12797803 avon products inc 10k annual reports 20090220 (4)

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Table of Contents

UNITED

STATESSECURITIES 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

1934For the fiscal year ended December 31,

2008OR

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

1934For the transition period from

toCommission file number 1-

4881

AVON PRODUCTS, INC.(Exact name of registrant as specified in its charte r)

New York 13-0544597

(State or othe r jurisdiction of (I.R.S. Employer

incorporation or organ ization) Ide ntification No.)

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

(Address of principal e xecutive offices)

(212) 282-5000(Registrant’s te lephon e n umber, includin g area code)

Securities registered pursuant to Section 12(b) of the

Act:

Title of each class Name of e ach exch ange on which re gistered

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 ExchangeActof 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has

beensubject 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 becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm10-K or any amendment to this Form 10-K.

®




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

Large acceleratedfiler

x Acceleratedfiler

®

® Non-acceleratedfiler

® (Do not check if a smaller reportingcompany)

Smaller reportingcompany

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 businessday 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, was426,348,493.

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

Table of Contents

Item Page

Part I

Item 1 Business 5–9Item 1A Risk Factors 10–16Item 1B Unresolved Staff

Comments16

Item 2 Propertie

s

16

Item 3 LegalProceedings

16Item 4 Submission of Matters to a Vote of Security

Holders16

Part II

Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities

17–18Item 6 Selected Financial

Data19

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

20–39Item 7A Quantitative and Qualitative Disclosures About Market

Risk 39–40

Item 8 Financial Statements and SupplementaryData

40Item 9 Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure40

Item 9A Controls andProcedures

40–41Item 9B Other

Information41

Part III

Item 10 Directors, Executive Officers and CorporateGovernance

42Item 11 Executive

Compensation42

Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

42Item 13 Certain Relationships and Related Transactions, and Director

Independence42

Item 14 Principal Accountant Fees andServices

42

Part IV

Item 15 Exhibits and Financial StatementSchedule

4315 (a) 1 Consolidated FinancialStatements

4315 (a) 2 Financial StatementSchedule

4315 (a) 3 Index toExhibits

43–46Signatures

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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 thePrivateSecurities 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 identifyforward-looking statements. Such forward-looking statements are based on management’s reasonable current assumptions and expectations.Suchforward-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 therecan be no assurance that actual results will not differ materially from management’s expectations. Such factors include, among others,thefollowing: • our ability to implement the key initiatives of and realize the operating margins and projected benefits (in the amounts and

timeschedules we expect) from our global business strategy, including our multi-year restructuring initiatives, product mix and pricingstrategies, enterprise resource planning, customer service initiatives, product line simplification program, sales andoperation planning process, strategic sourcing initiative, outsourcing strategies, zero-overhead-growth philosophy, cash flowfromoperations and cash management, tax, foreign currency hedging and risk managementstrategies;• our ability to realize the anticipated benefits (including any projections concerning future revenue and operating marginincreases)from our multi-year restructuring initiatives or other strategic initiatives on the time schedules or in the amounts that we expect,andour plans to invest these anticipated benefits ahead of futuregrowth;• the possibility of business disruption in connection with our multi-year restructuring initiatives or other strategicinitiatives;• our ability to realize sustainable growth from our investments in our brand and the direct-sellingchannel;• a general economic downturn, a recession globally or in one or more of our geographic regions, such as North America, or suddendisruption in business conditions, and the ability of our broad-based geographic portfolio to withstand such economicdownturn,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 weexpect;• our ability to achieve growth objectives or maintain rates of growth, particularly in our largest markets and developingandemergingmarkets;• our ability to successfully identify new business opportunities and identify and analyze acquisition candidates, and our abilitytonegotiate 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 operationsor our Representatives by governmentalentities;

• our ability to successfully transition our business in China in connection with the resumption of direct selling in that market in2006,our ability to operate using the direct-selling model permitted in that market and our ability to retain and increase thenumber 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

potentialeffect of such fluctuations on our business, results of operations and financialcondition;• general economic and business conditions in our markets, including social, economic and political uncertainties in theinternationalmarkets in our

portfolio;• any consequences of the internal investigation of our Chinaoperations;• 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,naturaldisasters, 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 developmentactivities;• our ability to attract and retain key personnel andexecutives;• competitive uncertainties in our markets, including competition from companies in the cosmetics, fragrances, skin care andtoiletriesindustry, 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 theRepresentativeexperience and increase Representative productivity through investments in the direct-selling channel, and to compete withother direct-selling organizations to recruit, retain and serviceRepresentatives;

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• the impact of the seasonal nature of our business, adverse effect of rising energy, commodity and raw material prices, changesinmarket trends, purchasing habits of our consumers and changes in consumer preferences, particularly given the global natureof our business and the conduct of our business in primarily onechannel;• our ability to protect our intellectual propertyrights;• the risk of an adverse outcome in our material pending and futurelitigations;• 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-lookingstatements.

PART I

Dollars inMillions

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 andmarketer of beauty and related products. We conduct our business in the highly competitive beauty industry and compete againstother 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,Fashionand 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 andnutritional products. Sales from Health and Wellness productsand

mark., a global cosmetics brand that focuses on the market for young women,areincluded 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, departmentstores),our business is conducted worldwide primarily in one channel, direct selling. Our reportable segments are based on geographic operationsinsix regions: Latin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. Wealsocentrally manage Brand Marketing, Supply Chain and Sales organizations. Financial information relating to our reportable segments isincludedin 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 this2008 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 InitiativesIn November 2005, we launched a comprehensive, multi-year turnaround plan to restore sustainable growth. Our four-point turnaround planincludes: • Committing to brand competitiveness by focusing research and development resources on product innovation and by

increasingour advertising;• Winning with commercial edge by more effectively utilizing pricing and promotion, expanding our Sales Leadership programandimproving the attractiveness of our Representative earnings opportunity asneeded;• Elevating organizational effectiveness by redesigning our structure to eliminate layers of management in order to takefulladvantage 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 andour Representatives. Additional information regarding our strategic initiatives is included in the “Overview” and “Strategic Initiatives”sectionswithin MD&A on pages 20 through 23 and additional information regarding our inventory is included in the “Provisions for InventoryObsolescence” and “Liquidity and Capital Resources” sections within MD&A on pages 25 and 36 through 39 of this 2008 Annual ReportonForm 10-K.

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DistributionWe presently have sales operations in 66 countries and territories, including the U.S., and distribute our products in 44 more. Unlike mostof our competitors, which sell their products through third party retail establishments (i.e. drug stores, department stores), Avon primarilysellsits products to the ultimate consumer through the direct-selling channel. In Avon’s case, sales of our products are made to theultimateconsumer principally through the direct selling by 5.8 million active independent Avon Representatives, approximately 457,000 of whom areinthe U.S. Representatives are independent contractors, not employees of Avon. Representatives earn a profit by purchasing productsdirectlyfrom us at a discount from a published brochure price and selling them to their customers, the ultimate consumer of Avon’s products.Wegenerally have no arrangements with end users of our products beyond the Representative, except as described below. NosingleRepresentative accounts for more than 10% of our netsales.A Representative contacts customers directly, selling primarily through the Avon brochure, which highlights new products andspecial promotions for each sales campaign. In this sense, the Representative, together with the brochure, are the “store” through whichAvon 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 weeksfor 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 usuallythrough acombination of local and national delivery companies. Generally, the Representative then delivers the merchandise and collects paymentfromthe 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 returnit.We employ certain electronic order systems to increase Representative support, which allow a Representative to run her or his businessmoreefficiently, and also allow us to improve our order-processing accuracy. For example, in many countries, Representatives can utilizetheInternet to manage their business electronically, including order submission, order tracking, payment and two-way communicationswithAvon. In addition, in the U.S., Representatives can further build their own Avon business through personalized web pages provided byus,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.).Thesesites 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 andother customers. Representatives come to a branch to place and pick up product orders for their customers. The branches also create visibilityfor Avon with consumers and help reinforce our beauty image. In certain markets, we provide opportunities to license Avon beauty centersandother retail-oriented opportunities to reach new customers in complementary ways to directselling.The recruiting or appointing and training of Representatives are the primary responsibilities of District Sales or Zone Managers andSalesLeadership Representatives. In most markets, District Sales or Zone Managers are employees of Avon and are paid a salary and anincentive based primarily on the achievement of a sales objective by Representatives in their district, while in other markets, those responsibilitiesarehandled by independent contractors. Personal contacts, including recommendations from current Representatives (including theSalesLeadership program), and local market advertising constitute the primary means of obtaining new Representatives. The SalesLeadership program is a multi-level compensation program which gives Representatives, known as Sales Leadership Representatives, the opportunitytoearn bonuses based on the net sales made by Representatives they have recruited and trained in addition to discounts earned on their ownsales of Avon products. This program limits the number of levels on which commissions can be earned to three and continues to focusonindividual product sales by Sales Leadership Representatives. The primary responsibilities of Sales Leadership Representatives arethe prospecting, appointing, training and development of their down-line Representatives while maintaining a certain level of their ownsales.Development of the Sales Leadership program throughout the world is one part of our long-term growth strategy. As described above,theRepresentative is the “store” through which we primarily sell our products and given the high rate of turnover among Representatives(acommon characteristic of direct selling), it is critical that we recruit, retain and service Representatives on a continuing basis inorder tomaintain and grow our business. As part of our multi-year turnaround plan, we have initiatives underway to standardize global processesfor 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 andeffortequation for our Representatives (Representative Value Proposition or “RVP”). Wehave

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allocated significant incremental investment to grow our Representative base, to increase the frequency with which the Representativesorder and the size of the order and have undertaken extensive research to determine the pay back on specific advertising and field tools andactionsand the optimal balance of these tools and actions in key markets. In addition to a research and marketing intelligence staff, we haveemployed both internal and external statisticians to develop proprietary fact-based regression analyses using Avon’s vast product and saleshistory.From time to time, local governments and others question the legal status of Representatives or impose burdens inconsistent with their statusas independent contractors, often in regard to possible coverage under social benefit laws that would require us (and in most instances,theRepresentatives) to make regular contributions to government social benefit funds. Although we have generally been able to address

thesequestions in a satisfactory manner, these questions can be raised again following regulatory changes in a jurisdiction or can be raisedinadditional jurisdictions. If there should be a final determination adverse to us in a country, the cost for future, and possibly past,contributionscould be so substantial in the context of the volume and profitability of our business in that country that we would consider discontinuingoperations in thatcountry.

Promotion and Marketing Sales promotion and sales development activities are directed at assisting Representatives, through sales aids such as brochures,

productsamples and demonstration products. In order to support the efforts of Representatives to reach new customers, specially designed salesaids, promotional pieces, customer flyers, television and print advertising are used. In addition, we seek to motivate our Representativesthroughthe use of special incentive programs that reward superior sales performance. Avon has made significant investments to understandthefinancial return of such field incentives. Periodic sales meetings with Representatives are conducted by the District Sales Managers or ZoneManagers. The meetings are designed to keep Representatives abreast of product line changes, explain sales techniques and

providerecognition for sales

performance.A number of merchandising techniques are used, including the introduction of new products, the use of combination offers, the use of trialsizes 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 inthe brochure. A key current priority for our merchandising is to expand the use of pricing and promotional models to enable a deeper, fact-

basedunderstanding 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,includingadvertising to recruit Representatives. We expect this to be an ongoing investment to strengthen our beauty image worldwide and drivesales positively.From time to time, various regulations or laws have been proposed or adopted that would, in general, restrict the frequency, durationor volume of sales resulting from new product introductions, special promotions or other special price offers. We expect our pricing flexibilityand broad product lines to mitigate the effect of these

regulations.CompetitiveConditionsWe face competition from various products and product lines both domestically and internationally. The beauty and beauty-related

productsindustry is highly competitive and the number of competitors and degree of competition that we face in this industry varies widelyfromcountry to country. Worldwide, we compete against products sold to consumers by other direct-selling and direct-sales companiesandthrough the Internet, and against products sold through the mass market and prestige retailchannels.Specifically, due to the nature of the direct-selling channel, Avon competes on a regional, often country-by-country basis, with itsdirect-selling competitors. Unlike most other beauty companies, we compete within a distinct business model where providing a compellingearningsopportunity for our Representatives is as critical as developing and marketing new and innovative products. As a result, in contrastto atypical CPG company which operates within a broad-based consumer pool, we must first compete for a limited pool of Representatives

beforewe reach the ultimateconsumer.Within the broader CPG industry, we principally compete against large and well-known cosmetics and fragrances companies that

manufactureand sell broad product lines through various types of retail establishments. In addition, we compete against many other companiesthatmanufacture 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,

principallydepartment stores, gift shops and specialty retailers, and direct-mail companies specializing in these products.

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Our principal competition in the fashion jewelry industry consists of a few large companies and many small companies that sell fashion jewelrythrough retailestablishments.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 newandinnovative products; our easily recognized brand name and our guarantee of product satisfaction are significant factors in establishingandmaintaining our competitive

position.

International OperationsOur international operations are conducted primarily through subsidiaries in 65 countries and territories outside of the U.S. In addition tothesecountries and territories, our products are distributed in 44 other countries and territories throughdistributorships.Our international operations are subject to risks inherent in conducting business abroad, including, but not limited to, the risk of adversecurrency fluctuations, currency remittance restrictions and unfavorable social, economic and politicalconditions.See the sections “Risk Factors - Our ability to conduct business, particularly in international markets, may be affected by political, legalandregulatory risks” and “Risk Factors - We are subject to other risks related to our international operations, including exposure toforeigncurrency fluctuations” in Item 1A on pages 11 and 13 of this 2008 Annual Report on Form 10-K.

Manufacturin g We manufacture and package almost all of our CFT products. Raw materials, consisting chiefly of essential oils, chemicals, containers

and packaging components, are purchased for our CFT products from various suppliers. Almost all of our non-CFT products are purchasedfromvarious suppliers. Additionally, we design the brochures that are used by the Representatives to sell our products. The loss of anyonesupplier would not have a material impact on our ability to source raw materials for our CFT products or paper for the brochures or our non-CFT products. Packages, consisting of containers and packaging components, are designed by our staff of artists anddesigners.The design and development of new CFT products are affected by the cost and availability of materials such as glass, plastics andchemicals.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

begunimplementing SSI to reduce direct and indirect costs of materials, goods and services. Under this initiative, we are shifting our purchasingstrategy from a local, commodity-oriented approach towards a globally-coordinatedeffort.We are also implementing an enterprise resource planning (“ERP”) system on a worldwide basis, which is expected to improve the efficiencyof our supply chain and financial transaction processes. The implementation is expected to occur in phases over the next several years.

Wecompleted implementation in certain significant markets, and will continue to roll-out the ERP system over the next severalyears.See Item 2, Properties, for additional information regarding the location of our principal manufacturingfacilities.

Product CategoriesEach 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%

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Trademarks and PatentsOur business is not materially dependent on the existence of third-party patent, trademark or other third-party intellectual property rights,andwe are not a party to any ongoing material licenses, franchises or concessions. We do seek to protect our key proprietary technologies

byaggressively pursuing comprehensive patent coverage in major markets. We protect our Avon name and other major proprietarytrademarksthrough registration of these trademarks in the markets where we sell our products, monitoring the markets for infringement of suchtrademarks by others, and by taking appropriate steps to stop any infringingactivities.

Seasonal Nature of BusinessOur 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, byitsnature, difficult to forecast. Fourth quarter revenue was approximately 26% and 31% of total revenue in 2008 and 2007, respectively, andfourthquarter 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 2007includes$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 effortsaresignificant to developing new products, including formulating effective beauty treatments relevant to women’s needs, and redesigningor reformulating existing products. To increase our brand competitiveness, we have increased our focus on new technology and

productinnovation 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 scienceto the practical aspects of bringing products to market around the world. Relationships with dermatologists and other specialists enhanceour 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 launchesincluded

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 byUngaro

fragrancesand

Anew Rejuvenate Eye

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

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

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

Website Access to ReportsOur annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, are andhave been throughout 2008, available without charge on our investor website

(

www.avoninvestor.co

m

) as soon as reasonably practicable after

theyare 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 reportsandother documents are also available, without charge, from Investor Relations, Avon Products, Inc., 1345 Avenue of the Americas, NewYork, NY 10105-0196 or by sending an email to [email protected] or by calling (212) 282-5623. Information on our website doesnotconstitute part of this report. Additionally, our filings with the SEC may be read and copied at the SEC Public Reference Room at 100 FStreet, NE Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.Thesefilings are also available on the SEC’s websiteat

www.sec.gov free of charge as soon as reasonably practicable after we have filed or furnishedthe above referenced

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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

theother information in this 2008 Annual Report on Form 10-K. Our business may also be adversely affected by risks and uncertaintiesnot 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 abilityto: • 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 brandimage;• 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 fromthesestrategies;• implement enterprise resource planning and SSI and realize efficiencies across our supply chain, marketing processes, salesmodeland organizationalstructure;• implement customer service initiatives, the Sales and Operation Planning process and a zero overhead growth

philosophy;• implement our outsourcingstrategies;• implement initiatives to reduce inventorylevels;• maintain appropriate cash flow levels and implement cash management, tax, foreign currency hedging and risk managementstrategies;• implement our Sales Leadership program globally, recruit Representatives, enhance the Representative experience andincreasetheir productivity through investments in the direct sellingchannel;• reach new consumers through a combination of new brands, new businesses, new channels and pursuit of strategicopportunitiessuch as acquisitions, joint ventures and strategic alliances with other companies;and• estimate and achieve any projections concerning future revenue and operating marginincreases.

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

We may experience difficulties, delays or unexpected costs in completing our multi-year turnaround plan, including achieving

theanticipated 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,whileincreasing consumer investments. As part of the turnaround plan, restructuring initiatives include: enhancement of organizationaleffectiveness, implementation of a global manufacturing strategy through facilities realignment, additional supply chain efficiencies intheareas of procurement and distribution and streamlining of transactional and other services through outsourcing and moves to low-costcountries. As part of the turnaround plan, we also launched our PLS program and SSI initiative. In February 2009, we announced anewrestructuring 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 eventsandcircumstances, such as difficulties, delays or unexpected costs, may occur which could result in our not realizing all or any of theanticipatedsavings or benefits. If we are unable to realize these savings or benefits, our ability to continue to fund planned advertising,marketintelligence, consumer research and product innovation initiatives may be adversely affected. In addition, our plans to invest thesesavingsand 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 strategicinitiatives,which could have a material adverse effect on our business, financial condition and operatingresults.

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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 developedmarkets,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 wehavehigher growth targets. Our growth overall is also subject to the strengths and weakness of our individual markets, including our internationalmarkets, which are or may be impacted by global economic conditions. We cannot assure you that our broad-based geographic portfoliowill be able to withstand an economic downturn or recession in one or more particular regions. Our ability to increase or maintain revenueandearnings depends on numerous factors, and there can be no assurance that our current or future business strategies will lead us to achieveour 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 principallythrough5.8 million independent Representatives worldwide. There is a high rate of turnover among Representatives, which is a commoncharacteristicof the direct-selling business. As a result, in order to maintain our business and grow our business in the future, we need to recruit, retainandservice Representatives on a continuing basis. If consumers change their purchasing habits, such as by reducing purchases of beautyandrelated products generally, or reducing purchases from Representatives or buying beauty and related products in channels other than indirectselling, 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

beadversely affected. Furthermore, if any government bans or severely restricts our business method of direct selling, our business,financialcondition and operating results may be adverselyaffected.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 existinginternationalmarkets 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

civilunrest, political instability or changes in diplomatic or trade relationships might disrupt our operations in an internationalmarket;• the possibility that a government authority might impose legal, tax or other financial burdens on our Representatives, asdirectsellers, 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 imposeemployment or social taxes on our Representatives.

For example, in 1998, the Chinese government banned direct selling but, subsequently in April 2005, the Chinese government grantedapprovalfor us to proceed with a limited test of direct selling in certain areas. The Chinese government later issued direct-selling regulations inlate2005, and we were granted a direct-selling license by China’s Ministry of Commerce in late February 2006, which has allowed us tocommencedirect selling under such regulations. However, there can be no assurance that these and other regulations and approvals will not

berescinded, restricted or otherwise altered, which may have a material adverse effect on our direct selling business in China. There can benoassurance that we will be able to successfully transition our business in China in connection with the resumption of direct selling inthatmarket and successfully operate using the direct-selling model currently in place or that may be subsequently permitted in that market, or thatwe will experience growth in that or other emerging markets. The introduction of new channels in our business, such as the directsellingchannel in China, may also negatively impact existing sales. We may encounter similar political, legal and regulatory risks in other internationalmarkets in our

portfolio.We are also subject to changes in other foreign laws, rules, regulations or policies, such as restrictions on trade, import and exportlicenserequirements, 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 andregulatorychanges may have on our business in the future. The U.S. Federal Trade Commission has proposed business opportunity regulationswhichmay 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,itseffective date or its impact at this

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A general economic downturn, a recession globally or in one or more of our geographic regions or sudden disruption in business

conditionsmay 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 thecurrentglobal 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

businessand a heightened concern regarding further deterioration globally. If conditions continue or worsen, we could experience potential declinesinrevenues, profitability and cash flow due to reduced orders, payment delays, supply chain disruptions or other factors caused byeconomicchallenges faced by customers, prospective customers and suppliers. Additionally, if these conditions continue or worsen, any one or allof 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 otherwisenegatively impact our business, results of operations and financialcondition.Consumer spending is generally affected by a number of factors, including general economic conditions, inflation, interest rates, energycosts,gasoline prices and consumer confidence generally, all of which are beyond our control. Consumer purchases of discretionary items tendtodecline during recessionary periods, when disposable income is lower, and may impact sales of our products. We face a challenging fiscal2009 because customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, reduced accesstocredit 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,includingfurther attacks, retaliation and the threat of further attacks or retaliation, war, adverse weather conditions and climate changes or other naturaldisasters, such as Hurricane Katrina, pandemic situations or large scale power outages can have a short or, sometimes, long-term impactonconsumer 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,wecompete against products sold to consumers by other direct-selling and direct-sales companies and through the Internet, andagainst products sold through the mass market and prestige retailchannels.Within the direct selling channel, we compete on a regional, and often country-by-country basis, with our direct-selling competitors. Therearealso a number of direct-selling companies that sell product lines similar to ours, some of which also have worldwide operations andcompetewith us globally. Unlike most other beauty companies, we compete within a distinct business model where providing a compellingearningsopportunity for our Representatives is as critical as developing and marketing new and innovative products. Therefore, in contrast to atypicalconsumer packaged goods (“CPG”) company which operates within a broad-based consumer pool, we must first compete for a limited poolof Representatives before we reach the ultimateconsumer.

Direct sellers compete for representative or entrepreneurial talent by providing a more competitive earnings opportunity or “better deal”thanthat offered by the competition. Representatives are attracted to a direct seller by competitive earnings opportunities, often through whatarecommonly known as “field incentives” in the direct selling industry. Competitors devote substantial effort to finding out theeffectiveness of such incentives so that they can invest in incentives that are the most cost effective or produce the better payback. As the largest andoldest beauty direct seller, Avon’s business model and strategies are often highly sought after, particularly by smaller local and morenimblecompetitors who seek to capitalize on our investment and experience. As a result, we are subject to significant competition for therecruitmentof Representatives from other direct selling or network marketing organizations. It is therefore continually necessary to recruit and retainnewRepresentatives and if we are unable to do so our business will be adverselyaffected.Within the broader CPG industry, we compete against large and well-known cosmetics and fragrances companies that manufacture andsell broad product lines through various types of retail establishments. In addition, we compete against many other companies thatmanufactureand sell in more narrow CFT product lines sold through retail establishments. This industry is highly competitive, and some of our

principalcompetitors in the CPG industry are larger than we are and have greater resources than we do. Competitive activities on their part couldcauseour 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 inthese products. Our principal competition in the highly competitive fashion jewelry industry consists of a few large companies and manysmallcompanies that sell fashion jewelry through retailestablishments.

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The number of competitors and degree of competition that we face in this beauty and related products industry varies widely from countrytocountry. 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 havinggreater appeal, then our sales and financial results maysuffer.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

revenuefrom our operations outside of theU.S.One risk associated with our international operations is that the functional currency for most of our international operations is theapplicablelocal 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, Canadiandollar,Chinese renminbi, Colombian peso, the Euro, Japanese yen, Mexican peso, Philippine peso, Polish zloty, Russian ruble, Turkish lira,Ukrainianhryvna and Venezuelan bolivar. Although we implement foreign currency hedging and risk management strategies to reduce our exposuretofluctuations in earnings and cash flows associated with changes in foreign exchange rates, there can be no assurance that foreigncurrencyfluctuations will not have a material adverse effect on our business, results of operations and financialcondition.Another risk associated with our international operations is the possibility that a foreign government may impose currencyremittancerestrictions. Due to the possibility of government restrictions on transfers of cash out of the country and control of exchange rates, wemaynot be able to immediately repatriate cash at the official exchange rate or if the official exchange rate devalues, it may have a materialadverseeffect on our business, results of operations and financial condition. For example, currency restrictions enacted by the Venezuelan

governmentin 2003 have become more restrictive and have impacted the ability of our subsidiary in Venezuela (“Avon Venezuela”) to obtainforeigncurrency at the official rate to pay for imported products. Unless official foreign exchange is made more readily available, AvonVenezuela’soperations will continue to be negatively impacted as it will need to obtain more of its foreign currency needs from non-governmentsourceswhere the exchange rate is less favorable than the officialrate.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 lossesresultingfrom the translation of the financial statements of subsidiaries operating in highly inflationary economies are recorded in earnings. If Venezuelais designated as a highly inflationary economy and there is a devaluation of the official rate, revenue and operating profit will benegativelyimpacted.Third-party suppliers provide, among other things, the raw materials used to manufacture our CFT products, and the loss of these

suppliersor 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, containersand packaging components, are purchased from various third-party suppliers for our CFT products. Almost all of our non-CFT productsare purchased from various suppliers. Additionally, we produce the brochures that are used by Representatives to sell Avon products. Thelossof multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on themanufacturingand packaging of our CFT products, the purchasing of our non-CFT products or the production of our brochures. This risk may

beexacerbated by SSI, which will shift our purchasing strategy toward a globally- coordinated effort. Furthermore, increases in the costs of rawmaterials or other commodities may adversely affect our profit margins if we are unable to pass along any higher costs in the form of

priceincreases or otherwise achieve cost efficiencies in manufacturing anddistribution.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 whereofficesare located and where finished merchandise is packed and shipped to Representatives in fulfillment of their orders, and one principalresearchand development facility. Therefore, as a company engaged in manufacturing, distribution and research and development on a global scale,weare 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,licensingrequirements and other regulatory issues, as well as natural disasters, acts of terrorism and other external factors over which we havenocontrol. The loss of, or damage to, any of our facilities or centers could have a material adverse effect on our business, results of operationsand financialcondition.

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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 theyotherwise fail to meet our Representatives’ or end customers’ standards, our relationship with our Representatives or end customerscouldsuffer, we could need to recall some of our products, our reputation or the appeal of our brand could be diminished, and we could losemarketshare and/or become subject to liability claims, any of which could result in a material adverse effect on our business, results of operationsandfinancialcondition.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 geographicscopeof our operations or otherwise offer growth and operating efficiency opportunities. The financing for any of these acquisitions could dilutetheinterests 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

anddisruption to our direct sellingchannel;• 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,financialcondition and operating results. In addition, there can be no assurance that we will be able to identify suitable acquisition candidatesor 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 enterpriseresource planning system which we are implementing on a worldwide basis, and an internal communication and data transfer network. We alsoemployinformation technology systems to support Representatives in many of our markets, including electronic order collection andinvoicingsystems and on-line training. We have Internet sites in many of our markets, including business-to-business sites to supportRepresentatives.We have undertaken initiatives to increase our reliance on employing information technology systems to support our Representatives, aswellas initiatives, as part of our multi-year restructuring program, to outsource certain services, including the provision of global humanresourcesinformation technology systems to our employees and other information technology processes. Any of these systems may be susceptibletooutages due to fire, floods, power loss, telecommunications failures, terrorist attacks, break-ins and similar events. Despite theimplementationof network security measures, our systems may also be vulnerable to computer viruses, break-ins and similar disruptions fromunauthorizedtampering with these systems. The occurrence of these or other events could disrupt our information technology systems and adverselyaffectour 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.Theunexpected loss of one or more of our key employees could adversely affect our business. Our success also depends, in part, onour continuing ability to identify, hire, train and retain other highly qualified personnel. Competition for these employees can be intense. Wemaynot be able to attract, assimilate or retain qualified personnel in the future, and our failure to do so could adversely affect our business.Thisrisk 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 inconsumer 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 wherewemarket 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 anticipateandrespond to trends in the market for beauty and related products and changing consumer demands, our financial results will suffer. Thisrisk may be exacerbated by our product line simplification (“PLS”) program, which will lead to significant changes to our productofferings.

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Furthermore, material shifts or decreases in market demand for our products, including as a result of changes in consumer spending patternsand preferences, could result in us carrying inventory that cannot be sold at anticipated prices or increased product returns byour Representatives. Failure to maintain proper inventory levels or increased product returns by our Representatives could result in amaterialadverse effect on our business, results of operations and financialcondition.If we are unable to protect our intellectual property rights, specifically patents and trademarks, our ability to compete could be

negativelyimpacted.

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 countrieswhere such products are principally sold. Although most of our material intellectual property is registered in the U.S. and in certainforeigncountries in which we operate, there can be no assurance with respect to the rights associated with such intellectual property inthosecountries. 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 besubstantial.We are involved, and may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could adversely

affectour 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 timeconsuming to bring or defend against and could result in settlements or damages that could significantly affect financial results. We are currentlyvigorouslycontesting certain of these litigation claims. However, it is not possible to predict the final resolution of the litigation to which we currentlyareor may in the future become party to, and the impact of certain of these matters on our business, results of operations and financial

conditioncould bematerial.Significant changes in pension fund investment performance, assumptions relating to pension costs or required legal changes in

pensionfunding 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 planassetsavailable to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significantchanges ininvestment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases inthevaluation of plan assets, particularly equity securities, or in a change of the expected rate of return on plan assets. A change in thediscountrate 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 assetscanresult in significant changes in the net periodic pension cost of the following fiscal years. Finally, recent pension funding requirementsunder the Pension Protection Act of 2006 may result in a significant increase or decrease in the valuation of pension obligations affectingthereported 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 thefollowing:• variations in operating

results;• economic conditions and volatility in the financialmarkets;• announcements or significant developments in connection with our business and with respect to beauty and related productsor the beauty industry ingeneral;• actual or anticipated variations in our quarterly or annual financialresults;• governmental policies andregulations;• estimates of our future performance or that of our competitors or our industries;• general economic, political, and market conditions;

and• factors relating tocompetitors.

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

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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 CorruptPracticesAct. The internal investigation, which is being conducted under the oversight of the Audit Committee, commenced in June 2008 after wereceived an allegation that certain travel, entertainment and other expenses may have been improperly incurred in connection with our Chinaoperations. We have voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice toadvise both agencies that an internal investigation is underway. Because the internal investigation is in its early stage, we cannot predict howtheresulting consequences, if any, may impact our internal controls, business, results of operations or financial

position.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Notapplicable.

ITEM 2. PROPERTIES

Our principal properties worldwide consist of manufacturing facilities for the production of CFT products, distribution centers whereofficesare located and where finished merchandise is packed and shipped to Representatives in fulfillment of their orders, and one principalresearchand development facility. The domestic manufacturing facilities are located in Morton Grove, IL and Springdale, OH. The domesticdistributioncenters are located in Atlanta, GA; Glenview, IL; Newark, DE; and Pasadena, CA. The research and development facility is located inSuffern, NY. We also lease office space in two locations in New York City and own property in Rye, NY, for our executive and administrativeoffices.Other principal properties outside the U.S. measuring 50,000 square feet or more include thefollowing:• two distribution centers for primary use in North America operations (other than in the

U.S.);• four manufacturing facilities, eleven distribution centers and two administrative offices in LatinAmerica;• four manufacturing facilities in Europe, primarily servicing Western Europe, Middle East & Africa and Central & EasternEurope;• six distribution centers and four administrative offices in Western Europe, Middle East &Africa;• three distribution centers and two administrative offices in Central & EasternEurope;• three manufacturing facilities, four distribution centers, and two administrative offices in Asia Pacific;and• two manufacturing facilities and six distribution centers inChina.

Of all the properties listed above, 32 are owned and the remaining 33 are leased. Many of our properties are used for a combinationof manufacturing, distribution and administration. These properties are included in the above listing based on primaryusage.We consider all of these properties to be in good repair, to adequately meet our needs and to operate at reasonable levels of

productivecapacity.

In January 2007, we announced plans to realign certain North America distribution operations. This initiative includes the building of anewdistribution center in Zanesville, Ohio, that is expected to open in the first quarter of 2009. We will phase-out our current distribution

branchesin 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 anewdistribution center in Brazil that is expected to open in 2010. We will phase-out our current distribution center in Sao Paulo, Brazil during2011.During 2008, we transferred production from our manufacturing facility in Guatemala to our facility inMexico.

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 31,2008.16




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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, therewereapproximately 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.Highand low market prices and dividends per share of Avon’s Common Stock, in dollars, for 2008 and 2007 are listed below. For informationregarding future dividends on Avon’s Common Stock, see the “Liquidity and Capital Resources” section within MD&A on pages 36through39.

2008 2007

Dividends Divide nds

Declare d Declare d

Quarter High Low and Paid High Low and Paid

First $40.50 $34.47 $ .20 $40.13 $32.55 $ 0.185Second 41.05 35.44 .20 41.85 36.13 0.185Third 45.25 35.08 .20 40.66 31.95 0.185Fourth 41.23 18.38 .20 42.51 35.92 0.185

Stock PerformanceGraph

LOGO

Assumes $100 invested on December 31, 2003, in Avon’s Common Stock, the S&P 500 Index and the Industry Composite. The dollar amountsindicated 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 $ 78.77S&P 500 100.00 110.88 116.33 134.70 142.10 89.53IndustryComposite

100.00 112.61 117.09 134.36 155.01 133.16(2 )

Total return assumes reinvestment of dividends at the closing price at the end of eachquarter.

(1)

The Industry Composite includes Alberto-Culver, Clorox, Colgate–Palmolive, Estée Lauder, Kimberly Clark, Procter & Gamble

and

(2)

Revlon.

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

Securities Authorized for Issuance Under Equity Compensation PlansInformation regarding securities authorized for issuance under equity compensation plans is incorporated by reference to the

“EquityCompensation Plan Information” section of Avon’s Proxy Statement for the 2009 Annual Meeting of Shareholders.

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

Total Nu mber of Approxim ate Dollar

Total Numbe r Share s Purchased as Value of Sh ares th at

of S hare s Ave rage Price Part of Publicly May Ye t Be Purchased

Purchased Paid pe r Share Announce d Programs Un de r the Program(1) (2)

10/1/08 – 10/31/08

8,603 $ 43.26 — $ 1,821,526,00011/1/08 – 11/30/08

12,487 24.59 — 1,821,526,00012/1/08 – 12/31/08

7,976 18.20 — 1,821,526,000

Total 29,066 —

Consists of shares that were repurchased by us in connection with employee elections to use shares to pay withholding taxes uponthe

(1)

vesting of their restricted stock units.There were no shares purchased during the fourth quarter of 2008 as part of our $2.0 billion share repurchase program,

publicly(2)

announced on October 11, 2007. The program commenced on December 17, 2007, and is scheduled to expire on December 17,2012.

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ITEM 6. SELECTED FINANCIAL DATA

We derived the following selected financial data from our audited consolidated financial statements. The following data should be readinconjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our ConsolidatedFinancialStatements and related

Notes.2008 2007 2006 2005 2004(2) (3)

Income Data

Total revenue $10,690.1 $9,938.7 $8,763.9 $8,149.6 $7,747.8

Operating profit

1,339.3 872.7 761.4 1,149.0 1,229.0(1)

Net income 875.3 530.7 477.6 847.6 846.1Diluted earnings per share

$ 2.04 $ 1.21 $ 1.06 $ 1.81 $ 1.77Cash dividends per share

$ 0.80 $ 0.74 $ 0.70 $ 0.66 $ 0.56

Balance Sheet Data

Totalassets

$ 6,074.0 $5,716.2 $5,238.2 $4,761.4 $4,148.1Debt maturing within oneyear

1,031.4 929.5 615.6 882.5 51.7Long-termdebt

1,456.2 1,167.9 1,170.7 766.5 866.3Total debt 2,487.6 2,097.4 1,786.3 1,649.0 918.0Shareholders’equity

674.9 711.6 790.4 794.2 950.2

In 2008, 2007, 2006 and 2005, operating profit includes costs to implement restructuring initiatives related to our multi-year restructuring

(1)

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 $167.3and$72.6, respectively, related to our product line simplification program (“PLS”). In 2008, operating profit includes benefits toobsolescenceexpense of approximately $13 from changes in our disposition plan under our PLS

program.Effective January 1, 2006, we adopted SFAS No. 123 (revised2004)

Share-Based Payment

. Operating profit includes charges relatedtoshare-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.In 2007, we recorded a decrease of $18.3 to shareholders’ equity from the initial adoption of Financial Accounting StandardsBoard

(2)

(“FASB”) Interpretation No.48,

Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No.109

.In 2006, we recorded a decreases of $232.8 and $254.7 to total assets and shareholders’ equity, respectively, from the initial adoptionof

(3)

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

.

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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 whollyownedsubsidiaries (“Avon” or the “Company”) should be read in conjunction with the information contained in the ConsolidatedFinancialStatements and related Notes. When used in this discussion, the terms “Avon,” “Company,” “we,” “our” or “us” mean, unless thecontextotherwise indicates, Avon Products, Inc. and its majority and wholly ownedsubsidiaries.

OVERVIEW

We are a global manufacturer and marketer of beauty and related products. Our business is conducted worldwide, primarily in the directsellingchannel. We presently have sales operations in 66 countries and territories, including the United States, and distribute products in 44more.Our reportable segments are based on geographic operations in six regions: Latin America; North America; Central & Eastern Europe;WesternEurope, Middle East & Africa; Asia Pacific; and China. We centrally manage global Brand Marketing, Supply Chain and Salesorganizations.Beginning in the fourth quarter of 2008, we changed our product categories from Beauty, Beauty Plus and Beyond Beauty to Beauty,Fashionand 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 andnutritional products. Sales from Health and Wellness productsand

mark., a global cosmetics brand that focuses on the market for young women,areincluded 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 businessis 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 growthBeauty 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 highgrowthrates and, as we reach scale in these markets, growth rates generallydecline.At the end of 2005, we launched a comprehensive, multi-year turnaround plan to restore sustainable growth. In January 2008, weannouncedthe final initiatives of our restructuring program that was launched in 2005 under our turnaround plan. In 2007, we completed the analysisof 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 annualizedsavings of approximately $430 once all initiatives are fully implemented by 2011-2012. We also expect to achieve annualized benefits inexcessof $200 and $250 from PLS and SSI, respectively, in 2010. As discussed further below, in February 2009 we announced a newrestructuring program under our multi-year turnaround

plan.During 2008, revenue increased 8%, and Active Representatives increased 7% (with increases in all segments), fueled by investmentsinadvertising and the Representative Value Proposition (“RVP”). Sales from each of our product categories increased, with products in

theBeauty category increasing 10%. During 2008, revenue grew in all segments except North America, which was adversely affected bytheslowing macro-economic environment, deteriorating consumer confidence and higher year-over-year fuel prices. We benefited fromstrength indeveloping and emerging markets around the globe that more than offset the unfavorable impact of economic softness in North America.Seethe “Segment Review” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additionalinformation related to changes in revenue bysegment.During the fourth quarter of 2008, revenue declined as compared to 2007, due to the significant negative impact of foreign exchange andthedepressed economy. We expect the global economic pressures and negative impact of foreign currency will continue or could worsen intheforeseeable future and 2009 will be a challenging year. Given the current macro-economic environment, we expect that revenue growth in2009will be somewhat lower than our long-term revenue growth, which is expected to average mid-single digits, excluding the impact of foreignexchange. We also expect that operating margin in 2009 will continue to be pressured by the unfavorable impacts of foreignexchange.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,andsome softening in commodity costs will help to partially offset the negative impact of foreign exchange. We will continue to look for ways totransform our cost structure and intend to reduce non-strategic spending during 2009. We will also continue our strategies of investinginadvertising and our Representatives.

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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 anticipatedchallenges in 2009 and continue our focus on long-term sustainable, profitablegrowth.

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,

weincreased our investment in advertising by $22.1 or 6%. Approximately 70% of the incremental spending was spent in Russia, China andtheUnited Kingdom. The incremental spending on advertising was at a rate somewhat less than revenue growth. The advertisinginvestmentssupported new product launches, suchas

, Anew Ultimate Contouring Eye System, Bond Girl

fragrance , Pro-to-Go Lipstick

, AnewUltimate Age Repair Elixir, Supershock Mascara, Avon Solutions Hydra-Radiance, U by

Ungaro

fragrance sand Anew Rejuvenate Eye.

Advertisinginvestments also included advertising to recruit Representatives. We have also continued to forge alliances with celebrities,

includingalliances 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 havecommittedsignificant 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 thesevalue-enhancing initiatives. During 2008, we invested approximately $83 incrementally in our Representatives through RVP bycontinuedimplementation of our Sales Leadership program, enhanced incentives, increased sales campaign frequency, improved commissions andnewe-business tools. This incremental investment was ahead of revenue growth. Investing in RVP will continue to be a key strategy. We

willcontinue to look for ways to improve the earnings opportunity for Representatives through various means, including thefollowing:• 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 Representativeeconomics;• Recalibrating the frequency of campaigns to maximize Representative selling opportunities;and• Applying the optimal balance of advertising and field investment in our keymarkets.

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

Product LineSimplificationDuring 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. During2007,we completed the analysis of our product portfolio, concluded on the appropriate product assortment going forward and madedecisionsregarding the ultimate disposition of products that will no longer be part of our improved product assortment (such as selling at adiscount,donation, or destruction). During 2007 and 2006, we recorded PLS charges of $187.8 and $81.4, respectively, primarily incrementalinventoryobsolescence 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 continueinto2009. 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 productassortmentwill allow us to increase exposure and improve presentation of the remaining products within our brochure, which is expected to yieldmore pleasurable consumer shopping experiences, easier Representative selling experiences, and greater sales per brochure page. A secondsourceof benefits from PLS results from “transferable demand.” Transferable demand refers to the concept that when products withredundantcharacteristics are removed from our product assortment, some demand from the eliminated products will transfer to the

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products that offer similar or comparable product characteristics. As part of PLS, when we identify products that have sufficient overlapof 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 anticipateintroducingfewer new products and lengthening the lifecycle of products in our offering, which we expect will lead to less aggressive pricediscountingover a product’s lifecycle.In addition to the benefits above, we also expect supply chain benefits to account for approximately 15% of our projected benefits. Weexpectimprovements 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.Wealso 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 2009andin excess of $200 in2010.

Strategic Sourcing InitiativeWe launched SSI in 2007. This initiative is expected to reduce direct and indirect costs of materials, goods and services. Under thisinitiative,we are shifting our purchasing strategy from a local, commodity-oriented approach towards a globally-coordinated effort which leveragesour volumes, allows our suppliers to benefit from economies of scale, utilizes sourcing best practices and processes, and better matchesour suppliers’ capabilities with our needs. Beyond lower costs, our goals from SSI include improving asset management, servicefor Representatives and vendor relationships. During 2008, we realized benefits of approximately $114 from SSI. In addition, we were able tooffsetcommodity cost increases of approximately $21 for full-year 2008 due to SSI actions already in place. We expect to realize annualized

benefitsfrom 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 benefitsof approximately $200 in 2009 and benefits in excess of $250 in2010.We continue to implement a Sales and Operations Planning process that is intended to better align demand plans with our supplycapabilitiesand provide us with earlier visibility to any potential supplyissues.

Enterprise Resource Planning

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

previousimplementations.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,

aswell as in certain smaller European direct selling operations. During 2008, we also began the multi-year implementation process inLatinAmerica in one market. In Latin America, we plan to implement modules of ERP in a gradual manner across key markets over the nextseveralyears.

Zero-Overhead-

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

Restructuring

Programs2005 Program

We launched our original restructuring program under our multi-year turnaround plan in late 2005 (the “2005 Program”). In January 2008,weannounced the final initiatives that are part of the 2005 Program. We expect to record total restructuring charges and other costs toimplementrestructuring initiatives under this program of approximately $530 before taxes. We have recorded $504.2 through December 31, 2008, ($60.6in2008, $158.3 in 2007, $228.8 in 2006 and $56.5 in 2005) for actions associated with our restructuring initiatives under the 2005 Program,

primarilyfor employee-related costs, including severance, pension and other termination benefits, and professional service fees related totheseinitiatives. We expect to record a majority of the remaining costs by the end of 2009.

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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 tooperations;• the phased outsourcing of certain services, including certain finance, information technology, human resource andcustomer service processes, and the move of certain services from markets to lower cost shared servicecenters;• the restructure of certain international direct-sellingoperations;• the realignment of certain distribution and manufacturing operations, including the realignment of certain of our North America

andLatin America distributionoperations;• the automation of certain distribution

processes;• the exit of certain unprofitable operations, including the closure of the Avon Salon & Spa, the closure of our operationsinIndonesia, 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 savingsof approximately $230 in 2007. We expect to achieve annualized savings of approximately $430 once all initiatives are fully implemented by2011-2012. We expect the savings to reach approximately $300 in2009.

2009 Restructuring ProgramIn February 2009, we announced a new restructuring program under our multi-year turnaround plan (the “2009 Program”). The

restructuringinitiatives under the 2009 Program are expected to focus on restructuring our global supply chain operations, realigning certain local businesssupport functions to a more regional basis to drive increased efficiencies, and streamlining transaction-related services, includingselectiveoutsourcing. We expect to incur restructuring charges and other costs to implement these initiatives in the range of $300 to $400 beforetaxesover the next several years. We are targeting annualized savings under the 2009 Program of approximately $200 upon full implementation

by2012-2013.

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 this2008Annual Report on Form 10-K.

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KEY PERFORMANCE INDICATORS

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

business.KPI De finition

Growth in Active This indicator is based on the number of Representatives submitting an order in a campaign, totaled for allcampaignsRepresentative

sin the related period. This amount is divided by the number of billing days in the related period, to exclude theimpactof year-to-year changes in billing days (for example, holiday schedules). To determine the growth inActiveRepresentatives, 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 thesamenumber in the same period of the prior year. Units sold include samples sold and product contingent uponthe purchase of another product (for example, gift with purchase or purchase with purchase), but exclude freesamples.

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

CRITICAL ACCOUNTING ESTIMATES

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

policies.

Restructuring

ReservesWe 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 Benefit s

. We evaluate impairment issues under the provisions of FAS No.144,

Accounting for the Impairment or Disposal of Long- Lived Asset

s. We estimate the expense for these initiatives, when approved by the appropriate corporate authority, by accumulatingdetailedestimates 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 costsaregrouped by specific projects within the overall plan and are then monitored on a quarterly basis by finance personnel. Such costsrepresentmanagement’s best estimate, but require assumptions about the programs that may change over time, including attrition rates. Estimatesareevaluated periodically to determine if an adjustment isrequired.

Allowances for Doubtful Accounts

ReceivableRepresentatives contact their customers, selling primarily through the use of brochures for each sales campaign. Sales campaigns aregenerallyfor a two-week duration in the U.S. and a two- to four-week duration outside the U.S. The Representative purchases products directlyfromAvon and may or may not sell them to an end user. In general, the Representative, an independent contractor, remits a payment to Avoneachsales campaign, which relates to the prior campaign cycle. The Representative is generally precluded from submitting an order for thecurrentsales campaign until the accounts receivable balance for the prior campaign is paid; however, there are circumstances wheretheRepresentative fails to make the required payment. We record an estimate of an allowance for doubtful accounts on receivable balances

basedon an analysis of historical data and current circumstances. Over the past three years, annual bad debt expense has been in the range of $145to $195, or approximately 1.7% of total revenue. We generally have no detailed information concerning, or any communication with, anyenduser of our products beyond the Representative. We have no legal recourse against the end user for the collectability of anyaccountsreceivable balances due from the Representative to us. If the financial condition of our Representatives were to deteriorate, resulting inanimpairment of their ability to make payments, additional allowances may berequired.

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Allowances for Sales ReturnsWe record a provision for estimated sales returns based on historical experience with product returns. Over the past three years, salesreturnshave been in the range of $295 to $370, or approximately 3.4% of total revenue. If the historical data we use to calculate these estimatesdoesnot approximate future returns, due to changes in marketing or promotional strategies, or for other reasons, additional allowances may

berequired.

Provisions for Inventory

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

program.

Pension, Postretirement and Postemployment Benefit ExpenseWe maintain defined benefit pension plans, which cover substantially all employees in the U.S. and in certain internationallocations.Additionally, we have unfunded supplemental pension benefit plans for certain current and retired executives (see Note 11, Employee

BenefitPlans).

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%.Indetermining the long-term rates of return, we consider the nature of the plans’ investments, an expectation for the plans’ investmentstrategies,historical rates of return and current economic forecasts. We evaluate the expected long-term rate of return annually and adjust asnecessary.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%,whichwas based on an asset allocation of approximately 35% in corporate and government bonds and mortgage-backed securities (whichareexpected to earn approximately 4% to 6% in the long term) and 65% in equity securities (which are expected to earn approximately 8% to10%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% and7.6%,respectively. In the U.S. plan, our asset allocation policy has favored U.S. equity securities, which have lost .7% and returned8.4%,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.The discount rate used for determining future pension obligations for each individual plan is based on a review of long-term bonds

thatreceive a high-quality rating from a recognized rating agency. The discount rates for our more significant plans, including our U.S. plan,were based on the internal rates 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 was 6.11%atDecember 31, 2008, and 5.88% at December 31,2007.Our funding requirements may be impacted by regulations or interpretations thereof. Our calculations of pension, postretirementand postemployment costs are dependent upon the use of assumptions, including discount rates, expected return on plan assets, interestcost,health care cost trend rates, benefits earned, mortality rates, the number of associate retirements, the number of associates electing totakelump-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.Theseactuarial losses have been charged to accumulated other comprehensive loss within shareholders’ equity. While we believe thattheassumptions used are reasonable, differences in actual experience or changes in assumptions may materially affect our pension,

postretirementand postemployment obligations and future expense. During 2008, the plan assets experienced significant losses, which were mostly due

tounfavorable returns on equity securities. These unfavorable returns will increase pension cost in future periods. For 2009, our assumptionfor 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 reviewedanddetermined on an annual

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

Increase/(De cre ase) in

Pen sion Expen se

50 basis 50 basis

poin t point

Incre ase Decrease

Rate of return on

assets

(6.0) 6.0

Discountrate

(8.6) 8.4Rate of compensationincrease

1.2 (1.5)

Taxe

sWe record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized. While wehaveconsidered projected future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in theeventwe 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, anadjustmentto the deferred tax asset would increase earnings in the period such determination was made. Likewise, should we determine that we wouldnot 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 inthe period such determination was made. Deferred taxes are not provided on the portion of unremitted earnings of subsidiaries outside of theU.S.when management concludes that these earnings are indefinitely reinvested. Deferred taxes are provided on earnings notconsideredindefinitelyreinvested.

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

basedon the technical merits of the position. We believe that our assessment of more likely than not is reasonable, but because of thesubjectivityinvolved and the unpredictable nature of the subject matter at issue, our assessment may prove ultimately to be incorrect, whichcouldmaterially impact the Consolidated FinancialStatements.

Share-based

CompensationAll share-based payments to employees are recognized in the financial statements based on their fair values using an option-pricing

model atthe date of grant. We use a Black-Scholes-Merton option-pricing model to calculate the fair value of options. This model requiresvarious judgmental assumptions including volatility, forfeiture rates and expected option life. If any of the assumptions used in the modelchangesignificantly, share-based compensation may differ materially in the future from that recorded in the current

period.

Loss

ContingenciesIn accordance with FAS No. 5, Accounting for

Contingencies

, we determine whether to disclose and accrue for loss contingencies basedonan 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. Losscontingencyassumptions involve judgments that are inherently subjective and can involve matters that are in litigation, which, by itsnature isunpredictable. We believe that our assessment of the probability of loss contingencies is reasonable, but because of the subjectivityinvolvedand the unpredictable nature of the subject matter at issue, our assessment may prove ultimately to be incorrect, which could materiallyimpactthe Consolidated FinancialStatements.

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RESULTS OF OPERATIONS - CONSOLIDATED

Favorable (Unfavorable)

%/Point Change

2008 vs. 2007 vs.

2008 2007 2006 2007 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 administrativeexpenses

5,401.7 5,124.8 4,586.0 (5)% (12)%Operating

profit1,339.3 872.7 761.4 53% 15%

Interestexpense

100.4 112.2 99.6 11% (13)%Interestincome

(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%

Advertisingexpenses

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

Grossmargin

63.1% 60.3% 61.0% 2.8 (.7)Selling, general and administrative expenses as a % of totalrevenue 50.5% 51.6% 52.3% 1.1 .7Operatingmargin

12.5% 8.8% 8.7% 3.7 .1Effective tax

rate

29.3% 33.0% 31.8% 3.7 (1.2)

Units sold 1% 7%ActiveRepresentatives

7% 9%

* Calculation notmeaningfulAdvertising expenses are included within selling, general and administrative

expenses.(1)

Total RevenueTotal revenue increased 8% in 2008, with foreign exchange contributing 3 percentage points to the revenue growth. Revenue grew inallsegments, except North America. Revenue growth was driven by an increase of 7% in ActiveRepresentatives.On a category basis, the 2008 increase in revenue was primarily driven by an increase of 10% in Beauty sales, with increases in allsub-categories of Beauty. Within the Beauty category, fragrance grew 9%, color grew 11%, skin care grew 10%, and personal care grew8%.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 ActiveRepresentatives,while foreign exchange contributed 5 percentage points to the revenue growth. Additional selling opportunities in Central & EasternEuropehad a minimal impact on Active Representativegrowth.On a category basis, the 2007 increase in revenue was primarily driven by an increase of 15% in Beauty sales. Within the Beautycategory,fragrance increased 20%, color increased 16%, skin care increased 6% and personal care increased 21%. Fashion sales increased 12%andHome sales increased6%.For additional discussion of the changes in revenue by segment, see the “Segment Review” section of this Management’s DiscussionandAnalysis of Financial Condition and Results of Operations.

GrossMarginGross margin increased 2.8 points in 2008, primarily due to a decrease in inventory obsolescence provisions in 2008, which benefited

grossmargin by 2.0 points, and from increased pricing and favorable product mix, which benefited gross margin by 1.3 points. These benefitstogross margin were partially offset by higher commodity costs and the unfavorable impact of foreign exchange on product cost in Europe.2007included incremental inventory obsolescence charges of $167.3 related to our PLS program. Obsolescence expense for 2008 also benefited

byapproximately $13 from changes in estimates to our disposition plan under our PLS program.

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Gross margin decreased .7 point in 2007, primarily due to an increase in inventory obsolescence provisions of approximately $100 in2007,which negatively impacted gross margin by 1.1 points, and an unfavorable mix of products sold, partially offset by supply chainefficiencies.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 includedincrementalinventory 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 thefollowing:• higher investments in RVP and advertising of approximately$105;• higher variable expenses such as freight from increased sales volume and brochurecosts;• higher overhead primarily due to higher marketing costs;and• the impact of foreignexchange.

These higher costs were partially offset by lower costs incurred to implement our restructuring initiatives of $99.8, due to costsassociatedwith previously approvedinitiatives.Selling, general and administrative expenses increased $538.8 during 2007, primarily due to thefollowing:• 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 associatedwith position eliminations resulting from restructuring initiatives. Additionally, 2007 benefited from a favorable comparison to 2006 whichincludeda one-time charge of $21.0 related to the resolution of a long-standing dispute regarding value-added taxes in the U.K., the recognitionof unclaimed sales-related tax credits and a reduction of a reserve for statutoryliabilities.See the “Segment Review” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additionalinformation related to changes in operating margin bysegment.

Other ExpensesInterest expense decreased in 2008, primarily due to lower domestic interest rates. Interest expense increased in 2007 as compared to2006,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 interestrates atDecember 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, primarilydue tolower 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 in2007.Other expense, net decreased in 2007 as compared to 2006, primarily due to higher net foreign exchange gains in2007.

Effective Tax RateThe 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 theestablishmentof a valuation allowance against deferred tax assets. The rate was also favorably impacted by changes in the earnings mix of

internationalsubsidiaries, which is not expected to recur. During 2007, the tax rate was favorably impacted by approximately 2.0 points due to the netreleaseof valuation allowances, partially offset by the unfavorable impact of restructuring and PLS initiatives. During 2006, the effective tax ratewasfavorably impacted by approximately 4.0 points due to the closure of tax years by expiration of the statute of limitations and auditsettlementsas well as 1.7 points due to tax refunds. These benefits were partially offset by the repatriation of international earnings, which increasedtherate by approximately 3.1 points, and the tax impact associated with our restructuring charges due to the lower weighted-average effectivetaxrate of subsidiaries incurring thecharges.

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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 e nde d Dece mber 31 2008 2007 2006

Total O pe rating Total O pe rating Total Operating

Re ve nu e Profit Reven ue Profit Re ve nu e 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 2,554.0 181.6Central & EasternEurope

1,719.5 346.2 1,577.8 296.1 1,320.2 296.7Western Europe, Middle East &Africa

1,351.7 121.0 1,308.6 33.9 1,123.7 (17.8)AsiaPacific

891.2 102.4 850.8 64.3 810.8 42.5China 350.9 17.7 280.5 2.0 211.8 (10.8)

Total fromoperations

10,690.1 1,491.5 9,938.7 1,092.5 8,763.9 916.2Global 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, informationtechnology,research and development, and marketing. Certain planned global expenses are allocated to our business segments primarily based on

plannedrevenue. The unallocated costs remain as global and other expenses. We do not allocate costs of implementing restructuring initiativesrelatedto our global functions to our segments. Costs of implementing restructuring initiatives related to a specific segment are recorded within

thatsegment.

2008 2007 % Ch an ge 2007 2006 % C h ange

Total globalexpenses

$ 534.5 $ 552.6 3% $ 552.6 $ 463.6 (19)%Allocated tosegments

(382.3) (332.8) 15% (332.8) (308.8) 8%

Net globalexpenses

$ 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 anddevelopmentcosts, higher information technology costs and higher costs related to global initiatives. The decrease in net global expenses was

primarilydue to lower costs to implement restructuring initiatives and lower professional service fees associated with our PLSinitiative.The increase in the amount allocated to the segments in 2007 was primarily due to higher global marketing costs, reflecting increasedspendingfor market research, research and development, and advertising. The increase in net global expenses in 2007 was primarily due to higher costsrelated to global initiatives, higher information technology costs and higher performance-based compensationexpense. Latin America – 2008 Compared to

2007

%/Poin t Chan ge

Local

2008 2007 US$ Curren cy

Total revenue $3,884.1 $3,298.9 18% 14%Operating

profit690.3 483.1 43% 38%

Operatingmargin

17.8% 14.6% 3.2 3.0

Units sold 4%ActiveRepresentatives

6%

Total revenue increased for 2008, driven by a larger average order and growth in Active Representatives, as well as favorable

foreignexchange. Growth in Active Representatives reflects significant investments in RVP and a continued high level of investment inadvertising.Revenue for 2008 benefited from continued growth in substantially all markets. In particular, during 2008, revenue grew 24% in Brazil, 36%inVenezuela, 5% in Mexico and 3%in

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

byhigher investments in RVP. Operating margin for 2007 benefited from the recognition of unclaimed sales-related taxcredits.

Currency restrictions enacted by the Venezuelan government in 2003 have impacted the ability of our subsidiary in Venezuela(“AvonVenezuela”) to obtain foreign currency at the official rate to pay for imported products. Unless official foreign exchange is made morereadilyavailable, Avon Venezuela’s operations will continue to be negatively impacted as it will need to obtain more of its foreign currencyneedsfrom non-government sources where the exchange rate is less favorable than the officialrate.At December 31, 2008, Avon Venezuela had cash balances of approximately $120, primarily denominated in bolivars. During 2007,AvonVenezuela remitted dividends of approximately $40 at the official exchange rate. Avon Venezuela continues to receive official foreignexchangefor some of its imports and other remittances. We continue to use the official rate to translate the financial statements of Avon VenezuelaintoU.S. dollars. During 2008, Avon Venezuela’s revenue and operating profit represented approximately 4% and 8% of consolidated revenueandconsolidated 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 ahighlyinflationary economy during 2009. Gains and losses resulting from the translation of the financial statements of subsidiariesoperating inhighly inflationary economies are recorded in earnings. If Venezuela is designated as a highly inflationary economy and there is a

devaluationof 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 benegativelyimpacted by approximately $30. Additionally, revenue and operating profit on an ongoing basis would be impacted by thedevaluation.

Latin America – 2007 Compared to2006

%/Poin t Chan ge

Local



profit483.1 424.0 14% 3%

Operatingmargin

14.6% 15.5% (.9) (1.3)


8%

Total revenue increased during 2007, driven by growth in Active Representatives, reflecting significant investments in advertising andRVP,and a larger average order, as well as favorable foreign exchange. Revenue for 2007 benefited from growth in most markets, particularlyfromgrowth of approximately 30% in each of Brazil, Colombia andVenezuela.Revenue growth in Brazil for 2007 was driven by increases in both average order and Active Representatives, primarily due tosignificantinvestments in advertising and RVP, recruiting advertising and field incentives, as well as favorable foreign exchange. Revenue in Mexicowasflat in 2007, as a mid-single digit increase in Active Representatives was offset by a lower average order. The increase inActiveRepresentatives in Mexico primarily reflects strengthened training and incentives and the retraining of our zone managers infieldfundamentals. The lower average order was mainly due to product mix and a higher share of sales from newRepresentatives.The decrease in operating margin for 2007 was primarily driven by higher spending on advertising and RVP and an unfavorable mixof products sold. These higher costs were partially offset by the impact of higher revenue, lower costs to implement restructuringinitiatives,which positively impacted operating margin by .8 point, savings associated with position eliminations resulting from restructuring

initiatives,and the recognition of unclaimed sales-related taxcredits.

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Table of Contents

North America – 2008 Compared to2007

%/Point Ch ange

Local

2008 2007 US$ Cu rre ncy

Total revenue $2,492.7 $2,622.1 (5)% (5)%Operating

profit213.9 213.1 0% 1%

Operating

margin

8.6% 8.1% .5 .5

Units sold (4)%ActiveRepresentatives

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

productsdeclined 1% in 2008. Given the economic environment, we expect these trends tocontinue.Total revenue decreased for 2008, as the lower average order received from Representatives more than offset an increase inActiveRepresentatives. Growth in Active Representatives benefited from continued investments in RVP, including more frequent

brochuredistribution 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 recessionaryenvironment.

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

North America – 2007 Compared to2006

%/Poin t Chan ge

Local



profit213.1 181.6 17% 15%

Operatingmargin

8.1% 7.1% 1.0 .9


3%

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

The increase in operating margin for 2007 was primarily driven by lower costs to implement restructuring initiatives, which positivelyimpactedoperating margin by 1.9 points, savings associated with position eliminations resulting from restructuring initiatives and supplychainefficiencies. These benefits to operating margin were partially offset by higher inventory obsolescence expense, higher spendingonadvertising and RVP, and costs related to the implementation of an enterprise resource planningsystem.

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Table of Contents

Central & Eastern Europe – 2008 Compared to2007

%/Poin t Chan ge

Local



profit346.2 296.1 17% 11%

Operating

margin

20.1% 18.8% 1.3 1.1


12%

Beginning at the end of June 2007, we provided our Representatives with additional selling opportunities through more frequent brochuredistribution, which encourages more frequent customer contact. Active representative growth during the first half of 2008 benefited fromtheincreased brochure distributionfrequency.Total revenue increased for 2008, reflecting growth in Active Representatives, as well as favorable foreign exchange, partially offset by alower average order. Average order was impacted by a lower average order during the first half of 2008 as our Representatives transitioned totheshorter 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

byUkraine with growth of over 20%. The revenue increase in Russia for 2008 was primarily due to strong growth in Active Representatives,aswell 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 expenseandincreased pricing, partially offset by higher spending on RVP and advertising, and the impact of unfavorable foreign exchange on

productcost.

Central & Eastern Europe – 2007 Compared to2006

%/Point Change

Local



profit296.1 296.7 — % (12)%

Operating

margin

18.8% 22.5% (3.7) (4.3)


13%

Total revenue increased for 2007, reflecting growth in Active Representatives, as well as favorable foreign exchange, partially offset by alower average order as our Representatives transitioned to a shorter selling cycle. Active Representative growth for 2007 benefited fromadditionalselling opportunities that we provided to our Representatives through more frequent brochure distribution beginning at the end of June2007,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 inRussiaincreased over 20% for 2007 due to strong Active Representative growth, which benefited from the additional selling opportunities, as wellasfavorable foreign exchange. Revenue in Russia for 2007 also benefited from increased advertising, continued merchandisingimprovements,and the launch of “HelloTomorrow.”The decrease in operating margin for 2007 was primarily driven by higher inventory obsolescence expense, higher spending on

advertisingand RVP, partially offset by lower product costs due to favorable foreign exchange movements and the impact of higher revenue.

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Table of Contents

Western Europe, Middle East & Africa – 2008 Compared to2007

%/Point Change

Local



profit121.0 33.9 * *

Operating

margin

8.9% 2.6% 6.3 6.8

Units sold (3)%ActiveRepresentatives

4%

* Calculation notmeaningfulTotal revenue increased for 2008 due to growth in Active Representatives and a higher average order, partially offset by unfavorableforeignexchange. Revenue growth for 2008 was driven by Italy andTurkey.Revenue in the United Kingdom in 2008 declined 3% due to unfavorable foreign exchange. Revenue in the United Kingdom in localcurrencyincreased, driven by an increase in Active Representatives, benefiting from investments in representative recruiting. Revenue in theUnitedKingdom also benefited from the continued roll-out of PLS and strong merchandising. Revenue growth in Turkey of 8% for 2008 was due toalarger average order. Revenue in Turkey also benefited from continued high levels of investments in advertising and RVP. Revenue in Italyin2008 increased due to growth in ActiveRepresentatives.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 marginwere partially offset by the impact of unfavorable foreign exchange on product cost and higher spending on RVP andadvertising.

Western Europe, Middle East & Africa – 2007 Compared to

2006

%/Point Change

Local



profit33.9 (17.8) * *

Operatingmargin

2.6% (1.6)% 4.2 3.1

Units sold 6%Active

Representatives

7%

* Calculation notmeaningfulTotal revenue increased for 2007 reflecting growth in Active Representatives, as well as favorable foreign exchange. The revenue increasefor 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 growthinActive Representatives, as well as favorable foreign exchange. Revenue growth in the U.K. of over 10% in 2007 benefited from growthinActive Representatives, mainly due to the strength of the Sales Leadership program, and favorable foreign exchange. Revenue in Turkeyandthe U.K. also benefited from new product launches and significant investments in advertising andRVP.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 disputeinthe U.K. in the third quarter of 2006. The increase in operating margin for 2007 was also driven by lower product costs due to favorableforeignexchange movements and savings associated with position eliminations resulting from restructuring initiatives. These benefits tooperatingmargin were partially offset by higher costs to implement restructuring initiatives, which negatively impacted operating margin by 1.1

points in2007, higher spending on advertising and RVP and higher inventory obsolescence

expense. 33




Table of Contents

Asia Pacific – 2008 Compared to2007

%/Point Change

Local


Total revenue $891.2 $850.8 5% 0%Operating

profit102.4 64.3 59% 54%

Operating

margin

11.5% 7.6% 3.9 4.0


4%

Total revenue increased for 2008 due to foreign exchange. Revenue growth in the Philippines of almost 20%, was primarily due to growthinActive Representatives, supported by RVP initiatives, as well as favorable foreign exchange. Revenue in Japan increased slightly duetoforeign exchange. Revenue in Japan in local currency declined in 2008 due to lower sales from both direct mail and direct selling. We expecttocontinue to see downward pressure in Japan going forward. Revenue in Taiwan declined in 2008, reflecting the impact of a fieldrestructuringand economic weakness, partially offset by favorable foreignexchange.Operating margin increased for 2008, primarily due to the impact of lower inventory obsolescence expense, increased pricing andlower overhead expenses, partially offset by higher spending on RVP and an unfavorable mix of productssold.

Asia Pacific – 2007 Compared to

2006

%/Point Change

Local


Total revenue $850.8 $810.8 5% (1)%Operating

profit64.3 42.5 51% 35%

Operatingmargin

7.6% 5.2% 2.4 1.9


4%

Total revenue increased for 2007 due to favorable foreign exchange. The region’s revenue increase for 2007 was primarily driven by growthinthe Philippines, partially offset by declines in Japan and Taiwan. Revenue in the Philippines for 2007 increased almost 30%, driven

bysubstantial growth in Active Representatives, supported by RVP initiatives, including the roll-out of the Sales Leadership programnationwide,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 fromdirectselling. While less than the overall revenue decline in the beauty market, revenue in Taiwan declined due to economicweakness.The increase in operating margin for 2007 was primarily driven by lower costs to implement restructuring initiatives, which positivelyimpactedoperating margin by 2.2 points. Additionally, the operating margin improvement was due to lower inventory obsolescence expenseandsavings associated with position eliminations resulting from restructuring initiatives, partially offset by higher spending on RVPandadvertising and unfavorable category and country mixes of productssold.

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Table of Contents

China – 2008 Compared to 2007

%/Point Change

Local



profit17.7 2.0 * *

Operating

margin

5.0% .7% 4.3 4.1


79%

* Calculation notmeaningfulRevenue in China increased for 2008, primarily due to an increase in Active Representatives, partially offset by a lower average order.Thegrowth in Active Representatives reflected continued expansion of our direct selling efforts, which were supported withsignificantRepresentative recruiting, television advertising and field incentives. The lower average order resulted from the continued expansion of directselling, as Representatives order in smaller quantities than beauty boutiques, and orders from new Representatives tend to be smaller thantheaverage direct selling order. Beauty boutique ordering activity levels have remained steady during this extended period of directsellingexpansion, 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 byongoing 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 statutoryliabilities.For information concerning an internal investigation into our China operations, see Risk Factors and Note 15,Contingencies.

China – 2007 Compared to 2006

%/Point Change

Local



profit2.0 (10.8) * *

Operatingmargin

.7% (5.1)% 5.8 5.5


145%

* Calculation notmeaningfulTotal revenue in China increased significantly in 2007, primarily due to an increase in Active Representatives reflecting further expansionof the direct-selling business, which contributed over one half of the region’s revenue in 2007. Active Representatives increased significantlyin2007 due to Representative recruiting, as well as the absence of a meaningful base comparison for the first half of 2006. The lower averageorder was mainly due to a higher share of sales from new Representatives. At the same time that we have been building on direct selling,wehave seen ordering activity levels maintained by our beauty boutiques as they continue to engage in direct selling by servicingour Representatives. Additionally, the number of beauty boutiques has remained stable over the last year. Revenue in 2007 benefitedfromrepresentative recruiting and continued significant investments inadvertising.

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

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Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of funds historically have been cash flows from operations, commercial paper and borrowings under lines of credit.Wecurrently believe that existing cash, cash from operations (including the impacts of cash required for restructuring initiatives) andavailablesources of public and private financing are adequate to meet anticipated requirements for working capital, dividends, capital expenditures,theshare repurchase program, possible acquisitions and other cash needs in the short and longterm.We may, from time to time, seek to repurchase our equity in open market purchases, privately negotiated transactions, pursuant toderivativeinstruments or otherwise. During 2008, we repurchased approximately 4.6 million shares of our common stock for an aggregate purchase

priceof approximately$172.Retirements of debt will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors, andtheamounts involved may be material. We may also elect to incur additional debt or issue equity or convertible securities to financeongoingoperations, acquisitions or to meet our other liquidityneeds.Any issuances of equity securities or convertible securities could have a dilutive effect on the ownership interest of our currentshareholdersand 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 processof discussing and negotiating an acquisition. An acquisition may be accretive or dilutive and by its nature, involve numerous risksanduncertainties. See our Cautionary Statement for purposes of the “Safe Harbor” Statement under the Private Securities Litigation Reform Actof 1995.

While recent turmoil in global financial markets has limited access to capital for many companies, in 2008 we did not experience anylimitationsin 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 “CapitalResources”.Management is not aware of any issues currently impacting our lenders’ ability to honor their commitment to extend credit under therevolvingline of credit. It is unclear the extent to which this credit crisis will persist and what overall impact it may have onAvon.

Balance Sheet Data

2008 2007

Cash and cashequivalents

$1,104.7 $ 963.4Total debt 2,487.6 2,097.4Workingcapital

644.7 462.0

Cash Flows

2008 2007 2006

Net cash provided by operatingactivities

$ 748.1 $ 589.8 $ 796.1 Net cash used by investingactivities

(403.4) (287.2) (207.9) Net cash used by financingactivities

(141.5) (597.1) (490.4)Effect of exchange rate changes on cash andequivalents

(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 incomein2008, favorable impacts of inventory and accounts receivable balances and lower contributions to retirement-related plans in 2008. Thesecashinflows were partially offset by the unfavorable impact of the accounts payable balance, additional payments of value added taxes due to ataxlaw change in Brazil that we began to recover during the fourth quarter of 2008, higher incentive-based compensation payments in 2008relatedto our 2006-2007 Turnaround Incentive Plan and a payment of $38.0 upon settlement of treasury lock agreements associated with our $500debtissuance 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 foreignexchange, partially offset by business growth and revenue declines in North America. New inventory life cycle management

processesleveraged with initiatives such as PLS, SSI, ERP implementation and the Sales and Operations Planning process are expected toimproveinventory levels in the long-term. Inventory days are down three days in 2008 as compared to 2007, and we expect our initiatives to helpusdeliver improvements of three to five inventory day reductions per year for the next three to four years.

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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 planswilldepend on economic conditions, employee demographics, mortality rates, the number of associates electing to take lump-sumdistributions,investment performance and funding decisions. Based on current assumptions, we expect to make contributions in the range of $60 to $100toour U.S. pension plans and in the range of $20 to $30 to our international pension plans during2009.

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 restructuringinitiatives.

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. 2007included a payment associated with an acquisition of a licensee inEgypt.Capital expenditures during 2008 were $380.5 compared with $278.5 in 2007. This increase was primarily driven by capital spending in 2008for the construction of new distribution facilities in North America and Latin America, and information systems (including thecontinueddevelopment of the ERP system). Plant construction, expansion and modernization projects were in progress at December 31, 2008, withanestimated cost to complete of approximately $430. Capital expenditures in 2009 are currently expected to be in the range of $325 to $375 andwill be funded by cash from operations. These expenditures will include investments for capacity expansion, modernization of existingfacilities,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, andfrom payments associated with an acquisition of a licensee in Egypt during 2007, partially offset by the acquisition of the remainingminorityinterest in our two joint venture subsidiaries in China for approximately $39 during2006.Capital expenditures during 2007 were $278.5 compared with $174.8 in 2006. The increase in capital spending was primarily driven byspendingin 2007 for capacity expansion, the construction of a new distribution facility in North America and information systems (includingthecontinued development of the ERPsystem).

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 commonstock 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

during2007, partially offset by higher short-term borrowings and higher proceeds from stock option exercises during2007.We purchased approximately 4.6 million shares of Avon common stock for $172.1 during 2008, as compared to approximately 17.3millionshares of Avon common stock for $666.8 during 2007 and approximately 11.6 million shares of Avon common stock for $355.1 during2006,under our previously announced share repurchase programs and through acquisition of stock from employees in connection withtax payments upon vesting of restricted stock units. In October 2007, the Board of Directors authorized the repurchase of $2,000.0 of our commonstock 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 approvedanincrease in the quarterly dividend to $.21 per share.

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Table of Contents

Debt and Contractual Financial Obligations and

CommitmentsAt December 31, 2008, our debt and contractual financial obligations and commitments by due dates were asfollows:

2014

and

2009 2010 2011 2012 2013 Beyon d Total

Short-termdebt

$1,027.1 $ — $ — $ — $ — $ — $1,027.1Long-term

debt

— — 500.0 — 375.0 500.0 1,375.0

Capital leaseobligations

4.3 4.3 2.8 2.5 0.8 — 14.7Total debt 1,031.4 4.3 502.8 2.5 375.8 500.0 2,416.8Debt-relatedinterest

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 2,771.8Operatingleases

87.9 61.6 42.7 21.8 17.0 45.6 276.6Purchaseobligations

106.3 55.3 25.8 17.7 16.1 49.9 271.1Benefitobligations

77.4 13.9 11.6 10.4 11.3 50.4 175.0(1)

Total debt and contractual financial obligations andcommitments

$1,393.7 $204.0 $638.7 $95.2 $454.0 $ 708.9 $3,494.5( 2)

Amounts represent expected future benefit payments for our unfunded pension and postretirement benefit plans, as well asexpected

(1)

contributions for 2009 to our funded pension benefit plans.The amount of debt and contractual financial obligations and commitments excludes amounts due pursuant to derivativetransactions.

(2)

The table also excludes information on recurring purchases of inventory as these purchase orders are non-binding, aregenerallyconsistent from year to year, and are short-term in nature. The table does not include any reserves for income taxes under FIN 48

becausewe 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 contractualfinancialobligations and commitments. Additionally, as disclosed in Note 14, Restructuring Initiatives, we have a remaining liability of $93.9 atDecember 31, 2008, associated with the restructuring charges recorded to date, and we also expect to record additional restructuring chargesof $21.9 in future periods to implement the actions approved to date. The significant majority of these liabilities will require cash paymentsduring2009.

Off Balance Sheet

ArrangementsAt December 31, 2008, we had no material off-balance-sheetarrangements.

Capital Resources

We have a five-year, $1,000.0 revolving credit and competitive advance facility (the “credit facility”), which expires in January 2011. Thecreditfacility may be used for general corporate purposes. The interest rate on borrowings under this credit facility is based on LIBOR or onthehigher of primeor

/ % plus the federal funds rate. The credit facility has an annual fee of $.7, payable quarterly, based on our currentcredit

21

ratings. The credit facility contains various covenants, including a financial covenant which requires Avon’s interest coverageratio(determined in relation to our consolidated pretax income and interest expense) to equal or exceed 4:1. The credit facility also providesfor possible increases by up to an aggregate incremental principal amount of $250.0, subject to the consent of the affected lenders under thecreditfacility. At December 31, 2008, there were no amounts outstanding under the creditfacility.We have a $1,000.0 commercial paper program. Under this program, we may issue from time to time unsecured promissory notes inthecommercial paper market in private placements exempt from registration under federal and state securities laws, for a cumulative faceamountnot 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. Thecommercial paper program is supported by our credit facility. Outstanding commercial paper effectively reduces the amount available for borrowingunder 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”),whichexpires in August 2009. Borrowings under the yen credit facility bear interest at theyen

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Table of Contents

LIBOR rate plus an applicable margin. The yen credit facility is available for general corporate purposes, including working capital andtherepayment of outstanding indebtedness. At December 31, 2008, $102.0 (Japanese yen 9.2 billion) was outstanding under the yen creditfacility.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 annumcouponrate equal to 4.8%, payable semi-annually, and mature on March 1, 2013, unless redeemed prior to maturity (the “2013 Notes”). $250.0 of thenotes bear interest at a per annum coupon rate of 5.75%, payable semi-annually, and mature on March 1, 2018, unless redeemed prior tomaturity (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

notionalamounts totaling $500.0 designated as cash flow hedges of the anticipated interest payments on $250.0 principal amount of the 2013 Notesand$250.0 principal amount of the 2018 Notes. The losses on the locks of $38.0 were recorded in accumulated other comprehensive loss. $19.2and$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 indenturesdonot contain any rating downgrade triggers that would accelerate the maturity of our debt. However, we would be required to make an offer torepurchase the 2013 Notes and 2018 Notes at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest intheevent of a change in control involving Avon and a corresponding ratings downgrade to below investmentgrade.

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 foreignexchangeand interest rates arising from our business activities. We may reduce our exposure to fluctuations in cash flows associated withchanges ininterest rates and foreign exchange rates by creating offsetting positions through the use of derivative financial instruments and

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

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 onthedebt to a floating interest rate, to manage our interest rate exposure. At December 31, 2008 and 2007, we held interest rate swapagreementsthat effectively converted approximately 50% and 30% of our outstanding long-term, fixed-rate borrowings to a variable interest rate basedonLIBOR, respectively. Avon’s total exposure to floating interest rates at December 31, 2008, and December 31, 2007, was approximately 65%and60%,respectively.Our long-term borrowings and interest rate swaps were analyzed at year-end to determine their sensitivity to interest rate changes. Basedonthe outstanding balance of all these financial instruments at December 31, 2008, a hypothetical 50-basis-point change (either an increaseor adecrease) in interest rates prevailing at that date, sustained for one year, would not represent a material potential change in fair value,earningsor cash flows. This potential change was calculated based on discounted cash flow analyses using interest rates comparable to our currentcost 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 foreignoperations is the local currency. We are exposed to changes in financial market conditions in the normal course of our operations,

primarilydue to international businesses and transactions denominated in foreign currencies and the use of various financial instruments to

fundongoing activities. At December 31, 2008, the primary currencies for which we had net underlying foreign currency exchange rateexposureswere 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

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We may reduce our exposure to fluctuations in cash flows associated with changes in foreign exchange rates by creating offsetting positionsthrough the use of derivative financialinstruments.Our hedges of our foreign currency exposure are not designed to, and, therefore, cannot entirely eliminate the effect of changes inforeignexchange rates on our consolidated financial position, results of operations and cashflows.Our foreign-currency financial instruments were analyzed at year-end to determine their sensitivity to foreign exchange rate changes. Basedonour 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 potentialchange does not consider our underlying foreign currency exposures. The hypothetical impact was calculated on the open positionsusingforward rates at December 31, 2008, adjusted for an assumed 10% appreciation or 10% depreciation of the U.S. dollar against thesehedgingcontracts.

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

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 ontheunderlying items being hedged as a result of changes in foreign exchange and interestrates.

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 containedherein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Notapplicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and

ProceduresAs of the end of the period covered by this report, our principal executive and principal financial officers carried out an evaluation of

theeffectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Actof 1934 (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, management recognizes that any controlsand procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired controlobjectives,and management was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upontheir evaluation, the principal executive and principal financial officers concluded that our disclosure controls and procedures were effectiveas of December 31, 2008, at the reasonable assurance level. Disclosure controls and procedures are designed to ensure that information relatingtoAvon (including our consolidated subsidiaries) required to be disclosed by us in the reports we file under the Exchange Act isrecorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms andtoensure that information required to be disclosed is accumulated and communicated to management to allow timely decisionsregardingdisclosure.

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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 isdefinedin Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is defined as a process designed by, or under thesupervision of, Avon’s principal executive and principal financial officers and effected by Avon’s board of directors, management andother personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles, and includes those policies and proceduresthat: • pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of

theassets of Avon;• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statementsinaccordance with generally accepted accounting principles, and that receipts and expenditures of Avon are being made onlyinaccordance 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’sassets that could have a material effect on the financialstatements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of itsinherentlimitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject tolapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusionor 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, andit is possible to design into the process safeguards to reduce, though not eliminate, thisrisk.Under the supervision and with the participation of our management, including its principal executive and principal financial officers,weassessed as of December 31, 2008, the effectiveness of our internal control over financial reporting. This assessment was based oncriteriaestablished in the framework in

Internal Control-Integrated Framework

issued by the Committee of Sponsoring Organizations of theTreadway Commission. Based on our assessment using those criteria, our management concluded that our internal control over

financialreporting as of December 31, 2008, waseffective.PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the financial statements included in this2008Annual 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 inour internal control over financial reporting that occurred during our last fiscal quarter (the registrant’s fourth fiscal quarter in the case

of anannual report) have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based ontheevaluation we conducted, management has concluded that no such changes haveoccurred.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.Theimplementation of a worldwide ERP system will likely affect the processes that constitute our internal control over financial reporting andwillrequire testing for effectiveness.We completed implementation in certain significant markets and will continue to roll-out the ERP system over the next several years. Aswithany new information technology application we implement, this application, along with the internal controls over financial reportingincludedin 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 internalcontrolover financialreporting.

ITEM 9B. OTHER INFORMATION

Notapplicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

ExecutiveOfficersInformation regarding executive officers is incorporated by reference to the “Executive Officers” section of Avon’s Proxy Statement for the2009 Annual Meeting of Shareholders.

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

Code of Business Conduct and EthicsAvon’s Board of Directors has adopted a Code of Business Conduct and Ethics, amended in February 2008, that applies to all members of theBoard of Directors and to all of the Company’s employees, including its principal executive officer, principal financial officer and

principalaccounting 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,AvonProducts, Inc., 1345 Avenue of the Americas, New York, NY 10105-0196 or by sending an email to [email protected] or bycalling(212) 282-5623. Any amendment to, or waiver from, the provisions of this Code of Business Conduct and Ethics that applies to any of thoseofficers will be posted to the same location on Avon’swebsite.

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 Statementfor the 2009 Annual Meeting of Shareholders.

Material Changes in Nominating

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

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

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

FirmSee 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 consolidatedfinancialstatements andnotes.(a) 3. Index to

Exhibits

Exh ibit

Number De scription

3.1 Restated Certificate of Incorporation, filed with the Secretary of State of the State of New York on May 3, 2007 (incorporated byreference 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 onForm10-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

the6.90% Notes due 2004, and the 7.15% Notes due 2009 (incorporated by reference to Exhibit 4.2 to Avon’s Registration StatementonForm 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, asTrustee, pursuant to which the 6.90% Notes due 2004, and the 7.15% Notes due 2009 are issued (incorporated by reference to Exhibit 4.3toAvon’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$125.0aggregate principal amount of 4.625% Notes due 2013, $250.0 aggregate principal amount of 4.20% Notes due 2018 and$500.0aggregate principal amount of Avon’s 5.125% Notes due 2011 (incorporated by reference to Exhibit 4.1 to Avon’s QuarterlyReporton 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 TrustCompanyAmericas, as Trustee, pursuant to which the 4.800% Notes due 2013 are issued (incorporated by reference to Exhibit 4.1 toAvon’sCurrent 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 TrustCompanyAmericas, as Trustee, pursuant to which the 5.750% Notes due 2018 are issued (incorporated by reference to Exhibit 4.2 toAvon’sCurrent 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, asTrustee(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 Exhibit10.2to 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 10.2toAvon’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 stockholdersonMay 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 ProxyStatementas filed with the Commission on March 27, 2000 in connection with Avon’s 2000 Annual Meeting of Shareholders).

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10.5* Amendment of the Avon Products, Inc. Year 2000 Stock Incentive Plan, effective January 1, 2002 (incorporated by referencetoExhibit 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 referencetoExhibit 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 byreference 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 IncentivePlan(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 AppendixGto 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 referencetoExhibit 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 referencetoExhibit 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 referencetoExhibit 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.2005Stock 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 byreference 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

toExhibit 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 AppendixEto Avon’s Proxy Statement as filed with the Commission on March 27, 2003 in connection with Avon’s 2003 Annual Meetingof Shareholders)

.10.25* Avon Products, Inc. 2008-2012 Executive Incentive Plan (incorporated by reference to Exhibit 10.1 to Avon’s Current Report onForm8-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 tothegrantor trust (incorporated by reference to Exhibit 10.12 to Avon’s Annual Report on Form 10-K for the year ended December 31,2004).

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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 Exhibit10.1to 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 toExhibit10.1 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

toAvon’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 referencetoExhibit 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 IncentivePlanfor the Chief Executive Officer (incorporated by reference to Exhibit 10.2 to Avon’s Current Report on Form 8-K filed on March31,2006).

10.36* Restricted Stock Unit Award Agreement, dated as of July 26, 2006, by and between Avon Products, Inc. and ElizabethSmith,Executive Vice President, President North America and Global Marketing, under the Avon Products, Inc. 2005 Stock IncentivePlan(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 CharlesHerington.

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

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

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

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 CurrentReporton 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.,AvonCapital Corporation, Citibank, N.A., as Administrative Agent, Citigroup Global Markets Inc., Banc of America Securities LLC andJ.P.Morgan Securities Inc., as Joint Lead Arrangers and Joint Bookrunners, and the other lenders party thereto (incorporated

byreference 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 theregistrant.

23 Consent of PricewaterhouseCoopersLLP.

24 Power of Attorney.

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

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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 theSarbanes-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 PursuanttoSection 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 ExchangeCommission,shall modify and supersede all prior documents filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 for purposesof any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant totheSecurities Act of 1933, which incorporates by reference such Annual Report on Form 10-K.

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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 besigned on its behalf by the undersigned, thereunto duly authorized, on the20

day of February 2009.th

Avon Products, Inc.

/s/ Simon N.R.HarfordSimon N.R. HarfordGroup Vice PresidentandCorporate Controller -PrincipalAccountingOfficer

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 datesindicated.Signature Title Date

*Andrea Jung Chairman of the Board and Chief Executive Officer –

PrincipalFebruary 20, 2009

ExecutiveOfficer

*Charles W. Cramb Vice Chairman, Chief Finance and Strategy Officer –


FinancialOfficer

*Simon N.R. Harford Group Vice President and Corporate Controller –


AccountingOfficer

*

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 ElenaLagomasino

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




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AVON PRODUCTS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Page

Report of Independent Registered Public AccountingFirm

F-2

Consolidated Financial

Statements:Consolidated Statements of Income for each of the years in the three-year period ended December 31,2008

F-3Consolidated Balance Sheets at December 31, 2008 and2007

F-4Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,2008

F-5Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year periodendedDecember 31, 2008 F-6

Notes to Consolidated FinancialStatements

F-7 – F-41

Financial Statement

Schedule:Schedule II – Valuation and QualifyingAccounts

F-42

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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 changesinshareholders’ 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 periodendedDecember 31, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,thefinancial statement schedule listed in Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when

read inconjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects,effectiveinternal control over financial reporting as of December 31, 2008, based on criteria establishedin

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 andfor itsassessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal ControlOver Financial Reporting, appearing in Item 9A. Our responsibility is to express opinions on these financial statements, on the financialstatementschedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our auditsinaccordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we planand perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement andwhether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statementsincludedexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting

principlesused and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internalcontrolover financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a

materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditsalso included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide areasonable 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 uncertaintax 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 reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)

providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance withgenerallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizationsof management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of

unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation 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 maydeteriorate./s/ PricewaterhouseCoopersLLP New York, New York February 20, 2009

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AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share

data)

Years e nde d Dece mber 31 2008 2007 2006

Net sales $10,588.9 $9,845.2 $8,677.3Other revenue 101.2 93.5 86.6

Total revenue 10,690.1 9,938.7 8,763.9

Costs, expenses andother:Cost of

sales3,949.1 3,941.2 3,416.5

Selling, general and administrativeexpenses

5,401.7 5,124.8 4,586.0

Operating profit

1,339.3 872.7 761.4

Interestexpense

100.4 112.2 99.6Interestincome

(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 minorityinterest

1,238.3 796.1 703.5Incometaxes

362.7 262.8 223.4

Income before minority

interest

875.6 533.3 480.1

Minorityinterest (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 sharesoutstanding:Basic 426.36 433.47 447.40

Diluted 429.53 436.89 449.16

The accompanying notes are an integral part of thesestatements.

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AVON PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS


data)

Decem be r 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)

687.8 795.0Inventories

1,007.9 1,041.8Prepaid expenses andother

756.5 715.2

Total currentassets

3,556.9 3,515.4

Property, plant and equipment, atcostLand 85.3 71.8Buildings andimprovements

1,000.7 972.7Equipment 1,353.9 1,317.9

2,439.9 2,362.4Less accumulateddepreciation

(1,096.0) (1,084.2)

1,343.9 1,278.2Other

assets

1,173.2 922.6

Totalassets

$ 6,074.0 $ 5,716.2

Liabilities and Shareholders’

EquityCurrent

liabilitiesDebt maturing within oneyear

$ 1,031.4 $ 929.5Accounts payable 724.3 800.3Accruedcompensation

234.4 285.8Other accruedliabilities

581.9 713.2Sales and taxes other thanincome

212.2 222.3Incometaxes

128.0 102.3

Total currentliabilities

2,912.2 3,053.4

Long-termdebt

1,456.2 1,167.9Employee benefit

plans

665.4 388.7

Long-term incometaxes 168.9 208.7Other 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 and15)Shareholders’

equityCommon stock, par value $.25 – authorized 1,500 shares; issued 739.4 and 736.3shares

$ 185.6 $ 184.7Additional paid-incapital

1,874.1 1,724.6Retainedearnings

4,118.9 3,586.5Accumulated other comprehensiveloss

(965.9) (417.0)Treasury stock, at cost – 313.1 and 308.6shares

(4,537.8) (4,367.2)

Total shareholders’

equity

$ 674.9 $ 711.6

Total liabilities and shareholders’

equity

$ 6,074.0 $ 5,716.2


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AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In

millions)

Years e nde d Dece mber 31 2008 2007 2006

Cash Flows from Operating

Activities Net income $ 875.3 $ 530.7 $ 477.6Adjustments to reconcile net income to net cash provided by operating

activities:Depreciation

141.9 128.9 115.6Amortization

45.3 43.2 44.0Provision for doubtfulaccounts

195.5 164.1 144.7Provision for obsolescence

80.8 280.6 179.7Share-basedcompensation

54.8 61.6 62.9Foreign exchange losses(gains)

18.7 (2.5) 4.0Deferred incometaxes

(62.4) (112.4) (110.7)Asset write-off restructuringcharges

— .2 8.0Other 48.3 41.9 4.1

Changes in assets andliabilities:Accounts

receivable(174.6) (236.6) (180.3)

Inventories

(174.3) (341.0) (240.3)Prepaid expenses andother

(153.3) (49.1) (26.9)Accounts payable and accruedliabilities

(148.9) 169.9 323.4Income and other taxes

47.5 61.6 40.3 Noncurrent assets andliabilities

(46.5) (151.3) (50.0)

Net cash provided by operating

activities

748.1 589.8 796.1

Cash Flows from Investing

ActivitiesCapitalexpenditures

(380.5) (278.5) (174.8)Disposal of assets

13.4 11.2 16.4Acquisitions and other investingactivities

— (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 fromdebt

572.6 58.7 541.8Repayment of debt

(73.9) (18.0) (31.3)Proceeds from exercise of stock options

81.4 85.5 32.5Excess tax benefit realized from share-basedcompensation

15.1 19.6 8.1Repurchase of commonstock

(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 andequivalents

(61.9) 59.0 42.4Net increase (decrease) in cash and

equivalents

141.3 (235.5) 140.2Cash and equivalents at beginning of year

$ 963.4 $1,198.9 $1,058.7Cash and equivalents at end of year

$1,104.7 $ 963.4 $1,198.9Cash paid for:

Interest, net of amountscapitalized $ 99.6 $ 113.2 $ 76.4Income taxes, net of refundsreceived

$ 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, in2008,2007, and 2006 respectively (see Note 4, Debt and Other

Financing).The accompanying notes are an integral part of thesestatements.

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AVON PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


data)

Accum ulated

Additional O therC ommon Stock Treasury S tock

Paid-In Retained C ompre hen sive

S hare s Amount Capital Earn ings Loss Sh ares Amount Total

Balances at December 31,2005

731.37 $ 182.9 $ 1,448.7 $ 3,233.1 $ (740.9) 279.89 $(3,329.6) $ 794.2Comprehensiveincome: Net income 477.6 477.6

Foreign currency translationadjustments

103.6 103.6Changes in available-for-sale securities,netof taxes of $0 .1 .1Minimum pension liability adjustment,netof taxes of $156.8 234.6 234.6

Net derivative losses on cash flowhedges,net of taxes of

$.21.0 1.0

Total comprehensiveincome

816.9Adoption 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- basedcompensatio

n1.37 .6 93.0 (.10) 1.3 94.9

Repurchase of commonstock

11.56 (355.1) (355.1)Income tax benefits – stock transactions

8.1 8.1


732.74 $ 183.5 $ 1,549.8 $ 3,396.8 $ (656.3) 291.35 $(3,683.4) $ 790.4

Comprehensiveincome: Net income 530.7 530.7


185.7 185.7Changes in available-for-sale securities,netof taxes of $0 .1 .1Amortization of unrecognizedactuariallosses, prior service credit,

andtransition obligation, net of taxes

of $14.2 27.6 27.6 Net actuarial gains and prior servicecostarising during 2007, net of taxes of

$22.343.3 43.3


$9.5(17.4) (17.4)

Total comprehensiveincome

770.0Adoption of FIN 48 (Note 6) (18.3) (18.3)Dividends - $.74 per share

(322.7) (322.7)Exercise / vesting and expense of share-

basedcompensation

3.52 1.2 143.4 (.10) 1.2 145.8Repurchase of commonstock

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

Comprehensiveincome: Net income 875.3 875.3


(318.3) (318.3)Changes in available-for-sale securities,netof taxes of $.3 (.7) (.7)Amortization of unrecognizedactuariallosses and prior service credit, net

of taxes of $10.2 20.1 20.1 Net actuarial losses and prior servicecostarising during 2008, net of taxes of

$119.4(240.5) (240.5)


$5.1(9.5) (9.5)

Total comprehensive

income

326.4

Dividends - $.80 per share (342.9) (342.9)



Processed and formatted by SEC Watch - Visit SECWatch.comExercise / vesting and expense of share-

basedcompensation

3.16 .9 134.4 (.10) 1.5 136.8Repurchase of commonstock

4.61 (172.1) (172.1)Income tax benefits – stock transactions

15.1 15.1


739.42 $ 185.6 $ 1,874.1 $ 4,118.9 $ (965.9) 313.07 $(4,537.8) $ 674.9


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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 Busines sWhen 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 onechannel,direct selling. We manage our operations based on geographic operations and our reportable segments are Latin America; NorthAmerica;Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. We also centrally manage Global BrandMarketing,Supply Chain and Sales organizations. Beginning in the fourth quarter of 2008, we changed our product categories from Beauty, BeautyPlusand Beyond Beauty to Beauty, Fashion and Home. Beauty consists of cosmetics, fragrances, skin care and toiletries (“CFT”).Fashionconsists 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 productsand

mark. , a global cosmetics brandthat focuses on the market for young women, are included among these three categories based on product type. Sales are made to the

ultimateconsumer principally by independent AvonRepresentatives.

Principles of

ConsolidationThe consolidated financial statements include the accounts of Avon and our majority and wholly-owned subsidiaries. Intercompany

balancesand transactions areeliminated.Use of

EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles in the United States of Americarequiresus to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assetsandliabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actualresultscould differ materially from those estimates and assumptions. On an ongoing basis, we review our estimates, including thoserelated torestructuring reserves, allowances for doubtful accounts receivable, allowances for sales returns, provisions for inventoryobsolescence,income taxes and tax valuation reserves, share-based compensation, loss contingencies, and the determination of discount rate andother actuarial assumptions for pension, postretirement and postemployment benefitexpenses.

Foreign

CurrencyFinancial 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 adjustmentsarerecorded within accumulated other comprehensive loss. Financial statements of subsidiaries operating in highly inflationary economiesaretranslated using a combination of current and historical exchange rates and any translation adjustments are included in current earnings.Gainsor 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. Werecognizerevenue upon delivery, when both title and the risks and rewards of ownership pass to the independent Representatives, who areour customers. Our internal financial systems accumulate revenues as orders are shipped to the Representative. Since we report revenueupondelivery, revenues recorded in the financial system must be reduced for an estimate of the financial impact of those orders shipped butnotdelivered at the end of each reporting period. We use estimates in determining the adjustments to revenue and operating profit for ordersthathave been shipped but not delivered as of the end of the period. These estimates are based on daily sales levels, delivery lead times,grossmargin 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 currentcircumstances.

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AVON PRODUCTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other RevenueOther revenue primarily includes shipping and handling fees billed toRepresentatives.

Cash and Cash Equivalents

Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are high-quality, short-termmoneymarket 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 fundinvestments.

Inventorie

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

provision.

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

prepaidexpenses 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 theassets.The estimated useful lives generally are as follows: buildings, 45 years; land improvements, 20 years; machinery and equipment, 15 years;andoffice equipment, five to ten years. Leasehold improvements are depreciated over the shorter of the lease term or the estimated usefullife of the asset. Upon disposal of property, plant and equipment, the cost of the assets and the related accumulated depreciation are removedfromthe accounts and the resulting gain or loss is reflected in earnings. Costs associated with repair and maintenance activities are expensedasincurred.

We capitalize interest on borrowings during the active construction period of major capital projects. Capitalized interest is added to thecost 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 SoftwareCertain systems development costs related to the purchase, development and installation of computer software are capitalized andamortizedover the estimated useful life of the related project, not to exceed five years. Costs incurred prior to the development stage, as wellasmaintenance, training costs, and general and administrative expenses are expensed as incurred. At December 31, 2008 and 2007, other assetsincluded unamortized deferred software costs of $98.3 and $95.9,respectively.

Investments in Debt and EquitySecuritiesDebt and equity securities that have a readily determinable fair value and that we do not intend to hold to maturity are classified asavailable-for-sale and carried at fair value. Unrealized holding gains and losses, net of applicable taxes, are recorded as a separate componentof shareholders’ equity, net of deferred taxes. Realized gains and losses from the sale of available-for-sale securities are calculated on aspecificidentification basis. Declines in the fair values of investments below their cost basis that are judged to be other-than-temporary are

recorded inother expense, net. In determining whether an other-than-temporary decline in market value has occurred, we consider variousfactors,including the duration and the extent to which market value is belowcost.

Goodwill and Intangible

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

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AVON PRODUCTS, INC.


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

Deferred Income

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

Uncertain Tax PositionsEffective 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 atax 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 ExpensesSelling, general and administrative expenses include costs associated with selling; marketing; and distribution activities, includingshippingand handling costs; advertising; research and development; information technology; and other administrative costs, including finance,legaland human resourcefunctions.

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

g 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). Researchanddevelopment costs include all costs related to the design and development of new products such as salaries and benefits, suppliesandmaterials and facilitiescosts.

Share-based

CompensationAll share-based payments to employees are recognized in the financial statements based on their fair values using an option-pricingmodel atthe date of grant. We use a Black-Scholes-Merton option-pricing model to calculate the fair value of options.

Restructuring ReservesWe record severance-related expenses once they are both probable and estimable in accordance with the provisions of Statement of FinancialAccounting Standard (“SFAS”) No. 112, Employer’s Accounting for Post-Employment

Benefits

, for severance provided under anongoing 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 benefitarrangements 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

.

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AVON PRODUCTS, INC.


Contingencie sIn accordance with SFAS No. 5, Accounting for

Contingencies

, we determine whether to disclose and accrue for loss contingencies basedonan assessment of whether the risk of loss is remote, reasonably possible or probable. We record loss contingencies when it is probable

that aliability has been incurred and the amount of loss is reasonablyestimable.

Reclassification

sWe 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 endedDecember 31, 2007. We also reclassified $17.9 and $8.0 from changes in accounts receivable to changes in prepaid expenses and other ontheConsolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006,respectively.

Earnings per ShareWe compute basic earnings per share (“EPS”) by dividing net income by the weighted-average number of shares outstanding during theyear.Diluted EPS is calculated to give effect to all potentially dilutive common shares that were outstanding during theyear.For each of the three years ended December 31, the components of basic and diluted EPS were asfollows:

(Share s in m illions) 2008 2007 2006Numerator:

Net income $ 875.3 $ 530.7 $ 477.6Denominator:

Basic EPS weighted-average sharesoutstanding

426.36 433.47 447.40Diluted effect of assumed conversion of share-basedawards

3.17 3.42 1.76

Diluted EPS adjusted weighted-average sharesoutstanding

429.53 436.89 449.16

Earnings Per Share:

Basic $ 2.05 $ 1.22 $ 1.07Diluted $ 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 millionand12.9 million shares of Avon common stock, respectively, in the calculations of diluted EPS because the exercise prices of those optionsweregreater 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”) SFAS157,

Fair ValueMeasurements

(“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 disclosuresaboutfair value measurements. In February 2008, the FASB issued Staff Position 157-2,

Effective Date of FASB Statement No.157

, which delays theeffective date of SFAS No. 157 for nonfinancial assets and liabilities, except for those that are recognized or disclosed at fair value inthefinancial statements on a recurring basis, until January 1, 2009. The adoption of SFAS 157 did not have a material impact on our ConsolidatedFinancial Statements. See Note 8, Fair Value, for additionalinformation.Effective January 1, 2008, we adopted SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities—including

anamendment to FASB Statement No. 115 , (“SFAS 159”), which permits entities to choose to measure many financial instruments andcertainother items at fair value that are not currently required to be measured at fair value. The adoption of SFAS 159 had no impact onour Consolidated Financial Statements, as we did not choose to measure the items at fair value.

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AVON PRODUCTS, INC.


Effective January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) Interpretation No.48,

Accounting for Uncertaintyin Income Taxes – an interpretation of FASB Statement No.

109

, (“FIN 48”). See Note 6, Income Taxes, for additionalinformation.

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

additionalinformation.Effective December 31, 2006, we adopted Staff Accounting Bulletin (“SAB”) No.108,

Considering the Effects of Prior Year

Misstatementswhen Quantifying Misstatements in Current Year Financial Statements

(“SAB 108”), which provides interpretive guidance ontheconsideration 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 errorsthatwere not previously deemed material, but are material under the guidance in SAB 108. The adoption of SAB 108 had no impact onour Consolidated FinancialStatements.

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 disclosureof 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 instrumentsandhedging activities. We will be required to provide enhanced disclosures about how and why we use derivative instruments, how they

areaccounted 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

computingearnings per share (“EPS”) under the two-class method. FSP EITF 03-6-1 is effective January 1, 2009, for Avon and requires prior periodEPS presented to be adjusted retrospectively. Our grants of restricted stock and restricted stock units contain non-forfeitable rights todividendequivalents and are considered participating securities as defined in FSP EITF 03-6-1 and will be included in computing earnings per shareusing 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 materialimpacton 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 businesscombinations are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 141R iseffective January 1, 2009, for Avon and will be applied prospectively. The impact of adopting SFAS 141R will depend on the nature andtermsof futureacquisitions.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial

Statements

, (“SFAS 160”), whichchanges the accounting and reporting standards for the noncontrolling interests in a subsidiary in consolidated financial statements.SFAS160 recharacterizes minority interests as noncontrolling interests and requires noncontrolling interests to be classified as acomponent of shareholders’ equity. SFAS 160 is effective January 1, 2009, for Avon and requires retroactive adoption of the presentation anddisclosurerequirements for existing minority interests. We do not believe the adoption of SFAS 160 will have a material impact on our consolidatedfinancial statements. At December 31, 2008 and 2007, other liabilities included minority interest liabilities of $37.4 and $38.2,respectively.

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AVON PRODUCTS, INC.


NOTE 3. Inventories

Inventories at December 31 consisted of thefollowing:

2008 2007

Raw

materials

$ 292.7 $ 337.8

Finished goods 715.2 704.0Total $1,007.9 $1,041.8

NOTE 4. Debt and Other Financing

Debt Debt at December 31 consisted of thefollowing:

2008 2007

Debt maturing within oneyear: Notes payable $ 125.4 $ 76.0

Commercial paper

499.7 701.6Yen credit

facility

102.0 96.3

Euro creditfacility

— 32.87.15% Notes, due November 2009 300.0 — Current portion of long-termdebt

4.3 22.8

Total $1,031.4 $ 929.5

Long-termdebt: 7.15% Notes, due November 2009 — 300.0

5.125% Notes, due January 2011 499.7 499.64.80% Notes, due March 2013 249.2 — 4.625% Notes, due May 2013 114.1 112.05.75% Notes, due March 2018 249.2 — 4.20% Notes, due July 2018 249.7 249.1Other, payable through 2013 with interest from 1.4% to25.3%

14.7 31.0

Total long-term

debt

1,376.6 1,191.7

Adjustments for debt with fair valuehedges

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 ratesof 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 andequipment.Adjustments for debt with fair value hedges includes adjustments to reflect net unrealized gains of $80.0 and losses of $9.4 on debt withfair value hedges at December 31, 2008 and 2007, respectively, and unamortized gains on terminated swap agreements and swap agreementsnolonger designated as fair value hedges of $3.9 and $8.4 at December 31, 2008 and 2007, respectively (see Note 7, Financial Instruments andRisk Management).At December 31, 2008 and 2007, we held interest rate swap contracts that swap approximately 50% and 30%, respectively, of our long-termdebt 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 annumcouponrate equal to 4.80%, payable semi-annually, and mature on March 1, 2013, unless previously redeemed (the “2013 Notes”). $250.0 of thenotes bear interest at a

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annum coupon rate of 5.75%, payable semi-annually, and mature on March 1, 2018, unless previously redeemed (the “2018 Notes”). Thenet proceeds from the offering of $496.3 were used to repay outstanding indebtedness under our commercial paper program and for generalcorporate purposes. The carrying value of the 2013 Notes represents the $250.0 principal amount, net of the unamortized discount tofacevalue of $.8 at December 31, 2008. The carrying value of the 2018 Notes represents the $250.0 principal amount, net of theunamortizeddiscount 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 generalcorporate purposes, including the repayment of short-term domestic debt. The carrying value of the 5.125% Notes represents the $500.0

principalamount, 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 debtshelf 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.Thecarrying value of the 4.20% Notes represents the $250.0 principal amount, net of the unamortized discount to face value of $.3 and $.9atDecember 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 thecalloption associated with these Notes, and thus became the sole note holder of the Notes. Pursuant to an agreement with the sole noteholder,we modified these Notes into $125.0 aggregate principal amount of 4.625% notes due May 15, 2013. The modified principal amount

representedthe original value of the putable/callable notes, plus the market value of the related call option and approximately $4.0 principalamount of additional notes issued for cash. In May 2003, $125.0 principal amount of registered senior notes were issued in exchange for themodifiednotes 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 $1,000.0debtshelf registration statement. The transaction was accounted for as an exchange of debt instruments and, accordingly, the premiumrelated tothe original notes is being amortized over the life of the new 4.625% Notes. At December 31, 2008 and 2007, the carrying value of the4.625% Notes represents the $125.0 principal amount, net of the unamortized discount to face value and the premium related to the calloptionassociated 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 valuehedges) outstanding at December 31, 2008, are asfollows:

Afte r

2009 2010 2011 2012 2013 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. Thecreditfacility may be used for general corporate purposes. The interest rate on borrowings under the credit facility is based on LIBOR or onthehigher of primeor

/ % plus the federal funds rate. The credit facility has an annual fee of $.7, payable quarterly, based on our currentcredit

1 2ratings. The credit facility contains various covenants, including a financial covenant which requires Avon’s interest coverageratio(determined in relation to our consolidated pretax income and interest expense) to equal or exceed 4:1. At December 31, 2008 and 2007,therewere no amounts outstanding under the creditfacility.We maintain a $1,000.0 commercial paper program. Under the program, we may issue from time to time unsecured promissory notes inthecommercial paper market in private placements exempt from registration under federal and state securities laws, for a cumulative faceamountnot 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

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commercial paper program is supported by our credit facility. Outstanding commercial paper effectively reduces the amount availablefor borrowing under the credit facility. At December 31, 2008, we had commercial paper outstanding of $499.7 at an average annual interest rateof 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

(“Eurocredit facility”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd., which expired in April 2008. Borrowings under the Euro credit facility boreinterest at the Euro LIBOR rate plus an applicable margin. The Euro credit facility was available for general corporate purposes. The Eurocreditfacility 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 creditfacility.In August 2006, we entered into a one-year, Japanese yen 11.0 billion ($122.0 at the exchange rate on December 31, 2008) uncommittedcreditfacility (“yen credit facility”) with the Bank of Tokyo-Mitsubishi UFJ, Ltd. Borrowings under the yen credit facility bear interest at theyenLIBOR rate plus an applicable margin. The yen credit facility is available for general corporate purposes, including working capital andtherepayment of outstanding indebtedness. The yen credit facility was used to repay the Japanese yen 9.0 billion note which came dueinSeptember 2006, as well as for other general corporate purposes. The yen credit facility is designated as a hedge of our net investment inour Japanese subsidiary. In August 2007, we entered into an amendment of our yen credit facility that provides for the extension of the yencreditfacility until August 2008. In August 2008, we entered into another amendment of our yen credit facility that provides for the extension of theyen 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 andrestrictionson 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 ratingdowngradetriggers that would accelerate the maturity of our debt. However, we would be required to make an offer to repurchase the 2013 Notes and2018 Notes at a price equal to 101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change incontrolinvolving Avon and a corresponding ratings downgrade to below investmentgrade.At December 31, 2008, we also had letters of credit outstanding totaling $19.6, which primarily guarantee various insurance activities.Inaddition, we had outstanding letters of credit for various trade activities and commercial commitments executed in the ordinarycourse of business, such as purchase orders for normal replenishment of inventorylevels.

NOTE 5. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss at December 31 consisted of thefollowing:2008 2007


$(406.2) $ (62.5)Unrealized (losses) gains from available-for-sale securities, net of taxes of $.2 and$.1

(.3) .4Unrecognized 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 creditandtranslation obligation recorded in AOCI are included in foreign currency translation adjustments in the rollforward of AOCI ontheConsolidated Statements of Changes in Shareholders Equity for 2008 and 2007,respectively.

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NOTE 6. Income Taxes

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

2008 2007

Deferred taxassets:Postretirement

benefits$ 46.9 $ 43.0

Accrued expenses andreserves

155.0 176.7Assetrevaluations

52.7 42.6Restructuringinitiatives

12.9 48.8Employee benefit

plans261.1 197.3

Foreign operating losscarryforwards

300.9 295.8Postemployment

benefits17.0 16.1

Capitalizedexpenses

46.0 18.8Minimum tax creditcarryforwards

32.5 24.9Foreign tax creditcarryforwards

93.9 28.6All other 35.5 22.6Valuation

allowance

(284.1) (278.3)

Total deferred taxassets 770.3 636.9Deferred taxliabilities:Depreciation and

amortization(45.3) (53.9)

Prepaid retirement plancosts

(6.0) (37.4)Capitalizedinterest

(6.1) (2.1)Capitalizedsoftware

(5.4) (6.8)Unremitted foreignearnings

(19.1) (20.1)All other (34.6) (21.9)

Total deferred taxliabilities

(116.5) (142.2)

Net deferred taxassets

$ 653.8 $ 494.7

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

2008 2007

Deferred taxassets:Prepaid expenses and

other $ 194.6 $ 261.4

Other assets

502.5 272.9

Total deferred taxassets

697.1 534.3

Deferred taxliabilities:Income

taxes(7.0) (7.7)

Long-term incometaxes

(36.3) (31.9)

Total deferred taxliabilities

(43.3) (39.6)

Net deferred taxassets

$ 653.8 $ 494.7

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

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

2008 2007 2006

UnitedStates

$ (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 asfollows:

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 469.8 348.2 348.4Deferred (59.4) (75.8) (67.0)

410.4 272.4 281.4

State andother: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 asfollows:

2008 2007 2006

Statutory federalrate

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 amendedreturns (4.5) (1.0) (5.7)Repatriation of prior years foreignearnings

— — 3.1 Net change in valuationallowances

1.2 (2.0) — Other .2 .1 (.2)

Effective taxrate

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 between2009and 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 whichdonot expire, capital loss carryforwards of $7.1 that will expire in 2010, and foreign tax credit carryforwards of $93.9 that will expire between2016and 2018.

Uncertain Tax

PositionsEffective 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$18.3increase in the liability for unrecognized tax benefits (including interest and penalties), which was accounted for as a reduction to

theJanuary 1, 2007 balance of retained earnings. At December 31, 2008 and 2007, we had $104.3 and $154.3 of total gross unrecognizedtax benefits, respectively, of which approximately $91 and $141 would impact the effective tax rate, if recognized.

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

Balance at January 1,2007

$135.6Additions based on tax positions related to the currentyear

24.2Additions 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 taxauthorities

(4.4)

Balance at December 31,2007

154.3Additions based on tax positions related to the currentyear

22.2Additions for tax positions of prior years

3.9Reductions for tax positions of prior years

(59.0)Reductions due to lapse of statute of limitations

(4.2)Reductions due to settlements with taxauthorities

(12.9)


$104.3

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

benefitof $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 taxyearsthat remained subject to examination by major tax jurisdiction for our most significant subsidiaries were asfollows:

Jurisdiction O pe n Ye ars

Brazil 2003-2008China 2004-2008Mexico 2003-2008Poland 2003-2008Russia 2007-2008UnitedStates

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

withinthe next 12 months due to the closure of tax years by expiration of the statute of limitations and auditsettlements.

NOTE 7. Financial Instruments and Risk

ManagementWe operate globally, with manufacturing and distribution facilities in various locations around the world. We may reduce our exposuretofluctuations in cash flows associated with changes in interest rates and foreign exchange rates by creating offsetting positions throughtheuse of derivative financial instruments. Since we use foreign currency-rate sensitive and interest-rate sensitive instruments to hedge acertain portion of our existing and forecasted transactions, we expect that any gain or loss in value of the hedge instruments generally would beoffset by decreases or increases in the value of the underlying forecastedtransactions.We do not enter into derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives.Themaster agreements governing our derivative contracts generally contain standard provisions that could trigger early termination of thecontracts in certain circumstances, including if we were to merge with another entity and the creditworthiness of the surviving entitywere to be “materially weaker” than that of Avon prior to the

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

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

• Changes in the fair value of a derivative that is designated as a cash flow hedge are recorded in accumulated other comprehensiveloss(“AOCI”) to the extent effective and reclassified into earnings in the same period or periods during which the transaction hedged bythatderivative also affectsearnings.• Changes in the fair value of a derivative that is designated as a hedge of a net investment in a foreign operation are recorded inforeigncurrency translation adjustments within AOCI to the extent effective as ahedge.• Changes in the fair value of a derivative not designated as a hedging instrument are recognized in earnings in other expense, net ontheConsolidated Statements of Income.

Realized gains and losses on a derivative are reported on the Consolidated Statements of Cash Flows consistent with the underlyinghedgeditem.We assess, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions arehighlyeffective 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

thederivative’s gain or loss, if any, is recorded in earnings in other expense, net on the Consolidated Statements of Income. We includethechange in the time value of options in our assessment of hedge effectiveness. When we determine that a derivative is not highly effectiveas ahedge, hedge accounting is discontinued. When it is probable that a forecasted transaction will not occur, we discontinue hedgeaccountingfor the affected portion of the forecasted transaction, and reclassify gains and losses that were accumulated in AOCI to earnings inother 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 onthedebt to a floating interest rate, to manage our interest rate exposure. At December 31, 2008 and 2007, we held interest rate swapagreementsthat effectively converted approximately 50% and 30% of our outstanding long-term, fixed-rate borrowings to a variable interest rate basedonLIBOR, 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 valuehedges with unrealized gains of $3.9 and $9.7, respectively. Long-term debt at December 31, 2008 and 2007, respectively, includednetunrealized gains (losses) of $80.0 and ($9.4), respectively, on interest rate swaps designated as fair value hedges. Long-term debtatDecember 31, 2008 and 2007, also included remaining unamortized gains of $3.9 and $8.4, respectively, resulting from terminatedswapagreements and swap agreements no longer designated as fair value hedges, which are being amortized to interest expense over theremainingterms of the underlying debt. There was no hedge ineffectiveness for the years ended December 31, 2008, 2007 and 2006, related totheseinterest rateswaps.During 2007, we entered into treasury lock agreements (the “locks”) with notional amounts totaling $500.0 that expired on January 31, 2008.OnJanuary 31, 2008, we extended the maturity date of the locks to July 31, 2008 and the locks were designated as cash flow hedges of theanticipated interest payments on $250.0 principal amount of the 2013 Notes and $250.0 principal amount of the 2018 Notes. The losses onthelocks of $38.0 were recorded in accumulated other comprehensive loss. $19.2 and $18.8 of the losses are being amortized to interestexpenseover 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 possiblerisein interest rates prior to the anticipated issuance of ten- and 30-year bonds. In December 2005, we decided that a more appropriatestrategywas 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,inDecember 2005, we de-

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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 strategyinDecember 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 andis being amortized to interest expense over fiveyears.

During 2003, we entered into treasury lock agreements that we designated as cash flow hedges and used to hedge the exposure to the possiblerise 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 tointerestexpense over tenyears.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, Brazilianreal,British pound, Canadian dollar, Chinese renminbi, Colombian peso, the Euro, Japanese yen, Mexican peso, Philippine peso, Polishzloty,Russian ruble, Turkish lira, Ukrainian hryvna and Venezuelan bolivar. We use foreign currency forward contracts and options tohedge portions of our forecasted foreign currency cash flows resulting from intercompany royalties, and other third-party and intercompanyforeigncurrency transactions where there is a high probability that anticipated exposures will materialize. These contracts have been designatedascash flow hedges.

For the years ended December 31, 2008, 2007 and 2006, the ineffective portion of our cash flow foreign currency derivative instruments andthenet gains or losses reclassified from AOCI to earnings for cash flow hedges that had been discontinued because the forecastedtransactionswere not probable of occurring were notmaterial.At December 31, 2008, the maximum remaining term over which we were hedging foreign exchange exposures to the variability of cash flowsfor all forecasted transactions was 12 months. As of December 31, 2008, we expect to reclassify $27.2, net of taxes, of net losses onderivativeinstruments designated as cash flow hedges from AOCI to earnings during the next 12 months due to (a) foreign currencydenominatedintercompany 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 asfollows:

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 16.8Reclassification 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,thechange in value of the contracts is designed to offset the foreign currency impact of the underlying exposure. The change in fair value of theseinstruments is immediately recognized inearnings.We use foreign currency forward contracts and foreign currency-denominated debt to hedge the foreign currency exposure related to thenetassets of certain of our foreign subsidiaries. At December 31, 2008, we had a Japanese yen-denominated note payable to hedge our netinvestment 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 adjustmentswithinAOCI 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, recordedinaccounts payable and $8.1 and $0, respectively, recorded in prepaid expenses andother.

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

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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 isthereplacement cost at the then estimated fair value of these instruments, we believe that the risk of incurring credit risk losses is remote andthatsuch losses, if any, would not bematerial.

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 ontheunderlying items being hedged as a result of changes in foreign exchange and interestrates.

NOTE 8. Fair Value

Assets and Liabilities Measured at Fair ValueWe adopted SFAS 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring, nonfinancial assetsandliabilities which becomes effective January 1, 2009. The adoption of SFAS 157 did not have a material impact on our fair valuemeasurements.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 mostadvantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. SFAS157establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels asfollows:• 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 basisas of December 31, 2008:

Level

Leve l 1 2 Le vel 3 Total

Assets:

Available-for-salesecurities

$ 17.7 $ — $ — $ 17.7Interest-rate swapagreements

— 103.7 — 103.7Foreign exchange forwardcontracts

— 8.1 — 8.1

Total $ 17.7 $111.8 $ — $129.5

Liabilities: Interest-rate swap

agreements$ — $ 16.1 $ — $ 16.1

Foreign exchange forwardcontracts

— 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 Note11,Employee Benefit Plans). As of December 31, 2008, we have recorded a net unrealized loss of $.3 in accumulated other comprehensiveloss,within shareholders’ equity, associated with the available-for-sale securities (see Note 5, Accumulated Other Comprehensive Loss).Theforeign exchange forward contracts and interest rate swap agreements are hedges of either recorded assets or liabilities or anticipatedtransactions. Changes in values of the underlying hedged assets and liabilities or anticipated transactions are not reflected in the tableabove.

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Fair Value of Financial InstrumentsThe net asset (liability) amounts recorded in the balance sheet (carrying amount) and the estimated fair values of financialinstruments atDecember 31 consisted of thefollowing:

2008 2007

Carrying Fair Carrying Fair

Am oun t Value Am oun t Value


$ 1,104.7 $1,104.7 $ 963.4 $ 963.4Available-for-salesecurities

17.7 17.7 18.5 18.5Grantor trust cash and cashequivalents

4.7 4.7 11.0 11.0Debt maturing within oneyear

1,031.4 1,038.6 929.5 929.5Long-term debt, net of related discount or

premium1,456.2 1,346.1 1,167.7 1,178.4

Foreign exchange forwardcontracts

(10.7) (10.7) 2.8 2.8Interest-rate swap and treasury lock agreements

87.6 87.6 (29.0) (29.0)

The methods and assumptions used to estimate fair value are asfollows:

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

Debt maturing within one year and long-term debt - The fair values of all debt and other financing were determined based onquotedmarket prices.Foreign exchange forward contracts - The fair values of forward contracts were based on quoted forward foreign exchange prices atthereportingdate.Interest rate swap and treasury lock agreements - The fair values of interest rate swap and treasury lock agreements wereestimated based LIBOR yield curves at the reportingdate.

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 unitsand performance unit awards. Under the 2005 Plan, the maximum number of shares that may be awarded is 31,000,000 shares, of which no morethan8,000,000 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 newshares.We have issued stock options, restricted stock, restricted stock units and stock appreciation rights under the 2005 Plan. Stock optionawardsare granted with an exercise price equal to the closing market price of Avon’s stock at the date of grant; those option awards generally vestinthirds over the three-year period following each option grant date and have ten-year contractual terms. Restricted stock or restrictedstock units generally vest after threeyears.We recognized compensation cost of $54.8, $61.6 and $62.9 for stock options, restricted stock, restricted stock units, and stock appreciationrights, all of which was recorded in selling, general and administrative expenses, during the three years ended December 31, 2008, 2007and2006, respectively. The total income tax benefit recognized for share-based arrangements was $18.8, $20.7 and $21.5 during the threeyearsended December 31, 2008, 2007 and 2006, respectively. For the years ended December 31, 2008 and 2007, we have determined that we havea pool of windfall tax

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

2008 2007 2006

Risk-freerate

2.3% 4.5% 5.1%(1 )

Expectedterm

4 years 4 years 4 years(2 )

Expectedvolatility

28% 27% 26%(3 )

Expecteddividends

2.0% 2.1% 2.3%(4)

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, ineffect

(1)

at the time of grant.The expected term of the option is based on historical employee exercise behavior, the vesting terms of the respective optionand a

(2)

contractual life of tenyears.Expected volatility is based on the weekly historical volatility of our stock price, over a period similar to the expected life of theoption.

(3)

Assumes the current cash dividends of $.20, $.185 and $.175 per share each quarter on Avon’s common stock for options grantedduring

(4)

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 asfollows:

We ighte d- We ighte d-

Ave rage Ave rage Aggre gate

Shares Exercise Con tractual Intrin sic

(in 000’s) Price Term Value

Outstanding at January 1,2008

22,648 $ 33.25Granted 4,081 38.80Exercised (2,895) 27.34Forfeited

(249) 36.78Expired (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 optionsusing aMonte-Carlo simulationmodel.At December 31, 2008, there was approximately $23.6 of unrecognized compensation cost related to stock options outstanding. That costisexpected to be recognized over a weighted-average period of 1.6 years. We recognize expense on stock options using a gradedvestingmethod, which recognizes the associated expense based on the timing of option vestingdates.Cash proceeds, tax benefits, and intrinsic value related to total stock options exercised during 2008, 2007 and 2006, were asfollows:

2008 2007 2006

Cash proceeds from stock optionsexercised

$81.4 $85.5 $32.5Tax benefit realized for stock optionsexercised

12.2 16.8 4.1Intrinsic value of stock optionsexercised

41.5 50.5 11.7

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Restricted Stock and Restricted Stock UnitsThe fair value of restricted stock and restricted stock units granted prior to January 1, 2007, was determined based on the average of thehighand low market prices of our common stock on the grant date. Effective January 1, 2007, the fair value of restricted stock and restrictedstock 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 asfollows:

Restricte d We ighte d-

Stock Ave rage

And Units Grant-Date

(in 000’s) Fair Valu e

Nonvested at January 1, 2008 2,691 $ 34.71Granted 760 37.61Vested (486) 34.53Forfeited

(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 thevestingdates. As of December 31, 2008, there was approximately $34.2 of unrecognized compensation cost related to restricted stock and

restrictedstock unit compensation arrangements. That cost is expected to be recognized over a weighted-average period of 1.7years.

NOTE 10. Shareholders’ Equity

Stock Repurchase

ProgramIn February 2005, our Board approved a five-year, $1,000.0 share repurchase program to begin upon completion of our previoussharerepurchase program. This $1,000.0 program was completed during December 2007. In October 2007, our Board of Directors approved afive-year $2,000.0 share repurchase program (“$2.0 billion program”) which began in December 2007. We have repurchasedapproximately4.7 million shares for $178.5 under the $2.0 billion program through December 31,2008.

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NOTE 11. Employee Benefit Plans

Savings PlanWe offer a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the “PSA”), whichallowseligible 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. In2008,2007, and 2006, matching contributions approximating $13.0, $12.8 and $12.7, respectively, were made to the PSA in cash, which were thenused by the PSA to purchase Avon shares in the openmarket.

Defined Benefit Pension and Postretirement PlansAvon and certain subsidiaries have contributory and noncontributory retirement plans for substantially all employees of thosesubsidiaries.Benefits under these plans are generally based on an employee’s years of service and average compensation near retirement. Plans arefunded based on legal requirements and cashflow.We provide health care and life insurance benefits for the majority of employees who retire under our retirement plans in the U.S. andcertainforeign 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 January1,2005. Employees hired after January 1, 2005, will pay the full cost of the health care benefits uponretirement.In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans -

anamendment of FASB Statements No. 87, 88, 106 and 132R (“SFAS 158”). SFAS 158 requires, among other things, the recognition of thefunded status of pension and other postretirement benefit plans on the balance sheet. Each overfunded plan is recognized as an asset

andeach underfunded plan is recognized as a liability. The initial impact of the standard, due to unrecognized prior service costs or credits andnetactuarial gains or losses, as well as subsequent changes in the funded status, were recognized as components of accumulatedcomprehensiveloss in shareholders’ equity. Additional minimum pension liabilities and related intangible assets were also derecognized upon adoption of thenew 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. SFAS158’s provisions regarding the change in the measurement date of defined benefit and other postretirement plans had no impact as we werealreadyusing a measurement date of December 31 for our pension

plans.

Reconciliation of Benefit Obligations, Plan Assets and Funded StatusThe following table summarizes changes in the benefit obligation, plan assets and the funded status of our significant pensionand postretirement plans. We use a December 31 measurement date for all of our employee benefit

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Pe nsion Plan s Postretire me nt

U.S. Plan s Non -U.S. Plans 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)

Servicecost (17.4) (25.4) (16.7) (19.4) (3.3) (3.5)Interestcost

(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) 14.6Plan participantcontributions

— — (2.5) (3.0) (8.3) (8.6)Benefits

paid103.2 113.0 34.0 35.8 20.8 18.5

Federalsubsidy

— — — — (1.5) (1.7)Planamendments

— (4.0) — (1.1) — (1.6)Settlements/curtailments

— (4.4) 13.9 10.3 — — Special termination

benefits — (.5) — — — —

Foreign currencychanges

— — 136.3 (46.6) 3.7 (2.2)

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

Change in PlanAssets:Beginning balance $ 713.3 $ 738.8 $ 671.0 $ 573.5 $ 51.2 $ —

Actual return on planassets

(175.7) 65.3 (112.6) 25.2 (10.7) 1.2Companycontributions

14.7 22.2 40.0 79.4 14.2 58.2Federalsubsidy

— — — — 1.5 1.7Plan participantcontributions

— — 2.5 3.0 8.3 8.6Benefits

paid(103.2) (113.0) (34.0) (35.8) (20.8) (18.5)

Foreign currencychanges

— — (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 plansliability

(258.9) (84.2) (208.0) (113.4) (130.7) (122.0) Net amountrecognized

$(277.1) $ (63.4) $(217.4) $(116.0) $(134.6) $(125.7)

Pretax Amounts Recognized in Accumulated Other Comprehensive

Loss: Net actuarialloss

$ 531.4 $ 342.3 $ 274.3 $ 198.0 $ 41.5 $ 26.8Prior servicecredit

(.6) (1.5) (14.6) (23.5) (33.4) (39.8)Transitionobligation

— — .4 .6 — —

Total pretax amountrecognized

$ 530.8 $ 340.8 $ 260.1 $ 175.1 $ 8.1 $ (13.0)

Supplemental

Information:Accumulated benefitobligation

$ 707.0 $ 756.3 $ 605.5 $ 745.5 N/A N/A

Plans with Projected Benefit Obligation in Excess of Plan

Assets:Projected benefitobligation

$ 726.2 $ 93.3 $ 639.2 $ 666.0 N/A N/AFair value plan

assets

449.1 — 419.6 539.9 N/A N/A

Plans with Accumulated Benefit Obligation in Excess of PlanAssets:Projected benefit

obligation$ 726.2 $ 93.3 $ 539.4 $ 658.2 N/A N/A

Accumulated benefitobligation

707.0 84.4 522.0 640.2 N/A N/AFair value planassets

449.1 — 332.6 532.9 N/A N/A

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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 haveadequateinvestments 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

IncomePe nsion Benefits Postre tire me nt

U.S. Plans Non -U.S. Plans Benefits

2008 2007 2006 2008 2007 2006 2008 2007 2006

Net Periodic Benefit

Cost:Servicecost

$ 17.4 $ 25.4 $ 25.8 $ 16.7 $ 19.4 $ 21.4 $ 3.3 $ 3.5 $ 3.4Interestcost

45.4 47.3 48.4 41.9 38.2 34.2 10.5 10.2 10.5Expected return on planassets

(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 actuarialLosses

28.4 36.0 33.1 10.7 13.9 11.5 .9 1.5 1.9Amortization of transitionobligation

— — — .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 benefitcost

$ 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 costduring2009 are asfollows:

Pension Ben efits Postretire me nt

U.S . Plans Non-U.S. Plans Benefits

Net actuarialloss

$ 32.2 $ 12.1 $ 2.9Prior servicecredit

(.1) (1.0) (6.0)Transitionobligation

— .1 —

Assumption sWeighted-average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of December 31

wereasfollows:

Pension Ben efits Postretire me nt

U.S. Plans Non-U.S. Plan s Benefits

2008 2007 2008 2007 2008 2007

Discountrate

6.05% 6.20% 6.17% 5.56% 6.23% 6.26%Rate of compensationincrease

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 bondsthatreceive a high-quality rating from a recognized rating agency. The discount rates for our most significant plans, were based on the internalrateof 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,anexpectation for each plan’s investment strategies, historical rates of return and current economic forecasts, among other factors. We

evaluatethe expected rate of return on plan assets annually and adjust asnecessary.

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Weighted-average assumptions used to determine net cost recorded in the Consolidated Statements of Income for the yearsendedDecember 31 were asfollows:

Pe nsion Ben efits

U.S. Plan s Non -U.S. Plans Postre tire me nt Be ne fits

2008 2007 2006 2008 2007 2006 2008 2007 2006Discountrate

6.20% 5.90% 5.50% 5.56% 4.93% 5.01% 6.26% 5.90% 6.33%Rate of compensationincrease

4.00 5.00 6.00 3.10 2.99 3.14 N/A N/A N/ARate of return onassets

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%, whichrepresentsthe 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 theU.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.Inthe U.S plan, our asset allocation policy has favored U.S. equity securities, which have lost .7% and returned 8.4%, respectively, over theten-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 corporateandgovernment bonds and mortgage-backed securities (which are expected to earn approximately 4% to 6% in the long term) and 65% inequitysecurities (which are expected to earn approximately 8% to 10% in the long term). Similar assessments were performed in determiningrates of return on non-U.S. pension plan assets, to arrive at our weighted-average rate of return of 7.66% for determining 2008 netcost.

Plan AssetsOur U.S. and non-U.S. pension plans target and weighted-average asset allocations at December 31, 2008 and 2007, by asset category wereasfollows:

U.S. Plans Non-U.S. Plans

% of Plan Asse ts % of Plan Assets

Targe t at Year End Target at Year End

Asset Cate gory 2009 2008 2007 2009 2008 2007

Equitysecurities

68% 65% 65% 58% 56% 60%Debt

securities

32 35 35 34 34 32

Other — — — 8 10 8Total 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 theamountsand at the times called for by the plan. This is expected to be achieved through the investment of our contributions and other trust assetsand 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 prudentandreasonable as circumstances change from time to time. While we recognize the importance of the preservation of capital, we also adhere tothetheory of capital market pricing which maintains that varying degrees of investment risk should be rewarded with compensatingreturns.Consequently, prudent risk-taking is

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

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

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

Cash flowsWe 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 during2009.Total benefit payments expected to be paid from the plans are asfollows:

Pension Ben efits Postre tire me nt Be ne fits

Gross Federal

U.S . Plans Non-U.S. Plans Total Payments Subsidy

2009 $ 83.8 $ 35.7 $119.5 $ 12.3 $ 1.6

2010 77.8 35.7 113.5 12.7 1.72011 66.9 36.3 103.2 13.1 1.82012 65.6 36.7 102.3 13.4 1.82013 64.3 37.8 102.1 13.6 1.82014 – 2018 272.3 202.9 475.2 70.6 9.8

Postretirement BenefitsFor 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 allclaims and will gradually decrease each year thereafter to 5.0% in 2015 and beyond. A one-percentage point change in the assumed healthcarecost trend rates would have the followingeffects:

1 Pe rce ntage 1 Pe rce ntage

(In m illions) Poin t Increase Poin t Decrease

Effect on total of service and interest costcomponents 1.4 (1.3)Effect on postretirement benefitobligation

14.1 (13.5)

Postemployment

BenefitsWe provide postemployment benefits, which include salary continuation, severance benefits, disability benefits, continuation of healthcare benefits and life insurance coverage to eligible former employees after employment but before retirement. At December 31, 2008 and 2007,theaccrued cost for postemployment benefits was $74.9 and $57.9, respectively, and was included in employee benefit plansliability.

Supplemental Retirement

ProgramsWe 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,andcorporate-owned life insurance policies. The DCP allows for the deferral of up to 50% of a participant’s base salary, the deferral of up to100%of incentive compensation bonuses, and the deferral of contributions that would have been made to the Avon Personal Savings AccountPlan(the “PSA”) but that are in excess of U.S. Internal Revenue Code limits on contributions to the PSA. Participants may elect to havetheir deferred compensation invested in one or more of three investment alternatives. Expense associated with the DCP for the yearsendedDecember 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.

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We maintain supplemental retirement programs consisting of the Supplemental Executive Retirement Plan of Avon Products, Inc. (“SERP”)andthe Benefit Restoration Pension Plan of Avon Products, Inc. under which non-qualified supplemental pension benefits are paid to higher

paidemployees in addition to amounts received under our qualified retirement plan, which is subject to IRS limitations on coveredcompensation.The annual cost of these programs has been included in the determination of the net periodic benefit cost shown above and in 2008amountedto $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

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

2008 2007

Fixed-income portfolio

$16.3 $16.0Corporate-owned life insurance

policies40.2 37.8


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 31consisted of thefollowing:

2008 2007

Corporate-owned life insurance policies

$46.3 $60.0Mutualfunds

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 intheConsolidated Statements of Income.The fixed-income portfolio held in the grantor trust and the mutual funds are classified as available-for-salesecurities.

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

2008

Gross Gross

Unrealized Unrealized Market

C ost Gains Losse s Value

U.S. government bonds $ — $ — $ — $ — (1 )

State and municipal bonds

.6 — — .6(1)

Mortgage backedsecurities

.1 — — .1(1)

Other 17.5 — .5 17.0(1)

Total available-for-salesecurities

$18.2 $ — $ .5 $ 17.7(2)

At December 31, 2008, investments with scheduled maturities in less than two years totaled $.2, two to five years totaled $0, andmore

(1)

than five years totaled$.6.At December 31, 2008, there were no investments with unrealized losses in a loss position for greater than 12months.

(2)

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, during2008.

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

2007

Gross Gross

Unrealized Unrealized Market

C ost Gains Losse s Value

U.S. government bonds $ .5 $ — $ — $ .5(1 )

State and municipal bonds

13.3 — — 13.3(1)

Mortgage backedsecurities

.7 — — .7(1)

Other 3.5 .5 — 4.0(1)

Total available-for-salesecurities

$18.0 $ .5 $ — $ 18.5(2)

At December 31, 2007, investments with scheduled maturities in less than two years totaled $2.0, two to five years totaled $2.5, andmore

(1)

than five years totaled$10.5.At December 31, 2007, there were no investments with unrealized losses in a loss position for greater than 12months.

(2)

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, during2007.For the years ended December 31, 2008 and 2007, unrealized gains on available-for-sale securities impacted accumulated other

comprehensiveloss asfollows:

2008 2007

Net unrealized gains at beginning of year, net of taxes

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

(.7) .1Reclassification 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 unitsinLatin America; North America; Central & Eastern Europe; Western Europe, Middle East & Africa; Asia Pacific; and China. Globalexpensesinclude, among other things, costs related to our executive and administrative offices, information technology, research and development,andmarketing. We allocate certain planned global expenses to our business segments primarily based on planned revenue. The unallocatedcostsremain as global expenses. We do not allocate to our segments income taxes, foreign exchange gains or losses, or costs of implementingrestructuring initiatives related to our global functions. Costs of implementing restructuring initiatives related to a specific segmentarerecorded within that segment. In Europe, our manufacturing facilities primarily support Western Europe, Middle East & Africa andCentral &Eastern Europe. In our disclosures of total assets, capital expenditures and depreciation and amortization, we have allocatedamountsassociated with the European manufacturing facilities between Western Europe, Middle East & Africa and Central & Eastern Europe

basedupon planned beauty unit volume. A similar allocation is done in Asia where our manufacturing facilities primarily support Asia PacificandChina.

The segments have similar business characteristics and each offers similar products through similar customer accessmethods.The accounting policies of the segments are the same as those described in Note 1, Description of the Business and Summary of SignificantAccounting Policies. We evaluate the performance of our segments based on revenues and operating profits or losses. Segmentrevenuesreflect direct sales of products to Representatives based on the Representative’s geographic location. Intersegment sales and transfers arenotsignificant. Each segment records direct expenses related to its employees and itsoperations.Summarized financial information concerning our segments as of December 31 is shown in the followingtables.

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Total Revenue & Operating

Profit

2008 2007 2006

Total Operating Total O pe rating Total O pe rating

Reven ue Profit Re ve nu e Profit Reven ue Profit

LatinAmerica $ 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 2,554.0 181.6Central & EasternEurope,

1,719.5 346.2 1,577.8 296.1 1,320.2 296.7Western Europe, Middle East &Africa

1,351.7 121.0 1,308.6 33.9 1,123.7 (17.8)AsiaPacific

891.2 102.4 850.8 64.3 810.8 42.5China 350.9 17.7 280.5 2.0 211.8 (10.8)


10,690.1 1,491.5 9,938.7 1,092.5 8,763.9 916.2Global 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

LatinAmerica $1,657.2 $1,614.4 $1,396.4 North America 899.0 789.1 739.3Central & EasternEurope

771.1 970.4 771.0Western Europe, Middle East &Africa

567.2 615.3 546.1AsiaPacific

412.5 437.0 392.7China 318.6 292.3 270.1


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

Totalassets

$6,074.0 $5,716.2 $5,238.2

Capital

Expenditures

2008 2007 2006LatinAmerica

$ 116.0 $ 90.1 $ 57.4 North America 111.9 77.9 33.0Central & EasternEurope

42.2 29.6 13.7Western Europe, Middle East &Africa

41.6 31.2 33.0AsiaPacific

24.8 16.6 13.4China 13.2 9.7 4.5


349.7 255.1 155.0Global and other 30.8 23.4 19.8

Total capitalexpenditures

$ 380.5 $ 278.5 $ 174.8

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AVON PRODUCTS, INC.


Depreciation and

Amortization

2008 2007 2006

LatinAmerica

$ 55.5 $ 49.6 $ 48.7 North America 37.6 35.0 30.0

Central & EasternEurope 25.8 19.7 19.8Western Europe, Middle East &Africa

31.8 26.4 23.1AsiaPacific

13.3 16.0 10.6China 5.9 5.8 5.2


169.9 152.5 137.4Global and other 17.3 19.6 22.2

Total depreciation andamortization

$ 187.2 $ 172.1 $ 159.6

Total Revenue by Major

Country2008 2007 2006

U.S. $ 2,061.8 $2,194.9 $2,157.1Brazil 1,674.3 1,352.0 1,039.2

All other 6,954.0 6,391.8 5,567.6Total $10,690.1 $9,938.7 $8,763.9

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

Long-Lived Assets by Major

Country

2008 2007 2006

U.S. $ 649.3 $ 465.5 $ 418.2Brazil 187.1 197.7 115.5Colombia 122.5 131.6 145.1All 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 primarilyinclude property, plant and equipment and intangible assets. The U.S. and Brazil’s long-lived assets consist primarily of property, plantandequipment related to manufacturing and distribution facilities. Colombia’s long-lived assets consist primarily of goodwill and intangibleassetsassociated with the 2005 acquisition of this

business.

Revenue by Product

Category

2008 2007 2006

Beauty $ 7,603.7 $6,932.5 $6,019.6(1 )

Fashion 1,863.3 1,753.2 1,562.7(2)

Home 1,121.9 1,159.5 1,095.0(3)

Net sales 10,588.9 9,845.2 8,677.3

Other revenue 101.2 93.5 86.6(4)

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

Beauty includes cosmetics, fragrances, skin care andtoiletries.

(1)

Fashion includes fashion jewelry, watches, apparel, footwear andaccessories.

(2)

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

(3)

Other revenue primarily includes shipping and handling fees billed toRepresentatives.

(4)

Sales from Health and Wellness productsand

mark.are included among these categories based on producttype.

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

NOTE 13. Leases and Commitments

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

Purchase

Year Le ases Obligations

2009 $ 92.3 $ 106.32010 65.9 55.32011 47.0 25.82012 26.3 17.72013 21.5 16.1Later years

54.8 49.9Sublease rentalincome

(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 anestimatedcost to complete of $430.2 were in progress at December 31,2008.

NOTE 14. Restructuring

Initiatives2005 Program

In November 2005, we announced a multi-year turnaround plan to restore sustainable growth. As part of our turnaround plan, we launchedarestructuring program in late 2005 (the “2005 Program”) and restructuring initiatives under this programinclude:• enhancement of organizational effectiveness, including efforts to flatten the organization and bring senior management

closer toconsumers through a substantial organizationdownsizing;• implementation of a global manufacturing strategy through facilitiesrealignment;• additional supply chain efficiencies in distribution;and• streamlining of transactional and other services through outsourcing and moves to low-costcountries.

In January 2008, we announced the final initiatives that are part of the 2005 Program. We expect to record restructuring charges andother costs to implement restructuring initiatives of approximately $530 before taxes. Through December 31, 2008, we have recorded total coststoimplement, 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 withour restructuring initiatives. We expect to record a majority of the remaining costs by the end of 2009.

2009 Program

In February 2009, we announced a new restructuring program under our multi-year turnaround plan (the “2009 Program”). Therestructuringinitiatives under the 2009 Program are expected to focus on restructuring our global supply chain operations, realigning certain local

businesssupport functions to a more regional basis to drive increased efficiencies, and streamlining transaction-related services, includingselectiveoutsourcing. We expect to incur restructuring charges and other costs to implement these initiatives in the range of $300 to $400 beforetaxesover the next severalyears.

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Restructuring Charges – 2005In December 2005 and January 2006, exit and disposal activities that are a part of this multi-year restructuring plan were approved.Specificactions for this initial phase of our multi-year restructuring planincluded:• organization realignment and downsizing in each region and global through a process called “delayering,” taking out layers

to bring senior management closer tooperations;• the exit of unprofitable lines of business or markets, including the closure of unprofitable operations in Asia, primarilyIndonesiaand 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 costshared service centers, which was completed during2008.In connection with initiatives that had been approved to date, we recorded total costs to implement in 2005 of $56.5, and the costs consistedof thefollowing:• charges of $43.2 for employee-related costs, including severance, pension and other termination benefits, asset impairment

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

Approximately 58% of these charges resulted in cash expenditures, with a majority of the cash payments made during2006.

Restructuring Charges – 2006 During 2006 and January 2007, additional exit and disposal activities that are a part of our restructuring initiatives were approved.Specificactions for this phase of our restructuring initiativesincluded:• organization realignment and downsizing in each region and global through a process called “delayering,” taking out layers

to bring senior management closer tooperations;• the phased outsourcing of certain services, including certain key human resource and customer service

processes;• the realignment of certain North America distributionoperations;• the exit of certain unprofitable operations, including the closure of the Avon Salon & Spa;and• the reorganization of certain functions, primarily sales-relatedorganizations.

Many of the actions were completed in 2006, including the delayering program. A majority of the remaining actions were completed in2007.The outsourcing of certain services is expected to be completed in phases through 2009. The realignment of certain North Americadistributionoperations is expected to be completed in phases through 2012. The reorganization of one of our functions is expected to be completedin 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 costsconsistedof thefollowing:• 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

pursuingreassignments 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 initiativesandaccelerated 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 $.3was recorded in cost of sales in2006.

Approximately 85% of these charges resulted in cash expenditures, with a majority of the cash payments made during2007.

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Restructuring Charges – 2007 During 2007 and January 2008, exit and disposal activities that are a part of our multi-year restructuring plan were approved. Specificactionsfor this phase of our multi-year restructuring planincluded:• the reorganization of certain functions, primarily sales-related

organizations;• the restructure of certain international direct sellingoperations;• the realignment of certain of our distribution and manufacturing operations, including the realignment of certain of our LatinAmerica distributionoperations;• 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

processesand 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 costsconsistedof thefollowing:• 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

thanexpected 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 humanresource,finance, customer service, and information technology processes and accelerated depreciation associated with our initiativestorealign certain distribution operations and close certain manufacturingoperations.

Of the total costs to implement, $157.3 was recorded in selling, general and administrative expenses and $1.0 was recorded in cost of salesin2007.

Approximately 95% of these charges are expected to result in future cash expenditures, with a majority of the cash payments made during2008.

Restructuring Charges – 2008During 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 financeandhuman resource processes;and• accelerated depreciation of $11.0 associated with our initiatives to realign certain distribution operations and closecertainmanufacturingoperations.

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

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AVON PRODUCTS, INC.


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

C urrency

Em ployee- Translation Contract

Related Asset Inve ntory Adjustment Te rm inations/

Costs Write-offs Write-offs Write -offs Oth er Total

2005 Charges $ 30.4 $ 1.4 $ 8.4 $ 11.4 $ — $ 51.6Cash payments (.5) — — — — (.5)

Non-cash write-offs

(.7) (1.4) (8.4) (11.4) — (21.9)Foreign exchange — — — — — —

Balance December 31, 2005 $ 29.2 $ — $ — $ — $ — $ 29.22006 Charges 201.2 9.8 .6 .2 6.5 218.3Adjustments

(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 $ 86.02007 Charges 117.0 .2 — — .8 118.0Adjustment

s

(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 $ 143.92008 Charges 20.5 — — — .8 21.3Adjustments

(3.1) — — — .9 (2.2)Cash payments (60.7) — — — (2.1) (62.8)

Non-cash write-offs

1.0 — — — — 1.0Foreign 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 chargesfor 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

beganin the fourth quarter of 2005, along with the charges expected to be incurred under the plan:

C urren cy

Em ployee- Tran slation Contract

Related Asset Inven tory Adjustment Te rmination s/

Costs Write-offs Write -offs Write-offs O ther Total

Charges incurred todate

$ 344.5 $ 10.8 $ 7.4 $ 11.6 $ 8.6 $382.9Charges to be incurred on approvedinitiatives

21.9 — — — — 21.9

Total expectedcharges

$ 366.4 $ 10.8 $ 7.4 $ 11.6 $ 8.6 $404.8

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

Western

Ce ntral & Eu rope,

Latin North Eastern Middle East Asia

Ame rica Ame rica Eu rope & Africa Pacific Ch ina Corporate Total

2005 $ 3.5 $ 6.9 $ 1.0 $ 11.7 $ 18.2 $ 4.2 $ 6.1 $ 51.62006 34.6 61.8 6.9 45.1 22.2 2.1 29.5 202.22007 14.9 7.0 4.7 65.1 4.3 1.3 12.7 110.02008 1.9 (1.1) 1.7 19.0 .6 — (3.0) 19.1

Charges recorded todate

$ 54.9 $ 74.6 $ 14.3 $ 140.9 $ 45.3 $ 7.6 $ 45.3 $382.9Charges to be incurred on approvedinitiatives

4.3 3.3 .1 1.8 10.3 — 2.1 21.9

Total expectedcharges

$ 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 taxesfor restructuring initiatives under the 2005 and 2009 programs, respectively, including restructuring charges and other costs to implement.Theamounts shown in the tables above as charges recorded to date relate to initiatives that have been approved and recorded in thefinancialstatements as the costs are probable and estimable. The amounts shown in the tables above as total expected charges representchargesrecorded to date plus charges yet to be recorded for approved initiatives as the relevant accounting criteria for recording have not yet

beenmet. In addition to the charges included in the tables above, we will incur other costs to implement such as consulting other professionalservices, and accelerateddepreciation.

NOTE 15. Contingencies

In December 2002, our Brazilian subsidiary received a series of excise and income tax assessments from the Brazilian tax authoritiesassertingthat 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 rateonDecember 31, 2008, plus penalties and accruing interest totaling approximately $162.0 at the exchange rate on December 31, 2008. In July2003, afirst-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 remainingassessmentsrelating to excise taxes (approximately $59.4) were not affected and are awaiting a decision at the first administrative level. In December 2003,anadditional assessment was received in respect of excise taxes for the balance of 1998, totaling approximately $120.2 at the exchange rateonDecember 31, 2008, and asserting a different theory of liability based on purported market sales data. In January 2005, an unfavorablefirstadministrative level decision was received with respect to the appeal of that assessment and a further appeal has been taken. InDecember 2004, an additional assessment was received in respect of excise taxes for the period from January 1999 to December 2001,totalingapproximately $267.3 at the exchange rate on December 31, 2008, and asserting the same theory of liability as in the December 2003assessment.We appealed that assessment. In September 2005, an unfavorable first administrative level decision was received with respect to the appealof the December 2004 assessment, and a further appeal is being taken. The assessments issued in 2003 and 2004 are awaiting a decision atthesecond administrative level. In the event that assessments are upheld in the earlier stages of review, it may be necessary for us to

providesecurity to pursue further appeals, which, depending on the circumstances, may result in a charge to income. It is not possible tomake areasonable estimate of the amount or range of expense that could result from an unfavorable outcome in respect of these or anyadditionalassessments that may be issued for subsequent periods. The structure adopted in 1995 is comparable to that used by many companiesinBrazil, and we believe that it is appropriate, both operationally and legally, and that the assessments are unfounded. This matter is

beingvigorously contested and in the opinion of our outside counsel the likelihood that the assessments ultimately will be upheld isremote.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

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Kendall v. Employees’ Retirement Plan of Avon Products and the Retirement Board is a purported class action commenced in April 2003 intheUnited States District Court for the Southern District of New York. Plaintiff is a retired employee of Avon who, before retirement, had beenon 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 theamountof 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 RetirementPlanviolations of ERISA and seeking, among other things, elimination of a social security offset in the Retirement Plan. The purportedclassincludes “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’sunlawful provisions.” In February 2004, we filed a motion to dismiss the amended complaint. In September 2007, the trial court granted our motiontodismiss 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 actionshouldnot have a material adverse effect on our consolidated financial position, results of operations or cash flows. This action is beingvigorouslycontested.

In August 2005, we reported the filing of class action complaints for alleged violations of the federal securities laws in actionsentitled

Niles

h Patel v. Avon Products, Inc. et al.

and Michael Cascio v. Avon Products, Inc. et al.

, respectively, which subsequently have beenconsolidated. A consolidated amended class action complaint for alleged violations of the federal securities laws was filed in the

consolidatedaction in December 2005 in the United States District Court for the Southern District of New York (Master File Number 05-CV-06803) under

thecaption In re Avon Products, Inc. Securities Litigation

naming Avon, an officer and two officer/directors. The consolidated action, broughton behalf of purchasers of our common stock between February 3, 2004 and September 20, 2005, seeks damages for alleged false

andmisleading statements “concerning Avon’s operations and performance in China, the United States . . . and Mexico.” Theconsolidatedamended complaint also asserts that during the class period certain officers and directors sold shares of our common stock. In February2006,we filed a motion to dismiss the consolidated amended class action complaint, asserting, among other things, that it failed to state a claimuponwhich relief may be granted, and the plaintiffs have opposed thatmotion.In August 2005, we reported the filing of a complaint in a shareholder derivative action purportedly brought on behalf of Avonentitled

Rober

t 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 NewYork (Master File Number 05-CV-06803) under thecaption

In re Avon Products, Inc. Securities Litigation

naming certain of our officersanddirectors. 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 toAvon.In February 2006, we filed a motion to dismiss the amended complaint, asserting, among other things, that it failed to state a claim uponwhichrelief may be granted, and the plaintiff opposed that motion. In February 2009,

plaintiff Garbe

r

filed an unopposed motion for voluntarydismissal 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 SecurityAct(“ERISA”) in actionsentitled

John Rogati v. Andrea Jung, et

al.

and Carolyn Jane Perry v. Andrea Jung, et

al.

, respectively,whichsubsequently have been consolidated. A consolidated class action complaint for alleged violations of ERISA was filed in the

consolidatedaction in December 2005 in the United States District Court for the Southern District of New York (Master File Number 05-CV-06803) under thecaption In re Avon Products, Inc. ERISA

Litigation

naming Avon, certain officers, Avon’s Retirement Board and others. Theconsolidatedaction purports to be brought on behalf of the Avon Products, Inc. Personal Savings Account Plan and the Avon Products, Inc.

PersonalRetirement Account Plan (collectively the “Plan”) and on behalf of participants and beneficiaries of the Plan “for whose individualaccountsthe Plan purchased or held an interest in Avon Products, Inc. . . . common stock from February 20, 2004 to the present.” Theconsolidatedcomplaint asserts breaches of fiduciary duties and prohibited transactions in violation of ERISA arising out of, inter alia, alleged falseandmisleading 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 whichrelief may be granted, and the plaintiffs have opposed thatmotion.

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It is not possible to predict the outcome of litigation and it is reasonably possible that there could be unfavorable outcomes inthe

In re Avon Products, Inc. Securities

Litigation

, In re Avon Products, Inc. Securities

Litigation

(derivative action)and

In re Avon Products, Inc.

ERISA Litigatio

n

matters. Management is unable to make a meaningful estimate of the amount or range of loss that could result fromunfavorableoutcomes but, under some circumstances, adverse awards could be material to our consolidated financial position, results of operations

or cash flows.

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

position.Various other lawsuits and claims, arising in the ordinary course of business or related to businesses previously sold, are pendingor threatened against Avon. In management’s opinion, based on its review of the information available at this time, the total cost of resolvingsuch other contingencies at December 31, 2008, should not have a material adverse effect on our consolidated financial position, resultsof operations or cashflows.

NOTE 16. Goodwill and Intangible

AssetsOn April 2, 2007, we acquired our licensee in Egypt for approximately $17 in cash. The acquired business is being operated by a newwholly-owned subsidiary and is included in our Western Europe, Middle East & Africa operating segment. The purchase price allocation resultedingoodwill of $9.3 and customer relationships of $1.0 with a seven-year usefullife.In August 2006, we purchased all of the remaining 6.155% outstanding shares in our two joint-venture subsidiaries in China from theminorityinterest shareholders for approximately $39.1. We previously owned 93.845% of these subsidiaries and consolidated their results,whilerecording minority interest for the portion not owned. Upon completion of the transaction, we eliminated the minority interest in the netassetsof these subsidiaries. The purchase of these shares did not have a material impact on our consolidated net income. Avon China is astand-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 usefullife.

Goodwil l

We sternEurope , Ce ntral

Latin Middle East & Eastern Asia

Am erica & Africa Eu rope Pacific Ch ina Total


$ 94.9 $ 37.8 $ 8.8 $ 10.4 $ 70.3 $222.2Adjustments

— .3 — — — .3Foreign exchange — (4.8) — 2.0 4.8 2.0


$ 94.9 $ 33.3 $ 8.8 $ 12.4 $ 75.1 $224.5

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AVON PRODUCTS, INC.


Intangibleassets

2008 2007

C arrying Accum ulated C arrying Accum ulated

Am ou nt Amortization Am ou nt Amortization

Amortized IntangibleAssets Customer relationships

$ 38.4 $ (25.6) $ 37.9 $ (18.4)Licensingagreements

42.4 (28.3) 41.2 (19.9) Noncompeteagreements

7.4 (5.7) 8.4 (5.6)

Total $ 88.2 $ (59.6) $ 87.5 $ (43.9)

Aggregate AmortizationExpense:

2008 $ 16.42007 16.42006 19.5

Estimated AmortizationExpense:2009 $ 14.0

2010 2.0

2011 2.02012 2.02013 2.0

NOTE 17. Supplemental Balance Sheet

InformationAt December 31, 2008 and 2007, prepaid expenses and other included thefollowing

2008 2007

Deferred tax assets (Note6)

$194.6 $261.4Receivables other thantrade

127.1 134.4Prepaid taxes and tax refundsreceivable

156.5 108.9Prepaid brochure costs, paper and other literature

126.0 104.9Short-term

investments

40.1 —

Other 112.2 105.6Prepaid expenses andother

$756.5 $715.2

At December 31, 2008 and 2007, other assets included thefollowing:

2008 2007

Deferred tax assets (Note6)

$ 502.5 $272.9Goodwill (Note 16) 224.5 222.2Intangible assets (Note16)

28.6 43.6Pension assets (Note11)

2.2 40.0Investments (Note11)

108.9 127.3Deferred software (Note1)

98.3 95.9Interest-rate swap agreements (Note

8)

103.7 16.4

Other 104.5 104.3Other assets

$1,173.2 $922.6

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NOTE 18. Results of Operations by Quarter

(Unaudited)

2008 First Se cond Th ird Fourth Year

Total revenue $2,501.7 $2,736.1 $2,644.7 $2,807.6 $10,690.1Gross

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 1,339.3Income before taxes and minorityinterest

278.6 344.4 279.2 336.1 1,238.3Income before minorityinterest

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 Se cond Th ird Fourth Year

Total revenue $2,185.3 $2,328.8 $2,349.1 $3,075.5 $ 9,938.7Gross

profit1,352.7 1,407.8 1,460.1 1,776.9 5,997.5

Operating profit

237.8 186.9 223.5 224.5 872.7Income before taxes and minorityinterest

223.0 167.9 207.7 197.5 796.1Income before minorityinterest

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)

The sum of per share amounts for the quarters does not necessarily equal that for the year because the computations weremade

(1)

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, generalandadministrative expenses, respectively. Second quarter 2008 includes benefits of approximately $13, from changes in estimates toour 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, generalandadministrative expenses, respectively. First, second, third and fourth quarter 2007 include costs related to our PLS program of $17.3, $60.9,$5.9and $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 $.20 per share. The first dividend atthenew rate will be paid on March 2, 2009, to shareholders of record on February 17, 2009. With this increase, the indicated annual dividend rateis$.84 per share.

In February 2009, we announced a new restructuring program under our multi-year turnaround plan. The restructuring initiatives under thenew program are expected to focus on restructuring our global supply chain operations, realigning certain local business support functionstoa more regional basis to drive increased efficiencies, and streamlining transaction-related services, including selective outsourcing. We

expectto incur restructuring charges and other costs to implement these initiatives in the range of $300 to $400 before taxes over the nextseveralyears.

F-41




Table of Contents

SCHEDULE II

AVON PRODUCTS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2008, 2007 and 2006(Inmillions)

Addition s

Ch argedBalance at to Costs C harged Balance

Beginning and to at En d of

Description of Period Expe nses Reve nue Deduction s Pe riod

2008

Allowance for doubtful accountsreceivable

$ 109.0 $ 195.5 — $ 202.5 $ 102.0(1)

Allowance for salesreturns

32.1 — 369.3 375.6 25.8(2)

Allowance for inventoryobsolescence

216.9 80.8 — 199.5 98.2(3)

Deferred tax asset valuationallowance

278.3 5.8 — $ 284.1(4 ) (5)

2007


$ 91.1 $ 164.1 $ — $ 146.2 $ 109.0(1)


28.0 — 338.1 334.0 32.1(2)


125.0 280.6 — 188.7 216.9(3)

Deferred tax asset valuation

allowance

234.1 62.9 — 18.7 278.3(4 ) (5)

2006


$ 85.8 $ 144.7 $ — $ 139.4 $ 91.1(1)


24.3 — 295.0 291.3 28.0(2)


82.4 179.7 — 137.1 125.0(3)

Deferred tax asset valuationallowance

145.2 88.9 — — 234.1(4 )

Accounts written off, net of recoveries and foreign currency translationadjustment.

(1)

Returned product destroyed and foreign currency translationadjustment.

(2)

Obsolete inventory destroyed and foreign currency translationadjustment.

(3)

Increase in valuation allowance for tax loss carryforward benefits is because it is more likely than not that some or all of the deferredtax

(4)

assets will not be utilized in thefuture.Release of valuation allowance on deferred tax assets that are more likely than not to be utilized in thefuture.

(5)

F-42Exhibit 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 corporationdulyorganized and existing under the laws of the State of New York (the

“Company”).

AMENDMENT

The Company hereby amends the Plan asfollows: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) asfollows:

“(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 thecash-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 CodeSection 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 MarketValue of the Stock on the date of the cash-out in the case of Incentive Stock Options) over the exercise price of theOption.”2. Effective January 1, 2009, by amending and restating Section 3.1(e) of the Plan in its entirety asfollows:“(e) Section 3.l(d) above notwithstanding, in lieu of any cash-out of awards and upon an agreement or agreements approved by

theBoard of Directors with the prospective new owner of the Company, or the surviving entity or any merger or other businesscombination,the new owner or surviving entity, as the case may be, shall adopt the Plan and maintain it with respect to all outstanding awards,adoptoutstanding award agreements, and continue in effect their respective terms; provided that equitable adjustments shall be made toreflectthe relative value of the Stock prior to and following the Change in Control. The new owner of the Company or the surviving entityof any merger or other business combination shall, however, comply with any agreement or agreements to grant new stock-based awardsinsubstitution for unexercised awards granted by the Plan; provided that such substituted awards shall have a value not less than

thevalue as of the time of the Change in Control of the awards that they arereplacing.”




3. Effective January 1, 2009, by amending and restating Section 5.2(b) of the Plan in its entirety asfollows:“(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 exchangeof shares or other similar corporate changes or an extraordinary dividend in cash, securities or other property, the Board of Directorsshallmake such amendments to the Plan, outstanding awards, and award agreements and make such equitable adjustments and takeactionsthereunder as applicable under the circumstances. Such equitable adjustments as they relate to outstanding awards shall be requiredtoensure that the intrinsic value of each outstanding award immediately after any of the aforementioned changes in, or affecting thesharesof Stock, is equal to the intrinsic value of each outstanding award immediately prior to any of the aforementioned changes.Suchamendments, adjustments and actions shall include, as applicable, changes in the number of shares of Stock then remaining subjecttothe Plan, the number of shares of Stock then remaining subject to awards of Stock and Stock Units (including Restricted Stock

andRestricted 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 tothePlan, including those that are then covered by outstanding awards, or accelerating the vesting of outstanding awards. Anyadjustment pursuant to this Section 5.2 may provide, in the Committee’s discretion, for the elimination without payment therefore of anyfractionalshares that might otherwise become subject to any Stock Incentive, but shall not otherwise diminish the then value of theStock Incentive.”Except as specifically amended hereby, the Plan shall remain in full force and effect as prior to thisAmendment.

2




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 /s/ Andrea JungBy:Chairman & CEOTitle

: 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 corporationdulyorganized and existing under the laws of the State of New York (the

“Company”).

AMENDMENT

The Company hereby amends the Plan asfollows:1. Effective as indicated therein, by adding the following new paragraph to the end of Section 2e asfollows:“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 regulationsissuedunder Code Section 409A.”

2. Effective as of January 1, 2009, by adding the following sentence to the end of Section 2z asfollows:“Notwithstanding the foregoing, with respect to an Award that is subject to the rules of Code Section 409A, for purposes of determiningwhether an Eligible Person has had a termination of service under Section 10f, a Subsidiary means any corporation or other entityinwhich 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 ThirdAmendment.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 /s/ Andrea JungBy:Chairman & CEOTitle

: 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 1INTRODUCTION

Avon Products, Inc. (the “Company”) adopted the Supplemental Executive Retirement and Life Plan, originally effective as of January1,1982, and last amended and restated such plan as of July 1, 1998. The Company has now amended and restated such plan to comply

withSection 409A, and bifurcated the Supplemental Executive Retirement and Supplemental Life portions of such plan into separate plandocuments, this plan being one of those plan documents. The terms of this plan document shall be effective as of January 1, 2009 and this planshall hereinafter be referred to as the Supplemental Executive Retirement Plan of Avon Products, Inc. (the “Plan”). With respecttodistributions made under the Plan and calculating the amount of such distributions, this plan document governs distributions that beginon or after January 1, 2009. Distributions under the Plan that began prior to January 1, 2009 (and calculating the amount of such distributions)aregoverned by the distribution and benefit calculation provisions in the version of the Plan in effect at the time such distributions began

(asmodified 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”) toaid 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.Theestablishment of the Trust shall not convey rights to the Participants that are greater than those of the general creditors of the Companyandshall not affect the Company’s continuing liability to pay Plan benefits and administrative costs, except that the Company’s liabilityshall beoffset by actual benefits and administrative cost payments, if any, made by theTrust.

SECTION 2DEFINITIONS

As used in the Plan, the masculine pronoun shall include the feminine and the feminine pronoun shall include the masculine

unlessotherwise specifically indicated. In addition, the following words and phrases as used in the Plan shall have the following meaningsunless adifferent meaning is plainly required by thecontext:

2.1 “Actuarial Equivalent” shall refer to a benefit of equivalent value and shall have the same definition as such term has under theRetirement

Plan.




2.2 “Annual Benefit Offset” shall mean the aggregate annual retirement allowance that would have been payable to a Participantunder the Retirement Plan and the Other Plans, expressed in the form of a single life annuity, which form of benefit shall be the Actuarial

Equivalentof the aggregate benefits that would be payable under such plans if they commenced on the same date as the SupplementalRetirementAllowance. In calculating the Annual Benefit Offset, for purposes of determining the annual retirement allowance payable under theRetirement Plan, such allowance shall be deemed to be the annual retirement allowance that would have been payable to the Participantunder the formula contained in the Retirement Plan on June 30, 1998, if such formula had continued in effect after that date until theParticipant’sretirement or death.

2.3 “Average Final Compensation” shall mean the average annual Compensation of a Participant during the three (3) years of theParticipant’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 aParticipant’s three (3) years of Compensation to be used in calculating his Average Final Compensation, the Participant’s Compensationfor such Partial Compensation Year shall be annualized in accordance with the rules set forth in the last sentence of the penultimate paragraphof Section 1 of Appendix VI of the Retirement Plan; provided that the reference in such sentence to the “sixth highest year” shall be replacedwitha reference to the “fourth highestyear.”

2.4 “Beneficiary” shall mean the person or persons designated by a Participant as his beneficiary, such designation to be made in atimeand 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 bethe beneficiary. A Participant may change his beneficiary at the time and in the manner determined by the RetirementBoard.

2.5 “Beneficiary’s Allowance” shall mean the benefit payable to the Beneficiary of certain Participants as described in Section5.2.6 “Board of Directors” shall mean the board of directors of the

Company. 2




2.7 “Change of Control” shallmean:

(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the SecuritiesExchangeAct of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under

theExchange Act) of voting securities of the corporation where such acquisition causes such person to own twenty percent (20%) or more of thecombined 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 bedeemedto result in a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition

byany 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

providedfurther that, if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds twenty percent (20%)

as aresult of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additionalvotingsecurities of the Company, then such subsequent acquisition shall be treated as an acquisition that causes such Person to owntwenty(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 reasontoconstitute at least a majority of the Board of Directors; provided that any individual becoming a director subsequent to such date

whoseelection, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directorsthencomprising 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 withrespect tothe election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other thantheBoard of Directors;or

(c) the approval by the shareholders of the Company of a reorganization, merger or consolidation, or sale or other disposition of allor substantially all of the assets of the Company (“Business Combination”), or, if consummation of such Business Combination is

subject, atthe time of such approval by shareholders, to the consent of any government or governmental agency, then the obtaining of suchconsent(either explicitly or implicitly by consummation); excluding, however, any Business Combination pursuant to which (i) all or substantiallyall of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to suchBusinessCombination beneficially own, directly or indirectly,

3




more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of thethenoutstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting fromsuchBusiness Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or allor substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions astheir ownership immediately prior to such Business Combination of the Outstanding Company Voting Securities, (ii) no Person (excludinganyemployee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficiallyowns,directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporationresultingfrom such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except totheextent 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 theinitialagreement, 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 theCompany.

Notwithstanding the foregoing, no Change of Control shall be deemed to have occurred with respect to any individual by reason of anyactions or events in which such individual participates in a capacity other than in his capacity as an officer or employee of the Company (or

asa director of the Company or a Subsidiary, whereapplicable).

2.8 “Code” shall mean the Internal Revenue Code of 1986, as amended from time totime.2.9 “Compensation” shall mean the regular salary or wages paid to an Active Participant or deferred for services rendered totheCompany 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 thatis based on performance over multiple years) payable to an employee (disregarding any election to defer the receipt thereof) under theCompany’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 noteligible to participate in the Variable Incentive Plan after January 1, 1998, but the bonus payable to the Active Participants participating in theVariableIncentive Plan prior to January 1, 1998 will continue to be included in Compensation. Unless otherwise expressly provided ina

4




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 anysimilar arrangement.

Notwithstanding the foregoing, with respect to any period of absence (during which disability benefits are being paid to theParticipantunder 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 theabsence began.

2.10 “Compensation Committee” means the Compensation Committee appointed by the Board of

Directors.2.11 “Creditable Service” shallmean:(a) the total number of years and completed months of service rendered by an Active Participant as an employee of the Company or anySubsidiary

;(b) periods of authorized leaves of absence from the Company or a Subsidiary approved by the Retirement Board, including butnotlimited to leaves required to be granted pursuant to the Family and Medical Leave Act of 1993 and the Uniformed Services Employment

andReemployment Rights Act, and, notwithstanding any other provision of the Plan to the contrary, any period of absence whiledisability benefits are being paid to the Participant under the Company’s short-term or long-term disability plans, provided that no Creditable Servicewillaccrue for any portion of a leave of absence that extends beyond the date that the Participant incurs a “separation from service” (as thattermis defined in Section409A);

(c) any prior Creditable Service under the Plan rendered by an employee who was formerly a Participant and whosubsequently becomes a new Active Participant pursuant to Section 3;

and(d) service that is recognized for purposes of the Plan by reason of any OutsideAgreement.

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 servicegranted

5




under a specific provision of the Plan or under provisions of individual contracts with the Participant or under any severance plan or policyof the Company covering the Participant shall also be included in determining Creditable Service, but only in accordance with the specifictermsof such

provisions.2.12 “Dependent Child” shall have the meaning set forth in the Participant’s IndividualAgreement.2.13 “Dependent Children’s Allowance” shall mean the benefit payable to the Dependent Children as described in Section5.2.2.14 “Domestic Partner” shall mean, effective January 1, 1999, an individual of the same or opposite sex as the Participant, whoshares acommitted 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 withtheParticipant and intends to do so permanently,

and(c) the Domestic Partner is mutually responsible with the Participant for basic living expenses,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 RetirementBoard.

An individual shall cease to be a Domestic Partner upon the filing by the Participant of an Affidavit of Termination of DomesticPartnership with the Retirement

Board.2.15 “Early Retirement Allowance” shall mean the Supplemental Retirement Allowance that is payable to an Active Participantwhoretires before attaining Normal Retirement Age, but after attaining age 55 with fifteen (15) or more years of Creditable Service, or after

attainingan age that, when added to his Creditable Service, totals at least 85years.

6




2.16 “Hardship Retirement Allowance” means a Supplemental Retirement Allowance that may be payable to an ActiveParticipant pursuant to Section

4.1(b).2.17 “Individual Agreement ” means a written agreement entered into between the Company and a Participant that specifically refersto 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,

tocause benefits payable under the Plan to be in compliance with Section409A.

2.18 “Nonforfeitable” shall refer only to the vested unsecured contractual right of a Participant, his Beneficiary, and hisDependentChildren, if any, to benefits under the Plan. In no event shall “Nonforfeitable” imply any preferred claim on or to, or any beneficial

ownershipinterest 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 age65.2.20 “Normal Retirement Allowance” shall mean the Supplemental Retirement Allowance that is payable to an Active Participantwhoretires 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 thanthe 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 deferredcompensationcontract under which elective employee salary or bonus deferrals are made) between the Participant and the Company or aSubsidiary.

The term “Other Plans” shall also include the employer-provided portion of any other pension or retirement plans sponsored bythe 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 deferredcompensationcontract under which elective employee salary or bonus deferrals are made) between the Participant and the predecessor employer of aParticipant providing for benefits attributable in whole or in part to service that is recognized under the Plan as CreditableService.

Notwithstanding the foregoing, the employer-provided portion of the benefits paid or payable to or on behalf of a Participant pursuanttoOther Plans shall only include a proportionate share of such benefits based on the ratio by which the portion of

the7




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 withauthorityto act in the matter and a Participant that recognizes any period of time prior to the commencement of such Participant’s employment with

theCompany as service for purposes of certain retirement or other benefits or modifies any of the benefits or provisions of the Plan.AParticipant’s Individual Agreement is a form of OutsideAgreement.

2.23 “Participant” shall mean any Active Participant, Retired Participant, or VestedParticipant.

(a) “Active Participant” shall mean an employee from the time participation in the Plan begins pursuant to Section 3 untiltheearliest of the

time: (i) the Participantretires;(ii) the Participantdies;(iii) the Participant terminates employment with the Company and its Subsidiaries;or (iv) the Plan isterminated.

In addition, if a Participant is placed on inactive employee status, as defined by the Retirement Board from time to time under uniformandnondiscriminatory rules, and, at the date of such change in status, the Participant has attained age 62 or the sum of the Participant’s ageandyears of Creditable Service total at least 80 years, then the Participant will continue as an Active Participant in the Plan; provided thatsuchParticipant shall cease to be an Active Participant no later than the date that such Participant “separates from service” (as that term isdefinedin Section 409A).

(b) “Retired Participant” shall mean a former employee who has retired on or after meeting the requirements for aSupplementalRetirement Allowance under Section4.

(c) “Vested Participant” shall mean an employee or former employee of the Company or Subsidiary who ceased to be anActiveParticipant, who has not become a Retired Participant, and who, by virtue of Section 9, has a Nonforfeitable right to benefits under the

Plan.8




2.24 “Retirement Board” shall mean the administrative board or any successor thereto that administers the RetirementPlan.2.25 “Retirement Plan” shall mean, prior to July 1, 1998, the Employees’ Retirement Plan of Avon Products, Inc. and, thereafter, theAvonProducts, 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 suchSection.2.27 “Subsidiary” shall mean any majority-owned subsidiary of theCompany.2.28 “Supplemental Retirement Allowance” shall mean the benefit referred to in Section4.2.29 “Surviving Spouse” shall mean the spouse to whom a Participant was married on the date that the Participant’s

SupplementalRetirement Allowance commenced under the Plan, or on the Participant’s date of death, if earlier.

SECTION 3PARTICIPATION

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 asof 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

allupdates shall be attested by the signatures of two members of the RetirementBoard.

(b) The Compensation Committee shall have the authority to include, as Active Participants, officers of the Company ontheU.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. Notwithstandingthe foregoing, no new participants will be added to the Plan after December 31,2008.

9




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 aSupplementalRetirement Allowance unless he is a Vested Participant or a Retired

Participant.SECTION 4

SUPPLEMENTAL RETIREMENT ALLOWANCES

4.1 Nonforfeitable Right to a Supplemental RetirementAllowance.

(a) A Participant’s right to receive a Supplemental Retirement Allowance, the formula for calculating the amount of anysuchSupplemental Retirement Allowance, and the time and form of payment of any such Supplemental Retirement Allowance are set forth in

suchParticipant’s Individual Agreement. A Participant’s right to receive a Supplemental Retirement Allowance is subject to the provisionsof 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

theRetirement Board on a case-by-case basis, shall have a Nonforfeitable right to his Supplemental Retirement Allowance, subject to Section8,and may retire and receive payment of a Hardship Retirement Allowance. Payment of the Hardship Retirement Allowance shall commenceatthe time and in the form set forth in such Participant’s IndividualAgreement.

(c) Approval by the Retirement Board under this Section 4.1 may be evidenced by the written consent of any two members of theRetirement Board. In the event that the Plan is amended or terminated, or in the event of a Change of Control, Participants shall have the

rightto a Supplemental Retirement Allowance pursuant to Section9.

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 hisIndividualAgreement.

(b) Notwithstanding the provisions of Section 4.2(a), any Participant entitled to a Normal Retirement Allowance who (i) is or wasanofficer of the Company as of January 1, 1995, at the level of Senior Vice President or above, and covered by an individual

employmentagreement with the Company that was approved by the Board of Directors, or (ii) is or was a senior executive designated bythe

10




Compensation Committee as eligible to receive a minimum allowance, shall receive an annual Normal Retirement Allowance that, whenaddedto the Actuarial Equivalent of the benefit paid or payable to such Participant under the Retirement Plan and Other Plans, assuming thattheParticipant began to receive his benefit under the Retirement Plan and Other Plans at the same time that the Normal RetirementAllowancecommences under the Plan (expressed as an annual benefit in a form that is the same as the form in which the SupplementalRetirementAllowance is payable), is not less than fifty percent (50%) of the Participant’s Average Final Compensation. Such benefit under theRetirementPlan and Other Plans shall be calculated in a manner similar to that set forth in the definition of Annual BenefitOffset.

(c) Except to the extent explicitly provided to the contrary in a Participant’s Individual Agreement, the annual EarlyRetirementAllowance for Participants who have a Nonforfeitable right to such an allowance shall be equal to the Normal Retirement Allowance that

theParticipant 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

becalculated 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 whichtheSupplemental 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 payableto aParticipant whose age and Creditable Service total at least 85 years shall be equal to the allowance determined in accordance withhisIndividual Agreement based on Average Final Compensation and Creditable Service at the time of retirement without reductionfor commencement of payment prior to Normal RetirementAge.

(d) Notwithstanding the provisions of Section 4.2(c), any Participant entitled to an Early Retirement Allowance who hasattainedage 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

levelof Senior Vice President or above, and covered by an individual employment agreement with the Company that was approved by the Boardof Directors, or (ii) is or was a senior executive designated by the Compensation Committee as eligible to receive a minimum allowance,shallreceive an annual Early Retirement Allowance that, when added to the Actuarial Equivalent of any retirement allowance paid or payabletosuch Participant under the Retirement Plan and any Other Plans, assuming that the Participant began to receive his benefit under theRetirement Plan and Other Plans at the same time that the Early Retirement Allowance commences under the Plan (expressed as anannual benefit in a form that is the sameas

11




the form in which the Supplemental Retirement Allowance is payable), is not less than fifty percent (50%) of the Participant’s AverageFinalCompensation, reduced by 4/12ths of 1% for each month by which the Participant’s date of retirement precedes Normal Retirement Age.Theallowance under the Retirement Plan and Other Plans described in the immediately preceding sentence shall be calculated in a manner similar tothat set forth in the definition of the Annual BenefitOffset.

(e) The annual Hardship Retirement Allowance for Participants who have a Nonforfeitable right to such an allowance shall beequalto the Normal Retirement Allowance determined in accordance with a Participant’s Individual Agreement, based on the Participant’s

AverageFinal Compensation and Creditable Service at the date of retirement; provided that such allowance shall in no event be less than theEarlyRetirement 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 payablefollowing a “separation from service” (as that term is defined in Section 409A), then, notwithstanding any other provision in the Plan to

thecontrary, such amount will not be paid to the Participant during the six-month period immediately following such Participant’s “separationfromservice” if such Participant is deemed to be a “specified employee” (as that term is defined in Section 409A and pursuant to

proceduresestablished by the Company) on the “separation from service” date. During the seventh month following the month in which such“separationfrom service” occurs, all amounts that otherwise would have been paid to such Participant during that six-month period, but were not so

paiddue 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 theParticipant “separates from service” due to death or if the Participant dies before the six-month period haselapsed.

Amounts that are not paid to a Participant because of this Section 4.3 at the time such amounts otherwise would have been paid tosuchParticipant will accrue interest from the date such amount would have been paid to such Participant but for this Section 4.3 through the

dayimmediately preceding the date that such amount is actually paid to such Participant. Such interest shall accrue at the rate set forth fromtimeto 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 tosuchParticipant.12




4.4 Restoration toService.If a Participant who retired or otherwise terminated employment with the Company and its Subsidiaries is restored to service,suchrestoration 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 berecomputed by taking into account any Supplemental Retirement Allowance accrued by the Participant before and after his restorationtoservice, and will be reduced by the Actuarial Equivalent of the Supplemental Retirement Allowance already received or being received bysuchParticipant, if any.

SECTION 5BENEFICIARY RETIREMENT ALLOWANCES

5.1 Beneficiary’sAllowance.

(a) The circumstances under which a Participant’s Beneficiary will receive a Beneficiary’s Allowance as a result of theParticipant’sdeath are set forth in the Participant’s Individual Agreement. In no event will a Participant’s Beneficiary be entitled to a

Beneficiary’sAllowance if such Participant has begun to receive his Supplemental RetirementAllowance.

(b) The time and form of payment of any Beneficiary’s Allowance, and the method for calculating the amount of suchBeneficiary’sAllowance, are set forth in the Participant’s Individual Agreement. To the extent that any such Individual Agreement does not provide

for atime and form of payment of the Beneficiary’s Allowance, or the method for calculating the amount of such Beneficiary’s Allowance, thentheBeneficiary’s Allowance shall be paid in a single lump sum during the month following the month of the Participant’s death or followingthemonth in which the Participant would have attained age 55, whichever is later, which lump sum will be the Actuarial Equivalent of theSupplemental Retirement Allowance (based on the Participant’s Creditable Service as of his date of death) that the Beneficiary wouldhavereceived 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. Notwithstandingtheforegoing, if the Participant was married or had a Domestic Partner on the date of the Participant’s death, and the Beneficiary’sAllowance 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 anydeath benefit allowance (expressed as an annual amount payable for the life of the Beneficiaryand

13




commencing on the same date that the Beneficiary’s Allowance commences, regardless of whether the Beneficiary is the actual recipientof 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), thentheallowance payable under the Plan on his behalf will be payable pursuant to this Section 5

(i.e.

, the Beneficiary’s Allowance and theDependentChildren’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 followingthemonth in which the Participant dies, and no allowance will be payable pursuant to this Section5.

5.2 Dependent Children’sAllowance.

(a) Each Dependent Child, up to a maximum of four (4) such children, shall receive a Dependent Children’s Allowance, which isayearly allowance equal to ten percent (10%) of the yearly amount of the Beneficiary’s Allowance calculated under Section 5.1 at the time of theParticipant’s death (calculated as if the Beneficiary is the Surviving Spouse or Domestic Partner even if such allowance is not payable tosuchSurviving Spouse or Domestic Partner), plus ten percent (10%) of the yearly benefits that are payable to the Surviving Spouse or theParticipant’s Domestic Partner under the Retirement Plan and any Other Plan (or would be payable if such benefits were payable tosuchSurviving Spouse or Domestic Partner) (based on the assumption that benefits commence under such plans on the same date as

benefitscommencehereunder).

(b) For purposes of Section 5.2(a), if the Participant’s spouse or Domestic Partner predeceases the Participant, then theallowanceunder Section 5.1 shall be determined as if such spouse or Domestic Partner had not predeceased the Participant and as if yearly

benefitsunder the Retirement Plan and any Other Plan are payable to such predeceased spouse or Domestic Partner, and shall be based uponsuchspouse’s or Domestic Partner’s actuarially determined life expectancy as of the date of such spouse’s or Domestic Partner’sdeath.

(c) For purposes of Section 5.2(a), in the event that the Participant had no spouse or Domestic Partner, other than for the

reasonthat the spouse or Domestic Partner predeceased the Participant, then the allowance under Section 5.1 shall be based upon theassumptionthat the Participant had a spouse or Domestic Partner who was five (5) years younger than the Participant, that any yearly benefits payableunder the Retirement Plan and any Other Plan are payable to such assumed spouse or Domestic

14




Partner, and that the spouse’s or Domestic Partner’s allowance under Section 5.1 had commenced on the date of the Participant’sdeath.

(d) For purposes of Section 5.2(a), in the event that the spouse or Domestic Partner of a Participant dies prior to commencementof the Beneficiary’s Allowance, then the amount of the Dependent Children’s Allowance hereunder shall be determined on the assumption

thatthe allowance under Section 5.1 had commenced on the date of the spouse’s or Domestic Partner’s death and that any yearly benefits payableunder the Retirement Plan and any Other Plan had commenced on the date of the spouse’s or Domestic Partner’sdeath.

(e) The Dependent Children’s Allowance hereunder shall begin to be paid at the time and in the form set forth in theParticipant’sIndividual 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

andconditions under which any Dependent Children’s Allowance will be payable on behalf of suchParticipant.(g) The amount of any Beneficiary’s Allowance payable under Section 5.1 shall not be reduced due to the payment of a

benefitunder this Section 5.2 to one or more DependentChildren.

SECTION 6FORMS OF PAYMENT

6.1 Form of Payment Election. The form of payment of a Participant’s Supplemental Retirement Allowance is set forth in hisIndividualAgreement. Notwithstanding the foregoing, certain Participants made a separate payment election prior to January 1, 2009 in accordance

withtransition rules issued under Section 409A. Those elections remain valid except to the extent superseded prior to January 1, 2009 byanIndividualAgreement.

6.2 AutomaticForm.

(a) In the event that no form of payment election or provision is in effect with respect to any Participant, then such Participantwill be deemed to have elected to have his Supplemental Retirement Allowance payable as follows: (i) 80% of the Actuarial Equivalent value of theSupplemental 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 ActuarialEquivalent

15




value of the Supplemental Retirement Allowance will be paid in sixty equal, monthly installments beginning during the Lump-SumPaymentMonth. Notwithstanding the foregoing, any payment of the Supplemental Retirement Allowance is subject to Section4.3.

(b) Notwithstanding anything contained in the Plan to the contrary, during the two-year period immediately following a “changeincontrol event” (as that term is defined in the final regulations issued under Section 409A), the automatic form of payment of a

SupplementalRetirement Allowance shall be a single lump-sum payment in cash, provided that a Participant’s Individual Agreement mayexpresslysupersede this Section 6.2(b) and, subject to complying with Section 409A, provide for a different time and form of payment during suchtwo-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 anytimethereafter, the Actuarial Equivalent present value of any Supplemental Retirement Allowance payable to a Participant (including the valueof any benefit payable to his Surviving Spouse or Domestic Partner after his death) is less than or equal to the then-applicable dollar amountunder 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; providedthat such payment by the Company may only be made if the payment is made in connection with the termination and liquidation of suchParticipant’s interests in all arrangements that would constitute nonqualified deferred compensation plans under Code Section 409A andthatwould be aggregated with the Plan pursuant to Treasury Regulation § 1.409A-1(c)(2). Any such payment will be made by the Companynolater 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 6.3or, if later, by the 15th day of the third month following the month in which the Participant’s “separation from service”occurs.

SECTION 7ADMINISTRATION 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. TheRetirementBoard shall have full authority to determine all questions arising in connection with the Plan, including the discretionary authority tointerpretthe Plan, to adopt procedural rules, and to employ and rely on such legal counsel, actuaries, accountants, and agents as it may deemadvisableto assist in the administration of the Plan. Decisions of the Retirement Board shall

be16




conclusive and binding on all persons. The Retirement Board shall provide to the trustee of any Trust established pursuant to Section 1suchcertification or other documentation as may be required by the trustee in connection with the payment of benefits to Participants.Unlessotherwise determined by the Company, the membership of the Retirement Board shall be established pursuant to the provisions of theRetirement Plan from time to time. The Retirement Board may from time to time, in its discretion, delegate any authority andresponsibility itmay have for the administration and operation of the Plan to such individuals and bodies as it maydetermine.

7.2 After a Change in Control, the Retirement Board may be changed by the Company only with the consent of a majority of theParticipants (excluding

Beneficiaries).7.3 Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance with thelawsof the State of New York.

SECTION 8CERTAIN 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 thecontinuation of his employment, nor shall it interfere with the rights of the Company or a Subsidiary to discharge any employee and to

treatsuch employee without regard to the effect that such treatment might have upon such employee as a Participant in thePlan.

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 suchother

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 theRetirement 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 thePlan.

17




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 anyParticipantwho (a) at any time is convicted of a crime involving dishonesty or fraud relating to the Company, (b) at the time, without the

Company’swritten consent, knowingly uses or discloses any confidential or proprietary information relating to the Company, or (c) within threeyearsfollowing termination of employment, without the Company’s written consent, accepts employment with, or provides consulting servicesto, a principal competitor of theCompany.

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

theCompany, the Participant declines retirement at the request of the Company, or if the Participant’s voluntary retirement (other thanfor disability) prior to age 62 is not approved by the Company, then the Retirement Board shall have the right to cause forfeiture of any benefittoor on account of the Participant under thePlan.

8.7 All benefits payable under the Plan shall be payable by the Company from its general assets. The Plan shall not be funded bytheCompany. However, solely for its own convenience, the Company reserves the right to provide for payment of benefits hereunder through

atrust, which trust may be irrevocable, but the assets of which shall be subject to the claims of the Company’s general creditors in the eventof the Company’s bankruptcy or insolvency, as defined in the Trust established pursuant to Section 1. In no event shall the Company

berequired to segregate any amount credited to any account, which shall be established merely as an accounting convenience; noParticipant,Beneficiary, Surviving Spouse, Domestic Partner, or Dependent Child shall have any rights whatsoever in any specific assets of theCompanyor theTrust.

8.8 When payments commence under the Plan, the Company shall have the right to deduct from each payment made under the Plananyrequired withholding

taxes.8.9 Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder before such paymentsare otherwise due if it determines that a Participant or Beneficiary has recognized income for federal income tax purposes under Section

409Awith respect to amounts that are or will be payable to him under the Plan. The amount of any such payment may not exceed the amountthatsuch

18




Participant or Beneficiary has recognized under Section 409A with respect to amounts that are or will be payable to him under thePlan.

8.10 Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder to an individualother than the Participant before such payments are otherwise due to the Participant if the Company determines that such payments are being

madein order to fulfill the requirements of a “domestic relations order” (as defined in Section 414(p)(1)(B) of theCode).

SECTION 9AMENDMENT 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 timeandfrom 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 adoptedor becomes effective, whichever is later. For purposes of this Section 9, “accrued” benefits refer to the benefits to which a Participant would

beentitled, based on his Creditable Service and Compensation as of the date that the determination is made, as if the Participanthad a Nonforfeitable right to benefits as of suchdate.

9.2 Right toTerminate.The Board of Directors (or the Compensation Committee to the extent it has been delegated authority) may terminate the Plan for anyreason 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 islater.

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 servicerequirements to be entitled to a benefit under the Plan or under the Retirement Plan, shall have a Nonforfeitable right to: (i) the

SupplementalRetirement Allowance described in Section 4 that such Participant had accrued through the date of Plan termination; and (ii) to thedeath benefitsdescribed

19




in Section 5, based upon the Section 4 benefits accrued by the Participant through the date of Plantermination.

(b) For purposes of Section 4, such accrued benefit shall be computed in accordance with the Participant’s IndividualAgreementas though the date of Plan termination were the Participant’s date of retirement, provided that (i) if the Participant is younger than 55,

hisminimum percentage benefit described in Section 4.2(c) shall be determined upon the assumption that the Participant were age 55, andsuchminimum benefit shall then be multiplied by a fraction, the numerator of which is the Participant’s years of Creditable Service andthedenominator of which is his years of such Creditable Service projected to age 55, and (ii) if the Participant terminates employmentinvoluntarily before he attains age 65 and before his age and Creditable Service total 85 years, and his Supplemental Retirement Allowance commencesonor after the date that his age and Creditable Service would have totaled 85 years if his employment with the Company or a Subsidiaryhadcontinued, or it commences on or after his attainment of age 65, then his Supplemental Retirement Allowance shall be computedwithoutapplying the reduction for early commencement. This Section 9.3(b) applies to the computation of the amount of the Supplemental

RetirementAllowance; the timing of the payment of the allowance is set forth in Section 9.3(c) below. A Participant who does not have anIndividualAgreement at the time of Plan termination will continue to receive his Supplemental Retirement Allowance in accordance with the then-existingterms for his Supplemental RetirementAllowance.

(c) The payment of the Supplemental Retirement Allowance described in this Section 9.3 shall continue to be payable at timeor times and in such form as is provided in the Participant’s Individual Agreement (and to the extent not so provided in such

IndividualAgreement, in accordance with the other Sections of thePlan).

9.4 Effect of Plan Amendment onBenefits.In the event that the Plan is amended or modified, in whole or in part, to reduce future accruals of benefits, SupplementalRetirementAllowances, 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 SupplementalRetirementAllowance or death benefits based thereon that accrued through the date of such amendment or modification and which allowance or

benefitswere affected by such amendment or modification, as if the Plan were terminated as of such date and their rights and entitlement tothese benefits shall be determined under Section 9.3; provided that such Participants shall be entitled to continue to accrue benefits after thedate of such amendment or modification under such modified or amended terms of thePlan.

20




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 Controlwho subsequently ceases for any reason, other than a voluntary termination of employment as defined in Section 9.6, to be an

ActiveParticipant, such person shall have a Nonforfeitable right to (a) the Supplemental Retirement Allowance described in Section 4 thatsuch person had accrued through the date of termination of employment and (b) to the Beneficiary’s Allowance and DependentChildren’sAllowance 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 DependentChildren’sAllowance shall be calculated in accordance with Section 9.3(b) and shall be payable in accordance with Section9.3(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 Participantexcept atermination initiated

after:(a) any substantial adverse change in position, duties, title, or responsibilities, other than merely by reason of theCompanyceasing to be a publicly-traded

corporation;(b) any material reduction in base salary or, unless replaced by equivalent arrangements, any material reduction in annual

bonusopportunity or pension or welfare benefit plancoverages;

(c) any relocation required by the Company to an office or location more than 25 miles from the Participant’s then-currentregular office or location;

or (d) any failure of the Company to obtain the agreement of a successor entity to assume the obligations set forthhereunder, provided that the successor has had actual notice of the existence of this arrangement and an opportunity to assume the

Company’sresponsibilities hereunder during a period of at least ten (10) business days after receipt of suchnotice;

provided that, in order for a particular event to be treated as an exception to a “voluntary termination,” a Participant must assertsuchexception within 180 days after first having actual knowledge of the events giving rise thereto by giving the Company written noticethereof and an opportunity to cure. Notwithstanding the foregoing, in the event that any employment agreement between the Participant andtheCompany or a Subsidiary in effect at the time of such employment termination provides a definition of “constructive

21




termination” or termination for “good reason” or similar terminology, then such definition shall govern over the events described inthisSection 9.6 to the extent that it provides additional exceptions to the events that are considered a voluntarytermination.

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 Committeetothe extent that it has been delegated authority) may include an employee of such Subsidiary in the membership of the Plan upon

appropriateaction 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 theassets or business of another company, then the Board of Directors (or the Compensation Committee to the extent that it has beendelegatedauthority) 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 10CLAIM PROCEDURES

10.1 Every claim for benefits under the Plan shall be in writing directed to a member of the RetirementBoard.10.2 Each claim filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 90 daysafter receipt of the claim by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed

writtennotice of such extension will be given to the claimant within the initial 90-day period and such claim shall be decided no later than 180daysafter receipt of the claim by the Retirement Board). A claim that is not decided within the applicable time period may be considered to

bedenied. 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 beunderstood by the claimant, which noticeshall:

(a) specify the reason or reasons for thedenial;(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 documentationor information is necessary, and explain the Plan’s review

procedure.22




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 andfair 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

anymember of the Retirement Board within 60 days following the claimant’s receipt of the benefit denial (or the claim being deemed denied),andany such review will take into account all documents and information submitted by the claimant upon review, whether or not suchdocumentsand information were submitted or considered as part of the initial claim. As part of the review process, a claimantshall:

(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, andother 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 than60days after receipt of the request by the Retirement Board (unless special circumstances require an extension of such time, in whichcase adetailed written notice of such extension will be given to the claimant within the initial 60-day period and such claim shall be decided nolater than 120 days after receipt of the claim by the Retirement Board). A request for review that is not decided within the applicable time periodmay 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 denialinlanguage calculated to be understood by the claimant, which noticeshall:

(a) specify the reason or reasons for thedenial;(b) specify the Plan provisions giving rise to thedenial;(c) state that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, alldocuments,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

EmployeeRetirement Income Security Act of 1974, asamended.

23




IN WITNESS WHEREOF, the Company has caused this instrument to be executed on this 7th day of November, 2008, effective asof January 1, 2009.

AVON PRODUCTS, INC.

By: /s/ Kim K.W. Rucker Name: Kim K.W. Rucker Title: Senior Vice President and GeneralCounsel

24Exhibit 10.26

BENEFIT RESTORATION PENSION PLAN

OF

AVON PRODUCTS, INC.

Amended and Restated effective as of January 1,2009




TABLE OF CONTENTS

Page

ARTICLE 1 Definitions

1

ARTICLE 2 Membershi p

3

ARTICLE 3 Amount and Payment of Benefits

4

ARTICLE 4 GeneralProvisions

8

ARTICLE 5 Amendment or

Termination

9




BENEFIT RESTORATION PENSION PLANOF

AVON PRODUCTS, INC.

Introduction

This amendment and restatement of the Benefit Restoration Pension Plan of Avon Products, Inc. (the “Plan”) has been adopted bytheCompany 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 therespective distribution (and, if applicable, as the Plan was operated by the Company in order to ensure good faith compliancewithSection 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 theRetirement Plan, as defined below. All benefits payable under the Plan shall be paid out of the general assets of the Company. The

Companymay establish a trust in order to aid it in providing benefits due under thePlan.

ARTICLE 1Definitions

1.1 “Beneficiary” shall mean the person or trust that a Member designates as such under the Retirement Plan, provided that, if aMember has failed to make such a designation or no person designated is alive, no trust has been established, and no successor Beneficiary has

beendesignated 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 suchestate).

1.2 “Code” shall mean the Internal Revenue Code of 1986, asamended.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 EffectiveDate.1.7 “Equivalent Actuarial Value” shall mean a benefit of equivalent value when computed on the basis of the same mortality tableandrate 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 benefitsunder 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 RetirementPlan.1.11 “Retirement Plan” shall mean the Avon Products, Inc. Personal Retirement Account Plan as in effect on the Effective Date andasmay 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 issuedunder such Section.

1.13 “Separation from Service” shall mean a “separation from service” (as defined under Section 409A). If an Employee is onmilitaryleave, sick leave, or other bona fide leave of absence, then that Employee will not be deemed to have incurred a Separation from Service

unlesssuch leave extends beyond six months, in which case the Separation from Service will occur on the day immediately following the expirationof such six-month period; provided that an Employee who has a statutory or contractual right to reemployment while on a leave of absencewillnot be deemed to have incurred a Separation from Service, even if such leave extends beyond six months, as long as such statutoryor contractual right remains in effect. However, if a leave of absence is due to a medically determinable physical or mental impairment that can

beexpected to result in death or to last for a continuous period of not less than six months, where such impairment causes the Employee to beunable 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 a29-month period. A leave of absence will constitute a “bona fide leave of absence” onlyif

2




there is a reasonable expectation that the Employee will return to perform service for theCompany.

1.14 “SERP” shall mean the Supplemental Executive Retirement Plan of Avon Products, Inc., as in effect on the Effective Date and asmaythereafter 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

beamended 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 thePlan.

ARTICLE 2Membershi

p2.1Eligibility

(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

datethat his accrued Retirement Allowance is limited as a result of the application of Code Section 415 or 401(a)(17) or otherwise affected assetforth in Section 3.1 below. Notwithstanding the foregoing, an Employee who participates in the SERP will not be a Member or otherwise participate in thePlan.

(b) Each Employee who was a Member on June 30, 1998, shall continue to be a Member as of the EffectiveDate.

2.2 Termination of MembershipA 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

datethat such Member’s benefits payable under the Plan, if any, have been fullydistributed.3




ARTICLE 3Amount and Payment of Benefits

3.1 Amount of SupplementalBenefitThe annual amount of the Supplemental Benefit payable with respect to a Member, expressed as a single life annuity, shall be equalto:

(a) the amount of the Retirement Allowance that would be payable in the form of a single life annuity if (i) the limitations of CodeSection 415 were not applicable, (ii) the annual compensation limitations under Code Section 401(a)(17) were not applicable, (iii) the

definitionof compensation under the Retirement Plan included compensation electively deferred by the Member for the “plan year” (as defined intheRetirement Plan) to a deferred compensation plan or program maintained by the Company but only to the extent that such compensation

wouldhave been included in such definition if it had not been deferred, (iv) for highly compensated employees (as defined in Code Section 414),thedefinition of compensation under the Retirement Plan included the amount of the annual award (as opposed to awards that are basedon 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 anyMember who is eligible for the benefit referenced in Section 1.2(a) or Section 1.2(b)(2) of the Retirement Plan, such Member receivedcreditunder 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 hisSeparation from Service, provided that such number of months will not exceed twenty-four (24) months, and further provided that suchcreditwill 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 anyMember who is eligible only for the benefit referenced under Section 1.2(b)(1) of the Retirement Plan, such Member received credit under theRetirement Plan solely for retirement eligibility purposes (and not for age and Credited Service, as defined in the Retirement Plan) for thenumber of months for which such Member is eligible to receive severance payments, if any, under the terms of the Severance Plan at thetimeof his Separation from Service, provided that such number of months will not exceed twenty-four (24) months, and further provided thatsuchcredit 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 theMember.

4




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 timeother than the time that the Supplemental Benefit is payable under the Plan, such benefit shall be converted to a single life annuity of

EquivalentActuarial Value that is payable as of the date of the Member’s Separation from Service. For the avoidance of doubt, in order to determinetheamount of the Retirement Allowance under Section 3.1(b), it will be assumed that the Retirement Allowance is payable as a single lifeannuity beginning at the time of the Member’s Separation from Service, determined using the compensation and service credits that the Member hasaccumulated under the Retirement Plan through such Separation from Service, whether or not the Retirement Allowance is actually paidatsuch time or in suchform.

For purposes of determining the Supplemental Benefit under the Plan, the definition of “compensation” in the Retirement Plan ismodifiedto exclude severance pay from such definition, and thus from consideration under the Plan, only for those Employees whose last day of

activeemployment 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 paidto 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

paidin a lump sum during the month following the month in which the Member’s Separation from Service occurs (the “Lump-SumPaymentMonth”); and (2) 20% of the Equivalent Actuarial Value of the Supplemental Benefit will be paid in sixty equal, monthly installments

beginningduring the Lump-Sum PaymentMonth.

(b) Notwithstanding Section 3.2(a), certain Members who were Members before November 1, 2008 were permitted to electadifferent time and/or form of payment before January 1, 2009 in accordance with transition rules issued under Section 409A. Those

electionsremain valid, are subject to Section 3.6, and supersede Section 3.2(a). The payment options that were available to be elected by suchMember,and the option elected by such Member, if any, are set forth in the written election form completed by the Member and approved bytheRetirement

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

(determinedunder Section 3.1 by substituting the benefits payable to the Beneficiary in lieu of the benefits payable to the Member) will be paid tohis

5




Beneficiary in a single lump-sum payment (which will be an Equivalent Actuarial Value), payable during the month following the monthinwhich the Member dies.

(d) If a Member dies after his Supplemental Benefit has become payable, then, notwithstanding Section 3.2(a), anyremaining payments under his Supplemental Benefit will be paid to his Beneficiary in a single lump-sum payment, payable during the month following

themonth in which the Member dies. Notwithstanding the preceding sentence, if pursuant to Section 3.2(b) the Member elected to receivehisSupplemental Benefit in the form of an annuity or contingent life annuity, remaining payments, if any, will be made in accordance withtheterms of the electedannuity.

(e) If a Member has elected pursuant to Section 3.2(b) that his Supplemental Benefit be payable under a contingentannuitantoption and the contingent annuitant dies before the Supplemental Benefit becomes payable, then such Member may change his

contingentannuitant designation before any payment is made to the Member under the contingent annuitant option. Notwithstanding the foregoing,atany time before any payment has been made under a contingent annuity, a Member may change his payment election from one form of annuityto another, provided that both annuities have an Equivalent Actuarial Value and that the date of the first scheduled payment under

bothannuities is thesame.

3.3 Restoration toServiceIf a Member who retired or otherwise terminated employment with the Company is restored to service, such restoration will not effectthecontinued payment of his Supplemental Benefit. Upon his subsequent retirement or termination, in order to prevent any duplication of

benefitsunder the Plan, any additional Supplemental Benefit shall be recomputed by taking into account the Supplemental Benefit accrued bytheMember before and after his restoration to service, and will be reduced by the Equivalent Actuarial Value of the Supplemental Benefitalreadyreceived or being received by suchMember.

3.4 Elective Transfer to Deferred Compensation

PlanEffective as of January 1, 2006, a Participant who accrues benefits under the Plan on or after January 1, 2006 is no longer permittedtoelect to have his Supplemental Benefit credited to the Member’s account under the Avon Products, Inc. Deferred Compensation

Plan.6




3.5 Mandatory Cash-Out of Small AccountBalancesIf the Equivalent Actuarial Value of a Member’s Supplemental Benefit at the time the Member incurs a Separation from Service, or atanytime thereafter, is less than or equal to the then-applicable dollar amount under Code Section 402(g)(1)(B), then the Company will pay

theMember 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 bemade if the payment is made in connection with the termination and liquidation of such Member’s interests in all arrangements that wouldconstitutenonqualified deferred compensation plans under Code Section 409A and that would be aggregated with the Plan pursuant toTreasuryRegulation § 1.409A-1(c)(2). Any such payment will be made by the Company no later than December 31 of the year in which theMember’sSupplemental 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 thethirdmonth following the month in which the Member’s Separation from Service

occurs.3.6 Six-Month Delay in Payment to SpecifiedEmployeesTo 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

periodimmediately following such Member’s Separation from Service if such Member is deemed to be a “specified employee” (as that term isdefinedin Section 409A and pursuant to procedures established by Avon Products, Inc.) at the time of his Separation from Service. Duringtheseventh month following the month in which such Separation from Service occurs, all amounts that otherwise would have been paid tosuchMember 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 beforethe six-month period haselapsed.

Amounts that are not paid to a Member because of this Section 3.6 at the time such amounts otherwise would have been paid tosuchMember will accrue interest from the date such amount would have been paid to such Member but for this Section 3.6 through the

dayimmediately preceding the date that such amount is actually paid to such Member. Such interest shall accrue at the rate set forth fromtime totime 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 tosuchMember.

3.7 Domestic Relations Orders. Notwithstanding any other provision of the Plan to the contrary, the Company shall make paymentshereunder to an individual

other 7




than the Member before such payments are otherwise due to the Member if the Company determines that such payments are being madeinorder to fulfill the requirements of a “domestic relations order” (as defined in Code Section 414(p)(1)(B)).

ARTICLE 4GeneralProvisions

4.1AdministrationThe administration of the Plan, including but not limited to the discretionary power to interpret and carry out its provisions, istheresponsibility of the Retirement Board, and the provisions of Section 8 of the Retirement Plan, as amended from time to time, are

herebyincorporated 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, aswellas any administrative costs relating to the Plan, shall be paid out of the general assets of the Company, unless the Company establishes, in

itssole 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 atrustis established for some or all the benefits payable hereunder, the trust shall not be considered to fund, within the meaning of theEmployeeRetirement Income Security Act of 1974, as amended, the benefits under thePlan.

4.3 No Contract of EmploymentThe 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

treatmentmight have upon him as a Member of thePlan.

4.4 Facility of PaymentIn the event that the Retirement Board shall find that a Member is unable to care for his affairs because of illness or accident,theRetirement Board may direct that any benefit payment due him under the Plan, unless claim shall have been made therefor by a duly

appointedlegal representative, be paid to his Beneficiary, spouse, child, parent or other blood relative, or to a person with whom he resides, andanysuch payment so made shall be a complete discharge of the liabilities of the Companytherefor.

8




4.5 WithholdingTaxesThe Company shall have the right to deduct from each payment to be made under the Plan any required withholdingtaxes.4.6

NonalienationSubject to Section 3.7 and any applicable law, no benefit payable under the Plan shall be subject in any manner toanticipation,alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt so to do shall be void; nor shall any such benefit be

inany 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 theMember.

4.7 Forfeiture for CauseIn the event that a Member shall at any time be convicted of a crime involving dishonesty or fraud on the part of such Member inhisrelationship with the Company, all benefits that would otherwise be payable to him under the Plan shall be

forfeited.4.8 ClaimsProcedureIn the event that a Member or his Beneficiary claims that he has improperly been denied an appropriate Supplemental Benefit under thePlan, 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

theCompany.

4.9Construction

(a) Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance withthelaws 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 5Amendment 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 9




termination of the Plan shall adversely affect the right of any Member or his Beneficiary to receive the benefits accrued under thePlan inrespect of such Member as of the date of modification, amendment, or termination. Upon the termination of the Plan, benefitshereunder accrued through the date of such Plan termination shall continue to be payable in accordance with the terms of the Plan, as in effect onsuchdate of Plantermination.

10




IN WITNESS WHEREOF, the Company has executed the amended and restated Plan on this 7th day of November, 2008, effective asof 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 GeneralCounsel 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 January1,2009.

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 asof October 29, 1998; and

WHEREAS, Article X of the Trust Agreement provides that the Company may amend the Trust Agreement pursuant to a resolutionof its board of directors by delivering to the trustee a certified copy of such resolution and a written instrument duly executed and

acknowledgedin 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 InternalRevenueCode (“Section 409A”);

NOW, THEREFORE, the Company hereby amends the Trust Agreement asfollows:1. A new sentence is added to the end of Section 5.5 of the Trust Agreement to read asfollows:“The distribution right set forth in the immediately preceding sentence will not apply to any Participant under the SLIP (as amended asof January 1, 2009) who has an “Individual Agreement” (as that term is defined in the SLIP, amended as of January 1, 2009). TheCompanyshall notify the Trustee of all Participants under the SLIP who have such “Individual Agreements” and the Trustee shall befully protected in relying on suchnotification.”2. Article IX of the Trust Agreement is amended in its entirety to read asfollows:

“ARTICLE IX

Terminatio

nThe Trust may be terminated by the Company with respect to any Participant or Beneficiary under the SERP, and with respecttoany Participant or Beneficiary under the SLIP subject to an “Individual Agreement” (as that term is defined in the SLIP), after payment

tosuch 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, upondeliveryto the Trustee of a certified copyof




such resolution and a written instrument of termination duly executed and acknowledged in the same form as this Agreement.TheTrustee 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 “IndividualAgreement”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

beterminable in accordance with Article IX of the Trust Agreement as in effect immediately prior to January 1, 2009 for suchParticipantsandBeneficiaries.

Upon complete termination of the Trust, any assets remaining in the Trust shall be returned to theCompany.”

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 paymentshereunder 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 announcementissued by the Internal Revenue Service, (iii) a regulation issued by the Secretary of the Treasury or his delegate, (iv) a decision

by acourt of competent jurisdiction involving the Participant or Beneficiary, or (v) a closing agreement made under Code Section 7121that isapproved by the Internal Revenue Service and involves the Participant or Beneficiary, that Participant or Beneficiary has recognizedor will recognize income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plans

beforethey are paid to him. The Company will provide written notification to the Trustee of the Participants and Beneficiaries who havethe payment right set forth in this Section 11.9(a) and the amount to be paid to each such Participant andBeneficiary.

(b) Notwithstanding any other provision of the Trust Agreement to the contrary, the Trustee shall make appropriate paymentshereunder 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 incometax 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.Theamount of any such payment may not exceedthe

2




amount that such Participant or Beneficiary has recognized, or will recognize during the then-current tax year, under Section 409Awithrespect to amounts that are or will be payable to him under the Plans. The Company will provide written notification to the Trustee of theParticipants and Beneficiaries who have the payment right set forth in this Section 11.9(b) and the amount to be paid to eachsuchParticipant and Beneficiary (such right being limited to SLIP Participants not subject to Section 11.9(a) above with respect toSLIP benefits held in the Trust and SERP Participants and Beneficiaries with respect to SERP benefits held in theTrust).”4. The Trust Agreement is amended by adding Appendix II thereto in the form attached to thisAmendment.

3




IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on the date set forth below.

AVON PRODUCTS, INC.


Senior Vice President and GeneralCounsel

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 acknowledgedthesame 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

CountyCertificate Filed in New York County

Commission Expires June 20, 2010

4




APPENDIX II

FORM OF NOTICE OF 409A TAXATION

I, the undersigned Participant (Beneficiary) under the Avon Products, Inc. Trust Agreement, as amended, hereby notify JPMorganChaseBank 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 includedinincome as a result of the failure to comply with Section 409A and the regulationsthereunder.

Participant/Beneficiar y

Date:

A-1Exhibit 10.32

[Avon Products, Inc.letterhead]

November 7, 2008

Ms. Elizabeth A.SmithAvon Products, Inc.1345 Avenue of theAmericas 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 “EmploymentLetter Agreement”). In order to comply with final regulations issued under Section 409A of the Internal Revenue Code (“Section 409A”) and toavoidunfavorable tax treatment to you, certain amendments are required to be made to the Employment Letter Agreement. For this purpose, youandAvon have agreed to amend the Employment Letter Agreement in accordance with the terms of this letter. You acknowledge thattheconsideration supporting the amendments made by this letter includes, without limitation, the mutual promises set forth herein toavoidunfavorable tax treatment for you under Section409A.Addition of Six-Month Wait for Severance Benefits. Pursuant to the terms of the Employment Letter Agreement, if you incur a“SeveranceTermination” (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 separationfrom service (the “Severance Package”). If you become entitled to the Severance Package, then, to the extent that any portion of theSeverancePackage constitutes an amount payable or benefit to be provided under a “nonqualified deferred compensation plan” (as definedinSection 409A) following a “separation from service” (as defined in Section 409A) and which is not exempt from Section 409A, and sinceyouare a “specified employee” (as that term is defined in Section 409A), notwithstanding any other provision in the Employment Letter Agreementor this letter to the contrary, such payment or benefit provision will not be made to you during the six-month period immediatelyfollowingyour “separation from service” date. Instead, on the first day of the seventh month following such “separation from service” date, allamountsthat otherwise would have been paid or provided to you during that six-month period, but were not because of this provision, will be paidor provided to you on the first day of the seventh month following your “separation from service” date, with any cash payment delayedduringsuch six-month period to be made in a single lumpsum.




Rules for Continued Benefits and Perquisites. If you become entitled to continued benefits and/or perquisites from Avon beyond the datethatyou separate from service from Avon, then, in addition to being subject to the other provisions of this letter, such continued benefitsand/or perquisites will also be subject to the following rules: (a) to the extent that any such benefit or perquisite is provided via reimbursement toyou,Avon must provide the reimbursement no later than the end of the year following the year in which the underlying expense is incurred, (b)theamount 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 benefitor 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 intheEmployment Letter Agreement), Avon will make such payment to you no later than the end of the calendar year following the year inwhichyou 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 whichclarifyingchanges 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) providedto “specified employees;” providing that deferrals and payments under Avon’s Deferred Compensation Plan will be governed by the

termsof the Plan, as amended to comply with Section 409A; and limiting the end of the exercise period for any stock option to a date nolater than the original expiration date of such option, which is required in order to maintain the stock option’s exemption from Section409A’srules;and

(b) eliminating the right to defer severance payments to, and limiting the crediting of severance pay and severance periods under,Avon’stax-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

areentitled under the terms of Avon’s severance pay plan and other benefit programs as in effect from time to time, provided that in no eventshallthe amount of your severance payments, as set forth in the Executive Severance Summary, be reduced to below twenty-four (24) monthsatyour base salary in effect upon your “separation from service”date.

2




Please sign below to acknowledge your agreement to the terms of this letter and the amendments made by this letter to the EmploymentLetter Agreement, and return this letter tome.

Sincerely,

AVON PRODUCTS, INC.



Acknowledged and agreed:

/s/ Elizabeth A.Smith

11/12/08Elizabeth A.Smith

Date

3Exhibit 10.34

[Avon Products, Inc.letterhead]

November 7, 2008

Mr. CharlesCrambAvon Products, Inc.

1345 Avenue of theAmericas 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 “EmploymentLetter Agreement”). In order to comply with final regulations issued under Section 409A of the Internal Revenue Code (“Section 409A”) and toavoidunfavorable tax treatment to you, certain amendments are required to be made to the Employment Letter Agreement. For this purpose, youandAvon have agreed to amend the Employment Letter Agreement in accordance with the terms of this letter. You acknowledge thattheconsideration supporting the amendments made by this letter includes, without limitation, the mutual promises set forth herein toavoidunfavorable tax treatment for you under Section409A.Addition of Six-Month Wait for Severance Benefits. Pursuant to the terms of the Employment Letter Agreement, if your employment isterminated by Avon other than for cause, or if, during the three-year period following a “Change of Control,” you terminate your

employmentunder certain circumstances, you become entitled to severance payments in the form of continued base salary payments as well asthecontinued provision of certain benefits beyond your separation from service (the “Severance Package”). If you become entitled totheSeverance Package, then, to the extent that any portion of the Severance Package constitutes an amount payable or benefit to be

providedunder a “nonqualified deferred compensation plan” (as defined in Section 409A) following a “separation from service” (as definedinSection 409A) and which is not exempt from Section 409A, and since you are a “specified employee” (as that term is defined in Section409A),notwithstanding any other provision in the Employment Letter Agreement or this letter to the contrary, such payment or benefit provisionwillnot be made to you during the six-month period immediately following your “separation from service” date. Instead, on the first day of theseventh month following such “separation from service” date, all amounts that otherwise would have been paid or provided to you duringthatsix-month period, but were not because of this provision, will be paid or provided to you on the first day of the seventh month followingyour “separation from service” date, with any cash payment delayed during such six-month period to be made in a single lumpsum.






benefit.Executive Severance Summary. An Executive Severance Summary was attached to the Employment Letter Agreement, for whichclarifyingchanges 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) providedto “specified employees”; providing that deferrals and payments under Avon’s Deferred Compensation Plan will be governed by the

termsof the Plan, as amended to comply with Section 409A; and limiting the end of the exercise period for any stock option to a date nolater than the original expiration date of such option, which is required in order to maintain the stock option’s exemption from Section409A’srules;and

(b) eliminating the right to defer severance payments to, and limiting the crediting of severance pay and severance periods under,Avon’stax-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 youareentitled under the terms of Avon’s severance pay plan and other benefit programs as in effect from time to time, provided that in no eventshallthe amount of your severance payments, as set forth in the Executive Severance Summary, be reduced to below twenty-four (24) monthsatyour base salary in effect upon your “separation from service”date.

2





Sincerely,

AVON PRODUCTS, INC.

By: /s/ Kim K.W. Rucker Name: Kim K.W. Rucker Title: Senior Vice President and GeneralCounsel


/s/ CharlesCramb

12/3/08Charles Cramb Date

3Exhibit 10.37

[Avon Products, Inc.

letterhead]

LucienAlziariSenior VicePresidentHuman Resources

November 18, 2005

Mr. Charles M.Herington[homeaddress]

Dear Charles:

We are pleased to offer you the position of Senior Vice President and President-Latin America, reporting to SusanKropf.

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 anannual 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 allemployees.

You will receive a $150,000 sign-on bonus. As discussed, we are anticipating that your current employer will pay your 2005 bonus inearly2006. 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, andtheopportunity 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 minimumguaranteedaward of 32.5% of earned base salary, to be paid in February2007.




CharlesHerington November 18, 2005Page 2

It is our intent to recommend to the Compensation Committee of the Board that you be eligible to participate in the Long Term IncentivePlan(LTIP). We will recommend that the total 2006 LTIP award equal $800,000, which is a 160% target. The company cannot guarantee the formatof this award since the Long-Term Incentive Plan is currently under review. However, it is expected that your equity mix will contain bothstock options and restricted stock units (using an exchange ratio). We commit that your long-term compensation will continue to be atleastcomparable to that of similarly situatedexecutives.

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 unitssoon after your startdate.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 preset3-year performancegoals.As a senior executive of Avon, you will need to adhere to stock ownership guidelines mandated by the Board of Directors, whichencourageexecutive share ownership. You will be required to own Avon stock equal to two times base salary in five years from the date of hire.Theownership guidelines align executive interests with those of shareholders and are consistent with best practices among high-

performingcompanies.

You will be eligible to participate in Avon’s Deferred Compensation Plan. We will forward the brochure and enrollment forms to you induecourse.

You will be eligible to participate in all of the benefit programs in which similarly situated executives participate. Accordingly, you will beeligible for our flexible benefits programs and Avon’s Personal Savings Account (Avon’s 401(k) Plan) on your date of hire. Also, wewillautomatically open a Personal Retirement Account for you after you complete one year of service. This is a cash balance pensionaccountdesigned to provide you with a source of retirement income if you should leave Avon atany





time after becoming vested. (After you complete one year of service, your opening balance in this account will be calculated retroactivetoyour 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 weeksof vacation, which is more than our policy based on years of service. If you leave Avon’s employment you will be paid any vacationearneduntil the terminationdate.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

anannual flexible allowance of $9,250 if you choose not to lease an automobile. You will also be entitled to reimbursement of annualtax preparation assistance and financial planning up to a maximum of $12,500 per year. You will be eligible for the home security systemand personal automobile and excess liability insurance programs. In addition, you will eligible for an annual executive healthexamination.In the event of involuntary termination (except for cause) we are guaranteeing a severance of wage continuation for 24 months at the

basesalary in effect at the time of termination in addition to the other payments and benefits described in the attached ExecutiveSeveranceSummary.

Your employment at Avon is contingent upon your passing a satisfactory background investigation, reference checks, compliance withtheImmigration Law, passing a drug screening test and satisfaction of routine pre-employment and post-employment contingencies. As youmay be aware, Immigration Law requires that Avon verify the employment authorization status of all new employees. Therefore, on your firstdayyou will be asked to provide documents, which establish your identity and employment eligibility. We will forward a list of acceptabledocuments for verification purposes in duecourse.

Avon maintains a drug free work environment and requires that all new hires pass a drug screen as a condition of employment. The drugtestwill be scheduled as appropriate after accepting this offer. The results of this test must be received prior to your date of employment;youshould allow 3-4 business days for the results to be

processed.





We will forward to you additional new hire information, which you will need to complete and bring with you on your first day, which Ihopewill 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 youhaveany questions, please feel free to call me at (212) 282-5132.Sincerely,

/s/ Lucien

AlziariEnclosure.

Accepted and agreedto:/s/ CharlesHerington

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 effectattime 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 voluntaryresignation.)Stock Options (LTIP) Stock options continue to vest during the salary

continuation period. Have 90 days from final termination to exercisevestedoptions.

DeferredCompensation

Payout commences January following termination / endof severance

period. Not eligible to defer base salary while onseverance.

Not eligible to defer bonuses while onseverance.Excess 401(k) can be deferred while on severed status

providedelection is on file. Once payout commences, deferralscease.

Benefit Programs

Pension / Cash BalanceRetirement

Severance pay counts towards eligible earnings provided it is paidininstallments.

401 (k)Contributions

Severance pay counts towards eligible earnings provided it is paidininstallments.

Health & Welfare Benefits(Medical/Dental/Life)

Continue during salarycontinuation.

Disability (Short-Term & Long-Term)

Discontinued as of the last day of activeemployment.(Cannot participate in STD & LTD while onseverance.)

Employee AssistanceProgram

Continue during salarycontinuation.

(Cont’d)




Executive Perquisite

Programs

Company Car Continue lease for 3 months after last day of activeemploymentwith option to purchase car. Employee responsible for alloperatingand maintenance expense for the 3months.

FinancialPlanning

Financial planning and Tax Prep perquisite continued throughthecalendar year in which the Salary Continuationexpires.

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

followingyour last day of activeemployment.Personal Auto & Excess LiabilityInsurance

Policy will end on last day of activeemployment.

Executive HealthExam

Participation in program continues for 3 months after last dayof activeemployment.

Additional Policy

Considerations

Non-CompeteAgreement

Including but not limited to: Amway, Sara Lee,Tupperware,Unilever, Cosmair, L’Oreal, Mary Kay, Estee Lauder,Revlon,Procter & Gamble, Benckiser, Gryphon, Alticor, Jafra,LimitedBrand, Natura, O’Botacario, Oriflame, Herbalife, NuSkin or anyaffiliates of companies listed

above.Signed Release Required of all severed associates. If release is notsigned,associate is only entitled to 3 weeksseverance.

Outplacement

6 months with 6 one-month extensions asneeded.

Voicemail

Discontinue on last day of employment.

E-Mail Discontinue on last day of employment. Exhibit 10.38


letterhead] November 7, 2008

Mr. Charles M.HeringtonAvon Products, Inc.9100 S. Dadeland Blvd.Suite 1510Miami, Florida33156Dear Charles:

Reference is made to your employment letter agreement with Avon Products, Inc. (“Avon”) dated November 18, 2005 (the “EmploymentLetter Agreement”). In order to comply with final regulations issued under Section 409A of the Internal Revenue Code (“Section 409A”) and toavoidunfavorable tax treatment to you, certain amendments are required to be made to the Employment Letter Agreement. For this purpose, youandAvon have agreed to amend the Employment Letter Agreement in accordance with the terms of this letter. You acknowledge thattheconsideration supporting the amendments made by this letter includes, without limitation, the mutual promises set forth herein toavoidunfavorable tax treatment for you under Section409A.Addition of Six-Month Wait for Severance Benefits. Pursuant to the terms of the Employment Letter Agreement, in certain circumstances,youare entitled to severance payments in the form of continued base salary payments for twenty-four (24) months as well as thecontinued provision of certain benefits beyond your separation from service (the “Severance Package”). If you become entitled to theSeverancePackage, then, to the extent that any portion of the Severance Package constitutes an amount payable or benefit to be providedunder a“nonqualified deferred compensation plan” (as defined in Section 409A) following a “separation from service” (as defined in Section409A)and which is not exempt from Section 409A, and since you are a “specified employee” (as that term is defined in Section409A),notwithstanding any other provision in the Employment Letter Agreement or this letter to the contrary, such payment or benefit provisionwillnot be made to you during the six-month period immediately following your “separation from service” date. Instead, on the first day of theseventh month following such “separation from service” date, all amounts that otherwise would have been paid or provided to you duringthatsix-month period, but were not because of this provision, will be paid or provided to you on the first day of the seventh month followingyour “separation from service” date, with any cash payment delayed during such six-month period to be made in a single lumpsum.






benefit.Executive Severance Summary. An Executive Severance Summary was attached to the Employment Letter Agreement, for whichclarifyingchanges 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 bytheterms of the Plan, as amended to comply with Section 409A; and limiting the end of the exercise period for any stock optionto adate no later than the original expiration date of such option, which is required in order to maintain the stock option’sexemptionfrom 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 youareentitled under the terms of Avon’s severance pay plan and other benefit programs as in effect from time to time, provided that in no eventshallthe amount of your severance payments, as set forth in the Executive Severance Summary, be reduced to below twenty-four (24) monthsatyour base salary in effect upon your “separation from service”date.

2





Sincerely,

AVON PRODUCTS, INC.




/s/ CharlesHerington

11/24/08CharlesHerington

Date

3Exhibit 10.39


letterhead]

ANDREA JUNG

CHAIRMAN AND

CHIEF EXECUTIVE OFFICER

Personal &

Confidential April 6, 2006

Ben GallinaSenior VicePresidentWestern Europe, Middle East & Africa andChinaDear Ben:

This letter confirms our mutual understanding of the terms and conditions applying to your assignment in the U.K. as Senior Vice Presidentof Western Europe, Middle East & Africa and China reporting to me. Your assignment in the U.K. is contingent upon our mutualunderstandingof the performance objectives which are subject to change at Avon’s discretion, timely local regulatory permission being obtained for youtowork in the U.K. and your acceptance of the terms and conditions of thisletter.The conditions of this letter are in accordance with the policies set forth in the International Assignment Handbook, those policies

beingincorporated herein by this reference. This letter summarizes key points in the International Assignment Handbook and specifiescertainadditional conditions associated with your assignment. In terms of this specific assignment, local conditions and guidelinesapplicable toAvon expatriates in the U.K. will also governyou.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 thantwoyears subject to the discretion of Avon senior management. The assignment may be greater than two years subject to mutualagreement.

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 amonthly base salary of $39,583.33. Your next salary review is scheduled for April 2007. Your salary will continue to be based on home

countryinternal and external competitiverates.• 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 theU.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

duringthis assignment. Once the amount is determined, a hypothetical tax will be applied and you will be paid the netamount.




Ben Gallina Page 2 of 6 April 6, 2006

Overseas

CompensationA 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 youareaccustomed to in theU.S.A copy of your balance sheet is attached. It shows the current recommended pay split of your expatriate compensation. You willinitiallyreceive your salary in your home country. Should you decide to receive a portion of your salary in the U.K. during your assignment,

pleasecontact Kit Lee and Avon-U.K. in writing with the desired home and/or host salary payments you would like to receive. However, you willnot begin receiving funds in the U.K. until you confirm that you have opened a U.K. bank account.

Taxe

s• Tax Equalization

Adjustments

. Under the terms of the International Assignment Policy, your tax liability while on assignment in theU.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

obligationof your foreign service, a hypothetical U.S. income tax is computed and deducted from your total salary. A taxequalizationcalculation/reconciliation will be prepared at the end of each calendar year to determine if the appropriate U.S. taxes were withheldonyour total compensation during your foreign service through your hypothetical income taxdeductions.Ernst & Young LLP will be completing your income tax returns while you are on foreign assignment. It is therefore imperative thatyoumake contact with them to ensure that all necessary information is being compiled and that the tax process is in place to file your taxreturns on a timely basis. Please contact [contact person] of E&Y-Hong Kong, who has been handling your U.S. tax returns.Contactinformation is asfollows:Telephone: [xxx xxxx xxxx]Fax: [xxx xxxx xxxx]

Email:

[emailaddress]

You should also contact [contact person] of E&Y-U.K. regarding your host country returns. Contact information is asfollows:Telephone: [xxx xxxx xxxx]Fax: [xxx xxxx xxxx]Email:

[emailaddress]

[Contact person], a manager at Ernst & Young (E&Y) in the United States, is responsible for the day-to-day coordination of taxissuesregarding Avon’s worldwide expatriates. He may be reached at [(xxx) xxx-xxxx] or via email at [email address]. [Contact person], atax partner at Ernst & Young (E&Y) in New York, is responsible for Avon’s worldwide expatriate taxwork.In the event of severance, tax treatment of any payments made to you will be reviewed and income tax withholding adjustedaccordingly,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.

Asstated, total compensation includes base salary, Management Incentive Plan, LTIP and any other bonuses or performance-relatedincentives received during your assignment.• Social

Security

. The hypothetical tax deduction does not cover your home country social security obligation. The U.S. payrolldepartment should continue to handle this deduction while you are

on





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 onyour 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 goodsandservices (G&S) index of the host and home location times the amount that someone at your income level and family size

would spend

ongoods 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 spendableincome. 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 continuallymonitorsexchange rates and movements in the rate of inflation for both countries. Your balance sheet will reflect changes, positive or negative,toyour 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 eachyear.Initially, your temporary living expenses should be reported through an expense report. You will begin to receive a G&Sdifferential, if applicable, once you are no longer being reimbursed for your living expenses via this method. Please notify Kit Lee of theInternationalAssignments Department when you no longer are reporting your living expenses through an expense report so that any applicableG&Sdifferential can beimplemented.• Host Country Housing Allowance

. Avon will be assuming the full cost of your housing in the U.K. including your rent andutilities(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 spentonhousing 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.

asestablished by our consultants, ORC. Since you will remain personally responsible for your home in the U.S. and it will not be rented,

thehousing obligation reflecting the amount that you would have spent on housing will not be deducted from your total compensation.Youwill be required to submit a signed, written affidavit that the home will remain vacant and not generate any rental income while you areonassignment. You undertake the responsibility to immediately notify the Avon-U.S. office and Kit Lee in the InternationalAssignmentsDepartment if your situation changes, i.e., you are receiving rental income on your residence, sell it, etc. At the time Avon-U.S. andKitLee are notified, a housing deduction will be withheld from your payroll applied from the effective date of the change. Our outsideconsultants, ORC, will assist us in determining the amount of thisdeduction.• Assignment Incentive

Bonus

. To recognize the personal adjustments inherent with international assignments and to cover miscellaneouscosts not otherwise reimbursed, you will receive an assignment incentive bonus. The assignment incentive bonus is equivalent to

onemonth’s base salary. The first assignment incentive bonus will be paid when this letter, signed by all signatories, is returned to KitLeeand Avon-U.S. and Avon-U.K. To offset your housing expense in the U.K., you will not receive another assignment incentive bonusonthe anniversary date of your assignment. You will receive a completion bonus which is also equivalent to one month’s base salary. If youcomplete your assignment earlier than the scheduled time frame, you will receive a prorated completion bonus. If theassignment isextended, the completion bonus will be paid upon completion of the extended assignment. You will not be responsible for any taxes

onthe assignment incentive and completion bonuses, i.e., they are not subject to a hypothetical income taxdeduction.

FOREIGN SERVICE EMPLOYEE ASSITANCE PROGRAMS





• Shipment/Storage of Effects

. You will be reimbursed for the cost of shipping limited household and personal effects to and from theU.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

inthe 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 workingfor 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

thoughyou were working for Avon in the U.S. They are summarized asfollows:• Car Lease – Since you have an automobile lease in the U.S., you will be not be provided with a car in theU.K.• Financial Counseling – Since E&Y will be preparing your income tax returns for each assignment year, the FinancialPlanningallowance 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 activeassociate.• 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, andwork 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”), shouldsucha 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 theU.K.• Club

Membership

. As a social outlet, you will be reimbursed for membership in a local club. Please contact Daniela Menzky beforemaking any

arrangements.• Miscellaneous Relocation Allowance

. You will receive a relocation allowance equivalent to one month’s base salary when yourelocateupon 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 paidtothe moving crew, purchase of transformers, additional luggage, minor appliances, etc. The relocation allowance is paid to you freeof 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 beauthorizedone round-trip per year to a destination of your choice.

Such





airfare, however, is not to exceed the equivalent cost of returning to the U.S., via the most direct routeavailable.Should your son attend college on a full-time basis your assignment outside the host location, he will be entitled to two visits to theU.K.instead of the one trip noted above. Direct route, advance purchase, economy tickets, where applicable, should beused.• Destination Assistance/Cross Cultural Orientation.

On-site relocation and settling-in assistance in the U.K. and cross-culturalorientation concerning living in the U.K. will also be provided to you through the services of consultants as appointed by

DanielaMenzky. 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 commencementof 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 KitLeeand Avon-UK HR so that any applicable G&S differential can beimplemented.• Provision of Major Appliances.

You will be reimbursed for major appliances you are required to purchase, if major appliances arenot 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 thedefinitionof major appliances.• Personal Property & Liability Insurance.

Avon has arranged Personal Property Insurance and Personal Liability Insurance for itsexpatriate associates on foreign assignment. Personal belongings that are usual to a household or dwelling are covered while at

theforeign residence. These belongings must be at an Avon sponsored host country dwelling, which the associate uses as their primaryresidence. You will be required to complete an inventory list and submit it to UNIRISC, Avon’s insurance administrator, and toGlobalRisk Management in New York for this coverage to apply. You are also covered for personal liability insurance. You will be providedwitha 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 anyquestions.

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 Avontorelated companies, including HRToolbox (located in the United States). If you do not wish to have your data stored in this fashion,

pleasecontact Kit Lee in the Corporateoffice.

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 HumanResources policies governing compensation and benefits as they relate to your particular case will be determined by reference to Avon-U.S.’s

practicesrather than the U.K.’s practices. It is also understood that all of the items covered in this letter are subject to your continuedsatisfactory performance.

PERFORMANCE AND REPATRIATION





Should you terminate while abroad, either at your own or Avon’s election, Avon will pay repatriation expenses for you and your householdgoods in accordance with policy guidelines. Expenses to your point of origin (U.S.) would be paid, provided you return to that point within30days 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

byanother company.Upon successful completion of your assignment as the Senior Vice President of Western Europe, Middle East and Africa and China, it isour current intent to offer you a position comparable to what you had prior to this assignment. Of course, any such offer would be dependentonmarket conditions, Avon’s business structure and other circumstances that cannot be known at thistime.

Ben, I believe we have covered the pertinent points of your transfer. After you have reviewed this agreement, please sign the enclosedtwocopies 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 newassignment.Sincerely,

/s/ Andrea Jung

Andrea JungChairman & Chief ExecutiveOfficer Reviewed and agreed

/s/ BenGallina

4/7/06Ben Gallina Date

cc: D. Menzky, L. Alziari, K. Lee, M. Pascual(E&Y) NOTE: All costs of this assignment will be charged to Avon WesternEurope. Exhibit 10.40


letterhead]Personal &Confidential November 7, 2008

Ben GallinaAvon Products, Inc.1345 Avenue of the

Americas New York, N.Y. 10105-0196Dear 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 basedassignment.U.S. income tax rules under Section 409A of the Internal Revenue Code set forth specific requirements for time of payment for thetaxequalization adjustments in order that you may avoid additional taxes on these payments. The purpose of this letter is to set forth thetime of payment requirements so that your tax equalization adjustment will comply with Section 409A. Therefore, the April 6, 2006 letter agreement isamended asfollows.

Taxe

sAny tax equalization payments made by Avon to you shall not exceed the taxes actually imposed by the U.K. on the compensationreceivedfrom Avon over the taxes that would be imposed if the compensation were subject solely to U.S. Federal, state and local income tax, plustheamount necessary to compensate for the additional taxes on the tax equalization payment. Any tax equalization payment shall be made nolater 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(includingany extensions) for the year to which the compensation subject to the tax equalization payment relates, or, if later, the end of thesecondtaxable 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 whichthecompensation subject to the tax equalization paymentrelates.Please acknowledge your agreement by signing and returning one copy of this letter tome.

[Signature pagefollows]




Sincerely,

AVON PRODUCTS, INC.



Acknowledged and Agreed

this 1 day of December,

2008./s/ BenGallinaBen Gallina

2Exhibit 10.48

SUPPLEMENTAL LIFE PLAN

OF

AVON PRODUCTS, INC.

EFFECTIVE AS OF JANUARY 1, 1990AMENDED 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

i




Section 1.

INTRODUCTION

Avon Products, Inc. (the “Company”) adopted the Supplemental Life Plan of Avon Products, Inc. (the “Plan”) effective as of January1,1990 to provide death benefit protection to certain elected or appointed officers of the Company and to selected other employees of

theCompany and its Subsidiaries in recognition of their contribution to the Company in carrying out management responsibilities. TheCompanyhas now amended and restated such plan, effective as of January 1, 2009. The Company intends to maintain the Plan indefinitely, and thetermsand conditions of participation and benefits under the Plan are set out in thisdocument.

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 bythe

context:(1) “Beneficiary” shall mean the person or persons designated by a Participant as his beneficiary or beneficiaries, such designation to

bemade 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 theParticipant’sspouse shall be the beneficiary, or if no spouse survives the Participant, then the Participant’s estate shall be the beneficiary. AParticipantmay change his designated beneficiary at the time and in the manner determined by the RetirementBoard.

(2) “Board of Directors” shall mean the Board of Directors of theCompany.(3) “Participant” shall mean any employee of the Company or a Subsidiary from the time he began participation in the Plan in

accordancewith Section 3 until the earlier of the time that: (a) such employee dies; (b) such employee terminates employment (or is deemed bytheCompany to have terminated employment) with the Company and its Subsidiaries (for this purpose, a termination of employment doesnotoccur until the end of any salary continuation period covering such employee); (c) such employee has been determined by theRetirementBoard to no longer be eligible for continued participation in the Plan; (d) with respect to any employee who is on a leave of absenceduringwhich the Participant is receiving a disability benefit under any of the Company’s disability insurance plans, such employee has been onsuchleave of absence




for 29 months; or (e) the Plan is terminated. Notwithstanding the foregoing, a Participant may continue to participate in the Plan beyondthetime period set forth in this Section 2(3) in accordance with the express terms of a written agreement entered into between such Participantandthe Company referencing participation in thePlan.

(4) “Retirement Board” shall mean the administrative board or any successor thereto that administers the Avon Products, Inc.PersonalRetirement Account Plan, as amended from time to

time.(5) “Subsidiary” shall mean any majority-owned subsidiary of theCompany.(6) “Supplemental Life Allowance” shall mean the benefit referred to in Section4.(7) As used in the Plan, the masculine pronoun shall include the feminine and the feminine pronoun shall include the masculineunlessotherwise specifically

indicated.(8) As used in the Plan, the term “nonforfeitable” shall refer only to the vested unsecured contractual right of a Beneficiary to

benefitsunder the Plan. In no event, however, shall the term “nonforfeitable” imply any preferred claim on, or any beneficial ownership interest in,anyassets of the Company before those assets are paid to any Beneficiary pursuant to the terms of thePlan.

Section 3.

PARTICIPATION

The Retirement Board has the authority to include as Participants in the Plan employees of the Company or a Subsidiarywhoseemployment is based in the United States at salary grade A04 or above, as the Retirement Board deems fit. Authorization to

includeParticipants in the Plan shall be in writing and approved by the Retirement Board. After a designated employee completes allrequired paperwork, such designated employee becomes a Participant. A designated employee remains a Participant until the Retirement

Boarddetermines that the Participant is no longer eligible for continued participation in the Plan or unless his participation in the Planotherwiseceases in accordance with the terms of the Plan. All such determinations shall be in writing and approved by the RetirementBoard.

2




Section 4.

SUPPLEMENTAL LIFE ALLOWANCES

(1) If a Participant dies while employed with the Company or a Subsidiary (including during any salary continuation period coveringsuchParticipant), or during the first 29 months of a leave of absence during which the Participant is receiving a disability benefit under any of

theCompany’s disability insurance plans, the Beneficiary of such Participant shall receive a Supplemental Life Allowance determinedinaccordance with Section 4(2), provided that such Participant has not made the election described in Section4(4).

(2) After satisfying the requirements for participation as set forth under Section 3, a Participant shall be eligible for a SupplementalLifeAllowance 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 theconditionthat 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 tosuch demotion unless the Retirement Board, in writing, exercises its discretion to provide that such Participant will only be eligiblefor aSupplemental Life Allowance based upon his new salary grade level. If a Participant is demoted to a salary grade level below A04 or hisemployment is no longer based in the United States, he will retain his eligibility for the Supplemental Life Allowance applicable to him

prior tosuch demotion or change in location of employment unless the Retirement Board, in writing, exercises its discretion to provide thatsuchParticipant will not qualify for any Supplemental Life Allowance under thePlan.

(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

Participantcommitted suicide or any other grounds based on actions or inactions on the part of the Participant, then, and in that event, theCompany’sobligation to make payments under this Section 4 shall be terminated. The Company shall, in its sole discretion, determine what steps

arenecessary and take such action as it deems reasonably appropriate to pursue and obtain payment of any death benefit under said policyor policies. Whatever steps are deemed appropriate by the Company to pursue this matter shall be conclusive. In no event shall anyParticipanthave any ownership interest in such policy or

policies.3




(4) Notwithstanding the foregoing, a Participant may elect not to be covered by the Supplemental Life Allowance coverage providedunder 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 theRetirementBoard 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 determineallquestions arising in connection with the Plan, including the discretionary authority to interpret the Plan, to adopt procedural rules,

and toemploy and rely on such legal counsel, actuaries, accountants, and agents as it may deem advisable to assist in the administration of thePlan.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 thelawsof 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 personfor acontinuation of employment, nor shall it interfere with the rights of the Company or a Subsidiary to discharge any employee and to treat

suchemployee without regard to the effect which such treatment might have upon such employee as a Participant of thePlan.

(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

accidentor because he is a minor, then the Retirement Board may direct that any benefit payment due such Beneficiary, unless claim shall have beenmade 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 withrespectto suchBeneficiary.

4




(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

subjectto the debts, contracts, liabilities, engagements, or torts of the Beneficiary entitled to such benefit. If the Retirement Board shall find thatanyBeneficiary 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 RetirementBoardmay hold or apply the same to or for the benefit of such Beneficiary in such manner as the Retirement Board shalldetermine.

(4) If any Participant shall at any time be convicted of a crime involving dishonesty or fraud on the part of the Participant relating totheCompany 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

andinsurability, including a physical examination, as the Retirement Board may from time to time require to satisfy any insurancecompany inconnection with obtaining life insurance for benefits under Section 4. A Participant who fails to supply such evidence when required shallnot be entitled to such benefits under Section4.

(6) In addition to the payment set forth in Section 4, as an additional death benefit paid with respect to a Participant, the Companyshall 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 payableunder 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

paymentof all local, state, and federal income taxes, equals the Supplemental Life Allowance payable under Section4.

(7) All benefits payable under the Plan shall be payable by the Company from its general assets. The Plan shall not be funded bytheCompany.

(8) When payments are made under the Plan, the Company shall have the right to deduct from each payment made any

requiredwithholdingtaxes.5




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 suchauthority)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 becomeseffective, whichever is later. No benefit shall be deemed to have become accrued or nonforfeitable prior to the Participant’sdeath.

(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 madeeffective,whichever islater.

Section 8.

CLAIM PROCEDURES

(1) Every claim for benefits under the Plan shall be in writing directed to a member of the RetirementBoard.(2) Each claim filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than 90 daysafter receipt of the claim by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed


bedenied. 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

beunderstood by the claimant, which noticeshall:

(a) specify the reason or reasons for thedenial;(b) specify the Plan provisions giving rise to the denial;and

6




(c) describe any further information or documentation necessary for the claim to be honored, explain why such documentationor 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 andfair 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

anymember of the Retirement Board within 60 days following the claimant’s receipt of the benefit denial (or the claim being deemed denied),andany such review will take into account all documents and information submitted by the claimant upon review, whether or not suchdocumentsand information were submitted or considered as part of the initial claim. As part of the review process, a claimantshall:

(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, andother information relevant to theclaim.

(4) Each request for review filed shall be decided by the Retirement Board within a reasonable time from its receipt, but not later than60days after receipt of the request by the Retirement Board (unless special circumstances require an extension of such time, in which

case adetailed written notice of such extension will be given to the claimant within the initial 60-day period and such claim shall be decided nolater than 120 days after receipt of the claim by the Retirement Board). A request for review that is not decided within the applicable time periodmay 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 denialinlanguage calculated to be understood by the claimant, which noticeshall:

(a) specify the reason or reasons for thedenial;(b) specify the Plan provisions giving rise to thedenial;(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 theEmployeeRetirement Income Security Act of 1974, as

amended.7




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.



8Exhibit 10.49

PRE-1990 SUPPLEMENTAL LIFE PLAN

OF

AVON PRODUCTS, INC.

AMENDED AND RESTATED AS OF JANUARY 1, 2009




TABLE OF CONTENTS

Page

SECTION 1 INTRODUCTION 1SECTION 2 DEFINITIONS 1SECTION 3 PARTICIPATION 4SECTION 4 SUPPLEMENTAL LIFE ALLOWANCES 4SECTION 5 ADMINISTRATION OF THE PLAN AND GOVERNING LAW 6SECTION 6 CERTAIN RIGHTS AND LIMITATIONS 6SECTION 7 AMENDMENT AND TERMINATION; CHANGE OF CONTROL 7SECTION 8 CLAIM PROCEDURES 9




SECTION 1INTRODUCTION

Avon Products, Inc. (the “Company”) adopted the Supplemental Executive Retirement and Life Plan of Avon Products, Inc.,originallyeffective 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 shallhereinafter 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”) toaid 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.Theestablishment of the Trust shall not convey rights to Participants and Beneficiaries that are greater than those of the general creditors of theCompany and shall not affect the Company’s continuing liability to pay Plan benefits and administrative costs, except that theCompany’sliability shall be offset by actual benefits and administrative cost payments, if any, made by theTrust.

SECTION 2DEFINITIONS

As used in the Plan, the masculine pronoun shall include the feminine and the feminine pronoun shall include the masculineunlessotherwise specifically indicated. In addition, the following words and phrases as used in the Plan shall have the following meanings

unless adifferent meaning is plainly required by thecontext:

2.1 “Beneficiary” shall mean the person or persons designated by a Participant as his beneficiary or beneficiaries, such designation to bemade in a time and manner determined by the Retirement Board. If a Participant fails to designate a beneficiary, or if a beneficiary

predeceasesthe Participant (or each beneficiary predeceases the Participant if more than one beneficiary is designated), then the Participant’s spouseshall be the beneficiary, or if no spouse survives the Participant, then the Participant’s estate shall be the beneficiary. A Participant may changehisBeneficiary at the time and in the manner determined by the RetirementBoard.

2.2 “Board of Directors” shall mean the Board of Directors of theCompany.




2.3 “Change of Control” shallmean:

(a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the SecuritiesExchangeAct of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under

theExchange Act) of voting securities of the corporation where such acquisition causes such person to own twenty percent (20%) or more of thecombined 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 bedeemedto result in a Change of Control: (i) any acquisition directly from the Company; (ii) any acquisition by the Company; (iii) any acquisition

byany 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

providedfurther that, if any Person’s beneficial ownership of the Outstanding Company Voting Securities reaches or exceeds twenty percent (20%)

as aresult of a transaction described in clause (i) or (ii) above, and such Person subsequently acquires beneficial ownership of additionalvotingsecurities of the Company, then such subsequent acquisition shall be treated as an acquisition that causes such Person to owntwenty(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 reasontoconstitute at least a majority of the Board of Directors; provided that any individual becoming a director subsequent to such date

whoseelection, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directorsthencomprising 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 withrespect tothe election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other thantheBoard of Directors;or

(c) the approval by the shareholders of the Company of a reorganization, merger, or consolidation, or sale or other disposition of allor substantially all of the assets of the Company (“Business Combination”), or, if consummation of such Business Combination is

subject, atthe time of such approval by shareholders, to the consent of any government or governmental agency, then the obtaining of suchconsent(either explicitly or implicitly by consummation); excluding, however, any Business Combination pursuant to which (i) all or substantiallyall of the individuals and entities who were the beneficial owners of the Outstanding Company Voting Securities immediately prior to suchBusinessCombination beneficially own, directly or indirectly,

2




more than sixty percent (60%) of, respectively, the then outstanding shares of common stock and the combined voting power of thethenoutstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting fromsuchBusiness Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or allor substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions astheir ownership immediately prior to such Business Combination of the Outstanding Company Voting Securities, (ii) no Person (excludinganyemployee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficiallyowns,directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporationresultingfrom such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except totheextent 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 executionof 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 theCompany.

Notwithstanding the foregoing, no Change of Control shall be deemed to have occurred with respect to any individual by reason of anyactions or events in which such individual participates in a capacity other than in his capacity as an officer or employee of the Company (or

asa director of the Company or a Subsidiary, whereapplicable).

2.4 “Code” shall mean the Internal Revenue Code of 1986, asamended.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 refersto 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

suchParticipant. The intent of the parties to any such Individual Agreement is, in part, to cause benefits payable under the Plan with respect to

thatParticipant to be in compliance with Section 409A of theCode.2.7 “Nonforfeitable” shall refer only to the vested unsecured contractual right of a Participant and his Beneficiary to benefits under thePlan. In no event shall “Nonforfeitable” imply any preferred claim on or to, or any beneficial ownership

interest3




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 providedin 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 totime.2.9 “Retirement Board” shall mean the administrative board or any successor thereto that administers the Avon Products, Inc.PersonalRetirement 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

SupplementalLife Plan of Avon Products,

Inc. 2.11 “Subsidiary” shall mean any majority-owned subsidiary of theCompany.2.12 “Supplemental Life Allowance” shall mean the benefit referred to in Section4.

SECTION 3PARTICIPATION

3.1Participation.The SLIP was closed to new participants on January 1,1990.

SECTION 4SUPPLEMENTAL LIFE ALLOWANCES

4.1 Right to a Supplemental LifeAllowance.

(a) Except as otherwise provided in the Plan, for each Participant, a Supplemental Life Allowance will be payable to hisBeneficiarywhen 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

beentitled to a Supplemental Life Allowance as provided in Section7.

4




(c) A Participant’s Supplemental Life Allowance is Nonforfeitable, provided that, as set forth in Sections 4.3 and 6.3, certaineventsmay result in the forfeiture of Nonforfeitable

benefits.4.2 Amount of Supplemental LifeAllowance.

(a) If a Participant has a right to a Supplemental Life Allowance under the Plan, then the Beneficiary of such Participantshallreceive a Supplemental Life Allowance payable upon the death of such Participant, except as provided in Section 7, provided that

suchParticipant has not made any election described in Section4.4.

(b) The amount of each Participant’s Supplemental Life Allowance is set forth in the records of the Company from time totime.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 notin connection with the Plan, and the insurer is not obligated to pay the policy’s death benefit proceeds on the grounds that the

Participantcommitted suicide or any other grounds based on actions or inactions on the part of the Participant, then, and in that event, theCompany’sobligation to make payment of a Supplemental Life Allowance shall be terminated. The Company shall, in its sole discretion, determinewhatsteps 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 shallanyParticipant 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 theRetirement 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 bytheRetirement Board. In the case of any such election, the Company will also pay cash to such Participant in an amount sufficient to enablesuchParticipant to pay any federal, state, and local income taxes (calculated at the highest applicable marginal rates) resulting from the

distributionof such policy or policies and the corresponding cash payment. This Section 4.4 does not apply to a Participant who has anIndividualAgreement and the terms of such Individual Agreement will apply in lieuhereof.

5




SECTION 5ADMINISTRATION 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. TheRetirementBoard shall have full authority to determine all questions arising in connection with the Plan, including the discretionary authority to

interpretthe Plan, to adopt procedural rules, and to employ and rely on such legal counsel, actuaries, accountants, and agents as it may deemadvisableto assist in the administration of the Plan. Decisions of the Retirement Board shall be conclusive and binding on all persons. TheRetirementBoard shall provide to the trustee of any Trust established pursuant to Section 1, such certification or other documentation as may berequired by the trustee in connection with the payment of benefits to Beneficiaries. Unless otherwise determined by the Company, the membershipof the Retirement Board shall be established pursuant to the provisions of the Avon Products, Inc. Personal Retirement Account Plan,asamended from time to time. The Retirement Board may from time to time, in its discretion, delegate any authority and responsibility it may

havefor the administration and operation of the Plan to such individuals and bodies as it maydetermine.

5.2 After a Change in Control, the Retirement Board may be changed by the Company only with the consent of a majority of theParticipants (excluding

Beneficiaries).5.3 Except as otherwise provided by applicable law, all rights hereunder shall be governed by and construed in accordance with thelawsof the State of New York.

SECTION 6CERTAIN 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 thecontinuation of his employment, nor shall it interfere with the rights of the Company or a Subsidiary to discharge any employee and to

treatsuch 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

subjectto the debts, contracts, liabilities, engagements, or torts of the person entitled to such benefit.

6




6.3 The obligation of the Company to make payment of any benefits hereunder, including benefits that have become Nonforfeitable,shallcease with respect to any Participant who (a) at any time is convicted of a crime involving dishonesty or fraud relating to the Company,

(b) atthe time, without the Company’s written consent, knowingly uses or discloses any confidential or proprietary information relating totheCompany, or (c) within three years following the termination of his employment, without the Company’s written consent, acceptsemploymentwith, or provides consulting services to, a principal competitor of theCompany.

6.4 All benefits payable under the Plan shall be payable by the Company from its general assets. The Plan shall not be funded bytheCompany. However, solely for its own convenience, the Company reserves the right to provide for payment of benefits hereunder through

atrust, which trust may be irrevocable, but the assets of which shall be subject to the claims of the Company’s general creditors in the eventof the Company’s bankruptcy or insolvency, as defined in the Trust established pursuant to Section 1. In no event shall the Company

berequired 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 theTrust.

6.5 When payments are made under the Plan, the Company shall have the right to deduct from each payment made anyrequiredwithholding

taxes.6.6 Notwithstanding any other provision of the Plan to the contrary, the Company shall make payments hereunder before such

paymentsare 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 acourt of competent jurisdiction involving a Participant or Beneficiary, or a closing agreement made under Section 7121 of the Codethat isapproved by the Internal Revenue Service and involves a Participant or Beneficiary, that a Participant or Beneficiary has recognized, or willrecognize, income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plan beforesuchamounts are paid to him. This Section 6.6 will not apply to a Participant who has an IndividualAgreement.

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 anytimeand from time to time,

and7




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 toitsnormal procedures; provided that no such modification or amendment shall adversely affect the rights and benefits of Participants thathad become Nonforfeitable under the SLIP prior to the date that such amendment or modification is adopted or becomes effective,whichever islater .

7.2 Right toTerminate.The Board of Directors (or the Compensation Committee to the extent that it has been delegated authority) may terminate the Plan for anyreason 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 islater.

7.3 Effect of Plan Termination onBenefits.A Participant shall have a right to the Supplemental Life Allowance at the same level in effect at the time of Plan termination.TheCompany shall fully satisfy all of its obligations to the Participant with respect to such Supplemental Life Allowance by

immediatelydistributing or causing to be distributed to such Participant a fully paid whole life insurance policy or policies on the Participant’s lifethat, asof 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

payenough cash to the Participant to enable the Participant to pay any federal, state and local income taxes (calculated at the highestapplicablemarginal rates) resulting from the distribution of the policy and the corresponding cash payment made pursuant to thissentence. Notwithstanding the foregoing, the distribution right and related cash payment set forth in this Section 7.3 will not apply to a Participantwhohas an Individual Agreement. Instead, such Participant will continue to be entitled to a Supplemental Life Allowance in accordance withtheother provisions of the Plan, as modified by such Participant’s IndividualAgreement.

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, thentheParticipants affected by any such amendment or modification shall be treated, with respect to their Supplemental Life Allowances as of

thedate of such amendment or modification, as if the Plan were terminated as of such date, and their rights and entitlement to such benefitsshall be determined under Section7.3.

8




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 todeterminingthe Supplemental Life Allowance for Participants. Any such Participant’s right and entitlement to the Supplemental Life Allowance

(includinghis 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 8CLAIM 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 daysafter receipt of the claim by the Retirement Board (unless special circumstances require an extension of such time, in which case a detailed


bedenied. 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 beunderstood by the claimant, which noticeshall:

(a) specify the reason or reasons for thedenial;(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 documentationor 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 andfair review of the claim and furnish the claimant with a written decision concerning it. Such request for review must be made by the claimant toanymember of the Retirement Board within 60 days following the claimant’s receipt of the benefit denial (or the claim being deemed denied),andany such review will take into account all documents and information submitted by the claimant upon review, whether or not suchdocumentsand information were submitted or considered as part of the initial claim. As part of the review process, a claimantshall:

9




(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, andother 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 than60days after receipt of the request by the Retirement Board (unless special circumstances require an extension of such time, in which

case adetailed written notice of such extension will be given to the claimant within the initial 60-day period and such claim shall be decided nolater than 120 days after receipt of the claim by the Retirement Board). A request for review that is not decided within the applicable time periodmay 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 denialinlanguage calculated to be understood by the claimant, which notice

shall: (a) specify the reason or reasons for thedenial;(b) specify the Plan provisions giving rise to thedenial;(c) state that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, alldocuments,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 theEmployeeRetirement Income Security Act of 1974, as

amended.10




IN WITNESS WHEREOF, the Company has caused this instrument to be executed on this 7th day of November, 2008, effective as of the1st day of January,

2009.

AVON PRODUCTS, INC.

By: /s/ Kim K.W. Rucker Name: Kim K.W. Rucker Title: Senior Vice President and GeneralCounsel Exhibit 10.50

AVON PRODUCTS, INC.

MANAGEMENT INCENTIVE PLAN

I. INTRODUCTION

1.1. Purpos

e

. The purpose of this Plan is to provide annual incentive compensation that is based on Company performance andtorecognize employee contributions in helping the Company meet its financial and strategic objectives. This Plan supersedes any

previousManagement Incentive Plan of theCompany.

1.2. Term. This Plan shall be effective as of January 1, 2009, unless earlier terminated pursuant to Section6.1.

II. DEFINITIONS

For purposes of the Plan, the following terms shall have the meanings set forth below:“ Affiliat

e

” means (a) an entity that directly or through one or more intermediaries is controlled by the Company, and (b) any entity

inwhich the Company has a significant equity interest, as determined by theCompany.

“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

anysuch stock-based awards shall be issued pursuant to and be subject to the terms and conditions of the Stock Plan.

“ BaseCompensation

” means the base rate of salary payable to a Participant as most recently reflected on the books and records of theCompany, exclusive of bonus, commission, fringe benefits, employee benefits, expense allowances and other nonrecurring forms

of remuneration.

“ Board” means the Board of Directors of theCompany.

“Caus

e

” means:

(a) the failure or refusal by the Participant to perform his or her normal duties (other than any such failure resulting from

theParticipant’s incapacity due to physical or mental illness), which has not ceased within ten (10) days after a written demandfor substantial performance is delivered to the Participant by the Company, which demand identifies the manner in which theCompany believes that the Participant has not performed suchduties;

(b) the engaging by the Participant in willful misconduct or an act of moral turpitude which is materially injurious to theCompany,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 respectto, afelony;

provided, however, that if a Participant is party to an employment agreement with the Company, “Cause” shall have the meaning set forthinsuchagreement.

“Code” means the Internal Revenue Code of 1986, asamended.

“Committee”

means the Compensation Committee of the Board, which shall consist of two or more members of the Board, each of whomshall 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.“ Participan

t ” means any employee of the Company or its Affiliates who is selected to participate in the Plan pursuant to ArticleIVhereof.

“ Plan

” means this Avon Products, Inc. Management Incentive Plan, as in effect and as amended from time totime.

“ 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 totime.

“Stock

Plan

” means the Company’s 2005 Stock Incentive Plan (or any successor stock incentive plan approved by the shareholdersof 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 thePlanas the Committee shall deem appropriate. Notwithstanding anything to the contrary herein, the Committee may delegate its duties under

thePlan to such individuals, and may revoke or change any such delegation, as it deems appropriate from time to time, provided that it maynotdelegate duties with respect to determining the eligibility and Awards under the Plan for any Senior Officer. The Committee shall interpretandconstrue 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 anyact,omission, interpretation, construction or determination made in connection with the Plan (other than acts of willful misconduct) andthemembers of the Board and the Committee and the employees of the Company shall be entitled to indemnification and reimbursement bythe

2




Company to the maximum extent permitted by law in respect of any claim, loss, damage or expense (including counsel’s fees) arising fromtheir acts, omissions and conduct in their official capacity with respect to thePlan.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

PlanYear.

V. AWARDS

5.1. Establishment of PerformanceMeasures. Within the first 90 days of each Plan Year, the Committee shall establish the performancemeasures for such year, which may include, without limitation, measures on a consolidated basis, on the basis of a businessunit,geographically-based unit or a country, representative service objectives, measures relative to one or more peer group companies or indicesor the market, or personal objectives. Performance measures may differ from Participant to Participant and from Award toAward.

5.2. Determination of Award.

A target award of a specified percentage of Base Compensation for such Plan Year shall be establishedfor 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 PlanYear,appropriate adjustments may be made in the Participant’s target award for the period. After a target award has been establishedfor aParticipant, the Committee or its designee, in its sole discretion, may decrease or increase such Participant’s target award for that PlanYear based upon a determination of such Participant’s performance and such other factors as is deemed appropriate by the Committee or itsdesignee.

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 Awardunder 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 upontheParticipant’s individual performance or any other business-related factor deemed relevant by the Committee or its designee. TheCommittee or its designee reserves the sole discretion to increase or decrease any Award to any Participant before it is paid to suchParticipant.

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,Participantswho remained actively employed until the last day of such Plan Year shall receive an Award

determined3




in accordance with this Article V, except as otherwise provided in this Section5.4.

(b) A Participant who is involuntarily terminated by the Company or an Affiliate without Cause on or after August 1st of thePlanYear 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 applicablenationalretirement program) shall be entitled to a prorated Award for such Plan Year to be paid during the following fiscal year, provided thatthe 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 suchAward.

(c) A Participant may elect to defer into the DCP the payment of all or a portion of his or her cash Award otherwise payableunder 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

deferredawards shall be subject to the terms and conditions of the DCP and Section 409A of the Code, including, without limitation,limitationson receiving payments from theDCP.

(d) Notwithstanding the foregoing, in the event that the performance measures have not been achieved for any Plan Year,theCompany 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

DCPall or a portion of his cash Award that would have been payable for such Plan Year had the performance objectives been achieved,thensuch election to defer shall be deemed to apply to the cash portion of the special award, provided that such election to defer wasmadeno 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 astheCompany may decide in compliance with the DCP and Section 409A of theCode.

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 suchamendment,suspension, discontinuance or termination made after the end of a Plan Year shall adversely affect the rights of any Participant to any

Awardfor that Plan Year. All determinations concerning the interpretation and application of this Section 6.1 shall be made by theCommittee.

(b) In the case of Participants employed outside of the United States, the Company or its Affiliates may vary the provisions of thisPlanas 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 bemadeto the Participant’s

estate.4




6.3. RightsUnsecured.

The right of any Participant to receive an Award under the Plan shall constitute an unsecured claim againstthegeneral 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 localtaxesrequired 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 righttocontinue 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 anyAffiliatefrom taking any corporate action which is deemed by it to be appropriate or in its best interest, whether or not such action would have

anadverse effect on the Plan or any Awards made under the Plan. No employee, Participant or other person shall have any claim againsttheCompany or any of its Affiliates as a result of any suchaction.

(c) Nonalienation of

Benefits.

Except as expressly provided herein, no Participant shall have the power or right totransfer,anticipate, or otherwise encumber the Participant’s interest under the Plan. The Company’s obligations under this Plan are

notassignable or transferable except to a corporation which acquires all or substantially all of the assets of the Company or anycorporationinto which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant andhisor her heirs, executors, administrators or successors ininterest.

(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,

asapplicable.

(e) Severability.

If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force andeffectwithout regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in

thePlan.

(f)Stock Subject to the Plan.

Awards that are made in the form of stock, restricted stock, stock units or other forms of stock- basedawards 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,

withoutreference to the principles of conflict of laws.

5




(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.6




Dated: November 7, 2008 AVON PRODUCTS, INC.

By: /s/ Kim K. W. Rucker Name: Kim K. W. Rucker Title:

Senior Vice President and GeneralCounsel 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, asof December 31, 2008. The list includes all

subsidiaries.Ju risdiction of

Incorporation or

O rgan izationSubsidiary

Avon Cosmetics Albania Sh.p.k. AlbaniaCosmeticos Avon Sociedad Anonima Comercial E Industrial (Cosméticos AvonS.A.C.I.)

ArgentinaAvon Cosmetics Aust. Pty.Limited

AustraliaAvon Products Pty.

LimitedAustraliaAvon Cosmetics Vertriebsgesellschaft

m.b.h.Austria

ArlingtonLimited

BermudaAvon Holdings Ltd. BermudaAvon International (Bermuda)Ltd.

BermudaStratford Insurance Company,Ltd.

BermudaProductos Avon (Bolivia)

Ltda.

Bolivia

Avon Cosmetics BiH d.o.o.Sarajevo

Bosnia & HerzegovinaAvon Cosméticos Ltda. BrazilAvon IndustrialLtda.

BrazilAvonprev - Sociedade De PrevidênciaPrivada

Brazil Núcleo De Atualizacão Tecnológica AvonLtda.

BrazilViva Brazil Gestao de BensLtda

BrazilAvon Cosmetics Bulgaria EOOD BulgariaAvon Canada, Inc. CanadaAIH Holdings Company Cayman

IslandsAvon Colombia Holdings I CaymanIslandsAvon Colombia Holdings

IICaymanIslandsAvon CV Holdings Company CaymanIslandsAvon Egypt Holdings I CaymanIslands

Avon Egypt Holdings II CaymanIslandsAvon Egypt Holdings III CaymanIslandsAvon International Holdings

CompanyCaymanIslandsViva Cayman Company CaymanIslandsCosmeticos Avon S.A. Chile

Avon Healthcare Products Manufacturing (Guangzhou)Limited

ChinaAvon Management (Shanghai) CompanyLimited

ChinaAvon Manufacturing (Guangzhou)Ltd.

ChinaAvon Products (China) Co, Ltd ChinaAvon Colombia Ltda. ColombiaAvon Kosmetika d.o.o. Zagreb CroatiaAvon Cosmetics, spol. sr.o.

Czech RepublicAIO Asia Holdings, Inc. DelawareAvon (Windsor)

Limited

Delaware

Avon Aliada LLC DelawareAvon CapitalCorporation

DelawareAvon Component Manufacturing,Inc.

DelawareAvon Holdings LLC DelawareAvon International Operations,Inc.

DelawareAvon Land Development Corp. DelawareAvon Pacific, Inc. DelawareAvon-Lomalinda,Inc.

DelawareManila ManufacturingCompany

DelawareRetirement Inns of America,Inc.

DelawareSurrey Leasing,Limited

Delaware




Viva Panama Holdings LLC DelawareProductos Avon S.A. Dominican

RepublicProductos Avon Ecuador S.A. Ecuador Avon Cosmetics Egypt S.A.E. EgyptProductos Avon, S.A. El Salvador Avon Cosmetics ExportLimited

England and WalesAvon Cosmetics IrelandLimited

England and WalesAvon CosmeticsLimited

England and WalesAvon European Financial ServicesLimited

England and WalesAvon European HoldingsLimited

England and WalesAvon Fashions (UK)Limited

England and WalesAvon UK Holdings Limited England and WalesAvon Eesti OÜ EstoniaAvon Cosmetics Finland Oy FinlandAvon S.A.S. FranceAvon Cosmetics Georgia LLC GeorgiaAvon Cosmetics GmbH GermanyAvon Germany Holding und VerwaltungsgesellschaftmbH

GermanyAvon Germany Holdings GmbH & Co KG GermanyAvon Cosmetics (Greece)MEPE

GreeceAvonexportLimitada

GuatemalaProductos Avon de Guatemala, S.A. GuatemalaProductos Avon, S.A. de C.V. HondurasAvon Cosmetics (FEBO) Ltd. Hong Kong

Avon Cosmetics Hungary Kozmetikai Cikk KereskedelmiKft. HungaryAvon Holdings Vagyonkezelo Kft HungaryAvon Service Center, Inc. Illinoi

sAvon Beauty Products India Pvt.Ltd.

IndiaPT Avon Indonesia IndonesiaAlbee Dublin Finance Company IrelandAvon Limited IrelandAvon Cosmetics s.r.l. a SocioUnico

ItalyAvon Products Co., Ltd. JapanLive & Life CompanyLimited

JapanLLP Avon Cosmetics (Kazakhstan)Limited

KazakhstanAvon Cosmetics LLC KyrgyzstanAvon Cosmetics SIA LatviaAvon Cosmetics UAB LithuaniaAvon Luxembourg Holdings S.À.R.L. LuxembourgAvon Cosmetics DOOEL – Skopje MacedoniaAvon Cosmetics (Malaysia) SdnBhd

MalaysiaMaximin Corporation Sdn

BhdMalaysiaAvon Asia Holdings Company MauritiusAvon Cosmetics Manufacturing S. de R.L. de C.V. Mexico

Avon Cosmetics, S. De R.L. De C.V. MexicoAvonova, S.A. De C.V. MexicoM.I. Holdings,Inc.

Missour iAvon Cosmetics (Moldova)

S.R.L.Moldova

Avon Cosmetics Montenegro d.o.o.Podgorica

MontenegroAvon Beauty Products, SARL MoroccoAI Netherlands Holdings Company C.V. Netherlands

Avon International (NL) C.V. NetherlandsAvon Netherlands Holdings B.V. NetherlandsAvon Netherlands Holdings II B.V. NetherlandsBeauty Products Holding NetherlandsB.V.

NetherlandsViva Netherlands Holdings B.V. NetherlandsAvon Americas, Ltd. New York Avon Overseas CapitalCorporation

New York




California Perfume Company,Inc.

New York Surrey Products,Inc.

New York Avon Cosmetics Ltd. New ZealandProductos Avon de Nicaragua, S.A. NicaraguaProductos Avon, S.A. PanamaViva Panama S. de R.L. PanamaProductos Avon S.A. PeruAvon Cosmetics,Inc.

PhilippinesAvon Products Mfg., Inc. PhilippinesBeautifont Products,

Inc.PhilippinesMirabella Realty

CorporationPhilippinesAvon Cosmetics Polska Spólka

z.o.o.Poland

Avon EMEA Finance Service Centre Spólka z o.o. PolandAVON Mobile Sp z o.o. PolandAvon Operations Polska Spólka Sp.z.o.o. PolandAvon Cosmeticos, Lda. PortugalAvon Cosmetics (Romania)S.R.L.

RomaniaAvon Beauty Products Company (ABPC) (Russia) Russian

FederationAvon Cosmetics SCG d.o.o. Beograd SerbiaAvon AIO Pte. Ltd. SingaporeAvon Cosmetics, spol. sr.o.

SlovakiaAvon d.o.o., Ljubljana SloveniaAvon Justine (Pty)Ltd.

South AfricaAvon Products

Limited

South Korea

Avon Cosmetics S.A. SpainBeauty Products Holding S.L. SpainBeauty Products Latin America Holdings S.L.

SpainViva Cosmetics HoldingGmbh

SwitzerlandAvon Cosmetics (Taiwan)Ltd.

TaiwanAvon Cosmetics (Thailand)Ltd.

ThailandAvon Kozmetik Urunleri Sanayi ve Ticaret AnonimSirketi

TurkeyAvon Cosmetics(Ukraine)

UkraineCosmeticos Avon De Uruguay S.A. UruguayAvon Cosmetics de Venezuela C.A VenezuelaAvon Cosmetics Vietnam,Ltd.

VietnamEXHIBIT 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)andForm S-8 (Reg. Nos. 333-129866, 333-124125, 333-43820, 333-65989 and 33-65998) of Avon Products, Inc. of our report dated February 20,2009relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting,whichappears in this Form 10-K./s/ PricewaterhouseCoopersLLP 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 substitutionandresubstitution, in his or her name, place and stead, in any and all capacities, to sign the 2008 Annual Report on Form 10-K of AvonProducts,Inc. and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, withtheSecurities and Exchange Commission, granting unto such attorneys-in-fact and agents full power and authority to do and perform eachandevery act, as fully to all intents and purposes as they might or could do in person, thereby ratifying and confirming all that suchattorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtuehereof.IN WITNESS WHEREOF, the undersigned have executed this power of attorney as of February 20,2009.



Processed and formatted by SEC Watch - Visit SECWatch.comSignature Title

/s/ Andrea JungAndrea Jung Chairman of the Board and Chief Executive Officer - Principal Executive

Officer /s/ Charles W.CrambCharles W. Cramb Vice Chairman, Chief Finance and Strategy Officer – Principal Financial

Officer /s/ Simon N.R.HarfordSimon N.R. Harford Group Vice President and Corporate C ontroller – Principal Accounting

Officer /s/ W. Don Cornwell

W. Don Cornwell Director

/s/ Edward T. FogartyEdward T. Fogarty Director

/s/ V. Ann Hailey

V. Ann Hailey Director

/s/ FredHassanFred Hassan Director

/s/ Maria ElenaLagomasinoMaria ElenaLagomasino

Director

/s/ Ann S. MooreAnn S. Moore Director

/s/ Paul S.

Pressler Paul S.Pressler

Director

/s/ Gary M. RodkinGary M. Rodkin Director

/s/ PaulaSternPaula Stern Director

/s/ Lawrence A. WeinbachLawrence A. Weinbach Director

EXHIBIT 31.1

CERTIFICATION

I, Andrea Jung, certifythat: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 factnecessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the

periodcovered by thisreport;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant andhave: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 byothers 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 designedunder 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 conclusionsaboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is

reasonablylikely to materially affect, the registrant’s internal control over financial reporting;and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent



Processed and formatted by SEC Watch - Visit SECWatch.comfunctions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whicharereasonably 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 theregistrant’sinternal control over financial

reporting.Date: February 20, 2009

/s/ Andrea JungAndrea JungChief Executive

Officer EXHIBIT 31.2

CERTIFICATION

I, Charles W. Cramb, certifythat: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 factnecessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the

periodcovered by thisreport;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures(asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant andhave: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 byothers 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 designedunder 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 conclusionsaboutthe effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’smost recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is

reasonablylikely to materially affect, the registrant’s internal control over financial reporting;and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalentfunctions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whicharereasonably 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 theregistrant’sinternal control over financial

reporting.Date: February 20, 2009

/s/ Charles W.CrambCharles W. CrambVice Chairman, Chief Finance and StrategyOfficer 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, asfiledwith the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrea Jung, Chief Executive Officer of theCompany,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 theCompany.

Date: February 20, 2009

/s/ Andrea JungAndrea JungChief ExecutiveOfficer 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, asfiledwith the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles W. Cramb, Vice Chairman, Chief FinanceandStrategy Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 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 theCompany.

/s/ Charles W.Cramb

Date: February 20, 2009Charles W. Cramb

Vice Chairman, Chief Finance and StrategyOfficer