AVON PRODUCTS INC (Form: 10-K, Received: 02/20/2009 14:53:42)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008

¨	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)

(212) 282-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common stock (par value $.25)		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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.

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

The aggregate market value of voting and non-voting Common Stock (par value $.25) held by non-affiliates at June 30, 2008 (the last business day of our most recently completed second quarter) was $15.3 billion.

The number of shares of Common Stock (par value $.25) outstanding at January 31, 2009, was 426,348,493.

Documents Incorporated by Reference

Parts II and III—Portions of the registrant’s Proxy Statement relating to the 2009 Annual Meeting of Shareholders.

Table of Contents


Item		Page
	Part I
Item 1	Business	5–9
Item 1A	Risk Factors	10–16
Item 1B	Unresolved Staff Comments	16
Item 2	Properties	16
Item 3	Legal Proceedings	16
Item 4	Submission of Matters to a Vote of Security Holders	16

	Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17–18
Item 6	Selected Financial Data	19
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20–39
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	39–40
Item 8	Financial Statements and Supplementary Data	40
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40
Item 9A	Controls and Procedures	40–41
Item 9B	Other Information	41

	Part III

Item 10	Directors, Executive Officers and Corporate Governance	42
Item 11	Executive Compensation	42
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
Item 13	Certain Relationships and Related Transactions, and Director Independence	42
Item 14	Principal Accountant Fees and Services	42

	Part IV

Item 15	Exhibits and Financial Statement Schedule	43
	15 (a) 1 Consolidated Financial Statements	43
	15 (a) 2 Financial Statement Schedule	43
	15 (a) 3 Index to Exhibits	43–46
Signatures		47

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 operating margins and projected benefits (in the amounts and time schedules we expect) from our global business strategy, including our multi-year restructuring initiatives, product mix and pricing strategies, enterprise resource planning, customer service initiatives, product line simplification program, sales and operation planning process, strategic sourcing initiative, outsourcing strategies, zero-overhead-growth philosophy, cash flow from operations and cash management, tax, foreign currency hedging and risk management strategies;

•

our ability to realize the anticipated benefits (including any projections concerning future revenue and operating margin increases) from our multi-year restructuring initiatives or other strategic 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 initiatives or other strategic initiatives;

•

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

•

a general economic downturn, a recession globally or in one or more of our geographic regions, such as North America, or sudden disruption in business conditions, and the ability of our broad-based geographic portfolio to withstand such economic downturn, recession or conditions;

•

the inventory obsolescence and other costs associated with our product line simplification program;

•

our ability to effectively implement initiatives to reduce inventory levels in the time period and in the amounts we expect;

•

our ability to achieve growth objectives or maintain rates of growth, particularly in our largest markets and developing and emerging markets;

•

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

•

the effect of political, legal and regulatory risks, as well as foreign exchange or other restrictions, imposed on us, our operations or our Representatives by governmental entities;

•

our ability to successfully transition our business in China in connection with the resumption of direct selling in that market in 2006, our ability to operate using the direct-selling model permitted in that market and our ability to retain and increase the number of Active Representatives there over a sustained period of time;

•

the effect of economic factors, including inflation and fluctuations in interest rates and currency exchange rates, and the potential effect of such fluctuations 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;

•

any consequences of the internal investigation of our China operations;

•

information technology systems outages, disruption in our supply chain or manufacturing and distribution operations, or 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 and large scale power outages;

•

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 and executives;

•

competitive uncertainties in our markets, including competition from companies in the cosmetics, fragrances, skin care 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 enhance the Representative experience and increase Representative productivity through investments in the direct-selling channel, and to compete with other direct-selling organizations to recruit, retain and service Representatives;

•

the impact of the 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 our material pending and future litigations;

•

our ratings and our access to financing and ability to secure financing at attractive rates; and

•

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.

We undertake no obligation to update any such forward-looking statements.

PART I

Dollars in Millions

ITEM 1.

BUSINESS

General

We commenced operations in 1886 and were incorporated in the State of New York on January 27, 1916. We are a global manufacturer and marketer of beauty and related products. We conduct our business in the highly competitive beauty industry and compete against other consumer packaged goods (“CPG”) and direct-selling companies to create, manufacture and market beauty and beauty-related products. Beginning in the fourth quarter of 2008, we changed our product categories from Beauty, Beauty Plus and Beyond Beauty to Beauty, Fashion and Home. Beauty consists of cosmetics, fragrances, skin care and toiletries (“CFT”). Fashion consists of fashion jewelry, watches, apparel, footwear and accessories. Home consists of gift and decorative products, housewares, entertainment and leisure, children’s and nutritional products. Sales from Health and Wellness products and mark. , a global cosmetics brand that focuses on the market for young women, are included among these three categories based on product type.

Unlike most of our CPG competitors, which sell their products through third-party retail establishments (e.g., drug stores, department stores), our business is conducted worldwide primarily in one channel, direct selling. Our reportable segments are based on geographic operations in six regions: Latin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. We also centrally manage Brand Marketing, Supply Chain and Sales organizations. Financial information relating to our reportable segments is included in the “Segment Review” section within Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) on pages 20 through 39 of this 2008 Annual Report on Form 10-K, and in Note 12, Segment Information, on pages F-30 through F-33 of this 2008 Annual Report on Form 10-K. Information about geographic areas is included in Note 12, Segment Information, on pages F-30 through F-33 of this 2008 Annual Report on Form 10-K.

Strategic Initiatives

In November 2005, we launched a comprehensive, multi-year turnaround plan to restore sustainable growth. Our four-point turnaround plan includes:

•

Committing to brand competitiveness by focusing research and development resources on product innovation and by increasing our advertising;

•

Winning with commercial edge by more effectively utilizing pricing and promotion, expanding our Sales Leadership program and improving the attractiveness of our Representative earnings opportunity as needed;

•

Elevating organizational effectiveness by redesigning our structure to eliminate layers of management in order to take full advantage of our global scale and size; and

•

Transforming the cost structure so that our costs are aligned to our revenue growth and remain so.

Over the past three years we have been implementing our turnaround plan through various strategic initiatives, including our multi-year restructuring plan, product line simplification program (“PLS”), strategic sourcing initiative (“SSI”) and investments in advertising and our Representatives. Additional information regarding our strategic initiatives is included in the “Overview” and “Strategic Initiatives” sections within MD&A on pages 20 through 23 and additional information regarding our inventory is included in the “Provisions for Inventory Obsolescence” and “Liquidity and Capital Resources” sections within MD&A on pages 25 and 36 through 39 of this 2008 Annual Report on Form 10-K.

Distribution

We presently have sales operations in 66 countries and territories, including the U.S., and distribute our products in 44 more. Unlike most of our competitors, which sell their products through third party retail establishments (i.e. drug stores, department stores), Avon primarily sells its products to the ultimate consumer through the direct-selling channel. In Avon’s case, sales of our products are made to the ultimate consumer principally through the direct selling by 5.8 million active independent Avon Representatives, approximately 457,000 of whom are in the U.S. Representatives are independent contractors, not employees of Avon. Representatives earn a profit by purchasing products directly from us at a discount from a published brochure price and selling them to their customers, the ultimate consumer of Avon’s products. We generally have no arrangements with end users of our products beyond the Representative, except as described below. No single Representative accounts for more than 10% of our net sales.

A Representative contacts customers directly, selling primarily through the Avon brochure, which highlights new products and special promotions for each sales campaign. In this sense, the Representative, together with the brochure, are the “store” through which Avon products are sold. A brochure introducing a new sales campaign is usually generated every two weeks in the U.S. and every two to four weeks for most markets outside the U.S. Generally, the Representative forwards an order for a campaign to us using the mail, the Internet, telephone, or fax. This order is processed and the products are assembled at a distribution center and delivered to the Representative usually through a combination of local and national delivery companies. Generally, the Representative then delivers the merchandise and collects payment from the customer for his or her own account. A Representative generally receives a refund of the full price the Representative paid for a product if the Representative chooses to return it.

We employ certain electronic order systems to increase Representative support, which allow a Representative to run her or his business more efficiently, and also allow us to improve our order-processing accuracy. For example, in many countries, Representatives can utilize the Internet to manage their business electronically, including order submission, order tracking, payment and two-way communications with Avon. In addition, in the U.S., Representatives can further build their own Avon business through personalized web pages provided by us, enabling them to sell a complete line of our products online. Self-paced online training also is available in certain markets, as well as up-to-the-minute news about Avon.

In the U.S. and selected other markets, we also market our products through consumer websites ( www.avon.com in the U.S.) . These sites provide a purchasing opportunity to consumers who choose not to purchase through a Representative.

In some markets, we use decentralized branches, satellite stores and independent retail operations to serve Representatives and other customers. Representatives come to a branch to place and pick up product orders for their customers. The branches also create visibility for Avon with consumers and help reinforce our beauty image. In certain markets, we provide opportunities to license Avon beauty centers and other retail-oriented opportunities to reach new customers in complementary ways to direct selling.

The recruiting or appointing and training of Representatives are the primary responsibilities of District Sales or Zone Managers and Sales Leadership Representatives. In most markets, District Sales or Zone Managers are employees of Avon and are paid a salary and an incentive based primarily on the achievement of a sales objective by Representatives in their district, while in other markets, those responsibilities are handled by independent contractors. Personal contacts, including recommendations from current Representatives (including the Sales Leadership program), and local market advertising constitute the primary means of obtaining new Representatives. The Sales Leadership program is a multi-level compensation program which gives Representatives, known as Sales Leadership Representatives, the opportunity to earn bonuses based on the net sales made by Representatives they have recruited and trained in addition to discounts earned on their own sales of Avon products. This program limits the number of levels on which commissions can be earned to three and continues to focus on individual product sales by Sales Leadership Representatives. The primary responsibilities of Sales Leadership Representatives are the prospecting, appointing, training and development of their down-line Representatives while maintaining a certain level of their own sales. Development of the Sales Leadership program throughout the world is one part of our long-term growth strategy. As described above, the Representative is the “store” through which we primarily sell our products and given the high rate of turnover among Representatives (a common characteristic of direct selling), it is critical that we recruit, retain and service Representatives on a continuing basis in order to maintain and grow our business. As part of our multi-year turnaround plan, we have initiatives underway to standardize global processes for prospecting, appointing, training and developing Representatives, as well as training and developing our direct-selling executives.

One of our key strategies to recruit and retain Representatives is to invest in the direct-selling channel to improve the reward and effort equation for our Representatives (Representative Value Proposition or “RVP”). We have

allocated significant incremental investment to grow our Representative base, to increase the frequency with which the Representatives order and the size of the order and have undertaken extensive research to determine the pay back on specific advertising and field tools and actions and the optimal balance of these tools and actions in key markets. In addition to a research and marketing intelligence staff, we have employed both internal and external statisticians to develop proprietary fact-based regression analyses using Avon’s vast product and sales history.

From time to time, local governments and others question the legal status of Representatives or impose burdens inconsistent with their status as independent contractors, often in regard to possible coverage under social benefit laws that would require us (and in most instances, the Representatives) to make regular contributions to government social benefit funds. Although we have generally been able to address these questions in a satisfactory manner, these questions can be raised again following regulatory changes in a jurisdiction or can be raised in additional jurisdictions. If there should be a final determination adverse to us in a country, the cost for future, and possibly past, contributions could be so substantial in the context of the volume and profitability of our business in that country that we would consider discontinuing operations in that country.

Promotion and Marketing

Sales promotion and sales development activities are directed at assisting Representatives, through sales aids such as brochures, product samples and demonstration products. In order to support the efforts of Representatives to reach new customers, specially designed sales aids, promotional pieces, customer flyers, television and print advertising are used. In addition, we seek to motivate our Representatives through the use of special incentive programs that reward superior sales performance. Avon has made significant investments to understand the financial return of such field incentives. Periodic sales meetings with Representatives are conducted by the District Sales Managers or Zone Managers. The meetings are designed to keep Representatives abreast of product line changes, explain sales techniques and provide recognition for sales performance.

A number of merchandising techniques are used, including the introduction of new products, the use of combination offers, the use of trial sizes and samples, and the promotion of products packaged as gift items. In general, for each sales campaign, a distinctive brochure is published, in which new products are introduced and selected items are offered as special promotions or are given particular prominence in the brochure. A key current priority for our merchandising is to expand the use of pricing and promotional models to enable a deeper, fact-based understanding of the role and impact of pricing within our product portfolio.

Investment in advertising is another key strategy. We significantly increased spending on advertising over the past three years, including advertising to recruit Representatives. We expect this to be an ongoing investment to strengthen our beauty image worldwide and drive sales positively.

From time to time, various regulations or laws have been proposed or adopted that would, in general, restrict the frequency, duration or volume of sales resulting from new product introductions, special promotions or other special price offers. We expect our pricing flexibility and broad product lines to mitigate the effect of these regulations.

Competitive Conditions

We face competition from various products and product lines both domestically and internationally. The beauty and beauty-related products industry is highly competitive and the number of competitors and degree of competition that we face in this industry varies widely from country to country. Worldwide, we compete against products sold to consumers by other direct-selling and direct-sales companies and through the Internet, and against products sold through the mass market and prestige retail channels.

Specifically, due to the nature of the direct-selling channel, Avon competes on a regional, often country-by-country basis, with its direct-selling competitors. Unlike most other beauty companies, we compete within a distinct business model where providing a compelling earnings opportunity for our Representatives is as critical as developing and marketing new and innovative products. As a result, in contrast to a typical CPG company which operates within a broad-based consumer pool, we must first compete for a limited pool of Representatives before we reach the ultimate consumer.

Within the broader CPG industry, we principally compete against large and well-known cosmetics and fragrances companies that manufacture and sell broad product lines through various types of retail establishments. In addition, we compete against many other companies that manufacture and sell more narrow CFT product lines sold through retail establishments and other channels.

We also have many competitors in the gift and decorative products and apparel industries globally, including retail establishments, principally department stores, gift shops and specialty retailers, and direct-mail companies specializing in these products.

Our principal competition in the fashion jewelry industry consists of a few large companies and many small companies that sell fashion jewelry through retail establishments.

We believe that the personalized customer service offered by our Representatives; the amount and type of field incentives we offer our Representatives on a market-by-market basis; the high quality, attractive designs and prices of our products; the high level of new and innovative products; our easily recognized brand name and our guarantee of product satisfaction are significant factors in establishing and maintaining our competitive position.

International Operations

Our international operations are conducted primarily through subsidiaries in 65 countries and territories outside of the U.S. In addition to these countries and territories, our products are distributed in 44 other countries and territories through distributorships.

Our international operations are subject to risks inherent in conducting business abroad, including, but not limited to, the risk of adverse currency fluctuations, currency remittance restrictions and unfavorable social, economic and political conditions.

See the sections “Risk Factors - Our ability to conduct business, particularly in international markets, may be affected by political, legal and regulatory risks” and “Risk Factors - We are subject to other risks related to our international operations, including exposure to foreign currency fluctuations” in Item 1A on pages 11 and 13 of this 2008 Annual Report on Form 10-K.

Manufacturing

The design and development of new CFT products are affected by the cost and availability of materials such as glass, plastics and chemicals. We believe that we can continue to obtain sufficient raw materials and supplies to manufacture and produce our CFT products.

As further described in the “Overview” and “Strategic Initiatives” sections within MD&A on pages 20 through 23, we have begun implementing SSI to reduce direct and indirect costs of materials, goods and services. Under this initiative, we are shifting our purchasing strategy from a local, commodity-oriented approach towards a globally-coordinated effort.

We are also 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. We completed implementation in certain significant markets, and will continue to roll-out the ERP system over the next several years.

See Item 2, Properties, for additional information regarding the location of our principal manufacturing facilities.

Product Categories

Each of our three product categories account for 10% or more of consolidated net sales. The following is the percentage of net sales by product category for the years ended December 31:


	2008		2007		2006
Beauty	72	%	70	%	69	%
Fashion	18	%	18	%	18	%
Home	10	%	12	%	13	%

Trademarks and Patents

Our business is not materially dependent on the existence of third-party patent, trademark or other third-party intellectual property rights, and we are not a party to any ongoing material licenses, franchises or concessions. We do seek to protect our key proprietary technologies by aggressively pursuing comprehensive patent coverage in major markets. We protect our Avon name and other major proprietary trademarks through registration of these trademarks in the markets where we sell our products, monitoring the markets for infringement of such trademarks by others, and by taking appropriate steps to stop any infringing activities.

Seasonal Nature of Business

Our sales and earnings have a marked seasonal pattern characteristic of many companies selling CFT, gift and decorative products, apparel, and fashion jewelry. Holiday sales cause a sales peak in the fourth quarter of the year; however, the sales volume of holiday gift items is, by its nature, difficult to forecast. Fourth quarter revenue was approximately 26% and 31% of total revenue in 2008 and 2007, respectively, and fourth quarter operating profit was approximately 28% and 26% of total operating profit in 2008 and 2007, respectively. The fourth quarter operating profit comparison between 2008 and 2007 was impacted by costs to implement our restructuring initiatives and costs related to our PLS program. The fourth quarter of 2008 includes cost to implement our restructuring initiatives of $7.4, whereas the fourth quarter of 2007 includes $100.9 of costs to implement our restructuring initiatives and $103.7 of costs related to our PLS program.

Research and Product Development Activities

New products are essential to growth in the highly competitive cosmetics industry. Our research and development department’s efforts are significant to developing new products, including formulating effective beauty treatments relevant to women’s needs, and redesigning or reformulating existing products. To increase our brand competitiveness, we have increased our focus on new technology and product innovation to deliver first-to-market products that deliver visible consumer benefits.

Our global research and development facility is located in Suffern, NY. A team of researchers and technicians apply the disciplines of science to the practical aspects of bringing products to market around the world. Relationships with dermatologists and other specialists enhance our ability to deliver new formulas and ingredients to market. Additionally, we have satellite research facilities located in Brazil, China, Japan, Mexico and Poland.

In 2008, our most significant product launches included Anew Ultimate Contouring Eye System, Bond Girl fragrance , Pro-to-Go Lipstick , Anew Ultimate Age Repair Elixir, Supershock Mascara, Ultra Color Rich Plumping Lipstick, U by Ungaro fragrances and Anew Rejuvenate Eye.

The amounts incurred on research activities relating to the development of new products and the improvement of existing products were $70.0 in 2008, $71.8 in 2007, and $65.8 in 2006. This research included the activities of product research and development and package design and development. Most of these activities were related to the development of CFT products.

Environmental Matters

In general, compliance with environmental regulations impacting our global operations has not had, and is not anticipated to have, any material adverse effect upon the capital expenditures, financial position or competitive position of Avon.

Employees

At December 31, 2008, we employed approximately 42,000 employees. Of these, approximately 6,100 were employed in the U.S. and 35,900 in other countries.

Website Access to Reports

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are and have been throughout 2008, available without charge on our investor website ( www.avoninvestor.com ) as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission (the “SEC”). We also make available on our website the charters of our Board Committees, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics. Copies of these SEC reports and other documents are also available, without charge, from Investor Relations, Avon Products, Inc., 1345 Avenue of the Americas, New York, NY 10105-0196 or by sending an email to investor.relations@avon.com or by calling (212) 282-5623. Information on our website does not constitute part of this report. Additionally, our filings with the SEC may be read and copied at the SEC Public Reference Room at 100 F Street, NE Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. These filings are also available on the SEC’s website at www.sec.gov free of charge as soon as reasonably practicable after we have filed or furnished the above referenced reports.

ITEM 1A.

RISK FACTORS

You should carefully consider each of the following risks associated with an investment in our publicly traded securities and all of the other information in this 2008 Annual Report on Form 10-K. Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe to be immaterial. If any of the events contemplated by the following discussion of risks should occur, our business, prospects, financial condition and results of operations may suffer.

Our success depends on our ability to execute fully our global business strategy.

Our ability to implement the key initiatives of our global business strategy is dependent upon a number of factors, including our ability to:

•

implement our multi-year restructuring programs and achieve anticipated savings from the initiatives under these programs;

•

increase our beauty sales and market share, and strengthen our brand image;

•

realize anticipated cost savings and reinvest such savings effectively in consumer-oriented investments and other aspects of our business;

•

implement appropriate product mix and pricing strategies, including our PLS program and achieve anticipated benefits from these strategies;

•

implement enterprise resource planning and SSI and realize efficiencies across our supply chain, marketing processes, sales model and organizational structure;

•

implement customer service initiatives, the Sales and Operation Planning process and a zero overhead growth philosophy;

•

implement our outsourcing strategies;

•

implement initiatives to reduce inventory levels;

•

maintain appropriate cash flow levels and implement cash management, tax, foreign currency hedging and risk management strategies;

•

implement our Sales Leadership program globally, recruit Representatives, enhance the Representative experience and increase their productivity through investments in the direct selling channel;

•

reach new consumers through a combination of new brands, new businesses, new channels and pursuit of strategic opportunities such as acquisitions, joint ventures and strategic alliances with other companies; and

•

estimate and achieve any projections concerning future revenue and operating margin increases.

There can be no assurance that any of these initiatives will be successfully and fully executed in the amounts or within the time periods that we expect.

We may experience difficulties, delays or unexpected costs in completing our multi-year turnaround plan, including achieving the anticipated savings of our multi-year restructuring initiatives.

In November 2005, we announced a multi-year turnaround plan as part of a major drive to fuel revenue growth and expand profit margins, while increasing consumer investments. As part of the turnaround plan, restructuring initiatives include: enhancement of organizational effectiveness, implementation of a global manufacturing strategy through facilities realignment, additional supply chain efficiencies in the areas of procurement and distribution and streamlining of transactional and other services through outsourcing and moves to low-cost countries. As part of the turnaround plan, we also launched our PLS program and SSI initiative. In February 2009, we announced a new restructuring program under our multi-year turnaround plan.

We may not realize, in full or in part, the anticipated savings or benefits from one or more of these initiatives, and other events and circumstances, such as difficulties, delays or unexpected costs, may occur which could result in our not realizing all or any of the anticipated savings or benefits. If we are unable to realize these savings or benefits, our ability to continue to fund planned advertising, market intelligence, consumer research and product innovation initiatives may be adversely affected. In addition, our plans to invest these savings and benefits ahead of future growth means that such costs will be incurred whether or not we realize these savings and benefits.

We are also subject to the risk of business disruption in connection with our multi-year restructuring programs or other strategic initiatives, which could have a material adverse effect on our business, financial condition and operating results.

There can be no assurance that we will be able to achieve our growth objectives or maintain rates of growth.

There can be no assurance that we will be able to achieve profitable growth in the future or maintain rates of growth. In developed markets, such as the U.S., we seek to achieve growth in line with that of the overall beauty market, while in developing and emerging markets we have higher growth targets. Our growth overall is also subject to the strengths and weakness of our individual markets, including our international markets, which are or may be impacted by global economic conditions. We cannot assure you that our broad-based geographic portfolio will be able to withstand an economic downturn or recession in one or more particular regions. Our ability to increase or maintain revenue and earnings depends on numerous factors, and there can be no assurance that our current or future business strategies will lead us to achieve our growth objectives or maintain our rates of growth.

Our business is conducted worldwide primarily in one channel, direct selling.

Our business is conducted worldwide, primarily in the direct-selling channel. Sales are made to the ultimate consumer principally through 5.8 million independent Representatives worldwide. There is a high rate of turnover among Representatives, which is a common characteristic of the direct-selling business. As a result, in order to maintain our business and grow our business in the future, we need to recruit, retain and service Representatives on a continuing basis. If consumers change their purchasing habits, such as by reducing purchases of beauty and related products generally, or reducing purchases from Representatives or buying beauty and related products in channels other than in direct selling, this could reduce our sales and have a material adverse effect on our business, financial condition and results of operations. If our competitors establish greater market share in the direct-selling channel, our business, financial condition and operating results may be adversely affected. Furthermore, if any government bans or severely restricts our business method of direct selling, our business, financial condition and operating results may be adversely affected.

Our ability to conduct business, particularly in international markets, may be affected by political, legal and regulatory risks.

Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is exposed to risks associated with our international operations, including:

•

the possibility that a foreign government might ban or severely restrict our business method of direct selling, or that local civil unrest, political instability or changes in diplomatic or trade relationships might disrupt our operations in an international market;

•

the possibility that a government authority might impose legal, tax or other financial burdens on our Representatives, as direct sellers, or on Avon, due, for example, to the structure of our operations in various markets; and

•

the possibility that a government authority might challenge the status of our Representatives as independent contractors or impose employment or social taxes on our Representatives.

For example, in 1998, the Chinese government banned direct selling but, subsequently in April 2005, the Chinese government granted approval for us to proceed with a limited test of direct selling in certain areas. The Chinese government later issued direct-selling regulations in late 2005, and we were granted a direct-selling license by China’s Ministry of Commerce in late February 2006, which has allowed us to commence direct selling under such regulations. However, there can be no assurance that these and other regulations and approvals will not be rescinded, restricted or otherwise altered, which may have a material adverse effect on our direct selling business in China. There can be no assurance that we will be able to successfully transition our business in China in connection with the resumption of direct selling in that market and successfully operate using the direct-selling model currently in place or that may be subsequently permitted in that market, or that we will experience growth in that or other emerging markets. The introduction of new channels in our business, such as the direct selling channel in China, may also negatively impact existing sales. We may encounter similar political, legal and regulatory risks in other international markets in our portfolio.

We are also subject to changes in other foreign laws, rules, regulations or policies, such as restrictions on trade, import and export license requirements, privacy and data protection laws, and tariffs and taxes. In addition, we face legal and regulatory risks in the United States and, in particular, cannot predict with certainty the outcome of various contingencies or the impact that pending or future legislative and regulatory changes may have on our business in the future. The U.S. Federal Trade Commission has proposed business opportunity regulations which may have an effect upon the Company’s method of operating in the U.S. It is not possible to gauge what any final regulation may provide, its effective date or its impact at this time.

A general economic downturn, a recession globally or in one or more of our geographic regions or sudden disruption in business conditions may adversely affect our business, including consumer purchases of discretionary items, such as beauty and related products.

A downturn in the economies in which we sell our products, including any recession in one or more of our geographic regions, or the current global macro-economic pressures, could adversely affect our business. Recent global economic events, especially in North America, including job losses, the tightening of credit markets and failures of financial institutions and other entities, have resulted in challenges to our business and a heightened concern regarding further deterioration globally. If conditions continue or worsen, we could experience potential declines in revenues, profitability and cash flow due to reduced orders, payment delays, supply chain disruptions or other factors caused by economic challenges faced by customers, prospective customers and suppliers. Additionally, if these conditions continue or worsen, any one or all of them could potentially have a material adverse effect on our liquidity and capital resources, including our ability to issue commercial paper or raise additional capital, the ability of lenders to maintain our credit lines, and our ability to maintain offshore cash balances, or otherwise negatively impact our business, results of operations and financial condition.

Consumer spending is generally affected by a number of factors, including general economic conditions, inflation, interest rates, energy costs, gasoline prices and consumer confidence generally, all of which are beyond our control. Consumer purchases of discretionary items tend to decline during recessionary periods, when disposable income is lower, and may impact sales of our products. We face a challenging fiscal 2009 because customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced access to credit and sharply falling home prices, among other things.

In addition, sudden disruptions in business conditions as a result of a terrorist attack similar to the events of September 11, 2001, including further attacks, retaliation and the threat of further attacks or retaliation, war, adverse weather conditions and climate changes or other natural disasters, such as Hurricane Katrina, pandemic situations or large scale power outages can have a short or, sometimes, long-term impact on consumer spending.

We face significant competition.

We face competition from competing products in each of our lines of business, in both the domestic and international markets. Worldwide, we compete against products sold to consumers by other direct-selling and direct-sales companies and through the Internet, and against products sold through the mass market and prestige retail channels.

Within the direct selling channel, we compete on a regional, and often country-by-country basis, with our direct-selling competitors. There are also a number of direct-selling companies that sell product lines similar to ours, some of which also have worldwide operations and compete with us globally. Unlike most other beauty companies, we compete within a distinct business model where providing a compelling earnings opportunity for our Representatives is as critical as developing and marketing new and innovative products. Therefore, in contrast to a typical consumer packaged goods (“CPG”) company which operates within a broad-based consumer pool, we must first compete for a limited pool of Representatives before we reach the ultimate consumer.

Direct sellers compete for representative or entrepreneurial talent by providing a more competitive earnings opportunity or “better deal” than that offered by the competition. Representatives are attracted to a direct seller by competitive earnings opportunities, often through what are commonly known as “field incentives” in the direct selling industry. Competitors devote substantial effort to finding out the effectiveness of such incentives so that they can invest in incentives that are the most cost effective or produce the better payback. As the largest and oldest beauty direct seller, Avon’s business model and strategies are often highly sought after, particularly by smaller local and more nimble competitors who seek to capitalize on our investment and experience. As a result, we are subject to significant competition for the recruitment of Representatives from other direct selling or network marketing organizations. It is therefore continually necessary to recruit and retain new Representatives and if we are unable to do so our business will be adversely affected.

Within the broader CPG industry, we compete against large and well-known cosmetics and fragrances companies that manufacture and sell broad product lines through various types of retail establishments. In addition, we compete against many other companies that manufacture and sell in more narrow CFT product lines sold through retail establishments. This industry is highly competitive, and some of our principal competitors in the CPG industry are larger than we are and have greater resources than we do. Competitive activities on their part could cause our sales to suffer. We have many competitors in the highly competitive gift and decorative products and apparel industries globally, including retail establishments, principally department stores, gift shops and specialty retailers, and direct-mail companies specializing in these products. Our principal competition in the highly competitive fashion jewelry industry consists of a few large companies and many small companies that sell fashion jewelry through retail establishments.

The number of competitors and degree of competition that we face in this beauty and related products industry varies widely from country to country. If our advertising, promotional, merchandising or other marketing strategies are not successful, if we are unable to deliver new products that represent technological breakthroughs, if we do not successfully manage the timing of new product introductions or the profitability of these efforts, or if for other reasons our Representatives or end customers perceive competitors’ products as having greater appeal, then our sales and financial results may suffer.

We are subject to other risks related to our international operations, including exposure to foreign currency fluctuations.

We operate globally, through operations in various locations around the world, and derive approximately 80% of our consolidated revenue from our operations outside of the U.S.

One risk associated with our international operations is that the functional currency for most of our international operations is the applicable local currency. Because of this, movements in exchange rates may have a significant impact on our earnings, cash flow and financial position. For example, currencies for which we have significant exposures include the Argentine peso, Brazilian real, British pound, Canadian dollar, Chinese renminbi, Colombian peso, the Euro, Japanese yen, Mexican peso, Philippine peso, Polish zloty, Russian ruble, Turkish lira, Ukrainian hryvna and Venezuelan bolivar. Although we implement foreign currency hedging and risk management strategies to reduce our exposure to fluctuations in earnings and cash flows associated with changes in foreign exchange rates, there can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, results of operations and financial condition.

Another risk associated with our international operations is the possibility that a foreign government may impose currency remittance restrictions. Due to the possibility of government restrictions on transfers of cash out of the country and control of exchange rates, we may not be able to immediately repatriate cash at the official exchange rate or if the official exchange rate devalues, it may have a material adverse effect on our business, results of operations and financial condition. For example, currency restrictions enacted by the Venezuelan government in 2003 have become more restrictive and have impacted the ability of our subsidiary in Venezuela (“Avon Venezuela”) to obtain foreign currency at the official rate to pay for imported products. Unless official foreign exchange is made more readily available, Avon Venezuela’s operations will continue to be negatively impacted as it will need to obtain more of its foreign currency needs from non-government sources where the exchange rate is less favorable than the official rate.

Inflation is another risk associated with our international operations. For example, inflation in Venezuela has continued to increase over the past few years and it is possible that Venezuela will be designated as a highly inflationary economy during 2009. Gains and losses resulting from the translation of the financial statements of subsidiaries operating in highly inflationary economies are recorded in earnings. If Venezuela is designated as a highly inflationary economy and there is a devaluation of the official rate, revenue and operating profit will be negatively impacted.

Third-party suppliers provide, among other things, the raw materials used to manufacture our CFT products, and the loss of these suppliers or a disruption or interruption in the supply chain may adversely affect our business.

We manufacture and package almost all of our CFT products. Raw materials, consisting chiefly of essential oils, chemicals, containers and packaging components, are purchased from various third-party suppliers for our CFT products. Almost all of our non-CFT products are purchased from various suppliers. Additionally, we produce the brochures that are used by Representatives to sell Avon products. The loss of multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on the manufacturing and packaging of our CFT products, the purchasing of our non-CFT products or the production of our brochures. This risk may be exacerbated by SSI, which will shift our purchasing strategy toward a globally- coordinated effort. Furthermore, increases in the costs of raw materials or other commodities may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price increases or otherwise achieve cost efficiencies in manufacturing and distribution.

The loss of or a disruption in our manufacturing and distribution operations could adversely affect our business.

Our principal properties consist of worldwide manufacturing facilities for the production of CFT products, distribution centers where offices are located and where finished merchandise is packed and shipped to Representatives in fulfillment of their orders, and one principal research and development facility. Therefore, as a company engaged in manufacturing, distribution and research and development on a global scale, we are subject to the risks inherent in such activities, including industrial accidents, environmental events, strikes and other labor disputes, disruptions in logistics or information systems, loss or impairment of key manufacturing sites, product quality control, safety, licensing requirements and other regulatory issues, as well as natural disasters, acts of terrorism and other external factors over which we have no control. The loss of, or damage to, any of our facilities or centers could have a material adverse effect on our business, results of operations and financial condition.

Our success depends, in part, on the quality and safety of our products.

Our success depends, in part, on the quality and safety of our products. If our products are found to be defective or unsafe, or if they otherwise fail to meet our Representatives’ or end customers’ standards, our relationship with our Representatives or end customers could suffer, we could need to recall some of our products, our reputation or the appeal of our brand could be diminished, and we could lose market share and/or become subject to liability claims, any of which could result in a material adverse effect on our business, results of operations and financial condition.

Any future acquisitions may expose us to additional risks.

We continuously review acquisition prospects that would complement our current product offerings, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities. The financing for any of these acquisitions could dilute the interests of our stockholders, result in an increase in our indebtedness or both. Acquisitions may entail numerous risks, including:

•

difficulties in assimilating acquired operations or products, including the loss of key employees from acquired businesses and disruption to our direct selling channel;

•

diversion of management’s attention from our core business;

•

adverse effects on existing business relationships with suppliers and customers; and

•

risks of entering markets in which we have limited or no prior experience.

Our failure to successfully complete the integration of any acquired business could have a material adverse effect on our business, financial condition and operating results. In addition, there can be no assurance that we will be able to identify suitable acquisition candidates or consummate acquisitions on favorable terms.

Our information technology systems may be susceptible to disruptions.

We employ information technology systems to support our business, including systems to support financial reporting, an enterprise resource planning system which we are implementing on a worldwide basis, and an internal communication and data transfer network. We also employ information technology systems to support Representatives in many of our markets, including electronic order collection and invoicing systems and on-line training. We have Internet sites in many of our markets, including business-to-business sites to support Representatives. We have undertaken initiatives to increase our reliance on employing information technology systems to support our Representatives, as well as initiatives, as part of our multi-year restructuring program, to outsource certain services, including the provision of global human resources information technology systems to our employees and other information technology processes. Any of these systems may be susceptible to outages due to fire, floods, power loss, telecommunications failures, terrorist attacks, break-ins and similar events. Despite the implementation of network security measures, our systems may also be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with these systems. The occurrence of these or other events could disrupt our information technology systems and adversely affect our operation.

Our success depends, in part, on our key personnel.

Our success depends, in part, on our ability to retain our key personnel, including our executive officers and senior management team. The unexpected loss of one or more of our key employees could adversely affect our business. Our success also depends, in part, on our continuing ability to identify, hire, train and retain other highly qualified personnel. Competition for these employees can be intense. We may not be able to attract, assimilate or retain qualified personnel in the future, and our failure to do so could adversely affect our business. This risk may be exacerbated by the uncertainties associated with the implementation of our multi-year restructuring plan.

Our ability to anticipate and respond to market trends and changes in consumer preferences could affect our financial results.

Our continued success depends on our ability to anticipate, gauge and react in a timely and effective manner to changes in consumer spending patterns and preferences for beauty and related products. We must continually work to develop, produce and market new products, maintain and enhance the recognition of our brands, achieve a favorable mix of products, and refine our approach as to how and where we market and sell our products. While we devote considerable effort and resources to shape, analyze and respond to consumer preferences, consumer spending patterns and preferences cannot be predicted with certainty and can change rapidly. If we are unable to anticipate and respond to trends in the market for beauty and related products and changing consumer demands, our financial results will suffer. This risk may be exacerbated by our product line simplification (“PLS”) program, which will lead to significant changes to our product offerings.

Furthermore, material shifts or decreases in market demand for our products, including as a result of changes in consumer spending patterns and preferences, could result in us carrying inventory that cannot be sold at anticipated prices or increased product returns by our Representatives. Failure to maintain proper inventory levels or increased product returns by our Representatives could result in a material adverse effect on our business, results of operations and financial condition.

If we are unable to protect our intellectual property rights, specifically patents and trademarks, our ability to compete could be negatively impacted.

The market for our products depends to a significant extent upon the value associated with our patents and trademarks. We own the material patents and trademarks used in connection with the marketing and distribution of our major products both in the U.S. and in other countries where such products are principally sold. Although most of our material intellectual property is registered in the U.S. and in certain foreign countries in which we operate, there can be no assurance with respect to the rights associated with such intellectual property in those countries. In addition, the laws of certain foreign countries, including many emerging markets, such as China, may not protect our intellectual property rights to the same extent as the laws of the U.S. The costs required to protect our patents and trademarks may be substantial.

We are involved, and may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could adversely affect our financial results.

We are and may, in the future, become party to litigation, including, for example, claims relating to our customer service or advertisings, or alleging violation of the federal securities or ERISA laws and/or state law. In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. We are currently vigorously contesting certain of these litigation claims. However, it is not possible to predict the final resolution of the litigation to which we currently are or may in the future become party to, and the impact of certain of these matters on our business, results of operations and financial condition could be material.

Significant changes in pension fund investment performance, assumptions relating to pension costs or required legal changes in pension funding rules may have a material effect on the valuation of pension obligations, the funded status of pension plans and our pension cost.

Our funding policy for pension plans is to accumulate plan assets that, over the long run, will approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate used to measure pension obligations, the level of plan assets available to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change of the expected rate of return on plan assets. A change in the discount rate would result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following fiscal years. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost of the following fiscal years. Finally, recent pension funding requirements under the Pension Protection Act of 2006 may result in a significant increase or decrease in the valuation of pension obligations affecting the reported funded status of our pension plans.

The market price of our common stock could be subject to fluctuations as a result of many factors.

Factors that could affect the trading price of our common stock include the following:

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variations in operating results;

•

economic conditions and volatility in the financial markets;

•

announcements or significant developments in connection with our business and with respect to beauty and related products or the beauty industry in general;

•

actual or anticipated variations in our quarterly or annual financial results;

•

governmental policies and regulations;

•

estimates of our future performance or that of our competitors or our industries;

•

general economic, political, and market conditions; and

•

factors relating to competitors.

The trading price of our common stock has been, and could in the future continue to be, subject to significant fluctuations.

An internal investigation of our China operations is being conducted.

We are voluntarily conducting an internal investigation of our China operations, focusing on compliance with the Foreign Corrupt Practices Act. The internal investigation, which is being conducted under the oversight of the Audit Committee, commenced in June 2008 after we received an allegation that certain travel, entertainment and other expenses may have been improperly incurred in connection with our China operations. We have voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. Because the internal investigation is in its early stage, we cannot predict how the resulting consequences, if any, may impact our internal controls, business, results of operations or financial position.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

Our principal properties worldwide consist of manufacturing facilities for the production of CFT products, distribution centers where offices are located and where finished merchandise is packed and shipped to Representatives in fulfillment of their orders, and one principal research and development facility. The domestic manufacturing facilities are located in Morton Grove, IL and Springdale, OH. The domestic distribution centers are located in Atlanta, GA; Glenview, IL; Newark, DE; and Pasadena, CA. The research and development facility is located in Suffern, NY. We also lease office space in two locations in New York City and own property in Rye, NY, for our executive and administrative offices.

Other principal properties outside the U.S. measuring 50,000 square feet or more include the following:

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two distribution centers for primary use in North America operations (other than in the U.S.);

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four manufacturing facilities, eleven distribution centers and two administrative offices in Latin America;

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four manufacturing facilities in Europe, primarily servicing Western Europe, Middle East & Africa and Central & Eastern Europe;

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six distribution centers and four administrative offices in Western Europe, Middle East & Africa;

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three distribution centers and two administrative offices in Central & Eastern Europe;

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three manufacturing facilities, four distribution centers, and two administrative offices in Asia Pacific; and

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two manufacturing facilities and six distribution centers in China.

Of all the properties listed above, 32 are owned and the remaining 33 are leased. Many of our properties are used for a combination of manufacturing, distribution and administration. These properties are included in the above listing based on primary usage.

We consider all of these properties to be in good repair, to adequately meet our needs and to operate at reasonable levels of productive capacity.

In January 2007, we announced plans to realign certain North America distribution operations. This initiative includes the building of a new distribution center in Zanesville, Ohio, that is expected to open in the first quarter of 2009. We will phase-out our current distribution branches in Newark, DE and Glenview, IL with the closures expected to be completed by mid-2009 and mid-2010, respectively.

In January 2008, we announced plans to realign certain Latin America distribution and manufacturing operations. We are building a new distribution center in Brazil that is expected to open in 2010. We will phase-out our current distribution center in Sao Paulo, Brazil during 2011. During 2008, we transferred production from our manufacturing facility in Guatemala to our facility in Mexico.

ITEM 3.

LEGAL PROCEEDINGS

Reference is made to Note 15, Contingencies, on pages F-37 through F-39 of this 2008 Annual Report on Form 10-K.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the quarter ended December 31, 2008.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Avon’s Common stock

Avon’s Common Stock is listed on the New York Stock Exchange and trades under the AVP ticker symbol. At December 31, 2008, there were approximately 17,773 record holders of Avon’s Common Stock. We believe that there are many additional shareholders who are not “shareholders of record” but who beneficially own and vote shares through nominee holders such as brokers and benefit plan trustees. High and low market prices and dividends per share of Avon’s Common Stock, in dollars, for 2008 and 2007 are listed below. For information regarding future dividends on Avon’s Common Stock, see the “Liquidity and Capital Resources” section within MD&A on pages 36 through 39.


	2008						2007
Quarter	High		Low		Dividends Declared and Paid		High		Low		Dividends Declared and Paid
First	$	40.50	$	34.47	$	.20	$	40.13	$	32.55	$	0.185
Second		41.05		35.44		.20		41.85		36.13		0.185
Third		45.25		35.08		.20		40.66		31.95		0.185
Fourth		41.23		18.38		.20		42.51		35.92		0.185

Stock Performance Graph

LOGO

Assumes $100 invested on December 31, 2003, in Avon’s Common Stock, the S&P 500 Index and the Industry Composite. The dollar amounts indicated in the graph above and in the chart below are as of December 31 or the last trading day in the year indicated.


	2003		2004		2005		2006		2007		2008
Avon	$	100.00	$	116.31	$	87.49	$	103.64	$	126.46	$	78.77
S&P 500		100.00		110.88		116.33		134.70		142.10		89.53
Industry Composite ⁽²⁾		100.00		112.61		117.09		134.36		155.01		133.16

⁽¹⁾	Total return assumes reinvestment of dividends at the closing price at the end of each quarter.

⁽²⁾	The Industry Composite includes Alberto-Culver, Clorox, Colgate–Palmolive, Estée Lauder, Kimberly Clark, Procter & Gamble and Revlon.

The Stock Performance Graph shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to the liabilities of Section 18 under the Securities Exchange Act of 1934. In addition, it shall not be deemed incorporated by reference by any statement that incorporates this annual report on Form 10-K by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

Information regarding securities authorized for issuance under equity compensation plans is incorporated by reference to the “Equity Compensation Plan Information” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

Issuer Purchases of Equity Securities

The following table provides information with respect to our purchases of Avon Common Stock during the fourth quarter of 2008:


	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs ⁽²⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
10/1/08 – 10/31/08	8,603	$	43.26	—	$	1,821,526,000
11/1/08 – 11/30/08	12,487		24.59	—		1,821,526,000
12/1/08 – 12/31/08	7,976		18.20	—		1,821,526,000

Total	29,066			—

⁽¹ ⁾	Consists of shares that were repurchased by us in connection with employee elections to use shares to pay withholding taxes upon the vesting of their restricted stock units.

⁽² ⁾	There were no shares purchased during the fourth quarter of 2008 as part of our $2.0 billion share repurchase program, publicly announced on October 11, 2007. The program commenced on December 17, 2007, and is scheduled to expire on December 17, 2012.

ITEM 6.

SELECTED FINANCIAL DATA

We derived the following selected financial data from our audited consolidated financial statements. The following data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related Notes.


	2008		2007 ⁽²⁾		2006 ⁽³⁾		2005		2004
Income Data
Total revenue	$	10,690.1	$	9,938.7	$	8,763.9	$	8,149.6	$	7,747.8
Operating profit ⁽¹⁾		1,339.3		872.7		761.4		1,149.0		1,229.0
Net income		875.3		530.7		477.6		847.6		846.1
Diluted earnings per share	$	2.04	$	1.21	$	1.06	$	1.81	$	1.77
Cash dividends per share	$	0.80	$	0.74	$	0.70	$	0.66	$	0.56

Balance Sheet Data
Total assets	$	6,074.0	$	5,716.2	$	5,238.2	$	4,761.4	$	4,148.1
Debt maturing within one year		1,031.4		929.5		615.6		882.5		51.7
Long-term debt		1,456.2		1,167.9		1,170.7		766.5		866.3
Total debt		2,487.6		2,097.4		1,786.3		1,649.0		918.0
Shareholders’ equity		674.9		711.6		790.4		794.2		950.2

⁽¹⁾	In 2008, 2007, 2006 and 2005, operating profit includes costs to implement restructuring initiatives related to our multi-year restructuring program announced during 2005 of $60.6, $158.3, $228.8, and $56.5, respectively.

In 2007 and 2006, operating profit includes charges totaling $187.8 and $81.4, including inventory obsolescence expense of $167.3 and $72.6, respectively, related to our product line simplification program (“PLS”). In 2008, operating profit includes benefits to obsolescence expense of approximately $13 from changes in our disposition plan under our PLS program.

Effective January 1, 2006, we adopted SFAS No. 123 (revised 2004) Share-Based Payment . Operating profit includes charges related to share-based compensation of $54.8, $61.6, $62.9, $10.1 and $8.8 for the years ended December 31, 2008, 2007, 2006, 2005 and 2004, respectively.

⁽ ² ⁾

In 2007, we recorded a decrease of $18.3 to shareholders’ equity from the initial adoption of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 .

⁽ ³ ⁾

In 2006, we recorded a decreases of $232.8 and $254.7 to total assets and shareholders’ equity, respectively, from the initial adoption of Statement of Financial Accounting Standards (“ SFAS”) No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132R .

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial condition of Avon Products, Inc. and its majority and wholly owned subsidiaries (“Avon” or the “Company”) should be read in conjunction with the information contained in the Consolidated Financial Statements and related Notes. When used in this discussion, the terms “Avon,” “Company,” “we,” “our” or “us” mean, unless the context otherwise indicates, Avon Products, Inc. and its majority and wholly owned subsidiaries.

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 66 countries and territories, including the United States, and distribute products in 44 more. Our reportable segments are based on geographic operations in six regions: Latin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. We centrally manage global Brand Marketing, Supply Chain and Sales organizations. Beginning in the fourth quarter of 2008, we changed our product categories from Beauty, Beauty Plus and Beyond Beauty to Beauty, Fashion and Home. Beauty consists of cosmetics, fragrances, skin care and toiletries (“CFT”). Fashion consists of fashion jewelry, watches, apparel, footwear and accessories. Home consists of gift and decorative products, housewares, entertainment and leisure, children’s and nutritional products. Sales from Health and Wellness products and mark. , a global cosmetics brand that focuses on the market for young women, are included among these three categories based on product type. Sales are made to the ultimate consumer principally through the direct selling by 5.8 million active independent Representatives, who are independent contractors and not employees of Avon. The success of our business is highly dependent on recruiting, retaining and servicing our Representatives.

We view the geographic diversity of our businesses as a strategic advantage in part because it allows us to participate in higher growth Beauty markets internationally. In developed markets, such as the United States, we seek to achieve growth in line with that of the overall beauty market, while in developing and emerging markets we seek to achieve higher growth targets. During 2008, approximately 80% of our consolidated revenue was derived from operations outside the U.S. When we first penetrate a market, we typically experience high growth rates and, as we reach scale in these markets, growth rates generally decline.

At the end of 2005, we launched a comprehensive, multi-year turnaround plan to restore sustainable growth. In January 2008, we announced the final initiatives of our restructuring program that was launched in 2005 under our turnaround plan. In 2007, we completed the analysis of our optimal product portfolio and made decisions on exit strategies for non-optimal products under our Product Line Simplification program (“PLS”). In 2007, we also launched our Strategic Sourcing Initiative (“SSI”). We expect our restructuring initiatives to deliver annualized savings of approximately $430 once all initiatives are fully implemented by 2011-2012. We also expect to achieve annualized benefits in excess of $200 and $250 from PLS and SSI, respectively, in 2010. As discussed further below, in February 2009 we announced a new restructuring program under our multi-year turnaround plan.

During 2008, revenue increased 8%, and Active Representatives increased 7% (with increases in all segments), fueled by investments in advertising and the Representative Value Proposition (“RVP”). Sales from each of our product categories increased, with products in the Beauty category increasing 10%. During 2008, revenue grew in all segments except North America, which was adversely affected by the slowing macro-economic environment, deteriorating consumer confidence and higher year-over-year fuel prices. We benefited from strength in developing and emerging markets around the globe that more than offset the unfavorable impact of economic softness in North America. 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 revenue by segment.

During the fourth quarter of 2008, revenue declined as compared to 2007, due to the significant negative impact of foreign exchange and the depressed economy. We expect the global economic pressures and negative impact of foreign currency will continue or could worsen in the foreseeable future and 2009 will be a challenging year. Given the current macro-economic environment, we expect that revenue growth in 2009 will be somewhat lower than our long-term revenue growth, which is expected to average mid-single digits, excluding the impact of foreign exchange. We also expect that operating margin in 2009 will continue to be pressured by the unfavorable impacts of foreign exchange. Operating margin will also be negatively impacted by additional restructuring charges during 2009. We believe benefits from our SSI program, focusing on manufacturing productivity, changing sourcing of raw materials and finished goods to use exchange rates to our advantage, and some softening in commodity costs will help to partially offset the negative impact of foreign exchange. We will continue to look for ways to transform our cost structure and intend to reduce non-strategic spending during 2009. We will also continue our strategies of investing in advertising and our Representatives.

We believe that our strong operating cash flow and global cash balances of over $1 billion, coupled with the continuing execution of our turnaround strategies and the competitive advantages of our direct selling business model, will allow us to look beyond our anticipated challenges in 2009 and continue our focus on long-term sustainable, profitable growth.

STRATEGIC INITIATIVES

Advertising and Representative Value Proposition (“RVP”)

Investing in advertising is a key strategy. We significantly increased spending on advertising over the past three years. During 2008, we increased our investment in advertising by $22.1 or 6%. Approximately 70% of the incremental spending was spent in Russia, China and the United Kingdom. The incremental spending on advertising was at a rate somewhat less than revenue growth. The advertising investments supported new product launches, such as , Anew Ultimate Contouring Eye System, Bond Girl fragrance , Pro-to-Go Lipstick , Anew Ultimate Age Repair Elixir, Supershock Mascara, Avon Solutions Hydra-Radiance, U by Ungaro fragrance s and Anew Rejuvenate Eye. Advertising investments also included advertising to recruit Representatives. We have also continued to forge alliances with celebrities, including alliances with Patrick Dempsey and Ferragamo Parfums S.P.A. for the “U by Ungaro” line of fragrances.

We continued to invest in our direct-selling channel to improve the reward and effort equation for our Representatives. We have committed significant investments for extensive research to determine the payback on advertising and field tools and actions, and the optimal balance of these tools and actions in our markets. We have allocated these significant investments in proprietary direct selling analytics to better understand the drivers of value for our Representatives. We measure our investment in RVP as the incremental cost to provide these value-enhancing initiatives. During 2008, we invested approximately $83 incrementally in our Representatives through RVP by continued implementation of our Sales Leadership program, enhanced incentives, increased sales campaign frequency, improved commissions and new e-business tools. This incremental investment was ahead of revenue growth. Investing in RVP will continue to be a key strategy. We will continue to look for ways to improve the earnings opportunity for Representatives through various means, including the following:

•

Evaluating optimum discount structures in select markets;

•

Continuing the roll-out of our Sales Leadership Program, which offers Representatives an enhanced career opportunity;

•

Strategically examining the fee structure and brochure costs to enhance Representative economics;

•

Recalibrating the frequency of campaigns to maximize Representative selling opportunities; and

•

Applying the optimal balance of advertising and field investment in our key markets.

While the reward and effort will be different within our global portfolio of businesses, we believe that web enablement is a key element to reduce Representative effort worldwide. We will continue to focus on improving Internet-based tools for our Representatives.

Product Line Simplification

During 2006, we began to analyze our product line, under our PLS program, to develop a smaller range of better performing, more profitable products. The overall goal of PLS is to identify an improved product assortment to drive higher sales of more profitable products. During 2007, we completed the analysis of our product portfolio, concluded on the appropriate product assortment going forward and made decisions regarding the ultimate disposition of products that will no longer be part of our improved product assortment (such as selling at a discount, donation, or destruction). During 2007 and 2006, we recorded PLS charges of $187.8 and $81.4, respectively, primarily incremental inventory obsolescence expense of $167.3 and $72.6, respectively. We recorded final PLS charges in the fourth quarter of 2007. During the first half of 2008, we began to implement PLS in the U.K and early results appear favorable; however, the transition is a long process and will continue into 2009. In the second half of 2008, we began implementing PLS in all other markets, with full implementation expected by the end of 2009.

We expect that sales and marketing benefits will account for approximately 85% of our projected benefits. Improving our product assortment will allow us to increase exposure and improve presentation of the remaining products within our brochure, which is expected to yield more pleasurable consumer shopping experiences, easier Representative selling experiences, and greater sales per brochure page. A second source of benefits from PLS results from “transferable demand.” Transferable demand refers to the concept that when products with redundant characteristics are removed from our product assortment, some demand from the eliminated products will transfer to the remaining

products that offer similar or comparable product characteristics. As part of PLS, when we identify products that have sufficient overlap of characteristics, we will eliminate the products with the lowest profitability and we expect the products that we retain will generate more profit. A third source of benefits from PLS is less price discounting. As we implement operating procedures under PLS, we anticipate introducing fewer new products and lengthening the lifecycle of products in our offering, which we expect will lead to less aggressive price discounting over a product’s life cycle.

In addition to the benefits above, we also expect supply chain benefits to account for approximately 15% of our projected benefits. We expect improvements to cost of sales once PLS is fully implemented, primarily from a reduction in inventory obsolescence expense as a result of better managed inventory levels, lower variable spending on warehousing, more efficient manufacturing utilization and lower purchasing costs. We also expect operating expenses to benefit from a reduction in distribution costs and benefits to inventory productivity.

We estimate that we realized total benefits of approximately $40 during 2008 and we expect to realize benefits of approximately $120 in 2009 and in excess of $200 in 2010.

Strategic Sourcing Initiative

We launched SSI in 2007. This initiative is expected to reduce direct and indirect costs of materials, goods and services. Under this initiative, we are shifting our purchasing strategy from a local, commodity-oriented approach towards a globally-coordinated effort which leverages our volumes, allows our suppliers to benefit from economies of scale, utilizes sourcing best practices and processes, and better matches our suppliers’ capabilities with our needs. Beyond lower costs, our goals from SSI include improving asset management, service for Representatives and vendor relationships. During 2008, we realized benefits of approximately $114 from SSI. In addition, we were able to offset commodity cost increases of approximately $21 for full-year 2008 due to SSI actions already in place. We expect to realize annualized benefits from this initiative in excess of $250 by the end of 2009, with a full year of benefit in 2010. As a result, we expect to realize benefits of approximately $200 in 2009 and benefits in excess of $250 in 2010.

We continue to implement a Sales and Operations Planning process that is intended to better align demand plans with our supply capabilities and provide us with earlier visibility to any potential supply issues.

Enterprise Resource Planning System

We are in the midst of a multi-year global roll-out of an enterprise resource planning (“ERP”) system, which is expected to improve the efficiency of our supply chain and financial transaction processes. We began our global roll-out in Europe in 2005 and have since implemented ERP in our European manufacturing facilities, our larger European direct selling operations and in the U.S. As part of this continuing global roll-out, we expect to implement ERP in several countries over the next several years leveraging the knowledge gained from our previous implementations.

During 2008, we worked to improve the effectiveness of ERP in the U.S. and began to implement in the other markets within North America, as well as in certain smaller European direct selling operations. During 2008, we also began the multi-year implementation process in Latin America in one market. In Latin America, we plan to implement modules of ERP in a gradual manner across key markets over the next several years.

Zero-Overhead-Growth

We have institutionalized a zero-overhead-growth philosophy that aims to offset inflation through productivity improvements. These improvements in productivity will come primarily from SSI and our restructuring initiatives. We have defined overhead as fixed expenses such as costs associated with our sales and marketing infrastructure, and management and administrative activities. Overhead excludes variable expenses within selling, general and administrative expenses, such as shipping and handling costs and bonuses to our employees in the sales organization, and also excludes consumer and strategic investments that are included in selling, general and administrative expenses, such as advertising, RVP, research and development and brochure costs.

Restructuring Programs

2005 Program

We launched our original restructuring program under our multi-year turnaround plan in late 2005 (the “2005 Program”). In January 2008, we announced the final initiatives that are part of the 2005 Program. We expect to record total restructuring charges and other costs to implement restructuring initiatives under this program of approximately $530 before taxes. We have recorded $504.2 through December 31, 2008, ($60.6 in 2008, $158.3 in 2007, $228.8 in 2006 and $56.5 in 2005) for actions associated with our restructuring initiatives under the 2005 Program, primarily for employee-related costs, including severance, pension and other termination benefits, and professional service fees related to these initiatives. We expect to record a majority of the remaining costs by the end of 2009.

The costs to implement restructuring initiatives during 2005 through 2008 are associated with specific actions, including:

•

organization realignment and downsizing in each region and global through a process called “delayering,” taking out layers to bring senior management closer to operations;

•

the phased outsourcing of certain services, including certain finance, information technology, human resource and customer service processes, and the move of certain services from markets to lower cost shared service centers;

•

the restructure of certain international direct-selling operations;

•

the realignment of certain distribution and manufacturing operations, including the realignment of certain of our North America and Latin America distribution operations;

•

the automation of certain distribution processes;

•

the exit of certain unprofitable operations, including the closure of the Avon Salon & Spa, the closure of our operations in Indonesia, the exit of a product line in China and the exit of the beComing product line in the U.S.; and

•

the reorganization of certain functions, primarily sales-related organizations.

Actions implemented under these restructuring initiatives resulted in savings of approximately $270 in 2008, as compared to savings of approximately $230 in 2007. We expect to achieve annualized savings of approximately $430 once all initiatives are fully implemented by 2011-2012. We expect the savings to reach approximately $300 in 2009.

2009 Restructuring Program

In February 2009, we announced a new restructuring program under our multi-year turnaround plan (the “2009 Program”). The restructuring initiatives under the 2009 Program are expected to focus on restructuring our global supply chain operations, realigning certain local business support functions to a more regional basis to drive increased efficiencies, and streamlining transaction-related services, including selective outsourcing. We expect to incur restructuring charges and other costs to implement these initiatives in the range of $300 to $400 before taxes over the next several years. We are targeting annualized savings under the 2009 Program of approximately $200 upon full implementation by 2012-2013.

See Note 14, Restructuring Initiatives, on pages F-33 through F-37 of this 2008 Annual Report on Form 10-K.

NEW ACCOUNTING STANDARDS

Information relating to new accounting standards is included Note 2, New Accounting Standards, on pages F-10 through F-11 of this 2008 Annual Report on Form 10-K.

KEY PERFORMANCE INDICATORS

Within the following discussion and analysis, we utilize the key performance indicators (“KPIs”) defined below to assist in the evaluation of our business.


KPI		Definition
Growth in Active Representatives		This indicator is based on the number of Representatives submitting an order in a campaign, totaled for all campaigns in the related period. This amount is divided by the number of billing days in the related period, to exclude the impact of year-to-year changes in billing days (for example, holiday schedules). To determine the growth in Active Representatives, this calculation is compared to the same calculation in the corresponding period of the prior year.

Change in Units		This indicator is based on the gross number of pieces of merchandise sold during a period, as compared to the same number in the same period of the prior year. Units sold include samples sold and product contingent upon the purchase of another product (for example, gift with purchase or purchase with purchase), but exclude free samples.

Inventory Days		This indicator is equal to the number of days of historical cost of sales covered by the inventory balance at the end of the period.

CRITICAL ACCOUNTING ESTIMATES

We believe the accounting policies described below represent our critical accounting policies due to the estimation processes involved in each. See Note 1, Description of the Business and Summary of Significant Accounting Policies, for a detailed discussion of the application of these and other accounting policies.

Restructuring Reserves

We record severance-related expenses once they are both probable and estimable in accordance with the provisions of FAS No. 112, Employer’s Accounting for Post-Employment Benefits for severance provided under an ongoing benefit arrangement. One-time, involuntary benefit arrangements and disposal costs, primarily contract termination costs, are accounted for under the provisions of FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities . One-time, voluntary benefit arrangements are accounted for under the provisions of FAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits . We evaluate impairment issues under the provisions of FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . We estimate the expense for these initiatives, when approved by the appropriate corporate authority, by accumulating detailed estimates of costs for such plans. These expenses include the estimated costs of employee severance and related benefits, impairment of property, plant and equipment, contract termination payments for leases, and any other qualifying exit costs. These estimated costs are grouped by specific projects within the overall plan and are then monitored on a quarterly basis by finance personnel. Such costs represent management’s best estimate, but require assumptions about the programs that may change over time, including attrition rates. Estimates are evaluated periodically to determine if an adjustment is required.

Allowances for Doubtful Accounts Receivable

Representatives contact their customers, selling primarily through the use of brochures for each sales campaign. Sales campaigns are generally for a two-week duration in the U.S. and a two- to four-week duration outside the U.S. The Representative purchases products directly from Avon and may or may not sell them to an end user. In general, the Representative, an independent contractor, remits a payment to Avon each sales campaign, which relates to the prior campaign cycle. The Representative is generally precluded from submitting an order for the current sales campaign until the accounts receivable balance for the prior campaign is paid; however, there are circumstances where the Representative fails to make the required payment. We record an estimate of an allowance for doubtful accounts on receivable balances based on an analysis of historical data and current circumstances. Over the past three years, annual bad debt expense has been in the range of $145 to $195, or approximately 1.7% of total revenue. We generally have no detailed information concerning, or any communication with, any end user of our products beyond the Representative. We have no legal recourse against the end user for the collectability of any accounts receivable balances due from the Representative to us. If the financial condition of our Representatives were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Allowances for Sales Returns

We record a provision for estimated sales returns based on historical experience with product returns. Over the past three years, sales returns have been in the range of $295 to $370, or approximately 3.4% of total revenue. If the historical data we use to calculate these estimates does not approximate future returns, due to changes in marketing or promotional strategies, or for other reasons, additional allowances may be required.

Provisions for Inventory Obsolescence

We record an allowance for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value. In determining the allowance for estimated obsolescence, we classify inventory into various categories based upon its stage in the product life cycle, future marketing sales plans and the disposition process. We assign a degree of obsolescence risk to products based on this classification to determine the level of obsolescence provision. If actual sales are less favorable than those projected by management, additional inventory allowances may need to be recorded for such additional obsolescence. Annual obsolescence expense was $80.8, $280.6 and $179.7 for the years ended December 31, 2008, 2007 and 2006, respectively. 2007 and 2006 included incremental inventory obsolescence charges of $167.3 and $72.6, respectively, related to our PLS program and 2006 also includes $20.5 related to our decision to discontinue the sale of heavily discounted excess products. Obsolescence expense for 2008 benefited by approximately $13 from changes in estimates to our disposition plan under our PLS program.

Pension, Postretirement and Postemployment Benefit Expense

We maintain defined benefit pension plans, which cover substantially all employees in the U.S. and in certain international locations. Additionally, we have unfunded supplemental pension benefit plans for certain current and retired executives (see Note 11, Employee Benefit Plans).

For 2008, the weighted average assumed rate of return on all pension plan assets, including the U.S. and non-U.S. plans was 7.66%. In determining the long-term rates of return, we consider the nature of the plans’ investments, an expectation for the plans’ investment strategies, historical rates of return and current economic forecasts. We evaluate the expected long-term rate of return annually and adjust as necessary.

The majority of our pension plan assets relate to the U.S. pension plan. The assumed rate of return for 2008 for the U.S. plan was 8%, which was based on an asset allocation of approximately 35% in corporate and government bonds and mortgage-backed securities (which are expected to earn approximately 4% to 6% in the long term) and 65% in equity securities (which are expected to earn approximately 8% to 10% in the long term). Historical rates of return on the assets of the U.S. plan for the most recent 10-year and 20-year periods were 2.0% and 7.6%, respectively. In the U.S. plan, our asset allocation policy has favored U.S. equity securities, which have lost .7% and returned 8.4%, respectively, over the 10-year and 20-year periods. The plan assets in the U.S. lost 26.2% and returned 9.3% in 2008 and 2007, respectively.

Our funding requirements may be impacted by regulations or interpretations thereof. Our calculations of pension, postretirement and postemployment costs are dependent upon the use of assumptions, including discount rates, expected return on plan assets, interest cost, health care cost trend rates, benefits earned, mortality rates, the number of associate retirements, the number of associates electing to take lump-sum payments and other factors. Actual results that differ from assumptions are accumulated and amortized to expense over future periods and, therefore, generally affect recognized expense in future periods. At December 31, 2008, we had pretax actuarial losses and prior service credits totaling $538.4 and $260.6 for the U.S. and non-U.S. plans, respectively, that have not yet been charged to expense. These actuarial losses have been charged to accumulated other comprehensive loss within shareholders’ equity. While we believe that the assumptions used are reasonable, differences in actual experience or changes in assumptions may materially affect our pension, postretirement and postemployment obligations and future expense. During 2008, the plan assets experienced significant losses, which were mostly due to unfavorable returns on equity securities. These unfavorable returns will increase pension cost in future periods. For 2009, our assumption for the expected rate of return on assets is 8.0% and 7.2% for our U.S. and non-U.S. plans, respectively. Our assumptions are reviewed and determined on an annual basis.

A 50 basis point change (in either direction) in the expected rate of return on plan assets, the discount rate or the rate of compensation increases, would have had the following effect on 2008 pension expense:


	Increase/(Decrease) in Pension Expense
	50 basis point Increase		50 basis point Decrease
	50 basis point Increase		50 basis point Decrease
Rate of return on assets	(6.0	)	6.0
Discount rate	(8.6	)	8.4
Rate of compensation increase	1.2		(1.5	)

Taxes

We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. While we have considered projected future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize a net deferred tax asset in the future, in excess of the net recorded amount, an adjustment to the deferred tax asset would increase earnings in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would decrease earnings in the period such determination was made. Deferred taxes are not provided on the portion of unremitted earnings of subsidiaries outside of the U.S. when management concludes that these earnings are indefinitely reinvested. Deferred taxes are provided on earnings not considered indefinitely reinvested.

We establish additional provisions for income taxes when, despite the belief that our tax positions are fully supportable, there remain certain positions that are likely to be challenged and may or may not be sustained on review by tax authorities. We adjust these additional accruals in light of changing facts and circumstances. We file income tax returns in many jurisdictions. In 2009, a number of income tax returns are scheduled to close by statute and it is possible that a number of tax examinations may be completed. If Avon’s filing positions are ultimately upheld, it is possible that the 2009 provision for income taxes may reflect adjustments.

In accordance with FIN 48, we recognize the benefit of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. We believe that our assessment of more likely than not is reasonable, but because of the subjectivity involved and the unpredictable nature of the subject matter at issue, our assessment may prove ultimately to be incorrect, which could materially impact the Consolidated Financial Statements.

Share-based Compensation

All share-based payments to employees are recognized in the financial statements based on their fair values using an option-pricing model at the date of grant. We use a Black-Scholes-Merton option-pricing model to calculate the fair value of options. This model requires various judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the model change significantly, share-based compensation may differ materially in the future from that recorded in the current period.

Loss Contingencies

In accordance with FAS No. 5, Accounting for Contingencies , we determine whether to disclose and accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable. Our assessment is developed in consultation with our outside counsel and other advisors and is based on an analysis of possible outcomes under various strategies. Loss contingency assumptions involve judgments that are inherently subjective and can involve matters that are in litigation, which, by its nature is unpredictable. We believe that our assessment of the probability of loss contingencies is reasonable, but because of the subjectivity involved and the unpredictable nature of the subject matter at issue, our assessment may prove ultimately to be incorrect, which could materially impact the Consolidated Financial Statements.

RESULTS OF OPERATIONS - CONSOLIDATED


										Favorable (Unfavorable) %/Point Change
	2008			2007			2006			2008 vs. 2007		2007 vs. 2006
Total revenue	$	10,690.1		$	9,938.7		$	8,763.9		8	%	13	%
Cost of sales		3,949.1			3,941.2			3,416.5		—	%	(15	)%
Selling, general and administrative expenses		5,401.7			5,124.8			4,586.0		(5	)%	(12	)%
Operating profit		1,339.3			872.7			761.4		53	%	15	%
Interest expense		100.4			112.2			99.6		11	%	(13	)%
Interest income		(37.1	)		(42.2	)		(55.3	)	(12	)%	(24	)%
Other expense, net		37.7			6.6			13.6		*		51	%
Net income	$	875.3		$	530.7		$	477.6		65	%	11	%
Diluted earnings per share	$	2.04		$	1.21		$	1.06		69	%	14	%

Advertising expenses ⁽¹⁾	$	390.5		$	368.4		$	248.9		(6	)%	(48	)%

Gross margin		63.1	%		60.3	%		61.0	%	2.8		(.7	)
Selling, general and administrative expenses as a % of total revenue		50.5	%		51.6	%		52.3	%	1.1		.7
Operating margin		12.5	%		8.8	%		8.7	%	3.7		.1
Effective tax rate		29.3	%		33.0	%		31.8	%	3.7		(1.2	)

Units sold										1	%	7	%
Active Representatives										7	%	9	%

*	Calculation not meaningful

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

Total Revenue

Total revenue increased 8% in 2008, with foreign exchange contributing 3 percentage points to the revenue growth. Revenue grew in all segments, except North America. Revenue growth was driven by an increase of 7% in Active Representatives.

On a category basis, the 2008 increase in revenue was primarily driven by an increase of 10% in Beauty sales, with increases in all sub-categories of Beauty. Within the Beauty category, fragrance grew 9%, color grew 11%, skin care grew 10%, and personal care grew 8%. Fashion sales increased 6%, while Home sales decreased 3%.

Total revenue increased 13% in 2007 with growth in all segments. Revenue growth was driven by an increase of 9% in Active Representatives, while foreign exchange contributed 5 percentage points to the revenue growth. Additional selling opportunities in Central & Eastern Europe had a minimal impact on Active Representative growth.

On a category basis, the 2007 increase in revenue was primarily driven by an increase of 15% in Beauty sales. Within the Beauty category, fragrance increased 20%, color increased 16%, skin care increased 6% and personal care increased 21%. Fashion sales increased 12% and Home sales increased 6%.

For additional discussion of the changes in revenue by segment, see the “Segment Review” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Gross Margin

Gross margin increased 2.8 points in 2008, primarily due to a decrease in inventory obsolescence provisions in 2008, which benefited gross margin by 2.0 points, and from increased pricing and favorable product mix, which benefited gross margin by 1.3 points. These benefits to gross margin were partially offset by higher commodity costs and the unfavorable impact of foreign exchange on product cost in Europe. 2007 included incremental inventory obsolescence charges of $167.3 related to our PLS program. Obsolescence expense for 2008 also benefited by approximately $13 from changes in estimates to our disposition plan under our PLS program.

Gross margin decreased .7 point in 2007, primarily due to an increase in inventory obsolescence provisions of approximately $100 in 2007, which negatively impacted gross margin by 1.1 points, and an unfavorable mix of products sold, partially offset by supply chain efficiencies. As discussed in the Overview section, 2007 and 2006 included incremental inventory obsolescence charges of $167.3 and $72.6, respectively, related to our decision to discontinue the sale of certain products as part of our PLS program. Additionally, 2006 included incremental inventory obsolescence charges of $20.5 related to our decisions to discontinue the sale of certain heavily discounted products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $276.9 during 2008, primarily due to the following:

•

higher investments in RVP and advertising of approximately $105;

•

higher variable expenses such as freight from increased sales volume and brochure costs;

•

higher overhead primarily due to higher marketing costs; and

•

the impact of foreign exchange.

These higher costs were partially offset by lower costs incurred to implement our restructuring initiatives of $99.8, due to costs associated with previously approved initiatives.

Selling, general and administrative expenses increased $538.8 during 2007, primarily due to the following:

•

higher investments in advertising and RVP of approximately $240;

•

higher variable expenses such as freight and commissions from increased sales volume; and

•

increased distribution costs as a percentage of revenue.

These higher costs were partially offset by $71.8 of lower costs incurred to implement our restructuring initiatives and savings associated with position eliminations resulting from restructuring initiatives. Additionally, 2007 benefited from a favorable comparison to 2006 which included a one-time charge of $21.0 related to the resolution of a long-standing dispute regarding value-added taxes in the U.K., the recognition of unclaimed sales-related tax credits and a reduction of a reserve for statutory liabilities.

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.

Other Expenses

Interest expense decreased in 2008, primarily due to lower domestic interest rates. Interest expense increased in 2007 as compared to 2006, mainly due to higher borrowings to support our share repurchase programs, as well as increases in domestic interest rates. At December 31, 2008 and 2007, we held interest rate swap agreements that effectively converted approximately 50% and 30% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR, respectively. The total exposure of our debt to floating interest rates at December 31, 2008, and December 31, 2007, was approximately 65% and 60%, respectively.

Interest income decreased in 2008, primarily due to lower interest rates. Interest income decreased in 2007 as compared to 2006, primarily due to lower cash and cash equivalent balances.

Other expense, net increased in 2008, primarily due to net foreign exchange losses in 2008, as compared to foreign exchange gains in 2007. Other expense, net decreased in 2007 as compared to 2006, primarily due to higher net foreign exchange gains in 2007.

Effective Tax Rate

The effective tax rate for 2008 was 29.3%, compared to 33.0% for 2007 and 31.8% for 2006.

During 2008, the tax rate was favorably impacted by 3.8 points due to an audit settlement, partially offset by 1.2 points from the establishment of a valuation allowance against deferred tax assets. The rate was also favorably impacted by changes in the earnings mix of international subsidiaries, which is not expected to recur. During 2007, the tax rate was favorably impacted by approximately 2.0 points due to the net release of valuation allowances, partially offset by the unfavorable impact of restructuring and PLS initiatives. During 2006, the effective tax rate was favorably impacted by approximately 4.0 points due to the closure of tax years by expiration of the statute of limitations and audit settlements as well as 1.7 points due to tax refunds. These benefits were partially offset by the repatriation of international earnings, which increased the rate by approximately 3.1 points, and the tax impact associated with our restructuring charges due to the lower weighted-average effective tax rate of subsidiaries incurring the charges.

SEGMENT REVIEW

Below is an analysis of the key factors affecting revenue and operating profit by reportable segment for each of the years in the three-year period ended December 31, 2008.


Years ended December 31	2008					2007					2006
	Total Revenue		Operating Profit			Total Revenue		Operating Profit			Total Revenue		Operating Profit
Latin America	$	3,884.1	$	690.3		$	3,298.9	$	483.1		$	2,743.4	$	424.0
North America		2,492.7		213.9			2,622.1		213.1			2,554.0		181.6
Central & Eastern Europe		1,719.5		346.2			1,577.8		296.1			1,320.2		296.7
Western Europe, Middle East & Africa		1,351.7		121.0			1,308.6		33.9			1,123.7		(17.8	)
Asia Pacific		891.2		102.4			850.8		64.3			810.8		42.5
China		350.9		17.7			280.5		2.0			211.8		(10.8	)

Total from operations		10,690.1		1,491.5			9,938.7		1,092.5			8,763.9		916.2
Global and other expenses		—		(152.2	)		—		(219.8	)		—		(154.8	)

Total		10,690.1		1,339.3		$	9,938.7	$	872.7		$	8,763.9	$	761.4

Global and other expenses include, among other things, costs related to our executive and administrative offices, information technology, research and development, and marketing. Certain planned global expenses are allocated to our business segments primarily based on planned revenue. The unallocated costs remain as global and other expenses. We do not allocate costs of implementing restructuring initiatives related to our global functions to our segments. Costs of implementing restructuring initiatives related to a specific segment are recorded within that segment.


	2008			2007			% Change		2007			2006			% Change
Total global expenses	$	534.5		$	552.6		3	%	$	552.6		$	463.6		(19	)%
Allocated to segments		(382.3	)		(332.8	)	15	%		(332.8	)		(308.8	)	8	%

Net global expenses	$	152.2		$	219.8		31	%	$	219.8		$	154.8		(42	)%

The increase in the amount allocated to the segments in 2008 was primarily due to higher global marketing and research and development costs, higher information technology costs and higher costs related to global initiatives. The decrease in net global expenses was primarily due to lower costs to implement restructuring initiatives and lower professional service fees associated with our PLS initiative.

The increase in the amount allocated to the segments in 2007 was primarily due to higher global marketing costs, reflecting increased spending for market research, research and development, and advertising. The increase in net global expenses in 2007 was primarily due to higher costs related to global initiatives, higher information technology costs and higher performance-based compensation expense.

Latin America – 2008 Compared to 2007


							%/Point Change
	2008			2007			US$		Local Currency
Total revenue	$	3,884.1		$	3,298.9		18	%	14	%
Operating profit		690.3			483.1		43	%	38	%
Operating margin		17.8	%		14.6	%	3.2		3.0

Units sold									4	%
Active Representatives									6	%

Total revenue increased for 2008, driven by a larger average order and growth in Active Representatives, as well as favorable foreign exchange. Growth in Active Representatives reflects significant investments in RVP and a continued high level of investment in advertising. Revenue for 2008 benefited from continued growth in substantially all markets. In particular, during 2008, revenue grew 24% in Brazil, 36% in Venezuela, 5% in Mexico and 3% in

Colombia. Revenue growth in Brazil was driven by higher average order, growth in Active Representatives and the impact of foreign exchange. Revenue growth in Venezuela was driven by higher average order, while revenue in Mexico benefited from growth in Active Representatives. We have experienced a deceleration of growth in Colombia during the second half of 2008 due to economic conditions as well as competition.

The increase in operating margin in Latin America for 2008 was primarily due to the impact of higher revenues, increased pricing, lower inventory obsolescence expense, and lower costs to implement restructuring initiatives. These benefits to margin were partially offset by higher investments in RVP. Operating margin for 2007 benefited from the recognition of unclaimed sales-related tax credits.

Currency restrictions enacted by the Venezuelan government in 2003 have impacted the ability of our subsidiary in Venezuela (“Avon Venezuela”) to obtain foreign currency at the official rate to pay for imported products. Unless official foreign exchange is made more readily available, Avon Venezuela’s operations will continue to be negatively impacted as it will need to obtain more of its foreign currency needs from non-government sources where the exchange rate is less favorable than the official rate.

At December 31, 2008, Avon Venezuela had cash balances of approximately $120, primarily denominated in bolivars. During 2007, Avon Venezuela remitted dividends of approximately $40 at the official exchange rate. Avon Venezuela continues to receive official foreign exchange for some of its imports and other remittances. We continue to use the official rate to translate the financial statements of Avon Venezuela into U.S. dollars. During 2008, Avon Venezuela’s revenue and operating profit represented approximately 4% and 8% of consolidated revenue and consolidated operating profit, respectively.

Inflation in Venezuela has continued to increase over the past few years and it is possible that Venezuela will be designated as a highly inflationary economy during 2009. Gains and losses resulting from the translation of the financial statements of subsidiaries operating in highly inflationary economies are recorded in earnings. If Venezuela is designated as a highly inflationary economy and there is a devaluation of the official rate, earnings will be negatively impacted. For example, based on the balance sheet of our Venezuelan subsidiary at December 31, 2008, if Venezuela is designated as a highly inflationary economy and there is a 20% devaluation, our pre-tax earnings would be negatively impacted by approximately $30. Additionally, revenue and operating profit on an ongoing basis would be impacted by the devaluation.

Latin America – 2007 Compared to 2006


							%/Point Change
	2007			2006			US$		Local Currency
Total revenue	$	3,298.9		$	2,743.4		20	%	13	%
Operating profit		483.1			424.0		14	%	3	%
Operating margin		14.6	%		15.5	%	(.9	)	(1.3	)

Units sold									9	%
Active Representatives									8	%

Total revenue increased during 2007, driven by growth in Active Representatives, reflecting significant investments in advertising and RVP, and a larger average order, as well as favorable foreign exchange. Revenue for 2007 benefited from growth in most markets, particularly from growth of approximately 30% in each of Brazil, Colombia and Venezuela.

Revenue growth in Brazil for 2007 was driven by increases in both average order and Active Representatives, primarily due to significant investments in advertising and RVP, recruiting advertising and field incentives, as well as favorable foreign exchange. Revenue in Mexico was flat in 2007, as a mid-single digit increase in Active Representatives was offset by a lower average order. The increase in Active Representatives in Mexico primarily reflects strengthened training and incentives and the retraining of our zone managers in field fundamentals. The lower average order was mainly due to product mix and a higher share of sales from new Representatives.

The decrease in operating margin for 2007 was primarily driven by higher spending on advertising and RVP and an unfavorable mix of products sold. These higher costs were partially offset by the impact of higher revenue, lower costs to implement restructuring initiatives, which positively impacted operating margin by .8 point, savings associated with position eliminations resulting from restructuring initiatives, and the recognition of unclaimed sales-related tax credits.

North America – 2008 Compared to 2007


							%/Point Change
	2008			2007			US$		Local Currency
Total revenue	$	2,492.7		$	2,622.1		(5	)%	(5	)%
Operating profit		213.9			213.1		0	%	1	%
Operating margin		8.6	%		8.1	%	.5		.5

Units sold									(4	)%
Active Representatives									2	%

North America consists largely of Avon’s U.S. business.

Revenue for 2008 was impacted by the macroeconomic environment, including deteriorating consumer confidence and higher year-over-year fuel prices. Sales of non-Beauty products declined 9% in 2008, consistent with the general retail environment. Sales of Beauty products declined 1% in 2008. Given the economic environment, we expect these trends to continue.

Total revenue decreased for 2008, as the lower average order received from Representatives more than offset an increase in Active Representatives. Growth in Active Representatives benefited from continued investments in RVP, including more frequent brochure distribution in Canada, and recruiting advertising. The decline in average order was in large part due to customer demand for non-beauty products slowing markedly in this recessionary environment.

The increase in operating margin for 2008 was primarily driven by lower obsolescence and overhead expenses. These benefits to operating margin were partially offset by higher variable selling costs, including paper for the brochure, bad debt and transportation, and the impact of lower revenue.

North America – 2007 Compared to 2006


							%/Point Change
	2007			2006			US$		Local Currency
Total revenue	$	2,622.1		$	2,554.0		3	%	2	%
Operating profit		213.1			181.6		17	%	15	%
Operating margin		8.1	%		7.1	%	1.0		.9

Units sold									3	%
Active Representatives									3	%

Total revenue increased 3% in 2007, primarily due to growth in Active Representatives, benefiting from continued investments in RVP and recruiting advertising. During the fourth quarter of 2007, we began to see decelerating trends in non-Beauty, particularly in accessories and apparel, driven by the negative impact of rising gas prices, as well as softness in the U.S. retail sector, which negatively impacted average order.

The increase in operating margin for 2007 was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 1.9 points, savings associated with position eliminations resulting from restructuring initiatives and supply chain efficiencies. These benefits to operating margin were partially offset by higher inventory obsolescence expense, higher spending on advertising and RVP, and costs related to the implementation of an enterprise resource planning system.

Central & Eastern Europe – 2008 Compared to 2007


							%/Point Change
	2008			2007			US$		Local Currency
Total revenue	$	1,719.5		$	1,577.8		9	%	4	%
Operating profit		346.2			296.1		17	%	11	%
Operating margin		20.1	%		18.8	%	1.3		1.1

Units sold									2	%
Active Representatives									12	%

Beginning at the end of June 2007, we provided our Representatives with additional selling opportunities through more frequent brochure distribution, which encourages more frequent customer contact. Active representative growth during the first half of 2008 benefited from the increased brochure distribution frequency.

Total revenue increased for 2008, reflecting growth in Active Representatives, as well as favorable foreign exchange, partially offset by a lower average order. Average order was impacted by a lower average order during the first half of 2008 as our Representatives transitioned to the shorter selling cycle. Average order during the second half of 2008 declined to a much lesser degree as compared to the first half of 2008.

For 2008, the region’s revenue growth benefited from increases in Russia of 8%, as well as growth in other markets in the region, led by Ukraine with growth of over 20%. The revenue increase in Russia for 2008 was primarily due to strong growth in Active Representatives, as well as favorable foreign exchange. We completed the roll-out of Sales Leadership and improved the discount structure we offer Representatives in Russia near the end of the third quarter of 2008.

The increase in operating margin for 2008 was primarily driven by the impact of higher revenue, lower inventory obsolescence expense and increased pricing, partially offset by higher spending on RVP and advertising, and the impact of unfavorable foreign exchange on product cost.

Central & Eastern Europe – 2007 Compared to 2006


							%/Point Change
	2007			2006			US$		Local Currency
Total revenue	$	1,577.8		$	1,320.2		20	%	10	%
Operating profit		296.1			296.7		—	%	(12	)%
Operating margin		18.8	%		22.5	%	(3.7	)	(4.3	)

Units sold									6	%
Active Representatives									13	%

Total revenue increased for 2007, reflecting growth in Active Representatives, as well as favorable foreign exchange, partially offset by a lower average order as our Representatives transitioned to a shorter selling cycle. Active Representative growth for 2007 benefited from additional selling opportunities that we provided to our Representatives through more frequent brochure distribution beginning at the end of June 2007, which encourages more frequent customer contact.

The region’s revenue growth in 2007 was primarily driven by Russia, as well as growth in all markets in the region. Revenue in Russia increased over 20% for 2007 due to strong Active Representative growth, which benefited from the additional selling opportunities, as well as favorable foreign exchange. Revenue in Russia for 2007 also benefited from increased advertising, continued merchandising improvements, and the launch of “Hello Tomorrow.”

The decrease in operating margin for 2007 was primarily driven by higher inventory obsolescence expense, higher spending on advertising and RVP, partially offset by lower product costs due to favorable foreign exchange movements and the impact of higher revenue.

Western Europe, Middle East & Africa – 2008 Compared to 2007


							%/Point Change
	2008			2007			US$		Local Currency
Total revenue	$	1,351.7		$	1,308.6		3	%	6	%
Operating profit		121.0			33.9		*		*
Operating margin		8.9	%		2.6	%	6.3		6.8

Units sold									(3	)%
Active Representatives									4	%

*	Calculation not meaningful

Total revenue increased for 2008 due to growth in Active Representatives and a higher average order, partially offset by unfavorable foreign exchange. Revenue growth for 2008 was driven by Italy and Turkey.

Revenue in the United Kingdom in 2008 declined 3% due to unfavorable foreign exchange. Revenue in the United Kingdom in local currency increased, driven by an increase in Active Representatives, benefiting from investments in representative recruiting. Revenue in the United Kingdom also benefited from the continued roll-out of PLS and strong merchandising. Revenue growth in Turkey of 8% for 2008 was due to a larger average order. Revenue in Turkey also benefited from continued high levels of investments in advertising and RVP. Revenue in Italy in 2008 increased due to growth in Active Representatives.

The increase in operating margin for 2008 was primarily driven by lower costs to implement restructuring initiatives, the impact of higher revenue, lower inventory obsolescence expense, lower overhead expenses and increased pricing. These benefits to operating margin were partially offset by the impact of unfavorable foreign exchange on product cost and higher spending on RVP and advertising.

Western Europe, Middle East & Africa – 2007 Compared to 2006


							%/Point Change
	2007			2006			US$		Local Currency
Total revenue	$	1,308.6		$	1,123.7		16	%	7	%
Operating profit		33.9			(17.8	)	*		*
Operating margin		2.6	%		(1.6	)%	4.2		3.1

Units sold									6	%
Active Representatives									7	%

*	Calculation not meaningful

Total revenue increased for 2007 reflecting growth in Active Representatives, as well as favorable foreign exchange. The revenue increase for 2007 was primarily driven by growth in Turkey and the U.K. Revenue growth in Turkey of over 35% for 2007 was primarily due to growth in Active Representatives, as well as favorable foreign exchange. Revenue growth in the U.K. of over 10% in 2007 benefited from growth in Active Representatives, mainly due to the strength of the Sales Leadership program, and favorable foreign exchange. Revenue in Turkey and the U.K. also benefited from new product launches and significant investments in advertising and RVP.

Operating margin for 2006 was suppressed by 1.9 points due to $21.0 of expense associated with the resolution of a value-added tax dispute in the U.K. in the third quarter of 2006. The increase in operating margin for 2007 was also driven by lower product costs due to favorable foreign exchange movements and savings associated with position eliminations resulting from restructuring initiatives. These benefits to operating margin were partially offset by higher costs to implement restructuring initiatives, which negatively impacted operating margin by 1.1 points in 2007, higher spending on advertising and RVP and higher inventory obsolescence expense.

Asia Pacific – 2008 Compared to 2007


							%/Point Change
	2008			2007			US$		Local Currency
Total revenue	$	891.2		$	850.8		5	%	0	%
Operating profit		102.4			64.3		59	%	54	%
Operating margin		11.5	%		7.6	%	3.9		4.0

Units sold									0	%
Active Representatives									4	%

Total revenue increased for 2008 due to foreign exchange. Revenue growth in the Philippines of almost 20%, was primarily due to growth in Active Representatives, supported by RVP initiatives, as well as favorable foreign exchange. Revenue in Japan increased slightly due to foreign exchange. Revenue in Japan in local currency declined in 2008 due to lower sales from both direct mail and direct selling. We expect to continue to see downward pressure in Japan going forward. Revenue in Taiwan declined in 2008, reflecting the impact of a field restructuring and economic weakness, partially offset by favorable foreign exchange.

Operating margin increased for 2008, primarily due to the impact of lower inventory obsolescence expense, increased pricing and lower overhead expenses, partially offset by higher spending on RVP and an unfavorable mix of products sold.

Asia Pacific – 2007 Compared to 2006


							%/Point Change
	2007			2006			US$		Local Currency
Total revenue	$	850.8		$	810.8		5	%	(1	)%
Operating profit		64.3			42.5		51	%	35	%
Operating margin		7.6	%		5.2	%	2.4		1.9

Units sold									2	%
Active Representatives									4	%

Total revenue increased for 2007 due to favorable foreign exchange. The region’s revenue increase for 2007 was primarily driven by growth in the Philippines, partially offset by declines in Japan and Taiwan. Revenue in the Philippines for 2007 increased almost 30%, driven by substantial growth in Active Representatives, supported by RVP initiatives, including the roll-out of the Sales Leadership program nationwide, and investments in recruiting advertising, as well as favorable foreign exchange. Revenue in Japan declined mid-single digits for 2007, reflecting weak performance in skin care. In Japan, lower sales from direct mailing were partially offset by a modest increase in sales from direct selling. While less than the overall revenue decline in the beauty market, revenue in Taiwan declined due to economic weakness.

The increase in operating margin for 2007 was primarily driven by lower costs to implement restructuring initiatives, which positively impacted operating margin by 2.2 points. Additionally, the operating margin improvement was due to lower inventory obsolescence expense and savings associated with position eliminations resulting from restructuring initiatives, partially offset by higher spending on RVP and advertising and unfavorable category and country mixes of products sold.

China – 2008 Compared to 2007


							%/Point Change
	2008			2007			US$		Local Currency
Total revenue	$	350.9		$	280.5		25	%	14	%
Operating profit		17.7			2.0		*		*
Operating margin		5.0	%		.7	%	4.3		4.1

Units sold									2	%
Active Representatives									79	%

*	Calculation not meaningful

Revenue in China increased for 2008, primarily due to an increase in Active Representatives, partially offset by a lower average order. The growth in Active Representatives reflected continued expansion of our direct selling efforts, which were supported with significant Representative recruiting, television advertising and field incentives. The lower average order resulted from the continued expansion of direct selling, as Representatives order in smaller quantities than beauty boutiques, and orders from new Representatives tend to be smaller than the average direct selling order. Beauty boutique ordering activity levels have remained steady during this extended period of direct selling expansion, as our beauty boutique operators continue to service our Representatives.

The results in China for 2008 were negatively impacted by the earthquake and subsequent flooding that occurred during the second quarter of 2008.

The increase in operating margin for 2008 was primarily driven by the impact of higher revenue and lower product costs, partially offset by ongoing higher spending on RVP and advertising and costs associated with the 2008 earthquake and floods. Operating margin for 2007 benefited from higher reductions in reserves for statutory liabilities.

For information concerning an internal investigation into our China operations, see Risk Factors and Note 15, Contingencies.

China – 2007 Compared to 2006


							%/Point Change
	2007			2006			US$		Local Currency
Total revenue	$	280.5		$	211.8		32	%	26	%
Operating profit		2.0			(10.8	)	*		*
Operating margin		.7	%		(5.1	)%	5.8		5.5

Units sold									19	%
Active Representatives									145	%

*	Calculation not meaningful

Total revenue in China increased significantly in 2007, primarily due to an increase in Active Representatives reflecting further expansion of the direct-selling business, which contributed over one half of the region’s revenue in 2007. Active Representatives increased significantly in 2007 due to Representative recruiting, as well as the absence of a meaningful base comparison for the first half of 2006. The lower average order was mainly due to a higher share of sales from new Representatives. At the same time that we have been building on direct selling, we have seen ordering activity levels maintained by our beauty boutiques as they continue to engage in direct selling by servicing our Representatives. Additionally, the number of beauty boutiques has remained stable over the last year. Revenue in 2007 benefited from representative recruiting and continued significant investments in advertising.

The increase in operating margin for 2007 was primarily driven by the impact of higher revenue and a reduction of a reserve for statutory liabilities. These positive impacts were partially offset by ongoing higher spending on RVP and fees paid to registered service centers for providing services to our Active Representatives.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds historically have been cash flows from operations, commercial paper and borrowings under lines of credit. We currently believe that existing cash, cash from operations (including the impacts of cash required for restructuring initiatives) and available sources of public and private financing are adequate to meet anticipated requirements for working capital, dividends, capital expenditures, the share repurchase program, possible acquisitions and other cash needs in the short and long term.

We may, from time to time, seek to repurchase our equity in open market purchases, privately negotiated transactions, pursuant to derivative instruments or otherwise. During 2008, we repurchased approximately 4.6 million shares of our common stock for an aggregate purchase price of approximately $172.

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 and acquisitions. At any given time, we may be in the process of discussing and negotiating an acquisition. An acquisition may be accretive or dilutive and by its 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.

While recent turmoil in global financial markets has limited access to capital for many companies, in 2008 we did not experience any limitations in issuing commercial paper, reflecting our investment-grade credit rating (Standard and Poor’s rating of single A and Moody’s rating of A2). In addition, our commercial paper program is fully supported by a revolving line of credit, which is described below under “Capital Resources”. Management is not aware of any issues currently impacting our lenders’ ability to honor their commitment to extend credit under the revolving line of credit. It is unclear the extent to which this credit crisis will persist and what overall impact it may have on Avon.

Balance Sheet Data


	2008		2007
Cash and cash equivalents	$	1,104.7	$	963.4
Total debt		2,487.6		2,097.4
Working capital		644.7		462.0

Cash Flows


	2008			2007			2006
Net cash provided by operating activities	$	748.1		$	589.8		$	796.1
Net cash used by investing activities		(403.4	)		(287.2	)		(207.9	)
Net cash used by financing activities		(141.5	)		(597.1	)		(490.4	)
Effect of exchange rate changes on cash and equivalents		(61.9	)		59.0			42.4

Net Cash Provided by Operating Activities

Net cash provided by operating activities during 2008 was $158.3 higher than during 2007, primarily due to higher cash-related net income in 2008, favorable impacts of inventory and accounts receivable balances and lower contributions to retirement-related plans in 2008. These cash inflows were partially offset by the unfavorable impact of the accounts payable balance, additional payments of value added taxes due to a tax law change in Brazil that we began to recover during the fourth quarter of 2008, higher incentive-based compensation payments in 2008 related to our 2006-2007 Turnaround Incentive Plan and a payment of $38.0 upon settlement of treasury lock agreements associated with our $500 debt issuance during the first quarter of 2008.

Inventory levels decreased during 2008, to $1,007.9 at December 31, 2008, from $1,041.8 at December 31, 2007, reflecting the impact of foreign exchange, partially offset by business growth and revenue declines in North America. New inventory life cycle management processes leveraged with initiatives such as PLS, SSI, ERP implementation and the Sales and Operations Planning process are expected to improve inventory levels in the long-term. Inventory days are down three days in 2008 as compared to 2007, and we expect our initiatives to help us deliver improvements of three to five inventory day reductions per year for the next three to four years.

We maintain defined benefit pension plans and unfunded supplemental pension benefit plans (see Note 11, Employee Benefit Plans). Our funding policy for these plans is based on legal requirements and cash flows. The amounts necessary to fund future obligations under these plans could vary depending on estimated assumptions (as detailed in “Critical Accounting Estimates”). The future funding for these plans will depend on economic conditions, employee demographics, mortality rates, the number of associates electing to take lump-sum distributions, investment performance and funding decisions. Based on current assumptions, we expect to make contributions in the range of $60 to $100 to our U.S. pension plans and in the range of $20 to $30 to our international pension plans during 2009.

Net cash provided by operating activities decreased by $206.3 during 2007 as compared to 2006, primarily due to higher payments for inventory purchases, higher incentive-based compensation payments in 2007 for compensation earned in 2006 and higher interest payments, partially offset by lower payments associated with restructuring initiatives.

Net Cash Used by Investing Activities

Net cash used by investing activities during 2008 was $116.2 higher than 2007, primarily due to higher capital expenditures. 2007 included a payment associated with an acquisition of a licensee in Egypt.

Capital expenditures during 2008 were $380.5 compared with $278.5 in 2007. This increase was primarily driven by capital spending in 2008 for the construction of new distribution facilities in North America and Latin America, and information systems (including the continued development of the ERP system). Plant construction, expansion and modernization projects were in progress at December 31, 2008, with an estimated cost to complete of approximately $430. Capital expenditures in 2009 are currently expected to be in the range of $325 to $375 and will be funded by cash from operations. These expenditures will include investments for capacity expansion, modernization of existing facilities, continued construction of new distribution facilities in North America and Latin America and information systems.

Net cash used by investing activities in 2007 was $79.3 higher than in 2006 resulting from higher capital expenditures during 2007, and from payments associated with an acquisition of a licensee in Egypt during 2007, partially offset by the acquisition of the remaining minority interest in our two joint venture subsidiaries in China for approximately $39 during 2006.

Capital expenditures during 2007 were $278.5 compared with $174.8 in 2006. The increase in capital spending was primarily driven by spending in 2007 for capacity expansion, the construction of a new distribution facility in North America and information systems (including the continued development of the ERP system).

Net Cash Used by Financing Activities

Net cash used by financing activities during 2008 was $455.6 lower than during 2007, primarily due to lower repurchases of common stock during 2008.

Net cash used by financing activities in 2007 was $106.7 higher than in 2006, mainly driven by higher repurchases of common stock during 2007, partially offset by higher short-term borrowings and higher proceeds from stock option exercises during 2007.

We purchased approximately 4.6 million shares of Avon common stock for $172.1 during 2008, as compared to approximately 17.3 million shares of Avon common stock for $666.8 during 2007 and approximately 11.6 million shares of Avon common stock for $355.1 during 2006, under our previously announced share repurchase programs and through acquisition of stock from employees in connection with tax payments upon vesting of restricted stock units. In October 2007, the Board of Directors authorized the repurchase of $2,000.0 of our common stock over a five-year period, which began in December 2007.

We increased our quarterly dividend payments to $.20 per share in 2008 from $.185 per share in 2007. In February 2009, our Board approved an increase in the quarterly dividend to $.21 per share.

Debt and Contractual Financial Obligations and Commitments

At December 31, 2008, our debt and contractual financial obligations and commitments by due dates were as follows:


	2009		2010		2011		2012		2013		2014 and Beyond		Total
Short-term debt	$	1,027.1	$	—	$	—	$	—	$	—	$	—	$	1,027.1
Long-term debt		—		—		500.0		—		375.0		500.0		1,375.0
Capital lease obligations		4.3		4.3		2.8		2.5		0.8		—		14.7

Total debt		1,031.4		4.3		502.8		2.5		375.8		500.0		2,416.8
Debt-related interest		90.7		68.9		55.8		42.8		33.8		63.0		355.0

Total debt-related		1,122.1		73.2		558.6		45.3		409.6		563.0		2,771.8
Operating leases		87.9		61.6		42.7		21.8		17.0		45.6		276.6
Purchase obligations		106.3		55.3		25.8		17.7		16.1		49.9		271.1
Benefit obligations ⁽¹⁾		77.4		13.9		11.6		10.4		11.3		50.4		175.0

Total debt and contractual financial obligations and commitments ⁽²⁾	$	1,393.7	$	204.0	$	638.7	$	95.2	$	454.0	$	708.9	$	3,494.5

⁽ ¹ ⁾

Amounts represent expected future benefit payments for our unfunded pension and postretirement benefit plans, as well as expected contributions for 2009 to our funded pension benefit plans.

⁽²⁾

The amount of debt and contractual financial obligations and commitments excludes amounts due pursuant to derivative transactions. The table also excludes information on recurring purchases of inventory as these purchase orders are non-binding, are generally consistent from year to year, and are short-term in nature. The table does not include any reserves for income taxes under FIN 48 because we are unable to reasonably predict the ultimate amount or timing of settlement of our reserves for income taxes. At December 31, 2008, our reserves for income taxes, including interest and penalties, totaled $118.3.

See Note 4, Debt and Other Financing, and Note 13, Leases and Commitments, for further information on our debt and contractual financial obligations and commitments. Additionally, as disclosed in Note 14, Restructuring Initiatives, we have a remaining liability of $93.9 at December 31, 2008, associated with the restructuring charges recorded to date, and we also expect to record additional restructuring charges of $21.9 in future periods to implement the actions approved to date. The significant majority of these liabilities will require cash payments during 2009.

Off Balance Sheet Arrangements

At December 31, 2008, we had no material off-balance-sheet arrangements.

Capital Resources

We have a five-year, $1,000.0 revolving credit and competitive advance facility (the “credit facility”), which expires in January 2011. The credit facility may be used for general corporate purposes. The interest rate on borrowings under this credit facility is based on LIBOR or on the higher of prime or ¹ / 2 % plus the federal funds rate. The credit facility has an annual fee of $.7, payable quarterly, based on our current credit ratings. The credit facility contains various covenants, including a financial covenant which requires Avon’s interest coverage ratio (determined in relation to our consolidated pretax income and interest expense) to equal or exceed 4:1. The credit facility also provides for possible increases by up to an aggregate incremental principal amount of $250.0, subject to the consent of the affected lenders under the credit facility. At December 31, 2008, there were no amounts outstanding under the credit facility.

We have a $1,000.0 commercial paper program. 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 $1,000.0 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. The commercial paper program is supported by our credit facility. Outstanding commercial paper effectively reduces the amount available for borrowing under the credit facility. At December 31, 2008, we had commercial paper outstanding of $499.7.

We have a Japanese yen 11 billion ($122.0 at the exchange rate on December 31, 2008) uncommitted credit facility (“yen credit facility”), which expires in August 2009. Borrowings under the yen credit facility bear interest at the yen

LIBOR rate plus an applicable margin. The yen credit facility is available for general corporate purposes, including working capital and the repayment of outstanding indebtedness. At December 31, 2008, $102.0 (Japanese yen 9.2 billion) was outstanding under the yen credit facility.

In March 2008, we issued $500.0 principal amount of notes payable in a public offering. $250.0 of the notes bear interest at a per annum coupon rate equal to 4.8%, payable semi-annually, and mature on March 1, 2013, unless redeemed prior to maturity (the “2013 Notes”). $250.0 of the notes bear interest at a per annum coupon rate of 5.75%, payable semi-annually, and mature on March 1, 2018, unless redeemed prior to maturity (the “2018 Notes”). The net proceeds from the offering of $496.3 were used to repay outstanding indebtedness under our commercial paper program and for general corporate purposes. In August 2007, we entered into treasury lock agreements (the “locks”) with notional amounts totaling $500.0 designated as cash flow hedges of the anticipated interest payments on $250.0 principal amount of the 2013 Notes and $250.0 principal amount of the 2018 Notes. The losses on the locks of $38.0 were recorded in accumulated other comprehensive loss. $19.2 and $18.8 of the losses are being amortized to interest expense over five years and ten years, respectively.

At December 31, 2008, we were in compliance with all covenants in our indentures (see Note 4, Debt and Other Financing). Such indentures do not contain any rating downgrade triggers that would accelerate the maturity of our debt. However, we would be required to make an offer to repurchase the 2013 Notes and 2018 Notes at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change in control involving Avon and a corresponding ratings downgrade to below investment grade.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The overall objective of our financial risk management program is to reduce the potential negative effects from changes in foreign exchange and interest rates arising from our business activities. We may reduce our exposure to fluctuations in cash flows associated with changes in interest rates and foreign exchange rates by creating offsetting positions through the use of derivative financial instruments and through operational means. Since we use foreign currency rate-sensitive and interest rate-sensitive instruments to hedge a certain portion of our existing and forecasted transactions, we expect that any loss in value for the hedge instruments generally would be offset by increases in the value of the underlying transactions.

We do not enter into derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives. The master agreements governing our derivative contracts generally contain standard provisions that could trigger early termination of the contracts in certain circumstances, including if we were to merge with another entity and the creditworthiness of the surviving entity were to be “materially weaker” than that of Avon prior to the merger.

Interest Rate Risk

Our long-term, fixed-rate borrowings are subject to interest rate risk. We use interest rate swaps, which effectively convert the fixed rate on the debt to a floating interest rate, to manage our interest rate exposure. At December 31, 2008 and 2007, we held interest rate swap agreements that effectively converted approximately 50% and 30% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR, respectively. Avon’s total exposure to floating interest rates at December 31, 2008, and December 31, 2007, was approximately 65% and 60%, respectively.

Our long-term borrowings and interest rate swaps were analyzed at year-end to determine their sensitivity to interest rate changes. Based on the outstanding balance of all these financial instruments at December 31, 2008, a hypothetical 50-basis-point change (either an increase or a decrease) in interest rates prevailing at that date, sustained for one year, would not represent a material potential change in fair value, earnings or cash flows. This potential change was calculated based on discounted cash flow analyses using interest rates comparable to our current cost of debt.

Foreign Currency Risk

We operate globally, with operations in various locations around the world. Over the past three years, approximately 75% to 80% of our consolidated revenue was derived from operations of subsidiaries outside of the U.S. The functional currency for most of our foreign operations is the local currency. We are exposed to changes in financial market conditions in the normal course of our operations, primarily due to international businesses and transactions denominated in foreign currencies and the use of various financial instruments to fund ongoing activities. At December 31, 2008, the primary currencies for which we had net underlying foreign currency exchange rate exposures were the Argentine peso, Brazilian real, British pound, Canadian dollar, Chinese renminbi, Colombian peso, the Euro, Japanese yen, Mexican peso, Philippine peso, Polish zloty, Russian ruble, Turkish lira, Ukrainian hryvna and Venezuelan bolivar.

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.

Our hedges of our foreign currency exposure are not designed to, and, therefore, cannot entirely eliminate the effect of changes in foreign exchange rates on our consolidated financial position, results of operations and cash flows.

Our foreign-currency financial instruments were analyzed at year-end to determine their sensitivity to foreign exchange rate changes. Based on our foreign exchange contracts at December 31, 2008, the impact of a hypothetical 10% appreciation or 10% depreciation of the U.S. dollar against our foreign exchange contracts would not represent a material potential change in fair value, earnings or cash flows. This potential change does not consider our underlying foreign currency exposures. The hypothetical impact was calculated on the open positions using forward rates at December 31, 2008, adjusted for an assumed 10% appreciation or 10% depreciation of the U.S. dollar against these hedging contracts.

Credit Risk of Financial Instruments

We attempt to minimize our credit exposure to counterparties by entering into derivative transactions and similar agreements only with major international financial institutions with “A” or higher credit ratings as issued by Standard & Poor’s Corporation. Our foreign currency and interest rate derivatives are comprised of over-the-counter forward contracts, swaps or options with major international financial institutions. Although our theoretical credit risk is the replacement cost at the then estimated fair value of these instruments, we believe that the risk of incurring credit risk losses is remote and that such losses, if any, would not be material.

Non-performance of the counterparties on the balance of all the foreign exchange and interest rate agreements would result in a write-off of $111.8 at December 31, 2008. In addition, in the event of non-performance by such counterparties, we would be exposed to market risk on the underlying items being hedged as a result of changes in foreign exchange and interest rates.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the Index on page F-1 of our Consolidated Financial Statements and Notes thereto contained herein.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

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 December 31, 2008, 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 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.

Management’s Report on Internal Control over Financial Reporting

Avon’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is defined as a process designed by, or under the supervision of, Avon’s principal executive and principal financial officers and effected by Avon’s board of directors, management and other personnel, 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, and includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Avon;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Avon are being made only in accordance with authorizations of management and directors of Avon; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Avon’s assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Under the supervision and with the participation of our management, including its principal executive and principal financial officers, we assessed as of December 31, 2008, the effectiveness of our internal control over financial reporting. This assessment was based on criteria established in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting as of December 31, 2008, was effective.

PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this 2008 Annual Report on Form 10-K, has audited the effectiveness of Avon’s internal control over financial reporting as of December 31, 2008. Their report is included on page F-2 of this 2008 Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

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, 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 appropriately tested for effectiveness prior to 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 has not materially affected our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

Not applicable.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

Information regarding directors is incorporated by reference to the “Proposal 1 - Election of Directors” and “Information Concerning the Board of Directors” sections of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

Executive Officers

Information regarding executive officers is incorporated by reference to the “Executive Officers” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

Section 16(a) Beneficial Ownership Reporting Compliance

This information is incorporated by reference to the “Section 16(a) Beneficial Ownership Reporting Compliance” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

Code of Business Conduct and Ethics

Avon’s Board of Directors has adopted a Code of Business Conduct and Ethics, amended in February 2008, that applies to all members of the Board of Directors and to all of the Company’s employees, including its principal executive officer, principal financial officer and principal accounting officer or controller. Avon’s Code of Business Conduct and Ethics is available, free of charge, on Avon’s investor website, www.avoninvestor.com . Avon’s Code of Business Conduct and Ethics is also available, without charge, from Investor Relations, Avon Products, Inc., 1345 Avenue of the Americas, New York, NY 10105-0196 or by sending an email to investor.relations@avon.com or by calling (212) 282-5623. Any amendment to, or waiver from, the provisions of this Code of Business Conduct and Ethics that applies to any of those officers will be posted to the same location on Avon’s website.

Audit Committee; Audit Committee Financial Expert

This information is incorporated by reference to the “Information Concerning the Board of Directors” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

Material Changes in Nominating Procedures

This information is incorporated by reference to the “Information Concerning the Board of Directors” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

ITEM 11.

EXECUTIVE COMPENSATION

This information is incorporated by reference to the “Information Concerning the Board of Directors,” “Executive Compensation” and “Director Compensation” sections of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

This information is incorporated by reference to the “Equity Compensation Plan Information” and “Ownership of Shares” sections of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

This information is incorporated by reference to the “Information Concerning the Board of Directors” and “Transactions with Related Persons” sections of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

This information is incorporated by reference to the “Proposal 2 - Ratification of Appointment of Independent Registered Public Accounting Firm” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

(a) 1. Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm

See Index on page F-1.

(a) 2 . Financial Statement Schedule

See Index on page F-1.

All other schedules are omitted because they are not applicable or because the required information is shown in the consolidated financial statements and notes.

(a) 3. Index to Exhibits


Exhibit Number		Description
3.1		Restated Certificate of Incorporation, filed with the Secretary of State of the State of New York on May 3, 2007 (incorporated by reference to Exhibit 3.1 to Avon’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).

3.2		By-laws of Avon, as amended, effective May 3, 2007 (incorporated by reference to Exhibit 3.1 to Avon’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007).

4.1		Indenture, dated as of November 9, 1999, between Avon, as Issuer, and The Chase Manhattan Bank, as Trustee, relating to the 6.90% Notes due 2004, and the 7.15% Notes due 2009 (incorporated by reference to Exhibit 4.2 to Avon’s Registration Statement on Form S-4, Registration Statement No. 333-92333 filed December 8, 1999).

4.2		First Supplemental Indenture, dated as of January 5, 2000, between Avon, as Issuer and The Chase Manhattan Bank, as Trustee, pursuant to which the 6.90% Notes due 2004, and the 7.15% Notes due 2009 are issued (incorporated by reference to Exhibit 4.3 to Avon’s Registration Statement on Form S-4/A, Registration Statement No. 333-92333 filed January 6, 2000).

4.3		Indenture, dated as of May 13, 2003, between Avon, as Issuer, and JPMorgan Chase Bank, as Trustee, relating to Avon’s $125.0 aggregate principal amount of 4.625% Notes due 2013, $250.0 aggregate principal amount of 4.20% Notes due 2018 and $500.0 aggregate principal amount of Avon’s 5.125% Notes due 2011 (incorporated by reference to Exhibit 4.1 to Avon’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).

4.4		First Supplemental Indenture, dated as of March 3, 2008, between Avon Products, Inc. and Deutsche Bank Trust Company Americas, as Trustee, pursuant to which the 4.800% Notes due 2013 are issued (incorporated by reference to Exhibit 4.1 to Avon’s Current Report on Form 8-K filed on March 4, 2008).

4.5		Second Supplemental Indenture, dated as of March 3, 2008, between Avon Products, Inc. and Deutsche Bank Trust Company Americas, as Trustee, pursuant to which the 5.750% Notes due 2018 are issued (incorporated by reference to Exhibit 4.2 to Avon’s Current Report on Form 8-K filed on March 4, 2008).

4.6		Indenture, dated as of February 27, 2008, between Avon Products, Inc. and Deutsche Bank Trust Company Americas, as Trustee (incorporated by reference to Exhibit 4.5 to Avon’s Current Report on Form 8-K filed on March 4, 2008).

10.1*		Avon Products, Inc. 1993 Stock Incentive Plan, approved by stockholders on May 6, 1993 (incorporated by reference to Exhibit 10.2 to Avon’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1993).

10.2*		Form of Stock Option Agreement to the Avon Products, Inc. 1993 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Avon’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.3*		First Amendment of the Avon Products, Inc. 1993 Stock Incentive Plan, effective January 1, 1997, approved by stockholders on May 1, 1997 (incorporated by reference to Exhibit 10.1 to Avon’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).

10.4*		Avon Products, Inc. Year 2000 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement as filed with the Commission on March 27, 2000 in connection with Avon’s 2000 Annual Meeting of Shareholders).



10.5*		Amendment of the Avon Products, Inc. Year 2000 Stock Incentive Plan, effective January 1, 2002 (incorporated by reference to Exhibit 10.17 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2002).

10.6*		Second Amendment to the Avon Products, Inc. Year 2000 Stock Incentive Plan, effective January 1, 2009.

10.7*		Form of U.S. Stock Option Agreement under the Avon Products, Inc. Year 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Avon’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).

10.8*		Form of U.S. Restricted Stock Unit Award Agreement under the Avon Products, Inc. Year 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.39 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2005).

10.9*		Form of Revised U.S. Stock Option Agreement under the Avon Products, Inc. Year 2000 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to Avon’s Current Report on Form 8-K filed on March 8, 2005).

10.10*		Form of Revised U.S. Restricted Stock Unit Award Agreement under the Avon Products, Inc. Year 2000 Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to Avon’s Current Report on Form 8-K filed on March 8, 2005).

10.11*		Avon Products, Inc. 2005 Stock Incentive Plan approved by stockholders on May 5, 2005 (incorporated by reference to Appendix G to Avon’s Definitive Proxy Statement filed on May 5, 2005 in connection with Avon’s 2005 Annual Meeting of Shareholders).

10.12*		First Amendment of the Avon Products, Inc. 2005 Stock Incentive Plan, effective January 1, 2006 (incorporated by reference to Exhibit 10.12 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2006).

10.13*		Second Amendment of the Avon Products, Inc. 2005 Stock Incentive Plan, effective January 1, 2007 (incorporated by reference to Exhibit 10.13 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2006).

10.14*		Third Amendment to the Avon Products, Inc. 2005 Stock Incentive Plan, dated October 2, 2008.

10.15*		Form of U.S. Stock Option Agreement under the Avon Products, Inc. Year 2005 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 to Avon’s Current Report on Form 8-K filed on September 6, 2005).

10.16*		Form of U.S. Restricted Stock Unit Award Agreement under the Avon Products, Inc. Year 2005 Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to Avon’s Current Report on Form 8-K filed on September 6, 2005).

10.17*		Form of Performance Contingent Restricted Stock Unit Award Agreement for Senior Officers under the Avon Products, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10 to Avon’s Current Report on Form 8-K filed on March 13, 2007).

10.18*		Form of Restricted Stock Unit Award Agreement under the Avon Products, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on February 7, 2008).

10.19*		Form of Retention Restricted Stock Unit Award Agreement under the Avon Products, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Avon’s Current Report on Form 8-K filed on February 7, 2008).

10.20*		Supplemental Executive Retirement Plan of Avon Products, Inc., as amended and restated as of January 1, 2009.

10.21*		Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.20 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.22*		Avon Products, Inc. Compensation Plan for Non-Employee Directors, as amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.21 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.23*		Board of Directors of Avon Products, Inc. Deferred Compensation Plan, as amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.22 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2007).

10.24*		Avon Products, Inc. Executive Incentive Plan, approved by shareholders on May 1, 2003 (incorporated by reference to Appendix E to Avon’s Proxy Statement as filed with the Commission on March 27, 2003 in connection with Avon’s 2003 Annual Meeting of Shareholders).

10.25*		Avon Products, Inc. 2008-2012 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on March 11, 2008).

10.26*		Benefit Restoration Pension Plan of Avon Products, Inc., as amended and restated as of January 1, 2009.

10.27*		Trust Agreement, dated as of October 29, 1998, between Avon and The Chase Manhattan Bank, N.A., as Trustee, relating to the grantor trust (incorporated by reference to Exhibit 10.12 to Avon’s Annual Report on Form 10-K for the year ended December 31, 2004).



10.28*		Amendment to Trust Agreement, effective as of January 1, 2009.

10.29*		Avon Products, Inc. 2006-2007 Turnaround Incentive Plan, effective as of January 1, 2006 (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on March 31, 2006.)

10.30*		Amended and Restated Employment Agreement with Andrea Jung, dated December 5, 2008 (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on December 8, 2008).

10.31*		Offer letter from Avon Products, Inc. to Elizabeth A. Smith, dated November 1, 2004 (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on January 6, 2005).

10.32*		Amendment to Employment Letter Agreement, effective as of November 12, 2008 between Avon and Elizabeth A. Smith.

10.33*		Employment Letter Agreement, dated as of November 13, 2005, between Avon and Charles W. Cramb (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K/A filed on November 16, 2005).

10.34*		Amendment to Employment Letter Agreement, effective as of December 3, 2008 between Avon and Charles W. Cramb.

10.35*		Form of Performance Contingent Restricted Stock Unit Award Agreement under the Avon Products, Inc. 2005 Stock Incentive Plan for the Chief Executive Officer (incorporated by reference to Exhibit 10.2 to Avon’s Current Report on Form 8-K filed on March 31, 2006).

10.36*		Restricted Stock Unit Award Agreement, dated as of July 26, 2006, by and between Avon Products, Inc. and Elizabeth Smith, Executive Vice President, President North America and Global Marketing, under the Avon Products, Inc. 2005 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on August 1, 2006).

10.37*		Employment Letter Agreement, dated as of November 18, 2005, between Avon and Charles Herington.

10.38*		Amendment to Employment Letter Agreement, effective as of November 24, 2008 between Avon and Charles Herington.

10.39*		Expatriate Assignment Agreement, dated as of April 6, 2006, by and between Avon Products, Inc. and Ben Gallina.

10.40*		Amendment to Expatriate Assignment Agreement, effective as of December 1, 2008 between Avon and Ben Gallina.

10.41		Credit Agreement, dated as of August 23, 2005, among Avon Products, Inc., Avon Capital Corporation and Bank of America, N.A (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on August 26, 2005).

10.42		Credit Agreement, dated as of August 23, 2005, among Avon Products, Inc., Avon Capital Corporation and Citibank, N.A. (incorporated by reference to Exhibit 10.2 to Avon’s Current Report on Form 8-K filed on August 26, 2005).

10.43		Guarantee of Avon Products, Inc. dated as of August 31, 2005 (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on September 6, 2005).

10.44		Revolving Credit and Competitive Advance Facility Agreement, dated as of January 13, 2006, among Avon Products, Inc., Avon Capital Corporation, Citibank, N.A., as Administrative Agent, Citigroup Global Markets Inc., Banc of America Securities LLC and J.P. Morgan Securities Inc., 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 on January 13, 2006).

10.45		Loan Agreement, dated as of August 28, 2006, by and between Avon Products, Inc. and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on August 31, 2006).

10.46		Amendment No. 1 to Loan Agreement, dated as of August 6, 2007, by and between Avon Products, Inc. and the Bank of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on August 7, 2007).

10.47		Amendment No. 2 to Loan Agreement, dated August 21, 2008, by and between Avon Products, Inc. and The Bank of Tokyo-Mitsubishi UFJ, Ltd. (incorporated by reference to Exhibit 10.1 to Avon’s Current Report on Form 8-K filed on August 26, 2008).

10.48*		Supplemental Life Plan of Avon Products, Inc., amended and restated as of January 1, 2009.

10.49*		Pre-1990 Supplemental Life Plan of Avon Products, Inc., amended and restated as of January 1, 2009.

10.50*		Avon Products, Inc. Management Incentive Plan, effective as of January 1, 2009.

21		Subsidiaries of the registrant.

23		Consent of PricewaterhouseCoopers LLP.

24		Power of Attorney.

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



31.2		Certification of Vice Chairman, Chief Finance and Strategy 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 Vice Chairman, Chief Finance and Strategy Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.

Avon’s Annual Report on Form 10-K for the year ended December 31, 2008, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all prior documents filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933, which incorporates by reference such Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on the 20 ^th day of February 2009.

Avon Products, Inc.

/s/ Simon N.R. Harford

Simon N.R. Harford

Group Vice President and

Corporate Controller - Principal

Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date

*
Andrea Jung	Chairman of the Board and Chief Executive Officer – Principal Executive Officer	February 20, 2009

*
Charles W. Cramb	Vice Chairman, Chief Finance and Strategy Officer – Principal Financial Officer	February 20, 2009

*
Simon N.R. Harford	Group Vice President and Corporate Controller – Principal Accounting Officer	February 20, 2009

*
W. Don Cornwell	Director	February 20, 2009

*
Edward T. Fogarty	Director	February 20, 2009

*
V. Anne Hailey	Director	February 20, 2009

*
Fred Hassan	Director	February 20, 2009

*
Maria Elena Lagomasino	Director	February 20, 2009

*
Ann S. Moore	Director	February 20, 2009

*
Paul S. Pressler	Director	February 20, 2009

*
Gary M. Rodkin	Director	February 20, 2009

*
Paula Stern	Director	February 20, 2009

*
Lawrence A. Weinbach	Director	February 20, 2009

*By: /s/ Kim K.W. Rucker
Kim K.W. Rucker	Attorney-in-fact	February 20, 2009

AVON PRODUCTS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE


		Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Financial Statements:
Consolidated Statements of Income for each of the years in the three-year period ended December 31, 2008		F-3
Consolidated Balance Sheets at December 31, 2008 and 2007		F-4
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2008		F-5
Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended December 31, 2008		F-6
Notes to Consolidated Financial Statements		F-7 – F-41

Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts		F-42

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Avon Products, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and changes in shareholders’ equity present fairly, in all material respects, the financial position of Avon Products Inc. and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting, appearing in Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2 to the consolidated financial statements, in 2007 the Company changed the manner in which it accounts for uncertain tax positions. In 2006, the Company changed the manner in which it accounts for pension and other postretirement benefit plans.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 20, 2009

F-2

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)


Years ended December 31	2008			2007			2006
Net sales	$	10,588.9		$	9,845.2		$	8,677.3
Other revenue		101.2			93.5			86.6

Total revenue		10,690.1			9,938.7			8,763.9
Costs, expenses and other:
Cost of sales		3,949.1			3,941.2			3,416.5
Selling, general and administrative expenses		5,401.7			5,124.8			4,586.0

Operating profit		1,339.3			872.7			761.4

Interest expense		100.4			112.2			99.6
Interest income		(37.1	)		(42.2	)		(55.3	)
Other expense, net		37.7			6.6			13.6

Total other expenses		101.0			76.6			57.9


Income before taxes and minority interest		1,238.3			796.1			703.5
Income taxes		362.7			262.8			223.4


Income before minority interest		875.6			533.3			480.1
Minority interest		(0.3	)		(2.6	)		(2.5	)

Net income	$	875.3		$	530.7		$	477.6


Earnings per share:
Basic	$	2.05		$	1.22		$	1.07
Diluted	$	2.04		$	1.21		$	1.06

Weighted-average shares outstanding:
Basic		426.36			433.47			447.40
Diluted		429.53			436.89			449.16

The accompanying notes are an integral part of these statements.

F-3

AVON PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)


December 31	2008			2007
Assets
Current assets
Cash, including cash equivalents of $704.8 and $492.3	$	1,104.7		$	963.4
Accounts receivable (less allowances of $127.9 and $141.1)		687.8			795.0
Inventories		1,007.9			1,041.8
Prepaid expenses and other		756.5			715.2

Total current assets		3,556.9			3,515.4


Property, plant and equipment, at cost
Land		85.3			71.8
Buildings and improvements		1,000.7			972.7
Equipment		1,353.9			1,317.9

		2,439.9			2,362.4
Less accumulated depreciation		(1,096.0	)		(1,084.2	)

		1,343.9			1,278.2
Other assets		1,173.2			922.6

Total assets	$	6,074.0		$	5,716.2


Liabilities and Shareholders’ Equity
Current liabilities
Debt maturing within one year	$	1,031.4		$	929.5
Accounts payable		724.3			800.3
Accrued compensation		234.4			285.8
Other accrued liabilities		581.9			713.2
Sales and taxes other than income		212.2			222.3
Income taxes		128.0			102.3

Total current liabilities		2,912.2			3,053.4

Long-term debt		1,456.2			1,167.9
Employee benefit plans		665.4			388.7
Long-term income taxes		168.9			208.7
Other liabilities (including minority interest of $37.4 and $38.2)		196.4			185.9

Total liabilities	$	5,399.1		$	5,004.6


Commitments and contingencies (Notes 13 and 15)

Shareholders’ equity
Common stock, par value $.25 – authorized 1,500 shares; issued 739.4 and 736.3 shares	$	185.6		$	184.7
Additional paid-in capital		1,874.1			1,724.6
Retained earnings		4,118.9			3,586.5
Accumulated other comprehensive loss		(965.9	)		(417.0	)
Treasury stock, at cost – 313.1 and 308.6 shares		(4,537.8	)		(4,367.2	)

Total shareholders’ equity	$	674.9		$	711.6

Total liabilities and shareholders’ equity	$	6,074.0		$	5,716.2

The accompanying notes are an integral part of these statements.

F-4

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


Years ended December 31	2008			2007			2006
Cash Flows from Operating Activities
Net income	$	875.3		$	530.7		$	477.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		141.9			128.9			115.6
Amortization		45.3			43.2			44.0
Provision for doubtful accounts		195.5			164.1			144.7
Provision for obsolescence		80.8			280.6			179.7
Share-based compensation		54.8			61.6			62.9
Foreign exchange losses (gains)		18.7			(2.5	)		4.0
Deferred income taxes		(62.4	)		(112.4	)		(110.7	)
Asset write-off restructuring charges		—			.2			8.0
Other		48.3			41.9			4.1
Changes in assets and liabilities:
Accounts receivable		(174.6	)		(236.6	)		(180.3	)
Inventories		(174.3	)		(341.0	)		(240.3	)
Prepaid expenses and other		(153.3	)		(49.1	)		(26.9	)
Accounts payable and accrued liabilities		(148.9	)		169.9			323.4
Income and other taxes		47.5			61.6			40.3
Noncurrent assets and liabilities		(46.5	)		(151.3	)		(50.0	)

Net cash provided by operating activities		748.1			589.8			796.1


Cash Flows from Investing Activities
Capital expenditures		(380.5	)		(278.5	)		(174.8	)
Disposal of assets		13.4			11.2			16.4
Acquisitions and other investing activities		—			(19.0	)		(39.4	)
Purchases of investments		(77.7	)		(47.0	)		(36.2	)
Proceeds from sale of investments		41.4			46.1			26.1

Net cash used by investing activities		(403.4	)		(287.2	)		(207.9	)


Cash Flows from Financing Activities*
Cash dividends		(347.7	)		(325.7	)		(317.6	)
Debt, net (maturities of three months or less)		(216.9	)		249.6			(368.8	)
Proceeds from debt		572.6			58.7			541.8
Repayment of debt		(73.9	)		(18.0	)		(31.3	)
Proceeds from exercise of stock options		81.4			85.5			32.5
Excess tax benefit realized from share-based compensation		15.1			19.6			8.1
Repurchase of common stock		(172.1	)		(666.8	)		(355.1	)

Net cash used by financing activities		(141.5	)		(597.1	)		(490.4	)

Effect of exchange rate changes on cash and equivalents		(61.9	)		59.0			42.4
Net increase (decrease) in cash and equivalents		141.3			(235.5	)		140.2
Cash and equivalents at beginning of year	$	963.4		$	1,198.9		$	1,058.7
Cash and equivalents at end of year	$	1,104.7		$	963.4		$	1,198.9
Cash paid for:
Interest, net of amounts capitalized	$	99.6		$	113.2		$	76.4
Income taxes, net of refunds received	$	388.7		$	396.7		$	333.2

*	Non-cash financing activities included the change in fair market value of interest rate swap agreements of $83.6 $8.4, and $21.8, in 2008, 2007, and 2006 respectively (see Note 4, Debt and Other Financing).

The accompanying notes are an integral part of these statements.

F-5

AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In millions, except per share data)


	Common Stock			Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Total
	Shares	Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Amount			Total
Balances at December 31, 2005	731.37	$	182.9	$	1,448.7	$	3,233.1		$	(740.9	)	279.89		$	(3,329.6	)	$	794.2
Comprehensive income:
Net income							477.6											477.6
Foreign currency translation adjustments										103.6								103.6
Changes in available-for-sale securities, net of taxes of $0										.1								.1
Minimum pension liability adjustment, net of taxes of $156.8										234.6								234.6
Net derivative losses on cash flow hedges, net of taxes of $.2										1.0								1.0

Total comprehensive income																		816.9
Adoption of SFAS 158, net of taxes of $147.3 (Note 11)										(254.7	)							(254.7	)
Dividends - $.70 per share							(313.9	)										(313.9	)
Exercise / vesting and expense of share-based compensation	1.37		.6		93.0							(.10	)		1.3			94.9
Repurchase of common stock												11.56			(355.1	)		(355.1	)
Income tax benefits – stock transactions					8.1													8.1

Balances at December 31, 2006	732.74	$	183.5	$	1,549.8	$	3,396.8		$	(656.3	)	291.35		$	(3,683.4	)	$	790.4

Comprehensive income:
Net income							530.7											530.7
Foreign currency translation adjustments										185.7								185.7
Changes in available-for-sale securities, net of taxes of $0										.1								.1
Amortization of unrecognized actuarial losses, prior service credit, and transition obligation, net of taxes of $14.2										27.6								27.6
Net actuarial gains and prior service cost arising during 2007, net of taxes of $22.3										43.3								43.3
Net derivative losses on cash flow hedges, net of taxes of $9.5										(17.4	)							(17.4	)

Total comprehensive income																		770.0
Adoption of FIN 48 (Note 6)							(18.3	)										(18.3	)
Dividends - $.74 per share							(322.7	)										(322.7	)
Exercise / vesting and expense of share-based compensation	3.52		1.2		143.4							(.10	)		1.2			145.8
Repurchase of common stock					11.8							17.31			(685.0	)		(673.2	)
Income tax benefits – stock transactions					19.6													19.6

Balances at December 31, 2007	736.26	$	184.7	$	1,724.6	$	3,586.5		$	(417.0	)	308.56		$	(4,367.2	)	$	711.6

Comprehensive income:
Net income							875.3											875.3
Foreign currency translation adjustments										(318.3	)							(318.3	)
Changes in available-for-sale securities, net of taxes of $.3										(.7	)							(.7	)
Amortization of unrecognized actuarial losses and prior service credit, net of taxes of $10.2										20.1								20.1
Net actuarial losses and prior service cost arising during 2008, net of taxes of $119.4										(240.5	)							(240.5	)
Net derivative losses on cash flow hedges, net of taxes of $5.1										(9.5	)							(9.5	)

Total comprehensive income																		326.4
Dividends - $.80 per share							(342.9	)										(342.9	)
Exercise / vesting and expense of share-based compensation	3.16		.9		134.4							(.10	)		1.5			136.8
Repurchase of common stock												4.61			(172.1	)		(172.1	)
Income tax benefits – stock transactions					15.1													15.1

Balances at December 31, 2008	739.42	$	185.6	$	1,874.1	$	4,118.9		$	(965.9	)	313.07		$	(4,537.8	)	$	674.9

The accompanying notes are an integral part of these statements.

F-6

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except per share and share data)

NOTE 1. Description of the Business and Summary of Significant Accounting Policies

Business

When used in these notes, the terms “Avon,” “Company,” “we,” “our” or “us” mean Avon Products, Inc.

We are a global manufacturer and marketer of beauty and related products. Our business is conducted worldwide primarily in one channel, direct selling. We manage our operations based on geographic operations and our reportable segments are Latin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. We also centrally manage Global Brand Marketing, Supply Chain and Sales organizations. Beginning in the fourth quarter of 2008, we changed our product categories from Beauty, Beauty Plus and Beyond Beauty to Beauty, Fashion and Home. Beauty consists of cosmetics, fragrances, skin care and toiletries (“CFT”). Fashion consists of fashion jewelry, watches, apparel, footwear and accessories. Home consists of gift and decorative products, housewares, entertainment and leisure, children’s and nutritional products. Sales from Health and Wellness products and mark. , a global cosmetics brand that focuses on the market for young women, are included among these three categories based on product type. Sales are made to the ultimate consumer principally by independent Avon Representatives.

Principles of Consolidation

The consolidated financial statements include the accounts of Avon and our majority and wholly-owned subsidiaries. Intercompany balances and transactions are eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates and assumptions. On an ongoing basis, we review our estimates, including those related to restructuring reserves, allowances for doubtful accounts receivable, allowances for sales returns, provisions for inventory obsolescence, income taxes and tax valuation reserves, share-based compensation, loss contingencies, and the determination of discount rate and other actuarial assumptions for pension, postretirement and postemployment benefit expenses.

Foreign Currency

Financial statements of foreign subsidiaries operating in other than highly inflationary economies are translated at year-end exchange rates for assets and liabilities and average exchange rates during the year for income and expense accounts. The resulting translation adjustments are recorded within accumulated other comprehensive loss. Financial statements of subsidiaries operating in highly inflationary economies are translated using a combination of current and historical exchange rates and any translation adjustments are included in current earnings. Gains or losses resulting from foreign currency transactions are recorded in other expense, net.

Revenue Recognition

Net sales primarily include sales generated as a result of Representative orders less any discounts, taxes and other deductions. We recognize revenue upon delivery, when both title and the risks and rewards of ownership pass to the independent Representatives, who are our customers. Our internal financial systems accumulate revenues as orders are shipped to the Representative. Since we report revenue upon delivery, revenues recorded in the financial system must be reduced for an estimate of the financial impact of those orders shipped but not delivered at the end of each reporting period. We use estimates in determining the adjustments to revenue and operating profit for orders that have been shipped but not delivered as of the end of the period. These estimates are based on daily sales levels, delivery lead times, gross margin and variable expenses. We also estimate an allowance for sales returns based on historical experience with product returns. In addition, we estimate an allowance for doubtful accounts receivable based on an analysis of historical data and current circumstances.

F-7

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Revenue

Other revenue primarily includes shipping and handling fees billed to Representatives.

Cash and Cash Equivalents

Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are high-quality, short-term money market instruments with an original maturity of three months or less and consist of time deposits with a number of U.S. and non-U.S. commercial banks and money market fund investments.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. We classify inventory into various categories based upon their stage in the product life cycle, future marketing sales plans and disposition process. We assign a degree of obsolescence risk to products based on this classification to determine the level of obsolescence provision.

Prepaid Brochure Costs

Costs to prepare brochures are deferred and amortized over the period during which the benefits are expected, which is typically the sales campaign length of two to four weeks. At December 31, 2008 and 2007, prepaid expenses and other included deferred brochure costs of $44.0 and $40.8, respectively. Additionally, paper stock is purchased in advance of creating the brochures. At December 31, 2008 and 2007, prepaid expenses and other included paper supply of $31.6 and $14.7, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are depreciated using a straight-line method over the estimated useful lives of the assets. The estimated useful lives generally are as follows: buildings, 45 years; land improvements, 20 years; machinery and equipment, 15 years; and office equipment, five to ten years. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the asset. Upon disposal of property, plant and equipment, the cost of the assets and the related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in earnings. Costs associated with repair and maintenance activities are expensed as incurred.

We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to the cost of the related asset and depreciated over the useful lives of the assets. For 2008, 2007 and 2006, Avon capitalized $4.9, $0 and $1.0 of interest, respectively.

Deferred Software

Certain systems development costs related to the purchase, development and installation of computer software are capitalized and amortized over the estimated useful life of the related project, not to exceed five years. Costs incurred prior to the development stage, as well as maintenance, training costs, and general and administrative expenses are expensed as incurred. At December 31, 2008 and 2007, other assets included unamortized deferred software costs of $98.3 and $95.9, respectively.

Investments in Debt and Equity Securities

Debt and equity securities that have a readily determinable fair value and that we do not intend to hold to maturity are classified as available-for-sale and carried at fair value. Unrealized holding gains and losses, net of applicable taxes, are recorded as a separate component of shareholders’ equity, net of deferred taxes. Realized gains and losses from the sale of available-for-sale securities are calculated on a specific identification basis. Declines in the fair values of investments below their cost basis that are judged to be other-than-temporary are recorded in other expense, net. In determining whether an other-than-temporary decline in market value has occurred, we consider various factors, including the duration and the extent to which market value is below cost.

Goodwill and Intangible Assets

Goodwill is not amortized, but rather is assessed for impairment annually and upon the occurrence of an event that indicates impairment may have occurred. Intangible assets with estimable useful lives are amortized using a straight-line method over the estimated useful lives of the assets. We completed annual goodwill impairment assessments and no adjustments to goodwill were necessary for the years ended December 31, 2008, 2007 or 2006.

F-8

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial Instruments

We use derivative financial instruments, including interest rate swaps, treasury lock agreements, forward foreign currency contracts and options, to manage interest rate and foreign currency exposures. We record all derivative instruments at their fair values on the Consolidated Balance Sheets as either assets or liabilities. See Note 7, Financial Instruments and Risk Management.

Deferred Income Taxes

Deferred income taxes have been provided on items recognized for financial reporting purposes in different periods than for income tax purposes using tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will not be realized. The ultimate realization of our deferred tax assets depends upon generating sufficient future taxable income during the periods in which our temporary differences become deductible or before our net operating loss and tax credit carryforwards expire. Deferred taxes are not provided on the portion of unremitted earnings of subsidiaries outside of the U.S. when management concludes that these earnings are indefinitely reinvested. Deferred taxes are provided on earnings not considered indefinitely reinvested. U.S. income taxes have not been provided on approximately $2,463.1 of undistributed income of subsidiaries that has been or is intended to be indefinitely reinvested outside the U.S.

Uncertain Tax Positions

Effective January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 , (“FIN 48”). In accordance with FIN 48, we recognize the benefit of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include costs associated with selling; marketing; and distribution activities, including shipping and handling costs; advertising; research and development; information technology; and other administrative costs, including finance, legal and human resource functions.

Shipping and Handling

Shipping and handling costs are expensed as incurred and amounted to $972.1 in 2008 (2007 - $913.9; 2006 - $810.0). Shipping and handling costs are included in selling, general and administrative expenses on the Consolidated Statements of Income.

Advertising

Advertising costs, excluding brochure preparation costs, are expensed as incurred and amounted to $390.5 in 2008 (2007 - $368.4; 2006 - $248.9).

Research and Development

Research and development costs are expensed as incurred and amounted to $70.0 in 2008 (2007 - $71.8; 2006 - $65.8). Research and development costs include all costs related to the design and development of new products such as salaries and benefits, supplies and materials and facilities costs.

Share-based Compensation

Restructuring Reserves

We record severance-related expenses once they are both probable and estimable in accordance with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 112, Employer’s Accounting for Post-Employment Benefits , for severance provided under an ongoing benefit arrangement. One-time, involuntary benefit arrangements and disposal costs, primarily contract termination costs, are accounted for under the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities . One-time, voluntary benefit arrangements are accounted for under the provisions of SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits . We evaluate impairment issues under the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets .

F-9

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Contingencies

In accordance with SFAS No. 5, Accounting for Contingencies , we determine whether to disclose and accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable. We record loss contingencies when it is probable that a liability has been incurred and the amount of loss is reasonably estimable.

Reclassifications

We have reclassified some prior year amounts in the Consolidated Financial Statements and accompanying notes for comparative purposes. We reclassified $45.4 from accounts receivable to prepaid expenses and other on the Consolidated Balance Sheet for the year ended December 31, 2007. We also reclassified $17.9 and $8.0 from changes in accounts receivable to changes in prepaid expenses and other on the Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006, respectively.

Earnings per Share

We compute basic earnings per share (“EPS”) by dividing net income 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 year.

For each of the three years ended December 31, the components of basic and diluted EPS were as follows:


(Shares in millions)	2008		2007		2006
Numerator:
Net income	$	875.3	$	530.7	$	477.6
Denominator:
Basic EPS weighted-average shares outstanding		426.36		433.47		447.40
Diluted effect of assumed conversion of share-based awards		3.17		3.42		1.76

Diluted EPS adjusted weighted-average shares outstanding		429.53		436.89		449.16

Earnings Per Share:
Basic	$	2.05	$	1.22	$	1.07
Diluted	$	2.04	$	1.21	$	1.06

For the years ended December 31, 2008, 2007 and 2006, we did not include stock options to purchase 21.3 million shares, 7.4 million and 12.9 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 their inclusion would be anti-dilutive.

NOTE 2. New Accounting Standards

Standards Implemented

Effective January 1, 2008, we adopted Financial Accounting Standards Board (“FASB”) SFAS 157, Fair Value Measurements (“SFAS 157”), with the exception of the application of the statement to non-recurring, nonfinancial assets and liabilities. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. In February 2008, the FASB issued Staff Position 157-2, Effective Date of FASB Statement No. 157 , which delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. The adoption of SFAS 157 did not have a material impact on our Consolidated Financial Statements. See Note 8, Fair Value, for additional information.

Effective January 1, 2008, we adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment to FASB Statement No. 115 , (“SFAS 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The adoption of SFAS 159 had no impact on our Consolidated Financial Statements, as we did not choose to measure the items at fair value.

F-10

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Effective December 31, 2006, we adopted SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132R (“SFAS 158”). See Note 11, Employee Benefit Plans, for additional information.

Effective December 31, 2006, we adopted Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 allows for a one-time transitional cumulative effect adjustment to beginning retained earnings as of January 1, 2007, for errors that were not previously deemed material, but are material under the guidance in SAB 108. The adoption of SAB 108 had no impact on our Consolidated Financial Statements.

Standards to be Implemented

In December 2008, the FASB issued Staff Position No. (“FSP”) FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets. The FSP will require additional disclosures about the major categories of plan assets and concentrations of risk, as well as disclosure of fair value levels, similar to the disclosure requirements of SFAS 157. The enhanced disclosures about plan assets required by this FSP must be provided in our 2009 Annual Report on Form 10-K.

In February 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133 , (“SFAS 161”) which changes, among other things, the disclosure requirements for derivative instruments and hedging activities. We will be required to provide enhanced disclosures about how and why we use derivative instruments, how they are accounted for, and how they affect our financial performance. SFAS 161 is effective January 1, 2009, for Avon.

In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities , (“FSP EITF 03-6-1”), which addresses whether instruments granted in share-based payment awards are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”) under the two-class method. FSP EITF 03-6-1 is effective January 1, 2009, for Avon and requires prior period EPS presented to be adjusted retrospectively. Our grants of restricted stock and restricted stock units contain non-forfeitable rights to dividend equivalents and are considered participating securities as defined in FSP EITF 03-6-1 and will be included in computing earnings per share using the two-class method beginning with our first quarter 2009 Form 10-Q. The adoption of FSP EITF 03-6-1 will not have a material impact on the calculation of basic or diluted earnings per share.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations , (“SFAS 141R”), which changes how business combinations are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 141R is effective January 1, 2009, for Avon and will be applied prospectively. The impact of adopting SFAS 141R will depend on the nature and terms of future acquisitions.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements , (“SFAS 160”), which changes the accounting and reporting standards for the noncontrolling interests in a subsidiary in consolidated financial statements. SFAS 160 recharacterizes minority interests as noncontrolling interests and requires noncontrolling interests to be classified as a component of shareholders’ equity. SFAS 160 is effective January 1, 2009, for Avon and requires retroactive adoption of the presentation and disclosure requirements for existing minority interests. We do not believe the adoption of SFAS 160 will have a material impact on our consolidated financial statements. At December 31, 2008 and 2007, other liabilities included minority interest liabilities of $37.4 and $38.2, respectively.

F-11

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3. Inventories

Inventories at December 31 consisted of the following:


	2008		2007
Raw materials	$	292.7	$	337.8
Finished goods		715.2		704.0

Total	$	1,007.9	$	1,041.8

NOTE 4. Debt and Other Financing

Debt

Debt at December 31 consisted of the following:


	2008			2007
Debt maturing within one year:
Notes payable	$	125.4		$	76.0
Commercial paper		499.7			701.6
Yen credit facility		102.0			96.3
Euro credit facility		—			32.8
7.15% Notes, due November 2009		300.0			—
Current portion of long-term debt		4.3			22.8

Total	$	1,031.4		$	929.5

Long-term debt:
7.15% Notes, due November 2009		—			300.0
5.125% Notes, due January 2011		499.7			499.6
4.80% Notes, due March 2013		249.2			—
4.625% Notes, due May 2013		114.1			112.0
5.75% Notes, due March 2018		249.2			—
4.20% Notes, due July 2018		249.7			249.1
Other, payable through 2013 with interest from 1.4% to 25.3%		14.7			31.0

Total long-term debt		1,376.6			1,191.7
Adjustments for debt with fair value hedges		83.9			(1.0	)
Less current portion		(4.3	)		(22.8	)

Total	$	1,456.2		$	1,167.9

At December 31, 2008 and 2007, notes payable included short-term borrowings of international subsidiaries at average annual interest rates of approximately 7.6% and 4.6%, respectively.

At December 31, 2008 and 2007, other long-term debt, payable through 2013, included obligations under capital leases of $11.4 and $13.6, respectively, which primarily relate to leases of automobiles and equipment.

Adjustments for debt with fair value hedges includes adjustments to reflect net unrealized gains of $80.0 and losses of $9.4 on debt with fair value hedges at December 31, 2008 and 2007, respectively, and unamortized gains on terminated swap agreements and swap agreements no longer designated as fair value hedges of $3.9 and $8.4 at December 31, 2008 and 2007, respectively (see Note 7, Financial Instruments and Risk Management).

At December 31, 2008 and 2007, we held interest rate swap contracts that swap approximately 50% and 30%, respectively, of our long-term debt to variable rates (see Note 7, Financial Instruments and Risk Management).

In March 2008, we issued $500.0 principal amount of notes payable in a public offering. $250.0 of the notes bear interest at a per annum coupon rate equal to 4.80%, payable semi-annually, and mature on March 1, 2013, unless previously redeemed (the “2013 Notes”). $250.0 of the notes bear interest at a per

F-12

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

annum coupon rate of 5.75%, payable semi-annually, and mature on March 1, 2018, unless previously redeemed (the “2018 Notes”). The net proceeds from the offering of $496.3 were used to repay outstanding indebtedness under our commercial paper program and for general corporate purposes. The carrying value of the 2013 Notes represents the $250.0 principal amount, net of the unamortized discount to face value of $.8 at December 31, 2008. The carrying value of the 2018 Notes represents the $250.0 principal amount, net of the unamortized discount to face value of $.8 at December 31, 2008.

In January 2006, we issued in a public offering $500.0 principal amount of notes payable (“5.125% Notes”) that mature on January 15, 2011, and bear interest, payable semi-annually, at a per annum rate equal to 5.125%. The net proceeds from the offering were used for general corporate purposes, including the repayment of short-term domestic debt. The carrying value of the 5.125% Notes represents the $500.0 principal amount, net of the unamortized discount to face value of $.3 and $.4 at December 31, 2008 and 2007, respectively.

In June 2003, we issued to the public $250.0 principal amount of registered senior notes (the “4.20% Notes”) under our $1,000.0 debt shelf registration statement. The 4.20% Notes mature on July 15, 2018, and bear interest at a per annum rate of 4.20%, payable semi-annually. The carrying value of the 4.20% Notes represents the $250.0 principal amount, net of the unamortized discount to face value of $.3 and $.9 at December 31, 2008 and 2007, respectively.

In April 2003, the call holder of $100.0, 6.25% Notes due May 2018 (the “Notes”), embedded with put and call option features, exercised the call option associated with these Notes, and thus became the sole note holder of the Notes. Pursuant to an agreement with the sole note holder, we modified these Notes into $125.0 aggregate principal amount of 4.625% notes due May 15, 2013. The modified principal amount represented the original value of the putable/callable notes, plus the market value of the related call option and approximately $4.0 principal amount of additional notes issued for cash. In May 2003, $125.0 principal amount of registered senior notes were issued in exchange for the modified notes held by the sole note holder. No cash proceeds were received by us. The registered senior notes mature on May 15, 2013, and bear interest at a per annum rate of 4.625%, payable semi-annually (the “4.625% Notes”). The 4.625% Notes were issued under our $1,000.0 debt shelf registration statement. The transaction was accounted for as an exchange of debt instruments and, accordingly, the premium related to the original notes is being amortized over the life of the new 4.625% Notes. At December 31, 2008 and 2007, the carrying value of the 4.625% Notes represents the $125.0 principal amount, net of the unamortized discount to face value and the premium related to the call option associated with the original notes totaling $10.9 and $13.0, respectively.

Annual maturities of long-term debt (including unamortized discounts and premiums and excluding the adjustments for debt with fair value hedges) outstanding at December 31, 2008, are as follows:


	2009		2010		2011		2012		2013		After 2013		Total
Maturities	$	4.3	$	4.3	$	502.8	$	2.5	$	375.8	$	500.0	$	1,389.7

Other Financing

We have a five-year, $1,000.0 revolving credit and competitive advance facility (the “credit facility”), which expires in January 2011. The credit facility may be used for general corporate purposes. The interest rate on borrowings under the credit facility is based on LIBOR or on the higher of prime or ¹ / 2 % plus the federal funds rate. The credit facility has an annual fee of $.7, payable quarterly, based on our current credit ratings. The credit facility contains various covenants, including a financial covenant which requires Avon’s interest coverage ratio (determined in relation to our consolidated pretax income and interest expense) to equal or exceed 4:1. At December 31, 2008 and 2007, there were no amounts outstanding under the credit facility.

We maintain a $1,000.0 commercial paper program. Under the 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 $1,000.0 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. The

F-13

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

commercial paper program is supported by our credit facility. Outstanding commercial paper effectively reduces the amount available for borrowing under the credit facility. At December 31, 2008, we had commercial paper outstanding of $499.7 at an average annual interest rate of 2.3%. At December 31, 2007, we had commercial paper outstanding of $701.6 at an average annual interest rate of 5.05%.

In April 2007, we entered into a one-year, Euro 50 million ($72.9 at the exchange rate on December 31, 2007) uncommitted credit facility (“Euro credit facility”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd., which expired in April 2008. Borrowings under the Euro credit facility bore interest at the Euro LIBOR rate plus an applicable margin. The Euro credit facility was available for general corporate purposes. The Euro credit facility was designated as a hedge of our investments in our Euro-denominated functional currency subsidiaries. At December 31, 2007, $32.8 (euro 22.5 million) was outstanding under the Euro credit facility.

In August 2006, we entered into a one-year, Japanese yen 11.0 billion ($122.0 at the exchange rate on December 31, 2008) uncommitted credit facility (“yen credit facility”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd. Borrowings under the yen credit facility bear interest at the yen LIBOR rate plus an applicable margin. The yen credit facility is available for general corporate purposes, including working capital and the repayment of outstanding indebtedness. The yen credit facility was used to repay the Japanese yen 9.0 billion note which came due in September 2006, as well as for other general corporate purposes. The yen credit facility is designated as a hedge of our net investment in our Japanese subsidiary. In August 2007, we entered into an amendment of our yen credit facility that provides for the extension of the yen credit facility until August 2008. In August 2008, we entered into another amendment of our yen credit facility that provides for the extension of the yen credit facility until August 2009. At December 31, 2008 and 2007, $102.0 (Japanese yen 9.2 billion) and $96.3 (Japanese yen 11.0 billion), respectively, was outstanding under the yen credit facility.

The indentures under which the above notes were issued contain certain covenants, including limits on the incurrence of liens and restrictions on the incurrence of sale/leaseback transactions and transactions involving a merger, consolidation or sale of substantially all of our assets. At December 31, 2008, we were in compliance with all covenants in our indentures. Such indentures do not contain any rating downgrade triggers that would accelerate the maturity of our debt. However, we would be required to make an offer to repurchase the 2013 Notes and 2018 Notes at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change in control involving Avon and a corresponding ratings downgrade to below investment grade.

At December 31, 2008, we also had letters of credit outstanding totaling $19.6, which primarily guarantee various insurance activities. In addition, we had outstanding letters of credit for various trade activities and commercial commitments executed in the ordinary course of business, such as purchase orders for normal replenishment of inventory levels.

NOTE 5. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss at December 31 consisted of the following:


	2008			2007
Foreign currency translation adjustments	$	(406.2	)	$	(62.5	)
Unrealized (losses) gains from available-for-sale securities, net of taxes of $.2 and $.1		(.3	)		.4
Unrecognized actuarial losses, prior service credit, and transition obligation, net of taxes of $266.8 and $167.5		(532.2	)		(337.2	)
Net derivative losses from cash flow hedges, net of taxes of $14.8 and $9.7		(27.2	)		(17.7	)

Total	$	(965.9	)	$	(417.0	)

Foreign exchange gains (losses) of $25.4 and ($8.1) resulting from the translation of unrealized actuarial losses, prior service credit and translation obligation recorded in AOCI are included in foreign currency translation adjustments in the rollforward of AOCI on the Consolidated Statements of Changes in Shareholders Equity for 2008 and 2007, respectively.

F-14

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6. Income Taxes

Deferred tax assets (liabilities) resulting from temporary differences in the recognition of income and expense for tax and financial reporting purposes at December 31 consisted of the following:


	2008			2007
Deferred tax assets:
Postretirement benefits	$	46.9		$	43.0
Accrued expenses and reserves		155.0			176.7
Asset revaluations		52.7			42.6
Restructuring initiatives		12.9			48.8
Employee benefit plans		261.1			197.3
Foreign operating loss carryforwards		300.9			295.8
Postemployment benefits		17.0			16.1
Capitalized expenses		46.0			18.8
Minimum tax credit carryforwards		32.5			24.9
Foreign tax credit carryforwards		93.9			28.6
All other		35.5			22.6
Valuation allowance		(284.1	)		(278.3	)

Total deferred tax assets		770.3			636.9

Deferred tax liabilities:
Depreciation and amortization		(45.3	)		(53.9	)
Prepaid retirement plan costs		(6.0	)		(37.4	)
Capitalized interest		(6.1	)		(2.1	)
Capitalized software		(5.4	)		(6.8	)
Unremitted foreign earnings		(19.1	)		(20.1	)
All other		(34.6	)		(21.9	)

Total deferred tax liabilities		(116.5	)		(142.2	)

Net deferred tax assets	$	653.8		$	494.7


Deferred tax assets (liabilities) at December 31 were classified as follows:

	2008			2007
Deferred tax assets:
Prepaid expenses and other	$	194.6		$	261.4
Other assets		502.5			272.9

Total deferred tax assets		697.1			534.3

Deferred tax liabilities:
Income taxes		(7.0	)		(7.7	)
Long-term income taxes		(36.3	)		(31.9	)

Total deferred tax liabilities		(43.3	)		(39.6	)

Net deferred tax assets	$	653.8		$	494.7

The valuation allowance primarily represents amounts for foreign operating loss carryforwards. The basis used for recognition of deferred tax assets included the profitability of the operations, related deferred tax liabilities and the likelihood of utilizing tax credit carryforwards during the carryover periods. The net increase in the valuation allowance of $5.8 during 2008 was mainly due to several of our foreign entities continuing to incur losses during 2008, thereby increasing the net operating loss carryforwards for which a valuation allowance was provided.

F-15

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Income before taxes and minority interest for the years ended December 31 was as follows:


	2008			2007			2006
United States	$	(19.2	)	$	(31.6	)	$	(33.5	)
Foreign		1,257.5			827.7			737.0

Total	$	1,238.3		$	796.1		$	703.5


The provision for income taxes for the years ended December 31 was as follows:

	2008			2007			2006
Federal:
Current	$	(45.9	)	$	23.2		$	(16.7	)
Deferred		(2.6	)		(37.2	)		(38.6	)

		(48.5	)		(14.0	)		(55.3	)

Foreign:
Current		469.8			348.2			348.4
Deferred		(59.4	)		(75.8	)		(67.0	)

		410.4			272.4			281.4

State and other:
Current		1.2			3.8			2.4
Deferred		(0.4	)		.6			(5.1	)

		0.8			4.4			(2.7	)

Total	$	362.7		$	262.8		$	223.4


The effective tax rate for the years ended December 31 was as follows:

	2008			2007			2006
Statutory federal rate		35.0	%		35.0	%		35.0	%
State and local taxes, net of federal tax benefit		.2			.4			.1
Taxes on foreign income, including translation		(2.8	)		.5			(.5	)
Tax audit settlements, refunds, and amended returns		(4.5	)		(1.0	)		(5.7	)
Repatriation of prior years foreign earnings		—			—			3.1
Net change in valuation allowances		1.2			(2.0	)		—
Other		.2			.1			(.2	)

Effective tax rate		29.3	%		33.0	%		31.8	%

At December 31, 2008, we had foreign operating loss carryforwards of approximately $1,009.2. The loss carryforwards expiring between 2009 and 2023 are $115.1 and the loss carryforwards which do not expire are $894.1. We also had minimum tax credit carryforwards of $32.5 which do not expire, capital loss carryforwards of $7.1 that will expire in 2010, and foreign tax credit carryforwards of $93.9 that will expire between 2016 and 2018.

Uncertain Tax Positions

Effective January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 , (“FIN 48”). As a result of the implementation of FIN 48, we recognized an $18.3 increase in the liability for unrecognized tax benefits (including interest and penalties), which was accounted for as a reduction to the January 1, 2007 balance of retained earnings. At December 31, 2008 and 2007, we had $104.3 and $154.3 of total gross unrecognized tax benefits, respectively, of which approximately $91 and $141 would impact the effective tax rate, if recognized.

F-16

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


Balance at January 1, 2007	$	135.6
Additions based on tax positions related to the current year		24.2
Additions for tax positions of prior years		5.4
Reductions for tax positions of prior years		(3.6	)
Reductions due to lapse of statute of limitations		(2.9	)
Reductions due to settlements with tax authorities		(4.4	)

Balance at December 31, 2007		154.3
Additions based on tax positions related to the current year		22.2
Additions for tax positions of prior years		3.9
Reductions for tax positions of prior years		(59.0	)
Reductions due to lapse of statute of limitations		(4.2	)
Reductions due to settlements with tax authorities		(12.9	)

Balance at December 31, 2008	$	104.3

We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes. We had $22.5 and $29.7 accrued for interest and penalties, net of tax benefit, at December 31, 2008 and 2007, respectively. During 2008 and 2007, we recorded a benefit of $3.2 and an expense of $3.3 for interest and penalties, net of taxes, respectively.

We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. As of December 31, 2008, the tax years that remained subject to examination by major tax jurisdiction for our most significant subsidiaries were as follows:


		Jurisdiction		Open Years
		Brazil		2003-2008
		China		2004-2008
		Mexico		2003-2008
		Poland		2003-2008
		Russia		2007-2008
		United States		2006-2008

We anticipate that it is reasonably possible that the total amount of unrecognized tax benefits could decrease in the range of $10 to $15 within the next 12 months due to the closure of tax years by expiration of the statute of limitations and audit settlements.

NOTE 7. Financial Instruments and Risk Management

We operate globally, with manufacturing and distribution facilities in various locations around the world. We may reduce our exposure to fluctuations in cash flows associated with changes in interest rates and foreign exchange rates by creating offsetting positions through the use of derivative financial instruments. Since we use foreign currency-rate sensitive and interest-rate sensitive instruments to hedge a certain portion of our existing and forecasted transactions, we expect that any gain or loss in value of the hedge instruments generally would be offset by decreases or increases in the value of the underlying forecasted transactions.

Accounting Policies

Derivatives are recognized on the balance sheet at their fair values. When we become a party to a derivative instrument, we designate the instrument as either a fair value hedge, a cash flow hedge, a net investment hedge, or

F-17

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

a non-hedge. The accounting for changes in fair value (gains or losses) of a derivative instrument depends on whether it has been designated by Avon and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

•

Changes in the fair value of a derivative that is designated as a fair value hedge, along with the loss or gain on the hedged asset or liability that is attributable to the hedged risk are recorded in earnings.

•

Changes in the fair value of a derivative that is designated as a cash flow hedge are recorded in accumulated other comprehensive loss (“AOCI”) to the extent effective and reclassified into earnings in the same period or periods during which the transaction hedged by that derivative also affects earnings.

•

Changes in the fair value of a derivative that is designated as a hedge of a net investment in a foreign operation are recorded in foreign currency translation adjustments within AOCI to the extent effective as a hedge.

•

Changes in the fair value of a derivative not designated as a hedging instrument are recognized in earnings in other expense, net on the Consolidated Statements of Income.

Realized gains and losses on a derivative are reported on the Consolidated Statements of Cash Flows consistent with the underlying hedged item.

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. Highly effective means that cumulative changes in the fair value of the derivative are between 80%—125% of the cumulative changes in the fair value of the hedged item. The ineffective portion of the derivative’s gain or loss, if any, is recorded in earnings in other expense, net on the Consolidated Statements of Income. We include the change in the time value of options in our assessment of hedge effectiveness. When we determine that a derivative is not highly effective as a hedge, hedge accounting is discontinued. When it is probable that a forecasted transaction will not occur, we discontinue hedge accounting for the affected portion of the forecasted transaction, and reclassify gains and losses that were accumulated in AOCI to earnings in other expense, net on the Consolidated Statements of Income.

Interest Rate Risk

Our long-term, fixed-rate borrowings are subject to interest rate risk. We use interest rate swaps, which effectively convert the fixed rate on the debt to a floating interest rate, to manage our interest rate exposure. At December 31, 2008 and 2007, we held interest rate swap agreements that effectively converted approximately 50% and 30% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR, respectively. Our total exposure to floating interest rates at December 31, 2008 and 2007, was approximately 65% and 60%, respectively.

At December 31, 2008 and 2007, we had interest rate swaps designated as fair value hedges of fixed-rate debt, with unrealized gains (losses) of $83.7 and ($10.8), respectively. Additionally, at December 31, 2008 and 2007, we had interest rate swaps that were not designated as fair value hedges with unrealized gains of $3.9 and $9.7, respectively. Long-term debt at December 31, 2008 and 2007, respectively, included net unrealized gains (losses) of $80.0 and ($9.4), respectively, on interest rate swaps designated as fair value hedges. Long-term debt at December 31, 2008 and 2007, also included remaining unamortized gains of $3.9 and $8.4, respectively, resulting from terminated swap agreements and swap agreements no longer designated as fair value hedges, which are being amortized to interest expense over the remaining terms of the underlying debt. There was no hedge ineffectiveness for the years ended December 31, 2008, 2007 and 2006, related to these interest rate swaps.

During 2007, we entered into treasury lock agreements (the “locks”) with notional amounts totaling $500.0 that expired on January 31, 2008. On January 31, 2008, we extended the maturity date of the locks to July 31, 2008 and the locks were designated as cash flow hedges of the anticipated interest payments on $250.0 principal amount of the 2013 Notes and $250.0 principal amount of the 2018 Notes. The losses on the locks of $38.0 were recorded in accumulated other comprehensive loss. $19.2 and $18.8 of the losses are being amortized to interest expense over five years and ten years, respectively.

During 2005, we entered into treasury lock agreements that we designated as cash flow hedges and used to hedge exposure to a possible rise in interest rates prior to the anticipated issuance of ten- and 30-year bonds. In December 2005, we decided that a more appropriate strategy was to issue five-year bonds given our strong cash flow and high level of cash and cash equivalents. As a result of the change in strategy, in December 2005, we de-

F-18

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

designated the locks as hedges and reclassified the gain of $2.5 on the locks from AOCI to other expense, net. Upon the change in strategy in December 2005, we entered into a treasury lock agreement with a notional amount of $250.0 designated as a cash flow hedge of the $500.0 principal amount of five-year notes payable issued in January 2006. The loss on the 2005 lock agreement of $1.9 was recorded in AOCI and is being amortized to interest expense over five years.

During 2003, we entered into treasury lock agreements that we designated as cash flow hedges and used to hedge the exposure to the possible rise in interest rates prior to the issuance of the 4.625% Notes. The loss of $2.6 was recorded in AOCI and is being amortized to interest expense over ten years.

At December 31, 2008 and 2007, AOCI includes remaining unamortized losses of $35.2 and $27.9 ($22.9 and $18.1 net of taxes), respectively, resulting from treasury lock agreements.

Foreign Currency Risk

The primary currencies for which we have net underlying foreign currency exchange rate exposures are the Argentine peso, Brazilian real, British pound, Canadian dollar, Chinese renminbi, Colombian peso, the Euro, Japanese yen, Mexican peso, Philippine peso, Polish zloty, Russian ruble, Turkish lira, Ukrainian hryvna and Venezuelan bolivar. We use foreign currency forward contracts and options to hedge portions of our forecasted foreign currency cash flows resulting from intercompany royalties, and other third-party and intercompany foreign currency transactions where there is a high probability that anticipated exposures will materialize. These contracts have been designated as cash flow hedges.

For the years ended December 31, 2008, 2007 and 2006, the ineffective portion of our cash flow foreign currency derivative instruments and the net gains or losses reclassified from AOCI to earnings for cash flow hedges that had been discontinued because the forecasted transactions were not probable of occurring were not material.

At December 31, 2008, the maximum remaining term over which we were hedging foreign exchange exposures to the variability of cash flows for all forecasted transactions was 12 months. As of December 31, 2008, we expect to reclassify $27.2, net of taxes, of net losses on derivative instruments designated as cash flow hedges from AOCI to earnings during the next 12 months due to (a) foreign currency denominated intercompany royalties, (b) intercompany loan settlements and (c) foreign currency denominated purchases or receipts.

For the years ended December 31, 2008 and 2007, cash flow hedges impacted AOCI as follows:


	2008			2007
Net derivative losses at beginning of year	$	(17.7	)	$	(.3	)
Net gains on derivative instruments, net of taxes of $8.4 and $12.2		20.3			16.8
Reclassification of net gains to earnings, net of taxes of $3.3 and $2.7		(29.8	)		(34.2	)

Net derivative losses at end of year, net of taxes of $14.8 and $9.7	$	(27.2	)	$	(17.7	)

Certain forward contracts used to manage foreign currency exposure of intercompany loans are not designated as hedges. In these cases, the change in value of the contracts is designed to offset the foreign currency impact of the underlying exposure. The change in fair value of these instruments is immediately recognized in earnings.

We use foreign currency forward contracts and foreign currency-denominated debt to hedge the foreign currency exposure related to the net assets of certain of our foreign subsidiaries. At December 31, 2008, we had a Japanese yen-denominated note payable to hedge our net investment in our Japanese subsidiary (see Note 4, Debt and Other Financing). For the years ended December 31, 2008, 2007 and 2006, $33.6, $9.7 and $6.1, respectively, related to the effective portions of these hedges were included in foreign currency translation adjustments within AOCI on the Consolidated Balance Sheets.

At December 31, 2008 and 2007, we held foreign currency forward contracts with fair values of $18.8 and $2.8, respectively, recorded in accounts payable and $8.1 and $0, respectively, recorded in prepaid expenses and other.

Credit and Market Risk

We attempt to minimize our credit exposure to counterparties by entering into interest rate swap and foreign currency forward rate and option agreements only with major international financial institutions with “A” or

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AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

higher credit ratings as issued by Standard & Poor’s Corporation. Our foreign currency and interest rate derivatives are comprised of over-the-counter forward contracts, swaps or options with major international financial institutions. Although our theoretical credit risk is the replacement cost at the then estimated fair value of these instruments, we believe that the risk of incurring credit risk losses is remote and that such losses, if any, would not be material.

NOTE 8. Fair Value

Assets and Liabilities Measured at Fair Value

We adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring, nonfinancial assets and liabilities which becomes effective January 1, 2009. The adoption of SFAS 157 did not have a material impact on our fair value measurements. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes 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.

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, 2008:


	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	$	17.7	$	—	$	—	$	17.7
Interest-rate swap agreements		—		103.7		—		103.7
Foreign exchange forward contracts		—		8.1		—		8.1

Total	$	17.7	$	111.8	$	—	$	129.5


Liabilities:
Interest-rate swap agreements	$	—	$	16.1	$	—	$	16.1
Foreign exchange forward contracts		—		18.8		—		18.8

Total	$	—	$	34.9	$	—	$	34.9

The available-for-sale securities are held in a trust in order to fund future benefit payments for non-qualified retirement plans (see Note 11, Employee Benefit Plans). As of December 31, 2008, we have recorded a net unrealized loss of $.3 in accumulated other comprehensive loss, within shareholders’ equity, associated with the available-for-sale securities (see Note 5, Accumulated Other Comprehensive Loss). The foreign exchange forward contracts and interest rate swap agreements are hedges of either recorded assets or liabilities or anticipated transactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the table above.

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AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 December 31 consisted of the following:


	2008						2007
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	1,104.7		$	1,104.7		$	963.4		$	963.4
Available-for-sale securities		17.7			17.7			18.5			18.5
Grantor trust cash and cash equivalents		4.7			4.7			11.0			11.0
Debt maturing within one year		1,031.4			1,038.6			929.5			929.5
Long-term debt, net of related discount or premium		1,456.2			1,346.1			1,167.7			1,178.4
Foreign exchange forward contracts		(10.7	)		(10.7	)		2.8			2.8
Interest-rate swap and treasury lock agreements		87.6			87.6			(29.0	)		(29.0	)

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

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

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

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

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

NOTE 9. Share-Based Compensation Plans

The Avon Products, Inc. 2005 Stock Incentive Plan (the “2005 Plan”), which is shareholder approved, provides for several types of share-based incentive compensation awards including stock options, stock appreciation rights, restricted stock, restricted stock units and performance unit awards. Under the 2005 Plan, the maximum number of shares that may be awarded is 31,000,000 shares, of which no more than 8,000,000 shares may be used for restricted stock awards and restricted stock unit awards. Shares issued under share-based awards will be primarily funded with issuance of new shares.

We have issued stock options, restricted stock, restricted stock units and stock appreciation rights under the 2005 Plan. Stock option awards are granted with an exercise price equal to the closing market price of Avon’s stock at the date of grant; those option awards generally vest in thirds over the three-year period following each option grant date and have ten-year contractual terms. Restricted stock or restricted stock units generally vest after three years.

We recognized compensation cost of $54.8, $61.6 and $62.9 for stock options, restricted stock, restricted stock units, and stock appreciation rights, all of which was recorded in selling, general and administrative expenses, during the three years ended December 31, 2008, 2007 and 2006, respectively. The total income tax benefit recognized for share-based arrangements was $18.8, $20.7 and $21.5 during the three years ended December 31, 2008, 2007 and 2006, respectively. For the years ended December 31, 2008 and 2007, we have determined that we have a pool of windfall tax benefits.

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AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Options

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option pricing model with the following weighted-average assumptions for options granted during the years ended December 31, :


	2008		2007		2006
Risk-free rate ⁽¹⁾	2.3	%	4.5	%	5.1	%
Expected term ⁽²⁾	4 years		4 years		4 years
Expected volatility ⁽³⁾	28	%	27	%	26	%
Expected dividends ⁽⁴⁾	2.0	%	2.1	%	2.3	%

⁽¹⁾	The risk-free rate is based upon the rate on a zero coupon U.S. Treasury bill, for periods within the contractual life of the option, in effect at the time of grant.

⁽²⁾	The expected term of the option is based on historical employee exercise behavior, the vesting terms of the respective option and a contractual life of ten years.

⁽³⁾	Expected volatility is based on the weekly historical volatility of our stock price, over a period similar to the expected life of the option.

⁽⁴⁾	Assumes the current cash dividends of $.20, $.185 and $.175 per share each quarter on Avon’s common stock for options granted during 2008, 2007 and 2006, respectively.

The weighted-average grant-date fair values per share of options granted during 2008, 2007 and 2006, were $8.04, $8.41 and $6.75, respectively.

A summary of stock options as of December 31, 2008, and changes during 2008, is as follows:


	Shares (in 000’s)		Weighted- Average Exercise Price		Weighted- Average Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2008	22,648		$	33.25
Granted	4,081			38.80
Exercised	(2,895	)		27.34
Forfeited	(249	)		36.78
Expired	(324	)		38.43

Outstanding at December 31, 2008	23,261		$	34.85	6.2	$	4.9

Exercisable at December 31, 2008	17,000		$	33.55	5.2	$	4.9

Options granted during 2008 include 600,000 of options with a market condition and we estimated the fair value of these options using a Monte-Carlo simulation model.

At December 31, 2008, there was approximately $23.6 of unrecognized compensation cost related to stock options outstanding. That cost is expected to be recognized over a weighted-average period of 1.6 years. We recognize expense on stock options using a graded vesting method, which recognizes the associated expense based on the timing of option vesting dates.

Cash proceeds, tax benefits, and intrinsic value related to total stock options exercised during 2008, 2007 and 2006, were as follows:


	2008		2007		2006
Cash proceeds from stock options exercised	$	81.4	$	85.5	$	32.5
Tax benefit realized for stock options exercised		12.2		16.8		4.1
Intrinsic value of stock options exercised		41.5		50.5		11.7

F-22

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Stock and Restricted Stock Units

The fair value of restricted stock and restricted stock units granted prior to January 1, 2007, was determined based on the average of the high and low market prices of our common stock on the grant date. Effective January 1, 2007, the fair value of restricted stock and restricted stock units granted was determined based on the closing price of our common stock on the date of grant.

A summary of restricted stock and restricted stock units at December 31, 2008, and changes during 2008, is as follows:


	Restricted Stock And Units (in 000’s)		Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2008	2,691		$	34.71
Granted	760			37.61
Vested	(486	)		34.53
Forfeited	(111	)		34.83

Nonvested at December 31, 2008	2,854		$	35.75

The total fair value of restricted stock and restricted stock units that vested during 2008 was $17.2, based upon market prices on the vesting dates. As of December 31, 2008, there was approximately $34.2 of unrecognized compensation cost related to restricted stock and restricted stock unit compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.7 years.

NOTE 10. Shareholders’ Equity

Stock Repurchase Program

In February 2005, our Board approved a five-year, $1,000.0 share repurchase program to begin upon completion of our previous share repurchase program. This $1,000.0 program was completed during December 2007. In October 2007, our Board of Directors approved a five-year $2,000.0 share repurchase program (“$2.0 billion program”) which began in December 2007. We have repurchased approximately 4.7 million shares for $178.5 under the $2.0 billion program through December 31, 2008.

F-23

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 11. Employee Benefit Plans

Savings Plan

We offer a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the “PSA”), which allows eligible participants to contribute up to 25% of eligible compensation through payroll deductions. We match employee contributions dollar for dollar up to the first 3% of eligible compensation and fifty cents for each dollar contributed from 4% to 6% of eligible compensation. In 2008, 2007, and 2006, matching contributions approximating $13.0, $12.8 and $12.7, respectively, were made to the PSA in cash, which were then used by the PSA to purchase Avon shares in the open market.

Defined Benefit Pension and Postretirement Plans

Avon and certain subsidiaries have contributory and noncontributory retirement plans for substantially all employees of those subsidiaries. Benefits under these plans are generally based on an employee’s years of service and average compensation near retirement. Plans are funded based on legal requirements and cash flow.

We provide health care and life insurance benefits for the majority of employees who retire under our retirement plans in the U.S. and certain foreign countries. In the U.S., the cost of such health care benefits is shared by us and our retirees for employees hired on or before January 1, 2005. Employees hired after January 1, 2005, will pay the full cost of the health care benefits upon retirement.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106 and 132R (“SFAS 158”). SFAS 158 requires, among other things, the recognition of the funded status of pension and other postretirement benefit plans on the balance sheet. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. The initial impact of the standard, due to unrecognized prior service costs or credits and net actuarial gains or losses, as well as subsequent changes in the funded status, were recognized as components of accumulated comprehensive loss in shareholders’ equity. Additional minimum pension liabilities and related intangible assets were also derecognized upon adoption of the new standard. The adoption of SFAS 158 resulted in a decrease to accumulated other comprehensive loss of $254.7 after taxes at December 31, 2006. The adoption of SFAS 158 had no impact on our Consolidated Statement of Income for the year ended December 31, 2006. SFAS 158’s provisions regarding the change in the measurement date of defined benefit and other postretirement plans had no impact as we were already using a measurement date of December 31 for our pension plans.

Reconciliation of Benefit Obligations, Plan Assets and Funded Status

The following table summarizes changes in the benefit obligation, plan assets and the funded status of our significant pension and postretirement plans. We use a December 31 measurement date for all of our employee benefit plans.

F-24

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Pension Plans												Postretirement Benefits
	U.S. Plans						Non-U.S. Plans						Postretirement Benefits
	2008			2007			2008			2007			2008			2007
Change in Benefit Obligation:
Beginning balance	$	(776.7	)	$	(830.1	)	$	(787.0	)	$	(763.7	)	$	(176.9	)	$	(182.2	)
Service cost		(17.4	)		(25.4	)		(16.7	)		(19.4	)		(3.3	)		(3.5	)
Interest cost		(45.4	)		(47.3	)		(41.9	)		(38.2	)		(10.5	)		(10.2	)
Actuarial gain (loss)		10.1			22.0			21.8			38.9			(2.3	)		14.6
Plan participant contributions		—			—			(2.5	)		(3.0	)		(8.3	)		(8.6	)
Benefits paid		103.2			113.0			34.0			35.8			20.8			18.5
Federal subsidy		—			—			—			—			(1.5	)		(1.7	)
Plan amendments		—			(4.0	)		—			(1.1	)		—			(1.6	)
Settlements/ curtailments		—			(4.4	)		13.9			10.3			—			—
Special termination benefits		—			(.5	)		—			—			—			—
Foreign currency changes		—			—			136.3			(46.6	)		3.7			(2.2	)

Ending balance	$	(726.2	)	$	(776.7	)	$	(642.1	)	$	(787.0	)	$	(178.3	)	$	(176.9	)


Change in Plan Assets:
Beginning balance	$	713.3		$	738.8		$	671.0		$	573.5		$	51.2		$	—
Actual return on plan assets		(175.7	)		65.3			(112.6	)		25.2			(10.7	)		1.2
Company contributions		14.7			22.2			40.0			79.4			14.2			58.2
Federal subsidy		—			—			—			—			1.5			1.7
Plan participant contributions		—			—			2.5			3.0			8.3			8.6
Benefits paid		(103.2	)		(113.0	)		(34.0	)		(35.8	)		(20.8	)		(18.5	)
Foreign currency changes		—			—			(128.9	)		34.5			—			—
Settlements		—			—			(13.3	)		(8.8	)		—			—

Ending balance	$	449.1		$	713.3		$	424.7		$	671.0		$	43.7		$	51.2

Funded Status:
Funded status at end of year	$	(277.1	)	$	(63.4	)	$	(217.4	)	$	(116.0	)	$	(134.6	)	$	(125.7	)
Amount Recognized in Balance Sheet:
Other assets	$	—		$	30.0		$	2.2		$	10.0		$	—		$	—
Accrued compensation		(18.2	)		(9.2	)		(11.6	)		(12.6	)		(3.9	)		(3.7	)
Employee benefit plans liability		(258.9	)		(84.2	)		(208.0	)		(113.4	)		(130.7	)		(122.0	)

Net amount recognized	$	(277.1	)	$	(63.4	)	$	(217.4	)	$	(116.0	)	$	(134.6	)	$	(125.7	)

Pretax Amounts Recognized in Accumulated Other Comprehensive Loss:
Net actuarial loss	$	531.4		$	342.3		$	274.3		$	198.0		$	41.5		$	26.8
Prior service credit		(.6	)		(1.5	)		(14.6	)		(23.5	)		(33.4	)		(39.8	)
Transition obligation		—			—			.4			.6			—			—

Total pretax amount recognized	$	530.8		$	340.8		$	260.1		$	175.1		$	8.1		$	(13.0	)

Supplemental Information:
Accumulated benefit obligation	$	707.0		$	756.3		$	605.5		$	745.5			N/A			N/A

Plans with Projected Benefit Obligation in Excess of Plan Assets:
Projected benefit obligation	$	726.2		$	93.3		$	639.2		$	666.0			N/A			N/A
Fair value plan assets		449.1			—			419.6			539.9			N/A			N/A

Plans with Accumulated Benefit Obligation in Excess of Plan Assets:
Projected benefit obligation	$	726.2		$	93.3		$	539.4		$	658.2			N/A			N/A
Accumulated benefit obligation		707.0			84.4			522.0			640.2			N/A			N/A
Fair value plan assets		449.1			—			332.6			532.9			N/A			N/A

F-25

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The U.S. pension plans include funded qualified plans and unfunded non-qualified plans. As of December 31, 2008 and 2007, the U.S. qualified pension plans had benefit obligations of $635.6 and $683.3, and plan assets of $449.1 and $713.3, respectively. We believe we have adequate investments and cash flows to fund the liabilities associated with the unfunded non-qualified plans.

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income


	Pension Benefits																		Postretirement Benefits
	U.S. Plans									Non-U.S. Plans									Postretirement Benefits
	2008			2007			2006			2008			2007			2006			2008			2007			2006
Net Periodic Benefit Cost:
Service cost	$	17.4		$	25.4		$	25.8		$	16.7		$	19.4		$	21.4		$	3.3		$	3.5		$	3.4
Interest cost		45.4			47.3			48.4			41.9			38.2			34.2			10.5			10.2			10.5
Expected return on plan assets		(51.7	)		(53.6	)		(54.5	)		(44.3	)		(39.7	)		(31.1	)		(3.3	)		(2.3	)		—
Amortization of prior service (credit) cost		(1.0	)		(1.9	)		(2.2	)		(1.4	)		(1.7	)		.2			(6.0	)		(6.1	)		(6.0	)
Amortization of actuarial Losses		28.4			36.0			33.1			10.7			13.9			11.5			.9			1.5			1.9
Amortization of transition obligation		—			—			—			.1			.1			—			—			—			—
Settlements/curtailments		—			4.4			11.2			1.6			(.7	)		2.6			—			—			(2.1	)
Special termination benefits		—			.5			6.3			—			—			.6			—			—			3.3
Other		—			—			—			.6			(.7	)		(.2	)		—			—			—

Net periodic benefit cost	$	38.5		$	58.1		$	68.1		$	25.9		$	28.8		$	39.2		$	5.4		$	6.8		$	11.0

The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost during 2009 are as follows:


	Pension Benefits						Postretirement Benefits
	U.S. Plans			Non-U.S. Plans			Postretirement Benefits
Net actuarial loss	$	32.2		$	12.1		$	2.9
Prior service credit		(.1	)		(1.0	)		(6.0	)
Transition obligation		—			.1			—

Assumptions

Weighted-average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of December 31 were as follows:


	Pension Benefits								Postretirement Benefits
	U.S. Plans				Non-U.S. Plans				Postretirement Benefits
	2008		2007		2008		2007		2008		2007
Discount rate	6.05	%	6.20	%	6.17	%	5.56	%	6.23	%	6.26	%
Rate of compensation increase	4.00	%	4.00	%	3.51	%	3.10	%	N/A		N/A

The discount rate used for determining future pension obligations for each individual plan is based on a review of long-term bonds that receive a high-quality rating from a recognized rating agency. The discount rates for our most significant plans, were based on the internal rate of return for a portfolio of high-quality bonds with maturities that are consistent with the projected future benefit payment obligations of each plan. The weighted-average discount rate for U.S. and non-U.S. plans determined on this basis has increased to 6.11% at December 31, 2008, from 5.88% at December 31, 2007. In determining the long-term rates of return, we consider the nature of each plan’s investments, an expectation for each plan’s investment strategies, historical rates of return and current economic forecasts, among other factors. We evaluate the expected rate of return on plan assets annually and adjust as necessary.

F-26

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Weighted-average assumptions used to determine net cost recorded in the Consolidated Statements of Income for the years ended December 31 were as follows:


	Pension Benefits												Postretirement Benefits
	U.S. Plans						Non-U.S. Plans						Postretirement Benefits
	2008		2007		2006		2008		2007		2006		2008		2007		2006
Discount rate	6.20	%	5.90	%	5.50	%	5.56	%	4.93	%	5.01	%	6.26	%	5.90	%	6.33	%
Rate of compensation increase	4.00		5.00		6.00		3.10		2.99		3.14		N/A		N/A		N/A
Rate of return on assets	8.00		8.00		8.00		7.31		6.85		6.97		N/A		N/A		N/A

In determining the net cost for the year ended December 31, 2008, the assumed rate of return on assets globally was 7.66%, which represents the weighted-average rate of return on all plan assets, including the U.S. and non-U.S. plans.

The majority of our pension plan assets relate to the U.S. pension plan. The assumed rate of return for determining 2008 net costs for the U.S. plan was 8.0%. Historical rates of return for the U.S. plan for the most recent 10-year and 20-year periods were 2.0% and 7.6%, respectively. In the U.S plan, our asset allocation policy has favored U.S. equity securities, which have lost .7% and returned 8.4%, respectively, over the ten-year and 20-year period.

In addition, the current rate of return assumption for the U.S. plan was based on an asset allocation of approximately 35% in corporate and government bonds and mortgage-backed securities (which are expected to earn approximately 4% to 6% in the long term) and 65% in equity securities (which are expected to earn approximately 8% to 10% in the long term). Similar assessments were performed in determining rates of return on non-U.S. pension plan assets, to arrive at our weighted-average rate of return of 7.66% for determining 2008 net cost.

Plan Assets

Our U.S. and non-U.S. pension plans target and weighted-average asset allocations at December 31, 2008 and 2007, by asset category were as follows:


	U.S. Plans						Non-U.S. Plans
	% of Plan Assets						% of Plan Assets
	Target		at Year End				Target		at Year End
Asset Category	2009		2008		2007		2009		2008		2007
Equity securities	68	%	65	%	65	%	58	%	56	%	60	%
Debt securities	32		35		35		34		34		32
Other	—		—		—		8		10		8

Total	100	%	100	%	100	%	100	%	100	%	100	%

The overall objective of our U.S. pension plan is to provide the means to pay benefits to participants and their beneficiaries in the amounts and at the times called for by the plan. This is expected to be achieved through the investment of our contributions and other trust assets and by utilizing investment policies designed to achieve adequate funding over a reasonable period of time.

Pension trust assets are invested so as to achieve a return on investment, based on levels of liquidity and investment risk that is prudent and reasonable as circumstances change from time to time. While we recognize the importance of the preservation of capital, we also adhere to the theory of capital market pricing which maintains that varying degrees of investment risk should be rewarded with compensating returns. Consequently, prudent risk-taking is justifiable.

The asset allocation decision includes consideration of the non-investment aspects of the Avon Products, Inc. Personal Retirement Account Plan, including future retirements, lump-sum elections, growth in the number of

F-27

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

participants, company contributions, and cash flow. These actual characteristics of the plan place certain demands upon the level, risk, and required growth of trust assets. We regularly conduct analyses of the plan’s current and likely future financial status by forecasting assets, liabilities, benefits and company contributions over time. In so doing, the impact of alternative investment policies upon the plan’s financial status is measured and an asset mix which balances asset returns and risk is selected.

Our decision with regard to asset mix is reviewed periodically. Asset mix guidelines include target allocations and permissible ranges for each asset category. Assets are monitored on an ongoing basis and rebalanced as required to maintain an asset mix within the permissible ranges. The guidelines will change from time to time, based on an ongoing evaluation of the plan’s tolerance of investment risk.

Cash flows

We expect to make contributions in the range of $60 to $100 to our U.S. pension plans and in the range of $20 to $30 to our international pension plans during 2009.

Total benefit payments expected to be paid from the plans are as follows:


	Pension Benefits						Postretirement Benefits
	U.S. Plans		Non-U.S. Plans		Total		Gross Payments		Federal Subsidy
2009	$	83.8	$	35.7	$	119.5	$	12.3	$	1.6
2010		77.8		35.7		113.5		12.7		1.7
2011		66.9		36.3		103.2		13.1		1.8
2012		65.6		36.7		102.3		13.4		1.8
2013		64.3		37.8		102.1		13.6		1.8
2014 – 2018		272.3		202.9		475.2		70.6		9.8

Postretirement Benefits

For 2008, the assumed rate of future increases in the per capita cost of health care benefits (the health care cost trend rate) was 8.0% for all claims and will gradually decrease each year thereafter to 5.0% in 2015 and beyond. A one-percentage point change in the assumed health care cost trend rates would have the following effects:


(In millions)	1 Percentage Point Increase	1 Percentage Point Decrease
Effect on total of service and interest cost components	1.4	(1.3	)
Effect on postretirement benefit obligation	14.1	(13.5	)

Postemployment Benefits

We provide postemployment benefits, which include salary continuation, severance benefits, disability benefits, continuation of health care benefits and life insurance coverage to eligible former employees after employment but before retirement. At December 31, 2008 and 2007, the accrued cost for postemployment benefits was $74.9 and $57.9, respectively, and was included in employee benefit plans liability.

Supplemental Retirement Programs

We offer the Avon Products, Inc. Deferred Compensation Plan (the “DCP”) for certain key employees. The DCP is an unfunded, unsecured plan for which obligations are paid to participants out of our general assets, including assets held in a grantor trust, described below, and corporate-owned life insurance policies. The DCP allows for the deferral of up to 50% of a participant’s base salary, the deferral of up to 100% of incentive compensation bonuses, and the deferral of contributions that would have been made to the Avon Personal Savings Account Plan (the “PSA”) but that are in excess of U.S. Internal Revenue Code limits on contributions to the PSA. Participants may elect to have their deferred compensation invested in one or more of three investment alternatives. Expense associated with the DCP for the years ended December 31, 2008, 2007 and 2006, was $4.6, $6.8 and $6.1, respectively. At December 31, 2008, the accrued cost for the DCP was $94.1 (2007—$98.0) and was included in other liabilities.

F-28

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We maintain supplemental retirement programs consisting of the Supplemental Executive Retirement Plan of Avon Products, Inc. (“SERP”) and the Benefit Restoration Pension Plan of Avon Products, Inc. under which non-qualified supplemental pension benefits are paid to higher paid employees in addition to amounts received under our qualified retirement plan, which is subject to IRS limitations on covered compensation. The annual cost of these programs has been included in the determination of the net periodic benefit cost shown above and in 2008 amounted to $7.9 (2007—$9.5; 2006—$12.5). The benefit obligation under these programs at December 31, 2008, was $73.1 (2007—$73.7) and was included in employee benefit plans.

We also maintain a Supplemental Life Plan (“SLIP”) under which additional death benefits ranging from $.4 to $2.0 are provided to certain active and retired officers.

We established a grantor trust to provide assets that may be used for the benefits payable under the SERP and SLIP and for obligations under the DCP. The trust is irrevocable and, although subject to creditors’ claims, assets contributed to the trust can only be used to pay such benefits with certain exceptions. The assets held in the trust are included in other assets and at December 31 consisted of the following:


	2008		2007
Fixed-income portfolio	$	16.3	$	16.0
Corporate-owned life insurance policies		40.2		37.8
Cash and cash equivalents		4.7		11.0

Total	$	61.2	$	64.8

Additionally, we have assets that may be used for other benefit payments. These assets are included in other assets and at December 31 consisted of the following:


	2008		2007
Corporate-owned life insurance policies	$	46.3	$	60.0
Mutual funds		1.4		2.5

Total	$	47.7	$	62.5

The assets are recorded at market value, with increases or decreases in the corporate-owned life insurance policies reflected in the Consolidated Statements of Income.

The fixed-income portfolio held in the grantor trust and the mutual funds are classified as available-for-sale securities.

The cost, gross unrealized gains and losses and market value of the available-for-sale securities as of December 31, were as follows:


	2008
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
U.S. government bonds ⁽¹⁾	$	—	$	—	$	—	$	—
State and municipal bonds ⁽¹⁾		.6		—		—		.6
Mortgage backed securities ⁽¹⁾		.1		—		—		.1
Other ⁽¹⁾		17.5		—		.5		17.0

Total available-for-sale securities ⁽²⁾	$	18.2	$	—	$	.5	$	17.7

⁽¹⁾	At December 31, 2008, investments with scheduled maturities in less than two years totaled $.2, two to five years totaled $0, and more than five years totaled $.6.

⁽²⁾	At December 31, 2008, there were no investments with unrealized losses in a loss position for greater than 12 months.

Payments for the purchases, proceeds and gross realized gains and losses from the sales of these securities totaled $42.1, $41.4, $.1 and $(.6), respectively, during 2008.

F-29

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The cost, gross unrealized gains and losses and market value of the available-for-sale securities as of December 31, were as follows:


	2007
	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Market Value
U.S. government bonds ⁽¹⁾	$	.5	$	—	$	—	$	.5
State and municipal bonds ⁽¹⁾		13.3		—		—		13.3
Mortgage backed securities ⁽¹⁾		.7		—		—		.7
Other ⁽¹⁾		3.5		.5		—		4.0

Total available-for-sale securities ⁽²⁾	$	18.0	$	.5	$	—	$	18.5

⁽¹⁾	At December 31, 2007, investments with scheduled maturities in less than two years totaled $2.0, two to five years totaled $2.5, and more than five years totaled $10.5.

⁽²⁾	At December 31, 2007, there were no investments with unrealized losses in a loss position for greater than 12 months.

Payments for the purchases, proceeds and gross realized gains and losses from the sales of these securities totaled $47.0, $46.1, $.1 and $(.1), respectively, during 2007.

For the years ended December 31, 2008 and 2007, unrealized gains on available-for-sale securities impacted accumulated other comprehensive loss as follows:


	2008			2007
Net unrealized gains at beginning of year, net of taxes	$	.4		$	.3
Net unrealized (losses) gains, net of taxes		(.7	)		.1
Reclassification of net gains to earnings, net of taxes		—			—

Net unrealized (losses) gains end of year, net of taxes	$	(.3	)	$	.4

NOTE 12. Segment Information

Our operating segments, which are our reportable segments, are based on geographic operations and include commercial business units in Latin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. Global expenses include, among other things, costs related to our executive and administrative offices, information technology, research and development, and marketing. We allocate certain planned global expenses to our business segments primarily based on planned revenue. The unallocated costs remain as global expenses. We do not allocate to our segments income taxes, foreign exchange gains or losses, or costs of implementing restructuring initiatives related to our global functions. Costs of implementing restructuring initiatives related to a specific segment are recorded within that segment. In Europe, our manufacturing facilities primarily support Western Europe, Middle East & Africa and Central & Eastern Europe. In our disclosures of total assets, capital expenditures and depreciation and amortization, we have allocated amounts associated with the European manufacturing facilities between Western Europe, Middle East & Africa and Central & Eastern Europe based upon planned beauty unit volume. A similar allocation is done in Asia where our manufacturing facilities primarily support Asia Pacific and China.

The segments have similar business characteristics and each offers similar products through similar customer access methods.

The accounting policies of the segments are the same as those described in Note 1, Description of the Business and Summary of Significant Accounting Policies. We evaluate the performance of our segments based on revenues and operating profits or losses. Segment revenues reflect direct sales of products to Representatives based on the Representative’s geographic location. Intersegment sales and transfers are not significant. Each segment records direct expenses related to its employees and its operations.

Summarized financial information concerning our segments as of December 31 is shown in the following tables.

F-30

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Total Revenue & Operating Profit


	2008					2007					2006
	Total Revenue		Operating Profit			Total Revenue		Operating Profit			Total Revenue		Operating Profit
Latin America	$	3,884.1	$	690.3		$	3,298.9	$	483.1		$	2,743.4	$	424.0
North America		2,492.7		213.9			2,622.1		213.1			2,554.0		181.6
Central & Eastern Europe,		1,719.5		346.2			1,577.8		296.1			1,320.2		296.7
Western Europe, Middle East & Africa		1,351.7		121.0			1,308.6		33.9			1,123.7		(17.8	)
Asia Pacific		891.2		102.4			850.8		64.3			810.8		42.5
China		350.9		17.7			280.5		2.0			211.8		(10.8	)

Total from operations		10,690.1		1,491.5			9,938.7		1,092.5			8,763.9		916.2
Global and other expenses		—		(152.2	)		—		(219.8	)		—		(154.8	)

Total	$	10,690.1	$	1,339.3		$	9,938.7	$	872.7		$	8,763.9	$	761.4

Total Assets


	2008		2007		2006
Latin America	$	1,657.2	$	1,614.4	$	1,396.4
North America		899.0		789.1		739.3
Central & Eastern Europe		771.1		970.4		771.0
Western Europe, Middle East & Africa		567.2		615.3		546.1
Asia Pacific		412.5		437.0		392.7
China		318.6		292.3		270.1

Total from operations		4,625.6		4,718.5		4,115.6
Global and other		1,448.4		997.7		1,122.6

Total assets	$	6,074.0	$	5,716.2	$	5,238.2


*Capital Expenditures*

	2008		2007		2006
Latin America	$	116.0	$	90.1	$	57.4
North America		111.9		77.9		33.0
Central & Eastern Europe		42.2		29.6		13.7
Western Europe, Middle East & Africa		41.6		31.2		33.0
Asia Pacific		24.8		16.6		13.4
China		13.2		9.7		4.5

Total from operations		349.7		255.1		155.0
Global and other		30.8		23.4		19.8

Total capital expenditures	$	380.5	$	278.5	$	174.8

F-31

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Depreciation and Amortization


	2008		2007		2006
Latin America	$	55.5	$	49.6	$	48.7
North America		37.6		35.0		30.0
Central & Eastern Europe		25.8		19.7		19.8
Western Europe, Middle East & Africa		31.8		26.4		23.1
Asia Pacific		13.3		16.0		10.6
China		5.9		5.8		5.2

Total from operations		169.9		152.5		137.4
Global and other		17.3		19.6		22.2

Total depreciation and amortization	$	187.2	$	172.1	$	159.6


*Total Revenue by Major Country*

	2008		2007		2006
U.S.	$	2,061.8	$	2,194.9	$	2,157.1
Brazil		1,674.3		1,352.0		1,039.2
All other		6,954.0		6,391.8		5,567.6

Total	$	10,690.1	$	9,938.7	$	8,763.9

A major country is defined as one with total revenues greater than 10% of consolidated total revenues.

Long-Lived Assets by Major Country


	2008		2007		2006
U.S.	$	649.3	$	465.5	$	418.2
Brazil		187.1		197.7		115.5
Colombia		122.5		131.6		145.1
All other		910.2		935.3		800.4

Total	$	1,869.1	$	1,730.1	$	1,479.2

A major country is defined as one with long-lived assets greater than 10% of consolidated long-lived assets. Long-lived assets primarily include property, plant and equipment and intangible assets. The U.S. and Brazil’s long-lived assets consist primarily of property, plant and equipment related to manufacturing and distribution facilities. Colombia’s long-lived assets consist primarily of goodwill and intangible assets associated with the 2005 acquisition of this business.

Revenue by Product Category


	2008		2007		2006
Beauty ⁽¹⁾	$	7,603.7	$	6,932.5	$	6,019.6
Fashion ⁽²⁾		1,863.3		1,753.2		1,562.7
Home ⁽³⁾		1,121.9		1,159.5		1,095.0

Net sales		10,588.9		9,845.2		8,677.3
Other revenue ⁽⁴⁾		101.2		93.5		86.6

Total revenue	$	10,690.1	$	9,938.7	$	8,763.9

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

⁽²⁾	Fashion includes fashion jewelry, watches, apparel, footwear and accessories.

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

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

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

F-32

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Beginning in the fourth quarter of 2008, we changed our product categories from Beauty, Beauty Plus and Beyond Beauty to Beauty, Fashion and Home.

NOTE 13. Leases and Commitments

Minimum rental commitments under noncancellable operating leases, primarily for equipment and office facilities at December 31, 2008, are included in the following table under leases. Purchase obligations include commitments to purchase paper, inventory and other services.


Year	Leases			Purchase Obligations
2009	$	92.3		$	106.3
2010		65.9			55.3
2011		47.0			25.8
2012		26.3			17.7
2013		21.5			16.1
Later years		54.8			49.9
Sublease rental income		(31.2	)		—

Total	$	276.6		$	271.1

Rent expense in 2008 was $120.4 (2007—$118.5; 2006—$114.7). Plant construction, expansion and modernization projects with an estimated cost to complete of $430.2 were in progress at December 31, 2008.

NOTE 14. Restructuring Initiatives

2005 Program

In November 2005, we announced a multi-year turnaround plan to restore sustainable growth. As part of our turnaround plan, we launched a restructuring program in late 2005 (the “2005 Program”) and restructuring initiatives under this program include:

•

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

•

implementation of a global manufacturing strategy through facilities realignment;

•

additional supply chain efficiencies in distribution; and

•

streamlining of transactional and other services through outsourcing and moves to low-cost countries.

In January 2008, we announced the final initiatives that are part of the 2005 Program. We expect to record restructuring charges and other costs to implement restructuring initiatives of approximately $530 before taxes. Through December 31, 2008, we have recorded total costs to implement, net of adjustments, of $504.2 ($60.6 in 2008, $158.3 in 2007, $228.8 in 2006, and $56.5 in 2005) for actions associated with our restructuring initiatives. We expect to record a majority of the remaining costs by the end of 2009.

2009 Program

F-33

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring Charges –2005

In December 2005 and January 2006, exit and disposal activities that are a part of this multi-year restructuring plan were approved. Specific actions for this initial phase of our multi-year restructuring plan included:

•

organization realignment and downsizing in each region and global through a process called “delayering,” taking out layers to bring senior management closer to operations;

•

the exit of unprofitable lines of business or markets, including the closure of unprofitable operations in Asia, primarily Indonesia and the exit of a product line in China, and the exit of the beComing product line in the U.S.; and

•

the move of certain services from markets within Europe to lower cost shared service centers.

The actions described above were completed during 2006, except for the move of certain services from markets within Europe to lower cost shared service centers, which was completed during 2008.

In connection with initiatives that had been approved to date, we recorded total costs to implement in 2005 of $56.5, and the costs consisted of the following:

•

charges of $43.2 for employee-related costs, including severance, pension and other termination benefits, asset impairment charges and cumulative foreign currency translation charges previously recorded directly to shareholders’ equity;

•

charges of $8.4 for inventory write-off; and

•

other costs to implement of $4.9 for professional service fees related to the implementation of these initiatives.

Of the total costs to implement, $48.1 was recorded in selling, general and administrative expenses in 2005, and $8.4 was recorded in cost of sales in 2005.

Approximately 58% of these charges resulted in cash expenditures, with a majority of the cash payments made during 2006.

Restructuring Charges –2006

During 2006 and January 2007, additional exit and disposal activities that are a part of our restructuring initiatives were approved. Specific actions for this phase of our restructuring initiatives included:

•

organization realignment and downsizing in each region and global through a process called “delayering,” taking out layers to bring senior management closer to operations;

•

the phased outsourcing of certain services, including certain key human resource and customer service processes;

•

the realignment of certain North America distribution operations;

•

the exit of certain unprofitable operations, including the closure of the Avon Salon & Spa; and

•

the reorganization of certain functions, primarily sales-related organizations.

Many of the actions were completed in 2006, including the delayering program. A majority of the remaining actions were completed in 2007. The outsourcing of certain services is expected to be completed in phases through 2009. The realignment of certain North America distribution operations is expected to be completed in phases through 2012. The reorganization of one of our functions is expected to be completed in phases through 2010.

In connection with initiatives that had been approved to date, we recorded total costs to implement in 2006 of $228.8, and the costs consisted of the following:

•

charges of $218.3 for employee-related costs, including severance, pension and other termination benefits;

•

favorable adjustments of $16.1, primarily relating to a higher than expected number of employees successfully pursuing reassignments to other positions and higher than expected turnover (employees leaving prior to termination); and

•

other costs to implement of $24.9 and $1.7 for professional service fees related to the implementation of these initiatives and accelerated depreciation, respectively.

Of the total costs to implement, $229.1 was recorded in selling, general and administrative expenses in 2006, and a favorable adjustment of $.3 was recorded in cost of sales in 2006.

Approximately 85% of these charges resulted in cash expenditures, with a majority of the cash payments made during 2007.

F-34

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring Charges –2007

During 2007 and January 2008, exit and disposal activities that are a part of our multi-year restructuring plan were approved. Specific actions for this phase of our multi-year restructuring plan included:

•

the reorganization of certain functions, primarily sales-related organizations;

•

the restructure of certain international direct selling operations;

•

the realignment of certain of our distribution and manufacturing operations, including the realignment of certain of our Latin America distribution operations;

•

automation of certain distribution processes; and

•

outsourcing of certain finance, customer service, and information technology processes.

The actions described above are expected to be completed by the end of 2009. The outsourcing of certain information technology processes and the realignment of certain Latin America distribution operations are expected to be completed by the end of 2011.

In connection with initiatives that have been approved to date, we recorded total costs to implement in 2007 of $158.3, and the costs consisted of the following:

•

charges of $118.0 for employee-related costs, including severance, pension and other termination benefits;

•

favorable adjustments of $8.0, primarily relating to certain employees pursuing reassignments to other positions and higher than expected turnover (employees leaving prior to termination); and

•

other costs to implement of $48.3 for professional service fees associated with our initiatives to outsource certain human resource, finance, customer service, and information technology processes and accelerated depreciation associated with our initiatives to realign certain distribution operations and close certain manufacturing operations.

Of the total costs to implement, $157.3 was recorded in selling, general and administrative expenses and $1.0 was recorded in cost of sales in 2007.

Approximately 95% of these charges are expected to result in future cash expenditures, with a majority of the cash payments made during 2008.

Restructuring Charges – 2008

During 2008, we recorded total costs to implement associated with previously approved initiatives that are part of our multi-year restructuring plan of $60.6, and the costs consisted of the following:

•

net charges of $19.1 primarily for severance and pension benefits;

•

implementation costs of $30.5 for professional service fees, primarily associated with our initiatives to outsource certain finance and human resource processes; and

•

accelerated depreciation of $11.0 associated with our initiatives to realign certain distribution operations and close certain manufacturing operations.

Of the total costs to implement, $57.5 was recorded in selling, general and administrative expenses and $3.1 was recorded in cost of sales for 2008.

F-35

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The liability balances for the initiatives that have been approved to date are shown below.


	Employee- Related Costs			Asset Write-offs			Inventory Write-offs			Currency Translation Adjustment Write-offs			Contract Terminations/ Other			Total
2005 Charges	$	30.4		$	1.4		$	8.4		$	11.4		$	—		$	51.6
Cash payments		(.5	)		—			—			—			—			(.5	)
Non-cash write-offs		(.7	)		(1.4	)		(8.4	)		(11.4	)		—			(21.9	)
Foreign exchange		—			—			—			—			—			—

Balance December 31, 2005	$	29.2		$	—		$	—		$	—		$	—		$	29.2
2006 Charges		201.2			9.8			.6			.2			6.5			218.3
Adjustments		(13.5	)		(.6	)		(1.6	)		—			(.4	)		(16.1	)
Cash payments		(112.0	)		—			—			—			(5.1	)		(117.1	)
Non-cash write-offs		(23.0	)		(9.2	)		1.0			(.2	)		—			(31.4	)
Foreign exchange		3.0			—			—			—			.1			3.1

Balance December 31, 2006	$	84.9		$	—		$	—		$	—		$	1.1		$	86.0
2007 Charges		117.0			.2			—			—			.8			118.0
Adjustments		(8.0	)		—			—			—			—			(8.0	)
Cash payments		(47.6	)		—			—			—			(1.1	)		(48.7	)
Non-cash write-offs		(4.9	)		(.2	)		—			—			—			(5.1	)
Foreign exchange		1.8			—			—			—			(.1	)		1.7

Balance December 31, 2007	$	143.2		$	—		$	—		$	—		$	.7		$	143.9
2008 Charges		20.5			—			—			—			.8			21.3
Adjustments		(3.1	)		—			—			—			.9			(2.2	)
Cash payments		(60.7	)		—			—			—			(2.1	)		(62.8	)
Non-cash write-offs		1.0			—			—			—			—			1.0
Foreign exchange		(7.3	)		—			—			—			—			(7.3	)

Balance December 31, 2008	$	93.6		$	—		$	—		$	—		$	.3		$	93.9

Non-cash write-offs associated with employee-related costs are the result of settlement, curtailment and special termination benefit charges for pension plans and postretirement due to the initiatives implemented. Inventory write-offs relate to exited businesses.

The following table presents the restructuring charges incurred to date, net of adjustments, under our multi-year restructuring plan that began in the fourth quarter of 2005, 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	$	344.5	$	10.8	$	7.4	$	11.6	$	8.6	$	382.9
Charges to be incurred on approved initiatives		21.9		—		—		—		—		21.9

Total expected charges	$	366.4	$	10.8	$	7.4	$	11.6	$	8.6	$	404.8

F-36

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The charges, net of adjustments, of initiatives approved to date by reportable business segment were as follows:


	Latin America		North America			Central & Eastern Europe		Western Europe, Middle East & Africa		Asia Pacific		China		Corporate			Total
2005	$	3.5	$	6.9		$	1.0	$	11.7	$	18.2	$	4.2	$	6.1		$	51.6
2006		34.6		61.8			6.9		45.1		22.2		2.1		29.5			202.2
2007		14.9		7.0			4.7		65.1		4.3		1.3		12.7			110.0
2008		1.9		(1.1	)		1.7		19.0		.6		—		(3.0	)		19.1

Charges recorded to date	$	54.9	$	74.6		$	14.3	$	140.9	$	45.3	$	7.6	$	45.3		$	382.9
Charges to be incurred on approved initiatives		4.3		3.3			.1		1.8		10.3		—		2.1			21.9

Total expected charges	$	59.2	$	77.9		$	14.4	$	142.7	$	55.6	$	7.6	$	47.4		$	404.8

As noted previously, we expect to record total costs to implement of approximately $530 and in the range of $300 to $400 before taxes for restructuring initiatives under the 2005 and 2009 programs, respectively, 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 represent charges recorded to date plus charges yet to be recorded for approved initiatives as the relevant accounting criteria for recording have not yet been met. In addition to the charges included in the tables above, we will incur other costs to implement such as consulting other professional services, and accelerated depreciation.

NOTE 15. Contingencies

In December 2002, our Brazilian subsidiary received a series of excise and income tax assessments from the Brazilian tax authorities asserting that the establishment in 1995 of separate manufacturing and distribution companies in that country was done without a valid business purpose. The assessments assert tax deficiencies during portions of the years 1997 and 1998 of approximately $86.6 at the exchange rate on December 31, 2008, plus penalties and accruing interest totaling approximately $162.0 at the exchange rate on December 31, 2008. In July 2003, a first-level appellate body rejected the basis for income tax assessments representing approximately 76% of the total assessment, or $189.1 (including interest). In March 2004, that rejection was confirmed in a mandatory second-level appellate review. The remaining assessments relating to excise taxes (approximately $59.4) were not affected and are awaiting a decision at the first administrative level. In December 2003, an additional assessment was received in respect of excise taxes for the balance of 1998, totaling approximately $120.2 at the exchange rate on December 31, 2008, and asserting a different theory of liability based on purported market sales data. In January 2005, an unfavorable first administrative level decision was received with respect to the appeal of that assessment and a further appeal has been taken. In December 2004, an additional assessment was received in respect of excise taxes for the period from January 1999 to December 2001, totaling approximately $267.3 at the exchange rate on December 31, 2008, and asserting the same theory of liability as in the December 2003 assessment. We appealed that assessment. In September 2005, an unfavorable first administrative level decision was received with respect to the appeal of the December 2004 assessment, and a further appeal is being taken. The assessments issued in 2003 and 2004 are awaiting a decision at the second administrative level. In the event that assessments are upheld in the earlier stages of review, 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 a reasonable estimate of the amount or range of expense that could result from an unfavorable outcome in respect of these or any additional assessments that may be issued for subsequent periods. The structure adopted in 1995 is comparable to that used by many companies in Brazil, and we believe that it is appropriate, both operationally and legally, and that the assessments are unfounded. This matter is being vigorously contested and in the opinion of our outside counsel the likelihood that the assessments ultimately will be upheld is remote. Management believes that the likelihood that the assessments will have a material impact on our consolidated financial position, results of operations or cash flows is correspondingly remote.

F-37

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Kendall v. Employees’ Retirement Plan of Avon Products and the Retirement Board is a purported class action commenced in April 2003 in the United States District Court for the Southern District of New York. Plaintiff is a retired employee of Avon who, before retirement, had been on paid disability leave for approximately 19 years. The initial complaint alleged that the Employees’ Retirement Plan of Avon Products (the “Retirement Plan”) violated the Employee Retirement Income Security Act (“ERISA”) and, as a consequence, unlawfully reduced the amount of plaintiff’s pension. Plaintiff sought a reformation of the Retirement Plan and recalculation of benefits under the terms of the Retirement Plan, as reformed for plaintiff and for the purported class. In November 2003, plaintiff filed an amended complaint alleging additional Retirement Plan violations of ERISA and seeking, among other things, elimination of a social security offset in the Retirement Plan. The purported class includes “all Plan participants, whether active, inactive or retired, and their beneficiaries and/or Estates, with one hour of service on or after January 1, 1976, whose accrued benefits, pensions or survivor’s benefits have been or will be calculated and paid based on the Plan’s unlawful provisions.” In February 2004, we filed a motion to dismiss the amended complaint. In September 2007, the trial court granted our motion to dismiss and plaintiff thereafter appealed that decision to the United States Court of Appeals for the Second Circuit. While it is not possible to predict the outcome of litigation, management believes that there are meritorious defenses to the claims asserted and that this action should not have a material adverse effect on our consolidated financial position, results of operations or cash flows. This action is being vigorously contested.

In August 2005, we reported the filing of class action complaints for alleged violations of the federal securities laws in actions entitled Nilesh Patel v. Avon Products, Inc. et al. and Michael Cascio v. Avon Products, Inc. et al. , respectively, which subsequently have been consolidated. A consolidated amended class action complaint for alleged violations of the federal securities laws was filed in the consolidated action in December 2005 in the United States District Court for the Southern District of New York (Master File Number 05-CV-06803) under the caption In re Avon Products, Inc. Securities Litigation naming Avon, an officer and two officer/directors. The consolidated action, brought on behalf of purchasers of our common stock between February 3, 2004 and September 20, 2005, seeks damages for alleged false and misleading statements “concerning Avon’s operations and performance in China, the United States . . . and Mexico.” The consolidated amended complaint also asserts that during the class period certain officers and directors sold shares of our common stock. In February 2006, we filed a motion to dismiss the consolidated amended class action complaint, asserting, among other things, that it failed to state a claim upon which relief may be granted, and the plaintiffs have opposed that motion.

In August 2005, we reported the filing of a complaint in a shareholder derivative action purportedly brought on behalf of Avon entitled Robert L. Garber, derivatively on behalf of Avon Products, Inc. v. Andrea Jung et al. as defendants, and Avon Products, Inc. as nominal defendant . An amended complaint was filed in this action in December 2005 in the United States District Court for the Southern District of New York (Master File Number 05-CV-06803) under the caption In re Avon Products, Inc. Securities Litigation naming certain of our officers and directors. The amended complaint alleges that defendants’ violations of state law, including breaches of fiduciary duties, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment, between February 2004 and the present, have caused losses to Avon. In February 2006, we filed a motion to dismiss the amended complaint, asserting, among other things, that it failed to state a claim upon which relief may be granted, and the plaintiff opposed that motion. In February 2009, plaintiff Garber filed an unopposed motion for voluntary dismissal of the action, which the court granted by order dated February 13, 2009.

In October 2005, we reported the filing of class action complaints for alleged violations of the Employee Retirement Income Security Act (“ERISA”) in actions entitled John Rogati v. Andrea Jung, et al. and Carolyn Jane Perry v. Andrea Jung, et al. , respectively, which subsequently have been consolidated. A consolidated class action complaint for alleged violations of ERISA was filed in the consolidated action in December 2005 in the United States District Court for the Southern District of New York (Master File Number 05-CV-06803) under the caption In re Avon Products, Inc. ERISA Litigation naming Avon, certain officers, Avon’s Retirement Board and others. The consolidated action purports to be brought on behalf of the Avon Products, Inc. Personal Savings Account Plan and the Avon Products, Inc. Personal Retirement Account Plan (collectively the “Plan”) and on behalf of participants and beneficiaries of the Plan “for whose individual accounts the Plan purchased or held an interest in Avon Products, Inc. . . . common stock from February 20, 2004 to the present.” The consolidated complaint asserts breaches of fiduciary duties and prohibited transactions in violation of ERISA arising out of, inter alia, alleged false and misleading public statements regarding Avon’s business made during the class period and investments in Avon stock by the Plan and Plan participants. In February 2006, we filed a motion to dismiss the consolidated complaint, asserting that it failed to state a claim upon which relief may be granted, and the plaintiffs have opposed that motion.

F-38

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

It is not possible to predict the outcome of litigation and it is reasonably possible that there could be unfavorable outcomes in the In re Avon Products, Inc. Securities Litigation , In re Avon Products, Inc. Securities Litigation (derivative action) and In re Avon Products, Inc. ERISA Litigation matters. Management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes but, under some circumstances, adverse awards 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 December 31, 2008, should not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

NOTE 16. Goodwill and Intangible Assets

On April 2, 2007, we acquired our licensee in Egypt for approximately $17 in cash. The acquired business is being operated by a new wholly-owned subsidiary and is included in our Western Europe, Middle East & Africa operating segment. The purchase price allocation resulted in goodwill of $9.3 and customer relationships of $1.0 with a seven-year useful life.

In August 2006, we purchased all of the remaining 6.155% outstanding shares in our two joint-venture subsidiaries in China from the minority interest shareholders for approximately $39.1. We previously owned 93.845% of these subsidiaries and consolidated their results, while recording minority interest for the portion not owned. Upon completion of the transaction, we eliminated the minority interest in the net assets of these subsidiaries. The purchase of these shares did not have a material impact on our consolidated net income. Avon China is a stand-alone operating segment. The purchase price allocation resulted in goodwill of $33.3 and customer relationships of $1.9 with a ten-year weighted-average useful life.

Goodwill


	Latin America		Western Europe, Middle East & Africa			Central & Eastern Europe		Asia Pacific		China		Total
Balance at December 31, 2007	$	94.9	$	37.8		$	8.8	$	10.4	$	70.3	$	222.2
Adjustments		—		.3			—		—		—		.3
Foreign exchange		—		(4.8	)		—		2.0		4.8		2.0

Balance at December 31, 2008	$	94.9	$	33.3		$	8.8	$	12.4	$	75.1	$	224.5

F-39

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Intangible assets


	2008					2007
	Carrying Amount		Accumulated Amortization			Carrying Amount		Accumulated Amortization
Amortized Intangible Assets
Customer relationships	$	38.4	$	(25.6	)	$	37.9	$	(18.4	)
Licensing agreements		42.4		(28.3	)		41.2		(19.9	)
Noncompete agreements		7.4		(5.7	)		8.4		(5.6	)

Total	$	88.2	$	(59.6	)	$	87.5	$	(43.9	)


Aggregate Amortization Expense:
2008	$	16.4
2007		16.4
2006		19.5
Estimated Amortization Expense:
2009	$	14.0
2010		2.0
2011		2.0
2012		2.0
2013		2.0

NOTE 17. Supplemental Balance Sheet Information

At December 31, 2008 and 2007, prepaid expenses and other included the following


	2008		2007
Deferred tax assets (Note 6)	$	194.6	$	261.4
Receivables other than trade		127.1		134.4
Prepaid taxes and tax refunds receivable		156.5		108.9
Prepaid brochure costs, paper and other literature		126.0		104.9
Short-term investments		40.1		—
Other		112.2		105.6

Prepaid expenses and other	$	756.5	$	715.2

At December 31, 2008 and 2007, other assets included the following:


	2008		2007
Deferred tax assets (Note 6)	$	502.5	$	272.9
Goodwill (Note 16)		224.5		222.2
Intangible assets (Note 16)		28.6		43.6
Pension assets (Note 11)		2.2		40.0
Investments (Note 11)		108.9		127.3
Deferred software (Note 1)		98.3		95.9
Interest-rate swap agreements (Note 8)		103.7		16.4
Other		104.5		104.3

Other assets	$	1,173.2	$	922.6

F-40

AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 18. Results of Operations by Quarter (Unaudited)


2008	First		Second		Third		Fourth		Year
Total revenue	$	2,501.7	$	2,736.1	$	2,644.7	$	2,807.6	$	10,690.1
Gross profit		1,578.0		1,742.7		1,669.7		1,750.6		6,741.0
Operating profit		296.2		373.9		297.1		372.1		1,339.3
Income before taxes and minority interest		278.6		344.4		279.2		336.1		1,238.3
Income before minority interest		186.2		237.0		224.7		227.7		875.6
Net income		184.7	$	235.6		222.6		232.4		875.3

Earnings per share
Basic	$	.43	$	.55	$	.52	$	.55	$	2.05	⁽¹⁾
Diluted	$	.43	$	.55	$	.52	$	.54	$	2.04	⁽¹⁾

2007	First		Second		Third		Fourth		Year
Total revenue	$	2,185.3	$	2,328.8	$	2,349.1	$	3,075.5	$	9,938.7
Gross profit		1,352.7		1,407.8		1,460.1		1,776.9		5,997.5
Operating profit		237.8		186.9		223.5		224.5		872.7
Income before taxes and minority interest		223.0		167.9		207.7		197.5		796.1
Income before minority interest		150.6		113.7		139.1		129.9		533.3
Net income	$	150.0	$	112.7	$	139.1	$	128.9	$	530.7

Earnings per share

Basic	$	.34	$	.26	$	.32	$	.30	$	1.22	⁽¹⁾
Diluted	$	.34	$	.26	$	.32	$	.30	$	1.21	⁽¹⁾

⁽¹⁾	The sum of per share amounts for the quarters does not necessarily equal that for the year because the computations were made independently.

First, second, third and fourth quarter 2008 include costs to implement restructuring initiatives of $25.5, $13.3, $14.4, and $7.4, respectively, of which $0, $.3, $2.6, and $.2 are reflected in cost of sales, respectively, and $25.5, $13.0, $11.8, and $7.2 are reflected in selling, general and administrative expenses, respectively. Second quarter 2008 includes benefits of approximately $13, from changes in estimates to our disposition policy under our Product Line Simplifications (“PLS”) program.

First, second, third and fourth quarter 2007 include costs to implement restructuring initiatives of $9.7, $20.5, $27.2, and $100.9, respectively, of which $.7, $0, ($.4), and $.7 are reflected in cost of sales, respectively, and $9.0, $20.5, $27.6, and $100.2 are reflected in selling, general and administrative expenses, respectively. First, second, third and fourth quarter 2007 include costs related to our PLS program of $17.3, $60.9, $5.9 and $103.7, respectively.

NOTE 19. Subsequent Events

On February 3, 2009, we announced an increase in our quarterly cash dividend to $.21 per share from $.20 per share. The first dividend at the new rate will be paid on March 2, 2009, to shareholders of record on February 17, 2009. With this increase, the indicated annual dividend rate is $.84 per share.

In February 2009, we announced a new restructuring program under our multi-year turnaround plan. The restructuring initiatives under the new program are expected to focus on restructuring our global supply chain operations, realigning certain local business support functions to a more regional basis to drive increased efficiencies, and streamlining transaction-related services, including selective outsourcing. We expect to incur restructuring charges and other costs to implement these initiatives in the range of $300 to $400 before taxes over the next several years.

F-41

SCHEDULE II

AVON PRODUCTS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2008, 2007 and 2006

(In millions)


			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses			Charged to Revenue		Deductions			Balance at End of Period
2008
Allowance for doubtful accounts receivable	$	109.0	$	195.5			—	$	202.5	⁽¹⁾	$	102.0
Allowance for sales returns		32.1		—			369.3		375.6	⁽²⁾		25.8
Allowance for inventory obsolescence		216.9		80.8			—		199.5	⁽³⁾		98.2
Deferred tax asset valuation allowance		278.3		5.8	⁽⁴⁾		—			⁽⁵⁾	$	284.1

2007
Allowance for doubtful accounts receivable	$	91.1	$	164.1		$	—	$	146.2	⁽¹⁾	$	109.0
Allowance for sales returns		28.0		—			338.1		334.0	⁽²⁾		32.1
Allowance for inventory obsolescence		125.0		280.6			—		188.7	⁽³⁾		216.9
Deferred tax asset valuation allowance		234.1		62.9	⁽⁴⁾		—		18.7	⁽⁵⁾		278.3

2006
Allowance for doubtful accounts receivable	$	85.8	$	144.7		$	—	$	139.4	⁽¹⁾	$	91.1
Allowance for sales returns		24.3		—			295.0		291.3	⁽²⁾		28.0
Allowance for inventory obsolescence		82.4		179.7			—		137.1	⁽³⁾		125.0
Deferred tax asset valuation allowance		145.2		88.9	⁽⁴⁾		—		—			234.1

⁽¹⁾	Accounts written off, net of recoveries and foreign currency translation adjustment.

⁽²⁾	Returned product destroyed and foreign currency translation adjustment.

⁽³⁾	Obsolete inventory destroyed and foreign currency translation adjustment.

⁽⁴⁾	Increase in valuation allowance for tax loss carryforward benefits is because it is more likely than not that some or all of the deferred tax assets will not be utilized in the future.

⁽⁵⁾	Release of valuation allowance on deferred tax assets that are more likely than not to be utilized in the future.

F-42

Exhibit 10.6

SECOND AMENDMENT TO THE

AVON PRODUCTS, INC. YEAR 2000 STOCK INCENTIVE PLAN

This Second Amendment is made to the Avon Products, Inc. Year 2000 Stock Incentive Plan by Avon Products, Inc., a corporation duly organized and existing under the laws of the State of New York (the “Company”).

AMENDMENT

The Company hereby amends the Plan as follows:

1. Effective January 1, 2009, by deleting Sections 3.1 (d)(i) and 3.1(d)(iii) of the Plan and inserting a new Section 3.l (d)(i) as follows:

“(i) Options and Stock Appreciation Rights shall be cashed out on the basis of the Fair Market Value of the Stock on the date of the cash-out over the exercise price of the Option or the Fair Market Value on the grant date of the Stock Appreciation Right. Notwithstanding the foregoing, Options that were earned and vested as of December 31, 2004 (i.e., “grandfathered” under Code Section 409A) shall be cashed out on the basis of the excess, if any, of the Change in Control Price (but not more than the Fair Market Value of the Stock on the date of the cash-out in the case of Incentive Stock Options) over the exercise price of the Option.”

2. Effective January 1, 2009, by amending and restating Section 3.1(e) of the Plan in its entirety as follows:

“(e) Section 3.l(d) above notwithstanding, in lieu of any cash-out of awards and upon an agreement or agreements approved by the Board of Directors with the prospective new owner of the Company, or the surviving entity or any merger or other business combination, the new owner or surviving entity, as the case may be, shall adopt the Plan and maintain it with respect to all outstanding awards, adopt outstanding award agreements, and continue in effect their respective terms; provided that equitable adjustments shall be made to reflect the relative value of the Stock prior to and following the Change in Control. The new owner of the Company or the surviving entity of any merger or other business combination shall, however, comply with any agreement or agreements to grant new stock-based awards in substitution for unexercised awards granted by the Plan; provided that such substituted awards shall have a value not less than the value as of the time of the Change in Control of the awards that they are replacing.”

3. Effective January 1, 2009, by amending and restating Section 5.2(b) of the Plan in its entirety as follows:

“(b) In the event of any change in or affecting the outstanding shares of Stock by reason of a stock dividend or split, merger or consolidation (whether or not the Company is a surviving corporation), recapitalization, reorganization, combination or exchange of shares or other similar corporate changes or an extraordinary dividend in cash, securities or other property, the Board of Directors shall make such amendments to the Plan, outstanding awards, and award agreements and make such equitable adjustments and take actions thereunder as applicable under the circumstances. Such equitable adjustments as they relate to outstanding awards shall be required to ensure that the intrinsic value of each outstanding award immediately after any of the aforementioned changes in, or affecting the shares of Stock, is equal to the intrinsic value of each outstanding award immediately prior to any of the aforementioned changes. Such amendments, adjustments and actions shall include, as applicable, changes in the number of shares of Stock then remaining subject to the Plan, the number of shares of Stock then remaining subject to awards of Stock and Stock Units (including Restricted Stock and Restricted Stock Units) or subject to awards of Options and Stock Appreciation Rights under the Plan and the Option or SAR exercise price per share of Stock, and the maximum number of shares that may be granted or delivered to any single Participant pursuant to the Plan, including those that are then covered by outstanding awards, or accelerating the vesting of outstanding awards. Any adjustment pursuant to this Section 5.2 may provide, in the Committee’s discretion, for the elimination without payment therefore of any fractional shares that might otherwise become subject to any Stock Incentive, but shall not otherwise diminish the then value of the Stock Incentive.”

Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Amendment.

IN WITNESS WHEREOF, the Company has caused this Second Amendment to be executed on the date set forth below.


	AVON PRODUCTS, INC.

Dated: October 2, 2008	By:	/s/ Andrea Jung
	Title:	Chairman & CEO

Exhibit 10.14

THIRD AMENDMENT TO THE

AVON PRODUCTS, INC. 2005 STOCK INCENTIVE PLAN

This Third Amendment is made to the Avon Products, Inc. 2005 Stock Incentive Plan by Avon Products, Inc., a corporation duly organized and existing under the laws of the State of New York (the “Company”).

AMENDMENT

The Company hereby amends the Plan as follows:

1. Effective as indicated therein, by adding the following new paragraph to the end of Section 2e as follows:

“Effective as of January 1, 2005, for grants of Stock Units, which are subject to Code Section 409A, and effective as of January 1, 2009, for all Awards granted on or after such date, “Change in Control” means “change in control event”, as defined in final regulations issued under Code Section 409A.”

2. Effective as of January 1, 2009, by adding the following sentence to the end of Section 2z as follows:

“Notwithstanding the foregoing, with respect to an Award that is subject to the rules of Code Section 409A, for purposes of determining whether an Eligible Person has had a termination of service under Section 10f, a Subsidiary means any corporation or other entity in which the Corporation, directly or indirectly, controls 50% or more of the total combined voting power of such corporation or other entity.”

Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to this Third Amendment.

IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed on the date set forth below.


	AVON PRODUCTS, INC.

Dated: October 2, 2008	By:	/s/ Andrea Jung
	Title:	Chairman & CEO

Exhibit 10.20

SUPPLEMENTAL EXECUTIVE

RETIREMENT PLAN OF

AVON PRODUCTS, INC.

AMENDED AND RESTATED AS OF JANUARY 1, 2009

TABLE OF CONTENTS


		Page

SECTION 1	INTRODUCTION	1

SECTION 2	DEFINITIONS	1

SECTION 3	PARTICIPATION	9

SECTION 4	SUPPLEMENTAL RETIREMENT ALLOWANCES	10

SECTION 5	BENEFICIARY RETIREMENT ALLOWANCES	13

SECTION 6	FORMS OF PAYMENT	15

SECTION 7	ADMINISTRATION OF THE PLAN AND GOVERNING LAW	16

SECTION 8	CERTAIN RIGHTS AND LIMITATIONS	17

SECTION 9	AMENDMENT AND TERMINATION OF THE PLAN	19

SECTION 10	CLAIM PROCEDURES	22

SECTION 1

INTRODUCTION

Avon Products, Inc. (the “Company”) adopted the Supplemental Executive Retirement and Life Plan, originally effective as of January 1, 1982, and last amended and restated such plan as of July 1, 1998. The Company has now amended and restated such plan to comply with Section 409A, and bifurcated the Supplemental Executive Retirement and Supplemental Life portions of such plan into separate plan documents, this plan being one of those plan documents. The terms of this plan document shall be effective as of January 1, 2009 and this plan shall hereinafter be referred to as the Supplemental Executive Retirement Plan of Avon Products, Inc. (the “Plan”). With respect to distributions made under the Plan and calculating the amount of such distributions, this plan document governs distributions that begin on or after January 1, 2009. Distributions under the Plan that began prior to January 1, 2009 (and calculating the amount of such distributions) are governed by the distribution and benefit calculation provisions in the version of the Plan in effect at the time such distributions began (as modified by the Company in order to ensure good faith compliance with Section 409A during the period of time prior to January 1, 2009), and by the terms of this plan document only to the extent not inconsistent with such distribution and benefit calculation provisions.

In order to afford Participants and their Beneficiaries the maximum security, the Company has established a grantor trust (the “Trust”) to aid it in accumulating the amounts necessary to satisfy its contractual liability to pay certain benefits under the terms of the Plan. The Plan provides for the Company to pay all benefits and administrative costs from its general assets to the extent not paid by the Trust. The establishment of the Trust shall not convey rights to the Participants that are greater than those of the general creditors of the Company and shall not affect the Company’s continuing liability to pay Plan benefits and administrative costs, except that the Company’s liability shall be offset by actual benefits and administrative cost payments, if any, made by the Trust.

SECTION 2

DEFINITIONS

As used in the Plan, the masculine pronoun shall include the feminine and the feminine pronoun shall include the masculine unless otherwise specifically indicated. In addition, the following words and phrases as used in the Plan shall have the following meanings unless a different meaning is plainly required by the context:

2.1 “ Actuarial Equivalent ” shall refer to a benefit of equivalent value and shall have the same definition as such term has under the Retirement Plan.

2.2 “ Annual Benefit Offset ” shall mean the aggregate annual retirement allowance that would have been payable to a Participant under the Retirement Plan and the Other Plans, expressed in the form of a single life annuity, which form of benefit shall be the Actuarial Equivalent of the aggregate benefits that would be payable under such plans if they commenced on the same date as the Supplemental Retirement Allowance. In calculating the Annual Benefit Offset, for purposes of determining the annual retirement allowance payable under the Retirement Plan, such allowance shall be deemed to be the annual retirement allowance that would have been payable to the Participant under the formula contained in the Retirement Plan on June 30, 1998, if such formula had continued in effect after that date until the Participant’s retirement or death.

2.3 “ Average Final Compensation ” shall mean the average annual Compensation of a Participant during the three (3) years of the Participant’s last ten (10) years of Creditable Service in which the Participant’s Compensation was highest. If a Participant has less than three (3) years of Creditable Service, Average Final Compensation shall be computed over all such years. In the event that a Participant has a “Partial Compensation Year” (as that term is defined in Section 1 of Appendix VI of the Retirement Plan), solely for purposes of determining a Participant’s three (3) years of Compensation to be used in calculating his Average Final Compensation, the Participant’s Compensation for such Partial Compensation Year shall be annualized in accordance with the rules set forth in the last sentence of the penultimate paragraph of Section 1 of Appendix VI of the Retirement Plan; provided that the reference in such sentence to the “sixth highest year” shall be replaced with a reference to the “fourth highest year.”

2.4 “ Beneficiary ” shall mean the person or persons designated by a Participant as his beneficiary, such designation to be made in a time and manner determined by the Retirement Board. If a Participant fails to designate a beneficiary or if a beneficiary predeceases a Participant, then the Participant’s spouse shall be the beneficiary, or if no spouse survives the Participant, then the Participant’s estate shall be the beneficiary. A Participant may change his beneficiary at the time and in the manner determined by the Retirement Board.

2.5 “ Beneficiary’s Allowance ” shall mean the benefit payable to the Beneficiary of certain Participants as described in Section 5.

2.6 “ Board of Directors ” shall mean the board of directors of the Company.

2.7 “ Change of Control ” shall mean:

(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the corporation where such acquisition causes such person to own twenty percent (20%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided that for purposes of this Section 2.7(a), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of Section 2.7(c); and provided further that, if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds twenty percent (20%) as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, then such subsequent acquisition shall be treated as an acquisition that causes such Person to own twenty (20%) or more of the Outstanding Company Voting Securities; or

(b) individuals who, as of January 1, 2009, constitute the Board of Directors (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors; provided that any individual becoming a director subsequent to such date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors; or

(c) the approval by the shareholders of the Company of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”), or, if consummation of such Business Combination is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, then the obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, any Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly,

more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or

(d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

Notwithstanding the foregoing, no Change of Control shall be deemed to have occurred with respect to any individual by reason of any actions or events in which such individual participates in a capacity other than in his capacity as an officer or employee of the Company (or as a director of the Company or a Subsidiary, where applicable).

2.8 “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

2.9 “ Compensation ” shall mean the regular salary or wages paid to an Active Participant or deferred for services rendered to the Company or a Subsidiary during any year in which the Participant accrues Creditable Service, including any deferrals under a 401(k) plan or salary reduction under a “Section 125 plan” of the Company or a Subsidiary, plus any annual bonus (as opposed to a bonus or award that is based on performance over multiple years) payable to an employee (disregarding any election to defer the receipt thereof) under the Company’s Management Incentive Plan, Variable Incentive Plan, Executive Incentive Plan, or any similar or successor plan for services performed during the prior year; provided that Active Participants eligible to participate in the Management Incentive Plan are not eligible to participate in the Variable Incentive Plan after January 1, 1998, but the bonus payable to the Active Participants participating in the Variable Incentive Plan prior to January 1, 1998 will continue to be included in Compensation. Unless otherwise expressly provided in a

Participant’s Individual Agreement, Compensation shall not include special termination or severance payments or benefits, whether characterized as such, made pursuant to any employment agreement, separation agreement, severance plan or policy, or any similar arrangement.

Notwithstanding the foregoing, with respect to any period of absence (during which disability benefits are being paid to the Participant under the Company’s short-term or long-term disability plan) that is included as Creditable Service, the Participant’s annual Compensation for purposes of the Plan during such period of absence shall be deemed to be the greater of (i) his Compensation in his last full calendar year of employment immediately preceding the beginning of such absence, or (ii) the actual Compensation that he received in the year the absence began.

2.10 “ Compensation Committee ” means the Compensation Committee appointed by the Board of Directors.

2.11 “ Creditable Service ” shall mean:

(a) the total number of years and completed months of service rendered by an Active Participant as an employee of the Company or any Subsidiary;

(b) periods of authorized leaves of absence from the Company or a Subsidiary approved by the Retirement Board, including but not limited to leaves required to be granted pursuant to the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act, and, notwithstanding any other provision of the Plan to the contrary, any period of absence while disability benefits are being paid to the Participant under the Company’s short-term or long-term disability plans, provided that no Creditable Service will accrue for any portion of a leave of absence that extends beyond the date that the Participant incurs a “separation from service” (as that term is defined in Section 409A);

(c) any prior Creditable Service under the Plan rendered by an employee who was formerly a Participant and who subsequently becomes a new Active Participant pursuant to Section 3; and

(d) service that is recognized for purposes of the Plan by reason of any Outside Agreement.

Subject to approval by the Compensation Committee, a Participant may be granted additional years of Creditable Service either for purposes of determining the amount of the allowance under the Plan or for purposes of satisfying the service requirements necessary for benefits under the Plan, or both. Additional service granted

under a specific provision of the Plan or under provisions of individual contracts with the Participant or under any severance plan or policy of the Company covering the Participant shall also be included in determining Creditable Service, but only in accordance with the specific terms of such provisions.

2.12 “ Dependent Child ” shall have the meaning set forth in the Participant’s Individual Agreement.

2.13 “ Dependent Children’s Allowance ” shall mean the benefit payable to the Dependent Children as described in Section 5.2.

2.14 “ Domestic Partner ” shall mean, effective January 1, 1999, an individual of the same or opposite sex as the Participant, who shares a committed and mutually dependent relationship with the Participant, and

(a) both the Participant and the Domestic Partner are at least the age of consent for marriage in the Participant’s state of residence, and

(b) the domestic partnership is an exclusive relationship with the Participant in which the Domestic Partner resides with the Participant and intends to do so permanently, and

(d) the Domestic Partner is not related by blood to a degree of closeness that would prohibit legal marriage, and

(e) the Domestic Partner is not married to, or in a domestic partner relationship with, anyone else, and

(f) the Participant has filed an Affidavit of Eligibility for Domestic Partner Benefits with the Retirement Board.

An individual shall cease to be a Domestic Partner upon the filing by the Participant of an Affidavit of Termination of Domestic Partnership with the Retirement Board.

2.15 “ Early Retirement Allowance ” shall mean the Supplemental Retirement Allowance that is payable to an Active Participant who retires before attaining Normal Retirement Age, but after attaining age 55 with fifteen (15) or more years of Creditable Service, or after attaining an age that, when added to his Creditable Service, totals at least 85 years.

2.16 “ Hardship Retirement Allowance ” means a Supplemental Retirement Allowance that may be payable to an Active Participant pursuant to Section 4.1(b).

2.17 “ Individual Agreement ” means a written agreement entered into between the Company and a Participant that specifically refers to benefits payable to or on behalf of such Participant under the Plan. The intent of the parties to any such Individual Agreement is, in part, to cause benefits payable under the Plan to be in compliance with Section 409A.

2.18 “ Nonforfeitable ” shall refer only to the vested unsecured contractual right of a Participant, his Beneficiary, and his Dependent Children, if any, to benefits under the Plan. In no event shall “Nonforfeitable” imply any preferred claim on or to, or any beneficial ownership interest in, any assets of the Company or its Subsidiaries before those assets are paid to any individual pursuant to the terms of the Plan. As provided in Sections 8.5 and 8.6, certain events may result in the forfeiture of Nonforfeitable benefits.

2.19 “ Normal Retirement Age ” shall mean age 65.

2.20 “ Normal Retirement Allowance ” shall mean the Supplemental Retirement Allowance that is payable to an Active Participant who retires after attaining Normal Retirement Age.

2.21 “ Other Plans ” shall mean the employer-provided portion of any defined benefit pension plan sponsored by the Company (other than the Retirement Plan) or any Subsidiary and of any retirement or pension allowance (but not any form of severance or special termination payment) set forth and payable pursuant to any employment contract or any other agreement (other than an individual deferred compensation contract under which elective employee salary or bonus deferrals are made) between the Participant and the Company or a Subsidiary.

The term “Other Plans” shall also include the employer-provided portion of any other pension or retirement plans sponsored by the predecessor employer of a Participant and of any retirement or pension allowance (but not any form of severance or special termination payment) set forth and payable pursuant to any employment contract or any other agreement (other than an individual deferred compensation contract under which elective employee salary or bonus deferrals are made) between the Participant and the predecessor employer of a Participant providing for benefits attributable in whole or in part to service that is recognized under the Plan as Creditable Service.

Notwithstanding the foregoing, the employer-provided portion of the benefits paid or payable to or on behalf of a Participant pursuant to Other Plans shall only include a proportionate share of such benefits based on the ratio by which the portion of the

service recognized under the Other Plan that is recognized as Creditable Service bears to the total service recognized under the Other Plan.

2.22 “ Outside Agreement ” shall mean a written agreement entered into between a duly authorized officer of the Company with authority to act in the matter and a Participant that recognizes any period of time prior to the commencement of such Participant’s employment with the Company as service for purposes of certain retirement or other benefits or modifies any of the benefits or provisions of the Plan. A Participant’s Individual Agreement is a form of Outside Agreement.

2.23 “ Participant ” shall mean any Active Participant, Retired Participant, or Vested Participant.

(a) “ Active Participant ” shall mean an employee from the time participation in the Plan begins pursuant to Section 3 until the earliest of the time:

(i) the Participant retires;

(ii) the Participant dies;

(iii) the Participant terminates employment with the Company and its Subsidiaries; or

(iv) the Plan is terminated.

In addition, if a Participant is placed on inactive employee status, as defined by the Retirement Board from time to time under uniform and nondiscriminatory rules, and, at the date of such change in status, the Participant has attained age 62 or the sum of the Participant’s age and years of Creditable Service total at least 80 years, then the Participant will continue as an Active Participant in the Plan; provided that such Participant shall cease to be an Active Participant no later than the date that such Participant “separates from service” (as that term is defined in Section 409A).

(b) “ Retired Participant ” shall mean a former employee who has retired on or after meeting the requirements for a Supplemental Retirement Allowance under Section 4.

(c) “ Vested Participant ” shall mean an employee or former employee of the Company or Subsidiary who ceased to be an Active Participant, who has not become a Retired Participant, and who, by virtue of Section 9, has a Nonforfeitable right to benefits under the Plan.

2.24 “ Retirement Board ” shall mean the administrative board or any successor thereto that administers the Retirement Plan.

2.25 “ Retirement Plan ” shall mean, prior to July 1, 1998, the Employees’ Retirement Plan of Avon Products, Inc. and, thereafter, the Avon Products, Inc. Personal Retirement Account Plan, as amended from time to time.

2.26 “ Section 409A ” shall mean Section 409A of the Code, including any regulations and other guidance issued under such Section.

2.27 “ Subsidiary ” shall mean any majority-owned subsidiary of the Company.

2.28 “ Supplemental Retirement Allowance ” shall mean the benefit referred to in Section 4.

2.29 “ Surviving Spouse ” shall mean the spouse to whom a Participant was married on the date that the Participant’s Supplemental Retirement Allowance commenced under the Plan, or on the Participant’s date of death, if earlier.

SECTION 3

PARTICIPATION

3.1 Commencement of Participation .

(a) Each individual who was a Participant as of June 30, 1998, shall be a Participant on July 1, 1998. A listing of Participants as of July 1, 1998 is maintained in the records of the Company, which records may be updated by the Company from time to time, provided that all updates shall be attested by the signatures of two members of the Retirement Board.

(b) The Compensation Committee shall have the authority to include, as Active Participants, officers of the Company on the U.S. payroll, at the level of Senior Vice President or above, who are covered by individual employment agreements with the Company that have been approved by the Board of Directors, and such other management or highly compensated employees of the Company or a Subsidiary (within the meaning of Section 201(2) of the Employee Retirement Income Security Act of 1974, as amended) as it deems fit. Notwithstanding the foregoing, no new participants will be added to the Plan after December 31, 2008.

3.2 Termination of Participation .

When an individual ceases to be an Active Participant, he shall cease to be a Participant and shall have no rights to a Supplemental Retirement Allowance unless he is a Vested Participant or a Retired Participant.

SECTION 4

SUPPLEMENTAL RETIREMENT ALLOWANCES

4.1 Nonforfeitable Right to a Supplemental Retirement Allowance .

(a) A Participant’s right to receive a Supplemental Retirement Allowance, the formula for calculating the amount of any such Supplemental Retirement Allowance, and the time and form of payment of any such Supplemental Retirement Allowance are set forth in such Participant’s Individual Agreement. A Participant’s right to receive a Supplemental Retirement Allowance is subject to the provisions of Section 8.

(b) An Active Participant who has not attained Normal Retirement Age, but who has attained age 58 and completed fifteen (15) or more years of Creditable Service, and who is deemed to be suffering from a hardship, as determined in the sole and unilateral discretion of the Retirement Board on a case-by-case basis, shall have a Nonforfeitable right to his Supplemental Retirement Allowance, subject to Section 8, and may retire and receive payment of a Hardship Retirement Allowance. Payment of the Hardship Retirement Allowance shall commence at the time and in the form set forth in such Participant’s Individual Agreement.

(c) Approval by the Retirement Board under this Section 4.1 may be evidenced by the written consent of any two members of the Retirement Board. In the event that the Plan is amended or terminated, or in the event of a Change of Control, Participants shall have the right to a Supplemental Retirement Allowance pursuant to Section 9.

4.2 Amount of Supplemental Retirement Allowance .

(a) The formula used to calculate the amount of a Participant’s Supplemental Retirement Allowance is set forth in his Individual Agreement.

(b) Notwithstanding the provisions of Section 4.2(a), any Participant entitled to a Normal Retirement Allowance who (i) is or was an officer of the Company as of January 1, 1995, at the level of Senior Vice President or above, and covered by an individual employment agreement with the Company that was approved by the Board of Directors, or (ii) is or was a senior executive designated by the

Compensation Committee as eligible to receive a minimum allowance, shall receive an annual Normal Retirement Allowance that, when added to the Actuarial Equivalent of the benefit paid or payable to such Participant under the Retirement Plan and Other Plans, assuming that the Participant began to receive his benefit under the Retirement Plan and Other Plans at the same time that the Normal Retirement Allowance commences under the Plan (expressed as an annual benefit in a form that is the same as the form in which the Supplemental Retirement Allowance is payable), is not less than fifty percent (50%) of the Participant’s Average Final Compensation. Such benefit under the Retirement Plan and Other Plans shall be calculated in a manner similar to that set forth in the definition of Annual Benefit Offset.

(c) Except to the extent explicitly provided to the contrary in a Participant’s Individual Agreement, the annual Early Retirement Allowance for Participants who have a Nonforfeitable right to such an allowance shall be equal to the Normal Retirement Allowance that the Participant would have received, based on the Participant’s Average Final Compensation and Creditable Service at the date of retirement; provided that, if the Participant retires before the sum of such Participant’s age and Creditable Service is 85 years, then the allowance shall be calculated instead by (1) determining the benefit without regard to the Annual Benefit Offset, (2) then reducing the benefit (i) by 3/12ths of 1% for each month (but not to exceed sixty (60) months) by which the date that the allowance commences precedes the month in which the Supplemental Retirement Allowance would have commenced if the Participant retired at Normal Retirement Age, and (ii) by 5/12ths of 1% for each such month in excess of sixty (60) months, and (3) then applying the Annual Benefit Offset. The Early Retirement Allowance payable to a Participant whose age and Creditable Service total at least 85 years shall be equal to the allowance determined in accordance with his Individual Agreement based on Average Final Compensation and Creditable Service at the time of retirement without reduction for commencement of payment prior to Normal Retirement Age.

(d) Notwithstanding the provisions of Section 4.2(c), any Participant entitled to an Early Retirement Allowance who has attained age 60 and completed fifteen (15) years of Creditable Service and who (i) is or was an officer of the Company as of January 1, 1995, at the level of Senior Vice President or above, and covered by an individual employment agreement with the Company that was approved by the Board of Directors, or (ii) is or was a senior executive designated by the Compensation Committee as eligible to receive a minimum allowance, shall receive an annual Early Retirement Allowance that, when added to the Actuarial Equivalent of any retirement allowance paid or payable to such Participant under the Retirement Plan and any Other Plans, assuming that the Participant began to receive his benefit under the Retirement Plan and Other Plans at the same time that the Early Retirement Allowance commences under the Plan (expressed as an annual benefit in a form that is the same as

the form in which the Supplemental Retirement Allowance is payable), is not less than fifty percent (50%) of the Participant’s Average Final Compensation, reduced by 4/12ths of 1% for each month by which the Participant’s date of retirement precedes Normal Retirement Age. The allowance under the Retirement Plan and Other Plans described in the immediately preceding sentence shall be calculated in a manner similar to that set forth in the definition of the Annual Benefit Offset.

(e) The annual Hardship Retirement Allowance for Participants who have a Nonforfeitable right to such an allowance shall be equal to the Normal Retirement Allowance determined in accordance with a Participant’s Individual Agreement, based on the Participant’s Average Final Compensation and Creditable Service at the date of retirement; provided that such allowance shall in no event be less than the Early Retirement Allowance to which such Participant would be entitled upon retirement under Sections 4.2(c) and 4.2(d), if applicable.

4.3 Six-Month Delay in Payment for Specified Employees .

To the extent that any amount payable under the Plan, including a Supplemental Retirement Allowance, constitutes an amount payable following a “separation from service” (as that term is defined in Section 409A), then, notwithstanding any other provision in the Plan to the contrary, such amount will not be paid to the Participant during the six-month period immediately following such Participant’s “separation from service” if such Participant is deemed to be a “specified employee” (as that term is defined in Section 409A and pursuant to procedures established by the Company) on the “separation from service” date. During the seventh month following the month in which such “separation from service” occurs, all amounts that otherwise would have been paid to such Participant during that six-month period, but were not so paid due to this Section 4.3, will be paid to such Participant in a single lump-sum payment. This six-month delay will cease to be applicable if the Participant “separates from service” due to death or if the Participant dies before the six-month period has elapsed.

Amounts that are not paid to a Participant because of this Section 4.3 at the time such amounts otherwise would have been paid to such Participant will accrue interest from the date such amount would have been paid to such Participant but for this Section 4.3 through the day immediately preceding the date that such amount is actually paid to such Participant. Such interest shall accrue at the rate set forth from time to time in Section 1.1(b) of the Retirement Plan and shall be paid to such Participant at the same time that the underlying amounts are paid to such Participant.

4.4 Restoration to Service .

If a Participant who retired or otherwise terminated employment with the Company and its Subsidiaries is restored to service, such restoration will not affect the continued payment of his Supplemental Retirement Allowance, if any. Upon his subsequent retirement or termination, in order to prevent any duplication of benefits under the Plan, any additional Supplemental Retirement Allowance shall be recomputed by taking into account any Supplemental Retirement Allowance accrued by the Participant before and after his restoration to service, and will be reduced by the Actuarial Equivalent of the Supplemental Retirement Allowance already received or being received by such Participant, if any.

SECTION 5

BENEFICIARY RETIREMENT ALLOWANCES

5.1 Beneficiary’s Allowance .

(a) The circumstances under which a Participant’s Beneficiary will receive a Beneficiary’s Allowance as a result of the Participant’s death are set forth in the Participant’s Individual Agreement. In no event will a Participant’s Beneficiary be entitled to a Beneficiary’s Allowance if such Participant has begun to receive his Supplemental Retirement Allowance.

(b) The time and form of payment of any Beneficiary’s Allowance, and the method for calculating the amount of such Beneficiary’s Allowance, are set forth in the Participant’s Individual Agreement. To the extent that any such Individual Agreement does not provide for a time and form of payment of the Beneficiary’s Allowance, or the method for calculating the amount of such Beneficiary’s Allowance, then the Beneficiary’s Allowance shall be paid in a single lump sum during the month following the month of the Participant’s death or following the month in which the Participant would have attained age 55, whichever is later, which lump sum will be the Actuarial Equivalent of the Supplemental Retirement Allowance (based on the Participant’s Creditable Service as of his date of death) that the Beneficiary would have received if the Participant had retired and begun to receive his Supplemental Retirement Allowance in the form of a 100% joint and survivor annuity with such Beneficiary on the date of death, or on the date such Participant would have attained age 55, if later. Notwithstanding the foregoing, if the Participant was married or had a Domestic Partner on the date of the Participant’s death, and the Beneficiary’s Allowance is payable to such spouse or Domestic Partner, then the Beneficiary’s Allowance shall not be less than an amount equal to twenty percent (20%) of the Participant’s annual rate of Compensation at the time of his death, less the Actuarial Equivalent of the amount of any death benefit allowance (expressed as an annual amount payable for the life of the Beneficiary and

commencing on the same date that the Beneficiary’s Allowance commences, regardless of whether the Beneficiary is the actual recipient of such death benefit allowance) paid or payable on behalf of such Participant under the Retirement Plan and any Other Plans.

(c) In the event of the Participant’s death before his “separation from service” (as that term is defined in Section 409A), then the allowance payable under the Plan on his behalf will be payable pursuant to this Section 5 ( i.e. , the Beneficiary’s Allowance and the Dependent Children’s Allowance, if any). In the event of the Participant’s death after his “separation from service,” then any remaining payments under his Supplemental Retirement Allowance will be paid to his Beneficiary in a single lump-sum payment, payable during the month following the month in which the Participant dies, and no allowance will be payable pursuant to this Section 5.

5.2 Dependent Children’s Allowance .

(a) Each Dependent Child, up to a maximum of four (4) such children, shall receive a Dependent Children’s Allowance, which is a yearly allowance equal to ten percent (10%) of the yearly amount of the Beneficiary’s Allowance calculated under Section 5.1 at the time of the Participant’s death (calculated as if the Beneficiary is the Surviving Spouse or Domestic Partner even if such allowance is not payable to such Surviving Spouse or Domestic Partner), plus ten percent (10%) of the yearly benefits that are payable to the Surviving Spouse or the Participant’s Domestic Partner under the Retirement Plan and any Other Plan (or would be payable if such benefits were payable to such Surviving Spouse or Domestic Partner) (based on the assumption that benefits commence under such plans on the same date as benefits commence hereunder).

(b) For purposes of Section 5.2(a), if the Participant’s spouse or Domestic Partner predeceases the Participant, then the allowance under Section 5.1 shall be determined as if such spouse or Domestic Partner had not predeceased the Participant and as if yearly benefits under the Retirement Plan and any Other Plan are payable to such predeceased spouse or Domestic Partner, and shall be based upon such spouse’s or Domestic Partner’s actuarially determined life expectancy as of the date of such spouse’s or Domestic Partner’s death.

(c) For purposes of Section 5.2(a), in the event that the Participant had no spouse or Domestic Partner, other than for the reason that the spouse or Domestic Partner predeceased the Participant, then the allowance under Section 5.1 shall be based upon the assumption that the Participant had a spouse or Domestic Partner who was five (5) years younger than the Participant, that any yearly benefits payable under the Retirement Plan and any Other Plan are payable to such assumed spouse or Domestic

Partner, and that the spouse’s or Domestic Partner’s allowance under Section 5.1 had commenced on the date of the Participant’s death.

(d) For purposes of Section 5.2(a), in the event that the spouse or Domestic Partner of a Participant dies prior to commencement of the Beneficiary’s Allowance, then the amount of the Dependent Children’s Allowance hereunder shall be determined on the assumption that the allowance under Section 5.1 had commenced on the date of the spouse’s or Domestic Partner’s death and that any yearly benefits payable under the Retirement Plan and any Other Plan had commenced on the date of the spouse’s or Domestic Partner’s death.

(e) The Dependent Children’s Allowance hereunder shall begin to be paid at the time and in the form set forth in the Participant’s Individual Agreement and shall continue to be paid to the Dependent Children in accordance with the terms of such Individual Agreement.

(f) Notwithstanding anything in this Section 5.2 to the contrary, a Participant’s Individual Agreement may vary the terms and conditions under which any Dependent Children’s Allowance will be payable on behalf of such Participant.

(g) The amount of any Beneficiary’s Allowance payable under Section 5.1 shall not be reduced due to the payment of a benefit under this Section 5.2 to one or more Dependent Children.

SECTION 6

FORMS OF PAYMENT

6.1 Form of Payment Election . The form of payment of a Participant’s Supplemental Retirement Allowance is set forth in his Individual Agreement. Notwithstanding the foregoing, certain Participants made a separate payment election prior to January 1, 2009 in accordance with transition rules issued under Section 409A. Those elections remain valid except to the extent superseded prior to January 1, 2009 by an Individual Agreement.

6.2 Automatic Form .

(a) In the event that no form of payment election or provision is in effect with respect to any Participant, then such Participant will be deemed to have elected to have his Supplemental Retirement Allowance payable as follows: (i) 80% of the Actuarial Equivalent value of the Supplemental Retirement Allowance will be paid in a lump sum during the month in which the Supplemental Retirement Allowance is payable (the “Lump-Sum Payment Month”); and (2) 20% of the Actuarial Equivalent

value of the Supplemental Retirement Allowance will be paid in sixty equal, monthly installments beginning during the Lump-Sum Payment Month. Notwithstanding the foregoing, any payment of the Supplemental Retirement Allowance is subject to Section 4.3.

(b) Notwithstanding anything contained in the Plan to the contrary, during the two-year period immediately following a “change in control event” (as that term is defined in the final regulations issued under Section 409A), the automatic form of payment of a Supplemental Retirement Allowance shall be a single lump-sum payment in cash, provided that a Participant’s Individual Agreement may expressly supersede this Section 6.2(b) and, subject to complying with Section 409A, provide for a different time and form of payment during such two-year period.

6.3 Automatic Cash-Out of Benefits .

Notwithstanding anything in the Plan or a Participant’s Individual Agreement to the contrary, if, at the time payment is due or at any time thereafter, the Actuarial Equivalent present value of any Supplemental Retirement Allowance payable to a Participant (including the value of any benefit payable to his Surviving Spouse or Domestic Partner after his death) is less than or equal to the then-applicable dollar amount under Code Section 402(g)(1)(B), then the Company will pay the Participant or his Beneficiary, as applicable, a cash lump-sum payment, regardless of the form and timing of benefit payments that the Participant had previously elected, if any, or is otherwise entitled to; provided that such payment by the Company may only be made if the payment is made in connection with the termination and liquidation of such Participant’s interests in all arrangements that would constitute nonqualified deferred compensation plans under Code Section 409A and that would be aggregated with the Plan pursuant to Treasury Regulation § 1.409A-1(c)(2). Any such payment will be made by the Company no later than December 31 of the year in which the benefit becomes payable in a lump sum pursuant to the cash-out rules of this Section 6.3 or, if later, by the 15th day of the third month following the month in which the Participant’s “separation from service” occurs.

SECTION 7

ADMINISTRATION OF THE PLAN AND GOVERNING LAW

7.1 Except as otherwise specifically provided in the Plan, the Retirement Board shall be the administrator of the Plan. The Retirement Board shall have full authority to determine all questions arising in connection with the Plan, including the discretionary authority to interpret the Plan, to adopt procedural rules, and to employ and rely on such legal counsel, actuaries, accountants, and agents as it may deem advisable to assist in the administration of the Plan. Decisions of the Retirement Board shall be

conclusive and binding on all persons. The Retirement Board shall provide to the trustee of any Trust established pursuant to Section 1 such certification or other documentation as may be required by the trustee in connection with the payment of benefits to Participants. Unless otherwise determined by the Company, the membership of the Retirement Board shall be established pursuant to the provisions of the Retirement Plan from time to time. The Retirement Board may from time to time, in its discretion, delegate any authority and responsibility it may have for the administration and operation of the Plan to such individuals and bodies as it may determine.

7.2 After a Change in Control, the Retirement Board may be changed by the Company only with the consent of a majority of the Participants (excluding Beneficiaries).

7.3 Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 8

CERTAIN RIGHTS AND LIMITATIONS

8.1 The establishment of the Plan shall not be construed as conferring any legal rights upon any employee or other person for the continuation of his employment, nor shall it interfere with the rights of the Company or a Subsidiary to discharge any employee and to treat such employee without regard to the effect that such treatment might have upon such employee as a Participant in the Plan.

8.2 If the Retirement Board shall find that a Participant or other person entitled to a benefit is unable to care for his affairs because of illness or accident, or if such person is a minor, then the Retirement Board may direct that any benefit payment due to such Participant or other person, unless claim shall have been made therefor by a duly appointed legal representative, be paid on such Participant’s or other person’s behalf to such Participant’s or other person’s spouse, child, parent, or other blood relative, or to a person with whom the Participant or other person resides. Any such payment so made shall be a complete discharge of the liabilities of the Plan with respect to such Participant or such other person.

8.3 Each Participant, before any benefit shall be payable to or on behalf of such person under the Plan, shall file with a member of the Retirement Board, at least thirty (30) days prior to the time of retirement or, in the case of a Vested Participant, prior to the earliest date that his benefit can commence, such information, if any, as shall be required to establish such person’s rights and benefits under the Plan.

8.4 Except as otherwise provided in Section 8.10, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, garnishment, attachment, encumbrance, or charge, and any attempt to do so shall be void; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefit.

8.5 The obligation of the Company to make or continue payment of any benefits hereunder shall cease with respect to any Participant who (a) at any time is convicted of a crime involving dishonesty or fraud relating to the Company, (b) at the time, without the Company’s written consent, knowingly uses or discloses any confidential or proprietary information relating to the Company, or (c) within three years following termination of employment, without the Company’s written consent, accepts employment with, or provides consulting services to, a principal competitor of the Company.

8.6 Except to the extent that a Participant has a Nonforfeitable right to a benefit pursuant to Section 9, if, after written notice by the Company, the Participant declines retirement at the request of the Company, or if the Participant’s voluntary retirement (other than for disability) prior to age 62 is not approved by the Company, then the Retirement Board shall have the right to cause forfeiture of any benefit to or on account of the Participant under the Plan.

8.7 All benefits payable under the Plan shall be payable by the Company from its general assets. The Plan shall not be funded by the Company. However, solely for its own convenience, the Company reserves the right to provide for payment of benefits hereunder through a trust, which trust may be irrevocable, but the assets of which shall be subject to the claims of the Company’s general creditors in the event of the Company’s bankruptcy or insolvency, as defined in the Trust established pursuant to Section 1. In no event shall the Company be required to segregate any amount credited to any account, which shall be established merely as an accounting convenience; no Participant, Beneficiary, Surviving Spouse, Domestic Partner, or Dependent Child shall have any rights whatsoever in any specific assets of the Company or the Trust.

8.8 When payments commence under the Plan, the Company shall have the right to deduct from each payment made under the Plan any required withholding taxes.

8.9 Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder before such payments are otherwise due if it determines that a Participant or Beneficiary has recognized income for federal income tax purposes under Section 409A with respect to amounts that are or will be payable to him under the Plan. The amount of any such payment may not exceed the amount that such

Participant or Beneficiary has recognized under Section 409A with respect to amounts that are or will be payable to him under the Plan.

8.10 Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder to an individual other than the Participant before such payments are otherwise due to the Participant if the Company determines that such payments are being made in order to fulfill the requirements of a “domestic relations order” (as defined in Section 414(p)(1)(B) of the Code).

SECTION 9

AMENDMENT AND TERMINATION OF THE PLAN

9.1 Right to Amend .

The Board of Directors (or the Compensation Committee to the extent it has been delegated authority) reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend or modify, in whole or in part, any or all of the provisions of the Plan pursuant to its normal procedures; provided that no such modification or amendment shall adversely affect the rights and benefits of Participants that had accrued or become Nonforfeitable under the Plan prior to the date that such amendment or modification is adopted or becomes effective, whichever is later. For purposes of this Section 9, “accrued” benefits refer to the benefits to which a Participant would be entitled, based on his Creditable Service and Compensation as of the date that the determination is made, as if the Participant had a Nonforfeitable right to benefits as of such date.

9.2 Right to Terminate .

The Board of Directors (or the Compensation Committee to the extent it has been delegated authority) may terminate the Plan for any reason at any time, provided that such termination shall not adversely affect the rights and benefits of Participants that had accrued or become Nonforfeitable under the Plan prior to the date that the termination is adopted or made effective, whichever is later.

9.3 Effect of Plan Termination on Benefits .

(a) In the event that the Plan is terminated, then each Participant, whether or not such Participant has met the age or service requirements to be entitled to a benefit under the Plan or under the Retirement Plan, shall have a Nonforfeitable right to: (i) the Supplemental Retirement Allowance described in Section 4 that such Participant had accrued through the date of Plan termination; and (ii) to the death benefits described

in Section 5, based upon the Section 4 benefits accrued by the Participant through the date of Plan termination.

(b) For purposes of Section 4, such accrued benefit shall be computed in accordance with the Participant’s Individual Agreement as though the date of Plan termination were the Participant’s date of retirement, provided that (i) if the Participant is younger than 55, his minimum percentage benefit described in Section 4.2(c) shall be determined upon the assumption that the Participant were age 55, and such minimum benefit shall then be multiplied by a fraction, the numerator of which is the Participant’s years of Creditable Service and the denominator of which is his years of such Creditable Service projected to age 55, and (ii) if the Participant terminates employment involuntarily before he attains age 65 and before his age and Creditable Service total 85 years, and his Supplemental Retirement Allowance commences on or after the date that his age and Creditable Service would have totaled 85 years if his employment with the Company or a Subsidiary had continued, or it commences on or after his attainment of age 65, then his Supplemental Retirement Allowance shall be computed without applying the reduction for early commencement. This Section 9.3(b) applies to the computation of the amount of the Supplemental Retirement Allowance; the timing of the payment of the allowance is set forth in Section 9.3(c) below. A Participant who does not have an Individual Agreement at the time of Plan termination will continue to receive his Supplemental Retirement Allowance in accordance with the then-existing terms for his Supplemental Retirement Allowance.

(c) The payment of the Supplemental Retirement Allowance described in this Section 9.3 shall continue to be payable at time or times and in such form as is provided in the Participant’s Individual Agreement (and to the extent not so provided in such Individual Agreement, in accordance with the other Sections of the Plan).

9.4 Effect of Plan Amendment on Benefits .

In the event that the Plan is amended or modified, in whole or in part, to reduce future accruals of benefits, Supplemental Retirement Allowances, Beneficiary’s Allowances, or Dependent Children’s Allowances, then the Participants affected by any such amendment or modification shall, except as otherwise agreed to in writing by any such Participant, be treated, with respect to the Supplemental Retirement Allowance or death benefits based thereon that accrued through the date of such amendment or modification and which allowance or benefits were affected by such amendment or modification, as if the Plan were terminated as of such date and their rights and entitlement to these benefits shall be determined under Section 9.3; provided that such Participants shall be entitled to continue to accrue benefits after the date of such amendment or modification under such modified or amended terms of the Plan.

9.5 Effect of a Change of Control .

In the event of a Change of Control, then, with respect to any person who is an Active Participant at the time of the Change of Control who subsequently ceases for any reason, other than a voluntary termination of employment as defined in Section 9.6, to be an Active Participant, such person shall have a Nonforfeitable right to (a) the Supplemental Retirement Allowance described in Section 4 that such person had accrued through the date of termination of employment and (b) to the Beneficiary’s Allowance and Dependent Children’s Allowance described in Section 5, based upon the Section 4 benefits accrued by such person through the date of termination of employment. Such person’s right and entitlement to the Supplemental Retirement Allowance, Beneficiary’s Allowance, and Dependent Children’s Allowance shall be calculated in accordance with Section 9.3(b) and shall be payable in accordance with Section 9.3(c).

9.6 Voluntary Termination of Employment .

For purposes of Section 9.5, a voluntary termination of employment shall mean any termination initiated by the Participant except a termination initiated after:

(a) any substantial adverse change in position, duties, title, or responsibilities, other than merely by reason of the Company ceasing to be a publicly-traded corporation;

(b) any material reduction in base salary or, unless replaced by equivalent arrangements, any material reduction in annual bonus opportunity or pension or welfare benefit plan coverages;

(c) any relocation required by the Company to an office or location more than 25 miles from the Participant’s then-current regular office or location; or

(d) any failure of the Company to obtain the agreement of a successor entity to assume the obligations set forth hereunder, provided that the successor has had actual notice of the existence of this arrangement and an opportunity to assume the Company’s responsibilities hereunder during a period of at least ten (10) business days after receipt of such notice;

provided that, in order for a particular event to be treated as an exception to a “voluntary termination,” a Participant must assert such exception within 180 days after first having actual knowledge of the events giving rise thereto by giving the Company written notice thereof and an opportunity to cure. Notwithstanding the foregoing, in the event that any employment agreement between the Participant and the Company or a Subsidiary in effect at the time of such employment termination provides a definition of “constructive

termination” or termination for “good reason” or similar terminology, then such definition shall govern over the events described in this Section 9.6 to the extent that it provides additional exceptions to the events that are considered a voluntary termination.

9.7 Effect of Merger or Acquisition .

If any company now or hereafter becomes a Subsidiary of the Company, then the Board of Directors (or the Compensation Committee to the extent that it has been delegated authority) may include an employee of such Subsidiary in the membership of the Plan upon appropriate action by such company. In such event, or as a result of the merger or consolidation, or the acquisition by the Company, of all or part of the assets or business of another company, then the Board of Directors (or the Compensation Committee to the extent that it has been delegated authority) shall determine to what extent, if any, benefits shall be granted for previous service with such Subsidiary or other company. Notwithstanding the foregoing, no individual may become a participant in the Plan after December 31, 2008.

SECTION 10

CLAIM PROCEDURES

10.1 Every claim for benefits under the Plan shall be in writing directed to a member of the Retirement Board.

10.2 Each claim filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 90 days after receipt of the claim by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed written notice of such extension will be given to the claimant within the initial 90-day period and such claim shall be decided no later than 180 days after receipt of the claim by the Retirement Board). A claim that is not decided within the applicable time period may be considered to be denied. If a claim is denied in whole or in part, then the claimant shall be given written notice of the denial in language calculated to be understood by the claimant, which notice shall:

(a) specify the reason or reasons for the denial;

(b) specify the Plan provisions giving rise to the denial; and

(c) describe any further information or documentation necessary for the claim to be honored, explain why such documentation or information is necessary, and explain the Plan’s review procedure.

10.3 Upon written request of any claimant whose claim has been denied in whole or in part, the Retirement Board shall make a full and fair review of the claim and furnish the claimant with a written decision concerning it. Such request for review must be made by the claimant to any member of the Retirement Board within 60 days following the claimant’s receipt of the benefit denial (or the claim being deemed denied), and any such review will take into account all documents and information submitted by the claimant upon review, whether or not such documents and information were submitted or considered as part of the initial claim. As part of the review process, a claimant shall:

(a) have the opportunity to submit written comments, documents, records, and other information relating to the claim; and

(b) be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim.

10.4 Each request for review filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 60 days after receipt of the request by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed written notice of such extension will be given to the claimant within the initial 60-day period and such claim shall be decided no later than 120 days after receipt of the claim by the Retirement Board). A request for review that is not decided within the applicable time period may be considered to be denied. If a request for review is denied in whole or in part, then the claimant shall be given written notice of the denial in language calculated to be understood by the claimant, which notice shall:

(a) specify the reason or reasons for the denial;

(b) specify the Plan provisions giving rise to the denial;

(c) state that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and

(d) contain a statement of any rights that the claimant may have to bring a civil action under Section 502(c) of the Employee Retirement Income Security Act of 1974, as amended.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed on this 7th day of November, 2008, effective as of January 1, 2009.


AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name: Kim K.W. Rucker Title: Senior Vice President and General Counsel

Exhibit 10.26

BENEFIT RESTORATION PENSION PLAN

AVON PRODUCTS, INC.

Amended and Restated effective as of January 1, 2009

TABLE OF CONTENTS


		Page

ARTICLE 1	Definitions	1

ARTICLE 2	Membership	3

ARTICLE 3	Amount and Payment of Benefits	4

ARTICLE 4	General Provisions	8

ARTICLE 5	Amendment or Termination	9

BENEFIT RESTORATION PENSION PLAN

AVON PRODUCTS, INC.

Introduction

This amendment and restatement of the Benefit Restoration Pension Plan of Avon Products, Inc. (the “Plan”) has been adopted by the Company and is effective as of January 1, 2009. This plan document governs distributions made under the Plan on or after January 1, 2009. Distributions made under the Plan before January 1, 2009 were made in accordance with the version of the Plan in effect at the time of the respective distribution (and, if applicable, as the Plan was operated by the Company in order to ensure good faith compliance with Section 409A during the period of time after December 31, 2004 and before January 1, 2009).

The Plan is designed to pay supplemental benefits to certain Employees who have qualified or may qualify for benefits under the Retirement Plan, as defined below. All benefits payable under the Plan shall be paid out of the general assets of the Company. The Company may establish a trust in order to aid it in providing benefits due under the Plan.

ARTICLE 1

Definitions

1.1 “ Beneficiary ” shall mean the person or trust that a Member designates as such under the Retirement Plan, provided that, if a Member has failed to make such a designation or no person designated is alive, no trust has been established, and no successor Beneficiary has been designated who is alive, then “Beneficiary” shall mean (a) the Member’s spouse, or (b) if no spouse is alive, the deceased Member’s estate (as payable to the legal representative of such estate).

1.2 “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

1.3 “ Company ” shall mean Avon Products, Inc., or any successor by merger, purchase, or otherwise, with respect to its Employees; or any other affiliated company authorized by the Board of Directors of Avon Products, Inc. or the successor to participate in the Plan.

1.4 “ Compensation Committee ” shall mean the Compensation Committee of the Board of Directors of Avon Products, Inc.

1.5 “ Effective Date ” shall mean July 1, 1998.

1.6 “ Employee ” shall mean an individual who is employed by the Company at any time on or after the Effective Date.

1.7 “ Equivalent Actuarial Value ” shall mean a benefit of equivalent value when computed on the basis of the same mortality table and rate or rates of interest and/or empirical tables that are being used to determine the Member’s Retirement Allowance under the Retirement Plan.

1.8 “ Member ” shall mean any Employee or former Employee who has become a participant in the Plan, for so long as his benefits under the Plan, if any, have not been fully distributed pursuant to the Plan.

1.9 “ Retirement Allowance ” shall mean the accrued benefit available under the Retirement Plan, using the definitions of “Compensation,” “Credited Service,” and “Vesting Service” contained therein from time to time, but determined without regard to any benefit provided under Section 17 of the Retirement Plan in the event of a change of control.

1.10 “ Retirement Board ” shall mean the administrative board or any successor thereto that administers the Retirement Plan.

1.11 “ Retirement Plan ” shall mean the Avon Products, Inc. Personal Retirement Account Plan as in effect on the Effective Date and as may thereafter be amended from time to time.

1.12 “ Section 409A ” shall mean Code Section 409A, including any Internal Revenue Service regulations and other guidance issued under such Section.

1.13 “ Separation from Service ” shall mean a “separation from service” (as defined under Section 409A). If an Employee is on military leave, sick leave, or other bona fide leave of absence, then that Employee will not be deemed to have incurred a Separation from Service unless such leave extends beyond six months, in which case the Separation from Service will occur on the day immediately following the expiration of such six-month period; provided that an Employee who has a statutory or contractual right to reemployment while on a leave of absence will not be deemed to have incurred a Separation from Service, even if such leave extends beyond six months, as long as such statutory or contractual right remains in effect. However, if a leave of absence is due to a medically determinable physical or mental impairment that can be expected to result in death or to last for a continuous period of not less than six months, where such impairment causes the Employee to be unable to perform his job duties or the duties of a similar job position, then the six-month period in the prior sentence is replaced with a 29-month period. A leave of absence will constitute a “bona fide leave of absence” only if

there is a reasonable expectation that the Employee will return to perform service for the Company.

1.14 “ SERP ” shall mean the Supplemental Executive Retirement Plan of Avon Products, Inc., as in effect on the Effective Date and as may thereafter be amended from time to time.

1.15 “ Severance Plan ” shall mean the Avon Products, Inc. Severance Pay Plan as in effect on January 1, 2009 and as may thereafter be amended from time to time, or any successor plan thereto, if any, or any individual arrangement or agreement that provides severance benefits.

1.16 “ Supplemental Benefit ” shall mean the accrued retirement benefit payable under the Plan.

ARTICLE 2

Membership

2.1 Eligibility

(a) Every Employee who is a participant in the Retirement Plan and is a member of a select group of management or highly-compensated employees shall become a Member of the Plan on the first day of the calendar month coincident with or next following the date that his accrued Retirement Allowance is limited as a result of the application of Code Section 415 or 401(a)(17) or otherwise affected as set forth in Section 3.1 below. Notwithstanding the foregoing, an Employee who participates in the SERP will not be a Member or otherwise participate in the Plan.

(b) Each Employee who was a Member on June 30, 1998, shall continue to be a Member as of the Effective Date.

2.2 Termination of Membership

A Member’s participation in the Plan shall terminate on the later of (a) the date of the Member’s Separation from Service, and (b) the date that such Member’s benefits payable under the Plan, if any, have been fully distributed.

ARTICLE 3

Amount and Payment of Benefits

3.1 Amount of Supplemental Benefit

The annual amount of the Supplemental Benefit payable with respect to a Member, expressed as a single life annuity, shall be equal to:

(a) the amount of the Retirement Allowance that would be payable in the form of a single life annuity if (i) the limitations of Code Section 415 were not applicable, (ii) the annual compensation limitations under Code Section 401(a)(17) were not applicable, (iii) the definition of compensation under the Retirement Plan included compensation electively deferred by the Member for the “plan year” (as defined in the Retirement Plan) to a deferred compensation plan or program maintained by the Company but only to the extent that such compensation would have been included in such definition if it had not been deferred, (iv) for highly compensated employees (as defined in Code Section 414), the definition of compensation under the Retirement Plan included the amount of the annual award (as opposed to awards that are based on performance over multiple years) for 2001 and later years under the Avon Products, Inc. Management Incentive Plan or Avon Products, Inc. Executive Incentive Plan that is paid in the form of restricted stock or stock options, plus any premium for superior performance, (v) for any Member who is eligible for the benefit referenced in Section 1.2(a) or Section 1.2(b)(2) of the Retirement Plan, such Member received credit under the Retirement Plan (for age, Credited Service, and Vesting Service, as applicable, as defined in the Retirement Plan) for the number of months for which such Member is eligible to receive severance payments, if any, under the terms of the Severance Plan at the time of his Separation from Service, provided that such number of months will not exceed twenty-four (24) months, and further provided that such credit will be provided only to the extent that the total of such Member’s age and Credited Service does not exceed eighty-five (85), and (vi) for any Member who is eligible only for the benefit referenced under Section 1.2(b)(1) of the Retirement Plan, such Member received credit under the Retirement Plan solely for retirement eligibility purposes (and not for age and Credited Service, as defined in the Retirement Plan) for the number of months for which such Member is eligible to receive severance payments, if any, under the terms of the Severance Plan at the time of his Separation from Service, provided that such number of months will not exceed twenty-four (24) months, and further provided that such credit will be provided only to the extent that the total of such Member’s age and Credited Service does not exceed eighty-five (85); less

(b) the Retirement Allowance that is actually payable to the Member.

For purposes of this Section 3.1, if any benefit under Section 3.1(b) is payable in a form other than a single life annuity or at a time other than the time that the Supplemental Benefit is payable under the Plan, such benefit shall be converted to a single life annuity of Equivalent Actuarial Value that is payable as of the date of the Member’s Separation from Service. For the avoidance of doubt, in order to determine the amount of the Retirement Allowance under Section 3.1(b), it will be assumed that the Retirement Allowance is payable as a single life annuity beginning at the time of the Member’s Separation from Service, determined using the compensation and service credits that the Member has accumulated under the Retirement Plan through such Separation from Service, whether or not the Retirement Allowance is actually paid at such time or in such form.

For purposes of determining the Supplemental Benefit under the Plan, the definition of “compensation” in the Retirement Plan is modified to exclude severance pay from such definition, and thus from consideration under the Plan, only for those Employees whose last day of active employment is on or after January 1, 2007.

3.2 Time and Form of Payment

(a) With respect to Supplemental Benefits that begin to be paid on January 1, 2009 or later, such Supplemental Benefits will be paid to the Member, subject to Sections 3.2(b) and 3.6, as follows: (1) 80% of the Equivalent Actuarial Value of the Supplemental Benefit will be paid in a lump sum during the month following the month in which the Member’s Separation from Service occurs (the “Lump-Sum Payment Month”); and (2) 20% of the Equivalent Actuarial Value of the Supplemental Benefit will be paid in sixty equal, monthly installments beginning during the Lump-Sum Payment Month.

(b) Notwithstanding Section 3.2(a), certain Members who were Members before November 1, 2008 were permitted to elect a different time and/or form of payment before January 1, 2009 in accordance with transition rules issued under Section 409A. Those elections remain valid, are subject to Section 3.6, and supersede Section 3.2(a). The payment options that were available to be elected by such Member, and the option elected by such Member, if any, are set forth in the written election form completed by the Member and approved by the Retirement Board.

(c) Notwithstanding any other provision in the Plan, if a Member dies before his Supplemental Benefit otherwise becomes payable, then, notwithstanding Section 3.2(a) and any election made under Section 3.2(b), his Supplemental Benefit as of his date of death (determined under Section 3.1 by substituting the benefits payable to the Beneficiary in lieu of the benefits payable to the Member) will be paid to his

Beneficiary in a single lump-sum payment (which will be an Equivalent Actuarial Value), payable during the month following the month in which the Member dies.

(d) If a Member dies after his Supplemental Benefit has become payable, then, notwithstanding Section 3.2(a), any remaining payments under his Supplemental Benefit will be paid to his Beneficiary in a single lump-sum payment, payable during the month following the month in which the Member dies. Notwithstanding the preceding sentence, if pursuant to Section 3.2(b) the Member elected to receive his Supplemental Benefit in the form of an annuity or contingent life annuity, remaining payments, if any, will be made in accordance with the terms of the elected annuity.

(e) If a Member has elected pursuant to Section 3.2(b) that his Supplemental Benefit be payable under a contingent annuitant option and the contingent annuitant dies before the Supplemental Benefit becomes payable, then such Member may change his contingent annuitant designation before any payment is made to the Member under the contingent annuitant option. Notwithstanding the foregoing, at any time before any payment has been made under a contingent annuity, a Member may change his payment election from one form of annuity to another, provided that both annuities have an Equivalent Actuarial Value and that the date of the first scheduled payment under both annuities is the same.

3.3 Restoration to Service

If a Member who retired or otherwise terminated employment with the Company is restored to service, such restoration will not effect the continued payment of his Supplemental Benefit. Upon his subsequent retirement or termination, in order to prevent any duplication of benefits under the Plan, any additional Supplemental Benefit shall be recomputed by taking into account the Supplemental Benefit accrued by the Member before and after his restoration to service, and will be reduced by the Equivalent Actuarial Value of the Supplemental Benefit already received or being received by such Member.

3.4 Elective Transfer to Deferred Compensation Plan

Effective as of January 1, 2006, a Participant who accrues benefits under the Plan on or after January 1, 2006 is no longer permitted to elect to have his Supplemental Benefit credited to the Member’s account under the Avon Products, Inc. Deferred Compensation Plan.

3.5 Mandatory Cash-Out of Small Account Balances

If the Equivalent Actuarial Value of a Member’s Supplemental Benefit at the time the Member incurs a Separation from Service, or at any time thereafter, is less than or equal to the then-applicable dollar amount under Code Section 402(g)(1)(B), then the Company will pay the Member or his Beneficiary, if applicable, a cash lump-sum payment, regardless of the form and timing of benefit payments that the Member had previously elected, if any, or is otherwise entitled to under Section 3.2(a); provided that such payment by the Company may only be made if the payment is made in connection with the termination and liquidation of such Member’s interests in all arrangements that would constitute nonqualified deferred compensation plans under Code Section 409A and that would be aggregated with the Plan pursuant to Treasury Regulation § 1.409A-1(c)(2). Any such payment will be made by the Company no later than December 31 of the year in which the Member’s Supplemental Benefit becomes payable in a lump sum pursuant to the cash-out rules of this Section 3.5 or, if later, by the 15th day of the third month following the month in which the Member’s Separation from Service occurs.

3.6 Six-Month Delay in Payment to Specified Employees

To the extent that any amount payable under the Plan constitutes an amount payable following a Separation from Service, then, notwithstanding any other provision in the Plan to the contrary, such amount will not be paid to the Member during the six-month period immediately following such Member’s Separation from Service if such Member is deemed to be a “specified employee” (as that term is defined in Section 409A and pursuant to procedures established by Avon Products, Inc.) at the time of his Separation from Service. During the seventh month following the month in which such Separation from Service occurs, all amounts that otherwise would have been paid to such Member during that six-month period, but were not so paid due to this Section 3.6, will be paid to such Member in a single lump-sum payment. This six-month delay will cease to be applicable if the Member’s Separation from Service occurs due to his death or if the Member dies before the six-month period has elapsed.

Amounts that are not paid to a Member because of this Section 3.6 at the time such amounts otherwise would have been paid to such Member will accrue interest from the date such amount would have been paid to such Member but for this Section 3.6 through the day immediately preceding the date that such amount is actually paid to such Member. Such interest shall accrue at the rate set forth from time to time in Section 1.1(b) of the Retirement Plan and shall be paid to such Member at the same time that the underlying amounts are paid to such Member.

3.7 Domestic Relations Orders . Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder to an individual other

than the Member before such payments are otherwise due to the Member if the Company determines that such payments are being made in order to fulfill the requirements of a “domestic relations order” (as defined in Code Section 414(p)(1)(B)).

ARTICLE 4

General Provisions

4.1 Administration

The administration of the Plan, including but not limited to the discretionary power to interpret and carry out its provisions, is the responsibility of the Retirement Board, and the provisions of Section 8 of the Retirement Plan, as amended from time to time, are hereby incorporated herein by reference.

4.2 Funding

All amounts payable in accordance with the Plan shall constitute a general unsecured obligation of the Company. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Company, unless the Company establishes, in its sole discretion, a trust the assets of which will be used as a source of payment for some or all benefits due hereunder. In the event that a trust is established for some or all the benefits payable hereunder, the trust shall not be considered to fund, within the meaning of the Employee Retirement Income Security Act of 1974, as amended, the benefits under the Plan.

4.3 No Contract of Employment

The establishment of the Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Company to discharge any Employee and to treat him without regard to the effect that such treatment might have upon him as a Member of the Plan.

4.4 Facility of Payment

In the event that the Retirement Board shall find that a Member is unable to care for his affairs because of illness or accident, the Retirement Board may direct that any benefit payment due him under the Plan, unless claim shall have been made therefor by a duly appointed legal representative, be paid to his Beneficiary, spouse, child, parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Company therefor.

4.5 Withholding Taxes

The Company shall have the right to deduct from each payment to be made under the Plan any required withholding taxes.

4.6 Nonalienation

Subject to Section 3.7 and any applicable law, no benefit payable under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt so to do shall be void; nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution, or levy, or liable for or subject to the debts, contracts, liabilities, engagement, or torts of the Member.

4.7 Forfeiture for Cause

In the event that a Member shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Member in his relationship with the Company, all benefits that would otherwise be payable to him under the Plan shall be forfeited.

4.8 Claims Procedure

In the event that a Member or his Beneficiary claims that he has improperly been denied an appropriate Supplemental Benefit under the Plan, he shall be entitled to the Claim Review Procedure set forth in Section 9 of the Retirement Plan following any denial of his claims by the Company.

4.9 Construction

(a) Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance with the laws of the State of New York and, except to the extent otherwise herein provided, consistent with the provisions of the Retirement Plan.

(b) The masculine pronoun shall mean the feminine wherever appropriate.

ARTICLE 5

Amendment or Termination

The Compensation Committee reserves the right to modify or amend, in whole or in part, or to terminate, the Plan at any time. However, no modification, amendment, or

termination of the Plan shall adversely affect the right of any Member or his Beneficiary to receive the benefits accrued under the Plan in respect of such Member as of the date of modification, amendment, or termination. Upon the termination of the Plan, benefits hereunder accrued through the date of such Plan termination shall continue to be payable in accordance with the terms of the Plan, as in effect on such date of Plan termination.

IN WITNESS WHEREOF, the Company has executed the amended and restated Plan on this 7th day of November, 2008, effective as of the 1st day of January, 2009.


AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name:		Kim K.W. Rucker
Title:		Senior Vice President and General Counsel

Exhibit 10.28

AMENDMENT TO TRUST AGREEMENT

This Amendment to Trust Agreement (this “Amendment”) is made by Avon Products, Inc. (the “Company”) effective as of January 1, 2009.

W I T N E S S E T H :

WHEREAS, the Company entered into a Trust Agreement (the “Trust Agreement”) with The Chase Manhattan Bank, N.A., dated as of October 29, 1998; and

WHEREAS, Article X of the Trust Agreement provides that the Company may amend the Trust Agreement pursuant to a resolution of its board of directors by delivering to the trustee a certified copy of such resolution and a written instrument duly executed and acknowledged in the same form as the Trust Agreement; and

WHEREAS, the Company now wishes to amend the Trust Agreement in order to comply with Section 409A of the Internal Revenue Code (“Section 409A”);

NOW, THEREFORE, the Company hereby amends the Trust Agreement as follows:

1. A new sentence is added to the end of Section 5.5 of the Trust Agreement to read as follows:

“The distribution right set forth in the immediately preceding sentence will not apply to any Participant under the SLIP (as amended as of January 1, 2009) who has an “Individual Agreement” (as that term is defined in the SLIP, amended as of January 1, 2009). The Company shall notify the Trustee of all Participants under the SLIP who have such “Individual Agreements” and the Trustee shall be fully protected in relying on such notification.”

2. Article IX of the Trust Agreement is amended in its entirety to read as follows:

“ARTICLE IX

Termination

The Trust may be terminated by the Company with respect to any Participant or Beneficiary under the SERP, and with respect to any Participant or Beneficiary under the SLIP subject to an “Individual Agreement” (as that term is defined in the SLIP), after payment to such Participants (or their Beneficiaries), pursuant to the terms of the Plans and this Agreement, of all amounts held in the Trust for their Plan benefits. Any such termination may be effected, pursuant to a resolution of the Board of Directors of the Company, upon delivery to the Trustee of a certified copy of

such resolution and a written instrument of termination duly executed and acknowledged in the same form as this Agreement. The Trustee shall be fully protected in relying on such resolution and written instrument of termination.

The foregoing provision shall not apply to any Participant under the SLIP (other than those subject to an “Individual Agreement” as that term is defined in the SLIP) who are identified in writing by the Company to the Trustee and the Trust will continue to be terminable in accordance with Article IX of the Trust Agreement as in effect immediately prior to January 1, 2009 for such Participants and Beneficiaries.

Upon complete termination of the Trust, any assets remaining in the Trust shall be returned to the Company.”

3. Section 11.9 of the Trust Agreement is amended in its entirety to read as follows:

“11.9 Adverse Tax Consequences .

(a) Notwithstanding any other provision of the Trust Agreement to the contrary, the Trustee shall make appropriate payments hereunder before such payments are otherwise due if it is notified by a Participant or Beneficiary, in the format provided in Appendix I, that based on (i) a change in the tax or revenue laws of the United States of America, (ii) a published ruling or similar announcement issued by the Internal Revenue Service, (iii) a regulation issued by the Secretary of the Treasury or his delegate, (iv) a decision by a court of competent jurisdiction involving the Participant or Beneficiary, or (v) a closing agreement made under Code Section 7121 that is approved by the Internal Revenue Service and involves the Participant or Beneficiary, that Participant or Beneficiary has recognized or will recognize income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plans before they are paid to him. The Company will provide written notification to the Trustee of the Participants and Beneficiaries who have the payment right set forth in this Section 11.9(a) and the amount to be paid to each such Participant and Beneficiary.

(b) Notwithstanding any other provision of the Trust Agreement to the contrary, the Trustee shall make appropriate payments hereunder before such payments are otherwise due if it is notified by a Participant or Beneficiary, in the format provided in Appendix II, that the Participant or Beneficiary has recognized, or will recognize during the then-current tax year, income for federal income tax purposes under Section 409A with respect to amounts that are or will be payable to him under the Plans before they are paid to him. The amount of any such payment may not exceed the

amount that such Participant or Beneficiary has recognized, or will recognize during the then-current tax year, under Section 409A with respect to amounts that are or will be payable to him under the Plans. The Company will provide written notification to the Trustee of the Participants and Beneficiaries who have the payment right set forth in this Section 11.9(b) and the amount to be paid to each such Participant and Beneficiary (such right being limited to SLIP Participants not subject to Section 11.9(a) above with respect to SLIP benefits held in the Trust and SERP Participants and Beneficiaries with respect to SERP benefits held in the Trust).”

4. The Trust Agreement is amended by adding Appendix II thereto in the form attached to this Amendment.

IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on the date set forth below.


AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name:		Kim K.W. Rucker
Title:		Senior Vice President and General Counsel



Attest:	Karen Leu	Dated:	November 14, 2008

Acknowledgement


STATE OF NEW YORK		)
		) ss.:
COUNTY OF NEW YORK		)

Personally appeared Kim K.W. Rucker of Avon Products, Inc., signer and sealer of the foregoing instrument, and acknowledged the same to be his/her free act and deed as SVP and General Counsel and the free act and deed of said Company, before me on November 14, 2008 .

/s/ Lorna P. Laemmie

Notary Public

LORNA P. LAEMMIE

Notary Public, State of New York

No. 01LA4896276

Qualified in Queens County

Certificate Filed in New York County

Commission Expires June 20, 2010

APPENDIX II

FORM OF NOTICE OF 409A TAXATION

I, the undersigned Participant (Beneficiary) under the Avon Products, Inc. Trust Agreement, as amended, hereby notify JPMorgan Chase Bank as Trustee, that pursuant to Section 11.9(b) thereof, the undersigned has recognized or will recognize tax during the current tax year under Section 409A of the Internal Revenue Code with respect to funds held in said trust. The undersigned requests payment of $ from the trust funds to which the undersigned is entitled. I certify that this amount does not exceed the amount required to be included in income as a result of the failure to comply with Section 409A and the regulations thereunder.

Participant/Beneficiary



Date:

A-1

Exhibit 10.32

[Avon Products, Inc. letterhead]

November 7, 2008

Ms. Elizabeth A. Smith

Avon Products, Inc.

1345 Avenue of the Americas

New York, N.Y. 10105-0196

Dear Liz:

Reference is made to your employment letter agreement with Avon Products, Inc. (“Avon”) dated November 1, 2004 (the “Employment Letter Agreement”). In order to comply with final regulations issued under Section 409A of the Internal Revenue Code (“Section 409A”) and to avoid unfavorable tax treatment to you, certain amendments are required to be made to the Employment Letter Agreement. For this purpose, you and Avon have agreed to amend the Employment Letter Agreement in accordance with the terms of this letter. You acknowledge that the consideration supporting the amendments made by this letter includes, without limitation, the mutual promises set forth herein to avoid unfavorable tax treatment for you under Section 409A.

Addition of Six-Month Wait for Severance Benefits . Pursuant to the terms of the Employment Letter Agreement, if you incur a “Severance Termination” (as that term is defined in the Employment Letter Agreement), you become entitled to severance payments in the form of continued base salary payments for twenty-four (24) months as well as the continued provision of certain benefits beyond your separation from service (the “Severance Package”). If you become entitled to the Severance Package, then, to the extent that any portion of the Severance Package constitutes an amount payable or benefit to be provided under a “nonqualified deferred compensation plan” (as defined in Section 409A) following a “separation from service” (as defined in Section 409A) and which is not exempt from Section 409A, and since you are a “specified employee” (as that term is defined in Section 409A), notwithstanding any other provision in the Employment Letter Agreement or this letter to the contrary, such payment or benefit provision will not be made to you during the six-month period immediately following your “separation from service” date. Instead, on the first day of the seventh month following such “separation from service” date, all amounts that otherwise would have been paid or provided to you during that six-month period, but were not because of this provision, will be paid or provided to you on the first day of the seventh month following your “separation from service” date, with any cash payment delayed during such six-month period to be made in a single lump sum.

Rules for Continued Benefits and Perquisites . If you become entitled to continued benefits and/or perquisites from Avon beyond the date that you separate from service from Avon, then, in addition to being subject to the other provisions of this letter, such continued benefits and/or perquisites will also be subject to the following rules: (a) to the extent that any such benefit or perquisite is provided via reimbursement to you, Avon must provide the reimbursement no later than the end of the year following the year in which the underlying expense is incurred, (b) the amount of any such benefit or perquisite provided by Avon in any year will not be affected by the amount of such benefit or perquisite provided by Avon in any other year, and (c) under no circumstances will you be permitted to liquidate or exchange any such benefit or perquisite for cash or any other benefit.

Time Period in Which Any Gross-Up Payment Must be Made . Should you become entitled to a “Gross-Up Payment” (as defined in the Employment Letter Agreement), Avon will make such payment to you no later than the end of the calendar year following the year in which you pay the Excise Taxes (as defined in the Employment Letter Agreement) that are being “grossed-up” by the Gross-Up Payment.

Executive Severance Summary . An Executive Severance Summary was attached to the Employment Letter Agreement, for which clarifying changes are necessary due to Section 409A and other tax law changes affecting qualified retirement plans, including:

(a)

inserting Section 409A’s six-month wait for severance benefits (cash and perquisites, but excluding health insurance) provided to “specified employees;” providing that deferrals and payments under Avon’s Deferred Compensation Plan will be governed by the terms of the Plan, as amended to comply with Section 409A; and limiting the end of the exercise period for any stock option to a date no later than the original expiration date of such option, which is required in order to maintain the stock option’s exemption from Section 409A’s rules; and

(b)	eliminating the right to defer severance payments to, and limiting the crediting of severance pay and severance periods under, Avon’s tax-qualified retirement plans.

You agree that the payments and benefits to which you are entitled under the Executive Severance Summary will be those to which you are entitled under the terms of Avon’s severance pay plan and other benefit programs as in effect from time to time, provided that in no event shall the amount of your severance payments, as set forth in the Executive Severance Summary, be reduced to below twenty-four (24) months at your base salary in effect upon your “separation from service” date.

Please sign below to acknowledge your agreement to the terms of this letter and the amendments made by this letter to the Employment Letter Agreement, and return this letter to me.


Sincerely,

AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name:		Kim K.W. Rucker
Title:		Senior Vice President and General Counsel

Acknowledged and agreed:


/s/ Elizabeth A. Smith				11/12/08
Elizabeth A. Smith				Date

Exhibit 10.34

[Avon Products, Inc. letterhead]

November 7, 2008

Mr. Charles Cramb

Avon Products, Inc.

1345 Avenue of the Americas

New York, N.Y. 10105-0196

Dear Chuck:

Reference is made to your employment letter agreement with Avon Products, Inc. (“Avon”) dated November 9, 2005 (the “Employment Letter Agreement”). In order to comply with final regulations issued under Section 409A of the Internal Revenue Code (“Section 409A”) and to avoid unfavorable tax treatment to you, certain amendments are required to be made to the Employment Letter Agreement. For this purpose, you and Avon have agreed to amend the Employment Letter Agreement in accordance with the terms of this letter. You acknowledge that the consideration supporting the amendments made by this letter includes, without limitation, the mutual promises set forth herein to avoid unfavorable tax treatment for you under Section 409A.

Addition of Six-Month Wait for Severance Benefits . Pursuant to the terms of the Employment Letter Agreement, if your employment is terminated by Avon other than for cause, or if, during the three-year period following a “Change of Control,” you terminate your employment under certain circumstances, you become entitled to severance payments in the form of continued base salary payments as well as the continued provision of certain benefits beyond your separation from service (the “Severance Package”). If you become entitled to the Severance Package, then, to the extent that any portion of the Severance Package constitutes an amount payable or benefit to be provided under a “nonqualified deferred compensation plan” (as defined in Section 409A) following a “separation from service” (as defined in Section 409A) and which is not exempt from Section 409A, and since you are a “specified employee” (as that term is defined in Section 409A), notwithstanding any other provision in the Employment Letter Agreement or this letter to the contrary, such payment or benefit provision will not be made to you during the six-month period immediately following your “separation from service” date. Instead, on the first day of the seventh month following such “separation from service” date, all amounts that otherwise would have been paid or provided to you during that six-month period, but were not because of this provision, will be paid or provided to you on the first day of the seventh month following your “separation from service” date, with any cash payment delayed during such six-month period to be made in a single lump sum.

(a)

inserting Section 409A’s six-month wait for severance benefits (cash and perquisites, but excluding health insurance) provided to “specified employees”; providing that deferrals and payments under Avon’s Deferred Compensation Plan will be governed by the terms of the Plan, as amended to comply with Section 409A; and limiting the end of the exercise period for any stock option to a date no later than the original expiration date of such option, which is required in order to maintain the stock option’s exemption from Section 409A’s rules; and

(b)	eliminating the right to defer severance payments to, and limiting the crediting of severance pay and severance periods under, Avon’s tax-qualified retirement plans.

Please sign below to acknowledge your agreement to the terms of this letter and the amendments made by this letter to the Employment Letter Agreement, and return this letter to me.

Sincerely,

AVON PRODUCTS, INC.

By: /s/ Kim K.W. Rucker

Name: Kim K.W. Rucker

Title: Senior Vice President and General Counsel

Acknowledged and agreed:


/s/ Charles Cramb		12/3/08
Charles Cramb		Date

Exhibit 10.37

[Avon Products, Inc. letterhead]


Lucien Alziari
Senior Vice President
Human Resources

November 18, 2005

Mr. Charles M. Herington

[home address]

Dear Charles:

We are pleased to offer you the position of Senior Vice President and President-Latin America, reporting to Susan Kropf.

You will be paid a base salary in bi-weekly installments at an annualized rate of $500,000 per year. Although this salary is quoted on an annual basis, it does not imply a specific period of employment. Your next salary review will be April 2007 based on our common salary review for all employees.

You will receive a $150,000 sign-on bonus. As discussed, we are anticipating that your current employer will pay your 2005 bonus in early 2006. In the event that this is not forthcoming, we will reimburse you up to a maximum of $465,000, which would include the $150,000 sign-on.

You will also be eligible for the Company’s Management Incentive Plan (“MIP”) with an annual “target” of 65% of earned base salary, and the opportunity for a maximum payout of 200% of target. Your annual MIP bonus will be largely determined by the degree of achievement of pre-established performance objectives for Global executives for the year in question. However, for 2006, you will have a minimum guaranteed award of 32.5% of earned base salary, to be paid in February 2007.

Charles Herington

November 18, 2005

Page 2

It is our intent to recommend to the Compensation Committee of the Board that you be eligible to participate in the Long Term Incentive Plan (LTIP). We will recommend that the total 2006 LTIP award equal $800,000, which is a 160% target. The company cannot guarantee the format of this award since the Long-Term Incentive Plan is currently under review. However, it is expected that your equity mix will contain both stock options and restricted stock units (using an exchange ratio). We commit that your long-term compensation will continue to be at least comparable to that of similarly situated executives.

It is our intent to recommend to the Compensation Committee of the Board of Directors that you receive a grant of 7,500 restricted stock units soon after your start date.

We will also recommend that you be a participant in the 2005 - 2007 Performance Cash Plan with a 3-year target award of approximately $500,000 (pro-rated for the time in plan) that will be paid out at the end of the performance period, based on the achievement of the preset 3-year performance goals.

As a senior executive of Avon, you will need to adhere to stock ownership guidelines mandated by the Board of Directors, which encourage executive share ownership. You will be required to own Avon stock equal to two times base salary in five years from the date of hire. The ownership guidelines align executive interests with those of shareholders and are consistent with best practices among high-performing companies.

You will be eligible to participate in Avon’s Deferred Compensation Plan. We will forward the brochure and enrollment forms to you in due course.

You will be eligible to participate in all of the benefit programs in which similarly situated executives participate. Accordingly, you will be eligible for our flexible benefits programs and Avon’s Personal Savings Account (Avon’s 401(k) Plan) on your date of hire. Also, we will automatically open a Personal Retirement Account for you after you complete one year of service. This is a cash balance pension account designed to provide you with a source of retirement income if you should leave Avon at any

Charles Herington

November 18, 2005

Page 3

time after becoming vested. (After you complete one year of service, your opening balance in this account will be calculated retroactive to your date of hire.) Under the SupplementaI Life Insurance Plan (SLIP), you are entitled to death benefit coverage of $500,000. These benefits begin on your first day of employment or as soon thereafter as possible, subject to Enrollment requirements. You will be eligible for four weeks of vacation, which is more than our policy based on years of service. If you leave Avon’s employment you will be paid any vacation earned until the termination date.

You will be eligible for a 3-year leased car with a $35,000 sticker price. Avon will cover insurance, maintenance and gasoline for this car, or an annual flexible allowance of $9,250 if you choose not to lease an automobile. You will also be entitled to reimbursement of annual tax preparation assistance and financial planning up to a maximum of $12,500 per year. You will be eligible for the home security system and personal automobile and excess liability insurance programs. In addition, you will eligible for an annual executive health examination.

In the event of involuntary termination (except for cause) we are guaranteeing a severance of wage continuation for 24 months at the base salary in effect at the time of termination in addition to the other payments and benefits described in the attached Executive Severance Summary.

Your employment at Avon is contingent upon your passing a satisfactory background investigation, reference checks, compliance with the Immigration Law, passing a drug screening test and satisfaction of routine pre-employment and post-employment contingencies. As you may be aware, Immigration Law requires that Avon verify the employment authorization status of all new employees. Therefore, on your first day you will be asked to provide documents, which establish your identity and employment eligibility. We will forward a list of acceptable documents for verification purposes in due course.

Avon maintains a drug free work environment and requires that all new hires pass a drug screen as a condition of employment. The drug test will be scheduled as appropriate after accepting this offer. The results of this test must be received prior to your date of employment; you should allow 3-4 business days for the results to be processed.

Charles Herington

November 18, 2005

Page 4

We will forward to you additional new hire information, which you will need to complete and bring with you on your first day, which I hope will be in March, 2006. I very much look forward to your joining Avon and we are confident your career at Avon will be rewarding. If you have any questions, please feel free to call me at (212) 282-5132.


Sincerely,

/s/ Lucien Alziari

Enclosure.

Accepted and agreed to:



/s/ Charles Herington		Nov. 21, 2005
Name		Date

Avon Products, Inc.

Executive Severance Summary

Charles Herington

Compensation Programs


Severance		Wage continuation for 24 months at the base salary in effect at time of termination

MIP		Must be on active payroll August 1 to receive a pro-rated payment. Awards are not paid for time on salary continuation. (No payment in case of voluntary resignation.)

Stock Options (LTIP)		Stock options continue to vest during the salary continuation period. Have 90 days from final termination to exercise vested options.

Deferred Compensation		Payout commences January following termination / end of severance period. Not eligible to defer base salary while on severance. Not eligible to defer bonuses while on severance. Excess 401(k) can be deferred while on severed status provided election is on file. Once payout commences, deferrals cease.

Benefit Programs


Pension / Cash Balance Retirement		Severance pay counts towards eligible earnings provided it is paid in installments.

401 (k) Contributions		Severance pay counts towards eligible earnings provided it is paid in installments.

Health & Welfare Benefits (Medical/Dental/Life)		Continue during salary continuation.

Disability (Short-Term & Long-Term)		Discontinued as of the last day of active employment. (Cannot participate in STD & LTD while on severance.)

Employee Assistance Program		Continue during salary continuation.

(Cont’d)

Executive Perquisite Programs


Company Car		Continue lease for 3 months after last day of active employment with option to purchase car. Employee responsible for all operating and maintenance expense for the 3 months.

Financial Planning		Financial planning and Tax Prep perquisite continued through the calendar year in which the Salary Continuation expires.

Supplemental Lift Insurance (SLIP)		Coverage terminates at the end of the salary continuation period.

Home Security		This benefit ceases at the end of the annual contract following your last day of active employment.

Personal Auto & Excess Liability Insurance		Policy will end on last day of active employment.

Executive Health Exam		Participation in program continues for 3 months after last day of active employment.

Additional Policy Considerations


Non-Compete Agreement		Including but not limited to: Amway, Sara Lee, Tupperware, Unilever, Cosmair, L’Oreal, Mary Kay, Estee Lauder, Revlon, Procter & Gamble, Benckiser, Gryphon, Alticor, Jafra, Limited Brand, Natura, O’Botacario, Oriflame, Herbalife, NuSkin or any affiliates of companies listed above.

Signed Release		Required of all severed associates. If release is not signed, associate is only entitled to 3 weeks severance.

Outplacement		6 months with 6 one-month extensions as needed.

Voicemail		Discontinue on last day of employment.

E-Mail		Discontinue on last day of employment.

Exhibit 10.38

[Avon Products, Inc. letterhead]

November 7, 2008

Mr. Charles M. Herington

Avon Products, Inc.

9100 S. Dadeland Blvd.

Suite 1510

Miami, Florida 33156

Dear Charles:

Reference is made to your employment letter agreement with Avon Products, Inc. (“Avon”) dated November 18, 2005 (the “Employment Letter Agreement”). In order to comply with final regulations issued under Section 409A of the Internal Revenue Code (“Section 409A”) and to avoid unfavorable tax treatment to you, certain amendments are required to be made to the Employment Letter Agreement. For this purpose, you and Avon have agreed to amend the Employment Letter Agreement in accordance with the terms of this letter. You acknowledge that the consideration supporting the amendments made by this letter includes, without limitation, the mutual promises set forth herein to avoid unfavorable tax treatment for you under Section 409A.

Addition of Six-Month Wait for Severance Benefits . Pursuant to the terms of the Employment Letter Agreement, in certain circumstances, you are entitled to severance payments in the form of continued base salary payments for twenty-four (24) months as well as the continued provision of certain benefits beyond your separation from service (the “Severance Package”). If you become entitled to the Severance Package, then, to the extent that any portion of the Severance Package constitutes an amount payable or benefit to be provided under a “nonqualified deferred compensation plan” (as defined in Section 409A) following a “separation from service” (as defined in Section 409A) and which is not exempt from Section 409A, and since you are a “specified employee” (as that term is defined in Section 409A), notwithstanding any other provision in the Employment Letter Agreement or this letter to the contrary, such payment or benefit provision will not be made to you during the six-month period immediately following your “separation from service” date. Instead, on the first day of the seventh month following such “separation from service” date, all amounts that otherwise would have been paid or provided to you during that six-month period, but were not because of this provision, will be paid or provided to you on the first day of the seventh month following your “separation from service” date, with any cash payment delayed during such six-month period to be made in a single lump sum.

(a)

(b)

eliminating the right to defer severance payments to, and limiting the crediting of severance pay and severance periods under, Avon’s tax-qualified retirement plans.

Please sign below to acknowledge your agreement to the terms of this letter and the amendments made by this letter to the Employment Letter Agreement, and return this letter to me.

Sincerely,


AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name:		Kim K.W. Rucker
Title:		Senior Vice President and General Counsel

Acknowledged and agreed:


/s/ Charles Herington		11/24/08
Charles Herington		Date

Exhibit 10.39

[Avon Products, Inc. letterhead]


ANDREA JUNG

CHAIRMAN AND
CHIEF EXECUTIVE OFFICER

Personal & Confidential

April 6, 2006

Ben Gallina

Senior Vice President

Western Europe, Middle East & Africa and China

Dear Ben:

This letter confirms our mutual understanding of the terms and conditions applying to your assignment in the U.K. as Senior Vice President of Western Europe, Middle East & Africa and China reporting to me. Your assignment in the U.K. is contingent upon our mutual understanding of the performance objectives which are subject to change at Avon’s discretion, timely local regulatory permission being obtained for you to work in the U.K. and your acceptance of the terms and conditions of this letter.

The conditions of this letter are in accordance with the policies set forth in the International Assignment Handbook, those policies being incorporated herein by this reference. This letter summarizes key points in the International Assignment Handbook and specifies certain additional conditions associated with your assignment. In terms of this specific assignment, local conditions and guidelines applicable to Avon expatriates in the U.K. will also govern you.

The date of this assignment is on or about March 1, 2006 and is scheduled to be two years in duration. The assignment may be less than two years subject to the discretion of Avon senior management. The assignment may be greater than two years subject to mutual agreement.

TOTAL COMPENSATION

•

Base Salary . With the commencement of your assignment in the U.K., your annual base salary will remain at $475,000. It means a monthly base salary of $39,583.33. Your next salary review is scheduled for April 2007. Your salary will continue to be based on home country internal and external competitive rates.

•

Management Incentive Plan . Your target award will remain at 65% of your base salary. As of January 1, 2006, your MIP payout will be based on the achievement of the Western Europe, Middle East & Africa and China CBUs’ pre-set MIP goals.

•

Long Term Incentive Plan . You will continue to participate in the Long Term Incentive Plan (LTIP) while on assignment in the U.K.

•

Total Compensation . Your total compensation is your current performance-based compensation. This includes your annual salary, your Management Incentive Plan, your Long Term Incentive Plan and any other bonuses or performance-related incentives received during this assignment. Once the amount is determined, a hypothetical tax will be applied and you will be paid the net amount.


Ben Gallina		Page 2 of 6		April 6, 2006

Overseas Compensation

A balance sheet approach will be used to ensure that your standard of living and taxes in the U.K. will be comparable to that which you are accustomed to in the U.S.

A copy of your balance sheet is attached. It shows the current recommended pay split of your expatriate compensation. You will initially receive your salary in your home country. Should you decide to receive a portion of your salary in the U.K. during your assignment, please contact Kit Lee and Avon-U.K. in writing with the desired home and/or host salary payments you would like to receive. However, you will not begin receiving funds in the U.K. until you confirm that you have opened a U.K. bank account.

Taxes

•

Tax Equalization Adjustments . Under the terms of the International Assignment Policy, your tax liability while on assignment in the U.K. will be approximately the amount that would be payable if you were working and living in the U.S. In order to equalize the tax obligation of your foreign service, a hypothetical U.S. income tax is computed and deducted from your total salary. A tax equalization calculation/reconciliation will be prepared at the end of each calendar year to determine if the appropriate U.S. taxes were withheld on your total compensation during your foreign service through your hypothetical income tax deductions.

Ernst & Young LLP will be completing your income tax returns while you are on foreign assignment. It is therefore imperative that you make contact with them to ensure that all necessary information is being compiled and that the tax process is in place to file your tax returns on a timely basis. Please contact [contact person] of E&Y-Hong Kong, who has been handling your U.S. tax returns. Contact information is as follows:


Telephone:		[xxx xxxx xxxx]
Fax:		[xxx xxxx xxxx]
Email:		[email address]

You should also contact [contact person] of E&Y-U.K. regarding your host country returns. Contact information is as follows:


Telephone:		[xxx xxxx xxxx]
Fax:		[xxx xxxx xxxx]
Email:		[email address]

[Contact person], a manager at Ernst & Young (E&Y) in the United States, is responsible for the day-to-day coordination of tax issues regarding Avon’s worldwide expatriates. He may be reached at [(xxx) xxx-xxxx] or via email at [email address] . [Contact person], a tax partner at Ernst & Young (E&Y) in New York, is responsible for Avon’s worldwide expatriate tax work.

In the event of severance, tax treatment of any payments made to you will be reviewed and income tax withholding adjusted accordingly, if necessary.

•

Hypothetical Tax . As stated above, a hypothetical U.S. tax will be deducted from your total compensation when it is paid to you. As stated, total compensation includes base salary, Management Incentive Plan, LTIP and any other bonuses or performance-related incentives received during your assignment.

•

Social Security . The hypothetical tax deduction does not cover your home country social security obligation. The U.S. payroll department should continue to handle this deduction while you are on


Ben Gallina		Page 3 of 6		April 6, 2006

assignment in the U.K. You will not be responsible for any U.K. social taxes incurred while on assignment. These taxes will be paid on your behalf by the U.K. office.

Differential, Allowances & Assignment Incentive Bonus

•

Goods and Services Differential . The goods and services differential is calculated by taking the difference between the goods and services (G&S) index of the host and home location times the amount that someone at your income level and family size would spend on goods and services in the U.S. The portion of your salary used on goods and services in the U.S. is also referred to as your spendable income. It is the U.S. spendable income – not total base salary – that is protected from the higher costs of goods and services abroad. At present, ORC reports a goods & services index for the U.K. above the present cost of living in the U.S. ORC continually monitors exchange rates and movements in the rate of inflation for both countries. Your balance sheet will reflect changes, positive or negative, to your goods & services index and exchange rate only when there is an adjustment for inflation or new pricing surveys are available. Your balance sheet will be updated in April and October of each year.

Initially, your temporary living expenses should be reported through an expense report. You will begin to receive a G&S differential, if applicable, once you are no longer being reimbursed for your living expenses via this method. Please notify Kit Lee of the International Assignments Department when you no longer are reporting your living expenses through an expense report so that any applicable G&S differential can be implemented.

•

Host Country Housing Allowance . Avon will be assuming the full cost of your housing in the U.K. including your rent and utilities (excluding telephone), up to a monthly maximum to be determined. Final selection of your housing will be subject to my approval.

•

Home Country Housing Charge . A home country housing charge (housing norm) reflects the amount that you would have spent on housing in the U.S. It is based on what someone with your family size and income level would spend on housing in the U.S. as established by our consultants, ORC. Since you will remain personally responsible for your home in the U.S. and it will not be rented, the housing obligation reflecting the amount that you would have spent on housing will not be deducted from your total compensation. You will be required to submit a signed, written affidavit that the home will remain vacant and not generate any rental income while you are on assignment. You undertake the responsibility to immediately notify the Avon-U.S. office and Kit Lee in the International Assignments Department if your situation changes, i.e., you are receiving rental income on your residence, sell it, etc. At the time Avon-U.S. and Kit Lee are notified, a housing deduction will be withheld from your payroll applied from the effective date of the change. Our outside consultants, ORC, will assist us in determining the amount of this deduction.

•

Assignment Incentive Bonus . To recognize the personal adjustments inherent with international assignments and to cover miscellaneous costs not otherwise reimbursed, you will receive an assignment incentive bonus. The assignment incentive bonus is equivalent to one month’s base salary. The first assignment incentive bonus will be paid when this letter, signed by all signatories, is returned to Kit Lee and Avon-U.S. and Avon-U.K. To offset your housing expense in the U.K., you will not receive another assignment incentive bonus on the anniversary date of your assignment. You will receive a completion bonus which is also equivalent to one month’s base salary. If you complete your assignment earlier than the scheduled time frame, you will receive a prorated completion bonus. If the assignment is extended, the completion bonus will be paid upon completion of the extended assignment. You will not be responsible for any taxes on the assignment incentive and completion bonuses, i.e., they are not subject to a hypothetical income tax deduction.

FOREIGN SERVICE EMPLOYEE ASSITANCE PROGRAMS


Ben Gallina		Page 4 of 6		April 6, 2006

•

Shipment/Storage of Effects . You will be reimbursed for the cost of shipping limited household and personal effects to and from the U.K. Since you are maintaining your home in the U.S., it is understood that you will not require storage. Please contact Dania Cruz-Ponce in the Rye office regarding your move. She can be reached at (914) 935-2860.

•

Employee Benefits . During the term of your assignment in the U.K., your benefit coverage will continue as though you were working for Avon-U.S.. This includes medical coverage and any pension coverage. The Avon-U.S. payroll department will continue to handle any payroll deductions required for social security taxes, other mandated contributions and contributions to the Avon-sponsored benefit plans in the U.S.

•

Executive Perquisites . During the term of your assignment in the U.K., your executive perquisites will essentially continue as though you were working for Avon in the U.S. They are summarized as follows:

•

Car Lease – Since you have an automobile lease in the U.S., you will be not be provided with a car in the U.K.

•

Financial Counseling – Since E&Y will be preparing your income tax returns for each assignment year, the Financial Planning allowance will be reduced by $3,000 in 2006 to $9,500.

•

Supplemental Life Insurance Policy – You will continue to remain in this policy while you are an active associate.

•

Personal Auto Insurance – This is available for cars in the U.S. only.

•

Excess Liability Insurance – You can continue to take advantage of the excess liability insurance as long as you maintain your U.S. residence.

•

Home Security – You will continue to be eligible for the home security perquisite.

•

Executive Health Examination - You will continue to be eligible to receive the annual executive health examination benefit.

Please contact Diane Abbriano, Manager of Executive Perquisites, if you have any questions regarding your executive benefits. She may be reached at (212) 282-5459.

•

Work Permit/Visa . The Human Resources Department in the U.K. will ensure all appropriate immigration documents, visas, and work permits are obtained to facilitate your stay in the U.K. Please contact Daniela Menzky for the necessary details.

•

Medical Treatment/Emergency Evacuation . You are covered under the Company’s emergency evacuation policy (“SOS”), should such a situation arise. Details of such a policy will be sent to you shortly.

•

Host Country Transportation . Since you have decided to lease a car in the U.S., you will not be provided with a car in the U.K.

•

Club Membership . As a social outlet, you will be reimbursed for membership in a local club. Please contact Daniela Menzky before making any arrangements.

•

Miscellaneous Relocation Allowance . You will receive a relocation allowance equivalent to one month’s base salary when you relocate upon your acceptance of this assignment. Upon your return to the U.S. or your reassignment to another location you will receive another one month’s base salary as a relocation allowance. This allowance is intended to cover expenses such as, but not limited to, tips paid to the moving crew, purchase of transformers, additional luggage, minor appliances, etc. The relocation allowance is paid to you free of taxes, i.e., it is not subject to hypothetical income tax.

•

Home Leave/Vacation . You will be entitled to vacation according to the policy in the U.S. From the entitlement, you will be authorized one round-trip per year to a destination of your choice. Such


Ben Gallina		Page 5 of 6		April 6, 2006

airfare, however, is not to exceed the equivalent cost of returning to the U.S., via the most direct route available.

Should your son attend college on a full-time basis your assignment outside the host location, he will be entitled to two visits to the U.K. instead of the one trip noted above. Direct route, advance purchase, economy tickets, where applicable, should be used.

•

Destination Assistance/Cross Cultural Orientation. On-site relocation and settling-in assistance in the U.K. and cross-cultural orientation concerning living in the U.K. will also be provided to you through the services of consultants as appointed by Daniela Menzky. Please contact Daniela for further instructions.

•

Expense Reimbursements. Your airfare and expenses in traveling to the U.K. for your pre-assignment visit and for the commencement of your assignment will be reimbursed to you. In addition, upon arriving in the U.K., your temporary living costs will be reimbursed to you. These expenses should be reported to U.K. HR through an expense report. Once you move into permanent housing, please notify Kit Lee and Avon-UK HR so that any applicable G&S differential can be implemented.

•

Provision of Major Appliances. You will be reimbursed for major appliances you are required to purchase, if major appliances are not provided with your new residence. Upon completion of your assignment, any items purchased for your use for work purposes will become the property of Avon. Upon completion of your assignment, you will be given the opportunity to purchase them at a fair market price should you desire to do so. Please refer to the International Assignment Handbook or contact Daniela Menzky about the definition of major appliances.

•

Personal Property & Liability Insurance. Avon has arranged Personal Property Insurance and Personal Liability Insurance for its expatriate associates on foreign assignment. Personal belongings that are usual to a household or dwelling are covered while at the foreign residence. These belongings must be at an Avon sponsored host country dwelling, which the associate uses as their primary residence. You will be required to complete an inventory list and submit it to UNIRISC, Avon’s insurance administrator, and to Global Risk Management in New York for this coverage to apply. You are also covered for personal liability insurance. You will be provided with a coverage plan description and instructions within several weeks of your move. Please contact Lisa Shimborski of the Global Risk Management department at (212) 282-5098 if you have any questions.

DATA PRIVACY

During the assignment, your personal information will be collected and stored electronically in order to process salary payments, track your assignment details and generate other reports. By signing this letter, you expressly consent to the transfer of any information by Avon to related companies, including HRToolbox (located in the United States). If you do not wish to have your data stored in this fashion, please contact Kit Lee in the Corporate office.

EMPLOYMENT CONSIDERATIONS

It is understood that in accepting this assignment, the terms and conditions are to be kept strictly confidential and to be the basis of your employment in the U.K. It is also understood that you will continue to adhere to the spirit of Avon policies, and that Human Resources policies governing compensation and benefits as they relate to your particular case will be determined by reference to Avon-U.S.’s practices rather than the U.K.’s practices. It is also understood that all of the items covered in this letter are subject to your continued satisfactory performance.

PERFORMANCE AND REPATRIATION


Ben Gallina		Page 6 of 6		April 6, 2006

Should you terminate while abroad, either at your own or Avon’s election, Avon will pay repatriation expenses for you and your household goods in accordance with policy guidelines. Expenses to your point of origin (U.S.) would be paid, provided you return to that point within 30 days of termination. Of course, repatriation expenses would not be paid if you were to stay in the U.K. or if you were to be employed by another company.

Upon successful completion of your assignment as the Senior Vice President of Western Europe, Middle East and Africa and China, it is our current intent to offer you a position comparable to what you had prior to this assignment. Of course, any such offer would be dependent on market conditions, Avon’s business structure and other circumstances that cannot be known at this time.

Ben, I believe we have covered the pertinent points of your transfer. After you have reviewed this agreement, please sign the enclosed two copies of this letter and send one to Kit Lee in New York. The other copy may be retained for your files. I wish you the best in your new assignment.


Sincerely,

/s/ Andrea Jung
Andrea Jung
Chairman & Chief Executive Officer

Reviewed and agreed

/s/ Ben Gallina				4/7/06
Ben Gallina				Date

cc:	D. Menzky, L. Alziari, K. Lee, M. Pascual (E&Y)

NOTE: All costs of this assignment will be charged to Avon Western Europe.

Exhibit 10.40

[Avon Products, Inc. letterhead]

Personal & Confidential

November 7, 2008

Ben Gallina

Avon Products, Inc.

1345 Avenue of the Americas

New York, N.Y. 10105-0196

Dear Ben:

Reference is made to our letter to you dated April 6, 2006 regarding the tax equalization adjustment to be paid to you related to your London based assignment.

U.S. income tax rules under Section 409A of the Internal Revenue Code set forth specific requirements for time of payment for the tax equalization adjustments in order that you may avoid additional taxes on these payments. The purpose of this letter is to set forth the time of payment requirements so that your tax equalization adjustment will comply with Section 409A. Therefore, the April 6, 2006 letter agreement is amended as follows.

Taxes

Any tax equalization payments made by Avon to you shall not exceed the taxes actually imposed by the U.K. on the compensation received from Avon over the taxes that would be imposed if the compensation were subject solely to U.S. Federal, state and local income tax, plus the amount necessary to compensate for the additional taxes on the tax equalization payment. Any tax equalization payment shall be made no later than the end of the second calendar year beginning after the year in which your U.S. Federal income tax return is required to be filed (including any extensions) for the year to which the compensation subject to the tax equalization payment relates, or, if later, the end of the second taxable year beginning after the taxable year in which your U.K. tax return or payment is required to be filed or made for the year to which the compensation subject to the tax equalization payment relates.

Please acknowledge your agreement by signing and returning one copy of this letter to me.

[Signature page follows]


Sincerely,

AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name:		Kim K.W. Rucker
Title:		Senior Vice President and General Counsel

Acknowledged and Agreed

this 1 day of December , 2008.

/s/ Ben Gallina

Ben Gallina

Exhibit 10.48

SUPPLEMENTAL LIFE PLAN

AVON PRODUCTS, INC.

EFFECTIVE AS OF JANUARY 1, 1990

AMENDED AND RESTATED AS OF JANUARY 1, 2009

TABLE OF CONTENTS


		Page

SECTION 1.	INTRODUCTION	1

SECTION 2.	DEFINITIONS	1

SECTION 3.	PARTICIPATION	2

SECTION 4.	SUPPLEMENTAL LIFE ALLOWANCES	3

SECTION 5.	ADMINISTRATION OF THE PLAN AND GOVERNING LAW	4

SECTION 6.	CERTAIN RIGHTS AND LIMITATIONS	4

SECTION 7.	AMENDMENT AND TERMINATION OF THE PLAN	6

SECTION 8.	CLAIM PROCEDURES	6

Section 1.

INTRODUCTION

Avon Products, Inc. (the “Company”) adopted the Supplemental Life Plan of Avon Products, Inc. (the “Plan”) effective as of January 1, 1990 to provide death benefit protection to certain elected or appointed officers of the Company and to selected other employees of the Company and its Subsidiaries in recognition of their contribution to the Company in carrying out management responsibilities. The Company has now amended and restated such plan, effective as of January 1, 2009. The Company intends to maintain the Plan indefinitely, and the terms and conditions of participation and benefits under the Plan are set out in this document.

Section 2.

DEFINITIONS

The following words and phrases, as used in the Plan, shall have the following meaning unless a different meaning is plainly required by the context:

(1) “ Beneficiary ” shall mean the person or persons designated by a Participant as his beneficiary or beneficiaries, such designation to be made in a time and manner determined by the Retirement Board. If the Participant fails to designate a beneficiary, or if the beneficiary predeceases the Participant (or each beneficiary predeceases the Participant if more than one beneficiary is designated), then the Participant’s spouse shall be the beneficiary, or if no spouse survives the Participant, then the Participant’s estate shall be the beneficiary. A Participant may change his designated beneficiary at the time and in the manner determined by the Retirement Board.

(2) “ Board of Directors ” shall mean the Board of Directors of the Company.

(3) “ Participant ” shall mean any employee of the Company or a Subsidiary from the time he began participation in the Plan in accordance with Section 3 until the earlier of the time that: (a) such employee dies; (b) such employee terminates employment (or is deemed by the Company to have terminated employment) with the Company and its Subsidiaries (for this purpose, a termination of employment does not occur until the end of any salary continuation period covering such employee); (c) such employee has been determined by the Retirement Board to no longer be eligible for continued participation in the Plan; (d) with respect to any employee who is on a leave of absence during which the Participant is receiving a disability benefit under any of the Company’s disability insurance plans, such employee has been on such leave of absence

for 29 months; or (e) the Plan is terminated. Notwithstanding the foregoing, a Participant may continue to participate in the Plan beyond the time period set forth in this Section 2(3) in accordance with the express terms of a written agreement entered into between such Participant and the Company referencing participation in the Plan.

(4) “ Retirement Board ” shall mean the administrative board or any successor thereto that administers the Avon Products, Inc. Personal Retirement Account Plan, as amended from time to time.

(5) “ Subsidiary ” shall mean any majority-owned subsidiary of the Company.

(6) “ Supplemental Life Allowance ” shall mean the benefit referred to in Section 4.

(7) As used in the Plan, the masculine pronoun shall include the feminine and the feminine pronoun shall include the masculine unless otherwise specifically indicated.

(8) As used in the Plan, the term “nonforfeitable” shall refer only to the vested unsecured contractual right of a Beneficiary to benefits under the Plan. In no event, however, shall the term “nonforfeitable” imply any preferred claim on, or any beneficial ownership interest in, any assets of the Company before those assets are paid to any Beneficiary pursuant to the terms of the Plan.

Section 3.

PARTICIPATION

The Retirement Board has the authority to include as Participants in the Plan employees of the Company or a Subsidiary whose employment is based in the United States at salary grade A04 or above, as the Retirement Board deems fit. Authorization to include Participants in the Plan shall be in writing and approved by the Retirement Board. After a designated employee completes all required paperwork, such designated employee becomes a Participant. A designated employee remains a Participant until the Retirement Board determines that the Participant is no longer eligible for continued participation in the Plan or unless his participation in the Plan otherwise ceases in accordance with the terms of the Plan. All such determinations shall be in writing and approved by the Retirement Board.

Section 4.

SUPPLEMENTAL LIFE ALLOWANCES

(1) If a Participant dies while employed with the Company or a Subsidiary (including during any salary continuation period covering such Participant), or during the first 29 months of a leave of absence during which the Participant is receiving a disability benefit under any of the Company’s disability insurance plans, the Beneficiary of such Participant shall receive a Supplemental Life Allowance determined in accordance with Section 4(2), provided that such Participant has not made the election described in Section 4(4).

(2) After satisfying the requirements for participation as set forth under Section 3, a Participant shall be eligible for a Supplemental Life Allowance based upon the Participant’s salary grade level ( e.g. , A04) on the date of participation, as determined periodically by the Company.

If a Participant is promoted, he will qualify for an additional Supplemental Life Allowance for his new salary grade level, on the condition that any evidence of insurability as may be required by the Retirement Board is furnished within reasonable time limits consistently applied. If a Participant is demoted to a lower salary grade level, he will retain his eligibility for the Supplemental Life Allowance applicable to him prior to such demotion unless the Retirement Board, in writing, exercises its discretion to provide that such Participant will only be eligible for a Supplemental Life Allowance based upon his new salary grade level. If a Participant is demoted to a salary grade level below A04 or his employment is no longer based in the United States, he will retain his eligibility for the Supplemental Life Allowance applicable to him prior to such demotion or change in location of employment unless the Retirement Board, in writing, exercises its discretion to provide that such Participant will not qualify for any Supplemental Life Allowance under the Plan.

(3) Notwithstanding the foregoing, if the Company shall obtain a life insurance policy (or policies) on the life of a Participant whether or not in connection with the Plan and the insurer is not obligated to pay the policy’s death benefit proceeds on the grounds that the Participant committed suicide or any other grounds based on actions or inactions on the part of the Participant, then, and in that event, the Company’s obligation to make payments under this Section 4 shall be terminated. The Company shall, in its sole discretion, determine what steps are necessary and take such action as it deems reasonably appropriate to pursue and obtain payment of any death benefit under said policy or policies. Whatever steps are deemed appropriate by the Company to pursue this matter shall be conclusive. In no event shall any Participant have any ownership interest in such policy or policies.

(4) Notwithstanding the foregoing, a Participant may elect not to be covered by the Supplemental Life Allowance coverage provided under this Section 4.

Section 5.

ADMINISTRATION OF THE PLAN AND GOVERNING LAW

(1) Except as otherwise specifically provided in the Plan, the Retirement Board shall be the administrator of the Plan, and the Retirement Board may delegate all or any part of its administrative duties, to the extent it deems appropriate, to such individuals (including employees of the Company) as the Retirement Board shall determine. The Retirement Board (or its designee) shall have full authority to determine all questions arising in connection with the Plan, including the discretionary authority to interpret the Plan, to adopt procedural rules, and to employ and rely on such legal counsel, actuaries, accountants, and agents as it may deem advisable to assist in the administration of the Plan. Decisions of the Retirement Board shall be conclusive and binding on all persons.

(2) Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance with the laws of the State of New York.

Section 6.

CERTAIN RIGHTS AND LIMITATIONS

(1) The establishment of the Plan shall not be construed as conferring any legal rights upon any employee or other person for a continuation of employment, nor shall it interfere with the rights of the Company or a Subsidiary to discharge any employee and to treat such employee without regard to the effect which such treatment might have upon such employee as a Participant of the Plan.

(2) If the Retirement Board shall find that a Beneficiary entitled to a benefit is unable to care for his affairs because of illness or accident or because he is a minor, then the Retirement Board may direct that any benefit payment due such Beneficiary, unless claim shall have been made therefor by a duly appointed legal representative, be paid to the spouse, child, parent, or other blood relative of such Beneficiary, or to a person with whom such Beneficiary resides. Any such payment so made shall be a complete discharge of the liabilities of the Plan with respect to such Beneficiary.

(3) No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, garnishment, attachment, encumbrance, or charge, and any attempt so to do shall be void; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Beneficiary entitled to such benefit. If the Retirement Board shall find that any Beneficiary entitled to a benefit under the Plan has become bankrupt or that any attempt has been made to anticipate, alienate, sell, transfer, assign, pledge, garnish, attach, encumber, or charge any such benefit under the Plan, then such benefit shall cease and the Retirement Board may hold or apply the same to or for the benefit of such Beneficiary in such manner as the Retirement Board shall determine.

(4) If any Participant shall at any time be convicted of a crime involving dishonesty or fraud on the part of the Participant relating to the Company or a Subsidiary, then the obligation of the Company to make or continue payment of any benefits hereunder shall cease.

(5) A Participant, at the time participation commences, shall supply the Retirement Board with such evidence of good health and insurability, including a physical examination, as the Retirement Board may from time to time require to satisfy any insurance company in connection with obtaining life insurance for benefits under Section 4. A Participant who fails to supply such evidence when required shall not be entitled to such benefits under Section 4.

(6) In addition to the payment set forth in Section 4, as an additional death benefit paid with respect to a Participant, the Company shall pay to the Beneficiary, as part of and at the same time that the Supplemental Life Allowance is paid, an amount sufficient to pay all local, state, and federal income taxes, calculated at the highest applicable marginal rates, on the amount of the Supplemental Life Allowance payable under Section 4 and the payment made under this Section 6(6) so that the net amount retained by the Beneficiary on such amounts, after the payment of all local, state, and federal income taxes, equals the Supplemental Life Allowance payable under Section 4.

(7) All benefits payable under the Plan shall be payable by the Company from its general assets. The Plan shall not be funded by the Company.

(8) When payments are made under the Plan, the Company shall have the right to deduct from each payment made any required withholding taxes.

Section 7.

AMENDMENT AND TERMINATION OF THE PLAN

(1) The Board of Directors (or the Compensation Committee of the Board of Directors, to the extent it has been delegated such authority) reserves the right at any time and from time to time, and retroactively if deemed necessary or appropriate, to amend or modify, in whole or in part, any or all of the provisions of the Plan; provided that no such modification or amendment shall adversely affect the rights and benefits of Participants that had accrued or become nonforfeitable under the Plan prior to the date such amendment or modification is adopted or becomes effective, whichever is later. No benefit shall be deemed to have become accrued or nonforfeitable prior to the Participant’s death.

(2) The Board of Directors (or the Compensation Committee of the Board of Directors, to the extent it has been delegated such authority) may terminate the Plan for any reason at any time; provided that such termination shall not adversely affect the rights and benefits of Participants that had accrued or become nonforfeitable under the Plan prior to the date that the Plan’s termination is adopted or made effective, whichever is later.

Section 8.

CLAIM PROCEDURES

(1) Every claim for benefits under the Plan shall be in writing directed to a member of the Retirement Board.

(2) Each claim filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 90 days after receipt of the claim by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed written notice of such extension will be given to the claimant within the initial 90-day period and such claim shall be decided no later than 180 days after receipt of the claim by the Retirement Board). A claim that is not decided within the applicable time period may be considered to be denied. If a claim is denied in whole or in part, then the claimant shall be given written notice of the denial in language calculated to be understood by the claimant, which notice shall:

(a) specify the reason or reasons for the denial;

(b) specify the Plan provisions giving rise to the denial; and

(c) describe any further information or documentation necessary for the claim to be honored, explain why such documentation or information is necessary, and explain the Plan’s review procedure.

(3) Upon written request of any claimant whose claim has been denied in whole or in part, the Retirement Board shall make a full and fair review of the claim and furnish the claimant with a written decision concerning it. Such request for review must be made by the claimant to any member of the Retirement Board within 60 days following the claimant’s receipt of the benefit denial (or the claim being deemed denied), and any such review will take into account all documents and information submitted by the claimant upon review, whether or not such documents and information were submitted or considered as part of the initial claim. As part of the review process, a claimant shall:

(a) have the opportunity to submit written comments, documents, records, and other information relating to the claim; and

(b) be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim.

(4) Each request for review filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 60 days after receipt of the request by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed written notice of such extension will be given to the claimant within the initial 60-day period and such claim shall be decided no later than 120 days after receipt of the claim by the Retirement Board). A request for review that is not decided within the applicable time period may be considered to be denied. If a request for review is denied in whole or in part, then the claimant shall be given written notice of the denial in language calculated to be understood by the claimant, which notice shall:

(a) specify the reason or reasons for the denial;

(b) specify the Plan provisions giving rise to the denial;

(c) state that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and

(d) contain a statement of any rights that the claimant may have to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended.

IN WITNESS WHEREOF, the Company has caused this amended and restated instrument to be executed on this 7th day of November, 2008, effective as of January 1, 2009.


AVON PRODUCTS, INC.

By:		/s/ Kim K.W. Rucker
Name: Title:		Kim K.W. Rucker Senior Vice President and General Counsel

Exhibit 10.49

PRE-1990 SUPPLEMENTAL LIFE PLAN

AVON PRODUCTS, INC.

AMENDED AND RESTATED AS OF JANUARY 1, 2009

TABLE OF CONTENTS


		Page
SECTION 1 INTRODUCTION		1
SECTION 2 DEFINITIONS		1
SECTION 3 PARTICIPATION		4
SECTION 4 SUPPLEMENTAL LIFE ALLOWANCES		4
SECTION 5 ADMINISTRATION OF THE PLAN AND GOVERNING LAW		6
SECTION 6 CERTAIN RIGHTS AND LIMITATIONS		6
SECTION 7 AMENDMENT AND TERMINATION; CHANGE OF CONTROL		7
SECTION 8 CLAIM PROCEDURES		9

SECTION 1

INTRODUCTION

Avon Products, Inc. (the “Company”) adopted the Supplemental Executive Retirement and Life Plan of Avon Products, Inc., originally effective as of January 1, 1982, and last amended and restated such plan as of July 1, 1998. The Company has now amended and restated such plan and bifurcated the Supplemental Executive Retirement and Supplemental Life portions of such plan into separate plan documents, this plan being one of those plan documents. The terms of this plan document shall be effective as of January 1, 2009 and this plan shall hereinafter be referred to as the Pre-1990 Supplemental Life Plan of Avon Products, Inc. (the “Plan”).

In order to afford Participants and their Beneficiaries the maximum security, the Company has established a grantor trust (the “Trust”) to aid it in accumulating the amounts necessary to satisfy its contractual liability to pay certain benefits under the terms of the Plan. The Plan provides for the Company to pay all benefits and administrative costs from its general assets to the extent not paid by the Trust. The establishment of the Trust shall not convey rights to Participants and Beneficiaries that are greater than those of the general creditors of the Company and shall not affect the Company’s continuing liability to pay Plan benefits and administrative costs, except that the Company’s liability shall be offset by actual benefits and administrative cost payments, if any, made by the Trust.

SECTION 2

DEFINITIONS

2.1 “ Beneficiary ” shall mean the person or persons designated by a Participant as his beneficiary or beneficiaries, such designation to be made in a time and manner determined by the Retirement Board. If a Participant fails to designate a beneficiary, or if a beneficiary predeceases the Participant (or each beneficiary predeceases the Participant if more than one beneficiary is designated), then the Participant’s spouse shall be the beneficiary, or if no spouse survives the Participant, then the Participant’s estate shall be the beneficiary. A Participant may change his Beneficiary at the time and in the manner determined by the Retirement Board.

2.2 “ Board of Directors ” shall mean the Board of Directors of the Company.

2.3 “ Change of Control ” shall mean:

(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the corporation where such acquisition causes such person to own twenty percent (20%) or more of the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided that for purposes of this Section 2.3(a), the following acquisitions shall not be deemed to result in a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (iv) any acquisition by any corporation pursuant to a transaction that complies with clauses (i), (ii) and (iii) of Section 2.3(c); and provided further that, if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds twenty percent (20%) as a result of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additional voting securities of the Company, then such subsequent acquisition shall be treated as an acquisition that causes such Person to own twenty (20%) or more of the Outstanding Company Voting Securities; or

(c) the approval by the shareholders of the Company of a reorganization, merger, or consolidation, or sale or other disposition of all or substantially all of the assets of the Company (“Business Combination”), or, if consummation of such Business Combination is subject, at the time of such approval by shareholders, to the consent of any government or governmental agency, then the obtaining of such consent (either explicitly or implicitly by consummation); excluding, however, any Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly,

more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Business Combination of the Outstanding Company Voting Securities, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board of Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination; or

(d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

2.4 “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

2.5 “ Compensation Committee ” means the Compensation Committee of the Board of Directors.

2.6 “ Individual Agreement ” shall mean a written agreement entered into between the Company and a Participant that specifically refers to benefits payable to or on behalf of such Participant under the Plan and which agreement amends the terms of the Plan as it applies to such Participant. The intent of the parties to any such Individual Agreement is, in part, to cause benefits payable under the Plan with respect to that Participant to be in compliance with Section 409A of the Code.

2.7 “ Nonforfeitable ” shall refer only to the vested unsecured contractual right of a Participant and his Beneficiary to benefits under the Plan. In no event shall “Nonforfeitable” imply any preferred claim on or to, or any beneficial ownership interest

in, any assets of the Company or its Subsidiaries before those assets are paid to any individual pursuant to the terms of the Plan. As provided in Sections 4.3 and 6.3, certain events may result in the forfeiture of Nonforfeitable benefits.

2.8 “ Participant ” shall mean any individual who participates in the Plan, as reflected in the records of the Company from time to time.

2.9 “ Retirement Board ” shall mean the administrative board or any successor thereto that administers the Avon Products, Inc. Personal Retirement Account Plan, as amended from time to time.

2.10 “ SLIP ” shall mean the Plan, and the portion of any predecessor plan pursuant to which Supplemental Life Allowances are or were payable, including the Supplemental Executive Retirement and Life Plan of Avon Products, Inc. and that plan’s predecessor, the Supplemental Life Plan of Avon Products, Inc.

2.11 “ Subsidiary ” shall mean any majority-owned subsidiary of the Company.

2.12 “ Supplemental Life Allowance ” shall mean the benefit referred to in Section 4.

SECTION 3

PARTICIPATION

3.1 Participation .

The SLIP was closed to new participants on January 1, 1990.

SECTION 4

SUPPLEMENTAL LIFE ALLOWANCES

4.1 Right to a Supplemental Life Allowance .

(a) Except as otherwise provided in the Plan, for each Participant, a Supplemental Life Allowance will be payable to his Beneficiary when the Participant dies.

(b) A Participant who is a Participant at the time the Plan is terminated or modified, or at the time of a Change of Control, will be entitled to a Supplemental Life Allowance as provided in Section 7.

(c) A Participant’s Supplemental Life Allowance is Nonforfeitable, provided that, as set forth in Sections 4.3 and 6.3, certain events may result in the forfeiture of Nonforfeitable benefits.

4.2 Amount of Supplemental Life Allowance .

(a) If a Participant has a right to a Supplemental Life Allowance under the Plan, then the Beneficiary of such Participant shall receive a Supplemental Life Allowance payable upon the death of such Participant, except as provided in Section 7, provided that such Participant has not made any election described in Section 4.4.

(b) The amount of each Participant’s Supplemental Life Allowance is set forth in the records of the Company from time to time. Participants were previously notified by the Company in writing of the amount of their Supplemental Life Allowances.

4.3 Notwithstanding the foregoing, if the Company obtains a life insurance policy (or policies) on the life of a Participant, whether or not in connection with the Plan, and the insurer is not obligated to pay the policy’s death benefit proceeds on the grounds that the Participant committed suicide or any other grounds based on actions or inactions on the part of the Participant, then, and in that event, the Company’s obligation to make payment of a Supplemental Life Allowance shall be terminated. The Company shall, in its sole discretion, determine what steps are necessary and take such action as it deems reasonably appropriate to pursue and obtain payment of any death benefit under said policy or policies. Whatever steps are deemed appropriate by the Company to pursue such matter shall be conclusive. In no event shall any Participant have any ownership interest in such policy or policies.

4.4 Subject to the terms and conditions imposed by the Retirement Board, a Participant may elect, subject to the approval of the Retirement Board, to forego the Supplemental Life Allowance coverage provided under the Plan in exchange for a paid-up whole life insurance policy or policies (based on the application of dividends to pay premiums) on such Participant’s life in an amount to be determined by the Retirement Board. In the case of any such election, the Company will also pay cash to such Participant in an amount sufficient to enable such Participant to pay any federal, state, and local income taxes (calculated at the highest applicable marginal rates) resulting from the distribution of such policy or policies and the corresponding cash payment. This Section 4.4 does not apply to a Participant who has an Individual Agreement and the terms of such Individual Agreement will apply in lieu hereof.

SECTION 5

ADMINISTRATION OF THE PLAN AND GOVERNING LAW

5.1 Except as otherwise specifically provided in the Plan, the Retirement Board shall be the administrator of the Plan. The Retirement Board shall have full authority to determine all questions arising in connection with the Plan, including the discretionary authority to interpret the Plan, to adopt procedural rules, and to employ and rely on such legal counsel, actuaries, accountants, and agents as it may deem advisable to assist in the administration of the Plan. Decisions of the Retirement Board shall be conclusive and binding on all persons. The Retirement Board shall provide to the trustee of any Trust established pursuant to Section 1, such certification or other documentation as may be required by the trustee in connection with the payment of benefits to Beneficiaries. Unless otherwise determined by the Company, the membership of the Retirement Board shall be established pursuant to the provisions of the Avon Products, Inc. Personal Retirement Account Plan, as amended from time to time. The Retirement Board may from time to time, in its discretion, delegate any authority and responsibility it may have for the administration and operation of the Plan to such individuals and bodies as it may determine.

5.2 After a Change in Control, the Retirement Board may be changed by the Company only with the consent of a majority of the Participants (excluding Beneficiaries).

5.3 Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 6

CERTAIN RIGHTS AND LIMITATIONS

6.1 The establishment of the SLIP shall not be construed as conferring any legal rights upon any employee or other person for the continuation of his employment, nor shall it interfere with the rights of the Company or a Subsidiary to discharge any employee and to treat such employee without regard to the effect that such treatment might have upon such employee as a participant in the SLIP.

6.2 No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, garnishment, attachment, encumbrance, or charge, and any attempt to do so shall be void; nor shall any such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefit.

6.3 The obligation of the Company to make payment of any benefits hereunder, including benefits that have become Nonforfeitable, shall cease with respect to any Participant who (a) at any time is convicted of a crime involving dishonesty or fraud relating to the Company, (b) at the time, without the Company’s written consent, knowingly uses or discloses any confidential or proprietary information relating to the Company, or (c) within three years following the termination of his employment, without the Company’s written consent, accepts employment with, or provides consulting services to, a principal competitor of the Company.

6.4 All benefits payable under the Plan shall be payable by the Company from its general assets. The Plan shall not be funded by the Company. However, solely for its own convenience, the Company reserves the right to provide for payment of benefits hereunder through a trust, which trust may be irrevocable, but the assets of which shall be subject to the claims of the Company’s general creditors in the event of the Company’s bankruptcy or insolvency, as defined in the Trust established pursuant to Section 1. In no event shall the Company be required to segregate any amount credited to any account, which shall be established merely as an accounting convenience; no Participant or Beneficiary shall have any rights whatsoever in any specific assets of the Company or the Trust.

6.5 When payments are made under the Plan, the Company shall have the right to deduct from each payment made any required withholding taxes.

6.6 Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder before such payments are otherwise due if it determines, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, a decision by a court of competent jurisdiction involving a Participant or Beneficiary, or a closing agreement made under Section 7121 of the Code that is approved by the Internal Revenue Service and involves a Participant or Beneficiary, that a Participant or Beneficiary has recognized, or will recognize, income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plan before such amounts are paid to him. This Section 6.6 will not apply to a Participant who has an Individual Agreement.

SECTION 7

AMENDMENT AND TERMINATION; CHANGE OF CONTROL

7.1 Right to Amend .

The Board of Directors (or the Compensation Committee to the extent that it has been delegated authority) reserves the right at any time and from time to time, and

retroactively if deemed necessary or appropriate, to amend or modify, in whole or in part, any or all of the provisions of the Plan pursuant to its normal procedures; provided that no such modification or amendment shall adversely affect the rights and benefits of Participants that had become Nonforfeitable under the SLIP prior to the date that such amendment or modification is adopted or becomes effective, whichever is later.

7.2 Right to Terminate .

The Board of Directors (or the Compensation Committee to the extent that it has been delegated authority) may terminate the Plan for any reason at any time, provided that such termination shall not adversely affect the rights and benefits of Participants that had become Nonforfeitable under the SLIP prior to the date that the termination is adopted or made effective, whichever is later.

7.3 Effect of Plan Termination on Benefits .

A Participant shall have a right to the Supplemental Life Allowance at the same level in effect at the time of Plan termination. The Company shall fully satisfy all of its obligations to the Participant with respect to such Supplemental Life Allowance by immediately distributing or causing to be distributed to such Participant a fully paid whole life insurance policy or policies on the Participant’s life that, as of the date of distribution and thereafter, will provide, without application of dividends, at death a death benefit at least equal to one-half of the amount of the Supplemental Life Allowance. In the case of any such distribution of a life insurance policy, the Company will also pay enough cash to the Participant to enable the Participant to pay any federal, state and local income taxes (calculated at the highest applicable marginal rates) resulting from the distribution of the policy and the corresponding cash payment made pursuant to this sentence. Notwithstanding the foregoing, the distribution right and related cash payment set forth in this Section 7.3 will not apply to a Participant who has an Individual Agreement. Instead, such Participant will continue to be entitled to a Supplemental Life Allowance in accordance with the other provisions of the Plan, as modified by such Participant’s Individual Agreement.

7.4 Effect of Plan Amendment on Benefits .

In the event that the Plan is amended or modified, in whole or in part, to reduce or eliminate Supplemental Life Allowances, then the Participants affected by any such amendment or modification shall be treated, with respect to their Supplemental Life Allowances as of the date of such amendment or modification, as if the Plan were terminated as of such date, and their rights and entitlement to such benefits shall be determined under Section 7.3.

7.5 Effect of a Change of Control .

In the event of a Change of Control, the Plan shall be deemed terminated at the date of the Change of Control with respect to determining the Supplemental Life Allowance for Participants. Any such Participant’s right and entitlement to the Supplemental Life Allowance (including his right to an immediate distribution of a fully paid whole life policy and income tax gross up) shall be determined under the provision of Section 7.3.

SECTION 8

CLAIM PROCEDURES

8.1 Every claim for benefits under the Plan shall be in writing directed to a member of the Retirement Board.

8.2 Each claim filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 90 days after receipt of the claim by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed written notice of such extension will be given to the claimant within the initial 90-day period and such claim shall be decided no later than 180 days after receipt of the claim by the Retirement Board). A claim that is not decided within the applicable time period may be considered to be denied. If a claim is denied in whole or in part, then the claimant shall be given written notice of the denial in language calculated to be understood by the claimant, which notice shall:

(a) specify the reason or reasons for the denial;

(b) specify the Plan provisions giving rise to the denial; and

(c) describe any further information or documentation necessary for the claim to be honored, explain why such documentation or information is necessary, and explain the Plan’s review procedure.

8.3 Upon written request of any claimant whose claim has been denied in whole or in part, the Retirement Board shall make a full and fair review of the claim and furnish the claimant with a written decision concerning it. Such request for review must be made by the claimant to any member of the Retirement Board within 60 days following the claimant’s receipt of the benefit denial (or the claim being deemed denied), and any such review will take into account all documents and information submitted by the claimant upon review, whether or not such documents and information were submitted or considered as part of the initial claim. As part of the review process, a claimant shall:

(a) have the opportunity to submit written comments, documents, records, and other information relating to the claim; and

(b) be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim.

8.4 Each request for review filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 60 days after receipt of the request by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed written notice of such extension will be given to the claimant within the initial 60-day period and such claim shall be decided no later than 120 days after receipt of the claim by the Retirement Board). A request for review that is not decided within the applicable time period may be considered to be denied. If a request for review is denied in whole or in part, then the claimant shall be given written notice of the denial in language calculated to be understood by the claimant, which notice shall:

(a) specify the reason or reasons for the denial;

(b) specify the Plan provisions giving rise to the denial;

(c) state that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and

(d) contain a statement of any rights that the claimant may have to bring a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed on this 7th day of November, 2008, effective as of the 1st day of January, 2009.

AVON PRODUCTS, INC.

By: /s/ Kim K.W. Rucker

Name: Kim K.W. Rucker

Title: Senior Vice President and General Counsel

Exhibit 10.50

AVON PRODUCTS, INC.

MANAGEMENT INCENTIVE PLAN

I.	INTRODUCTION

1.1. Purpose . The purpose of this Plan is to provide annual incentive compensation that is based on Company performance and to recognize employee contributions in helping the Company meet its financial and strategic objectives. This Plan supersedes any previous Management Incentive Plan of the Company.

1.2. Term . This Plan shall be effective as of January 1, 2009, unless earlier terminated pursuant to Section 6.1.

II.

DEFINITIONS

For purposes of the Plan, the following terms shall have the meanings set forth below:

“ Affiliate ” means (a) an entity that directly or through one or more intermediaries is controlled by the Company, and (b) any entity in which the Company has a significant equity interest, as determined by the Company.

“Award” means an annual incentive award payable with respect to a Plan Year determined in accordance with Article V hereof, whether in the form of cash, stock, restricted stock, stock units or other forms of stock-based awards, or any combination thereof, provided that any such stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Stock Plan.

“ Base Compensation ” means the base rate of salary payable to a Participant as most recently reflected on the books and records of the Company, exclusive of bonus, commission, fringe benefits, employee benefits, expense allowances and other nonrecurring forms of remuneration.

“ Board” means the Board of Directors of the Company.

“ Cause ” means:

(a) the failure or refusal by the Participant to perform his or her normal duties (other than any such failure resulting from the Participant’s incapacity due to physical or mental illness), which has not ceased within ten (10) days after a written demand for substantial performance is delivered to the Participant by the Company, which demand identifies the manner in which the Company believes that the Participant has not performed such duties;

(b) the engaging by the Participant in willful misconduct or an act of moral turpitude which is materially injurious to the Company, monetarily or otherwise; or

(c) the conviction of the Participant of, or the entering of a plea of guilty or nolo contendere by the Participant with respect to, a felony;

provided, however, that if a Participant is party to an employment agreement with the Company, “Cause” shall have the meaning set forth in such agreement.

“Code” means the Internal Revenue Code of 1986, as amended.

“Committee” means the Compensation Committee of the Board, which shall consist of two or more members of the Board, each of whom shall be an “outside director” within the meaning of Section 162(m) of the Code.

“Company ” means Avon Products, Inc.

“DCP ” means the Avon Products, Inc. Deferred Compensation Plan, as in effect and as amended from time to time.

“ Participant ” means any employee of the Company or its Affiliates who is selected to participate in the Plan pursuant to Article IV hereof.

“ Plan ” means this Avon Products, Inc. Management Incentive Plan, as in effect and as amended from time to time.

“ Plan Year ” means a one-year period beginning January 1 and ending on December 31.

“Senior Officer ” has the meaning set forth in the Charter of the Committee, as in effect and as amended from time to time.

“ Stock Plan ” means the Company’s 2005 Stock Incentive Plan (or any successor stock incentive plan approved by the shareholders of the Company), as in effect and as amended from time to time.

III.

ADMINISTRATION

The Plan shall be administered by the Committee, which may adopt such rules and procedures for carrying out the purposes of the Plan as the Committee shall deem appropriate. Notwithstanding anything to the contrary herein, the Committee may delegate its duties under the Plan to such individuals, and may revoke or change any such delegation, as it deems appropriate from time to time, provided that it may not delegate duties with respect to determining the eligibility and Awards under the Plan for any Senior Officer. The Committee shall interpret and construe any and all provisions of the Plan and any determination made by the Committee under the Plan shall be final and conclusive. Neither the Board nor the Committee, nor any member of the Board or the Committee, nor any employee of the Company shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan (other than acts of willful misconduct) and the members of the Board and the Committee and the employees of the Company shall be entitled to indemnification and reimbursement by the

Company to the maximum extent permitted by law in respect of any claim, loss, damage or expense (including counsel’s fees) arising from their acts, omissions and conduct in their official capacity with respect to the Plan.

IV.

ELIGIBILITY AND PARTICIPATION

The Company, or the Committee, shall select the employees of the Company or its Affiliates to participate in the Plan for any particular Plan Year; provided, however, that no new Participants shall be permitted into the Plan for a specific Plan Year after October 1 of such Plan Year.

V.	AWARDS

5.1. Establishment of Performance Measures. Within the first 90 days of each Plan Year, the Committee shall establish the performance measures for such year, which may include, without limitation, measures on a consolidated basis, on the basis of a business unit, geographically-based unit or a country, representative service objectives, measures relative to one or more peer group companies or indices or the market, or personal objectives. Performance measures may differ from Participant to Participant and from Award to Award.

5.2. Determination of Award. A target award of a specified percentage of Base Compensation for such Plan Year shall be established for each Participant, to be paid upon attainment of target performance measures. The minimum and maximum payout may range from 0% to 200% of the target award based on the achievement of the performance measures. If a Participant changes salary band or grade during the Plan Year, appropriate adjustments may be made in the Participant’s target award for the period. After a target award has been established for a Participant, the Committee or its designee, in its sole discretion, may decrease or increase such Participant’s target award for that Plan Year based upon a determination of such Participant’s performance and such other factors as is deemed appropriate by the Committee or its designee.

5.3. Determination of Achievement of Performance Goals . The Committee or its designee shall determine the level of achievement of the performance measures as soon as practicable after the end of the Plan Year. Notwithstanding the foregoing, a Participant’s actual Award under the Plan may be greater or less than his or her target award calculated under Section 5.2, and may be reduced to zero, depending upon the Participant’s individual performance or any other business-related factor deemed relevant by the Committee or its designee. The Committee or its designee reserves the sole discretion to increase or decrease any Award to any Participant before it is paid to such Participant.

5.4. Payment of Awards .

(a) As soon as practicable after the expiration of the Plan Year, but no later than the end of the following fiscal year, Participants who remained actively employed until the last day of such Plan Year shall receive an Award determined

in accordance with this Article V, except as otherwise provided in this Section 5.4.

(b) A Participant who is involuntarily terminated by the Company or an Affiliate without Cause on or after August 1st of the Plan Year or who dies, becomes permanently disabled, or retires during the Plan Year (pursuant to the terms of the Company’s defined benefit pension plan or, for foreign nationals, under the foreign national’s pension plan or pursuant to the terms of the applicable national retirement program) shall be entitled to a prorated Award for such Plan Year to be paid during the following fiscal year, provided that the performance measure(s) have been satisfied in accordance with this Article V. A Participant who is involuntarily terminated for Cause prior to the payment of the Award hereunder shall forfeit such Award.

(c) A Participant may elect to defer into the DCP the payment of all or a portion of his or her cash Award otherwise payable under this Section 5.4. An election to defer any Award shall be made in accordance with the DCP and Section 409A of the Code. All deferred awards shall be subject to the terms and conditions of the DCP and Section 409A of the Code, including, without limitation, limitations on receiving payments from the DCP.

(d) Notwithstanding the foregoing, in the event that the performance measures have not been achieved for any Plan Year, the Company may elect to pay a special award pursuant to this Section 5.4. In such case, if the Participant had elected to defer into the DCP all or a portion of his cash Award that would have been payable for such Plan Year had the performance objectives been achieved, then such election to defer shall be deemed to apply to the cash portion of the special award, provided that such election to defer was made no later than December 31 of the calendar year prior to the Plan Year for which the special award is being paid or such other date as the Company may decide in compliance with the DCP and Section 409A of the Code.

VI.

GENERAL PROVISIONS

6.1. Amendment and Termination.

(a) The Committee may at any time amend, suspend, discontinue or terminate the Plan; provided, however, that no such amendment, suspension, discontinuance or termination made after the end of a Plan Year shall adversely affect the rights of any Participant to any Award for that Plan Year. All determinations concerning the interpretation and application of this Section 6.1 shall be made by the Committee.

(b) In the case of Participants employed outside of the United States, the Company or its Affiliates may vary the provisions of this Plan as deemed appropriate to conform with, as required by, or made desirable by, local laws, practices and procedures.

6.2. Designation of Beneficiary. In the event a Participant dies while entitled to a payment under the Plan, such payments shall be made to the Participant’s estate.

6.3. Rights Unsecured. The right of any Participant to receive an Award under the Plan shall constitute an unsecured claim against the general assets of the Company.

6.4. Withholding Taxes. The Company shall have the right to deduct from each Award under the Plan any federal, state and local taxes required by such laws to be withheld with respect to any payment under the Plan.

6.5. Miscellaneous.

(a) No Right of Continued Employment. Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company or any of its Affiliates.

(b) No Limitation on Corporate Actions. Nothing contained in the Plan shall be construed to prevent the Company or any Affiliate from taking any corporate action which is deemed by it to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Awards made under the Plan. No employee, Participant or other person shall have any claim against the Company or any of its Affiliates as a result of any such action.

(c) Nonalienation of Benefits. Except as expressly provided herein, no Participant shall have the power or right to transfer, anticipate, or otherwise encumber the Participant’s interest under the Plan. The Company’s obligations under this Plan are not assignable or transferable except to a corporation which acquires all or substantially all of the assets of the Company or any corporation into which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and his or her heirs, executors, administrators or successors in interest.

(d) Section 409A of the Code. To the extent that any Award under this Plan is subject to Section 409A of the Code, any provision, application or interpretation of the Plan that is inconsistent with such Section shall be disregarded with respect to such Award, as applicable.

(e) Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.

(f) Stock Subject to the Plan. Awards that are made in the form of stock, restricted stock, stock units or other forms of stock-based awards shall be made from the aggregate number of shares authorized to be issued under the terms of the Stock Plan.

(g) Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of New York, without reference to the principles of conflict of laws.

(h) Headings. Headings are inserted in this Plan for convenience of reference only and are to be ignored in the construction of the provisions of the Plan.


Dated: November 7, 2008	AVON PRODUCTS, INC.

	By:	/s/ Kim K. W. Rucker
	Name:	Kim K. W. Rucker
	Title:	Senior Vice President and General Counsel

EXHIBIT 21

AVON PRODUCTS, INC. AND SUBSIDIARIES

The following list includes companies that were owned directly or indirectly by Avon Products, Inc., a New York corporation, as of December 31, 2008. The list includes all subsidiaries.


Subsidiary		Jurisdiction of Incorporation or Organization
Avon Cosmetics Albania Sh.p.k.		Albania
Cosmeticos Avon Sociedad Anonima Comercial E Industrial (Cosméticos Avon S.A.C.I.)		Argentina
Avon Cosmetics Aust. Pty. Limited		Australia
Avon Products Pty. Limited		Australia
Avon Cosmetics Vertriebsgesellschaft m.b.h.		Austria
Arlington Limited		Bermuda
Avon Holdings Ltd.		Bermuda
Avon International (Bermuda) Ltd.		Bermuda
Stratford Insurance Company, Ltd.		Bermuda
Productos Avon (Bolivia) Ltda.		Bolivia
Avon Cosmetics BiH d.o.o. Sarajevo		Bosnia & Herzegovina
Avon Cosméticos Ltda.		Brazil
Avon Industrial Ltda.		Brazil
Avonprev - Sociedade De Previdência Privada		Brazil
Núcleo De Atualizacão Tecnológica Avon Ltda.		Brazil
Viva Brazil Gestao de Bens Ltda		Brazil
Avon Cosmetics Bulgaria EOOD		Bulgaria
Avon Canada, Inc.		Canada
AIH Holdings Company		Cayman Islands
Avon Colombia Holdings I		Cayman Islands
Avon Colombia Holdings II		Cayman Islands
Avon CV Holdings Company		Cayman Islands
Avon Egypt Holdings I		Cayman Islands
Avon Egypt Holdings II		Cayman Islands
Avon Egypt Holdings III		Cayman Islands
Avon International Holdings Company		Cayman Islands
Viva Cayman Company		Cayman Islands
Cosmeticos Avon S.A.		Chile
Avon Healthcare Products Manufacturing (Guangzhou) Limited		China
Avon Management (Shanghai) Company Limited		China
Avon Manufacturing (Guangzhou) Ltd.		China
Avon Products (China) Co, Ltd		China
Avon Colombia Ltda.		Colombia
Avon Kosmetika d.o.o. Zagreb		Croatia
Avon Cosmetics, spol. s r.o.		Czech Republic
AIO Asia Holdings, Inc.		Delaware
Avon (Windsor) Limited		Delaware
Avon Aliada LLC		Delaware
Avon Capital Corporation		Delaware
Avon Component Manufacturing, Inc.		Delaware
Avon Holdings LLC		Delaware
Avon International Operations, Inc.		Delaware
Avon Land Development Corp.		Delaware
Avon Pacific, Inc.		Delaware
Avon-Lomalinda, Inc.		Delaware
Manila Manufacturing Company		Delaware
Retirement Inns of America, Inc.		Delaware
Surrey Leasing, Limited		Delaware


Viva Panama Holdings LLC		Delaware
Productos Avon S.A.		Dominican Republic
Productos Avon Ecuador S.A.		Ecuador
Avon Cosmetics Egypt S.A.E.		Egypt
Productos Avon, S.A.		El Salvador
Avon Cosmetics Export Limited		England and Wales
Avon Cosmetics Ireland Limited		England and Wales
Avon Cosmetics Limited		England and Wales
Avon European Financial Services Limited		England and Wales
Avon European Holdings Limited		England and Wales
Avon Fashions (UK) Limited		England and Wales
Avon UK Holdings Limited		England and Wales
Avon Eesti OÜ		Estonia
Avon Cosmetics Finland Oy		Finland
Avon S.A.S.		France
Avon Cosmetics Georgia LLC		Georgia
Avon Cosmetics GmbH		Germany
Avon Germany Holding und Verwaltungsgesellschaft mbH		Germany
Avon Germany Holdings GmbH & Co KG		Germany
Avon Cosmetics (Greece) MEPE		Greece
Avonexport Limitada		Guatemala
Productos Avon de Guatemala, S.A.		Guatemala
Productos Avon, S.A. de C.V.		Honduras
Avon Cosmetics (FEBO) Ltd.		Hong Kong
Avon Cosmetics Hungary Kozmetikai Cikk Kereskedelmi Kft.		Hungary
Avon Holdings Vagyonkezelo Kft		Hungary
Avon Service Center, Inc.		Illinois
Avon Beauty Products India Pvt. Ltd.		India
PT Avon Indonesia		Indonesia
Albee Dublin Finance Company		Ireland
Avon Limited		Ireland
Avon Cosmetics s.r.l. a Socio Unico		Italy
Avon Products Co., Ltd.		Japan
Live & Life Company Limited		Japan
LLP Avon Cosmetics (Kazakhstan) Limited		Kazakhstan
Avon Cosmetics LLC		Kyrgyzstan
Avon Cosmetics SIA		Latvia
Avon Cosmetics UAB		Lithuania
Avon Luxembourg Holdings S.À.R.L.		Luxembourg
Avon Cosmetics DOOEL – Skopje		Macedonia
Avon Cosmetics (Malaysia) Sdn Bhd		Malaysia
Maximin Corporation Sdn Bhd		Malaysia
Avon Asia Holdings Company		Mauritius
Avon Cosmetics Manufacturing S. de R.L. de C.V.		Mexico
Avon Cosmetics, S. De R.L. De C.V.		Mexico
Avonova, S.A. De C.V.		Mexico
M.I. Holdings, Inc.		Missouri
Avon Cosmetics (Moldova) S.R.L.		Moldova
Avon Cosmetics Montenegro d.o.o. Podgorica		Montenegro
Avon Beauty Products, SARL		Morocco
AI Netherlands Holdings Company C.V.		Netherlands
Avon International (NL) C.V.		Netherlands
Avon Netherlands Holdings B.V.		Netherlands
Avon Netherlands Holdings II B.V.		Netherlands
Beauty Products Holding Netherlands B.V.		Netherlands
Viva Netherlands Holdings B.V.		Netherlands
Avon Americas, Ltd.		New York
Avon Overseas Capital Corporation		New York


California Perfume Company, Inc.		New York
Surrey Products, Inc.		New York
Avon Cosmetics Ltd.		New Zealand
Productos Avon de Nicaragua, S.A.		Nicaragua
Productos Avon, S.A.		Panama
Viva Panama S. de R.L.		Panama
Productos Avon S.A.		Peru
Avon Cosmetics, Inc.		Philippines
Avon Products Mfg., Inc.		Philippines
Beautifont Products, Inc.		Philippines
Mirabella Realty Corporation		Philippines
Avon Cosmetics Polska Spółka z.o.o.		Poland
Avon EMEA Finance Service Centre Spółka z o.o.		Poland
AVON Mobile Sp z o.o.		Poland
Avon Operations Polska Spółka Sp.z.o.o.		Poland
Avon Cosmeticos, Lda.		Portugal
Avon Cosmetics (Romania) S.R.L.		Romania
Avon Beauty Products Company (ABPC) (Russia)		Russian Federation
Avon Cosmetics SCG d.o.o. Beograd		Serbia
Avon AIO Pte. Ltd.		Singapore
Avon Cosmetics, spol. s r.o.		Slovakia
Avon d.o.o., Ljubljana		Slovenia
Avon Justine (Pty) Ltd.		South Africa
Avon Products Limited		South Korea
Avon Cosmetics S.A.		Spain
Beauty Products Holding S.L.		Spain
Beauty Products Latin America Holdings S. L.		Spain
Viva Cosmetics Holding Gmbh		Switzerland
Avon Cosmetics (Taiwan) Ltd.		Taiwan
Avon Cosmetics (Thailand) Ltd.		Thailand
Avon Kozmetik Urunleri Sanayi ve Ticaret Anonim Sirketi		Turkey
Avon Cosmetics (Ukraine)		Ukraine
Cosmeticos Avon De Uruguay S.A.		Uruguay
Avon Cosmetics de Venezuela C.A		Venezuela
Avon Cosmetics Vietnam, Ltd.		Vietnam

EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Reg. Nos. 333-103432 and 333-149402) and Form S-8 (Reg. Nos. 333-129866, 333-124125, 333-43820, 333-65989 and 33-65998) of Avon Products, Inc. of our report dated February 20, 2009 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

New York, New York

February 20, 2009

EXHIBIT 24

FORM 10-K

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints KIM K.W. RUCKER, ANTHONY SANTINI and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, in his or her name, place and stead, in any and all capacities, to sign the 2008 Annual Report on Form 10-K of Avon Products, Inc. and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents full power and authority to do and perform each and every act, as fully to all intents and purposes as they might or could do in person, thereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned have executed this power of attorney as of February 20, 2009.


Signature		Title

/s/ Andrea Jung
Andrea Jung		Chairman of the Board and Chief Executive Officer - Principal Executive Officer

/s/ Charles W. Cramb
Charles W. Cramb		Vice Chairman, Chief Finance and Strategy Officer – Principal Financial Officer

/s/ Simon N.R. Harford
Simon N.R. Harford		Group Vice President and Corporate Controller – Principal Accounting Officer

/s/ W. Don Cornwell
W. Don Cornwell		Director

/s/ Edward T. Fogarty
Edward T. Fogarty		Director

/s/ V. Ann Hailey
V. Ann Hailey		Director

/s/ Fred Hassan
Fred Hassan		Director

/s/ Maria Elena Lagomasino
Maria Elena Lagomasino		Director

/s/ Ann S. Moore
Ann S. Moore		Director

/s/ Paul S. Pressler
Paul S. Pressler		Director

/s/ Gary M. Rodkin
Gary M. Rodkin		Director

/s/ Paula Stern
Paula Stern		Director

/s/ Lawrence A. Weinbach
Lawrence A. Weinbach		Director

EXHIBIT 31.1

CERTIFICATION

I, Andrea Jung, certify that:

1. I have reviewed this annual report on Form 10-K 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: February 20, 2009

/s/ Andrea Jung

Andrea Jung

Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Charles W. Cramb, certify that:

1. I have reviewed this annual report on Form 10-K 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: February 20, 2009

/s/ Charles W. Cramb

Charles W. Cramb

Vice Chairman, Chief Finance and Strategy 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 Annual Report of Avon Products, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrea Jung, 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.

Date: February 20, 2009

/s/ Andrea Jung

Andrea Jung

Chief Executive Officer

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 Annual Report of Avon Products, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles W. Cramb, Vice Chairman, Chief Finance and Strategy 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.


Date: February 20, 2009		/s/ Charles W. Cramb
		Charles W. Cramb
		Vice Chairman, Chief Finance and Strategy Officer