<PAGE>
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
To correct for "End of Submission" command prior to
Exhibit 27 - Financial Data Schedule
[x] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
OR
[ ] 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
(Address of principal executive offices)
(212) 546-6015
(Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------
Common Stock (par value $.50) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 requirementsfor the past 90 days.
Yes X No
-------- --------
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
The aggregate market value of Common Stock (par value $.50) held by non-
affiliates at February 29, 1996 was $5.4 billion.
The number of shares of Common Stock (par value $.50) outstanding at
February 29, 1996 was 67,246,093.
Documents Incorporated by Reference
Parts I and II Portions of the 1995 Annual Report to Shareholders.
Part III Portions of the Proxy Statement for the 1996 Annual
Meeting of Shareholders.
<PAGE>1
PART I
ITEM 1. BUSINESS
Avon Products, Inc. ("Avon" or "Company") is one of the world's leading
manufacturers and marketers of beauty and related products, which include
cosmetics, fragrance and toiletries; gift and decorative; apparel; and fashion
jewelry and accessories. Avon commenced operations in 1886 and was
incorporated in the State of New York on January 27, 1916. Avon's business
is comprised of one industry segment, direct selling, with worldwide
operations. Financial information relating to geographic areas is
incorporated by reference to the analysis of net sales and pretax income from
operations by geographic area on page 31 in Avon's 1995 Annual Report to
Shareholders.
Distribution
Avon's products are sold worldwide by approximately 2.0 million
Representatives, approximately 445,000 of whom are in the United States.
Almost all Representatives are women who sell on a part-time basis.
Representatives are independent contractors or independent dealers, and are
not agents or employees of Avon. Representatives purchase products directly
from Avon and sell them directly to their customers.
The Company's products are sold to customers through a combination of
direct selling and marketing utilizing independent Representatives, the mail,
by phone or fax. Representatives go where the customers are, either in the
home or in the workplace. Representatives may sell in a territory, which
typically averages 100 homes in the United States and from 100 to 150 homes
in other countries. Representatives in the United States have the opportunity
to take responsibility for sales in larger areas.
In the United States, the Representative contacts customers, selling
primarily through the use of brochures which also highlight new products and
specially priced items for each two-week sales campaign. Product samples,
demonstration products, make-up color charts and catalogs are also used.
Generally the Representative forwards an order every two weeks to a
designated distribution center. This order is processed and the products are
assembled at the distribution center and delivered to the Representative's
home, usually by a local delivery service. The Representative then delivers the
merchandise and collects payment from the customer for their own account.
Payment by the Representative to Avon is customarily made when the next order
is forwarded to the distribution center. The cost of merchandise to the
Representative varies according to the total order size for each two-week
sales campaign and averages approximately 60 percent of the recommended
selling price.
In order to increase support of the Representative in the United States
and allow them to run their business more efficiently as well as to improve
order processing accuracy, Avon employs certain electronic order systems
technology. One of these systems permits Avon Representatives to submit add-
on orders with a touch-tone telephone, enabling them to augment orders
already submitted by placing a phone call. Another system, Avon's Personal
Order Entry Terminal, permits the top-producing Representatives in the United
States to transmit orders electronically by phone line, 24 hours a day, seven
days a week.
<PAGE>2
Outside the United States, each sales campaign is generally of a three
or four week duration. Although terms of payment and cost of merchandise to
the Representative vary from country to country, the basic method of direct
selling and marketing by Representatives is essentially the same as that used
in the United States, and substantially the same merchandising and promotional
techniques are utilized.
The recruiting and training of Representatives are the primary
responsibility of district managers. In the United States, each district
manager has responsibility for a market area covered by 225 to 300
Representatives. District managers are employees of Avon and are paid a
salary and a commission based on purchases of Avon products by Representatives
in their district. Personal contacts, including recommendations from current
Representatives and local advertising, constitute the primary means of
obtaining new Representatives. Because of the high rate of turnover among
Representatives, a characteristic of the direct-selling method, recruiting and
training of new Representatives are continually necessary.
From time to time, the question of the legal status of Representatives
has arisen, usually in regard to possible coverage under social benefit laws
that would require Avon (and in most instances, the Representatives) to make
regular contributions to social benefit funds. Although Avon has generally
been able to address these questions in a satisfactory manner, the matter
has not been fully resolved in all countries. If there should be a final
determination adverse to Avon in a country, the cost for future, and possibly
past, contributions could be so substantial in the context of the volume of
business of Avon in that country that it would have to consider discontinuing
operations in that country.
Promotion and Marketing
Sales promotion and sales development activities are directed toward
giving selling assistance to the Representatives by making available sales
aids such as brochures, product samples and demonstration products. In order
to support the efforts of Representatives to reach new customers, especially
working women and other individuals who frequently are not at home, specially
designed sales aids, promotional pieces, customer flyers and product and image
enhancing media advertising are used. In addition, Avon seeks to motivate its
Representatives through the use of special incentive programs that reward
superior sales performance. Periodic sales meetings with Representatives are
conducted by the district manager. The meetings are designed to keep
Representatives abreast of product line changes, explain sales techniques
and provide recognition for sales performance.
A number of merchandising techniques, including the introduction of new
products, the use of combination offers, the use of trial sizes and the
promotion of products packaged as gift items, are used. In general for each
sales campaign, a distinctive brochure is published, in which new products
are introduced and selected items are offered at special prices or are given
particular prominence in the brochure. Cosmetic, fragrance and toiletry
products are available each sales campaign at a constant low price, while
maintaining introductory specials and periodic sales on selected items for
limited time periods.
From time to time, various regulations or laws have been proposed or
adopted that would, in general, restrict the frequency or duration of, or
volume of sales resulting from new product introductions, special prices or
other special price offers. The Company's pricing flexibility and broad
product lines are expected to be able to mitigate the effect of these
regulations.
<PAGE>3
Competitive Conditions
The cosmetic, fragrance and toiletry; gift and decorative; apparel; and
fashion jewelry and accessory industries are highly competitive. Avon is one
of the leading manufacturers and distributors of cosmetics and fragrances in
the United States. Its principal competitors are the large and well-known
cosmetics and fragrances companies that manufacture and sell broad product
lines through various types of retail establishments. There are many other
companies that compete in particular products or product lines sold through
retail establishments.
Avon has many competitors in the gift and decorative products and
apparel industries in the United States, including retail establishments,
principally department stores, gift shops and direct-mail companies,
specializing in these products.
Avon is one of the leading distributors of fashion jewelry and
accessories for women in the United States. Its principal competition in the
fashion jewelry industry consists of a few large companies and many small
companies that manufacture and sell fashion jewelry for women through retail
establishments.
The number of competitors and degree of competition that Avon faces in
its foreign cosmetics, fragrance, toiletries and fashion jewelry markets
varies widely from country to country. Avon is one of the leading
manufacturers and distributors in the cosmetics, fragrance and toiletries
industry in most of its foreign markets, as well as in the fashion jewelry
industry in Europe.
There are a number of direct-selling companies which sell product lines
similar to Avon's, some of which also have worldwide operations and compete
with Avon, although none have comparable sales or income.
Avon believes that the personalized customer service offered by
Representatives; the high quality, attractive designs and reasonable prices
of its products; new product introductions; and the guarantee of satisfaction
are significant factors in establishing and maintaining its competitive
position.
Avon's consolidated net sales, by classes of principal products, are as
follows:
Years ended December 31
-----------------------
1995 1994 1993
------- ------- -------
(In millions)
Cosmetics, fragrance
and toiletries........ $2,797.2 $2,604.2 $2,375.2
Gift and decorative..... 780.6 769.2 663.6
Apparel................. 500.5 480.3 350.0
Fashion jewelry and
accessories.......... 413.8 412.8 455.3
-------- -------- --------
$4,492.1 $4,266.5 $3,844.1
======= ======= =======
<PAGE>4
International Operations
Avon's International operations are subject to certain customary risks
inherent in carrying on business abroad, including the risk of adverse
currency fluctuations, currency remittance restrictions and unfavorable
economic and political conditions.
Avon's International operations are conducted primarily through
subsidiaries in 40 countries and Avon's products are distributed in some 84
other countries.
Manufacturing
Avon manufactures and packages almost all of its cosmetic, fragrance
and toiletry products. Raw materials, consisting chiefly of essential oils,
chemicals, containers and packaging components, are purchased from various
suppliers. Packages, consisting of containers and packaging components, are
designed by its staff of artists and designers.
The design and development of new products are affected by the cost
and availability of materials such as glass, plastics and chemicals. Avon
believes that it can continue to obtain sufficient raw materials and supplies
to manufacture and supply its products.
Avon has eighteen manufacturing laboratories around the world, three
of which are principally devoted to the manufacture of fashion jewelry.
In the United States, Avon's cosmetic, fragrance and toiletry products are
produced in three manufacturing laboratories for the four distribution
centers located throughout the country. Most products sold in foreign
countries are manufactured in Avon's facilities abroad.
The fashion jewelry line is generally developed by Avon's staff and
produced in its two manufacturing laboratories in Puerto Rico, and Avon's
manufacturing laboratory in Ireland or by several independent manufacturers.
Trademarks and Patents
Although Avon owns several patents and has several more patent
applications pending in the United States Patent Office, its business, both
in the United States and abroad, is not materially dependent upon patents
or patent protection. Avon has no material licenses, franchises or
concessions.
Avon's major trademarks are protected by registration in the United
States and the other countries where its products are marketed as well as in
many other countries throughout the world.
DISCONTINUED OPERATIONS
In December 1995, the Company entered into an agreement with
Mallinckrodt Group, Inc. ("Mallinckrodt"), which has fully settled the
litigation initiated by Mallinckrodt. The settlement covers all indemnity
obligations related to Avon's sale of Mallinckrodt, including environmental
clean-up claims and litigation concerning Mallinckrodt's settlement of a
DuPont patent claim.
The settlement payments being made by Avon to Mallinckrodt, and related
costs, resulted in an after-tax charge to discontinued operations in the
fourth quarter of 1995, net of existing reserves, of $29.6 million, or $.43
per share.
During 1994, the Company sold Giorgio Beverly Hills, Inc. ("Giorgio"),
its remaining retail business, for cash of $150.0 million. The Company
recorded a loss of $25.0 million on the sale. Giorgio's operating results
<PAGE>5
are segregated and reported as discontinued operations through the date of
sale.
Since the Company has excess capital loss carryforwards, no tax benefits
were recognized on the above losses in 1995 and 1994.
During 1993, Avon recorded a discontinued operations provision of $10.0
million after tax, or $.14 per share, for the final settlement and related
expenses in an arbitration proceeding related to a business previously sold.
Contingencies
Although Avon has completed its divestiture of all discontinued
operations, various lawsuits and claims (asserted and unasserted) are pending
or threatened against Avon. The Company is also involved in a number of
proceedings arising out of the federal Superfund law and similar state laws.
In some instances Avon, along with other companies, has been designated as
a potentially responsible party which may be liable for costs associated with
these various hazardous waste sites. 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 December 31, 1995 should not have a material adverse
impact on Avon's consolidated financial position or results of operations.
SEASONAL NATURE OF BUSINESS
Avon's sales and earnings have a marked seasonal pattern characteristic
of many companies selling cosmetics, fragrance and toiletries; gift and
decorative products; and fashion jewelry. Christmas sales cause a sales peak
in the fourth quarter of the year. Fourth quarter net sales were 31 percent
and 32 percent of full year net sales in 1995 and 1994, respectively, and
fourth quarter pretax income from continuing operations was 40 percent and
42 percent in 1995 and 1994, respectively.
RESEARCH ACTIVITIES
Avon's research and development department is a leader in the industry,
based on the number of new product launches, including formulating
affordable, effective beauty treatments relevant to women's needs.
A team of researchers and technicians applies the disciplines of science
to the practical aspects of bringing products to market around the world.
Relationships with well known dermatologists and other specialists
supplement Avon's own research to deliver new formulas and ingredients.
Each year, Avon researchers test and develop more than 600 products in the
cosmetic, fragrance, toiletry and jewelry categories as well as analyze,
evaluate and develop gift and decorative products.
Avon has pioneered many innovative products, including Skin-So-Soft,
its best-selling bath oil; BioAdvance, the first skin care product with
stabilized retinol, the purest form of Vitamin A; and Collagen Booster, the
premier product to capitalize on Vitamin C technology. Avon also introduced
the benefits of aromatherapy to millions of American women, encapsulated
color for the Color-Release line and introduced alpha-hydroxy acid for the
Anew Perfecting Complex products.
<PAGE>6
The amounts incurred on research activities relating to the development
of new products and the improvement of existing products were $27.8 million
in 1995, $27.9 million in 1994 and $28.5 million in 1993. This research
included the activities of product research and development and package
design and development. Most of these activities are related to the
development of cosmetic, fragrance and toiletry products.
ENVIRONMENTAL MATTERS
Pursuant to Avon's global environmental policy, environmental audits
are conducted to ensure Avon facilities around the world meet or exceed local
regulatory standards in such categories as waste disposal and air and water
emissions. A corporate environmental operations committee ensures that
opportunities for environmental performance improvements are reflected in
our products and packaging.
In general, compliance with environmental regulations which impact
Avon's global operations has not had, and is not anticipated to have, any
material effect upon the capital expenditures, financial position or
competitive position of Avon. Reference is made to Item 3 of this report
for additional information regarding environmental matters.
EMPLOYEES
At December 31, 1995, Avon employed approximately 31,800 people. Of
these, approximately 8,000 were employed in the United States and
approximately 23,800 in other countries. The number of employees tends to
rise from a low point in January to a high point in November and
decreases somewhat in December when Christmas shipments are completed.
ITEM 2. PROPERTIES
Avon's principal properties consist of manufacturing laboratories for
the production of cosmetics, fragrance and toiletries and fashion jewelry
and distribution centers where offices are located and where finished
merchandise is warehoused and shipped to Representatives in fulfillment of
their orders. Substantially all of these properties are owned by Avon or its
subsidiaries, are in good repair, adequately meet Avon's needs and operate
at reasonable levels of productive capacity.
The domestic manufacturing laboratories are located in Morton Grove,
IL; Springdale, OH; and Suffern, NY; and the distribution centers are located
in Atlanta, GA; Glenview, IL; Newark, DE; and Pasadena, CA. International
properties include three manufacturing laboratories, including a fashion
jewelry manufacturing laboratory in Ireland, and eight distribution centers
in Europe; five manufacturing laboratories and eleven distribution centers
in Latin America; one manufacturing and one distribution center in Canada;
and four manufacturing laboratories and nine distribution centers in the
Pacific. The research and development laboratories are located in Suffern, NY.
Avon leases space for its executive and administrative offices in New York
City and its fashion jewelry manufacturing facilities in Puerto Rico. During
1995, the Company signed new leases, commencing in 1997, for office
facilities for the U.S. and global operations, which will be relocated within
New York City.
ITEM 3. LEGAL PROCEEDINGS
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.
<PAGE>7
In 1991, a class action lawsuit 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 defense 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
December 31, 1995 should not have a material adverse impact on Avon's
consolidated financial position or results of operations.
Avon is involved in a number of proceedings arising out of the federal
Superfund law and similar state laws. In some instances Avon, along with
other companies, has been designated as a potentially responsible party which
may be liable for costs associated with these various hazardous waste sites.
Based upon Avon's current knowledge of proceedings, management believes,
without taking into consideration any insurance recoveries, if any, that in
the aggregate they would not have a material adverse impact on Avon's
consolidated financial position or results of operations.
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, 1995.
- - -------------------------------------
Executive Officers of the Registrant
Officers are elected by the Board of Directors at its first meeting
following the Annual Meeting of Shareholders. Officers serve until the first
meeting of the Board of Directors following the Annual Meeting of
Shareholders at which Directors are elected for the succeeding year, or
until their successors are elected, except in the event of death, resignation
or removal, or the earlier termination of the term of office.
Information regarding employment contracts between Avon and named executive
officers is incorporated by reference to the "Contracts with Executives"
section of Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders.
<PAGE>8
Listed below are the executive officers of Avon, each of whom (except
as noted) has served in various executive and operating capacities with Avon
during the past five years:
Elected
Title Name Age Officer
- - ----- ---- --- -------
Chairman of the Board,
Chief Executive Officer
and Director................... James E. Preston 62 1971
President, Chief
Operating Officer
and Director................... Edward J. Robinson 55 1989
Senior Vice President,
General Counsel
and Secretary.................. Ward M. Miller, Jr. 63 1993 (1)
Senior Vice President and Chief
Financial Officer.............. Edwina D. Woodbury 44 1990
Senior Vice
Presidents..................... Christina A. Gold 48 1993
Marcia L. Worthing 53 1988
Group Vice President,
Taxes and
Treasurer...................... Robert J. Corti 46 1988
Vice President and
Controller..................... Michael R. Mathieson 43 1995(2)
(1) Ward M. Miller, Jr. was elected Senior Vice President, General Counsel
and Secretary in October 1994. Mr. Miller joined Avon in February 1993 as
Vice President. Prior to joining Avon, he was Senior Vice President and
General Counsel of Nabisco Brands; and Vice President, Associate General
Counsel and Secretary of its parent, RJR Nabisco.
(2) Michael R. Mathieson was elected Vice President and Controller in April
1995. Mr. Mathieson joined Avon in May 1990 as Assistant Corporate
Controller. Prior to joining Avon, he was Vice President and Director of
Accounting Research for Chase Manhattan Bank.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference to "Market Prices of
Common Stock by Quarter" on page 41 of Avon's 1995 Annual Report to
Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
The information for the five-year period 1991 through 1995 is
incorporated by reference to the "Eleven-Year Review" on pages 58 and 59 of
Avon's 1995 Annual Report to Shareholders.
<PAGE>9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
This information is incorporated by reference to "Management's
Discussion and Analysis" on pages 29 through 40 of Avon's 1995 Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
This information is incorporated by reference to the "Consolidated
Financial Statements and Notes" on pages 42 through 56, together with the
report thereon of Coopers & Lybrand, L.L.P., on page 57, and "Results of
Operations by Quarter" on page 41 of Avon's 1995 Annual Report to
Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Information regarding directors is incorporated by reference to the "
Election of Directors" and "Information Concerning the Board of Directors"
sections of Avon's Proxy Statement for the 1996 Annual Meeting of
Shareholders. Information regarding executive officers is presented in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the "Information
Concerning the Board of Directors" and "Executive Compensation" sections of
Avon's Proxy Statement for the 1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the "Ownership of
Shares" section of Avon's Proxy Statement for the 1996 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
This information is incorporated by reference to the "Compensation
Committee Interlocks and Insider Participation" section and the "Contracts
with Executives" section of Avon's Proxy Statement for the 1996 Annual
Meeting of Shareholders.
<PAGE>10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Annual
Report to Form 10-K
Shareholders Page
Page Number Number
<S> <C> <C>
(a) 1. Consolidated Financial Statements of
Avon Products, Inc. and Subsidiaries
Consolidated statement of income
for each of the years in the
three-year period ended
December 31, 1995 42
Consolidated balance sheet at
December 31, 1995
and 1994 43
Consolidated statement of cash
flows for each of the years in
the three-year period ended
December 31, 1995 44
Consolidated statement of
changes in shareholders'
equity for each of the years
in the three-year period
ended December 31, 1995 45
Notes to consolidated financial
statements 46-56
Report of Independent
Accountants
Coopers & Lybrand L.L.P..............57
(a) 2. Financial Statement Schedules
Report of Independent Accountants
Coopers & Lybrand L.L.P S-1
Consent of Independent Accountants
Coopers & Lybrand L.L.P S-2
Financial statement schedule for each
of the years in the three-year period
ended December 31, 1995 VIII--
Valuation and qualifying accounts S-3
</TABLE>
Financial statements of the registrant and all other financial statement
schedules are omitted because they are not applicable or because the required
information is shown in the consolidated financial statements and notes.
<PAGE>11
(a) 3. Exhibits
Exhibit
Number Description
- - ---------- --------------
3.1 Restated Certificate of Incorporation of Avon, filed with the
Secretary of State of the State of New York on August 12, 1988
(incorporated by reference to Exhibit 3.1 to Avon's Annual
Report on Form 10-K for the year ended December 31, 1993).
3.2 By-laws, as amended to April 27, 1990, of Avon (incorporated by
reference to Exhibit 3.1 to Avon's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1990).
4.1 Instrument defining the rights of holders of Avon's preferred
share purchase rights to purchase Avon's Series A
Junior Participating Preferred Stock (reference is made to
Article IIIA of the restated Certificate of Incorporation of
Avon, filed with the Secretary of State of New York State
on August 12, 1988 and included as Exhibit 3.1 to the 1993
Annual Report on Form 10-K).
4.2 Rights Agreement, dated as of March 30, 1988 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of
New York (as successor to Morgan Shareholder Services Trust
Company) (incorporated by reference to Exhibit 1 to Avon's
Registration Statement on Form 8-A, filed April 7, 1988).
4.3 Amendment, dated as of January 3, 1989, to the Rights
Agreement (incorporated by reference to Exhibit 3 to Avon's
Amendment No. 1 on Form 8, filed January 4, 1989, amending its
Registration Statement on Form 8-A, filed April 7, 1988).
4.4 Second Amendment, dated as of April 5, 1990, to the Rights
Agreement (incorporated by reference to Exhibit 4(c) to Avon's
Current Report on Form 8-K, dated April 5, 1990).
4.5 Third Amendment, dated as of May 10, 1990, to the Rights
Agreement (incorporated by reference to Exhibit 4(d) to Avon's
Current Report on Form 8-K, dated May 10, 1990).
4.6 Revolving Credit and Competitive Advance Facility Agreement,
dated as of October 5, 1994, among Avon, Avon Capital
Corporation and a group of banks and other lenders
(incorporated by reference to Exhibit 4.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders May 6, 1993 (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10.2* Form of Stock Option Agreement to the Avon Products, Inc.
1993 Stock Incentive Plan (incorporated by reference to Exhibit
10.2 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1993).
<PAGE>12
10.3* Avon Products, Inc. 1994 Long-Term Incentive Plan, effective as
of January 1, 1994 (incorporated by reference to Exhibit 10.3 to
Avon's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.4* Avon Products, Inc. 1970 Stock Option Incentive Plan, as
amended and restated through May 4, 1989 (incorporated by
reference to Exhibit 4.6 to Avon's Registration Statement on
Form S-8, Registration No. 33-28653, filed May 18, 1989).
10.5* First Amendment, dated as of November 5, 1992, to the Avon
Products, Inc. 1970 Stock Option Incentive Plan as amended
and restated through May 4, 1989 (incorporated by reference to
Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.6* Supplemental Executive Retirement Plan and Supplemental Life
Plan of Avon Products, Inc., as amended and restated as of
September 1, 1994 (incorporated by reference to exhibit 10.6
to Avon's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7* Benefit Restoration Pension Plan of Avon Products, Inc.,
effective as of January 1, 1994 (incorporated by reference to
Exhibit 10.7 to Avon's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.8* Trust Agreement, amended and restated as of March 2, 1990,
between Avon and Chase Manhattan Bank, N.A. (incorporated
by reference to Exhibit 10.2 to Avon's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1990).
10.9* First Amendment, dated as of January 30, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.10* Second Amendment, dated as of June 12, 1992 to the Trust
Agreement, dated as of March 2, 1990, by and between Avon
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.3 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.11* Third Amendment, dated as of November 5, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.4 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.12* The Avon Products, Inc. Deferred Compensation Plan, as
amended and restated as of October 8, 1990 (incorporated by
reference to Exhibit 10.5 to Avon's Annual Report on Form
10-K for the year ended December 31, 1991).
10.13* First Amendment, dated as of November 5, 1992, to the Avon
Products, Inc. Deferred Compensation Plan, as amended and
restated as of October 8, 1990 (incorporated by reference to
Exhibit 10.5 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
<PAGE>13
10.14* Trust Agreement, dated as of April 12, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement
as of August 3, 1989 between Avon and Manufacturers Hanover
Trust Company.
10.15* Instrument of Amendment, effective as of April 1, 1990
amending various employee benefit plans and agreements as
stipulated in the Instrument of Amendment (incorporated by
reference to Exhibit 10.3 to Avon's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1990).
10.16* Employment Agreement, dated as of November 1, 1995,
between Avon and James E. Preston.
10.17* Stock Option Agreement between Avon and James E. Preston
dated October 30, 1995.
10.18* Non-Qualified Stock Option Award, dated as of December 5, 1991,
granted by Avon to James E. Preston (incorporated by
reference to Exhibit 10.11 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.19* Employment Agreement, dated as of September 1, 1994,
between Avon and Edward J. Robinson (incorporated by
reference to Exhibit 10.1 to Avon's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
10.20* Restricted Stock Agreement, effective as of November 4,
1993, granted by Avon to Edward J. Robinson (incorporated
by reference to Exhibit 10.21 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1993).
10.21* Form of Employment Agreement, dated as of September 1,
1994, between Avon and certain senior officers
(incorporated by reference to Exhibit 10.2 to Avon's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.22* Avon Products, Inc. Directors' Retirement Plan, effective
as of January 1, 1988 (incorporated by reference to
Exhibit 10.22 to Avon's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.23* First Amendment, dated as of November 5, 1992, to the Avon
Products, Inc. Directors' Retirement Plan (incorporated by
reference to Exhibit 10.6 to Avon's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993).
10.24* Trust Agreement, dated as of December 31, 1991, between
Avon and Manufacturers Hanover Trust Company
(incorporated by reference to Exhibit 10.23 to Avon's
Annual Report on Form 10-K for the year ended
December 31, 1991).
10.25* First Amendment, dated as of November 5, 1992, to the Trust
Agreement dated as of December 31, 1991, by and between
Avon and Manufacturers Hanover Trust Company
(incorporated by reference to Exhibit 10.7 to Avon's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1993).
11.1 Statement re computation of primary income per share.
11.2 Statement re computation of fully diluted income per share.
<PAGE>14
13 Portions of the Annual Report to Shareholders for the year
ended December 31, 1995, incorporated by reference in
response to Items 1,5 through 8 in this filing.
21 Subsidiaries of the registrant.
21 Subsidiaries of the registrant.
23 Consent of Coopers & Lybrand L.L.P. (set forth on page S-2
of this Annual Report on Form 10-K).
24 Power of Attorney
27. Financial Data Schedule
99 Financial statements for the Avon Products, Inc.,
Employees' Savings and Stock Ownership Plan and the Avon
Mirabella/Lomalinda Employees' Savings Plan for the year
ended December 31, 1995 will be filed by amendment.
* The Exhibits identified above and in the Exhibit Index with an asterisk
(*) are management contracts or compensatory plans or arrangements.
(b) Reports on Form 8-K
A report on Form 8-K dated December 8, 1995 was filed. This report
disclosed the agreement with Mallinckrodt Group, Inc. setting litigation
initiated by Mallinckrodt.
(c) Avon's Annual Report on Form 10-K for the year ended December 31,
1995, at the time of filing with the Securities and Exchange
Commission, shall modify and supersede all prior documents filed
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934 for purposes of any offers or sales of any securities after the
date of such filing pursuant to any Registration Statement or Prospectus
filed pursuant to the Securities Act of 1933, which incorporates by
reference such Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 7th day
of March 1996.
Avon Products, Inc.
By /s/WARD M. MILLER, JR.
--------------------------------
Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
<PAGE>15
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- - ----------- ----- -----
Chairman of the Board
and Chief Executive
Officer--Principal
* Executive Officer
- - ---------------- and Director March 27, 1996
James E. Preston
President, Chief
* Operating Officer and
- - ---------------- Director March 27, 1996
Edward J. Robinson
Senior Vice President
and Chief Financial
* Officer--Principal
- - ----------------- Financial Officer March 27, 1996
Edwina D. Woodbury
Vice President and
* Controller--Principal
- - ------------------- Accounting Officer March 27, 1996
Michael R. Mathieson
BRENDA BARNES* )
RICHARD S. BARTON )
DANIEL B. BURKE )
REMEDIOS DIAZ OLIVER*)
EDWARD T. FOGARTY* )
STANLEY C. GAULT )
GEORGE V. GRUNE* ) Directors March 27, 1996
CHARLES S. LOCKE* )
ANN S. MOORE* )
JOSEPH A. RICE* )
CECILY C. SELBY* )
*By/s/ WARD M. MILLER, JR.
- - ----------------------------------- March 27, 1996
Ward M. Miller, Jr. Attorney-in-fact
<PAGE>S-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Avon Products, Inc.
Our report on the consolidated financial statements of Avon Products,
Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the
years in the three-year period ended December 31, 1995 has been incorporated
by reference in this Form 10-K from page 57 of the 1995 Annual Report to
Shareholders of Avon Products, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule for each of the years in the three-year period ended December 31,
1995, as listed in the Index under Item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule for each of the years
in the three-year period ended December 31, 1995 referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
New York, New York
February 1, 1996 /s/Coopers & Lybrand L.L.P.
S-1
<PAGE>S-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the
following Registration Statements of Avon Products, Inc.:
Form S-8 (Reg. No. 2-37955), Form S-8 (Reg. No. 2-48080),
Form S-8 (Reg. No. 2-61285), Form S-8 (Reg. No. 2-83235),
Form S- 8 (Reg. No. 2-94959), Form S-8 (Reg. No. 33-28653),
Form S-8 (Reg. No. 33-47209), Form S-8 (Reg. No. 33-60218),
Form S-8 (Reg. No. 33-60918), Form S-8 (Reg. No. 33-65998),
Post Effective Amendment No. 1 to Form S-8 (Reg. No. 2-
98707), and Pre-Effective Amendment No. 1 to Form S-8 (Reg.
No. 33-22099), of our reports dated February 1, 1996 on our
audits of (i) the consolidated financial statements of Avon
Products, Inc. as of December 31, 1995 and 1994 and for each
of the years in the three-year period ended December 31,
1995, which report is included in the 1995 Annual Report to
Shareholders and incorporated by reference in this Annual
Report on Form 10-K and (ii) the 1995, 1994 and 1993
financial statement schedule of Avon Products, Inc., which
report is included in this Annual Report on Form 10-K.
New York, New York
March 27, 1996 /s/Coopers & Lybrand L.L.P.
S-2
<PAGE>S-3
AVON PRODUCTS, INC. AND SUBSIDIARIES
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Years ended December 31
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
of period expenses accounts Deductions of period
--------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1995
Allowance for
doubtful
accounts
receivable $27.3 $78.0 $----- $72.7(a) $32.6
===== ===== ===== ====== =====
1994
Allowance for
doubtful
accounts
receivable $22.0 $64.9 $----- $59.6(a) $27.3
===== ===== ===== ====== =====
1993
Allowance for
doubtful
accounts
receivable $21.4 $51.4 $----- $50.8(a) $22.0
===== ===== ===== ====== =====
</TABLE>
(a) Accounts written off, net of recoveries and foreign currency
translation adjustment.
S-3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission file number 1-4881
---------------------
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
____________
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(a) 3. Exhibits
Exhibit
Number Description
- - ---------- --------------
3.1 Restated Certificate of Incorporation of Avon, filed with the
Secretary of State of the State of New York on August 12, 1988
(incorporated by reference to Exhibit 3.1 to Avon's Annual
Report on Form 10-K for the year ended December 31, 1993).
3.2 By-laws, as amended to April 27, 1990, of Avon (incorporated by
reference to Exhibit 3.1 to Avon's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1990).
4.1 Instrument defining the rights of holders of Avon's preferred
share purchase rights to purchase Avon's Series A
Junior Participating Preferred Stock (reference is made to
Article IIIA of the restated Certificate of Incorporation of
Avon, filed with the Secretary of State of New York State
on August 12, 1988 and included as Exhibit 3.1 to the 1993
Annual Report on Form 10-K).
4.2 Rights Agreement, dated as of March 30, 1988 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of
New York (as successor to Morgan Shareholder Services Trust
Company) (incorporated by reference to Exhibit 1 to Avon's
Registration Statement on Form 8-A, filed April 7, 1988).
4.3 Amendment, dated as of January 3, 1989, to the Rights
Agreement (incorporated by reference to Exhibit 3 to Avon's
Amendment No. 1 on Form 8, filed January 4, 1989, amending its
Registration Statement on Form 8-A, filed April 7, 1988).
4.4 Second Amendment, dated as of April 5, 1990, to the Rights
Agreement (incorporated by reference to Exhibit 4(c) to Avon's
Current Report on Form 8-K, dated April 5, 1990).
4.5 Third Amendment, dated as of May 10, 1990, to the Rights
Agreement (incorporated by reference to Exhibit 4(d) to Avon's
Current Report on Form 8-K, dated May 10, 1990).
4.6 Revolving Credit and Competitive Advance Facility Agreement,
dated as of October 5, 1994, among Avon, Avon Capital
<PAGE>
Corporation and a group of banks and other lenders
(incorporated by reference to Exhibit 4.1 to Avon's Report on
Form 10-Q for the quarter ended September 30, 1994).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders May 6, 1993 (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10.2* Form of Stock Option Agreement to the Avon Products, Inc.
1993 Stock Incentive Plan (incorporated by reference to Exhibit
10.2 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1993).
10.3* Avon Products, Inc. 1994 Long-Term Incentive Plan, effective as
of January 1, 1994 (incorporated by reference to Exhibit 10.3 to
Avon's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.4* Avon Products, Inc. 1970 Stock Option Incentive Plan, as
amended and restated through May 4, 1989 (incorporated by
reference to Exhibit 4.6 to Avon's Registration Statement on
Form S-8, Registration No. 33-28653, filed May 18, 1989).
10.5* First Amendment, dated as of November 5, 1992, to the Avon
Products, Inc. 1970 Stock Option Incentive Plan as amended
and restated through May 4, 1989 (incorporated by reference to
Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.6* Supplemental Executive Retirement Plan and Supplemental Life
Plan of Avon Products, Inc., as amended and restated as of
September 1, 1994 (incorporated by reference to exhibit 10.6
to Avon's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7* Benefit Restoration Pension Plan of Avon Products, Inc.,
effective as of January 1, 1994 (incorporated by reference to
Exhibit 10.7 to Avon's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.8* Trust Agreement, amended and restated as of March 2, 1990,
between Avon and Chase Manhattan Bank, N.A. (incorporated
by reference to Exhibit 10.2 to Avon's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1990).
<PAGE>
10.9* First Amendment, dated as of January 30, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.10* Second Amendment, dated as of June 12, 1992 to the Trust
Agreement, dated as of March 2, 1990, by and between Avon
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.3 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.11* Third Amendment, dated as of November 5, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.4 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.12* The Avon Products, Inc. Deferred Compensation Plan, as
amended and restated as of October 8, 1990 (incorporated by
reference to Exhibit 10.5 to Avon's Annual Report on Form
10-K for the year ended December 31, 1991).
10.13* First Amendment, dated as of November 5, 1992, to the Avon
Products, Inc. Deferred Compensation Plan, as amended and
restated as of October 8, 1990 (incorporated by reference to
Exhibit 10.5 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.14* Trust Agreement, dated as of April 12, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement
as of August 3, 1989 between Avon and Manufacturers Hanover
Trust Company.
10.15* Instrument of Amendment, effective as of April 1, 1990
amending various employee benefit plans and agreements as
stipulated in the Instrument of Amendment (incorporated by
reference to Exhibit 10.3 to Avon's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1990).
10.16* Employment Agreement, dated as of November 1, 1995,
between Avon and James E. Preston.
10.17* Stock Option Agreement between Avon and James E. Preston
dated October 30, 1995.
<PAGE>
10.18* Non-Qualified Stock Option Award, dated as of December 5, 1991,
granted by Avon to James E. Preston (incorporated by
reference to Exhibit 10.11 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1991).
10.19* Employment Agreement, dated as of September 1, 1994,
between Avon and Edward J. Robinson (incorporated by
reference to Exhibit 10.1 to Avon's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994).
10.20* Restricted Stock Agreement, effective as of November 4,
1993, granted by Avon to Edward J. Robinson (incorporated
by reference to Exhibit 10.21 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1993).
10.21* Form of Employment Agreement, dated as of September 1,
1994, between Avon and certain senior officers
(incorporated by reference to Exhibit 10.2 to Avon's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.22* Avon Products, Inc. Directors' Retirement Plan, effective
as of January 1, 1988 (incorporated by reference to
Exhibit 10.22 to Avon's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.23* First Amendment, dated as of November 5, 1992, to the Avon
Products, Inc. Directors' Retirement Plan (incorporated by
reference to Exhibit 10.6 to Avon's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993).
10.24* Trust Agreement, dated as of December 31, 1991, between
Avon and Manufacturers Hanover Trust Company
(incorporated by reference to Exhibit 10.23 to Avon's
Annual Report on Form 10-K for the year ended
December 31, 1991).
10.25* First Amendment, dated as of November 5, 1992, to the Trust
Agreement dated as of December 31, 1991, by and between
Avon and Manufacturers Hanover Trust Company
(incorporated by reference to Exhibit 10.7 to Avon's
Quarterly Report on Form 10-Q for the quarter ended March
31, 1993).
<PAGE>
11.1 Statement re computation of primary income per share.
11.2 Statement re computation of fully diluted income per share.
13 Portions of the Annual Report to Shareholders for the year
ended December 31, 1995, incorporated by reference in
response to Items 1,5 through 8 in this filing.
21 Subsidiaries of the registrant.
21 Subsidiaries of the registrant.
23 Consent of Coopers & Lybrand L.L.P. (set forth on page S-2
of this Annual Report on Form 10-K).
24 Power of Attorney
27. Financial Data Schedule
99 Financial statements for the Avon Products, Inc.,
Employees' Savings and Stock Ownership Plan and the Avon
Mirabella/Lomalinda Employees' Savings Plan for the year
ended December 31, 1995 will be filed by amendment.
* The Exhibits identified above and in the Exhibit Index with an asterisk
(*) are management contracts or compensatory plans or arrangements.
EXHIBIT 10.14
<PAGE>
AVON PRODUCTS, INC.
AMENDED AND RESTATED
BENEFIT PROTECTION TRUST
<PAGE>
This Amended and Restated Trust Agreement made as of
this 21st day of April, 1995, by and among Avon Products, Inc.,
a New York corporation (the "Company"), Chemical Bank, a banking
corporation organized under the laws of the State of New York
(the "Trustee"), and Buck Consultants, Inc. (the "Consulting
Firm"), providing for the continuation of the trust known as the
Avon Products Inc. Benefit Protection Trust (the "Trust") to
provide a source for payments required to be made to executives
(the "Executives") under the agreements listed on Exhibit A (the
"Agreements")
WITNESSETH THAT:
WHEREAS, the Trust was established by that certain
Trust Agreement dated as of August 3, 1989 between the Company
as grantor and the Trustee as successor by merger to
Manufacturers Hanover Trust Company, as trustee (the "Original Trust
Agreement"); and
WHEREAS, the Original Trust Agreement was amended by
an agreement between the Company and Trustee dated as of June 8,
1994 (the Original Trust Agreement, as so amended, the "Amended
Trust Agreement");
WHEREAS, the Company and the Trustee desire to amend
and restate the Amended Trust Agreement as set forth below; and
WHEREAS, the Company shall make contributions of cash
and/or other property to the Trust, and may obtain a Letter of
Credit, in each case to aid the Company in accumulating funds to
satisfy the Company's obligations under the Agreements;
NOW, THEREFORE, in consideration of the mutual under-
takings of the parties and other good and valuable consider-
ation, the parties hereto do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as
follows:
Section 1: Definitions
(a) "Adjustment Date" means each of the following
days: (i) any date on which a Potential Change of Control oc-
curs; (ii) any date on which a Change of Control occurs; (iii)
the first day of each fiscal quarter of the Company after the
occurrence of a Change of Control; (iv) any date following a
Change of Control on which the Trustee notifies the Consulting
Firm pursuant to Section 4 of an insufficiency in the funds
available in the Benefit Contribution Account and under any
Letter of Credit; and (v) any date following a Change of Control
on which the Trustee notifies the Consulting Firm that it has
used Trust Assets to pay compensation, expenses, fees or taxes
pursuant to Section 9.
(b) "Benefit Contribution Account" has the meaning
set forth in Section 6(b).
<PAGE>
(c) "Benefit Contributions" has the meaning set
forth in Section 3(a).
(d) "Board" means the Board of Directors of the Company.
(e) "Change of Control" means:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of voting securities of the Company where
such acquisition causes such Person to own 20% or more of
the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not be
deemed to result in constitute a Change of Control: (A)
any acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company, (D) any acquisition by any corporation pursu-
ant to a transaction which complies with all of clauses
(A), (B) and (C) of subsection (iii) below; or (iv) any
acquisition by any corporation pursuant to a transaction
that complies with clauses (i), (ii) and (iii) of subsec-
tion (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting
Securities reaches or exceeds 20% as a result of a
transaction described in clause (i) or (ii) above, and such
Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subse-
quent acquisition shall be treated as an acquisition that
causes such Person to own 20% or more of the Outstanding
Company Voting Securities or
(ii) individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by
a vote of at least two-thirds of the directors then
comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect
to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) the approval by the shareholders of the
Company of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of
<PAGE>
the assets of the Company (a "Business Combination") or, if
consummation of such Business Combination is subject, at
the time of such approval by Shareholders, to the consent
of any government or governmental agency, the obtaining of
such consent (either explicitly or implicitly by
consummation); excluding, however, such a Business Combi-
nation pursuant to which (A) all or substantially all of
the individuals and entities who were the beneficial owners
of the Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the
Outstanding Company Voting Securities, (B) no Person
(excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then out-
standing shares of common stock of the corporation result-
ing from such Business Combination or the combined voting
power of the then outstanding voting securities of such
corporation except to the extent that such ownership ex-
isted prior to the Business Combination, and (C) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by the shareholders of the Company
of a complete liquidation or dissolution of the Company.
(f) "Code" means the Internal Revenue Code of 1986,
as amended.
(g) "Contributions" means the Initial Contribution and all
other contributions of cash and/or property to the Trust, whenever made.
(h) "ERISA" means the Employee Retirement IncomeSecurity Act of
1974, as amended.
(i) "Executives" has the meaning set forth in the first
paragraph of this Agreement.
(j) "Fee Contribution Account" has the meaning set
forth in Section 6(b).
(k) "Fee Contributions" has the meaning set forth in
Section 3(a).
<PAGE>
(l) "Insolvent" has the meaning set forth in Section 5(a).
(m) "Letter of Credit" means any letter of credit that may be
obtained subsequent to the execution of this Trust Agreement pursuant to
an agreement between the Company and one or more banking institutions
providing for an irrevocable letter of credit in favor of the Trustee,
in its capacity as Trustee ofthe Trust.
(n) "Minimum Required Funding" has the meaning set forth in
Section 3(c).
(o) "Notice of Insolvency" has the meaning set forth
in Section 5(c).
(p) "Potential Change of Control" means:
(i) the commencement of a tender or exchange offer by any
third person (other than a tender or exchange offer which, if
consummated, would not result in a Change of Control) for 20% or more of
the then outstanding shares of common stock or combined voting power of
the Company's then outstanding voting securities;
(ii) the execution of an agreement by the Company, the
consummation of which would result in the occurrence of a Change of
Control;
(iii) the public announcement by any person (including the
Company) of an intention to take or to consider taking actions which if
consummated would constitute a Change of Control other than through a
contested election for directors of the Company; or
(iv) the adoption by the Board, as a result of other
circumstances, including circumstances similar or related to the
foregoing, of a resolution to the effect that, for purposes of this
Trust Agreement, a Potential Change of Control has occurred.
(q) "Required Funding Amount" as of a given date means the
present value of the aggregate maximum amount of all Required Payments
that could become due under the Agreements, as determined by the
Consulting Firm as of such date, taking into account any Required
Payments that have previously been made and using the assumptions set
forth on Exhibit B hereto. The Company may amend Exhibit B hereto at any
time and from time to time before a Change of Control. After a Change
of Control, Exhibit B may be amended only with the consent of the
Consulting Firm and the Trustee.
(r) "Required Payment" means any cash payments that become due
under an Agreement upon or after a Change of Control as a result of the
termination of the Executive's employment (whether such termination
occurs before or after the Change of Control) or the imposition of the
tax imposed under Section 4999 of the Code or any similar tax that may
hereafter be imposed, but excluding any payments that would be made from
any other grantor trust created by the Company.
(s) "Trust" has the meaning set forth in the first paragraph of
this Trust Agreement.
(t) "Trust Assets" means all contributions to the Trust by the
Company and any amounts drawn by the Trustee under any Letter of Credit,
<PAGE>
together with any earnings thereon and other increases thereof, reduced
by any losses and distributions from the Trust and any other reductions
thereof.
Section 2: Establishment of Trust
(a) Contributions. The Company has previously made an initial
contribution under the Original Trust Agreement, which, together with
all future Contributions and any amounts drawn by the Trustee under any
Letter of Credit, shall constitute the principal of the Trust to be
held, administered and disposed of by the Trustee in accordance with
this Trust Agreement.
(b) Grantor Trust. The Trust is intended to be a grantor
trust of which the Company is the grantor, within the meaning of
Section 671 of the Code, and shall be construed accordingly. The Trust
is notdesigned or intended to qualify under Section 401(a) of the Code.
(c) Trust Assets. The Trust Assets shall be held separate
and apart from other funds of the Company and shall be used exclusively
for the uses and purposes herein set forth. The
Executives shall not have any preferred claim on, nor any
beneficial ownership interest in, any of the Trust Assets before
the Trust Assets are paid to the Executives pursuant to the
terms of this Trust Agreement, and all rights created under the
Agreements and this Trust Agreement shall be mere unsecured
contractual rights of the Executives against the Company. The
Trust Assets shall at all times be subject to the claims of the
Company's general creditors under Federal and state law in ac-
cordance with Section 5.
(d) Amendment of Exhibit A. Exhibit A may be amended
by the Company from time to time before a Change of Control to
add or delete Agreements. After the occurrence of a Potential
Change of Control, however, no Agreement may be deleted from
Exhibit A unless the Executive who is a party to such consent
has given his or her written content thereto to the Trustee and
the Consulting Firm. Exhibit A may not be amended after a
Change of Control.
Section 3: Funding
(a) Contributions. The Company shall make additional
Contributions to the Trust in accordance with Sections 3(c) and
9 of this Trust Agreement, and such other Contributions as the
Board deems appropriate from time to time. The Trustee shall be
responsible only for Contributions actually received by it
hereunder, and the Trustee shall have no duty or responsibility
with respect to the timing, amounts and sufficiency of the
Contributions made or to be made by the Company hereunder,
except as otherwise provided in Section 3(c), Section 4 and
Section 9 of this Agreement. All Contributions shall be
classified as intended to provide funding either for the payment
of compensation, expenses and taxes pursuant to Section 9 of
this Trust Agreement ("Fee Contributions") or for payments to
Executives pursuant to Section 4 of this Trust Agreement
("Benefit Contributions"). The previously made initial
contribution, all additional Contributions pursuant to Section
9, and any other Contributions by the Company that the Board so
<PAGE>
designates, shall be considered Fee Contributions. All other
Contributions and all amounts drawn by the Trustee on any Letter
of Credit shall be considered Benefit Contributions.
(b) Letter of Credit. Prior to a Change of Control,
the Trustee shall draw upon any Letter of Credit only when and
to the extent so directed by the Company.
(c) Required Funding. As soon as practicable fol-
lowing each Adjustment Date, but in no event later than fifteen
business days thereafter, (i) the Consulting Firm shall de-
termine and notify the Company and the Trustee of the Required
Funding Amount as of that Adjustment Date, and (ii) the Trustee
shall determine and notify the Company and the Consulting Firm
of the amounts in the Benefit Contribution Account and the Fee
Contribution Account as of that Adjustment Date. If, as of the
Adjustment Date, the amount in the Fee Contribution Account is
less than One Hundred Thousand Dollars ($100,000), then within
ten business days after receiving notice thereof, the Company
shall make additional Fee Contributions so as to cause the
amount in the Fee Contribution Account to equal or exceed One
Hundred Thousand Dollars ($100,000). If, as of any Adjustment
Date on which a Potential Change of Control occurs, the amount
then held in the Benefit Contribution Account is not equal to at
least eighty percent (80%) of the Required Funding Amount
("Minimum Required Funding"), then within thirty days after
receiving such notice the Company shall make additional Benefit
Contributions and/or the Trustee shall draw down such amount
under any Letter of Credit, or a combination thereof, so as to
provide funding of the Benefit Contribution Account that will
equal or exceed the Minimum Required Funding. Within thirty
days after receiving such notice with respect to any other Ad-
justment Date, the Trustee may draw from any Letter of Credit
such additional amount (if any) as may be necessary to provide
the Benefit Contribution Account with the Minimum Required
Funding as of that Adjustment Date (or such higher level of
funding up to 100% of the Required Funding Amount as of the
Adjustment Date as the Trustee in its discretion shall then deem
appropriate).
(d) Distributions. Notwithstanding any other provision of
this Trust Agreement to the contrary, at any time and
from time to time before a Change of Control, the Company may
direct the Trustee to distribute to the Company, and upon such
direction the Trustee shall distribute to the Company, any por-
tion of the Trust Assets (in cash or in kind, as directed by the
Company), so long as Trust Assets having a value of at least
$1,000 remain in the Trust. After a Change of Control, if, as
of any Adjustment Date, the amount, if any, in the Benefit
Contribution Account exceeds 150 percent of the Required Funding
Amount, the Company may elect, by so notifying the Trustee
within 45 days after the Adjustment Date, to eliminate such
excess by requiring the Trustee to distribute Trust Assets to
the Company; provided, however, that any such distribution shall
be made exclusively from the Benefit Contribution Account.
(e) Duty to Inform of Trigger Event; Notification of
Trigger Event by Executives. The Company shall have the duty to
<PAGE>
inform the Trustee and the Consulting Firm whenever a Change of
Control or Potential Change of Control (as the case may be)
occurs. If within any period of sixty consecutive days any two
Executives give the Trustee written notice that a Change of
Control or Potential Change of Control (as the case may be) has
occurred, setting forth the factual basis for that assertion,
and the Trustee determines that there is a reasonable basis on
which to conclude that a Change of Control or Potential Change
of Control (as the case may be) has occurred, the Trustee shall
so notify the Company and the Consulting Firm and, unless within
five business days thereafter the Company delivers to the
Trustee and the Consulting Firm an opinion of outside legal counsel
to the Company (which opinion may be based upon representations of
fact, as long as such counsel does not know that such representations
are untrue) that a Change of Control or Potential Change of Control
(as the case may be) has not occurred, then a Change of Control or
Potential Change of Control (as the case may be) will be deemed to have
occurred. The Trustee shall give prompt notice of the occurrence of a
Change of Control or Potential Change of Control (as the case may be)
to all Executives.
Section 4: Payments to Executives
The Trustee shall make all Required Payments that
become due under the Agreements directly to the Executives;
provided, that the Trustee shall withhold from such Required
Payments any Federal, state, local and foreign taxes that are
required by applicable laws and regulations to be withheld and
shall deliver and pay over any such withheld amounts to the
appropriate taxing authorities, all in accordance with the Com-
pany's instructions. In determining that a Required Payment has
become due, the Trustee shall be entitled to rely upon the
certification of an Executive that all conditions to the Execu-
tive's right to receive the Required Payment have been met. Upon
receiving such a certification, the Trustee shall request that
the Consulting Firm determine, and the Consulting Firm shall
determine, the amount of Required Payment, and the Trustee shall
be entitled to rely on such determination. Such determination
by the Consulting Firm shall be itemized as to the dollar values
of the various principal forms of compensation due under the
applicable Agreement, including the amount to be paid as a "Tax
Reimbursement Payment" (related to any excise taxes that may be
imposed on the Executive), which amount may separately be paid
at a later date in accordance with the terms of the Agreement.
All payments by the Trustee pursuant to this Section 4 shall be
made from the Benefit Contribution Account to the extent of the
positive balance thereof, and thereafter from amounts drawn upon
the Letter of Credit. If the funds available in the Benefit
Contribution Account and under any Letter of Credit are
insufficient to make such payment, the Trustee shall promptly so
notify the Company, the Consulting Firm and the Executive, and
the Company shall make such payment to the extent of such
insufficiency. The Trustee shall have no duty or responsibility
with respect to the Company's obligation to make benefit payments
under the Agreements. In no event shall a payment by the Trustee
pursuant to this Section 4 be made from the Fee Contribution Account.
<PAGE>
Section 5: Trust Assets Subject to Claims of Creditors
(a) Definition of Insolvency. The Company shall be
considered "Insolvent" if (i) it is unable to pay its debts as
they mature, or (ii) it is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
(b) Trust Assets Subject to Claims of Creditors. At
all times while the Trust is in existence, the Trust Assets
shall be subject to the claims of general creditors of the
Company under Federal and state law as set forth below. Not-
withstanding the provisions of Section 4, whenever the Trustee
has actual knowledge in its capacity as Trustee that the Company
is Insolvent, or has received a Notice of Insolvency, the
Trustee shall suspend making payments to the Executives and
shall hold the Trust Assets for the benefit of the Company's
general creditors, and shall promptly notify the Executives that
it is doing so. During any period when payments to the
Executives are suspended under this Section 5, the Trustee may
nonetheless pay compensation, expenses, fees and taxes in ac-
cordance with Section 9, unless it receives a court order to
the contrary. If the Company subsequently ceases to be In-
solvent without the entry of a court order concerning the dis-
position of the Trust Assets, the Company shall give notice to
the Trustee, the Consulting Firm and the Executives (i) stating
that the Company is no longer Insolvent and (ii) setting forth
the extent to which the Company has made directly to the Ex-
ecutives any Required Payments that became due during the period
that the Trustee had suspended payments. The Trustee shall
thereupon resume payments pursuant to Section 4, including
payments that became due and were not paid during the period of
suspension.
(c) Notice of Insolvency. A "Notice of Insolvency"
means a written notice from the Board of Directors or the Chief
Executive Officer of the Company that the Company is Insolvent,
or a written notice from a person claiming to be a creditor of
the Company (which person the Trustee considers to be reliable
and responsible) alleging that the Company is Insolvent. The
Board of Directors and the Chief Executive Officer of the Com-
pany shall have the duty to give the Trustee a Notice of Insol-
vency immediately upon the Company's becoming Insolvent. The
Trustee shall be entitled to rely upon a Notice of Insolvency
from the Board of Directors or the Chief Executive Officer of
the Company and shall have no duty at any time to inquire
whether the Company is Insolvent, except in response to a Notice
of Insolvency from a person claiming to be a creditor of
the Company. The Trustee may in all events rely upon such evi-
dence concerning the Company's solvency as may be furnished to
it by the Company that provides a reasonable basis for making a
determination of whether the Company is Insolvent.
Section 6: Accounting by the Trustee and the Consulting Firm;
Provision of Information By the Company
(a) Recordkeeping. The Trustee shall keep accurate
and detailed records of all investments, receipts, disburse-
ments, and all other transactions required to be done, including
<PAGE>
such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within sixty days following the
close of each calendar year and within sixty days after the
removal or resignation of the Trustee, the Trustee shall deliver
to the Company and the Consulting Firm a written statement of
its administration of the Trust during such year or during the
period from the close of the last preceding year to the date of
such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it,
including a description of all securities and investments
purchased and sold with the cost or net proceeds of such
purchases or sales (accrued interest paid or receivable being
shown separately), showing all cash, securities and other
property held in the Trust at the end of such year or as of the
date of such removal or resignation, as the case may be, and the
book and fair market value of any such asset.
(b) Accounts. The Benefit Contributions, together
with the earnings thereon, and the Fee Contributions, together
with the earnings thereon, shall be reflected by the Trustee in
two separate accounts called the "Benefit Contribution Account"
and the "Fee Contribution Account," respectively. Whenever it
is necessary under this Trust Agreement to determine the amount
in either the Benefit Contribution Account or the Fee Contribu-
tion Account, the Trustee shall determine the value of the as-
sets in that account in its discretion, and may consult with
such experts as it deems necessary to determine such value.
(c) Provision of Information. The Company shall
furnish the Trustee and the Consulting Firm with copies of the
Agreements and any and all amendments thereto. Exhibit C sets
forth the names and addresses of each Executive currently cov-
ered by an Agreement together with his or her current annual
rate of salary, most recent Annual Bonus, and the target value
of his or her Performance Units award the Company's 1994 Long-
Term Incentive Plan. The Company shall amend Exhibit C as of
April 1 of each year and in any event as and when necessary to
ensure that it is complete and accurate at all times. The Com-
pany shall promptly provide the Trustee and the Consulting Firm
with any and all other information that they reasonably request
or that the Company believes would be useful to them in carrying
out their duties hereunder, and shall promptly update such
information as and when it changes.
(d) Inspection of Records. This Trust Agreement and
the Exhibits hereto, as amended from time to time, and all ac-
counts, books and records maintained pursuant to this Section 6
shall be open to inspection and audit at all reasonable times by
the Company and the Executives.
Section 7: Investment Authority
(a) Trustee Discretion. Except as otherwise spe-
cifically provided in this Trust Agreement, the Trustee shall
have full discretion in and sole responsibility for investment,
management and control of the Trust Assets. Notwithstanding the
foregoing, the Trust Assets shall be invested solely in one or
more money market mutual funds consisting primarily of U.S.
<PAGE
government securities with a rating of "AAA" from Standard &
Poor's (including, without limitation, such money market mutual
funds with respect to which the Trustee or one or more of its
affiliates provide services, including investment management
services). All rights associated with Trust Assets shall be
exercised by the Trustee or the person designated by the
Trustee, and shall in no event be exercisable by the Executives.
(b) Powers of Trustee. Except as otherwise specifi-
cally provided in this Trust Agreement, the Trustee is autho-
rized and empowered:
(i) To purchase, hold, sell, invest and reinvest the
Trust Assets, together with income therefrom;
(ii) To hold, manage and control all property at any
time forming part of the Trust Assets;
(iii) To sell, convey, transfer, exchange and other-
wise dispose of the Trust Assets from time to time in such
manner, for such consideration and upon such terms and
conditions as it shall determine;
(iv) To make payments from the Trust as provided
hereunder;
(v) To cause any property of the Trust to be issued,
held or registered in the individual name of the Trustee,
or in the name of its nominee, or in such form that title
will pass by deliver; provided, that the records of the
Trustee shall indicate the true ownership of such property;
and
(vi) To do all other acts necessary or desirable for
the proper administration of the Trust Assets as though the
absolute owner thereof, and to exercise all the further
rights, powers, options and privileges granted, provided
for or vested in trustees generally under applicable
federal or New York law, as amended from time to time, it
being intended that, except as herein otherwise provided,
the powers conferred upon the Trustee herein shall not be
construed as being in limitation of any authority conferred
by law, but shall be construed as in addition thereto.
Notwithstanding the foregoing, the Trustee shall not have any
power that could give this Trust the objective of carrying on a
business and dividing the gains therefrom, within the meaning of
Section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Code.
Section 8: Responsibility and Authority of Trustee and
Consulting Firm
(a) Prudence, etc. The Trustee shall carry out its
duties hereunder solely in the best interests of the Executives
and their beneficiaries, and shall use the care, skill, prudence
and diligence under the circumstances then prevailing that a
prudent person acting in a like capacity and familiar with such
<PAGE>
matters would use in the conduct of an enterprise of like
character and with like aims. The Trustee shall not be liable
for any act or failure to act under this Agreement, if any such
action were taken or omitted, as the case may be, in good faith
or in accordance with the express provisions of this Agreement
The Trustee's duties and obligations shall be limited to those
expressly imposed upon it by this Agreement, notwithstanding any
reference to the Agreements. In no event, however, shall the
Trustee be liable for special, consequential or punitive
damages.
(b) Consulting Firm Not Fiduciary. It is not in-
tended that the Consulting Firm be a fiduciary with respect to
the Trust, and the Consulting Firm shall have no liability to
the Company or any Executive as a result of the exercise of its
discretion in determining the Required Funding Amount under this
Trust Agreement, except to the extent such exercise involves
negligence or misconduct on the part of the Consulting Firm.
(c) Counsel. The Trustee and the Consulting Firm may
consult with legal counsel (who may also be counsel for the
Company) with respect to any of its duties or obligations hereunder,
and shall be fully protected in acting or refraining
from acting in accordance with the advice of such counsel, and
the Company shall be responsible for the payment of any such
expenses and compensation.
(d) Consultants. The Trustee and the Consulting Firm
may employ suitable agents, including attorneys, accountants,
financial consultants, and other experts, and the Company shall
be responsible for the payment of their expenses and
compensation.
Section 9: Compensation, Expenses, Fees and Taxes
The Trustee and the Consulting Firm shall each be entitled
to receive such reasonable compensation for their services as shall be
agreed upon by the Company and the Trustee or the Consulting Firm, as
the case may be. The Trustee and the Consulting Firm shall also
beentitled to receive their reasonable expenses incurred with respect
to the administration of the Trust, including without limitation fees
incurred pursuant to Sections 8(c) and (d) of this Trust Agreement and
any expenses incurred in the course of appointing a successor Trustee
pursuant to Section 10(b) or a successor Consulting Firm pursuant to
Section 11(b). Such compensation and expenses shall be
paid by the Company and if not so paid, shall be paid by the
Trustee from the Trust Assets. To the extent that any taxes are
payable by the Trust to any Federal, state, local or foreign
taxing authorities on account of earnings on or transactions
involving Trust Assets, such taxes shall be paid by the
Company and if not so paid, shall be paid by the Trustee from
the Trust Assets. In the event any Trust Assets are used pur-
suant to the preceding sentences to pay compensation, expenses,
or taxes, such payments shall be made from the Fee Contribution
Account to the extent of the positive balance therein, and then
from the Benefit Contribution Account to the extent of the pos-
itive balance therein; and (ii) Trustee shall notify the Company
and the Consulting Firm of such payments, and the Company shall
<PAGE>
promptly contribute to the Trust the amount of such payments,
plus interest thereon at a rate equal to the short-term
applicable Federal rate, as defined in Section 1274(d) of the
Code, or any successor thereto, from the date of such use
through the date of the Contribution.
Section 10: Resignation and Replacement of Trustee
(a) Resignation or Removal. The Trustee may resign
at any time during the term of this Trust by delivering to the
Company a written notice of its resignation, and the Company may
remove the Trustee at any time by delivering to the Trustee a
written notice of such removal; provided, that any such res-
ignation or removal shall not take effect unless and until a
successor Trustee has been appointed in accordance with Section
10(b). After a Change of Control, the Trustee shall resign
pursuant to the preceding sentence if, during any period of
three months, two-thirds or more of the Executives give notice
to the Trustee demanding such resignation. If, within 180 days
of the delivery of notice of such resignation or removal, a
successor Trustee shall not have been appointed, the Trustee may
apply to any court of competent jurisdiction for the appointment
of a successor Trustee.
(b) Successor Trustee. In the event that the Trustee
gives notice of its resignation, or the Company gives notice of
its removal of the Trustee, in accordance with Section 10(a), a
bank or trust company shall be appointed successor Trustee.
Before a Change of Control, such appointment shall be made by
the Company, and after a Change of Control, it shall be made by
the Consulting Firm. The Company shall promptly notify the
Consulting Firm of the name and address of a successor Trustee
appointed by it, and the Consulting Firm shall promptly notif
the Executives of the name and address of every successor
Trustee. The appointment of a successor Trustee shall become
final upon the giving of such notices, unless a Change of
Control has previously occurred, in which event the appointment
of a successor Trustee shall become final thirty days after the
Executives are so notified unless more than one-third of the
Executives have given the Consulting Firm written notice of
their objection to the appointment. When the appointment of a
successor Trustee becomes final, the Trustee shall thereupon
deliver to the successor Trustee all property of this Trust,
together with such records and documents as may
be reasonably required to enable the successor Trustee to properly
administer the Trust, reserving such funds as it reasonably
deems necessary to cover its unpaid bills and expenses.
(c) Succession. Upon appointment of a successor
Trustee, all right, title and interest of the resigning or re-
moved Trustee in the Trust Assets and all rights and privileges
under this Trust Agreement theretofore vested in the resigning
or removed Trustee shall vest in the successor Trustee where
applicable, and the resigning or removed Trustee shall have no
further obligations under this Trust Agreement; provided, how-
ever, that the resigning or removed Trustee shall execute, ac-
knowledge and deliver all documents and written instruments that
are necessary to transfer and convey the right, title and
<PAGE>
interest in the Trust Assets, and all rights and privileges to
the successor Trustee.
(d) Accounting. Nothing in this Trust Agreement
shall be interpreted as depriving the Trustee or the Company of
the right to have a judicial settlement of the Trustee's ac-
counts, and upon any proceeding for a judicial settlement of the
Trustee's accounts or for instructions the only necessary
parties thereto will be the Trustee and the Company.
Section 11: Resignation and Replacement of Consulting Firm
(a) Resignation or Removal. The Consulting Firm may
resign at any time during the term of this Trust by delivering
to the Company a written notice of its resignation, and the
Company may remove the Consulting Firm at any time by delivering
to the Consulting Firm a written notice of such removal. After a
Change of Control, the Trustee shall remove the Consulting Firm
if, during any period of three months, two-thirds or more of the
Executives give notice to the Trustee requesting such removal.
No such resignation or removal shall take effect unless and
until a successor Consulting Firm has been appointed in
accordance with Section 11(b).
(b) Successor Consulting Firm. In the event that the
Consulting Firm gives notice of its resignation, or the Company
or the Trustee gives notice of its removal of the Consulting
Firm, in accordance with Section 11(a), a firm of compensation
or retirement plan consultants or certified public accountants
shall be appointed the successor Consulting Firm. Before a
Change of Control, such appointment shall be made by the
Company, and after a Change of Control, it shall be made by the
Trustee. The Company shall promptly notify the Trustee of the
name and address of a successor Consulting Firm appointed by it,
and the Trustee shall promptly notify the Executives of the name
and address of every successor Consulting Firm. The appointment
of a successor Consulting Firm shall become final upon the
giving of such notices, unless a Change of Control has
previously occurred, in which event the appointment of a successor
Consulting Firm shall become final thirty days after the
Executives are so notified unless more than one-third of the
Executives have given the Trustee written notice of their ob-
jection to the appointment. When the appointment of a successor
Consulting Firm becomes final, the Consulting Firm shall
thereupon deliver to the successor Consulting Firm all records
and documents in its possession as may be reasonably required to
enable the successor Consulting Firm properly to carry out its
duties under this Trust Agreement.
Section 12: Amendment or Termination
(a) Amendment. This Trust Agreement may be amended
at any time and from time to time before a Change of Control by
a written instrument executed by the Trustee, the Company and
the Consulting Firm. This Trust Agreement may not be amended
after a Change of Control.
(b) Irrevocable. Except as provided in Section 3(d),
the Trust shall be irrevocable and may be terminated only upon
the receipt by the Trustee of a certification from the
<PAGE>
Consulting Firm that (i) all liabilities to the Executives under
the Agreements have been satisfied or (ii) it has received the
signed consent to the termination of the Trust of each Executive
who remains entitled to payments pursuant to the Agreements;
provided, that if the Company or the Consulting Firm notifies
the Trustee that any payment made from the Trust or to be made
pursuant to the Agreements is being contested, litigated or
otherwise disputed, the Trust shall remain in effect until such
contest, litigation or dispute is resolved. Upon
such a termination of the Trust, the Trustee shall promptly
transfer the Trust Assets (if any) to the Company.
Section 13: Protection of the Trustee and the Consulting Firm.
(a) The Company agrees, to the extent permitted by
applicable law, to indemnify each of the Trustee and the Con-
sulting Firm against and hold it harmless from any claim or
liability that may be asserted against it by the Company or any
other party, except on account of the Trustee's or the Con-
sulting Firm's (as the case may be) own gross negligence or
willful breach of its obligations under this Trust Agreement.
Without limiting the generality of the foregoing, it shall not
be considered a breach for the Trustee or the Consulting Firm,
as the case may be, in good faith: (a) to rely upon a certi-
fication of an authorized representative of the Company, or (in
the case of the Trustee) the Consulting Firm, with respect to
any instruction, direction or approval of the Company until a
subsequent certification is filed with it; (b) to act upon any
instrument, certificate, or paper believed by it to be genuine
and to be signed or presented by the proper person or persons
(and except as set forth in Sections 3(e) and 5(c), neither the
Trustee nor the Consulting Firm shall be under any duty to make
any investigation or inquiry as to any statement contained in
any such writing but may accept the same as conclusive evidence
of the truth and accuracy of the statements therein contained);
or (c) in the case of the Trustee, to make distributions in
accordance with the terms of this Trust Agreement and infor-
mation or directions furnished to the Trustee by the Executives,
the Consulting Firm or the Company. In addition, the Company
agrees to indemnify the Trustee for, and hold it harmless
against, and defend it against any and all liabilities, losses,
costs or expenses (including reasonable attorneys' fees) of
whatsoever kind and nature which may be imposed on, incurred by
or asserted against it at any time by reason of (i) accepting
any property contributed to the Trust in the Company's
discretion or retaining such property as a Trust Asset at the
Company's direction, or (ii) carrying out in good faith the
responsibilities delegated to it under this Agreement, or by
reason of any act or failure to act under this Agreement, if any
such action was taken or omitted, as the case may be, in good
faith or in accordance with the express provisions of this Trust
Agreement; provided, that with respect to subclause (ii), the
Trustee shall not be indemnified against any liability or
expense for any action or inaction taken or omitted by the
Trustee which, under the circumstances, the Trustee knows or has
reason to know constitutes a violation of the law or a breach of
its fiduciary duties. The Trustee shall not be required to give
any bond or any other security for the faithful performance of
its duties under this Trust Agreement, except as required by
<PAGE>
law.
(b) Litigation. Neither the Trustee nor the Consulting
Firm shall be required to undertake or to defend any
litigation arising in connection with this Trust Agreement,
unless it be first indemnified by the Company against its pro-
spective costs, expenses and liability including counsel fees,
and the Company hereby agrees to indemnify the Trustee and the
Consulting Firm for such costs, expenses, and liability includ-
ing counsel fees. The Company agrees to indemnify the Trustee
and the Consulting Firm for any and all costs and expenses (in-
cluding counsel fees) and shall hold the Trustee and the Con-
sulting Firm harmless from any liability which may arise in
connection with any disputes or litigation in connection with
the Trust.
Section 14: Notices
All notices, consents and other communications here-
under shall be in writing and shall be given by hand delivery or
by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Company:
Avon Products, Inc.
Nine West 57th Street
New York, NY 10019-2683
Attention: General Counsel
<PAGE>
If to the Consulting Firm:
Buck Consultants, Inc. Two
Pennsylvania Plaza
Attention: John J. Ponzini
If to the Trustee:
Chemical Bank
4 New York Plaza
4th Floor
New York, New York 10004
Attention: Richard Hauptman
If to the Executives:
To the addresses set forth in Exhibit C
or to such other address as a party shall have furnished to the
others in writing in accordance herewith. Notice and communi-
cations shall be effective when actually received by the addressee.
Section 15: Severability and Alienation
(a) Severability. Any provision of this Trust
Agreement prohibited by law shall be ineffective to the extent
of any such prohibition without invalidating or in any other way
limiting the remaining provisions hereof.
(b) No Alienation. The rights and benefits of the
Executives under this Trust Agreement, and the payments to the
Executives from the Trust Assets, may not be anticipated, as-
signed, alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required
by law. Any attempt by a Executive to anticipate, alienate,
assign, sell, transfer, pledge, encumber or charge the same
shall be void. The Trust Assets shall not in any manner be
subject to the debts, contracts, liabilities, engagements or
torts of any Executive, and payments hereunder shall not be
considered assets of any Executive in the event of insolvency or
bankruptcy.
Section 16: Governing Law
This Trust Agreement shall be governed by and con-
strued in accordance with the laws of the state of New York,
without reference to principles of conflicts of law.
<PAGE>
Section 17: Miscellaneous
(a) Taxes. The Trustee shall be neither individually
nor severally liable for any taxes of any kind levied or
assessed under the existing or future laws against the Trust
Assets. The Trustee shall withhold from each payment to
a Executive any Federal, state, local and foreign taxes that are
required by applicable laws and regulations to be withheld, in
accordance with the Consulting Firm's instructions, and shall
deliver and pay over such amounts to the Company for its payment
to the appropriate taxing authorities. Any tax information
applicable to an Executive shall be supplied to the Consulting
Firm by the Company and the Consulting Firm shall have no
responsibility for the accuracy of that information.
(b) Satisfaction Under Agreements. Any payment to a
Executive by the Trustee in accordance with Section 4 of this
Trust Agreement shall, to the extent thereof, be in full satis-
faction of all claims against the Trustee and the Company under
the Agreements. Nothing in this Trust shall relieve the Company
of its liability to make payments under the Agreements, except
to the extent such liability is met by payments pursuant to
Section 4 of this Trust Agreement.
(c) Headings. Headings in this Trust Agreement are
inserted for convenience of reference only and are not to be
considered in the construction of the provisions hereof.
(d) Counterparts. This Trust Agreement may be ex-
ecuted in several counterparts, each of which shall be deemed an
original, and said counterparts shall constitute but one and the
same instrument.
(e) Successors. This Trust Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and
their successors and assigns.
(f) Actions in Writing. Any action of the Company or
the Consulting Firm pursuant to this Trust Agreement, including
without limitation all orders, requests, directions,
instructions and communications of information, shall be in
writing signed on its behalf by an officer or named designee of
the Company or the Consulting Firm (as the case may be).
(g) Death or Disability of Executive. If at any time
while this Trust is in existence, an Executive should die,
references herein to that Executive shall be deemed to include
the Executive's designated beneficiaries under the relevant
Agreement or, if there are no such beneficiaries, the executor
or administrator of the Executive's estate. If at any time
while this Trust is in existence, a legal guardian should be
appointed for an Executive, references herein to that Executive
shall be deemed to include such legal guardian.
IN WITNESS WHEREOF, the Company, the Trustee and the
Consulting Firm have executed this Trust Agreement as of the
date first above written.
<PAGE>
AVON PRODUCTS, INC.
By:/S/ James E. Preston
Name: James E. Preston
Title: Chairman & Chief Executive Office
CHEMICAL BANK
By:/s/ Richard Hauptman
Name: Richard Hauptman
Title: Vice President
BUCK CONSULTANTS, INC.
By:/s/ John J. Ponzihi
Name: John J. Ponzihi
Title: Consulting Actuary
<PAGE>
Exhibit A
Agreements Covered by the Avon Products, Inc.,
Benefit Protection Trust (Nine Agreements)
Employment Agreements between Avon Products, Inc.,
and the following officers, such agreements dated as of the
dates indicated:
1. James E. Preston, Chairman and Chief Executive
Officer (dated November 5, 1992)*
2. Edward J. Robinson, President and Chief Oper-
ating Officer (dated September 1, 1994)
3. Gail Blanke-Cusick, Senior Vice President (dated
September 1, 1994)
4. Christina A. Gold, Senior Vice President (dated
September 1, 1994)
5. Susan J. Kropf, Senior Vice President (dated
September 1, 1994)
6. Ward M. Miller, Jr., Senior Vice President and
General Counsel (dated November 3, 1994)
7. Edwina G. Woodbury, Senior Vice President and
Chief Financial Officer (dated September 1, 1994)
8. Marcia L. Worthing, Senior Vice President (dated
September 1, 1994)
Updated as of April 1, 1995
_____________________
* Mr. Preston's agreement by its terms expires October 31,
1995. Prior to that date it will be amended or superceded
by a new agreement.
<PAGE>
Exhibit B
The Required Funding Amount shall be determined as of
a given Adjustment Date assuming all cash payments would become
due under an Agreement upon or after Change of Control and
further assuming the Executive's termination of employment oc-
curred as of the Adjustment Date, or if termination occurred
prior to such date, the actual date of termination. The present
value shall be determined, where appropriate, based on the
assumptions specified in the Agreement. If the appropriate
assumptions are not specified in the Agreement, the assumed
interest rate shall equal the interest rate payable on one-year
Treasury Bills in effect on the day that is 30 business days
(where a business day is any day other than Saturday, Sunday or
a legal holiday in the City of New York) prior to the Adjustment
Date, and where mortality assumptions are required, the average
of the applicable factors under the 1984 Buck Mortality Table
shall be used. It shall be further assumed that the amount of
any tax reimbursement payment to the Executive under the
Agreement shall be based on the assumption that the maximum
amount of applicable taxes are payable to the Executive. Any
benefit costs, premiums or other payments to be made under the
Agreement will be based on information provided by the Company.
EXHIBIT 10.16
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, by and between AVON PRODUCTS, INC., a New York
corporation (the "Corporation"), and JAMES E. PRESTON (the
"Executive"), dated as of this 1st day of November, 1995.
W I T N E S S E T H:
WHEREAS, the Corporation and the Executive have previously
entered into an Employment Agreement dated as of November 5, 1992
("1992 Agreement"), the term of which expires as of October 31,
1995; and
WHEREAS, the Corporation and the Executive desire to enter
into a new Employment Agreement effective as of November 1, 1995
succeeding the 1992 Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, and other good and valuable consideration,
the Corporation and the Executive do hereby agree as follows:
1. Employment. The Corporation shall continue to employ the
Executive and the Executive agrees to continue to serve as an
executive of the Corporation, in such capacities and upon such
conditions as are hereinafter set forth.
2. Term. This Agreement is effective as of November 1, 1995
and shall expire as of May 7, 1998 ("Agreement Expiration Date").
The Executive's employment, however, may be terminated at an
earlier date subject to the obligations of the parties upon such
termination as are set forth hereinafter.
3. Position and Duties.
(a) Position. The Executive shall continue to serve as
Chairman of the Board and Chief Executive Officer of the
Corporation, provided that at any time subsequent to May 1, 1997,
if the Corporation's Board of Directors so elects, the Executive
shall serve as Chairman of the Board with another officer of the
Corporation concurrently serving as the Chief Executive Officer of
the Corporation.
(b) Business Time. The Executive agrees to devote his
full business time during normal business hours to the business and
affairs of the Corporation and to use his best efforts to perform
faithfully and efficiently the responsibilities assigned to him
hereunder, to the extent necessary to discharge such
responsibilities, except for
(i) time spent in managing his personal, financial and
legal affairs and serving on corporate, civic or charitable boards or
<PAGE >
committees, in each case only if and to the extent not substantially
interfering with the performance of such responsibilities, and
(ii) periods of vacation to which he is entitled.
The Executive's continuing to serve on any boards and
committees on which he is serving or with which he is otherwise
associated immediately preceding the date hereof, or his service on
any other boards and committees of which the Corporation has
knowledge and does not object, in writing, within thirty (30) days
after first becoming aware of such service, shall not be deemed to
interfere with the performance of the Executive's services to the
Corporation.
The Executive specifically is directed to continue to serve on
the boards of which he is currently a member as of the date of this
Agreement and to be absent from the Corporation's offices for such
periods as may be necessary for him to properly discharge his
responsibilities as a director.
4. Compensation. The Executive shall be entitled to the
following compensation for as long as the Executive remains an
employee of the Corporation;
(a) Base Salary. The Executive shall continue to
receive a base salary (the "Base Salary") payable in equal bi-
weekly installments at an annual rate of $610,000 through December
31, 1996. His Base Salary for the year 1997 will be at an annual
rate of $1,000,000 and for periods subsequent to 1997 at an annual
rate of $1,100,000. Such Base Salary shall not serve to reduce any
other obligation of the Corporation hereunder.
(b) Annual Bonus. For each fiscal year of the
Corporation during which he is employed by the Corporation the
Executive shall be eligible to receive an annual bonus ("Annual
Bonus") under the Corporation's Management Incentive Plan or
successor annual incentive award plan. Such Annual Bonus shall be
determined on the basis of an annual target bonus opportunity of
(a) 50% of the Base Salary paid the Executive with respect to the
years 1995 and 1996, and (b) at least 70% of the Base Salary paid
the Executive with respect to years subsequent to 1996. Each
Annual Bonus (or portion thereof) shall be paid in cash in February
of the year next following the year for which the Annual Bonus (or
prorated portion) is earned or awarded, unless electively deferred
by the Executive pursuant to any deferral programs or arrangements
that the Corporation may make available to the Executive.
(c) Incentive and Savings Plans; Retirement and Death
Benefit Programs. The Executive shall be entitled to participate
in all incentive and savings plans and programs, including stock
option plans and other equity-based compensation plans, and in all
employee retirement, executive retirement and executive death
benefit plans (including the SERP and SLIP) on a basis no less
favorable than that basis available to senior officers of the
Corporation The Executive is entitled to a death benefit under the
SLIP of $2,000,000 and has accumulated the maximum 35 years of
<PAGE>
creditable services under the SERP, as of the date of the
Agreement.
(d) Other Benefit Plans. The Executive and his spouse,
as the case may be, shall be entitled to participate in or be
covered under all medical, dental, disability, group life,
severance, accidental death and travel accident insurance plans and
programs of the Corporation and any Affiliated Companies at the
most favorable level of participation and providing the highest
levels of benefits available to them.
(e) Other Perquisites. The Executive shall also be
entitled to continue to receive all forms of perquisite
compensation that he has been provided immediately prior to the
date of this Agreement.
(f) Enhanced SERP Benefits. The provisions of this
subsection (f) shall apply notwithstanding anything to the contrary
in the SERP. Calculations of the Executive's SERP benefits shall
include credit for hypothetical Base Salary and bonus compensation
for the years 1992 through 1996, as set forth in Section 5(a) of
the 1992 Agreement.
5. Termination.
(a) Disability. The Corporation may terminate the
Executive's employment upon the Executive's Disability, by giving
to the Executive written notice of its intention to terminate his
employment, and his employment with the Corporation shall terminate
effective on the 90th day after receipt of such notice if the
Executive shall fail to return to full-time performance of his
duties within ninety (90) days after such receipt.
(b) Voluntary Termination by Executive. Notwithstanding
anything in this Agreement to the contrary, the Executive may, upon
not less than thirty (30) days' written notice to the Corporation,
voluntarily terminate employment for any reason (including
retirement under the terms of the Corporation's retirement plan as
in effect from time to time), provided that any termination by the
Executive pursuant to Section 5(d) on account of Constructive
Termination shall not be treated as a voluntary termination under
this Section 5(b). The Executive will voluntarily retire effective
as of the Agreement Expiration Date, at which time he will have
attained age 65, and such retirement will be deemed to constitute
voluntary termination for the purpose of the Agreement.
(c) Termination by the Corporation. The Corporation at
any time may terminate the Executive's employment for Cause or
without Cause.
(d) Constructive Termination. The Executive at any time
may terminate his employment for Constructive Termination.
(e) Notice of Termination. Any termination by the
Corporation for Cause or by the Executive for Constructive
Termination shall be communicated by Notice of Termination to the
other party hereto given in accordance with Section 14(c). For
<PAGE>
purposes of this Agreement, a "Notice of Termination" means a
written notice given, in the case of a termination for Cause,
within ten (10) business days of the Corporation's having actual
knowledge of the events giving rise to such termination, and in the
case of a termination for Constructive Termination, within 180 days
of the Executive's having actual knowledge of the events giving
rise to such termination, and which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under
the provision so indicated, and (iii) if the termination date is
other than the date of receipt of such notice, specifies the
termination date of this Agreement (which date shall be not more
than fifteen (15) days after the giving of such notice). The
failure by the Executive to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of
Constructive Termination shall not waive any right of the Executive
hereunder or preclude the Executive from asserting such fact or
circumstance in enforcing his rights hereunder.
(f) Date of Termination. For the purpose of this
Agreement, the term "Date of Termination" means (i) in the case of
a termination for which a Notice of Termination is required, the
date of receipt of such Notice of Termination or, if later, the
date specified therein, as the case may be and (ii) in all other
cases, the actual date on which the Executive's employment
terminates.
6. Obligations of the Corporation Upon Termination. Upon
termination of the Executive's employment with the Corporation, the
Corporation shall have the following obligations (including the
obligation to pay the cost of all benefits provided by the
applicable benefit plan to the Executive and the Executive's family
under this Section 6 except normal employee contributions required
by the applicable benefit plan of other participating executives
with comparable responsibilities), provided, however, that any item
paid or payable under this Agreement shall be reduced by any amount
paid or payable to the Executive and the Executive's family with
respect to the same type of payment under any severance program
maintained by the Corporation. For this purpose, any payment under
any severance program maintained by the Corporation made over time
shall be discounted to present value at the Interest Rate before
reducing any payment under this Agreement by any amount paid or
payable to the Executive under such a program.
(a) Death and Retirement. If the Executive's employment
is terminated by reason of the Executive's death, this Agreement
shall terminate without further obligations to the Executive's
legal representatives under this Agreement other than payment of
the Accrued Obligations. Unless otherwise directed by the
Executive (or, in the case of a Qualified Plan, as may be required
by such plan) all Accrued Obligations shall be paid to the
Executive, his beneficiaries or his estate, as applicable, in a
lump sum in cash within thirty (30) days of the Date of
Termination. In the event of the retirement of the Executive, he
and his family shall be entitled to benefits generally available
upon retirement to other senior officers of the Corporation. In
the event of the Executive's death, his family shall be entitled to
<PAGE>
receive benefits generally available to the surviving families of
other senior officers of the Corporation.
(b) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability, the Executive,
and the Executive's spouse shall be entitled to continue to
participate in or be covered under the benefit plans and programs
referred to in Section 4(d) or, at the Corporation's option, to receive
equivalent benefits by alternate means, at least equal to those
described in Section 4(d). Unless otherwise directed by the Executive
(or, in the case of any Qualified Plan, as may be required by such
plan), the Executive shall also be paid all Accrued Obligations in a
lump sum in cash within thirty (30) days of the Date of Termination. In
addition, the Executive and the Executive's spouse shall be entitled to
receive disability and other benefits generally available to other
senior officers of the Corporation.
(c) Termination by the Corporation for Cause and
Voluntary Termination by Executive. If the Executive's employment
shall be terminated for Cause or voluntarily terminated by the
Executive (other than on account of Constructive Termination), the
Corporation shall pay the Executive the Accrued Obligations. The
Executive shall be paid all such Accrued Obligations in a lump sum
in cash within thirty (30) days of the Date of Termination and the
Corporation shall have no further obligations to the Executive
under this Agreement, unless otherwise required by a Qualified Plan
or specified pursuant to a valid election to defer the receipt of
all or a portion of such payments made in accordance with any plan
of deferred compensation sponsored by the Corporation.
(d) Other Termination of Employment. If the Corporation
terminates the Executive's employment other than for Cause or
Disability, or the Executive terminates his employment for
Constructive Termination, the Corporation shall pay or provide the
Executive the following:
(A) Cash Payment. The Corporation shall pay to the
Executive in a lump sum in cash within fifteen (15) days after
the Date of Termination the aggregate of the following amounts
(other than amounts payable from Qualified Plans, non-
qualified retirement plans and deferred compensation plans,
which amounts shall be paid in accordance with the terms of
such plans):
(1) all Accrued Obligations;
(2) a cash amount equal to two (2) times the
sum of
(I) the Executive's annual Base Salary
at the greater of the rate in effect as of the date
when the Notice of Termination was given or the
rate payable, or prospectively payable, to the
Executive for the year 1997 (one million dollars)
as provided in Section 4(a); and
(II) the greater of (x) the Annual Bonus
earned by or awarded to the Executive for the last
<PAGE>
fiscal year of the Corporation ending prior to the
Date of Termination or (y) the annual target bonus
opportunity percentage applied to the rate of Base
Salary payable, or prospectively payable, to the
Executive for the year 1997 (70%) as provided in
Section 4(b).
In the event such Date of Termination occurs prior to May
1, 1997 and such date is within one hundred eighty (180)
days of a Change of Control Date, the cash amount
determined under Section 6(d)(A)(2) shall be three (3)
times the sum of (I) and (II) above.
(3) a cash amount equal to the difference
between (I) the sum of the maximum payments the Executive
would have received for all awards (or other similar
rights) outstanding at the Date of Termination and
granted to the Executive under any long-term incentive
compensation or performance plan of the Corporation if he
had continued in the employ of the Corporation through
the Agreement Expiration Date and the Corporation had met
its maximum performance goals under each such award and
the maximum amount payable under each such award was paid
and (II) any amounts actually paid under any such plan
with respect to such awards. The cash amount payable
pursuant to this paragraph shall include the maximum
payment value of all outstanding Performance Units
awarded the Executive under the Corporation's 1994 Long-
Term Incentive Plan reduced by any amounts actually paid
or payable under such plan with respect to such units;
(4) a cash amount equal to the present value,
calculated using the Interest Rate, of the difference
between
(I) the lump sum value of the retirement
benefits (including, without limitation, any
pension, retiree life, or retiree medical benefits)
that would have been payable or available to the
Executive under any Qualified Plan, under the SERP,
and under any other supplemental retirement, life
(other than the SLIP) or medical plan or
arrangement, whether or not qualified, maintained
by the Corporation or an Affiliated Company based
on the age and service the Executive would have
attained or completed had the Executive continued
in the Corporation's employ until the Agreement
Expiration Date, determined using, where
compensation is a relevant factor, his pensionable
compensation at the Date of Termination (or, if
greater, at the rate in effect on the date on which
occurred an event giving rise to a Constructive
Termination), with such lump sum value being
calculated using, where applicable, assumptions
contained in the respective plans; and
(II) the lump sum value of the retirement
benefits (including, without limitation, any
<PAGE>
pension, retiree life, or retiree medical benefits)
that are payable or available to the Executive
under any Qualified Plan, under the SERP, and under
any other supplemental retirement, life (other than
the SLIP) or medical plan or arrangement, whether
or not qualified, maintained by the Corporation or
an Affiliated Company based on the age and service
the Executive has attained or completed as of the
Executive's Date of Termination determined using,
where compensation is a relevant factor, his
pensionable compensation at the Date of Termination
(or, if greater, at the rate in effect on the date
on which occurred an event giving rise to a
Constructive Termination), with such lump sum value
being calculated using, where applicable,
assumptions contained in the respective plans.
The retirement benefits which would have become
payable under such plans include, without limitation, the
additional benefits attributable to such additional
service which would have been rendered during such period
and the benefits which would have vested under such plans
as a result of such service, but which were otherwise
forfeited. Notwithstanding the foregoing, in lieu of any
cash payment in respect of retiree life or retiree
medical coverage for which the Executive would have
qualified by remaining in the Corporation's employ until
the Agreement Expiration Date, the Corporation may
arrange at its option or shall arrange at the election of
the Executive for such coverage to continue for the
Executive (or may secure equivalent conversion coverage)
and shall pay the cost of such coverage. Any election by
the Executive pursuant to the immediately preceding
sentence shall be made in writing and delivered to the
Corporation prior to the Date of Termination.
(B) SLIP Coverage. The Executive shall continue to
be covered under the SLIP and his beneficiaries shall continue
to be eligible to receive such supplemental life allowance as
if he had continued in the employ of the Corporation until the
Agreement Expiration Date reduced by the face amount of any
fully paid whole life insurance policy the Executive receives
pursuant to the SLIP.
(C) Other Benefit Continuation. The Corporation
shall provide for the continued participation of the Execu-
tive, and his spouse, as the case may be, until the Agreement
Expiration Date, in the plans described in Section 4(d) on the
same terms as described in Section 4(d). In lieu of continued
participation in medical and life insurance programs referred
to the foregoing, the Executive may elect by written notice
delivered to the Corporation prior to the Date of Termination,
to receive an amount equal to the annual cost to the
Corporation (based on premium rates) of providing such
coverage.
(e) Discharge of Corporation's Obligations. Subject to
the performance of its obligations under Sections 6, 7, 8 and 11,
<PAGE>
the Corporation shall have no further obligations to the Executive
under this Agreement in respect of any termination by the Executive
for Constructive Termination or by the Corporation other than for
Cause or Disability.
7. Vesting or Cash-Out of Stock Options and Restricted
Stock. If the Corporation involuntarily terminates the Executive's
employment for reasons other than for cause, or the Executive
terminates his employment due to Disability or Constructive
Termination, all of his outstanding restricted stock will immediately
become vested and distributed and all of his outstanding stock options
shall become fully vested and exercisable, subject to the terms of
applicable Stock Option Agreements executed by the Corporation and the
Executive. Such stock options shall also become fully vested in the
event of death, disability or early retirement with the consent of the
Board of Directors.
In the event of a Change of Control the Executive shall be
entitled a cash out of outstanding restricted stock, stock options
and any other equity based awards in accordance with the terms of
the Corporation's plans under which such awards were granted and
subject to the terms of applicable Stock Option Agreements executed
by the Corporation and the Executive.
8. Certain Further Payments by the Corporation.
(a) Tax Reimbursement Payment. In the event that any
amount or benefit paid or distributed to the Executive by the
Corporation or any Affiliated Company, whether pursuant to this
Agreement or otherwise (collectively, the "Covered Payments"), is
or becomes subject to the tax (the "Excise Tax") imposed under
Section 4999 of the Code or any similar tax that may hereafter be
imposed, the Corporation shall either pay to the Executive or
contribute for the benefit of the Executive to a "rabbi" trust
established by the Corporation prior to the Change of Control Date,
at the time specified in Section 8(e) below, the Tax Reimbursement
Payment (as defined below). The Tax Reimbursement Payment is
defined as an amount, which when added to the Covered Payments and
reduced by any Excise Tax on the Covered Payments and any federal,
state and local income tax and Excise Tax on the Tax Reimbursement
Payment provided for by this Agreement (but without reduction for
any federal, state or local income or employment tax on such
Covered Payments), shall be equal to the sum of (i) the amount of
the Covered Payments, and (ii) an amount equal to the product of
any deductions disallowed for federal, state or local income tax
purposes because of the inclusion of the Tax Reimbursement Payment
in the Executive's adjusted gross income and the highest applicable
marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement
Payment is to be made.
(b) Determining Excise Tax. For purposes of determining
whether any of the Covered Payments will be subject to the Excise
Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as
"parachute payments" within the meaning of Section 280G of the
Code, and all "parachute payments" in excess of the "base
amount" (as defined under Section 280G(b)(3) of the Code)
<PAGE>
shall be treated as subject to the Excise Tax, unless, and
except to the extent that, in the opinion of the Corporation's
independent certified public accountants, which, in the case
of Covered Payments made after the Change of Control Date,
shall be the Corporation's independent certified public
accountants appointed prior to the Change of Control Date, or
tax counsel selected by such accountants (the "Accountants"),
such Covered Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable
compensation for services actually rendered (within the
meaning of Section 280G(b)(4) of the Code) in excess of the
"base amount", or such "parachute payments" are otherwise not
subject to such Excise Tax, and
(ii) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Accountants in accordance with the principles of Section 280G
of the Code.
(c) Applicable Tax Rates and Deductions. For purposes
of determining the amount of the Tax Reimbursement Payment, the
Executive shall be deemed:
(i) to pay federal income taxes at the highest
applicable marginal rate of federal income taxation for the
calendar year in which the Tax Reimbursement Payment is to be
made,
(ii) to pay any applicable state and local income
taxes at the highest applicable marginal rate of taxation for
the calendar year in which the Tax Reimbursement Payment is to
be made, net of the maximum reduction in federal income taxes
which could be obtained from the deduction of such state or
local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of the
Executive's adjusted gross income), and
(iii) to have otherwise allowable deductions for
federal, state and local income tax purposes at least equal to
those disallowed because of the inclusion of the Tax
Reimbursement Payment in the Executive's adjusted gross
income.
(d) Subsequent Events. In the event that the Excise Tax
is subsequently determined by the Accountants to be less than the
amount taken into account hereunder in calculating the Tax
Reimbursement Payment made, the Executive shall repay to the
Corporation, at the time that the amount of such reduction in the
Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that has been paid to the Executive or to
federal, state or local tax authorities on the Executive's behalf
and that would not have been paid if such Excise Tax had been
applied in initially calculating such Tax Reimbursement Payment,
plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code. Notwithstanding the
foregoing, in the event any portion of the Tax Reimbursement
Payment to be refunded to the Corporation has been paid to any
federal, state or local tax authority, repayment thereof shall not
be required until actual refund or credit of such portion has been
<PAGE>
made to the Executive, and interest payable to the Corporation
shall not exceed interest received or credited to the Executive by
such tax authority for the period it held such portion. The
Executive and the Corporation shall mutually agree upon the course
of action to be pursued (and the method of allocating the expenses
thereof) if the Executive's good faith claim for refund or credit
is denied.
In the event that the Excise Tax is later determined by
the Accountants to exceed the amount taken into account hereunder
at the time the Tax Reimbursement Payment is made (including, but
not limited to, by reason of any payment the existence or amount of
which cannot be determined at the time of the Tax Reimbursement
Payment), the Corporation shall make an additional Tax Reimbursement
Payment in respect of such excess (which Tax Reimbursement Payment
shall include any interest or penalty payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
(e) Date of Payment. The portion of the Tax
Reimbursement Payment attributable to a Covered Payment shall be
paid to the Executive or to a "rabbi" trust established by the
Corporation prior to the Change of Control Date within ten (10)
business days following the payment of the Covered Payment. If the
amount of such Tax Reimbursement Payment (or portion thereof)
cannot be finally determined on or before the date on which payment
is due, the Corporation shall either pay to the Executive or
contribute for the benefit of the Executive to a "rabbi" trust
established by the Corporation prior to the Change of Control Date,
an amount estimated in good faith by the Accountants to be the
minimum amount of such Tax Reimbursement Payment and shall pay the
remainder of such Tax Reimbursement Payment (which Tax
Reimbursement Payment shall include interest at the rate provided
in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined, but in no event later than forty-five (45)
calendar days after payment of the related Covered Payment. In the
event that the amount of the estimated Tax Reimbursement Payment
exceeds the amount subsequently determined to have been due, such
excess shall be repaid or refunded pursuant to the provisions of
Section 8(d) above.
9. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plan or
program provided by the Corporation or any of its Affiliated
Companies and for which the Executive may qualify, nor shall
anything herein limit or otherwise prejudice such rights as the
Executive may have under any other agreements with the Corporation
or any Affiliated Companies, including, but not limited to stock
option or restricted stock agreements. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Corporation or any Affiliated
Companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
10. Full Settlement. Except as provided in Section 12(b),
the Corporation's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any circumstances, including, without
<PAGE>
limitation, any set-off, counterclaim, recoupment, defense or other
right which the Corporation may have against the Executive or
others whether by reason of the subsequent employment of the
Executive or otherwise. In no event shall the Executive be
obligated to seek other employment by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement.
11. Legal Fees and Expenses. In the event that a claim for
payment or benefits under this Agreement is disputed, the
Corporation shall pay all reasonable attorney fees and expenses
incurred by the Executive in pursuing such claim, provided that the
Executive is successful as to at least part of the disputed claim
by reason of litigation, arbitration or settlement.
12. Confidential Information and Noncompetition.
(a) The Executive shall hold in a fiduciary capacity for
the benefit of the Corporation all secret or confidential
information, knowledge or data, including without limitation all
trade secrets, relating to the Corporation or any Affiliated
Companies, and their respective businesses, (i) obtained by the
Executive during his employment by the Corporation or any of its
Affiliated Companies and (ii) which is not otherwise publicly known
(other than by reason of an unauthorized act by the Executive).
After termination of the Executive's employment with the
Corporation, the Executive shall not without the prior written
consent of the Corporation, unless compelled pursuant to an order
of a court or other body having jurisdiction over such matter,
communicate or divulge any such information, knowledge or data to
anyone other than the Corporation and those designated by it. In
no event shall an asserted violation of the provisions of this
Section 12(a) constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
(b) Upon termination of the Executive's employment for
any reason whatsoever prior to a Change of Control, the Executive
shall not, without the prior written consent of the Corporation,
during the three-year period following the Date of Termination
(i) accept employment or enter into a consulting or advisory
arrangement with Amway Corporation, Sara Lee Corporation, Premark
International, Inc., Mary Kay Cosmetics, Inc., or any of their
affiliates; or (ii) directly solicit or aid in the direct
solicitation of any employees of the Corporation or an Affiliated
Company to leave their employment. In the event the Executive
violates the terms of this Section 12(b), all benefit continuation
coverage that the Executive and/or his family members are then
receiving pursuant to the terms of Section 6(d) shall cease. Also,
in the event that this Section 12(b) is determined to be
unenforceable in part, it shall be construed to be enforceable to
the maximum extent permitted by law.
13. Successors.
(a) This Agreement is personal to the Executive and, without
the prior written consent of the Corporation, shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
<PAGE>
(b) This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors. The Corporation
shall require any successor to all or substantially all of the
business and/or assets of the Corporation, whether direct or
indirect, by purchase, merger, consolidation, acquisition of stock,
or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent as the
Corporation would be required to perform if no such succession had
taken place.
14. Miscellaneous.
(a) Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York,
applied without reference to principles of conflict of laws.
(b) Amendments. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(c) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand-delivery
to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: at the address listed on the last
page hereof or such other address as provided to the Corporation in
writing by the Executive.
If to the Corporation: Avon Products, Inc.
9 West 57th Street
New York, New York 10019
Attention: Secretary
(with a copy to the attention of the General Counsel or to such
other address as either party shall have furnished to the other in
writing in accordance herewith). Notice and communications shall be
effective when actually received by the addressee.
(d) Tax Withholding. The Corporation may withhold from
any amounts payable under this Agreement such federal, state or
local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) Severability. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(f) Captions. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
(g) Entire Agreement. This Agreement expresses the
entire understanding and agreement of the parties regarding the
terms and conditions governing the Executive's employment with the
Corporation, and all prior agreements governing the Executive's
employment with the Corporation shall have no further effect;
<PAGE>
provided, however, that except as specifically provided herein, the
terms of this Agreement do not supersede the terms of any grant or
award to the Executive under the 1970 Stock Option Plan, the 1993
Stock Incentive Plan, any Long Term Incentive Plan, Management
Incentive Plan and any other similar or successor plan or program.
15. Definitions.
(a) "Accountants" shall have the meaning set forth in
Section 8(b).
(b) "Accrued Obligations" shall mean (i) the Executive's
full Base Salary through the Date of Termination, (ii) in the case
of death or retirement, the product of the Annual Bonus paid to the
Executive for the last full fiscal year of the Corporation and a
fraction, the numerator of which is the number of days in the
current fiscal year of the Corporation through the Date of
Termination, and the denominator of which is 365, (iii) any
compensation previously deferred by the Executive (together with
any accrued earnings thereon) and not yet paid by the Corporation
and any accrued vacation pay for the current year not yet paid by
the Corporation, (iv) any amounts or benefits owing to the
Executive or to the Executive's beneficiaries under the then
applicable employee benefit plans or policies of the Corporation
and (v) any amounts owing to the Executive for reimbursement of
expenses properly incurred by the Executive prior to the Date of
Termination and which are reimbursable in accordance with the
reimbursement policy of the Corporation described in Section 4(e).
(c) "Affiliated Company" shall mean any company
controlling, controlled by or under common control with the
Corporation.
(d) "Annual Bonus" shall have the meaning set forth in
Section 4(b).
(e) "Base Salary" shall have the meaning set forth in
Section 4(a).
(f) "Board" shall mean the Board of Directors of the
Corporation.
(g) "Cause" shall mean (i) an act or acts of dishonesty
or gross misconduct on the Executive's part which result or are
intended to result in material damage to the Corporation's business
or reputation or (ii) repeated material violations by the Executive
of his obligations under Section 3 of this Agreement which
violations are demonstrably willful and deliberate on the
Executive's part and which result in material damage to the
Corporation's business or reputation and as to which material
violations the Board has notified the Executive in writing.
(h) "Change of Control" means:
(A) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) (a "Person") of beneficial ownership (within the
<PAGE>
meaning of Rule 13d-3 promulgated under the Exchange Act) of
voting securities of the corporation where such acquisition
causes such person to own 20% or more of the combined voting
power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of
directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this Subsection (A),
the following acquisitions shall not be deemed to result in a
Change of Control: (i) any acquisition directly from the
Corporation, (ii) any acquisition by the Corporation,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any
corporation controlled by the Corporation or (iv) any
acquisition by any corporation pursuant to a transaction that
complies with clauses (i), (ii) and (iii) of Subsection (C)
below; and provided, further, that if any Person's beneficial
ownership of the Outstanding Corporation Voting Securities
reaches or exceeds 20% as a result of a transaction described
in clause (i) or (ii) above, and such Person subsequently
acquires beneficial ownership of additional voting securities
of the Corporation, such subsequent acquisition shall be
treated as an acquisition that causes such Person to own 20%
or more of the Outstanding Corporation Voting Securities; or
(B) individuals who as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved
by a vote of at least two-thirds of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(C) the approval by the shareholders of the
Corporation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the
assets of the Corporation ("Business Combination") or, if
consummation of such Business Combination is subject, at the
time of such approval by shareholders, to the consent of any
government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation);
excluding, however, such a Business Combination pursuant to
which (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding
Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the
corporation resulting from such Business Combination
<PAGE>
(including, without limitation, a corporation that as a result
of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Corporation Voting
Securities, (ii) no Person (excluding any employee benefit
plan (or related trust) of the Corporation or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(D) approval by the shareholders of the Corporation
of a complete liquidation or dissolution of the Corporation.
Notwithstanding the foregoing, no Change of Control shall be deemed
to have occurred for purposes of this Agreement (i) by reason of
any actions or events in which the Executive participates in a
capacity other than in his capacity as Executive (or as a director
of the Corporation or a Subsidiary, where applicable) or (ii) if
prior to what otherwise would have been a Change of Control Date,
the Executive is demoted below the position described in Section
3(a) hereof and the Board provides written notification to the
Executive, no later than thirty (30) days thereafter, that a Change
of Control will not be deemed to occur with respect to the
Executive.
(i) "Change of Control Date" shall mean the date on
which a Change of Control shall be deemed to have occurred.
(j) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(k) "Constructive Termination" shall mean any of the
following:
(A) Reduction in Base Salary below the applicable
levels set forth in Section 4(a) or reduction in annual target
bonus opportunity below the levels set forth in Section 4(b).
(B) Any change to a position other than Chairman of
the Board and Chief Executive Officer prior to May 1, 1997,
absent the Executive's written consent, or removal from the
position of Chairman of the Board prior to the Agreement
Expiration Date absent the Executive's written consent.
(C) The occurrence of a Change of Control,
effective as the Change of Control Date, regardless of the
Executive's compensation or position on or after such date.
<PAGE>
(D) A change of more than twenty-five (25) miles in
the office or location where the Executive is based, provided
that a change in the Executive's office location prior to a
Change of Control which is directly caused by the relocation
of the Corporation's headquarters office from its present
address of 9 West 57th Street, New York City, must be more
than fifty (50) miles from that address, in order to
constitute an event of Constructive Termination.
(l) "Covered Payments" shall have the meaning set forth
in Section 8(a).
(m) "Date of Termination" shall have the meaning set
forth in Section 5(f).
(n) "Disability" shall mean disability which would
entitle the Executive to receive full long-term disability benefits
under the Corporation's long-term disability plan on terms
substantially similar to those of the long-term disability plan as
in on the date of this Agreement.
(o) "Excise Tax" shall have the meaning as set forth in
Section 8(a).
(p) "Interest Rate" shall mean the interest rate payable
on one year Treasury Bills in effect on the day that is 30 business
days (days other than Saturday, Sunday or legal holidays in the
City of New York) prior to the Date of Termination.
(q) "Notice of Termination" shall have the meaning as
set forth in Section 5(f).
(r) "Qualified Plan" shall mean an employee benefit plan
qualified (or which is intended to be qualified) under
Section 401(a) of the Code.
(s) "SERP" shall mean the Supplemental Executive
Retirement Plan of Avon Products, Inc.
(t) "SLIP" shall mean the Supplemental Life Plan of Avon
Products, Inc.
(u) "Subsidiary" shall mean any majority owned
subsidiary of the Corporation.
(v) "Tax Reimbursement Payment" shall have the meaning
set forth in Section 8(a).
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and the Corporation has caused this Agreement to be executed in its
name on its behalf, and its corporate seal to be hereunto affixed
and attested by its Secretary, all effective as of the day and year
first above written.
AVON PRODUCTS, INC.
By:/S/ Marcia L. Worthing
Marcia L. Worthing, Senior Vice President,
ATTEST: Human Resources, and Corporate Affairs
/s/ Ward M. Miller, Jr.
Ward M. Miller, Senior Vice President,
General Counsel and Secretary
(CORPORATE SEAL)
EXECUTIVE:
/s/ James E. Preston
James E. Preston
Address:
Nodine Pasture Road
P.O. Box 830
Kent, CT 06757
EXHIBIT 10.17
<PAGE>
AVON PRODUCTS, INC.
1993 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: OCTOBER 30, 1995
1. Grant of Option. Pursuant to the provisions of the Avon
Products, Inc., 1993 Stock Incentive Plan (the "Plan"), Avon Products,
Inc. (the "Company"), on the above date has granted to James E. Preston
(the "Optionee") the right and option to purchase from the Company a
total of Three Hundred and Twenty Five Thousand (325,000) shares of
Common Stock of the Company at the exercise price of $69.375 per share
(the "Option"). This Option is subject to the terms and conditions
of the Plan and those set forth in this Agreement. All capitalized
terms used herein shall have the meaning set forth in the Plan, unless
the context requires a different meaning.
2. Exercise of Option
(a) Except as otherwise provided in this Agreement, this
Option shall be exercisable in its entirety commencing May 7, 1998 and
shall continue to be exercisable, in whole or in part, subject to the
terms of Section 3 hereof. The Option may become exercisable at a date
earlier than May 7, 1998 in the event of the Optionee's termination of
employment due to death, permanent disability, involuntary termination
by the Company other than for cause, or voluntary termination with the
consent of the Company's Board of Directors. Except in the case of
death, however, this Option may not be exercisable prior to November 2,
1996.
(b) In accordance with the Plan this entire Option shall be
immediately cashed out effective as of the date of any "Change in
Control", regardless of whether or not otherwise exercisable. For this
purpose, the "Change in Control Price" shall be the higher of (i) the
highest price paid for a share of Stock as reported on the New York
Stock Exchange Composite Tape during the 12 month period ending with the
effective date of Change in Control or (ii) the highest cash tender
offer price for a share of Stock during such period. In the event that
a tender offer for Stock consists of a combination of cash and
securities, the Change in Control Price calculated under (ii) would be
based solely on the cash price equivalent of such offer.
(c) Shares may be purchased by giving the Company's Corporate
Secretary or Assistant Secretary written notice of exercise, specifying
the number of shares to be purchased. The notice of exercise shall
designate one of the following methods of purchase:
(i) tender to the Company of a check for the full exercise
price of the shares with respect to which such Option or
portion thereof is exercised, or
(ii) instructions to the Company to deliver all the shares
being exercised to a broker-dealer with whom an
<PAGE>
arrangement has been made to deliver the full exercise
price to the Company. The Company may establish special
terms and conditions for this "cashless" exercise, and
at any time may terminate
3. Expiration of Option. The Option shall expire or
terminate and may not be exercised to any extent by the Optionee as of
the first to occur of the following events:
(a) November 1, 2005;
(b) The Optionee's Termination of Employment for Cause (as
defined below) or the Optionee's voluntary termination of employment
without consent of the Company's Board of Directors; or
(c) The Optionee's intentional material violation of any non-
disclosure or non-compete covenant applicable to the Optionee as set
forth in his employment agreement.
Retirement prior to attainment of age 65 shall be deemed
to constitute voluntary termination of employment for purposes of this
Agreement. "Permanent Disability" shall have the same meaning as that
provided by the Company's Long Term Disability Plan regardless of
whether or not the Optionee is covered by such a plan.
"Cause" shall have the same meaning as that provided by
the Optionee's employment agreement dated as of November 1, 1995.
4. Tax Withholding. No distribution of shares may be made to
the Optionee until the Company has received all amounts required for
federal, state or local tax withholding. The method of discharging such
withholding obligation shall be elected with the notice of exercise and
may include (i) payment by check, (ii) withholding of that number of
Option shares by the Company having a Fair Market Value equal to the
amount required to satisfy such withholding obligation, or (iii) use of
a 'cashless exercise' using a broker-dealer in a manner similar to that
described in Section 2(c)(ii) hereof. The method of withholding shall
be subject to such rules as the Committee may adopt from time to time.
It is recognized by both parties that, based on current laws, the
difference between the Fair Market Value of the shares purchased by an
option exercise and the exercise price of such shares generally will
constitute ordinary taxable income for federal income and "Medicare" tax
purposes and for most state and local income tax purposes.
5. Non-Transferability. The Option is non-transferable,
except by will or the laws of descent and distribution, if applicable,
and shall be exercisable only by the Optionee or his estate subject to
Section 3 hereof.
6. Notice. Any notices required to be given hereunder to the
Company shall be addressed to the Secretary or Assistant Secretary of
the Company at the Company's headquarters offices in New York City,
New York. Any notice required to be given hereunder to the Optionee
shall be addressed to the Optionee at his current address shown on the
Company's records. Notice shall be sent by mail, express delivery or,
if practical, by hand delivery.
7. Other Provisions. The provisions set forth in Section 5
<PAGE>
of the Plan are specifically incorporated by reference in this
Agreement, including but not limited to those pertaining to the
following matters:
a. Changes in Capitalization; Merger; Liquidation
b. Right to Terminate Employment
c. Non-alienation of Benefits
d. Choice of Law
IN WITNESS WHEREOF, the Company, by its duly authorized
officer, and the Optionee, have entered this Agreement as of the Date of
Grant first above written.
AVON PRODUCTS, INC.
/s/James E. Preston Marcia L. Worthing
James E. Preston Marcia L. Worthing
Senior Vice President, Human
Resources and Corporate Affairs
EXHIBIT 10.21
<PAGE>
Exhibit 10.21
Form of Employment Agreement, dated as of September 1, 1994 between
Avon Products, Inc. and certain senior officers (incorporated by reference
to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
Avon has an employment agreement with each of the following senior
officers:
Christina Gold
Susan Kropf
Ward Miller, Jr.
Edwina Woodbury
Marcia Worthing
EXHIBIT 11.1
<PAGE>
EXHIBIT 11.1
AVON PRODUCTS, INC.
COMPUTATION OF PRIMARY INCOME (LOSS) PER SHARE
(In millions, except per share data)
Years ended December 31
-----------------------
1995 1994 1993
----- ----- -----
Weighted average shares of
common stock:
Weighted average shares
outstanding during the year........ 68.24 70.59 72.06
Common stock equivalents.............. * * *
Weighted average shares for primary ----- ----- -----
income per share computation....... 68.24 70.59 72.06
===== ===== =====
Income applicable to common stock:....
Income from continuing operations..... $286.1 $264.8 $236.9
Discontinued operations, net.......... (29.6) (23.8) 2.7
Cumulative effect of accounting
changes, net of taxes.............. - (45.2)(107.5)
------ ----- -----
Net income............................ $256.5 $195.8 $132.1
===== ===== =====
Primary income (loss) per share:
Continuing operations................. $ 4.19 $ 3.75 $ 3.28
Discontinued operations............... (.43) (.34) .04
Cumulative effect of
accounting changes................. - (.64) (1.49)
------ ------ ------
Net income............................ $ 3.76 $ 2.77 $ 1.83
===== ===== =====
- - -------------
* 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 FULLY DILUTED INCOME
(LOSS) PER SHARE
(In millions, except per share data)
Years ended December 31
-----------------------
1995 1994 1993
---- ---- ----
Weighted average shares
of common stock:
Weighted average shares
outstanding during the year.. 68.24 70.59 72.06
Common stock equivalents........ .29 .19 .08
----- ----- -----
Weighted average shares for
fully diluted income per
share computation............... 68.53 70.78 72.14
===== ===== =====
Income applicable to
common stock:
Income from continuing
operations.................. $286.1 $264.8 $236.9
Discontinued operations,
net......................... (29.6) (23.8) 2.7
Cumulative effect of
accounting changes,
net of taxes................ - (45.2) (107.5)
------ ------ ------
Net income.................... $256.5 $195.8 $132.1
====== ====== ======
Fully diluted income (loss)
per share:
Continuing operations.......... $ 4.17 $ 3.75 $ 3.28
Discontinued operations........ (.43) (.34) .04
Cumulative effect of
accounting changes.......... - (.64) (1.49)
------ ------ ------
Net income.................... $ 3.74 $ 2.77 $ 1.83
====== ====== ======
EXHIBIT 13
<PAGE>29
Management's Discussion and Analysis Avon Products, Inc.
The following discussion of the results of operations and financial condition
of Avon Products, Inc. ("Avon" or "Company") should be read in conjunction
with the information contained in the Consolidated Financial Statements and
Notes thereto. These statements have been prepared in conformity with
generally accepted accounting principles and require management to make
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. Actual results could differ from
these estimates.
Results of Operations
Consolidated - Net income in 1995 was $256.5 million, or $3.76 per share,
compared with $195.8 million, or $2.77 per share, in 1994. The 1995 results
include a $29.6 million, or $.43 per share, after-tax charge to discontinued
operations relating to a litigation settlement with Mallinckrodt Group, Inc.
("Mallinckrodt"). See Note 3 of the Notes to the Consolidated Financial
Statements for further discussion of this settlement. In addition, the
following one-time pretax items are included in the 1995 results: a gain of
$25.0 million, net of related costs, from a cash settlement of a lease
dispute and a $7.0 million gain, net of related expenses, due to a value-
added tax refund in the United Kingdom. Partially offsetting these gains were
charges of $12.0 million related to an early retirement program implemented
in Japan and $11.0 million for severance costs, primarily in Europe, as part
of Avon's program to reduce fixed expenses in certain markets. The gain in
the United Kingdom and expenses in Japan and Europe are included in marketing,
distribution and administrative expenses. The lease dispute related to
prior year rent charges for the Company's headquarters building. The
$25.0 million gain represents a $14.0 million recovery of disputed rent,
which is included in marketing, distribution and administrative expenses,
and $11.0 million of interest, net of related costs, which is included in
other expense, net. The net effect of these one-time items was to increase
income from continuing operations and net income by $7.6 million, or $.11
per share. The Japan and Europe expense reduction programs, which were
substantially completed at December 31, 1995, generated approximately
$6.0 million and $5.0 million, respectively, of pretax savings in 1995, with
higher levels of annual savings anticipated to be realized in 1996 and beyond.
The 1994 results included a loss of $23.8 million, or $.34 per share,
for discontinued operations relating to the sale of Giorgio Beverly Hills,
Inc. ("Giorgio"), and a non-cash charge for accounting changes of
$45.2 million after tax, or $.64 per share. The charge for accounting changes
was for the cumulative effect of changes in accounting principles for the
following: Statement of Financial Accounting Standards ("FAS") No. 112,
"Employers' Accounting for Postemployment Benefits", for all applicable
operations of $28.9 million; FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", for foreign benefit plans of
$8.0 million; and costs related to the development of information systems of
$8.3 million. Net income for 1993 was $132.1 million, or $1.83 per share,
which included a net charge for the cumulative effect of changes in
accounting principles of $107.5 million after tax, or $1.49 per share, net
income from discontinued operations related to Giorgio of $12.7 million and
a $10.0 million charge to discontinued operations for the final settlement
and related expenses in an arbitration proceeding related to a business
previously sold. Net income per share from discontinued operations was $.04
in 1993.
Continuing Operations - Income from continuing operations before the
cumulative effect of accounting changes was $286.1 million, or 8 percent
above 1994. Income per share from continuing operations increased 12 percent
to $4.19 from $3.75 in the prior year. This 12 percent increase in income per
share exceeded the 8 percent increase in income from continuing operations
reflecting the impact of lower average shares outstanding in 1995 compared
with the prior year due to the stock repurchase program begun in 1994. See
Note 8 of the Notes to the Consolidated Financial Statements for further
discussion of this program. Pretax income was $465.0 million, a 7 percent,
or $31.2 million, increase over prior year. The increase was primarily due to
higher sales and lower net interest and non-operating expenses. In addition,
the increase in pretax income reflects the one-time items previously
discussed. These favorable results were partially offset by a slight decline
in the gross margin. Income from continuing operations in 1994 increased
$27.9 million, or $.47 per share, from 1993.
<PAGE)30
Consolidated net sales of $4.49 billion increased 5 percent from $4.27
billion in 1994. International sales increased 6 percent to $2.91 billion
from $2.73 billion in 1994 due to the favorable impact of a weaker U.S.
dollar in relation to the currencies in the Europe and Pacific Regions and
strong growth in the Americas Region, primarily Brazil, and to a lesser
extent, in the United Kingdom, Central European markets and the Pacific
Rim. These improvements were partially offset by lower sales in Mexico due
to the significant peso devaluation and operational declines in Japan. Sales
in the U.S. increased 3 percent to $1.58 billion primarily due to an increase
in Representative orders and an increase in average order size. In 1994,
consolidated net sales of $4.27 billion increased 11 percent over 1993
reflecting higher international sales, primarily due to strong growth in the
Americas Region and the Pacific Rim, and the favorable impact of exchange
rate fluctuations in Japan and most European countries. These increases were
partially offset by operational declines in most Western European markets and
Japan. 1994 sales in the U.S. increased 10 percent over 1993 to
$1.54 billion primarily due to an increase in average order size, an increase
in Representative orders and the launch of apparel, a new category in 1994.
Cost of sales as a percentage of sales was 39.4 percent in 1995,
compared with 39.2 percent in 1994. The decline in gross margin was primarily
due to a shift in sales mix to the lower margin apparel line and investments
made to reduce inventory levels in the U.S., margin investments in the United
Kingdom to drive sales and a shift in the sales mix to lower margin products
in Japan and the United Kingdom. The decline was partially offset by margin
improvements in Brazil reflecting the favorable impact of the government's
economic stabilization program implemented in July 1994, a shift in sales mix
to higher margin items in Argentina and improvements in most Pacific Rim
markets. In 1994, cost of sales as a percentage of sales was 39.2 percent,
compared to 38.9 percent in 1993. The decline in gross margin was primarily
due to the 1994 introduction of the apparel line in the U.S., increased sales
of the lower margin apparel and home product categories in Mexico and
declines throughout most European markets. The decline was partially offset
by margin improvements in Brazil and Argentina due to a shift in the sales
mix to higher margin items.
Marketing, distribution and administrative expenses of $2.2 billion
increased $116.8 million, or 6 percent, from 1994 and increased as a
percentage of sales to 49.3 percent from 49.2 percent in 1994. Excluding the
one-time items previously mentioned, operating expenses increased
$114.8 million. The increase in operating expenses reflects sales-related
increases throughout most markets in the Americas Region, most significantly
Brazil, and higher expense levels in the Pacific Rim, Japan and most European
markets. These increases were partially offset by lower expenses in Mexico
due to the significant peso devaluation. The increase in the operating
expense ratio reflects increased expenses in relation to sales in Brazil and
Venezuela, lower sales in Mexico and higher expenses in Japan mainly due to
expanded marketing programs in 1995. These increases were partially offset
by improved operating expense ratios in the U.S., throughout Europe, most
significantly in the United Kingdom and Germany, and in China due to the
sales increase. In 1994, marketing, distribution and administrative expenses
of $2.1 billion increased 10 percent from 1993 but decreased as a percentage
of sales to 49.2 percent from 49.8 percent in 1993. The higher expense level
reflected sales-related increases in the U.S., Brazil, Argentina, Mexico and
the Pacific Rim markets and higher expenses related to market expansion in
the Central European markets and the Pacific Rim, most significantly China.
The improvement in the operating expense ratio was due to sales increases in
the U.S., Brazil and Argentina, partially offset by increased expenses in
relation to sales in Mexico and China and lower sales in Venezuela and
Germany.
Interest expense in 1995 of $41.3 million decreased $9.5 million, or 19
percent, compared to the prior year due to lower interest rates on borrowings
in Brazil and in the U.S. and lower debt levels in Japan. These decreases
were partially offset by higher borrowings in the Central European markets
reflecting Avon's continued global expansion strategy. Interest expense in
1994 of $50.8 million increased $5.6 million, or 12 percent, over 1993 due to
higher borrowings to fund working capital needs and hyperinflationary interest
rates in Brazil and higher borrowings in the Central European markets and
China as part of Avon's growth strategy. The increase was partially offset
by lower interest expense in Japan and the United Kingdom reflecting lower
borrowing levels in 1994.
<PAGE>31
Interest income in 1995 of $19.4 million decreased $2.7 million, or 12
percent, compared to last year due to lower interest rates and lower average
cash balances in Brazil. Interest income in 1994 of $22.1 million decreased
$3.2 million, or 13 percent, compared to 1993 due to lower average cash
balances in Brazil in 1994.
Other expense, net, was $20.6 million, a $12.5 million decrease from
1994. The decrease was primarily due to the $11.0 million portion of the
previously discussed favorable lease settlement and lower monetary correction
expense in Brazil, partially offset by higher non-operating expenses and
unfavorable net foreign exchange in 1995. Other expense, net, was $33.1
million in 1994, a $14.4 million increase over 1993. The increase was
primarily due to gains related to the sales of a non-operating investment and
land in 1993 and higher non-operating expenses in 1994.
Income taxes were $176.4 million in 1995 and the effective tax rate was
37.9 percent compared with $163.5 million and an effective tax rate of 37.7
percent in 1994. The effective tax rate was higher in 1995 due to the mix of
earnings and income tax rates of international subsidiaries. The utilization
of foreign net operating loss carryforwards did not significantly impact the
effective tax rate in 1995. In 1994, the effective tax rate was 37.7 percent,
compared with 38.2 percent in 1993. The lower effective tax rate in 1994
resulted primarily from the mix of earnings and tax rates of international
subsidiaries and the utilization of foreign net operating loss carryforwards
in 1994.
Inflation in the United States has remained at a relatively low level
during the last three years, and has not had a major effect on Avon's results
of operations. Many countries in which Avon has operations have experienced
higher rates of inflation than the United States. Among the countries in
which Avon has significant operations, extremely high rates of inflation have
been experienced in Brazil for a number of years. The annual inflation rate
in Brazil, however, has decreased significantly in 1995 as the economic
environment has improved as a result of the government's economic
stabilization program implemented in mid-1994. While it is not possible to
forecast with certainty, it is currently expected that Brazil's inflation
rate will remain relatively stable throughout 1996. Venezuela and Mexico
experienced high rates of inflation in 1995.
Below is an analysis of the key factors affecting net sales and pretax
income from continuing operations by geographic area for each of the years
in the three-year period ended December 31, 1995.
In millions
Years ended
December 31 1995 1994 1993
---- ---- ----
Net Pretax Net Pretax Net Pretax
Sales Income Sales Income Sales Income
------- ------ ------- ------ ------- -----
United States $1,584.8 $211.6 $1,535.1 $201.2 $1,395.6 $152.8
-------- ------ -------- ------ -------- -----
International
Americas 1,466.9 265.8 1,415.3 273.9 1,175.2 196.4
Pacific 712.0 67.5 664.3 89.7 625.6 90.9
Europe 728.4 41.7 651.8 15.3 647.7 53.5
------- ----- ------- ----- ------- -----
Total International 2,907.3 375.0 2,731.4 378.9 2,448.5 340.8
------- ----- ------- ----- ------- -----
Total from
operations $4,492.1 586.6 $4,266.5 580.1 $3,844.1 493.6
======== ======= =======
Corporate expenses (74.6) (84.9) (69.0)
Interest expense (41.3) (50.8) (45.2)
Other (expense) income (5.7) (10.6) 15.2
----- ----- -----
Total $465.0 $433.8 $394.6
====== ====== =====
<PAGE>32
U.S. - U.S. sales increased 3 percent to $1.58 billion and pretax income
increased 5 percent to $211.6 million in 1995.
The increase in sales reflects a 2 percent increase in the number of
Representative orders and a 1 percent increase in average order size. Units
sold increased 3 percent over 1994. The sales improvement was driven by
increases in the apparel and fragrance and color cosmetics categories,
partially offset by declines in the jewelry and gift categories. A full year
of apparel sales in 1995, a category originally launched in March 1994, the
Fall introduction of the Diane Von Furstenberg collections and the success
of the children's and novelty lines all contributed to the increase in
apparel sales. The increase in the fragrance and color cosmetics category
was driven by the successful launch of Avon's newest global fragrance, Rare
Gold, in the fourth quarter and the introductions of Incredible Lengths
Mascara and Perfect Wear for Eyes in 1995. The increase in pretax income
was primarily due to the sales increase and lower overall operating expenses,
despite a significant increase in the price of paper in 1995. These
improvements were partially offset by a lower gross margin resulting from
higher sales of the lower margin apparel line and margin investments,
including clearance sales, to reduce inventory levels. In addition, the
margin was impacted by an increase in the demand for new and attractively-
priced holiday products as well as some incremental costs incurred in meeting
the demand for several of these products.
In 1994, U.S. sales increased 10 percent to $1.54 billion and pretax
income increased 32 percent to $201.2 million. The increase in sales reflects
a 6 percent increase in average order size and a 4 percent increase in the
number of Representative orders. Units sold increased 5 percent over 1993.
The sales improvement was driven by the introduction of the new apparel line
in 1994, a strong increase in sales of color cosmetics and increases in most
other major product categories. The increase in pretax income was primarily
due to the sales increase and an improved operating expense ratio. The
improved operating expense ratio reflects the sales increase, lower marketing-
related expenses, primarily advertising, and expense savings resulting from
the 1992 restructuring program. The increase was partially offset by a lower
gross margin due to a shift in the sales mix to the lower margin apparel line.
International - International sales increased 6 percent to $2.91 billion and
pretax income of $375.0 million was slightly below 1994. Excluding the one-
time items previously mentioned, pretax income increased 3 percent. The
increase in sales reflects the favorable impact of the weaker U.S. dollar in
the Europe and Pacific Regions and strong unit growth in the Americas Region,
especially Brazil, most Pacific Rim markets, and the United Kingdom. These
improvements were partially offset by a significant sales decline in Mexico
due to the negative impact of the peso devaluation and reduced consumer
spending due to the weak economy. In addition, there were operational sales
declines in Japan.
In the Americas Region, sales increased 4 percent to $1.47 billion and
pretax income decreased 3 percent to $265.8 million from $273.9 million in
1994. The sales increase was mainly due to significant improvements in Brazil.
The economic stabilization program implemented in Brazil in July 1994 has
produced significantly lower levels of annual inflation generating improved
consumer confidence. In addition, in 1995, the implementation of a new
distribution center, the introduction of new higher-priced products such as
Rare Gold Parfum and Renew Intensive Treatment, strong unit growth and an
increase in number of orders contributed to the sales increase in Brazil. The
sales increase in the Region also reflects strong unit growth in Venezuela
and Chile. These improvements were partially offset by a significant sales
decline in Mexico resulting from the negative impact of the peso devaluation
which began in late December 1994. As a result, the purchasing power of the
Mexican consumer, who is struggling with one of the worst recessions on
record, has decreased in 1995. This deep recession has resulted in a shift in
sales to lower-priced products with purchases directed toward essential
products and away from luxury items such as jewelry. Mexico, however, had
double-digit increases in local currency sales reflecting an increase in
number of active Representatives. The decrease in pretax income was
<PAGE>33
primarily due to the unfavorable results in Mexico as well as higher
operating expenses in Brazil associated with the sales increase, including
bad debt and transportation expenses, and the implementation of a new
distribution center in 1995. In addition, higher field recognition and
marketing expenses in Venezuela in 1995 and unfavorable net foreign exchange
in Brazil also contributed to the decrease in pretax income. Brazil's net
asset position and slight devaluation generated translation losses in 1995 as
compared to a net liability position and significant devaluation which
generated gains in 1994. These declines were partially offset by the overall
sales increase and lower monetary correction expense in Brazil reflecting the
more economically stable environment. In addition, pretax profit was higher
in Argentina due to improved gross margin resulting from a shift in sales
to higher margin items, and lower operating expenses, and in Venezuela due
to higher sales and lower foreign exchange losses. The significant devaluation
of the bolivar, approximately 40 percent, in December 1995 did not have a
material impact on Venezuela's results for the year.
In the Pacific Region, sales increased 7 percent to $712.0 million and
pretax income, excluding Japan's early retirement program costs mentioned
previously, decreased 11 percent to $79.5 million from $89.7 million in 1994.
The increase in sales was due to the favorable impact of a weaker U.S. dollar
throughout the Region, most significantly in Japan, and strong unit growth
in the Pacific Rim, most significantly in China and the Philippines. These
improvements were partially offset by operational sales declines in Japan
reflecting a shift in pricing strategy to sales of lower-priced products as
a result of a decline in consumer spending due to a weak economic climate.
In addition, sales were lower in Taiwan due to a shift to lower-priced
products, and in Australia, reflecting declines in number of units sold. The
results in Japan have been impacted by the economy which has suffered in 1995
from significant exchange fluctuations, political instability, aggressive
competition from discounters and a major earthquake. Sales of cosmetics,
fragrance and toiletries ("CFT") have declined significantly in Japan. In
response to these difficult conditions, Japan has taken numerous actions,
including expanded marketing activities, an early retirement program,
previously discussed, and other cost-cutting measures. The decrease in pretax
income was due to the unfavorable operating results in Japan reflecting a
decline in gross margin due to a brochure focus on lower-priced impulse
items and higher advertising expenses to enhance product awareness and
increase consumer appeal. In addition, operating expenses were higher in the
Pacific Rim markets due to continued business expansion, mainly in China, and
increased investments to respond to heightened competition in several markets
as well as high fixed expenses in Australia. These decreases were partially
offset by the overall sales increase and improved gross margins in China and
the Philippines.
In the Europe Region, sales increased 12 percent to $728.4 million.
Excluding the one-time items previously mentioned, pretax income increased
$28.8 million to $44.1 million from 1994. The sales increase was due to the
favorable impact of a weaker U.S. dollar throughout Europe, most
significantly in Germany and the United Kingdom, as well as unit growth in
the United Kingdom, the Central European markets and Spain. The developing
Central European markets have had solid operational growth as demonstrated
by their double digit increases in units sold in both 1995 and 1994. These
improvements were partially offset by shortfalls in Germany reflecting
decreased units sold as a result of the economic downturn in the second half
of the year. The increase in pretax income was primarily due to the overall
sales increase as well as the effect of continued expense reduction efforts
throughout Europe. These improvements were partially offset by a gross margin
decline in the United Kingdom resulting from margin investments made to
support sales with low margin special offers and also to reduce inventory
levels.
In 1994, international sales increased 12 percent to $2.73 billion and
pretax income increased 11 percent to $378.9 million from $340.8 million in
1993. The sales increase reflects strong unit growth in the Americas Region,
most significantly Brazil, and in the Pacific Rim and the favorable impact
of the weaker U.S. dollar in Japan and most European countries. These
improvements were partially offset by unit declines in Europe, especially
the United Kingdom and Germany, Venezuela and Japan.
<PAGE>34
In the Americas Region, 1994 sales increased 20 percent to $1.42 billion
and pretax income increased 39 percent to $273.9 million from $196.4 million
in 1993. The sales increase was due to growth in all markets, except
Venezuela, primarily in Brazil, Argentina and Mexico. The significant increase
in Brazil was due to the solid growth in the higher-priced categories of
apparel and home products and higher-priced CFT items such as Renew, a skin
care product, and the benefits of the new economic stabilization package
implemented in July which lowered inflation and improved consumer purchasing
confidence. In addition, the number of Representatives in Brazil at the end
of 1994 increased 38 percent from the end of 1993 which enabled the Company
to take advantage of the improved economic environment. Argentina's strong
sales growth was driven by its image enhancement strategies and product line
expansion, especially in the CFT and apparel lines. Mexico's improvement
reflects strong unit growth following successful market penetration and image
building strategies. The large devaluation of the peso in late December did
not have a material impact on Mexico's results for the year. The sales
decline in Venezuela reflects the significant currency devaluation and
unsettled economic climate, which depressed consumer demand and negatively
affected sales in all product categories. The improvement in pretax income
reflects strong operating results in Brazil and Argentina due to the sales
growth and improved gross margins resulting from the shift in sales to higher
margin items and lower foreign exchange losses in Brazil. The improvement was
partially offset by a lower gross margin due to increased sales in the lower
margin apparel and home products categories and higher salary and field
recognition expenses in Mexico and lower interest income in Brazil due to a
lower cash position in 1994 compared with 1993. In addition, pretax profit
was lower in Venezuela as a result of the sales decline, higher exchange
losses and lower interest income reflecting the unstable economic climate.
In 1994, sales in the Pacific Region increased 6 percent to $664.3
million and pretax income decreased 1 percent to $89.7 million from $90.9
million in 1993. The increase in sales was due to unit growth in all Pacific
Rim markets and the favorable impact of a weaker U.S. dollar in Japan. These
improvements were partially offset by lower units sold in Japan, which was
impacted by a significant field reconfiguration program implemented at the
end of the first quarter. The decrease in pretax income was primarily due to
higher operating expenses primarily for expansion in China as part of a long-
term growth strategy, partially offset by the sales growth in the Pacific Rim.
In the Europe Region, 1994 sales increased 1 percent to $651.8 million
and pretax income declined 71 percent to $15.3 million from $53.5 million in
1993. The sales increase was due to the favorable impact of the weaker U.S.
dollar against most European currencies, mainly in the fourth quarter, and
unit growth in the developing Central European markets, Spain and Italy.
These improvements were partially offset by unit declines in the United
Kingdom and Germany reflecting weak economies in the retail and consumer non-
durable segments and sales of lower-priced products in France. The decline
in pretax income was primarily due to operational sales declines in Germany,
the United Kingdom and France, a high fixed expense base in the Region and
higher operating expenses related to the expansion of Central European markets.
See Foreign Operations section under Liquidity and Capital Resources
for additional discussion.
Corporate Expenses - Corporate expenses were $74.6 million in 1995 compared
with $84.9 million in 1994. The $10.3 million decrease is primarily due to
the previously discussed favorable lease settlement, partially offset by
higher non-recurring expenses. In 1994, corporate expenses increased $15.9
million from 1993. The increase reflects higher expenses for incentive
compensation programs primarily due to the improved operating results in 1994
and a change in the long-term compensation program.
Other (Expense) Income - Other (expense) income includes corporate non-
operating income and expense items and corporate interest income. Other
expense, net, was $5.7 million in 1995 compared with $10.6 million in 1994,
<PAGE>35
a decrease of $4.9 million, due to the $11.0 million portion of the previously
discussed lease settlement partially offset by higher non-operating expenses
in 1995. Other expense, net, was $10.6 million in 1994 compared with other
income, net, of $15.2 million in 1993 reflecting higher non-operating
expenses in 1994 combined with the gains relating to the sales of a non-
operating investment and land in 1993.
Income Taxes - Effective January 1, 1993, Avon accounts for income taxes
under the provisions of FAS No. 109, "Accounting for Income Taxes", which
requires that deferred income taxes be provided on items recognized for
financial reporting purposes in different periods than for income tax
purposes at future enacted rates.
Net deferred tax assets, net of valuation allowance, were $76.3 million
at December 31, 1995, a decrease of $1.6 million from net deferred tax assets
of $77.9 million at December 31, 1994. The valuation allowance, as required
under FAS No. 109, is recorded primarily as reserves for foreign operating
loss and capital loss carry forwards. The basis used for recognition of
deferred tax assets includes the profitability of the operations and related
deferred tax liabilities.
Accounting Changes - Effective January 1, 1994, Avon adopted FAS No. 112
for all applicable operations and FAS No. 106 for its foreign benefit plans.
In addition, effective January 1, 1994, Avon changed its method of accounting
for internal systems development costs. These internal costs, which were
previously deferred and amortized over future periods, are now being expensed
as incurred.
As a result of these accounting changes, Avon recorded an aggregate non-
cash charge in the first quarter of 1994 of $45.2 million, or $.64 per share.
This amount reflects the cumulative effect of adjustments for FAS No. 112 of
$28.9 million, or $.41 per share, FAS No. 106 of $8.0 million, or $.11 per
share, and systems development costs of $8.3 million, or $.12 per share.
Effective January 1, 1993, Avon adopted FAS No. 106 for its U.S. retiree
health care and life insurance benefit plans. FAS No. 106 resulted in the
recognition of an additional liability and expense for postretirement
benefits. Avon recorded the entire previously unrecognized obligation of
$183.3 million ($110.0 million after tax, or $1.53 per share) at the time of
adoption as a cumulative effect adjustment.
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of ", was issued in March 1995 and is
effective for fiscal years beginning after December 15, 1995. 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. The Company will adopt this statement effective January 1,
1996 and does not anticipate any significant impact to its results of
operations or financial position upon adoption.
FAS No. 123, "Accounting for Stock-Based Compensation", was issued in
October 1995 and is effective for transactions entered into in fiscal years
beginning after December 15, 1995. 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 will provide the fair value disclosure requirements of this statement
in the 1996 annual financial statements, but as permitted, the Company will
not change the method of accounting for its employee stock compensation plans.
Discontinued Operations - In December 1995, the Company entered into an
agreement with Mallinckrodt, which has fully settled the litigation initiated
by Mallinckrodt. The settlement covers all indemnity obligations related to
Avon's sale of Mallinckrodt, including environmental clean-up claims and
litigation concerning Mallinckrodt's settlement of a DuPont patent claim.
The settlement payments being made by Avon to Mallinckrodt, and related
costs, resulted in an after-tax charge to discontinued operations in the
fourth quarter of 1995, net of existing reserves, of $29.6 million, or $.43
per share.
During 1994, the Company sold Giorgio, its remaining retail business,
for cash of $150.0 million. The Company recorded a loss of $25.0 million on
the sale. Giorgio's operating results are segregated and reported as
discontinued operations through the date of sale.
Since the Company has excess capital loss carryforwards, no tax benefits
were recognized on the above losses in 1995 and 1994.
During 1993, Avon recorded a discontinued operations provision of $10.0
million after tax, or $.14 per share, for the final settlement and related
expenses in an arbitration proceeding related to a business previously sold.
<PAGE>36
Contingencies - Although Avon has completed its divestiture of all
discontinued operations, various lawsuits and claims (asserted and unasserted)
are pending or threatened against Avon. The Company is also involved in a
number of proceedings arising out of the federal Superfund law and similar
state laws. In some instances Avon, along with other companies, has been
designated as a potentially responsible party which may be liable for costs
associated with these various hazardous waste sites. 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 December 31, 1995 should not
have a material adverse impact on Avon's consolidated financial position or
results of operations.
Liquidity and Capital Resources
Cash Flows - Net cash provided by continuing operations was $328.6 million
in 1995 compared to $298.3 million in 1994. The 1995 increase in net cash
provided by continuing operations principally reflects, among other things,
an increase in net income of $60.7 million partially offset by higher funding
of working capital and a cumulative effect of accounting changes in 1994. The
higher funding of working capital reflects a decrease in accounts payable and
accrued liabilities, most significantly in Brazil, partially offset by a
decrease in accounts receivable.
In 1995, net cash provided by continuing operations was in excess of
funding required for capital expenditures of $72.7 million, cash dividends of
$147.8 million and all required long-term debt payments of $29.6 million.
1994 net cash provided by continuing operations was level with 1993 due to an
increase in net income of $63.7 million and an increase in accounts payable
and accrued expenses resulting from the Company's cash management
practices, offset by a reduced cumulative effect of accounting changes and
increased receivables due to higher sales levels. A more detailed analysis of
the individual items contributing to the 1995 and 1994 amounts is included
in the Consolidated Statement of Cash Flows.
Cash used by discontinued operations was $49.6 million in 1995, compared
with $6.0 million in 1994 and $2.3 million in 1993. The $43.6 million
increase in cash used in 1995 compared to 1994 primarily reflects a portion
of the total settlement amount that was paid to Mallinckrodt in 1995. The
final portion of the settlement was paid in January 1996. See discussion
above in Discontinued Operations section regarding this settlement. The $3.7
million increase in cash used in 1994 compared to 1993 reflects costs
associated with the sale of Giorgio and lower cash provided by Giorgio
operations in 1994, partially offset by the 1993 payment of an arbitration
settlement and related expenses.
Excluding changes in debt, net cash usage of $44.7 million in 1995 was
$52.4 million unfavorable to net cash flow of $7.7 million in 1994. This
variance reflects the higher cash provided by continuing operations,
described above, as well as lower cash used in 1995 for the repurchase of
common stock, lower capital expenditures and a favorable exchange rate impact
on cash. This was more than offset by the proceeds in 1994 from the sale of
Giorgio, the Mallinckrodt settlement payment and higher dividends paid in
1995. Excluding changes in debt, net cash flow of $7.7 million in 1994
decreased $96.0 million from $103.7 million in 1993. This variance reflects
an increase in cash used for the repurchase of common stock, an increase in
capital expenditures, higher dividend payments and the proceeds received in
1993 from the sale of a non-operating investment. These declines were
partially offset by $150.0 million of proceeds received from the sale of
Giorgio and cash used for the acquisition of minority interests in two
foreign subsidiaries in 1993. As of December 31, 1995, 4.8 million shares
of common stock have been purchased for $295.1 million under the stock
repurchase program begun in 1994.
Working Capital - As of December 31, 1995, current liabilities exceeded
current assets by $30.3 million compared with working capital of $9.3 million
at the end of 1994. The decline was primarily due to an increase in accrued
expenses, reflecting the reclassification from long-term liabilities of
amounts related to discontinued operations, including the final Mallinckrodt
settlement payment made in January 1996, as well as a decrease in cash and
equivalents. The decrease was partially offset by higher inventory levels, as
discussed in the Inventories section, and accounts receivable, due to a higher
1995 sales level.
<PAGE>37
Avon's liquidity results from its ability to generate significant cash
flows from operations and its ample unused borrowing capacity. Management
does not presently plan any actions that would eliminate the working capital
deficit at this time. Avon's credit agreements do not contain any provisions
or requirements with respect to working capital.
Capital Resources - Total debt of $161.5 million at December 31, 1995,
decreased $16.2 million from $177.7 million at December 31, 1994, compared
with a reduction of $16.4 million from December 31, 1993. During 1995, cash
flows from continuing operations as well as cash on hand were used for
dividends, the stock repurchase program, capital expenditures, a payment
made related to discontinued operations and the reduction of debt. During
1994, cash flows from operations and proceeds from the sale of Giorgio, which
more than offset cash used for the stock repurchase program, dividends and
capital expenditures, were used to reduce debt. During 1993, cash flows from
operations were used to reduce debt.
Debt maturing within one year consists of borrowings from banks of
$42.3 million and the current maturities of long-term debt of $5.0 million.
Management believes that cash from operations and available sources of
financing are adequate to meet anticipated requirements for working capital,
dividends, capital expenditures, the stock repurchase program and other cash
needs. It is also currently anticipated that existing debt maturing over the
next five years will be paid without refinancing.
Avon has a $600.0 million revolving credit and competitive
advance facility with various banks which can be used to finance
working capital, provide support for the issuance of commercial paper
and support the stock repurchase program. There were no borrowings
under this facility at December 31, 1995 and 1994. This facility has an
annual facility fee of $.6 million as well as a utilization fee if more than
50 percent of the total commitment is outstanding. The agreement
contains a financial covenant related to interest coverage, as defined.
The Company is in compliance with this covenant.
Avon has a $500.0 million commercial paper program supported by the
revolving credit and competitive advance facility. The Company also has
bankers' acceptance facilities and uncommitted lines of credit available of
$215.0 million with various banks which have no compensating balances or fees.
As of December 31, 1995 and 1994, there were no borrowings under these
facilities. In addition, as of December 31, 1995 and 1994, there are
international lines of credit totaling $320.0 million and $276.4 million,
respectively, of which $42.3 million and $32.0 million, respectively, were
outstanding. There are no compensating balances or fees under these
facilities.
Inventories - Avon's products are marketed during twelve to twenty-six
individual sales campaigns each year. Each campaign is conducted using a
brochure offering a wide assortment of products, many of which change from
campaign to campaign. It is necessary for Avon to maintain relatively high
inventory levels as a result of the nature of its business, including the
number of campaigns conducted annually and the large number of products
marketed. Avon's operations have a seasonal pattern characteristic of many
companies selling CFT, fashion jewelry and accessories, gift and decorative
items and apparel. Christmas sales cause a peak in the fourth quarter which
results in the build up of inventory at the end of the third quarter.
Inventory levels are then sharply reduced by the end of the fourth quarter.
Net inventories of $466.3 million at December 31, 1995 were $53.5 million
higher than 1994 due to business growth and expansion of the apparel line in
the U.S. and the United Kingdom, sales growth in Brazil, and continued
expansion into the Pacific Rim markets. These increases were partially
offset by lower inventory levels in Mexico due to the peso devaluation.
It is Avon's objective to continue to manage purchases and inventory levels
maintaining the focus of operating the business at efficient inventory levels.
However, the addition or expansion of product lines such as apparel, jewelry
and impulse gift items, products that are subject to changing fashion trends
and consumer tastes, as well as planned expansion in high growth markets
may cause the inventory levels to grow periodically.
Capital Expenditures - Capital expenditures during 1995 of $72.7 million
(1994 - $99.9 million) were made for capacity expansion in high growth
markets and to maintain worldwide facilities. Numerous construction and
information systems projects were in progress at December 31, 1995 with an
<PAGE>38
estimated cost to complete of approximately $27.9 million. Capital
expenditures in 1996 are currently expected to be in the range of $125.0 -
$150.0 million. These expenditures will include continued investments for
capacity expansion in high growth markets, most significantly in the Pacific
Rim, and for facility modernization, information systems, equipment
replacement projects and leasehold improvements related to office facilities
for U.S. and global operations.
Foreign Operations - The Company derived approximately 65 percent and 64
percent of its 1995 consolidated net sales and consolidated pretax income
from operations, respectively, from its international subsidiaries. In
addition, as of December 31, 1995, international subsidiaries comprised
approximately 59 percent of the Company's consolidated total assets.
Avon's operations in many countries utilize numerous currencies. Avon
has significant net assets in Japan, Argentina, Germany, Canada, the
Philippines, the United Kingdom and Mexico. Changes in the value of these
countries' currencies relative to the U.S. dollar result in direct charges
or credits to equity. Avon also has substantial operations in Brazil, a
country with an economy designated as highly inflationary whose functional
currency is the U.S. dollar, whereby changes in exchange rates result in
charges or credits to income and may significantly impact the results of
operations. In July 1994, Brazil implemented a new economic stabilization
package which significantly lowered inflation generating improved consumer
purchasing confidence during the second half of that year. As a result of the
sharply reduced rate of inflation in Argentina during the past three years,
effective January 1, 1995, the country was no longer designated as having a
highly inflationary economy. Also, effective January 1, 1995, because of the
trend of higher inflation rates, Venezuela was designated as a country
with a highly inflationary economy.
The Venezuelan bolivar devalued significantly in December 1995. However,
because the devaluation occurred late in the year, there was no material
impact on the 1995 results of operations. In 1995, Venezuela contributed
approximately 2 percent of Avon's consolidated net sales. It is expected that
a continued weak bolivar will have some impact on 1996 results; however,
management cannot at this time project what this impact will be. In Mexico,
consumer spending is not expected to improve in the first half of 1996.
However, inflation is expected to decline and the gross domestic product is
expected to improve slightly. Action plans are underway to reach consumers
that formerly bought only higher-priced brands to take advantage of an
environment of limited buying power. In addition, there will be a continued
focus on Representative recruiting and an evaluation of several initiatives
to improve branch distribution productivity. Avon's well diversified global
portfolio of businesses has demonstrated that the effects of weak economies
and currency fluctuations in certain countries may be offset by strong
results in others.
Fluctuations in the value of foreign currencies cause U.S. dollar-
translated amounts to change in comparison with previous periods. Accordingly,
Avon cannot project in any meaningful way the possible effect of such
fluctuations upon translated amounts or future earnings. This is due to the
large number of currencies involved, the constantly changing exposure in these
currencies, the complexity of intercompany relationships, the hedging
activity entered into in an attempt to minimize certain of the effects of
exchange rate changes where economically feasible and the fact that all
foreign currencies do not react in the same manner against the U.S. dollar.
Certain of the Company's financial instruments, which are discussed
below under Risk Management Strategies and in Note 7 of the Notes to the
Consolidated Financial Statements, are used to hedge various amounts relating
to certain international subsidiaries. However, the Company's foreign
currency hedging activities are not significant when compared to the
Company's international financial position or results of operations.
With the exception of Avon Japan, no foreign subsidiary had relied, to
any material extent, on long-term financing. During 1995, the final
repayments of the Avon Japan long-term financing were made. Currently, it is
anticipated that future Avon Japan borrowings, if required, will be on a
short-term basis. Many subsidiaries have short-term borrowings from local
<PAGE>39
commercial banks during the first nine months of the year to fund working
capital needs created by Avon's highly seasonal sales pattern. From time to
time, when tax and other cost considerations dictate, Avon will finance
subsidiary working capital needs. At December 31, 1995, the total
indebtedness of foreign subsidiaries was $61.5 million.
It is Avon's policy to remit all the available cash (cash in excess of
working capital requirements, having no legal restrictions and not considered
permanently reinvested) of foreign subsidiaries as rapidly as is practical.
During 1995, these subsidiaries remitted, net of taxes, $210.5 million in
dividends and royalties. This sum is a substantial portion of the 1995
consolidated net earnings of Avon's foreign subsidiaries.
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.
During a substantial portion of the three-year period ended December 31,
1995, the Company utilized interest rate swaps to effectively convert
variable interest on its long-term debt to a fixed interest rate. From
November 1994 through July 10, 1995, due to the expiration of an interest
rate swap, the interest payable on the 6 1/8 percent Deutsche Mark notes
("Notes") became variable at a rate of one-month LIBOR plus 1.4 percent.
During the period, the Company had an interest rate cap in place to reduce
its exposure to increases in that variable interest rate above a specified
level. On July 11, 1995, the Company entered into a new interest rate swap
agreement, which effectively reconverted the interest payable on the Notes
to a fixed rate basis of approximately 7.2 percent through maturity.
Avon has three interest rate swap agreements on the Notes at December
31, 1995 (two at December 31, 1994), each such agreement having a notional
amount of $100.0 million (1994 - $100.0 million), yielding an aggregate
notional amount at December 31, 1995 of $300.0 million (1994 - $200.0 million).
Effective January 1995, the Company had two interest rate caps on the Notes,
each with a notional amount of $100.0 million, one of which expires in 1996
and the other expires when the Notes mature. Subsequent to the interest rate
on the Notes becoming fixed, these caps have been marked-to-market and
resulted in an insignificant mark-to-market adjustment.
In December 1995, the Company entered into an interest rate cap contract
with a notional amount of $100.0 million, which expires in early 1997, in
order to hedge a portion of the Company's anticipated short-term variable
interest rate working capital debt. This cap has been marked-to-market with
an insignificant mark-to-market adjustment.
The interest rate on the Notes was fixed at approximately 10 percent
from January 1993 to November 1994 through the use of a currency exchange
swap contract and several interest rate swaps. With the expiration of one
interest rate swap in November 1994, the Company's interest rate on this
$100.0 million debt was converted from a fixed to a floating rate determined
at one-month LIBOR plus 1.4 percent. The effective rate of interest paid for
the Notes in 1995 was approximately 7.5 percent.
The 5 3/8 percent Swiss Franc debt, which was outstanding from January
1992 through December 1, 1994, was effectively hedged into fixed U.S. dollar
debt through the use of a currency exchange swap contract, which also fixed
the interest rate at approximately 9 percent for that period. The currency
exchange swap agreement provided for the Company to pay in U.S. dollars and
receive the required Swiss Francs from the counterparty to pay the principal
and interest owed to the bondholders at the required payment dates. These
bonds were repaid on December 1, 1994.
The only other significant long-term debt outstanding during the years
1993 to 1995 was a Yen note obligation of Avon's Japanese subsidiary, which
had a fixed interest rate of 8.5 percent. The loan agreement required
periodic principal payments throughout the term of the loan. As of December
31, 1994, the loan balance was $25.1 million, which was repaid during 1995.
The Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments, contractual
foreign currency cash flows or obligations, including third-party and
<PAGE>40
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 December 31, 1995, the Company held foreign currency forward
contracts with notional amounts totaling $182.2 million and option contracts
with notional amounts totaling $90.4 million to hedge foreign currency items.
These contracts all have maturities prior to December 31, 1996. The Company
also entered into certain option contracts with notional amounts of $8.2
million 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 option contracts at December 31, 1995, was insignificant. The
Company's risk of loss on these 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.
Non-performance of the counterparties to the balance of all the currency
and interest rate swap agreements in a net receivable position would not
result in a significant write-off at December 31, 1995. In addition, there
are other swap agreements in a net payable position of an insignificant
amount at December 31, 1995. Each agreement provides for the right of offset
between counterparties to the agreement. In addition, Avon may be exposed to
market risk on its foreign exchange and interest rate swap and cap agreements
as a result of changes in foreign exchange and interest rates. The market
risk related to the foreign exchange agreements should be substantially
offset by changes in the valuation of the underlying items being hedged.
<PAGE>41
Results of Operations by Quarter Avon Products, Inc.
In millions, except per share data
1995 First Second Third Fourth Year
Net sales $976.2 $1,064.0 $1,067.8 $1,384.1 $4,492.1
Gross profit 588.9 659.1 648.4 826.7 2,723.1
Income from
continuing operations
before taxes and
minority interest 56.5 133.7 87.2 187.6 465.0
Income from continuing
operations before
minority interst 34.0 80.3 55.8 118.5 288.6
Discontinued operations,
net(1) - - - (29.6) (29.6)
Net income 34.4 80.4 55.2 86.5 256.5
Income (loss) per share:
Continuing operations $ .50 $ 1.17 $ .81 $ 1.71 $ 4.19
Discontinued operations - - - (.43) (.43)
----- -------- -------- ------- -------
Net income $ .50 $ 1.17 $ .81 $ 1.28 $ 3.76(3)
===== ======== ======= ======= =======
1994
Net sales $886.0 $1,007.2 $1,009,8 $1,363.5 $4,266.5
Gross profit 533.6 618.1 616.9 825.8 2,594.4
Income from
continuing operations
before taxes, minority
interest and
cumulative effect
of accounting changes 51.1 120.0 80.6 182.1 433.8
Income from continuing
operations before
minority interest
and cumulative effect
of accounting changes 31.2 73.2 51.9 114.0 270.3
Discontinued operations,
net(1) (1.6) (22.2) - - (23.8)
Cumulative effect of
accounting changes(2) (45.2) - - - (45.2)
Net income (loss) (15.7) 50.1 51.3 110.1 195.8
Income (loss) per share:
Income from continuing
operations before
cumulative effect of
accounting changes $ .43 $ 1.02 $ .73 $ 1.59 $ 3.75
Discontinued operations (.02) (.31) - - (.34)
Cumulative effect of
accounting changes (.63) - - - (.64)
------- -------- -------- -------- --------
Net income (loss) $ (.22) $ .71 $ .73 $ 1.59 $ 2.77(3)
====== ======== ======== ======== ========
(1) See Note 3 to the Consolidated Financial Statements regarding
discontinued operations.
(2) See Note 2 to the Consolidated Financial Statements regarding cumulative
effect of accounting changes.
(3) The sum of per share amounts for the quarters does not necessarily
equal that for the year because the computations are made independently.
Market Prices of Common Stock by Quarter
1995 1994
Quarter High Low High Low
------- ------- ------- -------
First $61 3/8 $54 $58 $48 3/8
Second 69 3/4 59 5/8 61 1/4 55 5/8
Third 75 3/8 65 5/8 62 7/8 56
Fourth 78 3/8 68 1/2 63 5/8 58 5/8
Avon common stock is listed on the New York Stock Exchange. At December
31, 1995, there were approximately 24,800 shareholders of record. Dividends
declared and paid in 1995 of $2.10 include $.55 per share for the last two
quarters and $.50 per share for the first two quarters. Dividends declared and
paid in 1994 of $1.90 include $.50 per share for the last two quarters
and $.45 for the first two quarters.
<PAGE>42
Consolidated Statement of Income Avon Products, Inc.
In millions, except per share data 1995 1994 1993
Years ended December 31 ---- ---- ----
Net Sales $4,492.1 $4,266.5 $3,844.1
------- ------- -------
Costs, expenses and other
Cost of sales 1,769.0 1,672.1 1,497.0
Marketing, distribution and
administrative expenses 2,215.6 2,098.8 1,913.9
Interest expense 41.3 50.8 45.2
Interest income (19.4) (22.1) (25.3)
Other expense, net 20.6 33.1 18.7
------- ------- ------
Total costs, expenses and other 4,027.1 3,832.7 3,449.5
------- ------- -------
Income from continuing operations before
taxes, minority interest and cumulative
effect of accounting changes 465.0 433.8 394.6
Income taxes 176.4 163.5 150.8
------- ------- -------
Income from continuing operations before
minority interest and cumulative
effect of accounting changes 288.6 270.3 243.8
Minority interest (2.5) (5.5) (6.9)
------- ------- -------
Income from continuing operations before
cumulative effect of accounting changes 286.1 264.8 236.9
Discontinued operations
Income, net of taxes - 1.2 12.7
Loss on disposals, net of taxes (29.6) (25.0) (10.0)
Cumulative effect of accounting changes,
net of taxes - (45.2) (107.5)
------- ------- -------
Net income $ 256.5 $ 195.8 $ 132.1
======= ======= =======
Income (loss) per share:
Continuing operations $ 4.19 $ 3.75 $ 3.28
Discontinued operations (.43) (.34) .04
Cumulative effect of accounting changes - (.64) (1.49)
------- ------- -------
Net income $ 3.76 $ 2.77 $ 1.83
======= ======= =======
Average shares outstanding 68.24 70.59 72.06
The accompanying notes are an integral part of these statements.
<PAGE>43
Consolidated Balance Sheet Avon Products, Inc.
In millions except share data 1995 1994
December 31 ---- ----
Assets
Current assets
Cash, including cash equivalents of $60.5 and $132.5 $ 151.4 $ 214.8
Accounts receivable (less allowance for doubtful
accounts of $32.6 and $27.3) 402.0 373.7
Inventories 466.3 412.8
Prepaid expenses and other 195.3 149.0
-------- --------
Total current assets 1,215.0 1,150.3
-------- --------
Property, plant and equipment, at cost
Land 53.5 54.3
Buildings and improvements 546.1 531.5
Equipment 569.9 560.9
-------- --------
1,169.5 1,146.7
Less accumulated depreciation 631.7 618.3
-------- --------
537.8 528.4
-------- --------
Other assets 300.0 299.6
-------- --------
Total assets $2,052.8 $1,978.3
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Debt maturing within one year $ 47.3 $ 61.2
Accounts payable 419.7 408.0
Accrued compensation 109.3 100.0
Other accrued liabilities 277.3 222.3
Sales and other taxes 101.8 95.7
Income taxes 289.9 253.8
-------- --------
Total current liabilities 1,245.3 1,141.0
-------- --------
Long-term debt 114.2 116.5
Employee benefit plans 390.8 366.6
Deferred income taxes 33.6 32.2
Other liabilities (including minority interest
of $46.5 and $48.9) 76.2 136.4
Commitments and contingencies
Shareholders' equity
Common stock, par value $.50 - authorized:
200,000,000 shares; issued 86,749,056
and 86,663,874 shares 43.4 43.3
Additional paid-in capital 672.9 660.5
Retained earnings 325.8 212.4
Translation adjustments (202.1) (187.1)
Treasury stock, at cost - 19,131,822 and
17,589,639 shares (647.3) (543.5)
-------- --------
Total shareholders' equity 192.7 185.6
-------- --------
Total liabilities and shareholders' equity $2,052.8 $1,978.3
======== ========
The accompanying notes are an integral part of these statements
<PAGE>44
Consolidated Statement of Cash Flows Avon Products, Inc.
In millions 1995 1994 1993
Years ended December 31 ---- ---- ----
Cash flows from operating activities
Net income $256.5 $195.8 $132.1
Adjustments to reconcile income to net cash
provided by continuing operations:
Cumulative effect of accounting changes, net - 45.2 107.5
Discontinued operations, net 29.6 23.8 (2.7)
Payments of restructuring costs - (3.5) (27.0)
Depreciation and amortization 58.3 55.7 57.2
Provision for doubtful accounts 78.0 64.9 51.4
Translation (gains) losses (.4) (9.0) 14.7
Deferred income taxes (.6) 2.2 (12.1)
Other 35.3 26.9 17.5
Changes in assets and liabilities:
Accounts receivable (132.5) (179.4) (140.8)
Inventories (54.6) (61.3) (60.9)
Prepaid expenses and other (42.4) (12.1) (2.1)
Accounts payable and accrued liabilities 60.4 145.9 79.5
Income and other taxes 57.5 45.4 75.8
Noncurrent assets and liabilities (16.5) (42.2) 9.7
------ ------ ------
Net cash provided by continuing operations 328.6 298.3 299.8
Net cash used by discontinued operations (49.6) (6.0) (2.3)
------ ------ ------
Net cash provided by operating activities 279.0 292.3 297.5
------ ------ ------
Cash flows from investing activities
Capital expenditures (72.7) (99.9) (58.1)
Disposal of assets 2.8 4.5 19.1
Acquisitions of subsidiary stock (3.4) - (6.4)
Proceeds from sale of Giorgio Beverly Hills, Inc. - 150.0 -
------ ------ ------
Net cash (used) provided by investing activities (73.3) 54.6 (45.4)
------ ------ ------
Cash flows from financing activities
Cash dividends (147.8) (141.1) (124.9)
Debt, net (maturities of three months or less) 8.8 (23.3) 14.8
Proceeds from short-term debt 32.7 35.0 26.8
Retirement of short-term debt (30.6) (16.2) (24.8)
Proceeds from long-term debt - 6.1 -
Retirement of long-term debt (29.6) (18.4) (38.2)
Proceeds from exercise of stock options,
net of taxes 1.4 .7 .9
Repurchase of common stock (106.9) (188.2) (.4)
------ ------ ------
Net cash used by financing activities (272.0) (345.4) (145.8)
Effect of exchange rate changes on cash and
equivalents 2.9 (10.6) (24.0)
------ ------ ------
Net(decrease) increase in cash and equivalents (63.4) (9.1) 82.3
Cash and equivalents at beginning of year 214.8 223.9 141.6
------ ------ ------
Cash and equivalents at end of year $151.4 $214.8 $223.9
====== ====== ======
Cash paid for
Interest $ 36.4 $ 47.8 $ 37.6
Income taxes, net of refunds received 133.5 130.4 132.7
The accompanying notes are an integral part of these statements.
<PAGE>45
<TABLE>
<CAPTION>
Consolidated Statement of Changes Avon Products, Inc.
in Shareholders' Equity
In millions, except share data
<S> <C> <C> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-In Retained Translation Treasury
Shares Amount Capital Earnings Adjustments Stock Total
- - ------------ ------ ------- -------- ----------- ------- -----
Balance at December 31, 1992 86,445,682 $43.2 $654.3 $126.5 $(155.6) $(357.9) $310.5
Net Income 132.1 132.1
Dividends-$1.70 per share (14.5) (108.0) (122.5)
Translation adjustments (19.7) (19.7)
Exercise of stock options,
including tax benefits 24,920 .1 1.3 1.4
Grant, cancellation and amorti-
zation of restricted stock 58,090 9.4 9.4
Repurchase of common stock (.4) (.4)
Benefit plan contributions 1.8 1.4 3.2
---------- ---- ----- ----- ----- ----- -----
Balance at December 31, 1993 86,528,692 43.3 652.3 150.6 (175.3) (356.9) 314.0
Net income 195.8 195.8
Dividends-$1.90 per share (134.0) (134.0)
Translation adjustments (11.8) (11.8)
Exercise of stock options,
including tax benefits 24,068 1.6 1.6
Grant, cancellation and amorti-
zation of restricted stock 111,114 4.8 4.8
Repurchase of common stock (188.2) (188.2)
Benefit plan contributions 1.8 1.6 3.4
---------- ---- ----- ----- ----- ----- -----
Balance at December 31, 1994 86,663,874 43.3 660.5 212.4 (187.1) (543.5) 185.6
Net income 256.5 256.5
Dividends - $2.10 per share (143.1) (143.1)
Translation adjustments (15.0) (15.0)
Exercise of stock options,
including tax benefits 39,627 .1 1.5 1.6
Grant, cancellation and amorti-
zation of restricted stock 45,555 8.2 8.2
Repurchase of common stock (106.9) (106.9)
Benefit plan contributions 2.7 3.1 5.8
---------- ----- ------ ------ ------- ------- ------
Balance at December 31, 1995 86,749,056 $43.4 $672.9 $325.8 $(202.1) $(647.3) $192.7
========== ===== ====== ====== ======= ======= ======
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>46
Notes to Consolidated Financial Statements Avon Products, Inc.
In millions, except share data
1. Description of the Business and Summary of Significant Accounting
Policies
Business
Avon Products, Inc. ("Avon" or "Company") is a global manufacturer
and marketer of beauty and related products. The product categories
include cosmetics, fragrance and toiletries; gift and decorative; apparel;
and fashion jewelry and accessories. Avon's business is comprised of one
industry segment, direct selling, which is conducted in the U.S., the
Americas, the Pacific and Europe. Sales are made to the ultimate customers
principally by Avon Representatives.
Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of Avon and its subsidiaries. Intercompany balances and
transactions are eliminated. These statements have been prepared in
conformity with generally accepted accounting principles and require
management to make estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes.
Actual results could differ from these estimates.
Foreign Currency - The Company has operations in various countries around
the world. Fluctuations in the value of foreign currencies cause U.S. dollar-
translated amounts to change in comparison with previous periods. Accordingly,
the Company cannot project in any meaningful way the possible effect of such
fluctuations upon translated amounts or future earnings. This is due to the
large number of currencies involved, the constantly changing exposure in
these currencies, the complexity of intercompany relationships, the hedging
activity entered into in an attempt to minimize certain of the effects of
exchange rate changes where economically feasible and the fact that all
foreign currencies do not react in the same manner against the U.S. dollar.
Financial statements of foreign subsidiaries operating in other than
highly inflationary economies are translated at year-end exchange rates for
assets and liabilities and average exchange rates prevailing during the year
for income and expense accounts. Translation adjustments of these
subsidiaries are recorded as a separate component of shareholders' equity.
For financial statements of subsidiaries operating in highly inflationary
economies, nonmonetary assets (principally inventories and fixed assets) and
the related expenses (principally cost of sales and depreciation) are
translated at the respective historical exchange rates in effect when the
assets were acquired or when the subsidiary was designated as operating in
a highly inflationary economy. Monetary assets and liabilities are translated
at year-end exchange rates. All other income and expense accounts are
translated at average exchange rates prevailing during the year. Adjustments
resulting from the translation of the financial statements of these
subsidiaries are included in income.
Revenue Recognition - Avon recognizes revenue as shipments are made and
title passes to independent Representatives, who are Avon's customers.
Cash and Equivalents - Cash equivalents are stated at cost plus accrued
interest, which approximates fair value. Cash equivalents are highly liquid
debt instruments with an original maturity of three months or less and consist
of time deposits with a number of commercial banks with high credit ratings
in the U.S. and abroad. In accordance with Avon's policy, the maximum amount
invested in any one bank is limited. Avon believes it is not exposed to any
significant credit risk on cash and equivalents.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out ("LIFO") method for substantially all
U.S. inventories, except apparel, and the first-in, first-out method for all
other inventories.
Depreciation - Substantially all buildings, improvements and equipment are
depreciated using the straight-line method over estimated useful lives.
Estimated useful lives for buildings and improvements range from 20 to 45
years and equipment ranges from 3 to 15 years.
Other Assets - Effective January 1, 1994, Avon changed its method of
accounting for internal systems development costs. Previously, Avon deferred
certain internal costs related to the development of major information and
accounting systems and amortized them over future periods. These internal
development costs are now being expensed as incurred.
Stock Options - Compensation cost is recognized for fixed price options using
the intrinsic value method. Under this method, compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Historically, the Company has not had any significant compensation cost
for options granted.
<PAGE>47
Financial Instruments - Derivative financial instruments are used by the
Company in the management of its interest rate and foreign currency exposures
and are accounted for on an accrual basis. Gains and losses resulting from
effective hedges of existing assets, liabilities or firm commitments are
deferred and recognized when the offsetting gains and losses are recognized
on the related hedged items. Income and expense are recorded in the same
category as that arising from the related asset or liability being hedged.
Gains realized on termination of interest rate swap contracts are deferred
and amortized over the remaining terms of the original swap agreements.
Costs of interest rate cap contracts are amortized over the effective lives
of the contracts if considered to be economic hedges; otherwise, they are
marked-to-market.
Research and Development - Research and development costs are expensed
as incurred and aggregated $27.8 (1994 - $27.9; 1993 - $28.5).
Advertising - Advertising costs are expensed as incurred and aggregated
$52.8 (1994 - $42.6; 1993 - $49.4).
Income Taxes - Effective January 1, 1993, Avon accounts for income taxes
under the provisions of Statement of Financial Accounting Standards ("FAS")
No. 109, "Accounting for Income Taxes", which requires that deferred income
taxes be provided on items recognized for financial reporting purposes in
different periods than for income tax purposes at future enacted rates.
U.S. income taxes have not been provided on approximately $267.0 of
undistributed income of subsidiaries that has been or is intended to be
permanently reinvested outside the United States or is expected to be
remitted free of U.S. income taxes. If such undistributed income was
remitted, foreign withholding taxes of approximately $25.0 would be
payable.
Income per Share - Primary income per share of common stock is based on the
weighted average number of shares outstanding. The decrease in average shares
outstanding during the two year period 1993 to 1995 is primarily due to the
shares acquired under the stock repurchase program.
Reclassifications - To conform to the 1995 presentation, certain
reclassifications were made to the prior years' consolidated financial
statements.
2. Accounting Changes
Effective January 1, 1994, Avon adopted FAS No. 112, "Employers' Accounting
for Postemployment Benefits", for all applicable operations, and FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", for
its foreign benefit plans. In addition, effective January 1, 1994, Avon
changed its method of accounting for internal systems development costs.
As a result of these accounting changes, Avon recorded an aggregate non-
cash charge in the first quarter of 1994 of $45.2, or $.64 per share. This
amount reflects the cumulative effect of adjustments for FAS No. 112 of
$28.9, or $.41 per share, FAS No. 106 of $8.0, or $.11 per share, and systems
development costs of $8.3, or $.12 per share.
Effective January 1, 1993, Avon adopted FAS No. 106, for its U.S. retiree
health care and life insurance benefit plans. FAS No. 106 requires the accrual
of the cost of these postretirement benefits over the estimated service lives
of the employees receiving such benefits, rather than recognizing these
expenses when paid. Avon recorded the entire previously unrecognized
obligation of $183.3 ($110.0 after tax, or $1.53 per share) at the time of
adoption as a cumulative effect adjustment.
FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ", was issued in March 1995 and is
effective for fiscal years beginning after December 15, 1995. 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. The Company will adopt this statement effective
January 1, 1996, and does not anticipate any significant impact to its results
of operations or financial position upon adoption.
FAS No. 123, "Accounting for Stock-Based Compensation", was issued in
October 1995 and is effective for transactions entered into in fiscal years
beginning after December 15, 1995. 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
will provide the fair value disclosure requirements of this statement in the
1996 annual financial statements, but as permitted, the Company will not
change the method of accounting for its employee stock compensation plans.
<PAGE>48
3. Discontinued Operations
In December 1995, the Company entered into an agreement with Mallinckrodt
Group, Inc. ("Mallinckrodt"), which has fully settled the litigation initiated
by Mallinckrodt. The settlement covers all indemnity obligations related to
Avon's sale of Mallinckrodt, including environmental clean-up claims and
litigation concerning Mallinckrodt's settlement of a DuPont patent claim.
The settlement payments being made by Avon to Mallinckrodt, and related
costs, resulted in an after-tax charge to discontinued operations in the
fourth quarter of 1995, net of existing reserves, of $29.6, or $.43 per share.
During 1994, the Company sold Giorgio Beverly Hills, Inc. ("Giorgio"),
its remaining retail business, for cash of $150.0. The Company recorded a loss
of $25.0 on the sale. Giorgio's operating results are segregated and reported
as discontinued operations through the date of sale.
Since the Company has excess capital loss carryforwards, no tax benefits
were recognized on the above losses in 1995 and 1994.
Amounts included in income from discontinued operations for Giorgio for
the years ended December 31, were as follows:
1994(1) 1993
------ ------
Net sales $58.1 $163.5
Income before taxes 2.0 23.8
Net income 1.2 12.7
(1) Represents the net sales and income through the measurement date of
June 30, 1994.
During 1993, Avon recorded a discontinued operations provision of $10.0
after tax, or $.14 per share, for the final settlement and related expenses in
an arbitration proceeding related to a business previously sold.
At December 31, 1995, current liabilities include $46.1 relating to
discontinued operations. These liabilities represent the estimated costs
relating to the Mallinckrodt settlement discussed above and other businesses
previously sold.
4. Inventories
Inventories at December 31, consisted of the following:
1995 1994
----- ----
Raw materials $133.2 $118.4
Finished goods 333.1 294.4
----- -----
Total $466.3 $412.8
===== =====
LIFO-based inventories totaled $107.1 (1994 - $88.0), with the current
estimated replacement cost exceeding the carrying value by approximately
$20.4 (1994 - $20.4).
5. Debt
Debt at December 31, consisted of the following:
1995 1994
---- ----
Maturing within one year:
Notes payable $ 42.3 $ 32.0
Current portion of long-term debt 5.0 29.2
---- ----
Total $ 47.3 $ 61.2
===== =====
Long-term debt:
170 million 6 1/8% Deutsche Mark notes, due 1998 (1) $100.0 $100.0
10 billion 8 1/2% Yen notes, due 1994 and 1995 - 25.1
Other, payable to 2004 with interest from 6% to 26% 19.2 20.6
Less current portion (5.0) (29.2)
----- -----
Total $114.2 $116.5
===== =====
(1) The Deutsche Mark notes ("Notes") have been effectively converted into
U.S. dollar debt through the use of a currency exchange swap contract which
includes both the principal and the interest. Reflected in the carrying value
of the debt was a currency swap contract receivable at December 31, 1995
of $18.7 (1994 - $9.0).
(2) See Note 7 regarding financial instruments.
Annual maturities of long-term debt for each of the next five years are:
1996 - $5.0; 1997 - $2.2; 1998 - $104.1; 1999 - $1.8; and 2000 - $1.6.
The Company has a five year, $600.0 revolving credit and competitive
advance facility agreement with various banks. At December 31, 1995 and
1994, there were no borrowings under this credit facility. Under this
facility, the Company is able to borrow, on an uncommitted basis, up to
<PAGE>49
$200.0 in various foreign currencies. The facility is primarily to be used
to finance working capital, provide support for the issuance of commercial
paper and support the stock repurchase program. At the Company's option, the
interest rate on borrowings under the facility is based on LIBOR, prime,
federal funds or money market auction rates. The facility has an annual
facility fee of $.6, as well as a utilization fee if more than 50% of the
total commitment is outstanding. The facility contains a covenant for
interest coverage, as defined. The Company is in compliance with this
covenant.
At December 31, 1995, Avon has a $500.0 commercial paper program
supported by the revolving credit and competitive advance facility. In addition,
the Company has bankers' acceptance facilities and uncommitted lines of credit
available of $215.0 (1994 - $235.0) with various banks which have no
compensating balances or fees. As of December 31, 1995 and 1994, there were
no borrowings under any of these facilities. The maximum borrowing under
these combined facilities during 1995 and 1994 was $230.5 and $219.1,
respectively, and the annual average borrowing during the year was
approximately $151.7 and $127.2, respectively, at average annual interest
rates of approximately 6.0% and 4.6%, respectively.
At December 31, 1995 and 1994, international lines of credit totaled
$320.0 and $276.4, respectively, of which $42.3 and $32.0 were outstanding,
respectively. The maximum borrowing under these facilities during 1995 and
1994 was $55.7 and $50.5, respectively, and the annual average borrowing
during the year was $43.9 and $38.9, respectively, at average annual interest
rates of approximately 10.5% and 10.8%, respectively. Such lines have no
compensating balances or fees.
At December 31, 1995 and 1994, Avon also has letters of credit
outstanding totaling $21.5 which guarantee various insurance activities. In
addition, Avon has outstanding letters of credit for various trade activities.
6. Income Taxes
Effective January 1, 1993, Avon adopted FAS No. 109, whereby the cumulative
effect of this accounting change was an increase to income in 1993 of $2.5
($.04 per share).
Deferred tax assets (liabilities) resulting from temporary differences
in the recognition of income and expense for tax and financial reporting
purposes at December 31, consisted of the following:
1995 1994
---- ----
Deferred tax assets:
Postretirement benefits $ 86.8 $ 82.6
Accrued expenses and reserves 54.5 70.1
Employee benefit plans 40.1 27.0
Foreign operating loss carryforwards 37.5 29.5
Capital loss carryforwards 34.8 24.9
Postemployment benefits 12.2 12.6
All other 22.0 25.6
Valuation allowance (77.6) (69.5)
----- -----
Total deferred tax assets 210.3 202.8
----- -----
Deferred tax liabilities:
Depreciation (45.5) (46.6)
Prepaid retirement plan costs (48.1) (35.9)
Capitalized interest (16.3) (17.7)
Unremitted foreign earnings (11.0) (10.6)
All other (13.1) (14.1)
----- -----
Total deferred tax liabilities (134.0) (124.9)
----- -----
Net deferred tax assets $ 76.3 $ 77.9
======= ======
Deferred tax assets (liabilities) at December 31, were classified as
follows:
1995 1994
----- -----
Deferred tax assets:
Prepaid expenses and other $ 50.8 $ 45.5
Other assets 62.0 69.3
------ ------
Total deferred tax assets 112.8 114.8
------ ------
Deferred tax liabilities:
Income taxes (2.9) (4.7)
Deferred income taxes (33.6) (32.2)
------ -----
Total deferred tax liabilities (36.5) (36.9)
------ ------
Net deferred tax assets $ 76.3 $ 77.9
====== ======
The valuation allowance required under FAS No. 109 primarily represents
reserves for foreign operating loss and capital loss carryforwards. The basis
used for recognition of deferred tax assets includes the profitability of the
operations and related deferred tax liabilities.
<PAGE>50
Income from continuing operations before taxes and minority interest
for the years ended December 31, was as follows:
1995 1994 1993
---- ---- ----
United States $149.7 $127.3 $109.6
Foreign 315.3 306.5 285.0
------ ------ ------
Total $465.0 $433.8 $394.6
====== ====== ======
The provision for income taxes for the years ended December 31, was as follows:
1995 1994 1993
---- ---- ----
Federal:
Current $ 23.3 $ 34.0 $ 14.9
Deferred .9 (4.1) (3.5)
------ ------- ------
24.2 29.9 11.4
------ ------- ------
Foreign:
Current 146.2 119.8 141.0
Deferred (1.4) 6.1 (9.2)
------ ------ -----
144.8 125.9 131.8
------ ------ ------
State and other:
Current 7.5 7.5 8.5
Deferred (.1) .2 (.9)
------ ------ ------
7.4 7.7 7.6
------ ------ ------
Total $176.4 $163.5 $150.8
====== ====== ======
The effective tax rate for the years ended December 31, was as follows:
1995 1994 1993
---- ---- ----
Statutory federal rate 35.0% 35.0% 5.0%
State and local taxes, net of federal tax benefit 1.0 1.2 1.3
Tax-exempt operations (.7) (1.4) (1.8)
Taxes on foreign income, including translation 7.5 9.3 8.3
Utilization of net operating loss carryforwards (.1) (5.0) (.2)
Other (4.8) (1.4) (4.4)
----- ----- -----
Effective tax rate 37.9% 37.7% 38.2%
===== ===== =====
At December 31, 1995, Avon had foreign operating loss carryforwards of
approximately $103.3. The loss carryforwards expiring between 1996 and 2003
were $70.0 and the loss carryforwards which do not expire were $33.3. Capital
loss carryforwards, which expire between 1997 and 2000 and may be used to
offset capital gains, if any, were approximately $99.5 at December 31, 1995.
7. Financial Instruments and Risk Management
Risk Management - 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 notional amount of forward exchange contracts and options is the
amount of foreign currency bought or sold at maturity. The notional amount
of interest rate swaps is the underlying principal amount used in determining
the interest payments exchanged over the life of the swap. The notional
amounts are not a direct measure of the Company's exposure through its use
of derivatives.
Interest Rates - 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.
During a substantial portion of the three-year period ended December 31,
1995, the Company utilized interest rate swaps to effectively convert variable
interest on its long-term debt to a fixed interest rate. From November 1994
through July 10, 1995, due to the expiration of an interest rate swap, the
interest payable on the Notes became variable at a rate of one-month LIBOR
plus 1.4%. During the period, the Company had an interest rate cap in place
to reduce its exposure to increases in that variable interest rate above a
specified level. On July 11, 1995, the Company entered into a new interest
rate swap agreement, which effectively reconverted the interest payable on
the Notes to a fixed rate basis of approximately 7.2% through maturity.
Avon has three interest rate swap agreements on the Notes at December 31,
1995 (two at December 31, 1994), each such agreement having a notional
amount of $100.0 (1994 - $100.0), yielding an aggregate notional amount at
December 31, 1995 of $300.0 (1994 - $200.0). Effective January 1995, the
Company had two interest rate caps on the Notes, each with a notional amount
of $100.0, one of which expires in 1996 and the other expires when the Notes
mature. Subsequent to the interest rate on the Notes becoming fixed, these
caps have been marked-to-market and resulted in an insignificant mark-to-
market adjustment.
<PAGE>51
In December 1995, the Company entered into an interest rate cap contract
with a notional amount of $100.0, which expires in early 1997, in order to
hedge a portion of the Company's anticipated short-term variable interest
rate working capital debt. This cap has been marked-to-market with an
insignificant mark-to-market adjustment.
During 1993, Avon had a gain of $16.6 from the sale of interest rate swap
contracts on the Notes, which is being amortized over the remaining term of
the original swap agreements. As of December 31, 1995, the unamortized
balance was $8.2 (1994 - $11.7). In addition, a gain on the sale, in 1990, of
certain interest rate swap agreements related to the Swiss Franc bonds was
amortized over the life of the original swap agreements, which expired in
December 1994.
Foreign Currencies - The Company may periodically hedge foreign currency
royalties, net investments in foreign subsidiaries, firm purchase commitments,
contractual foreign currency cash flows or obligations, including third-party
and 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 December 31, 1995, the Company held foreign currency forward
contracts with notional amounts totaling $182.2 (1994 - $184.1) and option
contracts with notional amounts totaling $90.4 (1994 - $31.2) to hedge
foreign currency items. These contracts all have maturities prior to
December 31, 1996. The Company also entered into certain option contracts
with notional amounts of $8.2 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 option contracts at December 31, 1995,
was insignificant. The Company's risk of loss on these options in the future
is limited to premiums paid, which are insignificant.
These forward and option contracts to purchase and sell foreign
currencies, including cross-currency contracts to sell one foreign currency
for another currency at December 31, are summarized below:
1995 1994
--------------------- -----------------
Buy Sell Buy Sell
------ ------ ------ ------
Deutsche Mark $ 88.4 $ 19.8 $ 72.1 $ 10.4
Japanese Yen 35.6 45.0 40.0 -
Pound Sterling 4.4 44.9 - 53.2
Canadian Dollar 4.5 23.6 - 26.1
Other currencies 3.4 11.2 2.2 11.3
------ ------ ------ ------
Total $136.3 $144.5 $114.3 $101.0
====== ====== ====== ======
Credit and Market Risk - 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.
Non-performance of the counterparties to the balance of all the currency
and interest rate swap agreements in a net receivable position would not
result in a significant write-off at December 31, 1995. In addition, there
are other swap agreements in a net payable position of an insignificant
amount at December 31, 1995. Each agreement provides for the right of offset
between counterparties to the agreement. In addition, Avon may be exposed
to market risk on its foreign exchange and interest rate swap and cap
agreements as a result of changes in foreign exchange and interest rates.
The market risk related to the foreign exchange agreements should be
substantially offset by changes in the valuation of the underlying items
being hedged.
Fair Value of Financial Instruments - FAS No. 107, "Disclosures about
Fair Value of Financial Instruments", requires disclosure of the following
information about the fair value of certain financial instruments for which
it is practicable to estimate that value. For purposes of the following
disclosure, the fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation.
<PAGE>52
The amounts disclosed represent management's best estimates of fair
value. In accordance with FAS No. 107, Avon has excluded certain financial
instruments and all other assets and liabilities from its disclosure.
Accordingly, the aggregate fair value amounts presented are not intended to,
and do not, represent the underlying fair value of Avon.
The methods and assumptions used to estimate fair value are as follows:
Grantor trust - The fair value of these investments, principally money market
funds and equity securities, is based on the quoted market prices for issues
listed on exchanges.
Debt maturing within one year and long-term debt - The fair value of all debt
is estimated based on the quoted market prices for issues listed on exchanges.
Forward exchange and currency option contracts - The fair value of forward
exchange and currency option contracts is estimated based on quoted market
prices from banks.
Interest rate swap, currency swap and interest rate cap
agreements - The fair value of interest rate swap, currency swap and interest
rate cap agreements is estimated based on quotes from the market makers of
these instruments and represents the estimated amounts that Avon would
expect to receive or pay to terminate the agreements.
The asset and (liability) amounts recorded in the balance sheet (carrying
amount) and the estimated fair values of financial instruments at December
31, consisted of the following:
1995 1994
---------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and equivalents $151.4 $151.4 $214.8 $214.8
Grantor trust 49.5 52.2 50.8 50.8
Debt maturing within one year (47.3) (47.3) (61.2) (62.1)
Long-term debt (132.9) (135.9) (125.5) (128.8)
Currency swap contract on long-term
debt 18.7 26.9 9.0 9.4
Other forward exchange and option
contracts 4.6 5.0 .5 2.1
Interest rate cap contracts .1 .1 1.4 2.5
Interest rate swap receivable .1 .1 - -
Interest rate swaps payable (.7) (11.3) (.7) (13.7)
8. Shareholders' Equity
Stock Plans - Under various plans, options have been granted to key employees
to purchase stock at the fair market value on the date of grant.
A summary of changes in stock options, is as follows:
Outstanding
Options Price
------------- -------------
December 31, 1993 223,997 $23 - $63
Granted 413,000 53
Exercised (24,068) 23 - 33
Cancelled (80,827) 23 - 63
------- --------
December 31, 1994 532,102 23 - 53
Granted 715,162 56 - 72
Exercised (39,627) 23 - 53
Cancelled (3,227) 24 - 56
--------- --------
December 31, 1995 1,204,410 $23 - $72
========= ========
At December 31, 1995, options for 224,329 shares were exercisable at
prices ranging from $23 to $53 per share.
<PAGE>53
The 1993 Stock Incentive Plan ("1993 Plan") provides for several types of
equity-based incentive compensation awards. Under the 1993 Plan, the maximum
number of shares that may be awarded is 3,525,000 shares of which no more than
2,000,000 shares may be used for restricted share and stock bonus grants.
Awards, when made, may also be in the form of stock options, stock
appreciation rights, dividend equivalent rights or performance unit awards.
Stock options granted to officers and key employees shall be at a price no
less than fair market value on the date the option is granted. During 1993,
10,000 restricted shares were granted under the 1993 Plan, with an aggregate
value of approximately $.5, which is amortized over a 7.6 year vesting period.
During 1994, 133,985 restricted shares were granted under the 1993 Plan with
an aggregate value of $7.6 and vest and are being amortized over a one to
five year period. During 1995, 48,000 restricted shares were granted under
the 1993 Plan with an aggregate value of $2.8 and vest and are being
amortized over a two to four year period.
Effective January 1, 1994, the 1994 Long-Term Incentive Plan ("1994 LTIP")
was authorized under the 1993 Plan. The 1994 LTIP provides for the grant of
two forms of incentive awards, performance units for potential cash incentives
and 10 year stock options. Performance units are earned over the three-year
performance period 1994-1996, based on the degree of attainment of performance
objectives. The cash target value of the performance units at December 31,
1995 was approximately $29.5. Options are awarded annually over the three-
year performance period and vest in thirds over the three-year period
following each option grant date. As discussed above, these options are
granted at the fair market value on the date the option is granted. As of
December 31, 1995, options on 125,000 shares of stock were exercisable
and are included in the total exercisable number above.
As of December 31, 1993, required performance goals under the prior
long-term incentive plan were achieved and accordingly, fifty percent of
previously issued restricted shares were vested and issued in early 1994.
An additional thirty percent of such shares vested and were issued in early
1995 while the remaining twenty percent vested and were issued in early 1996.
During 1993, 48,090 restricted shares were issued under that plan, with an
aggregate value on the date of grant of $3.5. Expense is recorded as the
restricted shares vest over the periods established for each grant.
Compensation expense under all plans was $13.7 (1994 - $14.4;
1993 - $9.4). The unamortized cost as of December 31, 1995 was $5.0
(1994 - $7.2). The accrued cost of the performance units for the year ended
December 31, 1995 was $9.4 (1994 - $9.6).
In 1995, Avon contributed 46,178 (1994 - 59,520) shares of treasury stock
to an employees' savings plan and recognized expense for its fair value. In
addition, during 1995 the Company contributed an additional 52,000 shares,
for which the expense had been accrued at December 31, 1994. The expense
recognized for the plan in 1995 was $3.7 (1994 - $6.5; 1993 - $4.3).
Share Rights Plan - Avon has a 1987 Share Rights Plan under which one right
has been declared as a dividend for each outstanding share of its common
stock. Each right, which is redeemable at $.01 at any time at Avon's option,
entitles the shareholder, among other things, to purchase one share of Avon
common stock at a price equal to one-half the then current market price, if
certain events have occurred. The right is exercisable if, among other
events, one party obtains a beneficial ownership of 20% or more of Avon's
voting stock.
Dividends - On August 2, 1995, Avon increased the regular dividend on
common shares to an annual rate of $2.20 per share from an annual rate of
$2.00. The first quarterly dividend at the new rate of $.55 per share was
paid on September 1, 1995.
On August 2, 1994, Avon increased the regular dividend on common shares
to an annual rate of $2.00 per share from an annual rate of $1.80. The first
quarterly dividend at the new rate of $.50 per share was paid on September
1, 1994.
On August 9, 1993, Avon increased the regular dividend on common shares
to an annual rate of $1.80 per share from an annual rate of $1.60. The first
quarterly dividend at the new rate of $.45 per share was paid on September
1, 1993.
Stock Repurchase Program - During 1994, Avon's Board of Directors authorized
a stock repurchase program under which Avon may buy back up to 10% of its
outstanding common stock, or approximately 7,000,000 shares. The shares will
be purchased in the open market over a period of up to three years. As of
December 31, 1995, 4.8 million shares have been purchased for $295.1 which
is included in Treasury Stock.
<PAGE>54
9. Employee Benefit Plans
Retirement Plans - Avon and certain subsidiaries have noncontributory
retirement plans for substantially all employees. Benefits under these plans
are generally based on an employee's years of service and average
compensation near retirement. Plans are funded on a current basis except
where funding is not required. Net retirement plan expense for the years
ended December 31, was determined as follows:
1995 1994 1993
---- ---- ----
Service cost $ 33.4 $ 33.7 $33.6
Interest cost 58.5 54.2 55.3
Actual return on plan assets (121.1) 19.9 (77.4)
Net amortization (deferral) 66.4 (72.5) (19.8)
----- ----- -----
Net retirement plan expense $ 37.2 $ 35.3 $31.3
===== ===== =====
Retirement plan expense is determined using assumptions as of the
beginning of the year. The weighted average assumptions used to determine
the data for the years ended December 31, are as follows:
1995 1994 1993
---- ---- ----
Discount rate 8.2% 7.7% 7.7%
Rate of compensation increase 4.8 4.7 5.5
Rate of return on assets 9.3 9.2 9.5
The funded status of retirement plans at December 31, using assumptions
as of the end of the year, consisted of the following:
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
1995 1994 1995 1994
---- ---- ---- ----
Plan assets at fair value (primarily
listed stocks and bonds) $ 623.7 $ 519.4 $ 34.4 $ 42.7
------- ------- ------- -------
Present value of projected benefit
obligation
Accumulated benefit obligation
Vested (475.2) (385.1) (148.0) (133.6)
Nonvested (72.3) (54.5) (30.4) (29.5)
Projected compensation increases (88.3) (81.6) (38.9) (41.1)
------ ------ ------ ------
Projected benefit obligation (635.8) (521.2) (217.3) (204.2)
------ ------ ------ ------
Plan assets less than
projected benefit obligation (12.1) (1.8) (182.9) (161.5)
Unrecognized net loss 123.1 97.4 28.4 22.3
Unrecognized prior service cost 19.0 15.4 8.4 8.9
Unrecognized transition (gain) loss (29.0) (26.7) 11.6 10.6
Adjustment for additional liability - - (14.5) (7.3)
------ ------ ------ ------
Prepaid (accrued) retirement
plan cost $101.0 $ 84.3 $(149.0) $(127.0)
======= ======= ======= =======
At December 31, 1995 and 1994, the weighted average discount rates used
in determining the projected benefit obligations were 7.2% and 8.2%,
respectively.
Prepaid retirement plan cost shown above is included in Other Assets. The
accrued retirement plan cost shown above is primarily included in Employee
Benefit Plans.
Supplemental Executive Retirement and Life Insurance Plans - Avon has a
Supplemental Executive Retirement Plan ("SERP") which is a defined benefit
plan under which Avon will pay supplemental pension benefits to key
executives in addition to amounts received under Avon's retirement plan. The
annual cost of this plan has been included in the determination of the net
retirement plan expense shown above and amounted to $4.4 (1994 - $3.9; 1993 -
$4.3). Such benefits will be paid from Avon's assets. The unfunded
<PAGE>55
accumulated benefit obligation under this plan at December 31, 1995 was
$21.5 (1994 - $15.5) and is primarily included in Employee Benefit Plans.
Avon also maintains a Supplemental Life Insurance Plan ("SLIP") under
which additional death benefits ranging from $.35 to $2.0 are provided to
certain active and retired officers. Avon has acquired corporate-owned life
insurance policies to provide partial funding of the benefits. The cash
surrender value of these policies at December 31, 1995 was $27.1 (1994 - $24.8)
and is held in a grantor trust.
Avon has established a grantor trust to provide funding for the benefits
payable under the SERP and SLIP. The trust is irrevocable and assets
contributed to the trust can only be used to pay such benefits with certain
exceptions. The assets held in the trust at December 31, 1995, amounted to
$76.6 (1994 - $75.6), consisting of a money market fund, a managed portfolio
of equity securities and corporate-owned life insurance policies. These
assets are included in Other Assets.
Postretirement Benefits - Avon provides health care, in excess of Medicare
coverage, and life insurance benefits for the majority of employees who
retire under Avon's retirement plans in the United States and certain foreign
countries. The cost of such health care benefits is shared by Avon and its
retirees. See Note 2 regarding the adoption of FAS No. 106.
Net postretirement benefit cost for the years ended December 31,
included the following components:
1995 1994 1993
---- ---- ----
Service cost $ 4.0 $ 3.3 $ 3.3
Interest cost 16.3 15.2 14.2
----- ----- -----
Total postretirement benefit cost $20.3 $18.5 $17.5
===== ===== =====
The assumptions used to determine the data for the years ended December
31, are as follows:
1995 1994 1993
---- ---- ----
Discount rate 8.5% 8.5% 7.5%
Rate of assumed compensation increases 4.5 5.0 4.5
The accumulated postretirement benefits obligation at December 31, which
is unfunded, for the U.S. plan, and certain foreign plans for which the
obligation was not significant, consisted of the following:
1995 1994
---- ----
Retirees $158.3 $143.5
Other fully eligible participants 14.9 11.6
Other active participants 63.4 51.3
Unrealized (loss) gain (17.8) 3.4
----- -----
Accumulated postretirement benefits
obligation $218.8 $209.8
===== =====
At December 31, 1995 and 1994, the weighted average discount rates used
in determining the accumulated benefits obligation were 7.2% and 8.5%,
respectively.
The assumed rate of future increases in the per capita cost of health
care benefits (the health care cost trend rate) was 10.9% for 1995 and will
gradually decrease each year thereafter to 5.8% in 2005 and beyond.
Increasing the health care cost trend rate by one percentage point would have
increased the accumulated postretirement benefits obligation at December 31,
1995 by $27.9 and would have increased the 1995 annual postretirement benefits
expense by $2.7.
Postemployment Benefits - Effective January 1, 1994, the Company adopted FAS
No. 112, as discussed in Note 2. FAS No. 112 requires the accrual of the cost
of postemployment benefits rather than expensing the costs when paid. These
benefits include salary continuation, severance benefits, disability benefits
and continuation of health care benefits and life insurance coverage to
former employees after employment but before retirement. At December 31, 1995,
the accrued cost for postemployment benefits was $35.8 (1994 - $38.8) and is
included in Employee Benefit Plans.
<PAGE>56
10. Geographic Information
Sales and pretax income by geographic area are presented on page 31.
Identifiable assets by geographic area at December 31, were as follows:
1995 1994 1993
---- ----- ----
United States $ 449.2 $ 414.2 $ 379.6
-------- -------- --------
International
Americas 498.4 463.9 366.6
Pacific 375.5 329.2 279.8
Europe 339.7 308.6 275.5
------- ------- -------
Total International 1,213.6 1,101.7 921.9
------- ------- -------
Corporate and other* 390.0 462.4 617.2
------- ------- -------
Total $2,052.8 $1,978.3 $1,918.7
======= ======= =======
*Includes Cash Equivalents of $60.5 (1994 - $132.5; 1993 - $159.7).
Foreign Exchange - Financial statement translation of subsidiaries operating
in highly inflationary economies and foreign currency transactions resulted
in losses netting to $8.3 (1994 - $6.8; 1993 - $5.2), which are included in
Other Expense, net and Income Taxes. In addition, cost of sales and expenses
include the unfavorable impact of the translation of inventories and prepaid
expenses at historical rates in countries with highly inflationary economies
of $4.7 (1994 - $23.9; 1993 - $34.7).
11. Leases and Commitments
Minimum rental commitments under noncancellable operating leases primarily
for equipment and office facilities at December 31, 1995, consisted of the
following:
Year
----
1996 $ 56.0
1997 41.2
1998 31.0
1999 21.2
2000 17.9
Later years 238.2
Sublease rental income (19.8)
------
Total $385.7(1)
======
(1) Includes leases for office facilities entered into in 1995 for U.S. and
global operations commencing in 1997.
Rent expense related to continuing operations was $78.0 (1994 - $94.0;
1993 - $90.9). Various construction and information systems projects were in
progress at December 31, 1995 with an estimated cost to complete of
approximately $27.9.
12. 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.
In 1991, a class action lawsuit 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 December 31,
1995 should not have a material adverse impact on Avon's consolidated
financial position or results of operations.
13. Subsequent Events
On February 1, 1996, Avon's Board of Directors voted a two-for-one stock
split of the Company's common stock. The stock split is contingent upon
shareholder approval, at the annual meeting of shareholders on May 2, 1996,
of a proposal to amend the Company's articles of incorporation to increase
the number of authorized shares of common stock. If the proposal is approved,
the stock split would become effective as soon as practicable after the
meeting. Financial information contained in this report has not been adjusted
to reflect the impact of the proposed common stock split.
Also, on February 1, 1996, Avon's Board of Directors approved an
increase in the quarterly cash dividend to $.58 per share from $.55. The
first dividend at the new rate will be paid on March 1, 1996, to shareholders
of record on February 14, 1996. On an annualized basis, the new dividend rate
will be $2.32 per share before the proposed stock split.
<PAGE>57
Report of Management
The accompanying consolidated financial statements of Avon Products, Inc.
have been prepared by management in conformity with generally accepted
accounting principles and necessarily include amounts that are based on
judgments and estimates. The audit report of Coopers & Lybrand L.L.P.,
independent accountants, on these financial statements is the result of their
audits of these consolidated financial statements, which were performed in
accordance with generally accepted auditing standards.
Avon maintains an internal control structure and related systems,
policies and procedures designed to provide reasonable assurance that assets
are safeguarded, transactions are executed in accordance with appropriate
authorization and accounting records may be relied upon for the preparation
of financial information. Avon also maintains an internal audit department
that evaluates and formally reports to management on the adequacy and
effectiveness of controls, policies and procedures.
The audit committee of the board of directors, comprised solely of
outside directors, has an oversight role in the area of financial reporting
and internal controls. This committee meets several times during the year
with management, Coopers & Lybrand L.L.P. and the internal auditors to
monitor the proper discharge of each of their respective responsibilities.
Coopers & Lybrand L.L.P. and the internal auditors have free access to
management and to the audit committee to discuss the results of their
activities and the adequacy of controls.
It is management's opinion that Avon's policies and procedures,
reinforced by the internal control structure, provide reasonable assurance
that operations are managed in a responsible and professional manner with a
commitment to the highest standard of business conduct.
/s/James E. Preston /s/Edwina D. Woodbury
James E. Preston Edwina D. Woodbury
Chairman of the Board and Senior Vice President and
Chief Executive Officer Chief Financial Officer
Report of Independent Accountants
To the Shareholders of Avon Products, Inc.
We have audited the accompanying consolidated balance sheet of Avon Products,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These financial statements are the responsibility of Avon's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Avon
Products, Inc. and subsidiaries at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
In 1994, Avon changed its methods of accounting for postemployment
benefits, for postretirement benefits other than pensions for its foreign
benefit plans, and internal systems development costs. In addition, in 1993
Avon changed its methods of accounting for income taxes and postretirement
benefits other than pensions for its United States benefit plans. These
changes are discussed in Notes 1 and 2 to the consolidated financial
statements.
/s/ Coopers & Lybrand L.L.P.
New York, New York
February 1, 1996
<PAGE>58
Income data 1995 1994 1993 1992
------- ------- ------- -------
Net sales $4,492.1 $4,266.5 $3,844.1 $3,660.5
Interest expense 41.3 50.8 45.2 43.7
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 465.0 433.8 394.6 290.0(2)
Income from continuing
operations before minority
interest and cumulative
effect of accounting changes 288.6 270.3 243.8 169.4(2)
Income from
continuing operations 286.1 264.8 236.9 164.2(2)
Income (loss) from
discontinued operations, net (29.6) (23.8) 2.7 10.8
Cumulative effect of
accounting changes, net (1) - (45.2) (107.5) -
Net income (loss) 256.5 195.8 132.1 175.0(2)
Income (loss) per share of
common stock - assuming
full dilution(4)
Continuing operations $ 4.19 $ 3.75 $ 3.28 $ 2.28(2)
Discontinued operations (.43) (.34) .04 .15
Cumulative effect of
accounting changes - (.64) (1.49) -
Net income (loss) 3.76 2.77 1.83 2.43(2)
Cash dividends per share
Common $ 2.10 $ 1.90 $ 1.70 $ 1.50
Preferred - - - -
Balance sheet data
Working capital $ (30.3) $ 9.3 $ 23.1 $ (99.5)
Capital expenditures 72.7 99.9 58.1 62.7
Property, plant and
equipment, net 537.8 528.4 476.2 476.7
Total assets 2,052.8 1,978.3 1,918.7 1,692.6
Debt maturing within one year 47.3 61.2 70.4 37.3
Long-term debt 114.2 116.5 123.7 177.7
Total debt 161.5 177.7 194.1 215.0
Shareholders' equity 192.7 185.6 314.0 310.5
Number of employees
United States 8,000 7,900 8,000 8,700
International 23,800 22,500 21,500 20,700
------ ------ ------ ------
Total employees 31,800 30,400 29,500 29,400
====== ====== ====== ======
(1) Effective January 1, 1994, Avon adopted Statement of Financial
Accounting Standards ("FAS") No. 112, "Employers' Accounting for
Postemployment Benefits", for all applicable operations, and FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions",
for its foreign benefit plans. In addition, effective January 1, 1994, Avon
changed its method of accounting for internal systems development costs.
These development costs are being expensed as incurred, rather than deferred
and amortized over future periods. Effective January 1, 1993, Avon adopted
FAS No. 106, for its U.S. retiree health care and life insurance benefit
plans and FAS No. 109, "Accounting for Income Taxes". See Notes 2 and 6 of
the Notes to the Consolidated Financial Statements. Effective January 1,
1988 Avon adopted FAS No. 96, "Accounting for Income Taxes".
(2) In 1992, Avon began the restructuring of its worldwide manufacturing and
distribution facilities and recorded a provision of $96.0 ($64.4 after tax,
or $.90 per share). Income from continuing operations in 1993 increased 4%
from $228.6, or $3.17 per share, excluding the 1992 restructuring charge.
(3) The following nonrecurring transactions were recorded during 1987: a
pretax gain of $191.0 ($121.1 after tax, or $1.72 per share) resulting from
the sale of subsidiary stock and a special provision for restructure of
$47.5($29.4 after tax, or $.42 per share).
(4) In management's opinion, per share amounts assuming full dilution provide
the most meaningful comparison of per share data because they show the full
effect of the conversion of 18.0 preferred shares into approximately 12.96
common shares on June 3, 1991.
(5) In 1989 and 1988, the calculation of income per share assuming full
dilution is antidilutive and, accordingly, the primary income per share
amount is reported as "income per share of common stock assuming full
dilution."
(6) Includes special dividend of $3.00 paid in 1991.
<PAGE>59
Income data 1991 1990 1989 1988
------- ------- ------- -------
Net sales $3,441.0 $3,291.6 $2,998.3 $2,835.2
Interest expense 75.4 77.5 118.0 112.9
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 352.9 305.6 252.9 208.3
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 209.3 180.3 134.1 121.1
Income from
continuing operations 204.8 174.1 126.5 112.3
Income (loss) from
discontinued
operations, net (69.1) 21.2 (71.9) (536.8)
Cumulative effect
of accounting
changes, net (1) - - - 20.0
Net income (loss) 135.7 195.3 54.6 404.5
Income (loss) per share of
common stock - assuming
full dilution(4)
Continuing operations $ 2.86 $ 2.32 $ 1.63(5) 1.51(5)
Discontinued operations (.97) .28 (1.29)(5) (8.62)(5)
Cumulative effect of
accounting changes - - - .32(5)
Net income (loss) 1.89 2.60 .34(5) (6.79)(5)
Cash dividends per share
Common $ 4.40(6)$ 1.00 $ 1.00 $ 1.50
Preferred 1.011 2.00 2.00 1.00
Balance sheet data
Working capital $ (135.3) $ 71.6 $ 56.3 $ 51.0
Capital expenditures 61.2 36.3 33.3 46.0
Property, plant and
equipment, net 468.5 467.2 472.5 529.1
Total assets 1,693.3 2,010.1 1,994.1 2,362.6
Debt maturing within one year 143.8 207.1 151.7 205.6
Long-term debt 208.1 334.8 673.2 917.9
Total debt 351.9 541.9 824.9 1,123.5
Shareholders' equity 251.6 393.4 228.3 239.3
Number of employees
United States 9,200 9,500 9,400 9,700
International 20,900 20,300 19,900 18,400
------ ------ ------ ------
Total employees 30,100 29,800 29,300 28,100
====== ====== ====== ======
Income data 1987 1986 1985
------- ------- -------
Net sales $2,506.2 $2,235.1 $2,003.7
Interest expense 77.5 45.5 49.1
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 359.6(3) 205.0 171.2
Income from continuing
operations before minority
interest and cumulative effect
of accounting changes 224.8(3) 127.1 104.9
Income from
continuing operations 222.8(3) 126.7 105.0
Income (loss) from
discontinued operations, net (63.7) 32.0 (164.9)
Cumulative effect of
accounting changes, net (1) - - -
Net income (loss) 159.1(3) 158.7 (59.9)
Income (loss) per share of
common stock - assuming
full dilution(4)
Continuing operations $ 3.16(3) $ 1.78 $ 1.31
Discontinued operations (.90) .45 (2.07)
Cumulative effect of
accounting changes - - -
Net income (loss) 2.26(3) 2.23 (.76)
Cash dividends per share
Common $ 2.00 $ 2.00 $ 2.00
Preferred - - -
Balance sheet data
Working capital $ 122.2 $ 129.1 $ 186.6
Capital expenditures 45.9 57.5 47.2
Property, plant and
equipment, net 561.3 536.2 544.6
Total assets 2,419.6 2,143.0 2,188.0
Debt maturing within one year 62.8 104.6 54.5
Long-term debt 801.8 671.2 592.2
Total debt 864.6 775.8 646.7
Shareholders' equity 758.6 681.3 926.4
Number of employees
United States 10,500 10,800 10,000
International 18,100 17,700 18,200
------ ------ ------
Total employees 28,600 28,500 28,200
====== ====== ======
EXHIBIT 21
<PAGE>
AVON PRODUCTS, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Avon Products, Inc. ("Avon"), a New York corporation, consolidates all
majority owned subsidiaries. The principal consolidated subsidiaries, all of
which are wholly owned by Avon or its wholly owned subsidiaries, except as
indicated, are listed below. Included on the list below are subsidiaries
which individually are not significant subsidiaries but primarily represent
subsidiaries in countries in which the Company has direct selling operations.
The names of Avon's other consolidated subsidiaries, which are primarily
wholly owned by Avon or its wholly owned subsidiaries, are not listed because
all such subsidiaries, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary.
Incorporation
Company Country or State
------- ----------------
Cosmeticos Avon S.A.C.I. Argentina
Avon Cosmetics Australia Proprietary Limited Australia
Avon Products Pty. Limited Australia Australia
Avon Cosmetics Vertriebsgesellschaft m.b.h. Austria
Arlington Limited Bermuda Bermuda
Stratford Insurance Company, Ltd. Bermuda
Productos Avon Bolivia Ltda. Bolivia
Avon Cosmeticos, Ltda. Brazil
Avon Canada, Inc. Canada
Avon Direct Inc. Canada
Cosmeticos Avon S.A. Chile
Compagnia de Venta Directa Seller Chile S.A. Chile
Avon Products (Guangzhou) Ltd. (60%) China
CS Avon Cosmetics, Spol. Sr.o. Czech Republic
Avon Capital Corporation Delaware
Avon Diversified Services, Inc. Delaware
Avon International Operations, Inc. Delaware
Avon-Lomalinda, Inc. Delaware
Avon-Mirabella, Inc. Delaware
Marbella Dominicana Delaware
Delaware Manila Manufacturing Company Delaware
Productos Avon S.A. Dominican Republic
Productos Avon Ecuador S.A. Ecuador
Productos Avon, S.A. El Salvador
Avon S.A. France
Avon Cosmetics GmbH Germany
Productos Avon de Guatemala, S.A. Guatemala
Productos Avon, S.A. Honduras
<PAGE>
Incorporation
Company Country or State
------- ----------------
Avon Cosmetics (FEBO) Limited Hong Kong
Avon Cosmetics Hungary KFT Hungary
Avon Service Center, Inc. Illinois
P.T. Avon Indonesia (85%) Indonesia
Albee Dublin Finance Company Ireland
Avon Limited Ireland
Avon Cosmetics S.p.A. Italy
Avon Products Company Limited (66%) Japan
Live and Life Company Limited Japan
Avon Cosmetics (Malaysia) Sendirian Berhad Malaysia
Avon Cosmetics, S.A. de C.V. Mexico
Avonova, S.A. de C.V. (49%) Mexico
M.I. Holdings, Inc. Missouri
Avon Americas, Ltd. New York
Avon Overseas Capital Corporation New York
Avon Cosmetics Limited New Zealand
Productos Avon S.A. Panama
Productos Avon S.A. Peru
Productos De Belleza, S.A. Peru
Avon Cosmetics, Inc. Philippines
Avon Products Mfg., Inc. Philippines
Beautifont Products, Inc. Philippines
Avon Cosmetics Polska Sp. Z.o.o. Poland
Avon Cosmeticos, Lda. Portugal
Avon Cosmetics Spal s.r.o. Slovak Republic
Avon Beauty Products Company Russia
Avon Cosmetics, S.A. Spain
Avon Cosmetics (Taiwan) Ltd. Taiwan
Avon Products Limited Taiwan
Avon Cosmetics (Thailand) Ltd. Thailand
California Manufacturing Company Ltd. Thailand
Eczacibasi Avon Kosmetik Urunleri
Sanayi ve Ticaret A.S. (50%) Turkey
Avon Cosmetics Limited United Kingdom
Avon European Holdings Ltd. United Kingdom
Avon Cosmetics de Venezuela, C.A. Venezuela
EXHIBIT 24
<PAGE>
FORM 10-K
POWER OF ATTORNEY
------------------------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, WARD M. MILLER, JR. and
MARTIN H. MICHAEL and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign the 1995
Annual Report on Form 10-K of Avon Products, Inc. and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto such attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they might
or could do in person, thereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney as
of March 7, 1996.
Signature Title
- - -------------------------------- -----------------------------
Chairman of the Board and Chief
/s/James E. Preston Executive Officer - Principal
_______________ Executive Officer and Director
James E. Preston
/s/Edward J. Robinson President, Chief Operating
______________________ Officer and Director
Edward J. Robinson
Senior Vice President,
/s/Edwina D. Woodbury Chief Financial Officer -
______________________ Principal Financial Officer
Edwina D. Woodbury
<PAGE>
Signature Title
- - ------------------------- -------------------------
Vice President,
/s/ Michael Mathieson Controller - Principal
______________________ Accounting Officer
Michael Mathieson
/s/Brenda Barnes
______________________ Director
Brenda Barnes
______________________ Director
Richard S. Barton
______________________ Director
Daniel B. Burke
/s/ Remedios Diaz Oliver
______________________ Director
Remedios Diaz Oliver
/s/Edward T. Fogarty
______________________ Director
Edward T. Fogarty
______________________ Director
Stanley C. Gault
/s/ George V. Grune
______________________ Director
George V. Grune
<PAGE>
Signature Title
- - ------------------------- -------------------------
______________________ Director
Charles S. Locke
/s/ Ann S. Moore
______________________ Director
Ann S. Moore
/s/ Joseph A. Rice
______________________ Director
Joseph A. Rice
/s/ Cecily C. Selby
______________________ Director
Cecily C. Selby
<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 December 31, 1995 and for the
year then ended included in the Form 10-K as of December
31, 1995 and is qualified in its entirety by reference to
such financial statements.
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 151
<SECURITIES> 0
<RECEIVABLES> 435
<ALLOWANCES> (33)
<INVENTORY> 466
<CURRENT-ASSETS> 1,215
<PP&E> 1,169
<DEPRECIATION> (632)
<TOTAL-ASSETS> 2,053
<CURRENT-LIABILITIES> 1,245
<BONDS> 114
0
0
<COMMON> 43
<OTHER-SE> 150
<TOTAL-LIABILITY-AND-EQUITY> 2,053
<SALES> 4,492
<TOTAL-REVENUES> 4,492
<CGS> 1,769
<TOTAL-COSTS> 3,907
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 78
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 465
<INCOME-TAX> 176
<INCOME-CONTINUING> 286
<DISCONTINUED> 30
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 256
<EPS-PRIMARY> 3.76
<EPS-DILUTED> 3.76
</TABLE>
