<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 June 30, 2000
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, 2000 was 237,421,646
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Table of Contents
Part I. Financial Information
Page
Numbers
--------
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended June 30, 2000 and
June 30, 1999.................................... 3
Six Months Ended June 30, 2000 and
June 30, 1999.................................... 4
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 .............. 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and
June 30, 1999................................... 6
Notes to Consolidated Financial Statements.......... 7-15
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition....... 16-25
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................... 26
Signatures.................................................. 27
<PAGE>
PART I. FINANCIAL INFORMATION
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three months ended
June 30
-----------------
2000 1999
---- ----
(unaudited)
Net sales.................................. $1,378.1 $1,258.1
Costs and expenses:
Cost of sales............................ 496.4 451.7
Marketing, distribution and
administrative expenses................ 661.9 610.6
------- --------
Operating profit .......................... 219.8 195.8
Interest expense......................... 22.8 8.9
Interest income.......................... (2.1) (2.2)
Other expense, net....................... 4.5 0.7
------- --------
Total other expenses....................... 25.2 7.4
------- --------
Income before taxes and minority interest.. 194.6 188.4
Income taxes............................... 69.0 67.8
-------- --------
Income before minority interest............ 125.6 120.6
Minority interest.......................... (1.1) .8
-------- --------
Net income................................. $ 124.5 $ 121.4
======== ========
Earnings per share:
Basic ................................. $ .52 $ .46
======== ========
Diluted................................ $ .52 $ .46
======== ========
The accompanying notes are an integral part of these statements.
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AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Six months ended
June 30
----------------
2000 1999
---- ----
(unaudited)
Net sales.................................. $2,703.0 $2,471.9
Costs, expenses and other:
Cost of sales* .......................... 993.7 959.9
Marketing, distribution and
administrative expenses................ 1,345.1 1,252.3
Special charge........................... - 105.2
-------- --------
Operating profit........................... 364.2 154.5
Interest expense......................... 42.7 17.9
Interest income.......................... (3.9) (5.4)
Other expense(income), net .............. 14.8 (7.1)
-------- --------
Total other expenses....................... 53.6 5.4
-------- --------
Income before taxes and minority interest.. 310.6 149.1
Income taxes............................... 110.2 79.2
-------- --------
Income before minority interest............ 200.4 69.9
Minority interest.......................... (1.1) 2.6
-------- --------
Net income................................. $ 199.3 $ 72.5
======== ========
Earnings per share:
Basic ................................. $ .84 $ .28
======== ========
Diluted................................ $ .83 $ .27
======== ========
*1999 includes a one-time charge of $46.0 for inventory write-downs.
The accompanying notes are an integral part of these statements.
<PAGE>
AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
June 30 December 31
2000 1999
------ -----
(unaudited)
ASSETS
Current assets:
Cash and equivalents................... $ 75.9 $ 117.4
Accounts receivable.................... 496.8 495.6
Inventories............................ 645.2 523.5
Prepaid expenses and other............. 202.1 201.3
-------- --------
Total current assets................... 1,420.0 1,337.8
-------- --------
Property, plant and equipment, at cost. 1,472.2 1,472.0
Less accumulated depreciation.......... 741.1 737.2
-------- --------
731.1 734.8
-------- --------
Other assets........................... 467.1 456.0
-------- -------
Total assets........................... $2,618.2 $2,528.6
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Debt maturing within one year.......... $ 117.4 $ 306.0
Accounts payable....................... 361.3 435.9
Accrued compensation................... 114.1 165.8
Other accrued liabilities.............. 368.5 411.6
Sales and taxes other than income...... 89.1 107.5
Income taxes........................... 296.4 286.0
-------- --------
Total current liabilities.............. 1,346.8 1,712.8
-------- --------
Long-term debt......................... 1,092.8 701.4
Employee benefit plans................. 397.5 398.1
Deferred income taxes.................. 34.5 36.7
Other liabilities...................... 92.6 85.7
Shareholders' deficit:
Common stock........................... 88.3 88.1
Additional paid-in capital............. 833.9 819.4
Retained earnings...................... 948.6 837.2
Accumulated other comprehensive loss. . (373.6) (349.7)
Treasury stock, at cost................ (1,843.2) (1,801.1)
-------- --------
Total shareholders' deficit............ (346.0) (406.1)
-------- --------
Total liabilities and shareholders' deficit $2,618.2 $2,528.6
======== ========
The accompanying notes are an integral part of these statements.
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AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six months ended
June 30
----------------
2000 1999
---- ----
(unaudited)
Cash flows from operating activities:
Net income...................................... $ 199.3 $ 72.5
Adjustments to reconcile net income to net cash
(used)/provided by operating activities:
Special and non-recurring (payments)charges..... (10.1) 107.9
Depreciation and amortization................... 45.9 39.5
Provision for doubtful accounts................. 48.2 43.6
Translation loss/(gain)......................... 1.5 (.7)
Deferred income taxes........................... 5.1 (8.0)
Other........................................... 5.4 2.0
Changes in assets and liabilities:
Accounts receivable........................... (61.2) (58.5)
Inventories................................... (137.3) (67.6)
Prepaid expenses and other.................... (16.3) (1.9)
Accounts payable and accrued liabilities...... (139.2) (123.6)
Income and other taxes........................ (3.8) (2.6)
Noncurrent assets and liabilities............. 18.0 7.9
------ ------
Net cash (used)/provided by operating activities. (44.5) 10.5
------ ------
Cash flows from investing activities:
Capital expenditures........................... (76.5) (72.1)
Disposal of assets............................. 5.2 5.2
Other investing activities..................... (1.1) (15.3)
------ ------
Net cash used by investing activities.......... (72.4) (82.2)
------ ------
Cash flows from financing activities:
Cash dividends................................. (89.7) (95.7)
Debt, net (maturities of three months or less). 221.7 254.8
Proceeds from short-term debt.................. 25.6 22.1
Retirement of short-term debt.................. (42.7) (19.5)
Retirement of long-term debt................... (.1) (.2)
Repurchase of common stock..................... (42.1) (125.5)
Proceeds from exercise of
stock options, net of taxes................. 10.5 21.4
------ ------
Net cash provided by financing activities...... 83.2 57.4
------ ------
Effect of exchange rate changes on cash
and equivalents............................ (7.8) (17.5)
------ ------
Net decrease in cash and equivalents........... (41.5) (31.8)
Cash and equivalents at beginning of period.... 117.4 105.6
------ ------
Cash and equivalents at end of period.......... $ 75.9 $ 73.8
======== =======
The accompanying notes are an integral part of these statements.
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AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 1999 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 June 1999, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FAS No. 133", which delayed the effective date of 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). In June 2000, the FASB issued FAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities - an
amendment of FASB Statement No. 133". FAS No. 138 amends FAS 133 and
will be adopted concurrently with FAS No. 133. 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 will be
recorded each period in current earnings or accumulated other
comprehensive income, depending on whether the 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 will be 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 accumulated other comprehensive income.
The gains and losses on the derivative instruments that are reported in
accumulated 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 impact of FAS
No. 133 as amended by FAS 138 on the Company's financial statements will
depend on a variety of factors, including the future level of forecasted
and actual foreign currency transactions, the extent of the Company's
hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. Based on an analysis of Avon's
financial instruments outstanding at June 30, 2000, the Company does not
expect the adoption of FAS No. 133 as amended by FAS 138 to have a
material impact on its earnings or statement of financial position.
To conform to the 2000 presentation, certain reclassifications were made
to the prior periods' consolidated financial statements and the accompanying
footnotes.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
2. INFORMATION RELATING TO THE STATEMENT OF CASH FLOWS
"Net cash (used)/provided by operating activities" includes
the following cash payments for interest and income taxes:
Six months ended
June 30
----------------
2000 1999
---- ----
Interest................................. $ 50.6 $19.5
Income taxes, net of refunds received.... 102.0 73.1
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, 2000 and 1999, 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
------ -------
2000 1999 2000 1999
---- ---- ---- ----
Basic EPS
Weighted-average shares 237.50 261.54 237.57 261.77
Incremental shares from
assumed conversion of
stock options and
settlement of forward
contracts(1) 2.06 3.47 1.78 3.09
------ ------ ------ ------
Diluted EPS
Adjusted weighted-
average shares 239.56 265.01 239.35 264.86
------ ------ ------ ------
(1) At June 30, 2000 and 1999, stock options and forward contracts to
purchase Avon common stock totaling 2.3 million shares and 2.6
million shares, respectively, are not included in the earnings per
share calculation since their impact is anti-dilutive.
The Company purchased approximately 1,060,255 shares of common
stock for $42.1 during the first six months of 2000, as compared to
approximately 2,756,500 shares of common stock for $125.5 during the
first six months of 1999.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
4. INVENTORIES
June 30 December 31
2000 1999
---- ----
Raw materials................ $180.6 $156.9
Finished goods............... 464.6 366.6
------ ------
$645.2 $523.5
====== ======
5. DIVIDENDS
Cash dividends paid per share of common stock were $.185 and
$.37 for the three and six months ended June 30, 2000,
respectively, and $.18 and $.36 for the corresponding 1999
periods. On February 3, 2000, the Company increased the annual
dividend rate to $.74 from $.72.
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.
In the opinion of Avon's management, based on its review of
the information available at this time, the total cost of
resolving such contingencies at June 30, 2000 should not have a
material adverse impact on Avon's consolidated financial position,
results of operations or cash flows.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
7. COMPREHENSIVE INCOME
For the three and six months ended June 30, 2000 and 1999, the
components of comprehensive income are as follows:
Three Months ended Six Months ended
June 30 June 30
------ -------
2000 1999 2000 1999
---- ---- ---- ----
Net income $124.5 $121.4 $199.3 $72.5
Other comprehensive(loss)
income:
Change in equity due to
foreign currency
translation and
transaction adjustments (21.3) 1.4 (23.9) (40.2)
------ ------ ------- ------
Comprehensive income $103.2 $122.8 $175.4 $32.3
====== ====== ======= ======
8. SPECIAL AND NON-RECURRING CHARGES
In October 1997, the Company announced a worldwide business
process redesign program to streamline operations and improve
profitability through margin improvement and expense reductions.
The special and non-recurring charges associated with this program
totaled $151.2 pretax ($121.9 net of tax, or $.47 per share on a
basic and diluted basis) for the year ended December 31, 1999 and
$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.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
The 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
-------
The 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 has been reduced by
approximately 3,700 associates, or 9% of the total. Approximately one-half of
the terminated employees related to facility 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 a foreign currency translation adjustment relates to
the closure of the jewelry manufacturing facility in Ireland.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 2000 is as follows:
Special Cost of
Charge Sales Charge Total
------- ------------ -----
Balance at December 31, 1999 $ 26.2 $ - $ 26.2
Cash expenditures (10.1) (10.1)
------ ----- ------
Balance at June 30, 2000 $ 16.1 $ - $ 16.1
====== ===== ======
The balance at June 30, 2000 relates primarily to employee
severance costs that will be paid during 2000.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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
------------------
2000 1999
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
----- --------- ----- ---------
North America:
U.S. $ 456.2 $ 96.6 $ 430.0 $ 91.0
Other* 58.5 6.7 54.2 7.9
-------- -------- -------- --------
Total 514.7 103.3 484.2 98.9
-------- -------- -------- --------
International:
Latin America North** 211.5 56.4 181.1 46.0
Latin America South** 246.1 50.9 226.9 48.8
-------- -------- -------- --------
Latin America 457.6 107.3 408.0 94.8
Pacific 198.3 29.4 169.2 22.8
Europe 207.5 35.8 196.7 31.8
-------- -------- -------- --------
Total 863.4 172.5 773.9 149.4
-------- -------- -------- --------
Total from operations $1,378.1 275.8 $1,258.1 248.3
-------- -------- -------- --------
Global expenses (56.0) (52.5)
-------- --------
Operating profit $ 219.8 $ 195.8
======== ========
*Includes operating information for Canada and Puerto Rico.
**Latin America North includes the major markets of Mexico, Venezuela and
Central America. Latin America South includes the major markets of Brazil,
Argentina, Chile and Peru.
To conform to the 2000 presentation, certain reclassifications were made
to the prior periods' segment information.
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Six Months Ended
June 30
------------------
2000 1999
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
----- --------- ----- --------
North America:
U.S. $ 909.3 $ 178.1 $ 858.9 $ 168.5
Other* 118.1 11.6 108.3 14.5
-------- -------- -------- --------
Total 1,027.4 189.7 967.2 183.0
-------- -------- -------- --------
International:
Latin America North** 405.1 98.5 358.2 82.9
Latin America South** 467.9 83.0 428.2 77.4
-------- ------- -------- --------
Latin America 873.0 181.5 786.4 160.3
Pacific 389.6 52.3 326.6 36.3
Europe 413.0 57.6 391.7 45.9
------- -------- -------- --------
Total 1,675.6 291.4 1,504.7 242.5
-------- -------- -------- --------
Total from operations $2,703.0 481.1 $2,471.9 425.5
-------- -------- -------- --------
Global expenses (116.9) (119.8)
Special and
non-recurring charges - (151.2)
-------- --------
Operating profit $ 364.2 $ 154.5
======== ========
*Includes operating information for Canada and Puerto Rico.
**Latin America North includes the major markets of Mexico, Venezuela and
Central America. Latin America South includes the major markets of Brazil,
Argentina, Chile and Peru.
To conform to the 2000 presentation, certain reclassifications
were made to the prior periods' segment information.
10. OTHER FINANCING ACTIVITIES
The Company had entered into forward contracts to purchase
approximately 1,698,200 shares of Avon common stock at an average
price of $36.47 per share as of June 30, 2000. The contracts
mature over the next 1-1/2 years and provide for physical or net
share settlement to the Company. Accordingly, no adjustment for
subsequent changes in fair value has been recognized.
11. SUBSEQUENT EVENT
During July 2000, the Company issued in a private placement
$735.8 principal amount at maturity of zero-coupon convertible
senior notes due July 12, 2020 (the "Notes"), with proceeds of
approximately $350.0. The issue price per note was $475.66, being
47.566% of the principal amount of $1,000 per Note at maturity.
The Notes have a 3.75% yield to maturity and are convertible at
any time into the Company's common stock at a conversion rate of
<PAGE>
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
8.2723 shares of common stock per $1,000 principal amount at
maturity of the Notes (equivalent to a conversion price of $57.50
per share based on the initial offering price of the Notes). The
Notes may be redeemed at the option of the Company on or after
July 12, 2003 at a redemption price equal to the issue price plus
accrued original issue discount to the redemption date. The
holders can require the Company to purchase all or a portion of
the Notes on July 12, 2003, July 12, 2008, and July 12, 2013 at
the redemption price per Note of $531.74, $640.29 and $771.00,
respectively. The holders may also require the Company to
repurchase the Notes if a fundamental change, as defined,
involving Avon occurs prior to July 12, 2003. The Company has the
option to pay the purchase price or, if a fundamental change has
occurred, the repurchase price in cash or common stock or a
combination of cash and common stock. The indenture under which
the Notes were issued restricts the Company's ability to merge
with or consolidate into another company or to sell substantially
all of the Company's assets.
The Company also granted to the initial purchasers of the
Notes an over-allotment option to purchase an additional $105.0 of
Notes. As of August 8, 2000, the over-allotment option had been
exercised and additional Notes with an aggregate principal amount
at maturity of approximately $105.0 were purchased by the initial
purchasers from the Company, for proceeds of approximately $50.0.
The net proceeds from the offering (including the proceeds of
the over-allotment option) will be used for general corporate
purposes, including the repayment of short-term debt.
Accordingly, $391.8 of commercial paper borrowings were
reclassified from short-term to long-term on the Consolidated
Balance Sheet.
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
ITEM 2. Management's Discussion and Analysis of the Results of
Operations and Financial Condition
Results of Operations - Three and Six Months Ended June 30, 2000 and 1999.
Consolidated
Avon's net income for the second quarter and six-month period of 2000
was $124.5 and $199.3, respectively, or $.52 and $.83 per share on a
diluted basis, respectively, compared with net income of $121.4 and $72.5,
respectively, or $.46 and $.27 per share on a diluted basis, respectively,
in 1999. Operating profit was $219.8 and $364.2, respectively, in the
second quarter and six-month period of 2000 compared with $195.8 and
$154.5, respectively, in the same periods of 1999. Excluding special and
non-recurring charges recorded in the first quarter of 1999 for the
Company's business process redesign ("BPR") program, discussed below, net
income and operating profit for the six-month period of 1999 would have
been $194.4 and $305.7, respectively.
Consolidated net sales for the second quarter and six-month period of
2000 increased 10% and 9%, respectively, over the same periods of 1999.
The second quarter and year-to-date sales improvements were a result of
increases in all geographic regions. Excluding the impact of foreign
currency exchange, consolidated net sales for the second quarter and six-
month period rose 13% and 12%, respectively, over the comparable periods of
the prior year, with double-digit increases in all international regions.
Gross margin decreased 0.1 percentage point in the second quarter but
increased 2.0 percentage points in the six-month period of 2000 compared
to the same periods of 1999. The cost of sales for the six months ended
June 30, 1999 included a one-time charge of $46.0 for inventory write-
downs related to the Company's BPR program. See Note 8 for further
detail. Excluding the one-time charge in 1999, the gross margin increased
0.2 percentage points. The decreased gross margin for the second quarter
resulted from decreases in the U.S., Mexico, Brazil and Germany, partially
offset by increases in Venezuela, the United Kingdom, Japan and China.
The increase in the June year-to-date gross margin was primarily due to
increases in Venezuela, Chile, Russia, Japan and China, partially offset
by decreases in Brazil and Germany.
Marketing, distribution and administrative expenses increased $51.3,
or 8%, and $92.8, or 7%, in the second quarter and six-month period of
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
2000, respectively, over the same periods of 1999, in line with sales
increases in all regions. For the second quarter of 2000, global expenses
increased while for the six-month period, global expenses decreased.
Operating expenses decreased as a percentage of sales to 48.0% in the
second quarter of 2000 from 48.5% in 1999, and to 49.7% in the first six
months of 2000 from 50.7% in the comparable period of 1999. The second
quarter expense ratio decline resulted from improvements in North America,
Latin America and Europe, partially offset by a slight increase in the
Pacific Region. The six-month period expense ratio decline resulted from
expense ratio improvements in Latin America, Europe and the Pacific,
partially offset by an increase in North America.
The June year-to-date 1999 results include a special charge of
$105.2 for the Company's BPR program primarily related to employee
severance benefits worldwide and the restructuring of operations in
Western Europe. See Note 8 for further detail.
Interest expense increased to $22.8 in the second quarter of 2000 as
compared with $8.9 in 1999 and to $42.7 in the first six months of 2000
compared with $17.9 in 1999, primarily as a result of increased domestic
borrowings related to the acceleration of the share repurchase program which
occurred in the second half of 1999 and working capital requirements.
Interest income of $2.1 decreased $0.1 in the second quarter of 2000 and
decreased $1.5 to $3.9 in the first six months of 2000 versus the comparable
periods of 1999. The six-month decrease was primarily the result of reduced
interest rates in Brazil and Mexico during 2000.
Other expense(income), net of $4.5 in the second quarter of 2000 was
$3.8 unfavorable to the comparable period of 1999 primarily due to a value-
added tax refund in China in 1999 as well as unfavorable foreign exchange
in 2000. Other expense(income) of $14.8 for the six-month period of 2000
was $21.9 unfavorable over the comparable period of 1999 mainly due to
favorable foreign exchange in 1999 resulting from gains on Brazilian
forward contracts.
The effective tax rate for the second quarter 2000 was 35.5% versus
36.0% in 1999, and the effective tax rate was 35.5% in the first six months
of 2000 versus 36.1% in 1999, excluding the 1999 special charge. The tax
rate fluctuations result from the earnings mix and tax rates of
international subsidiaries. The tax benefit of the special charge in 1999
was 19.4% due to the mix of countries and tax jurisdictions incurring the
charges.
Minority interest of $(1.1) in the second quarter and first six months
of 2000 decreased $1.9 and $3.7, respectively, due to improved results in
Japan and China in 2000.
The following discussion addresses net sales and operating profit by
reportable segment as presented in Note 9:
North America
Net sales increased 6% in both the second quarter and six-month period of
2000 over the same periods in 1999. The U.S. business, which represents
almost 90% of the North American segment, reported a sales increase of 6% in
both the second quarter and six-month period of 2000 over the same periods in
1999. The second-quarter U.S. increase resulted from a 10% increase in the
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
number of units sold as well as a 5% increase in customers served. U.S.
sales of cosmetics, fragrance and toiletries ("CFT") increased 6%,
reflecting a double-digit increase in color cosmetics, driven by nail,
face and eye products, including strong growth in the Be Radiant Spring
Shade Event. Additionally, fragrance sales grew double-digits, primarily
due to the launch of Perceive for Men in 2000. These increases were
partially offset by a decrease in skincare, reflecting softness in Anew
and Brand Avon. Sales in the Beauty Plus category grew low single
digits. Within this category, jewelry and watches increased over 20%,
reflecting the success of several new watches, including the Radio
Digital Sports watch, as well as a strong performance in fashion and fine
jewelry. These increases were partially offset by a decline in apparel
and accessories, reflecting a planned strategic decline in apparel and
softer than expected luggage sales. Beyond Beauty and other sales
increased 12% primarily due to gifts, reflecting the success of the
Blushing Bride Barbie Doll and the Personal Data Organizer, as well as
candles sales, new in 2000.
On a June year-to-date basis, sales in the U.S. increased 6%
resulting from a 9% increase in the number of units sold, as well as a 5%
increase in customers served. This increase reflects a mid single-digit
increase in the CFT category, with color cosmetics having a double-digit
increase due to the successful launch of Glazewear and Nailwear, as well
as a double-digit increase in fragrance. Sales in the Beauty Plus
category grew 3%, including jewelry and watches which increased 17%,
partially offset by a decline in apparel. Beyond Beauty and other sales
grew 8% reflecting the introduction of candles sales in 2000.
Operating profit in North America increased 4% in the second quarter
and first six months of 2000 compared with 1999 primarily attributable to
the region's increased sales, discussed above. While the operating profit
increased in both the second quarter and six-month period, operating
margin declined 0.4 and 0.5 points, respectively, for 2000 versus 1999.
In the second quarter, the U.S. posted a 0.6 point decline in gross margin
reflecting value merchandising in higher penetration CFT categories, as
well as continued softness in the Anew brand, partially offset by an
increase in apparel and accessories margins, due to improved sourcing and
competitive bidding, and incremental supply chain savings. The U.S. gross
margin decline was offset by a 0.6 point improvement in the expense ratio
driven by aggressive expense management in marketing, as well as field and
administration, partially offset by higher volume-related customer service
expenses, higher fuel costs and advertising. Gross margin declines in Puerto
Rico contributed to the operating margin decline in North America.
The June year-to-date operating margin declined 0.5 points. The U.S.
year-to-date gross margin declined 0.1 point due to the investment in CFT to
drive customer transactions, as well as the success of lower margin items in
the jewelry and watch segment. Partially offsetting these declines
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
was an increase in apparel and accessories due to improved sourcing and
competitive bidding and incremental supply chain savings. The gross margin
decline was offset by an expense ratio improvement of 0.1 point in the U.S.
driven by cost containment and BPR savings, partially offset by increased
spending on advertising and the Company's e-commerce initiatives. The North
American operating margin decline was also attributable to higher expenses in
Puerto Rico.
International
International U.S. dollar net sales for the second quarter and first six
months of 2000 increased 12% and 11%, respectively, over the comparable
periods in 1999. The sales growth in both periods was the result of double-
digit increases in the Pacific and Latin America regions, as well as mid
single-digit increases in Europe. Excluding the effect of foreign currency
exchange, international sales increased 17% and 16%, respectively, with
double-digit increases in all regions.
In the Pacific Region, the 17% and 19% sales improvements in the second
quarter and first six months of 2000 were driven by increases in nearly all
markets resulting from double-digit increases in the number of units sold and
active Representatives. In Japan, sales increased double-digits due to an
increase in the number of units sold and active Representatives, partially
offset by a decrease in average order. In Taiwan, order growth was the key
sales driver in both the first and second quarters. In China, sales growth
continues to be driven by channel expansion, led by beauty boutiques. Local
currency sales in the Pacific Region increased 15% and 16%, respectively,
including double-digit improvements in all markets excluding Japan, which
posted a mid single-digit increase in both periods, and Taiwan and New
Zealand, which posted mid single-digit increases in the second quarter.
In Latin America, sales increased 12% and 11% for the second quarter and
first six months of 2000, respectively, due to increases in all markets, most
significantly in Mexico, Brazil and Venezuela. The sales growth in Mexico was
driven by solid increases in the number of units sold, orders, customers
served and active Representatives. Higher average order was the main driver
for the sales increase in Brazil. In Venezuela, second-quarter sales
increased strong double-digits mainly due to an increase in the number of
units sold, orders, customers and active Representatives. June year-to-date
sales for Venezuela increased near double-digits despite the late 1999
flooding, which negatively affected operations at the beginning of 2000, along
with the persistent uncertain economic and political environment. Excluding
the impact of foreign currency exchange, sales in Latin America increased 18%
and 15% in the second quarter and six-month period, respectively.
In Europe, sales increased 6% and 5% in the second quarter and first six
months of 2000, respectively, primarily due to growth in the United Kingdom,
Central and Eastern Europe and Russia, partially offset by a sales decline in
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
Germany. The sales improvement in the United Kingdom arose from solid growth
in average order size, as well as increases in units sold and customers
served. The improvement in Central and Eastern Europe, primarily Poland,
resulted from continued increases in active Representatives, units and
customers served. The sales improvement in Russia was driven by strong
performance in all indicators. The sales decline in Germany was primarily the
result of a weak economic climate, as well as lower than expected performance
of new Representatives. Excluding the impact of foreign currency exchange,
Europe sales grew 16% and 17% for the second quarter and six-month period,
respectively.
International operating profit increased 16% and 20% in the second
quarter and six-month period of 2000, respectively, compared to the same
periods in 1999.
Operating profit growth in the Pacific Region of 29% and 44% in the
second quarter and first six-month period of 2000, respectively, resulted from
the sales growth, discussed above, and operating margin improvements in nearly
all markets, most significantly in Japan, the Philippines and China, partially
offset by an operating margin decline in Taiwan. Japan's gross margin
improved due to product cost savings initiatives and a favorable change of
product mix from non-CFT to higher margin CFT products. While Japan's year-
to-date expense ratio improved slightly, the second-quarter expense ratio
increased primarily due to increased spending on advertising and sampling. An
improved expense ratio in the Philippines was primarily due to timing of
expenses related to a Representative event. China's operating expense ratio
improvement was driven primarily by increased sales growth. In Taiwan, the
operating expense ratio increased primarily due to increased costs resulting
from moving to a new facility as well as increased spending to support sales
growth; however, in the second quarter, the operating expense ratio increase
was partially offset by an improved gross margin resulting from a shift in
product mix. The second quarter and six-month period operating margin in the
Pacific was 1.4 and 2.3 points above the prior year, respectively.
In Latin America, operating profit grew 13% for both the second quarter
and first six months of 2000 over 1999. In both periods, increased operating
margins in Venezuela and Chile were partially offset by decreased margins in
Brazil and Argentina. The improvement in Venezuela's operating margin
resulted from the sales increase, discussed above, as well as pricing and cost
improvements. Partially offsetting the six-month period operating margin
improvement in Venezuela was an increased expense ratio resulting from higher
expenses associated with the flooding in late 1999, including higher
distribution and transportation expenses. The increased gross margin and
improved expense ratio in Chile resulted from a favorable shift in product mix
as well as tight controls over variable and fixed expenses. Despite sales
increases over 1999, Brazil experienced a decline in gross margin as a result
of difficult prior year comparisons due to strong vendor negotiations and
foreign exchange gains that favorably impacted last year's margin. In
Argentina, the expense ratio increased primarily due to higher advertising,
incentives and commissions. In Mexico, operating profit increased double-
digits; however, a second-quarter decline in gross margin resulted from
increased sales of lower margin items, as well as the strategic decision to
lower prices, partially offset by lower costs resulting from vendor
negotiations. These lower costs contributed to Mexico's slight increase in
operating margin in the six-month period. The operating margin for the second
quarter and six-month period of 2000 in Latin America was 0.2 and 0.4 points
above 1999, respectively.
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
Operating profit in Europe increased 13% in the second quarter resulting
from sales increases discussed above, partially offset by margin declines in
the United Kingdom and Poland. The expense ratio increase in the United
Kingdom was due to increased brochure costs to support the strong sales
growth, increases in volume-related costs and increased shipping and
distribution costs due to reduced capacity of shipping lines during the
transition to a new shipping system. In Poland, the expense ratio increase
resulted from increased distribution costs to support order growth, as well as
unfavorable timing of advertising and sampling. In the Europe Region, second
quarter 2000 operating margin improved 1.1 points over the same period in 1999.
Operating profit in Europe for the first six months of 2000 increased 26%
over 1999, resulting from the sales increases discussed above coupled with
operating margin improvements in Russia and Poland, partially offset by margin
declines in the United Kingdom and Germany. The operating margin improvement
in Russia was primarily due to a favorable comparison against last year's
discount pricing policy as well as tight expense controls on a higher sales
base. In Poland, the favorable expense ratio was due to timing of
advertising, planned for the second half of 2000. Partially offsetting these
improvements was an increased expense ratio in the United Kingdom resulting
from increased advertising, consumer motivation and sampling activities to
support strong sales growth, as well as increases in shipping and distribution
costs due to reduced capacity of shipping lines during the transition to a new
shipping system. Additionally, Germany had a decreased operating margin
resulting from an unfavorable product mix, as well as a decreased sales base.
In the Europe Region, June 2000 year-to-date operating margin improved 2.2
points above the same period in 1999.
Global Expenses
In the second quarter of 2000, global expenses increased 7% versus 1999
primarily due to increased strategic investments in information technology and
e-commerce initiatives, partially offset by insurance proceeds received in
2000 related to 1998 hurricane losses in Central America. In the first half
of 2000, global expenses decreased 2% versus 1999 primarily due to lower
expenses related to the Company's long-term incentive plan, the aforementioned
insurance proceeds and the timing of global marketing expenses, partially
offset by increased investments in information technology and e-commerce
initiatives.
Liquidity and Capital Resources
Cash Flows
Excluding changes in debt, there was a net decrease in cash of $246.0 in
the first six months of 2000 compared with a decrease of $289.0 in the
comparable period of 1999. The $43.0 variance primarily reflects a decrease
in repurchases of common stock, decreased cash used for investing activities
due to the acquisition of a manufacturing facility in 1999 and a favorable
effect of foreign currency exchange. These sources of cash were partially
offset by higher net cash used by operations, reflecting higher working
capital levels which included increased inventory levels due to growing sales
trends and additional stock on hand to protect service levels, the payout of
the long-term incentive plan in 2000 and the timing of cash payments, offset
in part by a higher net income.
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
During the first half of 2000, the Company purchased approximately
1,060,255 shares of common stock for $42.1 compared with $125.5 spent for
the repurchase of approximately 2,756,500 shares during the comparable
period in 1999.
Capital Resources
Total debt increased $202.8 to $1,210.2 from $1,007.4 at December 31,
1999, principally due to working capital requirements and the payout of
the Company's long-term incentive plan. Total debt of $1,210.2 at June
30, 2000 was $693.2 higher than total debt of $517.0 at June 30, 1999,
primarily due to increased borrowings to fund the Company's share
repurchase program which was significantly accelerated during the second
half of 1999. In addition, at June 30, 2000 and December 31, 1999, other
accrued liabilities include approximately $103.4 and $106.4, respectively,
related to securities lending activities.
At June 30, 2000, 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 $431.9 was outstanding at June 30, 2000. The Company
has excluded $391.8 of these commercial paper borrowings from current
liabilities as of June 30, 2000 because it intends to refinance a portion of
the obligations on a long-term basis. The Company issued Notes in July
and August 2000 to refinance these obligations (see Note 11 to the
Consolidated Financial Statements for further details).
At June 30, 2000, there was $9.6 of borrowings outstanding under
uncommitted lines of credit, and there were no borrowings under the
Company's bankers' acceptance facilities.
Management currently believes that cash from operations and available
financing alternatives are adequate to meet anticipated requirements for
working capital, dividends, capital expenditures, the stock repurchase
program and other cash needs.
Working Capital
As of June 30, 2000, current assets exceeded current liabilities by
$73.2, while at December 31, 1999, current liabilities exceeded current assets
by $375.0. The increase in current assets over current liabilities of $448.2
was primarily due to a decrease in short-term net debt (debt less cash
equivalents) reflecting the refinancing of short-term commercial paper
borrowings with the proceeds of the Notes discussed in the Capital Resources
section above and Note 11 to the Consolidated Financial Statements, an
increase in net inventories, primarily due to growing sales trends and
additional stock on hand to protect service levels, and decreases in accounts
payable, accrued compensation and other accrued liabilities. The decline in
payables and accrued liabilities reflects the seasonal pattern of Avon's
operations, the timing of cash payments and the payout of the cash component
of the Company's three-year long-term incentive plan in 2000.
Avon's liquidity results from its ability to generate significant cash
flows from operations and its ample unused borrowing capacity. The
aforementioned acceleration of the Company's share repurchase program resulted
in a shareholders' deficit balance at June 30, 2000 of $346.0. 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
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
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, 2000, 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 Company's $100.0 bonds to a variable
interest rate, based on LIBOR. The Company also has five-year and ten-
year interest rate swap contracts with notional amounts of $200.0 and
$300.0, respectively, to convert fixed interest on the Company's $200.0
five-year notes and $300.0 ten-year notes to a variable interest rate,
based on commercial paper rates.
In May 2000, the Company entered into an interest rate cap
agreement with a notional amount of $150.0 expiring on May 31, 2001 to
convert variable interest, resulting from the interest rate swaps above,
to a fixed interest rate. The cap rate under this contract is 7%.
The Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments and
contractual foreign currency cash flows or obligations, including third-
party or intercompany foreign currency exposures and ensures that hedge
contract amounts do not exceed the amounts of the underlying exposures.
At June 30, 2000, the Company held foreign currency forward
contracts with notional amounts totaling $233.1 and option contracts
with notional amounts totaling $13.0 to hedge foreign currency items.
Only $23.0 of these contracts have maturities after 2000. Also
outstanding at June 30, 2000 were foreign currency forward contracts
with notional amounts totaling $72.4 and option contracts totaling
$33.0 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, 2000 was not material. The
Company's risk of loss on the options in the future is limited to
premiums paid, which are not material.
The Company has entered into forward contracts to purchase
approximately 1,698,200 shares of Avon common stock at an average
price of $36.47 per share as of June 30, 2000. The contracts mature
over the next 1-1/2 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 and Poor's Corporation.
The Company's foreign currency and interest rate derivatives are
comprised of forward contracts, swaps or options with major
international financial institutions. Although the Company's
theoretical credit risk is the replacement cost of 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.
<PAGE>
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
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
estimated 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 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.
<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.
<PAGE>
AVON PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------ -----------
3.4 Restated Certificate of Incorporation
of Avon Products, Inc. effective May 8, 2000.
27 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the second
quarter of 2000.
<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 14, 2000 By /s/ JANICE MAROLDA
-------------------------------
Janice Marolda
Vice President,
Controller
Principal Accounting Officer
Signed both on behalf of the
registrant and as principal
accounting officer.
