<PAGE>
CONFORMED COPY
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 September 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
October 31, 1999 was 242,304,430.
<PAGE>
Table of Contents
Part I. Financial Information
Page
Numbers
--------
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended September 30, 1999 and
September 30, 1998............................... 3
Nine Months Ended September 30, 1999 and
September 30, 1998............................... 4
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998 ......... 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and
September 30, 1998............................... 6
Notes to Consolidated Financial Statements.......... 7-15
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition....... 16-28
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................... 29
Signatures.................................................. 30
2
<PAGE>
PART I. FINANCIAL INFORMATION
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three months ended
September 30
-----------------
1999 1998
---- ----
(unaudited)
Net sales.................................. $1,250.6 $1,233.2
Costs, expenses and other:
Cost of sales .......................... 465.0 478.2
Marketing, distribution and
administrative expenses................ 637.6 626.3
Special charge........................... - 46.0
------- --------
Operating profit .......................... 148.0 82.7
Interest expense......................... 11.6 11.0
Interest income.......................... (2.4) (3.3)
Other expense (income), net.............. 2.5 (1.5)
------- --------
Total other expenses....................... 11.7 6.2
------- --------
Income before taxes and minority interest.. 136.3 76.5
Income taxes............................... 47.8 36.7
-------- --------
Income before minority interest............ 88.5 39.8
Minority interest.......................... (.3) 1.7
-------- --------
Net income................................. $ 88.2 $ 41.5
======== ========
Earnings per share:
Basic ................................. $ .34 $ .16
======== ========
Diluted................................ $ .34 $ .16
======== ========
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)
Nine months ended
September 30
----------------
1999 1998
---- ----
(unaudited)
Net sales.................................. $3,722.5 $3,663.8
Costs, expenses and other:
Cost of sales* .......................... 1,424.9 1,446.9
Marketing, distribution and
administrative expenses................ 1,886.3 1,855.4
Special charge........................... 105.2 116.5
-------- --------
Operating profit........................... 306.1 245.0
Interest expense......................... 33.1 30.4
Interest income.......................... (7.8) (11.5)
Other (income)expense, net............... (4.6) 2.6
-------- --------
Total other expenses....................... 20.7 21.5
-------- --------
Income before taxes and minority interest.. 285.4 223.5
Income taxes............................... 127.0 106.7
-------- --------
Income before minority interest............ 158.4 116.8
Minority interest.......................... 2.3 5.1
-------- --------
Net income................................. $ 160.7 $ 121.9
======== ========
Earnings per share:
Basic ................................. $ .61 $ .46
======== ========
Diluted................................ $ .61 $ .46
======== ========
*1999 and 1998 include one-time charges of $46.0 and $37.9, respectively, for
inventory write-downs.
The accompanying notes are an integral part of these statements.
<PAGE>
4
AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
September 30 December 31
1999 1998
------ -----
(unaudited)
ASSETS
Current assets:
Cash and equivalents.................... $ 101.3 $ 105.6
Accounts receivable..................... 500.5 492.6
Inventories............................. 577.5 538.4
Prepaid expenses and other.............. 219.0 204.8
-------- --------
Total current assets.................... 1,398.3 1,341.4
-------- --------
Property, plant and equipment, at cost.. 1,435.4 1,392.8
Less accumulated depreciation........... 736.4 722.9
-------- --------
699.0 669.9
-------- --------
Other assets........................... 429.3 422.2
-------- -------
Total assets........................... $2,526.6 $2,433.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Debt maturing within one year.......... $ 395.7 $ 55.3
Accounts payable....................... 342.3 416.9
Accrued compensation................... 165.2 161.3
Other accrued liabilities.............. 365.4 308.2
Sales and other taxes.................. 95.2 106.2
Income taxes........................... 286.9 281.6
-------- --------
Total current liabilities.............. 1,650.7 1,329.5
-------- --------
Long-term debt......................... 204.7 201.0
Employee benefit plans................. 395.8 390.0
Deferred income taxes.................. 28.6 36.3
Other liabilities...................... 185.6 191.6
Shareholders' equity:
Common stock........................... 88.1 87.8
Additional paid-in capital............. 809.3 780.0
Retained earnings...................... 738.8 719.1
Accumulated other comprehensive income. (346.3) (301.3)
Treasury stock, at cost................ (1,228.7) (1,000.5)
-------- --------
Total shareholders' equity............. 61.2 285.1
-------- --------
Total liabilities and shareholders' equity $2,526.6 $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)
Nine months ended
September 30
----------------
1999 1998
---- ----
(unaudited)
Cash flows from operating activities:
Net income...................................... $ 160.7 $ 121.9
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Special and non-recurring charges............... 100.4 104.4
Depreciation and amortization................... 60.8 51.2
Provision for doubtful accounts................. 65.0 66.8
Translation gains............................... (.8) (8.6)
Deferred income taxes........................... (20.3) (21.1)
Other........................................... 5.3 3.0
Changes in assets and liabilities:
Accounts receivable........................... (115.6) (148.0)
Inventories................................. (111.5) (125.1)
Prepaid expenses and other.................... (16.8) (27.2)
Accounts payable and accrued liabilities...... (40.2) (31.5)
Income and other taxes........................ 3.9 4.9
Noncurrent assets and liabilities............. 18.8 (4.3)
------ ------
Net cash provided(used)by operating activities.. 109.7 (13.6)
------ ------
Cash flows from investing activities:
Capital expenditures........................... (123.3) (110.9)
Disposal of assets............................. 6.2 7.2
Other investing activities..................... (16.4) (.6)
------ ------
Net cash used by investing activities.......... (133.5) (104.3)
------ ------
Cash flows from financing activities:
Cash dividends................................. (142.7) (135.7)
Debt, net (maturities of three months or less). 339.8 202.9
Proceeds from short-term debt.................. 38.6 76.6
Retirement of short-term debt.................. (37.0) (116.2)
Proceeds from long-term debt................... -- 100.0
Retirement of long-term debt................... (.2) (.5)
Repurchase of common stock..................... (182.7) (75.0)
Proceeds from exercise of stock options........ 23.9 17.5
------ ------
Net cash provided by financing activities...... 39.7 69.6
------ ------
Effect of exchange rate changes on cash
and equivalents............................ (20.2) 3.6
------ ------
Net decrease in cash and equivalents........... (4.3) (44.7)
Cash and equivalents beginning of period....... 105.6 141.9
------ ------
Cash and equivalents end of period............. $101.3 $ 97.2
====== ======
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
financial 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 financial
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:
Nine months ended
September 30
----------------
1999 1998
---- ----
Interest................................. $ 34.0 $ 30.3
Income taxes, net of refunds received.... 117.9 124.8
Noncash financing activities include $45.5 of common stock repurchased in
September 1999 not settled until October 1999.
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 nine months ended September 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 Nine Months ended
September 30 September 30
------------ ------------
1999 1998 1999 1998
---- ---- ---- ----
Basic EPS:
Weighted-average shares 260.40 263.16 261.31 263.42
Incremental shares from
assumed conversion of
stock options 2.53 2.62 2.90 1.80
------ ------ ------ ------
Diluted EPS:
Adjusted weighted-
average shares 262.93 265.78 264.21 265.22
====== ====== ====== ======
The Company purchased approximately 5,895,800 shares of common stock
for $228.2 during the first nine months of 1999, as compared to
approximately 2,211,000 shares of common stock for $75.0 during the first
nine months of 1998. Of the 5,895,800 shares repurchased, 1,779,800 shares
repurchased for $45.5 in September 1999 were not settled until October
1999. Accordingly, $45.5 has been included in Other accrued liabilities on
the Consolidated Balance Sheet.
8
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
4. INVENTORIES
September 30 December 31
1999 1998
---- ----
Raw materials................ $166.5 $140.6
Finished goods............... 411.0 397.8
------ ------
$577.5 $538.4
====== ======
5. DIVIDENDS
Cash dividends paid per share of common stock were $.18 and $.54 for
the three and nine months ended September 30, 1999, respectively, and $.17
and $.51 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. It is
anticipated that a trial may take place as early as Spring 2000.
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
September 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 nine months ended September 30, 1999 and 1998, the
components of comprehensive income are as follows:
Three Months ended Nine Months ended
September 30 September 30
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Net Income $ 88.2 $ 41.5 $ 160.7 $ 121.9
Other comprehensive income
(loss):
Change in equity due to
foreign currency
translation and
transaction adjustments (4.8) (1.2) (45.0) (18.9)
------ ------ ------- ------
Comprehensive income $ 83.4 $ 40.3 $ 115.7 $ 103.0
====== ====== ======= ======
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
$46.0 pretax ($38.6 net of tax, or $.14 per diluted share) and $154.4
pretax ($122.8 net of tax, or $.46 per diluted share) for the three months
and nine months ended September 30, 1998, respectively.
For the nine months ended September 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 nine months ended September 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 nine months ended September 30, 1999, special and non-recurring
charges by category of expenditures are as follows:
Special Cost of
Charge Sales Charge Total
------- ------------ -----
Employee Severance Costs $ 57.0 $ 57.0
Inventories $ 46.0 46.0
Write-down of Assets to
Net Realizable Value 26.4 26.4
Recognition of Foreign Currency
Translation Adjustment 9.8 9.8
Other 12.0 12.0
------- ------ ------
Total $ 105.2 $ 46.0 $ 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 September 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 (51.0) (51.0)
Non-cash write-offs (41.3) (46.0) (87.3)
------ ----- ------
Balance at September 30, 1999 $ 41.4 $ - $ 41.4
====== ===== ======
The balance at September 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
September 30
------------------
1999 1998
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
----- --------- ----- ---------
North America:
U.S. $ 405.7 $ 57.0 $ 413.0 $ 56.5
Other* 66.0 8.0 65.7 6.1
-------- -------- -------- --------
Total 471.7 65.0 478.7 62.6
-------- -------- -------- --------
International:
Latin America 398.6 91.3 416.2 91.6
Pacific 178.9 24.5 148.3 15.0
Europe 201.4 25.3 190.0 16.5
-------- -------- -------- --------
Total 778.9 141.1 754.5 123.1
-------- -------- -------- --------
Total from operations $1,250.6 $ 206.1 $1,233.2 $ 185.7
======== -------- ======== --------
Global expenses (58.1) (57.0)
Special and non-recurring charges - (46.0)
-------- --------
Operating profit $ 148.0 $ 82.7
======== ========
*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)
Nine Months Ended
September 30
------------------
1999 1998
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
----- --------- ----- --------
North America:
U.S. $1,264.5 $ 225.5 $1,232.0 $ 207.0
Other* 190.0 28.2 192.7 21.6
-------- -------- -------- --------
Total 1,454.5 253.7 1,424.7 228.6
-------- -------- -------- --------
International:
Latin America 1,169.4 245.9 1,204.5 236.8
Pacific 505.5 60.8 446.0 36.1
Europe 593.1 74.7 588.6 63.5
------- -------- -------- --------
Total 2,268.0 381.4 2,239.1 336.4
-------- -------- -------- --------
Total from operations $3,722.5 $ 635.1 $3,663.8 $ 565.0
-------- -------- -------- --------
Global expenses (177.8) (165.6)
Special and
non-recurring charges (151.2) (154.4)
-------- --------
Operating profit $ 306.1 $ 245.0
======== ========
*Includes operating information for Puerto Rico, Dominican Republic, Canada
and for Discovery Toys in 1998 only.
10. OTHER FINANCING ACTIVITIES
At September 30, 1999, the Company had entered into forward contracts
to purchase approximately 2,913,200 shares of Avon common stock at an
average rate of $40.65 per share as of September 30, 1999. The contracts
mature over the next 2 years and provide for physical or net settlement to
the Company. Accordingly, no adjustment for subsequent changes in fair
value has been recognized. Subsequent to September 30, 1999, 480,000
shares were purchased under these contracts.
11. SUBSEQUENT EVENTS
In October 1999, the Company's Board of Directors approved a
significant acceleration of the Company's share repurchase program. This
will substantially complete the Company's current $1.1 billion buyback
program, which had been scheduled to run through 2001.
14
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except share data)
Subsequent to September 30, 1999, the Company purchased approximately
17 million shares of its common stock for approximately $488.0 under this
program, funded by short-term borrowings.
In November of 1999, the Company issued $500.0 of notes payable (the
"Notes") in a private offering to institutional investors. The Notes are
unsubordinated, unsecured obligations of the Company. $200.0 of the Notes
bear interest at a per annum rate equal to 6.90% and mature on November 15,
2004 and will be repaid at par. $300.0 of the Notes bear interest at a per
annum rate equal to 7.15% and mature on November 15, 2009 and will be
repaid at par. Interest on the Notes is payable semi-annually. The
indenture under which the Notes were issued limits the incurrence of
indebtedness, and the restricting of sales and leaseback transactions,
sales of assets and transactions involving mergers, sales or consolidation.
The proceeds from this issuance will be used for general corporate
purposes, including repayment of outstanding short-term borrowings incurred
to finance the acceleration of the Company's share repurchase program
discussed above.
In connection with the offering, Avon entered into a five-year and
ten-year interest rate swap contract with notional amounts of $200.0 and
$300.0, respectively to effectively convert fixed interest to a variable
interest rate, based on commercial paper rates.
15
<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
Results of Operations
Consolidated
Consolidated net sales for the three-month and nine-month periods of
1999 increased 1% and 2%, respectively, over the same periods of 1998.
Third quarter sales improvements in the Pacific and Europe regions were
partially offset by declines in Latin America, primarily Brazil, and in
North America. The year-to-date sales growth reflected increases in North
America, primarily in the U.S., and in International. Excluding the impact
of foreign currency exchange, consolidated net sales rose 8% and 9% in the
three-month and nine-month periods of 1999, respectively, over the
comparable periods of the prior year.
Gross margin as a percentage of sales increased 1.6 percentage points
in the third quarter and 1.2 percentage points in the nine-month period of
1999 compared to the same periods of 1998. The cost of sales for the nine
months ended September 30, 1999 and 1998 include one-time charges of $46.0
and $37.9, respectively, for inventory write-downs related to the Company's
business process redesign ("BPR") program. See Note 8 for further detail.
Excluding these charges, the gross margin increased 1.5 percentage points
on a September year-to-date basis. The higher gross margin in both the
third quarter and year-to-date period resulted from improvements in all
regions, most significantly in the U.S, Japan, the United Kingdom, Germany,
Mexico, Argentina and Central Europe. Third quarter improvements were
partially offset by a gross margin decline in Brazil.
Marketing, distribution and administrative expenses increased $11.3
(2%) and $30.9 (2%) in the third quarter and nine-month periods of 1999,
respectively, over the same periods of 1998 primarily due to increases in
the U.S., Mexico and Japan as well as higher global expenses, partially
offset by lower expenses in Brazil and Russia. Operating expenses
increased slightly as a percentage of sales to 51.0% in the third quarter
of 1999 from 50.8% in 1998, and to 50.7% in the first nine months of 1999
from 50.6% in the first nine months of 1998. 1999 expense ratio
improvements in Brazil, Central Europe and China were more than offset by
unfavorable expense ratios in Mexico, Argentina, Germany, and the U.S.
The nine months ended 1999 and 1998 results include special charges of
$105.2 and $116.5, respectively for the Company's BPR program. The third
quarter 1998 results also include special charges of $46.0 related to the
BPR program. These charges are primarily related to employee severance
benefits worldwide, as well as facility reorganizations. See Note 8 for
further detail.
16
<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 $11.6 in the third quarter of 1999 as
compared with $11.0 in 1998, and to $33.1 in the first nine months of 1999
compared with $30.4 in 1998 primarily as a result of increased domestic
borrowings.
Interest income decreased $.9 in the third quarter of 1999 due to
lower average short-term investments as well as lower interest rates in
Brazil. For the nine-month period, interest income decreased $3.7 compared
to prior year primarily due to a Mexico tax refund claim recognized in June
1998.
Other expense (income) of $2.5 in the third quarter of 1999 was $4.0
unfavorable to the comparable period of 1998 mainly due to unfavorable net
foreign exchange in 1999. However, other expense (income) of ($4.6) for
the nine-month period of 1999 was $7.2 favorable over the nine-month period
of 1998 due primarily to favorable net foreign exchange resulting from
gains on Brazilian currency forward contracts.
Excluding the special charges, the effective tax rate for the third
quarter 1999 was 35.1% versus 36.0% for the third 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 35.8% for the
first nine months of 1999 compared to 36.6% in the comparable period 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 $2.0 and $2.8 in the third quarter and
nine-month period of 1999, respectively, compared to 1998, primarily due to
lower losses in Japan and China in 1999.
The following discussion addresses net sales and operating profit by
reportable segment as presented in Note 9:
North America
Net sales decreased 1% in the third quarter while net sales for the
nine-month period of 1999 grew 2% over prior year. The U.S. business,
which represents almost 90% of the North American segment, reported a sales
decline of 2% for the third quarter and a 3% increase for the September
year-to-date period. The third quarter decline resulted from a 6% decrease
in the number of units sold as well as a 1% decrease in active
Representatives. U.S. sales of cosmetics, fragrance and toiletries ("CFT")
decreased 10% during the third quarter primarily due to underperformance of
women's new products, particularly Forever Amber and Skintrition.
Additionally, the existing line underperformed primarily due to less
exposure in the brochure in 1999. However, within the CFT category, color
cosmetics had a strong increase particularly in the face and eye segment
due to new product launches. The third quarter sales decline also reflects
decreases in the apparel category mainly due to the rebalancing of
resources to support more profitable segments. These decreases were
partially offset by growth in the
17
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
fashion jewelry and accessories category driven by higher sales of fine
jewelry and strong sales in the novelty jewelry segment which included such
innovative products as Solar Magic, Four Way Locket and children's
giftsets. Sales of gift and decorative items and home entertainment
products also increased during the third quarter primarily due to a focus
on religious and inspirational products.
On a September year-to-date basis, sales in the U.S. increased 3% due
to growth in the fashion jewelry and accessories category reflecting
success of sterling silver and bolder jewelry designs, the introduction of
licensed luggage and strong performance in watches and handbags.
Additionally, the home entertainment and gift and decorative category
posted double-digit percentage increases reflecting increased sales of
inspirational and religious products. These year-to-date improvements were
partially offset by continued declines in CFT and apparel categories.
Operating profit in North America increased 4% and 11% in the third
quarter and first nine months 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
in the non-CFT categories and product category management, partially offset
by an unfavorable expense ratio due to increased spending on strategic
initiatives such as the internet and the opening of express and beauty
centers.
International
International U.S. dollar net sales for the third quarter and first
nine months of 1999 increased 3% and 1%, respectively, over the comparable
periods in 1998. Sales growth in the Pacific and Europe regions was
partially offset by a decline in Latin America for both the third quarter
and nine-month period of 1999. However, excluding the effect of foreign
currency exchange, sales increased 14% and 13% during the third quarter
and first nine months of 1999, respectively.
The sales improvement in the Pacific region for both the third quarter
and first nine months of 1999 was driven by strong increases in units and
customers served in the Philippines, Australia and Taiwan. Local currency
sales in Japan decreased due to a lower average order size. However,
Japan's U.S. dollar sales increased significantly due to favorable currency
impact. Excluding the effect of foreign currency exchange, sales in the
Pacific increased 7% and 6% in the third quarter and first nine months of
1999, respectively.
18
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
In Europe, sales increased 6% and 1% in the third quarter and nine-
month period of 1999, respectively, due to growth in the United Kingdom and
Central Europe, partially offset by declines in Russia and Germany. A
higher average order size and increased distributorship sales fueled the
increase in the United Kingdom. Additionally, in the United Kingdom, the
launch of a new brochure to enhance Avon's image contributed to the sales
growth. The improvement in Central Europe, primarily in Poland, resulted
from continued increases in units, customers served and active
Representatives. Poland's success reflects strong growth in the CFT
category, increased Representative retention and a change in the campaign
cycle including a new brochure every 4 weeks versus 6 weeks in prior year.
Sales were lower in Russia due to the continued economic crisis and ruble
devaluation, and in Germany due to a weak economic environment. Excluding
the impact of exchange, Europe sales grew 17% and 11% in the third quarter
and first nine months of 1999, respectively.
The U.S dollar sales decline in Latin America resulted from
significant decreases in Brazil as a result of the real devaluation and in
Argentina as a result of weak economic conditions. These declines were
partially offset by sales growth in Mexico, Venezuela and Central America.
Mexico's sales increase during the third quarter resulted mainly from
inflation-related price increases in 1999; however, September year-to-date
increases resulted from both operational growth including new product
launches in the cosmetics, home and fashion lines as well as economic
growth reflecting consumer price increases. Central America posted double-
digit increases in units, customers served and active Representatives in
both the third quarter and nine-month period in 1999. Excluding the impact
of exchange, sales in Latin America increased 15% and 18% in the third
quarter and first nine months of 1999, respectively. Local currency sales
and units continue to grow over 20% in Brazil in both the third quarter and
first nine months 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.
International operating profit increased 15% and 13% in the third
quarter and nine-month period of 1999, respectively, compared to the same
periods in 1998.
Operating profit growth in the Pacific of 63% and 69% in the third
quarter and first nine months of 1999, respectively, resulted from U.S.
dollar sales growth, discussed above, and operating margin improvements in
nearly all markets, 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
19
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
profitability screening process that led to the elimination of many low-
margin products in the apparel and jewelry segments. Additionally, BPR
efforts continue to generate significant savings across all expense areas
in Japan. China's year-to-date improvement in 1999 reflects the suspension
of operations for most of the second quarter of 1998 due to governmental
restrictions on direct-selling companies. However, China's operating
margin improved significantly during the third quarter of 1999, which was
on a comparable basis to prior year, due to a shift in sales mix to higher
margin items. Philippines and Taiwan also reported increases in operating
profit driven primarily by the sales growth, discussed above. As a result,
the operating margin in the Pacific was up 3.5 points and 3.9 points for
the third quarter and first nine months of 1999, respectively, over prior
year.
In Latin America, operating profit was level in the third quarter but
increased 4% in the nine-month period of 1999 compared to the same periods
in 1998. For the third quarter period, continued declines in Brazil
resulting from the real devaluation in 1999 were offset by increases in
Mexico and Venezuela. Higher operating profit in Mexico resulted from the
sales growth and gross margin improvement, partially offset by increased
advertising expense and incentive programs in 1999. The year-to-date 4%
operating profit increase was due to improvements in Mexico and Venezuela
driven by higher sales and, to a lesser extent, in Brazil due to aggressive
cost reduction efforts and strict expense management. Brazil reported a
4.0 point operating margin improvement in the first nine months of 1999.
These improvements were partially offset by 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
third quarter and September year-to-date 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 additional local sourcing to
reduce imports.
Operating profit in Europe increased 54% and 18% in the third quarter
and nine-month period of 1999, respectively. This improvement was
primarily driven by increases in the United Kingdom, Central Europe and
Italy. The United Kingdom continues to focus on category and customer
growth, image enhancement and expense control. For both the third quarter
and nine-month period of 1999, the United Kingdom, Central Europe and Italy
reported significant growth in operating margins due to higher gross
20
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
margins which resulted from a continuing focus on pricing strategies and
improved profitability of non-CFT categories. Additionally, Russia's third
quarter operating results were slightly above last year due to substantial
reduction in their operating expenses. However, on a year-to-date basis,
the improvements in the above markets 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 2% and 7% in the third quarter and first
nine months 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 $345.5
in the first nine months of 1999 compared with a decrease of $307.5 in the
comparable period of 1998. The $38.0 variance primarily reflects increased
repurchases of common stock, an unfavorable effect of foreign currency
exchange, increased cash used for investing activities due to the
acquisition of the remaining interest in a manufacturing facility in Poland
and higher capital expenditures, including a new manufacturing and
distribution facility in Mexico. These uses of cash were partially offset
by lower net cash used by operations reflecting a higher net income
(adjusted for the non-cash portion of the special charges), a favorable
consolidated working capital level and a higher cash usage in 1998 related
to the funding of the Company's benefit plans.
For the first nine months of 1999, the Company purchased approximately
5,895,800 shares of common stock for $228.2 compared with $75.0 spent for
the repurchase of approximately 2,211,000 shares during the comparable
period in 1998. Of the 5,895,800 shares repurchased, 1,779,800 shares
repurchased for $45.5 in September 1999 were not settled until October
1999. Accordingly, $45.5 has been included in Other accrued liabilities on
the Consolidated Balance Sheet.
In October 1999, the Company's Board of Directors approved a
significant acceleration of the Company's share repurchase program. This
will substantially complete the Company's current $1.1 billion buyback
program, which had been scheduled to run through 2001. See Note 11 for
further detail of this program.
21
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Capital Resources
Total debt increased $344.1 to $600.4 from $256.3 at December 31,
1998, principally due to normal seasonal working capital requirements and
borrowings to support the continuing stock buyback program. Total debt of
$600.4 at September 30, 1999 was $104.8 higher than total debt of $495.6 at
September 30, 1998 primarily to fund the accelerated stock buyback program
in 1999. In addition, at September 30, 1999 and December 31, 1998, other
non-current liabilities include approximately $107.9 and $112.4,
respectively, related to securities lending activities.
At September 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 $330.0 was outstanding at September
30, 1999. At September 30, 1999, there were $10.0 of borrowings
outstanding under uncommitted lines of credit.
Subsequent to September 30, 1999, the Company purchased approximately
17 million shares of its common stock for approximately $488.0 under this
program, funded by short-term borrowings.
As discussed in Note 11 to the Consolidated Financial Statements the
Company issued $500.0 of unsubordinated, unsecured notes payable in a
private offering to institutional investors. The proceeds from this
issuance will be used for general corporate purposes, including the
repayment of outstanding short-term borrowings incurred to finance the
acceleration of the Company's share repurchase program discussed above.
In connection with the offering, Avon entered into a five-year and
ten-year interest rate swap contract with notional amounts of $200.0 and
$300.0, respectively to effectively convert fixed interest to a variable
interest rate, based on commercial paper rates.
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.
22
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Working Capital
As of September 30, 1999, current liabilities exceeded current assets
by $252.4, while at December 31, 1998 current assets exceeded current
liabilities by $11.9. The increase of current liabilities over current
assets of $264.3 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 increase in
inventories, reflecting the seasonal pattern of Avon's operations.
Although current liabilities exceeded current assets at September 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. At September 30, 1999, the large excess of current liabilities over
current assets reflects the aforementioned acceleration of the Company's share
repurchase program and the related short-term borrowings, pending issuance
of long term debt discussed in Note 11. 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 September 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 obligations, including third-party
or intercompany foreign
23
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
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 September 30, 1999, the Company held foreign currency forward
contracts with notional amounts totaling $376.7 and option contracts with
notional amounts totaling $20.0 to hedge foreign currency items. Only
$40.7 of these contracts have maturities after 1999. Also outstanding at
September 30, 1999 were foreign contracts totaling $15.0 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 September 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 September 30, 1999, the Company has entered into forward contracts
to purchase approximately 2,913,200 shares of Avon common stock at an
average rate of $40.65 per share as of September 30, 1999. The contracts
mature over the next 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. Subsequent to September 30,
1999, 480,000 shares were purchased under these contracts.
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.
Avon operating subsidiaries affected by the euro conversion have
established plans to address issues raised by the euro
24
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
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 Software,
25
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
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. 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. In addition, end-
to-end testing to verify the data integrity of internal and external system
interfaces has also been completed.
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. The validation
of third party compliance and preparation of any necessary contingency
plans has been completed. Follow-up reviews are 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.
Both the U.S. and international operations have completed the remediation
and testing of embedded systems.
26
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
Costs
The total estimated cost associated with achieving worldwide Year 2000
compliance will be approximately $32.7, of which $28.3 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.
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 has been completed.
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 28.
Recent Developments
On November 4, 1999 the Company announced that its president and chief
operating officer, Andrea Jung, has been named president and chief
executive officer ("CEO"), succeeding chairman and CEO Charles R. Perrin in
his capacity as CEO. Mr. Perrin is retiring from Avon. The Company also
announced that outside director Stanley C. Gault, has been elected non-
executive chairman of the board of directors. All changes are effective
immediately.
27
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Dollars in millions, except share data)
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.
28
<PAGE>
AVON PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the third quarter of 1999.
29
<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: November 15, 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.
30
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 September 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
- ------- -----------
27 Financial Data Schedule.
<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 Sept. 30, 1999 and is
qualified in its entirety by reference to such financial statements.
<MULTIPLIER> 1000000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 550
<ALLOWANCES> (49)
<INVENTORY> 578
<CURRENT-ASSETS> 1,398
<PP&E> 1,435
<DEPRECIATION> (736)
<TOTAL-ASSETS> 2,527
<CURRENT-LIABILITIES> 1,651
<BONDS> 205
0
0
<COMMON> 88
<OTHER-SE> (27)
<TOTAL-LIABILITY-AND-EQUITY> 2,527
<SALES> 3,723
<TOTAL-REVENUES> 3,723
<CGS> 1,425
<TOTAL-COSTS> 3,351
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 285
<INCOME-TAX> 127
<INCOME-CONTINUING> 161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161
<EPS-BASIC> .61
<EPS-DILUTED> .61
</TABLE>
