<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 1-4881
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 13-0544597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 WEST 57TH STREET, NEW YORK, NEW YORK 10019-2683
(Address of principal executive offices)
(212) 546-6015
(telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No ___
The number of shares of Common Stock (par value $.50) outstanding
at April 30, 1996 was 67,067,828. This information does not reflect
the effect of the May 2, 1996 approved two-for-one stock split with a
record date as of the close of business on May 15, 1996.
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Table of Contents
Part I. Financial Information
Page
Numbers
-------
Item 1. Financial Statements
Consolidated Statement of Income
Three Months Ended March 31, 1996 and
March 31, 1995.................................... 3
Consolidated Balance Sheet
March 31, 1996 and December 31, 1995.............. 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1996 and
March 31, 1995.................................... 5
Notes to Consolidated Financial Statements.......... 6-8
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition....... 9-16
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders. 17
Item 6. Exhibits and Reports on Form 8-K.................... 18
Signatures................................................... 19
2
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PART I. FINANCIAL INFORMATION
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(In millions, except per share data)
Three months ended
March 31
------------------
1996 1995
---- ----
(unaudited)
Net sales................................. $1,016.1 $ 976.2
Costs, expenses and other:
Cost of sales............................. 401.6 387.3
Marketing, distribution and
administrative expenses................. 541.0 517.0
Interest expense.......................... 9.6 9.0
Interest income........................... (3.9) (4.1)
Other expense, net........................ 8.0 10.5
-------- -------
Total costs, expenses and other........... 956.3 919.7
-------- -------
Income before taxes and minority interest. 59.8 56.5
Income taxes.............................. 22.7 22.5
-------- -------
Income before minority interest........... 37.1 34.0
Minority interest......................... .6 .4
-------- -------
Net income................................ $ 37.7 $ 34.4
======== =======
Income per share.......................... $ .56 $ .50
======== =======
Average shares outstanding................ 67.25 68.68
======== =======
Proforma information*:
Income per share.......................... $ .28 $ .25
======== =======
Average shares outstanding................ 134.51 137.35
======== =======
*The proforma income per share and average shares outstanding
reflect the two-for-one stock split which is effective as of the
close of business on May 15, 1996, the record date.
The accompanying notes are an integral part of these statements.
3
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AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(In millions)
March 31 December 31
1996 1995
-------- -----------
(unaudited)
ASSETS
Current assets:
Cash and equivalents..................... $ 82.1 $ 151.4
Accounts receivable...................... 403.2 402.0
Inventories.............................. 531.6 466.3
Prepaid expenses and other............... 211.9 195.3
-------- --------
Total current assets..................... 1,228.8 1,215.0
-------- --------
Property, plant and equipment, at cost... 1,158.5 1,169.5
Less accumulated depreciation............ 631.0 631.7
-------- --------
527.5 537.8
-------- --------
Other assets............................. 316.4 300.0
-------- --------
Total assets............................. $2,072.7 $2,052.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debt maturing within one year............ $ 257.3 $ 47.3
Accounts payable......................... 298.0 419.7
Accrued compensation..................... 107.3 109.3
Other accrued liabilities................ 255.3 277.3
Sales and other taxes.................... 95.0 101.8
Income taxes............................. 300.1 289.9
-------- --------
Total current liabilities................ 1,313.0 1,245.3
-------- --------
Long-term debt........................... 113.2 114.2
Employee benefit plans................... 398.2 390.8
Deferred income taxes.................... 32.0 33.6
Other liabilities........................ 70.5 76.2
Shareholders' equity:
Common stock............................. 43.4 43.4
Additional paid-in capital............... 675.8 672.9
Retained earnings........................ 324.4 325.8
Translation adjustments.................. (205.5) (202.1)
Treasury stock, at cost.................. (692.3) (647.3)
-------- --------
Total shareholders' equity............... 145.8 192.7
-------- --------
Total liabilities and shareholders'
equity................................. $2,072.7 $2,052.8
======== ========
The accompanying notes are an integral part of these statements.
4
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AVON PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
Three months ended
March 31
------------------
1996 1995
---- ----
(unaudited)
Cash flows from operating activities:
Net income............................................ $ 37.7 $ 34.4
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization......................... 15.8 14.0
Provision for doubtful accounts....................... 16.4 17.2
Translation losses.................................... .3 1.9
Deferred income taxes................................. (4.7) .7
Other................................................. 1.1 4.4
Changes in assets and liabilities:
Accounts receivable................................. (19.1) (22.2)
Inventories......................................... (65.7) (81.4)
Prepaid expenses and other.......................... (16.8) (15.1)
Accounts payable and accrued liabilities............ (103.8) (96.5)
Income and other taxes.............................. 4.6 (19.8)
Noncurrent assets and liabilities................... (3.3) 6.2
------ -------
Net cash used by continuing operations................ (137.5) (156.2)
Net cash used by discontinued operations.............. (37.0) (1.7)
------ -------
Net cash used by operating activities................. (174.5) (157.9)
------ -------
Cash flows from investing activities:
Capital expenditures.................................. (10.1) (9.9)
Disposal of assets.................................... 1.0 .4
Acquisition of Justine (Pty) Ltd...................... (6.3) --
------- -------
Net cash used by investing activities................. (15.4) (9.5)
------- -------
Cash flows from financing activities:
Cash dividends........................................ (40.3) (36.4)
Debt, net (maturities of three months or less)........ 209.8 123.7
Proceeds from short-term debt......................... .2 11.2
Retirement of short-term debt......................... (1.0) (13.6)
Retirement of long-term debt.......................... (.4) (8.8)
Repurchase of common stock............................ (45.4) (36.6)
Proceeds from exercise of stock options............... 1.7 .1
------- -------
Net cash provided by financing activities............. 124.6 39.6
------- -------
Effect of exchange rate changes on cash and
equivalents......................................... (4.0) 11.5
------- -------
Net decrease in cash and equivalents.................. (69.3) (116.3)
Cash and equivalents beginning of period.............. 151.4 214.8
------- -------
Cash and equivalents end of period....................$ 82.1 $ 98.5
======= =======
The accompanying notes are an integral part of these statements.
5
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AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
1. ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and the
Notes thereto contained in Avon's 1995 Annual Report to Shareholders.
The interim statements are unaudited but include all adjustments,
which consisted of only normal recurring accruals, that management
considers necessary to fairly present the results for the interim
periods. Results for interim periods are not necessarily indicative
of results for a full year. The year end balance sheet data was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
To conform to the 1996 presentation, certain reclassifications
were made to the prior years' consolidated financial statements.
2. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
"Net cash used by continuing operations" includes the following
cash payments for interest and income taxes:
Three months ended
March 31
------------------
1996 1995
---- ----
Interest..................................... $ 4.7 $ 4.5
Income taxes, net of refunds received........ 23.8 38.7
3. INCOME PER SHARE
Income per share of common stock is based on the weighted average
number of shares outstanding. The decrease in average shares
outstanding for the three months ended March 31, 1996 compared
to the respective period of 1995 is primarily due to the shares
acquired under the stock repurchase program. During the first three
months of 1996, the Company purchased approximately 574,000 shares of
common stock compared to approximately 634,000 shares purchased during
the first three months of 1995. As of March 31, 1996, the cumulative
number of shares repurchased was approximately 5.4 million shares, for
a total cost of approximately $340.6.
6
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AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
At the Annual Meeting on May 2, 1996, the shareholders
approved an amendment to the Company's Certificate of Incorporation
to increase the number of shares of common stock authorized from
200 million to 400 million and decrease the par value per share
from $.50 to $.25.
Also on May 2, 1996, the Company's Board of Directors authorized
a two-for-one stock split in the form of a 100 percent stock
dividend to be distributed on or about June 3, 1996 to shareholders
of record after the close of business on May 15, 1996.
All share and per share data included in this report, unless
indicated, has not been restated to reflect the stock split.
4. INVENTORIES
March 31 December 31
1996 1995
-------- -----------
Raw materials............. $142.4 $133.2
Finished goods............ 389.2 333.1
------ ------
$531.6 $466.3
====== ======
5. DIVIDENDS
Cash dividends paid per share of common stock were $.58 for the
three months ended March 31, 1996 and $.50 for the corresponding 1995
period. On February 1, 1996, Avon increased the regular quarterly
dividend on common shares from $.55 to $.58, increasing the annual
rate from $2.20 per share to $2.32 per share. On May 2, 1996, the
Board of Directors declared a regular quarterly dividend of $.58 per
share on the common shares, payable June 3, 1996, to shareholders of
record on May 13, 1996. This dividend is being paid on a pre-split
basis. Future dividends will be on a post-split basis. The current
dividend of $.58 per share is the equivalent of $.29 per share
on a post-split basis. The annual dividend rate for 1996, adjusted
for the two-for-one stock split, will be $1.16 compared to an adjusted
post-split dividend rate for 1995 of $1.10.
7
<PAGE>8
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
6. NEW ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
There was no impact to the Company's results of operations or
financial position upon adoption.
Also, effective January 1, 1996, the Company adopted FAS No. 123,
"Accounting for Stock-Based Compensation". This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans, such as stock purchase plans, stock options,
restricted stock and stock appreciation rights as well as non-employee
equity transactions. The Company has not changed the method of
accounting for its employee stock compensation plans, but as
permitted by this statement, will provide the fair value
disclosure requirements in the 1996 annual financial statements.
7. CONTINGENCIES
Various lawsuits and claims (asserted and unasserted) arising in
the ordinary course of business or related to businesses previously
sold are pending or threatened against Avon. The most significant of
these is described below.
In 1991, a class action suit was initiated against Avon on behalf
of certain classes of holders of Avon's Preferred Equity-Redemption
Cumulative Stock ("PERCS"). This lawsuit alleges various contract and
securities law claims relating to the PERCS (which were fully redeemed
that year). Avon has rejected the assertions in this case, believes
it has meritorious defenses to the claims and is vigorously contesting
this lawsuit.
In the opinion of Avon's management, based on its review of the
information available at this time, the difference, if any, between
the total cost of resolving such contingencies and reserves recorded
by Avon at March 31, 1996 should not have a material adverse impact
on Avon's consolidated financial position, results of operations or
cash flows.
8
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AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
ITEM 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition
Results of Operations--Three Months Ended March 31, 1996 and 1995.
Consolidated
Avon's net income for the three months ended March 31, 1996 of
$37.7, or $.56 per share, increased 10 percent and 12 percent,
respectively, from net income of $34.4, or $.50 per share, in the
comparable period of 1995. The 12 percent increase in income per
share exceeded the 10 percent increase in net income because of the
impact of lower average shares outstanding for 1996 compared with
1995 resulting from the ongoing stock repurchase program begun in
1994. Pretax income of $59.8 increased 6 percent due to higher sales,
an improved gross margin and lower foreign exchange losses. These
favorable results were partially offset by a higher overall operating
expense ratio and higher interest expense. Net income was also
favorably impacted by a lower effective income tax rate (38.0 percent
versus 39.9 percent in 1995) resulting primarily from the mix of
earnings and income tax rates of international subsidiaries,
including a statutory income tax rate reduction in Brazil.
Consolidated net sales for the three months ended March 31,
1996 of $1,016.1 increased $39.9, or 4 percent, over the comparable
period of the prior year. The dollar increase was primarily due
to a 5 percent increase in international and a 3 percent increase in
U.S. sales. The international sales increase resulted from strong
growth in most European and Pacific Rim markets and in Mexico, Chile,
Puerto Rico and Central America. These improvements were partially
offset by sales declines in Japan, and to a lesser extent in Thailand,
Taiwan, and Venezuela. Excluding the impact of foreign currency
exchange, net sales rose 9 percent over the comparable period of the
prior year.
Cost of sales as a percentage of sales was 39.5 percent in
the first quarter of 1996 compared to 39.7 percent in the first
quarter of 1995. The improved cost ratio was primarily due to
a significant gross margin improvement in Brazil and, to a lesser
extent, in Germany, Spain, Mexico and China. These improvements were
partially offset by lower gross margins primarily in Venezuela,
Japan, several Pacific Rim markets and in the U.S.
9
<PAGE>10
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
Marketing, distribution and administrative expenses of $541.0
increased $24.0, or 5 percent, over the comparable period of 1995
and increased as a percentage of sales to 53.2 percent from 53.0
percent in 1995. The increase in operating expenses was primarily
in Brazil, the Pacific Rim, the U.S. and Mexico. These increases were
partially offset by lower expenses in Japan related to the sales
decline and the impact of foreign exchange and, to a lesser extent, in
Venezuela due to the impact of the bolivar devaluation. The increase
in the overall operating expense ratio was primarily due to higher
operating expenses in Brazil, China, Thailand and Taiwan, partially
offset by improved expense ratios throughout the Europe region, the
U.S. and Venezuela.
Interest expense increased $.6 over the comparable period of last
year as a result of higher debt including borrowings for the ongoing
stock repurchase program which was partially offset by lower
borrowings in Japan and the Central European markets in 1996.
Other expense, net, of $8.0 was $2.5 favorable to the same
period last year primarily due to lower foreign exchange losses
in Brazil.
U.S.
Net sales increased 3 percent in the first quarter of 1996
compared with the first quarter of 1995 reflecting a 2 percent
increase in the number of Representative orders and a 1 percent
increase in average order size. The sales improvement was driven
by increases in apparel, home entertainment, personal care and
color cosmetics products, partially offset by a decline in other
gift and decorative and cosmetics, fragrance and toiletries
products. The apparel category, which had the largest increase,
was driven by successful sales of the Valentine's Day and Easter
items as well as the launch of Legwear.
Pretax income increased 6 percent over the comparable period of
last year due to the sales increase and an improved operating
expense ratio despite the continued impact of paper price increases
in 1996. These improvements were partially offset by a decline in the
gross margin resulting from increased sales of the low-margin apparel
line, promotional pricing of certain products and the successful
sale of the lower-margin collectible Springtime Barbie doll in the
first quarter of 1996.
10
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AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
International
Net sales increased 5 percent over the comparable period of
1995 and pretax income increased 15 percent. The sales
increase was primarily due to strong unit growth throughout Europe,
mainly in Russia, Spain, Central Europe and the United Kingdom. The
Central European markets are continuing to expand rapidly reflecting
solid increases in unit volume and customers. In addition, the
sales improvement was due to higher unit growth in the Pacific Rim,
most significantly in the Philippines and China, as well as Chile,
Puerto Rico and Central America. Sales in Mexico increased mainly due
to price increases partially offset by unit declines and the continued
impact of the peso devaluation. These favorable results were
partially offset by a significant sales decline in Japan caused by the
unfavorable exchange impact of a stronger U.S. dollar in 1996 and a
shift to sales of lower-priced products as a result of reduced
consumer spending due to a weak economy. This trend is expected to
continue as the Japanese economic environment remains relatively
weak. Strategies are in place there to further strengthen the
Representatives and their customer base. Sales also declined in
Thailand and Taiwan due to a shift to lower-priced products and
continued competition. In addition, sales were lower in Venezuela
due to operational shortfalls and reduced consumer spending due to
a recession as well as the negative impact of the bolivar
devaluation, which occurred in December 1995. Despite the recession,
Venezuela's market share and Representative count continue to
increase. As a result of the recessionary environment, the Company
will continue to focus on the competitive pricing of products and
improving market share. Excluding the impact of foreign currency
exchange, international sales were up 14 percent over the comparable
period of 1995.
The higher pretax income reflected increases in Europe, Mexico,
Central America, Puerto Rico and Chile. The increase in Europe
reflected sales increases and strong operational improvements
including improved gross margins in Germany, Spain and Russia and
favorable operating expense ratios throughout the region due to the
continued effect of fixed expense reduction efforts. The increases
in Mexico, Central America, Puerto and Chile were due to sales growth.
These increases in pretax income were partially offset by decreases in
Venezuela, Brazil and the Pacific region. Lower pretax results in
11
<PAGE>12
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
Venezuela were caused by the bolivar devaluation and weak economic
conditions. The decline in Brazil was due to an unfavorable
operating expense ratio resulting from higher salaries and benefits
due to a government mandated 25 percent increase in November 1995
and the impact of the lifting of price restrictions by the
government during 1995 for services such as transportation and power.
The affect of this government action did not have a substantial impact
in the first quarter of 1995. These results in Brazil were partially
offset by an improved gross margin and lower foreign exchange losses.
The decline in the Pacific region was due to continuing operational
difficulties in Japan, gross margin declines in most markets and
higher operating expenses throughout the Pacific Rim due to continuing
investments for expansion, particularly in China, as well as increased
investments to improve the Company's image and customer satisfaction
in response to intensified competition in the region.
Following the December 1995 devaluation of approximately
40 percent in the Venezuelan bolivar, another approximate 40 percent
devaluation occurred near the end of April 1996. In addition,
inflation in Venezuela has increased significantly in 1996 and
is expected to continue to rise. These devaluations will negatively
affect Venezuela's U.S. dollar results in 1996; however, management
cannot at this time project what this impact will be. In terms of
size, Venezuela's 1995 net sales represented approximately 2 percent
of Avon's consolidated net sales.
Liquidity and Capital Resources
Cash Flows
Excluding changes in debt, there was a net decrease in cash of
$277.9 in the first quarter of 1996 compared with $228.8 in the
comparable period of 1995. The $49.1 variance primarily reflects an
increase in cash used for discontinued operations for the second and
final payment made in January 1996 for the Mallinckrodt settlement.
Cash usage was also affected by higher cash used for the repurchase of
common stock and for the purchase of Justine (Pty) Ltd., a direct
selling business in South Africa. These results were partially
offset by a decrease in cash used by continuing operations. For the
first quarter of 1996, cash used by continuing operations was $137.5,
compared with $156.2 in 1995. The improvement resulted from an
increase in net income, as well as lower cash usage for inventories
and income and other taxes.
12
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AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
During the first quarter of 1996, the Company purchased, under the
stock repurchase program begun in 1994, approximately 574,000 shares
of common stock for $45.4 compared with $36.6 spent for the repurchase
of approximately 634,000 shares during the comparable period in 1995.
As of March 31, 1996, the cumulative number of shares repurchased was
approximately 5.4 million shares.
Capital Resources
Total debt increased $209.0 to $370.5 at March 31, 1996 from
$161.5 at December 31, 1995, principally due to normal seasonal
working capital requirements during the first three months of 1996
and a payment made relating to the Mallinckrodt settlement. Total
debt at March 31, 1996 of $370.5 was $77.5 higher than total
debt of $293.0 at March 31, 1995 primarily due to the Mallinckrodt
settlement payment, the ongoing share buyback program and higher
borrowings in China. These increases were partially offset by the
repayment of a yen note obligation of Avon's Japanese subsidiary in
1995 and lower debt levels in Central Europe.
At March 31, 1996, there were no borrowings under the $600
revolving credit and competitive advance facility agreement ("Credit
Agreement"). This agreement is also used to support the
Company's commercial paper borrowings of $162.2 which was
outstanding at March 31, 1996.
At March 31, 1996, there were no borrowings under the Company's
bankers' acceptance facilities.
Management currently believes that cash from operations and
available financing alternatives are adequate to meet anticipated
requirements for working capital, dividends, capital expenditures,
the stock repurchase program and other cash needs.
Working Capital
As of March 31, 1996 and December 31, 1995, current liabilities
exceeded current assets by $84.2 and $30.3, respectively. The
increase of current liabilities over current assets of $53.9 was
mainly due to an increase in debt, partially offset by a decrease in
13
<PAGE>14
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
accounts payable, and a decrease in cash and equivalents. These
changes resulted from higher inventory levels, which reflects the
seasonal pattern of Avon's operations as well as higher U.S. apparel
inventory to support increased sales, and the final Mallinckrodt
settlement payment.
Although current liabilities exceeded current assets at March 31,
1996, management believes this highlights the effectiveness of
its working capital management and does not adversely affect
liquidity. Avon's liquidity results from its ability to generate
significant cash flows from operations and its ample unused borrowing
capacity. Actions that would eliminate the working capital deficit
are not anticipated at this time. Avon's credit agreements do not
contain any provisions or requirements with respect to working
capital.
Financial Instruments and Risk Management Strategies
The Company operates globally, with manufacturing and
distribution facilities in various locations around the world. The
Company may reduce its exposure to fluctuations in interest rates and
foreign exchange rates by creating offsetting positions through the
use of derivative financial instruments. The Company currently does
not use derivative financial instruments for trading or speculative
purposes, nor is the Company a party to leveraged derivatives.
The Company periodically uses interest rate swaps to hedge
portions of interest payable on its debt. In addition, the Company
may periodically employ interest rate caps to reduce exposure, if any,
to increases in variable interest rates.
At March 31, 1996, the Company had three interest rate
swap agreements on its 170 million 6-1/8 percent Deutsche Mark Notes
("Notes"), due May 1998. Each agreement has a notional principal
amount of $100.0. In July 1995, the Company entered into an
interest rate swap agreement, which effectively converted the interest
payable on the Notes from a floating to a fixed interest rate basis of
approximately 7.2 percent through maturity. The fixed interest rate
on this swap agreement is slightly below 5.8 percent. As a result of
this swap, the interest rate is established at 1.4 percentage points
above the 5.8 percent interest rate on this swap.
14
<PAGE>15
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
The Company has two interest rate cap contracts, each with a
notional principal amount of $100.0, used to economically hedge the
Company's short-term variable interest rate working capital debt.
One of the cap contracts expires in early 1997 and the other expires
in May 1998. These cap contracts have been marked-to-market with an
in-significant mark-to-market adjustment.
The Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments and
contractual foreign currency cash flows or obligations, including
third-party or intercompany foreign currency transactions. The
Company regularly monitors its foreign currency exposures and ensures
that hedge contract amounts do not exceed the amounts of the
underlying exposures.
At March 31, 1996, the Company held foreign currency forward
contracts with notional amounts totaling $196.5 and option
contracts with notional amounts totaling $80.4 to hedge
foreign currency items. These contracts have maturities in early
1997 or prior. The Company also entered into certain foreign currency
forward contracts with notional amounts totaling $84.0 and
option contracts with notional amounts of $33.1 to economically
hedge certain foreign currency exposures, which do not qualify as
hedging transactions under the current accounting definitions and,
accordingly, have been marked-to-market. The mark-to-market
adjustment on these contracts at March 31, 1996 was insignificant.
The Company's risk of loss on the options in the future is limited
to premiums paid, which are insignificant.
The Company attempts to minimize its credit exposure to
counterparties by entering into interest rate swap and cap contracts
only with major international financial institutions with "A" or
higher credit ratings as issued by Standard & Poor's Corporation. The
Company's foreign currency and interest rate derivatives are comprised
of over-the-counter forward contracts or options with major
international financial institutions. Although the Company's
theoretical credit risk is the replacement cost at the then estimated
fair value of these instruments, management believes that the risk of
incurring losses is remote and that such losses, if any, would not be
material.
1
<PAGE>16
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(Dollars in millions, except share data)
New Accounting Standards
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
There was no impact to the Company's results of operations or
financial position upon adoption.
Also, effective January 1, 1996, the Company adopted FAS No. 123,
"Accounting for Stock-Based Compensation". This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans, such as stock purchase plans, stock options,
restricted stock and stock appreciation rights as well as non-employee
equity transactions. The Company has not changed the method of
accounting for its employee stock compensation plans but, as
permitted by this statement, will provide the fair value
disclosure requirements in the 1996 annual financial statements.
16
<PAGE>17
AVON PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) At the annual meeting of shareholders of Avon, held on May 2, 1996,
the matters described under (c) below were voted upon.
(c) Annual meeting votes Against Abstentions
or and Broker
For Withheld Non-Votes
---------- -------- -----------
(1) To elect four directors
to three-year terms
expiring in 1999:
Brenda C. Barnes.............. 57,572,383 11,719 686,695
Charles S. Locke.............. 57,554,911 29,191 686,695
Ann S. Moore.................. 57,572,944 11,158 686,695
James E. Preston.............. 57,537,482 46,620 686,695
(2) To elect two directors
to two-year terms expiring
in 1998:
Edward T. Fogarty............. 57,546,099 38,003 686,695
Charles R. Perrin............. 57,576,567 7,535 686,695
After the meeting, directors
continuing in office -
a) With terms expiring
in 1997:
Remedios Diaz Oliver
Joseph A. Rice
Edward J. Robinson
Cecily Cannan Selby, Ph.D.
b) With terms expiring
in 1998:
Richard S. Barton
Stanley C. Gault
George V. Grune
(3) To act upon a proposal to
effect a 2-for-1 stock split.. 55,214,485 2,973,821 82,491
(4) To act upon a proposal to
ratify the appointment of
Coopers & Lybrand L.L.P. as
Avon's independent
accountants for 1996.......... 58,131,401 72,167 67,229
17
<PAGE>18
AVON PRODUCTS, INC.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
11.1 --Statement re computation of primary income per
share.
11.2 --Statement re computation of proforma primary
income per share.
11.3 --Statement re computation of fully diluted income
per share.
11.4 --Statement re computation of proforma fully
diluted income per share.
27 --Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the first
quarter of 1996.
18
<PAGE>19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AVON PRODUCTS, INC.
(Registrant)
Date: May 10, 1996 By /s/ MICHAEL R. MATHIESON
-------------------------------
Michael R. Mathieson
Vice President & Controller
Principal Accounting Officer
Signed both on behalf of the
registrant and as principal
accounting officer.
19
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996 Commission file number 1-4881
-----------------------
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
-----------------------
EXHIBITS
<PAGE>
AVON PRODUCTS, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
11.1 --Statement re computation of primary income
per share.
11.2 --Statement re computation of proforma primary
income per share.
11.3 --Statement re computation of fully diluted
income per share.
11.4 --Statement re computation of proforma fully
diluted income per share.
27 --Financial Data Schedule.
EXHIBIT 11.1
<PAGE>
EXHIBIT 11.1
AVON PRODUCTS, INC.
COMPUTATION OF PRIMARY INCOME PER SHARE
(In millions, except per share data)
Three months ended
March 31
------------------
1996 1995
---- ----
Weighted average shares of common stock:
Weighted average shares outstanding during
the period.............................. 67.254 68.676
Common stock equivalents*................. -- --
------ ------
Weighted average shares for primary income
per share computation................... 67.254 68.676
====== ======
Net income................................ $ 37.7 $ 34.4
====== ======
Primary income per share.................. $ .56 $ .50
====== ======
- ----------
*Common stock equivalents are not reported because they result in less
than three percent dilution.
EXHIBIT 11.2
<PAGE>
EXHIBIT 11.2
AVON PRODUCTS, INC.
COMPUTATION OF PROFORMA PRIMARY INCOME PER SHARE
(In millions, except per share data)
Three months ended
March 31
------------------
1996 1995
---- ----
Weighted average shares of common stock:
Weighted average shares outstanding during
the period.............................. 67.254 68.676
Common stock equivalents*................. -- --
------- -------
Subtotal............................. 67.254 68.676
Proforma effect of the two-for-one stock
split**................................. 67.254 68.676
------- -------
Weighted average shares for proforma
primary income per share computation.... 134.508 137.352
======= =======
Net income................................ $ 37.7 $ 34.4
======= =======
Proforma income per share................. $ .28 $ .25
======= =======
- ----------
*Common stock equivalents are not reported because they result in
less than three percent dilution.
**At the Annual Meeting on May 2, 1996, the shareholders approved an
amendment to the Company's Certificate of Incorporation to increase
the number of shares of common stock authorized from 200 million to
400 million and decrease the par value per share from $.50 to $.25.
Also on May 2, 1996, the Company's Board of Directors authorized
a two-for-one stock split in the form of a 100 percent stock
dividend to be distributed on or about June 3, 1996 to shareholders
of record after the close of business on May 15, 1996.
The proforma effect of the two-for-one stock split is to double
the weighted average shares outstanding during the period.
EXHIBIT 11.
<PAGE>
EXHIBIT 11.3
AVON PRODUCTS, INC.
COMPUTATION OF FULLY DILUTED INCOME PER SHARE
(In millions, except per share data)
Three months ended
March 31
------------------
1996 1995
---- ----
Weighted average shares of common stock:
Weighted average shares outstanding during
the period................................. 67.254 68.676
Common stock equivalents. ................... .420 .125
------ ------
Weighted average shares for fully diluted
income per share computation............... 67.674 68.801
====== ======
Net income................................... $ 37.7 $ 34.4
====== ======
Fully diluted income per share............... $ .56 $ .50
====== ======
EXHIBIT 11.4
<PAGE>
EXHIBIT 11.4
AVON PRODUCTS, INC.
COMPUTATION OF PROFORMA FULLY DILUTED INCOME PER SHARE
(In millions, except per share data)
Three months ended
March 31
------------------
1996 1995
---- ----
Weighted average shares of common stock:
Weighted average shares outstanding during
the period.................................. 67.254 68.676
Common stock equivalents...................... .420 .125
------- -------
Subtotal................................. 67.674 68.801
Proforma effect of the two-for-one stock
split*...................................... 67.674 68.801
------- -------
Weighted average shares for proforma fully
diluted income per share computation........ 135.348 137.602
======= =======
Net income.................................... $ 37.7 $ 34.4
======= =======
Proforma fully diluted income per share....... $ .28 $ .25
======= =======
- ----------
*At the Annual Meeting on May 2, 1996, the shareholders approved an
amendment to the Company's Certificate of Incorporation to increase
the number of shares of common stock authorized from 200 million to
400 million and decrease the par value per share from $.50 to $.25.
Also on May 2, 1996, the Company's Board of Directors authorized
a two-for-one stock split in the form of a 100 percent stock
dividend to be distributed on or about June 3, 1996 to shareholders
of record after the close of business on May 15, 1996.
The proforma effect of the two-for-one stock split is to double the
the weighted average shares outstanding and common stock
equivalents during the period.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
Avon Products, Inc.
Financial Data Schedule
This schedule contains summary financial information
extracted from the Avon Products, Inc. financial statements
as of March 31, 1996 and for the three months then ended
included in the Form 10-Q as of March 31, 1996 and is
qualified in its entirety by reference to such financial
statements.
<MULTIPLIER> 1000000
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<S> <C>
<CASH> 82
<SECURITIES> 0
<RECEIVABLES> 432
<ALLOWANCES> (29)
<INVENTORY> 532
<CURRENT-ASSETS> 1,229
<PP&E> 1,159
<DEPRECIATION> (631)
<TOTAL-ASSETS> 2,073
<CURRENT-LIABILITIES> 1,313
<BONDS> 113
0
0
<COMMON> 43
<OTHER-SE> 103
<TOTAL-LIABILITY-AND-EQUITY> 2,073
<SALES> 1,016
<TOTAL-REVENUES> 1,016
<CGS> 402
<TOTAL-COSTS> 541
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 60
<INCOME-TAX> 23
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
