AVON PRODUCTS INC (Form: 10-Q, Received: 08/01/2012 07:07:12)

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________



T	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012



£	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 1-4881

_________________________

AVON PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

_________________________



New York		13-0544597
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1345 Avenue of the Americas, New York, N.Y. 10105-0196

(Address of principal executive offices) (Zip code)

(212) 282-5000

(Telephone Number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	£ (do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of shares of Common Stock (par value $0.25 ) outstanding at June 30, 2012 was 432,068,110

TABLE OF CONTENTS



		Page Numbers
Part I. Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Income Three and Six Months Ended June 30, 2012 and June 30, 2011	3

	Consolidated Statements of Comprehensive Income Three and Six Months Ended June 30, 2012 and June 30, 2011	5

	Consolidated Balance Sheets June 30, 2012 and December 31, 2011	7

	Consolidated Statements of Cash Flows Six Months Ended June 30, 2012 and June 30, 2011	8

	Notes to Consolidated Financial Statements	9 - 23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 - 40

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

Part II. Other Information

Item 1.	Legal Proceedings	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 5.	Other Information	42 - 43

Item 6.	Exhibits	43

	Signature	44

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



	Three Months Ended
(In millions, except per share data)	June 30, 2012			June 30, 2011
Net sales	$	2,548.2		$	2,815.9
Other revenue	43.5			40.5
Total revenue	$	2,591.7		$	2,856.4
Costs, expenses and other:
Cost of sales	964.5			1,018.0
Selling, general and administrative expenses	1,500.6			1,521.8
Operating profit	126.6			316.6
Interest expense	24.9			23.9
Interest income	(2.8		)	(3.9		)
Other expense, net	13.8			2.9
Total other expenses	35.9			22.9
Income from continuing operations, before taxes	90.7			293.7
Income taxes	(28.0		)	(85.0		)
Income from continuing operations, net of tax	62.7			208.7
Discontinued operations, net of tax	—			—
Net income	62.7			208.7
Net income attributable to noncontrolling interests	(1.1		)	(2.5		)
Net income attributable to Avon	$	61.6		$	206.2
Earnings per share:
Basic from continuing operations	$	0.14		$	0.48
Basic from discontinued operations	—			—
Basic attributable to Avon	$	0.14		$	0.48
Diluted from continuing operations	$	0.14		$	0.47
Diluted from discontinued operations	—			—
Diluted attributable to Avon	$	0.14		$	0.47
Cash dividends per common share	$	0.23		$	0.23

The accompanying notes are an integral part of these statements.

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)




	Six Months Ended
(In millions, except per share data)	June 30, 2012			June 30, 2011
Net sales	$	5,081.0		$	5,407.4
Other revenue	86.1			78.1
Total revenue	5,167.1			5,485.5
Costs, expenses and other:
Cost of sales	1,974.3			1,967.8
Selling, general and administrative expenses	2,994.7			2,954.6
Operating profit	198.1			563.1
Interest expense	49.5			46.6
Interest income	(6.7		)	(8.7		)
Other expense, net	23.8			6.6
Total other expenses	66.6			44.5
Income from continuing operations, before taxes	131.5			518.6
Income taxes	(41.2		)	(157.7		)
Income from continuing operations, net of tax	90.3			360.9
Discontinued operations, net of tax	—			(8.6		)
Net income	90.3			352.3
Net income attributable to noncontrolling interests	(2.2		)	(2.5		)
Net income attributable to Avon	$	88.1		$	349.8
Earnings per share:
Basic from continuing operations	$	0.20		$	0.83
Basic from discontinued operations	$	—		$	(0.02	)
Basic attributable to Avon	$	0.20		$	0.81
Diluted from continuing operations	$	0.20		$	0.82
Diluted from discontinued operations	$	—		$	(0.02	)
Diluted attributable to Avon	$	0.20		$	0.80
Cash dividends per common share	$	0.46		$	0.46

The accompanying notes are an integral part of these statements.

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Three Months Ended
(In millions)	June 30, 2012				June 30, 2011
Net income	$	62.7		—	$	208.7
Other comprehensive income:
Foreign currency translation adjustments	(189.7		)		66.1
Change in derivative losses on cash flow hedges, net of taxes of $0.6 and $0.5	0.9				1.0
Adjustments of and amortization of net actuarial loss, prior service cost, and transition obligation, net of taxes of $(1.3) and $4.0	0.3				7.2
Total other comprehensive (loss) income, net of taxes	(188.5		)		74.3
Comprehensive (loss) income	(125.8		)		283.0
Less: comprehensive income (loss) attributable to noncontrolling interests	0.6				(2.3		)
Comprehensive (loss) income attributable to Avon	$	(125.2	)		$	280.7

The accompanying notes are an integral part of these statements.

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



	Six Months Ended
(In millions)	June 30, 2012				June 30, 2011
Net income	$	90.3		352.3	$	352.3
Other comprehensive income:
Foreign currency translation adjustments	(64.8		)		165.6
Change in derivative losses on cash flow hedges, net of taxes of $1.1 and $1.0	1.9				2.0
Change in derivate losses on net investment hedge	(0.3		)		—
Adjustments of and amortization of net actuarial loss, prior service cost, and transition obligation, net of taxes of $3.1 and $7.9	9.6				15.1
Total other comprehensive (loss) income, net of taxes	(53.6		)		182.7
Comprehensive income	36.7				535.0
Less: comprehensive income (loss) attributable to noncontrolling interests	1.2				(2.1		)
Comprehensive income attributable to Avon	$	37.9			$	532.9

The accompanying notes are an integral part of these statements.

AVON PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)



(In millions)	June 30, 2012			December 31, 2011
Assets
Current Assets
Cash and cash equivalents	$	1,276.4		$	1,245.1
Accounts receivable, net	714.1			761.5
Inventories	1,244.8			1,161.3
Prepaid expenses and other	917.8			930.9
Total current assets	$	4,153.1		$	4,098.8
Property, plant and equipment, at cost	2,634.7			2,708.8
Less accumulated depreciation	(1,144.7		)	(1,137.3		)
Property, plant and equipment, net	1,490.0			1,571.5
Goodwill	483.0			473.1
Other intangible assets, net	268.2			279.9
Other assets	1,308.3			1,311.7
Total assets	$	7,702.6		$	7,735.0
Liabilities and Shareholders’ Equity
Current Liabilities
Debt maturing within one year	$	952.4		$	849.3
Accounts payable	846.0			850.2
Accrued compensation	226.8			217.1
Other accrued liabilities	634.3			663.6
Sales and taxes other than income	201.5			212.4
Income taxes	9.9			98.4
Total current liabilities	2,870.9			2,891.0
Long-term debt	2,581.1			2,459.1
Employee benefit plans	624.9			603.0
Long-term income taxes	64.6			67.0
Other liabilities	122.1			129.7
Total liabilities	$	6,263.6		$	6,149.8
Contingencies (Note 5)
Shareholders’ Equity
Common stock	$	188.3		$	187.3
Additional paid-in capital	2,100.7			2,077.7
Retained earnings	4,613.3			4,726.1
Accumulated other comprehensive loss	(908.0		)	(854.4		)
Treasury stock, at cost	(4,571.3		)	(4,566.3		)
Total Avon shareholders’ equity	1,423.0			1,570.4
Noncontrolling interests	16.0			14.8
Total shareholders’ equity	$	1,439.0		$	1,585.2
Total liabilities and shareholders’ equity	$	7,702.6		$	7,735.0

The accompanying notes are an integral part of these statements.

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Six Months Ended
(In millions)	June 30, 2012			June 30, 2011
Cash Flows from Operating Activities
Net income	$	90.3		$	352.3
Discontinued operations, net of tax	—			8.6
Income from continuing operations	$	90.3		$	360.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	118.3			115.5
Provision for doubtful accounts	134.6			125.3
Provision for obsolescence	59.7			54.5
Share-based compensation	23.2			24.0
Deferred income taxes	(72.0		)	(51.1		)
Other	21.0			40.7
Changes in assets and liabilities:
Accounts receivable	(94.7		)	(103.0		)
Inventories	(166.7		)	(204.6		)
Prepaid expenses and other	44.3			(13.0		)
Accounts payable and accrued liabilities	(0.5		)	(107.2		)
Income and other taxes	(73.5		)	(58.5		)
Noncurrent assets and liabilities	(42.9		)	(82.3		)
Net cash provided by operating activities of continuing operations	41.1			101.2
Cash Flows from Investing Activities
Capital expenditures	(87.7		)	(144.5		)
Disposal of assets	9.5			6.9
Purchases of investments	(0.8		)	(26.8		)
Proceeds from sale of investments	—			6.2
Acquisitions and other investing activities	—			(13.0		)
Net cash used by investing activities of continuing operations	(79.0		)	(171.2		)
Cash Flows from Financing Activities*
Cash dividends	(199.2		)	(203.3		)
Debt, net (maturities of three months or less)	(343.1		)	593.3
Proceeds from debt	638.4			12.8
Repayment of debt	(71.2		)	(535.9		)
Interest rate swap termination	43.6			—
Proceeds from exercise of stock options	7.6			15.3
Excess tax benefit realized from share-based compensation	(2.6		)	1.9
Repurchase of common stock	(8.1		)	(7.0		)
Net cash provided (used) by financing activities of continuing operations	65.4			(122.9		)
Cash Flows from Discontinued Operations
Net cash used by investing activities of discontinued operations	—			(1.2		)
Net cash used by discontinued operations	—			(1.2		)
Effect of exchange rate changes on cash and equivalents	3.8			25.2
Net increase (decrease) in cash and equivalents	31.3			(168.9		)
Cash and equivalents at beginning of year	$	1,245.1		$	1,179.9
Cash and equivalents at end of period	$	1,276.4		$	1,011.0


*	Non-cash financing activities in 2012 and 2011 included the change in fair market value of interest-rate swap agreements of $(1.1) and $10.4 , respectively.

The accompanying notes are an integral part of these statements.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

1. ACCOUNTING POLICIES

Basis of Presentation

We prepare our unaudited interim consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”). We consistently applied the accounting policies described in our 2011 Annual Report on Form 10-K (“ 2011 Form 10-K”) in preparing these unaudited financial statements. In our opinion, we made all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of results for a full year. You should read these unaudited interim consolidated financial statements in conjunction with our consolidated financial statements contained in our 2011 Form 10-K. When used in these notes, the terms “Avon,” “Company,” “we” or “us” mean Avon Products, Inc.

For interim consolidated financial statement purposes, our tax provision is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. We also provide for accruals under our various employee benefit plans for each quarter based on one quarter of the estimated annual expense. We have revised some immaterial amounts in the Consolidated Statements of Cash Flows for the six months ended June 30, 2011 for comparative purposes. We reclassified $13.0 from Accounts payable and accrued liabilities to Acquisitions and other investing activities.

New Accounting Standards Implemented

In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for Avon as of January 1, 2012 and did not have a significant impact on our financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 requires entities to present items of net income and other comprehensive income either in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive, statements of net income and other comprehensive income. In addition, in December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers the requirement to present components of reclassifications of comprehensive income on the statement of comprehensive income, with all other requirements of ASU 2011-05 unaffected. Both ASU 2011-05 and 2011-12 are effective as of January 1, 2012 for Avon and did not have a significant impact on our financial statements, other than presentation.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment . ASU 2011-08 provides entities with an option to perform a qualitative assessment to determine whether further impairment testing is necessary. ASU 2011-08 is effective for annual and interim goodwill impairment tests for Avon as of January 1, 2012 and will not have a significant impact on our financial statements.

Out-of-Period Items

During the second quarter of 2012, we recorded an out-of-period adjustment which increased earnings by approximately $5 before tax ( $3 after tax) which related to prior years and was associated with vendor liabilities in North America. Also during the second quarter of 2012, we recorded an out-of-period adjustment which decreased earnings by approximately $4 before tax ( $4 after tax) which related to prior years and was associated with brochure costs in Poland. During the first quarter of 2012, we recorded an out-of-period adjustment which decreased earnings by approximately $14 before tax ( $10 after tax) which related to 2011 and was associated with bad debt expense in our South Africa operations. We also identified and recorded other various insignificant out-of-period adjustments during the three and six months ended June 30, 2012 (primarily related to cost of sales and selling, general and administrative expenses, and the provision for income taxes) that related to prior years. The total out-of-period adjustments impacting earnings during the three and six months ended June 30, 2012 was approximately $4 before tax of an increase to earnings ( $1 after tax of a decrease to earnings) and $12 before tax ( $13 after tax) of a decrease to earnings, respectively. We evaluated the total out-of-period adjustments, both individually and in the aggregate, in relation to the quarterly and annual periods in which they originated and the annual period in which they were corrected, and concluded that these adjustments were not material.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

During the first quarter of 2011, the Company determined that the net after tax gain on the sale of Avon Products Company Limited (“Avon Japan”), reported in our financial statements for the year ended December 31, 2010 of $10 , should have been reported as a net after tax loss of $3 , to correctly include all balances relating to Avon Japan that were previously included in Accumulated Other Comprehensive Loss (“AOCI”). In addition, in the first quarter of 2011 the Company released a liability relating to a previously owned health care business, which should have been released in a prior period, resulting in a $4 increase in net income. The results of these businesses were originally reported within discontinued operations upon disposition. The net impact of these two items decreased net income for the first quarter of 2011 by $9 . We evaluated the total out-of-period adjustments impacting the first quarter of 2011, both individually and in the aggregate, in relation to the quarterly and annual periods in which they originated and the annual period in which they were corrected, and concluded that these adjustments were not material.

2. EARNINGS PER SHARE AND SHARE REPURCHASES

We compute earnings per share ("EPS") using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Our participating securities are our grants of restricted stock and restricted stock units, which contain non-forfeitable rights to dividend equivalents. We compute basic EPS by dividing net income allocated to common shareholders by the weighted-average number of shares outstanding during the year. Diluted EPS is calculated to give effect to all potentially dilutive common shares that were outstanding during the period.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Shares in millions)	2012			2011			2012			2011
Numerator from continuing operations
Income from continuing operations less amounts attributable to noncontrolling interests	$	61.6		$	206.2		$	88.1		$	358.4
Less: Earnings allocated to participating securities	(1.1		)	(1.7		)	(1.9		)	(3.0		)
Income from continuing operations allocated to common shareholders	60.5			204.5			86.2			355.4
Numerator from discontinued operations
Loss from discontinued operations plus/less amounts attributable to noncontrolling interests	$	—		$	—		$	—		$	(8.6	)
Less: Earnings allocated to participating securities	—			—			—			—
Loss allocated to common shareholders	—			—			—			(8.6		)
Numerator attributable to Avon
Income attributable to Avon less amounts attributable to noncontrolling interests	$	61.6		$	206.2		$	88.1		$	349.8
Less: Earnings allocated to participating securities	(1.1		)	(1.7		)	(1.9		)	(3.0		)
Income allocated to common shareholders	60.5			204.5			86.2			346.8
Denominator:
Basic EPS weighted-average shares outstanding	432.0			430.5			431.6			430.2
Diluted effect of assumed conversion of stock options	0.8			2.1			0.8			2.1
Diluted EPS adjusted weighted-average shares outstanding	432.8			432.6			432.4			432.3
Earnings per Common Share from continuing operations:
Basic	$	0.14		$	0.48		$	0.20		$	0.83
Diluted	$	0.14		$	0.47		$	0.20		$	0.82
Loss per Common Share from discontinued operations:
Basic	$	—		$	—		$	—		$	(0.02	)
Diluted	$	—		$	—		$	—		$	(0.02	)
Earnings per Common Share attributable to Avon:
Basic	$	0.14		$	0.48		$	0.20		$	0.81
Diluted	$	0.14		$	0.47		$	0.20		$	0.80

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

At June 30, 2012 and 2011 , we did not include stock options to purchase 22.2 million shares and 19.1 million shares of Avon common stock, respectively, in the calculations of diluted EPS because the exercise prices of those options were greater than the average market price, and therefore, their inclusion would have been anti-dilutive.

We purchased approximately 0.4 million shares of Avon common stock for $8.1 during the first six months of 2012 , as compared to approximately 0.3 million shares of Avon common stock for $7.0 during the first six months of 2011 through acquisition of stock from employees in connection with tax payments upon vesting of restricted stock units and under our previously announced share repurchase program.

3. INVENTORIES



Components of Inventories	June 30, 2012		December 31, 2011
Raw materials	$	423.0	$	361.7
Finished goods	821.8		799.6
Total	$	1,244.8	$	1,161.3

4. EMPLOYEE BENEFIT PLANS



	Three Months Ended June 30,
	Pension Benefits
Net Periodic Benefit Costs	U.S. Plans						Non-U.S. Plans						Postretirement Benefits
	2012			2011			2012			2011			2012			2011
Service cost	$	3.7		$	3.3		$	4.5		$	4.2		$	.5		$	.3
Interest cost	7.4			8.1			9.7			10.3			1.4			1.1
Expected return on plan assets	(8.8		)	(9.1		)	(9.8		)	(10.5		)	—			(.3		)
Amortization of prior service credit	—			(.1		)	(.4		)	(.3		)	(3.3		)	(2.5		)
Amortization of net actuarial losses	10.1			11.9			4.4			3.6			1.0			.6
Curtailments	—			—			—			—			(1.0		)	—
Net periodic benefit costs	$	12.4		$	14.1		$	8.4		$	7.3		$	(1.4	)	$	(.8	)



	Six Months Ended June 30,
	Pension Benefits
Net Periodic Benefit Costs	U.S. Plans						Non-U.S. Plans						Postretirement Benefits
	2012			2011			2012			2011			2012			2011
Service cost	$	7.5		$	6.6		$	9.0		$	8.3		$	1.0		$	.6
Interest cost	14.8			16.2			19.5			20.4			2.9			2.2
Expected return on plan assets	(18.0		)	(18.2		)	(19.6		)	(20.8		)	—			(.6		)
Amortization of prior service credit	(.1		)	(.2		)	(.8		)	(.6		)	(6.6		)	(4.9		)
Amortization of net actuarial losses	21.9			23.8			8.8			7.1			2.0			1.1
Curtailments	—			—			—			—			(1.0		)	—
Net periodic benefit costs	$	26.1		$	28.2		$	16.9		$	14.4		$	(1.7	)	$	(1.6	)

We expect to contribute approximately $50 to $55 and $40 to $45 to our U.S. and non-U.S. pension and postretirement plans, respectively, for the full year of 2012 . As of June 30, 2012 , we made approximately $21 and $15 of contributions to the U.S. and non-U.S pension and postretirement plans, respectively. We anticipate contributing approximately $29 to $34 and $25 to $30 to fund our U.S. and non-U.S. pension and postretirement plans, respectively, during the remainder of 2012 . Our funding requirements may be impacted by regulations or interpretations thereof. In addition, during the second quarter of 2012, approximately $40 of assets previously designated and intended to be used solely for postretirements benefits were transferred to a trust that funds both active and retiree benefits.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

5. CONTINGENCIES

In 2002, our Brazilian subsidiary received an excise tax assessment from the Brazilian tax authorities for alleged tax deficiencies during the years 1997-1998 asserting that the establishment in 1995 of separate manufacturing and distribution companies in that country was done without a valid business purpose and that Avon Brazil did not observe minimum pricing rules to define the taxable basis of excise tax. The structure adopted in 1995 is comparable to that used by many other companies in Brazil. We believe that our Brazilian corporate structure is appropriate, both operationally and legally, and that the 2002 assessment is unfounded. This matter is being vigorously contested and in the opinion of our outside counsel, the likelihood that the assessment ultimately will be upheld is remote. Management believes that the likelihood that the assessment will have a material impact on our consolidated financial position, results of operations or cash flows is correspondingly remote. Other similar excise tax assessments involving different periods have been canceled and officially closed in our favor by the second administrative level.

In October 2010, the 2002 assessment was upheld at the first administrative level at an amount reduced to $ 31 from $ 74 , including penalties and accruing interest, at the exchange rate on June 30, 2012 . We have appealed this decision to the second administrative level. In the event that the 2002 assessment is upheld at the third and last administrative level, it may be necessary for us to provide security to pursue further appeals, which, depending on the circumstances, may result in a charge to income. It is not possible to make an estimate of the amount or range of loss that it is reasonably possible that we could incur from an unfavorable outcome in respect of this and any additional assessments that may be issued for subsequent periods.

As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (“FCPA”) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission ("SEC") and the United States Department of Justice ("DOJ") to advise both agencies of our internal investigation. We are continuing to cooperate with both agencies and inquiries by them, including but not limited to, signing tolling agreements, translating and producing documents and assisting with interviews.

As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Company's international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, use of third party vendors and consultants and related due diligence, joint ventures and acquisitions, and payments to third-party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing, and we continue to cooperate with both agencies with respect to these matters. In connection with the internal investigation and compliance reviews, we continue to enhance our ethics and compliance program, including our policies and procedures, FCPA compliance-related training, FCPA third party due diligence program and other compliance-related resources.

On October 26, 2011, the Company received a subpoena from the SEC requesting documents and information in connection with a Regulation FD investigation of the Company's contacts and communications with certain financial analysts and other representatives of the financial community during 2010 and 2011. The Company was also advised that a formal order of investigation was issued by the SEC relating to the FCPA matters described above and the Regulation FD matters that are referenced in the subpoena. The Company intends to cooperate fully with the SEC's investigation. We also have commenced an internal investigation, which is being conducted by outside counsel under the oversight of our Audit Committee, in connection with the Regulation FD matters. In connection with the ongoing internal investigations and compliance reviews described above, certain personnel actions have been taken and additional personnel actions may be taken in the future.

We are in discussions with the SEC and DOJ regarding mutually resolving the government investigations. There can be no assurance that a settlement will be reached or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on us.

At this point we are unable to predict the developments in, results of, or consequences of the internal investigations, compliance reviews and government investigations. In light of the fact that, among other things, these matters are still ongoing, we are unable to make an estimate of the amount or range of loss that it is reasonably possible that we could incur from an unfavorable outcome.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

In July and August 2010, derivative actions were filed in state court against certain present or former officers and/or directors of the Company ( Carol J. Parker, derivatively on behalf of Avon Products, Inc. v. W. Don Cornwell, et al. and Avon Products, Inc. as nominal defendant (filed in the New York Supreme Court, Nassau County, Index No. 600570/2010); Lynne Schwartz, derivatively on behalf of Avon Products, Inc. v. Andrea Jung et al. and Avon Products, Inc. as nominal defendant (filed in the New York Supreme Court, New York County, Index No. 651304/2010)). These actions allege breach of fiduciary duty, abuse of control, waste of corporate assets, and, in one complaint, unjust enrichment, relating to the Company's compliance with the FCPA, including the adequacy of the Company's internal controls. The relief sought against the individual defendants in one or both of these derivative complaints includes certain declaratory and equitable relief, restitution, damages, exemplary damages and interest. The Company is a nominal defendant, and no relief is sought against the Company itself. In the Parker case, plaintiff has agreed that defendants' time to file an answer, motion to dismiss or other response is adjourned until plaintiff files an amended pleading. In Schwartz , plaintiff has agreed that defendants' time to file an answer, motion to dismiss or other response is deferred pending agreement on a further stipulation. On May 14, 2012, County of York Retirement Plan (“County of York”) - which had been a plaintiff in a previously filed but now discontinued derivative action - filed a complaint against the Company seeking enforcement of its demands for the inspection of certain of the Company's books and records ( County of York Retirement Plan v. Avon Products, Inc., New York Supreme Court, New York County, Index No. 651673/2012). On July 10, 2012, the Company moved to dismiss County of York's complaint. We are unable to predict the outcome of these matters.

On July 6, 2011, a purported shareholder's class action complaint ( City of Brockton Retirement System v. Avon Products, Inc., et al. , No. 11-CIV-4665) was filed in the United States District Court for the Southern District of New York against certain present or former officers and/or directors of the Company. On September 29, 2011, the Court appointed LBBW Asset Management Investmentgesellschaft mbH and SGSS Deutschland Kapitalanlagegesellschaft mbH as lead plaintiffs and Motley Rice LLC as lead counsel. Lead plaintiffs have filed an amended complaint on behalf of a purported class consisting of all persons or entities who purchased or otherwise acquired shares of Avon's common stock from July 31, 2006 through and including October 26, 2011. The amended complaint names the Company and two individual defendants and asserts violations of Sections 10(b) and 20(a) of the Exchange Act based on allegedly false or misleading statements and omissions with respect to, among other things, the Company's compliance with the FCPA, including the adequacy of the Company's internal controls. Plaintiffs seek compensatory damages as well as injunctive relief. Defendants moved to dismiss the amended complaint on June 14, 2012. In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of this matter and are unable to make an estimate of the amount or range of loss that it is reasonably possible that we could incur from an unfavorable outcome.

In April 2012, several purported shareholders' actions were filed against the Company and certain present or former directors of the Company in New York Supreme Court, New York County ( Pritika v. Jung, et al ., Index No. 651072/2012; Feinman v. Avon Products, Inc., et al. , Index No. 651087/2012; Gaines v. Jung, et al ., Index No. 651097/2012; Schwartz v. Avon Products, Inc., et al. , 651152/2012; Robaczynki, individually and on behalf of all others similarly situated and derivatively on behalf of Avon Products, Inc. v. Jung, et al., Index No. 651176/2012). On April 26, 2012, the actions were consolidated in New York Supreme Court, New York County ( In re Avon Products, Inc. Shareholder Litigation , Consolidated Index No. 651087/2012E). An amended consolidated complaint was filed on May 18, 2012. The amended consolidated complaint asserts a derivative claim against the individual defendants based on alleged breaches of fiduciary duties. The Company is named as a nominal defendant on the purported derivative claim, and no relief appears to be sought against the Company on that claim. The amended consolidated complaint also asserts a direct claim on behalf of a class of shareholders against the individual defendants based on alleged breaches of fiduciary duties. Plaintiffs seek compensatory damages as well as injunctive relief. On June 27, 2012, defendants moved to dismiss the consolidated action. In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of the class action claim and are unable to make an estimate of the amount or range of loss that it is reasonably possible that we could incur from an unfavorable outcome.

With respect to the above-described internal investigations, compliance reviews, government investigations and the derivative and class action matters, under some circumstances, adverse outcomes could be material to our consolidated financial position, results of operations or cash flows.

Various other lawsuits and claims, arising in the ordinary course of business or related to businesses previously sold, are pending or threatened against Avon. In management's opinion, based on its review of the information available at this time, the total cost of resolving such other contingencies at June 30, 2012 , should not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

6. SEGMENT INFORMATION

In conjunction with organizational changes, effective in the second quarter of 2012, the results of Central and Eastern Europe and Western Europe, Middle East & Africa were managed as a single operating segment. Accordingly, Europe, Middle East & Africa amounts include the results of Central and Eastern Europe and Western Europe, Middle East & Africa for all periods presented.

In conjunction with organizational changes, effective in the second quarter of 2012, the Dominican Republic was included in Latin America whereas in prior periods it had been included in North America. The impact was not material to either segment. Accordingly, the Dominican Republic is included in Latin America and excluded from North America for all periods presented.

Summarized financial information concerning our reportable segments was as follows:



	Three Months Ended June 30,
	2012					2011
	Revenue		Operating Profit (Loss)			Revenue		Operating Profit (Loss)
Latin America	$	1,242.8	$	114.9		$	1,359.9	$	195.9
Europe, Middle East & Africa	663.1		71.3			773.4		125.0
North America	467.4		(3.9		)	496.7		23.5
Asia Pacific	218.4		11.1			226.4		16.6
Total from operations	$	2,591.7	$	193.4		$	2,856.4	$	361.0
Global and other	—		(66.8		)	—		(44.4		)
Total	$	2,591.7	$	126.6		$	2,856.4	$	316.6



	Six Months Ended June 30,
	2012					2011
	Revenue		Operating Profit (Loss)			Revenue		Operating Profit (Loss)
Latin America	$	2,392.3	$	165.7		$	2,503.2	$	337.2
Europe, Middle East & Africa	1,387.7		127.8			1,531.5		236.0
North America	947.0		(.1		)	997.1		49.5
Asia Pacific	440.1		26.5			453.7		36.5
Total from operations	$	5,167.1	$	319.9		$	5,485.5	$	659.2
Global and other	—		(121.8		)	—		(96.1		)
Total	$	5,167.1	$	198.1		$	5,485.5	$	563.1

Our consolidated net sales by classes of principal products were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Beauty ⁽¹⁾	$	1,854.5	$	2,039.2	$	3,713.1	$	3,914.1
Fashion ⁽²⁾	460.1		511.1		909.7		999.1
Home ⁽³⁾	233.6		265.6		458.2		494.2
Net sales	$	2,548.2	$	2,815.9	$	5,081.0	$	5,407.4
Other revenue ⁽⁴⁾	43.5		40.5		86.1		78.1
Total revenue	$	2,591.7	$	2,856.4	$	5,167.1	$	5,485.5


(1)	Beauty includes color cosmetics, fragrances, skin care and personal care.


(2)	Fashion includes jewelry, watches, apparel, footwear, accessories and children’s products.


(3)	Home includes gift and decorative products, housewares, entertainment and leisure products and nutritional products.


(4)	Other revenue primarily includes shipping and handling and order processing fees billed to Representatives.

Sales from Health and Wellness products and mark. are included among these categories based on product type.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

7. SUPPLEMENTAL BALANCE SHEET INFORMATION

At June 30, 2012 and December 31, 2011 , prepaid expenses and other included the following:



Components of Prepaid Expenses and Other	June 30, 2012		December 31, 2011
Deferred tax assets	$	326.2	$	319.0
Prepaid taxes and tax refunds receivable	178.9		192.0
Prepaid brochure costs, paper, and other literature	112.2		126.9
Receivables other than trade	110.5		142.8
Healthcare trust assets (Note 4)	40.3		—
Short-term investments	20.5		18.0
Interest-rate swap agreements (Notes 10 and 11)	14.5		18.8
Other	114.7		113.4
Prepaid expenses and other	$	917.8	$	930.9

At June 30, 2012 and December 31, 2011 , other assets included the following:



Components of Other Assets	June 30, 2012		December 31, 2011
Deferred tax assets	$	805.7	$	759.5
Deferred software	193.7		176.7
Interest-rate swap agreements (Notes 10 and 11)	104.2		153.6
Investments	43.6		44.4
Other	161.1		177.5
Other assets	$	1,308.3	$	1,311.7

8. RESTRUCTURING INITIATIVES

2005 and 2009 Restructuring Programs

We launched restructuring programs in late 2005 (the "2005 Restructuring Program") and in February 2009 (the "2009 Restructuring Program"). The 2005 and 2009 Restructuring Programs initiatives include:


•	enhancement of organizational effectiveness, including efforts to flatten the organization and bring senior management closer to consumers through a substantial organizational downsizing;


•	implementation of a global manufacturing strategy through facilities realignment;


•	implementation of additional supply chain efficiencies in distribution;


•	restructuring our global supply chain operations;


•	realigning certain local business support functions to a more regional base to drive increased efficiencies; and


•	streamlining of transactional and other services through outsourcing, moves to lower-cost countries, and reorganizing certain other functions.

We have approved and announced all of the initiatives that are part of our 2005 and 2009 Restructuring Programs. We believe that we have substantially realized the anticipated savings associated with our 2005 Restructuring Program, and we are on track to achieving our anticipated savings associated with our 2009 Restructuring Program. The savings achieved from these Restructuring Programs have been offset by investments in Representative Value Proposition and advertising. Since 2005, we have recorded total costs to implement restructuring initiatives of $526.6 for actions associated with the 2005 Restructuring Program, but we expect our total costs when fully implemented to be approximately $520 when considering historical and future costs along with expected gains from sales of properties. With regards to the 2009 Restructuring Program, we have recorded total costs to implement restructuring initiatives of $259.9 since 2009 and expect total costs to implement to reach approximately $270 .

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

Restructuring Charges – First and Second Quarter of 2012

During the three and six months ended June 30, 2012 , we recorded a net benefit of $1.0 and total costs to implement of $4.5 , respectively, associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following:


•	net benefits of $4.7 and $5.8 , respectively, as a result of adjustments to the reserve, partially offset by employee-related costs;


•	implementation costs of $2.9 and $7.3 , respectively, for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations; and


•	accelerated depreciation of $.8 and $3.0 , respectively, associated with our initiatives to realign certain distribution operations.

For the three months ended June 30, 2012, a net benefit of $1.7 was recorded in selling, general, and administrative expenses and total costs to implement of $.7 were recorded in cost of sales. For the six months ended June 30, 2012, total costs to implement of $1.1 were recorded in selling, general, and administrative expenses and $3.4 were recorded in cost of sales.

Restructuring Charges – First and Second Quarter 2011

During the three and six months ended June 30, 2011 , we recorded total costs to implement of $12.0 and $26.7 , respectively, associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following:


•	net benefit of $1.2 and charge of $8.4 , respectively, primarily for adjustments to the reserves for employee-related costs;


•	implementation costs of $9.2 and $18.2 , respectively, for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations; and


•	accelerated depreciation of $4.0 and $5.6 respectively, associated with our initiatives to realign certain distribution operations, offset by a gain of $5.5 due to the sale of land and building in Germany in the first quarter 2011.

Of the total costs to implement, $8.5 and $22.0 was recorded in selling, general and administrative expenses, respectively; and $3.5 and $4.7 was recorded in cost of sales, respectively, for the three and six months ended June 30, 2011 .

The liability balances for the initiatives under the 2005 and 2009 Restructuring Programs are shown below:



	Employee- Related Costs			Other			Total
Balance December 31, 2011	$	74.6		$	(.7	)	$	73.9
2012 Charges	1.5			—			1.5
Adjustments	(7.3		)	—			(7.3		)
Cash payments	(25.6		)	—			(25.6		)
Non-cash write-offs	1.0			—			1.0
Foreign exchange	(1.4		)	—			(1.4		)
Balance at June 30, 2012	$	42.8		$	(.7	)	$	42.1

The following table presents the restructuring charges incurred to date, net of adjustments, under our 2005 and 2009 Restructuring Programs, along with the charges expected to be incurred under the plan:



	Employee- Related Costs		Asset Write-offs		Inventory Write-offs		Currency Translation Adjustment Write-offs		Contract Terminations/ Other		Total
Charges incurred to date	$	489.0	$	10.8	$	7.2	$	11.6	$	21.4	$	540.0
Charges to be incurred on approved initiatives	1.2		—		—		—		.3		1.5
Total expected charges on approved initiatives	$	490.2	$	10.8	$	7.2	$	11.6	$	21.7	$	541.5

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

The charges, net of adjustments, of initiatives under the 2005 and 2009 Restructuring Programs by reportable business segment were as follows:



	Latin America			North America			Europe, Middle East & Africa			Asia Pacific			Corporate			Total
2005	$	3.5		$	6.9		$	12.7		$	22.4		$	6.1		$	51.6
2006	34.6			61.8			52.0			14.2			29.5			192.1
2007	14.9			7.0			69.8			4.9			12.7			109.3
2008	1.9			(1.1		)	20.7			(.7		)	(3.0		)	17.8
2009	19.2			26.7			52.5			19.9			12.0			130.3
2010	13.6			17.8			(.8		)	(.3		)	11.0			41.3
2011	2.1			(1.1		)	1.9			(.3		)	.8			3.4
First Quarter 2012	.1			(.9		)	(.3		)	(.1		)	.1			(1.1		)
Second Quarter 2012	$	(3.6	)	$	(.8	)	$	(.3	)	$	.2		$	(.2	)	$	(4.7	)
Charges recorded to date	$	86.3		$	116.3		$	208.2		$	60.2		$	69.0		$	540.0
Charges to be incurred on approved initiatives	—			.3			1.4			(.2		)	—			1.5
Total expected charges on approved initiatives	$	86.3		$	116.6		$	209.6		$	60.0		$	69.0		$	541.5

As noted previously, we expect to record total costs to implement of approximately $520 before taxes for all restructuring initiatives under the 2005 Restructuring Program and approximately $270 before taxes for all restructuring initiatives under the 2009 Restructuring Program, in each case including restructuring charges and other costs to implement. The amounts shown in the tables above as charges recorded to date relate to initiatives that have been approved and recorded in the financial statements as the costs are probable and estimable. The amounts shown in the tables above as total expected charges on approved initiatives represent charges recorded to date plus charges yet to be recorded for approved initiatives as the relevant accounting criteria for recording an expense have not yet been met. In addition to the charges included in the tables above, we will incur other costs to implement restructuring initiatives such as other professional services and accelerated depreciation. These future costs are expected to be more than offset by gains on the sales of properties exited due to restructuring initiatives.

Additional Restructuring Charges

In an effort to improve operating performance, we identified certain actions in 2012 that we believe will enhance our operating model, reduce costs, and improve efficiencies. In addition, management approved the relocation of our corporate headquarters in New York City. As a result of the analysis and the actions taken, during the three and six months ended June 30, 2012 , we recorded total costs to implement these various restructuring initiatives of $39.2 and $61.0 , respectively, associated with approved initiatives, and the costs consisted of the following:


•	net charges of $37.2 and $56.0 , respectively, primarily for employee-related costs;


•	implementation costs of $.9 and $3.9 , respectively, for professional service fees; and


•	accelerated depreciation of $1.1 and $1.1 , respectively, associated with the relocation of our corporate headquarters.

As a result of the decision to relocate our corporate headquarters, we expect to incur a charge in the range of $10 - $20 , dependent on estimates of sublease income, in the second half of 2012 when the relocation is complete.

Total costs to implement were recorded in selling, general and administrative expenses for the three and six months ended June 30, 2012 . Cash payments associated with these charges are expected to be made during 2012 and 2013.

The liability balance for these as of June 30, 2012 is as follows:



	Employee- Related Costs
2012 Charges	$	56.0
Cash payments	(10.9		)
Foreign Exchange	(.4		)
Balance at June 30, 2012	$	44.7

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

The charges under the additional restructuring initiatives by reportable business segment were as follows:



	Latin America		North America		Europe, Middle East & Africa		Asia Pacific		Corporate		Total
First Quarter 2012	$	4.6	$	.8	$	3.1	$	.7	$	9.6	$	18.8
Second Quarter 2012	10.7		3.9		7.5		4.0		11.1		37.2
Charges recorded to date	$	15.3	$	4.7	$	10.6	$	4.7	$	20.7	$	56.0

9. GOODWILL AND INTANGIBLE ASSETS

Goodwill



	North America			Latin America		Europe, Middle East & Africa			Asia Pacific			Total
Gross balance at December 31, 2011	$	314.7		$	111.8	$	160.8		$	83.8		$	671.1
Accumulated impairments	(198.0		)	—		—			—			(198.0		)
Net balance at December 31, 2011	$	116.7		$	111.8	$	160.8		$	83.8		$	473.1

Changes during the period ended June 30, 2012:
Foreign exchange	$	—		$	9.9	$	.6		$	(.4	)	$	10.1
Adjustments	—			—		(.2		)	—			(.2		)

Gross balance at June 30, 2012	$	314.7		$	121.7	$	161.2		$	83.4		$	681.0
Accumulated impairments	(198.0		)	—		—			—			(198.0		)
Net balance at June 30, 2012	$	116.7		$	121.7	$	161.2		$	83.4		$	483.0

Intangible assets



	June 30, 2012					December 31, 2011
	Gross Amount		Accumulated Amortization			Gross Amount		Accumulated Amortization
Amortized Intangible Assets
Customer relationships	$	224.8	$	(77.9	)	$	221.8	$	(65.2	)
Licensing agreements	61.9		(52.0		)	58.2		(47.4		)
Noncompete agreements	8.5		(7.1		)	8.1		(6.6		)
Trademarks	6.6		(5.1		)	6.6		(4.0		)
Indefinite Lived Trademarks	108.5		—			108.4		—
Total	$	410.3	$	(142.1	)	$	403.1	$	(123.2	)



Estimated Amortization Expense:
2012	$	23.6
2013	21.7
2014	20.6
2015	20.0
2016	19.3

Aggregate amortization expense was $5.1 and $6.2 for the three months ended June 30, 2012 and 2011, respectively, and $10.5 and $12.4 for the six months ended June 30, 2012 and 2011, respectively.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

10. FAIR VALUE

The fair value measurement provisions required by the Fair Value Measurements and Disclosures Topic of the Codification establish a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:


•	Level 1 - Quoted prices in active markets for identical assets or liabilities.


•	Level 2 - Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.


•	Level 3 - Unobservable inputs based on our own assumptions.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 :



	Level 1		Level 2		Total
Assets:
Available-for-sale securities	$	1.9	$	—	$	1.9
Interest-rate swap agreements	—		104.2		104.2
Foreign exchange forward contracts	—		5.7		5.7
Total	$	1.9	$	109.9	$	111.8
Liabilities:
Interest-rate swap agreements	$	—	$	3.8	$	3.8
Foreign exchange forward contracts	—		7.9		7.9
Total	$	—	$	11.7	$	11.7

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 :



	Level 1		Level 2		Total
Assets:
Available-for-sale securities	$	1.8	$	—	$	1.8
Interest-rate swap agreements	—		153.6		153.6
Foreign exchange forward contracts	—		5.6		5.6
Total	$	1.8	$	159.2	$	161.0
Liabilities:
Interest-rate swap agreements	$	—	$	6.0	$	6.0
Foreign exchange forward contracts	—		10.5		10.5
Total	$	—	$	16.5	$	16.5

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2011 , and indicates the placement in the fair value hierarchy of the valuation techniques utilized to determine such fair value:



	Level 1		Level 2		Level 3		Total
Assets:
Silpada goodwill	$	—	$	—	$	116.7	$	116.7
Silpada indefinite-lived trademark	—		—		85.0		85.0
Total	$	—	$	—	$	201.7	$	201.7

In the fourth quarter of 2011, we completed the annual goodwill and indefinite-lived intangible assets impairment assessments and subsequently determined that the goodwill and indefinite-lived trademarks associated with Silpada were impaired. As a result, the carrying amount of Silpada's goodwill was reduced from $314.7 to its implied fair value of $116.7 , resulting in an impairment charge of $198.0 . In addition, the carrying amount of Silpada's indefinite-lived trademarks was reduced from $150.0 to its implied fair value of $85.0 , resulting in an impairment charge of $65.0 .

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

We use a discounted cash flow ("DCF") approach to estimate the fair value of a reporting unit, which we believe is the most reliable indicator of fair value of a business, and is most consistent with the approach a market place participant would use. The estimation of fair value utilizing a DCF approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, among other factors. Key assumptions used in measuring the fair value of Silpada included the discount rate (based on the weighted-average cost of capital), revenue growth, silver prices, and Representative growth and activity rates. The fair value of the Silpada trademark was determined using a risk-adjusted DCF model under the relief-from-royalty method. The royalty rate used was based on a consideration of market rates.

Fair Value of Financial Instruments

The net asset (liability) amounts recorded in the balance sheet (carrying amount) and the estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 , respectively, consisted of the following:



	2012						2011
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	1,276.4		$	1,276.4		$	1,245.1		$	1,245.1
Available-for-sale securities	1.9			1.9			1.8			1.8
Grantor trust cash and cash equivalents	.2			.2			.7			.7
Short term investments	20.5			20.5			18.0			18.0
Cash surrender value of supplemental life insurance	41.6			41.6			41.9			41.9
Healthcare trust assets	40.3			40.3			—			—
Debt maturing within one year	952.4			960.2			849.3			849.3
Long-term debt, net of related discount or premium	2,581.1			2,458.1			2,459.1			2,445.2
Foreign exchange forward contracts, net	(2.2		)	(2.2		)	(4.9		)	(4.9		)
Interest-rate swap agreements, net	100.4			100.4			147.6			147.6

The methods and assumptions used to estimate fair value are as follows:

Cash and cash equivalents, Grantor trust cash and cash equivalents, Short term investments, and Healthcare trust assets - Given the short term nature of these financial instruments, the stated cost approximates fair value.

Available-for-sale securities - The fair values of these investments were the quoted market prices for issues listed on securities exchanges.

Cash surrender value of supplemental life insurance - The fair value is equal to the cash surrender value of the life insurance policy.

Debt maturing within one year and long-term debt - The fair values of all debt and other financing were determined using Level 2 inputs based on indicative market prices.

Foreign exchange forward contracts - The fair values of forward contracts were estimated based on quoted forward foreign exchange prices at the reporting date.

Interest-rate swap agreements - The fair values of interest-rate swap agreements were estimated based on LIBOR yield curves at the reporting date.

11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivatives are recognized on the balance sheet at their fair values. The following table presents the fair value of derivative instruments outstanding at June 30, 2012 :

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)



	Asset			Liability
	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedges:
Interest-rate swap agreements	Other assets	$	100.4	Other liabilities	$	—
Total derivatives designated as hedges		$	100.4		$	—
Derivatives not designated as hedges:
Interest-rate swap agreements	Other assets	$	3.8	Other liabilities	$	3.8
Foreign exchange forward contracts	Prepaid expenses and other	5.7		Accounts payable	7.9
Total derivatives not designated as hedges		$	9.5		$	11.7
Total derivatives		$	109.9		$	11.7

The following table presents the fair value of derivative instruments outstanding at December 31, 2011 :



	Asset			Liability
	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedges:
Interest-rate swap agreements	Other assets	$	147.6	Other liabilities	$	—
Foreign exchange forward contracts	Prepaid expenses and other	1.2		Accounts payable	—
Total derivatives designated as hedges		148.8			—
Derivatives not designated as hedges:
Interest-rate swap agreements	Other assets	$	6.0	Other liabilities	$	6.0
Foreign exchange forward contracts	Prepaid expenses and other	4.4		Accounts payable	10.5
Total derivatives not designated as hedges		$	10.4		$	16.5
Total derivatives		$	159.2		$	16.5

When we become a party to a derivative instrument, we designate the instrument, for financial reporting purposes, as a fair value hedge, a cash flow hedge, a net investment hedge, or a non-hedge.

For derivatives designated as hedges, we assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The ineffective portion of a derivative’s gain or loss, if any, is recorded in earnings in other expense, net on the Consolidated Statements of Income. In addition, when we determine that a derivative is not highly effective as a hedge, hedge accounting is discontinued. When it is probable that a hedged forecasted transaction will not occur, we discontinue hedge accounting for the affected portion of the forecasted transaction, and reclassify gains or losses that were accumulated in AOCI to earnings, in other expense, net on the Consolidated Statements of Income.

Interest Rate Risk

Our borrowings are subject to interest rate risk. We use interest-rate swap agreements, which effectively convert the fixed rate on long-term debt to a floating interest rate, to manage our interest rate exposure. The agreements are designated as fair value hedges. At June 30, 2012 and December 31, 2011 , we held interest-rate swap agreements that effectively converted approximately 61% and 74% , respectively, of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR. Our total exposure to floating interest rates at June 30, 2012 and December 31, 2011 was approximately 72% and 82% , respectively.

In March 2012, we terminated two of our interest-rate swap agreements designated as fair value hedges, with notional amounts totaling $350 . As of the interest-rate swap agreements' termination date the aggregate favorable adjustment to the carrying value of our debt was $46.1 , which is being amortized as a reduction to interest expense over the remaining term of the underlying debt obligations through March 2019. We incurred termination fees of $2.5 which were recorded in other expense, net. For the three and six months ended June 30, 2012 , the net impact of the gain amortization was immaterial and $1.4, respectively. The interest-rate swap agreements were terminated in order to increase our ratio of fixed rate debt.

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

At June 30, 2012 , we had interest-rate swap agreements designated as fair value hedges of fixed-rate debt, with notional amounts totaling $1,375 . During the three and six months ended June 30, 2012 , we recorded a net gain of $3.4 and a net loss of $1.1 respectively, in interest expense for these interest-rate swap agreements designated as fair value hedges. The loss on these interest-rate swap agreements was offset by an equal and offsetting gain in interest expense on our fixed-rate debt. During the three and six months ended June 30, 2011 , we recorded a net gain of $26.3 and $10.4 , respectively, in interest expense for these interest-rate swap agreements designated as fair value hedges. The loss on these interest-rate swap agreements was offset by an equal and offsetting gain in interest expense on our fixed-rate debt.

At times, we may de-designate the hedging relationship of a receive-fixed/pay-variable interest-rate swap agreement. In these cases, we enter into receive-variable/pay-fixed interest-rate swap agreements that are designed to offset the gain or loss on the de-designated contract. At June 30, 2012 , we had interest-rate swap agreements that were not designated as hedges with notional amounts totaling $250 . During the three and six months ended June 30, 2012 , we recorded an immaterial net loss and an immaterial net gain in other expense, net associated with these undesignated interest-rate swap agreements. During the three and six months ended June 30, 2011 , we recorded an immaterial net gain in other expense, net associated with these undesignated interest-rate swap agreements.

There was no hedge ineffectiveness for the three and six months ended June 30, 2012 and 2011 , related to these interest-rate swaps.

Foreign Currency Risk

The primary currencies for which we have net underlying foreign currency exchange rate exposures are the Argentine peso, Australian dollar, Brazilian real, British pound, Canadian dollar, Chinese renminbi, Colombian peso, the euro, Mexican peso, Philippine peso, Polish zloty, Russian ruble, South African rand, Turkish lira, Ukrainian hryvnia and Venezuelan bolivar. We use foreign exchange forward contracts to manage a portion of our foreign currency exchange rate exposures. At June 30, 2012 , we had outstanding foreign exchange forward contracts with notional amounts totaling approximately $362.5 for the euro, the British pound, the Mexican peso, the Peruvian new sol, the Hungarian forint, the Romanian leu, the Czech Republic koruna, and the New Zealand dollar.

We use foreign exchange forward contracts to manage foreign currency exposure of intercompany loans. These contracts are not designated as hedges. The change in fair value of these contracts is immediately recognized in earnings and substantially offsets the foreign currency impact recognized in earnings relating to the intercompany loans. During the three and six months ended June 30, 2012 , we recorded losses of $8.9 and $5.6 , respectively, in other expense, net related to these undesignated foreign exchange forward contracts. During the three and six months ended June 30, 2012 , we recorded gains of $10.2 and $7.4 , respectively, related to the intercompany loans, caused by changes in foreign currency exchange rates. During the three and six months ended June 30, 2011 , we recorded gains of $4.8 and $20.5 , respectively, in other expense, net related to these undesignated foreign exchange forward contracts. During the three and six months ended June 30, 2011 , we recorded losses of $2.7 and $16.9 , respectively, related to the intercompany loans, caused by changes in foreign currency exchange rates.

We also used a foreign exchange forward contract to hedge a portion of the net assets of a foreign subsidiary, which was effective as a hedge. A loss of $.3 on the foreign exchange forward contract was recorded in AOCI for the six months ended June 30, 2012 . The foreign exchange forward contract terminated in January 2012, and therefore no gain or loss was recorded for the three months ended June 30, 2012.

12. DEBT

We maintain a $1 billion revolving credit facility, which expires in November 2013. As discussed below, the $1 billion available under the credit facility is effectively reduced to the extent of any commercial paper outstanding. The credit facility contains various covenants, including a financial covenant that requires our interest coverage ratio to equal or exceed 4 : 1 , lien covenant, events of default and cross-default provisions. The interest coverage ratio is determined in relation to our consolidated pre-tax income, which is not adjusted for one-time charges such as non-cash impairments or significant currency devaluations, and interest expense, in each case for the period of four fiscal quarters ending on the date of determination. Based on interest rates at June 30, 2012, the full $1 billion facility, less the outstanding commercial paper, could have been drawn down without violating any covenant.

In November 2010, we issued in a private placement $535.0 in notes (the "private notes") pursuant to a note purchase agreement that has covenants substantially similar to those in the revolving credit facility agreement, including the requirement to maintain an interest coverage ratio that equals or exceeds 4 : 1 .

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

Our interest coverage ratio, as calculated under both our revolving credit facility and the note purchase agreement of our November 2010 private notes, for the four fiscal quarters ended June 30, 2012 was 4.7 : 1 . We anticipate that we may not be able to comply with the interest coverage ratio covenant for the four fiscal quarters ending September 30, 2012, primarily due to the inclusion of a non-cash impairment charge of $263.0 associated with the Silpada business. The non-cash impairment charge had an adverse impact on our interest coverage ratio as of June 30, 2012 of 2.7 points. Accordingly, we have obtained waivers from the lenders under our revolving credit facility and our private noteholders to exclude the non-cash impairment charge associated with the Silpada business recorded during the fourth quarter of 2011 from our interest co verage ratio calculation for the four fiscal quarters ending September 30, 2012. With such waivers, we currently anticipate that we will be in compliance with the interest coverage ratio covenants in the revolving credit facility and the note purchase agreement for the four fiscal quarters ending September 30, 2012. In connection with the waiver to the note purchase agreement, we entered into a letter agreement with the holders of the private notes pursuant to which we agreed, among other things, to amend the note purchase agreement no later than August 15, 2012 to add a leverage ratio covenant, add a most favored lender provision and to amend the interest coverage ratio.

We also maintain a $1 billion commercial paper program, which is supported by the credit facility. Under this program, we may issue from time to time unsecured promissory notes in the commercial paper market in private placements exempt from registration under federal and state securities laws, for a cumulative face amount not to exceed $1 billion outstanding at any one time and with maturities not exceeding 270 days from the date of issue. The commercial paper short-term notes issued under the program are not redeemable prior to maturity and are not subject to voluntary prepayment. Outstanding commercial paper effectively reduces the amount available for borrowing under the credit facility. At June 30, 2012 , there was $330.1 outstanding under this program. In 2012, the demand for the Company's commercial paper has declined, partially impacted by rating agency action with respect to the Company. For more information regarding risks associated with our ability to access certain debt markets, including the commercial paper market, see “Risk Factors - A general economic downturn, a recession globally or in one or more of our geographic regions or sudden disruption in business conditions or other challenges may adversely affect our business and our access to liquidity and capital” included in Item 1A of our 2011 Form 10-K.

On June 29, 2012, the Company entered into a $500.0 Term Loan Agreement (the "Term Loan"). T he Term Loan is subject to a possible one-time increase of principal on or prior to August 2, 2012, for which the Company intends to draw down an incremental $50.0 of principal. The Company is required to repay on June 29, 2014, an amount equal to twenty-five percent of the aggregate principal amount of the loans and on June 29, 2015, the then outstanding aggregate principal amount of the loans made under the Term Loan. At June 30, 2012, $500.0 was outstanding under the Term Loan. Amounts borrowed under the Term Loan and repaid or prepaid may not be reborrowed. Borrowings under the Term Loan bear interest at a rate per annum, which will be, at the Company's option, either LIBOR plus an applicable margin or a floating base rate plus an applicable margin, in each case subject to adjustment based on the credit ratings of the Company. The Term Loan is available for general corporate purposes, including funding or making payments for the debt of the Company or any of its subsidiaries and funding loans from the Company to any of its subsidiaries. The Term Loan contains various covenants, including a financial covenant that requires our interest coverage ratio (determined in relation to our consolidated net income adjusted for interest expense, taxes, and non-cash expenses) to equal or exceed 4 : 1 as well as a financial covenant that requires our maximum leverage ratio (determined in relation to our consolidated net income adjusted for interest expense, taxes, non-cash expenses, and depreciation and amortization expense) to not be greater than 4 : 1 up to March 31, 2013, 3.75 : 1 up to December 31, 2013, and 3.5 : 1 on March 31, 2014 and thereafter, and includes cross-default provisions.

AVON PRODUCTS, INC.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

OVERVIEW

We are a global manufacturer and marketer of beauty and related products. Our business is conducted worldwide, primarily in the direct selling channel. We presently have sales operations in 65 countries and territories, including the U.S., and distribute products in 42 more. Our reportable segments are based on geographic operations in four regions: Latin America; North America; Europe, Middle East & Africa; and Asia Pacific. Our product categories are Beauty, Fashion and Home. Beauty consists of color cosmetics, fragrances, skin care and personal care. Fashion consists of jewelry, watches, apparel, footwear, accessories and children’s products. Home consists of gift and decorative products, housewares, entertainment and leisure products and nutritional products. Sales are made to the ultimate consumer principally through direct selling by over 6 million active independent Representatives, who are independent contractors and not our employees. The success of our business is highly dependent on recruiting, retaining and servicing our Representatives. During 2011, approximately 83% of our consolidated revenue was derived from operations outside the U.S.

During the first half of 2012, revenues declined 6% due to unfavorable foreign exchange. Constant $ revenues were flat. Sales of products in the Beauty category decreased 5% due to unfavorable foreign exchange, and increased 1% on a Constant $ basis. Active Representatives decreased 2%. See the “Segment Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in revenue by segment.

We have experienced increases in product costs in part due to inflationary pressures, primarily in Latin America, as well as higher labor costs. Our pricing strategies are helping to partially offset the resulting product cost increases but there is no assurance that we will be able to pass on product cost increases fully or immediately.

In an effort to improve operating performance, we identified certain actions in 2012, not associated with the 2005 and 2009 Restructuring Programs, that we believe will enhance our operating model, reduce costs, and improve efficiencies. As a result of the analysis and the actions taken, we recorded total costs to implement of $61.0 for the six months ended June 30, 2012. In connection with these actions, effective April 1, 2012, Central & Eastern Europe and Western Europe, Middle East & Africa are being managed as a single operating segment. Accordingly, Europe, Middle East & Africa amounts include the results of Central and Eastern Europe and Western Europe, Middle East & Africa for all periods presented. In connection with these actions, we expect to realize operating profit benefits of approximately $40 annually and cash flow benefits of approximately $35 after taxes annually beginning in 2013, which will likely be a mitigating factor against inflationary cost pressures.

In conjunction with organizational changes, effective in the second quarter of 2012, the Dominican Republic was included in Latin America whereas in prior periods it had been included in North America. The impact was not material to either segment. Accordingly, the results of the Dominican Republic are included in Latin America and excluded from North America for all periods presented.

NEW ACCOUNTING STANDARDS

Information relating to new accounting standards is included in Note 1, Accounting Policies, of the Notes to Consolidated Financial Statements.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

RESULTS OF OPERATIONS—THREE AND SIX MONTHS ENDED JUNE 30, 2012 AS COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2011

Non- GAAP Financial Measures

To supplement our financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars. We refer to these adjusted growth rates as Constant $ growth, which is a non- GAAP financial measure. We believe this measure provides investors an additional perspective on trends. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, we calculate current year results and prior year results at a constant exchange rate. Currency impact is determined as the difference between actual growth rates and constant currency growth rates.

We present gross margin, selling, general and administrative expenses as a percentage of revenue, net global expenses, operating profit, operating margin and effective tax rate on a non-GAAP basis. The discussion of our segments presents operating profit and operating margin on a non-GAAP basis. We have provided a quantitative reconciliation of the difference between the non-GAAP financial measure and the financial measure calculated and reported in accordance with GAAP. These non-GAAP measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. The Company uses the non-GAAP financial measures to evaluate its operating performance and believes that it is meaningful for investors to be made aware of, on a period-to-period basis, the impacts of costs to implement (“CTI”) restructuring initiatives. The Company believes investors find the non-GAAP information helpful in understanding the ongoing performance of operations separate from items that may have a disproportionate positive or negative impact on the Company’s financial results in any particular period. See Note 8, Restructuring Initiatives for more information on these items.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Consolidated



	Three Months Ended June 30,								Six Months Ended June 30,
	2012			2011			%/Point Change		2012			2011			%/Point Change
Total revenue	$	2,591.7		$	2,856.4		(9	)%	$	5,167.1		$	5,485.5		(6	)%
Cost of sales	964.5			1,018.0			(5	)%	1,974.3			1,967.8			—	%
Selling, general and administrative expenses	1,500.6			1,521.8			(1	)%	2,994.7			2,954.6			1	%
Operating profit	126.6			316.6			(60	)%	198.1			563.1			(65	)%
Interest expense	24.9			23.9			4	%	49.5			46.6			6	%
Interest income	(2.8		)	(3.9		)	(28	)%	(6.7		)	(8.7		)	(23	)%
Other expense, net	13.8			2.9			*		23.8			6.6			*
Net income attributable to Avon	61.6			206.2			(70	)%	88.1			349.8			(75	)%
Diluted earnings per share attributable to Avon	.14			.47			(70	)%	.20			.80			(75	)%
Advertising expenses ⁽¹⁾	$	58.4		$	81.9		(29	)%	133.3			163.9			(19	)%

Gross margin	62.8		%	64.4		%	(1.6	)	61.8		%	64.1		%	(2.3	)
CTI restructuring	—			.1			(.1	)	.1			.1			—
Adjusted Non-GAAP gross margin	62.8		%	64.5		%	(1.7	)	61.9		%	64.2		%	(2.3	)

Selling, general and administrative expenses as a % of total revenue	57.9		%	53.3		%	4.6		58.0		%	53.9		%	4.1
CTI restructuring	(1.4		)	(.3		)	(1.1	)	(1.2		)	(.4		)	(.8	)
Adjusted Non-GAAP selling, general and administrative expenses as a % of total revenue	56.5		%	53.0		%	3.5		56.8		%	53.5		%	3.3

Operating profit	$	126.6		$	316.6		(60	)%	$	198.1		$	563.1		(65	)%
CTI restructuring	38.2			12.0					65.5			26.7
Adjusted Non-GAAP operating profit	$	164.8		$	328.6		(50	)%	$	263.6		$	589.8		(55	)%

Operating margin	4.9		%	11.1		%	(6.2	)	3.8		%	10.3		%	(6.5	)
CTI restructuring	1.5			.4			1.1		1.3			.5			.8
Adjusted Non-GAAP operating margin	6.4		%	11.5		%	(5.1	)	5.1		%	10.8		%	(5.7	)

Effective tax rate	30.9		%	28.9		%	2.0		31.3		%	30.4		%	.9
CTI restructuring	.3			.1			.2		.5			.3			.2
Adjusted Non-GAAP effective tax rate	31.2		%	29.1		%	2.1		31.8		%	30.7		%	1.1

Active Representatives							(3	)%							(2	)%
Units sold							(4	)%							(3	)%

Amounts in the table above may not necessarily sum due to rounding.

* Calculation not meaningful


(1)	Advertising expenses are included within selling, general and administrative expenses.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Three Months Ended June 30, 2012

Revenue

Total revenue decreased 9%, with unfavorable foreign exchange contributing 8 percentage points to the revenue decrease. Constant $ revenue decreased 1%, due to a 3% decline in Active Representatives, partially offset by a 2% increase in average order. A decline in units sold of 4% was partially offset by a 3% increase in price and mix.

On a category basis, growth rates were as follows:



	%/Point Change
	US$	Constant $
Beauty	(9)%	—%
Beauty Category:
Fragrance	(8)	1
Color	(9)	—
Skincare	(10)	(1)
Personal Care	(10)	(1)

Fashion	(10)	(5)
Home	(12)	(4)

See the “Segment Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in revenue by segment.

Gross Margin

Gross margin and Adjusted Non-GAAP gross margin decreased by 160 basis points and 170 basis points, respectively, primarily due to the following:


•	a decline of 70 basis points due to higher supply chain costs, primarily caused by increased product costs (50 basis points) which was impacted by inflationary pressures; and


•	a decline of 70 basis points from foreign exchange.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenue increased 460 basis points compared to the same period of 2011, while Adjusted Non-GAAP selling, general, and administrative expenses as a percentage of revenue increased 350 basis points, primarily due to the following:


•	an increase of 200 basis points due to lower revenues while continuing to incur overhead expenses that do not vary directly with revenue, higher professional and related fees, primarily associated with the FCPA investigation and compliance reviews, as well as wage inflation in 2012;


•	an increase of 90 basis points due to foreign exchange;


•	an increase of 60 basis points due to higher brochure costs;


•	an increase of 40 basis points due to increased investments in Representative Value Proposition ("RVP"), primarily driven by investments in the One Simple Sales Model in the U.S. and an increased focus on Representative engagement in Brazil; and


•	a decrease of 60 basis points due to lower advertising.

In the first quarter of 2012 we revised the definition of RVP to represent the expenses of activities directly associated with Representatives and sales leaders including the cost of incentives and sales aids (net of any fees charged). RVP no longer includes strategic investments such as the Service Model Transformation and Web enablement, and it no longer adjusts for the impact of volume.

See the “Segment Review” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information related to changes in operating margin by segment.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Other Expense

Interest expense increased by 4%, primarily due to higher outstanding debt balances as well as higher average interest rates.

Interest income decreased by 28%, primarily due to lower average interest rates partially offset by higher average cash balances.

Other expense, net, increased primarily due to higher foreign exchange losses.

Effective Tax Rate

The effective tax rate was 30.9% compared to 28.9% in the prior-year period. The 2012 tax rate was higher primarily due to lower benefits from audit settlements and statute expirations and a 2011 reduction in a foreign tax liability, partially offset by the favorable impact of 2012 discrete benefits on lower pre-tax income.

Six Months Ended June 30, 2012

Revenue

Total revenue decreased 6% due to unfavorable foreign exchange. Constant $ revenue was flat as a 2% increase in average order was offset by a 2% decline in Active Representatives. Price and mix increased 3% and was offset by a 3% decline in units sold.

On a category basis, growth rates were as follows:



	%/Point Change
	US$	Constant $
Total Beauty	(5)%	1%
Beauty Category:
Fragrance	(4)	2
Color	(5)	2
Skincare	(6)	—
Personal Care	(6)	—

Fashion	(9)	(6)
Home	(7)	(1)

Gross Margin

Gross margin and Adjusted Non-GAAP gross margin both decreased by 230 basis points primarily due to the following:


•	a decline of 150 basis points due to higher supply chain costs, primarily caused by increased product costs (60 basis points) which was partially due to inflationary pressures, as well as other costs associated with transportation and overhead;


•	a decline of 50 basis points due to foreign exchange; and


•	a decline of 40 basis points due to product mix and pricing.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of revenue for the six months ended June 30, 2012 increased 410 basis points compared to the same period of 2011, while Adjusted Non-GAAP selling, general, and administrative expenses as a percentage of revenue increased 330 basis points, primarily due to the following:


•	an increase of 130 basis points due to lower revenues while continuing to incur overhead expenses that do not vary directly with revenue, and was also impacted by a bonus accrual reversal that occurred in 2011, as well as wage inflation in 2012;


•	an increase of 80 basis points due to increased investments in RVP, primarily driven by investments in the One Simple

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Sales Model in the U.S. and an increased focus on Representative engagement in Brazil;


•	an increase of 50 basis points due to higher brochure costs;


•	an increase of 50 basis points due to foreign exchange; and


•	an increase of 40 basis points due to higher bad debt expense primarily due to a higher provision to increase reserves for bad debt in South Africa in the first quarter of 2012.

Other Expense

Interest expense increased by 6%, primarily due to higher outstanding debt balances as well as higher average interest rates. At June 30, 2012 we held interest-rate swap agreements that effectively converted approximately 61% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR.

Interest income decreased by 23%, primarily due to lower average interest rates partially offset by higher average cash balances.

Other expense, net, increased primarily due to higher foreign exchange losses and the fee associated with the termination of two of our interest-rate swap agreements designated as fair value hedges.

Effective Tax Rate

The effective tax rate was 31.3% compared to 30.4% in the prior-year period. The 2012 tax rate was higher primarily due to lower benefits from audit settlements and statute expirations, partially offset by the favorable impact of 2012 discrete benefits on lower pre-tax income.

Segment Review

Latin America



	Three Months Ended June 30,										Six Months Ended June 30,
							%/Point Change										%/Point Change
	2012			2011			US$		Constant $		2012			2011			US$		Constant $
Total revenue	$	1,242.8		$	1,359.9		(9	)%	3	%	$	2,392.3		$	2,503.2		(4	)%	3	%
Operating profit	114.9			195.9			(41	)%	(31	)%	165.7			337.2			(51	)%	(44	)%
CTI restructuring	7.1			1.1							11.8			(1.2		)
Adjusted Non-GAAP operating profit	122.0			197.0			(38	)%	(27	)%	177.5			336.0			(47	)%	(40	)%

Operating margin	9.2		%	14.4		%	(5.2	)	(4.6	)	6.9		%	13.5		%	(6.6	)	(6.2	)
CTI restructuring	.6			.1							.5			—
Adjusted Non-GAAP operating margin	9.8		%	14.5		%	(4.7	)	(4.1	)	7.4		%	13.4		%	(6.0	)	(5.6	)

Active Representatives									1	%									1	%
Units sold									(3	)%									(2	)%

Amounts in the table above may not necessarily sum due to rounding.

Effective in the second quarter of 2012, the Dominican Republic was included in Latin America whereas in prior periods it had been included in North America. The impact was not material to either segment. Accordingly, Latin America amounts include the results of the Dominican Republic for all periods presented.

Three Months Ended June 30, 2012

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Revenue in Brazil declined 19% and revenue in Mexico declined 7%, with both markets being negatively impacted by foreign exchange. Constant $ revenue benefited from growth of 6% in Mexico, partially offset by a decline of 1% in Brazil. In Venezuela, revenue and Constant $ revenue grew 26%.

Service levels in Brazil have improved from the prior-year period, however our sales in the current three-month period have been negatively impacted by a decline in Active Representatives and decreased demand, which was partially due to increased competition as well as uncompetitive pricing in Fashion and Home. Demand was also negatively impacted by the lingering effects on Representative satisfaction of weaker service levels in previous periods. Brazil's sales of Beauty products declined 16%, negatively impacted by foreign exchange. On a Constant $ basis, Brazil's sales of Beauty products increased 2%. Brazil's sales of non-Beauty products declined 29%, or 14% on a Constant $ basis partially due to uncompetitive pricing.

Constant $ revenue growth in Mexico was driven by higher average order as well as an increase in Active Representatives. Revenue growth in Venezuela was the result of higher average order, benefiting from the inflationary impact on pricing, as well as an increase in Active Representatives. Additional information on our Venezuela operations is discussed in more detail below.

Operating margin was negatively impacted by .5 points as compared to the prior-year period from higher CTI restructuring. Adjusted Non-GAAP operating margin declined 4.7 points, or 4.1 points on a Constant $ basis, primarily as a result of:

•

a decline of 2.6 points related to lower gross margin caused primarily by approximately 1.5 points from higher supply chain costs, including .7 points from increased product costs, primarily due to inflationary pressures not offset by pricing, as well as other costs associated with transportation. Lower gross margin was also impacted by .8 points from foreign exchange and .3 points from higher inventory obsolescence.


•	a decline of 2.0 points from increased overhead, primarily due to wage inflation outpacing revenue growth;


•	a benefit of .5 points from lower advertising; and


•	a benefit of .5 points from lower bad debt expense.

Six Months Ended June 30, 2012

Total revenue declined due to unfavorable foreign exchange. On a Constant $ basis, revenue grew 3% due to higher average order as well as an increase in Active Representatives. Average order benefited from pricing, including inflationary impacts. Revenue in Brazil declined 12% and revenue in Mexico declined 3%, with both markets being negatively impacted by foreign exchange. Constant $ revenue benefited from growth of 8% in Mexico, while Constant $ revenue in Brazil was flat. In Venezuela, revenue and Constant $ revenue grew 26%.

Our sales in the current six-month period have been negatively impacted by lower average order and decreased demand, which was partially due to increased competition as well as uncompetitive pricing in Fashion and Home. Partially offsetting these factors was an increase in Active Representatives, which benefited from increased investments in RVP. Current demand was also negatively impacted by the lingering effects on Representative satisfaction of weaker service levels in previous periods. Brazil's sales of Beauty products declined 9%, due to unfavorable foreign exchange. On a Constant $ basis, Brazil's sales of Beauty products increased 4%. Brazil's sales of non-Beauty products declined 24%, or 14% on a Constant $ basis partially due to uncompetitive pricing.

Operating margin was negatively impacted by .5 points as compared to the prior-year period from higher CTI restructuring. Adjusted Non-GAAP operating margin declined 6.0 points, or 5.6 points on a Constant $ basis, primarily as a result of:

•

a decline of 2.9 points related to lower gross margin caused primarily by approximately 1.8 points from higher supply chain costs, including .7 points from increased product costs, primarily due to inflationary pressures not offset by pricing, as well as other costs associated with transportation and overhead. Lower gross margin was also impacted by .7 points from foreign exchange and .4 points from higher inventory obsolescence.


•	a decline of 1.9 points from increased overhead, primarily due to wage inflation outpacing revenue growth;


•	a decline of .7 points due to increased investments in RVP, primarily in Brazil;


•	a decline of .5 points due to higher brochure costs; and


•	a benefit of .5 points from lower bad debt expense.

Currency restrictions enacted by the Venezuelan government in 2003 have impacted the ability of Avon Venezuela to obtain foreign currency at the official rate to pay for imported products. Since 2003, Avon Venezuela had been obtaining its foreign

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

currency needs beyond the amounts that could be obtained at official rates through non-government sources where the exchange rates were less favorable than the official rate (“parallel market”). In late May 2010, the Venezuelan government took control over the previously freely-traded parallel market. Trading in the parallel market was suspended for several weeks in May and June and reopened as a regulated (“SITME”) market in early June 2010. The government has imposed volume restrictions on trading activity, limiting an entity’s activity to a maximum of $0.35 per month. The current limit is below the monthly foreign exchange requirements of our Venezuelan operations and, unless these restrictions are modified, may have a negative impact on Avon Venezuela’s future operations. There is no assurance that the Company will be able to recover the higher cost of obtaining foreign currency in the SITME market as compared to the official rate through operating activities, such as increased pricing or cost reductions in other areas.

We account for Venezuela as a highly inflationary economy. At June 30, 2012, we had a net asset position of $193.5 associated with our operations in Venezuela, which included cash balances of approximately $228.3 of which approximately $225.8 was denominated in Bolívares remeasured at the June 30, 2012 official exchange rate and approximately $2.5 was denominated in U.S. dollars. Of the $193.5 net asset position, approximately $225.0 was associated with Bolívar-denominated monetary net assets and deferred income taxes. Additionally, during the first half of 2012 Avon Venezuela’s revenue and operating profit represented approximately 5% of Avon’s consolidated revenue and 11% of Avon’s consolidated operating profit.

During the first half of 2012, the exchange rate in the SITME market ranged within 5 to 6 Bolívares to the U.S. Dollar; however, as noted previously, access to U.S. Dollars in the SITME market is limited. To illustrate our sensitivity to potential future changes in the official exchange rate in Venezuela, if the official exchange rate was further devalued as of June 30, 2012, from the official rate of 4.3 to a rate of 9.0 Bolívares to the U.S. dollar, or an approximate 52% devaluation, our results will be negatively impacted as follows:

•

As a result of the use of a further devalued exchange rate for the remeasurement of Avon Venezuela’s revenues and profits, Avon’s annualized consolidated revenues would likely be negatively impacted by approximately 3% and annualized consolidated operating profit would likely be negatively impacted by approximately 5% prospectively, assuming no operational improvements occurred to offset the negative impact of a further devaluation.

•

Avon’s consolidated operating profit during the first twelve months following the devaluation, in this example, would likely be negatively impacted by approximately 13%, assuming no offsetting operational improvements. The larger negative impact on operating profit during the first twelve months as compared to the prospective impact is caused by costs of nonmonetary assets being carried at historic dollar cost in accordance with the requirement to account for Venezuela as a highly inflationary economy while revenue would be remeasured at the further devalued rate.


•	We would likely incur an immediate charge of approximately $94.8 ($82.4 in “Other expenses, net” and $12.4 in “Income taxes”) associated with the $225.0 of Bolívar-denominated monetary net assets and deferred income taxes.

For the three and six months ended June 30, 2012, costs associated with acquiring goods that required settlement in U.S. dollars through the SITME market in Venezuela included within operating profit were approximately $6 and $10, respectively. The amounts reported for costs associated with acquiring goods that required settlement in U.S. dollars through the SITME market in Venezuela included within operating profit for the three and six months ended June 30, 2011, were approximately $4 and $8. Additionally, if the exchange rate in the SITME market is further devalued to a rate of 9.0 Bolívares to the U.S. dollar, or an alternative source of exchange becomes available at an unfavorable rate beyond the rate of 5.7 Bolívares to the U.S. dollar, our results could be negatively impacted, including an immediate charge of approximately $58, as well as higher ongoing costs.

At June 30, 2012, Avon Venezuela had pending requests submitted with an agency of the Venezuelan government for approximately $140 for remittance of dividends and royalties to its parent company in the U.S. These outstanding requests had been periodically submitted between 2005 and 2012.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Europe, Middle East & Africa



	Three Months Ended June 30,										Six Months Ended June 30,
							%/Point Change										%/Point Change
	2012			2011			US$		Constant $		2012			2011			US$		Constant $
Total revenue	$	663.1		$	773.4		(14	)%	(5	)%	$	1,387.7		$	1,531.5		(9	)%	(2	)%
Operating profit	71.3			125.0			(43	)%	(34	)%	127.8			236.0			(46	)%	(39	)%
CTI restructuring	8.1			4.7							12.7			.9
Adjusted Non-GAAP operating profit	79.4			129.7			(39	)%	(30	)%	140.5			236.9			(41	)%	(34	)%

Operating margin	10.8		%	16.2		%	(5.4	)	(4.9	)	9.2		%	15.4		%	(6.2	)	(5.8	)
CTI restructuring	1.2			.6							.9			.1
Adjusted Non-GAAP operating margin	12.0		%	16.8		%	(4.8	)	(4.4	)	10.1		%	15.5		%	(5.4	)	(4.9	)

Active Representatives									(3	)%									(3	)%
Units sold									(7	)%									(4	)%

Amounts in the table above may not necessarily sum due to rounding.

Effective in the second quarter of 2012, the results of Central and Eastern Europe and Western Europe, Middle East & Africa were managed as a single operating segment. Accordingly, Europe, Middle East & Africa amounts include the results of Central and Eastern Europe and Western Europe, Middle East & Africa for all periods presented.

Three Months Ended June 30, 2012

Total revenue declined partially due to unfavorable foreign exchange. On a Constant $ basis, revenue declined 5% due to a decline in Active Representatives as well as lower average order. The region's Constant $ revenue decline was primarily due to declines in Russia, Turkey, and the United Kingdom, partially reflecting a continued weak macroeconomic environment, competition, and executional challenges. As a result, Active Representatives declined in these markets. Constant $ growth in South Africa partially offset these declines.

In Russia, revenue declined 15%, or 6% on a Constant $ basis. In the United Kingdom, revenue declined 10%, or 7% on a Constant $ basis. In Turkey, revenue declined 29%, or 19% on a Constant $ basis, also impacted by lower average order. In South Africa, revenue declined 5%, impacted by unfavorable foreign exchange. On a Constant $ basis, South Africa's revenue grew 12% due to growth in Active Representatives, partially offset by lower average order.

Operating margin was negatively impacted by .6 points as compared to the prior-year period from higher CTI restructuring. Adjusted Non-GAAP operating margin declined 4.8 points, or 4.4 points on a Constant $ basis and was primarily as a result of:


•	a decline of 1.4 points due to lower revenues while continuing to incur overhead expenses that do not vary directly with revenue;


•	a decline of 1.2 points due to higher bad debt expense due primarily to a change in estimate of the collection of our receivables;


•	a decline of 1.0 point from higher brochure costs, of which .6 points was due to an out-of-period adjustment in Poland; and


•	to a lesser extent, a decline of .4 points due to lower gross margin caused primarily by increased product costs in Fashion and Home.

Six Months Ended June 30, 2012

Total revenue declined partially due to unfavorable foreign exchange. On a Constant $ basis, revenue declined 2% due to a decline in Active Representatives, partially offset by higher average order. The region's Constant $ revenue decline was primarily due to declines in Russia, Turkey, and the United Kingdom, partially reflecting a continued weak macroeconomic environment, competition, and executional challenges. As a result, Active Representatives declined in these markets. Growth in South Africa partially offset these declines.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

In Russia, revenue declined 8%, or 2% on a Constant $ basis. In the United Kingdom, revenue declined 8%, or 6%, on a Constant $ basis, with higher average order partially offsetting the decline. In Turkey, revenue declined 22%, or 10% on a Constant $ basis, with higher average order partially offsetting the decline. In South Africa, revenue grew 4%, impacted by unfavorable foreign exchange. On a Constant $ basis, South Africa's revenue grew 19% due to growth in Active Representatives as well as higher average order.

Operating margin was negatively impacted by .9 points as compared to the prior-year period from higher CTI restructuring. Adjusted Non-GAAP operating margin declined 5.4 points, or 4.9 points on a Constant $ basis, primarily as a result of:


•	a decline of 2.0 points to higher bad debt expense primarily due to a higher provision to increase reserves for bad debt in South Africa as a result of growth in new territories, of which 1.0 points was an out-of-period adjustment, and was also impacted by a change in estimate of the collection of our receivables;


•	a decline of 1.9 points related to lower gross margin caused primarily by 1.7 points from higher supply chain costs due to foreign exchange, primarily due to the weakening of the Turkish Lira against the Euro, as well as increased product costs in Fashion and Home; and


•	a decline of .7 points from higher brochure costs, of which .3 points was due to an out-of-period adjustment in Poland.

North America



	Three Months Ended June 30,										Six Months Ended June 30,
							%/Point Change										%/Point Change
	2012			2011			US$		Constant $		2012			2011			US$		Constant $
Total revenue	$	467.4		$	496.7		(6	)%	(5	)%	$	947.0		$	997.1		(5	)%	(5	)%
Operating (loss) profit	(3.9		)	23.5			(117	)%	(116	)%	(.1		)	49.5			(100	)%	(99	)%
CTI restructuring	5.8			8.1							10.2			19.7
Adjusted Non-GAAP operating profit	1.9			31.6			(94	)%	(93	)%	10.1			69.2			(85	)%	(85	)%

Operating margin	(.8		)%	4.7		%	(5.5	)	(5.5	)	—		%	5.0		%	(5.0	)	(4.9	)
CTI restructuring	1.2			1.6							1.1			2.0
Adjusted Non-GAAP operating margin	.4		%	6.4		%	(6.0	)	(5.9	)	1.1		%	6.9		%	(5.8	)	(5.8	)

Active Representatives									(12	)%									(12	)%
Units sold									(4	)%									(1	)%

Amounts in the table above may not necessarily sum due to rounding.

Effective in the second quarter of 2012, the Dominican Republic was included in Latin America whereas in prior periods it had been included in North America. The impact was not material to either segment. Accordingly, North America amounts exclude the results of the Dominican Republic for all periods presented.

Three Months Ended June 30, 2012

The North America segment consists of the North America Avon business and also includes the results of our Silpada business. Revenue in the North America Avon business declined 5% on both a reported and Constant $ basis due to a decline in Active Representatives, partially offset by larger average order which benefited from product mix. Revenue in the North America Silpada business declined 14% on both a reported and Constant $ basis due to a lower average order, partially offset by an increase in Active Representatives. Sales of Beauty products declined 8% on a reported basis and declined 7% on a Constant $ basis. Sales of non-Beauty products declined 6% on a reported basis and declined 5% on a Constant $ basis, primarily impacted by the declines in the North America Silpada business. Additional information on field transformation in our North America Avon operations is discussed in more detail below.

Operating margin benefited .4 points as compared to the prior-year period from lower CTI restructuring. Adjusted Non-GAAP operating margin declined 6.0 points, or 5.9 points on a Constant $ basis, primarily as a result of:


•	a decline of 2.4 points from increased investments in RVP, primarily due to costs related to the One Simple Sales Model implementation in the U.S.;

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)


•	a decline of 1.1 points of lower gross margin caused primarily by 1.8 points from unfavorable mix, partially offset by a benefit of out-of-period adjustments associated with vendor liabilities of 1.1 points;


•	a decline of .9 points from higher brochure costs;


•	a decline of .8 points due to higher overhead primarily caused by a benefit in 2011 of 1.5 points due to a reduction in the estimated fair value of an earnout provision recorded in connection with the Silpada acquisition. This was partially offset by lower overhead in the North America Avon business primarily related to the redistricting associated with the One Simple Sales Model implementation;


•	a decline of .6 points due to higher selling commissions due to the One Simple Sales Model implementation; and


•	a benefit of .5 points due to lower advertising.

Six Months Ended June 30, 2012

The North America segment consists of the North America Avon business and also includes the results of our Silpada business. Revenue in the North America Avon business declined 5% on both a reported and Constant $ basis due to a decline in Active Representatives, partially offset by larger average order which benefited from product mix, as well as increased Smart Value and giftable offerings in the first quarter. Revenue in the North America Silpada business declined 16%, or 15% on a Constant $ basis, due to lower average order. Sales of Beauty products declined 4%, on both a reported and Constant $ basis. Sales of non-Beauty products declined 8% on a reported basis and 7% on a Constant $ basis, primarily impacted by the declines in the North America Silpada business, partially offset by the giftable offerings of the North America Avon business primarily in the first quarter.

Operating margin benefited .9 points as compared to the prior-year period from lower CTI restructuring. Adjusted Non-GAAP operating margin declined 5.8 points on both a reported and Constant $ basis, primarily as a result of:


•	a decline of 2.6 points from increased investments in RVP, primarily due to costs related to the One Simple Sales Model implementation in the U.S.;


•	a decline of 2.2 points of lower gross margin caused primarily by 2.1 points from the negative impact of mix and pricing, and .9 points from higher supply chain costs due to transportation and increased product costs partly due to inflationary pressures, partially offset by a benefit of out-of-period adjustments associated with vendor liabilities of .5 points;


•	a decline of .8 points from higher brochure costs;


•	a decline of .5 points of higher selling commissions due to the One Simple Sales Model implementation; and


•	a decline of .3 points due to higher overhead primarily caused by a benefit in 2011 of .7 points due to a reduction in the estimated fair value of an earnout provision recorded in connection with the Silpada acquisition. This was partially offset by lower overhead in the North America Avon business primarily related to the redistricting associated with the One Simple Sales Model implementation.

Within the North America Avon business, we are continuing to focus on field transformation as we have begun the move to a stronger multi-level leadership structure, as well as simplifying and enhancing the earnings opportunity for Representatives. As we focus on field transformation and redistricting, we continue to expect variability in our financial results through 2012.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Asia Pacific



	Three Months Ended June 30,										Six Months Ended June 30,
							%/Point Change										%/Point Change
	2012			2011			US$		Constant $		2012			2011			US$		Constant $
Total revenue	$	218.4		$	226.4		(4	)%	(2	)%	$	440.1		$	453.7		(3	)%	(3	)%
Operating profit	11.1			16.6			(33	)%	(33	)%	26.5			36.5			(27	)%	(29	)%
CTI restructuring	4.1			—							4.8			(.5		)
Adjusted Non-GAAP operating profit	15.2			16.6			(8	)%	(8	)%	31.3			36.0			(13	)%	(15	)%

Operating margin	5.1		%	7.3		%	(2.2	)	(2.3	)	6.0		%	8.0		%	(2.0	)	(2.1	)
CTI restructuring	1.9			—							1.1			(.1		)
Adjusted Non-GAAP operating margin	7.0		%	7.3		%	(.3	)	(.4	)	7.1		%	7.9		%	(.8	)	(.9	)

Active Representatives									(7	)%									(8	)%
Units sold									(6	)%									(5	)%

Amounts in the table above may not necessarily sum due to rounding.

Three Months Ended June 30, 2012

Total revenue declined partially due to unfavorable foreign exchange. On a Constant $ basis, revenue decreased due to a decline in Active Representatives, partially offset by higher average order. The region's revenue and Active Representatives declines were primarily due to continued weakness in China. Revenue in China declined 21%, or 23% in Constant $. Our China operations are discussed in more detail below. Revenue in the Philippines grew 8%, or 7% in Constant $, driven primarily by growth in Active Representatives.

Operating margin was negatively impacted by 1.9 points as compared to the prior-year period from higher CTI restructuring. Adjusted Non-GAAP operating margin declined .3 points, or .4 points on a Constant $ basis, primarily as a result of:


•	a decline of 1.3 points due to lower revenues while continuing to incur overhead expenses that do not vary directly with revenue;


•	a decline of .9 points of lower gross margin caused primarily by 1.3 points from the negative impact of mix due to weakness in skincare and .4 points from foreign exchange. Gross margin was also impacted by a benefit of .6 points from lower supply chain costs due to cost savings initiatives, which were partially offset by increased product costs due to higher labor costs;


•	a decline of .7 points of higher bad debt expense which was a result of growth in developing markets coming from new Representatives;


•	a benefit of 1.4 points from lower investments in RVP; and


•	a benefit of 1.1 points due to lower advertising.

Six Months Ended June 30, 2012

Total revenue decreased due to a decline in Active Representatives, partially offset by higher average order. The region's revenue and Active Representatives declines were primarily due to continued weakness in China. Revenue in China declined 18%, or 21% in Constant $. Revenue in the Philippines grew 7%, or 6% in Constant $, driven primarily by growth in Active Representatives.

Operating margin was negatively impacted by 1.1 points as compared to the prior-year period from lower CTI restructuring. Adjusted Non-GAAP operating margin declined .8 points, or .9 points on a Constant $ basis, primarily as a result of:


•	a decline of 1.8 points due to lower revenues while continuing to incur overhead expenses that do not vary directly with revenue;


•	a decline of .6 points of lower gross margin caused primarily by 1.1 points from the negative impact of mix and pricing due to weakness in skincare. Gross margin was also impacted by a benefit of .6 points from lower supply chain costs due to cost savings initiatives, which were partially offset by increased product costs due to higher labor costs;

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)


•	a decline of .6 points of higher bad debt expense which was a result of growth in developing markets coming from new Representatives;


•	a benefit of 1.0 point from lower investments in RVP; and


•	a benefit of .6 points due to lower advertising.

As we have previously disclosed, our transition to a direct-selling business in China has faced greater than expected challenges. It has become apparent that our service centers tend to exhibit a retail mind-set, which is an integral part of our business. We plan to support both retail and direct selling in the short-term while we analyze our long-term strategic plan. Changes to our long-term strategic plan may impact our expectations of future financial performance. A decline in expected future cash flows and growth rates may increase the possibility of a non-cash impairment charge for goodwill. The goodwill associated with China was approximately $81 at June 30, 2012.

Global Expenses



	Three Months Ended June 30,								Six Months Ended June 30,
	2012			2011			% Change		2012			2011			% Change
Total global expenses	$	188.1		$	172.3		9	%	$	353.6		$	340.3		4	%
Allocated to segments	(121.3		)	(127.9		)	(5	)%	(231.8		)	(244.2		)	(5	)%
Net global expenses	$	66.8		$	44.4		50	%	$	121.8		$	96.1		27	%
CTI restructuring	13.1			(1.9		)			26.0			7.8
Adjusted Non-GAAP net global expenses	$	53.7		$	46.3		16	%	$	95.8		$	88.3		8	%

Amounts in the table above may not necessarily sum due to rounding.

Three Months Ended June 30, 2012

Total global expenses increased primarily due to higher costs to implement restructuring initiatives and higher professional and related fees associated with the FCPA investigation and compliance reviews, partially offset by lower marketing costs. Amounts allocated to segments decreased primarily due to a decrease in costs associated with initiatives more specifically benefiting the segments as compared to global initiatives. Professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein, amounted to approximately $31.3, as compared to approximately $22.1 in the prior year period. While these fees are difficult to predict, they are expected to continue and may vary during the course of this investigation. These fees were not allocated to the segments. Please see "Risk Factors" contained in our Form 10-K for the year ended December 31, 2011 and Note 5 to the consolidated financial statements included herein, for more information regarding the FCPA investigation and other related matters.

Six Months Ended June 30, 2012

Total global expenses increased primarily due to higher costs to implement restructuring initiatives, higher professional and related fees associated with the FCPA investigation and compliance reviews, and higher expenses associated with management incentive programs, partially offset by lower marketing costs and lower benefit-related costs. Amounts allocated to segments decreased primarily due to a decrease in costs associated with initiatives more specifically benefiting the segments as compared to global initiatives. Professional and related fees associated with the FCPA investigation and compliance reviews described in Note 5 to the consolidated financial statements included herein, amounted to approximately $54.7, as compared to approximately $44.6 in the prior year period. While these fees are difficult to predict, they are expected to continue and may vary during the course of this investigation. These fees were not allocated to the segments. Please see "Risk Factors" contained in our Form 10-K for the year ended December 31, 2011 and Note 5 to the consolidated financial statements included herein, for more information regarding the FCPA investigation and other related matters.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds historically have been cash flows from operations, commercial paper, borrowings under lines of credit, public offerings of notes, and a private placement. As disclosed in the Latin America Segment Review, at June 30, 2012 , we held cash balances associated with our Venezuela operations denominated in Bolívares amounting to approximately $225.8 when translated at the official exchange rate. Currency restrictions enacted by the Venezuelan government have impacted our ability to repatriate dividends and royalties from our Venezuelan operations. We currently believe that existing cash outside of Venezuela, as well as cash to be generated from operations outside of Venezuela along with available sources of public and private financing are adequate to meet the Company’s anticipated requirements for general corporate needs. Substantially all of our cash and cash equivalents are held outside of the U.S., as it relates to undistributed earnings of certain foreign subsidiaries,

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

a portion of which we intend to reinvest indefinitely in our foreign subsidiaries. If these indefinitely reinvested earnings were distributed to the U.S. parent as dividends, we may be subject to additional taxes. With respect to 2012, we have decided to not indefinitely reinvest any current year earnings of our foreign subsidiaries.

We may, from time to time, seek to repurchase our equity or to retire our outstanding debt in open market purchases, privately negotiated transactions, derivative instruments or otherwise.

Retirements of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material. We may also elect to incur additional debt or issue equity or convertible securities to finance ongoing operations, acquisitions or to meet our other liquidity needs.

Any issuances of equity securities or convertible securities could have a dilutive effect on the ownership interest of our current shareholders and may adversely impact earnings per share in future periods.

Our liquidity could also be impacted by dividends, capital expenditures, acquisitions, and certain contingencies described more fully in Note 5, Contingencies, to our consolidated financial statements included herein. At any given time, we may be in discussions and negotiations with potential acquisition candidates. Acquisitions may be accretive or dilutive and by their nature involve numerous risks and uncertainties. See our Cautionary Statement for purposes of the “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995.

Cash Flows

Net Cash Provided by Operating Activities

During the first six months of 2012, operating activities provided $41.1 of cash as compared to $101.2 in 2011. Operating cash flow during the first six months of 2012 was negatively impacted by lower cash related net income which was partially offset by improvements in working capital, lower contributions to the U.S. pension plan, and a payment in 2011 associated with a long-term incentive compensation plan of $36.

Net Cash Used by Investing Activities

Net cash used by investing activities during the first six months of 2012 was $92.2 lower than during the first six months of 2011, primarily due to lower capital expenditures, which declined by $56.8, as 2011 included higher investment associated with new distribution facilities in Latin America. In addition, 2012 benefited from lower purchases of short-term investments.

Net Cash Provided/Used by Financing Activities

Net cash provided by financing activities of $65.4 during the first six months of 2012 compared favorably to cash used by financing activities of $122.9 during the first six months of 2011 primarily due to proceeds of $500.0 related to the term loan agreement entered into during the second quarter of 2012, as well as the scheduled repayment of our $500.0 principal notes in 2011. The first six months of 2012 also benefited from proceeds of $43.6 related to the termination of two of our interest-rate swap agreements designated as fair value hedges. See Note 11, Derivative Instruments and Hedging Activities for further details. Partially offsetting these favorable cash flow impacts were lower issuances of commercial paper.

We maintained our quarterly dividend payments at $0.23 per share in 2012 and 2011.

Capital Resources

We maintain a $1 billion revolving credit facility, which expires in November 2013. As discussed below, the $1 billion available under the credit facility is effectively reduced to the extent of any commercial paper outstanding. The credit facility contains various covenants, including a financial covenant that requires our interest coverage ratio to equal or exceed 4:1, lien covenant, events of default and cross-default provisions. The interest coverage ratio is determined in relation to our consolidated pre-tax income, which is not adjusted for one-time charges such as non-cash impairments or significant currency devaluations, and interest expense, in each case for the period of four fiscal quarters ending on the date of determination. Based on interest rates at June 30, 2012, the full $1 billion facility, less the outstanding commercial paper, could have been drawn down without violating any covenant.

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Our interest coverage ratio, as calculated under both our revolving credit facility and the note purchase agreement of our November 2010 private notes, for the four fiscal quarters ended June 30, 2012 was 4.7:1. We anticipate that we may not be able to comply with the interest coverage ratio covenant for the four fiscal quarters ending September 30, 2012, primarily due to the inclusion of a non-cash impairment charge of $263.0 associated with the Silpada business. The non-cash impairment charge had an adverse impact on our interest coverage ratio as of June 30, 2012 of 2.7 points. Accordingly, we have obtained waivers from the lenders under our revolving credit facility and our private noteholders to exclude the non-cash impairment charge associated with the Silpada business recorded during the fourth quarter of 2011 from our interest coverage ratio calculation for the four fiscal quarters ending September 30, 2012. With such waivers, we currently anticipate that we will be in compliance with the interest coverage ratio covenants in the revolving credit facility and the note purchase agreement for the four fiscal quarters ending September 30, 2012. In connection with the waiver to the note purchase agreement, we entered into a letter agreement with the holders of the private notes pursuant to which we agreed, among other things, to amend the note purchase agreement no later than August 15, 2012 to add a leverage ratio covenant, add a most favored lender provision and to amend the interest coverage ratio. The letter agreement is more fully described in “Part II. Item 5. Other Information” of this Form 10-Q.

We also maintain a $1 billion commercial paper program, which is supported by the credit facility. Under this program, we may issue from time to time unsecured promissory notes in the commercial paper market in private placements exempt from registration under federal and state securities laws, for a cumulative face amount not to exceed $1 billion outstanding at any one time and with maturities not exceeding 270 days from the date of issue. The commercial paper short-term notes issued under the program are not redeemable prior to maturity and are not subject to voluntary prepayment. Outstanding commercial paper effectively reduces the amount available for borrowing under the credit facility. At June 30, 2012, there was $330.1 outstanding under this program. In 2012, the demand for the Company's commercial paper has declined, partially impacted by rating agency action with respect to the Company. For more information regarding risks associated with our ability to access certain debt markets, including the commercial paper market, see “Risk Factors - A general economic downturn, a recession globally or in one or more of our geographic regions or sudden disruption in business conditions or other challenges may adversely affect our business and our access to liquidity and capital” included in Item 1A of our 2011 Form 10-K.

On June 29, 2012, the Company entered into a $500.0 Term Loan Agreement (the "Term Loan"). The Term Loan is subject to a possible one-time increase of principal on or prior to August 2, 2012, for which the Company intends to draw down an incremental $50.0 of principal. The Company is required to repay on June 29, 2014, an amount equal to twenty-five percent of the aggregate principal amount of the loans and on June 29, 2015, the then outstanding aggregate principal amount of the loans made under the Term Loan. At June 30, 2012, $500.0 was outstanding under the Term Loan. Amounts borrowed under the Term Loan and repaid or prepaid may not be reborrowed. Borrowings under the Term Loan bear interest at a rate per annum, which will be, at the Company's option, either LIBOR plus an applicable margin or a floating base rate plus an applicable margin, in each case subject to adjustment based on the credit ratings of the Company. The Term Loan is available for general corporate purposes, including funding or making payments for the debt of the Company or any of its subsidiaries and funding loans from the Company to any of its subsidiaries. The Term Loan contains various covenants, including a financial covenant that requires our interest coverage ratio (determined in relation to our consolidated net income adjusted for interest expense, taxes, and non-cash expenses) to equal or exceed 4:1, as well as a financial covenant that requires our maximum leverage ratio (determined in relation to our consolidated net income adjusted for interest expense, taxes, non-cash expenses, and depreciation and amortization expense) to not be greater than 4:1 up to March 31, 2013, 3.75:1 up to December 31, 2013, and 3.5:1 on March 31, 2014 and thereafter, and includes cross-default provisions.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT STRATEGIES

Interest Rate Risk

We use interest rate swaps to manage our interest rate exposure. The interest rate swaps are used to either convert our fixed rate borrowing to a variable interest rate or to unwind an existing variable interest rate swap on a fixed rate borrowing. At June 30, 2012 and December 31, 2011, we held interest-rate swap agreements that effectively converted approximately 61% and 74% , respectively, of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR. Our total exposure to floating interest rates was 72% at June 30, 2012 and 82% at December 31, 2011.

Foreign Currency Risk

We conduct business globally, with operations in various locations around the world. We derive approximately 83% of our consolidated revenue from operations of subsidiaries outside of the U.S. The functional currency for most of our foreign

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

operations is the local currency. We may reduce our exposure to fluctuations in cash flows associated with changes in foreign exchange rates by creating offsetting positions through the use of derivative financial instruments.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements in this report that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “forecast,” “plan,” “believe,” “may,” “expect,” “anticipate,” “intend,” “planned,” “potential,” “can,” “expectation” and similar expressions, or the negative of those expressions, may identify forward-looking statements. Such forward-looking statements are based on management’s reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause the actual results, levels of activity, performance or achievement of Avon to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management’s expectations. Such factors include, among others, the following:

•

our ability to implement the key initiatives of, and realize the gross and operating margins and projected benefits (in the amounts and time schedules we expect) from, our global business strategy, including our multi-year restructuring programs and other initiatives, product mix and pricing strategies, Enterprise Resource Planning, customer service initiatives, sales and operation planning process, outsourcing strategies, Internet platform and technology strategies, information technology and related system enhancements and cash management, tax, foreign currency hedging and risk management strategies;


•	our ability to realize the anticipated benefits (including any financial projections concerning, for example, future revenue, profit, cash flow and operating margin increases) from our multi-year restructuring programs or other initiatives on the time schedules or in the amounts that we expect, and our plans to invest these anticipated benefits ahead of future growth;


•	the possibility of business disruption in connection with our multi-year restructuring programs or other initiatives;


•	our ability to realize sustainable growth from our investments in our brand and the direct-selling channel;


•	our ability to transition our business in North America, including enhancing our Sales Leadership model and optimizing our product portfolio;


•	a general economic downturn, a recession globally or in one or more of our geographic regions, or sudden disruption in business conditions, and the ability of our broad-based geographic portfolio to withstand an economic downturn, recession, cost inflation, commodity cost pressures, economic or political instability, competitive or other market pressures or conditions;

•

the effect of political, legal, tax and regulatory risks imposed on us in the United States and abroad, our operations or our Representatives, including foreign exchange or other restrictions, adoption, interpretation and enforcement of foreign laws, including in non-U.S. jurisdictions such as Brazil, Russia, Venezuela and Argentina, and any changes thereto, as well as reviews and investigations by government regulators that have occurred or may occur from time to time, including, for example, local regulatory scrutiny in China;


•	our ability to effectively manage inventory and implement initiatives to reduce inventory levels, including the potential impact on cash flows and obsolescence;


•	our ability to achieve growth objectives, particularly in our largest markets, such as the U.S., and developing and emerging markets, such as Brazil or Russia;


•	our ability to successfully identify new business opportunities and identify and analyze acquisition candidates, secure financing on favorable terms and negotiate and consummate acquisitions as well as to successfully integrate or manage any acquired business;

•

the challenges to our businesses, such as Silpada and China, including the effects of rising costs, macro-economic pressures, competition, any potential strategic decisions, and the impact of declines in expected future cash flows and growth rates, and a change in the discount rate used to determine the fair value of expected future cash flows, which have impacted, and may continue to impact, the estimated fair value of the recorded goodwill and intangible assets;


•	the effect of economic factors, including inflation and fluctuations in interest rates and currency exchange rates, as well as the designation of Venezuela as a highly inflationary economy, foreign exchange restrictions and the potential effect of such factors on our business, results of operations and financial condition;


•	general economic and business conditions in our markets, including social, economic and political uncertainties in the international markets in our portfolio;

AVON PRODUCTS, INC.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

•

any developments in or consequences of investigations and compliance reviews, and any litigation related thereto, including the ongoing internal investigation and compliance reviews of Foreign Corrupt Practices Act and related U.S. and foreign law matters in China and additional countries, as well as any disruption or adverse consequences resulting from such investigations, reviews, related actions or litigation;


•	key information technology systems, process or site outages and disruptions;


•	disruption in our supply chain or manufacturing and distribution operations;


•	other sudden disruption in business operations beyond our control as a result of events such as acts of terrorism or war, natural disasters, pandemic situations, large-scale power outages and similar events;


•	the risk of product or ingredient shortages resulting from our concentration of sourcing in fewer suppliers;


•	the quality, safety and efficacy of our products;


•	the success of our research and development activities;


•	our ability to attract and retain key personnel;


•	competitive uncertainties in our markets, including competition from companies in the cosmetics, fragrances, skincare and toiletries industry, some of which are larger than we are and have greater resources;

•

our ability to implement our Sales Leadership program globally, to generate Representative activity, to increase the number of consumers served per Representative and their engagement online, to enhance the Representative and consumer experience and increase Representative productivity through field activation programs, execution of Service Model Transformation and other investments in the direct-selling channel, and to compete with other direct-selling organizations to recruit, retain and service Representatives and to continue to innovate the direct-selling model;


•	the impact of the typically seasonal nature of our business, adverse effect of rising energy, commodity and raw material prices, changes in market trends, purchasing habits of our consumers and changes in consumer preferences, particularly given the global nature of our business and the conduct of our business in primarily one channel;


•	our ability to protect our intellectual property rights;


•	the risk of an adverse outcome in any material pending and future litigations or with respect to the legal status of Representatives;


•	our ratings, our access to cash and short and long-term financing and ability to secure financing, or financing at attractive rates;


•	our ability to comply with certain covenants in our debt instruments, including the impact of any significant non-cash impairments, significant currency devaluations, significant legal or regulatory settlements, or obtain necessary waivers from compliance with, or necessary amendments to, such covenants, and the impact any non-compliance may have on our ability to secure financing;


•	the impact of possible pension funding obligations, increased pension expense and any changes in pension regulations or interpretations thereof on our cash flow and results of operations; and


•	the impact of changes in tax rates on the value of our deferred tax assets.

Additional information identifying such factors is contained in Item 1A of our 2011 Form 10-K for the year ended December 31, 2011 . We undertake no obligation to update any such forward-looking statements.

AVON PRODUCTS, INC.

ITEM 3. QUANTITATIVE AND QUALITATAIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in market risk from the information provided in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of our 2011 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our principal executive and principal financial officers carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon their evaluation, the principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of June 30, 2012 , at the reasonable assurance level. Disclosure controls and procedures are designed to ensure that information relating to Avon (including our consolidated subsidiaries) required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to management to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

Our management has evaluated, with the participation of our principal executive and principal financial officers, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, our management has concluded that no such changes have occurred.

We are implementing an enterprise resource planning (“ERP”) system on a worldwide basis, which is expected to improve the efficiency of our supply chain and financial transaction processes. The implementation is expected to occur in phases over the next several years. The implementation of a worldwide ERP system will likely affect the processes that constitute our internal control over financial reporting and will require testing for effectiveness.

We completed implementation in certain significant markets and will continue to roll-out the ERP system over the next several years. As with any new information technology application we implement, this application, along with the internal controls over financial reporting included in this process, were tested for effectiveness prior to and concurrent with the implementation in these countries. We concluded, as part of our evaluation described in the above paragraph, that the implementation of ERP in these countries is not reasonably likely to materially affect our internal control over financial reporting.

AVON PRODUCTS, INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 5, Contingencies, of the Notes to Consolidated Financial Statements.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The table below sets forth the information with respect to purchases made by or on behalf of the Company of its common stock during the quarterly period ended June 30, 2012 .



	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs ⁽¹⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
4/1 - 4/30/12	12,135	⁽²⁾	$	20.78	—	$	1,819,513,000
5/1 - 5/31/12	17,227	⁽³⁾	19.86		16,549	1,819,184,000
6/1 - 6/30/12	20,511	⁽²⁾	15.79		—	1,819,184,000
Total	49,873		$	18.41	16,549


(1)	All of the shares purchased during the second quarter as part of our $2.0 billion share repurchase program, publicly announced on October 11, 2007, consist of shares purchased in private transactions from a broker in connection with stock based obligations under our Deferred Compensation Plan. The program commenced on December 17, 2007 and is scheduled to expire on December 17, 2012.


(2)	All shares were repurchased by the Company in connection with employee elections to use shares to pay withholding taxes upon the vesting of their restricted stock units.


(3)	Includes 16,549 shares repurchased under our publicly announced program and 678 shares that were repurchased by the Company in connection with employee elections to use shares to pay withholding taxes upon the vesting of their restricted stock units.

ITEM 5. OTHER INFORMATION


•	Charles Herington, Executive Vice President, Developing Market Group, will be leaving the Company effective as of September 1, 2012.

As previously disclosed, Mr. Herington's employment letter agreement with the Company, dated as of November 18, 2005, as amended on November 7, 2008, provides for, among other things, separation benefits. Consistent with this letter agreement, the Company entered into an agreement with Mr. Herington on July 30, 2012 (the "Separation Agreement") providing for his departure and his compliance with certain nonsolicitation, non-competition, confidentiality, non-disparagement, and cooperation provisions. The Separation Agreement also provides for 24 months of base salary, pro-rated annual and long-term bonuses in accordance with the terms of the applicable bonus and stock plans, and continued participation in medical and other benefit programs, as well as the continuation of certain perquisites and stock option vesting, for specified periods of time. In consideration for agreeing to an extended non-competition and non-solicitation period, Mr. Herington will receive a lump-sum cash payment of $300,000. The Separation Agreement also includes Mr. Herington's general release of claims against the Company.

The foregoing does not constitute a complete summary of the terms of the Separation Agreement, and reference is made to the complete text of the agreement, which is attached hereto as Exhibit 10.4 to this Form 10-Q and incorporated by reference herein.

•

On July 31, 2012, we received a waiver (the “Credit Facility Waiver”) from our lenders under the Revolving Credit and Competitive Advance Facility Agreement of November 2, 2010 (the “Revolving Credit Facility”). As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, in the fourth quarter of 2011, we recorded a non-cash charge of $263.0 million to adjust goodwill and indefinite-lived intangible assets related to our Silpada business (the

AVON PRODUCTS, INC.

“Silpada Non-cash Charge”). The Credit Facility Waiver allows us to exclude the Silpada non-cash impairment charge from our calculation of the interest coverage ratio under the Revolving Credit Facility solely for the calculation of the interest coverage ratio as of September 30, 2012 and permits us to add the Silpada Non-cash Charge to the consolidated pre-tax income of the Company and its consolidated subsidiaries for purposes of such calculation.

In addition, on July 31, 2012, we received a waiver (the “Note Purchase Agreement Waiver”) from the holders of the notes issued under the Note Purchase Agreement of November 23, 2010 (the “Note Purchase Agreement”). The Note Purchase Agreement Waiver allows us to exclude the Silpada Non-cash Charge from our calculation of the interest coverage ratio under the Note Purchase Agreement solely for the calculation of the interest coverage ratio as of September 30, 2012 and permits us to add the Silpada Non-cash Charge to the consolidated pre-tax income of the Company and its consolidated subsidiaries for purposes of such calculation. In connection with the Note Purchase Agreement Waiver, on July 31, 2012, we executed a Letter Agreement for the benefit of the holders of the notes under the Note Purchase Agreement pursuant to which we agreed to (a) pay to each holder of notes under the Note Purchase Agreement a fee in an amount equal to 10 basis points of the outstanding principal amount of its notes on August 1, 2012, and (b) amend the Note Purchase Agreement no later than August 15, 2012 to (i) add a leverage ratio cov enant, (ii) add a most favored lender provision, (iii) add a 150 basis point step up of the applicable coupon if our unsecured and unsubordinated debt is not rated above investment grade by a certain number of rating agencies, (iv) covenant that, if requested by the holders of the notes, we arrange a quarterly call among the holders of the notes and our Chief Financial Officer and/or Treasurer, and (v) amend the interest coverage ratio to add back to our consolidated pre-tax income actual non-cash impairment charges related solely to the Silpada business in an amount not to exceed $125,000,000 in the aggregate (in addition to the Silpada non-cash charge of $263.0 million discussed previously) during the term of the Note Pu rchase Agreement. Additionally, we agreed that in the event any of the requirements set forth in (a) or (b) above in this paragraph are not satisfied on or before the dates set forth and that the holders of the notes are negotiating the amendments provided in (b) above in this paragraph in good faith, the applicable interest rate of the notes shall automatically increase by 200 basis points until all of such requirements have been satisfied.

The description of the Credit Facility Waiver, the Note Purchase Agreement Waiver and the Note Purchase Agreement Letter Agreement is qualified in its entirety by reference to the waivers and letter agreement, which are attached as Exhibits 10.5, 10.6 and 10.7, respectively, to this Form 10-Q and incorporated by reference herein.

ITEM 6. EXHIBITS

See Exhibit Index.

AVON PRODUCTS, INC.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		AVON PRODUCTS, INC.
		(Registrant)

Date:	August 1, 2012	/s/ Robert Loughran
		Robert Loughran
		Vice President and
		Corporate Controller

		Signed both on behalf of the
		registrant and as chief
		accounting officer.

AVON PRODUCTS, INC.

EXHIBIT INDEX



10.1	Letter Agreement dated as of April 4, 2012 between the Company and Ms. McCoy (incorporated by reference to Exhibit 10.1 to Avon's Current Report on Form 8-K filed on April 10, 2012)

10.2	Restricted Stock Unit Award Agreement dated as of April 23, 2012 between the Company and Ms. McCoy

10.3	$500,000,000 Term Loan Agreement, dated as of June 29, 2012, among Avon Products, Inc., Citibank N.A., as Administrative Agent, Citigroup Global Markets Inc., Santander Investment Securities Inc., Goldman Sachs Bank USA and BBVA Compass, as Joint Lead Arrangers and Joint Bookrunners, and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to Avon's Current Report on Form 8-K filed July 5, 2012)

10.4	Separation Agreement dated as of July 30, 2012 between the Company and Charles Herington

10.5	Letter Waiver, dated as of July 31, 2012, to the Revolving Credit and Competitive Advance Facility Agreement, dated as of November 2, 2010, among Avon Products, Inc., Avon Capital Corporation, Citibank, N.A., as Administrative Agent, and certain of the other lenders party thereto

10.6	Letter Waiver, dated as of July 31, 2012, among Avon Products, Inc., Avon Capital Corporation, and certain of the purchasers of its 2.60% Senior Notes, Series A, due November 23, 2015, 4.03% Senior Notes, Series B, due November 23, 2020 and 4.18% Senior Notes, Series C, due November 23, 2022

10.7	Letter Agreement, dated as of July 31, 2012, by Avon Products, Inc. and Avon Capital Corporation to the purchasers of its 2.60% Senior Notes, Series A, due November 23, 2015, 4.03% Senior Notes, Series B, due November 23, 2020 and 4.18% Senior Notes, Series C, due November 23, 2022

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101	The following materials formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.

Exhibit 10.2

[Letterhead of Avon Products, Inc.]

April 23, 2012

Ms. Sherilyn S. McCoy

Chief Executive Officer

Avon Products, Inc.

Restricted Stock Unit Award

Dear Sheri:

Reference is made to your letter agreement (the “Letter”) dated as of April 4, 2012 with Avon Products, Inc. (the “Company”). The Letter provides for the grant to you by the Company of a time-based sign-on award of 200,000 restricted stock units. These restricted stock units are being awarded to you hereunder outside of the provisions of the Company's 2010 Stock Incentive Plan (the “2010 SIP”).

1. Grant of Restricted Stock Unit Award . Pursuant to the terms of the Letter, the Company hereby awards to you 200,000 Restricted Stock Units (the “RSUs”) representing the right to receive in the future 200,000 shares of the Company's common stock (the “Shares”). These RSUs are subject to the terms and conditions set forth below.

2. Nature of RSU; Issuance of Shares . These RSUs represent a right to receive Shares on the Vesting Date(s) (as defined below) but do not represent a current interest in the Shares. If all the terms and conditions hereof are met, then you shall be issued 20% of the total Shares represented by the RSUs on each of first, second, third, fourth and fifth anniversaries of your employment commencement date (“Vesting Date(s)”) or earlier as provided below. In lieu of issuance of Shares, the Company reserves the right to instead make a cash payment to you equal to the fair market value of the Shares determined as of the applicable Vesting Date (or earlier as provided below). The Company is not liable for any decrease of value of the Shares.


3.	Separation from Service .

(a) Severance Termination or Disability . If you incur a separation from service due to a Severance Termination (as defined in the Letter) or after incurrence of a Disability (as defined in the 2010 SIP), then your unpaid RSUs shall become fully vested and the Shares represented thereby shall be issued to you within sixty (60) days after such separation from service, unless you are a “specified employee” as defined in Section 409A of the Internal Revenue Code on the date of separation from service, in which case the Shares shall be issued on the earlier of the first day following six months after the separation from service date or your death.

(b) Death . If you die before the RSUs become fully vested, the unpaid RSUs shall become fully vested and the Shares represented thereby shall be issued to your designated beneficiary (or, if none, your estate) within sixty (60) days after death.

(c) Change in Control . Notwithstanding any other provision herein, in the event of a Change in Control, the vesting and payment of the RSUs shall be governed by the provisions of the 2010 SIP regarding a Change in Control, which are incorporated herein by reference, provided that a “Change in Control Good Reason” as defined in the 2010 SIP shall also include a material breach by the Company of the Letter for which you have provided notice to the Company within 90 days of the initial existence of such material breach and the Company has failed to cure within 30 days thereafter.

(d) Separation from Service Causing Forfeiture . All unvested RSUs are forfeited if you incur a separation from service from the Company (or any subsidiary by which you may be employed) prior to the Vesting Date(s) for reasons other than set forth in this Section 3.

4. Voting; Dividends . You shall not have the right to vote any of the Shares or the right to receive dividends on them prior to the date such Shares are issued to you pursuant to the terms hereof. However, you shall be entitled to “Dividend Equivalent Rights” so that you will receive a cash payment in respect of the Shares in amounts that would otherwise be payable as dividends in respect of the number of Shares represented by unpaid RSUs, when and as dividends are paid.

5. Non-Competition; Non-Solicitation; Confidentiality . You acknowledge and agree that you will be considered a “Selected Exempt Eligible Employee” within the meaning of the Company's Severance Plan and accordingly you will be subject to the noncompetition and nonsolicitation provisions described under Sections 5.5 and 5.6 of the Severance Plan which are incorporated herein by reference. In addition, you shall be subject to the confidentiality provisions of the Letter.

In the event that the Company determined that you have breached any term of this Section 5 or any non-disclosure, non-compete or non-solicitation covenant set forth in any other Company program or policy applicable to you, in addition to any other remedies the Company may have available to it: (i) all unvested RSUs granted hereunder shall be forfeited; (ii) if Shares have been delivered to you in respect of vested RSUs hereunder, then you shall forfeit and return all such Shares so issued to you hereunder; and (iii) if cash has been paid to you in lieu of Shares in respect of vested RSUs hereunder, you shall pay to the Company all such cash so paid in lieu of Shares; provided, however, that if you no longer hold Shares issued to you hereunder, then you shall pay to the Company in cash the fair market value of any such shares on the date such Shares were issued to you hereunder.

6. Compensation Recoupment Policy . The RSUs and the Shares issued (or the cash payment if the Company elected, instead of Shares, to make a cash payment equal to the fair market value of the Shares) in respect of vested RSUs hereunder are subject to the Company's Compensation Recoupment Policy, as it is amended from time to time.

7. Application of Laws . The granting of these RSUs and the delivery of Shares hereunder shall be subject to all applicable laws, rules and regulations. These RSUs may not be sold, tendered, assigned, transferred, pledged or otherwise encumbered. The Company shall not be required to issue or deliver any Shares hereunder unless the issuance and delivery thereof complies with all applicable legal requirements including, without limitation, compliance with the provisions of applicable state securities laws, the Securities Act of 1933, as amended (the

“Securities Act”), the Securities Exchange Act of 1934, as amended, and the requirements of the stock exchanges on which the Shares may be listed. Notwithstanding anything contained herein to the contrary, in the event the disposition of the Shares is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, the Shares shall be restricted against transfer to the extent required by the Securities Act.

8. Grantee Acknowledgements . You acknowledge and agree as follows:

(a) the execution and delivery hereof and the granting of the RSUs hereunder shall not constitute or be evidence of any agreement or understanding, express or implied, on the part of the Company or its subsidiaries to employ you for any specific period;

(b) the award of RSUs hereunder does not entitle you to any benefit other than specifically granted hereunder, nor to any future grants. Any benefits granted hereunder are not part of your compensation for any purpose, including, but not limited to, calculating any severance, resignation, termination, redundancy, end-of-service payments, bonuses, long-service awards, pension, welfare or retirement benefits or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or any of its subsidiaries;

(c) nothing herein shall confer upon you any right to continue in the service of the Company or a subsidiary or interfere in any way with their right to terminate your employment at any time, subject to applicable law and contractual obligations;

(d) neither the Company nor any subsidiary is providing any tax, legal or financial advice or making any recommendation regarding the RSUs or the Shares; and

(e) in consideration of the grant of the RSUs, no claim or entitlement to compensation or damages arises from the forfeiture of RSUs in accordance with the terms hereof or diminution in value of the RSUs or the Shares and you irrevocably release the Company and its subsidiaries from any such claim that may arise. If, notwithstanding the foregoing, any such claim is found by a court of competent jurisdiction to have arisen, then, by accepting the RSUs, you shall be deemed irrevocably to have waived your entitlement to pursue such a claim.

9. Taxes . You irrevocably elect to satisfy any tax withholding required by the Company or its subsidiaries on the date of delivery of any Shares hereunder or on any earlier date on which such tax withholding may be due (“Tax Liability”) by authorizing the Company and any of its subsidiaries to withhold a sufficient number of Shares or cash in lieu thereof from the RSUs or your wages or other compensation to fully satisfy the Tax Liability. Furthermore, you agree to pay the Company or its subsidiaries any amount of the Tax Liability that cannot be satisfied through one of the foregoing methods.

Notwithstanding the foregoing, if, on the applicable Vesting Date or on any earlier date on which the Tax Liability may be due, the delivery of Shares is not made because of Internal Revenue Code Section 409A requirements or for some other reason, you hereby irrevocably elect to satisfy the Tax Liability due on the applicable Vesting Date or on any earlier date on which

such taxes may be due with respect to such Shares for which delivery is being deferred by delivering cash to the Company in an amount sufficient to fully satisfy all the Tax Liability.

Apart from any withholding obligations that may apply to the Company and/or its subsidiaries, you acknowledge and agree that the ultimate responsibility for the Tax Liability is and remains with you. You further acknowledge that: (x) the Company and its subsidiaries make no representations or undertakings regarding the Tax Liability or the receipt of any dividends; (y) the Company and its subsidiaries do not commit to structure the terms of the grant or any other aspect of the RSUs to reduce or eliminate the Tax Liability; and (z) you should consult a tax adviser regarding Tax Liability.

You further acknowledge that the Company shall have no obligation to deliver Shares until the Tax Liability has been fully satisfied by the Company.

10.

Section 409A . This agreement will be interpreted in a manner to comply with the requirements of Internal Revenue Code Section 409A, including delaying payments to a “specified employee” during the six month period following a separation from service to the extent such payment is being made on account of such separation from service, but only to the extent required by Internal Revenue Code Section 409A. The term “separation from service” as used herein shall mean a separation from service as set forth in Internal Revenue Code Section 409A. In no event shall the Company, any of its affiliates, any of its agents, or any member of the Board have any liability for any taxes imposed in connection with a failure to comply with Internal Revenue Code Section 409A.

IN WITNESS WHEREOF, you and the Company, by its duly authorized officer, have executed this Restricted Stock Unit Award.



AVON PRODUCTS, INC.


By:	/s/ Lucien Alziari	/s/ Sherilyn S. McCoy
	Title: SVP, HR	SHERILYN S. McCOY

Exhibit 10.4

July 30, 2012

Personal & Confidential

Mr. Charles M. Herington

[Home Address]

Re: Agreement and Release of Claims

Dear Charles:

This letter confirms the terms of your active employment with Avon Products, Inc. (“Avon” or the “Company”) and confirms the arrangements relating to your transition from the Company. This letter (the “Agreement”) supersedes your offer letter dated November 18, 2005, as amended November 7, 2008 (collectively, the “Original Agreement”).


1.	Separation Date

On August 31, 2012 (the “Separation Date”), you will relinquish your position as Executive Vice President, Developing Market Group and leave employment of the Company. In order to receive any payments under this Agreement, other than unused vacation benefits and two weeks' base salary (the “automatic payment” normally provided by Avon's policy), you must:


A.	satisfy your duties, as determined by the Chief Executive Officer (“CEO”), and work through the Separation Date;


B.	sign and submit this Agreement within 21 days of the date of this Agreement, and you must not revoke the Agreement, within the time specified in the last Paragraph of this Agreement (within 7 days); and


C.	sign and submit the Second General Release on the Separation Date, and you must not revoke the Second General Release within the time specified in the last Paragraph of this Agreement (within 7 days).

If you sign the Agreement and the Second General Release, you will receive benefits under this Agreement in lieu of the automatic payment plus unused accrued vacation pay. Until this Agreement and the Second General Release becomes effective, your Original Agreement still applies.


2.	Payments

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Unused Accrued Vacation: You will receive a payment (less applicable deductions) for any earned, but unused, vacation benefits. This amount will be paid regardless of whether you sign this Agreement or the Second General Release.

Cash payment: In consideration for an extended Noncompetition Period (defined in Paragraph 12(c) below), on September 14, 2012, you will receive a lump sum cash payment equal to $300,000 (less applicable deductions). This payment satisfies the short-term deferral exceptions under Internal Revenue Code Section 409A (“409A”) which exempts such payments from the requirements of 409A if they are paid no later than the March 15 of the calendar year following the calendar year which contains the Separation Date.

Salary Continuation Payments

You will receive salary continuation payments for 24 months (from September 1, 2012 through August 31, 2014 (referred to as the “Salary Continuation Period”)) based upon your current annual salary of $750,000. Avon payroll will calculate the total amount of salary continuation payments payable, in accordance with Avon's normal payroll practices. The salary continuation payments will be paid in equal, bi-weekly installments (less applicable deductions).

Note that for purposes of clarification, the salary continuation payments made from the Separation Date through February 28, 2013 are exempt from the limitations under 409A (because the total payment does not exceed $500,000 and satisfies the other requirements of the separation pay exception under 409A). The salary continuation payments made from March 1, 2013 through August 31, 2014 satisfy the 409A requirement to delay payment to a key employee (top-50 highest-paid at Avon) until six months after your Separation Date. You are on a key employee.

During the Salary Continuation Period, as explained below, you will be permitted to continue to participate in certain of Avon's benefit plans in accordance with the provisions of the relevant plan documents, including any amendments to those plans that may be enacted from time to time, and any applicable elections that you may have on file with Avon. You will not, however, accrue any vacation days during the Salary Continuation Period.

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3. Retirement Plans

PRA : During the Salary Continuation Period, you will continue to be credited with service under the Avon Products, Inc. Personal Retirement Account Plan (the “PRA”) in accordance with the terms of the PRA, including any amendments to the PRA that may be enacted from time to time. This means that you will continue to accrue vesting service. You may begin to receive payments from the PRA in the form you elect in September 2014.

Restoration Plan : Your benefits under the Benefit Restoration Pension Plan of Avon Products, Inc. (the “Restoration Plan”) will be paid in accordance with the terms of the Restoration Plan in the form that you have already elected (80% lump sum, 20% payable in 60 monthly installments). Because you are key employee, your first payment under the Restoration Plan will be made in March 2013.

Avon Personal Savings Account Plan : With respect to the Avon Personal Savings Account Plan (the “PSA”), also known as the 401(k) Plan, you are considered a terminated employee on your Separation Date and are no longer entitled to participate. Upon your Separation Date, you may take a distribution of your benefits immediately. You may roll over the contents of your PSA account into an Individual Retirement Account or other tax-deferred savings account in accordance with applicable tax rules. Any outstanding loans you may have are payable within three months after your Separation Date.

5. Cash Incentive Plans

Annual Incentive Awards : You will be eligible for a 2012 annual incentive award under the Avon Products, Inc. Executive Incentive Plan (the “EIP”). Payments, if any, will be based on achievement of performance measures and will be pro-rated for your period of service through the Separation Date. You will not be entitled to a 2013 or 2014 annual EIP award.

Long-Term Cash Plans: You are currently a participant in the Company's long-term cash incentive plans. Please look at the summary of each plan for details about distributions following a termination of employment. Generally, however:


•	2011 Transition Cash Plan: The Compensation and Management Development Committee (the “CC”), has determined that no benefit will be paid under this plan.


•	2011-2012 Transition Cash Plan : The payment, if any, under the 2011-2012 Transition Cash Plan will be paid in 2014, provided that the

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applicable performance measures have been satisfied. Your payment will be pro-rated 20/36, based upon your Separation Date.


•	LTIP (2011-2013 performance period) : The payment, if any, under the Avon Products, Inc. Long-Term Incentive Cash Plan (the “LTIP”) for the performance period 2011-2013, will be paid in 2014, provided that the applicable performance measures have been satisfied. Your payment will be pro-rated 20/36, based upon your Separation Date.


•	LTIP (2012-2014 performance period) : Because your Separation Date is prior to January 1, 2013, your LTIP award for the 2012-2014 performance period will be forfeited.

As a reminder, both your annual and long-term cash incentive awards are subject to Avon's compensation recoupment policy.

Deferred Compensation Plan : Under the Avon Products, Inc. Deferred Compensation Plan (the “DCP”), distributions will begin in accordance with the terms of the DCP and your elections thereunder. During the Salary Continuation Period, you are not eligible to defer any monies into the DCP. The form and timing of your DCP payment elections are available online at www.mullinconsulting.com . Generally, the first payment will be made in January 2014.


7.	Equity Arrangements

Stock Options

During the Salary Continuation Period, any stock options you may have will continue to vest. All other aspects of your stock options will continue to be governed by the applicable stock option agreement(s) and the stock incentive plan(s). At the end of the Salary Continuation Period, you will have 90 days to exercise your vested options. Option expiration dates on the Morgan Stanley Smith Barney website are the official expiration dates for your options.

RSUs


•	2009 Time-Based RSUs : A pro-rated portion of your 2009 restricted stock units (“RSUs”) will vest on your Separation Date (based upon completed months from the grant date to the Separation Date (37/48)) and will be settled on March 1, 2013, as required by 409A.

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•	2011 PRSU Award : A pro-rated portion of your 2011 performance-restricted RSU (“PRSUs”) will vest on your Separation Date (based upon completed months since January 1, 2011 through the Separation Date (20/36)) and will be settled in 2014, provided that the applicable performance measures have been satisfied.


•	2012 PRSU Award : Because your Separation Date is prior to January 1, 2013, your 2012 PRSU award will be forfeited.

In addition, please ensure that you have accepted all of your RSU grants. Any RSU grants not accepted will not vest and will not settle.

As a reminder, most of your equity arrangements are subject to Avon's compensation recoupment policy and all of you equity agreements are subject to the recoupment terms contained in the award agreements.

Career Transition and Development Services : You will also receive career transition and development services provided by an Avon-approved vendor (the list of approved vendors and contact information will be separately provided to you). Your eligibility for outplacement services will begin on September 1, 2012 and will continue for twelve (12) months, with up to twelve (12) additional one-month extensions, at Avon's discretion.


9.	Health and Welfare Plans

During your Salary Continuation Period, and provided that you are a participant as of your Separation Date with Avon in the applicable plan, you will continue to be eligible to participate in the following benefit plans: Medical, Dental, Vision, Health Savings Account, Employee Assistance Program, Group Life Insurance, Supplemental Life Insurance, Group Accidental Death and Dismemberment (“AD&D”) and Supplemental AD&D. For those plans requiring premium payments, you will be required to pay the same portion of the total premium as an active associate pays. If you elect to continue Medical, Dental and/or Vision coverage, your benefit coverage level will be provided at the benefit coverage level that you previously selected, subject to Avon's right to amend, modify, or terminate such arrangements at any time. But note, however, that because you are considered one of the top 25% highest paid associates at Avon per IRS regulations (if you earn approximately $75,000 or more), you will be paying your entire premiums on an after-tax basis and your Form W-2s will include imputed income equal to value of the subsidized premiums being provided by Avon, as required by the Internal Revenue Code. Because of this required tax treatment, the cost to you of continuing coverage may be substantially

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higher than while you were actively employed. You may wish to consult a tax advisor to see how this change may impact you.

Pursuant to 409A, the following rules apply to your continued receipt of the above welfare benefits to the extent those benefits are not exempt from the requirements of 409A: (x) to the extent that any such benefit is provided via reimbursement to you, no such reimbursement will be made by Avon later than the end of the year following the year in which the underlying expense is incurred; (y) any such benefit provided by Avon in any year will not be affected by the amount of any such benefit provided by Avon in any other year; and (z) under no circumstances will you be permitted to liquidate or exchange any such benefit for cash or any other benefit.

Your participation in the Short-Term and Long-Term Disability plans, the Flexible Spending Accounts, and the Transit Incentive Plan will cease following your Separation Date (except that you may continue to participate for the remainder of the calendar year in the Health Care Flexible Spending Account in accordance with the federal law known as COBRA, assuming you satisfy the requirements of COBRA and assuming that you elect COBRA). You will receive separate paperwork required to elect COBRA continuation coverage for the Health Care Flexible Spending Account.

If you participate in the Transit Incentive Plan, you will have 90 days after you Separation Date to spend the remaining funds on your WageWorks Transit Commuter Card. At the end of the 90-day period, any post-tax funds remaining on the card will be returned to you and any pre-tax funds will be forfeited. Federal regulations prohibit Avon from returning forfeited funds back to you. For more information please contact WageWorks at 877-924-3967.

In the event that, during the Salary Continuation Period, you should become employed by another employer and are provided with medical and/or dental insurance coverage, you may either drop your Avon coverage or continue your coverage under both plans. Under the second alternative, your coverage will be coordinated between the two plans, with your new employer's plan serving as the primary payer. Employment with another company, however, will not cause any change in your entitlement to salary continuation and continued life insurance coverage. In the event that your health insurance coverage ceases during the Salary Continuation Period due to a “qualifying event,” or due to the expiration of the Salary Continuation Period, you will then be entitled to elect continued coverage under COBRA at your own expense, assuming you satisfy the requirements of COBRA.

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Note that, when your group life insurance coverage terminates, you may be entitled to convert the group coverage to individual life insurance coverage. Please contact MetLife before your group life insurance coverage terminates for details.


10.	Perquisites

Personal Auto and Excess Liability : The Personal Auto and Excess Liability insurance ceases on your Separation D ate.

Executive Health Exam : If you have not already taken a 2012 Executive Health Exam by your Separation Date, you may take still take the exam up to three months after your Separation Date (by November 30, 2012).

Home Security : You will be entitled to retain your Home Security contract until the end of the annual contract period. Any reimbursements/payments will be made on the last day of any calendar quarter, except that because you are a key employee, the first reimbursement will not be made until the last day of the calendar quarter which is at least six months after your Separation Date (no earlier than March 31, 2013).

Transportation Allowance : You will be entitled to receive a transportation allowance for the three-month period following the Separation Date. Normally this will paid in the same manner as it is paid as when you were an active employee, except that because you are a key employee, you will be paid this benefit in a lump sum payment no earlier than the end of the calendar quarter which is at least six months after your Separation Date, as required by 409A. Therefore, you will not be paid your transportation allowance earlier than March 31, 2013.

Financial Planning and Tax Preparation : You will be eligible for Financial Planning and Tax Preparation services through the last day of the calendar year in which your Salary Continuation Period ends (December 2014). Reimbursements will generally be quarterly on the last day of the quarter. However, because you are a key employee, your first reimbursement will not be made until the end of the calendar quarter which is at least six months after your Separation Date (no earlier than March 31, 2013). Thereafter, reimbursements will be made on a quarterly basis on the last day of the calendar quarter.

SLIP : You will continue to be covered under the Supplemental Life Insurance Program until the end of the Salary Continuation Period.

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Your continued receipt of the above perquisites is subject to the following rules: (x) to the extent that any such perquisite is provided via reimbursement to you, no such reimbursement will be made by Avon later than the end of the year following the year in which the underlying expense is incurred; (y) any such perquisite provided by Avon in any year will not be affected by the amount of any such perquisite provided by Avon in any other year; and (z) under no circumstances will you be permitted to liquidate or exchange any such perquisite for cash or any other benefit


11.	E-Mail and Voicemail : Your e-mail and voicemail will be discontinued as of your Separation Date.


12.	Your Obligations to Avon

In consideration of the benefits being provided to you hereunder, you further agree to the following:

(a)

You will not knowingly use or disclose, directly or through persons interposed, without Avon's prior written consent (which may only be provided by the Chief Executive Officer (“CEO”)), as and from this date, and at any time, any secret, confidential, or proprietary information or knowledge relating to Avon or any of its affiliated companies, and their respective businesses, agents, employees, customers and independent sales representatives, that you obtained or generated during or as a result of your employment at Avon, such as, but not limited to, financial information and projections, marketing information and plans, product formulations, samples, processes, production methods, intellectual property and trade secrets, data, know-how, sales, market development programs and plans, and other types of information not generally available to the public.


(b)	You will not knowingly take any action or make any statement, whether written or oral, whether in public or private, that disparages or defames the goodwill or reputation of Avon, its associated companies, or their directors, officers, and employees.

(c)

You will not, without Avon's prior written consent (which may only be provided by the CEO), during from the date of the Agreement, through February 28, 2015 (the “Noncompetition Period”), directly or indirectly hire, solicit, or aid in the solicitation of, any employee of Avon or an affiliated company, including any solicitation of an employee to leave his or her Avon employment to work for any other employer.

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(d)

Notwithstanding anything else in this Agreement, you will not, during the Noncompetition Period, without Avon's prior written consent (which may only be provided by the Chief Executive Officer), accept employment with, or act as a consultant or independent contractor to, any company engaged in the direct selling business or the beauty business within or outside of the United States including, but not limited to, the following: Amway Corp./Alticor Inc., Beiersdorf (Nivea), De Millus S.A., Ebel Int'l/Belcorp Corp., Faberlic, Forever Living Products LLC USA, Gryphon Development/Limited Brands Inc., Herbalife Ltd., Hermès, Lady Racine/LR Health & Beauty Systems GmbH, L'Oréal Group/Cosmair Inc., Mary Kay Inc., Mistine/Better Way (Thailand) Co. Ltd., Natura Cosmetics S.A., Neways Int'l, NuSkin Enterprises Inc., O Boticário, Oriflame Cosmetics S.A., Reckitt Benckiser PLC, Revlon Inc., Sara Lee Corporation, Shaklee Corp., The Body Shop Int'l PLC, The Estée Lauder Companies Inc., The Procter & Gamble Company, Tupperware Corp., Unilever Group (N.V. and PLC), Virgin Vie, Virgin Ware, Vorwerk & Co. KG/Jafra Worldwide Holdings (Lux) S.à.R.L. Inc., Yanbal Int'l (Yanbal, Unique), or any of their affiliates.

(e)

By signing this Agreement and the Second General Release, you are agreeing that you may be reasonably requested from time to time by Avon: (x) to advise and consult on matters within or related to your expertise and knowledge in connection with the business of Avon; (y) to make yourself available to Avon to respond to requests for information concerning matters involving facts or events relating to Avon; and (z) to assist with pending and future litigation, investigations, arbitrations, and/or other dispute resolution matters. If you provide such consultation during the Noncompetition Period, Avon will only reimburse you for reasonable related out-of-pocket expenses. If you provide such consultation after the Noncompetition Period ends, you shall be paid at your current salary rate for time expended by you at Avon's request on such matters, and shall also receive reimbursement for reasonable out-of-pocket expenses incurred in connection with such assistance. You understand that, with respect to any consultation services provided by you under this paragraph, you will not be credited with any compensation, service or age credit for purposes of eligibility, vesting, or benefit accrual under any employee benefit plan of Avon, unless such employee benefit plan specifically provides for such credit.


(f)	By signing this Agreement and the Second General Release, you acknowledge that you understand that violations of any of the preceding covenants are material and that any violations may result in a forfeiture, at

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Avon's sole discretion, of your benefits and payments under this Agreement (including any lump sum payments and any salary continuation payments, whether or not already paid), but do not relieve you of your continuing obligations under this Agreement. You agree that Avon's remedies at law for any breach by you of the preceding covenants will be inadequate and that Avon will also have the right to obtain immediate injunctive relief so as to prevent any continued breach of any of these covenants, in addition to any other available legal remedies. It is understood that any remedy available at law or in equity shall be available to Avon should the preceding covenants be breached.

13.

Return of Avon Property : On your Separation Date, you agree to promptly deliver to Avon, and not keep in your possession, duplicate, or deliver to any other person or entity, any and all property which belongs to Avon or any of its affiliated companies, including, without limitation, computer hardware and software, cell phones, Blackberrys, iPhones, iPads, Androids, other electronic equipment, keys, credit cards, identification cards, records, data, and other documents and information, including any and all copies of the foregoing.


14.	Employment Inquiries : You understand that, in the event Avon receives any inquiries from prospective employers, it shall be the policy of Avon to respond by advising that Avon's policy is to provide information only as to service dates and positions held.

15.

Entire Agreement and Amendments to Agreement : You acknowledge that the only consideration for both your execution of this Agreement (which includes a general release of claims) and your execution of the Second General Release is what is expressly stated in this document. All other promises or agreements of any kind that have been made by or between the parties or by any other person or entity whatsoever that are related to the subject matter of this Agreement are superseded by this Agreement, except that any nondisclosure, intellectual property protection, non-solicit, non-compete or classified information agreements with the Company continue to apply and any plans (such as the PRA), agreements (such as any equity award agreement), or policies (such as Avon's clawback policy) that are referenced in this Agreement as continuing to be applicable are not superseded. You agree that this Agreement and the Second General Release may not be changed orally, by email, or by any other form of electronic communication, but only by a mutually signed, written agreement.


16.	Severability : You agree that the provisions of this Agreement and the Second General Release are severable. If a provision or any part of a provision is held to be invalid under any law or ruling, the remaining parts of the provision will

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remain valid and in force to the extent allowed by law. All of the remaining provisions of this Agreement and the Second General Release will remain in full force and effect and be enforceable. If any restriction contained in this Agreement or the Second General Release is held to be excessively broad as to duration, activity, or scope, then that restriction will be construed, “blue-penciled” or judicially modified so as to be limited or reduced to the extent required to be enforceable under applicable law.

17.

Voluntary Participation : By signing this Agreement and the Second General Release, you warrant and represent that you have read this entire Agreement and the Second General Release, that you have had an opportunity to consult fully with an attorney, and that you fully understand the meaning and intent of this Agreement and the Second General Release. Further, you knowingly and voluntarily, of your own free will, without any duress, being fully informed, and after due deliberation, accept its terms and sign below as your own free act. You understand that as a result of executing this Agreement and the Second General Release, you will not have the right to assert that Avon or any other Avon Released Party (as defined both in the Agreement in Paragraph 19 below and in the Second General Release) unlawfully terminated your employment or violated any of your rights in connection with your employment.

18.

Governing Law : You agree that this Agreement (which includes a general release of claims) and the Second General Release will be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles, and federal law where applicable. Any action at law or in equity for the enforcement of this Agreement, by either party, shall be instituted only in state or federal court located within the City of New York, State of New York except that, to the extent that Avon is seeking equitable relief to enforce your obligations under this Agreement, Avon may, instead of relying on this jurisdiction provision, seek such relief as provided in the last subparagraph under Your Obligations to Avon .

19.

General Release : In consideration of the benefits herein and the other terms and conditions of this Agreement, you agree, on behalf of yourself and your heirs, executors, administrators, and assigns, to forever release, dismiss, and discharge (except as provided by this Agreement) Avon and its affiliated companies and each of their respective current and former officers, directors, associates, employees, agents, employee benefit plans, employee benefit plan fiduciaries, employee benefit plan trustees, shareholders, and assigns, each and all of them in every capacity, personal and representative (collectively referred to as the “Avon Released Parties”), from any and all actions, causes of action, claims, demands, judgments, charges, contracts, obligations, debts, and liabilities of whatever

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nature (“Claims”), that you and your heirs, executors, administrators, and assigns have or may hereafter have against the Avon Released Parties or any of them arising out of or by reason of any cause, matter, or thing whatsoever from the beginning of the world to the date hereof, including, without limitation:


•	All Claims arising from your employment relationship with Avon and the termination of such relationship;


•	All Claims arising under any federal, state, or local constitution, statute, rule, or regulation, or principle of contract law or common law;


•	All Claims for breach of contract, wrongful discharge, tort, breach of common-law duty, or breach of fiduciary duty;


•	All Claims for violation of laws prohibiting any form of employment discrimination or other unlawful employment practice, including without limitation, as applicable:


◦	The Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§ 2101 et seq.;


◦	Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq.;


◦	The Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq. (the “ADEA”);


◦	The Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq.;


◦	The Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq.;


◦	The Family and Medical Leave Act of 1993, as amended, 29 U.S.C. §§ 2601 et seq. (the “FMLA”);


◦	The Genetic Information Nondiscrimination Act of 2008, as amended, 42 U.S.C. §§ 2000ff et seq.;


◦	The National Labor Relations Act of 1935, as amended, 29 U.S.C. §§ 151 et seq.;

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◦	The New York Human Rights Law, as amended, N.Y. Exec. Law §§ 290 et seq.; the New York City Human Rights Law, as amended, N.Y.C. Admin. Code §§ 8-101 et seq.; and the New York State Worker Adjustment and Retraining Notification Act, as amended, N.Y. Labor Law §§ 860 et seq.;


◦	Any other state's and local government's human rights laws, anti-discrimination laws, and “plant closing”/mini-WARN Act laws;


◦	“Whistleblower” laws and laws protecting “whistleblowers” from retaliation; and


◦	Any other federal, state, or local statute, rule, or regulation;

provided , that you do not release or discharge the Avon Released Parties: (x) from any Claims arising after the date on which you execute this Agreement; (y) from any Claims for a breach by Avon of its obligations under this Agreement; or (z) from any Claims that by law cannot be released or waived. It is understood that the release herein does not release the Avon employee benefit plans from any claims for vested benefits that you have under the terms of any of Avon's employee benefit plans applicable to you. It is further understood that nothing in this release shall preclude or prevent you from challenging the validity of this release solely with respect to any waiver of any Claims arising under the ADEA on or before the date on which you execute this Agreement.

Nothing in this Agreement is to be construed as an admission on behalf of the Avon Released Parties of any wrongdoing with respect to you, any such wrongdoing being expressly denied.

You represent and warrant that you have not filed any complaint, charge, claim, or proceeding against any of the Avon Released Parties before any federal, state, or local agency, court, or other body relating to your employment and the cessation thereof. You agree that, if you or any other person or entity files an action, complaint, charge, claim, or proceeding against any of the Avon Released Parties, you will not seek or accept any monetary, equitable, or other relief in such action, complaint, charge, claim, or proceeding (including without limitation, relief that would provide you with reinstatement to employment with Avon) and that you will take all available steps/procedures to withdraw and/or dismiss the complaint, charge, claim or proceeding.

You acknowledge that Avon has advised you to consult with legal counsel prior to signing this Agreement and the Second General Release. You represent and

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warrant that you fully understand the terms of this Agreement and the Second General Release, and you knowingly and voluntarily, of your own free will, without any duress, being fully informed, and after due deliberation, accept its terms and sign below as your own free act. You understand that, as a result of signing this Agreement and the Second General Release, you will not have the right to assert that Avon or any other Avon Released Party unlawfully terminated your employment or violated any of your rights in connection with your employment.


21.	Additional Representations


(a)	You acknowledge that you have been paid in full (or will be paid in full pursuant to the Company's normal payroll practice policy) for all hours that you have worked for Avon and other than what is provided for in this Agreement, you have no other rights to any other compensation or benefits.


(b)	You further acknowledge that you have not been denied any leave requested under the FMLA or applicable state leave laws and that, to the extent applicable, you have been returned to your job, or an equivalent position, following any FMLA or state leave taken pursuant to the FMLA or state laws.


(c)	You acknowledge, understand and agree you have reported to Avon any work related injury or illness that occurred up to and including the Separation Date.


22.	Compliance with Laws/Tax Treatment : Avon will comply with all payroll/tax withholding requirements and will include in income these benefits as required by law. Avon cannot guarantee the tax treatment of any of these benefits and makes no representation regarding the tax treatment.

23.

Internal Revenue Code Section 409A : The parties hereto have a made a good faith effort to comply with current guidance under 409A. The intent of the parties hereto is that payments and benefits under this Agreement comply with or be exempt from 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith, including, without limitation, that references to “termination of employment” and like terms, with respect to payments and benefits that are provided under a “nonqualified deferred compensation plan” (as defined in 409A) that is not exempt from 409A, will be interpreted to mean “separation from service” (as defined in 409A). In the event that amendments to this Agreement are necessary in order to comply with 409A

Initials CH

Page 15 of 17

Mr. Charles M. Herington

July 30, 2012

or to minimize or eliminate any income inclusion and penalties under 409A ( e.g. , under any document or operational correction program), Avon and you agree to negotiate in good faith the applicable terms of such amendments and to implement such negotiated amendments, on a prospective and/or retroactive basis, as needed. To the extent that any amount payable or benefit to be provided under this Agreement constitutes an amount payable or benefit to be provided under a “nonqualified deferred compensation plan” (as defined in 409A) that is not exempt from 409A, and such amount or benefit is payable or to be provided as a result of a “separation from service” (as defined in 409A), and you are a “specified employee” (as defined in 409A and determined pursuant to procedures adopted by Avon from time to time) on your separation from service date, then, notwithstanding any other provision in this Agreement to the contrary, such payment or benefit will not be made or provided to you before the day after the date that is six (6) months following your separation from service.

Notwithstanding the foregoing, Avon makes no representation to you about the effect of 409A on the provisions of this Agreement and Avon shall have no liability to you in the event that you become subject to taxation under 409A (other than any tax reporting and/or withholding obligations that Avon may have under applicable law).


24.	Advice of Counsel : You acknowledge that you have been and are hereby advised by Avon to consult with an attorney in regard to this matter. You understand that you are responsible for the costs of any such legal services incurred in connection with such consultation.


25.	Communication by Avon . Neither Avon nor its agents will knowingly take any action or make any statement, whether written or oral, whether in public or private, that disparages or defames you or that otherwise could reasonably be expected to affect adversely your personal or professional reputation.

26.

Permissible Time to Sign Agreement and Possible Second General Release . If you do not sign this Agreement and return it to Avon within 21 days after the date of this Agreement and if you do not sign the Second General Release and return it within the time specified , then you will not be entitled to any benefits and your Original Agreement will apply. As long as you sign and return this Agreement within this time period, you will have seven (7) days immediately thereafter to revoke your decision by delivering, within the seven (7) day period, written notice of revocation to the CEO. If you do not revoke your decision during that seven-day period, then this Agreement will become effective on the eighth day. Note that similar revocation rules apply to the Second General Release. If you sign and

Initials CH

Page 16 of 17

Mr. Charles M. Herington

July 30, 2012

return this Agreement and, if Avon requests, the Second General Release within the times specified, each will become effective on the eighth day .

You understand that the present offer is made without prejudice and is conditional upon its unqualified acceptance and the execution and delivery by you of this Agreement and the execution and delivery of the Second General Release. Note that the Agreement includes a confidentiality agreement regarding confidential information obtained while you were in the employ of Avon.

Your signature below signifies: (x) your voluntary acceptance of the terms of this Agreement; (y) your acknowledgement that you are not eligible for benefits under the Avon Products, Inc. Severance Pay Plan (the “Severance Plan”) because the Severance Plan specifically excludes any employee who has an agreement containing severance terms, such as the Original Agreement; and (z) your election to receive benefits hereunder.

A duplicate copy of this Agreement and the Second General Release is attached for your files. Please sign and date both copies of this Agreement, in the spaces provided, returning one copy to Avon and retaining the other copy for your records.

[Signatures on next page]

Initials CH

Page 17 of 17

Mr. Charles M. Herington

July 30, 2012

We thank you for your contributions to Avon, and wish you success with your future career.



		Sincerely,

		AVON PRODUCTS, INC.

		By:	/s/ Sheri S. McCoy
			SHERI S. MCCOY
			CHIEF EXECUTIVE OFFICER

You have carefully reviewed, understood and agree with the terms and conditions specified in this Agreement above. You have signed to indicate your acceptance thereof.





Date:	July 30, 2012	By:	/s/ Charles M. Herington
			CHARLES M. HERINGTON

Initials CH

Exhibit 10.5

[Letterhead of Avon Products, Inc.]

EXECUTION VERSION

LETTER WAIVER

Dated as of July 31, 2012

To the banks, financial institutions

and other institutional lenders

(collectively, the “ Banks ”)

parties to the Credit Agreement

referred to below and to Citibank, N.A.,

as agent (the “ Administrative Agent ”) for the Banks

Ladies and Gentlemen:

We refer to the Revolving Credit and Competitive Advance Facility Agreement, dated as of November 2, 2010 (the “ Credit Agreement ”) among the undersigned and you. Capitalized terms not otherwise defined in this Letter Waiver have the same meanings as specified in the Credit Agreement.

As previously disclosed in API's annual report on Form 10-K for the year ended December 31, 2011, in the fourth quarter of 2011, API recorded a non-cash charge of $263 million to adjust good will and indefinite lived intangible assets related to API's Silpada business (the “ Silpada Non-cash Charge ”). Due to the Silpada Non-cash Charge, as of September 30, 2012, depending upon API's financial result for the third quarter of 2012, API may be unable to comply with the Interest Coverage Ratio covenant set forth in the Credit Agreement. Since it was incurred in the fourth quarter of 2011 and the Interest Coverage Ratio under the Credit Agreement is calculated based on a period of four fiscal quarters ending on the date of determination, the Silpada Non-cash Charge will not be relevant to calculations of the Interest Coverage Ratio for fiscal quarters after the third quarter of 2012.

For purposes of Section 7.02(d) of the Credit Agreement, we hereby request that you waive, and by executing this Letter Waiver you hereby waive, the requirement that we include in the calculation of Interest Coverage Ratio the Silpada Non-cash Charge and permit us, solely for the calculation of the Interest Coverage Ratio as of September 30, 2012, to add back to the consolidated pre-tax income of API and its Consolidated Subsidiaries the Silpada Non-cash Charge.

This Letter Waiver shall become effective as of the date first above written when, and only when, the Administrative Agent shall have received counterparts of this Letter Waiver executed by us and the Required Banks.

The Credit Agreement and the Notes, except to the extent of the waiver specifically provided above, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Except as expressly provided herein, the execution, delivery and effectiveness of this Letter Waiver shall not operate as a waiver of any right, power or remedy of any Bank or the Administrative Agent under the Credit Agreement, or constitute a waiver of any provision of the Credit Agreement.

If you agree to the terms and provisions of this Letter Waiver, please evidence such agreement by executing and returning at least two counterparts of this Letter Waiver to Dovid Duchman, Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022.

This Letter Waiver may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Waiver by telecopier or other electronic means shall be effective as delivery of a manually executed counterpart of this Letter Waiver.

This Letter Waiver shall be governed by, and construed in accordance with, the laws of the State of New York.

Very truly yours,



		AVON PRODUCTS, INC.

		By:	/s/ Richard J. Valone
			Name: Richard J. Valone
			Title: Vice President & Treasurer

		AVON CAPITAL CORPORATION

		By:	/s/ Richard J. Valone
			Name: Richard J. Valone
			Title: Vice President & Treasurer



Agreed as of the date first above written:

CITIBANK, N.A.,
as Administrative Agent and as a Bank

By: /s/ Michael Vondriska
Name: Michael Vondriska
Title: Vice President

BANK OF AMERICA, N.A.

By: /s/ J. Casey Cosgrove
Name: J. Casey Cosgrove
Title: Director

JPMORGAN CHASE BANK, N.A.

By: /s/ Tony Yung
Name: Tony Yung
Title: Executive Director

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., NEW YORK BRANCH

By:
Name:
Title:

DEUTCHE BANK AG NEW YORK BRANCH

By:
Name:
Title:

By:
Name:
Title:

HSBC BANK USA, NATIONAL ASSOCIATION

By: /s/ Alan Vitulich
Name: Alan Vitulich
Title: Vice President



GOLDMAN SACHS BANK USA

By: /s/ Michelle Latzoni
Name: Michelle Latzoni
Title: Authorized Signatory

MORGAN STANLEY BANK, N.A.

By: /s/ Brendan MacBride
Name: Brendan MacBride
Title: Authorized Signatory

BANCO SANTANDER, S.A., NEW YORK BRANCH

By: /s/ Rita Walz-Cuccioli
Name: Rita Walz-Cuccioli
Title: Executive Director

By: /s/ Terence Corcoran
Name: Terence Corcoran
Title: Senior Vice President

BNP PARIBAS

By: /s/ Simone G. Vinocour McKeever
Name: Simone G. Vinocour McKeever
Title: Managing Director

By: /s/ Angela B. Arnold
Name: Angela B. Arnold
Title: Managing Director

BANCO BILBAO VIZCAYA ARGENTARIA ARIA S.A., NEW YORK BRANCH

By: /s/ Paul A. Rodriguez
Name: Paul A. Rodriguez
Title: Vice President

By: /s/ Nietzche Rodricks
Name: Nietzche Rodricks
Title: Executive Director



THE NORTHERN TRUST COMPANY

By: /s/ Daniel J. Boote
Name: Daniel J. Boote
Title: Senior Vice President

U.S. BANK NATIONAL ASSOCIATION

By:
Name:
Title:

Exhibit 10.6

LETTER WAIVER

Dated as of July 31, 2012

To the holders of the Notes

(collectively, “ you ” or the “ Holders ”)

issued pursuant to the Note Purchase Agreement referred to below

Ladies and Gentlemen:

We refer to the Note Purchase Agreement, dated as of November 23, 2010 (the “ Note Purchase Agreement ”), among Avon Products, Inc., a New York corporation (“ us ” or “ API ”), and each of the Holders. Capitalized terms not otherwise defined in this Letter Waiver have the same meanings as specified in the Note Purchase Agreement.

As previously disclosed in API's annual report on Form 10-K for the year ended December 31, 2011, in the fourth quarter of 2011, API recorded a non-cash charge of $263 million to adjust good will and indefinite lived intangible assets related to API's Silpada business (the “ Silpada Non-cash Charge ”). Due to the Silpada Non-cash Charge, as of September 30, 2012, depending upon API's financial result for the third quarter of 2012, API may be unable to comply with the Interest Coverage Ratio covenant set forth in the Note Purchase Agreement. Since it was incurred in the fourth quarter of 2011 and the Interest Coverage Ratio under the Note Purchase Agreement is calculated based on a period of four fiscal quarters ending on the date of determination, the Silpada Non-cash Charge will not be relevant to calculations of the Interest Coverage Ratio for fiscal quarters after the third quarter of 2012.

For purposes of Section 10.1 of the Note Purchase Agreement, we hereby request that you waive, and by executing this Letter Waiver you hereby waive, the requirement that we include in the calculation of Interest Coverage Ratio the Silpada Non-cash Charge and permit us, solely for the calculation of the Interest Coverage Ratio as of September 30, 2012, to add back to the consolidated pre-tax income of API and its Consolidated Subsidiaries the Silpada Non-cash Charge.

This Letter Waiver shall become effective as of the date first above written when, and only when, the Holders shall have received counterparts of this Letter Waiver executed by API, reaffirmed by the Subsidiary Guarantor and the Required Holders, and a letter waiver under the Bank Credit Agreement executed by the Required Banks (as defined in the Bank Credit Agreement) substantially in the form attached hereto as Exhibit A .

The Note Purchase Agreement, the Subsidiary Guaranty and the Notes, except to the extent of the waiver specifically provided above, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Except as expressly provided herein, the execution, delivery and effectiveness of this Letter Waiver shall not, operate as a waiver of any right, power or remedy of any Holder under the Note Purchase Agreement or the Subsidiary Guaranty, or constitute a waiver of any provision of the Note Purchase Agreement or the Subsidiary Guaranty.

API and the Subsidiary Guarantor represent and warrant that no Default or Event of Default has occurred and is continuing under the Note Purchase Agreement as of the date hereof and after giving effect to this Letter Waiver.

If you agree to the terms and provisions of this Letter Waiver, please evidence such agreement by executing and returning at least two counterparts of this Letter Waiver to David McMullen, Chapman and Cutler LLP, 595 Market Street, 26th Floor, San Francisco, CA 94109.

This Letter Waiver shall be governed by, and construed in accordance with, the laws of the State of New York, excluding choice-of-law principles of the law of such State that would prohibit the application of the laws of a jurisdiction other than such State.

Very truly yours,



		AVON PRODUCTS, INC.

		By:	/s/ Richard J. Valone
			Name: Richard J. Valone
			Title: Vice President & Treasurer

		AVON CAPITAL CORPORATION

		By:	/s/ Richard J. Valone
			Name: Richard J. Valone
			Title: Vice President & Treasurer

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		METROPOLITAN LIFE INSURANCE COMPANY
		on behalf of itself and as investment manager of:

		METLIFE INSURANCE COMPANY OF CONNECTICUT
		MISSOURI REINSURANCE (BARBADOS), INC.

		By:	/s/ Judith A. Gulotta
			Name: Judith A. Gulotta
			Title: Managing Director

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		THE NORTHWESTERN MUTUAL LIFE INSURANCE
		COMPANY

		By:	/s/ Timothy S. Collins
			Name: Timothy S. Collins
			Title: Its Authorized Representative

		THE NORTHWESTERN MUTUAL LIFE INSURANCE
		COMPANY FOR ITS GROUP ANNUITY SEPARATE
		ACCOUNT

		By:	/s/ Timothy S. Collins
			Name: Timothy S. Collins
			Title: Its Authorized Representative

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY

		By:	/s/ Ward Clayton Argust III
			Name: Ward Clayton Argust III
			Title: Manager, Investments

		By:	/s/ Tad Anderson
			Name: Tad Anderson
			Title: AVP, Investment

		THE GREAT-WEST LIFE ASSURANCE COMPANY

		By:
			Name:
			Title:

		By:
			Name:
			Title:

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		NEW YORK LIFE INSURANCE COMPANY

		By:
			Name:
			Title:

		NEW YORK LIFE INSURANCE AND ANNUITY
		CORPORATION

			By: New York Life Investment Management
			LLC, Its Investment Manager

		By:
			Name:
			Title:

		NEW YORK LIFE INSURANCE AND ANNUITY
		CORPORATION INSTITUTIONALLY OWNED LIFE
		INSURANCE SEPARATE ACCOUNT (BOLI 30C)

			By: New York Life Investment Management
			LLC, Its Investment Manager

		By:
			Name:
			Title:

		NEW YORK LIFE INSURANCE AND ANNUITY
		CORPORATION INSTITUTIONALLY OWNED LIFE
		INSURANCE SEPARATE ACCOUNT (BOLI 30E)

			By: New York Life Investment Management
			LLC, Its Investment Manager

		By:
			Name:
			Title:

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		FORETHOUGHT LIFE INSURANCE COMPANY

			By: New York Life Investment Management
			LLC, Its Investment Manager

		By:
			Name:
			Title:

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		RGA REINSURANCE COMPANY, a Missouri corporation

		By: Principal Global Investors, LLC, a Delaware
			limited liability company, its authorized
			signatory

		By:	/s/ Adrienne L. McFarland
			Name: Adrienne L. McFarland
			Title: Counsel

		By:	/s/ James C. Fifield
			Name: James C. Fifield
			Title: Assistant General Counsel

		SYMETRA LIFE INSURANCE COMPANY, a Washington
		corporation

		By: Principal Global Investors, LLC, a Delaware
		limited liability company, its authorized signatory

		By:	/s/ Adrienne L. McFarland
			Name: Adrienne L. McFarland
			Title: Counsel

		By:	/s/ James C. Fifield
			Name: James C. Fifield
			Title: Assistant General Counsel

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		NATIONWIDE LIFE INSURANCE COMPANY

		By:
			Name:
			Title:

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY

		By: Babson Capital Management LLC, as Investment Advisor


		By:	/s/ Elisabeth A. Perenick
			Name: Elisabeth A. Perenick
			Title: Managing Director

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		MONY LIFE INSURANCE COMPANY

		By:	/s/ Amy Judd
			Name: Amy Judd
			Title: Investment Officer

		AXA EQUITABLE LIFE INSURANCE COMPANY

		By:	/s/ Amy Judd
			Name: Amy Judd
			Title: Investment Officer

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		UNITED OF OMAHA LIFE INSURANCE COMPANY


		By:	/s/ Justin P. Kavan
			Name: Justin P. Kavan
			Title: Vice President

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		THE OHIO NATIONAL LIFE INSURANCE COMPANY

		By:	/s/ Jed R. Martin
			Name: Jed R. Martin
			Title: Vice President, Private Placements

		OHIO NATIONAL LIFE ASSURANCE CORPORATION

		By:	/s/ Jed R. Martin
			Name: Jed R. Martin
			Title: Vice President, Private Placements

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		TRANSAMAERICA LIFE INSURANCE COMPANY

		By:
			Name:
			Title:

		TRANSAMERICA PACIFIC INSURANCE COMPANY LTD

		By:
			Name:
			Title:

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		CONNECTICUT GENERAL LIFE INSURANCE COMPANY

		By: CIGNA Investments, Inc. (authorized agent)

		By:	/s/ Deborah B. Wiacek
			Name: Deborah B. Wiacek
			Title: Senior Managing Director

		LIFE INSURANCE COMPANY OF NORTH AMERICA

		By: CIGNA Investments, Inc. (authorized agent)

		By:	/s/ Deborah B. Wiacek
			Name: Deborah B. Wiacek
			Title: Senior Managing Director

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		FARM BUREAU LIFE INSURANCE COMPANY

		By:	/s/ Herman L. Riva
			Name: Herman L. Riva
			Title: Securities Vice President

		EQUITRUST LIFE INSURANCE COMPANY

		By:
			Name:
			Title:

[SIGNATURE PAGE FOR LETTER WAIVER]

Agreed as of the date first above written:



		AMERITAS LIFE INSURANCE CORP.
		ACACIA LIFE INSURANCE COMPANY
		THE UNION CENTRAL LIFE INSURANCE COMPANY

		By: Summit Investment Advisors Inc., as Agent

		By:	/s/ Andrew S. White
			Name: Andrew S. White
			Title: Managing Director - Private Placements

[SIGNATURE PAGE FOR LETTER WAIVER]

Exhibit 10.7

LETTER AGREEMENT

Dated as of July 31, 2012

To the holders of the Notes

(collectively, “ you ” or the “ Holders ”)

issued pursuant to the Note Purchase Agreement referred to below

Ladies and Gentlemen:

We refer to the Note Purchase Agreement, dated as of November 23, 2010 (the “ Note Purchase Agreement ”), among Avon Products, Inc., a New York corporation (“ us ” or “ API ”), and each of the Holders. Capitalized terms not otherwise defined in this Letter Agreement have the same meanings as specified in the Note Purchase Agreement.

For good and valuable consideration, including but not limited to the execution and delivery by the holders of the Notes of that Letter Waiver dated as of the date hereof (the “ Letter Waiver ”), API hereby agrees that it shall:

(a) no later than August 1, 2012, pay to each of the holders of the Notes a fee in the amount of 10 basis points of the then outstanding principal amount of the Notes held by such holder and

(b) no later than August 15, 2012,

(i) pay the reasonable fees, costs and expenses of Chapman and Cutler, LLP, special counsel to the Holders, in connection with the Letter Waiver, this Letter Agreement, the transactions contemplated hereby and thereby and as set forth in Section 15.1 of the Note Purchase Agreement, and

(ii) enter into an amendment (together with corporate authorizations, certificates, legal opinions, and reaffirmations of the Subsidiary Guaranty, as reasonably requested by the Required Holders) to the Note Purchase Agreement (in form and substance reasonably satisfactory to the Required Holders and API), amending the Note Purchase Agreement as follows (and the applicable related definitions thereto):

1. The addition of a leverage ratio covenant (the “ Leverage Ratio ”) substantially identical (except as provided below) to the ratio contained in Section 7.01(d) of the Credit Agreement dated as of June 29, 2012 by and among API, certain Subsidiaries of API named therein, Citibank, N.A., as administrative agent, and the other financial institutions party thereto (the “ Term Loan Agreement ”); provided however , the Funded Debt to Consolidated EBITDA ratio for the fiscal quarter ending March 31, 2014 and thereafter shall be 3.75:1.00 unless the Bank Credit Agreement, the Term Loan Agreement or any other principal bank facility or any amendment, restatement, replacement or refinancing thereof contains a ratio more favorable to the holders of the Notes, then such more favorable ratio shall apply;

2. The addition of a most favored lender provision with respect to financial covenants (however expressed) and related definitions contained in the existing Bank Credit Agreement, the Term Loan Agreement or any other principal bank facility and any amendment, restatement, replacement and refinancing thereof, which most favored lender provision shall include the Interest Coverage Ratio and the Leverage Ratio; provided such most favored lender provision shall be a “two

way” provision such that if the covenants contained in the Bank Credit Agreement, Term Loan Agreement or other principal bank facility subject to the most favored lender provision are excluded, terminated, amended, loosened or otherwise modified or if the relevant agreement is terminated and not replaced then such financial covenants shall unconditionally be deemed on the date of execution of any such amendment or modification or termination to be and thereupon shall be so excluded, terminated, loosened or otherwise amended or modified under the Note Purchase Agreement; further provided that in no event shall the Interest Coverage Ratio and the Leverage Ratio be less favorable to the holders of the Notes than the Interest Coverage Ratio contained in the Note Purchase Agreement and the Leverage Ratio described above, in each case, as of the date of this Letter Agreement. In the event that any compensation shall have been paid to the creditors under the Bank Credit Agreement, Term Loan Agreement or other principal bank facility in order to exclude, terminate, amend, loosen or modify such covenant subject to the most favored lender provision as set forth in such Bank Credit Agreement, Term Loan Agreement or other principal bank facility, then a corresponding and pro rata payment of compensation shall be made to the holders of Notes in connection with such exclusion, termination, amendment, loosening or modification of such covenant subject to such most favored lender provision in the Note Purchase Agreement.

3. A 150 basis point increase to the applicable interest rate of the Notes if API's unsecured and unsubordinated Debt is not rated above Investment Grade (a “ Downgrade ”) by (a) two or more of the three Rating Agencies, or (b) one Rating Agency if such Debt is rated by two or less than two Rating Agencies. If after an increase in the interest rate of the Notes a Rating Agency subsequently increases its rating of API's unsecured and unsubordinated Debt to Investment Grade such that such Debt is then rated Investment Grade by two or more of the Rating Agencies or all Rating Agencies (if such Debt is rated by two or less than two Rating Agencies), the interest rate on the Notes will be decreased to the interest rate payable on the Notes on the date of their issuance.

4. The addition of an affirmative covenant requiring API to arrange, if requested by any holder of the Notes, a quarterly call among the holders of the Notes and the Chief Financial Officer and/or Treasurer of API.

5. The definition of “Interest Coverage Ratio” shall be amended to add back to the consolidated pre-tax income of API and its Consolidated Subsidiaries actual non-cash impairment charges related solely to API's Silpada business in an amount not to exceed $125,000,000 in the aggregate during the term of the Note Purchase Agreement. For clarification, this is in addition to the Silpada Non-cash Charge as set forth in the Letter Waiver.

API represents and warrants that no Default or Event of Default has occurred and is continuing under the Note Purchase Agreement as of the date hereof.

Any breach of this Letter Agreement may result in irreparable damage to the holders of the Notes for which holders of the Notes will not have an adequate remedy at law. If any breach of this Letter Agreement has occurred and is continuing, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by action at law, suit in equity or other appropriate proceeding, whether in a suit for damages or for the specific performance of any agreement contained herein or for an injunction against a violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or by law or otherwise. API agrees to pay the costs and expenses of the holders of the Notes (including attorneys' fees) in connection with this Letter Agreement and the enforcement and defense hereof to the same extent as set forth in Section 15.1 of the Note Purchase Agreement.

Additionally, API agrees that in the event any of the requirements set forth in (a) or (b) above are not satisfied on or before the dates set forth therein and that the holders of the Notes are negotiating the amendments provided in (b) above in good faith, the applicable interest rate of the Notes shall automatically increase (without further action) by 200 basis points until all of such requirements have been satisfied and the Note Purchase Agreement and the Notes shall be deemed to be amended to reflect such increase. API also agrees that nothing in this section is intended to limit the rights of the holders of the Notes set forth in the immediate preceding paragraph.

All parties agree that the holders of the Notes (and any permitted successors and assigns under the Note Purchase Agreement) shall be, and is hereby, named as an express beneficiary of this Letter Agreement, with full rights as such and to the same extent as if such holders were signatories hereto.

This Letter Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Agreement by telecopier or other electronic means shall be effective as delivery of a manually executed counterpart of this Letter Agreement.

This Letter Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, excluding choice-of-law principles of the law of such State that would prohibit the application of the laws of a jurisdiction other than such State.



		Very truly yours,

		AVON PRODUCTS, INC.

		By:	/s/ Richard J. Valone
			Name: Richard J. Valone
			Title: Vice President & Treasurer

The Subsidiary Guarantor agrees that the Subsidiary Guaranty shall remain in full force and effect and reaffirms its obligations under the Subsidiary Guaranty.



		AVON CAPITAL CORPORATION

		By:	/s/ Richard J. Valone
			Name: Richard J. Valone
			Title: Vice President & Treasurer

Exhibit 31.1

CERTIFICATION

I, Sherilyn S. McCoy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Avon Products, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2012

/s/ Sherilyn S. McCoy

Sherilyn S. McCoy

Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Kimberly Ross, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Avon Products, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 1, 2012

/s/ Kimberly Ross

Kimberly Ross

Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Avon Products, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sherilyn S. McCoy, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Sherilyn S. McCoy

Sherilyn S. McCoy

Chief Executive Officer

August 1, 2012

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Avon Products, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2012 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kimberly Ross, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kimberly Ross

Kimberly Ross

Executive Vice President and Chief Financial Officer

August 1, 2012