<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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
(Address of principal executive offices)
(212) 282-5000
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
The number of shares of Common Stock (par value $.25) outstanding at
July 31, 1999 was 260,792,530.
<PAGE>
Table of Contents
Part I. Financial Information
Page
Numbers
--------
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended June 30, 1999 and
June 30, 1998.................................... 3
Six Months Ended June 30, 1999 and
June 30, 1998.................................... 4
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 .............. 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and
June 30, 1998................................... 6
Notes to Consolidated Financial Statements.......... 7-14
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition....... 15-25
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................... 26
Signatures.................................................. 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three months ended
June 30
-----------------
1999 1998
---- ----
(unaudited)
Net sales.................................. $1,258.1 $1,247.2
Costs, expenses and other:
Cost of sales............................ 451.7 465.6
Marketing, distribution and
administrative expenses................ 608.9 603.0
------- --------
Operating profit .......................... 197.5 178.6
Interest expense......................... 10.2 9.9
Interest income.......................... (2.2) (5.9)
Other expense, net....................... 1.1 1.0
------- --------
Total other expenses....................... 9.1 5.0
------- --------
Income before taxes and minority interest.. 188.4 173.6
Income taxes............................... 67.8 63.9
-------- --------
Income before minority interest............ 120.6 109.7
Minority interest.......................... .8 1.7
-------- --------
Net income................................. $ 121.4 $ 111.4
======== ========
Earnings per share:
Basic ................................. $ .46 $ .42*
======== ========
Diluted................................ $ .46 $ .42*
======== ========
*Restated to reflect a two-for-one stock split distributed in
September 1998.
The accompanying notes are an integral part of these statements.
3
<PAGE>
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Six months ended
June 30
----------------
1999 1998
---- ----
(unaudited)
Net sales.................................. $2,471.9 $2,430.6
Costs, expenses and other:
Cost of sales**.......................... 959.9 968.7
Marketing, distribution and
administrative expenses................ 1,248.7 1,229.1
Special charge........................... 105.2 70.5
-------- --------
Operating profit........................... 158.1 162.3
Interest expense......................... 21.5 19.4
Interest income.......................... (5.4) (8.2)
Other (income)expense, net............... (7.1) 4.1
-------- --------
Total other expenses....................... 9.0 15.3
-------- --------
Income before taxes and minority interest.. 149.1 147.0
Income taxes............................... 79.2 70.0
-------- --------
Income before minority interest............ 69.9 77.0
Minority interest.......................... 2.6 3.4
-------- --------
Net income................................. $ 72.5 $ 80.4
======== ========
Earnings per share:
Basic ................................. $ .28 $ .31*
======== ========
Diluted................................ $ .27 $ .30*
======== ========
*Restated to reflect a two-for-one stock split distributed in September
1998.
**1999 and 1998 include a one-time charge of $46.0 and $37.9,
respectively, for inventory write-downs.
The accompanying notes are an integral part of these statements.
4
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AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
June 30 December 31
1999 1998
------ -----
(unaudited)
ASSETS
Current assets:
Cash and equivalents.................... $ 73.8 $ 105.6
Accounts receivable..................... 471.4 492.6
Inventories............................. 535.4 538.4
Prepaid expenses and other.............. 202.0 204.8
-------- --------
Total current assets.................... 1,282.6 1,341.4
-------- --------
Property, plant and equipment, at cost.. 1,376.3 1,392.8
Less accumulated depreciation........... 710.8 722.9
-------- --------
665.5 669.9
-------- --------
Other assets........................... 424.5 422.2
-------- -------
Total assets........................... $2,372.6 $2,433.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debt maturing within one year.......... $ 312.5 $ 55.3
Accounts payable....................... 286.1 416.9
Accrued compensation................... 131.9 161.3
Other accrued liabilities.............. 332.2 308.2
Sales and other taxes.................. 91.4 106.2
Income taxes........................... 284.6 281.6
-------- --------
Total current liabilities.............. 1,438.7 1,329.5
-------- --------
Long-term debt......................... 204.5 201.0
Employee benefit plans................. 385.7 390.0
Deferred income taxes.................. 37.8 36.3
Other liabilities...................... 183.5 191.6
Shareholders' equity:
Common stock........................... 88.1 87.8
Additional paid-in capital............. 804.3 780.0
Retained earnings...................... 697.5 719.1
Accumulated comprehensive income....... (341.5) (301.3)
Treasury stock, at cost................ (1,126.0) (1,000.5)
-------- --------
Total shareholders' equity............. 122.4 285.1
-------- --------
Total liabilities and shareholders' equity $2,372.6 $2,433.5
======== ========
The accompanying notes are an integral part of these statements.
5
<PAGE>
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six months ended
June 30
----------------
1999 1998
---- ----
(unaudited)
Cash flows from operating activities:
Net income...................................... $ 72.5 $ 80.4
Adjustments to reconcile net income to net cash
used by operating activities:
Special and non-recurring charges............... 107.9 81.9
Depreciation and amortization................... 39.5 34.0
Provision for doubtful accounts................. 43.6 43.0
Translation gains............................... (.7) (.4)
Deferred income taxes........................... (8.0) (11.0)
Other........................................... 2.0 2.5
Changes in assets and liabilities:
Accounts receivable........................... (58.5) (79.7)
Inventories................................... (67.6) (75.5)
Prepaid expenses and other.................... (1.9) (19.8)
Accounts payable and accrued liabilities...... (123.6) (107.1)
Income and other taxes........................ (2.6) (1.1)
Noncurrent assets and liabilities............. 7.9 (13.3)
------ ------
Net cash provided(used)by operating activities.. 10.5 (66.1)
------ ------
Cash flows from investing activities:
Capital expenditures........................... (72.1) (73.8)
Disposal of assets............................. 5.2 5.8
Other investing activities..................... (15.3) (.4)
------ ------
Net cash used by investing activities.......... (82.2) (68.4)
------ ------
Cash flows from financing activities:
Cash dividends................................. (95.7) (91.0)
Debt, net (maturities of three months or less). 254.8 163.9
Proceeds from short-term debt.................. 22.1 46.7
Retirement of short-term debt.................. (19.5) (103.6)
Proceeds from long-term debt................... -- 100.0
Retirement of long-term debt................... (.2) (.4)
Repurchase of common stock..................... (125.5) (48.7)
Proceeds from exercise of stock options........ 21.4 12.3
------ ------
Net cash provided by financing activities..... 57.4 79.2
------ ------
Effect of exchange rate changes on cash and equivalents(17.5) 1.4
------ ------
Net decrease in cash and equivalents... (31.8) (53.9)
Cash and equivalents beginning of period...... 105.6 141.9
------ ------
Cash and equivalents end of period............ $ 73.8 $ 88.0
====== ======
The accompanying notes are an integral part of these statements.
6
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
1. ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements should be
read in conjunction with the Consolidated Financial Statements and
the Notes thereto contained in Avon's 1998 Annual Report to
Shareholders. The interim statements are unaudited but include all
adjustments, consisting of normal recurring accruals, that
management considers necessary to fairly present the results for
the interim periods. Results for interim periods are not
necessarily indicative of results for a full year. The year end
balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally
accepted accounting principles.
In May 1999, the Financial Accounting Standards Board issued
an Exposure Draft delaying the effective date of Financial
Accounting Standard ("FAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, by one year. FAS No. 133 is
now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company).
FAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair
value of derivatives are recorded each period in current earnings
or other comprehensive income, depending on whether a derivative
is designated as part of a hedge transaction. For fair-value hedge
transactions in which the Company is hedging changes in the fair
value of an asset, liability, or firm commitment, changes in the
fair value of the derivative instrument are included in the income
statement along with the offsetting changes in the hedged item's
fair value. For cash-flow hedge transactions, in which the
Company is hedging the variability of cash flows related to a
variable-rate asset, liability, or a forecasted transaction,
changes in the fair value of the derivative instrument will be
reported in other comprehensive income. The gains and losses on
the derivative instrument that are reported in other comprehensive
income will be reclassified to earnings in the periods in which
earnings are impacted by the variability of the cash flows of the
hedged item. The ineffective portion of all of the hedges will be
recognized in current-period earnings. The Company has not yet
determined the impact that the adoption of FAS No. 133 will have
on its earnings or statement of financial position.
7
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
2. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
"Net cash provided (used) by operating activities" includes
the following cash payments for interest and income taxes:
Six months ended
June 30
----------------
1999 1998
---- ----
Interest................................. $19.5 $18.9
Income taxes, net of refunds received.... 73.1 82.0
3. EARNINGS PER SHARE
Basic earnings per share ("EPS") 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 the three and six months ended June 30, 1999 and 1998, the
number of shares used in the computation of basic and diluted
earnings per share are as follows:
Three Months ended Six Months ended
June 30 June 30
------ -------
1999 1998* 1999 1998*
---- ---- ---- ----
Basic EPS
Weighted-average shares 261.54 263.55 261.77 263.56
Incremental shares from
assumed conversion of
stock options 3.47 3.16 3.09 2.76
------ ------ ------ ------
Diluted EPS
Adjusted weighted-
average shares 265.01 266.71 264.86 266.32
------ ------ ------ ------
*Restated to reflect a two-for-one stock split distributed in September
1998.
The Company purchased approximately 2,756,500 shares of common
stock for $125.5 during the first six months of 1999, as compared to
approximately 1,432,300 shares of common stock for $48.7 during the
first six months of 1998, under a previously announced share repurchase
program.
8
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
4. INVENTORIES
June 30 December 31
1999 1998
---- ----
Raw materials................ $163.1 $140.6
Finished goods............... 372.3 397.8
------ ------
$535.4 $538.4
====== ======
5. DIVIDENDS
Cash dividends paid per share of common stock were $.18 and
$.36 for the three and six months ended June 30, 1999,
respectively, and $.17 and $.34 for the corresponding 1998 period.
On February 4, 1999, the Company increased the annual dividend
rate to $.72 from $.68.
6. 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 suit was initiated against Avon on
behalf of certain classes of holders of Avon's Preferred
Equity-Redemption Cumulative Stock ("PERCS"). This lawsuit
alleges various contract and securities law claims relating to the
PERCS (which were fully redeemed that year). Avon has rejected
the assertions in this case, believes it has meritorious defenses
to the claims and is vigorously contesting this lawsuit. A trial
has been preliminary scheduled to commence as early as December
1999.
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 June 30, 1999 should not have a
material adverse impact on Avon's consolidated financial position,
results of operations, or cash flows.
9
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
7. COMPREHENSIVE INCOME
For the three and six months ended June 30, 1999 and 1998, the
components of comprehensive income are as follows:
Three Months ended Six Months ended
June 30 June 30
------ -------
1999 1998 1999 1998
---- ---- ---- ----
Net Income $121.4 $111.4 $ 72.5 $ 80.4
Other comprehensive income
(loss):
Change in equity due to
foreign currency
translation and
transaction adjustments 1.4 (13.8) (40.2) (17.7)
------ ------ ------- ------
Comprehensive income $122.8 $ 97.6 $ 32.3 $ 62.7
====== ====== ======= ======
8. SPECIAL AND NON-RECURRING CHARGES
In October 1997, the Company announced a worldwide business
process redesign program in order to streamline operations and
improve profitability, through margin improvement and expense
reductions. The special and non-recurring charges associated with
this program totaled $154.4 pretax ($122.8 net of tax, or $.46 per
share on a basic and diluted basis) for the year ended December
31, 1998.
For the six months ended June 30, 1999, special and
non-recurring charges related to this program totaled $151.2
pretax ($121.9 net of tax, or $.46 per share on a basic and
diluted basis).
10
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
For the six months ended June 30, 1999, special and non-recurring charges
by business segment are as follows:
North America $ 33.6
Latin America 14.7
Europe 69.8
Pacific 11.8
Corporate 21.3
-------
Total $ 151.2
-------
For the six months ended June 30, 1999, special and non-recurring charges
by category of expenditures are as follows:
Employee Severance Costs $ 57.0
Inventories 46.0
Write-down of Assets to
Net Realizable Value 26.4
Recognition of Foreign Currency
Translation Adjustment 9.8
Other 12.0
-------
Total $ 151.2
-------
Employee severance costs are expenses, both domestic and international,
associated with the realignment of the Company's global operations. Certain
employee severance costs were accounted for in accordance with the Company's
existing FAS 112, ("Employers' Accounting for Postemployment Benefits"),
severance plans. Remaining severance costs were accounted for in accordance
with other existing accounting literature. The workforce will be reduced by
1,374 associates, or 4% of the total. Approximately 65% of the employees to be
terminated relate to facility reorganizations and closures.
Inventory related charges represent losses to write-down the carrying
value of non-strategic inventory prior to disposal. The charges primarily
result from a new business strategy for product dispositions which
fundamentally changes the way the Company markets and sells certain inventory.
This new strategy, approved and effective in March 1999, is meant to
complement other redesign initiatives, with the objective of reducing
inventory clearance sales, building core brochure sales and building global
brands.
The write-down of assets (primarily fixed and other assets) relates to the
restructuring of operations in Western Europe, including the closure of a
jewelry manufacturing facility in Ireland and the write-down of software, the
use of which is no longer consistent with the strategic direction of the
Company. By centralizing certain key functional areas and exiting unprofitable
situations, the Company plans to increase operating efficiencies and
ultimately, profit growth in the long-term.
The recognition of foreign currency translation adjustment relates to
the closure of the jewelry manufacturing facility.
11
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
The "Other" category primarily represents contract termination costs,
legal and consulting fees and other costs associated with the facility
closures.
The liability balance at June 30, 1999 is as follows:
Special Cost of
Charge Sales Charge Total
------- ------------ -----
Balance at December 31, 1998 $ 28.5 $ - $ 28.5
Provision 105.2 46.0 151.2
Cash expenditures (43.3) (43.3)
Non-cash write-offs (39.3) (46.0) (85.3)
------ ----- ------
Balance at June 30, 1999 $ 51.1 $ - $ 51.1
====== ===== ======
The balance at June 30, 1999 relates primarily to employee
severance costs that will be paid during 1999 and 2000.
12
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
9. SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments is as follows:
Three Months Ended
June 30
------------------
1999 1998
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
----- --------- ----- ---------
North America:
U.S. $ 430.0 $ 91.0 $ 414.7 $ 81.7
Other* 61.5 10.2 66.9 9.9
-------- -------- -------- --------
Total 491.5 101.2 481.6 91.6
-------- -------- -------- --------
International:
Latin America 400.7 92.5 414.0 86.4
Pacific 169.2 22.8 145.5 11.0
Europe 196.7 33.5 206.1 30.6
-------- -------- -------- --------
Total 766.6 148.8 765.6 128.0
-------- -------- -------- --------
Total from operations $1,258.1 $ 250.0 $1,247.2 $ 219.6
-------- -------- -------- --------
Global expenses (52.5) (41.0)
-------- --------
Operating profit $ 197.5 $ 178.6
======== ========
*Includes operating information for Puerto Rico, Dominican Republic, Canada
and for Discovery Toys in 1998 only.
13
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
Six Months Ended
June 30
------------------
1999 1998
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
----- --------- ----- --------
North America:
U.S. $ 858.9 $ 168.5 $ 819.0 $ 150.5
Other* 123.9 20.2 127.0 15.5
-------- -------- -------- --------
Total 982.8 188.7 946.0 166.0
-------- -------- -------- --------
International:
Latin America 770.8 154.6 788.3 145.2
Pacific 326.6 36.3 297.7 21.0
Europe 391.7 49.5 398.6 47.1
------- -------- -------- --------
Total 1,489.1 240.4 1,484.6 213.3
-------- -------- -------- --------
Total from operations $2,471.9 $ 429.1 $2,430.6 $ 379.3
-------- -------- -------- --------
Global expenses (119.8) (108.6)
Special and
non-recurring charges (151.2) (108.4)
-------- --------
Operating profit $ 158.1 $ 162.3
======== ========
*Includes operating information for Puerto Rico, Dominican Republic, Canada
and for Discovery Toys in 1998 only.
10. OTHER FINANCING ACTIVITIES
At June 30, 1999, the Company had entered into forward
contracts to purchase approximately 2,608,200 shares of Avon
common stock at an average rate of $36.67 per share as of June
30,1999. The contracts mature over the next 2-1/2 years and
provide for physical or net settlement to the Company.
Accordingly, no adjustment for subsequent changes in fair value
has been recognized.
14
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
ITEM 2. Management's Discussion and Analysis of the Results of
Operations and Financial Condition
All share and per share data in this report have been restated to
reflect a two-for-one stock split distributed in September 1998.
Results of Operations
Consolidated
Consolidated net sales for the second quarter and six-month
period of 1999 increased 1% and 2%, respectively, over the same
periods of 1998. The sales growth was due to increases in North
America primarily in the U.S., while International sales remained
level with the prior year. Excluding the impact of foreign
currency exchange, consolidated net sales rose 9% and 10% in the
second quarter and six-month period of 1999, repectively, over the
comparable periods of the prior year.
Gross margin as a percentage of sales increased 1.4
percentage points in the second quarter and 1.1 percentage points
in the six-month period of 1999 compared to the same periods of
1998. The cost of sales for the six months ended June 30, 1999
and 1998 include one-time charges of $46.0 and $37.9,
respectively, for inventory write-downs related to the Company's
BPR program. See Note 8 for further detail. Excluding these
charges, the gross margin increased 1.3 points on a June
year-to-date basis. The higher gross margin resulted from
improvements in all regions, most significantly in the U.S,
Brazil, Japan, the United Kingdom, Germany and Central Europe.
Marketing, distribution and administrative expenses increased
$5.9 (1%) and $19.6 (2%) in the second quarter and six-month
period of 1999, repectively, over the same periods of 1998
primarily due to increases in the U.S. and Mexico as well as
higher global expenses, partially offset by lower expenses in
Brazil. Operating expenses increased slightly as a percentage of
sales to 48.4% in the second quarter of 1999 from 48.3% in 1998,
but decreased to 50.5% in the first half of 1999 from 50.6% in the
first half of 1998. Second quarter 1999 expense ratio
improvements in Brazil and Central Europe were more than offset by
unfavorable expense ratios throughout remaining major markets in
Latin America, the United Kingdom, Germany, and Japan. The
favorable expense ratio for the six-month period resulted from
improvements in Brazil, Central Europe and the United Kingdom
partially offset by unfavorable ratios in Mexico, Argentina,
Venezuela, the U.S. and Germany.
The six months ended 1999 and 1998 results include special
charges of $105.2 and $70.5, respectively, which were recorded in
the first quarter 1999 and 1998 for the Company's BPR program.
These charges are primarily related to employee severance benefits
worldwide, as well as facility reorganizations. See Note 8 for
further detail.
15
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Interest expense increased to $10.2 in the second quarter of
1999 as compared with $9.9 in 1998, and to $21.5 in the first half
of 1999 compared with $19.4 in 1998 primarily as a result of
increased borrowings in China.
Interest income decreased $3.7 and $2.8 in the second quarter
and six-month period of 1999, respectively, compared to prior year
due to a Mexico tax refund claim in June 1998.
Other expense(income), net of $1.1 in the second quarter of
1999 remained level with second quarter of 1998. However, other
income of $7.1 for the six-month period of 1999 was $11.2
favorable over the six-month period of 1998 due primarily to
favorable net foreign exchange resulting from gains on Brazilian
currency forward contracts.
The effective tax rate for the second quarter 1999 was 36.0%
versus 36.8% for the second quarter 1998 due to the earnings mix
and tax rates of international subsidiaries. Excluding the
special and non-recurring charges, the effective tax rate was
36.1% in the first half of 1999 compared to 36.9% in the first
half of 1998. The tax benefit on the charges in 1999 was 19.4%
due to the mix of countries and tax jurisdictions incurring the
charges.
Minority interest decreased $.9 and $.8 in the second quarter
and six-month period of 1999, respectively, compared to 1998,
primarily due to lower losses in Japan in 1999.
The following discussion addresses net sales and operating
profit by reportable segment as presented in Note 9:
North America
Net sales grew 2% and 4% in the second quarter and six-month
period of 1999, respectively, over the same periods in 1998. The
U.S. business, which represents almost 90% of the North American
segment, reported sales growth of 4% in the second quarter and 5%
in the first half of 1999 driven by a higher average order size.
The U.S. sales improvement resulted from strong growth in the
fashion jewelry and accessories and home entertainment categories,
partially offset by declines in apparel. The growth in fashion
jewelry and accessories was driven by strong sales of sterling
silver items as well as the introduction of licensed luggage,
American Tourister, and excellent performance in watches and
handbags. The improvement in home entertainment resulted from
increased sales of inspirational and religious products. Apparel
sales decreased due to underperformance on new product
introductions and demonstration products, partially offset by
successes in casualwear and sleepwear. Sales of cosmetics,
fragrance and toiletries ("CFT") decreased 2% in the second
quarter due to the underperformance of the new Skin-So-Soft Bug
Guard launch which failed to match the strength of last year's new
product launch. Gift and decorative sales were level in the
second quarter of 1999 compared with second quarter of 1998.
16
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
However, successful holiday promotions, including a strong Easter
program and entry into the Blues Clues children's market
contributed to a double-digit increase in the gift and decorative
category for the first half of 1999.
Operating profit in North America increased 11% and 14% in
the second quarter and first half of 1999, respectively, compared
with the same periods in 1998. This improvement is primarily
attributable to a higher gross margin in the U.S. due to supply
chain cost improvements and pricing and product category
management. Operating expenses in North America increased in line
with the sales increase.
International
International U.S. dollar net sales for the second quarter
and first half of 1999 were level with the comparable periods
in 1998. Sales growth in the second quarter of 1999 in the
Pacific region (16%) was offset by sales declines in Latin America
(-3%) and Europe (-5%). For the first half of 1999, the sales
improvement in the Pacific (10%) was also offset by sales declines
in Latin America (-2%) and in Europe (-2%). However, excluding
the effect of foreign currency exchange, sales increased 13%
during both the second quarter and first half of 1999.
The sales improvement in the Pacific region for both the
second quarter and first half of 1999 was driven by double digit
increases in units, customers served and active Representatives in
the Philippines and Taiwan. Japan's sales increased as well due
to favorable currency impact. Local currency sales in Japan
decreased due to a lower average order size. Excluding the
effect of foreign currency exchange, sales in the Pacific
increased 10% and 5% in the second quarter and first half of 1999,
respectively. The sales decline in Latin America resulted from
significant decreases in Brazil as a result of the real
devaluation, and in Argentina and Chile as a result of weak
economic conditions. Local currency sales and units were up over
20% in Brazil for the second quarter and first half of 1999.
Active Representatives in Brazil were also up double-digits driven
by recruiting and retention strategies in place including strong
training and incentive programs. Excluding the impact of
exchange, sales in Latin America increased 16% and 19% in the
second quarter and first half of 1999, respectively. In Europe,
sales were down in Russia due to the ruble devaluation in August
1998 and the continued economic crisis. Additionally, sales
decreased in most markets in Western Europe, mainly in Germany due
to a weak economic environment and in Italy and France due to unit
declines. These declines were partially offset by improvements in
the United Kingdom due to a higher average order size and
increased franchise and distributorship sales in 1999, and in
Central Europe, primarily Poland, due to dramatic increases in
units, customers served and active Representatives. Excluding the
impact of exchange, Europe sales grew 8% in both the second
quarter and first half of 1999.
17
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
International operating profit increased 16% and 13% in the
second quarter and six-month period of 1999, respectively,
compared to the same periods in 1998. Operating profit
was up in all three international regions, most significantly in
the Pacific.
Operating profit growth in the Pacific of 107% and 73% in the
second quarter and first half of 1999,respectively, resulted from
U.S. dollar sales growth in nearly all markets and operating
margin improvements, most significantly in Japan and China.
Japan's gross margin improved due to product cost savings
initiatives in CFT and improved sourcing decisions for non-CFT as
well as a business-wide product profitability screening process
that led to the elimination of many low-margin products.
Additionally, business process redesign ("BPR") efforts continue
to generate significant savings across all expense areas in Japan.
China's improvement in 1999 reflects the suspension of operations
for most of the second quarter of 1998 due to governmental
restrictions on direct-selling companies. Philippines and Taiwan
also reported strong increases in operating profit driven
primarily by the sales growth, discussed above. As a result, the
operating margin in the Pacific was up 5.9 points and 4.1 points
for the second quarter and first half of 1999, respectively, over
prior year.
In Latin America, operating profit improvement of 7% in both
the second quarter and first half of 1999 was driven by increases
in Brazil and Mexico. Aggressive cost reduction efforts combined
with strict expense management contributed to Brazil's double-
digit improvement in operating profit. Mexico's improvement
resulted mainly from the sales increase, partially offset by
increased advertising expense in 1999. These improvements were
partially offset by operating profit declines in Argentina and
Chile due to the sales shortfalls and weak economic conditions.
The Brazilian real devalued significantly in January 1999
and, as a result, negatively affected Brazil's U.S. dollar results
in 1999. Brazil's second quarter and first half 1999 sales,
although up over 20% in local currency, were down approximately
20% in U.S. dollars due to the devaluation. In response to this
situation, several actions have been taken by local management to
offset the devaluation, including a focused effort directed at
vendor negotiations and local sourcing to reduce imports.
Operating profit in Europe increased 10% and 5% in the second
quarter and six-month period of 1999, respectively. This
improvement was driven by increases in the United Kingdom, Central
Europe and Italy. The United Kingdom continues to focus on
developing the business through optimization of the most
profitable sales mix through brand awareness, image enhancement
and expense control. The United Kingdom, Central Europe and Italy
reported significant growth in operating margins due to higher
gross margins which resulted from a continuing focus on pricing
strategies and improved profitability of non-CFT categories.
18
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
These improvements were partially offset by declines in Russia
resulting from the ruble devaluation during the second half of 1998.
Management in Russia will continue to manage expenses tightly and seek to
increase market share and improve margins through pricing flexibility and
tight expense management.
Global Expenses
Global expenses increased 28% and 10% in the second quarter
and first half of 1999, respectively, over the same periods in
1998 primarily due to increased investments in global marketing,
research and development and information technology
systems, as well as costs related to the work on the Company's new
strategic initiatives.
Liquidity and Capital Resources
Cash Flows
Excluding changes in debt, there was a net decrease in cash
of $289.0 in the first half of 1999 compared with a decrease of
$260.5 in the comparable period of 1998. The $28.5 variance
primarily reflects increased repurchases of common stock, an
unfavorable effect of foreign currency exchange and increased cash
used for investing activities due to the acquisition of the
remaining interest in a manufacturing facility in Poland. These
uses of cash were partially offset by lower net cash used by
operations reflecting a favorable consolidated working capital
level and higher net income (adjusted for the non-cash portion of
the special charges).
During the first half of 1999, the Company purchased
approximately 2,756,500 shares of common stock for $125.5 compared
with $48.7 spent for the repurchase of approximately 1,432,300
shares during the comparable period in 1998.
Capital Resources
Total debt increased $260.7 to $517.0 from $256.3 at December
31, 1998, principally due to normal seasonal working capital
requirements during the first half of 1999 and to support the
continuing stock buyback program. Total debt of $517.0 at June
30, 1999 was $77.5 higher than total debt of $439.5 at June 30,
1998 due to increased share repurchases. In addition, at June 30,
1999 and December 31, 1998, other non-current liabilities included
approximately $109.4 and $112.4, respectively, related to
securities lending activities.
At June 30, 1999, there were no borrowings under the amended
and restated revolving credit and competitive advance facility
agreement. This agreement is also used to support the Company's
commercial paper borrowings of which $244.7 was outstanding at
June 30, 1999.
At June 30, 1999, there were $10.0 of borrowings outstanding
under uncommitted lines of credit.
19
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Management currently believes that cash from operations and
available financing alternatives are adequate to meet anticipated
requirements for working capital, dividends, capital expenditures,
the stock repurchase program and other cash needs.
Working Capital
As of June 30, 1999, current liabilities exceeded current
assets by $156.1, while at December 31, 1998 current assets
exceeded current liabilities by $11.9. The increase of current
liabilities over current assets of $168.0 was primarily due to the
increase in net debt (debt less cash and equivalents), as
discussed in the Debt section, and other accrued liabilities,
mainly due to the accrual for special and non-recurring charges,
partially offset by a decrease in accounts payable and accrued
compensation due to the payment of 1998 incentive programs.
Although current liabilities exceeded current assets at June
30, 1999, management believes this is due to the Company's direct
selling business format which results in lower receivable and
working capital levels as well as the Company's practice of
repurchasing shares with available cash. Avon's liquidity results
from its ability to generate significant cash flows from
operations and its ample unused borrowing capacity. Actions that
would eliminate the working capital deficit are not anticipated at
this time. Avon's credit agreements do not contain any provisions
or requirements with respect to working capital.
Financial Instruments and Risk Management Strategies
The Company operates globally, with manufacturing and
distribution facilities in various locations around the world.
The Company may reduce its exposure to fluctuations in interest
rates and foreign exchange rates by creating offsetting positions
through the use of derivative financial instruments. The Company
currently does not use derivative financial instruments for
trading or speculative purposes, nor is the Company a party to
leveraged derivatives.
The Company periodically uses interest rate swaps to hedge
portions of interest payable on its debt. In addition, the
Company may periodically employ interest rate caps to reduce
exposure, if any, to increases in variable interest rates.
At June 30, 1999, the Company had a five-year interest rate
swap contract with a notional amount of $50.0 to effectively
convert fixed interest on a portion of the $100.0 bonds to a
variable interest rate, based on LIBOR.
The Company may periodically hedge foreign currency
royalties, net investments in foreign subsidiaries, firm purchase
commitments and contractual foreign currency cash flows or
20
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
obligations, including third-party or intercompany foreign
currency transactions. The Company regularly monitors its foreign
currency exposures and ensures that hedge contract amounts do not
exceed the amounts of the underlying exposures.
At June 30, 1999, the Company held foreign currency forward
contracts with notional amounts totaling $315.6 and option
contracts with notional amounts totaling $3.7 to hedge foreign
currency items. Only $9.0 of these contracts have maturities
after 1999. Also outstanding at June 30, 1999 were foreign
contracts totaling $35.0 which do not qualify as hedging
transactions under the current accounting definitions and
accordingly, have been marked to market. The mark-to-market
adjustment at June 30, 1999 was insignificant. The Company's risk
of loss on the options in the future is limited to premiums paid,
which are insignificant.
At June 30, 1999, the Company has entered into forward
contracts to purchase approximately 2,608,200 shares of Avon
common stock at an average rate of $36.67 per share as of June
30, 1999. The contracts mature over the next 2-1/2 years and
provide for physical or net share settlement to the Company.
Accordingly, no adjustment for subsequent changes in fair value
has been recognized.
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.
Other Information
Euro
A single currency called the euro was introduced in Europe on
January 1, 1999. Eleven of the fifteen member countries of the European Union
adopted the euro as their common legal currency on that date. Fixed
conversion rates between these participating countries' existing currencies
(the "legacy currencies") and the euro were established as of that date. The
legacy currencies are scheduled to remain legal tender as denominations of the
euro until June 30, 2002 after which they will be withdrawn from circulation.
During this transition period, parties may settle transactions using either
the euro or a participating country's legal currency. Beginning in January
2002, new euro-denominated bills and coins will be issued.
21
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Avon operating subsidiaries affected by the euro conversion
have established plans to address issues raised by the euro
currency conversion. These issues include, among others, the need
to adapt information technology systems, business processes and
equipment to accommodate euro-denominated transactions, the impact
of one common currency on pricing and recalculating currency risk.
Avon does not expect system and equipment conversion costs to be
material. Due to the numerous uncertainties associated with the
market impact of the euro conversion, the Company cannot
reasonably estimate the effects one common currency will have on
pricing and the resulting impact, if any, on results of
operations, financial condition or cash flows.
Year 2000
General
The "Year 2000 issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may fail or make miscalculations due to interpreting a date,
including "00" to mean 1900, not 2000. The result may be disruptions in
operations, including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.
The Company commenced its worldwide Year 2000 initiative in early 1996.
The Company has developed a comprehensive project plan as a means for ensuring
that all information technology ("IT") systems, including applications,
operating systems, mainframe, mid range and client server platforms, all non-
information technology ("Non-IT") systems, including embedded applications and
equipment and key third parties are Year 2000 compliant by December 31, 1999.
The Company has identified high risk applications that are critical to its
business, recognizing the fact that timely compliance of these systems is
crucial, and, therefore, has designed its programs to address these systems
first. Furthermore, the Company has established a project team to identify
and address the Company's Year 2000 risks and issues in an attempt to ensure
the integrity and reliability of the Company's information systems and
business processes.
Project Plan
The Company's Year 2000 project plan is divided into four
major sections, including: Infrastructure, Application Softwares,
Validation of Third Party Compliance and Embedded Systems. The
project has five phases, which are common to all sections:
1) identifying, inventorying and prioritizing Year 2000 items;
2) assessing Year 2000 compliance of identified items and related
potential risks in circumstances of non-compliance of these items;
3) remediating, replacing or upgrading, as appropriate, material
items that are determined not to be Year 2000 compliant;
4) validation testing of material items to ensure compliance; and
5) contingency planning and implementation.
22
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
The Company utilizes internal resources and outside consultants to renovate
and test its IT and Non-IT systems for Year 2000 compliance. None of the
Company's other information technology projects have been deferred due to the
implementation of the Year 2000 project.
The Infrastructure section consists of hardware, including mainframe and
AS/400 platforms, and software, including operating systems, other than
Applications Software. This section has been completed for all phases.
The Applications Software section includes the conversion of both in-
house developed and vendor-supplied software applications. In-house
developed software that is not Year 2000 compliant has undergone remediation
of its application, whereas non-compliant vendor provided software has been
upgraded or replaced, where available by the supplier. This section's testing
phase, which includes procedures for independent validation and verification
of code has been completed. Currently, the Company is verifying the integrity
of internal and external system interfaces. This activity is scheduled to be
completed by September 1999.
Validation of Third Party Compliance includes the process of
recognizing, prioritizing and communicating with key suppliers and
service providers with whom the Company has a direct and significant
relationship and are believed to be critical to its business operations.
Identification of significant vendors has been completed and a strategy
has been initiated in an attempt to reasonably ascertain their progress
in addressing the Year 2000 issue. The Company has distributed
comprehensive questionnaires to key suppliers, and, with the guidance of
outside consultants, is in the process of conducting detailed
assessments of the responses received. The validation of third party
compliance is expected to be completed by August 1999. Follow-up
reviews will also be scheduled for the remainder of 1999.
The Embedded Systems section includes all hardware, software and
associated embedded computer chips that are utilized in operating and
maintaining the internal functions of the Company's facilities, i.e. climate
control systems. The Company has elected to employ a regional-based strategy
for addressing Year 2000 compliance of its embedded systems. Avon U.S.
operations have completed the remediation and testing of embedded systems.
From an international standpoint, the Company has completed the assessment and
remediation phases and is currently testing critical equipment. Testing is
scheduled to be completed by September 1999.
Costs
The total estimated cost associated with achieving worldwide Year 2000
compliance will be approximately $32.7, of which $25.0 has been spent to date.
Replacement costs and costs associated with the validation of third party
compliance are included in these figures. The Company does not separately
track the internal costs incurred for the Year 2000 project, those costs
primarily being related to payroll costs for the Company's information systems
group. The Company's policy is to expense as incurred information system
maintenance and modification costs and to capitalize costs related to system
replacement. The costs of the Company's Year 2000 compliance efforts are
being funded through operating cash flows.
23
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Risks
The Company expects to identify and resolve all Year 2000 problems that
may adversely affect its business operations. However, management believes
that it is not possible to determine with complete certainty that all Year
2000 matters affecting the Company have been or will be identified or
corrected, resulting in part from the uncertainty of the Year 2000 readiness
of third party suppliers. Thus, the Company is unable to determine at this
time whether the consequences of Year 2000 failures will have a material
impact on the Company's results of operations, liquidity or financial
condition. The Company believes, however, that its risk of being adversely
impacted by Year 2000 failures is mitigated due to its product portfolio being
so diversified, with the vast majority of its items not being date-sensitive.
The strategy employed by the Company's Year 2000 project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
issue and the Year 2000 compliance of key third parties who materially impact
its business.
Contingency Plans
Development of contingency plans is in progress and are scheduled to be
completed by September 1999. Once established, contingency plans and related
cost estimates will be continually modified, if necessary, as additional
information becomes available.
Disclaimer
Readers are cautioned that forward-looking statements contained in the
Year 2000 Update should be read in conjunction with the Company's disclosure
under the heading "CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" on page
25.
24
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report which are not historical
facts or information are forward-looking statements, including,
but not limited to, the information set forth in "Other
Information" 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.
25
<PAGE>
AVON PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
3.4 Certificate of Amendment of the Certificate of
Incorportion of Avon Products. Inc., effective May 6, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the second
quarter of 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AVON PRODUCTS, INC.
-------------------
(Registrant)
Date: August 12, 1999 By /s/ JANICE MAROLDA
-------------------------------
Janice Marolda
Vice President,
Controller
Principal Accounting Officer
Signed both on behalf of the
registrant and as principal
accounting officer.
27
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended June 30, 1999 Commission file number
1-4881
____________________________
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
____________________________
EXHIBITS
<PAGE>
AVON PRODUCTS, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3.4 Certificate of Amendment of the Certificate of
Incorportion of Avon Products. Inc., effective
May 6, 1999.
27 Financial Data Schedule.
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
AVON PRODUCTS, INC.
(Under Section 805 of the
Business Law Corporation)
Pursuant to the provisions of Section 805 of the Business Corporation
Law, the undersigned hereby certify:
1. The name of the corporation is AVON PRODUCTS, INC. (the
"Corporation") and the name under which the Corporation was formed is
California Perfume Company, Inc.
2. The Certificate of Incorporation of the Corporation was filed by
the Department of State of the State of New York on January 27, 1916.
3. The Certificate of Incorporation of the Corporation as heretofore
amended is hereby further amended to reflect an amendment authorized by a
majority vote of the Corporation's Board of Directors followed by
authorization by vote of the holders of a majority of all outstanding shares
of stock of the Corporation entitled to vote thereon at the Corporation's
Annual Meeting of Shareholders held on May 6, 1999. Such amendment changes
the number of shares of Common Stock which the Corporation has authority to
issue from 400,000,000 shares, $ .25 par value, to 800,000,000 shares, $ .25
par value.
Accordingly, the first paragraph of Article III of the Certificate of
Incorporation of the Corporation is hereby amended to provide as follows:
ARTICLE III: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 825,000,000,
divided into two classes consisting of 800,000,000 shares of Common
Stock, par value $ .25 per share (the "Common Stock") and 25,000,000
shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock").
<PAGE>
4. This Certificate of Amendment of the Certificate of Incorporation of
the Corporation was approved by the Board of Directors of the Corporation and
by the holders of a majority of all the outstanding shares of stock of the
Corporation.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Amendment, and do affirm the foregoing as true, this 6th day of May, 1999,
under penalties of perjury.
/S/ Charles R. Perrin
Charles R. Perrin
Chairman of the Board and
Chief Executive Officer
/S/ Ward M. Miller, Jr.
Ward M. Miller, Jr.
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
Avon Products, Inc.
Financial Data Schedule
This schedule contains summary financial information extracted from the
Avon Products, Inc. financial statements as of June 30, 1999 and is
qualified in its entirety by reference to such financial statements.
<MULTIPLIER> 1000000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 521
<ALLOWANCES> (50)
<INVENTORY> 535
<CURRENT-ASSETS> 1,283
<PP&E> 1,376
<DEPRECIATION> 711
<TOTAL-ASSETS> 2,373
<CURRENT-LIABILITIES> 1,439
<BONDS> 205
0
0
<COMMON> 88
<OTHER-SE> 34
<TOTAL-LIABILITY-AND-EQUITY> 2,373
<SALES> 2,472
<TOTAL-REVENUES> 2,472
<CGS> 960
<TOTAL-COSTS> 2,270
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> 22
<INCOME-PRETAX> 149
<INCOME-TAX> (79)
<INCOME-CONTINUING> 73
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.27
</TABLE>
