along sufficient positive evidence indicated likely sources income could relied upon deferred tax assets reduced valuation allowance december 31 2020 recognized deferred tax assets 1190 relating tax credit carryforwards us foreign tax credits research experimentation credits tax credits valuation allowance 1186 provided tax credit carryforwards consist us foreign tax credits 876 subject expiration 2022 2027 us research experimentation credits 224 subject expiration 2027 2040 tax credits 85 subject expiration 2021 2032 december 31 2020 recognized deferred tax assets 19900 relating foreign loss carryforwards valuation allowance 19028 provided 219 also offset accordance asu201311 december 31 2020 recognized deferred tax assets 295 relating federal loss carryforwards valuation allowance 295 provided december 31 2020 foreign tax loss carryforwards 82897 69387 subject expiration 13510 subject expiration 2021 2050 december 31 2020 federal tax loss carryforwards 1405 subject expiration december 31 2020 asserting substantially foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability reverse deferred tax liabilities associated undistributed earnings foreign subsidiaries net impact deferred tax liability associated company’s undistributed earnings decrease 46 resulting deferred tax liability balance zero december 31 2020 company’s undistributed foreign earnings approximately 15 billion would generate approximate 63 income tax repatriated uncertain tax positions december 31 2020 3721 total gross unrecognized tax benefits approximately 1064 would favorably impact provision income taxes recognized reconciliation beginning ending amount unrecognized tax benefits follows avon products inc notes consolidated financial statements continued accrue interest penalties related unrecognized tax benefits provision income taxes accrued interest penalties net taxes 10 year ended december 31 2020 reversed previously recorded expenses interest penalties net tax 10 years ended december 31 2019 2018 respectively december 31 2020 2019 68 63 respectively recorded interest penalties net tax benefit unrecognized tax benefits including interest penalties classified within longterm income taxes consolidated balance sheets file income tax returns us foreign jurisdictions december 31 2020 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits change materially within next twelve months note 10 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances avon products inc notes consolidated financial statements continued derivatives recognized consolidated balance sheets fair values following table presents fair value derivative instruments december 31 2020 derivatives recognized consolidated balance sheets fair values following table presents fair value derivative instruments december 31 2019 interest rate risk december 31 2020 2019 interestrate swap agreements approximately 4 0 debt portfolio december 31 2020 2019 respectively exposed floating interest rates relates short term debt portfolio foreign currency risk may use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2020 outstanding foreign exchange forward contracts notional amounts totaling approximately 160 various currencies none designated cash flow hedges may use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans years ended december 31 2020 2019 recorded loss 57 gain 421 respectively expense net consolidated statements operations related undesignated foreign exchange forward contracts first quarter 2019 discontinued program hedge foreign exchange risk relating forecasted operational transactions last designated cash flow hedges expired first quarter 2020 designated hedges material impact consolidated financial statements year ended december 31 2020 credit risk financial instruments foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 28 december 31 2020 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates avon products inc notes consolidated financial statements continued note 11 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows •level 1 quoted prices active markets identical assets liabilities •level 2 inputs quoted prices active markets observable either directly indirectly •level 3 unobservable inputs based assumptions assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2020 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2019 defined benefit pension postretirement plan assets liabilities measured fair value recurring basis comprised foreign exchange forward contracts see note 10 financial instruments risk management availableforsale securities immaterial december 31 2020 2019 see note 13 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 13 employee benefit plans fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments accounts receivable debt maturing within one year accounts payable longterm debt foreign exchange forward contracts carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following avon products inc notes consolidated financial statements continued 1 carrying value longterm debt presented net debt issuance costs includes related discount premium applicable methods assumptions used estimate fair value follows •availableforsale securities fair values investments quoted market prices issues listed securities exchanges •longterm debt fair values debt financing determined using level 2 inputs based indicative market prices •foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 12 sharebased compensation plans avon products inc 2013 stock incentive plan amended restated 2013 plan avon products inc 2016 omnibus incentive plan 2016 plan shareholderapproved plans provide several types sharebased incentive compensation awards including stock options restricted stock restricted stock units performance restricted stock units following shareholder approval 2016 plan may 2016 awards made 2013 plan 2016 plan amended restated “amended restated 2016 plan” following shareholder approval may 2019 amended restated 2016 plan maximum number shares amended 20451976 shares common stock includes 5000000 additional shares 15451976 unused shares 2016 plan march 15 2019 maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 135 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options restricted stock 2016 plan including amended restated 2016 plan restricted stock units performance restricted stock units 2013 plan 2016 plan including amended restated 2016 plan also outstanding stock options prior shareholderapproved plans stock option awards granted exercise price generally premium closing market price stock date grant stock options generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain market performance conditions january 3 2020 upon completion transaction natura co sharebased compensation awards either cancelled exchange right receive amount cash converted award denominated natura co shares subsequent transaction 2013 plan 2016 plan including amended restated 2016 plan replaced natura co stockbased compensation plan natura co stockbased compensation plan natura issued nominal cost options performance share units performance shares psus nominal cost options granted exchange avon restricted stock units performance restricted stock units vest single tranche line vesting date original avon awards nominal cost options automatically exercise vest date performance share units generally vest three years upon satisfaction certain market andor performance conditions years ended december 31 avon products inc notes consolidated financial statements continued compensation cost share based compensation 2020 2019 2018 recorded sga expenses consolidated statements operations stock options 2019 2018 granted premiumpriced stock options exercise price equal 25 premium 25 premium respectively closing market price stock price date grant premiumpriced stock options vest threeyear graded vesting schedule fair value premiumpriced stock option estimated date grant using montecarlo simulation estimating fair value option used following weightedaverage assumptions options granted years ended december 31 2019 2018 1the riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2the expected term option based vesting terms respective option contractual life 10 years 3expected avon volatility based daily historical volatility stock price period similar expected life option weightedaverage grantdate fair value per share options granted 113 104 2019 2018 respectively january 3 2020 upon completion transaction natura co outstanding stock option whether vested exercisable automatically canceled exchange right receive amount cash without interest equal number avon common shares underlying stock option immediately prior effective time transaction multiplied excess per share cashout price exercise price per share “per share cash price” closing price avon common share nyse closing date transaction amount payable upon cancellation stock option exercise price per share greater per share cashout price accordance asc 718 stockbased compensation accounted cash settlement repurchase equity instrument concurrent acceleration vesting award options cancelled without compensation treated repurchase equity consideration cash settlement value 205 recognized equity 35 unrecognized compensation expense unvested options accelerated recorded sga expenses consolidated statements operations summary stock options december 31 2020 changes 2020 follows recognized expense stock options using graded vesting method recognizes associated expense based timing option vesting dates december 31 2020 outstanding stock options cancelled per avon products inc notes consolidated financial statements continued restricted stock units performance restricted stock units 2019 2018 granted performance restricted stock units would vest settle three years based relative total shareholder return common stock companies included sp 400 index date grant three year performance period 2019 prsus 2018 prsus respectively grant date fair value per share awards already reflects estimated probability achieving market condition therefore record expense ratably performance period fair value prsus estimated date grant using montecarlo simulation estimates fair value based companys share price activity expected term award riskfree interest rate expected dividends expected volatility stock company estimating fair value prsus used following weightedaverage assumptions 1the riskfree rate based upon rate zero coupon us treasury bill periods within three year performance period effect time grant 2expected avon volatility based weekly historical volatility stock price period similar three year performance period 2019 prsus 2018 prsus 3expected average volatility based weekly historical volatility stock prices member companies included sp 400 index date grant period similar three year performance period 2019 prsus 2018 prsus weightedaverage grantdate fair value per share 2019 prsus 2018 prsus 263 respectively january 3 2020 upon completion transaction natura co outstanding restricted stock unit rsu converted natura co holding nominal cost options equal number avon common shares subject rsu immediately prior transaction multiplied exchange ratio 030 addition outstanding prsu converted award denominated natura co holding shares subject timebased vesting equal number avon common shares subject prsu immediately prior transaction giving effect market conditions deemed attained multiplied exchange ratios 030 terms conditions including service conditions excluding market conditions applicable rsu prsu continue full force effect respect nominal cost options described accordance asc 718 stockbased compensation accounted modification type probabletoprobable modification incremental fair value approximately 34 recognized remaining service period awards summary restricted stock units december 31 2020 changes 2020 follows summary performance restricted stock units december 31 2020 changes 2020 follows avon products inc notes consolidated financial statements continued 1 based initial target payout december 31 2020 outstanding rsus prus exchanged natura co holdings nominal cost options natura co holdings nominal cost options discussed outstanding avon rsu prsu time transaction exchanged natura co holdings nominal cost options nominal cost options vest single tranche line original vesting schedule three years automatically exercise vest date accounted exchange type probabletoprobable modification cumulative amount compensation cost recognized vesting period original grantdate fair value plus incremental fair value 34 resulting modification summary nominal cost options december 31 2020 changes 2020 follows 1 represents replacement awards granted date transaction recognize expense requisite service period december 31 2020 57 unrecognized compensation cost related nominal cost options outstanding cost expected recognized weightedaverage period 12 years natura co holdings performance share units psus march 27 2020 natura co’s board directors approved new longterm stockbased incentive plan “longterm incentive plan” 2020 longterm incentive plan granted september 29 2020 consists granting psus rights participants relation psus fully acquired extent participant remains continuously linked employee company subsidiaries 3rd anniversary grant date ii performance conditions met certain participants different condition item 50 psus granted acquired 3rd anniversary grant date remaining 50 acquired 4th anniversary grant date 2020 natura co granted 1543244 psus weightedaverage grant date fair value 2091 per unit forfeitures exercises year recognize expense requisite service period extent expected performance conditions probable achieved december 31 2020 252 unrecognized compensation cost related psus outstanding cost expected recognized weightedaverage period 22 years restricted stock december 2019 2083872 rsus 3276774 prsus exchanged 4808534 restricted stock exchange done advance transaction natura co holdings company accounted modification type probabletoprobable modification incremental fair value approximately 15 recognized remaining service period awards restricted stock would vest settle three years grant date original avon products inc notes consolidated financial statements continued award company retained cancelled 1400010 restricted stock satisfy withholding tax obligations grantees cancellation resulted acceleration recognition 17 compensation cost year ended december 31 2019 included part 44 transaction related costs january 3 2020 upon completion transaction natura co 3408524 restricted stock outstanding converted exchange ratio 030 award denominated natura co holding equity terms conditions including servicebased vesting conditions continue full force effect respect award natura co holding restricted stock january 2020 announced employment certain senior officers company would terminated connection transaction result restricted stock held senior officers immediately vested recognized approximately 10 relating acceleration unamortized expense restricted stock units performance restricted stock units funded treasury shares march 2019 march 2018 granted 200000 performance restricted stock units respectively funded treasury shares outside 2016 plan reliance upon nyse rules performance restricted stock units weightedaverage grantdate fair value 298 279 2019 2018 grants respectively would vest settle end 2020 upon satisfaction certain performance conditions one year performance period 2019 2018 none performance restricted stock units vested 400000 performance restricted stock units outstanding december 31 2019 2018 recognized compensation cost 5 1 respectively performance restricted stock units february 2018 granted 600000 restricted stock units funded treasury shares outside shareholderapproved plans reliance upon nyse rules restricted stock units granted february 2018 weightedaverage grantdate fair value 225 vest settle full three years 2019 2018 none restricted stock units vested 600000 restricted stock units outstanding december 31 2019 2018 recognized compensation cost 4 respectively restricted stock units december 31 2019 outstanding rsus prsus funded treasury shares exchanged avon restricted stock 2020 avon restricted stock exchanged natura restricted stock described note 13 employee benefit plans defined contribution plans offer defined contribution plan employees united kingdom uk allows eligible participants contribute eligible compensation payroll deductions double employee contributions first 5 eligible compensation therefore maximum level provided avon 10 eligible compensation made matching contributions cash uk defined contribution plan 76 2020 75 2019 59 2018 follow investment allocation participant selected contributions also offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 10 2020 13 2019 22 2018 follow investment allocation participant selected contributions prior separation north america business costs associated contributions psa allocated discontinued operations global plan included north america us corporate avon associates see note 3 discontinued operations assets liabilities held sale usbased employees hired january 1 2015 made additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow avon products inc notes consolidated financial statements continued largest nonus defined benefit pension plan uk defined benefit pension plan frozen future accruals april 1 2013 us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits usbased employees hired january 1 2015 provided solely psa described following separation north america business see note 3 discontinued operations assets liabilities held sale continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon us providing services respect north america business recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans avon products inc notes consolidated financial statements continued years ended december 31 2020 2019 actuarial losses benefit obligations primarily due decrease discount rates plans avon products inc notes consolidated financial statements continued us pension plans include funded qualified plan pra unfunded nonqualified plans december 31 2020 pra benefit obligations 604 plan assets 597 december 31 2019 pra benefit obligations 641 plan assets 633 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans nonus pension plans include funded qualified pension plan uk december 31 2020 uk qualified pension plan benefit obligations 5455 plan assets 6484 december 31 2019 uk qualified pension plan benefit obligations 4828 plan assets 5821 components net periodic benefit cost amounts recognized comprehensive loss amounts represent pretax effect classified within comprehensive loss net tax amounts classified within consolidated statements comprehensive loss assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining present value future pension obligations individual defined benefit pension plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including uk defined benefit pension plan pra based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis decreased 153 december 31 2020 215 december 31 2019 avon products inc notes consolidated financial statements continued weightedaverage assumptions used determine net benefit cost recorded consolidated statements operations years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors generally evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2020 assumed rate return assets globally 274 represents weightedaverage rate return plan assets significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2020 net periodic benefit cost uk defined benefit pension plan 220 addition 2020 rate return assumption uk defined benefit pension plan based asset allocation approximately 78 liability driven investments approximately 22 equity securities emerging market debt high yield securities addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities similar assessments performed determining rates return nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 255 determining 2020 net cost nonus defined benefit pension plan assets plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2020 2019 asset category follows following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2020 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2019 avon products inc notes consolidated financial statements continued reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals derivative instruments publicly traded derivative contract specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices avon products inc notes consolidated financial statements continued overall objective plan assets associated pra uk defined benefit pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments uk defined benefit pension plans hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects pra uk defined benefit pension plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation factors discussed cash flows expect make contributions related continuing operations range 5 10 defined benefit pension postretirement plans 2021 total benefit payments expected paid plans follows postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees accrued cost postemployment benefits 91 december 31 2020 92 december 31 2019 included employee benefit plans consolidated balance sheets supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 1 2020 8 2019 1 2018 benefit obligation dcp 8 december 31 2020 131 december 31 2019 included liabilities accrued compensation avon products inc notes consolidated financial statements continued consolidated balance sheets transaction triggered change control provision dcp resulting settlement majority obligation 2020 maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc brp nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last ten years brp closed employees hired january 1 2015 conjunction closure pra annual cost programs included determination net periodic benefit cost shown previously amounted 12 2020 13 2019 21 2018 benefit obligation programs 76 december 31 2020 2019 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits provided certain active retired officers slip offered new officers ten years established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within sga expenses consolidated statements operations note 14 segment information company updated reportable segments align business operated managed since merger natura co holding identified two reportable segments based geographic operations avon international avon latin america prior periods company reported four segments europe middle east africa asia pacific south latin america north latin america previously reported segment information recast throughout consolidated financial statements applicable periods presented reflect changes company’s reportable segments determine segment profit deducting related costs expenses segment revenue segment profit includes allocation central expenses extent support operating activity segment profit excludes certain cti restructuring initiatives certain significant asset impairment charges expenses allocated particular segment applicable consistent manner assess performance allocate resources summarized financial information concerning reportable segments december 31 shown following tables avon products inc notes consolidated financial statements continued 12019 includes impact certain brazil indirect taxes recorded net sales amount approximately 68 consolidated income statements see note 20 supplemental balance sheet information 2018 includes impact brazil ipi tax release recorded net sales amount approximately 168 consolidated income statements see note 18 contingencies information 2total revenue reportable segments also includes revenue business activities 145 181 245 years ended december 31 2020 2019 2018 respectively allocated avon international avon latin america segments business activities include revenue sale products new avon since separation company’s north america business new avon march 1 2016 ongoing royalties licensing name products previously reported amounts allocated avon international avon latin america segments conform current year presentation 3total profit reportable segments also includes profit business activities central expenses allocated avon international avon latin america segments business activities 73 24 49 years ended december 31 2020 2019 2018 respectively include profit sale products new avon since separation company’s north america business new avon march 1 2016 ongoing royalties licensing name products central expenses 1976 2147 2464 years ended december 31 2020 2019 2018 respectively include corporate general administrative expenses allocated avon international avon latin america extent support operating activity segment previously reported amounts allocated segments conform current year presentation 4other business activities include markets exited effective first quarter 2018 given exited australia new zealand 2018 results australia new zealand reported business activities periods presented previously results reported avon international segment 5for years ended december 31 2020 2019 2018 unallocated global expenses primarily include stewardship expenses directly attributable reportable segments 6the year ended december 31 2020 includes impact certain brazil indirect taxes recorded selling general administrative expenses net amounts approximately 106 7for year ended december 31 2020 costs related transaction primarily include professional fees approximately 46 severance payments approximately 25 acceleration share based compensation approximately 10 relating terminations triggered change control provisions year ended 31 december 2019 costs related transaction primarily include professional fees impairment losses assets refer note 21 merger natura cosméticos sa information relating natura transaction 1 avon international includes assets 4207 3585 december 31 2019 2018 respectively previously allocated reportable segments avon products inc notes consolidated financial statements continued 1 avon international includes capital expenditures 138 184 years ended december 31 2019 2018 respectively previously allocated reportable segments 1 avon international includes depreciation amortization 199 278 years ended december 31 2019 2018 respectively previously allocated reportable segments total revenue major country major country defined one total revenues greater 10 consolidated total revenues 1 mexicos revenue greater 10 consolidated revenues 2020 2019 longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets also includes country domicile us longlived assets primarily include property plant equipment associated continuing operations longlived assets brazil poland mexico consist primarily property plant equipment related manufacturing distribution facilities longlived assets us consist primarily property plant equipment including global research development facility rightofuse assets related equipment 1 mexicos longlived assets greater 10 total longlived assets 2019 2018 table long lived assets calculated including property plant equipment net rightofuse assets difficult move relatively illiquid 2019 2018 definition long lived assets also included certain intangible assets long term receivables excluded rightof use assets resulted following disclosure previous filings avon products inc notes consolidated financial statements continued note 15 leases commitments february 2016 fasb issued asu 201602 leases requires assets liabilities arising leases recognized consolidated balance sheets adopted new accounting guidance effective january 1 2019 operating finance leases corporate market offices warehouses automotive equipment leases may include options extend terminate lease certain leases also include options purchase leased property depreciable life assets leasehold improvements limited expected lease term unless transfer title purchase option reasonably certain exercise table shows lease income expenses recorded consolidated statement operations incurred years ended december 31 1 includes variable lease costs immaterial presented selling general administrative expenses consolidated statements operations 2 sublease portfolio consists sublease previous principal executive office located 777 third avenue new york ny maturity analysis finance operating lease liabilities reflected table also reflects reconciliation undiscounted cash flows discounted finance operating lease liabilities recognized december 31 2020 consolidated balance sheet avon products inc notes consolidated financial statements continued company calculated weightedaverage remaining lease term presented years weightedaverage discount rate operating finance lease population noted lease accounting policy see note 1 description business summary significant accounting policies company uses incremental borrowing rate lease discount rate table sets classification lease payments consolidated statement cash flows rou assets obtained exchange new finance operating lease liabilities represent new operating finance leases entered years ended december 31 purchase obligations include commitments purchase paper inventory services december 31 2020 purchase obligations due date follows avon products inc notes consolidated financial statements continued note 16 restructuring initiatives transformation plan open avon natura co avon integration subsequent merger natura avon january 2020 integration plan avon integration established create right global infrastructure support future ambitions natura co group also identifying synergies opportunities leverage combined strength scale reach synergies derived mainly procurement manufacturingdistribution administrative well top line synergies primarily avon latam natura co latin america open avon open grow transformation plan january 2016 initiated transformation plan transformation plan order enable us achieve longterm goals midsingledigit constant revenue growth low doubledigit operating margin restructuring actions taken associated transformation plan beginning third quarter 2018 new restructuring actions approved operate new open avon plan described september 2018 initiated new strategy order return avon growth open avon open avon strategy integral ability return avon growth built around necessity incorporating new approaches various elements business including increased utilization thirdparty providers manufacturing technology fit purpose asset base focus enabling representatives easily interact company achieve relevant earnings savings expected continue achieved restructuring actions may continue result charges related severance contract terminations inventory asset writeoffs well costsavings strategies would result restructuring charges january 2019 announced significant advancements strategy including structural reset inventory processes reduction global workforce may 2020 new leadership avon international refreshed strategy open grow aims return avon international growth next three years open grow replaces builds success open avon strategy launched 2018 strengthen competitiveness enhancing representative experience improving brand position relevance accelerating digital expansion improving costs next three years savings expected continue achieved restructuring actions may continue result charges related severance contract terminations asset writeoffs well costsavings strategies would result restructuring charges costs implement restructuring initiatives twelve months ended december 31 2020 2019 2018 twelve months ended december 31 2020 recorded net costs implement 222 161 related avon integration 109 related open grow net benefit 48 related transformation plan restructuring initiatives consolidated statements operations twelve months ended december 31 2019 recorded costs implement 1160 1066 related open avon 94 related transformation plan restructuring initiatives consolidated statements operations twelve months ended december 31 2018 recorded costs implement 1805 1432 related open avon 373 related transformation plan restructuring initiatives avon products inc notes consolidated financial statements continued costs twelve months ended december 31 2020 2019 2018 consisted following tables include restructuring costs employeerelated costs inventory asset writeoffs foreign currency translation writeoffs contract terminations include costs implement restructuring initiatives professional services fees dual running costs accelerated depreciation gain sale business avon products inc notes consolidated financial statements continued liability balance included accrued liabilities consolidated balance sheet restructuring actions associated avon integration december 31 2020 7 related employee related costs liability balance included accrued liabilities consolidated balance sheet restructuring actions associated open grow december 31 2020 follows liability balance included accrued liabilities consolidated balance sheet restructuring actions associated transformation plan december 31 2020 follows majority cash payments applicable associated yearend liability expected made 2021 following table presents restructuring charges incurred date open grow transformation plan along estimated charges expected incurred approved initiatives plans avon products inc notes consolidated financial statements continued avon products inc notes consolidated financial statements continued charges net adjustments initiatives open grow transformation plan along estimated charges expected incurred approved initiatives plans reportable segment follows charges included segment profit excludes costs implement restructuring initiatives amounts shown tables charges recorded todate relate initiatives approved recorded consolidated financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met note 17 series c convertible preferred stock march 1 2016 company issued sold cerberus investor 435000 shares newly issued series c preferred stock aggregate purchase price 435 pursuant investment agreement dated december 17 2015 company cerberus investor connection issuance series c preferred stock company incurred direct incremental expenses 87 comprised financial advisory fees legal expenses reduced carrying value series c preferred stock cumulative preferred dividends accrue daily series c preferred stock rate 125 per quarter series c preferred stock accrued unpaid dividends 913 december 31 2019 avon products inc notes consolidated financial statements continued december 19 2019 company natura co holding announced date regulatory approvals required merger agreement complete transactions obtained result series c preferred stock probable becoming redeemable redemption value adjusted subsequently december 30 2019 cerberus elected convert series c preferred stock described series c preferred stock longer probable becoming redeemable recognize changes redemption value immediately occur carrying value security adjusted equal redemption amount would redemption occur end reporting date based conditions exist date result recognized increase 609 carrying value series c preferred stock year ended december 31 2019 december 30 2019 cerberus elected convert 435000 shares series c preferred stock representing shares series c preferred stock outstanding shares company’s common stock par value us025 per share pursuant holder company’s series c preferred stock’s rights company’s certificate incorporation foregoing election conditioned upon filing certificates merger respect first merger conversion condition january 3 2020 company consummated transaction become wholly owned subsidiary natura co holding upon consummation transaction companys common stock converted natura co holding common stock natura co holding subsequently paid accrued dividend 915 cerberus january 2020 see note 21 agreement plan mergers natura cosméticos sa note 18 contingencies brazilian tax assessments december 2012 brazilian subsidiary avon industrial ltda avon brazil manufacturing received excise tax ipi assessment year 2008 assessment totals approximately 189 including penalties accrued interest prior ipi cases resolved avon’s favor assessment asserts establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil manufacturing observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2012 ipi assessment unfounded matters vigorously contested july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level april 2018 avon received official notification second administrative level issued partially favorable partially unfavorable decision original assessment reduced approximately 50 including associated penalty interest remaining 189 assessment upheld second administrative level april 2018 appealed decision third administrative level december 2019 received unfavorable decision june 2020 avon formally notified december unfavorable decision presented motion clarification denied october 2020 avon filed lawsuit administrative court demanding review motion clarification’s denial october 2017 avon brazil manufacturing received new tax assessment notice regarding ipi year 2014 grounds similar 2012 assessment 2017 ipi assessment totals approximately 189 including penalties accrued interest april 2018 avon notified unfavorable decision first administrative level february 2019 ipi assessment upheld second administrative level april 2019 appealed decision third administrative level december 2019 tax assessment ruled unfavorable third administrative level avon served unfavorable decision motion clarification filed event 2012 2017 ipi assessments upheld third final administrative level may necessary provide guarantee letter deposit total amount debt move discussion judicial sphere depending circumstances may result adverse effect company’s consolidated statements cash flows possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2014 closed statute believe 2012 2017 ipi assessments unfounded however based likelihood upheld assess risks disclosed reasonably possible december 31 2020 recognized liability 2012 2017 ipi assessments brazil ipi tax cosmetics may 2015 executive decree established levy ipi sales cosmetic products avon brazil avon brazil filed objection levy basis constitutional since tax already paid avon brazil manufacturing december 2016 avon brazil received favorable decision federal district court regarding objection decision appealed tax federal authority avon products inc notes consolidated financial statements continued may 2015 april 2016 avon brazil deposited court amount relating ipi discussed may 2016 avon brazil obtained injunction authorizing company pay ipi result june 2018 avon brazil received decision authorizing company withdraw amount deposited court replace letter guarantee june 2018 tax authorities presented appeal decision july 2018 amount deposited withdrawn september 2018 due part contemporaneous judicial decisions favor taxpayers cosmetics industry developments supported legal counsel’s opinion assessed ipi according asc 450 contingencies determined risk loss reasonably possible probable accordingly released associated liability september 30 2018 approximately 195 stopped accruing ipi october 1 2018 liability classified within longterm sales taxes income consolidated balance sheet release recorded product sales income expense net amounts approximately 168 approximately 27 respectively consolidated income statements quarter ended september 30 2018 unfavorable ruling objection ipi tax increase would adverse effect company’s consolidated income statements consolidated statements cash flows avon brazil would remit reasonably possible amount 231 taxing authorities including judicial deposit returned us july 30 2018 able reliably predict timing outcome objection tax increase favorable judicial ruling objection ipi tax would also adverse effect company’s consolidated statements cash flows avon brazil would remit portion associated income tax liability taxing authorities company accruing tax reserve amounted approximately 73 83 december 31 2020 2019 respectively reserve would settled final adjudication law combination cash use deferred tax assets talcrelated litigation company named defendant numerous personal injury lawsuits filed us courts alleging certain talc products company sold past contaminated asbestos many actions involve number codefendants variety different industries including manufacturers cosmetics manufacturers products unlike company’s products designed contain asbestos december 31 2020 164 individual cases pending company three months ended december 31 2020 31 new cases filed 14 cases dismissed settled otherwise resolved value settlements material either individually aggregate company’s results operations year ended december 31 2020 additional similar cases arising use company’s talc products reasonably anticipated believe claims asserted us cases without merit defending vigorously claims continue date company proceeded trial case filed findings liability enforceable company however nationwide trial results similar cases filed manufacturers cosmetic talc products ranged outright dismissals large jury awards compensatory punitive damages given inherent uncertainties litigation cannot predict outcome individual cases pending company able make specific estimate small number individual cases advanced later stages legal proceedings remaining cases provide estimate exposure aggregated ongoing basis takes account historical outcomes cases resolved date accruals currently recorded company’s balance sheet respect cases material however adverse outcomes either individual case aggregate could material future costs litigate cases expense incurred known may significant though costs covered insurance brazilian laborrelated litigation ongoing basis company subject numerous diverse laborrelated lawsuits filed employees brazil cases assessed aggregated ongoing basis based historical outcomes similar cases claims made often significantly larger sums historically paid company practice continues recognize liability based assessment historical payments similar cases best estimate probable loss cases december 31 2020 2019 approximately 8 10 respectively accordingly recognized liability amount shareholder litigation february 14 2019 purported shareholder’s class action complaint bevinal v avon products inc et al 19cv1420 filed united states district court southern district new york company certain former officers company complaint subsequently amended recaptioned avon products inc securities litigation amended complaint brought behalf purported class consisting purchasers acquirers avon common stock january 21 2016 november 1 2017 inclusive complaint asserts violations sections 10b 20a securities exchange act 1934 exchange act based allegedly false misleading statements alleged market manipulation respect among things changes made avon’s credit terms representatives avon products inc notes consolidated financial statements continued brazil avon individual defendants filed motion dismiss court denied 2020 parties reached agreement settlement class action terms settlement include releases members class claims company individual defendants payment 145 million approximately 2 million settlement paid company represented remaining deductible company’s applicable insurance policies remainder settlement paid company’s insurers august 31 2020 court granted preliminary approval settlement february 3 2021 court entered order judgment granting final approval settlement time appeal judgment yet expired matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon management’s opinion based review information available time total cost resolving contingencies december 31 2020 expected material adverse effect consolidated financial position results operations cash flows note 19 goodwill note 20 supplemental balance sheet information december 31 2020 2019 prepaid expenses included following december 31 2020 2019 assets included following avon products inc notes consolidated financial statements continued 1 december 31 2020 december 31 2019 company tooling net amortization 74 129 respectively tooling balance december 31 2019 previously included longterm assets reclassified property plant equipment conform current year presentation longterm receivables includes approximately 118 certain brazil indirect taxes cofins recognized year ended december 31 2019 approximately 68 50 recorded product sales income expense net respectively consolidated income statements following favorable judicial decisions 2019 corresponding tax charge transaction approximately 23 included deferred tax asset balance december 31 2019 presented separately consolidated balance sheet third quarter 2019 entered arrangement sell rights portion credits amount approximately 80 company option repurchase credits period three years transaction resulted cash inflow approximately 19 presented financing activity consolidated statements cash flows sale credits accounted financing arrangement therefore receivables derecognized financing liability approximately 19 recognized note 21 merger natura cosméticos sa may 22 2019 company entered agreement plan mergers amended amendment number one agreement plant mergers dated october 3 2019 amended amendment number two agreement plan mergers dated november 5 2019 merger agreement among company natura cosméticos sa brazilian corporation sociedade anônima natura cosméticos natura co holding sa brazilian corporation sociedade anônima nectarine merger sub inc delaware corporation direct wholly owned subsidiary natura co holding merger sub nectarine merger sub ii inc delaware corporation direct wholly owned subsidiary merger sub merger sub ii pursuant natura co holding completion certain restructuring steps holds issued outstanding shares natura cosméticos ii merger sub ii merged company surviving merger first merger iii merger sub merged natura co holding second merger natura co holding surviving merger result company natura cosméticos became wholly owned direct subsidiaries natura co holding collectively transaction consummated january 3 2020 time company became wholly owned direct subsidiary natura co holding connection transaction trading company’s stock suspended nyse company’s common stock subsequently delisted deregistered completion transaction share company’s common stock issued outstanding immediately prior consummation transaction converted ultimate right receive 0300 validly issued allotted fully paidup american depositary shares natura co holding natura co holding adss deposit two shares common stock natura co holding natura co holding shares subject adjustment accordance terms merger agreement cash lieu fractional natura co holding adss ii 0600 validly issued allotted fully paidup natura co holding shares subject adjustment accordance terms merger agreement cash lieu fractional natura co holding shares company’s series c preferred stock held cerberus investor converted common stock prior consummation transaction therefore automatically converted common stock natura co see note 17 series c convertible preferred stock natura co holding shares listed b3 sa brasil bolsa balcão stock exchange natura co holding adss listed nyse additionally upon consummation transaction avon common stock ceased traded nyse january 2020 subsequent transaction company restated certificate incorporation certificate incorporation restated effect change capitalization company changing number authorized shares stock 1525000000 shares 1500000000 shares par value 025 per share common stock ii 25000000 shares par value 100 per share preferred stock 1000 shares common stock par value 001 per share result issued outstanding common stock company 550890788 canceled converted 10134 common stock par value 001 per share outstanding treasury shares canceled company incurred costs 46 44 relation transaction primarily professional fees years ended december 31 2020 2019 respectively january 2020 announced employment certain senior officers company would terminated connection transaction company incurred severance approximately 25 acceleration share based compensation approximately 10 relating terminations triggered change control provisions avon products inc notes consolidated financial statements continued result transaction company made payments approximately 26 related settlement stock options addition remaining restricted stock units performance restricted stock units exchanged awards natura co holding replacement awards contain substantially terms conditions original awards except removal performance conditions replacement awards contain service vesting condition consummation transaction deferred compensation scheme relating former employees company became payable resulted extinguishing liability cash outflow approximately 12 january 2020 upon completion transaction company’s revolving credit facility canceled triggered change control provisions result debt issuance costs 78 written result transaction company longer access certain tax attributes approximately 546 approximately 616 certain taxing jurisdictions tax attributes formerly reflected deferred tax assets subject full valuation allowance result impact net income 2020 writeoff deferred tax asset associated valuation allowances note 22 subsequent events january 2021 maturing loan 40 borrowed 100 revolving credit facility subsidiary natura co holding sa renewed amount 416 including capitalization accrued interest february 2021 company borrowed additional 30 100 revolving credit facility subsidiary natura co holding sa march 4 2021 terms revolving credit facility agreement facility company’s subsidiary avon luxembourg holdings sà rl subsidiary natura co holding sa affiliate company amended increase facility size 250 borrowings facility bear interest arms length rate remaining terms facility unchanged schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2020 2019 2018 1accounts written net recoveries foreign currency translation adjustment 2returned product reused destroyed foreign currency translation adjustment 3includes oneoff inventory obsolescence expense 88 recognized december 31 2018 relating structural reset inventory refer note 16 restructuring initiatives additional information regarding structural reset inventory 4obsolete inventory destroyed foreign currency translation adjustmentitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2013 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 26th day february 2014 avon products inc robert loughran robert loughran vice president corporate controller principal accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements income comprehensive income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc december 31 2013 december 31 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate avon products inc consolidated statements income accompanying notes integral part statements avon products inc consolidated statements comprehensive income accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows noncash financing activities included change fair market value interestrate swap agreements 7 2013 84 2012 532 2011 see note 8 financial instruments risk management 1 includes cash equivalents discontinued operations 27 69 148 beginning year 2013 2012 2011 respectively 2 includes cash equivalents discontinued operations 27 69 end year 2012 2011 respectively accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted worldwide primarily one channel direct selling reportable segments based geographic operations four regions latin america europe middle east africa north america asia pacific product categories beauty fashion home beauty consists color fragrance skincare personal care fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rate actuarial assumptions pension postretirement benefit expenses restructuring reserves income taxes tax valuation reserves sharebased compensation loss contingencies valuation goodwill intangible assets capitalized software foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies us dollar required used functional currency highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements income nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities venezuela currency account venezuela highly inflationary economy effective february 13 2013 venezuelan government devalued currency approximately 32 recorded onetime aftertax loss 507 341 expense net 166 income taxes first quarter 2013 primarily reflecting writedown monetary assets liabilities deferred tax benefits addition result using us historic dollar cost basis nonmonetary assets inventory acquired prior devaluation operating profit net loss 2013 negatively impacted revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped avon products inc notes consolidated financial statements continued representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also estimate allowance sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable based analysis historical data current circumstances revenue primarily includes shipping handling order processing fees billed representatives cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification determine level obsolescence provision prepaid brochure costs prepare brochures initially deferred prepaid expenses expensed selling general administrative expenses campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses recorded reduction selling general administrative expenses campaign length campaign length typically two weeks us two four weeks markets outside us brochure costs associated fees presented prepaid expenses 383 december 31 2013 454 december 31 2012 additionally paper stock purchased advance creating brochures prepaid expenses include paper supply 91 december 31 2013 135 december 31 2012 brochure costs expensed selling general administrative expenses amounted 4617 2013 5063 2012 5056 2011 fees charged representatives recorded reduction selling general administrative expenses amounted 2741 2013 2859 2012 2926 2011 property plant equipment property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred evaluate longlived assets impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated undiscounted future cash flows expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset capitalize interest borrowings active construction period major capital projects capitalized interest added cost related asset depreciated useful life related asset capitalized interest 14 2013 20 2012 4 2011 capitalized software certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project generally exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 1229 december 31 2013 2354 december 31 2012 amortization expense associated capitalized software 554 412 411 years avon products inc notes consolidated financial statements continued ended december 31 2013 2012 2011 respectively recorded capitalized software impairment charge 1172 2013 capitalized software reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future pretax undiscounted cash flows expected result use asset eventual disposition compared carrying amount sum expected cash flows less carrying amount impairment charge recorded impairment charge measured amount carrying amount exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate december 2013 decided halt rollout service model transformation smt project smt global program initiated 2009 improve order management system enable changes way representatives interact us smt piloted canada 2013 caused significant business disruption market decision halt rollout smt made light potential risk disruption addition smt show clear return investment current focus stabilizing growing avon business improving operating capability includes updating information technology infrastructure way delivers clear return investment currently expect continue utilize capitalized software associated smt asset pilot market canada market using smt asset accounting guidance requires impairment assessment consider cash flows canadian business includes ongoing costs associated smt expected cash flows sufficient supporting carrying value associated asset group includes smt asset fourth quarter 2013 recorded pretax noncash impairment charge 1172 741 net tax reflecting writedown capitalized software impairment charge recorded component global expenses within selling general administrative expenses consolidated statements income fair value smt asset determined using riskadjusted discounted cash flow dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates result impairment charge remaining carrying amount smt asset material goodwill intangible assets goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors indefinitelived intangible assets amortized rather assessed impairment annually fourth quarter occurrence event indicates impairment may occurred testing indefinitelived intangible assets impairment perform either qualitative quantitative assessment qualitative analysis results likely avon products inc notes consolidated financial statements continued probability impairment quantitative assessment required quantitative test evaluate indefinitelived intangible assets impairment compares fair value intangible asset carrying value fair value asset less carrying value difference represents impairment analysis performed indefinitelived intangible asset requires several estimates computing estimated fair value asset use riskadjusted dcf model relieffromroyalty method finitelived intangible assets amortized using straightline method estimated useful lives intangible assets reviewed impairment whenever events changes circumstances indicate carrying amount may fully recoverable change circumstances occurs related estimated future pretax undiscounted cash flows expected result use asset eventual disposition compared carrying amount sum expected cash flows less carrying amount impairment charge recorded impairment charge measured amount carrying amount exceeds fair value asset fair value asset determined using probability weighted expected cash flow estimates quoted market prices available appraisals appropriate applicable impairment testing performed following order indefinitelived intangible assets finitelived intangible assets goodwill see note 17 goodwill intangible assets information china note 3 discontinued operations information silpada financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures record derivative instruments fair values consolidated balance sheets either assets liabilities see note 8 financial instruments risk management deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire respect deferred tax assets december 31 2013 recognized deferred tax assets relating tax loss carryforwards 7561 primarily foreign jurisdictions valuation allowance 7176 provided also recognized deferred tax assets 5854 relating excess foreign tax credit carryforwards expire 20182023 period concluded deferred tax assets associated excess foreign tax credits “more likely not” realized prior expiration conclusion based forecasted future us taxable income including domestic profitability royalties received foreign subsidiaries potential impact possible tax planning strategies including repatriation foreign earnings acceleration royalties assumptions embedded forecasted future us taxable income include continued international growth stabilization us business reduction corporate expenses extent us taxable income less favorable currently projected ability utilize foreign tax credits may negatively affected respect deferred tax liability fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined may repatriate offshore cash meet certain domestic funding needs accordingly asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes 1683 earnings december 31 2012 deferred tax liability amount 2248 us tax cost undistributed earnings subsidiaries outside us 31 billion december 31 2013 continue assert foreign earnings indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account 2013 undistributed earnings foreign subsidiaries earnings actually repatriated us year additionally deferred tax liability reduced due lower cost repatriate undistributed earnings foreign subsidiaries compared 2012 net impact deferred tax liability associated company’s undistributed earnings reduction 819 resulting deferred tax liability balance 1428 related incremental us tax cost 26 billion undistributed foreign earnings december 31 2013 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings result utilization foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary avon products inc notes consolidated financial statements continued venezuela calculation deferred income tax liability local regulations restrict cash distributions denominated us dollars uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution activities including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 9901 2013 10277 2012 10689 2011 advertising costs excluding brochure preparation costs expensed incurred amounted 2019 2013 2513 2012 3089 2011 research development research development costs expensed incurred amounted 672 2013 733 2012 757 2011 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value date grant use blackscholesmerton optionpricing model calculate fair value options restructuring reserves record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required pension postretirement expense pension postretirement expense determined based number actuarial assumptions reviewed determined annual basis assumptions include discount rates hybrid plan maximum interest crediting rates expected return plan assets rate compensation increase plan participants interest cost health care cost trend rates benefits earned mortality rates number associate retirements number associates electing take lumpsum payments factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components accumulated comprehensive income net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable avon products inc notes consolidated financial statements continued outofperiod items first quarter 2012 recorded outofperiod adjustment decreased earnings approximately 14 tax 10 tax related 2011 associated bad debt expense south africa operations evaluated total outofperiod adjustments impacting 2012 approximately 13 tax 15 tax individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods first quarter 2011 determined net aftertax gain sale avon products company limited avon japan reported financial statements year ended december 31 2010 reported net aftertax loss approximately 3 correctly include balances relating avon japan previously included accumulated comprehensive loss aoci addition first quarter 2011 company released liability relating previously owned health care business released prior period resulting approximate 4 increase net income results businesses originally reported within discontinued operations upon disposition net impact two items decreased net income first quarter 2011 approximately 9 also identified recorded various outofperiod adjustments 2011 primarily related cost sales selling general administrative expenses related prior years net impact items decreased net income 2011 approximately 14 evaluated total outofperiod adjustments impacting 2011 approximately 23 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods see note 19 results operations quarter unaudited discussion outofperiod adjustments within 2012 2011 impact interim periods loss earnings per share compute loss earnings per share eps using twoclass method loss earnings allocation formula determines loss earnings per share common stock participating securities participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents compute basic eps dividing net loss income allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows include stock options purchase 175 million shares year ended december 31 2013 220 million shares 2012 229 million shares 2011 avon common stock calculations diluted eps exercise prices options greater average market price therefore inclusion would antidilutive also include stock options purchase 8 million shares year ended december 31 2013 loss continuing operations net tax inclusion shares would decrease net loss per share since inclusion shares would antidilutive excluded calculation note 2 new accounting standards new accounting standard implemented february 2013 financial accounting standards board fasb issued asu 201302 reporting amounts reclassified accumulated comprehensive income asu 201302 requires entities report either face income statement notes effect significant reclassifications aoci respective line items net income amount reclassified required gaap reclassified entirety net income amounts required gaap reclassified entirety aoci net income reporting period entity required crossreference disclosures required gaap provide additional detail amounts see note 6 accumulated comprehensive loss required disclosures asu 201302 effective january 1 2013 avon significant impact financial statements presentation note 3 discontinued operations silpada june 30 2013 company entered agreement sell silpada jewelry business “silpada” 85 plus earnout 15 silpada achieves specific earnings targets two years silpada previously reported within north america segment classified within discontinued operations periods presented transaction closed july 3 2013 proceeds sale used general corporate purposes including repayment outstanding debt benefit associated earnout recorded discontinued operations becomes realizable avon 2013 recorded loss sale 794 tax 504 net tax represented difference carrying value silpada business proceeds total loss sale 790 tax 500 net tax recorded second quarter 2013 reflecting expected loss sale time first quarter 2013 company disclosed reviewing strategic alternatives silpada connection review ran broad auction process included potential financial strategic buyers initial offers received april 2013 lower carrying value silpada time believe offers representative underlying fair value silpada business june 2013 company received final offers silpada business also level previously expected fair value business company decided agree offer emerged time highest bid based part consideration timeline investment required return business historical levels profitability b deterioration silpadas business performance second quarter 2013 company also considered divestiture would allow greater focus time resources core avon business transaction approved board directors june 26 2013 subject certain conditions satisfied june 30 2013 summarized financial information discontinued operations shown 1 operating loss year ended december 31 2013 includes pretax charge 790 recorded second quarter 2013 reflecting expected loss sale time well additional loss sale 4 tax recorded third quarter 2013 silpada acquired july 2010 silpada historically generated positive cash flows expected continue generate positive cash flows however expected cash flows business date impairment analysis level sufficient support carrying value business since acquisition 2010 silpada business achieve revenue earnings cash flows expectations primarily due lower consumer spending higher silver prices increased competition compared initial projections business time acquisition future expectations silpada utilized 2011 2012 impairment analyses represented significant decrease future cash flows expected generated silpada reduction future expectations led material impairments 263 209 recorded fourth quarters 2011 2012 respectively 2012 silpada impairment assessment fourth quarter 2012 completed annual goodwill indefinitelived intangible assets impairment assessments subsequently determined goodwill indefinitelived trademark finitelived customer relationships associated silpada impaired result carrying amount silpada’s goodwill reduced 1167 estimated fair value 446 resulting noncash impairment charge 721 addition carrying amount silpada’s indefinitelived trademark reduced 850 estimated fair value 400 resulting noncash impairment charge 450 carrying amount silpada’s finitelived customer relationships reduced 1319 estimated fair value 400 resulting noncash impairment charge 919 throughout first nine months 2012 silpada continued perform generally line revenue earnings forecast significant changes longterm outlook business utilized determining estimated fair value 2011 impairment analysis revenue earnings forecast 2012 projected improvements trends ie reduction yearoveryear revenue declines latter portion 2012 effort promote sales grow business made changes certain members silpada management team including bringing personnel previously managed avon businesses among initiatives implemented new silpada management team recruiting incentive program believed would benefit representative counts representative productivity primarily latter portion 2012 turn improve performance business saw improvement representative additions recruiting incentive program result expected representative productivity fourth quarter 2012 generally quarter largest dollar value revenue silpada business became apparent would achieve forecasted revenue earnings 2012 partially due recruiting incentive program driving expected representative productivity result silpada experienced weaker expected performance fourth quarter 2012 revenue performance fourth quarter 2012 approximately 19 less estimates utilized 2011 impairment analysis based continued trends latter part fourth quarter 2012 conjunction 2013 planning process early stages evaluation strategic alternatives business lowered longterm revenue earnings projections silpada dcf model reflect moderate recovery business moderate recovery business believed appropriate due lack sales momentum business continued inability silpada achieve financial performance expectations decline fair values silpada reporting unit trademark customer relationships primarily driven reduction forecasted longterm growth rates cash flows used estimate fair value lower expected financial results fiscal year 2012 served baseline longterm projections business fiscal year 2012 revenue silpada approximately 10 less estimates utilized 2011 impairment analysis 19 less fiscal year 2011 results forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period 2011 silpada impairment assessment yearend 2011 close process completed annual goodwill impairment assessment subsequently determined goodwill associated silpada impaired result impairment testing recorded noncash tax impairment charge 1980 reduce carrying amount goodwill silpada estimated fair value following impairment charge carrying value silpada goodwill 1167 impairment testing indefinitelived intangible assets also indicated decline fair value silpada trademark intangible asset respective carrying value resulted noncash tax impairment charge 650 reduce carrying amount asset estimated fair value following impairment charge carrying value silpada trademark 850 following weaker expected performance fourth quarter 2011 lowered revenue earnings projections silpada largely due rise silver prices nearly doubled since acquisition negative impact pricing revenues margins decline fair values silpada reporting unit underlying trademark driven reduction forecasted growth rates cash flows used estimate fair value forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period avon japan november 8 2010 company announced avon international operations inc aio whollyowned subsidiary company agreed sell ownership interest avon products company limited avon japan held aio pursuant tender offer bid agreement aio devon holdings kk affiliate tpg capital buyer avon japan previously reported within asia pacific segment transaction closed december 29 2010 total cash consideration 90 received 81 recognized december 2010 remaining 9 consideration received related certain prepaid royalties transaction resulted net aftertax gain 10 however 2011 determined net aftertax gain sale avon japan reported net aftertax loss 3 correctly include balances relating avon japan previously included aoci see note 1 description business summary significant accounting policies information note 4 inventories december 31 consisted following avon products inc notes consolidated financial statements continued note 5 debt financing debt december 31 consisted following notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 65 december 31 2013 86 december 31 2012 debt payable 2019 included obligations capital leases 116 december 31 2013 139 december 31 2012 primarily relate leases automobiles equipment addition debt payable 2019 december 31 2013 2012 included financing obligations 563 616 respectively 445 484 respectively relates sale leaseback equipment one distribution facilities north america entered 2009 adjustments debt fair value hedges include adjustments reflect net unrealized gain 931 december 31 2012 held interestrate swap contracts effectively converted approximately 62 december 31 2012 longterm fixedrate borrowings variable interest rate based libor december 31 2013 interestrate swap agreements terminated either conjunction repayment associated debt january 2013 march 2012 swap termination transactions see note 8 financial instruments risk management term loan agreement june 29 2012 entered 5000 term loan agreement term loan agreement subsequently august 2 2012 borrowed incremental 500 principal subscriptions new lenders term loan agreement pursuant term loan agreement required repay amount equal 25 aggregate remaining principal amount term loan june 29 2014 remaining outstanding principal amount term loan june 29 2015 amounts repaid prepaid term loan agreement may reborrowed borrowings term loan agreement bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings term loan agreement also provides mandatory prepayments avon products inc notes consolidated financial statements continued voluntary prepayments subject certain exceptions including issuance commercial paper drawdowns revolving credit facility required prepay term loan amount equal 50 net cash proceeds received incurrence debt borrowed money excess 500 march 2013 entered first amendment term loan agreement amendment primarily related adding provision whereby lenders may discretion decline receipt prepayments ii adding subsidiary debt covenant conforming interest coverage ratio leverage ratio covenants contained revolving credit facility discussed debt covenants later march 2013 repaid 3800 outstanding principal amount term loan agreement portion proceeds issuance notes defined public notes repayment resulted loss first quarter 2013 16 extinguishment debt associated writeoff debt issuance costs related term loan agreement july 25 2013 prepaid 1175 outstanding principal balance term loan agreement without prepayment penalties december 31 2013 525 outstanding term loan agreement based amounts outstanding december 31 2013 131 required repaid june 29 2014 included within debt maturing within one year remaining 394 required repaid june 29 2015 included within longterm debt consolidated balance sheets private notes november 23 2010 issued private placement exempt registration securities act 1933 amended 1420 principal amount 260 senior notes series due november 23 2015 2900 principal amount 403 senior notes series b due november 23 2020 1030 principal amount 418 senior notes series c due november 23 2022 collectively private notes proceeds sale private notes used repay existing debt general corporate purposes march 29 2013 prepaid private notes prepayment price equal 100 principal amount 5350 plus accrued interest 69 makewhole premium 680 connection prepayment private notes incurred loss extinguishment debt 714 first quarter 2013 included makewhole premium writeoff 34 debt issuance costs related private notes public notes april 2003 call holder 1000 principal amount 625 notes due may 2018 625 notes embedded put call option features exercised call option associated 625 notes thus became sole note holder 625 notes pursuant agreement sole note holder modified 625 notes 1250 aggregate principal amount 4625 notes due may 15 2013 modified principal amount represented original value putablecallable notes plus market value related call option approximately 40 principal amount additional notes issued cash may 2003 1250 principal amount registered senior notes issued exchange modified notes held sole note holder cash proceeds received us registered senior notes bear interest per annum rate 4625 payable semiannually matured may 15 2013 4625 notes transaction accounted exchange debt instruments accordingly premium related original notes amortized life new 4625 notes 4625 notes repaid full maturity december 31 2012 carrying value 4625 notes represented 1250 principal amount net unamortized discount face value 10 june 2003 issued public 2500 principal amount registered senior notes 420 notes 420 notes mature july 15 2018 bear interest per annum rate 420 payable semiannually carrying value 420 notes represented 2500 principal amount net unamortized discount face value 4 december 31 2013 2012 respectively net proceeds offering used repay indebtedness outstanding commercial paper program general corporate purposes march 2008 issued 5000 principal amount notes payable public offering 2500 notes bear interest per annum rate equal 480 payable semiannually matured march 1 2013 notes 2500 notes bear interest per annum rate 575 payable semiannually mature march 1 2018 notes net proceeds offering 4963 used repay indebtedness outstanding commercial paper program general corporate purposes 2013 notes repaid full maturity december 31 2012 carrying value 2013 notes represented 2500 principal amount net immaterial amount unamortized discount face value carrying value 2018 notes represented 2500 principal amount net unamortized discount face value 4 december 31 2013 4 december 31 2012 march 2009 issued 8500 principal amount notes payable public offering 5000 notes bear interest per annum rate equal 5625 payable semiannually scheduled mature march 1 2014 notes avon products inc notes consolidated financial statements continued 3500 notes bear interest per annum rate equal 650 payable semiannually mature march 1 2019 notes net proceeds offering 8376 used repay indebtedness outstanding commercial paper program general corporate purposes april 15 2013 prepaid 2014 notes prepayment price equal 100 principal amount 5000 plus accrued interest 34 makewhole premium 217 connection prepayment 2014 notes incurred loss extinguishment debt 130 second quarter 2013 consisting 217 makewhole premium 2014 notes writeoff 11 debt issuance costs discounts related initial issuance 2014 notes partially offset deferred gain 98 associated january 2013 interestrate swap agreement termination see note 8 financial instruments risk management information december 31 2012 carrying value 2014 notes represented 5000 principal amount net unamortized discount face value 6 carrying value 2019 notes represented 3500 principal amount net unamortized discount face value 23 december 31 2013 27 december 31 2012 march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 notes 5000 principal amount 460 notes due march 15 2020 notes 5000 principal amount 500 notes due march 15 2023 notes 2500 principal amount 695 notes due march 15 2043 notes collectively notes net proceeds notes used repay 3800 outstanding principal amount term loan agreement prepay private notes 2014 notes plus makewhole premium accrued interest repay 4625 notes due may 15 2013 maturity interest notes payable semiannually march 15 september 15 year carrying value 2016 notes represented 2500 principal amount net unamortized discount face value 1 december 31 2013 carrying value 2020 notes represented 5000 principal amount net unamortized discount face value 7 december 31 2013 carrying value 2023 notes represented 5000 principal amount net unamortized discount face value 45 december 31 2013 carrying value 2043 notes represented 2500 principal amount net unamortized discount face value 7 december 31 2013 maturities longterm debt annual maturities longterm debt includes notes including unamortized discounts premiums capital leases financing obligations outstanding december 31 2013 follows financing revolving credit facility march 2013 entered fouryear 1 billion revolving credit facility “revolving credit facility” expires march 2017 revolving credit facility replaced previous 1 billion revolving credit facility 2010 revolving credit facility terminated march 2013 prior scheduled expiration november 2013 amounts drawn 2010 revolving credit facility date termination early termination penalties incurred first quarter 2013 12 recorded writeoff issuance costs related 2010 revolving credit facility discussed commercial paper program 1 billion available revolving credit facility effectively reduced principal amount commercial paper outstanding borrowings revolving credit facility bear interest option rate per annum equal libor plus applicable margin floating base rate plus applicable margin case subject adjustment based credit ratings revolving credit facility annual fee approximately 20 payable quarterly based current credit ratings revolving credit facility may used general corporate purposes december 31 2013 amounts outstanding revolving credit facility december 31 2012 amounts outstanding 2010 revolving credit facility debt covenants revolving credit facility term loan agreement collectively debt agreements contain covenants limiting ability incur liens enter mergers consolidations sales substantially assets debt agreements also contain covenants limit subsidiary debt existing subsidiary debt february 28 2013 plus 5000 certain exceptions addition debt agreements contain financial covenants require interest coverage ratio end fiscal quarter equal exceed 41 leverage ratio greater 3751 end fiscal quarter ended december 31 2013 subsequent fiscal quarter prior september 30 2014 351 end fiscal quarter thereafter addition debt agreements contain customary events default crossdefault provisions interest coverage ratio determined dividing consolidated ebit defined debt agreements consolidated interest expense case period four fiscal quarters ending date determination leverage ratio avon products inc notes consolidated financial statements continued determined dividing amount consolidated funded debt date determination consolidated ebitda defined debt agreements period four fiscal quarters ending date determination calculating interest coverage leverage ratios debt agreements allow us subject certain conditions limitations add back consolidated net income among items extraordinary noncash losses expenses ii onetime fees cash charges cash expenses premiums penalties incurred connection asset sale equity issuance incurrence repayment debt refinancing modification amendment debt instrument iii cash charges cash expenses premiums penalties incurred connection restructuring relating legal regulatory action settlement judgment ruling aggregate amount exceed 4000 period october 1 2012 termination commitments debt agreements provided restructuring charges incurred december 31 2014 shall added back consolidated net income december 31 2013 based applicable interest rates full 1 billion revolving credit facility less principal amount commercial paper outstanding 0 december 31 2013 could drawn without violating covenant compliance interest coverage leverage ratios debt agreements four fiscal quarters ended december 31 2013 indentures governing notes described caption “public notes” contain certain covenants including limitations incurrence liens restrictions incurrence saleleaseback transactions involving merger consolidation sale substantially assets addition indentures contain customary events default crossdefault provisions would required make offer repurchase 2018 notes 2019 notes series notes defined price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon corresponding credit ratings downgrade investment grade addition indenture governing notes contains interest rate adjustment provisions depending credit ratings commercial paper program also maintain 1 billion commercial paper program supported revolving credit facility program may issue time unsecured promissory notes commercial paper market private placements exempt registration federal state securities laws cumulative face amount exceed 1 billion outstanding one time maturities exceeding 270 days date issue commercial paper shortterm notes issued program redeemable prior maturity subject voluntary prepayment outstanding commercial paper effectively reduces amount available borrowing revolving credit facility beginning 2012 continuing 2013 demand commercial paper declined partially impacted rating agency actions described significant borrowings commercial paper 2013 december 31 2013 outstanding commercial paper program letters credit december 31 2013 december 31 2012 also letters credit outstanding totaling 199 214 respectively primarily guarantee various insurance activities addition outstanding letters credit trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels additional information longterm credit ratings baa3 stable outlook moodys bbb negative outlook sp low end investment grade bb negative outlook fitch investment grade february 2013 fitch lowered longterm credit rating bbb negative outlook bb stable outlook moodys lowered longterm credit rating baa1 negative outlook baa2 stable outlook november 2013 fitch lowered longterm credit rating bb stable outlook bb negative outlook moodys placed avons longterm credit rating baa2 stable outlook review possible downgrade february 2014 moody’s lowered longterm credit rating baa2 stable outlook baa3 stable outlook additional rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities well likely result increase financing costs including interest expense certain debt instruments less favorable covenants financial terms financing arrangements note 6 accumulated comprehensive loss tables present changes aoci component reclassifications aoci 2013 1 gross amount reclassified interest expense related taxes reclassified income taxes 2 gross amount reclassified pension postretirement expense within selling general administrative expenses related taxes reclassified income taxes foreign exchange net gains 2 77 2013 2012 respectively resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income note 7 income taxes december 31 2013 recognized deferred tax assets relating tax loss carryforwards 7561 primarily foreign jurisdictions valuation allowance 7176 provided also recognized deferred tax assets 5854 relating excess foreign tax credit carryforwards expire 20182023 period concluded deferred tax assets associated excess foreign tax credits “more likely not” realized prior expiration fourth quarter 2012 result uncertainty financing arrangements domestic liquidity profile time determined may repatriate offshore cash meet certain domestic funding needs accordingly asserted undistributed earnings foreign subsidiaries longer indefinitely reinvested therefore recorded additional provision income taxes 1683 earnings december 31 2012 deferred tax liability amount 2248 us tax cost undistributed earnings subsidiaries outside us 31 billion december 31 2013 continue assert foreign earnings indefinitely reinvested result domestic liquidity profile accordingly adjusted deferred tax liability account 2013 undistributed earnings foreign subsidiaries earnings actually repatriated us year additionally deferred tax liability reduced due lower cost repatriate undistributed earnings foreign subsidiaries compared 2012 net impact deferred tax liability associated company’s undistributed earnings reduction 819 resulting deferred tax liability balance 1428 related incremental us tax cost 26 billion undistributed foreign earnings december 31 2013 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings result utilization foreign tax credits year repatriation therefore utilization foreign tax credits dependent amount timing repatriations well jurisdictions involved included undistributed earnings subsidiary venezuela calculation deferred income tax liability local regulations restrict cash distributions denominated us dollars avon products inc notes consolidated financial statements continued deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following deferred tax assets liabilities december 31 classified follows valuation allowance primarily represents amounts foreign tax loss carryforwards basis used recognition deferred tax assets included profitability operations related deferred tax liabilities likelihood utilizing tax credit carryforwards carryover periods net increase valuation allowance 1560 2013 mainly due several foreign entities continuing incur losses 2013 thereby increasing tax loss carryforwards valuation allowance provided addition net increase valuation allowance partially attributable venezuela due impact higher expected inflation taxable income negatively impacted likelihood would realize existing deferred tax assets given short life net operating loss carryforward periods venezuela determined likely would use carryforward losses expire avon products inc notes consolidated financial statements continued income continuing operations taxes years ended december 31 follows us loss continuing operations taxes years ended december 31 2013 2012 2011 include dividend income foreign subsidiaries provision income taxes years ended december 31 follows foreign provision income taxes includes us tax cost foreign earnings 99 1568 247 years ended december 31 2013 2012 2011 respectively effective tax rate years ended december 31 follows december 31 2013 tax loss carryforwards 25198 loss carryforwards expiring 2014 2028 1972 loss carryforwards expire 23226 also minimum tax credit carryforwards 379 expire business credit carryforwards 153 expire 2020 2033 foreign tax credit carryforwards 5854 expire 2018 2023 uncertain tax positions december 31 2013 280 total gross unrecognized tax benefits approximately 28 would impact effective tax rate recognized avon products inc notes consolidated financial statements continued reconciliation beginning ending amount unrecognized tax benefits follows recognize interest penalties accrued related unrecognized tax benefits provision income taxes 44 december 31 2013 62 december 31 2012 accrued interest penalties net tax benefit recorded benefits 1 11 38 interest penalties net taxes 2013 2012 2011 respectively file income tax returns us federal jurisdiction various state foreign jurisdictions december 31 2013 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 5 10 within next 12 months due closure tax years expiration statute limitations audit settlements note 8 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions december 31 2013 interestrate swap agreements enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger avon products inc notes consolidated financial statements continued derivatives recognized balance sheet fair values following table presents fair value derivative instruments outstanding december 31 2013 following table presents fair value derivative instruments outstanding december 31 2012 accounting policies applicable derivatives recognized balance sheet fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following accounting policies • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements income realized gains losses derivative reported consolidated statements cash flows consistent underlying hedged item derivatives designated hedges assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements income addition determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements income avon products inc notes consolidated financial statements continued interest rate risk portion borrowings subject interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2012 held interestrate swap agreements effectively converted approximately 62 outstanding longterm fixedrate borrowings variable interest rate based libor december 31 2013 designated interestrate swap agreements terminated either conjunction repayment associated debt january 2013 march 2012 transactions described total exposure floating interest rates approximately 8 december 31 2013 69 december 31 2012 january 2013 terminated eight interestrate swap agreements designated fair value hedges notional amounts totaling 1000 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 904 amortized reduction interest expense remaining term underlying debt obligations incurred termination fees 23 recorded expense net consolidated statements income year ended december 31 2013 net impact gain amortization 261 interestrate swap agreements terminated order improve capital structure including increasing ratio fixedrate debt december 31 2013 unamortized deferred gain associated january 2013 interestrate swap termination 643 included within longterm debt consolidated balance sheets march 2012 terminated two interestrate swap agreements designated fair value hedges notional amounts totaling 350 interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 incurred termination fees 25 recorded expense net consolidated statements income years ended december 31 2013 2012 net impact gain amortization 60 44 respectively interestrate swap agreements terminated order increase ratio fixedrate debt december 31 2013 unamortized deferred gain associated march 2012 interestrate swap termination 357 included within longterm debt consolidated balance sheets december 31 2013 interestrate swap agreements designated fair value hedges addition terminations discussed remaining interestrate swap agreements designated fair value hedges terminated conjunction repayment associated debt unrealized gain agreements 931 december 31 2012 903 included within longterm debt 28 included within debt maturing within one year 2013 2012 recorded net losses 7 84 respectively interest expense consolidated statements income interestrate swap agreements designated fair value hedges impact interest expense interestrate swap agreements offset equal offsetting impact interest expense fixedrate debt times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepayfixed interestrate swap agreements designated offset gain loss dedesignated contract december 31 2013 undesignated interestrate swap agreements remaining undesignated interestrate swap agreements terminated conjunction repayment associated debt unrealized loss agreements immaterial december 31 2012 2013 2012 recorded immaterial net loss immaterial net gain respectively expense net consolidated statements income associated undesignated interestrate swap agreements hedge ineffectiveness years ended december 31 2013 2012 2011 related interestrate swaps 2007 entered treasury lock agreements 2007 locks notional amounts totaling 5000 expired july 31 2008 2007 locks designated cash flow hedges anticipated interest payments 2500 principal amount 2013 notes 2500 principal amount 2018 notes losses 2007 locks 380 recorded aoci 192 losses amortized interest expense five years 188 amortized ten years 2005 entered treasury lock agreements 2005 locks designated cash flow hedges used hedge exposure possible rise interest rates prior anticipated issuance ten 30year bonds december 2005 decided appropriate strategy issue fiveyear bonds given strong cash flow high level cash equivalents result change strategy december 2005 dedesignated 2005 locks hedges reclassified gain 25 2005 locks aoci expense net upon change strategy december 2005 entered treasury lock agreement additional 2005 locks notional amount 2500 designated cash flow hedge 5000 principal amount fiveyear notes payable issued january 2006 loss additional 2005 locks 19 recorded aoci amortized interest expense consolidated statements income five years avon products inc notes consolidated financial statements continued 2003 entered treasury lock agreements 2003 locks designated cash flow hedges used hedge exposure possible rise interest rates prior issuance 4625 notes loss 2003 locks 26 recorded aoci amortized interest expense consolidated statements income ten years december 31 2013 expect reclassify 12 net taxes net losses derivative instruments designated cash flow hedges aoci earnings next 12 months years ended december 31 2013 2012 treasury lock agreements impacted aoci follows foreign currency risk use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2013 outstanding foreign exchange forward contracts notional amounts totaling approximately 1847 various currencies use foreign exchange forward contracts manage foreign currency exposure intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating intercompany loans 2013 2012 recorded loss 35 gain 76 respectively expense net consolidated statements income related undesignated foreign exchange forward contracts also 2013 2012 recorded gain 48 loss 46 respectively related intercompany loans caused changes foreign currency exchange rates also used foreign exchange forward contract hedge foreign currency exposure related net assets foreign subsidiaries effective hedges gains 43 28 2012 2011 respectively related effective portions foreign exchange forward contract included foreign currency translation adjustments within aoci foreign exchange forward contract terminated january 2012 therefore gain loss recorded 2013 credit risk financial instruments attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency interest rate derivatives comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 34 december 31 2013 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates note 9 fair value assets liabilities recorded fair value fair value measurement provisions required fair value measurements disclosures topic codification establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions avon products inc notes consolidated financial statements continued assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2013 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2012 tables exclude pension postretirement plan assets see note 12 employee benefit plans fair value hierarchy plan assets money market funds held healthcare trust order fund future benefit payments active retiree benefit plans see note 12 employee benefit plans availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 12 employee benefit plans foreign exchange forward contracts interestrate swap agreements hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table see note 8 financial instruments risk management assets liabilities recorded fair value nonrecurring basis december 31 2013 smt december 2013 decided halt rollout smt project beyond pilot program canada light potential risk business disruption result fourth quarter 2013 completed interim impairment assessment smt asset subsequently determined smt asset impaired result pretax noncash impairment charge 1172 741 net tax remaining carrying amount smt asset material fair value smt asset determined using riskadjusted dcf model relieffromroyalty method impairment analysis performed asset group includes smt asset required several estimates including revenue cash flow projections royalty discount rates see note 1 description business summary significant accounting policies information smt avon products inc notes consolidated financial statements continued september 30 2013 2012 china following table presents fair value hierarchy assets liabilities measured fair value nonrecurring basis september 30 2012 indicates placement fair value hierarchy valuation techniques utilized determine fair value third quarter 2012 completed interim impairment assessment fair value goodwill related china subsequently determined goodwill associated china impaired result carrying amount china’s goodwill reduced 813 estimated fair value 373 resulting noncash impairment charge 440 third quarter 2013 completed interim impairment assessment fair value goodwill related china subsequently determined goodwill associated china impaired result carrying amount chinas goodwill reduced 384 0 resulting noncash impairment charge 384 addition carrying amount chinas finitelived intangible assets reduced 37 0 resulting noncash impairment charge 37 impairment analyses performed goodwill intangible assets require several estimates computing estimated fair value reporting unit finitelived intangible assets use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors key assumptions used measuring fair value china included projections revenue resulting cash flows well discount rate based weightedaverage cost capital estimate fair value china forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return chinas cash flows normalized sustainable levels see note 17 goodwill intangible assets information china fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments money market funds accounts receivable loans receivable debt maturing within one year accounts payable longterm debt foreign exchange forwards contracts interestrate swap agreements carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following avon products inc notes consolidated financial statements continued 1 carrying value debt maturing within one year longterm debt includes related discount premium unamortized deferred gains terminated interestrate swap agreements unrealized losses interestrate swap agreements applicable methods assumptions used estimate fair value follows availableforsale securities money market funds fair values investments quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date interestrate swap agreements fair values interestrate swap agreements estimated based libor yield curves reporting date note 10 sharebased compensation plans avon products inc 2010 stock incentive plan 2010 plan avon products inc 2013 stock incentive plan “2013 plan” shareholder approved plans provide several types sharebased incentive compensation awards including stock options stock appreciation rights restricted stock restricted stock units performance restricted stock units following shareholder approval 2013 plan may 2013 awards made 2010 plan 2010 plan maximum number shares may awarded 32000000 shares maximum number shares reduced follows case grant award option stock appreciation right sar share stock subject award ii case grant award payable stock option sar 233 multiplied share stock subject award 2013 plan maximum number shares may awarded 42000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 313 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options 2010 plan stock appreciation rights restricted stock units performance restricted stock units 2010 plan 2013 plan stock option awards granted exercise price equal closing market price stock date grant option awards stock appreciation rights generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 compensation cost stock options stock appreciation rights performance restricted stock units restricted stock units 2013 2012 2011 recorded selling general administrative expenses years ended december 31 2013 2012 2011 determined pool windfall tax benefits avon products inc notes consolidated financial statements continued stock options fair value option estimated date grant using blackscholesmerton optionpricing model following weightedaverage assumptions options granted years ended december 31 stock options granted 2013 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life 10 years 3 expected volatility based weekly historical volatility stock price period similar expected life option 4 assumed thencurrent cash dividends 23 2012 23 2011 per share quarter common stock options granted years weightedaverage grantdate fair values per share options granted 355 2012 651 2011 summary stock options december 31 2013 changes 2013 follows december 31 2013 approximately 7 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 09 years recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates cash proceeds tax benefits intrinsic value related total stock options exercised 2013 2012 2011 follows restricted stock restricted stock units performance restricted stock units fair value restricted stock units performance restricted stock units granted determined based closing price common stock date grant 2011 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions accrue compensation cost probable performance conditions achieved reassess whether achievement performance conditions probable reporting period fourth quarter 2011 assessed longer probable would meet specified performance conditions reversed compensation cost recognized todate avon products inc notes consolidated financial statements continued 2012 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions several weeks original grant date amended one performance conditions associated award result incremental compensation cost associated modification totaled 9 3 recognized 2012 adjusted compensation cost recognized todate reflect estimated performance 2013 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions currently believe achievement performance conditions probable summary restricted stock restricted stock units december 31 2013 changes 2013 follows summary performance restricted stock units december 31 2013 changes 2013 follows 1 based initial target payout total fair value restricted stock units vested 2013 194 based upon market prices vesting dates december 31 2013 approximately 644 unrecognized compensation cost related restricted stock restricted stock units performance restricted stock units compensation arrangements cost expected recognized weightedaverage period 20 years addition amounts table april 2012 granted 200000 restricted stock units funded treasury shares outside 2010 plan reliance upon new york stock exchange rules restricted stock units weightedaverage grantdate fair value 2169 vest settle ratably five years 2013 40000 restricted stock units vested 160000 restricted stock units outstanding december 31 2013 2012 recognized compensation cost 14 respectively restricted stock units december 31 2013 16 unrecognized compensation cost related restricted stock units note 11 stock repurchase program october 2007 board directors approved fiveyear 20000 share repurchase program 20 billion program began december 2007 program expired december 17 2012 repurchased approximately 48 million shares 1808 20 billion program expiration note 12 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 106 2013 118 2012 126 2011 used psa purchase shares open market june 30 2011 beginning july 1 2011 matching contributions follow allocation participant selected contributions avon products inc notes consolidated financial statements continued defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory retirement plans substantially employees subsidiaries benefits plans generally based employee’s years service average compensation near retirement plans funded based legal requirements cash flow provide health care benefits subject certain limitations majority retired employees us certain foreign countries us cost health care benefits shared us retirees employees hired january 1 2005 employees hired january 1 2005 pay full cost health care benefits upon retirement august 2009 announced changes postretirement medical life insurance benefits offered us retirees changes retiree medical benefits reduced plan’s obligations 363 amount amortized negative prior service cost average future service active participants approximately 12 years changes retiree life insurance benefits reduced plan’s obligations 277 amount amortized negative prior service cost 33 years remaining term plan required among things recognize funded status pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant pension postretirement plans use december 31 measurement date employee benefit plans us pension plans include funded qualified plans unfunded nonqualified plans december 31 2013 us qualified pension plans benefit obligations 6241 plan assets 5311 december 31 2012 us qualified pension plans benefit obligations 7288 plan assets 5292 believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans second quarter 2012 approximately 40 assets previously designated intended used solely postretirement benefits transferred trust funds active retiree benefits healthcare trust treated avon products inc notes consolidated financial statements continued transfer assets negative contribution net benefit obligation december 31 2013 balance healthcare trust 1 components net periodic benefit cost amounts recognized comprehensive loss amounts represent pretax effect included within comprehensive loss income net tax amounts included within consolidated statements comprehensive income amounts aoci expected recognized components net periodic benefit cost 2014 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining future pension obligations individual plan based review longterm bonds receive highquality rating recognized rating agency discount rates significant plans based internal rate return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus pension plans determined basis increased 456 december 31 2013 411 december 31 2012 avon products inc notes consolidated financial statements continued weightedaverage assumptions used determine net benefit cost recorded consolidated statements income years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2013 assumed rate return assets globally 719 represents weightedaverage rate return plan assets including us nonus pension plans assumed rate return determining 2013 net costs us plan 775 addition current rate return assumption us plan based asset allocation approximately 35 corporate government bonds mortgagebacked securities expected earn approximately 2 4 long term approximately 65 equity securities high yield securities expected earn approximately 6 10 long term similar assessments performed determining rates return nonus pension plan assets arrive weightedaverage assumed rate return 670 determining 2013 net cost plan assets us nonus funded pension plans target weightedaverage asset allocations december 31 2013 2012 asset category follows following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2013 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2012 avon products inc notes consolidated financial statements continued reconciliation beginning ending balances level 3 investments provided table investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals overall objective us pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time beginning 2014 investment strategy us pension plan designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments achieve desired market exposures hedge certain risks pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects avon products inc personal retirement account plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets avon products inc notes consolidated financial statements continued liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions range 50 55 us pension postretirement plans range 30 35 international pension postretirement plans 2014 total benefit payments expected paid plans follows postretirement benefits 2013 assumed rate future increases per capita cost health care benefits health care cost trend rate 92 claims assumed gradually decrease year thereafter 50 2022 beyond us plan onepercentage point change assumed health care cost trend rates postretirement plans would following effects postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees employment retirement accrued cost postemployment benefits 391 december 31 2013 522 december 31 2012 included employee benefit plans consolidated balance sheets supplemental retirement programs offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral performance restricted stock units certain employees end 2012 deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three investment alternatives expense associated dcp 12 2013 17 2012 14 2011 accrued liability dcp 579 december 31 2013 697 december 31 2012 included liabilities consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified retirement plan subject irs limitations covered compensation annual cost programs included determination net periodic benefit cost shown previously amounted 76 2013 84 2012 98 2011 avon products inc notes consolidated financial statements continued benefit obligation programs 442 december 31 2013 639 december 31 2012 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers since january 1 2010 established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within selling general administrative expenses consolidated statements income note 13 segment information reportable segments based geographic operations include commercial business units latin america europe middle east africa north america asia pacific segments similar business characteristics offers similar products similar customer access methods second quarter 2013 silpada classified within discontinued operations see note 3 discontinued operations information accordingly amounts exclude results silpada periods presented global expenses include among things costs related executive administrative offices information technology research development marketing professional related fees associated foreign corrupt practices act fcpa investigations compliance reviews noncash impairment charge capitalized software associated smt accrual potential settlements related fcpa investigations allocate certain planned global expenses business segments primarily based planned revenue unallocated costs remain global expenses allocate segments costs implementing restructuring initiatives related global functions professional related fees associated fcpa investigations compliance reviews noncash impairment charge capitalized software associated smt accrual potential settlements related fcpa investigations costs implementing restructuring initiatives related specific segment recorded within segment accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues operating profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location intersegment sales transfers significant segment records direct expenses related employees operations summarized financial information concerning reportable segments december 31 shown following tables avon products inc notes consolidated financial statements continued total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets longlived assets primarily include property plant equipment intangible assets longlived assets us brazil consist primarily property plant equipment related manufacturing distribution facilities avon products inc notes consolidated financial statements continued 1 beauty includes color fragrance skincare personal care 2 fashion includes jewelry watches apparel footwear accessories children’s products 3 home includes gift decorative products housewares entertainment leisure products children’s products nutritional products 4 revenue primarily includes shipping handling order processing fees billed representatives note 14 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2013 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 1251 2013 1331 2012 1261 2011 plant construction expansion modernization projects estimated cost complete approximately 918 progress december 31 2013 note 15 restructuring initiatives 400m cost savings initiative 2012 announced cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth expected achieved restructuring actions well costsavings strategies result restructuring charges 400m cost savings initiative designed reduce operating expenses percentage total revenue help us achieve targeted low doubledigit operating margin 2016 restructuring actions 400m cost savings initiative primarily consist global headcount reductions related actions well restructuring closure certain smaller underperforming markets including exit south korea vietnam republic ireland markets result actions approved todate recorded total costs implement restructuring initiatives 1191 taxes 684 taxes recorded 2013 actions approved todate expect total costs implement restructuring range 140 150 taxes additional charges yet incurred associated actions approved todate approximately 20 30 taxes expected recorded primarily 2014 time unable quantify total costs implement restructuring initiatives incurred time initiative fully implemented connection restructuring actions approved todate associated 400m cost savings initiative expect realize annualized savings approximately 165 170 taxes market closures annualized savings represent foregone selling general administrative expenses result longer operating respective markets actions result closure market annualized savings represent avon products inc notes consolidated financial statements continued net reduction expenses longer incurred avon annualized savings incorporate impact decline revenue associated actions including market closures expected material restructuring charges 2013 recorded total costs implement 684 related 400m cost savings initiative costs consisted following • net charge 504 primarily employeerelated costs including severance pension postretirement benefits • accelerated depreciation 139 associated closure rationalization certain facilities • contract termination charges 48 primarily related costs associated exit republic ireland market • net benefit 35 due accumulated foreign currency translation adjustments second quarter 2013 primarily associated exit vietnam market • implementation costs 33 professional service fees • net benefit 7 due inventory adjustments first second quarters 2013 • net loss 2 due sale facility us total costs implement 691 recorded selling general administrative expenses net benefit 7 recorded cost sales consolidated statements income majority cash payments applicable associated charges made 2013 remaining expected made 2014 restructuring charges 2012 recorded total costs implement 507 related 400m cost savings initiative costs consisted following • net charge 452 primarily employeerelated costs including severance pension postretirement benefits • accelerated depreciation 22 associated closure rationalization certain facilities • contract termination charges 19 primarily related closure certain facilities exit south korea market • inventory writeoffs 14 associated exit south korea vietnam markets total costs implement 493 recorded selling general administrative expenses 14 recorded cost sales consolidated statements income liability balance 400m cost savings initiative december 31 2013 follows noncash writeoffs associated employeerelated costs result settlements curtailments special termination benefits pension postretirement benefits plans due initiatives implemented avon products inc notes consolidated financial statements continued following table presents restructuring charges incurred todate net adjustments 400m cost savings initiative along estimated charges expected incurred approved initiatives plan charges net adjustments initiatives 400m cost savings initiative reportable business segment follows noted previously initiatives approved todate expect record total costs implement restructuring range 140 150 taxes 400m cost savings initiative amounts shown tables charges recorded todate relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incurred incur costs implement restructuring initiatives professional services accelerated depreciation additional restructuring charges 2012 effort improve operating performance identified certain actions 2012 believe enhance operating model reduce costs improve efficiencies addition relocated corporate headquarters new york city restructuring charges 2013 result analysis actions taken 2013 recorded total costs implement 50 selling general administrative expenses consolidated statements income primarily consisting contract termination costs 61 associated relocation corporate headquarters partially offset immaterial adjustments reserve employeerelated costs restructuring charges 2012 recorded total costs implement 739 associated previously approved initiatives costs consisted following • net charge 534 primarily employeerelated costs including severance pension benefits • contract termination costs 120 associated relocation corporate headquarters • implementation costs 58 professional service fees • accelerated depreciation 27 associated relocation corporate headquarters total costs implement recorded selling general administrative expenses consolidated statements income year ended december 31 2013 avon products inc notes consolidated financial statements continued liability balance various restructuring initiatives december 31 2013 follows noncash writeoffs associated employeerelated costs result settlements curtailments special termination benefits pension postretirement benefits plans due initiatives implemented actions associated various restructuring initiatives substantially complete 2005 2009 restructuring programs launched restructuring programs 2005 2009 collectively 2005 2009 restructuring programs initiatives designed enhance organizational effectiveness implement global manufacturing strategy additional supply chain efficiencies distribution restructure global supply chain operations realign certain local business support functions regional base streamline transactional services restructuring charges 2013 recorded net benefits result adjustments reserve 75 primarily selling general administrative expenses associated previously approved initiatives part 2005 2009 restructuring programs net benefit primarily consisted net gain 49 due sale facility us well adjustments reserve employeerelated costs restructuring charges 2012 recorded total costs implement 1 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net benefit 121 result adjustments reserve partially offset employeerelated costs • implementation costs 89 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations • accelerated depreciation 47 associated initiatives realign certain distribution operations close certain manufacturing operations • net gain 14 due sale machinery equipment germany total cost implement net benefit 30 recorded selling general administrative expenses total costs implement 31 recorded cost sales consolidated statements income restructuring charges 2011 recorded total costs implement 400 associated previously approved initiatives part 2005 2009 restructuring programs costs consisted following • net charge 34 primarily employeerelated costs including severance pension benefits • implementation costs 272 professional service fees primarily associated initiatives outsource certain finance processes realign certain distribution operations realign certain support functions regional basis realign certain manufacturing facilities • accelerated depreciation 146 associated initiatives realign certain distribution operations close certain manufacturing operations • net gain 52 primarily due sale facility germany avon products inc notes consolidated financial statements continued total costs implement 288 recorded selling general administrative expenses 112 recorded cost sales consolidated statements income liability balance primarily consists employeerelated costs initiatives 2005 2009 restructuring programs follows noncash writeoffs associated employeerelated costs result settlements curtailments special termination benefits pension postretirement benefits plans due initiatives implemented 2005 2009 restructuring programs substantially complete note 16 contingencies fcpa investigations previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance fcpa related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 previously reported july 2009 connection internal investigation commenced compliance reviews regarding fcpa related us foreign laws additional countries order evaluate compliance efforts conducted compliance reviews number countries selected represent companys international geographic segments internal investigation compliance reviews focused reviewing certain expenses books records processes including limited travel entertainment gifts use thirdparty vendors consultants related due diligence joint ventures acquisitions payments thirdparty agents others connection business dealings directly indirectly foreign governments employees internal investigation compliance reviews matters substantially complete connection internal investigation compliance reviews certain personnel actions including termination employment certain senior members management taken additional personnel actions may taken future connection internal investigation compliance reviews continue enhance ethics compliance program including policies procedures fcpa compliancerelated training fcpa thirdparty due diligence program compliancerelated resources previously reported october 2008 voluntarily contacted united states securities exchange commission sec united states department justice doj advise agencies internal investigation cooperated continue cooperate investigations matters sec doj among things signed tolling agreements responded inquiries translated produced documents assisted interviews avon products inc notes consolidated financial statements continued provided information internal investigation compliance reviews personnel actions taken steps taken enhance ethics compliance program also made factual presentations substantially complete previously reported quarterly report form 10q period ending june 30 2013 made offer settlement doj sec june 2013 among terms would included payment monetary penalties approximately 12 although offer rejected doj staff sec accrued amount offer second quarter 2013 settlement negotiations doj staff sec continued fourth quarter 2013 based status current negotiations including levels monetary payments discussed recorded additional accrual 77 resulting aggregate accrual matters 89 december 31 2013 based status current negotiations doj staff sec estimate aggregate amount potential settlements government could exceed accrual approximately 43 reasonably possible aggregate monetary payments settlements exceed 89 amount within estimated potential settlement range consider better estimate amount therefore accrued estimated minimum amount probable loss connection potential settlements matters 77 fourth quarter 2013 12 second quarter 2013 although working resolve government investigations settlement assurance efforts reach settlements government successful timing terms settlements would expect settlements include civil andor criminal fines penalties may also include nonmonetary remedies oversight requirements additional remediation compliance requirements may required incur significant future costs comply nonmonetary terms settlements sec doj reach settlements doj andor sec cannot predict outcome subsequent litigation government litigation could material adverse effect matters resolved either settlement litigation expect continue incur costs primarily professional fees expenses may significant connection government investigations furthermore certain circumstances may also required advance andor reimburse significant professional fees expenses certain current former company employees connection matters litigation matters july august 2010 derivative actions filed state court certain present former officers andor directors company carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 november 22 2013 derivative action filed federal court certain present former officers andor directors company sylvia pritika derivatively behalf avon products inc v ann moore et al avon products inc nominal defendant filed united states district court southern district new york 13cv8369 claims asserted one actions include alleged breach fiduciary duty abuse control waste corporate assets unjust enrichment relating companys compliance fcpa including adequacy companys internal controls relief sought individual defendants one derivative actions include certain declaratory equitable relief restitution damages exemplary damages interest company nominal defendant relief sought company parker case plaintiff agreed defendants time file answer motion dismiss response adjourned plaintiff files amended pleading schwartz parties agreed defer filing amended complaint defendants response thereto parties submit stipulation addressing scheduling proceedings pritika parties agreed stipulated schedule filing motion dismiss behalf defendants unable predict outcome matters may 14 2012 county york retirement plan county york plaintiff previouslyfiled discontinued derivative action filed complaint company seeking enforcement demands inspection certain companys books records county york retirement plan v avon products inc new york supreme court new york county index 6516732012 july 10 2012 company moved dismiss county yorks complaint november 21 2013 court approved county yorks stipulation voluntary discontinuance without prejudice july 6 2011 purported shareholders class action complaint city brockton retirement system v avon products inc et al 11civ4665 filed united states district court southern district new york certain present former officers andor directors company september 29 2011 court appointed lbbw asset management avon products inc notes consolidated financial statements continued investmentgesellschaft mbh sgss deutschland kapitalanlagegesellschaft mbh lead plaintiffs motley rice llc lead counsel lead plaintiffs filed amended complaint behalf purported class consisting persons entities purchased otherwise acquired shares avons common stock july 31 2006 including october 26 2011 amended complaint names company two individual defendants asserts violations sections 10b 20a exchange act based allegedly false misleading statements omissions respect among things companys compliance fcpa including adequacy companys internal controls plaintiffs seek compensatory damages well injunctive relief defendants moved dismiss amended complaint june 14 2012 unable predict outcome matter however reasonably possible may incur loss connection matter unable reasonably estimate amount range reasonably possible loss circumstances losses incurred connection adverse outcomes litigation matters described could material brazilian tax matters 2002 brazilian subsidiary received excise tax ipi assessment brazilian tax authorities alleged tax deficiencies years 19971998 december 2012 additional assessments received year 2008 respect excise tax ipi taxes charged gross receipts pis cofins totaling approximately 355 53 245 including penalties accrued interest exchange rate december 31 2013 2002 2012 assessments assert establishment 1995 separate manufacturing distribution companies country done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2002 2012 assessments unfounded matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 assessments july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level october 2013 2012 pis cofins assessments canceled favor first administrative level decision subject mandatory appeal second administrative level brazilian tax authorities october 2010 2002 assessment upheld first administrative level amount reduced approximately 28 67 including penalties accrued interest exchange rate december 31 2013 appealed decision second administrative level event 2002 2012 assessments upheld second well third last administrative level may necessary us provide security pursue appeals depending circumstances may result charge earnings possible reasonably estimate amount range potential loss could incur related 2002 2012 assessments additional assessments may issued subsequent periods tax years 2007 closed statute however similar excise tax ipi assessments involving different periods 19982001 canceled officially closed favor second administrative level management believes likelihood 2002 2012 assessments upheld remote matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2013 expected material adverse effect consolidated financial position results operations cash flows note 17 goodwill intangible assets second quarter 2013 silpada classified within discontinued operations see note 3 discontinued operations information accordingly amounts exclude results silpada periods presented q3 2013 china impairment assessment compared projections used fourth quarter 2012 impairment analysis q4 2012 projections china performed generally line revenue earnings projections first half 2013 assumed q4 2012 projections chinas revenue first half 2013 continued deteriorate versus prioryear period however beginning third quarter 2013 revenue decline significantly excess assumptions revenue third quarter 2013 declined 67 versus third quarter 2012 compared revenue decline 28 first half 2013 versus first half 2012 result third quarter 2013 became apparent would achieve 2013 long avon products inc notes consolidated financial statements continued term forecasted revenue earnings completed interim impairment assessment fair value goodwill related operations china chinas revenue performance third quarter 2013 approximately 67 less excluding impact foreign currency revenue q4 2012 projections revenue decline china third quarter 2013 resulted recognition operating loss expected operating profit q4 2012 projections third quarter 2013 significantly lowered longterm revenue earnings projections china included dcf model utilized interim impairment assessment based upon interim analysis determined goodwill related operations china impaired specifically results interim impairment analysis indicated estimated fair value china reporting unit less respective carrying amount result impairment testing recorded noncash tax impairment charge 384 tax reduce carrying amount goodwill remaining china reporting unit result impairment decline fair value china reporting unit primarily driven significant reduction forecasted longterm growth rates cash flows used estimate fair value fiscal year 2013 revenue china expected approximately 38 less revenue q4 2012 projections 47 less fiscal year 2012 results also performed interim impairment analysis china finitelived intangible assets indicated carrying value intangible assets exceeded estimated future undiscounted cash flows business resulted noncash tax impairment charge 37 28 tax reduce carrying amount assets intangible assets remaining china result impairment charge china historically generated positive cash flows expected generate positive cash flows 2013 number years thereafter need investment previously anticipated result expected cash flows business date impairment analysis level sufficient support carrying value business compared prior years projections china future expectations declined significantly 2012 2013 impairment analyses reduction future expectations led impairments 440 421 recorded third quarters 2012 2013 respectively q3 2012 china impairment assessment based continued decline revenue performance china third quarter 2012 corresponding lowering longterm growth estimates china completed interim impairment assessment fair value goodwill related operations china changes longterm growth estimates based state china business china business achieve revenue earnings cash flows expectations primarily due challenges business model based upon interim analysis determined goodwill related operations china impaired specifically results interim impairment test indicated estimated fair value china reporting unit less respective carrying amount result impairment testing recorded noncash impairment charge 440 tax reduce carrying amount goodwill china estimated fair value key assumptions china key assumptions used measuring fair value china impairment assessments included projections revenue resulting cash flows well discount rate based weightedaverage cost capital estimate fair value china forecasted revenue resulting cash flows ten years using dcf model included terminal value end projection period believed tenyear period reasonable amount time order return chinas cash flows normalized sustainable levels avon products inc notes consolidated financial statements continued goodwill 1 primarily comprised foreign currency translation intangible assets actual amortization expense may differ amounts due among things future acquisitions disposals impairments accelerated amortization fluctuations foreign currency exchange rates aggregate amortization expense 44 95 67 years ended december 31 2013 2012 2011 respectively amortization expense future periods expected material note 18 supplemental balance sheet information december 31 2013 2012 prepaid expenses included following avon products inc notes consolidated financial statements continued december 31 2013 2012 assets included following note 19 results operations quarter unaudited 1 discussed note 1 description business summary significant accounting policies recorded outofperiod adjustments 2012 related prior periods first quarter 2012 recorded outofperiod adjustment decreased earnings approximately 14 tax 10 tax related 2011 associated bad debt expense south africa operations second quarter 2012 recorded outofperiod adjustment increased earnings approximately 5 tax 3 tax related prior years associated vendor liabilities north america second quarter 2012 recorded outofperiod adjustment decreased earnings approximately 4 tax 4 tax related prior years associated brochure costs poland addition adjustments previously mentioned 2012 also recorded outofperiod adjustments aggregate approximately 1 tax 5 tax related prior years avon products inc notes consolidated financial statements continued evaluated outofperiod adjustments 2012 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods 2 operating profit loss impacted following 3 addition items impacting operating profit loss income loss continuing operations taxes 2013 impacted onetime aftertax loss 507 341 expense net 166 income taxes recorded first quarter primarily reflecting writedown monetary assets liabilities deferred tax benefits due devaluation venezuelan currency income loss continuing operations taxes 2013 also impacted loss extinguishment debt 730 tax first quarter 2013 caused makewhole premium writeoff debt issuance costs associated prepayment private notes defined note 5 debt financing well writeoff debt issuance costs associated early repayment 3800 outstanding principal amount term loan agreement defined note 5 debt financing addition income loss continuing operations taxes 2013 impacted loss extinguishment debt 130 tax second quarter 2013 caused makewhole premium writeoff debt issuance costs discounts partially offset deferred gain associated january 2013 interestrate swap agreement termination associated prepayment 2014 notes defined note 5 debt financing addition income loss continuing operations taxes 2012 impacted benefit 238 expense net 2012 due release provision fourth quarter associated excess cost acquiring us dollars venezuela regulated market rate compared official exchange rate provision released company capitalized associated intercompany liabilities 4 loss income continuing operations net tax 2013 impacted valuation allowances deferred tax assets 418 related venezuela fourth quarter 2013 92 related china business third quarter 2013 2012 impacted additional provision income taxes 1683 fourth quarter 2012 determined company may repatriate offshore cash meet certain domestic funding needs accordingly longer asserting undistributed earnings foreign subsidiaries indefinitely reinvested 5 sum per share amounts quarters necessarily equal year computations made independently see note 15 restructuring initiatives results continuing operations consolidated within mda pages 30 35 segment review latin america within mda pages 37 39 note 16 contingencies note 17 goodwill intangibles note 1 description business summary significant accounting policies note 5 debt financing note 7 income taxes information items schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2013 2012 2011 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance primarily tax loss carryforward benefits likely realized futureitem 15 exhibits financial statement schedule 1 consolidated financial statements report independent registered public accounting firm see index page 2 financial statement schedule see index page schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits avon’s annual report form 10k year ended december 31 2016 time filing united states securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 amended purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 22nd day february 2017 avon products inc robert loughran robert loughran group vice president chief accounting officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated avon products inc index consolidated financial statements schedule report independent registered public accounting firm board directors shareholders avon products inc opinion accompanying consolidated balance sheets related consolidated statements operations comprehensive income cash flows changes shareholders’ equity present fairly material respects financial position avon products inc december 31 2016 december 31 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements also opinion company maintained material respects effective internal control financial reporting december 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso companys management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting appearing item 9a responsibility express opinions financial statements financial statement schedule companys internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate avon products inc consolidated statements operations accompanying notes integral part statements avon products inc consolidated statements comprehensive income loss accompanying notes integral part statements avon products inc consolidated balance sheets accompanying notes integral part statements avon products inc consolidated statements cash flows 1 includes cash equivalents discontinued operations 22 241 179 beginning year 2016 2015 2014 respectively 2 includes cash equivalents discontinued operations 22 241 end year 2015 2014 respectively accompanying notes integral part statements avon products inc consolidated statements changes shareholders’ equity deficit accompanying notes integral part statements avon products inc notes consolidated financial statements us dollars millions except per share data note 1 description business summary significant accounting policies business used notes terms avon company us mean avon products inc global manufacturer marketer beauty related products business conducted primarily one channel direct selling reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific product categories beauty fashion home beauty consists skincare includes personal care fragrance color cosmetics fashion home consists fashion jewelry watches apparel footwear accessories gift decorative products housewares entertainment leisure products children’s products nutritional products sales made ultimate consumer principally independent representatives december 2015 entered definitive agreements affiliates cerberus capital management lp cerberus include 435 investment avon affiliate cerberus purchase convertible preferred stock separation north america business including approximately 100 cash subject certain adjustments avon new avon llc new avon privatelyheld company majorityowned managed affiliate cerberus transactions closed march 2016 avon retained approximately 20 ownership new avon refer note 3 discontinued operations divestitures additional information regarding investment affiliate cerberus separation north america business result transaction consolidated revenue derived operations subsidiaries outside us principles consolidation consolidated financial statements include accounts avon majority whollyowned subsidiaries intercompany balances transactions eliminated use estimates prepare consolidated financial statements related disclosures conformity accounting principles generally accepted united states america gaap preparing statements required use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ materially estimates assumptions ongoing basis review estimates including related allowances sales returns allowances doubtful accounts receivable provisions inventory obsolescence determination discount rate actuarial assumptions pension postretirement benefit expenses restructuring expense income taxes tax valuation allowances sharebased compensation loss contingencies evaluation goodwill property plant equipment capitalized software potential impairment foreign currency financial statements foreign subsidiaries operating highly inflationary economies translated yearend exchange rates assets liabilities average exchange rates year income expense accounts resulting translation adjustments recorded within accumulated comprehensive income loss aoci gains losses resulting impact changes foreign currency rates assets liabilities denominated currency functional currency recorded expense net financial statements avon subsidiaries operating highly inflationary economies united states us dollar required used functional currency december 31 2016 none consolidated avon subsidiaries considered operating highly inflationary economy highly inflationary accounting requires monetary assets liabilities cash receivables payables remeasured us dollars current exchange rate end period impact changes exchange rates recorded income record impact changes exchange rates monetary assets liabilities expense net similarly deferred tax assets liabilities remeasured us dollars current exchange rates however impact changes exchange rates recorded income taxes consolidated statements operations nonmonetary assets liabilities inventory property plant equipment prepaid expenses recorded us dollars historical rates time acquisition assets liabilities avon products inc notes consolidated financial statements continued venezuela currency restrictions enacted venezuelan government since 2003 impacted ability avon venezuela obtain foreign currency pay imported products 2010 began accounting operations venezuela accounting guidance associated highly inflationary economies venezuelas restrictive foreign exchange control regulations venezuelan operations increasingly limited access us dollars resulted lack exchangeability venezuelan bolivar us dollar restricted venezuelan operations ability pay dividends settle intercompany obligations severe currency controls imposed venezuelan government significantly limited ability realize benefits earnings venezuelan operations access resulting liquidity provided earnings expected lack exchangeability would continue foreseeable future result concluded effective march 31 2016 condition otherthantemporary longer met accounting criteria control order continue consolidating venezuelan operations result since march 31 2016 account venezuelan operations using cost method accounting result change cost method accounting first quarter 2016 recorded loss 1205 expense net loss comprised 392 net assets venezuelan business 813 accumulated foreign currency translation adjustments within aoci shareholders deficit associated foreign currency changes venezuela accounted highly inflationary economy net assets venezuelan business comprised inventories 237 property plant equipment net 150 assets 114 accounts receivable 46 cash 45 accounts payable accrued liabilities 200 consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements include income relating venezuelan operations extent receive cash dividends royalties remitted avon venezuela february 2015 venezuelan government announced creation new foreign exchange system referred simadi exchange simadi represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize simadi exchange rate remeasure venezuelan operations result change simadi rate caused recognition devaluation approximately 70 compared exchange rate used previously recorded aftertax benefit 34 benefit 42 expense net loss 8 income taxes first quarter 2015 primarily reflecting writedown net monetary assets addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change simadi rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis caused disproportionate expense assets consumed operations negatively impacting operating profit net income 185 2015 also result change simadi rate determined adjustment 114 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2015 addition february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge 903 selling general administrative expenses needed reflect writedown longlived assets estimated fair value 157 recorded first quarter 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates february 2014 venezuelan government announced foreign exchange system began operating march 2014 referred sicad ii exchange sicad ii sicad ii represented rate better reflected economics avon venezuelas business activity comparison available exchange rates concluded utilize sicad ii exchange rate remeasure venezuelan operations effective march 31 2014 result change sicad ii rate caused recognition devaluation approximately 88 compared official exchange rate used previously recorded aftertax loss 418 537 expense net benefit 119 income taxes first quarter 2014 primarily reflecting writedown net monetary assets addition result using historical us dollar cost basis nonmonetary assets inventories assets continued remeasured following change sicad ii rate applicable rate time acquisition remeasurement nonmonetary assets historical us dollar cost basis caused disproportionate expense assets consumed operations negatively impacting operating profit net income 214 2014 also result determined adjustment 1157 cost sales needed reflect certain nonmonetary assets primarily inventories net realizable value recorded first quarter 2014 avon products inc notes consolidated financial statements continued revenue recognition net sales primarily include sales generated result representative orders less discounts taxes deductions recognize revenue upon delivery title risks rewards ownership pass independent representatives customers internal financial systems accumulate revenues orders shipped representative since report revenue upon delivery revenues recorded financial system must reduced estimate financial impact orders shipped delivered end reporting period use estimates determining adjustments revenue operating profit orders shipped delivered end period estimates based daily sales levels delivery lead times gross margin variable expenses also record provision estimated sales returns based historical experience product returns addition estimate allowance doubtful accounts receivable balances based analysis historical data current circumstances revenue primarily comprised shipping handling order processing fees billed representatives well revenue sale products new avon since separation companys north america business new avon march 1 2016 ongoing royalties licensing name products cash equivalents cash equivalents stated cost plus accrued interest approximates fair value cash equivalents generally highquality shortterm money market instruments original maturity three months less consist time deposits number us nonus commercial banks money market fund investments inventories stated lower cost market cost determined using firstin firstout method classify inventory various categories based upon stage product life cycle future marketing sales plans disposition process assign degree obsolescence risk products based classification estimate level obsolescence provision prepaid brochure costs prepare brochures initially deferred prepaid expenses expensed selling general administrative expenses campaign length addition fees charged representatives brochures initially deferred presented reduction prepaid expenses recorded reduction selling general administrative expenses campaign length campaign length typically three four weeks brochure costs associated fees presented prepaid expenses 272 december 31 2016 258 december 31 2015 additionally paper stock purchased advance creating brochures prepaid expenses include paper supply 43 december 31 2016 38 december 31 2015 brochure costs expensed selling general administrative expenses amounted 2447 2016 2566 2015 3094 2014 fees charged representatives recorded reduction selling general administrative expenses amounted 1386 2016 1419 2015 1732 2014 property plant equipment capitalized software property plant equipment stated cost depreciated using straightline method estimated useful lives assets estimated useful lives generally follows buildings 45 years land improvements 20 years machinery equipment 15 years office equipment five ten years leasehold improvements depreciated shorter lease term estimated useful life asset upon disposal property plant equipment cost assets related accumulated depreciation removed accounts resulting gain loss reflected earnings costs associated repair maintenance activities expensed incurred certain systems development costs related purchase development installation computer software capitalized amortized estimated useful life related project generally exceed five years costs incurred prior development stage well maintenance training costs general administrative expenses expensed incurred assets balance included unamortized capitalized software costs 839 december 31 2016 824 december 31 2015 amortization expense associated capitalized software 305 310 448 years ended december 31 2016 2015 2014 respectively evaluate property plant equipment capitalized software impairment whenever events changes circumstances indicate carrying amount asset group may recoverable recoverability assets held used measured comparison carrying amount asset estimated pretax undiscounted future cash flows avon products inc notes consolidated financial statements continued expected generated asset carrying amount asset exceeds estimated future cash flows impairment charge recognized amount carrying amount asset exceeds fair value asset fair value asset determined using revenue cash flow projections royalty discount rates appropriate see information avon venezuelas longlived assets goodwill amortized assessed impairment annually fourth quarter occurrence event indicates impairment may occurred reporting unit level reporting unit operating segment component one level operating segment components aggregated single reporting unit similar economic characteristics testing goodwill impairment perform either qualitative quantitative assessment reporting units factors considered qualitative analysis include macroeconomic conditions industry market considerations cost factors overall financial performance specific reporting unit qualitative analysis results likely probability impairment first quantitative step described required quantitative test evaluate goodwill impairment twostep process first step compare fair value reporting unit carrying value fair value reporting unit less carrying value perform second step determine implied fair value reporting unit’s goodwill second step impairment analysis requires valuation reporting unit’s tangible intangible assets liabilities manner similar allocation purchase price business combination resulting implied fair value reporting unit’s goodwill less carrying value difference represents impairment analysis performed goodwill requires several estimates computing estimated fair value reporting unit typically use discounted cash flow dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect marketplace participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors see note 18 goodwill information regarding egypt financial instruments use derivative financial instruments including forward foreign currency contracts manage foreign currency exposures applicable derivatives recognized consolidated balance sheets fair values become party derivative instrument intend apply hedge accounting designate instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value gains losses derivative instrument depends whether designated qualified part hedging relationship type hedging relationship apply following • changes fair value derivative designated fair value hedge along loss gain hedged asset liability attributable hedged risk recorded earnings • changes fair value derivative designated cash flow hedge recorded aoci extent effective reclassified earnings period periods transaction hedged derivative also affects earnings • changes fair value derivative designated hedge net investment foreign operation recorded foreign currency translation adjustments within aoci extent effective hedge • changes fair value derivative designated hedging instrument recognized earnings expense net consolidated statements operations realized gains losses derivative reported consolidated statements cash flows consistent nature underlying hedged item derivatives designated hedges assess hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 avon products inc notes consolidated financial statements continued cumulative changes fair value hedged item ineffective portion derivative’s gain loss recorded earnings expense net consolidated statements operations addition determine derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur discontinue hedge accounting affected portion forecasted transaction reclassify gains losses accumulated aoci earnings expense net consolidated statements operations deferred income taxes deferred income taxes provided items recognized financial reporting purposes different periods income tax purposes using tax rates effect year differences expected reverse valuation allowance provided reduce deferred tax assets amount likely realized ultimate realization deferred tax assets depends upon generating sufficient future taxable income periods temporary differences become deductible net operating loss tax credit carryforwards expire see note 8 income taxes information uncertain tax positions recognize benefit tax position likely sustained audit based technical merits position record interest expense penalties payable relevant tax authorities income taxes consolidated statements operations selling general administrative expenses selling general administrative expenses include costs associated selling marketing distribution including shipping handling costs advertising net brochure costs research development information technology administrative costs including finance legal human resource functions shipping handling shipping handling costs expensed incurred amounted 4893 2016 5388 2015 6958 2014 advertising costs excluding brochure preparation costs expensed incurred amounted 1089 2016 1280 2015 1664 2014 research development research development costs expensed incurred amounted 521 2016 619 2015 647 2014 research development costs include costs related design development new products salaries benefits supplies materials facilities costs sharebased compensation sharebased payments employees recognized financial statements based fair value date grant applicable use montecarlo simulation calculate fair value performance restricted stock units market conditions fair value premiumpriced stock options restructuring expense record estimated expense restructuring initiatives costs deemed probable estimable approved appropriate corporate authority accumulating detailed estimates costs plans expenses include estimated costs employee severance related benefits impairment accelerated depreciation property plant equipment capitalized software qualifying exit costs represent best estimate require assumptions programs may change time including attrition rates estimates evaluated periodically determine whether adjustment required pension postretirement expense pension postretirement expense determined based number actuarial assumptions generally reviewed determined annual basis assumptions include discount rate applied plan obligations expected rate return plan assets rate compensation increase plan participants price inflation costofliving adjustments mortality rates certain demographic assumptions factors actual results differ assumptions accumulated amortized expense future periods therefore generally affect recognized expense future periods recognize funded status pension postretirement benefit plans consolidated balance sheets overfunded plan recognized asset underfunded plan recognized liability recognition prior avon products inc notes consolidated financial statements continued service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods use december 31 measurement date employee benefit plans contingencies determine whether disclose andor accrue loss contingencies based assessment whether risk loss remote reasonably possible probable record loss contingencies probable liability incurred amount loss reasonably estimable outofperiod items 2015 recorded outofperiod adjustments decreased income continuing operations approximately 8 tax approximately 14 tax evaluated total outofperiod adjustments impacting 2015 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods 2014 recorded outofperiod adjustments south latin america segment primarily related revenue selling general administrative expenses increased income continuing operations approximately 15 tax total outofperiod adjustments increasing income continuing operations 2014 approximately 13 tax approximately 6 tax total outofperiod adjustments decreasing income discontinued operations 2014 approximately 7 tax evaluated total outofperiod adjustments impacting 2014 individually aggregate relation quarterly annual periods originated annual period corrected concluded adjustments material consolidated annual financial statements impacted periods earnings loss per share compute earnings loss per share eps using twoclass method earnings loss allocation formula determines earnings loss per share common stock earnings loss allocated convertible preferred stock participating securities appropriate earnings allocated convertible preferred stock larger 1 preferred dividends accrued year 2 percentage earnings continuing operations allocable preferred stock converted common stock participating securities grants restricted stock restricted stock units contain nonforfeitable rights dividend equivalents extent dividends declared paid common stock compute basic eps dividing net income loss allocated common shareholders weightedaverage number shares outstanding year diluted eps calculated give effect potentially dilutive common shares outstanding year avon products inc notes consolidated financial statements continued three years ended december 31 components basic diluted eps follows amounts table may necessarily sum due rounding years ended december 31 2016 2015 2014 include stock options purchase 142 million shares 127 million shares 180 million shares avon common stock respectively calculations diluted eps loss continuing operations net tax inclusion shares would decrease net loss per share since inclusion shares would antidilutive excluded calculation year ended december 31 2016 dilutive assume series c convertible preferred stock converted common stock therefore weightedaverage outstanding shares outstanding adjusted asif converted series c convertible preferred stock effect would decrease net loss per share therefore inclusion would antidilutive asif converted series c convertible preferred stock dilutive approximately 871 million additional shares would included diluted weighted average number shares outstanding year ended december 31 2016 shares series c convertible preferred stock outstanding years ended december 31 2015 2014 see note 16 series c convertible preferred stock note 2 new accounting standards implemented march 2016 fasb issued asu 201609 compensation stock compensation intended simplify accounting sharebased payment transactions new guidance change several aspects accounting sharebased payment transactions including accounting income taxes forfeitures employertax withholding requirements asu 201609 also clarifies statements cash flows presentation certain components sharebased payment awards avon products inc notes consolidated financial statements continued adopting new accounting guidance first quarter 2017 believe new accounting guidance material impact consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers issued new topic accounting standards codification topic 606 core principle guidance entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services august 2015 fasb issued asu 201514 deferral effective date resulted standard effective beginning 2018 early adoption permitted 2017 intend adopt new accounting guidance effective january 1 2018 new accounting guidance adopted either retrospectively cumulativeeffect adjustment date adoption yet determined method adoption currently evaluating effect adopting new accounting guidance consolidated financial statements based evaluation completed todate believe need consider sales incentive programs separate deliverable allocate portion sales transaction price deliverable need adjust manner present allowance sales returns consolidated balance sheets february 2016 fasb issued asu 201602 leases requires assets liabilities arising leases recognized statement financial position standard effective january 1 2019 currently evaluating effect adopting new accounting guidance consolidated financial statements note 3 discontinued operations divestitures discontinued operations north america december 17 2015 company entered definitive agreements affiliates controlled cerberus agreements include investment agreement providing 4350 investment cleveland apple investor lp “cerberus investor” affiliate cerberus company purchase perpetual convertible preferred stock see note 16 series c convertible preferred stock separation investment agreement providing separation companys north america business represented companys operations us canada puerto rico company new avon privatelyheld company majorityowned managed cerberus na investor llc “cerberus na” affiliate cerberus transactions closed march 1 2016 proceeds sale perpetual convertible preferred stock used fund 100 cash contribution new avon approximately 250 used reduce debt remainder used restructuring reinvestment business company considered transactions affiliates cerberus help drive enhanced focus avons international markets revitalize north america business deliver longterm value shareholders cerberus na contributed approximately 170 cash new avon exchange 801 ownership interests company contributed assets primarily related north america business including approximately 100 cash subject certain adjustments ii certain assumed liabilities primarily pension postretirement liabilities north america business iii employees north america business new avon exchange 199 ownership interest new avon company received approximately 6 cash new avon part customary working capital adjustment north america business previously reportable segment presented discontinued operations periods presented separation represented significant strategic shift determined major effect operations financial results fourth quarter 2015 company recorded estimated loss sale discontinued operations 3400 tax 3400 tax carrying value exceeded estimated fair value less costs sell 2016 company recognized additional loss sale 156 tax 54 tax respectively cumulative loss sale 3556 tax 3454 tax represents net assets contributed new avon including certain pension postretirement benefit plan liabilities amounts aoci associated north america business primarily unrecognized losses associated us defined benefit pension plan costs sell compared implied value ownership interests new avon closing 425 new avon entered perpetual irrevocable royaltyfree licensing agreement company use avon brand certain intellectual property avon new avon also entered transition services agreement covers among things information technology financial services human resources well commercial agreements including research development product supply sublease office space avon new avon see note 4 related party transactions avon products inc notes consolidated financial statements continued company accounts ownership interests new avon using equity method accounting results company recognizing proportionate share new avons income loss comprehensive income loss companys proportionate share postseparation losses new avon 119 2016 recorded within expense net addition companys proportionate share postseparation comprehensive income new avon 22 2016 recorded within comprehensive income major classes financial statement components comprising loss discontinued operations net tax north america shown december 31 2016 carrying amounts assets liabilities north america discontinued operations material carrying amounts major classes assets liabilities north america discontinued operations december 31 2015 shown 1 represents cash contribution company new avon made close transactions 2 includes accrual estimated loss sale approximately 340 december 31 2015 avon products inc notes consolidated financial statements continued december 31 2015 also 194 net deferred tax assets fully offset valuation allowance reflected discontinued operations associated separation north america divestitures liz earle july 9 2015 company sold liz earle beauty co limited “liz earle” approximately 215 less expenses approximately 5 liz earle previously reported within europe middle east africa segment 2015 recorded gain sale 449 tax reported separately consolidated statements operations 516 tax representing difference proceeds including expected working capital settlement carrying value liz earle business date sale proceeds sale liz earle used fund portion company’s redemption 250 principal amount 2375 notes due march 15 2016 occurred august 10 2015 see note 6 debt financing additional information note 4 related party transactions following tables present related party transactions solely connection separation companys north america business discussed note 3 discontinued operations divestitures 1 company supplies product new avon part manufacturing supply agreement company recorded revenue 292 within revenue gross profit 23 associated agreement year ended december 31 2016 2 new avon also supplies product company part manufacturing supply agreement company purchased 56 new avon associated agreement year ended december 31 2016 recorded 46 associated purchases within cost sales 2016 3 company entered transition services agreement provide certain services new avon well agreement research development subleases office space addition new avon performing certain services company similar transition services agreement company recorded net 353 reduction selling general administrative expenses associated agreements year ended december 31 2016 generally represents recovery related costs 4 company also entered agreements affiliate cerberus provide secondment cerberus affiliate personnel companys project management team responsible assisting execution transformation plan transformation plan announced january 2016 company recorded 27 selling general avon products inc notes consolidated financial statements continued administrative expenses associated agreements year ended december 31 2016 see note 15 restructuring initiatives additional information related transformation plan 5 inventories relate purchases new avon associated manufacturing supply agreement yet sold classified within inventories consolidated balance sheets 6 receivables due new avon relate agreements transition services research development subleases office space well manufacturing supply agreement classified within prepaid expenses consolidated balance sheets 7 payables due new avon relate manufacturing supply agreement classified within accrued liabilities consolidated balance sheets 8 payables due affiliate cerberus relate agreement project management team classified within accrued liabilities consolidated balance sheets addition company issued standby letters credit lessors certain equipment lease transferred new avon connection separation companys north america business initial liability estimated value standby letters credit 21 included additional loss sale north america business recognized loss discontinued operations net tax consolidated statements operations year ended december 31 2016 december 31 2016 company liability 16 estimated value standby letters credit reduction estimated liability 5 recognized expense net consolidated statements operations year ended december 31 2016 see note 16 series c convertible preferred stock discussion preferred shares issued cerberus investor note 5 inventories december 31 consisted following note 6 debt financing debt december 31 consisted following avon products inc notes consolidated financial statements continued notes payable included shortterm borrowings international subsidiaries average annual interest rates approximately 110 december 31 2016 40 december 31 2015 debt included obligations capital leases 76 december 31 2016 117 december 31 2015 primarily relate leases automobiles equipment public notes march 2013 issued public offering 2500 principal amount 2375 notes due march 15 2016 2375 notes 5000 principal amount 460 notes due march 15 2020 460 notes 5000 principal amount 500 notes due march 15 2023 500 notes 2500 principal amount 695 notes due march 15 2043 695 notes collectively 2013 notes net proceeds 2013 notes used repay outstanding debt interest 2013 notes payable semiannually march 15 september 15 year august 10 2015 prepaid 2375 notes prepayment price equal 100 principal amount 2500 plus accrued interest 31 makewhole premium 50 connection prepayment 2375 notes incurred loss extinguishment debt 55 tax third quarter 2015 consisting 50 makewhole premium 2375 notes writeoff 5 debt issuance costs discounts related initial issuance 2375 notes indenture governing 2013 notes contains interest rate adjustment provisions depending longterm credit ratings assigned 2013 notes sp moodys described indenture interest rates 2013 notes increase 25 onenotch downgrade investment grade longterm credit ratings assigned 2013 notes sp moodys adjustments limited total increase 2 respective interest rates effect date issuance 2013 notes result longterm credit rating downgrades sp moodys since issuance 2013 notes interest rates notes increased maximum allowable increase august 2016 completed cash tender offers resulted reduction principal 1086 575 notes due march 1 2018 575 notes 738 420 notes due july 15 2018 420 notes 681 650 notes due march 1 2019 650 notes 501 460 notes connection cash tender offers incurred gain extinguishment debt 39 tax third quarter 2016 consisting deferred gain 128 associated march 2012 january 2013 interestrate swap agreement terminations see note 9 financial instruments risk management partially offset 58 early tender premium paid cash tender offers 12 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 9 financial instruments risk management 10 deal costs writeoff 9 debt issuance costs discounts related initial issuances notes subject cash tender offers october 2016 repurchased 440 650 notes 440 420 notes 400 460 notes 352 575 notes aggregate repurchase price equal principal amount notes plus premium 62 accrued interest 11 connection repurchases debt incurred loss extinguishment debt 10 tax fourth quarter 2016 consisting 62 premium paid repurchases 5 writeoff debt issuance costs discounts related initial issuance notes repurchased 4 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 9 financial instruments risk management partially offset deferred gain approximately 61 associated march 2012 january 2013 interestrate swap agreement terminations see note 9 financial instruments risk management november 30 2016 prepaid remaining principal amount 420 notes 575 notes prepayment price equal remaining principal amount 1322 420 notes 1062 575 notes plus makewhole premium 121 series notes accrued interest 36 series notes connection prepayment 420 notes 575 notes incurred loss extinguishment debt 29 tax fourth quarter 2016 consisting 121 makewhole premium 10 deferred loss associated treasury lock agreements designated cash flow hedges anticipated interest payments 575 notes see note 9 financial instruments risk management writeoff 3 debt issuance costs discounts related initial issuances notes prepaid partially offset deferred gain 105 associated january 2013 interestrate swap agreement termination see note 9 financial instruments risk management december 2016 repurchased 111 500 notes 62 695 notes aggregate repurchase price equal principal amount notes less discount received 13 plus accrued interest 3 connection repurchase debt incurred gain extinguishment debt 11 tax fourth quarter 2016 consisting 13 discount received repurchases partially offset 2 writeoff debt issuance costs discounts related initial issuance notes repurchased avon products inc notes consolidated financial statements continued december 31 2016 2015 carrying values public notes comprised following indentures governing outstanding notes described contain certain customary covenants customary events default crossdefault provisions would required make offer repurchase outstanding notes described exception 420 notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon time outstanding notes rated investment grade senior secured notes august 2016 avon international operations inc whollyowned domestic subsidiary company “aio” issued private placement exempt registration securities act 1933 amended 5000 aggregate principal amount 7875 senior secured notes mature august 15 2022 senior secured notes interest senior secured notes payable semiannually february 15 august 15 year carrying value senior secured notes represented 5000 principal amount net unamortized debt issuance costs 90 december 31 2016 represents total debt aio december 31 2016 obligations aio senior secured notes unconditionally guaranteed current future whollyowned domestic restricted subsidiary company guarantor 2015 facility fully guaranteed unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions indenture governing senior secured notes contains certain customary covenants restrictions well customary events default crossdefault provisions indenture also contains covenant requiring aio restricted subsidiaries end year least certain percentage total assets api restricted subsidiaries subject certain qualifications would required make offer repurchase senior secured notes price equal 101 aggregate principal amount plus accrued unpaid interest event change control involving avon maturities longterm debt annual maturities longterm debt includes notes capital leases outstanding december 31 2016 follows financing revolving credit facility june 2015 aio entered fiveyear 4000 senior secured revolving credit facility “2015 facility” borrowings 2015 facility bear interest option rate per annum equal libor plus 250 basis points floating base rate plus 150 basis points case subject adjustment based upon leveragebased pricing grid 2015 facility may used general corporate purposes december 31 2016 amounts outstanding 2015 facility 2015 facility replaced companys previous 1 billion unsecured revolving credit facility 2013 facility second quarter 2015 25 tax recorded writeoff issuance costs related 2013 facility obligations aio 2015 facility unconditionally guaranteed material domestic restricted subsidiary company aio borrower case subject certain exceptions ii fully guaranteed avon products inc notes consolidated financial statements continued unsecured basis company obligations aio subsidiary guarantors secured first priority liens security interest substantially assets aio subsidiary guarantors case subject certain exceptions 2015 facility terminate june 2020 provided however shall terminate 91st day prior maturity 650 notes defined 460 notes defined 91st day applicable notes redeemed repaid discharged defeased otherwise refinanced full 2015 facility contains affirmative negative covenants customary secured financings type well financial covenants interest coverage total leverage ratios december 31 2016 compliance interest coverage total leverage ratios 2015 facility amount facility available drawn reduced standby letters credit granted aio december 31 2016 approximately 46 december 31 2016 based applicable interest rates entire amount remaining 2015 facility approximately 354 could drawn without violating covenant letters credit december 31 2016 december 31 2015 also letters credit outstanding totaling 459 129 respectively balance december 31 2016 primarily relates letters credit issued lessors certain equipment lease transferred new avon connection separation companys north america business balances december 31 2016 december 31 2015 include letters credit guarantee various insurance activities addition december 31 2015 outstanding letters credit trade activities commercial commitments executed ordinary course business purchase orders normal replenishment inventory levels longterm credit ratings longterm credit ratings moody’s ratings negative outlook ba3 corporate family debt b1 senior unsecured debt ba1 senior secured notes sp ratings positive outlook b corporate family debt senior unsecured debt bb senior secured notes fitch rating negative outlook b investment grade believe longterm credit ratings material impact nearterm liquidity however rating agency reviews could result change outlook downgrade could limit access new financing particularly shortterm financing reduce flexibility respect working capital needs affect market price outstanding debt securities likely result increase financing costs less favorable covenants financial terms financing arrangements note 7 accumulated comprehensive income loss tables present changes aoci component reclassifications aoci 2016 2015 avon products inc notes consolidated financial statements continued 1 gross amount reclassified interest expense related taxes reclassified income taxes 2 gross amount reclassified pension postretirement expense within selling general administrative expenses related taxes reclassified income taxes foreign exchange net losses 237 219 182 2016 2015 2014 respectively resulting translation actuarial losses prior service cost recorded aoci included changes foreign currency translation adjustments consolidated statements comprehensive income loss note 8 income taxes loss income continuing operations taxes years ended december 31 follows us loss taxes years ended december 31 2016 2015 2014 include dividend income foreign subsidiaries provision income taxes years ended december 31 follows presentation federal foreign tax provisions years ended december 31 2015 2014 revised reflect certain taxes primarily withholding taxes foreign taxes previously reported federal taxes withholding taxes associated remittances us parent foreign subsidiaries tax paid foreign government behalf us entity since us entity benefiting credit foreign taxes paid loss position believe categorization foreign taxes better presentation taxes amounts reflected foreign taxes previously reported federal taxes 416 573 years ended december 31 2015 2014 respectively change presentation impact consolidated statements operations avon products inc notes consolidated financial statements continued effective tax rate years ended december 31 follows fourth quarter 2015 company recognized benefit 187 associated initial stages implementation foreign tax planning strategies reflected within reorganizations line completed implementation tax planning strategies recognized additional benefit 293 first quarter 2016 deferred tax assets liabilities resulting temporary differences recognition income expense tax financial reporting purposes december 31 consisted following presentation deferred tax balances december 31 2015 revised include foreign net operating loss deferred tax asset 1180 related valuation allowance 1180 change presentation impact consolidated balance sheets deferred tax assets liabilities december 31 classified follows december 31 2016 recognized deferred tax assets 8740 relating us tax credit carryforwards foreign tax credits minimum tax credits research experimentation credits investment tax credits valuation allowance 8740 provided us tax credit carryforwards consist foreign tax credits 8158 subject avon products inc notes consolidated financial statements continued expiration 2018 2026 minimum tax credits 359 subject expiration research experimentation credits 180 subject expiration 2027 2036 us investment tax credits 43 subject expiration 2020 2031 december 31 2016 recognized deferred tax assets 20330 relating foreign state tax federal loss carryforwards valuation allowance 19941 provided deferred tax assets relating tax loss carryforwards consist 19353 foreign tax loss carryforwards valuation allowance 18964 provided state tax loss carryforwards 977 valuation allowance 977 provided foreign tax loss carryforwards december 31 2016 75107 71183 subject expiration 3924 subject expiration 2017 2031 state tax loss carryforwards december 31 2016 taking consideration estimated effects preapportionment states 15796 subject expiration 2017 2036 december 31 2016 result us liquidity profile continue assert foreign earnings indefinitely reinvested accordingly adjusted deferred tax liability account balance undistributed earnings foreign subsidiaries tax effect earnings actually repatriated us year deferred tax liability associated company’s undistributed earnings decreased 22 resulting deferred tax liability balance 870 related incremental tax cost 14 billion undistributed foreign earnings december 31 2016 deferred income tax liability amount net estimated foreign tax credits would generated upon repatriation earnings repatriation foreign earnings may result utilization portion excess foreign tax credit carryforwards year repatriation therefore utilization foreign tax credit carryforwards dependent amount timing jurisdictional source dividend repatriations december 31 2016 valuation allowance primarily represents amounts us deferred tax assets certain foreign tax loss carryforwards certain foreign deferred tax assets recognition deferred tax assets based evaluation current estimated future profitability operations reversal deferred tax liabilities likelihood utilizing tax credit andor loss carryforwards tax planning strategies also considered evaluated support realization deferred tax assets sources income existed along sufficient positive evidence indicated likely sources income could relied upon deferred tax assets reduced valuation allowance 2015 company recorded additional valuation allowance remaining us deferred tax assets 6697 increase valuation allowance resulted management’s determination longer likely realize tax benefits expected obtained tax planning strategies associated anticipated accelerated receipt us foreign source income us dollar strengthened currencies key markets 2015 benefits associated company’s tax planning strategies longer sufficient company continue conclude tax planning strategies prudent absence alternative prudent tax planning strategies sources future taxable income determined full valuation allowance recorded although company continues expect generate taxable income tax liability us company expected offset current future tax liability foreign tax credits result expected level future taxable income tax liability adequate realize benefit previously recorded deferred tax assets although company may able recognize financial statement benefit associated deferred tax assets company continue manage plan utilization deferred tax assets avoid expiration deferred tax assets limited lives 2014 company’s expected net foreign source income reduced significantly primarily due strengthening us dollar currencies key markets lesser extent finalization foreign corrupt practices act fcpa settlements strengthening us dollar reduced expected dividends royalties could remitted us foreign subsidiaries particularly russia brazil mexico colombia effectiveness tax planning strategies including repatriation foreign earnings acceleration royalties foreign subsidiaries also negatively impacted strengthening us dollar addition finalization fcpa settlements included 68 fine related avon china connection us department justice doj settlement 67 disgorgement prejudgment interest related avon products inc connection us securities exchange commission sec settlement negatively impacted expected future repatriation foreign earnings reduced current us taxable income respectively result developments determined may generate sufficient taxable income realize us deferred tax assets recorded valuation allowance 441 reduce us deferred tax assets amount likely realized 367 recorded income taxes consolidated statements income remainder recorded various components comprehensive loss income avon products inc notes consolidated financial statements continued uncertain tax positions december 31 2016 587 total gross unrecognized tax benefits approximately 431 would favorably impact provision income taxes recognized reconciliation beginning ending amount unrecognized tax benefits follows accrue interest penalties related unrecognized tax benefits provision income taxes recorded expense 25 28 9 interest penalties net taxes 2016 2015 2014 respectively december 31 2016 december 31 2015 93 66 respectively recorded interest penalties net tax benefit file income tax returns us foreign jurisdictions december 31 2016 tax years remained subject examination major tax jurisdiction significant subsidiaries follows anticipate reasonably possible total amount unrecognized tax benefits could decrease range 14 30 within next twelve months due closure tax years expiration statute limitations audit closures settlements note 9 financial instruments risk management operate globally manufacturing distribution facilities various countries around world may reduce exposure fluctuations fair value cash flows associated changes interest rates foreign exchange rates creating offsetting positions including use derivative financial instruments use foreign currencyrate sensitive interestrate sensitive instruments hedge certain portion existing forecasted transactions would expect gain loss value hedge instruments generally would offset decreases increases value underlying forecasted transactions december 31 2016 interestrate swap agreements enter derivative financial instruments trading speculative purposes party leveraged derivatives master agreements governing derivative contracts generally contain standard provisions could trigger avon products inc notes consolidated financial statements continued early termination contracts certain circumstances including merge another entity creditworthiness surviving entity materially weaker avon prior merger derivatives recognized consolidated balance sheets fair values following table presents fair value derivative instruments outstanding december 31 2016 following table presents fair value derivative instruments outstanding december 31 2015 interest rate risk portion borrowings subject interest rate risk past used interestrate swap agreements effectively converted fixed rate longterm debt floating interest rate manage interest rate exposure agreements designated fair value hedges december 31 2016 2015 designated interestrate swap agreements terminated either conjunction repayment associated debt january 2013 march 2012 transactions described approximately 1 approximately 2 debt portfolio december 31 2016 2015 respectively exposed floating interest rates january 2013 terminated eight interestrate swap agreements previously designated fair value hedges notional amounts totaling 1000 interestrate swap agreements terminated order improve capital structure including increasing ratio fixedrate debt interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 904 amortized reduction interest expense remaining term underlying debt obligations years ended december 31 2016 december 31 2015 net impact gain amortization 354 146 respectively including 236 related extinguishment debt year ended december 31 2016 see note 6 debt financing december 31 2016 unamortized deferred gain associated january 2013 interestrate swap termination underlying debt obligations paid march 2012 terminated two interestrate swap agreements previously designated fair value hedges notional amounts totaling 350 interestrate swap agreements terminated order increase ratio fixedrate debt interestrate swap agreements’ termination date aggregate favorable adjustment carrying value deferred gain debt 461 amortized reduction interest expense remaining term underlying debt obligations march 2019 years ended december 31 2016 2015 net impact gain amortization 119 66 respectively including 58 related extinguishment debt year ended december 31 2016 see note 6 debt financing december 31 2016 unamortized deferred gain associated march 2012 interestrate swap termination 109 classified within longterm debt consolidated balance sheets times may dedesignate hedging relationship receivefixedpayvariable interestrate swap agreement cases enter receivevariablepay fixed interestrate swap agreements designated offset gain loss dedesignated contract december 31 2016 2015 undesignated interestrate swap agreements 2007 entered treasury lock agreements 2007 locks notional amounts totaling 5000 expired july 31 2008 2007 locks designated cash flow hedges anticipated interest payments 2500 principal amount notes due 2013 2500 principal amount 2018 notes losses 2007 locks 380 recorded aoci 192 losses amortized interest expense consolidated statements operations avon products inc notes consolidated financial statements continued five years 188 amortized ten years 2016 accelerated recognition 26 losses 2007 locks related extinguishment debt see note 6 debt financing result unamortized deferred losses relating treasury lock agreements aoci years ended december 31 2016 2015 treasury lock agreements impacted aoci follows 1 amounts exclude taxes 27 beginning year 2016 2015 end year 2015 foreign currency risk use foreign exchange forward contracts manage portion foreign currency exchange rate exposures december 31 2016 outstanding foreign exchange forward contracts notional amounts totaling approximately 125 various currencies use foreign exchange forward contracts manage foreign currency exposure certain intercompany loans contracts designated hedges change fair value contracts immediately recognized earnings substantially offsets foreign currency impact recognized earnings relating associated intercompany loans 2016 2015 recorded losses 135 27 respectively expense net consolidated statements operations related undesignated foreign exchange forward contracts also 2016 2015 recorded gain 104 loss 25 respectively related intercompany loans caused changes foreign currency exchange rates credit risk financial instruments times attempt minimize credit exposure counterparties entering derivative transactions similar agreements major international financial institutions higher credit ratings issued standard poor’s corporation foreign currency derivatives typically comprised overthecounter forward contracts swaps options major international financial institutions although theoretical credit risk replacement cost estimated fair value instruments believe risk incurring credit risk losses remote losses would material nonperformance counterparties balance foreign exchange agreements would resulted writeoff 6 december 31 2016 addition event nonperformance counterparties would exposed market risk underlying items hedged result changes foreign exchange rates note 10 fair value assets liabilities recorded fair value fair value measurement provisions required gaap establish fair value hierarchy prioritizes inputs used measuring fair value three broad levels follows • level 1 quoted prices active markets identical assets liabilities • level 2 inputs quoted prices active markets observable either directly indirectly • level 3 unobservable inputs based assumptions avon products inc notes consolidated financial statements continued assets liabilities recorded fair value recurring basis following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2016 following table presents fair value hierarchy assets liabilities measured fair value recurring basis december 31 2015 tables exclude defined benefit pension postretirement plan assets see note 12 employee benefit plans fair value hierarchy plan assets availableforsale securities include securities held trust order fund future benefit payments nonqualified retirement plans see note 12 employee benefit plans foreign exchange forward contracts hedges either recorded assets liabilities anticipated transactions underlying hedged assets liabilities anticipated transactions reflected table see note 9 financial instruments risk management assets liabilities recorded fair value nonrecurring basis december 31 2015 egypt goodwill 2015 yearend close process completed annual impairment assessment fair value goodwill related egypt subsequently determined goodwill associated egypt impaired accordingly noncash impairment charge 69 recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge impairment analyses performed goodwill require several estimates computing estimated fair value reporting unit part goodwill impairment analysis typically use dcf approach estimate fair value reporting unit believe reliable indicator fair value business consistent approach would generally expect market participant would use estimating fair value reporting units utilizing dcf approach typically forecast revenue resulting cash flows periods five ten years include estimated terminal value end forecasted period determining appropriate forecast period dcf approach consider amount time required reporting unit achieves consider normalized sustainable level cash flows estimation fair value utilizing dcf approach includes numerous uncertainties require significant judgment making assumptions expected growth rates selection discount rates well assumptions regarding general economic business conditions structure would yield highest economic value among factors key assumptions used measuring fair value egypt impairment assessment included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate fair value egypt forecasted revenue resulting cash flows five years using dcf model included terminal value end projection period believed fiveyear period reasonable amount time order return egypts cash flows normalized sustainable levels avon products inc notes consolidated financial statements continued march 31 2015 venezuela longlived assets following table presents fair value hierarchy assets liabilities measured fair value nonrecurring basis march 31 2015 indicates placement fair value hierarchy valuation techniques utilized determine fair value february 2015 reviewed avon venezuelas longlived assets determine whether carrying amount assets recoverable based expected cash flows associated asset group determined carrying amount assets carried historical us dollar cost basis recoverable impairment charge 903 selling general administrative expenses recorded reflect writedown longlived assets estimated fair value 157 march 31 2015 fair value avon venezuelas longlived assets determined using market cost valuation approaches valuation analysis performed required several estimates including market conditions inflation rates discussed note 1 description business summary significant accounting policies concluded effective march 31 2016 deconsolidated venezuelan operations consolidated balance sheets longer include assets liabilities venezuelan operations longer include results venezuelan operations consolidated financial statements fair value financial instruments financial instruments include cash equivalents availableforsale securities shortterm investments money market funds accounts receivable loans receivable debt maturing within one year accounts payable longterm debt foreign exchange forwards contracts carrying value cash equivalents accounts receivable accounts payable shortterm investments approximate fair value shortterm nature instruments net asset liability amounts recorded balance sheet carrying amount estimated fair values remaining financial instruments december 31 consisted following 1 carrying value debt maturing within one year longterm debt presented net debt issuance costs includes related discount premium unamortized deferred gains terminated interestrate swap agreements applicable methods assumptions used estimate fair value follows availableforsale securities fair values investments quoted market prices issues listed securities exchanges debt maturing within one year longterm debt fair values debt financing determined using level 2 inputs based indicative market prices foreign exchange forward contracts fair values forward contracts estimated based quoted forward foreign exchange prices reporting date note 11 sharebased compensation plans avon products inc 2013 stock incentive plan amended restated “2013 plan” avon products inc 2016 omnibus incentive plan 2016 plan shareholderapproved plans provide several types sharebased incentive compensation awards including stock options restricted stock restricted stock units performance restricted stock units following shareholder approval 2016 plan may 2016 awards made 2013 plan 2013 plan maximum number shares may awarded 55000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 313 multiplied avon products inc notes consolidated financial statements continued share subject award 2016 plan maximum number shares may awarded 48000000 shares maximum number shares reduced follows case grant award option sar share subject award ii case grant award payable shares option sar 24 multiplied share subject award shares issued sharebased awards primarily funded issuance new shares issued stock options 2016 plan restricted stock units performance restricted stock units 2013 plan 2016 plan also outstanding stock options prior shareholderapproved plans stock option awards granted exercise price generally equal closing market price stock date grant stock options generally vest thirds threeyear period following option grant date tenyear contractual terms restricted stock units granted associates generally vest settle three years restricted stock units awarded nonmanagement directors vest approximately one year settle upon directors departure board directors performance restricted stock units generally vest three years upon satisfaction certain performance conditions years ended december 31 compensation cost stock options performance restricted stock units restricted stock units including funded treasury shares 2016 2015 2014 recorded selling general administrative expenses consolidated statements operations stock options 2016 granted premiumpriced stock options exercise price equal 30 premium closing market price stock price date grant premiumpriced stock options vest threeyear graded vesting schedule fair value premiumpriced stock option estimated date grant using montecarlo simulation estimating fair value option used following weightedaverage assumptions options granted year ended december 31 2016 1 riskfree rate based upon rate zero coupon us treasury bill periods within contractual life option effect time grant 2 expected term option based historical employee exercise behavior vesting terms respective option contractual life 10 years 3 expected avon volatility based weekly historical volatility stock price period similar expected life option weightedaverage grantdate fair value per share options granted 137 2016 stock options granted 2015 2014 summary stock options december 31 2016 changes 2016 follows avon products inc notes consolidated financial statements continued recognize expense stock options using graded vesting method recognizes associated expense based timing option vesting dates december 31 2016 33 unrecognized compensation cost related stock options outstanding cost expected recognized weightedaverage period 21 years stock options exercised 2016 2015 cash proceeds tax obligations intrinsic value related total stock options exercised 2014 follows restricted stock restricted stock units performance restricted stock units 2014 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions three years adjusted compensation cost recognized todate reflect performance fair value restricted stock units performance restricted stock units granted 2014 determined based closing price common stock date grant 2015 granted performance restricted stock units would vest settle three years upon satisfaction certain performance conditions two years 2015 prsus addition performance conditions achieved target performance restricted stock units subject market condition number performance restricted stock units vest limited target amount company’s absolute total shareholder return threeyear service period negative adjusted compensation cost recognized todate reflect performance reflects estimated payout target absolute total shareholder return market condition impact number performance restricted stock units vest 2016 granted performance restricted stock units would vest settle three years based relative total shareholder return common stock companies included sp 400 index date grant three year performance period 2016 prsus grant date fair value per share awards already reflects estimated probability achieving market condition therefore record expense ratably performance period fair value 2016 prsus 2015 prsus estimated date grant using montecarlo simulation estimates fair value based companys share price activity expected term award riskfree interest rate expected dividends expected volatility stock company estimating fair value 2016 prsus 2015 prsus used following weightedaverage assumptions 1 riskfree rate based upon rate zero coupon us treasury bill periods within three year performance period effect time grant 2 expected avon volatility based weekly historical volatility stock price period similar three year performance period 2016 prsus three year service period 2015 prsus 3 expected average volatility based weekly historical volatility stock prices member companies included sp 400 index date grant period similar three year performance period 2016 prsus weightedaverage grantdate fair value per share 2016 prsus 2015 prsus 442 749 respectively avon products inc notes consolidated financial statements continued summary restricted stock restricted stock units december 31 2016 changes 2016 follows summary performance restricted stock units december 31 2016 changes 2016 follows 1 based initial target payout total fair value restricted stock units performance restricted stock units vested 2016 121 based upon market prices vesting dates december 31 2016 169 unrecognized compensation cost related restricted stock restricted stock units performance restricted stock units compensation arrangements outstanding cost expected recognized weightedaverage period 17 years later 2015 granted 1123183 performance restricted stock units vested settled 2016 upon satisfaction certain performance conditions 2015 terms award result fair value measurement date 2016 2015 recognized compensation cost 20 16 respectively performance restricted stock units restricted stock units performance restricted stock units funded treasury shares march 2015 april 2012 granted 489596 200000 restricted stock units respectively funded treasury shares outside shareholderapproved plans reliance upon new york stock exchange rules restricted stock units granted march 2015 weightedaverage grantdate fair value 900 vest settle ratably three years restricted stock units granted april 2012 weightedaverage grantdate fair value 2169 vest settle ratably five years 2016 203199 restricted stock units vested 366397 restricted stock units outstanding december 31 2016 2015 2014 recognized compensation cost 17 27 8 respectively restricted stock units december 31 2016 8 unrecognized compensation cost related restricted stock units march 2015 granted 121951 performance restricted stock units funded treasury shares outside 2013 plan reliance upon new york stock exchange rules performance restricted stock units weightedaverage grantdate fair value 749 terms exist awards 2015 prsus discussed performance restricted stock units outstanding december 31 2016 2015 recognized compensation cost 1 2 respectively performance restricted stock units december 31 2016 2 unrecognized compensation cost related performance restricted stock units note 12 employee benefit plans savings plan offer qualified defined contribution plan usbased employees avon personal savings account plan psa allows eligible participants contribute 25 eligible compensation payroll deductions match employee contributions dollar first 3 eligible compensation fifty cents dollar contributed 4 6 eligible compensation made matching contributions cash psa 38 2016 40 2015 50 2014 follow investment allocation participant selected contributions prior separation north america business costs associated contributions psa allocated avon products inc notes consolidated financial statements continued discontinued operations global plan included north america us corporate avon associates see note 3 discontinued operations divestitures usbased employees hired january 1 2015 made additional contributions retirement savings account rsa within psa contributions range 3 6 participants eligible compensation depending sum participants age length service december 31 prior year investment contributions follow investment allocation participant selected contributions psa participant vested rsa generally three full years applicable service defined benefit pension postretirement plans avon certain subsidiaries contributory noncontributory defined benefit retirement plans substantially employees subsidiaries benefits plans generally based employee’s length service average compensation near retirement certain plans vesting requirements plans funded based legal requirements cash flow largest nonus defined benefit pension plan united kingdom uk benefits uk defined benefit pension plan frozen april 1 2013 us defined benefit pension plan avon products inc personal retirement account plan pra closed employees hired january 1 2015 qualified retirement benefits usbased employees hired january 1 2015 provided solely psa described part separation north america business transferred 4996 pension liabilities pra associated current former employees north america business certain former avon employees along 3559 assets held pra defined benefit pension plan sponsored new avon also transferred 604 postretirement liabilities namely retiree medical supplemental pension liabilities respect employees former employees see note 3 discontinued operations divestitures continue retain certain us pension postretirement liabilities primarily associated employees actively employed avon outside north america business prior separation net periodic benefit costs us pension postretirement benefit plans allocated discontinued operations global plan included north america us corporate avon associates provide health care benefits subject certain limitations many retired associates us certain foreign countries us health care benefits corporate avon associates hired january 1 2005 form health reimbursement account hra us corporate avon associates hired january 1 2005 eligible retiree health care benefits recognize funded status defined benefit pension postretirement benefit plans balance sheet overfunded plan recognized asset underfunded plan recognized liability recognition prior service costs credits net actuarial gains losses well subsequent changes funded status recognized components aoci net tax shareholders’ equity amortized component net periodic benefit cost recognize prior service costs credits actuarial gains losses beyond 10 corridor earnings based estimated future service period participants determination 10 corridor utilizes calculated value plan assets significant plans whereby gains losses smoothed three fiveyear periods avon products inc notes consolidated financial statements continued reconciliation benefit obligations plan assets funded status following table summarizes changes benefit obligation plan assets funded status significant defined benefit pension postretirement plans use december 31 measurement date employee benefit plans 1 includes 1457 us pension plans net liability 536 postretirement benefit plans net liability related us december 31 2015 included discontinued operations amounts associated pension avon products inc notes consolidated financial statements continued postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table us pension plans include funded qualified plan pra unfunded nonqualified plans december 31 2016 pra benefit obligations 755 plan assets 514 december 31 2015 pra benefit obligations 5784 plan assets 4083 5076 3748 respectively included discontinued operations believe adequate investments cash flows fund liabilities associated unfunded nonqualified plans nonus pension plans include funded qualified pension plan uk december 31 2016 uk qualified pension plan benefit obligations 4486 plan assets 5020 december 31 2015 uk qualified pension plan benefit obligations 4561 plan assets 4620 components net periodic benefit cost amounts recognized comprehensive loss 2 includes 44 537 626 us pension plans 2016 2015 2014 respectively immaterial amounts postretirement benefit plans related us 2016 2015 2014 included discontinued operations amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico included discontinued operations excluded amounts table amounts represent pretax effect classified within comprehensive loss income net tax amounts classified within consolidated statements comprehensive income loss result lumpsum payments made former employees vested participated pra third quarter 2015 recorded settlement charge 238 lump sum payments made plan assets result specific offer participants pra described settlement threshold exceeded third quarter 2015 settlement charge 41 also recorded fourth quarter 2015 result additional payments pra payments fully settled pension plan obligation participants elected receive payment settlement charges allocated global discontinued operations effort reduce pension benefit obligations march 2014 offered former employees vested participated pra payment would fully settle pension plan obligation participants elected receive payment election period ended second quarter 2014 payments made june 2014 plan assets result lumpsum payments made second quarter 2014 recorded settlement charge 235 settlement threshold exceeded second quarter 2014 settlement charges 54 avon products inc notes consolidated financial statements continued 75 also recorded third fourth quarters 2014 respectively result additional payments pra payments fully settled pension plan obligation participants elected receive payment settlement charges allocated global discontinued operations amounts aoci expected recognized components net periodic benefit cost 2017 follows assumptions weightedaverage assumptions used determine benefit obligations recorded consolidated balance sheets december 31 follows discount rate used determining present value future pension obligations individual defined benefit pension plan based review bonds receive highquality rating recognized rating agency discount rates significant plans including uk defined benefit pension plan pra based internal rates return portfolio highquality bonds maturities consistent projected future benefit payment obligations plan weightedaverage discount rate us nonus defined benefit pension plans determined basis decreased 281 december 31 2016 392 december 31 2015 amounts associated pension plan canada postretirement benefit plans canada puerto rico associated discontinued operations excluded amounts weightedaverage assumptions used determine net benefit cost recorded consolidated statements operations years ended december 31 follows determining longterm rates return consider nature plan’s investments expectation plan’s investment strategies historical rates return current economic forecasts among factors generally evaluate expected rate return plan assets annually adjust necessary determining net cost year ended december 31 2016 assumed rate return assets globally 665 represents weightedaverage rate return plan assets including us nonus defined benefit pension plans amounts associated pension postretirement benefit plans canada postretirement benefit plan puerto rico associated discontinued operations excluded amounts significant portion pension plan assets relate uk defined benefit pension plan assumed rate return determining 2016 net costs uk defined benefit pension plan 665 addition current rate return assumption uk defined benefit pension plan based asset allocation approximately 80 corporate government bonds mortgagebacked securities expected earn approximately 2 4 longterm approximately 20 equity securities emerging market debt high yield securities expected earn approximately 6 9 longterm addition physical assets asset portfolio uk defined benefit pension plan derivative instruments increase exposure fixed income order better match liabilities lesser extent impact equity exposure historically pension plan significant pension plan assets pra assumed rate return determining 2016 net costs pra 700 addition current rate return assumption pra based asset allocation approximately 70 corporate government bonds mortgagebacked securities avon products inc notes consolidated financial statements continued expected earn approximately 3 4 longterm approximately 30 equity securities high yield securities expected earn approximately 6 8 longterm similar assessments performed determining rates return nonus defined benefit pension plan assets arrive weightedaverage assumed rate return 640 determining 2016 net cost plan assets us nonus funded defined benefit pension plans target weightedaverage asset allocations december 31 2016 2015 asset category follows amounts associated pension plan canada included discontinued operations excluded amounts table following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2016 avon products inc notes consolidated financial statements continued following tables present fair value hierarchy pension assets measured fair value recurring basis december 31 2015 3 includes 3748 included discontinued operations december 31 2015 amounts associated pension plan canada included discontinued operations excluded amounts table reconciliation beginning ending balances level 3 investments provided table avon products inc notes consolidated financial statements continued investments equity securities classified level 1 fair value hierarchy valued quoted market prices investments equity securities classified level 2 fair value hierarchy include collective funds valued quoted market prices nonactive securities fixed income securities based broker quotes nonactive securities mutual funds valued quoted market prices real estate valued reference investment leasing transactions similar types property supplemented third party appraisals derivative instruments publicly traded derivative contract specifically negotiated unique financial counterparty derivative instruments valued based upon valuation statements received financial counterparties use underlying yield curves market indices overall objective pra uk defined benefit pension plan provide means pay benefits participants beneficiaries amounts times called plan expected achieved investment contributions trust assets utilizing investment policies designed achieve adequate funding reasonable period time defined benefit pension plans adopted investment strategies designed match movements pension liability increased allocation towards debt securities addition also utilize derivative instruments nonus defined benefit pension plans achieve desired market exposures hedge certain risks derivative instruments may include limited futures options swaps swaptions investment types including use derivatives based written guidelines established investment manager monitored plans investment committee pension trust assets invested achieve return investment based levels liquidity investment risk prudent reasonable circumstances change time recognize importance preservation capital also adhere theory capital market pricing maintains varying degrees investment risk rewarded compensating returns consequently prudent risktaking justifiable asset allocation decision includes consideration noninvestment aspects pra uk defined benefit pension plan including future retirements lumpsum elections growth number participants company contributions cash flow characteristics plan place certain demands upon level risk required growth trust assets regularly conduct analyses plan’s current likely future financial status forecasting assets liabilities benefits company contributions time impact alternative investment policies upon plan’s financial status measured asset mix balances asset returns risk selected decision regard asset mix reviewed periodically asset mix guidelines include target allocations permissible ranges asset category assets monitored ongoing basis rebalanced required maintain asset mix within permissible ranges guidelines change time based ongoing evaluation plan’s tolerance investment risk cash flows expect make contributions related continuing operations range 10 15 us defined benefit pension postretirement plans range 20 25 nonus defined benefit pension postretirement plans 2017 total benefit payments expected paid plans follows postemployment benefits provide postemployment benefits include salary continuation severance benefits disability benefits continuation health care benefits eligible former employees employment retirement accrued cost postemployment benefits 150 december 31 2016 included employee benefit plans consolidated balance sheets 182 december 31 2015 60 included discontinued operations december 31 2015 remaining included employee benefit plans consolidated balance sheets amounts avon products inc notes consolidated financial statements continued associated postemployment benefits canada included discontinued operations excluded amounts supplemental retirement programs us addition qualified retirement plans ie psa pra also maintain unfunded nonqualified plans offer nonqualified deferred compensation plan avon products inc deferred compensation plan dcp certain higher paid key employees dcp unfunded unsecured plan obligations paid participants general assets dcp allows deferral 50 participant’s base salary deferral 100 incentive compensation bonuses deferral contributions would normally made psa deferred amount excess us internal revenue code limits contributions psa participants may elect deferred compensation invested one three permitted investment alternatives expense associated dcp 10 2016 5 2015 13 2014 benefit obligation dcp 261 december 31 2016 345 december 31 2015 included liabilities accrued compensation consolidated balance sheets maintain supplemental retirement programs consisting supplemental executive retirement plan avon products inc serp benefit restoration pension plan avon products inc nonqualified supplemental pension benefits paid higher paid key employees addition amounts received qualified defined benefit retirement plan subject irs limitations covered compensation serp offered new employees last seven years annual cost programs included determination net periodic benefit cost shown previously amounted 39 2016 63 2015 71 2014 benefit obligation programs 121 december 31 2016 284 december 31 2015 included employee benefit plans accrued compensation consolidated balance sheets also maintain supplemental life plan slip additional death benefits ranging 4 20 provided certain active retired officers slip offered new officers six years established grantor trust provide assets may used benefits payable serp slip trust irrevocable although subject creditors’ claims assets contributed trust used pay benefits certain exceptions assets held trust included assets december 31 consisted following assets recorded fair market value except investments corporateowned life insurance policies recorded cash surrender values balance sheet date proxy fair value changes cash surrender value period recorded gain loss within selling general administrative expenses consolidated statements operations note 13 segment information reportable segments based geographic operations four regions europe middle east africa south latin america north latin america asia pacific segments similar business characteristics offers similar products similar customer access methods accounting policies segments described note 1 description business summary significant accounting policies evaluate performance segments based revenues segment profits losses segment revenues primarily reflect direct sales products representatives based representative’s geographic location determine segment profit deducting related costs expenses segment revenue order ensure comparability periods segment profit includes allocation global marketing expenses based actual revenues segment profit excludes global expenses allocation marketing costs implement cti restructuring initiatives see note 15 restructuring initiatives certain significant asset impairment charges see note 18 goodwill items allocated particular segment applicable consistent manner assess performance allocate resources operating segments business activities include business results liz earle sold july 2015 venezuela deconsolidated effective march 31 2016 well market exits south korea vietnam republic ireland bolivia france avon products inc notes consolidated financial statements continued summarized financial information concerning reportable segments december 31 shown following tables 1 third quarter 2016 settled claims relating professional services provided company prior 2013 connection previously disclosed legal matter proceeds net legal fees 272 tax 272 tax recognized reduction selling general administrative expenses third quarter 2016 subsequently received company fourth quarter 2016 2 total assets discontinued operations total assets december 31 2015 2014 table exclude 1000 receivable continuing operations presented within current assets discontinued operations see note 3 discontinued operations divestitures avon products inc notes consolidated financial statements continued total revenue major country major country defined one total revenues greater 10 consolidated total revenues longlived assets major country major country defined one longlived assets greater 10 consolidated longlived assets also includes country domicile us longlived assets primarily includes property plant equipment associated continuing operations longlived assets brazil consist primarily property plant equipment related manufacturing distribution facilities longlived assets us consist primarily property plant equipment including global research development facility avon products inc notes consolidated financial statements continued note 14 leases commitments minimum rental commitments noncancellable operating leases primarily equipment office facilities december 31 2016 included following table leases purchase obligations include commitments purchase paper inventory services rent expense 750 2016 744 2015 907 2014 plant construction expansion modernization projects estimated cost complete 407 progress december 31 2016 note 15 restructuring initiatives transformation plan january 2016 announced transformation plan transformation plan includes cost reduction efforts continue improve cost structure enable us reinvest growth result plan targeted pretax annualized cost savings approximately 350 three years estimated 200 supply chain reductions estimated 150 cost reductions expected achieved restructuring actions well costsavings strategies result restructuring charges plan reinvest portion cost savings growth initiatives including media social selling information technology systems help us modernize business initiated transformation plan order enable us achieve longterm goals doubledigit operating margin mid singledigit constantdollar revenue growth part transformation plan identified certain actions believe reduce ongoing costs primarily consisting global headcount reductions relating operating model changes well closure thailand smaller underperforming market operating model changes include streamlining corporate functions align current future needs business information technology infrastructure outsourcing initiative result restructuring actions approvedtodate recorded total costs implement restructuring initiatives 1061 taxes 837 recorded 2016 consolidated statements operations additional charges yet incurred associated restructuring actions approved todate approximately 20 30 taxes expected recorded primarily 2017 time unable quantify total costs implement restructuring initiatives incurred time transformation plan fully implemented yet identified actions taken restructuring charges 2016 recorded costs implement 837 related transformation plan consolidated statements operations costs consisted following • net charge 626 primarily employeerelated costs including severance benefits • contract termination net charges 87 • implementation costs 74 primarily related professional service fees • charge 27 due accumulated foreign currency translation adjustments associated closure thailand market • accelerated depreciation 19 • inventory writeoff 4 total costs implement year ended december 31 2016 833 recorded selling general administrative expenses 4 recorded cost sales avon products inc notes consolidated financial statements continued restructuring charges 2015 recorded costs implement 224 related transformation plan selling general administrative expenses consolidated statements operations costs consisted 214 employeerelated costs due severance benefits 10 implementation costs professional service fees liability balance transformation plan december 31 2016 follows majority cash payments applicable associated liability expected made 2017 following table presents restructuring charges incurred date transformation plan along estimated charges expected incurred approved initiatives plan charges net adjustments initiatives transformation plan along estimated charges expected incurred approved initiatives plan reportable segment follows expect total costs implement restructuring approved initiatives estimated 95 105 taxes transformation plan amounts shown tables charges recorded todate relate initiatives approved recorded financial statements costs probable estimable amounts shown tables total expected charges approved initiatives represent charges recorded todate plus charges yet recorded approved initiatives relevant accounting criteria recording expense yet met addition charges included tables incurred continue incur costs implement restructuring initiatives professional services fees accelerated depreciation avon products inc notes consolidated financial statements continued additional restructuring charges 2015 result thencurrent economic environment including impact foreign currency movements inflation expenses effort continue improve cost structure identified certain actions 2015 believe would reduce ongoing costs actions primarily consisted global headcount reductions result restructuring actions recorded costs implement 289 taxes net benefit 8 recorded 2016 selling general administrative expenses consolidated statements operations material remaining costs restructuring actions approvedtodate restructuring charges 2016 recorded net benefit 8 selling general administrative expenses consolidated statements operations primarily employeerelated costs due severance benefits restructuring charges 2015 recorded costs implement 297 selling general administrative expenses consolidated statements operations costs consisted following • charge 221 employeerelated costs due severance benefits • implementation costs 76 primarily professional service fees associated global asia pacific liability balance primarily consists employeerelated costs various restructuring initiatives december 31 2016 follows majority cash payments applicable associated liability expected made 2017 charges approved date various restructuring initiatives reportable business segment follows addition charges included tables incurred costs implement restructuring initiatives professional services fees 400m cost savings initiative 2012 announced cost savings initiative 400m cost savings initiative effort stabilize business return avon sustainable growth expected achieved restructuring actions well costsavings strategies result restructuring charges 400m cost savings initiative designed reduce operating expenses percentage total revenue help us achieve targeted low doubledigit operating margin included north america business since presented discontinued operations periods presented restructuring actions 400m cost savings initiative primarily consist global headcount reductions related actions well closure certain smaller underperforming markets including south korea vietnam republic ireland bolivia france costs implement restructuring initiatives consist primarily professional service fees accelerated depreciation avon products inc notes consolidated financial statements continued result restructuring actions associated 400m cost savings initiative recorded total costs implement restructuring initiatives 1640 taxes net benefit 15 recorded 2016 significant remaining costs restructuring actions approvedtodate actions associated 400m cost savings initiative substantially complete restructuring charges 2016 recorded net benefit 15 related 400m cost savings initiative consolidated statements operations primarily employeerelated costs due severance benefits net benefit year ended december 31 2016 net benefit 17 recorded selling general administrative expenses charge 2 recorded cost sales restructuring charges 2015 recorded net benefit 35 related 400m cost savings initiative selling general administrative expenses consolidated statements operations costs consisted following • net benefit 44 primarily employeerelated benefits associated severance • implementation costs 9 primarily related professional service fees associated europe middle east africa asia pacific businesses • benefit 4 primarily related accumulated foreign currency translation adjustments associated asia pacific markets • accelerated depreciation 3 associated closure rationalization certain facilities • contract termination charge 1 primarily related asia pacific restructuring charges 2014 recorded total costs implement 839 related 400m cost savings initiative selling general administrative expenses consolidated statements operations costs consisted following • net charge 579 primarily employeerelated costs including severance benefits • accelerated depreciation 122 associated closure rationalization certain facilities assets • contract termination charges 63 primarily related costs associated closure france market exit service model transformation smt facility • implementation costs 38 primarily related professional service fees • charge 37 primarily related accumulated foreign currency translation adjustments associated closure france market avon products inc notes consolidated financial statements continued liability balance 400m cost savings initiative december 31 2016 follows noncash writeoffs associated employeerelated costs result settlements curtailments special termination benefits pension postretirement benefits plans due initiatives implemented majority cash payments applicable associated liability expected made 2017 following table presents restructuring charges incurred todate net adjustments 400m cost savings initiative charges net adjustments initiatives 400m cost savings initiative reportable business segment follows noted previously recorded total costs implement 1640 taxes 400m cost savings initiative amounts shown tables total charges incurred relate initiatives approved recorded financial statements material additional charges expected incurred addition charges included tables incurred costs implement restructuring initiatives professional services accelerated depreciation avon products inc notes consolidated financial statements continued restructuring initiatives 2016 2015 2014 recorded net benefit 40 net charges 5 21 respectively selling general administrative expenses consolidated statements operations associated restructuring programs launched 2005 2009 restructuring initiative launched 2012 restructuring initiatives substantially complete net benefit 2016 primarily consisted net gain 37 due sale distribution center us liability balance associated restructuring initiatives material december 31 2016 note 16 series c convertible preferred stock march 1 2016 issued sold cerberus investor 435000 shares newly issued series c preferred stock aggregate purchase price 4350 pursuant investment agreement dated december 17 2015 company cerberus investor connection issuance series c preferred stock company incurred direct incremental expenses 87 comprised financial advisory fees legal expenses reduced carrying value series c preferred stock series c preferred stock accrued dividends daily since march 1 2016 rate 125 per quarter december 31 2016 accrued unpaid dividends 184 dividends declared year ended december 31 2016 dividend rights series c preferred stock ranks senior shares common stock respect dividend rights distribution assets liquidation dissolution winding affairs series c preferred stock liquidation preference 1000 per share representing aggregate liquidation preference 4350 upon issuance holders series c preferred stock entitled participate asconverted basis dividends paid holders shares company’s common stock addition cumulative preferred dividends accrue daily series c preferred stock payable rate 125 per quarter net dividends company’s common stock subject increase maximum rate 500 per quarter company breaches certain obligations except extent otherwise previously paid company preferred dividends payable seventh anniversary issuance date series c preferred stock declared board directors end quarter thereafter accrued unpaid preferred dividends may paid company’s option cash ii subject certain conditions shares company’s common stock iii upon conversion shares series c preferred stock shares company’s nonvoting nonconvertible series preferred stock shares series preferred stock issued would similar preferential rights conversion features series c preferred stock convertible option holders time shares company’s common stock initial conversion price 500 per share subject certain antidilution adjustments prior receipt applicable shareholder approval shares series c preferred stock convertible 1999 number shares common stock outstanding immediately prior issuance series c preferred stock subject certain antidilution adjustments december 31 2016 series c preferred stock convertible 87051524 shares common stock time volume weighted average price common stock exceeds 1000 per share subject certain antidilution adjustments period 30 consecutive trading days company may cause series c preferred stock converted shares common stock based applicable conversion price voting rights holders series c preferred stock entitled vote generally holders common stock asconverted basis holders series c preferred stock also entitled separate class vote respect election three directors board directors subject maintaining certain levels beneficial ownership series c preferred stock andor common stock ii amendments company’s organizational documents adverse effect series c preferred stock iii issuances company securities senior equal priority series c preferred stock iv delisting company’s common stock connection change control event change control put upon certain change control events involving company holders series c preferred stock require company repurchase series c preferred stock amount equal greater amount cash equal 100 liquidation preference thereof plus accrued unpaid dividends ii consideration holders would received converted shares series c preferred stock common stock immediately prior change control event avon products inc notes consolidated financial statements continued note 17 contingencies settlements fcpa investigations previously reported engaged outside counsel conduct internal investigation compliance reviews focused compliance fcpa related us foreign laws china additional countries internal investigation conducted oversight audit committee began june 2008 along compliance reviews completed 2014 following voluntary reporting internal investigation doj sec subsequent cooperation agencies united states district court southern district new york usdc approved december 2014 deferred prosecution agreement “dpa” entered company doj related charges violations books records internal controls provisions fcpa addition avon products china co ltd subsidiary company operating china pleaded guilty conspiring violate books records provision fcpa sentenced usdc pay 68 fine sec also filed complaint company charging violations books records internal controls provisions fcpa consent approved judgment entered usdc january 2015 included 67 disgorgement prejudgment interest dpa abovementioned guilty plea consent resolved sec’s doj’s investigations company’s compliance fcpa related us laws china additional countries fine paid december 2014 payment sec made january 2015 dpa doj defer criminal prosecution company term three years company remains compliance dpa term charges company dismissed prejudice dpa company also represented implemented agreed continue implement compliance ethics program designed prevent detect violations fcpa applicable anticorruption laws throughout operations dpa consent among things company agreed compliance monitor july 2015 company engaged monitor approved doj sec approval doj sec monitor replaced company agrees undertake selfreporting obligations remainder monitoring period monitoring period scheduled expire july 2018 assurance whether doj sec approve replacing monitor company’s selfreporting doj determines company knowingly violated dpa doj may commence prosecution extend term dpa including monitoring provisions described one year monitor assessing monitoring companys compliance terms dpa consent evaluating among things companys internal accounting controls recordkeeping financial reporting policies procedures monitor recommended changes policies procedures process adopting may make additional recommendations must adopt unless unduly burdensome otherwise inadvisable case may propose alternatives doj sec may accept addition operating oversight monitor may result additional time attention matters members management may divert time operation business assuming monitor replaced selfreporting period company’s selfreporting obligations may costly timeconsuming thirdparty costs incurred connection ongoing compliance dpa consent including monitorship material date anticipate material costs going forward currently cannot estimate costs likely incur connection selfreporting applicable additional costs implementing changes policies procedures required monitor litigation matters july august 2010 derivative actions filed state court certain present former officers andor directors company carol j parker derivatively behalf avon products inc v w cornwell et al avon products inc nominal defendant filed new york supreme court nassau county index 6005702010 lynne schwartz derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6513042010 november 22 2013 derivative action filed federal court certain present former officers andor directors company following federal courts dismissal additional action subsequently filed new york state court may 1 2015 sylvia pritika derivatively behalf avon products inc v andrea jung et al avon products inc nominal defendant filed new york supreme court new york county index 6514792015 claims asserted one actions include alleged breach fiduciary duty abuse control waste corporate assets unjust enrichment relating companys compliance fcpa including adequacy companys internal controls relief sought individual defendants one derivative actions include certain declaratory equitable relief restitution damages avon products inc notes consolidated financial statements continued exemplary damages interest company nominal defendant relief sought company april 28 2015 action filed seek enforcement demands inspection certain company’s books records belle cohen v avon products inc filed new york supreme court new york county index 6514182015 parties reached agreements settle derivative books records actions terms settlement include certain corporate governance measures well releases claims payment plaintiffs attorneys fees amount 4 march 30 2016 court granted preliminary approval settlement august 1 2016 court entered order judgment granting final approval settlement 4 paid companys insurers order judgment approving settlement become final light settlement stipulations voluntarily dismissing discontinuing actions prejudice filed pritika parker actions july 6 2011 purported shareholders class action complaint city brockton retirement system v avon products inc et al 11civ4665 filed united states district court southern district new york company certain present former officers andor directors company september 29 2011 court appointed lbbw asset management investmentgesellschaft mbh sgss deutschland kapitalanlagegesellschaft mbh lead plaintiffs motley rice llc lead counsel lead plaintiffs filed amended complaint defendants moved dismiss amended complaint june 14 2012 september 29 2014 court granted defendants motion dismiss also granted plaintiffs leave amend complaint october 24 2014 plaintiffs filed second amended complaint behalf purported class consisting persons entities purchased otherwise acquired shares avons common stock july 31 2006 including october 26 2011 second amended complaint names defendants company two individuals asserts violations sections 10b 20a exchange act based allegedly false misleading statements omissions respect among things companys compliance fcpa including adequacy companys internal controls plaintiffs seek compensatory damages declaratory injunctive equitable relief defendants moved dismiss second amended complaint november 21 2014 parties reached agreement settlement class action terms settlement include releases members class claims company individual defendants payment 62 approximately 60 settlement paid companys insurers approximately 2 paid company represented remaining deductible company’s applicable insurance policy august 21 2015 court granted preliminary approval settlement august 24 2016 court entered order judgment granting final approval settlement appeal courts separate order relating plaintiffs attorneys fees dated august 25 2016 however appeal filed courts august 24 2016 order judgment approving settlement thus judgment become final december 23 2014 march 12 2015 two purported class actions filed united states district court southern district new york poovathur v avon products inc et al 14cv10083 mccoy et al v avon products inc et al 15cv01828 asserting claims employee retirement income security act erisa company plans administrator benefits board investment committee certain individuals alleged served plan fiduciaries april 8 2015 court consolidated two actions recaptioned consolidated case 2014 avon products inc erisa litigation 14cv10083 may 8 2015 plaintiffs filed consolidated complaint asserting claims alleged breach fiduciary duty failure monitor erisa behalf purported class participants beneficiaries plan invested andor held shares avon common stock fund july 31 2006 may 1 2014 december 14 2011 present plaintiffs seek inter alia certain monetary relief damages declaratory injunctive equitable relief july 9 2015 defendants moved dismiss consolidated complaint parties reached agreement settlement class action terms settlement include releases members class claims company individual defendants payment approximately 6 approximately 5 settlement paid company’s insurer approximately 1 paid company represented remaining deductible company’s applicable insurance policy june 7 2016 court granted preliminary approval settlement scheduled hearing consider final approval october 11 2016 january 3 2017 court issued final approval order approving settlement circumstances losses incurred connection adverse outcomes litigation matters described could material brazilian tax matters 2002 brazilian subsidiary received excise tax ipi assessment brazilian tax authorities alleged tax deficiencies years 19971998 december 2012 additional assessments received year 2008 respect excise tax ipi taxes charged gross receipts pis cofins second quarter 2014 pis cofins assessments officially closed favor avon brazil 2002 2012 ipi assessments assert establishment 1995 separate manufacturing distribution companies brazil done without valid business purpose avon brazil observe minimum pricing rules define taxable basis excise tax structure adopted 1995 comparable used many companies brazil believe brazilian corporate structure appropriate operationally legally 2002 2012 ipi assessments unfounded avon products inc notes consolidated financial statements continued matters vigorously contested january 2013 filed protest seeking first administrative level review respect 2012 ipi assessment july 2013 2012 ipi assessment upheld first administrative level appealed decision second administrative level 2012 ipi assessment totals approximately 331 including penalties accrued interest october 2010 2002 ipi assessment upheld first administrative level amount reduced approximately 28 approximately 68 including penalties accrued interest appealed decision second administrative level ruled favor avon march 2015 canceled 2002 ipi assessment brazilian tax authorities appeal favorable decision regarding 2002 ipi assessment decided avon’s favor february 2017 favorable decision remains subject appeal brazilian tax authorities event 2002 2012 ipi assessments upheld may necessary us provide security pursue appeals depending circumstances may result charge earnings possible reasonably estimate likelihood potential amount assessments may issued subsequent periods tax years 2010 closed statute however similar ipi assessments involving different periods 19982001 canceled officially closed favor second administrative level believe likelihood 2002 ipi assessment upheld appeal remote likelihood 2012 ipi assessment upheld reasonably possible stated believe 2002 2012 ipi assessments unfounded brazil ipi tax cosmetics may 2015 executive decree certain cosmetics went effect brazil increased amount ipi taxes remitted avon brazil taxing authority sales cosmetic products subject ipi avon brazil filed objection ipi tax increase basis constitutional december 2016 avon brazil received favorable decision federal district court regarding objection decision appealed tax authorities may 2015 april 2016 avon brazil remitted taxes associated ipi tax increase judicial deposit would remitted taxing authorities event successful objection tax increase may 2016 avon brazil received favorable preliminary decision objection tax granted preliminary injunction result beginning may 2016 avon brazil longer required remit taxes associated ipi judicial deposit ipi tax increase remains effect avon brazil continuing recognize ipi taxes associated may 2015 executive decree liability december 31 2016 liability taxing authorities ipi tax increase approximately 125 classified within liabilities consolidated balance sheets judicial deposit approximately 69 classified within assets consolidated balance sheets net liability corresponding judicial deposit 56 december 31 2016 accretion expense associated net liability recognized expense net cash flow operations benefited compared earnings recognized expense associated interest associated ipi tax consolidated statements operations however since may 2016 made corresponding cash payment judicial deposit unfavorable ruling objection ipi tax increase would adverse effect consolidated cash flows avon brazil would remit liability owed taxing authorities amount would partially offset amount judicial deposit held avon brazil able reliably predict timing outcome objection tax increase matters various lawsuits claims arising ordinary course business related businesses previously sold pending threatened avon managements opinion based review information available time total cost resolving contingencies december 31 2016 expected material adverse effect consolidated financial position results operations cash flows note 18 goodwill q4 2015 egypt impairment assessment 2015 yearend close process analysis egypt business indicated impairment carrying value business exceeded estimated fair value primarily result reducing longterm projections business 2015 egypt performed generally line revenue earnings projections assumed growth compared 2014 however result currency restrictions payment goods egypt lowered longterm revenue earnings projections business accordingly noncash tax impairment charge 69 tax recorded reduce carrying amount goodwill amount remaining associated goodwill egypt reporting unit result impairment charge key assumptions used measuring fair value egypt impairment assessment included projections revenue resulting cash flows well discount rate based estimated weightedaverage cost capital estimate avon products inc notes consolidated financial statements continued fair value egypt forecasted revenue resulting cash flows five years using dcf model included terminal value end projection period believed fiveyear period reasonable amount time order return cash flows egypt normalized sustainable levels goodwill note 19 supplemental balance sheet information december 31 2016 2015 prepaid expenses included following december 31 2016 2015 assets included following avon products inc notes consolidated financial statements continued note 20 results operations quarter unaudited 1 operating profit loss impacted following addition items impacting operating profit loss 2 loss income continuing operations taxes 2016 impacted • deconsolidation venezuelan operations result change cost method accounting first quarter 2016 recorded loss 1205 expense net loss comprised 392 net assets avon products inc notes consolidated financial statements continued venezuelan business 813 accumulated foreign currency translation adjustments within aoci associated foreign currency movements venezuela accounted highly inflationary economy • gain extinguishment debt 39 tax third quarter caused deferred gain associated interestrate swap agreement terminations partially offset early tender premium paid deferred loss associated treasury lock agreements deal costs writeoff debt issuance costs discounts associated cash tender offers august 2016 • loss extinguishment debt 10 tax fourth quarter caused premium paid repurchases writeoff debt issuance costs discounts deferred loss associated treasury lock agreements partially offset deferred gain associated interestrate swap agreement terminations associated debt repurchases october 2016 • loss extinguishment debt 29 tax fourth quarter caused makewhole premium deferred loss associated treasury lock agreements writeoff debt issuance costs discounts partially offset deferred gain associated interestrate swap agreement terminations associated prepayment remaining principal amount 420 notes defined note 6 debt financing 575 notes defined note 6 debt financing • gain extinguishment debt 11 tax fourth quarter consisting discount received repurchases partially offset writeoff debt issuance costs discounts associated debt repurchases december 2016 loss income continuing operations taxes 2015 impacted • aftertax benefit 34 benefit 42 expense net loss 8 income taxes recorded first quarter primarily reflecting writedown net monetary assets due change simadi rate • gain sale liz earle 449 tax 516 tax primarily recorded third quarter • loss extinguishment debt 55 tax third quarter caused makewhole premium writeoff debt issuance costs discounts associated prepayment 2375 notes defined note 6 debt financing • charge 25 tax second quarter 2015 associated writeoff issuance costs related previous 1 billion revolving credit facility 3 loss income continuing operations net tax 2016 impacted noncash income tax charge valuation allowances deferred tax assets outside us 86 recorded fourth quarter release valuation allowance associated russia 71 recorded second quarter income tax benefit 293 recognized result implementation foreign tax planning strategies recorded first quarter loss income continuing operations net tax 2015 impacted aggregate noncash income tax charge 6851 primarily due additional valuation allowances us deferred tax assets 6416 313 recorded third first quarters 2015 respectively partially offset partial release valuation allowance deferred tax assets 32 recorded second quarter 2015 additional valuation allowances third first quarters 2015 due continued strengthening us dollar currencies key markets impact benefits tax planning strategies associated realization deferred tax assets partial release valuation allowance second quarter 2015 due weakening us dollar currencies key markets addition noncash income tax charge due valuation allowances deferred tax assets outside us 154 primarily russia recorded third quarter 2015 largely due lower earnings significantly impacted foreign exchange losses working capital balances addition loss income continuing operations net tax 2015 impacted income tax benefit 187 recorded fourth quarter 2015 recognized result implementation initial stages foreign tax planning strategies 4 sum per share amounts quarters necessarily equal year computations made independently see note 15 restructuring initiatives results operations consolidated within mda pages 35 47 note 13 segment information venezuela discussion within mda pages 41 42 note 1 description business summary significant accounting policies note 12 employee benefit plans note 18 goodwill note 17 contingencies note 6 debt financing note 3 discontinued operations divestitures note 8 income taxes information items schedule ii avon products inc subsidiaries valuation qualifying accounts years ended december 31 2016 2015 2014 1 accounts written net recoveries foreign currency translation adjustment 2 returned product destroyed foreign currency translation adjustment 3 obsolete inventory destroyed foreign currency translation adjustment 4 increase valuation allowance primarily deferred tax assets likely realized futurenanitem 15 exhibits financial statement schedule financial statements registrant financial statement schedules omitted applicable required information shown consolidated financial statements notes 3 index exhibits 103 first amendment avon products inc 1993 stock incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 101 avons quarterly report form 10q quarter ended september 30 1997 file 104881 104 avon products inc 1997 long term incentive plan effective january 1 1997 approved stockholders may 1 1997 incorporated reference exhibit 104 avon’s annual report form 10k year ended december 31 1997 file 104881 105 supplemental executive retirement life plan avon products inc amended restated july 1 1998 incorporated reference exhibit 105 avon’s annual report form 10k year ended december 31 1998 106 first amendment restated supplemental executive retirement life plan avon products inc dated october 26 2000 107 benefit restoration pension plan avon products inc amended restated july 1 1998 108 amendment avon products inc benefit restoration plan effective december 5 2001 incorporated reference exhibit 107 avon’s annual report form 10k year ended december 31 2001 109 second amendment benefit restoration plan avon products inc effective december 5 2000 1010 third amendment benefit restoration plan avon products inc effective march 25 2002 1011 fourth amendment benefit restoration plan avon products inc effective january 26 2005 1012 trust agreement dated october 29 1998 avon chase manhattan bank na trustee relating grantor trust 1013 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1990 refiled form se year ended december 31 1996 file 104881 1014 first amendment dated january 30 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 102 avons quarterly report form 10q quarter ended march 31 1993 file 104881 1015 second amendment dated june 12 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 103 avons quarterly report form 10q quarter ended march 31 1993 file 104881 1016 third amendment dated november 5 1992 trust agreement dated march 2 1990 avon chase manhattan bank na incorporated reference exhibit 104 avons quarterly report form 10q quarter ended march 31 1993 file 104881 1017 avon products inc deferred compensation plan amended restated january 1 2003 1018 first amendment avon products inc deferred compensation plan effective january 26 2005 1019 avon products inc amended restated benefit protection trust agreement dated april 21 1995 avon chemical bank trustee buck consultants inc consulting firm amending restating avon products inc benefit protection trust agreement dated august 3 1989 avon manufacturers hanover trust company incorporated reference exhibit 1014 avons annual report form 10k year ended december 31 1995 file 104881 1020 stock option agreement dated november 4 1999 avon stanley c gault incorporated reference exhibit 1013 avon’s annual report form 10k year ended december 31 1999 1021 avon products inc year 2000 stock incentive plan incorporated reference appendix company’s proxy statement form 14a filed commission march 27 2000 1022 amendment avon products inc year 2000 stock incentive plan effective january 1 2002 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2002 1023 employment agreement dated december 11 1997 avon andrea jung incorporated reference exhibit 1020 avons annual report form 10k year ended december 31 1997 file 104881 1024 employment agreement dated september 1 1994 avon susan j kropf 1025 employment agreement dated august 7 1998 avon robert j corti 1026 employment agreement dated january 1 2001 avon gilbert l klemann ii 1027 offer letter dated november 1 2004 elizabeth smith incorporated reference exhibit 101 avon’s current report form 8k filed january 6 2005 1028 description consulting arrangement avon fernando lezama effective march 31 2002 incorporated reference exhibit 1019 avon’s annual report form 10k year ended december 31 2001 1029 avon products inc compensation plan nonemployee directors restated june 1 2000 incorporated reference exhibit 1017 avon’s annual report form 10k year ended december 31 2000 1030 first amendment restated avon products inc compensation plan nonemployee directors effective january 1 2002 incorporated reference exhibit 1021 avon’s annual report form 10 k year ended december 31 2001 1031 second amendment restated avon products inc compensation plan nonemployee directors effective january 1 2004 1032 board directors avon products inc deferred compensation plan amended restated effective january 1 1997 incorporated reference exhibit 1023 avon’s annual report form 10k year ended december 31 1997 file 104881 1033 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 1023 avons annual report form 10k year ended december 31 1991 refiled form se year ended december 31 1996 file 1 04881 1034 first amendment dated november 5 1992 trust agreement dated december 31 1991 avon manufacturers hanover trust company incorporated reference exhibit 107 avons quarterly report form 10q quarter ended march 31 1993 file 104881 1035 stock option agreement avon products inc 1993 stock incentive plan dated june 4 1998 avon andrea jung incorporated reference exhibit 102 avon’s quarterly report form 10q quarter ended june 30 1998 file 104881 1036 avon products inc executive incentive plan approved shareholders may 1 2003 incorporated reference appendix e avon’s proxy statement form 14a filed commission march 27 2003 avons annual report form 10k year ended december 31 2004 time filing securities exchange commission shall modify supersede prior documents filed pursuant section 13 14 15d securities exchange act 1934 purposes offers sales securities date filing pursuant registration statement prospectus filed pursuant securities act 1933 incorporates reference annual report form 10k signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized 2nd day march 2005 avon products inc gilbert l klemann ii gilbert l klemann ii senior vice president general counsel pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent registered public accounting firm financial statement schedule board directors avon products inc audits consolidated financial statements managements assessment effectiveness internal control financial reporting effectiveness internal control financial reporting referred report dated february 28 2005 appearing 2004 annual report shareholders avon products inc report consolidated financial statements assessment incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a2 form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp new york new york february 28 2005 s1 consent independent registered public accounting firm hereby consent incorporation reference registration statements form s3 reg 333103432 form s8 reg nos 33343820 33347209 33365989 33365998 avon products inc report dated february 28 2005 relating financial statements management’s assessment effectiveness internal control financial reporting effectiveness internal control financial reporting appears 2004 annual report shareholders incorporated annual report form 10k also consent incorporation reference report dated february 28 2005 relating financial statement schedule appears form 10k pricewaterhousecoopers llp new york new york february 28 2005 s2 avon products inc subsidiaries schedule ii valuation qualifying accounts millions years ended december 31 accounts written net recoveries foreign currency translation adjustment b returned product destroyed foreign currency translation adjustment c obsolete inventory destroyed foreign currency translation adjustment increase valuation allowance tax loss tax credit carryforward benefits likely deferred tax assets utilized future e decrease valuation allowance primarily due decrease foreign tax credit carryforwards valuation allowance provided s3