Avon Products Foundation, Inc. Financial Statements December 31, 2008 and 2007
Avon Products Foundation, Inc. Financial Statements December 31, 2008
Table of Contents
Page Independent Auditors' Report Financial Statements Statements of Financial Position Statements of Activities Statements of Functional Expenses Statements of Cash Flows Notes to Financial Statements 1
2 3 4 5 6-12
Independent Auditors' Report
The Board of Directors Avon Products Foundation, Inc. We have audited the accompanying statement of financial position of Avon Products Foundation, Inc. (the “Foundation”) as of December 31, 2008, and the related statements of activities, functional expenses and cash flows for the year then ended. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative information has been derived from the Foundation’s 2007 financial statements and, in our report dated March 28, 2008 we expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Foundation's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Avon Products Foundation, Inc. as of December 31, 2008, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
New York, New York March 26, 2009
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Avon Products Foundation, Inc. Statements of Financial Position December 31, 2008 (with comparative amounts at December 31, 2007)
2008 ASSETS Cash and cash equivalents Equipment, net of accumulated depreciation of $100,000 and $50,000 Pledges receivable, net of allowance for uncollectible pledges of $45,718 and $48,410 Other receivables Prepaid expenses Due from Avon Products, Inc. Deferred program costs $ 38,273,836 50,000 294,864 205,034 121,950 604,881 7,602,284 $ 47,152,849
2007 $ 47,187,745 100,000 237,566 247,227 125,000 348,500 2,734,173 $ 50,980,211
LIABILITIES AND NET ASSETS Liabilities Accounts payable and accrued expenses Due to Avon Products, Inc. Grants payable, net Total Liabilities Net Assets Unrestricted Temporarily restricted Total Net Assets
$
546,881 253,952 19,606,331 20,407,164
$ 1,197,950 194,834 21,005,941 22,398,725
23,499,762 3,245,923 26,745,685 $ 47,152,849
19,371,768 9,209,718 28,581,486 $ 50,980,211
See notes to financial statements 2
Avon Products Foundation, Inc. Statements of Activities Year Ended December 31, 2008 (with summarized totals for the year ended December 31, 2007)
Unrestricted PUBLIC SUPPORT AND REVENUE Special events income Special event in-kind donations Contributions from Avon: Special Events Breast Cancer Crusade Scholarship / Other Programs Domestic Violence / Empowerment Emergency Relief Fund General Support - Donation General Support - In-Kind Pledges Interest income Other income Net Assets Released from Restrictions: Satisfaction of purpose restriction Satisfaction of time restriction Total Public Support and Revenue EXPENSES Program Services Breast Cancer Crusade Scholarship / Other Programs Domestic Violence / Empowerment Emergency Relief Fund Total Program Expenses Supporting Services Management and general Fundraising Total Supporting Services Total Expenses Change in Net Assets NET ASSETS Beginning of year End of year See notes to financial statements 3 $ 1,238,020 4,434,000 350,000 1,769,903 1,370,326 228,579 77,594,970 1,079,020 88,064,818
2008 Temporarily Restricted $ 58,550,940 542,811 300,000 5,909,480 1,340,000 3,318,128 1,500,000 1,112,308 136,528 (77,594,970) (1,079,020) (5,963,795)
2007 Total $ 59,788,960 542,811 4,734,000 5,909,480 1,340,000 3,318,128 1,500,000 350,000 1,769,903 1,112,308 1,370,326 365,107 82,101,023 Total $ 51,396,406 560,722 4,352,777 6,179,772 1,340,000 1,229,060 1,704,097 1,079,020 2,575,916 363,462 70,781,232
56,514,869 1,692,341 5,748,919 216,707 64,172,836 2,321,419 17,442,569 19,763,988 83,936,824 4,127,994 19,371,768 $ 23,499,762
(5,963,795) 9,209,718 $ 3,245,923
56,514,869 1,692,341 5,748,919 216,707 64,172,836 2,321,419 17,442,569 19,763,988 83,936,824 (1,835,801) 28,581,486 $ 26,745,685
56,355,722 1,422,394 2,787,826 358,215 60,924,157 2,019,418 14,827,013 16,846,431 77,770,588 (6,989,356) 35,570,842 $ 28,581,486
Avon Products Foundation, Inc. Statements of Functional Expense Year Ended December 31, 2008 (with summarized totals for the year ended December 31, 2007) Program Services Scholarship/ Domestic Other Violence/ Programs Empowerment $ 1,560,577 1,560,577 107,668 5,682 2,322 4,689 10,383 1,020 131,764 $ 1,692,341 $ 25,759 5,082,094 157,251 5,265,104 383,010 23,771 9,715 19,614 43,438 4,267 483,815 $ 5,748,919 $ Supporting Services Emergency Relief Fund $ 201,363 201,363 13,474 441 180 364 806 79 15,344 216,707 $ Management and General $ 730,374 14,494 41,345 38,242 20,000 187,981 35,611 62,534 1,029,966 26,781 32,468 2,219,796 87,429 3,347 1,368 2,762 6,116 601 101,623 $ 2,321,419 Total Fundraising $ 12,880 1,711,029 1,090,246 588,978 172,365 450,987 2,596,503 134,763 515,549 5,176,972 3,737,635 47,196 212,160 5,544 10,000 50,000 7,256 16,520,063 342,238 24,773 375,625 20,441 54,982 45,269 54,731 4,447 922,506 $ 17,442,569 $ Total 743,254 1,711,029 1,104,740 630,323 210,607 450,987 2,596,503 154,763 515,549 5,364,953 3,737,635 82,807 274,694 1,035,510 26,781 42,468 50,000 7,256 18,739,859 429,667 28,120 376,993 23,203 54,982 51,385 54,731 5,048 1,024,129 $ 19,763,988 $ 2008 859,170 50,492,489 1,711,029 1,104,740 850,450 698,164 450,987 9,109,534 527,538 3,663,696 6,668,482 3,968,315 82,807 274,694 1,035,510 26,781 42,468 50,000 7,256 81,624,110 1,344,922 110,889 406,457 82,691 111,908 183,127 54,731 17,989 2,312,714 $ 83,936,824 $ 2007 754,376 47,653,775 1,437,144 864,047 762,299 469,471 408,536 8,096,263 377,160 3,439,170 6,478,623 3,432,900 80,845 253,207 897,248 29,714 12,256 50,000 8,735 75,505,769 1,160,583 1,927 102,884 273,437 82,690 182,988 236,200 86,904 110,934 26,272 2,264,819 $ 77,770,588
Breast Cancer Crusade EXPENSES Staffing Grants Equipment Communications Travel and meals Supplies Facilities Public awareness Public relations Printing Professional services Other Services Insurance Taxes and licenses Bank fees Agency Labor Bad Debt Expense Depreciation Expense Other Total Direct Expenses Staffing Communications Travel and meals Supplies Facilities Public awareness Public relations Professional services Other services Agency Labor Total In-Kind Expenses Total Expenses $ 90,157 43,648,455 220,127 487,557 6,513,031 372,775 3,148,147 1,146,278 230,680 55,857,207 411,103 52,875 17,247 34,821 56,926 77,115 7,575 657,662 $ 56,514,869
Total 115,916 50,492,489 220,127 487,557 6,513,031 372,775 3,148,147 1,303,529 230,680 62,884,251 915,255 82,769 29,464 59,488 56,926 131,742 12,941 1,288,585 $ 64,172,836 4
See notes to financial statements
Avon Products Foundation, Inc. Statements of Cash Flows Year Ended December 31, 2008 (with comparative amounts for the year ended December 31, 2007)
2008 CASH FLOW FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash from operating activities Bad debt expense Depreciation expense Net changes in operating assets and liabilities Pledges receivable, net Other receivable Prepaid expense Due from Avon Products, Inc. Deferred costs Accounts payable and accrued expenses Due to Avon Products, Inc. Grants payable, net Net Cash from Operating Activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of equipment Net Change in Cash and Cash Equivalents CASH AND CASH EQUIVALENTS Beginning of year End of year
2007
$ (1,835,801)
$ (6,989,356)
42,468 50,000 (99,766) 42,193 3,050 (256,381) (4,868,111) (651,069) 59,118 (1,399,610) (8,913,909)
12,256 50,000 (32,516) (25,249) (75,000) 493,412 4,367,932 838,049 (22,513) 6,956,386 5,573,401
(8,913,909)
(150,000) 5,423,401
47,187,745 $ 38,273,836
41,764,344 $ 47,187,745
See notes to financial statements 5
Avon Products Foundation, Inc. Notes to Financial Statements 1. Organization Avon Products Foundation, Inc. (the "Foundation") was incorporated in the State of New York in 1955 by Avon Products, Inc. (“Avon”). The mission of the Foundation is to improve the lives of women and to bring this mission to life through two key philanthropic pillars: breast cancer and domestic violence. The Foundation also manages certain other programs including scholarships, associate matching gifts and special emergency relief funds for Avon Products, Inc. The Foundation is a public charity and is exempt from Federal income taxes pursuant to Section 501(c) (3) of the Internal Revenue Code. Programs The major program activities of the Foundation are: a. Breast Cancer The Avon Breast Cancer Crusade funds breast cancer awareness, education, outreach programs, medical research and programs that assist people diagnosed with breast cancer, particularly the underserved, with services to improve their access to clinical care. The Foundation receives its financial support from Avon and the general public through the Avon Walk for Breast Cancer (“AWBC”), other special events and donations. b. Domestic Violence In its commitment to ending domestic violence, the Foundation supports awareness, education, direct services and prevention programs. In July 2004, the Foundation announced the Speak Out Against Domestic Violence program, which expanded the domestic violence program and developed new community outreach and support for victims. c. Other Programs Scholarships The Foundation manages U.S. college scholarship programs for children of Avon associates, Avon independent sales representatives, children and grandchildren of Avon independent sales representatives, and for children residing in and around the Suffern New York school district. Matching Gifts The Foundation manages a program that matches specified charitable donations for Avon in the U.S.
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Avon Products Foundation, Inc. Notes To Financial Statements 1. Organization (Continued) d. Emergency Relief Funds Through donations from Avon and the sale of selected Avon Products from time to time, the Foundation provides support in emergency and crisis situations, such as the following: Heart of Asia Relief Fund In response to the tsunami tragedy in Asia, the Foundation created the Heart of Asia Relief Fund in late 2004 to assist in the relief and rebuilding efforts. Support was directed to longterm aid organizations that provide medical care, shelter, food distribution, education for children and help to reunite families and create stronger communities. Yellow Ribbon Fund In response to the military action in Iraq and Afghanistan, the Foundation established the Yellow Ribbon Fund in 2003 to provide direct financial assistance and emotional support to the families who have lost loved ones in the line of duty and to armed services members who suffered injuries in the line of duty. Funds were directed to various institutions and programs that provide support, including counseling, rehabilitation, housing for families while recuperating service people undergo treatment, and education for those wounded and their families. Heart of America In an effort to assist the victims of the September 11th tragedies, the Foundation established the Avon Foundation Heart of America Charity in 2001 for the benefit of the children affected by the events of September 11th. These funds were directed to educational institutions, after-school programs and children's programs that provide counseling, safety education, and childcare. In 2005 in response to the devastation of Hurricanes Katrina and Rita, the Heart of America campaign was renewed with the sale of a special keychain. Support was directed to recovery and rebuilding efforts, as well as to domestic violence and breast cancer victims and programs that experienced relocation or damages as a result of the unprecedented storms. China Earthquake Relief and Reconstruction Efforts Following the earthquake in Sichuan Province in 2008, Avon committed $5 million for reconstruction and relief efforts. The first grants were awarded in February 2009, $1 million for Give2Asia to establish a breast cancer center and programs at Deyang Municipal No.1 People Hospital and $500,000 for Project Hope to create a sustainable community-based rehabilitation, training and service program in Sichuan Province.
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Avon Products Foundation, Inc. Notes To Financial Statements 2. Summary of Significant Accounting Policies Basis of Presentation The financial statement presentation is in conformity with accounting principles generally accepted in the United States of America for nonprofit organizations, which requires the Foundation to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted net assets. There are no permanently restricted net assets as of December 31, 2008. Functional Allocation of Expenses The costs of providing the various programs and supporting services have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services in reasonable ratios determined by management. Cash and Cash Equivalents The Foundation considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Comparative Data The financial statements include prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with the Foundation’s financial statements for the year ended December 31, 2007 from which the summarized information was derived. Grants Grants are recorded when a commitment is made and approved by the Board of Directors. Multi-year grants are recorded at present value using a risk-free interest rate, which generally approximates the rate of the two year Treasury bill.
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Avon Products Foundation, Inc. Notes To Financial Statements 2. Summary of Significant Accounting Policies (Continued) Public Awareness Public awareness and education costs consisted primarily of television, radio, direct-mail campaigns, local and national print and point-of-sale materials. The Foundation expensed public awareness costs as incurred. At December 31, 2008, public awareness expense was $9,221,441. Accounting for Uncertainty in Income Taxes The Foundation’s current accounting policy is to provide liabilities for uncertain tax positions when a liability is probable and estimable. Management is not aware of any violation of its tax status as an organization exempt from income taxes, nor of any exposure to unrelated business income tax. 3. Concentration Risk Financial instruments that potentially subject the Foundation to concentration of credit risk consist principally of cash and cash equivalents. The Foundation places its cash with high quality financial institutions. Cash accounts at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. No amounts are in excess of the insured limits at December 31, 2008. Cash equivalents consist of investments in money market funds with two money managers the balances of which totaled approximately $37,871,000 at December 31, 2008. The Foundation monitors this risk on a regular basis. 4. Related Party Transactions Contributions Avon made a pledge of $18,921,511 to the Foundation in 2008. The Foundation received $18,316,630 of this amount during the year. The balance of $604,881 is reflected as a receivable at December 31, 2008. This receivable was subsequently collected in 2009. The Foundation under an administrative services arrangement has outstanding obligations to Avon for reimbursement of the salaries, accrued compensated absences and other expenses of the finance and operations department and other management services amounting to $253,952 as of December 31, 2008.
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Avon Products Foundation, Inc. Notes To Financial Statements 4. Related Party Transactions (continued) In-Kind Contributions Avon provides the Foundation with a substantial amount of support including the following: Staffing $ 1,344,922 Travel & Meals 100,214 Supplies 40,957 Facilities 82,691 Public Relations 183,127 Agency Labor 17,992 $ 1,769,903 The support of $1,769,903 is reflected in the financial statements as contributions and expenses for the year ended December 31, 2008. The Foundation also received valuable management support from the Board of Directors and Associates of Avon Products, Inc. which do not meet the requirements for measurement and recognition in the financial statements. 5. Special Events One awareness and fundraising program in 2008 was the Avon Walk for Breast Cancer (“AWBC”) comprised of nine weekend awareness and fundraising walks in the United States. Other fundraising programs in 2008 were the Foundation gala and the Need for Speed Relay against Domestic Violence series. In 2008, all special events provided the Foundation with total income of $66,144,766, $60,867,955 from the public (including $1,072,920 of 2008 special events income pledged in 2007), $542,811 of in-kind donations from sponsors and $4,734,000 from Avon. 6. Joint Costs The Foundation conducted activities that included direct-mail campaigns and special events. The costs of conducting those activities included a total of $15,264,017 of joint costs. These joint costs were allocated as follows: Breast Cancer Crusade Scholarships/Other Programs Domestic Violence Emergency Relief Fund Management and General Fundraising Total $ 10,889,355 131,750 483,826 15,363 101,595 3,642,128 $ 15,264,017
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Avon Products Foundation, Inc. Notes To Financial Statements 7. Equipment Equipment consists of tents purchased for AWBC. Depreciation is provided by the straight-line method over an estimated life of three years. 8. Leases The Foundation has various lease agreements with unrelated parties for certain administrative office space. Rent expense for the year ended December 31, 2008 and 2007 was $400,669 and $370,451. Minimum future lease payments to be made for each of the years in the period ended December 31, are as follows: 2009 2010 2011 9. Grants Payable The Foundation has entered into longer-term commitments with certain research/care organizations. Payments to these organizations at December 31, 2008 are due to be made as follows: Less than one year One to three years Plus: Present value discount Grants Payable, net 10. Temporarily Restricted Net Assets Temporarily restricted net assets are available as follows at December 31, 2008: Time Restriction Breast Cancer Crusade Purpose Restriction Scholarships/Other Programs Emergency Relief Fund $ $ 1,112,333 633,590 1,500,000 3,245,923 $ 15,787,634 3,280,016 19,067,650 538,681 $ 19,606,331 $ 179,039 106,002 38,250
The time restriction relates to contributions received and pledges made towards the 2009 events received in 2008.
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Avon Products Foundation, Inc. Notes To Financial Statements 11. Deferred Program Costs Expenses related to the 2009 events have been reflected as deferred program costs at December 31, 2008. 12. Tuition Commitments The Foundation sponsors multiyear scholarship programs for children of Avon associates and for children residing in and around the Suffern New York school district. The Foundation intends to provide continuing support for selected participating students until completion of their college education, contingent upon fulfilling certain requirements of the award. The anticipated future tuition cost for those students to complete their studies over a four-year period is approximately $202,000. The Foundation intends to obtain the necessary funds to support the participating students through future grants from Avon Products, Inc. The Scholarship program is administered by the Educational Testing Service and Scholarship America. No accrual has been made for these costs as they are conditional.
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