Avon 2015 Annual Report Download - page 44

PART II
also include the impact during the fourth quarter of 2015 on the income taxes in the Consolidated Statements of Operations due to an
income tax benefit recognized as a result of the implementation of foreign tax planning strategies.
See Note 14, Restructuring Initiatives on pages F-45 through F-48 of our 2015 Annual Report, “Results Of Operations – Consolidated”
below, “Segment Review – Latin America” below, Note 1, Description of the Business and Summary of Significant Accounting Policies on
pages F-8 through F-14 of our 2015 Annual Report, Note 15, Contingencies on pages F-48 through F-51 of our 2015 Annual Report,
“Segment Review – Global and Other Expense” below, Note 11, Employee Benefit Plans on pages F-34 through F-42 of our 2015 Annual
Report, Note 16, Goodwill and Intangible Assets on pages F-51 through F-53 of our 2015 Annual Report, Note 3, Discontinued Operations
and Divestitures on pages F-15 through F-18 of our 2015 Annual Report, “Liquidity and Capital Resources” below, Note 5, Debt and Other
Financing on pages F-19 through F-21 of our 2015 Annual Report, and Note 7, Income Taxes on pages F-22 through F-26 of our 2015
Annual Report for more information on these items.
Critical Accounting Estimates
We believe the accounting policies described below represent our critical accounting policies due to the estimation processes involved in
each. See Note 1, Description of the Business and Summary of Significant Accounting Policies, on pages F-8 through F-14 of our 2015
Annual Report for a detailed discussion of the application of these and other accounting policies.
Allowances for Doubtful Accounts Receivable
Representatives contact their customers, selling primarily through the use of brochures for each sales campaign. Sales campaigns are
generally for a three- to four-week duration. The Representative purchases products directly from us and may or may not sell them to an end
user. In general, the Representative, an independent contractor, remits a payment to us during each sales campaign, which relates to the
prior campaign cycle. The Representative is generally precluded from submitting an order for the current sales campaign until the accounts
receivable balance for the prior campaign is paid; however, there are circumstances where the Representative fails to make the required
payment. We record an estimate of an allowance for doubtful accounts on receivable balances based on an analysis of historical data and
current circumstances, including seasonality and changing trends. Over the past three years, annual bad debt expense was $144 in 2015,
$171 in 2014 and $209 in 2013, or approximately 2% of total revenue in each year. The allowance for doubtful accounts is reviewed for
adequacy, at a minimum, on a quarterly basis. We generally have no detailed information concerning, or any communication with, any end
user of our products beyond the Representative. We have no legal recourse against the end user for the collection of any accounts receivable
balances due from the Representative to us. If the financial condition of our Representatives were to deteriorate, resulting in their inability to
make payments, additional allowances may be required.
Allowances for Sales Returns
Policies and practices for product returns vary by jurisdiction, but within many jurisdictions, we generally allow an unlimited right of return.
We record a provision for estimated sales returns based on historical experience with product returns. Over the past three years, annual sales
returns were $191 for 2015, $241 for 2014 and $274 for 2013, or approximately 3% of total revenue in each year, which has been
generally in line with our expectations. If the historical data we use to calculate these estimates does not approximate future returns, due to
changes in marketing or promotional strategies, or for other reasons, additional allowances may be required.
Provisions for Inventory Obsolescence
We record an allowance for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value.
In determining the allowance for estimated obsolescence, we classify inventory into various categories based upon its stage in the product
life cycle, future marketing sales plans and the disposition process. We assign a degree of obsolescence risk to products based on this
classification to determine the level of obsolescence provision. If actual sales are less favorable than those projected, additional inventory
allowances may need to be recorded for such additional obsolescence. Annual obsolescence expense was $45 in 2015, $78 in 2014 and
$82 in 2013.
Pension and Postretirement Expense
We maintain defined benefit pension plans, which cover substantially all employees in the U.S. and a portion of employees in international
locations. However, our U.S. defined benefit pension plan is closed to employees hired on or after January 1, 2015. Additionally, we have
unfunded supplemental pension benefit plans for some current and retired executives and provide retiree health care benefits subject to
certain limitations to many retired employees in the U.S. and certain foreign countries. See Note 11, Employee Benefit Plans on pages F-34
through F-42 of our 2015 Annual Report for more information on our benefit plans.
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