<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
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.)
1345 Avenue of the Americas, New York, N.Y. 10105-0196
_______________________________________________________
(New address of principal executive offices)
(212) 282-5000
_________________
(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 $.25) 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 requirements for the past 90 days.
Yes X No
___ ___
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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 $.25) held by
non-affiliates at February 28, 1998 was $9.3 billion.
The number of shares of Common Stock (par value $.25) outstanding
at February 28, 1998 was 131,794,374.
Documents Incorporated by Reference
Parts I and II Portions of the 1997 Annual Report to Shareholders.
Part III Portions of the Proxy Statement for the 1998 Annual
Meeting of Shareholders.
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PART I
ITEM 1. BUSINESS
Certain statements in this report which are not historical facts or
information are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, levels of activity,
performance or achievement of Avon Products, Inc. ("Avon" or "Company"),
or industry results, to be materially different from any future results,
levels of activity, performance or achievement expressed or implied by
such forward-looking statements. Such factors include, among others,
the following: general economic and business conditions; the ability of
the Company to implement its business strategy; the Company's access to
financing and its management of foreign currency risks; the Company's
ability to successfully identify new business opportunities; the
Company's ability to attract and retain key executives; the Company's
ability to achieve anticipated cost savings and profitability targets;
changes in the industry; competition; the effect of regulatory and legal
restrictions imposed by foreign governments; the effect of regulatory
and legal proceedings and other factors as discussed in Item 1 of this
Form 10-K. As a result of the foregoing and other factors, no assurance
can be given as to the future results and achievements of the Company.
Neither the Company nor any other person assumes responsibility for the
accuracy and completeness of these statements.
General
The Company is one of the world's leading manufacturers and
marketers of beauty and related products, which include cosmetics,
fragrance and toiletries (CFT); 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 29 in Avon's 1997
Annual Report to Shareholders.
Recent Developments
On October 23, 1997, the Company announced that it has raised its
long-term growth targets for sales and earnings and that it expects to
record special charges in connection with a major re-engineering
program. Commencing in 1998, the long- term target for sales growth has
been raised to 8-10% compounded annually, and its target for earnings
per share growth has been raised to 16-18% annually. Previously, the
Company targeted long-term sales
growth of 6-8% and long-term earnings per share growth of 13-15%. The
higher targets come largely as a result of initiatives currently
underway and others under review intended to reduce costs by
<PAGE>2
up to $400.0 million a year by 2000, with $200.0 million of the savings
being reinvested concurrently in advertising and marketing programs to
boost sales. Avon expects to record special charges totaling $150.0-
$200.0 million pretax to cover one-time costs associated with the re-
engineering program. Approximately half the charges are expected to be
recorded in the first quarter of 1998, with the balance to be recorded
in early 1999. Approximately $50.0 million of the charges will be cash
related.
On December 11, 1997, the Company announced several senior
executive changes including the appointment of Charles R. Perrin as Vice
Chairman and Chief Operating Officer and the promotion of Andrea Jung to
President, as part of an overall management succession plan for the
Company. In addition, Andrea Jung and Susan J. Kropf, head of Avon's
North American business, were elected to Avon's Board of Directors,
effective January 5, 1998. Mr. Perrin will serve as Chief Operating
Officer until mid-1998, when he is expected to be elected Chief
Executive Officer, succeeding James E. Preston in that capacity. Mr.
Preston will then continue as Chairman of the Board on a full-time basis
until his current term as director expires in May 1999. Avon expects
Ms. Jung to become Chief Operating Officer later in 1998, succeeding Mr.
Perrin in that capacity.
On February 9, 1998, the Company announced that Robert J. Corti was
promoted to Senior Vice President and Chief Financial Officer, effective
February 5, 1998, succeeding Edwina D. Woodbury, in her CFO capacity.
Ms. Woodbury, an Executive Vice President, will now be responsible full-
time for Avon's business process redesign activities.
Strategy
Avon's global strategy is primarily focused on the following key
growth initiatives:
International Expansion
Avon is one of the most widely recognized brand names in the world.
The Company is particularly well positioned to capitalize on growth in
new international markets due to high demand for quality products,
underdeveloped retail infrastructures and relatively attractive earnings
opportunity for women. The Company presently has operations in 44
countries outside the U.S. and its products are distributed in 90 more,
for coverage in 135 markets and it continues to expand into new markets.
The Company has entered 18 new markets since 1990, including Russia and
China and rapidly emerging nations throughout Central Europe, and is
currently evaluating several other markets in Eastern Europe and Asia
Pacific.
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Leveraging Direct Selling Channel
The Company has revitalized its direct selling channel, enabling
the Company to reach women quickly and efficiently as well as introduce
new products that complement the core beauty business. In 1994, Avon
introduced a line of apparel in the U.S., which by 1997 achieved over
$500 million in sales. In 1996 and 1997, the Company had outstanding
success with Barbie dolls, designed exclusively for Avon, making her the
Company's best selling gift product ever. The relationship with Mattel
was expanded in 1997 to include additional products. This array of
products, available through the direct selling channel, increases
earnings opportunities and presents a consistent beauty image to
consumers across a broad product line.
Customer Access and Image Enhancement
To restore and accelerate growth in established industrial nations
such as the U.S., Western Europe and Japan, the Company has developed
new channels to reach customers and improve access to its products
through direct mail catalogs, toll-free telephone numbers, buying by fax
and "on line" with a new home page on the world-wide web, Avon.com. The
Company has also updated the image of its core beauty products and has
created a portfolio of global beauty brands. These contemporary
products project a consistent, high quality image in all markets and
include brands such as Anew, Avon Color, Far Away, Rare Gold, Natori,
Millennia, Josie, and Avon Skin Care. Global brands are growing rapidly
as a percentage of the Company's worldwide CFT business. In 1997 and
1996, they accounted for 39% and 26%, respectively, of core beauty
sales. The development of global brands has also enabled the Company to
achieve major economies of scale by consolidating certain functions like
sourcing and logistics. Avon is also marketing a more vibrant beauty
image through increased promotional spending and image-building
programs.
Distribution
Avon's products are sold worldwide by approximately 2.6 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.
<PAGE>4
The Company's products are sold to customers through a combination
of direct selling and marketing utilizing independent Representatives,
the mail, phone, fax or "on-line". Representatives go where the
customers are, including in the home or in the workplace.
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 and selling aids such as make-up
color charts 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 product category and/or 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 Representative support 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. 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.
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
responsibilities 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 sales incentive based primarily on the increase over
the prior year's sales of Avon products by Representatives in their
district.
<PAGE>5
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
consistently low prices, while maintaining introductory specials and
periodic sales on selected items for limited time periods.
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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.
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.
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 its guarantee of
satisfaction are significant factors in establishing and maintaining its
competitive position.
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Avon's consolidated net sales, by classes of principal products,
are as follows:
Years ended December 31
1997 1996 1995
(In millions)
Cosmetics, fragrance and toiletries $3,093.9 $2,946.8 $2,797.2
Gift and decorative 1,049.7 934.1 780.6
Apparel 565.6 556.3 500.5
Fashion jewelry and accessories 370.2 377.0 413.8
_______ _______ _______
$5,079.4 $4,814.2 $4,492.1
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 44 countries and Avon's products are distributed in some
90 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 produce its products.
Avon has nineteen 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
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laboratories for the four distribution centers. Also, in the United
States, Avon's Discovery Toy business is supported by one distribution
center. 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.
Contingencies
Various lawsuits and claims (asserted and unasserted), arising in
the ordinary course of business or related to businesses previously
sold, are pending or threatened against Avon. The 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, 1997 should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
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; apparel; and fashion jewelry.
Christmas sales cause a sales peak in the fourth quarter of the year.
Fourth quarter net sales were 30 percent and 31 percent of total net
sales in 1997 and 1996, respectively, and fourth quarter pretax income
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from continuing operations was 40 percent and 42 percent in 1997 and
1996, 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 effective beauty treatments relevant to women's needs. In
addition, Avon's research and development supports its environmental
responsibilities.
A team of researchers and technicians apply the disciplines of
science to the practical aspects of bringing products to market around
the world. Relationships with well known dermatologists and other
specialists extends 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 cosmetic use in the Anew Perfecting Complex
products. Today, Avon's Anew product line has been expanded to include
technologically advanced products such as Retinol Recovery Complex PM
Treatment and Night Force Vertical Lifting Complex. Night Force employs
a patent-pending material named AVC10, a molecule that was engineered by
Avon researchers over a three-year period.
The amounts incurred on research activities relating to the
development of new products and the improvement of existing products
were $29.9 million in 1997, $30.2 million in 1996 and $27.8 million in
1995. 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. A corporate environmental operations
committee ensures that opportunities for environmental performance
improvements are reflected in our products, packaging and manufacturing
processes.
In general, compliance with environmental regulations impacting
Avon's global operations has not had, and is not anticipated to have,
any material effect upon the
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capital expenditures, financial position or competitive position of
Avon.
EMPLOYEES
At December 31, 1997, Avon employed 34,995 people. Of these, 8,053
were employed in the United States and 26,942 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; the distribution centers are
located in Atlanta, GA; Glenview, IL; Newark, DE; Pasadena, CA; and
Discovery Toy's distribution center located in Livermore, CA.
International properties include four manufacturing laboratories,
including a fashion jewelry manufacturing laboratory in Ireland, and ten
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
ten distribution centers in the Pacific region. 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 1997,
the office facilities for the U.S. and global operations were 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.
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.
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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, 1997 should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
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
the 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, results of operations or cash flows.
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, 1997.
______________
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 1998 Annual
Meeting of Shareholders.
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 64 1971
Vice Chairman,
Chief Operating Officer
and Director Charles R. Perrin 52 1998(1)
President and Director Andrea Jung 39 1997(2)
Executive Vice President,
Business Process Redesign Edwina D. Woodbury 46 1990
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Executive Vice President
and Director Susan J. Kropf 49 1997
Executive Vice Presidents Jose Ferreira 41 1997
Fernando Lezama 58 1997
Senior Vice President, General
Counsel and Secretary Ward M. Miller, Jr. 65 1993(3)
Senior Vice President and
Chief Financial Officer Robert J. Corti 48 1988
Senior Vice President Marcia L. Worthing 55 1988
Vice President and Controller Michael R. Mathieson 45 1995
(1) Charles R. Perrin joined Avon as Vice Chairman and Chief Operating
Officer in January 1998. Mr. Perrin has been a member of Avon's Board
of Directors since May 1996. Prior to joining Avon, he was Chairman and
Chief Executive Officer of Duracell International Inc. from 1994 until
1996. He joined Duracell in 1985 as President of its U.S. Business and
was named President and Chief Operating Officer in 1992.
(2) Andrea Jung was elected President in January 1998. Ms. Jung joined
Avon in January 1994 as President, Product Marketing and was promoted to
Executive Vice President, Global Marketing and New Business in March
1997. Prior to joining Avon, she was Executive Vice President of Nieman
Marcus and Senior Vice President, General Merchandise for I. Magnin.
(3) 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.
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 40 of Avon's 1997 Annual Report to
Shareholders.
<PAGE>13
ITEM 6. SELECTED FINANCIAL DATA
The information for the five-year period 1993 through 1997 is
incorporated by reference to the "Eleven-Year Review" on pages 58 and 59
of Avon's 1997 Annual Report to Shareholders.
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 27 through 39 of Avon's 1997 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 41 through 56, together with
the report thereon of Coopers & Lybrand L.L.P., on page 57, and "Results
of Operations by Quarter" on page 40 of Avon's 1997 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 1998 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 1998 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 1998 Annual Meeting of
Shareholders.
<PAGE>14
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
1998 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
Annual
Report to
Shareholders Form 10-K
Page Number Page Number
____________ ___________
(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, 1997 41
Consolidated balance sheet at
December 31, 1997 and 1996 42
Consolidated statement of cash flows
for each of the years in the three-year
period ended December 31, 1997 43
Consolidated statement of changes in
shareholders' equity for each of
the years in the three-year period
ended December 31, 1997 44
Notes to consolidated financial
statements 45-56
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, 1997
II.--Valuation and qualifying
accounts S-3
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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.
(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 May 13, 1996
(incorporated by reference to Exhibit 3.1 to Avon's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
3.2 By-laws of Avon, as restated, effective June 6, 1996 (incorporated
by reference to Exhibit 3.2 to Avon's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996).
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 and refiled under Form SE as of December 31, 1996).
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 and refiled under Form SE as of December
31, 1996).
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 and refiled under Form SE as of
December 31, 1996).
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 and refiled under Form SE as of
December 31, 1996).
<PAGE>16
4.6 Amended and Restated Revolving Credit and Competitive Advance
Facility Agreement, dated as of August 8, 1996, 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, 1996).
4.7 Indenture dated as of August 1, 1997 between Avon as Issuer, and
The Chase Manhattan Bank, as Trustee relating to the 6.55% Notes due
2007 (incorporated by reference to Exhibit 4.2 to Avon's Registration
Statement on Form S-4, Registration Statement No. 333-41299 filed
December 1, 1997).
4.8 Rights Agreement, dated as of March 30, 1998 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of New York
(incorporated by reference to Exhibit to Avon's Registration Statement
on Form 8-A, filed March 18, 1998).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders on May 6, 1993 (incorporated by reference to Exhibit 10.2
to Avon's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).
10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993
Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
Avon's Annual Report on Form 10-K for the year ended December 31, 1993).
10.3* First Amendment to the 1993 Avon Stock Incentive Plan effective
January 1, 1997, approved by stockholders on May 1, 1997 (incorporated
by reference to exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997).
10.4* Avon Products, Inc. 1997 Long-Term Incentive Plan, effective as
of January 1, 1997 approved by stockholders on May 1, 1997.
10.5* 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).
10.6* 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).
10.7* 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 and refiled under Form SE for the year ended
December 31, 1996).
<PAGE>17
10.8* 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).
10.9* 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).
10.10* 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).
10.11* The Avon Products, Inc. Deferred Compensation Plan, as amended
and restated as of January 1, 1996 (incorporated by reference to
Exhibit 10.12 to Avon's Annual Report on Form 10-K for the year ended
December 31, 1996).
10.12* Trust Agreement, dated as of April 21, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement as of August
3, 1989 between Avon and Manufacturers Hanover Trust Company
(incorporated by reference to Exhibit 10.14 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13* 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 and refiled under Form SE for the year ended December 31, 1996).
10.14* Employment Agreement, dated as of November 1, 1995, between Avon
and James E. Preston (incorporated by reference to Exhibit 10.16 to
Avon's Annual Report on Form 10-K for the year ended December 31, 1995).
10.15* Stock Option Agreement between Avon and James E. Preston dated
October 30, 1995 (incorporated by reference to Exhibit 10.17 to Avon's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.16* Supplemental Employment Agreement, dated as of December 10, 1997
between Avon and James E. Preston.
10.17* Stock Option Agreement between Avon and James E. Preston dated
December 10, 1997.
<PAGE>18
10.18* Employment Agreement, dated as of December 11, 1997 between Avon
and Charles R. Perrin.
10.19* Stock Option Agreement between Avon and Charles R. Perrin dated
December 10, 1997.
10.20* Employment Agreement dated as of December 11, 1997 between Avon
and Andrea Jung.
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. Compensation Plan for Non-Employee Directors,
effective May 1, 1997.
10.23* Avon Products, Inc. Board of Directors' Deferred Compensation
Plan, amended and restated, effective January 1, 1997.
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 and refiled under Form SE for the year ended December
31, 1996).
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).
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1997 incorporated by reference in response to Items 1,5
through 8 in this filing.
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, 1997 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
There was no Form 8-K filed during the fourth quarter of 1997.
<PAGE>19
On March 18, 1998, the Company filed a Form 8-K announcing that on
March 5, 1998, the Board of Directors of Avon Products, Inc., adopted
a new shareholder rights plan, effective as of the close of business on
March 30, 1998, to replace the Company's existing shareholder rights
plan, which expires at the close of business on March 30, 1998.
(c) Avon's Annual Report on Form 10-K for the year ended December 31,
1997, 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.
<PAGE>20
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 23rd day of March 1998.
Avon Products, Inc.
By /s/WARD M. MILLER, JR.
Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
<PAGE>21
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
_________ _____ ____
*
______________________
James E. Preston Chairman of the Board and
Chief Executive Officer -
Principal Executive
Officer and Director March 5, 1998
*
______________________
Charles R. Perrin Vice Chairman, Chief
Operating Officer and
Director March 5, 1998
*
______________________
Robert J. Corti Senior Vice President,
Chief Financial Officer
Principal Financial
Officer March 5, 1998
*
______________________
Michael R. Mathieson Vice President and
Controller - Principal
Accounting Officer March 5, 1998
*
______________________
Andrea Jung President, Avon Products, Inc.
and Director March 5, 1998
*
______________________
Susan J. Kropf Executive Vice President,
President, Avon North America
and Director March 5, 1998
BRENDA BARNES )
RICHARD S. BARTON )
REMEDIOS DIAZ OLIVER )
EDWARD T. FOGARTY ) Directors March 5, 1998
CHARLES S. LOCKE )
ANN S. MOORE )
/s/WARD M. MILLER, JR.
______________________
Ward M. Miller, Jr. Attorney-in-
fact March 5, 1998
<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, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997 has
been incorporated by reference in this Form 10-K from page 57 of the
1997 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, 1997, 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, 1997 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 5, 1998
<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. 33-
47209), Form S-8 (Reg. No. 33-60218), Form S-8 (Reg. No. 33-60918), and
Form S-8 (Reg. No. 33-65998), of our reports dated February 5, 1998 on
our audits of (i) the consolidated financial statements of Avon
Products, Inc. as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997, which report is
included in the 1997 Annual Report to Shareholders and incorporated by
reference in this Annual Report on Form 10-K and (ii) the 1997, 1996 and
1995 financial statement schedule of Avon Products, Inc., which report
is included in this Annual Report on Form 10-K.
New York, New York
March 23, 1998
<PAGE>S-3
AVON PRODUCTS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Years ended December 31
Additions
____________________
Balance at Charged to Charged Balance
beginning costs and to other at end
of period expenses accounts Deductions of period
1997
Allowance for
doubtful accounts
receivable $36.4 $80.8 $ -- $81.7(a) $35.5
1996
Allowance for
doubtful accounts
receivable $32.6 $79.0 $ -- $75.2(a) $36.4
1995
Allowance for
doubtful accounts
receivable $27.3 $78.0 $ -- $72.7(a) $32.6
(a) Accounts written off, net of recoveries and foreign currency
translation adjustment.
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, 1997 Commission file number
1-4881
____________
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
____________
<PAGE>
EXHIBITS
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 May 13, 1996
(incorporated by reference to Exhibit 3.1 to Avon's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
3.2 By-laws of Avon, as restated, effective June 6, 1996
(incorporated by reference to Exhibit 3.2 to Avon's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
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 and refiled under Form SE as of December 31, 1996).
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 and refiled under Form SE as of December
31, 1996).
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 and refiled under Form SE as of
December 31, 1996).
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) and refiled under Form SE as of
December 31, 1996).
4.6 Amended and Restated Revolving Credit and Competitive Advance
Facility Agreement, dated as of August 8, 1996, 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, 1996).
<PAGE>
4.7 Indenture dated as of August 1, 1997 between Avon as Issuer, and
The Chase Manhattan Bank, as Trustee relating to the 6.55% Notes due
2007 (incorporated by reference to Exhibit 4.2 to Avon's Registration
Statement S-4, Registration Statement No. 333-41299 filed December 1,
1997).
4.8 Rights Agreement, dated as of March 30, 1998 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of New York
(incorporated by reference to Exhibit to Avon's Registration Statement
on Form 8-A, filed March 18, 1998).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders on May 6, 1993 (incorporated by reference to Exhibit 10.2
to Avon's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).
10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993
Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
Avon's Annual Report on Form 10-K for the year ended December 31, 1993).
10.3* First Amendment to the 1993 Avon Stock Incentive Plan effective
January 1, 1997, approved by stockholders on May 1, 1997 (incorporated
by reference to Exhibit 10.1 to Avon's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997).
10.4* Avon Products, Inc. 1997 Long-Term Incentive Plan, effective as
of January 1,1997, approved by stockholders on May 1, 1997.
10.5* 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).
10.6* 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.
10.7* 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 and refiled under Form SE for the year ended
December 31, 1996).
10.8* 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).
<PAGE>
10.9* 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).
10.10* 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).
10.11* The Avon Products, Inc. Deferred Compensation Plan, as amended
and restated as of January 1, 1996 (incorporated by reference to Exhibit
10.12 to Avon's Annual Report on Form 10-K for the year ended December
31, 1996).
10.12* Trust Agreement, dated as of April 21, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement as of August
3, 1989 between Avon and Manufacturers Hanover Trust Company
(incorporated by reference to Exhibit 10.14 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13* 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 and refiled under Form SE for the year ended December 31, 1996).
10.14* Employment Agreement, dated as of November 1, 1995, between Avon
and James E. Preston (incorporated by reference to Exhibit 10.16 to
Avon's Annual Report on Form 10-K for the year ended December 31, 1995).
10.15* Stock Option Agreement between Avon and James E. Preston dated
October 30, 1995 (incorporated by reference to Exhibit 10.17 to Avon's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.16* Supplemental Employment Agreement, dated as of December 10, 1997
between Avon and James E. Preston.
10.17* Stock Option Agreement between Avon and James E. Preston dated
December 10, 1997.
10.18* Employment Agreement, dated as of December 11, 1997 between Avon
and Charles R. Perrin.
10.19* Stock Option Agreement between Avon and Charles R. Perrin dated
December 10, 1997.
<PAGE>
10.20* Employment Agreement dated as of December 11, 1997 between Avon
and Andrea Jung.
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. Compensation Plan for Non-Employee Directors,
effective May 1, 1997.
10.23* Avon Products, Inc. Board of Directors' Deferred Compensation
Plan, amended and restated, effective January 1, 1997.
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 and refiled under Form SE for the year ended December
31, 1996).
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).
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1997 incorporated by reference in response to Items 1,5
through 8 in this filing.
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, 1997 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 10.4
<PAGE>
Appendix B
AVON PRODUCTS, INC.
1997 Long Term Incentive Plan
I. INTRODUCTION
1.1 Purpose The purpose of this Plan is to provide additional
incentives for officers and key employees of the Company to operate and
manage the Company's business in a manner that will achieve long-term
growth and profitability and to provide a means of recruiting and
retaining such officers and key employees.
1.2 Relationship to 1993 Stock Incentive Plan This Plan is
subject to the Avon Products, Inc. 1993 Stock Incentive Plan which has
been approved by the Company's shareholders. Accordingly, this Plan
shall be deemed a "Stock Incentive Program" as defined therein and shall
be subject to the terms and conditions of the 1993 Stock Incentive Plan.
In the event of any conflict, the terms and conditions of the 1993 Stock
Incentive Plan shall govern.
1.3 General Description This Plan provides for the grant to
eligible Participants of two forms of incentive awards with respect to a
performance period covering the three years 1997 - 1999, namely
Performance Units and Stock Options. While Performance Units will
consist of potential cash incentives, both types of awards shall be
considered as "Stock Incentives" eligible for grants under the 1993
Stock Incentive Plan. The Plan also provides for the grant of shares of
Restricted Stock Awards as set forth in Part V hereof.
1.4 Definitions Capitalized words and phrases in this Plan
shall have the same meaning as the definitions set forth in the 1993
Stock Incentive Plan, to the extent that they are defined therein,
except as otherwise indicated. Definitions used in this Plan shall have
the meanings set forth below:
<PAGE>
"Committee" means the Compensation Committee of the Board of
Directors, each member of which is an "outside director", within the
meaning of Section 162(m) of the 1986 Internal Revenue Code.
"Performance Period" means the period of three consecutive
calendar years commencing with the year 1997.
"Plan" means the Avon Products, Inc. 1997 Long Term Incentive
Plan.
"Senior Officers" means those Company Executive Officers who are
subject to Section 16 of the Exchange Act and all other officers who
report to the Company's Chief Executive Officer.
II. PARTICIPATION
2.1 General Rule The Committee shall determine the levels and
categories of officers and key employees of the Company and its
Subsidiaries who shall be Participants in the Plan. The initial grant
of Plan awards shall be made during the first 90 days of the first year
of the Performance Period.
2.2 Participants Not Eligible at Time of Initial Grant If an
employee becomes eligible for Participation subsequent to the date of
initial grant, he or she may become a Participant at such later date,
with awards to such a Participant to be subject to the terms set forth
below.
III. PERFORMANCE UNIT AWARDS
3.1 Performance Objectives Performance Units will realize a
cash payout value following the end of the Performance Period, only to
the extent applicable Performance Objectives have been attained for such
period. Performance Objectives applicable to Performance Units awarded
to Global Participants, i.e. participants who are not principally
members of management of an Operating Business Unit ("OBU") or Country,
shall solely be the Cumulative EPS Objectives described below. With
respect to Participants who are principally members of management of an
OBU or Country, 60% of their awarded units shall be subject to the
Cumulative EPS Objectives and 40% subject to their applicable Non-EPS
Performance Objectives, as described below.
Appropriate adjustments in Performance Objectives may be made with
respect to the Performance Units of Participants who during the course
of the Performance Period transfer between OBU's or Countries or have
their status changed to or from that of a Global Participant to reflect
for the balance of the Period the Performance Objectives associated with
each Participant's new status or location. At the discretion of the
Committee, however, a Participant's compensation payable pursuant to
this Article III may be reduced to the amount otherwise payable solely
based on the Performance Objectives applicable to such Participant as of
the time of his or her initial grant of Performance Units.
<PAGE>
3.2 Definitions for Performance Award Units Terms applicable
to Performance Unit awards shall have the meanings set forth below:
a. "Base Grant Value" means the target cash value of each
Performance Unit which shall be $100.
b. "Ultimate Payment Value" means the cash value of each
Performance Unit, which shall be determined by the Committee
following the end of the Performance Period. Such value may
be as high as $200 if the Maximum Growth Rate has been
attained, or zero if the Threshold Growth Rate has not been
attained.
c. "Earnings Per Share" means the fully diluted earnings per
share of Stock calculated on the weighted average number
of shares outstanding as reported in the Company's Annual
Report based on consolidated net income (before
extraordinary items and income taxes related thereto) of
the Company, as determined by the Company's independent
public accountants. Such determination and report shall
be made as of the end of the Performance Period with respect
to such Period and the applicable Base Year in conformity with
generally accepted accounting principles consistently applied.
d. "Cumulative EPS" means the aggregate total Earnings Per Share
for the entire Performance Period.
e. "Target EPS Objective" means the Cumulative EPS established
by the Committee for the Performance Period which, if exactly
attained, shall result in an Ultimate Payment Value of $100
per Performance Unit.
f. "Maximum EPS Objective" means the Cumulative EPS established
by the Committee for the Performance Period which, if
attained or exceeded, shall result in an Ultimate Payment
Value of $200 per Performance Unit.
<PAGE>
g. "Threshold EPS Objective" means the Cumulative EPS
established by the Committee for the Performance Period
which, if exactly attained, shall result in an Ultimate
Payment Value of $50 per Performance Unit and, if not
attained, shall result in an Ultimate Payment Value of zero
for all Performance Units.
h. "Cumulative Operating Profit" means the aggregate total
operating profit achieved for the entire Performance Period
of a designated OBU or Country business unit.
i. "Cumulative Pretax Contribution" means the aggregate total
pretax contribution to the Company achieved for the entire
Performance Period by a designated Country business unit.
j. "Non-EPS Performance Objectives" means the Cumulative
Operating Profit or Cumulative Pretax Contribution
objectives, as established by the Committee, which are
applicable to that portion of a Participant's Performance
Units whose value will be determined by the degree to which
such objectives have been achieved. The value of such units
will be zero, however, if the Threshold EPS Objective has not
been achieved.
k. "Target Non-EPS Performance Objectives" means the level of
Cumulative Operating Profit or Cumulative Pretax
Contribution, whichever is applicable, as established by the
Committee, which, if exactly attained, shall result in an
Ultimate Payment Value of $100 for each Performance Unit
whose value is to be determined by Non-EPS Performance
Objectives.
l. "Maximum Non-EPS Performance Objectives" means the level of
Cumulative Operating Profit or Cumulative Pretax
Contribution, whichever is applicable, as established by the
Committee, which, if attained or exceeded, shall result in an
Ultimate Payment Value of $200 for each Performance Unit
whose value is to be determined by Non-EPS Performance
Objectives.
m. "Threshold Non-EPS Performance Objectives" means the level of
Cumulative Operating Profit or Cumulative Pretax
Contribution, whichever is applicable, as established by the
Committee which, if exactly attained, shall result in an
Ultimate Payment Value of $50 for each Performance Unit whose
value is to be determined by Non-EPS Performance Objectives.
n. "Proration Tables" mean the tables established by the
Committee which shall determine the Ultimate Values of
Performance Units where the applicable performance attained
exceeds its Threshold Objective but is less than its Maximum
Objective (and is not exactly at Target).
<PAGE>
All of the foregoing Performance Objectives and Proration Tables
shall be established by the Committee during the first 90 days of the
Performance Period.
3.3 Grants of Performance Units The Committee shall
authorize grants of Performance Units to Participants and establish the
Performance Objectives to be applied for such units, including the
Target, Maximum and Threshold levels of all relevant objectives and
their Proration Tables. The Committee shall approve (a) all specific
grants of Performance Units to Senior Officers and (b) an aggregate
number of Performance Units to be granted other Participants, which
shall be allocated by the Company's Chief Executive Officer.
The number of Performance Units to be initially granted a
Participant shall be determined as follows: (a) an annualized cash
target amount shall be established, (b) such cash target amount shall be
divided by the Base Grant Value of $100 and (c) the resulting number
shall be multiplied by the number of years in the Performance Period
(three).
When a Participant is promoted to a higher level position,
supplemental grants of Performance Units shall be awarded to such
Participant determined by the amount of base salary increase
attributable to the promotion and the same cash target percentage used
in calculating his or her prior initial grant. The Committee reserves
the right, however, to decline to grant such supplemental Performance
Units. At any time during the Performance Period, grants of Performance
Units may be made, at the Committee's sole discretion, to employees
hired subsequent to the initial grant date or who otherwise have
subsequently become eligible for Participation. All Performance Units
granted subsequent to the initial grant date shall take into account the
shorter period of time remaining between the date of the grant and the
end of the Performance Period. If, for example, a grant was made
effective as of the first day of the second year of the Performance
Period, the cash target amount referred to in the preceding paragraph
would be multiplied by two rather than three.
In no event, however, may the total cash value for aggregate
Performance Units awarded to any one Participant exceed $6,000,000. All
Performance Units, regardless of when granted, shall be subject to the
same performance criteria in determining Ultimate Payment Value,
including the relevant three-year Performance Objectives.
<PAGE>
3.4 Value Determination and Payment The Ultimate Payment
Value(s) of all Performance Units shall be determined by the Committee
as soon as practicable after the end of the Performance Period and its
review of a report concerning actual Cumulative EPS for the period
submitted to the Committee by the Company's independent public
accountants, and the Cumulative Operating Profit and Cumulative Pretax
Contribution totals submitted by the Company's Chief Financial Officer.
The Ultimate Payment Value initially so determined for Performance Units
shall be increased by 10% if an Avon Value Added ("AVA") growth
objective for the Performance Period has been attained or exceeded.
Such AVA "kicker" objective shall be established by the Committee during
the first 90 days of the Performance Period.
Payment to a Participant shall be made in a single sum in cash
equal to the applicable Ultimate Payment Value(s), adjusted by any AVA
kicker, multiplied by his or her total Performance Units and reduced by
applicable tax withholding. Such payments shall be made as soon as
practicable after the Committee determines such Ultimate Payment
Value(s).
3.5 Termination of Employment During Performance Period If
prior to the end of the Performance Period but after completion of the
period's first calendar year, a Participant (a) dies while employed by
the Company, (b) retires under the terms of a Company retirement plan or
(c) is involuntarily terminated by the Company, other than for cause,
such Participant shall remain entitled to a portion of the Performance
Units granted to him or her. Such portion shall be the Participant's
total number of Performance Units multiplied by a fraction, the
numerator of which is the number of months in which such Participant was
actively employed during the Participant's Performance Period (including
the month during which employment terminated) and the denominator of
which is 36 or, if fewer, the number of months from the effective date
of the grant of the Participant's Performance Units to the end of the
Performance Period (applicable in the case of grants first made after
the initial grant).
Except as provided below, no payment can be made for such retained
Performance Units prior to the time the Committee has determined the
Ultimate Payment Value(s) assigned to all Performance Units. To the
extent applicable, if a Threshold Objective has not been attained, no
payment would be made for any Performance Units subject to such
Threshold Objective.
At the discretion of the Committee, however, a payment may be made
on behalf of a deceased Participant prior to the end of the Performance
Period based on the above described proration formula and a Base Grant
Value. Any payment made with respect to a Participant who has died
shall be paid to the beneficiary designated by the Participant to
receive the proceeds of any group life insurance coverage provided for
the Participant by the Company. A Participant who has not designated
such beneficiary, or who desires to designate a different beneficiary,
may file with the Company a written designation of a beneficiary under
the Plan, which designation may be changed or revoked only by the
Participant. If no designation of beneficiary has been made under such
life insurance coverage or filed with the Company, distribution shall be
made to the Participant's spouse, if surviving, and if not, to the
Participant's estate.
<PAGE>
No payment will be due any Participant who voluntarily terminates
employment or whose employment has been involuntarily terminated by the
Company for "cause" prior to the end of the Performance Period. Unless
otherwise provided by an individual employment agreement, a Participant
who is deemed terminated for cause pursuant to the terms of the
applicable Company Severance Pay Plan, shall be deemed terminated for
cause for purposes of this Plan. Except in the case of a "Change of
Control" situation, any Participant who is terminated for any reason
during the first year of the Performance Period is not entitled to any
payment, provided that the Committee, at its discretion, may make a
payment on behalf of a deceased Participant.
No payment will be due any Participant who terminates employment
and prior to the end of the Performance Period, without the written
consent to the Company, (a) knowingly discloses confidential information
concerning the Company, (b) accepts employment, or enters into a
consulting arrangement with, another direct selling company that
competes with the Company or (c) solicits any Company employees to leave
to work for another employer.
3.6 Change of Control In the event that a Change of Control
should occur, payment will be made with respect to all Performance Units
as soon as practicable. The amount to be paid per Performance Unit
shall be the greater of the Base Grant Value ($100) or such higher
Ultimate Payment Value up to $200 as may be established by the Committee
in its discretion. In the event Change of Control occurs prior to the
end of the first calendar year of the Performance Period, only Base
Grant Value will be used.
IV. STOCK OPTION GRANTS
4.1 Initial Option Grants Any Participant eligible to receive
an award of Performance Units at the time of initial grants for the
Performance Period shall also receive a grant of Stock Options. Stock
Options may also be granted to certain Participants who are not
otherwise eligible to receive an award of performance units. Additional
options may be granted to active Participants on the first and second
anniversary dates of the initial grant or at such other times as the
Committee may determine. The Committee shall approve (a) all specific
grants of Stock Options to Senior Officers and (b) an aggregate number
of Stock Options to be granted other Participants, which shall be
allocated by the Company's Chief Executive Officer.
<PAGE>
4.2 Supplemental Option Grants Participants who are first
awarded Performance Units subsequent to the date of the initial grants
may also receive a grant of Stock Options.
4.3 Terms and Conditions One-third of the shares covered by
each Stock Option grant under the Plan shall be exercisable one year
following the date of grant with another one-third exercisable one year
thereafter and the final one-third one year after that. The
exercisability of Stock Options is not affected by the Plan's
performance objectives affecting Performance Units. All other terms and
conditions shall be set forth in a form of Stock Option Agreement. All
Stock Options granted under this Plan shall be consistent with, and
subject to, the terms and conditions of the 1993 Stock Incentive Plan.
4.4 Elective Stock Options Within 60 days of the initial
grant, a Participant may irrevocably elect, subject to the approval of
the Committee, to exchange up to 50% of his or her initially granted
Performance Units for additional "Elective Stock Options". Terms and
conditions relating to the exchange of Performance Units for Elective
Stock Options will be established by the Committee; the exercise terms
for Elective Stock Options may be different than those for regular stock
option grants under this Plan. In no event may any one Participant,
however, receive stock options which, when aggregated with all of his or
her other stock options and stock incentives awarded pursuant to the
1993 Plan, exceed 10% of the Maximum Plan Shares issuable under the 1993
Plan.
V. RESTRICTED STOCK GRANTS
At any time, and from time to time, during the Performance Period
the Committee, at its discretion, may make grants of Restricted Stock to
selected key employees. Such grants principally would be made for the
purpose of attracting and retaining those individuals for whom such form
of additional incentive compensation is deemed to be necessary and in
the best interests of the Company. Such awards of Restricted Stock need
<PAGE>
not be affected by the terms and conditions of this Plan applicable to
grants of Performance Units or Stock Options.
The terms and conditions of any grant of Restricted Stock shall be
set forth in a Stock Incentive Agreement executed by the employee and
the Company. Such terms and conditions shall be consistent with the
1993 Stock Incentive Plan. Dividends on such shares, even though not
vested, may, at the Committee's discretion, be paid out currently.
VI. MISCELLANEOUS
6.1 The Company, the Board of Directors, the Committee and the
officers and other employees of the Company shall not be liable for any
action taken in good faith in interpreting and administering the Plan.
6.2 Pursuant to the provisions of the 1993 Stock Incentive Plan,
the Company shall deduct from all cash payments and distributions under
the Plan any taxes required to be withheld by federal, state, or local
governments.
6.3 The establishment of the Plan shall not be construed as
conferring on any Participant any right to continued employment or
employment in any position, and the employment of any Participant may be
terminated by the Company or by the Participant without regard to the
effect which such action might have upon him or her as a Participant in
the Plan.
6.4 No benefit under the Plan shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt thereof by the Participant, be in any
manner liable for or subject to the debts, contracts, liabilities,
engagements, or torts of the Participant. No benefit or promise
hereunder shall be secured by any specific assets of the Company, nor
shall any assets of the Company be designated as attributable or
allocated to the satisfaction of the Company's obligations under the
Plan.
6.5 The Committee at any time may terminate and in any respect
amend or modify the Plan, so long as such amendment does not adversely
affect the rights of any Participant with respect to Performance Units
and Stock Options granted prior to such amendment. The Committee shall
have the power to interpret the Plan and all interpretations,
determinations and actions by the Committee shall be final, conclusive
and binding upon all parties.
6.6 The Plan shall be governed by and subject to the laws of the
State of New York to the extent not preempted by federal law.
VII. EFFECTIVE DATE
This Plan is effective as of January 1, 1997, and its three-year
Performance Period will commence with the Calendar Year 1997.
EXHIBIT 10.16
<PAGE>
SUPPLEMENTAL 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 10th day of December, 1997.
WHEREAS, the Corporation and the Executive have entered into an
Employment Agreement between the parties dated as of November 1, 1995
("1995 Agreement"), and now wish to modify certain of the provisions of
the 1995 Agreement, effective as of the date of execution of this
agreement;
NOW, THEREFORE, the Corporation and the Executive do hereby
agree as follows:
1. Applicability of 1995 Agreement Except as hereafter provided
in this agreement to the contrary, the terms and conditions of the 1995
Agreement shall remain in full force and effect.
2. Term The term of the 1995 Agreement, as hereby amended,
shall expire on May 6, 1999 which date shall constitute the new
"Agreement Expiration Date".
3. Position The Executive shall continue to serve as Chairman of
the Board of the Corporation until the Agreement Expiration Date. He
shall also serve as Chief Executive Officer of the Corporation during
such period until the Board of Directors elects another officer to be
Chief Executive Officer, which change is anticipated to occur during
1998 effective subsequent to the Annual Meeting of Shareholders on May
7, 1998.
4. Compensation The Executive shall continue to receive a Base
Salary at an annual rate of $1,000,000 for the balance of the term of
this Supplemental Agreement. There would be no Base Salary increase in
1998 as set forth in the original 1995 Agreement. Concurrent with the
date of this Supplemental Agreement the Executive has been granted non-
qualified stock options for 155,530 shares of the Corporation's Common
Stock but he does not participate in the Corporation's 1997 Long Term
Incentive Plan.
<PAGE>
All other terms and conditions relating to compensation as set
forth in the 1995 Agreement remain in effect for the balance of the term
of this Supplemental Agreement.
5. Change of Control In the event of a Change of Control, as
defined in the 1995 Agreement, the Executive will be entitled to all of
the benefits and protections provided in the 1995 Agreement, as amended
by this Supplemental Agreement.
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, Human Resources
and Corporate Affairs
ATTEST:
/s/ Ward M. Miller, Jr.
Ward M. Miller, Jr., Secretary
EXECUTIVE:
/s/ James E. Preston
James E. Preston
Chairman of the Board and
Chief Executive Officer
EXHIBIT 10.17
<PAGE>
AVON PRODUCTS, INC.
1993 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: DECEMBER 10, 1997
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 One Hundred and Fifty-Five Thousand and Five Hundred and Thirty
(155,530) shares of Common Stock of the Company at the exercise price of
$60.50 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 6, 1999 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 6, 1999 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 December 10,
1998.
(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
<PAGE>
(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 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 availability of this form of purchase.
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) December 10, 2007.
(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 66 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
<PAGE>
obligation shall be elected with the notice of exercise and may include
(i) payment by check or (ii) 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. 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.
6. Other Provisions. The provisions set forth in Section 5 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 /s/ Ward M. Miller, Jr.
James E. Preston Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
EXHIBIT 10.18
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, by and between AVON PRODUCTS, INC., a
New York
corporation (the "Corporation"), and CHARLES R. PERRIN (the
"Executive"), dated as of this 11th day of December, 1997.
W I T N E S S E T H:
WHEREAS, the Corporation desires to recognize the Executive's
commitment to the Corporation and to confirm the right of the Executive
to certain employment, compensation and severance benefits; and
NOW, THEREFORE, in consideration of the promises 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 employ the Executive and the
Executive agrees to serve as an executive of the Corporation, in such
capacities and upon such conditions as are hereinafter set forth.
2. Term. The Executive shall be considered an at-will employee
and his employment may be terminated by either party subject to the
obligations of the parties upon such termination as may be set forth
hereinafter.
3. Position and Duties.
(a) Position. The Executive shall serve as Vice Chairman and
Chief Operating Officer, effective January 5, 1998.
(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. 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.
4. Compensation. The Executive shall be entitled to the following
compensation for as long as the Executive remains an employee of the
Corporation;
<PAGE>
(a) Base Salary. The Executive shall receive a base salary (the
"Base Salary") payable in equal bi-weekly installments at an annual rate
of $750,000, effective as of January 1, 1998. The Corporation shall
review the Base Salary periodically and in light of such review may
increase (but not decrease) the Base Salary taking into account any
change in the Executive's responsibilities, increases in compensation of
other executives with comparable responsibilities, performance of the
Executive and other pertinent factors, and such adjusted Base Salary
shall then constitute the "Base Salary" for purposes of this Agreement.
Neither the Base Salary nor any increase in Base Salary after the date
hereof shall serve to limit or reduce any other obligation of
the Corporation hereunder.
(b) Annual Bonus.
(I) In General. 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 at least seventy percent (70%) of the
Base Salary paid the Executive with respect to such fiscal year, which
annual target bonus opportunity may be increased but not decreased
except for annual reductions of up to ten percent (10%) that apply to
all officers of the Corporation. 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.
(ii) Change of Control. Notwithstanding the foregoing,
the Annual Bonus awarded to the Executive for each fiscal year of the
Corporation ending during the period commencing on the Change of Control
Date and ending on the third anniversary thereof or during the pendency
of a Potential Change of Control, shall not be less than the largest
bonus earned by or awarded to the Executive for any the of three fiscal
years of the Corporation ending before such Potential Change of
Control or Change of Control Date, as applicable, or for the fiscal year
in which such Potential Change of Control or Change of Control Date
occurs. For a fiscal year of the Corporation that commences but does
not end before the third anniversary of a Change of Control Date, the
Annual Bonus earned by or awarded to the Executive for that portion of
such fiscal year shall not be less than a ratable portion (based on the
total days elapsed in that fiscal year) of the Annual Bonus that would
have been payable to the Executive had that entire fiscal year ended
before the third anniversary of a Change of Control Date.
(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 on a
basis no less favorable than that basis generally available to
executives of the Corporation holding comparable positions or having
<PAGE>
comparable responsibilities who become an elected or appointed officer
of the Corporation on or after the date on which the Executive first
became an elected or appointed officer of the Corporation. The Executive
is entitled to a death benefit under the SLIP of $750,000.
(d) Other Benefit Plans. The Executive, his spouse and their
eligible dependents (as defined in, and to the extent permitted by, the
applicable plan), 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 him and his dependents.
(e) Other Perquisites. The Executive shall also be entitled
to:
(i) prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and procedures
of the Corporation providing the highest level of reimbursement on the
least restrictive basis available;
(ii) paid vacation and fringe benefits in accordance
with the most favorable policies of the Corporation; and
(iii) all forms of other perquisite benefits made
available to senior officers of the Corporation not specifically
mentioned herein.
(f) Effect of Change of Control on Benefit Plans and Other
Perquisites. Without limiting the generality of Sections 4(c), 4(d) and
4(e) hereof, during the pendency of a Potential Change of Control or
during the period commencing on a Change of Control Date and ending on
the third anniversary thereof, the benefits provided for in such
Sections may not be diminished from the highest level previously
provided or available to the Executive immediately prior to the
Potential Change of Control or within the ninety-day period prior to the
Change of Control Date, as applicable.
(g) Enhanced Retirement Benefits. If the Executive continues
to be employed by the Corporation until July 1, 2004, he will be
provided with a special enhanced retirement benefit commencing at
retirement on or after that date. Details concerning retirement
benefits will be determined in accordance with the terms of a separate
agreement, but in the event of retirement at or after July 1, 2004, the
benefit would approximate 50% of the sum of his salary and annual bonus
averaged over the last three years of his service with the Corporation,
the present value of which will be reduced by the sum of the present
values of all retirement benefits accrued or paid with respect to his
previous employment with other companies and all retirement benefits
derived from other retirement programs maintained by the Corporation.
The Executive will not participate in the Corporation's SERP.
5. Termination.
(a) Disability. The Corporation may terminate the Executive's
<PAGE>
employment after having established 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).
(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 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 60 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
<PAGE>
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 the Severance Plan. For this purpose, any
payment under this Agreement or the Severance Plan 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 the Severance Plan.
(a) Death and Retirement. If the Executive's employment is
terminated by reason of the Executive's death or on or after the
attainment of age sixty-five (65), 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 executives with comparable responsibilities or positions
and their families. In the event of the Executive's death, his family
shall be entitled to receive benefits generally available to the
surviving families of executives with comparable responsibilities or
positions.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability, the Executive, the Executive's
spouse and their eligible dependents (as defined in, and to the extent
permitted by, the applicable plan) shall be entitled for a period of two
years after the Date of Termination (or, if the Date of Termination
occurs within three years after a Change of Control Date, until the
earlier to occur of the Executive's 65th birthday or the third
anniversary of the Change of Control Date, if later) 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). 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 family shall be entitled to receive disability and other
benefits generally available to executives with comparable
responsibilities or positions. Notwithstanding the foregoing, in the
event that the Date of Termination occurs during the pendency of a
Potential Change of Control or during the three year period commencing
on a Change of Control, the benefits provided to the Executive and his
family shall not be less than the benefits generally available to
executives with comparable responsibilities or positions immediately
prior to the Potential Change of Control or within the ninety-day period
prior to the Change of Control Date, as applicable.
(c) Termination by the Corporation for Cause and Voluntary
Termination by Executive. If the Executive's employment shall be
<PAGE>
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 Not Related to Change
of Control or Potential Change of Control. If the Corporation (I)
terminates the Executive's employment other than for Cause or
Disability, or the Executive terminates his employment for Constructive
Termination, and (ii) the Date of Termination occurs during a period
which is not during the pendency of a Potential Change of Control or the
three year period commencing on a Change of Control Date, the
Corporation shall pay or provide to 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 plus, in the case of
termination without Cause, two weeks of Base Salary in lieu of
notice;
(2) the present value, discounted at the Interest
Rate as if paid monthly from the Date of Termination in arrears
of the lesser of (I) thirty-six (36) months of the Executive's
Base Salary at the rate in effect on the Date of Termination,
and (II) the Executive's Base Salary (at the same rate) through
the end of the month in which the executive attains age sixty-
five (65);
(3) a bonus equal to the Executive's target annual
bonus for the year of termination; and
(4) if the Date of Termination is on or after August
1st of the year of termination, a prorated bonus based on
earned salary for that year (not to exceed the Executive's
target bonus award for such year and, if the Executive's bonus
is subject to the discretion of the Board, in the discretion of
the Board).
(B) Benefit Continuation. The Corporation shall provide
for the continued participation of the Executive, his spouse and
their eligible dependents (as defined in the applicable plan),
the case maybe, for a period of two years after the Date of
Termination, in the plans described in Section 4(d) on the same
terms as described in Section 4(d).
(e) Other Termination of Employment Occurring Within Three
Years Following Change of Control. If the Corporation (i) terminates
<PAGE>
the Executive's employment other than for Cause or Disability, or the
Executive terminates his employment for Constructive Termination and
(ii) the Date of Termination occurs during the three (3) year period
commencing on the Change of Control Date, 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 three (3) 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 Change of Control
Date;
(II) the greater of the (x) Annual Bonus
earned by or awarded to the Executive for the last fiscal
year of the Corporation ending prior to the Change of
Control Date or (y) the Annual Bonus earned by or awarded
to the Executive for the fiscal year of the Corporation
which includes the Change of Control Date; and
(III) the present value, calculated using
the Interest Rate, of (without duplication) the annualized
value of the fringe benefits described under Section 4(e)
of this Agreement,
provided, however, that in no event shall the Executive
entitled to receive under this clause (2) more than the greater of
(I) product obtained by multiplying the amount determined as
herein above provided in this clause by a fraction, the numerator
of which shall be the number of months (including fractions
of a month) which at the Date of Termination remain until the
Executive attains age sixty-five (65) or if earlier, the third
anniversary of the Change of Control Date and the denominator of
which shall be thirty-six (36) and (II) an amount equal to the cash
payment that would have been payable under Section 6(d)(A) hereof
had the Change of Control not occurred.
(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 earlier to occur of the third anniversary of the Change
of Control Date or the Executive's 65th birthday and the
Corporation had met its maximum performance goals under each suc
<PAGE>
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
1997 Long-Term Incentive Plan reduced by any amounts actually paid
or payable under such plan with respect to such units;
(B) Other Benefit Continuation. The Corporation
shall provide for the continued participation of the Executive, his
spouse and their eligible dependents (as defined in the applicable
plan), as the case may be, for a period equal to the greater of two
years after the Date of Termination or until the third anniversary
of the Change of Control 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 three (3) times the
annual cost to the Corporation (based on premium rates) of
providing such coverage.
(f) Other Termination of Employment Occurring During Pendency
of Potential Change of Control. If the Corporation (i) terminates the
Executive's employment other than for Cause or Disability, or the
Executive terminates his employment for Constructive Termination and
(ii) the Date of Termination occurs during the pendency of a Potential
Change of Control, the Executive shall be entitled to the payments and
benefits set forth in Section 6(d) hereof. In the event that a Change
of Control occurs before the expiration of the pendency of the Potential
Change of Control during which the Date of Termination occurred, the
Executive shall also be entitled to such additional cash payments as
would have been made under Section 6(e) hereof as if the Date of
Termination had occurred immediately on the Change of Control Date, in
excess of the amount of the cash payment made to the Executive under
Section 6(d) hereof. In addition, in the event that a Change of Control
occurs during the pendency of the Potential Change of Control during
which the Date of Termination occurred, the Executive shall also be
entitled to benefit continuation provided for under Section 6(e) in
excess of the benefit continuation to which he was entitled under
Section 6(d) hereunder. The Executive shall have an additional thirty
(30) days after the Change of Control Date to provide a written election
to the Corporation for a cash payment in lieu of those benefits for
which the Executive has the choice under Section 6(e) between continued
coverage and a cash payment. The cost (based on premium rates) of the
period of coverage previously provided to the Executive before such
election shall be subtracted from any such cash payment.
(g) Discharge of Corporation's Obligations. Subject to the
performance of its obligations under Sections 6, 7, 8 and 11, 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.
<PAGE>
7. Cash-Out of Stock Options and Restricted Stock.
(a) In General. The Executive shall be entitled to receive a
cash out of all of his outstanding restricted stock, stock option and
other equity based awards upon a Change of Control in accordance with
the terms of the Corporation's plans under which such awards were
granted. To the extent that such awards are not cashed out pursuant to
the terms of such plans, they shall become fully vested as of the Change
of Control Date.
(b) Effect of Termination During Pendency of a Potential
Change of Control. If (i) the Executive is terminated during the
pendency of a Potential Change of Control under circumstances giving
rise to payments pursuant to Section 6(f) hereof, (ii) such termination
results in a forfeiture of any of the Executive's restricted stock,
options or other equity based awards under any of the Corporation's
plans, and (iii) prior to the expiration of the pendency of that
Potential Change of Control, a Change of Control occurs, the Executive
shall thereupon be entitled to a cash payment equal to the amount the
Executive would had received under such plans with respect to such
restricted stock, options and other equity based awards as if he had
remained in the Corporation's employ until the Change of Control Date.
Such cash payment shall be made at the same time and in the same manner
as payment would have been made under the applicable plans had the
Executive remained in the Corporation's employ until the Change of
Control Date.
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,
<PAGE>
(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) 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 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
<PAGE>
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 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. In the event that the Executive shall in
<PAGE>
good faith give a Notice of Termination for Constructive Termination and
it shall thereafter be determined that Constructive Termination did not
take place, the employment of the Executive shall, unless the
Corporation and the Executive shall otherwise mutually agree, be deemed
to have terminated, at the date of giving such purported Notice of
Termination, by mutual consent of the Corporation and the Executive and,
except as provided in the last preceding sentence, the Executive shall
be entitled to receive only those payments and benefits which he would
have been entitled to receive at such date had he terminated his
employment voluntarily at such date under 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 two-
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
<PAGE>
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.
(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
If to the Corporation: Avon Products, Inc.
1345 Avenue of the Americas
New York, New York 10105-0196
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,
<PAGE>
and all prior agreements governing the Executive's employment with the
Corporation shall have no further effect; 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
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) A "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 meaning of Rule
<PAGE>
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 (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
<PAGE>
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.
(B) Reduction in annual target bonus opportunity
(excluding annual reductions of up to 10% that apply to all
officers of the Corporation).
(C) A change of more than twenty-five (25) miles in the
office or location where the Executive is based.
(D) (1) General. With respect to any period not
within the three year period following a Change of Control Date
and not during the pendency of a Potential Change of Control, a
demotion to a position below that of Vice Chairman.
(2) Change of Control. With respect to any period
during the pendency of a Potential Change of Control and the
three year period following a Change of Control Date, unless
<PAGE>
with the express written consent of the Executive, (I) the
assignment to the Executive of any duties inconsistent in any
substantial respect with the Executive's position, authority or
responsibilities as contemplated by Section 3(b) of this
Agreement, or (II) any other substantial change in such
position, including titles, authority or responsibilities from
those previously held by the Executive prior to the Potential
Change of Control or Change of Control Date, as applicable.
The Executive's position, authority and responsibilities shall
not be regard as not commensurate with previous position,
authority and responsibilities merely by virtue of the fact
that a successor shall have acquired all or substantially all
of the business and/or assets of the Corporation.
(E) (1) In General. With respect to any period not
within the three year period following a Change of Control Date
and not during the pendency of a Potential Change of Control,
any material reduction in any of the benefits described in
Sections 4(c) through 4(e) hereof (excluding, in each case,
reductions that apply to all officers of the Corporation).
(2) Change of Control. With respect to any period
during the pendency of a Potential Change of Control and the
three year period following a Change of Control Date, any
failure by the Corporation to comply with any of the provisions
of Section 4 of this Agreement, other than an insubstantial or
inadvertent failure remedied by the Corporation promptly after
receipt of notice thereof given by the Executive.
(F) Any failure of the Corporation to obtain the
assumption and agreement to perform this Agreement by a
successor as contemplated by Section 13(b), provided that the
successor has had actual written notice of the existence of
this Agreement and its terms and an opportunity to assume the
Corporation's responsibilities under this Agreement during a
period of ten (10) business days after receipt of such notice.
(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.
<PAGE>
(q) "Notice of Termination" shall have the meaning as
set forth in Section 5(f).
(r) "Potential Change of Control" shall be deemed to have
occurred if:
(A) 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 Corporation's
then outstanding voting securities;
(B) the execution of an agreement by the
Corporation, the consummation of which would result in the
occurrence of a Change of Control;
(C) the public announcement by any person
(including the Corporation) 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 Corporation; or
(D) the adoption by the Board, as a result of other
circumstances, including circumstances similar or related
to the foregoing, or a resolution to the effect that, for
purposes of this Agreement, a Potential Change of Control
has occurred.
A Potential Change of Control will be deemed to be pending from the
occurrence of the event giving rise to the Potential Change of Control
until the earlier of the first anniversary thereof or the date the Board
determines in good faith that such events will not result in the
occurrence of a Change of Control. Notwithstanding the foregoing, no
Potential 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, as applicable) or (ii) if prior to occurrence of an event
that would have given rise to a Potential Change of Control, 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 Potential Change of Control
will not be deemed to occur with respect to the Executive.
(s) "Qualified Plan" shall mean an employee benefit plan
qualified (or which is intended to be qualified) under Section 401(a) of
the Code.
(t) "SERP" shall mean the Supplemental Executive
Retirement Plan of Avon Products, Inc.
(u) "Severance Plan" shall mean Avon Products, Inc.
Severance Plan, or any successor thereof.
(v) "SLIP" shall mean the Supplemental Life Plan of Avon
Products, Inc.
<PAGE>
(w) "Subsidiary" shall mean any majority owned subsidiary
of the Corporation.
(x) "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
Title Senior Vice President
Human Resources & Corp. Affairs
ATTEST:
/s/ Ward M. Miller, Jr.
Title: Senior Vice President,
General Counsel & Sec.
(CORPORATE SEAL)
EXECUTIVE:
/s/ Charles R. Perrin
Address:
80 Pumping Station Road
Ridgefield, CT 06877
EXHIBIT 10.19
<PAGE>
AVON PRODUCTS, INC.
1993 STOCK INCENTIVE PLAN
STOCK OPTION AGREEMENT
DATE OF GRANT: DECEMBER 10, 1997
1. Grant of Option. Pursuant to the provisions of its 1993 Stock
Incentive Plan (the "Plan"), Avon Products, Inc. (the "Company"), on the
above date has granted to Charles R. Perrin (the "Optionee") the right
and option to purchase from the Company a total of 100,000 shares of
Common Stock of the Company at the exercise price of $60.50 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
This option shall be in two sections having different exercise
rights, with Option Grant A covering 37,500 shares and Option Grant B
covering 62,500 shares.
(a) Option Grant A (37,500 shares) This Option shall be
exercisable in three installments of 12,500 shares each. The first
installment shall be exercisable on December 10, 1998, the second on
December 10, 1999 and the third on December 10, 2000, with all 37,500
shares fully exercisable thereafter. To the extent that any of the
above installments is not exercised when it becomes exercisable, it
shall not expire, but shall continue to be exercisable at any time
thereafter until this Option shall terminate, expire or be surrendered.
(b) Option Grant B (62,500 shares) This Option shall also be
exercisable in three installments, with the first installment of 20,833
shares exercisable on December 10, 2000. The second installment of
20,833 shares shall be exercisable on December 10, 2001 and the final
installment of 20,834 shares exercisable on December 10, 2002, with all
62,500 shares fully exercisable thereafter. To the extent that any of
the above installments is not exercised when it becomes exercisable, it
shall not expire, but shall continue to be exercisable at any time
thereafter until this Option shall terminate, expire or be surrendered
<PAGE>
(c) In accordance with the Plan this entire Option (both portions)
shall be immediately cashed out effective as of the date of any "Change
in Control", regardless of whether or not any portion is 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.
(d) 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 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
availability of this form of purchase.
3. Expiration of Option. The Option (both portions) 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) The tenth anniversary of the Date of Grant, or such earlier
time as the Company may determine is necessary or appropriate in light
of applicable foreign tax laws; or
(b) The second anniversary of the date of the Optionee's
Termination of Employment by reason of death, Permanent Disability or
Retirement; or
(c) The Optionee's Termination of Employment for Cause (as defined
below); or
<PAGE>
(d) The date that is ninety days after Termination of Employment
of the Optionee for a reason other than for Cause, death, Permanent
Disability or Retirement. If the Optionee's employment is involuntarily
terminated by the Company other than for Cause, however, the option may
be extended for up to an additional 270 days at the discretion of the
Company, or
(e) The Optionee's violation of any non-disclosure or non-compete
covenant applicable to the Optionee as set forth in his severance
agreement, employment contract or any Company policy, regardless of
whether or not the Optionee has terminated employment due to Permanent
Disability or Retirement, provided that expiration of the Option may not
be effective prior to the date of Termination of Employment.
In the event of Termination of Employment because of death,
Permanent Disability or Retirement, the entire Option shall immediately
become exercisable as to all shares, notwithstanding Section 2 of this
Agreement. "Retirement" means retirement at or after completion of five
(5) years of service with the Company. "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 plan.
"Cause" shall have the same meaning as that provided by the
Optionee's employment contract. In addition, termination for cause
shall include any termination due to acts of dishonesty or gross
misconduct on the part of the Optionee which results, or is intended to
result, in damage to the Company's business reputation.
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, or (ii) use of a 'cashless
exercise' using a broker-dealer in a manner similar to that described in
Section 2(d)(ii) hereof. The method of withholding shall be subject to
such rules as the Company 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.
<PAGE>
5. 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.
6. Other Provisions. The provisions set forth in Section 5 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.
/S/ Charles R. Perrin
Charles R. Perrin
AVON PRODUCTS, INC.
/s/ Ward M. Miller
Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
EXHIBIT 10.20
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, by and between AVON PRODUCTS, INC., a New York
corporation (the "Corporation"), and ANDREA JUNG (the "Executive"),
dated as of this 11th day of December, 1997.
W I T N E S S E T H:
WHEREAS, the Corporation desires to recognize the Executive's
commitment to the Corporation and to confirm the right of the Executive
to certain employment, compensation and severance benefits; and
NOW, THEREFORE, in consideration of the promises 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 employ the Executive and the
Executive agrees to serve as an executive of the Corporation, in such
capacities and upon such conditions as are hereinafter set forth.
2. Term. The Executive shall be considered an at-will employee
and her employment may be terminated by either party subject to the
obligations of the parties upon such termination as may be set forth
hereinafter.
3. Position and Duties.
(a) Position. The Executive shall serve as President,
effective January 5, 1998.
(b) Business Time. The Executive agrees to devote her full
business time during normal business hours to the business and affairs
of the Corporation and to use her best efforts to perform faithfully and
efficiently the responsibilities assigned to her hereunder, to the
extent necessary to discharge such responsibilities. The Executive's
continuing to serve on any boards and committees on which she is serving
or with which she is otherwise associated immediately preceding the date
hereof, or her 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.
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 receive a base salary
(the "Base Salary") payable in equal bi-weekly installments at an annual
rate of $500,000, effective as of January 1, 1998. The Corporation
shall review the Base Salary periodically and in light of such review
may increase (but not decrease) the Base Salary taking into account any
change in the Executive's responsibilities, increases in compensation of
other executives with comparable responsibilities, performance of the
Executive and other pertinent factors, and such adjusted Base Salary
shall then constitute the "Base Salary" for purposes of this Agreement.
<PAGE>
Neither the Base Salary nor any increase in Base Salary after the date
hereof shall serve to limit or reduce any other obligation of the
Corporation hereunder.
(b) Annual Bonus.
(I) In General. For each fiscal year of the Corporation
during which she 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 at least sixty
percent (60%) of the Base Salary paid the Executive with respect to
such fiscal year, which annual target bonus opportunity may be
increased but not decreased except for annual reductions of up to
ten percent (10%) that apply to all officers of the Corporation.
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.
(ii) Change of Control. Notwithstanding the foregoing,
the Annual Bonus awarded to the Executive for each fiscal year of
the Corporation ending during the period commencing on the Change
of Control Date and ending on the third anniversary thereof or
during the pendency of a Potential Change of Control, shall not be
less than the largest bonus earned by or awarded to the Executive
for any the of three fiscal years of the Corporation ending before
such Potential Change of Control or Change of Control Date, as
applicable, or for the fiscal year in which such Potential Change
of Control or Change of Control Date occurs. For a fiscal year of
the Corporation that commences but does not end before the third
anniversary of a Change of Control Date, the Annual Bonus earned by
or awarded to the Executive for that portion of such fiscal year
shall not be less than a ratable portion (based on the total days
elapsed in that fiscal year) of the Annual Bonus that would have
been payable to the Executive had that entire fiscal year ended
before the third anniversary of a Change of Control Date.
(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 generally available to executives of the Corporation holding
comparable positions or having comparable responsibilities who become an
elected or appointed officer of the Corporation on or after the date on
which the Executive first became an elected or appointed officer of the
Corporation. As of January 1, 1998, the Executive is entitled to a
death benefit under the SLIP of $750,000. As of January 1, 1998, the
Executive will have accumulated four (4) years of Creditable Service
under the SERP.
<PAGE>
(d) Other Benefit Plans. The Executive, her spouse and their
eligible dependents (as defined in, and to the extent permitted by, the
applicable plan), 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 her and her dependents.
(e) Other Perquisites. The Executive shall also be entitled
to:
(I) prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and
procedures of the Corporation providing the highest level of
reimbursement on the least restrictive basis available;
(ii) paid vacation and fringe benefits in accordance with
the most favorable policies of the Corporation; and
(iii) all forms of perquisite benefits made available to
senior officers of the Corporation.
(f) Effect of Change of Control on Benefit Plans and
Other Perquisites. Without limiting the generality of Sections 4(c),
4(d) and 4(e) hereof, during the pendency of a Potential Change of
Control or during the period commencing on a Change of Control Date and
ending on the third anniversary thereof, the benefits provided for in
such Sections may not be diminished from the highest level previously
provided or available to the Executive immediately prior to the
Potential Change of Control or within the ninety-day period prior to the
Change of Control Date, as applicable.
5. Termination.
(a) Disability. The Corporation may terminate the Executive's
employment after having established the Executive's Disability, by
giving to the Executive written notice of its intention to terminate her
employment, and her 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 her 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).
(c) Termination by the Corporation. The Corporation at any
time may terminate the Executive's employment for Cause or without
Cause.
<PAGE>
(d) Constructive Termination. The Executive at any time may
terminate her 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 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 60 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 her 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 the Severance Plan. For this purpose, any
payment under this Agreement or the Severance Plan 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 the Severance Plan.
(a) Death and Retirement. If the Executive's employment is
terminated by reason of the Executive's death or on or after the
attainment of age sixty-five (65), 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
<PAGE>
shall be paid to the Executive, her beneficiaries or her 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, she and
her family shall be entitled to benefits generally available upon
retirement to executives with comparable responsibilities or positions
and their families. In the event of the Executive's death, her family
shall be entitled to receive benefits generally available to the
surviving families of executives with comparable responsibilities or
positions.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability, the Executive, the Executive's
spouse and their eligible dependents (as defined in, and to the extent
permitted by, the applicable plan) shall be entitled for a period of two
years after the Date of Termination (or, if the Date of Termination
occurs within three years after a Change of Control Date, until the
earlier to occur of the Executive's 65th birthday or the third
anniversary of the Change of Control Date, if later) 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 family shall be entitled to
receive disability and other benefits generally available to
executives with comparable responsibilities or positions.
Notwithstanding the foregoing, in the event that the Date of Termination
occurs during the pendency of a Potential Change of Control or during
the three year period commencing on a Change of Control, the benefits
provided to the Executive and her family shall not be less than the
benefits generally available to executives with comparable
responsibilities or positions immediately prior to the Potential Change
of Control or within the ninety-day period prior to the Change of
Control Date, as applicable.
(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 Not Related to Change
of Control or Potential Change of Control. If the Corporation (I)
terminates the Executive's employment other than for Cause or
Disability, or the Executive terminates her employment for Constructive
Termination, and (ii) the Date of Termination occurs during a period
which is not during the pendency of a Potential Change of Control or the
three year period commencing on a Change of Control Date, the
Corporation shall pay or provide to the Executive the following:
<PAGE>
(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 plus, in the case of
termination without Cause, two weeks of Base Salary in lieu of
notice;
(2) the present value, discounted at the Interest
Rate as if paid monthly from the Date of Termination in arrears
of the lesser of (I) thirty-six (36) months of the Executive's
Base Salary at the rate in effect on the Date of Termination,
and (II) the Executive's Base Salary (at the same rate) through
the end of the month in which the Executive attains age sixty-
five (65);
(3) a bonus equal to the Executive's target annual
bonus for the year of termination; and
(4) if the Date of Termination is on or after August
1st of the year of termination, a prorated bonus based on
earned salary for that year (not to exceed the Executive's
target bonus award for such year and, if the Executive's bonus
is subject to the discretion of the Board, in the discretion of
the Board).
(B) Benefit Continuation. The Corporation shall provide
for the continued participation of the Executive, her spouse and
their eligible dependents (as defined in the applicable plan), as
the case may be, for a period of two years after the Date of
Termination, in the plans described in Section 4(d) on the same
terms as described in Section 4(d) and in the SERP and SLIP on the
same terms described in Section 4(c), and the Executive shall
receive Creditable Service (as defined in the SERP) for that period
(with Average Final Compensation, as defined in the SERP, to be
determined as of the Date of Termination) for purposes of the SERP
and SLIP.
(e) Other Termination of Employment Occurring Within Three
Years Following Change of Control. If the Corporation (i) terminates
the Executive's employment other than for Cause or Disability, or the
Executive terminates her employment for Constructive Termination and
(ii) the Date of Termination occurs during the three (3) year period
commencing on the Change of Control Date, 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):
<PAGE>
(1) all Accrued Obligations;
(2) a cash amount equal to three (3) 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 Change of Control
Date;
(II) the greater of the (x) Annual Bonus
earned by or awarded to the Executive for the last fiscal year
of the Corporation ending prior to the Change of Control Date
or (y) the Annual Bonus earned by or awarded to the Executive
for the fiscal year of the Corporation which includes the
Change of Control Date; and
(III) the present value, calculated using
the Interest Rate, of (without duplication) the annualized
value of the fringe benefits described under Section 4(e) of
this Agreement,
provided, however, that in no event shall the Executive be
entitled to receive under this clause (2) more than the greater of
(I) product obtained by multiplying the amount determined as
herein above provided in this clause by a fraction, the numerator
of which shall be the number of months (including fractions of a
month) which at the Date of Termination remain until the Executive
attains age sixty-five (65) or if earlier, the third anniversary of
the Change of Control Date and the denominator of which shall be
thirty-six (36) and (II) an amount equal to the cash payment that
would have been payable under Section 6(d)(A) hereof had the Change
of Control not occurred.
(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
she had continued in the employ of the Corporation through
the earlier to occur of the third anniversary of the Change of
Control Date or the Executive's 65th birthday 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 1997 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
<PAGE>
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 earlier of the expiration of
the third anniversary of the Change of Control Date or the
Executive's 65th birthday, determined using, where compensation
is a relevant factor, her 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
or, where such assumptions are not applicable, the Interest
Rate; and
(II) the present value of the retirement benefits
(including, without limitation, any 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, her 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 present value
being calculated using, where applicable, assumptions contained
in the respective plans or, where such assumptions are not
applicable, the Interest Rate.
The incremental 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 earlier of the
third anniversary of the Change of Control Date or the Executive's
65th birthday, 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) Other Benefit Continuation. The Corporation shall
provide for the continued participation of the Executive, her spouse
and their eligible dependents (as defined in the applicable plan), as
the case may be, for a period equal to the greater of two years after
the Date of Termination or until the third anniversary of the Change
<PAGE>
of Control 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 three (3) times the annual cost to the Corporation (based on
premium rates) of providing such coverage.
(f) Other Termination of Employment Occurring During Pendency
of Potential Change of Control. If the Corporation (i) terminates the
Executive's employment other than for Cause or Disability, or the
Executive terminates her employment for Constructive Termination
and (ii) the Date of Termination occurs during the pendency of a
Potential Change of Control, the Executive shall be entitled to the
payments and benefits set forth in Section 6(d) hereof. In the
event that a Change of Control occurs before the expiration of the
pendency of the Potential Change of Control during which the Date of
Termination occurred, the Executive shall also be entitled to such
additional cash payments as would have been made under Section 6(e)
hereof as if the Date of Termination had occurred immediately on the
Change of Control Date, in excess of the amount of the cash payment made
to the Executive under Section 6(d) hereof. In addition, in the event
that a Change of Control occurs during the pendency of the Potential
Change of Control during which the Date of Termination occurred, the
Executive shall also be entitled to benefit continuation provided for
under Section 6(e) in excess of the benefit continuation to which she
was entitled under Section 6(d) hereunder. The Executive shall have an
additional thirty (30) days after the Change of Control Date to provide
a written election to the Corporation for a cash payment in lieu of
those benefits for which the Executive has the choice under Section 6(e)
between continued coverage and a cash payment. The cost (based on
premium rates) of the period of coverage previously provided to the
Executive before such election shall be subtracted from any such cash
payment.
(g) Discharge of Corporation's Obligations. Subject to the
performance of its obligations under Sections 6, 7, 8 and 11, 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. Cash-Out of Stock Options and Restricted Stock.
(a) In General. The Executive shall be entitled to receive a
cash out of all of her outstanding restricted stock, stock option and
other equity based awards upon a Change of Control in accordance with
the terms of the Corporation's plans under which such awards were
granted. To the extent that such awards are not cashed out pursuant to
the terms of such plans, they shall become fully vested as of the Change
of Control Date.
(b) Effect of Termination During Pendency of a Potential
Change of Control. If (i) the Executive is terminated during the
pendency of a Potential Change of Control under circumstances giving
rise to payments pursuant to Section 6(f) hereof, (ii) such termination
results in a forfeiture of any of the Executive's restricted stock,
<PAGE>
options or other equity based awards under any of the Corporation's
plans, and (iii) prior to the expiration of the pendency of that
Potential Change of Control, a Change of Control occurs, the Executive
shall thereupon be entitled to a cash payment equal to the amount the
Executive would had received under such plans with respect to such
restricted stock, options and other equity based awards as if she had
remained in the Corporation's employ until the Change of Control Date.
Such cash payment shall be made at the same time and in the same manner
as payment would have been made under the applicable plans had the
Executive remained in the Corporation's employ until the Change of
Control Date.
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) 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
<PAGE>
(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 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
<PAGE>
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 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. In the event that the Executive shall in
good faith give a Notice of Termination for Constructive Termination and
it shall thereafter be determined that Constructive Termination did not
take place, the employment of the Executive shall, unless the
Corporation and the Executive shall otherwise mutually agree, be deemed
to have terminated, at the date of giving such purported Notice of
Termination, by mutual consent of the Corporation and the Executive and,
except as provided in the last preceding sentence, the Executive shall
be entitled to receive only those payments and benefits which she would
have been entitled to receive at such date had she terminated her
employment voluntarily at such date under this Agreement.
<PAGE>
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 her
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 two-
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 her 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.
(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
<PAGE>
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
If to the Corporation: Avon Products, Inc.
1345 Avenue of the Americas
New York, New York 10105-0196
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; 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
1993 Stock Incentive Plan, any Long Term Incentive Plan, Management
Incentive Plan and any other similar or successor plan or program.
<PAGE>
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 her 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) A "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 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
<PAGE>
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 (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
<PAGE>
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 her 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.
(B) Reduction in annual target bonus opportunity
(excluding annual reductions of up to 10% that apply to all
officers of the Corporation).
(C) A change of more than twenty-five (25) miles in the
office or location where the Executive is based.
(D) (1) In General. With respect to any period not
within the three year period following a Change of Control Date
and not during the pendency of a Potential Change of Control, a
demotion to a position below that of President.
(2) Change of Control. With respect to any period
during the pendency of a Potential Change of Control and the
three year period following a Change of Control Date, unless
with the express written consent of the Executive, (I) the
assignment to the Executive of any duties inconsistent in any
substantial respect with the Executive's position, authority or
responsibilities as contemplated by Section 3(b) of this
Agreement, or (II) any other substantial change in such
position, including titles, authority or responsibilities from
those previously held by the Executive prior to the Potential
<PAGE>
Change of Control or Change of Control Date, as applicable.
The Executive's position, authority and responsibilities shall
not be regard as not commensurate with previous position,
authority and responsibilities merely by virtue of the fact
that a successor shall have acquired all or substantially
all of the business and/or assets of the Corporation.
(E) (1) In General. With respect to any period not
within the three year period following a Change of Control Date
and not during the pendency of a Potential Change of Control,
any material reduction in any of the benefits described in
Sections 4(c) through 4(e) hereof (excluding, in each case,
reductions that apply to all officers of the Corporation).
(2) Change of Control. With respect to any period
during the pendency of a Potential Change of Control and the
three year period following a Change of Control Date, any
failure by the Corporation to comply with any of the provisions
of Section 4 of this Agreement, other than an insubstantial or
inadvertent failure remedied by the Corporation promptly after
receipt of notice thereof given by the Executive.
(F) Any failure of the Corporation to obtain the
assumption and agreement to perform this Agreement by a
successor as contemplated by Section 13(b), provided that the
successor has had actual written notice of the existence of
this Agreement and its terms and an opportunity to assume the
Corporation's responsibilities under this Agreement during a
period of ten (10) business days after receipt of such notice.
(G) Any failure of the Corporation to elect the Executive
to the additional position of Chief Operating Officer effective
on or before January 1, 1999.
(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).
<PAGE>
(r) "Potential Change of Control" shall be deemed to have
occurred if:
(A) 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 Corporation's then outstanding
voting securities;
(B) the execution of an agreement by the Corporation, the
consummation of which would result in the occurrence of a
Change of Control;
(C) the public announcement by any person (including the
Corporation) 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 Corporation; or
(D) the adoption by the Board, as a result of other
circumstances, including circumstances similar or related to
the foregoing, or a resolution to the effect that, for purposes
of this Agreement, a Potential Change of Control has occurred.
A Potential Change of Control will be deemed to be pending from the
occurrence of the event giving rise to the Potential Change of Control
until the earlier of the first anniversary thereof or the date the Board
determines in good faith that such events will not result in the
occurrence of a Change of Control. Notwithstanding the foregoing, no
Potential 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 her
capacity as Executive (or as a director of the Corporation or a
Subsidiary, as applicable) or (ii) if prior to occurrence of an event
that would have given rise to a Potential Change of Control, 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 Potential Change of Control
will not be deemed to occur with respect to the Executive.
(s) "Qualified Plan" shall mean an employee benefit plan
qualified (or which is intended to be qualified) under Section 401(a) of
the Code.
(t) "SERP" shall mean the Supplemental Executive Retirement
Plan of Avon Products, Inc.
(u) "Severance Plan" shall mean Avon Products, Inc. Severance
Plan, or any successor thereof.
(v) "SLIP" shall mean the Supplemental Life Plan of Avon
Products, Inc.
(w) "Subsidiary" shall mean any majority owned subsidiary
of the Corporation.
<PAGE>
(x) "Tax Reimbursement Payment" shall have the meaning set
forth in Section
8(a).
IN WITNESS WHEREOF, the Executive has hereunto set her 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
Title: Senior Vice President
Human Resources & Corp. Affairs
ATTEST:
Ward M. Miller, Jr.
Title: Senior Vice President
General Counsel & Sec.
(CORPORATE SEAL)
EXECUTIVE:
/S/ Andrea Jung
Andrea Jung
Address:
620 Park Avenue
New York, NY 10021
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:
Susan J. Kropf
Ward Miller, Jr.
Edwina Woodbury
Marcia Worthing
EXHIBIT 10.22
<PAGE>
Adopted by Board
of Directors 3/6/97
AVON PRODUCTS, INC.
COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(Effective May 1, 1997)
I. GENERAL PROVISIONS
1.1 Purpose The purpose of the Avon Products, Inc. Compensation
Plan for Non-Employee Directors (the "Plan") is to provide a
comprehensive revised compensation program which will attract and retain
qualified individuals who are not employed by Avon Products, Inc. or its
subsidiaries (the "Company") to serve on the Company's Board of
Directors. In particular, the Plan aligns the interests of such
directors with those of the Company's shareholders by providing that a
significant portion of such compensation is directly linked to increases
in the value of the Company's Common Stock.
1.2 Relationship to 1993 Stock Incentive Plan The Company's 1993
Stock Incentive Plan ("1993 Plan") which was approved by the Company's
shareholders at the Annual Meeting of Shareholders on May 6, 1993,
provides for the award of stock incentives, including stock options and
restricted stock, to key employees of the Company but not to non-
employee directors. Accordingly, this Plan is subject to the approval
by Company shareholders of an amendment to the 1993 Plan at the Annual
Meeting of Shareholders scheduled for May 1, 1997, which amendment
provides that awards pursuant to the 1993 Plan may also be made to non-
employee directors. Subject to such approval, the Plan will become
effective as of May 1, 1997.
1.3 Definitions Capitalized words and phrases in this Plan
shall have the same meaning as the definitions set forth in the 1993
Stock Incentive Plan to the extent they are defined therein.
1.4 Prior Compensation Program: Transition Prior to the
effective date of this Plan, the compensation program for the Company's
non-employee directors principally consisted of an annual retainer
payable wholly in cash, fees for attendance at committee meetings and
special Board meetings, and a retirement plan. Such program remains
applicable for all periods of service prior to May 1, 1997 with the
former annual cash retainer remaining in effect until June 30, 1997.
Non-employee directors who as of May 1, 1997 are within five years of
age 70 may elect to continue to accrue benefits under the terms of the
<PAGE>
retirement plan. The retirement plan, however, will be discontinued for
all other directors as of May 1, 1997 with the actuarial value of
benefits accrued to that date converted into a grant of restricted stock
as set forth in Section 4.2 below.
II. ANNUAL RETAINER AND MEETING FEES
2.1 Annual Retainer Each non-employee director shall be
entitled to receive an annual retainer consisting of (a) $25,000 payable
in cash and (b) Restricted Stock having a value as of the date of grant
of approximately $25,000. The cash portion shall be payable in
quarterly installments of $6,250 each, effective July 1, 1997.
2.2 Annual Restricted Stock Award As part of the Annual
Retainer compensation, each non-employee director will receive an award
of shares of Restricted Stock immediately following each Annual Meeting
of Shareholders, with the first such award being made immediately after
the Annual Meeting held May 1, 1997. The number of shares so granted
each year will be determined by dividing the sum of $25,000 by the
closing price of a share of the Company's Common Stock on the New York
Stock Exchange averaged over 10 consecutive trading days, ending with
the trading day immediately preceding the applicable Annual Meeting.
All grants of Restricted Stock shall be subject to the terms and
conditions set forth in Article IV below.
2.3 Meeting Fees Each non-employee director shall receive a
fee of $1,000, payable in cash, for each meeting of a committee of the
Board of Directors that he or she attends and each special meeting of
the Board of Directors that he or she attends. No fee is payable with
respect to attendance at a regular meeting of the Board of Directors,
including the annual organizational meeting occurring immediately after
an Annual Meeting of Shareholders.
2.4 Retainer Fee for Committee Chairs A non-employee director
appointed to chair any committee of the Board of Directors shall be paid
an annual retainer of $3,000 in cash, such payment to be made within 30
days following the effective date of appointment.
<PAGE>
2.5 Deferred Cash Alternative Each non-employee director
annually may elect to have all or a part of his or her cash
compensation, including annual retainers and meeting fees, deferred for
payment in accordance with the provisions of the Deferred Compensation -
Stock Credit Plan. All such elections for each year shall be made prior
to the beginning of the year.
III. STOCK OPTIONS
3.1 Annual Grants of Stock Options Except as provided in
Section 3.5 below, each non-employee director on the effective date of
the Plan shall be awarded an option ("Option") to purchase 2,000 shares
of the Company's Common Stock ("Stock") if he or she continues as a
director. As of the close of business on the date of each successive
Annual Meeting of Shareholders held thereafter, each non -employee
director who then continues as a director (whether or not re-elected at
any such meeting) shall be granted an additional Option to purchase
2,000 shares. All Options granted pursuant to the Plan shall be non-
qualified Options and shall expire ten (10) years from the date of
grant.
3.2 Option Exercise Price The per share price to be paid to
exercise an Option shall be the "Fair Market Value" of the Stock on the
date of grant which, in accordance with the 1993 Plan, shall be the
closing price for the Stock as traded on the New York Stock Exchange on
the next preceding date during which trading occurred.
3.3 Vesting and Exercise of Options Each Option will become
exercisable one year after the date of grant and may be exercised for a
period of ten (10) years after the date of grant. In the event of
death, a vested Option may be exercised by the estate of the non-
employee director.
3.4 Method of Exercise and Purchase An Option shall be
exercised by giving written notice to the Secretary, or an Assistant
Secretary, of the Company specifying the number of shares to be
purchased and the particular grant being exercised. Such notice shall
be accompanied by a check as payment of the exercise price of the shares
with respect to which such Option, or portion thereof, is exercised.
Alternatively, such notice may include an election to have such shares
delivered to a broker-dealer with whom arrangements have been made to
immediately sell the shares and withhold from the net sale proceeds the
full purchase price amount to be delivered to the Company. The Company
may also require payment of all withholding taxes to exercise an Option,
whether or not a broker-dealer arrangement has been used.
3.5 Continued Participation in Retirement Plan A non-employee
director who as of the effective date, is within five years of
retirement due to attainment of age 70, is eligible to elect to continue
to participate in the existing Retirement Plan for Non-Employee
Directors ("Retirement Plan") and thus accrue additional retirement
benefits for periods of service subsequent to the effective date. No
stock options will be granted to a director who so elects to continue in
that Plan.
<PAGE>
IV. RESTRICTED STOCK
4.1 Annual Retainer Grants of Restricted Stock Each non-
employee director on the effective date of the Plan who continues as a
director shall be awarded shares of Stock that are restricted as to
transfer ("Restricted Stock"). At the close of business on the date of
each successive Annual Meeting of Shareholders held thereafter, each
non-employee director who then continues as a director (whether or not
re-elected at any such meeting) shall be granted additional shares of
Restricted Stock. The number of shares of Restricted Stock to be
granted at the effective date and at each successive Annual Meeting of
Shareholders will have a Fair Market Value of $25,000 on the date of
grant. The Fair Market Value per share shall be deemed to be the
closing price of a share of Company Common Stock as reported on the New
York Stock Exchange averaged over the ten trading days next preceding
the date of grant. A fractional share resulting from such calculation
will be rounded to the nearest whole share.
4.2 Special Grants of Restricted Stock
(a) Each non-employee director whose participation in the
Retirement Plan is automatically discontinued as of the effective date
of the Plan shall receive an award of shares of Restricted Stock having
a Fair Market Value equal to the actuarial present value of his or her
retirement benefits accrued as of that date.
(b) Each non-employee director who is eligible to continue
to participate in the Retirement Plan after the effective date of the
Plan may elect to convert all or one-half of the actuarial present value
of his or her accrued retirement benefits into shares of Restricted
Stock having an equivalent Fair Market Value. Such election would be
irrevocable, and must be made prior to such effective date.
(c) In determining the actuarial present value of accrued
retirement benefits it shall be deemed that the director has retired as
of the effective date of the Plan and commenced to receive such benefits
as soon thereafter as would be prescribed by the Retirement Plan. All
awards pursuant to this Section 4.2 shall be made as of the close of
business on the effective date of the Plan and shall be valued in the
same manner as set forth in Section 4.1
4.3 Restrictions and Terms and Conditions All shares of
Restricted Stock granted under this Plan may not be sold, traded,
assigned, transferred or otherwise encumbered until and unless
restrictions are removed. The Company shall retain custody of all
shares until restrictions are removed or may hold such shares by book
entry registration. Each director granted Restricted Stock shall have
all the rights of a Shareholder with respect to such shares, including
the right to vote such shares and receive dividends and other
distributions.
<PAGE>
4.4 Removal of Restrictions No shares of Restricted Stock will
become free of restrictions and non-forfeitable for a director until the
termination of the director's services as a member of the Company's
Board of Directors. Shares shall become non-forfeitable at the earliest
to occur of:
(a) the director's death or permanent disability,
(b) mandatory retirement, pursuant to Company policy,
effective at the end of the term of service during which
the director has attained age 70,
(c) resignation, or failure to stand for re-election, prior
to such mandatory retirement provided that such action
must have the consent of at least 80% of all directors
then on the Board, with the affected director
abstaining, or
(d) the occurrence of a Change of Control as defined in the
1993 Stock Incentive Plan.
Termination of service as a director for any other reason shall
result in forfeiture of his or her shares of Restricted Stock.
Forfeiture of shares will also result with respect to a director who,
without the Company's written consent, becomes employed by, or provides
consulting services to, a major direct selling company substantially
engaged in a business which is competitive to a principal business
conducted by the Company. The Company may require payment of all
withholding taxes that may become due upon the removal of restrictions.
V. ADDITIONAL PROVISIONS
5.1 The Plan shall be administered by the Compensation Committee
of the Board of Directors which shall have the power to interpret the
Plan and amend it from time to time as it deems proper. To the fullest
extent practicable, however, the terms and conditions of the 1993 Stock
Incentive Plan shall be applicable to this Plan.
5.2 The number of shares of Stock covered by any Option or award
of Restricted Stock shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Stock resulting from a
split or subdivision of shares, a combination of shares, or the payment
of a stock dividend.
5.3 All Options shall become fully exercisable and all shares of
Restricted Stock will become vested, upon the occurrence of a Change of
Control as defined in the 1993 Stock Incentive Plan.
5.4 The Plan shall be governed by and subject to the laws of the
State of New York and applicable Federal laws.
EXHIBIT 10.23
<PAGE>
BOARD OF DIRECTORS
OF
AVON PRODUCTS, INC.
DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective
as of January 1, 1997)
<PAGE>
BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
(As amended and Restated Effective
as of January 1, 1997)
ELIGIBILITY Any member of the Board of Directors of Avon
Products, Inc. (the "Company") who is not also an
officer may participate in the Plan.
ELECTION TO
DEFER Each eligible Director may elect to defer all or
part of his or her cash compensation (annual
retainers and meeting fees) payable for the
succeeding calendar year of service. Once made,
this election is irrevocable for such calendar
year.
With regard to amounts deferred, the participant
may choose between crediting these amounts to a
Deferred Stock Account or a Deferred Cash Account.
The percentage allocated to these accounts is at
the discretion of the participant.
CREDITING OF
DEFERRED
AMOUNTS The Company shall establish and maintain
individual accounts in the name of each
participant who elects to defer compensation.
Compensation deferred during any calendar quarter
will be credited to the applicable account on the
last day of such quarter.
CASH ACCOUNT-
INTEREST All deferred compensation, inclusive of
accumulated interest, credited to a Deferred
Cash Account as of the end of each calendar year
will be credited with additional interest for
such year at a rate which shall be the prime rate
charged by Morgan Guaranty Trust Company of New
York, in effect on the last business day of the
year. The account balance as of the beginning of
such year will be credited with a full year's
interest. The compensation amounts newly deferred
in each subsequent quarter will be credited with a
portion of such annualized interest commencing as
of the end of the applicable quarter, e.g. half of
a full year's interest would be credited for
compensation newly deferred in the second quarter
of a year.
<PAGE>
The foregoing notwithstanding, any and all
compensation deferred by a participant prior
to 1992, inclusive of accumulated interest,
will continue to be credited at the end of each
calendar year with an interest rate equal to the
sum of Moody's Composite Bond Rate, plus four
percentage points, through the end of the year
in which the Director's service is terminated.
STOCK ACCOUNT
- - DIVIDENDS Compensation deferred for any calendar
quarter which is allocated to a Participant's
Deferred Stock Account will be credited to such
account as of the last day of the applicable
quarter and its total dollar amount converted
into a number of shares of Avon Common Stock
equivalents, including fractions,
("Stock Units"). The number of Stock Units so
credited will be equal to the number of shares of
Avon Common Stock, including fractions, that could
have been purchased with the amount of compensation
deferred for the calendar quarter at the closing
price of a share of such stock on the New York
Stock Exchange averaged over the last 10 trading
days during the calendar quarter.
As of the date any dividend is paid to
shareholders of Common Stock, the participant's
Deferred Stock Account shall also be credited with
additional Stock Units equal to the number of
shares of Common Stock (including fractions of a
share) that could have been purchased at the
closing price of Common Stock on such date with
the dividends paid on the number of shares of
Common Stock to which the Participant's Stock
Units are then equivalent.
If at any time the number of the Company's
outstanding shares of Common Stock shall be
increased as the result of any stock split, stock
dividend or other reclassification of shares, the
number of Stock Units to which such stock is
equivalent will be increased in the same
proportion.
As of the end of the calendar year in which
the participant for any reason ceases to be a
Director, including retirement, termination, or
death, the total number of the participant's Stock
Units, including fractions, will be converted to a
cash value amount. In determining such amount,
each Stock Unit will be deemed to have a value
equal to the closing price of a share of Avon
Common Stock on the New York Stock Exchange
averaged over the last 10 trading days of such
year. The resulting cash value will then b
<PAGE>
merged with the value of any separate Deferred
Cash Account that may be maintained for the
participant.
VALUATION
OF ACCOUNTS The cash value of a participant's total account
including any accumulated interest and Stock Units
will be determined each December 31st ("Valuation
Date"). For years during which the participant
continues to be a Director, Stock Units will be
valued for this purpose based on the closing price
of a share of Avon Common Stock on the New York
Stock Exchange on the last trading day of the
year.
PAYMENT OF
DEFERRED
COMPENSATION The value of the participant's entire deferred
compensation account shall be payable in cash in a
single payment on or about January 15th of the
year next following termination of service as a
Director of the Company. If otherwise previously
elected by the participant, however, such value
may be paid out in consecutive annual installments
up to a maximum of fifteen annual installments.
All installment payments will be made on or about
January 15th commencing with the year next
following termination of service as a Director of
the Company.
Should a participant elect installment payments,
the amount of the first installment payment will
be a fraction of the value of the participant's
total deferred compensation account on the
preceding Valuation Date, the numerator of which
is one (1) and the denominator of which is the
total number of annual installments elected.
Thereafter, the amount of each subsequent payment
will be a fraction of the remaining value of the
participant's deferred compensation account on the
Valuation Date preceding each subsequent
installment payment, the numerator of which is one
(1) and the denominator of which is the
total number of installments elected minus the
number of installments previously paid. Interest
shall continue to accrue on the unpaid balance of
the account, credited annually, at the prime rate
described above.
DEATH OF A
PARTICIPANT In the event of a participant's death any time
prior to complete distribution of all amounts
payable, the unpaid balance of the participant's
account, including any unpaid installments, will
be determined as of the Valuation Date as of the
end of the calendar year in which death has
occurred, and will be paid in a single sum on the
January 15th following such Valuation Date, or as
soon as reasonably possible thereafter. All Stock
Units credited to a Deferred Stock Account will be
converted to a cash value as described above.
Payment will be made to the beneficiary designated
by the Director in writing. In the event that a
participant is not survived by a designated
beneficiary, payment of the account balance will
be made to the participant's surviving spouse, if
any, otherwise to the participant's estate.
MANNER OF
ELECTION The election to defer cash compensation for any
calendar year must be in writing and received by
the Company prior to the beginning of such year.
An election to receive payments of deferred
compensation in annual installments must be made
prior to the end of the year in which service with
the Board has terminated; i.e. before the first
installment payment has been distributed.
ADMINISTRATION The Plan shall be administered by the Secretary of
the Company. The right to receive deferred
compensation may not be transferred, assigned, or
subject to attachment or other legal process.
AMENDMENT The Plan may be amended at any time by action of
the Nominating and Directors' Activities Committee
of the Board of Directors, provided, that no
amendment may adversely effect rights to deferred
compensation accrued prior to the effective date
of such amendment.
EXHIBIT 13
<PAGE>27
Management's Discussion and Analysis
Avon Products, Inc.
Dollars in millions, except share data
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.
All share and per share data included in this report have been
restated to reflect a two-for-one stock split distributed in June 1996.
Forward-Looking Statement
Certain statements in this report which are not historical facts or
information are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not
limited to, the information set forth herein. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, levels of activity,
performance or achievement of the Company, or industry results, to be
materially different from any future results, levels of activity,
performance or achievement expressed or implied by such forward-looking
statements. Such factors include, among others, the following:
general economic and business conditions; the ability of the Company to
implement its business strategy; the Company's access to financing and
its management of foreign currency risks; the Company's ability to
successfully identify new business opportunities; the Company's ability
to attract and retain key executives; the Company's ability to achieve
anticipated cost savings and profitability targets; changes in the
industry; competition; the effect of regulatory and legal restrictions
imposed by foreign governments; the effect of regulatory and legal
proceedings and other factors discussed in Item 1 of the Company's Form
10-K. As a result of the foregoing and other factors, no assurance can
be given as to the future results and achievements of the Company.
Neither the Company nor any other person assumes responsibility for the
accuracy and completeness of these statements.
Results of Operations
Consolidated - Net income in 1997 was $338.8 compared with $317.9 in
1996. Basic and diluted earnings per share in 1997 were $2.56 and
$2.54, respectively, compared with $2.38 and $2.36, respectively, in
1996. The 1997 results include the benefit of a favorable settlement of
a value-added tax claim in the United Kingdom equal to approximately
$26.5 on a pretax basis. The $26.5 gain represents a $20.6 settlement
of disputed value-added tax charges from prior years, which is included
in other (income) expense, net, and $5.9 of interest which is included
in interest income. The net effect of this gain was to increase net
income by $16.7 and both basic and diluted earnings per share by $.13.
Net income for 1995 was $256.5, and basic and diluted earnings per share
were $1.88 and $1.87, respectively. The 1995 results include a $29.6
after-tax charge to discontinued operations and a $.22 per share charge
to both basic and diluted earnings per share 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, net of
related costs, from a cash settlement of a lease dispute and a $7.0
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
related to an early retirement program implemented in Japan and $11.0
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 previous headquarters building. The
$25.0 gain represents a $14.0 recovery of disputed rent, which is
included in marketing, distribution and administrative expenses, and
$11.0 of interest, net of related costs, which is included in other
(income) expense, net. The net effect of these one-time items was to
increase income from continuing operations and net income by $7.6 and to
increase both basic and diluted earnings per share by $.06.
<PAGE>28
Continuing Operations - Income from continuing operations was $338.8, or
7% over 1996. Earnings per share from continuing operations increased
8% on a basic and diluted basis to $2.56 and $2.54, respectively, from
1996. This 8% increase exceeded the 7% increase in income from
continuing operations reflecting the impact of lower average shares
outstanding in 1997 compared with the prior year due to the continued
stock repurchase program. See Note 9 of the Notes to the Consolidated
Financial Statements for further discussion of this program. Pretax
income was $534.9, a 5%, or $24.5, increase over prior year. The
increase was due to higher sales, the favorable value-added tax
settlement in the United Kingdom, previously discussed, lower foreign
exchange losses in 1997 and favorable minority interest due mainly to
the results in Japan. Net income was also favorably impacted by a lower
effective tax rate in 1997. These favorable results were partially
offset by a decline in the gross margin and a slightly higher operating
expense ratio. Income from continuing operations in 1996 increased
$31.8 and basic and diluted earnings per share increased $.28 and $.27,
respectively, from 1995.
On a consolidated basis, Avon's net sales of $5.08 billion
increased 6% from $4.81 billion in 1996. International sales increased
7% to $3.35 billion from $3.14 billion in 1996 due to strong growth in
the Americas, most significantly in Mexico, Argentina, Chile and
Venezuela, and in the United Kingdom, Russia, Central Europe and the
Pacific Rim, primarily Taiwan and the Philippines. These improvements
were partially offset by sales declines in Germany, Brazil and Japan.
Sales in the U.S., including the results of Discovery Toys, Inc. which
was acquired in early 1997, increased 4% to $1.73 billion due to an
increase in the average order size partially offset by a decrease in the
number of Representative orders. Excluding the impact of foreign
currency exchange, consolidated net sales rose 10% over the prior
year. In 1996, consolidated net sales of $4.81 billion increased 7%
over 1995 reflecting an 8% increase in international sales due to strong
growth in most markets in the Americas, the Pacific Rim, Russia, the
United Kingdom and the Central European markets. These improvements
were partially offset by sales declines in Japan and, to a lesser
extent, Venezuela and Germany. 1996 sales in the U.S. increased 6% to
$1.67 billion due to an increase in both average order size and number
of Representative orders. Excluding the impact of foreign currency
exchange, 1996 consolidated sales increased 14% over 1995.
Cost of sales as a percentage of sales was 40.4% in 1997, compared
with 39.9% in 1996. The decline in gross margin was primarily due to
unfavorable cost ratios in Japan resulting from an aggressive pricing
strategy and a shift in sales mix to lower-margin items and in Brazil
reflecting a consumer shift towards lower-priced products as well as
actions taken to reduce inventory levels. These declines were partially
offset by a margin improvement in the United Kingdom due to a shift in
sales mix to higher-margin items. In 1996, cost of sales as a
percentage of sales was 39.9%, compared with 39.4% in 1995. The decline
in gross margin was primarily due to an unfavorable cost ratio in
Venezuela reflecting the impact of the bolivar devaluations, a shift to
sales of lower-priced products in Japan and investments made to reduce
excess inventory in Brazil. These declines were partially offset by
margin improvements in Mexico, Argentina and the United Kingdom.
Marketing, distribution and administrative expenses of $2.48
billion increased $136.1, or 6%, from 1996 and increased slightly as a
percentage of sales to 48.9% from 48.8% in 1996. The increase in
operating expenses was attributed to markets which have experienced
strong sales growth, including Mexico, the United Kingdom, Russia,
Taiwan and Venezuela. Operating expenses in the U.S. increased due to
higher strategic spending in advertising and promotional support for new
launches, the national rollout of Avon Home and costs associated with
the centralization of certain operational areas. In addition, operating
expenses in China were higher due to expenses incurred in preparation
for the planned opening of 24 new branches during 1997 which were
not put into operation because of new government recertification
requirements on direct selling activities. These increases were
partially offset by lower expenses in Germany due mainly to the impact
of a stronger U.S. dollar in 1997. In 1996, marketing, distribution and
administrative expenses of $2.35 billion increased $132.6, or 6%, from
1995 and decreased as a percentage of sales to 48.8% from 49.3% in 1995.
Excluding the 1995 one-time items previously mentioned, operating
expenses increased $134.6. The increase in operating expenses reflects
sales volume-related increases in most markets in the Americas, the
Pacific Rim and in the U.S. and higher marketing and distribution
expenses in Brazil. These increases were partially offset by lower
expenses in Japan reflecting the sales decline and the impact of a
stronger U.S. dollar in 1996. In addition, expense levels were lower in
Germany due to a continued active focus on expense reduction and in
Venezuela due to the impact of the bolivar devaluations.
<PAGE>29
The decrease in the operating expense ratio reflects improvements in
most European markets due to continued fixed expense reduction efforts,
in Venezuela due to the impact of the bolivar devaluations and in Mexico
and China due primarily to the significant sales growth. These
improvements were partially offset by an unfavorable expense ratio in
Japan due to the sales decline.
Interest expense in 1997 of $41.8 increased $1.8 compared to the
prior year primarily due to increased domestic debt levels partially
offset by lower average debt outstanding in Brazil in 1997. Interest
expense in 1996 of $40.0 decreased $1.3 from 1995 as a result of lower
interest rates partially offset by slightly higher debt levels.
Interest income in 1997 of $16.7 increased $2.2 compared to last
year due to the interest portion of the previously discussed favorable
value-added tax settlement in the United Kingdom partially offset by
lower interest rates in Brazil and lower cash investment levels in the
U.S. Interest income in 1996 of $14.5 decreased $4.9 compared to 1995
due to lower interest rates in Brazil and Mexico and lower cash
investment levels in Brazil and in the U.S.
Other (income) expense, net, was $24.8 favorable to prior year due
to the $20.6 portion of the previously discussed favorable value-added
tax settlement in the United Kingdom as well as lower foreign exchange
losses in 1997. Other (income) expense, net, was $8.9 in 1996, an $11.7
decrease from 1995. The decrease primarily reflects favorable corporate
non-operating items and lower foreign exchange losses in 1996, partially
offset by the $11.0 portion of the previously discussed favorable lease
settlement in 1995.
Income taxes were $197.9 in 1997 and the effective tax rate was
37.0% compared with $191.4 and an effective tax rate of 37.5% in 1996.
The effective tax rate was lower in 1997 due to the mix of earnings and
income tax rates of international subsidiaries. In 1996, the effective
tax rate was 37.5% compared with 37.9% in 1995. The lower effective tax
rate in 1996 resulted from the mix of earnings and income tax rates of
international subsidiaries, including a decrease in Brazil's statutory
corporate tax rate.
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,
Brazil has experienced high rates of inflation for a number of years.
The annual inflation rate in Brazil, however, has decreased
significantly over the last three years as the economic environment has
improved as a result of the government's economic stabilization program
implemented in mid-1994. Due to the reduced cumulative inflation rate
over the past three years, Brazil, previously designated as a country
with a highly inflationary economy, was converted to non-
hyperinflationary status effective July 1, 1997. Venezuela and Mexico
experienced high cumulative rates of inflation over the three-year
period 1995 through 1997.
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, 1997.
Years ended December 31 1997 1996 1995
Net Pretax Net Pretax Net Pretax
Sales Income Sales Income Sales Income
________ ______ ________ _______ ________ ______
United States $1,732.9 $219.8 $1,672.5 $227.3 $1,584.8 $211.6
________ ______ ________ _______ ________ ______
International
Americas 1,752.6 310.8 1,609.9 291.9 1,466.9 265.8
Pacific 782.4 55.9 751.1 73.6 712.0 67.5
Europe 811.5 99.2 780.7 54.4 728.4 41.7
_______ ______ _______ _______ ________ ______
Total International 3,346.5 465.9 3,141.7 419.9 2,907.3 375.0
_______ ______ _______ _______ ________ ______
Total from operations $5,079.4 685.7 $4,814.2 647.2 $4,492.1 586.6
_______ _______ ________
Corporate expenses (104.3) (95.4) (74.6)
Interest expense (41.8) (40.0) (41.3)
Other expense, net (4.7) (1.4) (5.7)
______ _______ ______
Total $534.9 $510.4 $465.0
<PAGE>30
U.S. - U.S. sales increased 4% to $1.73 billion and pretax income
decreased 3% to $219.8 in 1997. Excluding the results of Discovery
Toys, sales were up 1% and pretax income decreased 2%. The 1% sales
growth reflected a 3% increase in average order size partially offset by
a 2% decrease in the number of Representative orders. Units sold
increased 4% over 1996. The sales improvement resulted from increases
in the cosmetics, fragrance and toiletries("CFT") and gift and
decorative categories partially offset by declines in apparel. The
growth in the CFT category was driven by the launches of Anew Retinol
Recovery Complex and Avon Techniques hair care line in addition to the
first quarter 1997 product introductions in the specialty bath segment,
such as California Bath and the Soft and Sensual line extension of the
Skin-So-Soft brand. Additionally, the renovated Anew launch in early
1997 contributed to higher CFT sales. The continued success of the
seasonal Barbie dolls, the launch of Avon Home and the success of the
Mattel line of toys led to the increase in gift and decorative sales.
Apparel sales were lower in 1997 due to the success of the Olympic Games
collection in 1996 and lower sales of demonstration products in the
first two quarters of 1997. The decrease in pretax income resulted from
a lower gross margin and a higher operating expense ratio. The decline
in gross margin was due to strategic price investments in CFT products
aimed at energizing customer sales and the addition of Avon Home, a
lower-margin new business. The unfavorable operating expense ratio was
driven by higher expenses related to advertising and promotional support
for new products, costs associated with the centralization of the
returned goods and call center operations and increased field incentives
designed to drive sales. In addition, operational costs associated with
higher returned goods processing in 1997 contributed to the unfavorable
expense ratio.
In 1996, U.S. sales increased 6% to $1.67 billion and pretax income
increased 7% to $227.3. The sales growth reflected a 4% increase in
average order size and a 2% increase in the number of Representative
orders. The sales improvement was driven by significant increases in
the gift and decorative, apparel and CFT categories. These improvements
were partially offset by a decline in sales of the fashion jewelry and
accessories category. The growth in the gift and decorative category
resulted mainly from the success of both the Spring Blossom and Winter
Velvet Barbie dolls introduced in 1996. The Winter Velvet Barbie doll
was the most successful new product introduction in Avon's history. The
success of the Diane Von Furstenberg spring and summer collections,
novelty and children's lines and the launch of Legwear in 1996
contributed to the increase in apparel sales. The growth in the CFT
category consisted primarily of increases in sales of personal care
and fragrance products. The growth of personal care products was driven
by the specialty bath segment which in 1996 reflected an aggressive new
products program and a heightened promotional focus. Sales of fragrance
products rose due to the introduction of several new fragrances
including Millennia, Sunny Sky and Butterfly. Units sold decreased 2%
from 1995. Despite strong sales growth in the gift and decorative
category, units sold in this category decreased due to increased sales
of higher-priced items such as the collectible Barbie dolls. Lower
sales of fashion jewelry and accessories also resulted in unit declines.
In addition, units decreased due to a shift in emphasis to higher
quality premium-priced global brands, such as Avon Color, and away from
promotional products and commodity items such as roll-ons, mini-
colognes, bubble bath and talc. Despite increased expenses in 1996 due
to investments in both advertising and direct access strategies, the
operating expense ratio remained level with the prior year. The
increase in pretax income was primarily due to the sales increase and a
slightly improved gross margin.
International - International sales increased 7% to $3.35 billion and
pretax income increased 11% to $465.9. The sales increase reflected
strong growth in the Americas, particularly in Mexico, Argentina, Chile
and Venezuela, and in the United Kingdom, Russia, Central Europe and the
Pacific Rim, most significantly in Taiwan and the Philippines. These
improvements were partially offset by sales declines in Germany, Brazil
and Japan, discussed below. Excluding the impact of foreign currency
exchange, international sales grew 13% over 1996. In the Americas
Region, sales increased 9% to $1.75 billion and pretax income increased
6%, or $18.9, to $310.8 from $291.9 in 1996. The sales improvement was
driven by tremendous growth in Mexico reflecting strong increases in the
number of orders, average order size and active Representatives
primarily due to customer growth initiatives. These initiatives
included incentive programs focused on
<PAGE>31
retention, increased sampling on breakthrough products such as Anew
Vitamin C, increased advertising and an emphasis on market penetration
in metropolitan areas. The sales increase in the region also reflected
significant unit growth in Argentina and Chile and an increased average
order size in Venezuela. In addition, Central American markets and the
Dominican Republic posted strong sales increases in 1997 attributable to
growth in units and active Representatives. These improvements were
partially offset by a significant sales decline in Brazil. In 1997,
consumers in Brazil experienced a tightening of credit which limited
their purchasing ability resulting in declines in units sold and active
Representatives. To improve Representative count, aggressive retention
and achievement programs were implemented including incentives and
premiums to improve activity and order size. Excluding the impact of
foreign currency exchange, sales in the Americas were up 14% over 1996.
The increase in the region's pretax income was primarily due to
favorable results in Mexico reflecting the strong sales increase,
described above, combined with a favorable operating expense ratio. In
addition, pretax profits were higher in Argentina and Chile due mainly
to the sales growth. These improvements were partially offset by a
lower pretax profit in Brazil due to a significant gross margin decline
and an unfavorable operating expense ratio. The gross margin decline
resulted from a shift in consumer preferences towards lower-priced
products and margin investments relating to inventory reduction efforts.
The unfavorable operating expense ratio in Brazil was driven by the
sales decline. Actions are underway in Brazil to reduce manufacturing
and customer service costs, negotiate better conditions and costs with
vendors and introduce more global products with a higher price and
improved margin.
In the Pacific Region, sales increased 4% to $782.4 and pretax
income decreased 24% to $55.9 from $73.6 in 1996. The increase in sales
was driven by operational improvements in the Pacific Rim, most
significantly in Taiwan and the Philippines. Growth in units, customers
served and active Representatives was significant in both Taiwan and the
Philippines. Taiwan's sales performance was the strongest in the region
resulting from successful merchandising campaigns, product launches
supported by strong advertising and promotional activities including the
introduction of Lighten Up Undereye Treatment, and effective field sales
programs in 1997. The sales growth in the Philippines was driven by
successful new and extended CFT lines, a new line of children's apparel
and an additional service center in 1997. These improvements were
partially offset by a significant sales decline in Japan due primarily
to an unfavorable exchange impact of a stronger U.S. dollar in 1997
and a reduction in the average order size. Excluding the impact of
foreign currency exchange, sales in the Pacific were up 14%. The
decrease in the region's pretax income resulted from declines in Japan
and, to a lesser extent, in China. The gross margin in Japan declined
significantly as a result of strategic pricing programs as well as a
shift in sales mix to lower-margin non-CFT items. The competitive
environment remains intense in Japan with the continued relaxation of
import restrictions and the accelerated growth in discount outlets. As
a result, prices were adjusted earlier this year to make products more
competitive in the marketplace. Efforts have been focused on
restructuring the business in Japan for improved profitability
including innovative recruiting programs, enhanced advertising campaigns
and new systems focused on improving customer access. Despite sales
growth in China, pretax profits declined due to the current government
licensing revalidation process of all direct selling companies. As a
result, no new branches were opened in 1997, but the expense base
associated with the planned expansions negatively impacted China's
pretax profit. The region's pretax income was also negatively impacted
by currency devaluations throughout Southeast Asia.
Several currencies in the Pacific Rim devalued significantly during
1997. The Thai baht devalued by 57%, the Philippine peso by 34%, the
Malaysian ringgit by 39% and the Indonesian rupiah by 61%. These
devaluations lowered pretax income by approximately $7.0 for the full
year. In response to this situation, several actions have been taken by
local management including cost negotiations with vendors and a focus on
growing the Representative base. In terms of size, these markets
represented approximately 5% of Avon's consolidated net sales in 1997.
In the Europe Region, sales increased 4% to $811.5 and pretax
income increased $44.8, or 82%, to $99.2 in 1997. The sales increase
was primarily due to strong growth in the United Kingdom resulting from
an increased average order size, unit growth and a favorable exchange
rate impact. The sales growth in the United Kingdom was also
attributable to
<PAGE>32
a focus on improving market share through brand and image enhancement.
Customers have been spending more as a function of the improvement in
image and the quality of the Avon brochure. The European sales
improvement was also driven by unit and active Representative growth in
Russia and in Central Europe, primarily Poland. Russia continues to
exceed expectations as the most successful startup market in Avon's
history. Russia's success was attributable to a strong Representative
structure, geographic expansion into new cities, installation of new
assembly lines which increased capacity and investment in system
upgrades to support the sales growth. These improvements were partially
offset by sales shortfalls in Germany resulting from an unfavorable
exchange impact of a stronger U.S. dollar in 1997 and a weak economic
environment which led to lower consumer spending and higher
unemployment. Excluding the impact of foreign currency exchange, sales
in Europe increased 11% over 1996. Excluding the impact of the
favorable value-added tax settlement in the United Kingdom, previously
discussed, pretax income rose $18.3, or 34%, over 1996. This increase
was mainly due to the overall sales increase and an improved gross
margin in the United Kingdom resulting from a favorable product mix of
higher-margin items in 1997. Additionally, the continued effect of
expense reduction efforts in Europe contributed to a lower operating
expense ratio.
In 1996, international sales increased 8% to $3.14 billion and
pretax income increased 12% to $419.9. Excluding the 1995 one-time
items previously mentioned, pretax income increased 8%. The sales
increase reflected strong unit growth in most markets in the Americas
Region, the Pacific Rim, the United Kingdom, Russia and Central Europe.
These improvements were partially offset by sales declines in Japan
attributable to both operational and economic factors, discussed below,
and, to a lesser extent, in Venezuela due to the impact of the bolivar
devaluations and in Germany due to both operational declines as well as
a negative foreign currency impact in 1996. Excluding the impact of
foreign currency exchange, international sales were up 18% over 1995.
In the Americas Region, 1996 sales increased 10% to $1.61 billion
and pretax income increased 10%, or $26.1, to $291.9 from $265.8 in
1995. The sales increase was driven by growth in almost every market in
the region, most significantly in Mexico and Brazil. Higher sales in
Mexico reflected increases in prices at a rate below the inflation
level, as well as increases in average order size and unit growth. The
number of active Representatives in Mexico continued to grow from the
prior year due to the implementation of incentive programs focused on
retention and increasing the number of orders. Brazil's sales growth
was due to double-digit increases in unit volume and customers. The
growth in Brazil's number of customers resulted from a revision of
pricing strategies and new product launches aimed at increasing customer
orders in response to an increasingly intense competitive environment in
1996. The sales increase in the region also reflected strong unit growth
in Chile, Argentina and Central America. These improvements were
partially offset by the decline in Venezuela resulting mainly from the
negative impact of a devaluation of the bolivar. Venezuela did,
however, have double-digit increases in both local currency sales and in
active Representatives in 1996 attributable to a focus on building
market share and Representative growth. The increase in the region's
pretax income was primarily due to favorable results in Mexico
reflecting the strong sales increase combined with a lower rate of
increase in operating expenses, an improved gross margin and foreign
exchange gains in 1996 compared to losses in 1995. The operating
expense ratio in Mexico improved significantly as a result of an expense
control program implemented in 1996. In addition, pretax profit was
higher in Chile due mainly to sales growth. These improvements were
partially offset by a lower pretax profit in Venezuela, as a result of
the bolivar devaluation, and in Brazil reflecting a lower gross margin
and an unfavorable operating expense ratio. The gross margin decline in
Brazil resulted from investments to reduce excess inventory as well as
an aggressive pricing policy to respond to intensified competitive
pressures. The unfavorable operating expense ratio
reflected increased investments in marketing and higher facilities
expenses related to a new distribution center. In addition, a higher
volume of lower-priced units in 1996 resulted in increased distribution
expenses.
In the Pacific Region, 1996 sales increased 6% to $751.1 and pretax
income, excluding Japan's early retirement program costs in 1995
mentioned previously, decreased 7% to $73.6 from $79.5 in 1995. The
increase in sales was driven by strong operational improvements in the
Philippines and
<PAGE>33
China, and, to a lesser extent, in Taiwan, Malaysia and Australia.
Sales growth in virtually all of these markets was accompanied by strong
increases in units sold, customers served and active Representatives.
These improvements were partially offset by a significant sales decline
in Japan resulting from the unfavorable exchange impact of a stronger
U.S. dollar in 1996, a shift in pricing strategy to sales of lower-
priced products and a decrease in average order size. These shortfalls
resulted from both internal operational factors, including changes made
to the Representative commission structure at the beginning of 1996, and
external conditions such as the relaxation of cosmetic import
regulations which led to accelerated retail pricing competition. To
address these challenges, organizational changes were made in July 1996
to better integrate the sales and marketing functions. In addition,
national recruiting drives among sales managers and Representatives were
conducted and product offerings in the gift and decorative and CFT
categories were enhanced. In late December 1996, aggressive actions to
align price levels more closely to the market were taken in Japan.
These actions resulted in a 20% reduction in CFT prices. The decrease
in the region's pretax income resulted from operational difficulties in
Japan including a decline in the gross margin due to a continuous focus
on lower-priced impulse items in an attempt to increase consumer appeal,
as well as an unfavorable expense ratio caused by the significant sales
decline, despite a decrease in operating expenses. In addition, pretax
profits declined in Thailand due to an unfavorable operating
expense ratio caused by lower sales combined with higher spending for
incentive awards in 1996. These decreases were partially offset by
favorable results in the Philippines due to the significant sales growth
and in China due mainly to higher sales and an improved operating
expense ratio. In addition, pretax profits were higher in Malaysia,
Australia and Taiwan.
In the Europe Region, 1996 sales increased 7% to $780.7. Excluding
the 1995 one-time items, pretax income increased $10.3, or 24%, to $54.4
in 1996. The sales increase was due to unit growth in Russia, the United
Kingdom and Central Europe. The Representative base in Russia and
Central Europe has grown significantly in 1996 due to a continuous focus
on expansion of operations in these markets. Sales also rose in Italy
mainly due to a favorable impact of a weaker U.S. dollar in 1996. These
improvements were partially offset by sales shortfalls in Germany
reflecting a shift to lower-priced items and weak economic conditions,
including increased unemployment, which resulted in a general decline in
consumer confidence and spending in 1996. Aggressive discounting from
competitors and a negative currency impact also contributed to the sales
decline in Germany. New initiatives were launched in Germany to improve
market coverage, enhance Avon's image and stimulate customer growth.
The increase in pretax income was mainly due to the overall sales
increase and favorable operating expense ratios in most markets due to
the continued effect of fixed expense reduction efforts. Central
European markets posted strong pretax profits reflecting double-digit
increases in units, customers served and active Representatives despite
gross margin declines from targeted pricing investments to accelerate
market penetration in 1996.
See Foreign Operations section under Liquidity and Capital
Resources for additional discussion.
Corporate Expenses - Corporate expenses were $104.3 in 1997 compared
with $95.4 in 1996. The $8.9 increase reflected increased expenses in
1997 associated with process redesign and system initiatives. In 1996,
corporate expenses were $95.4 compared with $74.6 in 1995. The $20.8
increase was primarily due to the favorable lease settlement in 1995 and
higher expenses in 1996 for information systems upgrades and
enhancements.
Other Expense, Net - Other expense, net, includes corporate non-
operating income and expense items and corporate interest income. Other
expense, net, was $4.7 in 1997 compared with $1.4 in 1996, an increase
of $3.3, due to higher non-operating expenses and lower interest income
resulting from lower cash investment levels partially offset by
favorable exchange in 1997. Other expense, net, was $1.4 in 1996
compared with $5.7 in 1995, a decrease of $4.3, due to lower non-
operating expenses partially offset by the $11.0 portion of the 1995
lease settlement.
Accounting Changes - Effective December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("FAS") No. 128, "Earnings
per Share". FAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and replaces the presentation of
previously disclosed EPS with both basic and diluted EPS.
<PAGE>34
Based upon the Company's capitalization structure, the EPS amounts
calculated in accordance with FAS No. 128 approximated the Company's EPS
amounts in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per Share". All prior period EPS data have been restated in
accordance with FAS No. 128.
Effective January 1, 1996, the Company adopted FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This statement requires that long-lived
assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. There was no impact on the Company's results of operations
or financial position in adopting this statement.
Also, effective January 1, 1996, the Company adopted the fair value
disclosure requirements of FAS No. 123, "Accounting for Stock-Based
Compensation". As permitted by the statement, the Company did not
change the method of accounting for its employee stock compensation
plans. See Note 8 of the Notes to the Consolidated Financial Statements
for the fair value disclosures required under FAS No. 123.
Recent Pronouncements - In June 1997, the Financial Accounting Standards
Board ("FASB") issued FAS No. 130, "Reporting Comprehensive Income".
FAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as the change in
equity during a period from transactions and other events and
circumstances from non-owner sources. FAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of FAS No.
130 will have no impact on the Company's results of operations or
financial position.
Also, in June 1997, the FASB issued FAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". FAS No. 131
establishes standards for the way that publicly-held companies report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. FAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The
adoption of FAS No. 131 will have no impact on the Company's results of
operations or financial position.
Discontinued Operations - In December 1995, the Company entered into an
agreement with Mallinckrodt, which 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 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 and a charge
to both basic and diluted earnings per share of $.22. Since the Company
had capital loss carryforwards, no tax benefits were recognized on the
loss in 1995.
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, 1997 should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
Liquidity and Capital Resources
Cash Flows - Net cash provided by continuing operations was $315.5 in
1997 compared to $425.1 in 1996. The 1997 decrease in net cash provided
by continuing operations principally reflects, among other things, a
higher working capital level partially offset by higher net income in
1997. The higher funding of working capital included the settlement of
tax issues in the U.S. and the conclusion of the three-year long-term
incentive plan which resulted in a cash
<PAGE>35
payment during the first quarter of 1997. A more detailed analysis of
the individual items contributing to the 1997 and 1996 amounts is
included in the Consolidated Statement of Cash Flows.
There was no cash used by discontinued operations in 1997, compared
to $38.2 in 1996 and $49.6 in 1995. The $38.2 cash used in 1996
primarily reflected final payment of the Mallinckrodt settlement in
January 1996, while the $49.6 in 1995 primarily reflected the initial
payment of the Mallinckrodt settlement. See discussion above in the
Discontinued Operations section regarding this settlement.
Excluding changes in debt, net cash usage of $78.7 in 1997 was
$72.1 unfavorable compared to net cash usage of $6.6 in 1996. During
1997, the Company received net proceeds of approximately $58.6 under a
securities lending transaction which was used to repay domestic
commercial paper borrowings and is included in the cash flows as other
financing activities. See Note 5 of the Notes to the Consolidated
Financial Statements for further discussion of this transaction.
Excluding changes in debt and other financing activities, there was a
net increase in cash usage of $130.7. This variance reflected lower
cash provided by continuing operations, higher capital expenditures and
an unfavorable exchange rate impact on cash. These uses were partially
offset by the unfavorable impact of discontinued operations reflected in
1996 cash flows and lower repurchases of common stock in 1997.
Excluding changes in debt, net cash usage of $6.6 in 1996 was $38.1
favorable compared to net cash usage of $44.7 in 1995. This improvement
reflects higher cash provided by continuing operations as well as lower
cash used in 1996 for discontinued operations, partially offset by
higher capital expenditures, higher cash used for the repurchase of
common stock, an unfavorable exchange rate impact on cash and higher
dividend payments in 1996. For the period 1994 through 1997, 14.5
million shares of common stock have been purchased for approximately
$533.7 under the stock repurchase programs. See Note 9 of the Notes to
the Consolidated Financial Statements for further details of the stock
repurchase programs.
Working Capital - As of December 31, 1997, current liabilities exceeded
current assets by $11.9 compared with $41.7 at the end of 1996. The
variance was primarily due to a decrease in income taxes and sales and
other taxes and an increase in inventories, as discussed in the
Inventories section, partially offset by an increase in net debt (debt
less cash and equivalents). The decrease in income taxes was mainly due
to the settlement of tax issues in the U.S., and the decrease in sales
and other taxes was primarily due to the value-added tax settlement in
the United Kingdom, previously discussed. See Note 6 of the Notes to
the Consolidated Financial Statements for discussion on the tax
settlement in the U.S. The increase in net debt was mainly due to the
reclassification of the 170 million 6-1/8% deutsche mark notes from
long-term to short-term with payment due in May 1998 partially offset by
lower international debt levels in 1997.
Avon's liquidity results from its ability to generate significant
cash flows from operations and its ample unused borrowing capacity.
Avon's credit agreements do not contain any provisions or requirements
with respect to working capital.
Capital Resources - Total debt of $234.3 at December 31, 1997, increased
$32.7 from $201.6 at December 31, 1996, compared with an increase of
$40.1 from December 31, 1995. In addition, at December 31, 1997, other
non-current liabilities included approximately $58.6 related to
securities lending activities. See Note 5 of the Notes to the
Consolidated Financial Statements for further discussion of these
activities. During 1997, cash flows from continuing operations and
other financing activities combined with higher debt levels and cash on
hand were used for dividends, repurchase of common stock and capital
expenditures. During 1996, cash flows from continuing operations and
higher debt levels, partially offset by higher cash and equivalents,
were used for dividends, the stock repurchase program, capital
expenditures, a payment made related to discontinued operations and the
purchase of a company in South Africa. 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.
Debt maturing within one year consisted of borrowings from banks of
$29.4 and the current maturities of long-term debt of $102.7.
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.
During 1997, the Company issued $100.0 of 6.55% notes, due August
1, 2007, for which the net proceeds were used to pay down commercial
paper borrowings.
<PAGE>36
During 1996, the Company entered into an agreement, which expires
in 2001, with various banks to amend and restate the five-year, $600.0
revolving credit and competitive advance facility agreement, which was
entered into in 1994. Within this facility, the Company is able to
borrow, on an uncommitted basis, various foreign currencies. The new
agreement and the prior agreement are referred to, collectively, as the
credit facility.
The credit 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 credit facility is based on LIBOR,
prime or federal fund rates. The credit facility has an annual facility
fee of $.4. The credit facility contains a covenant for interest
coverage, as defined. The Company is in compliance with this covenant.
At December 31, 1996, borrowings of $29.7 were outstanding under the
credit facility. There were no borrowings outstanding at December 31,
1997.
At December 31, 1996, Avon had $34.1 outstanding under a $500.0
commercial paper program supported by the credit facility. In addition,
the Company has bankers' acceptance facilities and uncommitted lines of
credit available of $205.0 with various banks which have no compensating
balances or fees. As of December 31, 1997 and 1996, there were no
borrowings under these facilities. In addition, as of December 31, 1997
and 1996, there were international lines of credit totaling $295.8 and
$357.0, respectively, of which $29.4 and $30.2, respectively, were
outstanding. There were 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. Inventories of $564.8
at December 31, 1997 were $34.8 higher than 1996 due to higher inventory
levels in the U.S. and China and business growth and continued expansion
into Central Europe and Russia. The increase in the U.S. reflects
higher CFT levels to support expansion of these lines in 1998 and the
addition of Avon Home in 1997 partially offset by a lower level of
apparel inventory. China's higher inventory level at December 31, 1997
resulted from lower than expected sales in the fourth quarter.
Additionally, the delay of planned branch expansion in China, discussed
previously, contributed to a higher production of inventory during the
year. These increases were partially offset by lower levels in Brazil
due to inventory reduction programs in 1997 and in the Philippines due
primarily to currency 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 1997 were $169.4
(1996 - $103.6). These expenditures were made for capacity expansion in
high growth markets, most significantly in China, to maintain worldwide
facilities, for contemporization and replacement of information systems
and for the relocation of the global and U.S. office facilities.
Numerous construction and information systems projects were in progress
at December 31, 1997 with an estimated cost to complete of approximately
$107.0. Capital expenditures in 1998 are currently expected to be in
the range of $140.0 - $160.0. These expenditures will include
maintenance on existing facilities, continued investments for capacity
expansion in high growth markets, facility modernization, information
systems and equipment replacement projects.
<PAGE>37
Foreign Operations - The Company derived approximately 66% and 68% of
its 1997 consolidated net sales and consolidated pretax income from
operations, respectively, from its international subsidiaries. In
addition, as of December 31, 1997, international subsidiaries comprised
approximately 58% of the Company's consolidated total assets.
Avon's operations in many countries utilize numerous currencies.
Avon has significant net assets in the United Kingdom, Argentina, Japan,
Germany, the Philippines and Canada. 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 which has experienced extremely high rates of
inflation for a number of years. However, due to the reduced cumulative
inflation rate over the past three years, Brazil, previously designated
as a country with a highly inflationary economy, was converted to non-
hyperinflationary status effective July 1, 1997. Effective January 1,
1997, Mexico was designated as a country with a highly inflationary
economy due to the cumulative inflation rates over the past three
years.
Several currencies in the Pacific Rim devalued significantly during
1997. The Thai baht devalued by 57%, the Philippine peso by 34%, the
Malaysian ringgit by 39% and the Indonesian rupiah by 61%. These
devaluations lowered pretax income by approximately $7.0 for the full
year. In response to this situation, several actions have been taken by
local management including cost negotiations with vendors and a focus on
growing the Representative base. In terms of size, these markets
represented approximately 5% of Avon's consolidated net sales in 1997.
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 Market Rate Sensitive
Instruments 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.
Some foreign subsidiaries rely primarily on short-term borrowings
from local commercial banks to fund working capital needs created by
their highly seasonal sales pattern. From time to time, when tax and
other considerations dictate, Avon will finance subsidiary working
capital needs or borrow foreign currencies. At December 31, 1997, the
total indebtedness of foreign subsidiaries was $33.9.
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 1997, these subsidiaries remitted, net of taxes,
$269.9 in dividends and royalties. This sum is a substantial portion of
the 1997 consolidated net earnings of Avon's foreign subsidiaries.
Risk Management Strategies and Market Rate Sensitive Instruments - The
Company operates globally, with manufacturing and distribution
facilities in various locations around the world. The Company may reduce
its primary market exposures 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, 1997, the Company utilized interest rate swaps to effectively
convert variable interest on its long-term debt to a fixed interest
rate. From January 1995 through July 10, 1995, due to the expiration of
an interest rate swap, the interest payable on the 6 1/8% deutsche mark
notes ("Notes") became variable at a rate of one-month LIBOR plus 1.4%.
During this period, the Company had an interest rate cap in place to
reduce its exposure to increases
<PAGE>38
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, 1997 and 1996, each such agreement having a notional amount
of $100.0, yielding an aggregate notional amount at December 31, 1997
and 1996 of $300.0. Effective January 1995, the Company had two interest
rate caps on the Notes, each with a notional amount of $100.0, one of
which expired 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 with 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, which expired 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 Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments and
contractual foreign currency cash flows or obligations, including third-
party 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, 1997, the Company held foreign currency forward
contracts with notional amounts totaling $319.1 and option contracts
with notional amounts totaling $80.0 to hedge foreign currency items.
These contracts all have maturities prior to December 31, 1998. During
1996, the Company also entered into certain option contracts with
notional amounts totaling $46.4, and during 1997 and 1996, foreign
currency forward contracts totaling $44.2, and $99.0, respectively,
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 and forward contracts at 31,
1997 and 1996 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 would not result in a
significant write-off at December 31, 1997. In addition, there are other
swap agreements in a net payable position of an insignificant amount at
December 31, 1997. 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.
The Company is exposed to changes in financial market conditions in
the normal course of its operations primarily due to international
businesses and transactions denominated in foreign currencies and the
use of various financial instruments to fund ongoing activities.
Various derivative and non-derivative financial instruments held by
the Company are sensitive to changes in interest rates. These financial
instruments are either discussed above or in Notes 5 and 7 of the Notes
to the Consolidated Financial Statements. Interest rate changes would
result in gains or losses in the fair value of debt and other financing
instruments held by the Company. Based on the outstanding balance of
all instruments at December 31, 1997, a hypothetical 50 basis point
increase or decrease in interest rates prevailing at this date,
sustained for one year, would not represent a material potential loss in
fair value, earnings or cash flows. This potential loss was calculated
based on discounted cash flow analyses using interest rates comparable
to the Company's current cost of debt. In
<PAGE>39
1997, the Company did not experience a material loss in fair value,
earnings or cash flows associated with changes in interest rates.
The Company also engages in various hedging activities in order to
reduce potential losses due to foreign currency risks. Consistent with
the nature of the economic hedge of such foreign exchange contracts, any
unrealized gain or loss would be offset by corresponding decreases or
increases, respectively, of the underlying instrument or transaction
being hedged. These financial instruments are discussed above and in
Note 7 of the Notes to the Consolidated Financial Statements. Based on
the Company's foreign exchange contracts at December 31, 1997, the
impact of a 10% appreciation or 10% depreciation of the U.S. dollar
against the Company's foreign exchange contracts would not represent a
material potential loss in fair value, earnings or cash flows. This
potential loss does not consider the underlying foreign currency
transaction or translation exposures of the Company. The hypothetical
impact was calculated on the combined option and forward positions using
forward rates at December 31, 1997 adjusted for an assumed 10%
appreciation or 10% depreciation of the U.S. dollar against the foreign
contracts. The impact of payoffs on option contracts is not significant
to this calculation. Additionally, any foreign currency risk associated
with the foreign denominated debt instrument was assumed to be offset by
a related currency exchange swap contract. In 1997, foreign exchange
losses associated with the Company's foreign exchange contracts did not
represent a material loss in fair value, earnings or cash flows.
As of December 31, 1997, the primary currencies for which the
Company has foreign currency exchange rate exposure are the U.S. dollar
versus the Argentine peso, Brazilian real, British pound, Canadian
dollar, German mark, Japanese yen and the Mexican peso. The Company is
also exposed to other South American and Asian currencies.
The Company does not hedge its foreign currency exposure in a
manner that would entirely eliminate the effect of changes in foreign
exchange rates on the Company's consolidated financial position, results
of operations and cash flows. The impact of a 10% appreciation or 10%
depreciation of the U.S. dollar against the Company's net underlying
foreign currency transaction and translation exposures could be
significant.
Year 2000
Management has developed a worldwide program to prepare the Company's
computer systems and applications for the Year 2000. Based on a
comprehensive assessment of key systems, the Company has commenced a
project plan to address all necessary code changes, testing and
implementation required to ensure Year 2000 compliance by December 31,
1999. Management does not expect the incremental costs of making the
required system modifications to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
Other Information
On October 23, 1997, the Company announced that it has raised its long-
term growth targets for sales and earnings and that it expects to record
special charges in connection with a major re-engineering program.
Commencing in 1998, the long-term target for sales growth has been
raised to 8-10% compounded annually, and its target for earnings per
share growth has been raised to 16-18% annually. Previously, the
Company targeted long-term sales growth of 6-8% and long-term earnings
per share growth of 13-15%. The higher targets come largely as a result
of initiatives currently underway and others under review intended to
reduce costs by up to $400.0 a year by 2000, with $200.0 of the savings
being reinvested concurrently in advertising and marketing programs to
boost sales. Avon expects to record special charges totaling $150.0-
$200.0 pretax to cover one-time costs associated with the re-engineering
program. Approximately half the charges are expected to be recorded in
the first quarter of 1998, with the balance to be recorded in early
1999. Approximately $50.0 of the charges will be cash-related.
<PAGE>40
Results of Operations by Quarter
Avon Products, Inc.
During 1996, the Board of Directors authorized a two-for-one stock split
which was distributed in June 1996. All share data shown below have
been restated to reflect the split.
In millions, except per share data
First Second Third Fourth Year
1997 _______ _______ _______ _______ _______
Net sales $1,087.6 $1,225.0 $1,249.4 $1,517.4 $5,079.4
Gross profit 646.0 748.9 732.2 901.3 3,028.4
Income before taxes
and minority
interest 63.0 150.5 107.9 213.5 534.9
Income before
minority interest 39.7 94.8 68.0 134.5 337.0
Net income $ 41.3 $ 95.2 $ 68.6 $ 133.7 $ 338.8
_______ _______ _______ _______ _______
Earnings per share:
Basic $ .31 $ .72 $ .52 $ 1.01 $ 2.56(1)
Diluted $ .31 $ .71 $ .51 $ 1.01 $ 2.54(1)
_______ _______ _______ _______ _______
1996
Net sales $1,016.1 $1,128.7 $1,177.3 $1,492.1 $4,814.2
Gross profit 614.5 691.6 702.5 884.4 2,893.0
Income before taxes
and minority
interest 59.8 138.7 98.9 213.0 510.4
Income before
minority interest 37.1 86.0 62.8 133.1 319.0
Net income $ 37.7 $ 85.7 $ 62.5 $ 132.0 $ 317.9
_______ _______ _______ _______ _______
Earnings per share:
Basic $ .28 $ .64 $ .47 $ .99 $ 2.38(1)
Diluted $ .28 $ .64 $ .47 $ .99 $ 2.36(1)
(1) 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
1997 1996
Quarter High Low High Low
First $ 63.63 $ 52.13 $ 44.38 $ 36.31
Second 74.00 50.63 47.56 42.56
Third 78.00 58.50 50.25 39.00
Fourth 76.75 55.50 59.50 48.50
Avon common stock is listed on the New York Stock Exchange. At December
31, 1997, there were 23,912 shareholders of record. The Company
believes that there are over 50,000 additional shareholders who are not
"shareholders of record" but who beneficially own and vote shares
through nominee holders such as brokers, benefit plan trustees, etc.
Dividends of $1.26 per share, or $.315 per share each quarter, were
declared and paid in 1997. Dividends of $1.16 per share, or $.29 per
share each quarter, were declared and paid in 1996.
<PAGE>41
Consolidated Statement of Income
Avon Products, Inc.
In millions, except per share data
Years ended December 31 1997 1996 1995
_______ _______ _______
Net sales $ 5,079.4 $ 4,814.2 $ 4,492.1
_______ _______ _______
Costs, expenses and other
Cost of sales 2,051.0 1,921.2 1,769.0
Marketing, distribution and
administrative expenses 2,484.3 2,348.2 2,215.6
Interest expense 41.8 40.0 41.3
Interest income (16.7) (14.5) (19.4)
Other (income) expense, net (15.9) 8.9 20.6
_______ _______ _______
Total costs, expenses and other 4,544.5 4,303.8 4,027.1
Income from continuing operations _______ _______ _______
before taxes and minority interest 534.9 510.4 465.0
Income taxes 197.9 191.4 176.4
Income from continuing operations _______ _______ _______
before minority interest 337.0 319.0 288.6
Minority interest 1.8 (1.1) (2.5)
_______ _______ _______
Income from continuing operations 338.8 317.9 286.1
Discontinued operations
Loss on disposals, net of taxes - - (29.6)
_______ _______ _______
Net income $ 338.8 $ 317.9 $ 256.5
_______ _______ _______
Earnings per share:
Basic:
Continuing operations $ 2.56 $ 2.38 $ 2.10
Discontinued operations - - (.22)
_______ _______ _______
Net income $ 2.56 $ 2.38 $ 1.88
Diluted:
Continuing operations $ 2.54 $ 2.36 $ 2.09
Discontinued operations - - (.22)
_______ _______ _______
Net income $ 2.54 $ 2.36 $ 1.87
The accompanying notes are an integral part of these statements.
<PAGE>42
Consolidated Balance Sheet
Avon Products, Inc.
In millions, except share data
December 31 1997 1996
_______ _______
Assets
Current assets
Cash, including cash equivalents
of $60.0 and $87.9 $ 141.9 $ 184.5
Accounts receivable (less allowance
for doubtful accounts
of $35.5 and $36.4) 444.8 437.0
Inventories 564.8 530.0
Prepaid expenses and other 192.5 198.1
_______ _______
Total current assets $1,344.0 $1,349.6
_______ _______
Property, plant and equipment, at cost
Land 48.6 51.5
Buildings and improvements 567.0 564.5
Equipment 666.0 608.9
_______ _______
1,281.6 1,224.9
Less accumulated depreciation 670.6 658.3
_______ _______
611.0 566.6
Other assets 317.9 306.2
_______ _______
Total assets $2,272.9 $2,222.4
Liabilities and Shareholders' Equity
Current liabilities
Debt maturing within one year $ 132.1 $ 97.1
Accounts payable 476.0 469.3
Accrued compensation 111.3 142.4
Other accrued liabilities 268.9 238.7
Sales and other taxes 101.0 124.6
Income taxes 266.6 319.2
_______ _______
Total current liabilities $1,355.9 $1,391.3
_______ _______
Long-term debt 102.2 104.5
Employee benefit plans 367.6 384.8
Deferred income taxes 31.2 33.9
Other liabilities (including minority
interest of $37.5 and $41.1) 131.0 66.2
Commitments and contingencies
Shareholders' equity
Common stock, par value $.25 - authorized:
400,000,000 shares; issued
174,711,173 and 173,957,379 shares 43.7 43.5
Additional paid-in capital 733.1 693.6
Retained earnings 660.9 488.8
Translation adjustments (270.3) (210.7)
Treasury stock, at cost - 42,897,463
and 41,137,297 shares (882.4) (773.5)
_______ _______
Total shareholders' equity 285.0 241.7
Total liabilities and _______ _______
shareholders' equity $2,272.9 $2,222.4
_______ _______
The accompanying notes are an integral part of these statements.
<PAGE>43
Consolidated Statement of Cash Flows
Avon Products, Inc.
In millions
Years ended December 31 1997 1996 1995
_____ _____ _____
Cash flows from operating activities
Net income $ 338.8 $ 317.9 $ 256.5
Adjustments to reconcile income to net
cash provided by continuing operations:
Depreciation and amortization 72.1 64.5 58.3
Provision for doubtful accounts 80.8 79.0 78.0
Translation gains (.1) (.2) (.4)
Deferred income taxes 18.0 (.7) (.6)
Discontinued operations, net - - 29.6
Other 9.4 9.9 13.3
Changes in assets and liabilities:
Accounts receivable (121.4) (125.5) (132.5)
Inventories (67.5) (65.4) (54.6)
Prepaid expenses and other 6.7 13.7 (41.8)
Accounts payable and accrued
liabilities 42.9 97.8 59.6
Income and other taxes (56.1) 57.7 57.5
Noncurrent assets and liabilities (8.1) (23.6) 5.7
_____ _____ _____
Net cash provided by continuing operations 315.5 425.1 328.6
Net cash used by discontinued operations - (38.2) (49.6)
_____ _____ _____
Net cash provided by operating activities 315.5 386.9 279.0
_____ _____ _____
Cash flows from investing activities
Capital expenditures (169.4) (103.6) (72.7)
Disposal of assets 3.3 3.3 2.8
Acquisitions of subsidiary stock (9.0) (6.3) (3.4)
_____ _____ _____
Net cash used by investing activities (175.1) (106.6) (73.3)
_____ _____ _____
Cash flows from financing activities
Cash dividends (168.3) (158.1) (147.8)
Debt, net (maturities of three
months or less) (39.8) 17.8 8.8
Proceeds from short-term debt 25.7 37.5 32.7
Retirement of short-term debt (49.0) (14.1) (30.6)
Proceeds from long-term debt 100.0 - -
Retirement of long-term debt (.8) (1.5) (29.6)
Proceeds from exercise of stock options,
net of taxes 20.6 10.0 1.4
Repurchase of common stock (110.8) (127.8) (106.9)
Other financing activities 58.6 - -
_____ _____ _____
Net cash used by financing activities (163.8) (236.2) (272.0)
Effect of exchange rate changes on cash and _____ _____ _____
equivalents (19.2) (11.0) 2.9
Net (decrease) increase in cash
and equivalents (42.6) 33.1 (63.4)
Cash and equivalents at beginning of year 184.5 151.4 214.8
_____ _____ _____
Cash and equivalents at end of year $ 141.9 $ 184.5 $ 151.4
Cash paid for _____ _____ _____
Interest $ 36.0 $ 35.2 $ 36.4
Income taxes, net of refunds received 215.8 158.9 133.5
The accompanying notes are an integral part of these statements.
<PAGE>44
<TABLE>
<CAPTION>
Consolidated Statement of Changes in Shareholders' Equity
Avon Products, Inc.
Additional
Common Stock Paid-In
Retained Translation Treasury
In millions, except share data Shares Amount Capital
Earnings Adjustments Stock Total
<S> <C> <C> <C> <C>
<C> <C> <C>
Balance at December 31, 1994 173,327,748 $43.3 $660.5 $212.4
$(187.1) $(543.5) $185.6
Net income 256.5
256.5
Dividends - $1.05 per share
(143.1) (143.1)
Translation adjustments
(15.0) (15.0)
Exercise of stock options,
including tax benefits 79,254 .1 1.5
1.6
Grant, cancellation and
amortization of restricted
stock 91,110 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 173,498,112 43.4 672.9 325.8
(202.1) (647.3) 192.7
Net income 317.9
317.9
Dividends - $1.16 per share
(154.9) (154.9)
Translation adjustments
(8.6) (8.6)
Exercise of stock options,
including tax benefits 423,267 .1 15.6
15.7
Grant, cancellation and
amortization of restricted
stock 36,000 2.7
2.7
Repurchase of common stock
(127.8) (127.8)
Benefit plan contributions 2.4
1.6 4.0
___________ ____ _____ _____
_____ _____ _____
Balance at December 31, 1996 173,957,379 43.5 693.6 488.8
(210.7) (773.5) 241.7
Net income 338.8
338.8
Dividends - $1.26 per share
(166.7) (166.7)
Translation adjustments
(59.6) (59.6)
Exercise of stock options,
including tax benefits 713,298 .2 30.3
30.5
Grant, cancellation and
amortization of restricted
stock 40,496 4.6
4.6
Repurchase of common stock
(110.8) (110.8)
Benefit plan contributions 4.6
1.9 6.5
___________ ____ _____ _____
_____ _____ _____
Balance at December 31, 1997 174,711,173 $43.7 $733.1 $660.9
$(270.3) $(882.4) $285.0
The accompanying notes are an integral part of these statements
</TABLE>
<PAGE>45
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 the "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 U.S. and non-U.S.
commercial banks with high credit ratings. 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 regarding 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 - Internal system development costs related to the
development of major information and accounting systems are 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.
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 as other assets or liabilities and recognized
when the offsetting gains and losses are recognized on the related
hedged items. Income and expense are recorded in
<PAGE>46
the same category as that arising from the related asset or liability
being hedged. Items not qualifying for hedge accounting are marked to
market with the resulting gain or loss recognized in other (income)
expense, net. 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 in 1997 $29.9 (1996 - $30.2; 1995 - $27.8).
Advertising - Advertising costs are expensed as incurred and aggregated
in 1997 $64.5 (1996 - $69.6; 1995 - $52.8).
Income Taxes - Deferred income taxes have been 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 $191.4 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 $25.7 would be
payable.
Earnings per Share - Basic earnings per share are computed by dividing
net income by the weighted average number of shares outstanding during
the year. Diluted earnings per share are calculated to give effect to
all potentially dilutive common shares that were outstanding during the
year.
For each of the three years ended December 31, 1997, the number of
shares used in the computation of basic and diluted earnings per share
are as follows:
1997 1996 1995
Basic EPS ______ ______ ______
Weighted-average shares 132.34 133.70 136.48
Incremental shares from conversion of:
Stock options 1.16 .93 .38
Diluted EPS ______ ______ ______
Adjusted weighted-average shares 133.50 134.63 136.86
______ ______ ______
All share and per share data included in this report have been restated
to reflect a two-for-one stock split distributed in June 1996.
Reclassifications - To conform to the 1997 presentation, certain
reclassifications were made to the prior years' consolidated financial
statements.
2. Accounting Changes
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 128, "Earnings per Share". FAS No. 128
establishes standards for computing and presenting earnings per share
("EPS") and replaces the presentation of previously disclosed EPS with
both basic and diluted EPS. Based upon the Company's capitalization
structure, the EPS amounts calculated in accordance with FAS No. 128
approximated the Company's EPS amounts in accordance with Accounting
Principles Board Opinion ("APB") No. 15, "Earnings per Share." All
prior period EPS data have been restated in accordance with FAS No. 128.
Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of". This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
There was no impact on the Company's results
of operations or financial position in adopting this statement.
Also, effective January 1, 1996, the Company adopted the fair value
disclosure requirements of FAS No. 123, "Accounting for Stock-Based
Compensation". As permitted by the statement, the Company did not
change the method of accounting for its employee stock compensation
plans. See Note 8 for the fair value disclosures required under FAS No.
123.
Recent Pronouncements - In June 1997, the Financial Accounting Standards
Board ("FASB") issued FAS No. 130, "Reporting Comprehensive Income".
FAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as the change in
equity during a period from transactions and other events and
circumstances from non-owner sources. FAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The adoption of FAS No.
130 will have no impact on the Company's results of operations or
financial position.
<PAGE>47
Also, in June 1997, the FASB issued FAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information". FAS No. 131
establishes standards for the way that publicly-held companies report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. FAS No. 131 is
effective for fiscal years beginning after December 15, 1997. The
adoption of FAS No. 131 will have no impact on the Company's results of
operations or financial position.
3. Discontinued Operations
In December 1995, the Company entered into an agreement with
Mallinckrodt Group, Inc. ("Mallinckrodt"), which 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 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 and a charge
to both basic and diluted earnings per share of $.22. Since the Company
had capital loss carryforwards, no tax benefits were recognized on the
loss in 1995.
4. Inventories
Inventories at December 31 consisted of the following:
1997 1996
_____ _____
Raw materials $147.4 $136.7
Finished goods 417.4 393.3
_____ _____
Total $564.8 $530.0
_____ _____
LIFO-based inventories at December 31, 1997 were $143.5; (1996 -
$120.3) with the current estimated replacement cost exceeding the
carrying value by approximately $15.2 (1996 - $20.0).
5. Debt and Other Financing
Debt at December 31 consisted of the following (See also Note 7
regarding financial instruments.):
1997 1996
_____ _____
Maturing within one year:
Notes payable $ 29.4 $ 94.0
Current portion of long-term debt 102.7 3.1
_____ _____
Total $ 132.1 $ 97.1
_____ _____
Long-term debt:
6.55% notes, due 2007 $ 100.0 $ -
170 million 6-1/8% deutsche
mark notes, due 1998 (1) 100.0 100.0
Other, payable to 2002 with
interest from 9% to 30% 4.9 7.6
Less current portion (102.7) (3.1)
_____ _____
Total $ 102.2 $ 104.5
_____ _____
(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
(payable)/receivable at December 31, 1997 of ($5.1) (1996 - $9.7).
Annual maturities of long-term debt for each of the next five years
are: 1998 - $102.7; 1999 - $1.4; 2000 - $.5; 2001 - $.2, and 2002 and
beyond $100.1.
During 1997, the Company issued $100.0 of 6.55% notes, due August
1, 2007 for which the net proceeds were used to pay down commercial
paper borrowings.
During 1996, the Company entered into an agreement, which expires
in 2001, with various banks to amend and restate the five-year, $600.0
revolving credit and competitive advance facility agreement, which was
previously entered into in 1994. Within this facility, the Company is
able to borrow, on an uncommitted basis, various foreign currencies.
The new agreement and the prior agreement are referred to, collectively,
as the credit facility.
The credit 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 credit facility is based on LIBOR,
prime, or federal fund rates. The credit facility has an annual
facility fee of $.4. The credit facility contains a covenant for
interest coverage, as defined. The Company is in compliance with this
covenant.
<PAGE>48
At December 31, 1997, there were no borrowings outstanding under the
credit facility. At December 31, 1996, borrowings of $29.7 were
outstanding under the credit facility. The borrowings of $29.7
represented a 3.45 billion yen loan, which was paid in November 1997,
used to hedge the Company's net investment in Japan. The annual
interest rate was .78%.
At December 31, 1996, Avon had $34.1 outstanding under a $500.0
commercial paper program supported by the credit facility. In addition,
the Company has bankers' acceptance facilities and uncommitted lines of
credit available of $205.0 (1996 - $230.0) with various banks which have
no compensating balances or fees. As of December 31, 1997 and 1996,
there were no borrowings under the bankers' acceptance facilities and
uncommitted lines.
The maximum borrowings under these combined facilities during 1997
and 1996 were $409.3 and $361.9, respectively, and the annual average
borrowings during each year were approximately $274.6 and $271.3,
respectively, at average annual interest rates of approximately 5.2% and
5.5%, respectively.
At December 31, 1997 and 1996, international lines of credit
totaled $295.8 and $357.0, respectively, of which $29.4 and $30.2 were
outstanding, respectively. The maximum borrowings under these
facilities during 1997 and 1996 were $38.8 and $58.3, respectively, and
the annual average borrowings during each year were $33.8 and $47.2,
respectively, at average annual interest rates of approximately 9.9% and
6.3%, respectively. Such lines have no compensating balances or fees.
At December 31, 1997 and 1996, Avon also has letters of credit
outstanding totaling $15.5 and $18.7, respectively, which guarantee
various insurance activities. In addition, Avon has outstanding letters
of credit for various trade activities.
During 1997, the Company entered into a securities lending
transaction resulting in the borrowing of securities which were
subsequently sold for net proceeds approximating $58.6 used to repay
commercial paper borrowings. The borrowed securities are due to the
lender no later than December 29, 2000, but at the Company's option can
be returned at any time. The obligation is included in other non-
current liabilities on the balance sheet. The effective rate on the
transaction is expected to be 6.5%.
6. Income Taxes
Deferred tax assets (liabilities) resulting from temporary differences
in the recognition of income and expense for tax and financial reporting
purposes at December 31 consisted of the following:
1997 1996
Deferred tax assets: _____ _____
Postretirement benefits $ 69.3 $ 83.5
Accrued expenses and reserves 44.0 53.2
Employee benefit plans 40.0 46.8
Foreign operating loss carryforwards 32.5 30.1
Capital loss carryforwards 21.2 36.3
Postemployment benefits 10.6 10.9
All other 17.7 25.8
Valuation allowance (55.7) (70.0)
_____ _____
Total deferred tax assets 179.6 216.6
Deferred tax liabilities: _____ _____
Depreciation (35.6) (44.0)
Prepaid retirement plan costs (52.4) (54.6)
Capitalized interest (13.5) (15.0)
Unremitted foreign earnings (12.0) (11.6)
All other (9.0) (14.8)
_____ _____
Total deferred tax liabilities (122.5) (140.0)
_____ _____
Net deferred tax assets $ 57.1 $ 76.6
Deferred tax assets (liabilities) at December 31 were classified as
follows:
1997 1996
Deferred tax assets: _____ _____
Prepaid expenses and other $ 76.5 $ 67.4
Other assets 16.1 46.6
_____ _____
Total deferred tax assets 92.6 114.0
Deferred tax liabilities: _____ _____
Income taxes (4.3) (3.5)
Deferred income taxes (31.2) (33.9)
_____ _____
Total deferred tax liabilities (35.5) (37.4)
_____ _____
Net deferred tax assets $ 57.1 $ 76.6
The valuation allowance primarily represents reserves for foreign
operating loss and capital loss carryforwards. The basis used for
recognition of deferred tax assets included the profitability of the
operations and related deferred tax liabilities.
<PAGE>49
Income from continuing operations before taxes and minority interest
for the years ended December 31 was as follows:
1997 1996 1995
_____ _____ _____
United States $ 153.6 $ 171.3 $ 149.7
Foreign 381.3 339.1 315.3
_____ _____ _____
Total $ 534.9 $ 510.4 $ 465.0
The provision for income taxes for the years ended December 31 was
as follows:
1997 1996 1995
Federal:
Current $ 5.4 $ 30.9 $ 23.3
Deferred 21.3 1.0 .9
_____ _____ _____
26.7 31.9 24.2
Foreign:
Current 169.7 152.4 146.2
Deferred (7.7) (1.5) (1.4)
_____ _____ _____
162.0 150.9 144.8
State and other:
Current 4.8 8.8 7.5
Deferred 4.4 (.2) (.1)
_____ _____ _____
9.2 8.6 7.4
_____ _____ _____
Total $ 197.9 $ 191.4 $ 176.4
The effective tax rate for the years ended December 31 was as
follows:
1997 1996 1995
____ ____ ____
Statutory federal rate 35.0% 35.0% 35.0%
State and local taxes, net
of federal tax benefit 1.1 1.1 1.0
Tax-exempt operations (.5) (.7) (.7)
Taxes on foreign income,
including translation 5.3 6.8 7.5
Utilization of net operating
loss carryforwards .0 (.5) (.1)
Other (3.9) (4.2) (4.8)
____ ____ ____
Effective tax rate 37.0% 37.5% 37.9%
During 1997, the Company reached final agreement with the Internal
Revenue Service with respect to its examination of the Company's income
tax returns for the years 1982 through 1989. As anticipated, payments,
including related interest, made under this settlement were
approximately $42.4. Reserves previously had been provided by the
Company related to the agreement.
In the fourth quarter of 1997, the Company recorded a benefit
related to a value-added tax settlement in the United Kingdom totaling
$26.5, of which $20.6 and $5.9 have been reflected in other (income)
expense, net and interest income, respectively.
At December 31, 1997, Avon had foreign operating loss carryforwards
of approximately $84.0. The loss carryforwards expiring between 1998
and 2005 were $53.5 and the loss carryforwards which do not expire were
$30.5. Capital loss carryforwards, which expire between 1999 and 2001
and may be used to offset capital gains, if any, were approximately
$60.6 at December 31, 1997.
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.
<PAGE>50
During a substantial portion of the three-year period ended
December 31, 1997, the Company utilized interest rate swaps to
effectively convert variable interest on its long-term debt to a fixed
interest rate. From January 1995 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 this
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, 1997 and 1996, each such agreement having a notional amount
of $100.0, yielding an aggregate notional amount at December 31, 1997
and 1996 of $300.0. Effective January 1995, the Company had two
interest rate caps on the Notes, each with a notional amount of $100.0,
one of which expired in 1996 and the other expires when the Notes
mature. Subsequent to the interest rate on the Notes becoming fixed,
these caps were marked to market with 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, which expired 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.
Foreign Currencies - The Company may periodically hedge foreign currency
royalties, net investments in foreign subsidiaries, firm purchase
commitments and contractual foreign currency cash flows or obligations,
including third-party 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, 1997, the Company held foreign currency forward
contracts with notional amounts totaling $319.1 (1996 - $203.1) and
option contracts with notional amounts totaling $80.0 (1996 - $61.2) to
hedge foreign currency items. These contracts all have maturities prior
to December 31, 1998. During 1996, the Company also entered into certain
option contracts with notional amounts totaling $46.4 and, during 1997
and 1996, foreign currency forward contracts totaling $44.2 and $99.0,
respectively, which do not qualify as hedging transactions under the
current accounting definitions and, accordingly, have been marked to
market. The mark-to-market adjustments on these option and forward
contracts at December 31, 1997 and 1996 were insignificant. The
Company's risk of loss on the 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:
1997 1996
Buy Sell Buy Sell
_____ _____ _____ _____
Argentine peso $ - $ - $ - $ 15.0
Brazilian real - - - 84.0
British pound 29.1 56.5 1.5 33.9
Canadian dollar - 30.8 - 44.1
Chinese renminbi - - - 10.0
French franc - 13.8 1.0 14.4
German mark 77.2 12.4 59.5 16.2
Indonesian rupiah 3.7 5.0 - -
Irish punt 13.0 2.9 13.6 1.6
Italian lira 7.8 3.7 12.7 1.8
Japanese yen 12.0 53.3 57.2 28.1
Malaysian ringgit - 6.0 - -
Mexican peso - 40.0 - -
Philippine peso - 15.0 - -
Russian ruble - 20.0 - -
Spanish peseta - 7.0 - 10.1
Taiwanese dollar - 20.2 - -
Thai baht - 5.1 - -
Other currencies 4.1 4.7 .9 4.1
_____ _____ _____ _____
Total $146.9 $296.4 $146.4 $263.3
<PAGE>51
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 would not result in a
significant write-off at December 31, 1997. In addition, there are other
swap agreements in a net payable position of an insignificant amount at
December 31, 1997. 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 - 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. 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 and other financing -
The fair value of all debt and other financing 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:
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
_____ _____ _____ _____
Cash and equivalents $141.9 $141.9 $184.5 $184.5
Grantor trust 61.1 62.7 49.4 57.2
Debt maturing within
one year (127.0) (127.6) (97.1) (97.1)
Long-term debt and
other financing (160.3) (162.7) (114.2) (117.2)
Currency swap contract on
long-term debt (5.1) (1.7) 9.7 16.2
Other forward exchange and
option contracts 5.0 10.3 .3 1.0
Interest rate swap receivable - .1 - .1
Interest rate swaps payable (.7) (2.2) (.7) (6.4)
<PAGE>52
8. Stock Option Plans
A summary of the Company's stock option activity, weighted-average
exercise
price and related information for the years ended December 31 is as
follows:
1995 1996 1997
__________________ ___________________ ___________________
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(in 000's) Price (in 000's) Price (in 000's) Price
__________________ ___________________ ___________________
Outstanding -
beginning
of year 1,064 $24.22 2,409 $28.45 2,875 $32.56
Granted 1,430 30.96 894 39.62 1,430 61.35
Exercised (79) 17.46 (423) 24.16 (713) 28.93
Forfeited (6) 23.20 (5) 24.93 (57) 55.00
Outstanding - _____ _____ _____ _____ _____ _____
end of year 2,409 $28.45 2,875 $32.56 3,535 $44.58
Options exer-
cisable - _____ _____ _____ _____ _____ _____
end of year 449 $24.21 575 $26.03 680 $30.53
Exercise prices for options outstanding as of December 31, 1997
consisted of 10,000 options at a price range of $12 to $13; 2,142,000
options at a price range of $26 to $46 and 1,383,000 options at a price
range of $61 to $63, with weighted-average remaining contractual lives
of approximately one year, eight years and nine years, respectively.
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 7,050,000
shares, of which no more than 4,000,000 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 1997, 1996 and 1995,
restricted shares with aggregate value and vesting and related
amortization periods were granted as follows: 1997 - 18,000 shares
valued at $1.2 vesting over one to three years; 1996 - 39,000 shares
valued at $1.7 vesting over two to four years; and 1995 - 96,000 shares
valued at $2.8 vesting over two to four years.
Effective January 1, 1997, the 1997 Long-Term Incentive Plan ("1997
LTIP") was authorized under the 1993 Plan. The 1997 LTIP provides for
the grant of two forms of incentive awards, performance units for
potential cash incentives and ten-year stock options. Performance units
are earned over the three-year performance period (1997-1999), based on
the degree of attainment of performance objectives. 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.
Effective January 1, 1994, the 1994 Long-Term Incentive Plan ("1994
LTIP") was authorized under the 1993 Plan authorizing the grant of two
forms of incentive awards, performance units for potential cash
incentives and ten-year stock options. As of December 31, 1996,
required performance goals under the 1994 LTIP were achieved and,
accordingly, the cash incentives totaling $31.0 were paid in early 1997.
As of December 31, 1993, required performance goals under the prior
long-term incentive plan were achieved and, accordingly, 50% of
previously issued restricted shares were vested and issued in early
1994. An additional 30% of such shares vested and were issued in early
1995 while the remaining 20% vested and were issued in early 1996.
During 1993, 96,180 restricted shares were issued under that plan, with
an aggregate value on the date of grant of $3.5. Expense was recorded
as the restricted shares vested over the periods established for each
grant.
Compensation expense under all plans in 1997 was $15.6 (1996 -
$14.7; 1995 - $13.7). The unamortized cost as of December 31, 1997 was
$2.0 (1996 - $4.0). The accrued cost of the performance units in 1997
was $12.7 (1996 - $12.0; 1995 - $9.4).
<PAGE>53
The Company has adopted the disclosure provisions of FAS No. 123,
but, as permitted by the statement, has continued to apply APB No. 25,
"Accounting for Stock Issued to Employees" and related interpretations
in accounting for its employee stock option plans. Under APB No. 25,
because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
If the Company had elected to recognize compensation cost for the
plans based on the fair value at the grant dates, consistent with the
method prescribed by FAS No. 123, net income and earnings per share
would have been changed to the pro forma amounts indicated below (in
millions, except for earnings per share information):
1997 1996 1995
Pro forma net income $332.5 $314.9 $255.3
Pro forma earnings per share :
Basic $ 2.51 $ 2.36 $ 1.87
Diluted $ 2.49 $ 2.34 $ 1.87
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
FAS No. 123. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model which was developed
for use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition, option
pricing models require the input of highly subjective assumptions,
including the expected stock price volatility. The weighted-average
assumptions used for 1997 were the risk-free interest rate of
approximately 6.3%; dividend yield of 2%; expected volatility of the
market price of the Company's common stock of 25%; and a weighted-
average expected life of the options of approximately five years. The
weighted-average assumptions used for both 1996 and 1995 were the risk-
free interest rate of approximately 5.5%; dividend yield of 3%; expected
volatility of the market price of the Company's common stock of 20%; and
a weighted-average expected life of the options of approximately three
years.
9. Shareholders' Equity
Stock Split - At the 1996 Annual Meeting, the shareholders approved an
amendment to the Company's Certificate of Incorporation to increase the
number of shares of common stock authorized from 200 million to 400
million shares and decrease the par value per share from $.50 to $.25.
Subsequently, the Company's Board of Directors ("Board") authorized a
two-for-one stock split which was distributed in June 1996 to
shareholders of record after the close
of business on May 15, 1996.
Share Rights Plan - Avon has a 1988 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 $.005 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 of 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 February 1, 1997, Avon increased the regular dividend on
common shares to an annual rate of $1.26 per share, with the first
quarterly dividend at the rate of $.315 per share having been paid on
March 3, 1997.
On February 1, 1996, Avon increased the regular dividend on common
shares to an annual rate of $1.16 per share, with the first quarterly
dividend at the rate of $.29 per share having been paid on March 1,
1996.
On August 2, 1995, Avon increased the regular dividend on common
shares to an annual rate of $1.10 per share, with the first quarterly
dividend at the rate of $.275 per share having been paid on September 1,
1995.
Stock Repurchase Programs - During 1994, Avon's Board authorized a stock
repurchase program under which Avon would buy back up to 10% of its then
outstanding common stock, or approximately 14,000,000 shares. As of
February 1997, when the plan ended, the cumulative number of shares
repurchased was 12.7 million shares at a total cost of $424.4 which are
included in Treasury Stock. Under a new repurchase program, which began
in February 1997, the Company repurchased approximately 1.8 million
shares at a total cost of approximately $109.3 as of December 31, 1997.
Under this new program, the Company may buy back up to $500.0 of its
currently outstanding common stock through open market purchases over a
period of up to three to five years.
<PAGE>54
Savings Plan - In 1997, Avon contributed 43,672 (1996 - 86,186) shares
of treasury stock to an employees' savings plan and recognized expense
for its fair value. In addition, during 1997, the Company contributed
an additional 60,000 shares, for which the expense had been accrued at
December 31, 1996. The expense recognized for the plan in 1997 was $2.6
(1996 - $7.0; 1995 - $3.7).
Board of Directors Remuneration - Effective May 1, 1997, the Company
discontinued the Board retirement plan, which was applicable only to
non-management directors. Directors retiring after that date have had
the actuarial value of their accrued retirement benefits converted to a
one-time grant of common stock which is restricted as to transfer until
retirement. 26,393 shares were issued to directors as a result of the
discontinuance of the plan. As a replacement for such plan, effective
on and after May 1, 1997, each non-management director is annually
granted options to purchase 2,000 shares of common stock, at an exercise
price based on the fair market price of the stock on the date of grant.
The first such annual grant was made May 1, 1997 consisting of a total
of 20,000 options with an exercise price of $61.63.
Also effective as of May 1, 1997, the annual retainer paid to non-
management directors was changed to consist of $.025 cash plus an annual
grant of shares having a value of $.025 based on the average closing
market price of the stock for the ten days preceding the date of grant.
These shares are also restricted as to transfer until the director
retires from the Board. The first such grant was made May 1, 1997
consisting of a total of 4,260 shares.
10. 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:
1997 1996 1995
Service cost $ 35.2 $ 36.6 $ 33.4
Interest cost 63.1 61.4 58.5
Actual return on plan assets (117.3) (72.8) (121.1)
Net amortization 67.5 21.2 66.4
_____ _____ _____
Net retirement plan expense $ 48.5 $ 46.4 $ 37.2
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:
1997 1996 1995
____ ____ ____
Discount rate 7.4% 7.3% 8.2%
Rate of compensation increase 4.7 4.5 4.8
Rate of return on assets 9.2 9.3 9.3
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
1997 1996 1997 1996
Plan assets at fair value
(primarily listed stocks
and bonds) $ 753.7 $ 657.5 $ 31.8 $ 33.2
______ ______ ______ ______
Present value of projected
benefit obligation:
Accumulated benefit obligation
Vested (508.4) (496.8) (143.5) (151.1)
Nonvested (82.0) (73.1) (33.3) (24.8)
Projected compensation
increases (90.4) (91.8) (32.3) (37.0)
______ ______ ______ ______
Projected benefit obligation (680.8) (661.7) (209.1) (212.9)
______ ______ ______ ______
Plan assets in excess of
(less than) projected
benefit obligation 72.9 (4.2) (177.3) (179.7)
Unrecognized net loss 67.3 111.5 32.0 25.2
Unrecognized prior
service cost (12.4) 16.5 5.2 8.1
Unrecognized transition
(gain) loss (12.6) (21.3) 9.6 9.1
Adjustment for additional
liability - - (18.1) (11.2)
Prepaid (accrued) retirement ______ ______ ______ ______
plan cost $ 115.2 $ 102.5 $(148.6) $(148.5)
<PAGE>55
At December 31, 1997 and 1996, the weighted-average discount rates
used in determining the projected benefit obligations were 7.0% and
7.6%, 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.
Effective July 1998, the defined benefit retirement plan covering
U.S.-based employees will be converted to a cash balance plan with
benefits determined by compensation credits related to age and service
and interest credits based on individual account balances and prevailing
interest rates. Additional amendments include an increased company
matching contribution to the savings plan and a ten year transitional
benefit arrangement for certain employees covered under the existing
defined benefit retirement plan.
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 in 1997
amounted to $5.5 (1996 - $5.5; 1995 - $4.4). Such benefits will be paid
from Avon's assets. The accumulated benefit obligation under this plan
at December 31, 1997 was $22.8 (1996 - $21.8) 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,
1997 was $20.6 (1996 - $29.3) and is held in a grantor trust. During
1997, certain retirees elected to receive a cash distribution from the
SLIP approximating $10.0, which was funded by corporate-owned life
insurance policies.
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,
1997, amounted to $81.7 (1996 - $78.7), 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.
Net postretirement benefit cost for the years ended December 31
included the following components:
1997 1996 1995
Service cost $ 3.0 $ 3.3 $ 4.0
Interest cost 13.0 14.0 16.3
____ ____ ____
Total postretirement benefit cost $16.0 $17.3 $20.3
The assumptions used to determine the data for the years ended
December 31 are as follows:
1997 1996 1995
Discount rate 7.7% 7.2% 8.5%
Rate of assumed compensation increases 4.5 4.5 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:
1997 1996
Retirees $136.6 $139.2
Other fully eligible participants 3.8 3.7
Other active participants 56.7 53.1
Unrealized gain 6.2 10.8
_____ _____
Accumulated postretirement benefits
obligation $203.3 $206.8
At December 31, 1997 and 1996, the weighted-average discount rates
used in determining the accumulated benefits obligation were 7.2% and
7.7%, respectively.
For 1997, the assumed rate of future increases in the per capita
cost of health care benefits (the health care cost trend rate) was 9.0%
for pre-65 claims (8.5% for post-65 claims) and will gradually decrease
each year thereafter to 5.0% 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, 1997 by
$23.2 and would have increased the 1997 annual postretirement benefits
expense by $2.4.
<PAGE>56
Postemployment Benefits - Avon provides postemployment benefits which
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,
1997, the accrued cost for postemployment benefits was $35.0 (1996 -
$32.2) and is included in Employee Benefit Plans.
11. Geographic Information
Sales and pretax income by geographic area are presented on page 29.
Identifiable assets by geographic area at December 31 were as follows:
1997 1996 1995
United States $ 528.9 $ 470.2 $ 449.2
_______ _______ _______
International
Americas 583.5 548.8 498.4
Pacific 378.4 383.5 375.5
Europe 363.5 377.4 339.7
Total International 1,325.4 1,309.7 1,213.6
Corporate and other* 418.6 442.5 390.0
Total $2,272.9 $2,222.4 $2,052.8
*Includes Cash Equivalents in 1997 of $60.0 (1996 - $87.9; 1995 -
$60.5).
Foreign Exchange - Financial statement translation of subsidiaries
operating in highly inflationary economies and foreign currency
transactions resulted in losses in 1997 netting to $2.2 (1996 - $3.1;
1995 - $6.9), which are included in Other (income) 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 in 1997 of $6.0 (1996 - $12.6; 1995 - $4.7).
12. Leases and Commitments
Minimum rental commitments under noncancellable operating leases,
primarily for equipment and office facilities at December 31, 1997,
consisted of the following:
Year
1998 $ 60.9
1999 45.4
2000 35.0
2001 26.3
2002 19.2
Later years 208.5
Sublease rental income (8.5)
_____
Total $386.8
Rent expense related to continuing operations in 1997 was $88.2
(1996 - $89.7; 1995 - $78.0). Various construction and information
systems projects were in progress at December 31, 1997 with an estimated
cost to complete of approximately $107.0.
13. 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, 1997 should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
14. Subsequent Event
On February 5, 1998, Avon's Board approved an increase in the quarterly
cash dividend to $.34 per share from $.315. The first dividend at the
new rate will be paid on March 2, 1998 to shareholders of record on
February 17, 1998. On an annualized basis, the new dividend rate will
be $1.36 per share.
<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.
James E. Preston Robert J. Corti
Chairman of the Board and Senior Vice President,
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996,
and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
February 5, 1998
<PAGE>58
Eleven-Year Review
In millions, except per share and employee data
1997 1996 1995 1994
Income data
Net sales $5,079.4 $4,814.2 $4,492.1 $4,266.5
Interest expense 41.8 40.0 41.3 50.8
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 534.9 510.4 465.0 433.8
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 337.0 319.0 288.6 270.3
Income from
continuing operations 338.8 317.9 286.1 264.8
Income (loss) from
discontinued
operations, net - - (29.6) (23.8)
Cumulative effect
of accounting
changes, net - - - (45.2)(1)
Net income (loss) 338.8 317.9 256.5 195.8
Earnings (loss) per share
- basic (4) (5)
Continuing operations $ 2.56 $ 2.38 $ 2.10 $ 1.88
Discontinued operations - - (.22) (.17)
Cumulative effect of
accounting changes - - - (.32)
Net income (loss) 2.56 2.38 1.88 1.39
Earnings (loss) per share
- diluted (4) (5)
Continuing operations $ 2.54 $ 2.36 $ 2.09 $ 1.87
Discontinued operations - - (.22) (.17)
Cumulative effect of
accounting changes - - - (.32)
Net income (loss) 2.54 2.36 1.87 1.38
Cash dividends per share
Common $ 1.26 $ 1.16 $ 1.05 $ .95
Preferred - - - -
Balance sheet data
Working capital $ (11.9) $ (41.7) $ (30.3) $ 9.3
Capital expenditures 169.4 103.6 72.7 99.9
Property, plant and
equipment, net 611.0 566.6 537.8 528.4
Total assets 2,272.9 2,222.4 2,052.8 1,978.3
Debt maturing within one year 132.1 97.1 47.3 61.2
Long-term debt 102.2 104.5 114.2 116.5
Total debt 234.3 201.6 161.5 177.7
Shareholders' equity 285.0 241.7 192.7 185.6
Number of employees
United States 8,100 7,800 8,000 7,900
International 26,900 25,900 23,800 22,500
Total employees 35,000 33,700 31,800 30,400
<PAGE>59
1993 1992 1991 1990
Income data
Net sales $3,844.1 $3,660.5 $3,441.0 $3,291.6
Interest expense 45.2 43.7 75.4 77.5
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 394.6 290.0(2) 352.9 305.6
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 243.8 169.4(2) 209.3 180.3
Income from
continuing operations 236.9 164.2(2) 204.8 174.1
Income (loss) from
discontinued
operations, net 2.7 10.8 (69.1) 21.2
Cumulative effect
of accounting
changes, net (107.5)(1) - - -
Net income (loss) 132.1 175.0(2) 135.7 195.3
Earnings (loss) per share
- basic (4) (5)
Continuing operations $ 1.64 $ 1.14 $ 1.30(6) $ 1.22
Discontinued operations .02 .08 (.48) .18
Cumulative effect of
accounting changes (.74) - - -
Net income (loss) .92 1.22 .82(6) 1.40
Earnings (loss) per share
- diluted (4) (5)
Continuing operations $ 1.64 $ 1.14(2) $ 1.43(6) $ 1.16
Discontinued operations .02 .07 (.48) .14
Cumulative effect of
accounting changes (.74) - - -
Net income (loss) .92 1.21(2) .95(6) 1.30
Cash dividends per share
Common $ .85 $ .75 $ 2.20(8) $ .50
Preferred - - .505 1.00
Balance sheet data
Working Capital $ 23.1 $ (99.5) $ (135.3) $ 71.6
Capital expenditures 58.1 62.7 61.2 36.3
Property, plant and
equipment, net 476.2 476.7 468.5 467.2
Total assets 1,918.7 1,692.6 1,693.3 2,010.1
Debt maturing within one year 70.4 37.3 143.8 207.1
Long-term debt 123.7 177.7 208.1 334.8
Total debt 194.1 215.0 351.9 541.9
Shareholders' equity 314.0 310.5 251.6 393.4
Number of employees
United States 8,000 8,700 9,200 9,500
International 21,500 20,700 20,900 20,300
Total employees 29,500 29,400 30,100 29,800
Avon Products, Inc.
1989 1988 1987
Income data
Net sales $2,998.3 $2,835.2 $2,506.2
Interest expense 118.0 112.9 77.5
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 252.9 208.3 359.6(3)
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 134.1 121.1 224.8(3)
Income from
continuing operations 126.5 112.3 222.8(3)
Income (loss) from
discontinued
operations, net (71.9) (536.8) (63.7)
Cumulative effect
of accounting
changes, net - 20.0(1) -
Net income (loss) 54.6 (404.5) 159.1(3)
Earnings (loss) per share
- basic (4) (5)
Continuing operations $ .82(7) $ .76(7) $ 1.58
Discontinued operations (.65) (4.31) (.45)
Cumulative effect of
accounting changes - .16 -
Net income (loss) .17(7) (3.39)(7) 1.13
Earnings (loss) per share
- diluted (4) (5)
Continuing operations $ .81(7) $ .76(7) $ 1.57(3)
Discontinued operations (.64) (4.31) (.45)
Cumulative effect of
accounting changes - .16 -
Net income (loss) .17(7) (3.39)(7) 1.12(3)
Cash dividends per share
Common $ .50 $ .75 $ 1.00
Preferred 1.00 .50 -
Balance sheet data
Working capital $ 56.3 $ 51.0 $ 122.2
Capital expenditures 33.3 46.0 45.9
Property, plant and
equipment, net 472.5 529.1 561.3
Total assets 1,994.1 2,362.6 2,419.6
Debt maturing within one year 151.7 205.6 62.8
Long-term debt 673.2 917.9 801.8
Total debt 824.9 1,123.5 864.6
Shareholders' equity 228.3 239.3 758.6
Number of employees
United States 9,400 9,700 10,500
International 19,900 18,400 18,100
Total employees 29,300 28,100 28,600
(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". 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 $.45 per share). Income from continuing
operations in 1993 increased 4% from $228.6, or $1.59 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 $.86 per share) resulting
from the sale of subsidiary stock and a special provision for
restructuring of $47.5 ($29.4 after tax, or $.21 per share).
(4) A two-for-one stock split was distributed in June 1996. All per
share data in this report, unless indicated, have been restated to
reflect the split.
(5) Effective for the year ended December 31, 1997, the Company adopted
FAS No. 128, "Earnings per Share". FAS No. 128 establishes standards
for computing and presenting earnings per share ("EPS") and replaces the
presentation of previously disclosed EPS with both basic and diluted
EPS. Based upon the Company's capitalization structure, the EPS amounts
calculated in accordance with FAS No. 128 approximated the Company's EPS
amounts in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per Share". All prior period EPS data have been restated in
accordance with FAS No. 128.
(6) For 1991, in management's opinion, per share amounts assuming
dilution, even though the result is antidilutive, provide the most
meaningful comparison of per share data because they show the full
effect of the conversion of 36 preferred shares into approximately 25.92
common shares on June 3, 1991.
(7) In 1989 and 1988, the calculation of earnings per share assuming
dilution is antidilutive and accordingly, earnings per share have not
been adjusted for the conversion of preferred shares into additional
common shares.
(8) Includes special dividend of $1.50 paid in 1991.
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
______________________ ________________
Cosmetics Avon S.A.C.I. Argentina
Avon Cosmetics Pty. Limited Australia
Avon Products Pty. Limited Australia
Avon Cosmetics Vertriebsgesellschaft m.b.h Austria
Arlington Limited Bermuda
Avon International (Bermuda) Ltd. Bermuda
Productos Avon Bolivia Ltda. Bolivia
Avon Cosmeticos, Ltda. Brazil
Avon Canada, Inc. Canada
Avon Fashions, Inc. - Avon Mode Inc. Canada
Cosmeticos Avon S.A. Chile
Avon Products (Guangzhou) Ltd. (73.845%), China
Avon Manufacturing (Guangzhou) Ltd. (73.845%) China
Avon Kosmetika d.o.o. Croatia
Avon Cosmetics, Spolecnosti S. Rucenlm Omezenym 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
Manila Manufacturing Company Delaware
Productos Avon S.A. Dominican
Republic
Productos Avon Ecuador S.A. Ecuador
<PAGE>
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
Avon Cosmetics (FEBO) Limited Hong Kong
Avon Cosmetics Hungary KFT Hungary
Avon Service Center, Inc. Illinois
Avon Beauty Productos India Private Limited India
P.T. Avon Indonesia (85%) Indonesia
Albee Dublin Finance Company Ireland
Avon Limited Ireland
Avon Cosmetics Ireland 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
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
Cosmeticos Aliados S.A. Peru
Avon Cosmetics, Inc. Philippines
Avon Products Mfg., Inc. Philippines
Beautifont Products, Inc. Philippines
Avon Cosmetics Polska Sp. z.o.o. Poland
Esmeralda Sp. z.o.o. (30%) Poland
Avon Cosmeticos, Lda. Portugal
Avon Cosmetics Spal s.r.o. Slovak Republic
Avon Beauty Products Co. (ABPC) Russia Russia
Justine/Avon PTY. Ltd. South Africa
Avon Cosmetics, S.A. Spain
Avon Cosmetics (Taiwan) Ltd. Taiwan
Avon Products Limited Taiwan
Avon Cosmetics (Thailand) Ltd. Thailand
California Manufacturing Company Ltd. Thailand
Exzacibasi Avon Kosmetik Urunleri Turkey
Sanayi ve Ticaret A.S. (50%) (Joint Venture)
Avon Cosmetics Limited United Kingdom
Avon European Holdings Ltd. United Kingdom
Avon Cosmetics de Venezuela, C.A. Venezuela
Albee Holdings 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 or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, in his or her name, place and stead, in any and all
capacities, to sign the 1997 Annual Report on Form 10-K of Avon
Products, Inc. and any and all amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
attorneys-in-fact and agents full power and authority to do and perform
each and every act, as fully to all intents and purposes as they might
or could do in person, thereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney
as of March 5, 1998.
Signature Title
_________ _____
Chairman of the Board and Chief
Executive Officer - Principal
/s/James E. Preston Executive Officer and Director
___________________
James E. Preston
Vice Chairman, Chief Operating
/s/Charles R. Perrin Officer and Director
___________________
Charles R. Perrin
Senior Vice President,
Chief Financial Officer
/s/Robert J. Corti Principal Financial Officer
__________________
Robert J. Corti
Vice President and Controller -
/s/Michael R. Mathieson Principal Accounting Officer
_______________________
Michael R. Mathieson
President, Avon Products, Inc.
/s/Andrea Jung and Director
_______________________
Andrea Jung
Executive Vice President,
President, Avon North America
/s/Susan J. Kropf and Director
_______________________
Susan J. Kropf
<PAGE>
Signature Title
_________ _____
/s/Brenda C. Barnes Director
___________________
Brenda C. Barnes
/s/Richard S. Barton Director
____________________
Richard S. Barton
/s/Remedios Diaz Oliver Director
_______________________
Remedios Diaz Oliver
/s/Edward T. Fogarty Director
____________________
Edward T. Fogarty
/s/Charles S. Locke Director
___________________
Charles S. Locke
/s/Ann S. Moore Director
_______________
Ann S. Moore
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
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, 1997 and
for the year then ended included in the Form 10-K as of December 31,
1997 and is qualified in its entirety by reference to such financial
statements.
<MULTIPLIER> 1000000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 481
<ALLOWANCES> (36)
<INVENTORY> 565
<CURRENT-ASSETS> 1,344
<PP&E> 1,282
<DEPRECIATION> (671)
<TOTAL-ASSETS> 2,273
<CURRENT-LIABILITIES> 1,356
<BONDS> 102
0
0
<COMMON> 44
<OTHER-SE> 241
<TOTAL-LIABILITY-AND-EQUITY> 2,273
<SALES> 5,079
<TOTAL-REVENUES> 5,079
<CGS> 2,051
<TOTAL-COSTS> 4,454
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 81
<INTEREST-EXPENSE> 42
<INCOME-PRETAX> 535
<INCOME-TAX> 198
<INCOME-CONTINUING> 339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.54
</TABLE>
