<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 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.
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(Exact name of registrant as specified in its charter)
New York 13-0544597
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1345 Avenue of the Americas, New York, N.Y. 10105-0196
(New address of principal executive offices)
(212) 282-5000
(Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock (par value $.25) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ].
The aggregate market value of Common Stock (par value $.25) held
by non-affiliates at February 29, 2000 was $6.4 billion.
The number of shares of Common Stock (par value $.25) outstanding
at February 29, 2000 was 237,514,173.
Documents Incorporated by Reference
Parts I and II Portions of the 1999 Annual Report to Shareholders.
Part III Portions of the Proxy Statement for the 2000 Annual
Meeting of Shareholders.
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PART I
ITEM 1. BUSINESS
Certain statements in this report which are not historical facts or
information are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not
limited to, the information set forth herein. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, levels of activity, performance or
achievement of Avon Products, Inc. ("Avon" or 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; the impact of substantial currency
exchange devaluations in the Company's principal foreign markets; changes
in the industry; competition; the effect of regulatory and legal
restrictions imposed by foreign governments; the effect of regulatory and
legal proceedings and other factors as discussed in Item 1 of this Form 10-
K. As a result of the foregoing and other factors, no assurance can be
given as to the future results and achievements of the Company. Neither
the Company nor any other person assumes responsibility for the accuracy
and completeness of these statements.
General
The Company is one of the world's leading manufacturers and marketers
of beauty and related products, which include cosmetics, fragrance and
toiletries (CFT); "beauty plus" which consists of jewelry and accessories
and apparel; and "non-core" which consists of gift and decorative and home
entertainment products. Avon commenced operations in 1886 and was
incorporated in the State of New York on January 27, 1916. Avon's business
is comprised of one industry segment, direct selling, which is conducted in
North America, Latin America, the Pacific and Europe. The Company's
reportable segments are based on geographic operations. Financial
information relating to the reportable segments is incorporated by
reference to the analysis of net sales and operating profit by geographic
area, and to Note 11 of the Notes to the Consolidated Financial Statements,
on pages 31 and 56, respectively, in Avon's 1999 Annual Report to
Shareholders.
Business Process Redesign
In October 1997, the Company announced a worldwide business process
redesign ("BPR") program to streamline operations and improve
profitability through margin improvement and expense reductions. The
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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. At December 31, 1999, the remaining
liability balance was $26.2 and relates primarily to severance costs that
will be paid in 2000.
BPR initiatives underway are intended to reduce costs by up to
$400.0 a year by 2000, with a portion of the savings being reinvested
primarily in consumer-focused initiatives. Total savings from BPR
initiatives for 1999 approximated $250.0.
Global Business Strategy
In 1999, the Company adopted a new strategic plan to drive revenue
growth and expand its customer base around the world by building on the
Company's strength as a beauty marketer and a leading home direct seller.
The new strategy includes, but is not limited to, plans to accelerate
growth in its core beauty business by growing global brands, expanding
market share, upgrading its beauty image and new product innovation;
building a global portfolio of jewelry and accessories; developing
innovative programs to train, motivate and retain Representatives;
exploiting retail opportunities; and developing new businesses. The
Company expects that its BPR programs will continue to provide resources
to fund these strategic growth initiatives and contribute to earnings
growth. Spending for product innovation and advertising are also key
components in building a global beauty image and reaching the end
consumer. In 2000, the Company will launch its first-ever global
advertising campaign and significantly expand its use of Internet
technology.
Avon's global strategies include the following key growth
initiatives:
Direct Selling Contemporization
The Company continues to contemporize its direct selling channel
enabling it to reach women quickly and efficiently by offering
Representative training, support and earnings opportunities. The Company
is planning to roll out a global Sales Leadership program in its ten
largest markets around the world. The Sales Leadership program is a
modified multi-level selling system which will give Representatives the
opportunity to earn commissions generated from downstream sales of other
Representatives they recruit. This program limits the number of levels
to three and continues to focus on individual product sales.
The Company also plans to implement a Representative development
strategy in 2000. This strategy will focus on the professional training
and development of its Representatives through the introduction of the
Avon Beauty Advisor. Beauty Advisor training will include an in-home
study package as well as seminars where Representatives will be trained
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to do beauty makeovers, where permissible, and consultations. In
addition to introducing the Avon Beauty Advisor, the Company has formed
an alliance with a sales motivation company to introduce a series of
Avon-sponsored training materials and seminars called "Success by
Design". Avon is also developing enhanced Representative training to
support the Sales Leadership opportunity, including a certification
process for each Leadership level.
In addition to the Sales Leadership program and Representative
development strategy, the Company is planning to build and relaunch its
Avon.com Internet site in the United States with a technology partner.
The site will feature Avon's full product line and will be designed to
help its U.S. sales Representatives build their own Avon business by
enabling them to sell online through their own personalized web pages,
developed in partnership with the Company. The Representatives can
tailor their web pages to their specific customer bases by promoting
particular products, targeting specific age groups and consumer segments,
and reflecting seasonal interests and regional tastes. These "e-
Representatives" will be able to conduct all aspects of their Avon
business online, including customer prospecting, ordering, getting
account status and making payments. Avon will also sell products
directly to consumers if they choose not to purchase through a
Representative.
Additionally, the Company annually produces more than 600 million
brochures in a dozen languages, utilizing common imagery and layouts from
a single global database to enhance its global beauty image. In 2000,
Avon plans on incremental spending to upgrade the quality of brochures,
in several of its largest markets, including the U.S.
Complementary Access
To accelerate growth in established industrial nations such as the
U.S., Western Europe and Japan, the Company has developed new channels to
reach more customers and improve access to its products through Avon
Beauty Centers and Express Centers in the U.S., toll-free telephone
numbers, direct mail and "on line" shopping via the Internet on Avon's
web site, Avon.com. Avon Beauty Centers, located in urban malls across
the United States, are designed to display an upscale beauty image,
showcase the Company's beauty brands and encourage customer trial of
product. Avon Express Centers also provide easy access to products and
allow Representatives to fill orders immediately, rather than waiting for
campaign deliveries. In 2000, Avon intends to implement a more
integrated Internet strategy beginning with the U.S. to focus on
improving access and accelerating growth. These complementary access
programs will further increase Avon's brand awareness and drive its
global beauty image.
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Access strategies also have helped reach new customers in the Pacific
Region. For example, the Philippines, India and Indonesia use
decentralized branches and satellite stores to serve Representatives and
customers. Representatives come to a branch near their homes to place and
pick up product orders for their customers. The branches also create
visibility for Avon with consumers and help reinforce the Company's beauty
image. In Malaysia, Avon has 180 franchised beauty boutiques, which are
staffed by franchise Representatives and are located in areas with high
concentrations of Representatives. The boutiques provide more direct and
personal service to Representatives and their customers. Additionally, in
China and Taiwan, beauty counters managed by Avon Representatives are in
retail store chains.
The Company is exploring potential retail opportunities in the U.S.,
including a franchising opportunity for women who would own their own
Avon retail store or kiosk and a "store within a store" concept developed
through a joint venture with a major retailer.
Image Enhancement
The Company continues to update the image of its core beauty
products and its portfolio of global beauty brands. In the past five
years, CFT products have all undergone extensive upgrades in packaging,
imaging and formulations, consistent with the global brand strategy.
These contemporary products project a consistent, high quality image in
all markets and include brands such as Anew, Skin-So-Soft, Avon Color,
Far Away, Rare Gold, Millennia, Perceive, Starring, Avon Skin Care and
Women of Earth. Global brands are growing rapidly as a percentage of the
Company's worldwide CFT business and in 1999, they accounted for 51% of
core beauty sales. The Company plans on launching three global hair care
brands and launching a global jewelry and fashion accessories line around
the world. The development of global brands has also enabled the Company
to deliver a consistent beauty image around the world, as well as improve
margins through pricing and supply chain efficiencies. Avon is also
marketing a more vibrant beauty image through increased advertising and
image-building programs focused on the consumer. In 2000, the Company
intends to launch its first-ever global advertising campaign entitled
"Let's Talk", increase investments in product sampling and development
and upgrade the quality of its brochure to further build its worldwide
beauty image.
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In 1998, an important image enhancement came with the opening of the Avon
Centre, a spa, salon and retail store located in Trump Tower, New York
City. The Avon Centre emphasizes health and beauty and offers a
selection of Avon beauty products created exclusively for use at the Avon
Centre.
Through these strategic initiatives designed to focus on high-
quality, affordable products, as well as convenience for the customer,
Avon is not only positioned for continued growth but also as a leading
beauty company.
International Expansion
Avon is one of the most widely recognized brand names in the world.
The Company is particularly well positioned to capitalize on growth in
new international markets due to high demand for quality products,
underdeveloped retail, infrastructures and relatively attractive earnings
opportunities for women. The Company presently has operations in 50
countries outside the United States and its products are distributed in
86 more for coverage in 137 markets, and it continues to expand into new
markets. The Company has entered 24 new markets since 1990, including
Russia and China and rapidly emerging nations throughout Central Europe,
and is currently evaluating several other markets in Eastern Europe and
the Pacific region.
Distribution
Avon's products are sold worldwide by approximately 3.0 million
Representatives, approximately 445,000 of whom are in the United States.
Almost all Representatives are women who sell on a part-time basis.
Representatives are independent contractors or independent dealers, and
are not agents or employees of Avon. Representatives purchase products
directly from Avon and sell them to their customers.
The Company's products are sold to customers through a combination
of direct selling and marketing utilizing independent Representatives,
Avon Beauty Centers, Express Centers in urban areas, the mail, phone, fax
or "on-line". Representatives go where the customers are, both in the
home and in the workplace.
In the United States, the Representative contacts customers, selling
primarily through the use of brochures which also highlight new products
and specially-priced items for each two-week sales campaign. Product
samples, demonstration products and selling aids such as make-up color
charts are also used. Generally, the Representative forwards an order
every two weeks to a designated distribution center. This order is
processed and the products are assembled at the distribution center and
delivered to the Representative's home, usually by a local delivery
service. The Representative then delivers the merchandise and collects
payment from the customer for their own account. Payment by the
Representative to Avon is customarily made when the next order is
forwarded to the distribution center. The cost of merchandise to the
Representative varies according to the product category and/or to the
total order size for each two-week sales campaign and averages
approximately 60 percent of the recommended selling price.
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Avon employs certain electronic order systems to increase
Representative support in the United States and allow them to run their
business more efficiently as well as to improve order processing
accuracy. One of these systems permits Representatives to submit add-on
orders with a touch-tone telephone, enabling them to augment orders
already submitted by placing a phone call. Another system, Avon's
Personal Order Entry Terminal, permits the top-producing Representatives
in the United States to transmit orders electronically by phone line, 24
hours a day, seven days a week.
The current Internet site, Avon.com, with nearly 400,000 visitors a
month, also sells a limited line of CFT products directly to consumers.
In 2000, the Company plans to launch a completely new Avon.com in the
U.S., with implementation in certain key markets within about one year of
the U.S. launch. The new online initiative will be available to all
Representatives and offer a complete line of Avon products 24 hours a
day, 7 days a week, with no geographic boundaries.
Outside the United States, each sales campaign is generally of a three or
four week duration. Although terms of payment and cost of merchandise to
the Representative vary from country to country, the basic method of
direct selling and marketing by Representatives is essentially the same
as that used in the United States, and substantially the same
merchandising and promotional techniques are utilized.
The recruiting and training of Representatives are the primary
responsibilities of district managers. In the United States, each
district manager has responsibility for a market area covered by 225
to 300 Representatives. District managers are employees of Avon and are
paid a salary and a sales incentive based primarily on the increase over
the prior year's sales of Avon products by Representatives in their
district. Personal contacts, including recommendations from current
Representatives and local advertising, constitute the primary means of
obtaining new Representatives. Because of the high rate of turnover among
Representatives, a characteristic of the direct-selling method,
recruiting and training of new Representatives are continually necessary.
From time to time, the question of the legal status of
Representatives has arisen, usually in regard to possible coverage under
social benefit laws that would require Avon (and in most instances, the
Representatives) to make regular contributions to social benefit funds.
Although Avon has generally been able to address these questions in a
satisfactory manner, the matter has not been fully resolved in all
countries. If there should be a final determination adverse to Avon in a
country, the cost for future, and possibly past, contributions could be
so substantial in the context of the volume of business of Avon in that
country that it would have to consider discontinuing operations in that
country.
Promotion and Marketing
Sales promotion and sales development activities are directed at
assisting the Representatives, through sales aids such as brochures,
product samples and demonstration products. In order to support the
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efforts of Representatives to reach new customers, especially working
women and other individuals who frequently are not at home, specially
designed sales aids, promotional pieces, customer flyers and product and
image enhancing media advertising are used. In addition, Avon seeks to
motivate its Representatives through the use of special incentive
programs that reward superior sales performance. Periodic sales meetings
with Representatives are conducted by the district managers. The meetings
are designed to keep Representatives abreast of product line changes,
explain sales techniques and provide recognition for sales performance.
A number of merchandising techniques, including the introduction of
new products, the use of combination offers, the use of trial sizes and
the promotion of products packaged as gift items, are used. In general
for each sales campaign, a distinctive brochure is published, in which
new products are introduced and selected items are offered at special
prices or are given particular prominence in the brochure. CFT products
are available each sales campaign at consistently low prices, while
maintaining introductory specials and periodic sales on selected items
for limited time periods.
From time to time, various regulations or laws have been proposed or
adopted that would, in general, restrict the frequency, duration or
volume of sales resulting from new product introductions, special
prices or other special price offers. The Company's pricing flexibility
and broad product lines are expected to be able to mitigate the effect of
these regulations.
Competitive Conditions
The CFT; gift and decorative; apparel; and fashion jewelry and
accessory industries are highly competitive. Avon is one of the leading
manufacturers and distributors of cosmetics and fragrances in the United
States. Its principal competitors are the large and well-known cosmetics
and fragrances companies that manufacture and sell broad product lines
through various types of retail establishments. There are many other
companies that compete in particular products or product lines sold
through retail establishments.
Avon has many competitors in the gift and decorative products and
apparel industries in the United States, including retail establishments,
principally department stores, gift shops and direct-mail companies,
specializing in these products.
Avon is one of the leading distributors of fashion jewelry and
accessories for women in the United States. Its principal competition
in the fashion jewelry industry consists of a few large companies and
many small companies that manufacture and sell fashion jewelry for women
through retail establishments.
The number of competitors and degree of competition that Avon faces
in its foreign CFT and fashion jewelry markets varies widely from country
to country. Avon is one of the leading manufacturers and distributors in
the CFT industry in most of its foreign markets, as well as in the
fashion jewelry industry in Europe.
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There are a number of direct-selling companies which sell product
lines similar to Avon's, some of which also have worldwide operations and
compete with Avon.
Avon believes that the personalized customer service offered by its
Representatives; the high quality, attractive designs and reasonable
prices of its products; new product introductions; innovative CFT
products; and its guarantee of satisfaction are significant factors in
establishing and maintaining its competitive position.
Avon's consolidated net sales, by classes of principal products, are
as follows:
Years ended December 31
-----------------------
1999 1998 1997
---- ---- ----
Cosmetics, fragrance and toiletries $3,226.1 $3,176.6 $3,093.9
Beauty Plus:
Jewelry and accessories 455.4 408.1 370.2
Apparel 556.1 567.7 565.6
1,011.5 975.8 935.8
Non-core* 1,051.5 1,060.3 1,049.7
Total net sales $5,289.1 $5,212.7 $5,079.4
* Non-core category primarily includes gift and decorative and home
entertainment items.
International Operations
Avon's international operations are subject to certain customary
risks inherent in carrying on business abroad, including the risk of
adverse currency fluctuations, currency remittance restrictions and
unfavorable economic and political conditions.
Avon's international operations are conducted primarily through
subsidiaries in 50 countries and Avon's products are distributed in some
86 other countries.
Manufacturing
Avon manufactures and packages almost all of its CFT products. Raw
materials, consisting chiefly of essential oils, chemicals, containers
and packaging components, are purchased from various suppliers. Packages,
consisting of containers and packaging components, are designed by its
staff of artists and designers.
The design and development of new products are affected by the cost
and availability of materials such as glass, plastics and chemicals. Avon
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believes that it can continue to obtain sufficient raw materials and
supplies to manufacture and produce its products.
Avon has eighteen manufacturing laboratories around the world, one
of which is principally devoted to the manufacture of fashion jewelry. In
the United States, Avon's CFT products are produced in three
manufacturing laboratories for the four distribution centers and all
Beauty and Express centers. Most products sold in foreign countries are
manufactured in Avon's facilities abroad.
The fashion jewelry line is generally developed by Avon's staff
and produced in its manufacturing laboratory in Puerto Rico or by several
independent manufacturers.
Trademarks and Patents
Avon's business is not materially dependent on third party patent or
other intellectual property rights and Avon is not a party to any
material license, franchise or concession. The Company, however, does
seek to protect its key proprietary technologies by aggressively pursuing
comprehensive patent coverage in all major markets.
Avon's major trademarks are protected by registration in the United
States and the other countries where its products are marketed as well as
in many other countries throughout the world.
Contingencies
Although Avon has completed its divestiture of all discontinued
operations, various lawsuits and claims (asserted and unasserted), are
pending or threatened against Avon. The Company is also involved in a
number of proceedings arising out of the federal Superfund law and
similar state laws. In some instances Avon, along with other companies,
has been designated as a potentially responsible party which may be
liable for costs associated with these various hazardous waste sites. In
the opinion of Avon's management, based on its review of the information
available at this time, the total cost of resolving such contingencies
should not have a material adverse impact on Avon's consolidated
financial position, results of operations or cash flows.
SEASONAL NATURE OF BUSINESS
Avon's sales and earnings have a marked seasonal pattern
characteristic of many companies selling CFT; gift and decorative
products; apparel; and fashion jewelry. Christmas sales cause a sales
peak in the fourth quarter of the year. Fourth quarter net sales were 30
percent of total net sales in both 1999 and 1998, respectively, and
before one-time charges, fourth quarter operating profit was 35% percent
and 37 percent of total operating profit in 1999 and 1998, respectively.
RESEARCH ACTIVITIES
Avon's research and development department is a leader in the
industry, based on the number of new product launches, including
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formulating effective beauty treatments relevant to women's needs. In
addition, Avon's research and development supports its environmental
responsibilities.
A team of researchers and technicians apply the disciplines of
science to the practical aspects of bringing products to market around
the world. Relationships with well known dermatologists and other
specialists extend Avon's own research to deliver new formulas and
ingredients. Each year, Avon researchers test and develop more than 600
products in the CFT and Beauty Plus categories.
Avon has pioneered many innovative products, including Skin-So-Soft,
its best-selling bath oil; BioAdvance, the first skin care product with
stabilized retinol, the purest form of Vitamin A; and Collagen Booster,
the premier product to capitalize on Vitamin C technology. Avon also
introduced the benefits of aromatherapy to millions of American women,
encapsulated color for the Color-Release line and introduced alpha-
hydroxy acid for cosmetic use in the Anew Perfecting Complex products.
Today, Avon's Anew product line has been expanded to include
technologically advanced products such as Retinol Recovery Complex PM
Treatment, Night Force Vertical Lifting Complex, Clearly C 10% Vitamin C
Serum and Luminosity Brightening Complex. Night Force employs a patented
material named AVC10, a molecule that was engineered by Avon researchers
over a three-year period. Luminosity Brightening Complex contains
Diamonex, Avon's exclusive skin brightening system. Avon has introduced
Hydra Finish Lip Color, the first lipstick developed with 20% water, and
Perceive, a fragrance which uses the mood-enhancing effects of pheromone
technology. In 2000, the Company will be launching a complete renovation
of Avon Color with improved formulas and redesigned packaging, rolling
out a reformulated Anew All-In-One skin care regimen and launching
Positivity, a new line of skin care products for menopausal women.
The amounts incurred on research activities relating to the
development of new products and the improvement of existing products
were $34.4 million in 1999, $31.4 million in 1998, and $29.9 million in
1997. This research included the activities of product research and
development and package design and development. Most of these activities
are related to the development of CFT products.
ENVIRONMENTAL MATTERS
Pursuant to Avon's global environmental policy, environmental audits
are conducted to ensure Avon facilities around the world meet or exceed
local regulatory standards. A corporate environmental operations
committee ensures that opportunities for environmental performance
improvements are reflected in our products, packaging and manufacturing
processes.
In general, compliance with environmental regulations impacting
Avon's global operations has not had, and is not anticipated to have, any
material effect upon the capital expenditures, financial position or
competitive position of Avon.
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EMPLOYEES
At December 31, 1999, Avon employed 40,500 people. Of these, 8,800
were employed in the United States and 31,700 in other countries. The
number of employees tends to rise from a low point in January to a high
point in November and decreases somewhat in December when Christmas
shipments are completed.
ITEM 2. PROPERTIES
Avon's principal properties consist of manufacturing laboratories
for the production of CFT and fashion jewelry and distribution centers
where offices are located and where finished merchandise is warehoused
and shipped to Representatives in fulfillment of their orders.
Substantially all of these properties are owned by Avon or its
subsidiaries, are in good repair, adequately meet Avon's needs and
operate at reasonable levels of productive capacity.
The domestic manufacturing laboratories are located in Morton Grove,
IL; Springdale, OH; and Suffern, NY; the distribution centers are located
in Atlanta, GA; Glenview, IL; Newark, DE; and Pasadena, CA. Other
properties include four manufacturing laboratories and ten distribution
centers in Europe; five manufacturing laboratories and nine distribution
centers in Latin America; two manufacturing laboratories and three
distribution centers in North America (other than in the United States);
and four manufacturing laboratories and ten distribution centers in the
Pacific region. The research and development laboratories are located in
Suffern, NY. Avon leases space for its executive and administrative
offices in New York City and its fashion jewelry manufacturing facility
in Puerto Rico.
ITEM 3. LEGAL PROCEEDINGS
Various lawsuits and claims (asserted and unasserted), arising in
the ordinary course of business or related to businesses previously sold,
are pending or threatened against Avon.
In 1991, a class action lawsuit was initiated against Avon on behalf
of certain classes of holders of Avon's Preferred Equity-Redemption
Cumulative Stock ("PERCS"). This lawsuit alleges various contract and
securities law claims relating to the PERCS (which were fully redeemed
that year). Avon has rejected the assertions in this case, believes it
has meritorious defenses to the claims and is vigorously contesting this
lawsuit. It is anticipated that a trial may take place later in 2000.
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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 should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
Avon is involved in a number of proceedings arising out of the
federal Superfund law and similar state laws. In some instances Avon,
along with other companies, has been designated as a potentially
responsible party which may be liable for costs associated with these
various hazardous waste sites. Based upon Avon's current knowledge of the
proceedings, management believes, without taking into consideration any
insurance recoveries, if any, that in the aggregate they would not have a
material adverse impact on Avon's consolidated financial position,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1999.
Officers are elected by the Board of Directors at its first meeting
following the Annual Meeting of Shareholders. Officers serve until the
first meeting of the Board of Directors following the Annual Meeting of
Shareholders at which Directors are elected for the succeeding year, or
until their successors are elected, except in the event of death,
resignation or removal, or the earlier termination of the term of office.
Information regarding employment contracts between Avon and named
executive officers is incorporated by reference to the "Contracts with
Executives" section of Avon's Proxy Statement for the 2000 Annual Meeting
of Shareholders.
Listed below are the executive officers of Avon, each of whom (except as
noted) has served in various executive and operating capacities with Avon
during the past five years:
Elected
Title Name Age Officer
- - ----- ---- --- -------
Retired Chairman of the Board and Director ..James E. Preston 66 1971(1)
Retired Chief Executive Officer and Director.Charles R. Perrin 54 1998(1)
President and
Chief Executive Officer and Director... Andrea Jung 41 1997(2)
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Executive Vice President
Chief Operating Officer,
North America and Global Business
Operations Susan J. Kropf 51 1997(3)
Executive Vice President
Chief Operating Officer, International
and New Business Development...........Jose Ferreira 43 1997(4)
Executive Vice President, Asia Pacific....Fernando Lezama 60 1997
Executive Vice President and
Chief Financial Officer................Robert J. Corti 50 1988
Senior Vice President, General Counsel
and Secretary...........................Ward M. Miller, Jr. 67 1993
Senior Vice President, Human Resources....Jill Kanin-Lovers 48 1998
Vice President and Controller.............Janice Marolda 39 1998
(1)Charles R. Perrin joined Avon as Vice Chairman and Chief Operating
Officer in January 1998 and was later elected Chief Executive
Officer, effective July 1998 and Chairman of the Board in May 1999,
succeeding James E. Preston in his capacity as Chairman of the
Board. Mr. Perrin retired from Avon in November 1999. Also
effective November 1999, Ms. Andrea Jung was named President and
CEO, succeeding Mr. Perrin in his capacity as CEO and outside
director Stanley C. Gault was elected non-executive Chairman of the
Board of Directors.
(2)Andrea Jung was elected President and Chief Executive Officer
effective November 1999. succeeding Charles R. Perrin who retired
November 1999. Ms. Jung joined Avon in January 1994 as President,
Product Marketing and was promoted to Executive Vice President,
Global Marketing and New Business in March 1997. In January 1998,
she was elected President and was later elected Chief Operating
Officer.
(3)Susan J. Kropf was elected Chief Operating Officer, North America
and Global Business Operations, effective November 1999. Ms. Kropf
has been with Avon for almost thirty years. Prior to this
appointment, she had been Executive Vice President and President,
North America. She also served as Senior Vice President, U.S.
Marketing and as Vice President, Product Development.
(4)Jose Ferreira was elected Chief Operating Officer, International
and New Business Development, effective November 1999. Mr.
Ferreira has been with Avon for twenty years. Prior to this
appointment, he had been Executive Vice President, Europe, Asia and
Africa since January 1999. Prior to that, in 1997, he was promoted
to Executive Vice President and President, Asia Pacific.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
This information is incorporated by reference to "Market Prices per
Share of Common Stock by Quarter" on page 42 of Avon's 1999 Annual Report
to Shareholders.
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The information for the five-year period 1995 through 1999 is
incorporated by reference to the "Eleven-Year Review" on pages 60 and 61
of Avon's 1999 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
This information is incorporated by reference to "Management's
Discussion and Analysis" on pages 29 through 41 of Avon's 1999 Annual
Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion under the heading "Risk Management Strategies and
Market Rate Sensitive Instruments" on page 39 and Note 7 on page 51 of
Avon's 1999 Annual Report to Shareholders for information concerning
market risk sensitive instruments. Such information is incorporated by
reference in this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference to the "Consolidated
Financial Statements and Notes" on pages 43 through 58, together with the
report thereon of PricewaterhouseCoopers LLP, on page 59, and "Results of
Operations by Quarter" on page 42 of Avon's 1999 Annual Report to
Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated by reference to the
"Election of Directors" and "Information Concerning the Board of
Directors" sections of Avon's Proxy Statement for the 2000 Annual
Meeting of Shareholders. Information regarding executive officers is
presented in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the "Information
Concerning the Board of Directors" and "Executive Compensation" sections
of Avon's Proxy Statement for the 1999 Annual Meeting of Shareholders.
<PAGE> 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the "Ownership of
Shares" section of Avon's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the "Contracts
with Executives" section of Avon's Proxy Statement for the 2000 Annual
Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K
Annual
Report to
Shareholders Form 10-K
Page Number Page Number
----------- -----------
(a) 1. Consolidated Financial Statements of
Avon Products, Inc. and Subsidiaries
Consolidated statements of income for
each of the years in the three-year
period ended December 31, 1999........ 43
Consolidated balance sheets at
December 31, 1999 and 1998............. 44
Consolidated statements of cash flows
for each of the years in the three-year
period ended December 31, 1999......... 45
Consolidated statements of changes in
shareholders' (deficit)equity for each
of the years in the three-year period
ended December 31, 1999................ 46
Notes to consolidated financial
statements............................. 47-58
Report of Independent Accountants
PricewaterhouseCoopers LLP............. 59
<PAGE> 16
(a) 2. Financial Statement Schedule
Report of Independent Accountants on
Financial Statement Schedule
PricewaterhouseCoopers LLP S-1
Consent of Independent Accountants
PricewaterhouseCoopers LLP S-2
Financial statement schedule for each
of the years in the three-year period
ended December 31, 1999...............
II. Valuation and qualifying
accounts............. S-3
<PAGE> 17
Financial statements of the registrant and all other financial statement
schedules are omitted because they are not applicable or because the
required information is shown in the consolidated financial statements
and notes.
(a)3. Exhibits
Exhibit
Number Description
- - ------ -----------
3.1 Restated Certificate of Incorporation of Avon, filed with the
Secretary of State of the State of New York on May 13, 1996
(incorporated by reference to Exhibit 3.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996).
3.2 By-laws of Avon, as restated, effective December 2, 1999.
3.3 Certificate of Amendment of the Certificate of Incorporation of
Avon Products, Inc., filed May 13, 1998 (incorporated by reference
to Exhibit 3.3 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1998).
4.1 Amended and Restated Revolving Credit and Competitive Advance
Facility Agreement, dated as of August 8, 1996, among Avon, Avon
Capital Corporation and a group of banks and other lenders
(incorporated by reference to Exhibit 4.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
4.2 Indenture dated as of August 1, 1997 between Avon as Issuer, and
The Chase Manhattan Bank, as Trustee relating to the 6.55% Notes
due 2007 (incorporated by reference to Exhibit 4.2 to Avon's
Registration Statement on Form S-4, Registration Statement No.
333-41299 filed December 1, 1997).
4.3 Rights Agreement, dated as of March 30, 1998 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of New
York (incorporated by reference to Exhibit 4 to Avon's
Registration Statement on Form 8-A, filed March 18, 1998).
4.4 Indenture dated as of November 9, 1999 between Avon as Issuer and
The Chase Manhattan Bank, as Trustee relating to the 6.9% Notes
due November 15, 2004 and the 7.15% Notes due November 15, 2009
(incorporated by reference to Exhibit 4.4 to Avon's Registration
Statement on Form S-4, Registration Statement No. 333-92333 filed
December 8, 1999).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders on May 6, 1993 (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
<PAGE> 18
10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993
Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1993).
10.3* First Amendment to the 1993 Avon Stock Incentive Plan effective
January 1, 1997, approved by stockholders on May 1, 1997
(incorporated by reference to exhibit 10.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
10.4* Avon Products, Inc. 1997 Long-Term Incentive Plan, effective as of
January 1, 1997 approved by stockholders on May 1, 1997
(incorporated by reference to Exhibit 10.4 to Avon's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.5* Supplemental Executive Retirement Plan and Supplemental Life Plan
of Avon Products, Inc., as amended and restated as of July 1,
1998 (incorporated by reference to Exhibit 10.5 to Avon's Annual Report
on Form 10K for the year ended December 31, 1998).
10.6* Benefit Restoration Pension Plan of Avon Products, Inc., effective
as of January 1, 1994 (incorporated by reference to Exhibit 10.7
to Avon's Annual Report on Form 10-K for the year ended December
31, 1994).
10.7* Trust Agreement, amended and restated as of March 2, 1990, between
Avon and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990 and refiled under Form SE for the
year ended December 31, 1996).
10.8* First Amendment, dated as of January 30, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.9* Second Amendment, dated as of June 12, 1992 to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.10* Third Amendment, dated as of November 5, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.4 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
<PAGE> 19
10.11* The Avon Products, Inc. Deferred Compensation Plan, as amended and
restated as of July 1, 1998 (incorporated by reference to Exhibit
4(b) to Avon's Registration Statement on Form S-8, Registration
No. 333-65989 filed October 22, 1998).
10.12* Trust Agreement, dated as of April 21, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement as of
August 3, 1989 between Avon and Manufacturers Hanover Trust
Company (incorporated by reference to Exhibit 10.14 to Avon's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.13*Stock Option Agreement between Avon and Stanley C. Gault dated
November 4, 1999.
10.14* Employment Agreement, dated as of December 11, 1997 between Avon
and Charles R. Perrin (incorporated by reference to Exhibit 10.18
to Avon's Annual Report on Form 10-K for the year ended December
31, 1997).
10.15* Stock Option Agreement between Avon and Charles R. Perrin dated
December 10, 1997 (incorporated by reference to Exhibit 10.19 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16* Employment Agreement dated as of December 11, 1997 between Avon
and Andrea Jung (incorporated by reference to Exhibit 10.20 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1997).
10.17* Form of Employment Agreement, dated as of September 1, 1994,
between Avon and certain senior officers (incorporated by
reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994).
10.18* Avon Products, Inc. Compensation Plan for Non-Employee Directors,
effective May 1, 1997 (incorporated by reference to Exhibit 10.22
to Avon's Annual Report on Form 10-K for the year ended December
31, 1997).
10.19* Avon Products, Inc. Board of Directors' Deferred Compensation
Plan, amended and restated, effective January 1, 1997
(incorporated by reference to Exhibit 10.23 to Avon's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.20* Trust Agreement, dated as of December 31, 1991, between Avon and
Manufacturers Hanover Trust Company (incorporated by reference to
Exhibit 10.23 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1991 and refiled under Form SE for the year
ended December 31, 1996).
<PAGE> 20
10.21* First Amendment, dated as of November 5, 1992, to the Trust
Agreement dated as of December 31, 1991, by and between Avon and
Manufacturers Hanover Trust Company (incorporated by reference to
Exhibit 10.7 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.22* Stock Option Agreement between Avon and Charles R. Perrin dated
June 4, 1998 (incorporated by reference to Exhibit 10.1 to Avon's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
10.23* Stock Option Agreement between Avon and Andrea Jung dated June 4,
1998 (incorporated by reference to Exhibit 10.2 to Avon's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1999 incorporated by reference in response to Items
1,5 through 8 in this filing.
18 Preferability letter from PricewaterhouseCoopers LLP regarding
change in accounting principle.
21 Subsidiaries of the registrant.
23 Consent of PricewaterhouseCoopers LLP (set forth on page S-2 of
this Annual Report on Form 10-K).
24 Power of Attorney
27 Financial Data Schedule
<PAGE> 21
* The Exhibits identified above and in the Exhibit Index with an
asterisk (*) are management contracts or compensatory plans or
arrangements.
(b) Reports on Form 8-K
There was no Form 8-K filed during the fourth quarter of 1999.
(c) Avon's Annual Report on Form 10-K for the year ended December 31,
1999, at the time of filing with the Securities and Exchange
Commission, shall modify and supersede all prior documents filed
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act
of 1934 for purposes of any offers or sales of any securities
after the date of such filing pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of
1933, which incorporates by reference such Annual Report on Form
10-K.
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 27 day of March 2000.
Avon Products, Inc.
/s/WARD M. MILLER, JR.
----------------------
Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
<PAGE> 23
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
*
- - ---------------
Andrea Jung President, Chief Executive
Officer and Director -
Principal Executive Officer March 9, 2000
*
- - ---------------
Jose Ferreira, Jr. Executive Vice President March 9, 2000
and Chief Operating Officer -
International and
New Business Development
*
- - ---------------
Susan J. Kropf Executive Vice President March 9, 2000
and Chief Operating Officer -
North America and
Global Business Operations
*
- - ---------------
Robert J. Corti Executive Vice President,
Chief Financial Officer -
Principal Financial Officer March 9, 2000
*
- - ---------------
Janice Marolda Vice President and
Controller - Principal
Accounting Officer March 9, 2000
<PAGE> 24
*
- - ---------------
Brenda C. Barnes Director March 9, 2000
*
- - ---------------
Richard S. Barton Director March 9, 2000
*
- - ---------------
Stanley C. Gault Chairman of the
Board and Director March 9, 2000
*
- - ---------------
Fred Hassan Director March 9, 2000
*
- - ---------------
Ann S. Moore Director March 9, 2000
*
- - ---------------
Lawrence A. Weinbach Director March 9, 2000
/s/WARD M. MILLER, JR.
- - ---------------------
Ward M. Miller, Jr. Attorney-in-fact March 9, 2000
<PAGE> S-1
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Avon Products, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated January 27, 2000, appearing in the 1999 Annual Report to
Shareholders of Avon Products, Inc., which report and consolidated
financial statements are incorporated by reference in this Annual Report
on Form 10-K, also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 27, 2000
<PAGE> S-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Avon Products, Inc. on Form S-8 (Reg. Nos. 33-47209, 33-
60218, 33-60918 and 33-65998) of our report dated January 27, 2000
relating to the financial statements which appear in the 1999 Annual
Report to Shareholders, which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our
report dated January 27, 2000 relating to the financial statement
schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 27, 2000
<PAGE> S-3
AVON PRODUCTS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Years ended December 31
Additions
-----------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
of period expenses accounts Deductions of
period
--------- -------- -------- ---------- -----
1999
Allowance for doubtful
accounts receivable $ 49.0 $ 87.5 $ -- $96.5(a) $40.0
======= ======= ======= ===== =====
1998
Allowance for doubtful
accounts receivable $ $35.5 $ 91.3 $ -- $77.8(a) $49.0
======= ======= ======= ===== =====
1997
Allowance for doubtful
accounts receivable $ $36.4 $ 80.8 $ -- $81.7(a) $35.5
======== ======= ======= ====== =====
(a) Accounts written off, net of recoveries and foreign currency
translation adjustment.
CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- - --------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission file number 1-4881
- - --------
AVON PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
- - --------
EXHIBITS
<PAGE>
INDEX TO EXHIBITS
(a)3. Exhibits
Exhibit
Number Description
- - ------ -----------
3.1 Restated Certificate of Incorporation of Avon, filed with the
Secretary of State of the State of New York on May 13, 1996
(incorporated by reference to Exhibit 3.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996).
3.2 By-laws of Avon, as restated, effective December 2, 1999.
3.3 Certificate of Amendment of the Certificate of Incorporation of
Avon Products, Inc., filed May 13, 1998 (incorporated by reference
to Exhibit 3.3 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1998).
4.1 Amended and Restated Revolving Credit and Competitive Advance
Facility Agreement, dated as of August 8, 1996, among Avon, Avon
Capital Corporation and a group of banks and other lenders
(incorporated by reference to Exhibit 4.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
4.2 Indenture dated as of August 1, 1997 between Avon as Issuer, and
The Chase Manhattan Bank, as Trustee relating to the 6.55% Notes
due 2007 (incorporated by reference to Exhibit 4.2 to Avon's
Registration Statement S-4, Registration Statement No. 333-41299
filed December 1, 1997).
4.3 Rights Agreement, dated as of March 30, 1998 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of New
York (incorporated by reference to Exhibit 4 to Avon's
Registration Statement on Form 8-A, filed March 18, 1998).
4.4 Indenture dated as of November 9, 1999 between Avon as Issuer and
The Chase Manhattan Bank, as Trustee relating to the 6.9% Notes
due November 15, 2004 and the 7.15% Notes due November 15, 2009
(incorporated by reference to Exhibit 4.4 to Avon's Registration
Statement on Form S-4, Registration Statement No. 333-92333 filed
December 8, 1999).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders on May 6, 1993 (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993
Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1993).
<PAGE>
10.3* First Amendment to the 1993 Avon Stock Incentive Plan effective
January 1, 1997, approved by stockholders on May 1, 1997
(incorporated by reference to Exhibit 10.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
10.4* Avon Products, Inc. 1997 Long-Term Incentive Plan, effective as of
January 1, 1997, approved by stockholders on May 1, 1997
(incorporated by reference to Exhibit 10.4 to Avon's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.5* Supplemental Executive Retirement Plan and Supplemental Life Plan
of Avon Products, Inc., as amended and restated as of July 1, 1998
(incorporated by reference to Exhibit 10.5 to Avon's Annual Report
on Form 10-K for the year ended December 31, 1998).
10.6* Benefit Restoration Pension Plan of Avon Products, Inc., effective
as of January 1, 1994 (incorporated by reference to Exhibit 10.7
to Avon's Annual Report on Form 10-K for the year ended December
31, 1994).
10.7* Trust Agreement, amended and restated as of March 2, 1990, between
Avon and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990 and refiled under Form SE for the
year ended December 31, 1996).
10.8* First Amendment, dated as of January 30, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.9* Second Amendment, dated as of June 12, 1992 to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.10* Third Amendment, dated as of November 5, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.4 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.11* The Avon Products, Inc. Deferred Compensation Plan, as amended and
restated as of January 1, 1998 (incorporated by reference to
Exhibit 4(b) to Avon's Registration Statement on Form S-8,
Registration No. 333-65989 filed October 22, 1998).
<PAGE>
10.12* Trust Agreement, dated as of April 21, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement as of
August 3, 1989 between Avon and Manufacturers Hanover Trust
Company (incorporated by reference to Exhibit 10.14 to Avon's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.13* Stock Option Agreement between Avon and Stanley C. Gualt dated
November 4, 1999.
10.14* Employment Agreement, dated as of December 11, 1997 between Avon
and Charles R. Perrin (incorporated by reference to Exhibit 10.18
to Avon's Annual Report on Form 10-K for the year ended December
31, 1997).
10.15* Stock Option Agreement between Avon and Charles R. Perrin dated
December 10, 1997 (incorporated by reference to Exhibit 10.19 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16* Employment Agreement dated as of December 11, 1997 between Avon
and Andrea Jung (incorporated by reference to Exhibit 10.20 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1997).
10.17* Form of Employment Agreement, dated as of September 1, 1994,
between Avon and certain senior officers (incorporated by
reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994).
10.18* Avon Products, Inc. Compensation Plan for Non-Employee Directors,
effective May 1, 1997 (incorporated by reference to Exhibit 10.22
to Avon's Annual Report on Form 10-K for the year ended December
31, 1997).
10.19* Avon Products, Inc. Board of Directors' Deferred Compensation
Plan, amended and restated, effective January 1, 1997
(incorporated by reference to Exhibit 10.23 to Avon's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.20* Trust Agreement, dated as of December 31, 1991, between Avon and
Manufacturers Hanover Trust Company (incorporated by reference to
Exhibit 10.23 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1991 and refiled under Form SE for the year
ended December 31, 1996).
10.21* First Amendment, dated as of November 5, 1992, to the Trust
Agreement dated as of December 31, 1991, by and between Avon and
Manufacturers Hanover Trust Company (incorporated by reference to
Exhibit 10.7 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
10.22* Stock Option Agreement between Avon and Charles R. Perrin dated
June 4, 1998 (incorporated by reference to Exhibit 10.1 to Avon's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
<PAGE>
10.23* Stock Option Agreement between Avon and Andrea Jung dated June 4,
1998 (incorporated by reference to Exhibit 10.2 to Avon's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1999 incorporated by reference in response to Items
1,5 through 8 in this filing.
18 Preferability letter from PricewaterhouseCoopers LLP regarding
change in accounting principle.
21 Subsidiaries of the registrant.
23 Consent of PricewaterhouseCoopers LLP (set forth on page S-2 of
this Annual Report on Form 10-K).
24 Power of Attorney
27 Financial Data Schedule
* The Exhibits identified above and in the Exhibit Index with an
asterisk (*) are management contracts or compensatory plans or
arrangements.
EXHIBIT 3.2
<PAGE>
December 2, 1999
BY-LAWS
OF
AVON PRODUCTS, INC.
ARTICLE I
OFFICES
Section 1. Location. The principal office of the corporation shall
be located in the City of New York, County of New York. The post office
address to which the Secretary of State shall mail a copy of any process
against the corporation served upon him is 1345 Avenue of the Americas, New
York, New York 10105.
The corporation may also have other offices at such places either
withinor without the State of New York as the board of directors may from
time to time designate or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the shareholders of
the corporation, for the election of directors and the transaction of such
other business as may properly come before said meeting, shall be held
annually at such place within or without the State of New York as may from
time to time be designated by the directors and set forth in the notice of
the meeting. The meeting shall be held on the first Thursday in May or on
such other date during the months of April or May in each year as may from
time to time be designated by the directors and set forth in the notice of
the meeting. The chairman of the board of directors, or another member of
the board of directors appointed by the chairman, shall be the presiding
officer at every meeting of the shareholders of the corporation.
<PAGE>
Section 2. Special Meetings. Special meetings of shareholders,
unless otherwise prescribed by law, may be called for any purpose or purposes
at any time by the chairman of the board or the president or by the order of
the board of directors, and special meetings of shareholders prescribed by
law for the election of directors shall be called by the board or by the
secretary or an assistant secretary upon demand as prescribed by law. Such
meetings shall, except as otherwise prescribed by law, be held at such time
and placewithin or without the State of New York as shall be designated by
the person, or in the order of the board of directors, calling such meeting.
Section 3. Notice of Meetings. A copy of the notice of every annual
and special meeting of shareholders, other than any meeting the giving of
notice of which is otherwise prescribed by law, stating the place, date and
hour thereof, and in the case of any special meeting, indicating that it is
being issued by or at the direction of the person or persons calling the
meeting and setting forth the purposes for which the meeting is called, shall
be given personally, electronically, or mailed, at least ten but not more than
fifty days before such meeting, to each shareholder of record entitled to vote
thereat. If sent electronically, such notice shall be directed to the e-mail
address provided by the shareholder in writing. If mailed, such copy shall b
deposited in the United States mail with postage thereon prepaid, directed to
each such shareholder at his address as the same appears on the record of
shareholders of the corporation or, if he shall have filed with the secretary
of the corporation a written request that notices to him be mailed to some
other address, then directed to him at such other address. If any meeting,
annual or special, action is proposed to be taken which would, if taken,
entitle shareholders fulfilling the requirements of law to receive payment for
their shares, the notice of the meeting shall include a statement of that
purpose and to that effect.
Section 4. Quorum. At all meetings of shareholders, except as
otherwise expressly provided by law, there shall be present either in person
or by proxy shareholders of record holding at least a majority of the shares
entitled to vote at such meetings in order to constitute a quorum, but less
than a quorum shall have the power to adjourn any meeting until a quorum shall
be present. The presiding officer at any meeting of shareholders may adjourn
such meeting at any time for the purpose of determining whether a quorum is
present or for any other reason. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any shareholders.
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Section 5. Voting. At every meeting of shareholders every
shareholder of record shall be entitled to one vote for every share standing
in his name on the record of shareholders on any matter to be voted upon at
such meeting, unless otherwise provided in the certificate of incorporation,
and may exercise such voting right either in person or by proxy, except that
no proxy shall be voted on after eleven months from its date unless otherwise
provided in the proxy. As provided in the certificate of incorporation, at all
elections of directors each shareholder shall be entitled to as many votes as
shall equal the number of votes which (except for such provision) he would be
entitled to cast for the election of directors with respect to his shares,
multiplied by the number of directors to be elected, and he may cast all of
such votes for a single director or may distribute them among the number to be
voted for, or any two or more of them, as he may see fit. No share of stock
shall be voted at any meeting by any person other than (i) the owner thereof
registered as such on the corporation's books on the record date fixed by the
directors, or (ii) the duly appointed proxy of such registered owner. Any
vote for directors and/or proposals that shall be presented at a shareholders'
meeting may be by written, telephonic or electronic means. This includes, but
is not limited to, written ballots, telegrams, cablegrams, facsimile or
internet transmissions, provided that such electronic transmissions are
submitted with proof that such electronic transmission is authorized by the
shareholder.
Section 6. Inspectors of Voting. The board of directors, in advance
of any shareholders' meeting, may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a shareholders' meeting may, and on the request of any
shareholder entitled to vote thereat shall, appoint one or more inspectors.
In case any person appointed fails to appear or act, the vacancy may be filled
by appointment made by the board of directors in advance of the meeting or at
the meeting by the person presiding thereat. Inspectors, none of whom shall
be an officer, director or a candidate for the office of director, shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the validity and
effect of proxies, and shall determine and report to the meeting as to the
results of all voting (by ballot or otherwise) on all matters submitted to a
vote at the meeting. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best
of his ability.
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Section 7. Voting List of Shareholders. A list of shareholders as of
the record date, certified by the corporate officer responsible for its
preparation or by a transfer agent, shall be produced at any meeting of
shareholders upon the request thereat or prior thereto of any shareholder. If
the right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of shareholders to be
produced as evidence of the right of the persons challenged to vote at such
meeting, and all persons who appear from such list to be shareholders entitled
to vote thereat may vote at such meeting.
Section 8. Conduct of Meetings of Shareholders. Subject to the
following and any other provisions of the corporation's certificate of
incorporation or by-laws, meetings of shareholders generally shall follow
accepted rules of parliamentary procedure, as determined by the presiding
officer at such meeting.
(a) The presiding officer of the meeting shall have absolute authority
over matters of procedure, and there shall be no appeal from the ruling of the
presiding officer. If the presiding officer, in his absolute discretion,
deems it advisable to dispense with the rules of parliamentary procedure as to
any meeting or any part thereof, the presiding officer shall so state and
shall also state the rules under which the meeting or any part thereof shall
be conducted.
(b) In order to prevent disruption or disorder which could interfere
with the conduct of the business of the meeting or for any other reason deemed
necessary or advisable, the presiding officer at any meeting may, in his sole
discretion, quit the chair and announce the adjournment of the meeting; and
upon his so doing, the meeting is thereupon adjourned.
(c) Any other motion for adjournment, if otherwise properly made,
other than a motion to adjourn at the close of business of the meeting or a
motion to adjourn for the purpose of tabulating votes or proxies, shall be
disposed of by a per share vote.
(d) The presiding officer of the meeting may require that any person
not a bona fide shareholder of record or the proxy of a bona fide shareholder
of record leave the meeting.
(e) A resolution or motion shall be considered for a vote at a meeting
only if (i) proposed by a bona fide shareholder of record or a duly authorized
proxy of such a
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shareholder of record, (ii) seconded by a bona fide shareholder of record or a
duly authorized proxy of such a shareholder of record (other than the
individual proposing the resolution or motion) and (iii) such resolution or
motion is ruled in order by the presiding officer of the meeting in his sole
discretion, which order shall not be appealable.
(f) At any meeting called for the election of directors, the polls
shall be opened and closed at the times and in the manner directed by the
presiding officer of such meeting. Once the presiding officer has announced
the closing of the polls, no further voting shall be permitted.
Section 9. Notice of Proposed Shareholder Business.
(a) A proposal of business to be considered by the shareholders at an
annual meeting of shareholders ("annual meeting") may be made (i) pursuant to
the corporation's notice of meeting, (ii) by or at the direction of the board
of directors or (iii) by any shareholder of the corporation who was a
shareholder of record at the time of giving notice provided for in this
Section 9, who is entitled to vote at the meeting and who complies with the
notice procedures set forth in this Section 9.
(b) For an item of business to be properly brought before an annual
meeting by a shareholder pursuant to clause (iii) of paragraph (a) of this
Section 9, the shareholder must have given timely notice thereof in writing to
the secretary of the corporation and such item of business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice
shall be delivered to the secretary at the principal office of the corporation
not later than the close of business on the 90th day nor earlier than the
close of business on the 120th day prior to the first anniversary of the
preceding year's annual meeting. In the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the 120th day prior to such annual
meeting and not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by the corporation. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a shareholder's notice as
described above. Such shareholder's notice shall set forth (i) a brief
description of the business desired to be brought before the meeting, the
reasons for considering such business at the meeting and any
<PAGE>
material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made and (ii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose
behalf the proposal is made, (A) the name and address of such shareholder, as
they appear on the corporation's books, and of such beneficial owner, and (B)
the class and number of shares of the corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
(c) Only such business shall be conducted at an annual meeting as
shall have been brought before the meeting in accordance with the procedures
set forth in this Section 9. Except as otherwise provided by law, the
presiding officer of the meeting shall have the power and duty to determine
whether any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the notice procedures set
forth in this Section 9 and, if any proposed business is not in compliance
with this Section 9, to declare that such proposal shall be disregarded.
(d) For purposes of this Section 9, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act").
(e) Notwithstanding the foregoing provisions of this Section 9, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 9. Nothing in this Section 9 shall be deemed to
adversely affect any rights of shareholders to request inclusion of proposals
in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange
Act.
ARTICLE III
DIRECTORS
Section 1. Number, Election and Terms. The number of the directors
constituting the entire board of directors shall be not less than ten (10) nor
more than twenty (20). Subject to such limitation the number shall be fixed
by the board of
<PAGE>
directors. The directors shall be classified, with respect to the time for
which they shall severally hold office, into three classes, as nearly equal in
number as possible, as determined by the board of directors of the
corporation, one class originally elected for a term expiring at the annual
meeting of shareholders held in 1987, another class originally elected for a
term expiring at the annual meeting of shareholders held in 1988, and another
class originally elected for a term expiring at the annual meeting of
shareholders held in 1989, with each director to hold office until his or her
successor is duly elected and qualified. At each annual meeting of
shareholders of the corporation, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of shareholders held in the first, second or
third year following the year of their election.
Except as otherwise provided by law, by the certificate of
incorporation, or by the by-laws of this corporation, the directors in each
class shall be elected by ballot at the applicable annual meeting of
shareholders by a plurality of the votes of the shareholders cast in person or
by proxy at such election. In voting for the election of directors,
shareholders shall be entitled to cumulative voting. Each director shall be
elected to serve until the expiration of his or her term or until his or her
successor shall have been elected and qualified except in the event of the
death, resignation or removal or the earlier termination of the term of office
of any such director. Each director shall be at least 21 years of age. It is
not necessary for a director to be a shareholder of the corporation.
Section 2. Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the number of directors and any
vacancies on the board of directors resulting from death, resignation,
disqualification, removal or other cause shall be filled only by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors. Any director elected in
accordance with the preceding sentence shall hold office until the next
meeting of shareholders at which the election of directors is in the regular
order of business, and until such director's successor shall have been duly
elected and qualified. No decrease in the number of directors constituting
the board of directors shall shorten the term of any incumbent director.
Section 3. Removal. Any director, or the entire board of directors,
may be removed from office at any time only for cause and only by the
affirmative vote of the holders of at least eighty percent of the voting power
of all shares of the corporation entitled to vote generally in the election of
directors, voting together as a single class.
<PAGE>
Section 4. Powers and Duties of the Board of Directors. Except as
otherwise provided by law or by the certificate of incorporation, the business
of the corporation shall be managed by the board of directors, which may adopt
such rules and regulations for that purpose and for the conduct of its
meetings as it may deem proper. The board of directors may have one or more
offices and keep the books, records and minutes of the corporation, except
such records as are required to be kept in the State of New York, at such
places as it may from time to time determine. Any of such records may be in
written form or in any other form capable of being converted into written form
within a reasonable time. In addition to the powers and authority expressly
conferred upon it by these by-laws, the board of directors may exercise all
such powers of the corporation and do all such lawful acts and things as are
allowed by the certificate of incorporation or by law.
Section 5. First Meeting of the Board of Directors. The first
meeting of the board of directors to be held after an annual meeting of
shareholders for the election of directors shall be called and held for the
purposes of organization, the election or appointment of officers and the
transaction of such other business as may be stated in the notice thereof.
The first meeting shall be held at such time and place as shall be fixed in
written notice mailed to each newly elected director at his last known post
office address at least two days prior to such meeting.
Section 6. Regular Meetings. Regular meetings of the board of
directors shall be held at such time and place within or without the State of
New York as may be determined by resolution of the board, and no notice shall
be required for any regular meeting. Except as otherwise provided by law, any
business may be transacted at any regular meeting.
Section 7. Special Meetings. Special meetings of the board of
directors may, unless otherwise prescribed by law, be called from time to time
by the chairman of the board or the president. Upon the written request
directed to the chairman of the board, president or the secretary of a
majority of the directors stating the time, place and purposes of such special
meeting, the chairman of the board, president or the secretary shall call a
special meeting of the board of directors. Special meetings of the board of
directors shall be held at the place where regular meetings of the board are
held unless otherwise fixed by the board.
Section 8. Notice of Special Meetings. Notice of the time, place and
purpose of each special meeting of the board of directors, other than any
meeting the
<PAGE>
giving of notice of which is otherwise prescribed by law, shall be given to
each director at least two hours prior to such meeting. For the purpose of
this Section, notice will be deemed to be duly given to a director if given to
him orally (including by telephone) or if such notice be delivered to such
director in person or be mailed, sent by facsimile transmission, or cabled to
his address as it appears upon the books of the corporation or to the address
last made known in writing to the secretary of the corporation by such
director as the address to which such notices are to be given.
Section 9. Quorum. At each meeting of the board of directors, one-
half (1/2) of the entire board shall constitute a quorum for the transaction
of business, except as provided in Section 2 of this Article III but less than
a quorum may, without notice other than announcement at the meeting, adjourn a
meeting until a quorum shall be present. Every act of a majority of the
directors present at any meeting or adjourned session of a meeting at which
there is a quorum shall be the act of the board of directors.
Section 10. Compensation of Directors and Members of Committees. The
board of directors may from time to time, in its discretion, fix the amount
which shall be payable to members of the board of directors and to members of
any committee for attendance at the meetings of the board or of such committee
and for services rendered to the corporation. A director or member of the
committee may serve the corporation in any other capacity and receive
compensation therefor.
Section 11. Meetings by Communication Equipment. The board of
directors or any committee of the board may hold a meeting by means of
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person at the
meeting.
Section 12. Nomination of Director Candidates. Nominations for the
election of directors may be made by the board of directors or a proxy
committee appointed by the board of directors or by any shareholder entitled
to vote in the election of directors generally. However, any shareholder
entitled to vote in the election of directors generally may nominate one or
more persons for election as directors at a meeting only if written notice of
such shareholder's intent to make such nomination is given to the secretary of
the corporation not later than (i) with respect to an election to be held at
an annual meeting of shareholders, 60 days in advance of such meeting, and
(ii) with respect to an election to be held at a special meeting of
shareholders for the election of directors, the close of business on the
seventh day
<PAGE>
following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name and address of
the shareholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the shareholder is a holder
of record of common stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (d) such
other information regarding each nominee proposed by such shareholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the board of directors; and (e) the
consent of each nominee to serve as a director of the corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
Section 1. Committees. The board of directors, by resolution or
resolutions passed by a majority of the entire board, may designate from among
its members various committees, each consisting of three or more of the
directors, and each of which, to the extent provided in said resolution or
resolutions, shall have and may exercise such powers and authority as may be
specified by the board of directors, except that no such committee shall have
authority as to (1) the submission to shareholders of any action that needs
shareholders' authorization under law, (2) the filling of vacancies in the
board or in any committee, (3) the fixing of compensation of the directors for
serving on the board or on any committee, (4) the amendment or repeal of the
by-laws, or the adoption of new by-laws, or (5) the amendment or repeal of any
resolution of the board which by its terms shall not be so amendable or
repealable. The board of directors may designate one or more directors as
alternate members of any such committee. Each such committee and the members
thereof shall serve at the pleasure of the board of directors.
<PAGE>
Section 2. Standing Committees. There shall at all times be at least
three standing committees of the board of directors, namely an audit
committee, a compensation committee, and a nominating committee, each of which
shall consist of three or more directors, none of whom may be a current or
former officer or employee of the corporation. The compensation committee
shall, in addition to such other duties as the board of directors may specify,
administer the corporation's 1993 Stock Incentive Plan and be responsible for
reviewing and approving all stock option awards or other forms of stock
incentive awards, whether or not granted pursuant to that plan.
Section 3. General Rules. At each meeting of a committee, one-third
of the entire committee, but not less than two (2) members, shall constitute a
quorum for the transaction of business. Notice of the time and place of each
committee meeting shall be subject to the same notice rules as are applicable
to special meetings of the board of directors, except that no notice of the
purpose of a committee meeting need be stated. Any action required or
permitted to be taken at any meeting of a committee of the board of directors
may be taken without a meeting if all members of such committee consent to
such action in writing and such writing or writings are filed with the minutes
of proceedings of the committee. Except as otherwise provided in this Article
IV, each committee of the board of directors may adopt its own rules of
procedure, may meet at stated times or on such notice as the committee may
determine and shall keep regular minutes of its proceedings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
Section 1. Number and Designation. The officers of the corporation
will consist of a chairman of the board, a president, one or more vice
presidents, a treasurer and a secretary and such other officers as the board
of directors may elect, including, but not limited to, one or more "executive"
vice presidents, "senior" vice presidents or "group" vice presidents. Any two
offices may be held by one person, except that the chairman of the board or
president may not also be the secretary, and except that, where the by-laws or
resolutions of the board of directors provide for signatures of the incumbents
of two offices of the corporation upon certificates for shares, notes, checks
or other instruments or documents issued by the corporation, such offices must
be held by two separate persons.
<PAGE>
Section 2. Election. The board of directors shall, at their first
meeting after their election, elect a chairman of the board and a president
from their number and shall also elect one or more vice-presidents, a
secretary and a treasurer who need not be members of the board of directors,
but in the event of the failure of the board so to elect any officer, such
officer may be elected at any subsequent meeting of the board. Each officer
so elected shall hold office until the first meeting of the board of directors
following the next annual meeting of shareholders for the election of
directors and until his successor is elected, except in the event of his
death, resignation or removal or the earlier termination of his term of
office, and except that the terms of office of all vice-presidents shall
terminate with each annual election of officers at which any vice-president is
elected. Any vacancy in an office may be filled for the unexpired portion of
the term of such office by the board of directors at any regular or special
meeting. The board of directors may also elect other officers, including a
controller, who need not be members of the board of directors, and may
prescribe, and from time to time change, their respective powers and duties,
except as the powers and duties of the controller are prescribed by these by-
laws. Each officer so elected shall hold office at the pleasure of the board
of directors.
Section 3. Chairman of the Board. The chairman of the board who need
not be a member of management shall preside at all meetings of the
shareholders and of the board of directors. He shall perform such other
duties as may be required in the management of the business, or if he is not a
member of management, as may be prescribed by the board.
Section 4. The President. The president shall have the general
powers and duties of supervision and management of the corporation. In the
absence or incapacity of the chairman of the board, he shall also preside at
all meetings of the shareholders and of the board of directors.
Section 4A. The function of chief executive officer, and chief
operating officer of the corporation, shall be discharged by such officer or
officers as the board of directors may from time to time designate.
Section 5. Vice Presidents. Each vice-president, including any
executive vice presidents, senior vice presidents and/or group vice
presidents, shall have such powers and shall perform such duties as may be
assigned to him by the board, the chairman of the board or the president.
<PAGE>
Section 6. The Treasurer. The treasurer shall have the care and
custody of all the funds and securities of the corporation and shall deposit
the same in the name of the corporation in such bank or banks, trust company
or trust companies and in such safe deposit company or companies as the board
of directors may designate. He shall be responsible for the disbursement of
funds of the corporation and shall perform the duties and exercise all the
powers usually incidental to the office of the treasurer and such other duties
as from time to time may be assigned to him by the board, the chairman of the
board or the president.
Section 7. The Secretary. The secretary shall keep the minutes and
act as secretary of all meetings of the board of directors and of the
shareholders. He shall attend to the giving and serving of all notices of the
corporation. He shall be the custodian of the records and of the corporate
seal of the corporation. He shall attend to such correspondence as may be
assigned to him and perform all the duties incidental to his office. He shall
be empowered to affix the corporate seal to all documents, execution of which,
on behalf of the corporation, under its seal, is duly authorized and when so
affixed may attest the same; and, in general, he shall perform the duties and
exercise all the powers usually incidental to the office of a secretary of a
corporation, and such other duties as, from time to time, may be assigned to
him by the board, the chairman of the board or the president.
Section 8. The Controller. The controller shall maintain and
supervise proper books and records of all assets, liabilities, disbursements
and transactions of the corporation. He shall prepare such financial
statements and reports as shall be required, and shall perform such other
duties as from time to time may be assigned to him by the board, the chairman
of the board or the president.
Section 9. Appointed Officers. The chief executive officer of the
corporation may from time to time appoint one or more officers with the title
of vice president with such powers and duties as the chief executive officer
may specify. The chief executive officer may from time to time also appoint
(a) one or more assistant treasurers who may perform some or all of the duties
and powers usually incidental to the treasurer, (b) one or more assistant
secretaries who may perform some or all of the duties and powers usually
incidental to the secretary and (c) one or more assistant controllers who may
perform some or all of the duties assigned to the controller. Any of said
appointed officers may be removed at any time by the chief executive officer.
The chief executive officer or the president also may appoint one or more
officers of operating business units or divisions of the corporation, who
shall not be officers of the corporation, but shall have such powers and
duties as the chief executive officer, president or the head of the operating
business unit or division shall specify. Any appointed officers of operating
business units or divisions may be removed at any time by the chief executive
officer, the president, or the head of the business unit or division to whom
such appointed officer reports.
<PAGE>
Section 10. Stockholder Consents and Proxies. The chief executive
officer, president, treasurer and secretary of the corporation or any one of
them or their designees, shall have the power and authority on behalf of the
corporation to execute any consents or proxies, authorizing any person to
attend and act and vote in person or by proxy at any meetings of the
stockholders or members of any corporation or other entity in which the
corporation owns stock or otherwise has an ownership interest, or to attend
such meetings themselves, and at any such meetings they or their designees or
proxies, as the case may be, shall possess and may exercise any and all rights
and powers incidental to such ownership as the corporation as the owner
thereof might have possessed and executed if present.
Section 11. Delegation of Duties of Officer. The board of directors
may delegate the duties and powers of any officer, agent or employee of the
corporation to any other officer, agent or employee or director for a
specified time during the absence of any such person or for any other reason
that the board may deem sufficient.
Section 12. Removal. Any officer of the corporation elected or
appointed by the board of directors may be removed by the board with or
without cause.
Section 13. Bond. The board of directors shall have power, to the
extent permitted by law, to require any officer, agent or employee of the
corporation to give bond for the faithful discharge of his duties in such form
and with such surety or sureties as the board may deem advisable.
ARTICLE VI
CAPITAL SHARES
Section 1. Form. The certificates for shares shall be in such forms
as may be prescribed by law and as shall be approved by the board of
directors.
Section 2. Issuance. All certificates for shares shall be signed by
the chairman of the board or the president or a vice-president and the
secretary or an assistant secretary or the treasurer or an assistant treasurer
and shall have the seal of the corporation affixed thereto. Such seal may be
a facsimile, engraved or printed. Where any such certificate is countersigned
by a transfer agent or registered by a registrar, other than the corporation
itself or its employee, the signatures of any such officers or assistant
officers upon such certificate may be facsimiles, engraved or printed.
<PAGE>
Section 3. Transfer. The board of directors shall have the power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, registration and transfer of certificates for shares,
and may appoint transfer agents or clerks and registrars thereof.
Section 4. Fixing of Record Date. The board of directors may at any
time fix a record date not more than fifty nor less than ten days prior to (a)
the date of any meeting of shareholders or (b) the last day on which the
shareholders are entitled to express consent or dissent from any proposal
without a meeting, as the date as of which shareholders entitled to notice of
or to vote at such a meeting, or whose consent or dissent is required or may
be expressed, for any purpose, as the case may be, shall be determined, and,
except as otherwise provided by law, all persons who were the holders of
record of voting shares at such date and no others shall be entitled to notice
of and to vote at such meeting or to express their consent or dissent, as the
case may be. The board of directors may at any time fix a record date not
exceeding fifty days prior to the date fixed for the payment of any dividend
or the making of any distribution or for the delivery or allotment of
evidences of rights or evidences of interest arising out of any change,
conversion, or exchange of capital shares, as the date for the determination
of the shareholders entitled to receive any such dividend, distribution,
rights or interest, and in any such case only shareholders of record at the
date so fixed shall be entitled to receive such dividend, distribution, rights
or interest.
ARTICLE VII
NEGOTIABLE INSTRUMENTS, CONTRACTS, ETC.
Section 1. Signatures on Checks, etc. All checks, drafts, bills of
exchange, notes or other obligations or orders for the payment of money shall
be signed in the name of the corporation by such officer or officers, person
or persons, as the board of directors may from time to time designate by
resolution.
<PAGE>
Section 2. Execution of Contracts, Deeds, etc. The board of
directors or any committee given specific authority in the premises, or given
authority to exercise generally the powers of the board during the interval
between meetings of the board to the extent permitted by law, may authorize
any officer or officers, agent or agents, in the name of and on behalf of the
corporation, to enter into or execute and deliver any and all deeds, bonds,
mortgages, contracts and other obligations or instruments and to vote on
behalf of the corporation shares of stock of other domestic or foreign
corporations standing in the name of the corporation, and such authority may
be general or confined to specific instances.
ARTICLE VIII
CORPORATE SEAL
Section 1. Description. The seal of the corporation shall be
circular in form with the name of the corporation in the circumference and the
words and figures "Corporate Seal--1916--N.Y. " in the center.
ARTICLE IX
FISCAL YEAR
Section 1. Definition. The fiscal year of this corporation shall be
from the first day of January to the thirty-first day of December, inclusive,
in each year or such other twelve consecutive months as the board of directors
may by resolution designate.
ARTICLE X
WAIVER OF NOTICE
Section 1. Meetings Held on Waiver. Whenever any notice is required
to be given under the provisions of these by-laws, or of the certificate of
incorporation, or of any of the laws of the State of New York, a waiver
thereof, in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. The attendance of any shareholder at a
<PAGE>
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
ARTICLE XI
AMENDMENTS
Section 1. By the Shareholders. Except as otherwise provided by law,
these by-laws may be amended or repealed or new by-laws may be adopted at any
meeting of the shareholders of the corporation by the affirmative vote of
shareholders holding of record a majority of the issued and outstanding shares
entitled to vote, represented either in person or by proxy, provided notice of
the proposed amendment be contained in the notice or waiver of notice of such
meeting.
Section 2. By the Board of Directors. Except as otherwise provided
by law, these by-laws may be amended at any meeting of the board of directors
of the corporation at which a quorum is present by the affirmative vote of a
majority of the directors present at such meeting, provided notice of the
proposed amendment is contained in the notice or waiver of notice of such
meeting, provided, however, that the board of directors shall have no power to
amend or repeal the by-laws, or adopt any new by-laws, with respect to
cumulative voting.
Section 3. All By-Law Amendments. Notwithstanding anything contained
in these by-laws to the contrary, the affirmative vote of the holders of at
least eighty percent of the voting power of all shares of the corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend or repeal Sections 1, 2, 3 or
12 of Article III, or this Section 3 of this Article XI.
ARTICLE XII
INDEMNIFICATION
Section 1. Indemnification - Third Party and Derivative Actions.
(a) The corporation shall indemnify any person made, or threatened to
be made, a party to an action or proceeding, whether civil or criminal (other
than one by
<PAGE>
or in the right of the corporation to procure a judgment in its favor),
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise, which any director, officer or employee of
the corporation served in any capacity at the request of the corporation, by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, including excise taxes, amounts paid in settlement and
expenses, including attorneys' fees, incurred in connection with any such
action or proceeding, or any appeal therein, provided that no indemnification
may be made to or on behalf of such person if a judgment or other final
adjudication adverse to such person establishes that (i) his acts were
committed in bad faith or were the result of his active or deliberate
dishonesty and were material to such action or proceeding or (ii) he
personally gained in fact a financial profit or other advantage to which he
was not legally entitled.
(b) The corporation shall indemnify any person made, or threatened to
be made, a party to an action by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of any other corporation of any type or
kind, domestic or foreign, or of any partnership, joint venture, trust,
employee benefit plan or other enterprise, against amounts paid in settlement
and expenses, including attorneys' fees, incurred in connection with such
action, or any appeal therein, provided that no indemnification may be made to
or on behalf of such person if (i) his acts were committed in bad faith or
were the result of his active and deliberate dishonesty and were material to
such action or (ii) he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
(c) The termination of any civil or criminal action or proceeding by
judgment, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not in itself create a presumption that any such person has
not met the standard of conduct set forth in this Section 1.
Section 2. Payment of Indemnification; Repayment.
(a) A person who has been successful, on the merits or otherwise, in
the defense of a civil or criminal action or proceeding of the character
described in Section 1 of this Article shall be entitled to indemnification as
authorized in such Section.
<PAGE>
(b) Any indemnification under Section 1 of this Article, unless
ordered by a court, shall be made by the corporation in such manner as
provided by law.
(c) Expenses incurred by a person referred to in Section 1 of this
Article in defending a civil or criminal action or proceeding shall be paid by
the corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount in case he is ultimately found, in accordance with this
Article, not to be entitled to indemnification or, where indemnity is granted,
to the extent the expenses so paid exceed the indemnification to which he is
entitled.
(d) Any indemnification of a person under Section 1 of this Article,
or advancement of expenses under Section 2(c) of this Article, shall be made
promptly, and in any event within 60 days, upon the written request of such
person.
Section 3. Enforcement; Defenses. The right to indemnification or
advancement of expenses granted by this Article shall be enforceable by the
person in question in any court of competent jurisdiction if the corporation
denies such request, in whole or in part, or if no disposition thereof is made
within 60 days. Such person's expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part,
in any such action shall also be indemnified by the corporation. It shall be
a defense to any such action (other than an action brought to enforce a claim
for the advancement of expenses under Section 2(c) of this Article where the
required undertaking has been received by the corporation) that the claimant
has not met the standard of conduct set forth in Section 1 of this Article,
but the burden of proving such defense shall be on the corporation. Neither
the failure of the corporation to have made a determination that
indemnification of the claimant is proper, nor the fact that there has been an
actual determination by the corporation that indemnification of the claimant
is not proper, shall be a defense to the action or create a presumption that
the claimant is not entitled to indemnification.
Section 4. Survival; Savings Clause; Preservation of Other Rights.
(a) The foregoing indemnification provisions shall be deemed to be a
contract between the corporation and each person who serves in such capacity
at any time while these provisions as well as the relevant provisions of the
New York Business Corporation Law are in effect and any repeal or modification
thereof shall not affect any right or obligation then existing with respect to
any state of facts then
<PAGE>
or previously existing or any action or proceeding previously or thereafter
brought or threatened based in whole or in part upon any such state of facts.
Such a contract right may not be modified retroactively without the consent of
such person.
(b) If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each such person against judgments, fines, amounts paid
in settlement and expenses, including attorneys' fees, incurred in connection
with any actual or threatened action by or in the right of the corporation, or
any appeal therein, to the full extent permitted by any applicable portion of
this Article that shall not have been invalidated and to the full extent
permitted by applicable law.
(c) The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of shareholders or directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer or employee of the corporation and shall inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation is hereby authorized to provide further indemnification if it
deems it advisable by resolution of shareholders or directors, by amendment of
these by-laws or by agreement.
* * *
For purposes of these by-laws, the masculine pronoun means the feminine and
the singular means the plural whenever appropriate.
EXHIBIT 10.13
<PAGE>
STANLEY C. GAULT
STOCK OPTION AGREEMENT
1. Grant of Option. Pursuant to the provisions of its 1993 Stock
Incentive Plan (the "Plan"), Avon Products, Inc. (the "Company") as of
November 4, 1999 has granted to Stanley C. Gault (the "Optionee") non-
qualified options to purchase from the Company a total of 200,000
shares of Common Stock of the Company at the exercise price of $29.625
per share (the "Option"). This Option is subject to the terms and
conditions of the Plan and those set forth in this Agreement. All
capitalized terms used herein shall have the meaning set forth in the
Plan, unless the context requires a different meaning.
2. Exercise of Option
(a) This Option shall be exercisable in three installments. The
first installment shall be exercisable on the first anniversary of the
Date of Grant for 33.3% of the number of shares of Common Stock subject
to this option. Thereafter, on each subsequent anniversary of the
Grant Date, an installment shall become exercisable for 33.3% and
33.4%, respectively, of the number of shares subject to this Option
with the entire option fully exercisable after the third anniversary of
the Date of Grant. To the extent that any of the above installments is
not exercised when it becomes exercisable, it shall not expire, but
shall continue to be exercisable at any time thereafter until this
Option shall terminate, expire or be surrendered. An exercise shall be
for whole shares only.
(b) In accordance with the Plan this entire Option shall be
immediately cashed out effective as of the date of any "Change in
Control", regardless of whether or not any portion is otherwise
exercisable. For this purpose, the "Change in Control Price" shall be
the higher of (i) the highest price paid for a share of Stock as
reported on the New York Stock Exchange Composite Tape during the 12
month period ending with the effective date of Change in Control or
(ii) the highest cash tender offer price for a share of Stock during
such period. In the event that a tender offer for Stock consists of a
combination of cash and securities, the Change in Control Price
calculated under (ii) would be based solely on the cash price
equivalent of such offer.
<PAGE>
(c) Shares may be purchased by giving the Company's Corporate
Secretary or Assistant Secretary written notice of exercise, specifying
the number of shares to be purchased. The notice of exercise shall
designate one of the following methods of purchase:
(i) tender to the Company of a check for the full exercise
price of the shares with respect to which such Option or portion
thereof is exercised, or
(ii) instructions to the Company to deliver all the shares being
exercised to a broker-dealer with whom an arrangement has been
made to deliver the full exercise price to the Company. The
Company may establish special terms and conditions for this
"cashless" exercise, and at any time may terminate availability
of this form of purchase.
3. Expiration of Option. The Option shall expire or terminate
and may not be exercised to any extent by the Optionee as of the first
to occur of the following events:
(a) The tenth anniversary of the Date of Grant; or
(b) The second anniversary of the date of the Optionee's
death; or
(c) the date that is ninety days after the optionee resigns as
Chairman of the Board if prior to May 4, 2000 and if such
resignation is without the consent of the Board of
Directors.
In the event of Termination of Employment because of death,
the entire Option shall immediately become exercisable as to all
shares, notwithstanding Section 2(a) of this Agreement.
<PAGE>
4. Tax Withholding. No distribution of shares may be made to
the Optionee until the Company has received all amounts required for
federal, state or local tax withholding. The method of discharging
such withholding obligation shall be elected with the notice of
exercise and may include (i) payment by check, or (ii) use of a
'cashless exercise' using a broker-dealer in a manner similar to that
described in Section 2(c)(ii) hereof. The method of withholding shall
be subject to such rules as the Company may adopt from time to time.
It is recognized by both parties that, based on current laws, the
difference between the Fair Market Value of the shares purchased by an
option exercise and the exercise price of such shares generally will
constitute ordinary taxable income for federal income tax purposes and
for most state and local income tax purposes.
5. Notice. Any notices required to be given hereunder to the
Company shall be addressed to the Secretary or Assistant Secretary of
the Company at the Company's headquarters offices in New York City, New
York. Any notice required to be given hereunder to the Optionee shall
be addressed to the Optionee at his current address shown on the
Company's records. Notice shall be sent by mail, express delivery or,
if practical, by hand delivery.
6. Other Provisions. The provisions set forth in Section 5 of
the Plan are specifically incorporated by reference in this Agreement,
including but not limited to those pertaining to the following matters:
a. Changes in Capitalization; Merger; Liquidation
b. Non-alienation of Benefits
c. Choice of Law
AVON PRODUCTS, INC.
_____________________________
Andrea Jung,
President and Chief Executive Officer
EXHIBIT 13
<PAGE>
<PAGE>29
Management's Discussion and Analysis
Avon Products, Inc.
Dollars in millions, except share data
The following discussion of the results of operations and financial
condition of Avon Products, Inc. ("Avon" or "Company") should be read in
conjunction with the information contained in the Consolidated Financial
Statements and Notes thereto. These statements have been prepared in
conformity with generally accepted accounting principles which require
management to make estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes.
Actual results could differ from these estimates.
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 within the meaning
of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, the information set forth herein.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual
results, levels of activity, performance or achievement of the
Company, or industry results, to be materially different from any
future results, levels of activity, performance or achievement
expressed or implied by such forward-looking statements. Such
factors include, among others, the following: General economic
and business conditions; the ability of the Company to implement
its business strategy; the Company's access to financing and its
management of foreign currency risks; the Company's ability to
successfully identify new business opportunities; the Company's
ability to attract and retain key executives; the Company's
ability to achieve anticipated cost savings and profitability
targets; the impact of substantial currency exchange devaluations
in the Company's principal foreign markets; changes in the
industry; competition; the effect of regulatory and legal
restrictions imposed by foreign governments; the effect of
regulatory and legal proceedings and other factors discussed in
Item 1 of the Company's Form 10-K. As a result of the foregoing
and other factors, no assurance can be given as to the future
results and achievements of the Company. Neither the Company nor
any other person assumes responsibility for the accuracy and
completeness of these statements.
Results of Operations
Consolidated - Net income in 1999 was $302.4 compared with $270.0 in
1998. Basic and diluted earnings per share in 1999 were $1.18 and $1.17,
respectively, compared with $1.03 and $1.02, respectively, in 1998.
Special and non-recurring charges were recorded in the first quarter of
1999 for the Company's business process redesign ("BPR") program. These
charges totaled $151.2 pretax, which reduced net income by $121.9 after
tax, or $.47 per share on a basic and diluted basis. The 1998 results
include special and non-recurring charges totaling $154.4 pretax, which
reduced net income by $122.8 after tax, or $.46 per share on a basic and
diluted basis. See Note 13 of the Notes to Consolidated Financial
Statements for further discussion of this program. Before the charges,
net income for the year ended December 31, 1999 of $424.3 increased 8%
over 1998. Earnings per share before the charges of $1.65 and $1.64 on
a basic and diluted basis, respectively, both increased 11% over the
comparable period in 1998. Net income for 1997 was $338.8 and basic
and diluted earnings per share were $1.28 and $1.27, respectively. The
1997 results include the favorable settlement of a value-added tax claim
in the United Kingdom equal to approximately $26.5 on a pretax basis.
The $26.5 gain represents a $20.6 settlement of disputed value-added tax
charges from prior years, which is included in other expense (income),
net and $5.9 of interest which is included in interest income. The net
effect of this gain was to increase 1997 net income by $16.7 and both
basic and diluted earnings per share by $.06.
Excluding the charges, operating profit in 1999 was $700.6, or 12%
over 1998, due to higher sales, an improved gross margin and a slight
improvement in the operating expense ratio. The increase in operating
profit was partially offset by higher net interest expense and
unfavorable foreign exchange in 1999. As a result, pretax income before
the charges rose $47.5, or 8%, over 1998. Net income was favorably
impacted by a lower effective tax rate in 1999, partially offset by
lower minority interest income due mainly to the improved results in
Japan and China.
On a consolidated basis, Avon's net sales of $5.29 billion
increased 1% from $5.21 billion in 1998. International sales increased
2% to $3.21 billion due to strong growth in the Pacific region, most
significantly in Japan, the Philippines, Taiwan and
<PAGE>30
Australia, and in
Europe due to continued improvements in Poland and the United Kingdom,
partially offset by declines in Russia, Germany and France. U.S. dollar
sales decreased in Latin America primarily as a result of the Brazilian
real devaluation in early 1999 and declines in Argentina and Chile,
partially offset by growth in Mexico, Venezuela and Central America.
Sales in North America increased 1% to $2.08 billion in 1999. Excluding
the impact of foreign exchange, consolidated net sales rose 9% over the
prior year. In 1998, consolidated net sales of $5.21 billion increased
3% from $5.08 billion in 1997. Sales in North America increased 5% to
$2.06 billion primarily due to a 5% increase in the U.S. attributable
mainly to a higher average order size. International sales increased 1%
to $3.15 billion from $3.11 billion due to strong growth in Latin
America, most significantly in Brazil, Mexico, Argentina and Venezuela,
as well as in Europe reflecting improvements in the United Kingdom and
Poland. These increases were partially offset by sales declines in the
Pacific, most significantly in Japan, China and the Philippines.
Excluding the impact of foreign exchange, consolidated net sales rose 9%
over 1997.
Cost of sales as a percentage of sales was 38.4% in 1999, compared
with 39.4% in 1998. The 1999 and 1998 cost of sales include $46.0 and
$37.9, respectively, of non-recurring charges for inventory write-downs
related to the Company's BPR program. The charges relate to the closure
of facilities, discontinuation of certain product lines, size-of-line
reductions and a change in strategy for product dispositions. See Note
13 of the Notes to Consolidated Financial Statements for further
discussion of these charges. Excluding the charges, cost of sales as a
percentage of sales was 37.5% in 1999 versus 38.7% in 1998. This
favorable variance was due to improvements in all regions, most
significantly in Europe, including the United Kingdom, Germany, Italy
and Central Europe, due to a continuing focus on pricing strategies and
improved profitability of beauty plus categories, including fashion
jewelry and accessories. Japan, Mexico and the U.S. also posted strong
gross margin improvements. These improvements were partially offset by
a decline in Brazil resulting from higher costs in the second half of
the year as a result of the devaluation, and in Russia due to a pricing
discount policy begun in the fourth quarter of 1998. Excluding the
charge, the 1998 cost of sales as a percentage of sales was 1.7 points
favorable over 1997. This improvement was primarily due to a higher
margin in Brazil, reflecting actions taken in 1997 to reduce inventory
levels combined with cost reduction programs in 1998. Additionally, the
gross margin in Venezuela improved as a result of pricing strategies and
business redesign efforts. Japan's gross margin improved as a result of
cost reduction initiatives, and the U.S. improved its margin through
pricing strategies, cost improvements and reduced clearance activity in
the non-cosmetics, fragrance and toiletries category.
Marketing, distribution and administrative expenses of $2.60
billion increased $33.0, or 1%, over prior year, but decreased slightly
as a percentage of sales to 49.2% from 49.3% in 1998. Expense ratio
improvements were reported in Brazil reflecting strict expense
management and BPR initiatives, in Japan reflecting BPR efforts, and in
Central Europe reflecting volume efficiencies and a significant
reduction in expenses. These improvements were partially offset by
higher expense ratios in Mexico due to increased advertising and
incentive programs in 1999, in Germany due to strategic marketing
investments, in Venezuela due to increased incentive programs and in the
United Kingdom due to higher shipping expenses, most significantly in
the fourth quarter. In 1998, marketing, distribution and administrative
expenses of $2.57 billion increased $79.4, or 3%, from 1997 and
increased as a percentage of sales to 49.3% from 49.0% in 1997. The
overall increase in the expense ratio was due to higher expense ratios
in Mexico due to increased marketing and promotional expenses associated
with new product launches, in Venezuela due to increased administrative
expenses as a result of the implementation of a new labor law, in
Argentina due to increased marketing expenses and in China reflecting
the shutdown of sales operations for most of the second quarter of 1998.
Special charges of $105.2 and $116.5 were recorded in 1999 and
1998, respectively, for the Company's BPR program. The 1999 charges are
primarily related to employee severance benefits worldwide and the
restructuring of operations in Western Europe. The 1998 charges mainly
related to employee severance benefits and facility rationalizations in
Puerto Rico, the Dominican Republic, Hong Kong and China as well as
asset write-downs associated with the divestiture of the Discovery Toys
business unit. See Note 13 of the Notes to Consolidated Financial
Statements for further discussion of these charges.
<PAGE> 31
Interest expense in 1999 of $43.2 increased $8.5 over the prior
year primarily due to increased domestic borrowings associated with the
acceleration of the Company's share repurchase program discussed in
Notes 4 and 9 of the Notes to Consolidated Financial Statements.
Interest expense in 1998 of $34.7 was $.8 favorable to 1997 due to lower
cost of borrowings.
Interest income in 1999 of $11.1 decreased $4.8 mainly due to a
Mexico tax refund claim recognized in June 1998. Interest income in
1998 of $15.9 decreased $.8 compared to 1997 primarily due to the
interest portion of the 1997 favorable value-added tax settlement in the
United Kingdom, partially offset by the 1998 Mexico tax refund claim, as
well as higher interest rates and increased average short-term
investments in Brazil in 1998.
In 1999, other expense (income), net was $12.2 unfavorable to the
prior year due primarily to unfavorable net foreign exchange in 1999
resulting from exchange losses, primarily in Europe and Latin America.
In 1998, other expense (income), net was $14.4 unfavorable to 1997.
Excluding the 1997 value-added tax settlement in the United Kingdom,
other expense (income), net was $6.2 favorable primarily due to
favorable foreign exchange.
Income taxes were $204.2 in 1999 and the effective tax rate was
40.3% compared with $190.8 in 1998 and an effective tax rate of 41.9%.
Excluding the effect of the special and non-recurring charges, the
effective tax rate was 35.5% in 1999 compared with 36.4% in 1998 due to
the earnings mix and tax rates of international subsidiaries. Income
taxes in 1997 were $197.9 and the effective tax rate was 37.0%. The
36.4% effective tax rate was lower in 1998 versus 1997 due to the mix of
earnings and income tax rates of the international subsidiaries.
Inflation in the United States has remained at a relatively low
level during the last three years and has not had a major effect on
Avon's results of operations. Many countries in which Avon has
operations have experienced higher rates of inflation than the United
States. Venezuela and Russia experienced high cumulative rates of
inflation over the past three years. Mexico was converted to non-
hyperinflationary status beginning January 1, 1999 due to reduced
cumulative inflation rates during the three-year period 1996 through
1998.
Below is an analysis of the key factors affecting net sales and operating
profit by reportable segment for each of the years in the three-year period
ended December 31, 1999.
Years ended December 31 1999 1998 1997
Net Operating Net Operating Net Operating
Sales Profit Sales Profit Sales Profit
North America:
U.S. $1,809.3 $ 329.3 $1,774.0 $ 302.8 $1,696.7 $ 261.8
Other 274.0 44.7 287.6 40.2 275.4 35.1
Total 2,083.3 374.0 2,061.6 343.0 1,972.1 296.9
International:
Latin America 1,607.7 353.6 1,665.1 344.4 1,513.3 280.0
Europe 878.0 126.2 862.7 102.2 811.6 85.4
Pacific 720.1 102.1 623.3 62.5 782.4 67.0
Total 3,205.8 581.9 3,151.1 509.1 3,107.3 432.4
Total from operations $5,289.1 955.9 $5,212.7 852.1 $5,079.4 729.3
Global expenses (255.3) (224.5) (191.5)
Special and non-recurring
charges (151.2) (154.4) -
Operating profit $ 549.4 $ 473.2 $ 537.8
Canada, Dominican Republic and Puerto Rico are included in North America -
Other.
<PAGE> 32
1999 Compared to 1998
North America - Sales in North America increased 1% to $2.08 billion,
and operating profit increased 9% to $374.0 in 1999. The U.S. business,
which represents almost 90% of the North American segment, reported
sales and operating profit growth of 2% and 9%, respectively. The sales
increase in the U.S. resulted primarily from an increase in the average
order size. Growth in fashion jewelry and accessories and non-core
categories was partially offset by sales decreases in cosmetics,
fragrances and toiletries ("CFT") and apparel. Sales of fashion jewelry
and accessories rose significantly over the prior year reflecting the
success of sterling silver and bolder jewelry designs, the introduction
of licensed luggage and a strong performance in watches and handbags.
Additionally, sales of accessories increased significantly due to the
success of the Pokemon watch in the fourth quarter. The non-core
category, consisting primarily of home entertainment and gift and
decorative items, posted strong growth due to increased sales of
inspirational and religious products. Fourth quarter sales of
Millennium products also contributed to the overall increase of non-core
items. These improvements were partially offset by declines in the CFT
and apparel categories. The decrease in CFT sales resulted primarily
from lower fragrance sales in 1999 due to the underperformance of
women's new products as well as fewer offers on existing products.
Apparel sales decreased due to underperformance of new product
introductions and demonstration products as well as a shift in focus
from sales growth to increased profitability. A 1.1 point operating
margin improvement in the U.S. included favorable gross margin and
operating expense ratios. The gross margin improvement resulted from
supply chain cost improvements and product category management,
partially offset by price reductions in CFT during the fourth quarter to
drive sales. The favorable expense ratio reflects lower spending in
1999 on advertising, lower variable compensation and the elimination of
the Sponsorship program, partially offset by increased spending on
strategic initiatives such as the Internet and express and beauty
centers.
International - International sales increased 2% to $3.21 billion and
operating profit increased 14% to $581.9 from $509.1 in 1998. The sales
growth resulted from strong double-digit growth in the Pacific region,
most significantly in Japan, the Philippines, Taiwan and Australia, as
well as growth in Europe reflecting improvements in Poland and the
United Kingdom, and in Mexico, Venezuela and Central America. These
results were significantly offset by sales declines in Brazil, and, to a
lesser extent, in Russia, Argentina and Germany. Excluding the impact
of foreign currency exchange, international sales rose 14% and operating
profit increased 27% over 1998.
In Latin America, sales declined 3% to $1.61 billion while
operating profit increased 3% to $353.6 in 1999. Excluding the impact
of foreign currency exchange, sales increased 16%, a 19 point
differential due primarily to the Brazilian real devaluation which began
in early 1999, discussed below. Brazil, however, had double-digit
increases in local currency sales, units and number of customers served.
Sales decreased in Argentina and Chile as a result of weak economic
conditions. The Argentine economy has been in a prolonged recession
with high unemployment and low consumer spending. Despite the sales
decline, Avon continued to gain market share in Argentina in 1999.
These sales declines were partially offset by strong growth in Mexico,
and, to a lesser extent, in Venezuela and Central America. Mexico's
sales increase resulted from both operational factors including new
product launches in the cosmetics, home and fashion lines as well as
economic growth reflecting consumer price increases in 1999. Sales grew
in Venezuela due mainly to price increases as well as double-digit
increases in number of orders and active Representatives, and in Central
America due to strong increases in units, customers served and active
Representatives. The improvement in the region's operating profit was
primarily due to favorable results in Mexico attributable to the sales
increase and an improved gross margin, partially offset by increased
advertising expense and incentive programs in 1999. The gross margin
improvement in Mexico resulted from a shift in the sales mix from fewer
sales of toiletries to more sales of higher-margin cosmetics and
fragrances. However, in the third quarter of 1999, Avon's retail
competitors in the toiletries and non-CFT categories significantly
discounted their prices which led to unit declines. Management in
Mexico adjusted prices in the fourth quarter of 1999 and planned
incentive programs to aggressively recruit Representatives to mitigate
the impact of competitors' deep discounting. Active Representatives in
Mexico grew 11% in 1999. Venezuela
<PAGE> 33
contributed to the region's growth in
operating profit through a gross margin improvement driven by price
increases as well as BPR initiatives, particularly in the home segment.
As discussed, these improvements were partially offset by sales and a
gross margin decline in Brazil and weak economic conditions in Argentina
and Chile. Brazil's gross margin decline, particularly during the
fourth quarter of 1999, resulted from increased costs due to the impact
of the devaluation. However, Brazil made tremendous improvements in the
operating expense ratio attributable to reduced bad debt expense, sales
returns and transportation costs. Excluding the impact of foreign
currency exchange, operating profit in Latin America increased 22% over
1998.
The Brazilian real devalued significantly in January 1999 and, as a
result, negatively affected Brazil's U.S. dollar results in 1999. The
effect of exchange rates was reduced by foreign exchange contracts
previously in place and several actions taken by local management to
offset the devaluation, including a focused effort directed at vendor
negotiations and additional local sourcing to reduce imports. To grow
sales in 2000, management plans to increase advertising, sampling and
motivation to support new products, add more pages to the brochure and
focus on key categories including fragrance, color, skincare and
haircare. Brazil's 1999 sales, although up over 20% in local currency,
were down approximately 20% in U.S. dollars due to the devaluation.
In the Europe region, sales increased 2% to $878.0 and operating
profit increased 24% to $126.2 in 1999. Sales growth in Central Europe,
primarily Poland, and the United Kingdom was partially offset by
declines in Russia, Germany and France. Continued double-digit
increases in units, customers served and active Representatives
contributed to Central Europe's sales increase. 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 the prior year. Growth in the United
Kingdom resulted from a higher average order size, increased
distributorship sales and the successful launch of a new brochure in
1999 to enhance Avon's image. Sales were lower in Russia due to the
economic crisis and ruble devaluation, which occurred in August 1998,
and in Germany due to a weak economy. Local currency sales in Russia
increased almost 30% over 1998, with a strong increase in active
Representatives. Excluding the impact of foreign currency exchange,
sales in Europe increased 13% over prior year. The increase in Europe's
operating profit resulted from operating margin improvements in Central
Europe, mainly Poland, the United Kingdom and Italy due to higher gross
margins which resulted from a continuing focus on pricing strategies and
improved profitability of non-CFT categories. These operating profit
increases were partially offset by continued declines in Russia due to
the ruble devaluation. Management in Russia will continue to focus on
market share growth and improved margins through pricing flexibility and
tight expense management. Excluding the impact of foreign currency
exchange, operating profit increased 31% over 1998.
In the Pacific region, sales increased 16% to $720.1 and operating
profit increased 63% to $102.1 in 1999. Excluding the impact of foreign
currency exchange, sales increased 8% over 1998. The sales improvement
resulted from growth in every market, most significantly in Japan due to
a favorable currency impact in 1999, and in the Philippines, Taiwan and
Australia due to strong increases in units and customers served.
Despite the earthquake in Taiwan in September 1999, sales were up
double-digits over prior year due to aggressive marketing and sales
programs, incentive offers and increased spending on advertising. The
increase in the region's operating profit resulted primarily from the
above sales increases and operating margin improvements 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 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 operating margin also improved significantly in
1999 reflecting the suspension of operations for most of the second
quarter of 1998, discussed below. Excluding the impact of foreign
currency exchange, operating profit increased 53% over 1998.
1998 Compared to 1997
North America - North American sales increased 5% to $2.06 billion and
operating profit increased 16% to $343.0 in 1998. The U.S. business
reported sales and operating profit growth of 5% and 16%, respectively.
Sales growth in the U.S. reflected a 4%
<PAGE> 34
increase in the average order
size coupled with a 1% increase in the number of Representative orders.
The sales improvement resulted from increases in fashion jewelry and
accessories as well as in the CFT and home entertainment categories. These
improvements were partially offset by a decline in the gift and
decorative category. Sales of fashion jewelry and accessories rose
significantly over 1997, primarily in the accessories segment, with the
success of such products as organizer handbags, the Home Run Hero watch
introduced in the fourth quarter and increased sales of licensed
products, including Winnie the Pooh carryalls and sports watches.
Growth in the CFT category was driven by successful launches of Rare
Rubies, Anew Retinol Hand Complex and the Diane Von Furstenberg
fragrance, Forest Lily. In addition, the success of Avon's transfer
resistant technology lipstick and Avon Color's Spring Shade Collection
combined with continued growth of the Avon Techniques hair care and
Skin-So-Soft lines contributed to the growth in CFT. Higher sales in
the home entertainment category were driven by the launch of a
collection of inspirational and religious products, as well as an
increase in the sales of demonstration products purchased by
Representatives. These increases were partially offset by a decline in
the gift and decorative category resulting from the phasing out of the
Avon Home line and lower sales of Barbie and holiday products in 1998.
The improvement in U.S. operating profit was mainly a result of the
above sales increase combined with a favorable gross margin driven by
cost improvements, revised pricing strategies and reduced clearance
activity.
International - In 1998, International sales increased 1% to $3.15
billion and operating profit increased 18% to $509.1 from $432.4 in
1997. The sales growth resulted from strong growth in Latin America,
particularly in Brazil, Mexico, Argentina and Venezuela, as well as in
Europe reflecting improvements in the United Kingdom and Poland. These
results were significantly offset by sales declines in the Pacific, most
significantly in Japan, China and the Philippines. Excluding the impact
of foreign currency exchange, international sales rose 11% and operating
profit increased 31% over 1997.
In Latin America, 1998 sales increased 10% to $1.67 billion and
operating profit increased 23%, or $64.4, to $344.4 in 1998. The sales
improvement resulted from strong growth in Brazil and, to a lesser
extent, Mexico, Argentina and Venezuela. Brazil's growth in sales was
driven by attractive pricing and successful new product launches, which
resulted in strong double-digit increases in units and orders in 1998.
Additionally, the number of active Representatives rose 31% from 1997.
Mexico's sales increase was driven by successful new product launches
including Anew Night Force, Yessamin fragrance and Women of Earth, as
well as increases in the apparel and home line extensions which offered
superior design and promotions in 1998. Argentina and Venezuela
reported strong increases in units, orders and customers served.
Excluding the impact of foreign currency exchange, sales in Latin
America rose 19% over 1997. The increase in the region's operating
profit was primarily due to favorable results in Brazil attributable to
the strong sales increase and an improved gross margin and operating
expense ratio. Brazil's gross margin improvement resulted from actions
taken in 1997 to reduce inventory levels as well as better vendor
negotiations and continued cost reduction programs in 1998. The
favorable operating expense ratio was driven by the strong sales
increase. Operating profit improvements in Mexico due to the sales
increase, and in Venezuela due to pricing strategies and business
redesign efforts, contributed to the region's growth in operating
profit. Excluding the impact of foreign currency exchange, operating
profit in Latin America increased 34% over 1997.
In the Europe Region, 1998 sales increased 6% to $862.7 and
operating profit increased $16.8, or 20%, to $102.2 in 1998. The sales
increase was primarily due to growth in the United Kingdom resulting
from a higher average order size in 1998. The United Kingdom continues
to focus on developing the core business through Representatives, growth
in orders and customers as well as brand awareness and image
enhancement. In addition, Poland's sales increased significantly from
1997 as a result of dramatic growth in active Representatives and all
business fundamentals including units, orders and customers served.
These improvements were partially offset by sales shortfalls in Russia
attributable to the devaluation of the ruble in August 1998.
Average orders declined significantly in Russia due to low consumer
purchasing power. In response to this situation, several actions were
taken by local management including pricing flexibility to maintain and
build market share and reduce credit sales, as well as a tightening of
expense controls. Geographic expansion into new cities was deferred.
The devaluation negatively affected Russia's U.S. dollar results in
1998.
<PAGE> 35
Excluding the impact of foreign currency exchange, sales in
Europe and Russia increased 10% and 26%, respectively, from
1997. The increase in the region's operating profit was due to the
overall sales increase combined with an improved operating margin in the
United Kingdom. A shift in sales mix to higher-margin items contributed
to a gross margin improvement, and continued active expense management
led to a favorable operating expense ratio in the United Kingdom. These
increases were partially offset by operating profit declines in Russia
mainly due to the devaluation of the ruble discussed above. Excluding
the impact of foreign currency exchange, operating profit in Europe
increased 27% over 1997.
In the Pacific Region, 1998 sales decreased 20% to $623.3 and
operating profit decreased 7% to $62.5 from $67.0 in 1997. The decline
in sales resulted from decreases in every major market, most
significantly in Japan, China and the Philippines. The Asian currency
and economic crisis which began in mid-1997 continued throughout 1998
and negatively impacted results in the Pacific. The general economic
environment was poor with low consumer confidence and reduced spending.
Excluding the impact of foreign currency exchange, sales decreased 3%, a
17 point differential from U.S. dollar reported results. In addition,
selling activities in China were suspended for most of the second
quarter of 1998 due to governmental restrictions on direct-selling
companies. As of the beginning of June, the Company received Chinese
governmental approval to resume operations as a wholesale and retail
business and became operational again in mid-June. The Company
converted its branches into retail outlets to serve customers and
received approval to utilize sales promoters, much like Representatives,
to promote product sales in China. Despite the above difficulties, most
markets showed growth in active Representatives and number of customers
served resulting from a strong focus on active recruitment to expand the
Representative base throughout the region. The Philippines posted
double-digit increases in orders, customers served and active
Representatives. Local currency sales in the Philippines increased 10%
over the prior year. The decrease in the region's operating profit
resulted primarily from sales declines discussed above. Despite the
sales decline, Japan's operating profit increased significantly over
1997 as a result of improvements in gross margin and operating expense
ratios. Japan's margin improvements resulted from cost reduction
strategies and the elimination of many lower-margin products in 1998.
Additionally, BPR efforts resulted in lower operating expenses.
Excluding the impact of foreign currency exchange, operating profit in
the Pacific increased 19% from 1997.
See Foreign Operations section under Liquidity and Capital Resources for
additional discussion.
Global Expenses - Global expenses were $255.3 in 1999 compared with
$224.5 in 1998. The $30.8 increase was due to higher spending related
to global marketing and information technology system initiatives in
1999. In 1998, global expenses were $33.0 higher than in 1997 due to
increased expenses associated with information technology system and
global marketing initiatives and higher expenses for incentive
compensation programs primarily due to the improved operating results in
1998 versus 1997.
Recent Pronouncements - In June 1999, the Financial Accounting Standards Board
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). 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 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 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
<PAGE> 36
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 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 December 31, 1999, the Company does not expect the adoption of
FAS No. 133 to have a material impact on its earnings or statement of
financial position.
Contingencies - Although Avon has completed its divestiture of all
discontinued operations, various lawsuits and claims (asserted and
unasserted) are pending or threatened against Avon. The Company is also
involved in a number of proceedings arising out of the federal Superfund
law and similar state laws. In some instances, Avon, along with other
companies, has been designated as a potentially responsible party which
may be liable for costs associated with these various hazardous waste
sites. In the opinion of Avon's management, based on its review of the
information available at this time, the total cost of resolving such
contingencies at December 31, 1999 should not have a material adverse
impact on Avon's consolidated financial position, results of operations
or cash flows.
Liquidity and Capital Resources
Cash Flows - Net cash provided by operating activities was $464.6 in 1999
compared to $324.4 in 1998. The 1999 increase principally reflects, among
other things, favorable working capital levels, higher net income and higher
funding of the Company's benefit plans in 1998. A more detailed analysis of
the individual items contributing to the 1999 and 1998 amounts is included in
the Consolidated Statements of Cash Flows.
Excluding changes in debt and other financing activities, net cash usage
of $736.6 in 1999 was $619.0 unfavorable compared to net cash usage of $117.6
in 1998. The $619.0 variance primarily reflects increased repurchases of
common stock resulting from the accelerated buyback program. See Note 9 of
the Notes to Consolidated Financial Statements for further discussion of this
program. In addition, the variance was also a result of an unfavorable
exchange rate impact and increased cash used for investing activities in 1999,
including the acquisition of a manufacturing facility in Poland and increased
capital expenditures. These uses were partially offset by higher cash
provided by operating activities, discussed above. During 1998 and
1997, the Company received net proceeds of approximately $58.1 and
$58.6, respectively, under securities lending transactions which were
used to repay domestic commercial paper borrowings and are included in
the cash flows as other financing activities. See Note 4 of the Notes
to Consolidated Financial Statements for further discussion of these
transactions. In 1998, excluding changes in debt and other financing
activities, there was a net decrease in cash usage of $19.7. This
variance reflects a favorable exchange rate impact on cash and higher
cash provided by operating activities. These sources were partially
offset by higher capital expenditures and increased dividend payouts in
1998.
For the period 1994 through 1999, 58.0 million shares of common
stock have been purchased for approximately $1,442.1 under the stock
repurchase programs. See Note 9 of the Notes to Consolidated Financial
Statements for further details of the stock repurchase programs.
Working Capital - At December 31, 1999, current liabilities exceeded
current assets by $375.0 while at the end of 1998, current assets
exceeded current liabilities by $11.9. This increase of $386.9 is
primarily due to increased net debt (short-term debt less cash and
equivalents) associated with the accelerated stock repurchase program,
discussed above, as well as the reclassification of approximately $106.4
of proceeds from securities lending transactions from other non-current
liabilities to other accrued liabilities at December 31, 1999. In
addition, lower inventory levels, as discussed in the Inventories
Section, also contributed to the variance.
Although current liabilities exceeded current assets at December 31,
1999, management believes this is due to the Company's direct selling
business format which results in lower receivable and working capital
levels. Avon's liquidity results from its ability to generate
significant cash flows from operations and its ample unused borrowing
capacity. At December 31, 1999, the large excess of current
<PAGE> 37
liabilities
over current assets as well as the issuance of long-term debt in 1999,
discussed in Note 4 of the Notes to Consolidated Financial Statements,
reflects the acceleration of the Company's share repurchase program.
These share repurchases resulted in a shareholders' deficit balance at
December 31, 1999 of $406.1. Avon's credit agreements do not contain
any provisions or requirements with respect to working capital or equity
balances.
Capital Resources - Total debt of $1,007.4 at December 31, 1999
increased $751.1 from $256.3 at December 31, 1998, compared with an
increase of $22.0 from December 31, 1997. At December 31, 1999 and
1998, approximately $106.4 and $112.4, respectively, related to security
lending activities were included in other accrued liabilities and other
non-current liabilities, respectively. See Note 4 of the Notes to
Consolidated Financial Statements for further discussion of these
transactions. During 1999 and 1998, cash flows from operating
activities and other financing activities combined with cash on hand and
higher debt levels were used for repurchase of common stock, dividends,
capital expenditures and the acquisition of a manufacturing facility in
Poland.
At December 31, 1999, debt maturing within one year consists of
borrowings from banks of $305.2 and the current maturities of long-term
debt of $.8. Management believes that cash from operations and
available sources of financing are adequate to meet anticipated
requirements for working capital, dividends, capital expenditures, the
remainder of the stock repurchase program and other cash needs.
In November 1999, the Company issued $500.0 of unsubordinated,
unsecured notes payable (the "Notes") in a private offering to
institutional investors. The proceeds from this issuance were 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.
In connection with the offering, Avon entered into five-year and
ten-year interest rate swap contracts 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 on the Notes.
In May 1998, Avon issued $100.0 of bonds embedded with option features
(the "Bonds") to pay down commercial paper borrowings. The Bonds have a
twenty-year maturity; however, after five years, the Bonds, at the holder's
option, can be sold back to the Company at par or can be called at par by the
underwriter and resold to investors as fifteen-year debt. The coupon rate on
the Bonds is 6.25% for the first five years, but will be refinanced at 5.69%
plus the then corporate spread if the Bonds are reissued.
In connection with the Bond issuance, Avon entered into a five-year
interest rate swap contract with a notional amount of $50.0 to effectively
convert fixed interest on a portion of the Bonds to a variable interest rate,
based on LIBOR.
During 1997, the Company issued $100.0 of 6.55% notes, due August 1,
2007, to pay down commercial paper borrowings.
During 1996, the Company entered into an agreement (the "credit
facility"), which expires in 2001, with various banks to amend and restate the
five-year, $600.0 revolving credit and competitive advance facility agreement.
Within this facility, the Company is able to borrow, on an uncommitted basis,
various foreign currencies.
The credit facility is primarily to be used to finance working capital,
provide support for the issuance of commercial paper and support the stock
repurchase program. At the Company's option, the interest rate on borrowings
under the credit facility is based on LIBOR or the higher of prime or federal
fund rates. The credit facility has an annual facility fee of $.4. The
credit facility contains a covenant for interest coverage, as defined. The
Company is in compliance with this covenant.
At December 31, 1999, the Company has $226.4 outstanding under a $600.0
commercial paper program supported by the credit facility. There were no
borrowings outstanding as of December 31, 1998.
The Company has uncommitted lines of credit available of $49.0 in
1999 and 1998 with various banks which have no compensating balances or
fees. As of December 31, 1999 and 1998, $11.1 of these lines are being
used for letters of credit. In addition, as of December 31, 1999 and
1998, there were international lines of credit totaling $399.5 and
$329.5, respectively, of which $81.6 and $53.9 were outstanding,
respectively.
Inventories - Avon's products are marketed during twelve to twenty-six
individual sales campaigns each year. Each campaign is conducted using
a brochure offering a wide assortment of products, many of
<PAGE> 38
which change
from campaign to campaign. It is necessary for Avon to maintain
relatively high inventory levels as a result of the nature of its
business, including the number of campaigns conducted annually and the
large number of products marketed. Avon's operations have a seasonal
pattern characteristic of many companies selling CFT, fashion jewelry
and accessories, gift and decorative items and apparel. Holiday sales
cause a peak in the fourth quarter which results in the build up of
inventory at the end of the third quarter. Inventory levels are then
sharply reduced by the end of the fourth quarter. Inventories of $523.5
at December 31, 1999 were $14.9 lower than 1998 as a result of a new
business strategy, meant to complement other redesign initiatives, with
the objective of reducing inventory clearance sales, building core
brochure sales and building global brands. This decrease was partially
offset by an increase in inventory levels in Mexico, resulting from
higher costs for cosmetics materials, increased imports to support the
home products line and lower than expected fragrance sales. It is
Avon's objective to continue to manage purchases and inventory levels
maintaining the focus of operating the business at efficient inventory
levels. However, the addition or expansion of product lines, which are
subject to changing fashion trends and consumer tastes, as well as
planned expansion in high growth markets, may cause the inventory levels
to grow periodically.
Capital Expenditures - Capital expenditures during 1999 were $203.4
(1998 - $189.5). These expenditures were made for capacity expansion in
high growth markets, maintenance of worldwide facilities,
contemporization and replacement of information systems, supply chain
initiatives in the U.S. and for shipping and other customer service
improvements including a new manufacturing and distribution facility in
Mexico and a new plant facility and national distribution center in the
Philippines. Numerous construction and information systems projects
were in progress at December 31, 1999 with an estimated cost to complete
of approximately $126.1. Capital expenditures in 2000 are currently
expected to be in the range of $220.0 - $240.0. These expenditures will
include improvements on existing facilities, continued investments for
capacity expansion in high growth markets, facility modernization,
information systems, including spending on the new Internet strategy,
and equipment replacement projects.
Foreign Operations - For the three years ending 1999, 1998 and 1997, the
Company derived approximately 60% of its consolidated net sales and
consolidated operating profit from operations from its subsidiaries
outside of North America. In addition, as of December 31, 1999 and
1998, these subsidiaries comprised approximately 53% of the Company's
consolidated total assets.
Avon's operations in many countries utilize numerous currencies. Avon
has significant net assets in Brazil, Mexico, the United Kingdom, Japan,
Argentina, Canada and the Philippines. Changes in the value of non-
hyperinflationary countries' currencies relative to the U.S. dollar
result in direct charges or credits to equity. Effective January 1,
1997, Mexico was designated as a country with a highly inflationary
economy due to the cumulative inflation rates over the three year period
1994 - 1996. However, Mexico was converted to non-hyper inflationary
status effective January 1, 1999 due to reduced cumulative inflation
rates during the three year period 1996 through 1998.
The Brazilian real devalued significantly in January 1999 and, as a
result, negatively affected Brazil's U.S. dollar results in 1999. The
effect of exchange rates was reduced by foreign exchange contracts
previously in place and several actions taken by local management to
offset the devaluation including a focused effort directed at vender
negotiations and local sourcing to reduce imports. Brazil's 1999 net
sales represented approximately 9% of Avon's consolidated net sales.
On April 21, 1998, the Chinese government issued a directive banning all
direct selling in China resulting in the shutdown of the Company's sales
operations for most of the second quarter. As of the beginning of June
1998, the Company received Chinese governmental approval to resume
operations as a wholesale and retail business and became operational
again on June 15, 1998. The Company converted its 75 branches into
retail outlets to serve customers. During the end of the second quarter
of 1998, Avon received government approval to utilize sales promoters,
much like Representatives, to promote product sales in China.
In early April 1999, the United States and China agreed to remove all
market access restrictions on direct selling in China by January 1,
2003, including the current ban on direct selling imposed by the Chinese
government in April 1998. The agreement is
<PAGE> 39
contingent upon successful
completion of the World Trade Organization accession negotiations
between the United States and China and also includes development of
regulations for direct selling based on the World Federation of Direct
Selling Association's World Code of Conduct. Avon supports resolution
of this direct selling issue in China and remains committed to the
opportunities this promising region offers.
Avon's well diversified global portfolio of businesses has demonstrated
that the effects of weak economies and currency fluctuations in certain
countries may be offset by strong results in others. Fluctuations in
the value of foreign currencies cause U.S. dollar-translated amounts to
change in comparison with previous periods. Accordingly, Avon cannot
project in any meaningful way the possible effect of such fluctuations
upon translated amounts or future earnings. This is due to the large
number of currencies, the complexity of intercompany relationships, the
hedging activity entered into in an attempt to minimize certain of the
effects of exchange rate changes where economically feasible and the
fact that all foreign currencies do not react in the same manner against
the U.S. dollar.
Certain of the Company's financial instruments, which are discussed
below under Risk Management Strategies and Market Rate Sensitive
Instruments and in Note 7 of the Notes to Consolidated Financial
Statements, are used to hedge various amounts relating to certain
international subsidiaries. However, the Company's foreign currency
hedging activities are not material when compared to the Company's
international financial position or results of operations.
Some foreign subsidiaries rely primarily on borrowings from local
commercial banks to fund working capital needs created by their highly
seasonal sales pattern. From time to time, when tax and other
considerations dictate, Avon will finance subsidiary working capital
needs or borrow foreign currencies. At December 31, 1999, the total
indebtedness of foreign subsidiaries was $83.4.
It is Avon's policy to remit all the available cash (cash in excess of
working capital requirements, having no legal restrictions and not
considered permanently reinvested) of foreign subsidiaries as rapidly as
is practical. During 1999, these subsidiaries remitted, net of taxes,
$375.9 in dividends and royalties. This sum is a substantial portion of
the 1999 consolidated net earnings of Avon's foreign subsidiaries.
Risk Management Strategies and Market Rate Sensitive Instruments - The
Company operates globally, with manufacturing and distribution
facilities in various locations around the world. The Company may reduce
its primary market exposures to fluctuations in interest rates and
foreign exchange rates by creating offsetting positions through the use
of derivative financial instruments. The Company 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.
The Company may periodically hedge foreign currency royalties, net
investments in foreign subsidiaries, firm purchase commitments and
contractual foreign currency cash flows or obligations, including third-
party and intercompany foreign currency transactions. The Company
regularly monitors its foreign currency exposures and ensures that hedge
contract amounts do not exceed the amounts of the underlying exposures.
At December 31, 1999, the Company held foreign currency forward
contracts with notional amounts totaling $290.2 and option contracts
with notional amounts totaling $20.0 to hedge foreign currency items.
All of these contracts have maturities prior to December 31, 2000. Also
outstanding in 1999 were foreign currency forward contracts totaling
$66.7 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 December 31, 1999 was not material.
The Company has entered into forward contracts to purchase
approximately 2,433,200 shares of Avon common stock at an average price of
$38.06 per share at December 31, 1999. The contracts mature over the next
two years and provide for physical or net share settlement to the Company.
Accordingly, no adjustment for subsequent changes in fair value has been
recognized.
The Company attempts to minimize its credit exposure to
counterparties by entering into interest rate swap and cap contracts
only with major international financial institutions with "A" or higher
credit ratings as issued by Standard & Poor's Corporation. The Company's
foreign currency and interest rate
<PAGE> 40
derivatives are comprised of over-
the-counter forward contracts or options with major international
financial institutions. Although the Company's theoretical credit risk
is the replacement cost at the then estimated fair value of these
instruments, management believes that the risk of incurring losses is
remote and that such losses, if any, would not be material.
Non-performance of the counterparties to the balance of all the
currency and interest rate swap agreements would not result in a
significant write off at December 31, 1999. In addition, Avon may be
exposed to market risk on its foreign exchange and interest rate swap
agreements as a result of changes in foreign exchange and interest
rates. The market risk related to the foreign exchange agreements should
be substantially offset by changes in the valuation of the underlying
items being hedged.
The Company is exposed to changes in financial market conditions in
the normal course of its operations primarily due to international
businesses and transactions denominated in foreign currencies and the
use of various financial instruments to fund ongoing activities.
Various derivative and non-derivative financial instruments held by
the Company are sensitive to changes in interest rates. These financial
instruments are either discussed above or in Notes 4 and 7 of the Notes
to Consolidated Financial Statements. Interest rate changes would
result in gains or losses in the fair value of debt and other financing
instruments held by the Company. Based on the outstanding balance of
all instruments at December 31, 1999, a hypothetical 50 basis point
increase or decrease in interest rates prevailing at this date,
sustained for one year, would not represent a material potential loss in
fair value, earnings or cash flows. This potential loss was calculated
based on discounted cash flow analyses using interest rates comparable
to the Company's current cost of debt. In 1999, the Company did not
experience a material loss in fair value, earnings or cash flows
associated with changes in interest rates.
The Company is exposed to equity price fluctuations for investments
included in the grantors trust. A 10% change in equity prices would not
be material based on the fair value of equity investments as of December
31, 1999.
The Company also engages in various hedging activities in order to
reduce potential losses due to foreign currency risks. Consistent with
the nature of the economic hedge of such foreign exchange contracts, any
unrealized gain or loss would be offset by corresponding decreases or
increases, respectively, of the underlying instrument or transaction
being hedged. These financial instruments are discussed above and in
Note 7 of the Notes to Consolidated Financial Statements. Based on
the Company's foreign exchange contracts at December 31, 1999, the
impact of a 10% appreciation or 10% depreciation of the U.S. dollar
against the Company's foreign exchange contracts would not represent a
material potential loss in fair value, earnings or cash flows. This
potential loss does not consider the underlying foreign currency
transaction or translation exposures of the Company. The hypothetical
impact was calculated on the combined option and forward positions using
forward rates at December 31, 1999 adjusted for an assumed 10%
appreciation or 10% depreciation of the U.S. dollar against the foreign
contracts. The impact of payoffs on option contracts is not significant
to this calculation. In 1999, net foreign exchange losses associated
with the Company's foreign exchange contracts did not represent a
material loss in fair value, earnings or cash flows.
As of December 31, 1999, the primary currencies for which the
Company has net underlying foreign currency exchange rate exposure are
the U.S. dollar versus the Argentine peso, Brazilian real, British
pound, Canadian dollar, euro, French franc, German mark, Japanese yen
and the Mexican peso. The Company is also exposed to other South
American and Asian currencies.
The Company does not hedge its foreign currency exposure in a
manner that would entirely eliminate the effect of changes in foreign
exchange rates on the Company's consolidated financial position, results
of operations and cash flows. The impact of a 10% appreciation or 10%
depreciation of the U.S. dollar against the Company's net underlying
foreign currency transaction and translation exposures could be
material.
Other Information
In October 1997, the Company announced a worldwide business process
redesign ("BPR") 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
<PAGE> 41
$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.
BPR initiatives underway are intended to reduce costs by up to
$400.0 a year by 2000, with a portion of the savings being reinvested
primarily in consumer-focused initiatives. Total savings from BPR
initiatives for 1999 approximated $250.0.
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 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 Update
The Company did not experience any disruptions to its normal operations as a
result of the transition into calendar year 2000. Thorough testing of mission
critical business processes was performed on January 1, 2000 in order to
validate the data integrity of internal and external system interfaces. In
addition, the Company obtained confirmation from its key suppliers and vendors
that services to Avon Products, Inc. would not be interrupted.
The total estimated cost associated with achieving worldwide Year 2000
compliance, excluding internal costs, will be approximately $33.7, of
which $33.2 has been spent to date. Replacement costs and costs
associated with the validation of third party compliance are included in
these figures. The Company did 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 was 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.
The Company will continue to monitor its business processes and third
parties for potential problems that could arise in the first few months
of calendar year 2000. Based on the Company's preparations prior to
January 1, 2000 and the absence of any problems to date, no significant
disruptions are anticipated.
<PAGE> 42
Results of Operations by Quarter
Avon Products, Inc.
In millions, except per share data
First Second Third Fourth Year
1999**
Net sales $1,213.8 $1,258.1 $1,250.6 $1,566.6 $5,289.1
Gross profit* 705.6 806.4 785.6 960.0 3,257.6
Special charges 105.2 - - - 105.2
Operating (loss)profit (41.3) 195.8 146.3 248.6 549.4
(Loss)income before taxes and
minority interest (39.3) 188.4 136.3 221.2 506.6
(Loss)income before minority
interest (50.7) 120.6 88.5 144.0 302.4
Net(loss)income $ (48.9) $ 121.4 $ 88.2 $ 141.7 $ 302.4
(Loss)earnings per share:
Basic $ (.19) $ .46 $ .34 $ .58 $ 1.18(1)
Diluted $ (.19) $ .46 $ .34 $ .58 $ 1.17(1)
1998**
Net sales $1,183.4 $1,247.2 $1,233.2 $1,548.9 $5,212.7
Gross profit* 680.3 781.6 755.0 942.8 3,159.7
Special charges 70.5 - 46.0 - 116.5
Operating (loss)profit (17.8) 177.0 81.1 232.9 473.2
(Loss)income before taxes and
minority interest (26.6) 173.6 76.5 232.4 455.9
(Loss)income before
minority interest (32.7) 109.7 39.8 148.3 265.1
Net(loss)income $ (31.0) $ 111.4 $ 41.5 $ 148.1 $ 270.0
(Loss)earnings per share:
Basic $ (.12) $ .42 $ .16 $ .56 $ 1.03(1)
Diluted $ (.12) $ .42 $ .16 $ .56 $ 1.02(1)
*First quarter 1999 and 1998 include special and non-recurring charges of
$46.0 and $37.9, respectively, for inventory write-downs.
**Certain reclassifications have been made to the 1998 financial and 1999
quarterly information to conform to the current full year presentation.
(1) The sum of per share amounts for the quarters does not
necessarily equal that for the year because the computations are
made independently.
Market Prices Per Share of Common Stock by Quarter
1999 1998
Quarter High Low High Low
First $ 49.00 $ 35.50 $ 40.63 $ 28.00
Second 59.13 46.38 44.50 36.94
Third 56.75 24.63 44.31 25.00
Fourth 37.38 23.31 46.25 25.75
Avon common stock is listed on the New York Stock Exchange. At December
31, 1999, there were 22,964 shareholders of record. The Company
believes that there are over 70,000 additional shareholders who are not
"shareholders of record" but who beneficially own and vote shares
through nominee holders such as brokers and benefit plan trustees.
Dividends of $.72 per share, or $.18 per share each quarter, were
declared and paid in 1999. Dividends of $.68 per share, or $.17 per
share each quarter, were declared and paid in 1998.
<PAGE> 43
Consolidated Statements of Income
Avon Products, Inc.
In millions, except per share data
Years ended December 31 1999 1998 1997
Net sales $5,289.1 $5,212.7 $5,079.4
Costs, expenses and other:
Cost of sales* 2,031.5 2,053.0 2,051.0
Marketing, distribution and
administrative expenses 2,603.0 2,570.0 2,490.6
Special charges 105.2 116.5 -
Operating profit 549.4 473.2 537.8
Interest expense 43.2 34.7 35.5
Interest income (11.1) (15.9) (16.7)
Other expense (income), net 10.7 (1.5) (15.9)
Total other expenses 42.8 17.3 2.9
Income before taxes and minority interest 506.6 455.9 534.9
Income taxes 204.2 190.8 197.9
Income before minority interest 302.4 265.1 337.0
Minority interest 0.0 4.9 1.8
Net income $ 302.4 $ 270.0 $ 338.8
Earnings per share:
Basic $ 1.18 $ 1.03 $ 1.28
Diluted $ 1.17 $ 1.02 $ 1.27
*1999 and 1998 include special and non-recurring charges of $46.0 and
$37.9, respectively, for inventory write-downs.
The accompanying notes are an integral part of these statements.
<PAGE> 44
Consolidated Balance Sheets
Avon Products, Inc.
In millions, except share data
December 31 1999 1998
Assets
Current assets
Cash, including cash equivalents of $49.6 and $59.7 $ 117.4 $ 105.6
Accounts receivable (less allowance for doubtful
accounts of $40.0 and $49.0) 495.6 492.6
Inventories 523.5 538.4
Prepaid expenses and other 201.3 204.8
Total current assets $1,337.8 $1,341.4
Property, plant and equipment, at cost
Land 55.1 51.4
Buildings and improvements 653.4 613.0
Equipment 763.5 728.4
1,472.0 1,392.8
Less accumulated depreciation 737.2 722.9
734.8 669.9
Other assets 456.0 422.2
Total assets $2,528.6 $2,433.5
Liabilities and Shareholders' (Deficit) Equity
Current liabilities
Debt maturing within one year $ 306.0 $ 55.3
Accounts payable 435.9 416.9
Accrued compensation 165.8 161.3
Other accrued liabilities 411.6 308.2
Sales and taxes other than income 107.5 106.2
Income taxes 286.0 281.6
Total current liabilities $1,712.8 $1,329.5
Long-term debt 701.4 201.0
Employee benefit plans 398.1 390.0
Deferred income taxes 36.7 36.3
Other liabilities (including minority interest
of $32.7 and $36.1) 85.7 191.6
Commitments and contingencies (Note 14)
Shareholders' (deficit) equity
Common stock, par value $.25 - authorized:
400,000,000 shares; issued
352,575,924 and 351,314,366 shares 88.1 87.8
Additional paid-in capital 819.4 780.0
Retained earnings 837.2 719.1
Accumulated other comprehensive income (349.7) (301.3)
Treasury stock, at cost - 114,680,525 and
88,793,640 shares (1,801.1) (1,000.5)
Total shareholders' (deficit) equity (406.1) 285.1
Total liabilities and
shareholders' (deficit) equity $2,528.6 $2,433.5
The accompanying notes are an integral part of these statements.
<PAGE> 45
Consolidated Statements of Cash Flows
Avon Products, Inc.
In millions
Years ended December 31 1999 1998 1997
Cash flows from operating activities
Net income $ 302.4 $ 270.0 $ 338.8
Adjustments to reconcile income to net cash
provided by operating activities:
Depreciation and amortization 83.0 72.0 72.1
Provision for doubtful accounts 87.5 91.3 80.8
Translation gains (.9) (7.2) (.1)
Deferred income taxes (20.0) (13.0) 18.0
Special charges 84.1 88.5 -
Other 9.7 3.9 9.4
Changes in assets and liabilities:
Accounts receivable (132.7) (157.6) (121.4)
Inventories (57.8) (17.2) (67.5)
Prepaid expenses and other 1.1 (4.0) 6.7
Accounts payable and accrued liabilities 56.3 13.0 42.9
Income and other taxes 27.6 19.5 (56.1)
Noncurrent assets and liabilities 24.3 (34.8) (8.1)
Net cash provided by operating activities 464.6 324.4 315.5
Cash flows from investing activities
Capital expenditures (203.4) (189.5) (169.4)
Disposal of assets 11.7 5.8 3.3
Acquisitions of subsidiary stock and other
investing activities (16.5) 1.4 (9.0)
Net cash used by investing activities (208.2) (182.3) (175.1)
Cash flows from financing activities
Cash dividends (186.3) (180.6) (168.3)
Debt, net (maturities of three months or less) 227.2 (96.1) (39.8)
Proceeds from short-term debt 90.8 54.7 25.7
Retirement of short-term debt (69.4) (34.9) (49.0)
Proceeds from long-term debt 500.0 100.1 100.0
Retirement of long-term debt (.2) (.6) (.8)
Proceeds from exercise of stock options 23.9 24.0 20.6
Repurchase of common stock (800.6) (107.8) (110.8)
Other financing activities - 58.1 58.6
Net cash used by financing activities (214.6) (183.1) (163.8)
Effect of exchange rate changes on cash and
equivalents (30.0) 4.7 (19.2)
Net increase(decrease) in cash and equivalents 11.8 (36.3) (42.6)
Cash and equivalents at beginning of year 105.6 141.9 184.5
Cash and equivalents at end of year $ 117.4 $ 105.6 $ 141.9
Cash paid for
Interest $ 47.1 $ 39.2 $ 36.0
Income taxes, net of refunds received 176.0 188.5 215.8
The accompanying notes are an integral part of these statements.
<PAGE> 46
<TABLE>
Consolidated Statements of Changes in Shareholders' (Deficit) Equity
Avon Products, Inc.
In millions, except share data
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive Treasury
Shares Amount Capital Earnings Income Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 173,957,379 $ 43.5 $ 693.6 $ 488.8 $(210.7) $(773.5) $ 241.7
Comprehensive income:
Net income 338.8 338.8
Foreign currency translation adjustments (59.6) (59.6)
Total comprehensive income 279.2
Dividends - $1.26 per share (166.7) (166.7)
Exercise of stock options,
including tax benefits 713,298 .2 30.3 30.5
Grant, cancellation and
amortization of
restricted stock 40,496 4.6 4.6
Repurchase of common stock (110.8) (110.8)
Benefit plan contributions 4.6 1.9 6.5
Balance at
December 31, 1997 174,711,173 43.7 733.1 660.9 (270.3) (882.4) 285.0
Comprehensive income:
Net income 270.0 270.0
Foreign currency translation adjustments (15.6) (15.6)
Minimum pension liability adjustment (15.4) (15.4)
Total comprehensive income 239.0
Dividends - $.68 per share (178.9) (178.9)
Two-for-one stock split effected
in the form of a stock dividend
from retained earnings
(Note 9) 175,419,475 43.9 (32.9) (11.0) -
Exercise of stock options,
including
tax benefits 916,102 .2 38.2 38.4
Grant, cancellation
and amortization
of restricted stock 267,616 7.1 7.1
Repurchase of common stock (107.8) 107.8)
Benefit plan contributions 1.6 .7 2.3
Balance at
December 31, 1998 351,314,366 87.8 780.0 719.1 (301.3)(1,000.5) 285.1
Comprehensive income:
Net income 302.4 302.4
Foreign currency translation adjustments (49.7) (49.7)
Minimum pension liability adjustment 1.3 1.3
Total comprehensive income 254.0
Dividends - $.72 per share (184.3) (184.3)
Exercise of
stock options,
including
tax benefits 1,152,549 .3 30.7 31.0
Grant, cancellation
and amortization
of restricted
stock 109,009 8.7 8.7
Repurchase of common stock (800.6) (800.6)
Balance
at December 31,
1999 352,575,924 $88.1 $819.4 $837.2 $(349.7)$(1,801.1)$(406.1)
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 47
Notes to Consolidated Financial Statements
Avon Products, Inc.
In millions, except per share data
1. Description of the Business and Summary of Significant Accounting
Policies
Business
Avon Products, Inc. ("Avon" or the "Company") is a global manufacturer and
marketer of beauty and related products. The product categories include
cosmetics, fragrance and toiletries; beauty plus which consists of jewelry and
accessories and apparel; and non-core which consists of gift and decorative
and home entertainment products. Avon's business is comprised of one industry
segment, direct selling, which is conducted in North America, Latin America,
the Pacific and Europe. Sales are made to the ultimate customers principally
by independent Avon Representatives.
Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include
the accounts of Avon and its majority and wholly-owned subsidiaries.
Intercompany balances and transactions are eliminated. These statements have
been prepared in conformity with generally accepted accounting principles and
require management to make estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes. Actual
results could differ from these estimates.
Foreign Currency - Financial statements of foreign subsidiaries operating in
other than highly inflationary economies are translated at year-end exchange
rates for assets and liabilities and average exchange rates during the year
for income and expense accounts. The resulting translation adjustments are
recorded within accumulated other comprehensive income. Financial statements
of subsidiaries operating in highly inflationary economies are translated
using a combination of current and historical exchange rates and any
translation adjustments are included in income.
Revenue Recognition - Avon recognizes revenue as shipments are made and title
passes to the independent Representatives, who are Avon's customers.
Cash and Equivalents - Cash equivalents are stated at cost plus accrued
interest, which approximates fair value. Cash equivalents are highly liquid
debt instruments with an original maturity of three months or less and consist
of time deposits with a number of U.S. and non-U.S. commercial banks with high
credit ratings.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method for all inventories.
Prior to October 1999, substantially all U.S. inventories, except apparel,
used the last-in, first-out ("LIFO") method to determine cost. The LIFO value
of such inventory was approximately $3.6 lower than it would have been under
the FIFO method at December 31, 1998. Effective October 1, 1999, the U.S.
inventories using the LIFO method were changed to the FIFO method. The change
was made because the Company had begun to realize and expects to continue to
experience cost reductions as a result of technological advancements and
process improvements in its manufacturing operations. As a result, the FIFO
method will better measure the current value of such inventories, provide a
more appropriate matching of revenues and expenses, and conform all
inventories of the Company to the same accounting method. This accounting
change was not material to the financial statements on an annual or quarterly
basis, and accordingly, no restatement of prior periods' financial statements
was made.
Depreciation - Substantially all buildings, improvements and equipment are
depreciated using the straight-line method over estimated useful lives.
Estimated useful lives for buildings and improvements range from approximately
20 to 45 years and equipment range from 3 to 15 years.
Other Assets - Systems development costs related to the development of major
information and accounting systems are capitalized and amortized over the
estimated useful life of the related project, not to exceed five years.
Stock Options - Avon applies APB Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations in accounting for its long-term
incentive plans. Compensation cost for fixed price options is measured as the
excess, if any, of the quoted market price of Avon's stock at the grant date
or other measurement date over the amount an employee must pay to acquire the
stock.
Financial Instruments - The Company uses derivative financial
instruments, including swaps, forward contracts and options, to manage
interest rate and foreign currency exposures. These instruments are
accounted for on an accrual basis. Gains and losses
<PAGE> 48
on existing assets,
liabilities and firm commitments designated as hedged items are deferred
and included in other assets or liabilities and recognized when the
offsetting gains and losses are recognized in the related financial
instrument. Gains and losses and cash flows from derivative instruments
designated as hedges are classified consistent with the items being
hedged. Items which do not qualify for hedge accounting are marked to
market with the resulting gain or loss recognized in other expense
(income), net. Gains and losses on terminations of foreign exchange and
interest rate swap contracts are deferred and amortized over the
remaining terms of the original agreements.
The Company also uses financial instruments, including forward contracts to
purchase Avon common stock, to hedge certain employee benefit costs and the
cost of the Company's share repurchase program. Contracts that require
physical or net share settlement are initially measured at fair value with
subsequent changes in fair value not recognized. Contracts that require net
cash settlement are initially measured at fair value with subsequent changes
in fair value recognized as gains or losses in the income statement.
Research and Development - Research and development costs are expensed as
incurred and aggregated in 1999 $34.4 (1998 - $31.4; 1997 - $29.9).
Advertising - Advertising costs are expensed as incurred and aggregated in
1999 $63.4 (1998 - $65.0; 1997 - $64.5).
Income Taxes - Deferred income taxes have been provided on items recognized
for financial reporting purposes in different periods than for income tax
purposes at future enacted rates.
U.S. income taxes have not been provided on approximately $195.0 of
undistributed income of subsidiaries that has been or is intended to be
permanently reinvested outside the United States or is expected to be remitted
free of U.S. income taxes. If such undistributed income was remitted, no
substantial tax cost would be incurred.
Earnings per Share - Basic earnings per share are computed by dividing net
income by the weighted-average number of shares outstanding during the year.
Diluted earnings per share are calculated to give effect to all potentially
dilutive common shares that were outstanding during the year.
For each of the three years ended December 31, the number of shares used
in the computation of basic and diluted earnings per share are as follows:
1999 1998 1997
Basic EPS
Weighted-average shares 256.78 263.27 264.67
Incremental shares from conversion of:
Stock options 2.59* 2.68 2.33
Diluted EPS
Adjusted weighted-average shares 259.37 265.95 267.00
*At December 31, 1999, stock options and forward contracts to purchase
Avon common stock totaling 3.8 million shares are not included in the
diluted earnings per share calculation since their impact is anti-
dilutive.
Reclassifications - To conform to the 1999 presentation, certain
reclassifications were made to the prior years' consolidated financial
statements and the accompanying footnotes.
2. Accounting Changes
In June 1999, the Financial Accounting Standards Board 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). 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 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 December 31, 1999, the
<PAGE> 49
Company does not expect the
adoption of FAS No. 133 to have a material impact on its earnings or statement
of financial position.
3. Inventories
Inventories at December 31 consisted of the following:
1999 1998
Raw materials $156.9 $140.6
Finished goods 366.6 397.8
Total $523.5 $538.4
4. Debt and Other Financing
Debt at December 31 consisted of the following (see also Note 7 regarding
financial instruments):
1999 1998
Maturing within one year:
Notes payable $305.2 $ 53.9
Current portion of long-term debt .8 1.4
Total $306.0 $ 55.3
Long-term debt:
6.90% Notes, due 2004 $200.0 $ -
6.55% Notes, due 2007 100.0 100.0
7.15% Notes, due 2009 300.0 -
6.25% Bonds, due 2018 100.0 100.0
Other, payable through 2002 with interest from 3% to 38% 2.2 2.4
Less current portion (.8) (1.4)
Total $701.4 $ 201.0
Annual maturities of long-term debt for each of the next five years are:
2000 - $.8; 2001 - $.8; 2002 - $.4; 2003 - $.2; and 2004 and beyond - $700.0.
In November of 1999, Avon 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. $300.0 of the
Notes bear interest at a per annum rate equal to 7.15% and mature on November
15, 2009. Interest on the Notes is payable semi-annually. The indenture
under which the Notes were issued limits the incurrence of liens and restricts
the incurrence of sales and leaseback transactions and transactions involving
mergers, consolidation or a sale of substantially all of the Company's assets.
In connection with the offering, Avon entered into five-year and ten-year
interest rate swap contracts 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 on the Notes.
In May 1998, Avon issued $100.0 of bonds embedded with option features
(the "Bonds") to pay down commercial paper borrowings. The Bonds have a
twenty-year maturity; however, after five years, the Bonds, at the holder's
option, can be sold back to the Company at par or can be called at par by the
underwriter and resold to investors as fifteen-year debt. The coupon rate on
the Bonds is 6.25% for the first five years, but will be refinanced at 5.69%
plus the then corporate spread if the Bonds are reissued.
In connection with the Bond issuance, Avon entered into a five-year
interest rate swap contract with a notional amount of $50.0 to effectively
convert fixed interest on a portion of the Bonds to a variable interest rate,
based on LIBOR.
During 1997, the Company issued $100.0 of 6.55% notes, due August 1, 2007,
to pay down commercial paper borrowings.
Under the terms of a revolving credit and competitive advance facility
agreement amended in 1996 and expiring in 2001 (the "credit facility"), the
Company may borrow up to $600.0. Within this facility, the Company is able to
borrow, on an uncommitted basis, various foreign currencies.
The credit facility is primarily to be used to finance working capital,
provide support for the issuance of commercial paper and support the stock
repurchase program. At the Company's option, the interest rate on borrowings
under the credit facility is based on LIBOR or the higher of prime or federal
fund rates. The credit facility has an annual facility fee of $.4. The
credit facility contains a covenant for interest coverage, as defined. The
Company is in compliance with this covenant.
At December 31, 1999, the Company has $226.4 outstanding under a $600.0
commercial paper program supported by the credit facility. At December 31,
1998, there were no borrowings outstanding under the credit facility.
The Company has uncommitted lines of credit available of $49.0 in 1999 and
1998 with various banks which have no compensating balances or fees. As of
December 31, 1999 and 1998, $11.1 of these lines are being used for letters of
credit.
The maximum borrowings under these combined facilities during 1999 and
1998 were $840.7 and $290.7, respectively, and the annual average borrowings
during each year were approximately $304.0 and $205.7, respectively, at
average annual interest rates of approximately 5.3% and 4.8%, respectively.
At December 31, 1999 and 1998, international lines of credit totaled
$399.5 and $329.5, respectively, of which $81.6 and $53.9 were outstanding,
respectively. The maximum borrowings under these facilities during 1999 and
1998 were $121.0 and $63.6, respectively, and the annual average borrowings
during each year were $73.0 and $49.3, respectively, at average annual
interest rates of approximately 6.2% and 12.3%, respectively. Such lines have
no compensating balances or fees.
<PAGE> 50
At December 31, 1999 and 1998, Avon also had letters of credit
outstanding totaling $15.5, which guarantee various insurance activities. In
addition, Avon had outstanding letters of credit for various trade activities.
During 1998 and 1997, the Company entered into securities lending
transactions resulting in the borrowing of securities which were subsequently
sold for net proceeds approximating $58.1 and $58.6, respectively, used to
repay commercial paper borrowings. The borrowed securities are due to the
lender no later than December 29, 2000. The obligations are included in other
accrued liabilities on the balance sheet. The effective rates on the
transactions are expected to be 5.5% and 6.5%, respectively.
5. Comprehensive Income
The following table reflects comprehensive income as of December 31:
1999 1998 1997
Net income $302.4 $270.0 $338.8
Other comprehensive loss
Change in equity due
to foreign currency
translation adjustments (49.7) (15.6) (59.6)
Minimum pension liability
adjustment 1.3 (15.4) -
Comprehensive income $254.0 $239.0 $279.2
Accumulated other comprehensive income at December 31
consisted of the following:
1999 1998
Foreign currency translation
adjustments $(335.6) $(285.9)
Minimum pension liability
adjustments (14.1) (15.4)
Total $(349.7) $(301.3)
6. Income Taxes
Deferred tax assets (liabilities) resulting from temporary differences in the
recognition of income and expense for tax and financial reporting purposes at
December 31 consisted of the following:
1999 1998
Deferred tax assets:
Postretirement benefits $ 82.8 $ 82.0
Accrued expenses and reserves 48.6 58.7
Special and non-recurring charges 7.2 9.0
Employee benefit plans 70.9 54.5
Foreign operating loss carryforwards 37.3 29.1
Capital loss carryforwards 10.0 17.4
Postemployment benefits 9.3 11.0
All other 27.0 21.3
Valuation allowance (46.7) (46.9)
Total deferred tax assets 246.4 236.1
Deferred tax liabilities:
Depreciation (43.6) (41.5)
Prepaid retirement plan costs (54.9) (55.2)
Capitalized interest (9.7) (10.6)
Unremitted foreign earnings (17.7) (17.4)
All other (19.7) (22.1)
Total deferred tax liabilities (145.6) (146.8)
Net deferred tax assets $ 100.8 $ 89.3
Deferred tax assets (liabilities) at December 31 were classified as
follows:
1999 1998
Deferred tax assets:
Prepaid expenses and other $ 90.0 $ 86.9
Other assets 52.2 44.2
Total deferred tax assets 142.2 131.1
Deferred tax liabilities:
Income taxes (4.7) (5.5)
Deferred income taxes (36.7) (36.3)
Total deferred tax liabilities (41.4) (41.8)
Net deferred tax assets $100.8 $ 89.3
The valuation allowance primarily represents reserves for foreign operating
loss and capital loss carryforwards. The basis used for recognition of
deferred tax assets included the profitability of the operations and related
deferred tax liabilities.
Income before taxes and minority interest for the years ended December 31
was as follows:
1999 1998 1997
United States $ 102.2 $ 74.2 $ 153.6
Foreign 404.4 381.7 381.3
Total $ 506.6 $ 455.9 $ 534.9
<PAGE> 51
The provision for income taxes for the years ended December 31 was as
follows:
1999 1998 1997
Federal:
Current $ 48.4 $ 39.2 $ 27.1
Deferred (13.3) (10.4) 21.3
35.1 28.8 48.4
Foreign:
Current 167.5 153.7 148.0
Deferred (4.5) .9 (7.7)
163.0 154.6 140.3
State and other:
Current 8.3 10.9 4.8
Deferred (2.2) (3.5) 4.4
6.1 7.4 9.2
Total $ 204.2 $ 190.8 $ 197.9
The effective tax rate for the years ended December 31 was as follows:
1999 1998 1997
Statutory federal rate 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit .8 1.0 1.1
Tax-exempt operations (.3) .8 (.5)
Taxes on foreign income, including translation 4.2 4.6 1.3
Other .6 .5 .1
Effective tax rate 40.3% 41.9% 37.0%
In the fourth quarter of 1997, the Company recorded a benefit related to a
value-added tax settlement in the United Kingdom totaling $26.5, of which
$20.6 and $5.9 have been reflected in other expense (income), net and interest
income, respectively.
At December 31, 1999, Avon had foreign operating loss carryforwards of
approximately $106.0. The loss carryforwards expiring between 2000 and 2007
were $55.5 and the loss carryforwards which do not expire were $50.5. Capital
loss carryforwards, which expire between 2000 and 2001 and may be used to
offset capital gains, if any, were approximately $28.7 at December 31, 1999.
7. Financial Instruments and Risk Management
Risk Management - The Company operates globally, with manufacturing and
distribution facilities in various locations around the world. The Company may
reduce its exposure to fluctuations in interest rates and foreign exchange
rates by creating offsetting positions through the use of derivative financial
instruments. The Company does not use derivative financial instruments for
trading or speculative purposes, nor is the Company a party to leveraged
derivatives.
The notional amount of forward exchange contracts and options is the
amount of foreign currency bought or sold at maturity. The notional amount of
interest rate swaps is the underlying principal amount used in determining the
interest payments exchanged over the life of the swap. The notional amounts
are not a direct measure of the Company's exposure through its use of
derivatives.
Interest Rates - The Company periodically uses interest rate swaps to hedge
portions of interest payable on its debt. In addition, the Company may
periodically employ interest rate caps to reduce exposure, if any, to
increases in variable interest rates.
As discussed in Note 4 of the Notes to Consolidated Financial Statements,
the Company entered into a five-year interest rate swap contract with a
notional amount of $50.0 to effectively convert fixed interest on a portion of
the Bonds to a variable interest rate based on LIBOR. The Company has also
entered into five-year and ten-year interest rate swap contracts with notional
amounts of $200.0 and $300.0, respectively, to convert fixed interest to a
variable interest rate, based on commercial paper rates on the Notes.
Foreign Currencies - The Company may periodically hedge foreign currency
royalties, net investments in foreign subsidiaries, firm purchase commitments
and contractual foreign currency cash flows or obligations, including third-
party and intercompany foreign currency transactions. The Company regularly
monitors its foreign currency exposures and ensures that hedge contract
amounts do not exceed the amounts of the underlying exposures.
At December 31, 1999, the Company held foreign currency forward contracts
with notional amounts totaling $290.2 (1998 - $285.9) and option contracts
with notional amounts totaling $20.0 (1998 - $32.6) to hedge foreign currency
items. All of these contracts have maturities prior to December 31, 2000.
Additionally, the Company also held forward contracts with notional amounts
totaling $66.7 (1998 - $45.0) which do not qualify as hedging transactions
under the current accounting definitions and, accordingly, have been marked to
market. The mark-to-market adjustments on these forward contracts at December
31, 1999 and 1998 were insignificant.
<PAGE> 52
These forward and option contracts to purchase and sell foreign
currencies, including cross-currency contracts to sell one foreign currency
for another currency at December 31 are summarized below:
1999 1998
Buy Sell Buy Sell
Brazilian real $ 15.0 $65.0 $ - $ 45.0
British pound 7.3 30.1 37.9 57.7
Canadian dollar - 23.8 - 39.1
Chinese renminbi - - - 5.0
Euro 82.9 10.0 - -
French franc 10.9 - - -
German mark - - 71.8 -
Indonesian rupiah 1.7 - - -
Irish punt 1.7 - - -
Italian lira 4.7 - 7.3 -
Japanese yen 4.8 60.5 1.5 67.3
Mexican peso - 45.0 - -
Spanish peseta - - 1.3 -
Taiwanese dollar - 3.0 - 18.5
Other currencies 6.2 4.3 6.8 4.3
Total $ 135.2 $241.7 $126.6 $236.9
At December 31, 1999, the Company has entered into forward contracts
to purchase approximately 2,433,200 shares of Avon common stock at an
average price of $38.06 per share at December 31, 1999. The contracts
mature over the next two years and provide for physical or net share
settlement to the Company. Accordingly, no adjustment for subsequent
changes in fair value has been recognized.
Credit and Market Risk - The Company attempts to minimize its credit exposure
to counterparties by entering into interest rate swap and cap contracts only
with major international financial institutions with "A" or higher credit
ratings as issued by Standard & Poor's Corporation. The Company's foreign
currency and interest rate derivatives are comprised of over-the-counter
forward contracts or options with major international financial institutions.
Although the Company's theoretical credit risk is the replacement cost at the
then estimated fair value of these instruments, management believes that the
risk of incurring losses is remote and that such losses, if any, would not be
material.
Non-performance of the counterparties to the balance of all the currency
and interest rate swap agreements would not result in a significant write-off
at December 31, 1999. In addition, Avon may be exposed to market risk on its
foreign exchange and interest rate swap agreements as a result of changes in
foreign exchange and interest rates. The market risk related to the foreign
exchange agreements should be substantially offset by changes in the valuation
of the underlying items being hedged.
Fair Value of Financial Instruments - For purposes of the following
disclosure, the fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation. The aggregate fair value
amounts presented are not intended to, and do not, represent the underlying
fair value of Avon.
The methods and assumptions used to estimate fair value are as follows:
Grantor trust - The fair value of these investments, principally fixed income
funds and equity securities, is based on the quoted market prices for issues
listed on exchanges.
Debt maturing within one year and long-term debt and other financing - The
fair value of all debt and other financing is estimated based on the quoted
market prices.
Forward stock purchases and foreign exchange forward and option contracts -
The fair value of forward and option contracts is estimated based on quoted
market prices from banks.
Interest rate swap agreements - The fair value of interest rate swap
agreements is estimated based on quotes from the market makers of these
instruments and represents the estimated amounts that Avon would expect to
receive or pay to terminate the agreements.
The asset and (liability) amounts recorded in the balance sheet (carrying
amount) and the estimated fair values of financial instruments at December 31
consisted of the following:
1999 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and equivalents $ 117.4 $ 117.4 $105.6 $105.6
Grantor trust 75.4 75.4 72.2 72.7
Debt maturing within one year* (412.4) (412.4) (55.3) (55.3)
Long-term debt* (701.1) (675.6) (316.6) (322.2)
Forward stock purchases and
foreign exchange forward and
option contracts 9.8 (8.0) 1.7 23.8
Interest rate swap
receivable (payable) .5 (13.4) .1 1.6
*Other financing activities are included in Debt maturing within one year in
1999 and in Long-term debt in 1998.
<PAGE> 53
8. Stock Option Plans
A summary of the Company's stock option activity, weighted-average exercise
price and related information for the years ended December 31 is as follows:
1997 1998 1999
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(in 000's) Price (in 000's) Price (in 000's) Price
Outstanding -
beginning
of year 5,750 $16.28 7,070 $22.29 7,127 $25.46
Granted 2,860 30.68 1,664 32.40 2,225 37.33
Exercised (1,426) 14.47 (1,412) 17.59 (1,152) 20.35
Forfeited (114) 27.50 (195) 26.87 (94) 31.14
Outstanding -
end of year 7,070 $22.29 7,127 $25.46 8,106 $29.38
Options exer-
cisable -
end of year 1,360 $15.27 2,943 $18.74 3,627 $23.32
The following table summarizes information about stock options outstanding
at December 31, 1999:
Options Outstanding Options Exercisable
Exercise Shares Average Shares Average
Price (in 000's) Price Term (in 000's) Price
$13.13 - $23.00 2,077 $ 17.21 6 years 2,077 $ 17.21
$29.63 - $35.25 4,503 $ 31.44 8 years 1,388 $ 30.44
$39.00 - $54.81 1,526 $ 39.83 9 years 162 $ 40.54
The 1993 Stock Incentive Plan ("1993 Plan") provides for several types of
equity-based incentive compensation awards. Under the 1993 Plan, the maximum
number of shares that may be awarded is 14,100,000 shares, of which no more
than 8,000,000 shares may be used for restricted share and stock bonus grants.
Awards, when made, may also be in the form of stock options, stock
appreciation rights, dividend equivalent rights or performance unit awards.
Stock options granted to officers and key employees are at a price no less
than fair market value on the date the option is granted. During 1999, 1998
and 1997, restricted shares with aggregate value and vesting and related
amortization periods were granted as follows: 1999 - 137,000 valued at $5.8
vesting over one to three years; 1998 - 499,000 valued at $16.0 vesting over
one to three years; and 1997- 36,000 shares valued at $1.2 vesting over one to
three years.
Effective January 1, 1997, the 1997 Long-Term Incentive Plan ("1997
LTIP") was authorized under the 1993 Plan. The 1997 LTIP provides for the
grant of two forms of incentive awards, performance units for potential cash
incentives and ten-year stock options. Performance units are earned over the
three-year performance period (1997-1999), based on the degree of attainment
of performance objectives. As of December 31, 1999, certain performance goals
under the 1997 LTIP were achieved and accordingly, cash incentives totaling
$31.7 were paid in 2000. Options are awarded annually over the three-year
performance period and vest in thirds over the three-year period following
each option grant date. As discussed above, these options are granted at the
fair market value on the date the option is granted.
Compensation expense under all plans in 1999 was $20.4 (1998 -
$17.8; 1997 - $15.6). The unamortized cost as of December 31, 1999 was
$6.8 (1998 - $10.5). The accrued cost of the performance units in 1999
was $35.9 (1998 - $24.1).
The Company has adopted the disclosure provisions of FAS No. 123.
Had compensation cost for the plans been based on the fair value at the
grant dates for awards under those plans consistent with the method
prescribed by FAS No. 123, net income and earnings per share would have
been the pro forma amounts indicated below:
1999 1998 1997
Pro forma net income $ 291.0 $263.0 $332.5
Pro forma earnings per share:
Basic $ 1.13 $ 1.00 $ 1.26
Diluted $ 1.12 $ .99 $ 1.25
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-
average assumptions:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.4% 5.5% 6.3%
Expected life 5 years 5 years 5 years
Expected volatility 30% 25% - 30% 25%
Expected dividend yield 2.0% 2.0% 2.0%
The weighted-average grant date fair values of options granted during
1999, 1998 and 1997 were $10.09, $7.67 and $7.12, respectively.
<PAGE> 54
9. Shareholders' (Deficit) Equity
Stock Split - On July 22, 1998, the Company declared a two-for-one stock
split in the form of a 100% stock dividend which was distributed in
September 1998 to shareholders of record as of the close of business on
August 24, 1998. Accordingly, the stock split has been recognized by
reclassifying the par value of the additional shares resulting from the
split from retained earnings to common stock and treasury stock. The
effect of this stock split was not retroactively reflected in the
statement of changes in shareholders' equity for 1997. All references
to the number of share and per share amounts elsewhere in the
consolidated financial statements and related footnotes have been
restated to reflect the effect of the split for all periods presented.
Share Rights Plan - Avon has a Share Rights Plan under which one right
has been declared as a dividend for each outstanding share of its common
stock. Each right, which is redeemable at $.005 at any time at Avon's
option, entitles the shareholder, among other things, to purchase one
share of Avon common stock at a price equal to one-half of the then
current market price, if certain events have occurred. The right is
exercisable if, among other events, one party obtains a beneficial
ownership of 20% or more of Avon's voting stock.
Stock Repurchase Programs - During 1994, Avon's Board authorized a stock
repurchase program under which Avon would buy back up to 10% of its then
outstanding common stock, or approximately 28.0 million shares. As of
February 1997, when the plan ended, the cumulative number of shares
repurchased was 25.3 million shares at a total cost of $424.4 which are
included in Treasury Stock. Under a new repurchase program, which began
in February 1997, the Company was authorized to buy back up to $1,100.0
of its currently outstanding common stock through open market purchases
over a period of up to five years. In October 1999, Avon's Board
approved a significant acceleration of the share repurchase program
which substantially completed this buyback program. As of December 31,
1999, the Company repurchased approximately 32.6 million shares at a
total cost of approximately $1,017.8 under this new program.
Savings Plan - The Company offers a qualified defined contribution plan,
the Avon Products, Inc. 401(k) Personal Savings Account, which allows
eligible participants to contribute 1% to 20% of qualified compensation
through payroll deductions. Effective July 1, 1998, the Company matches
employee contributions dollar for dollar up to the first 3% of eligible
compensation and $.50 for each $1.00 contributed from 4% to 6% of
eligible compensation. Prior to July 1, 1998, the Company matched
contributions in an amount equal to 25% of an employee's qualified
contribution. In 1999, matching contributions approximating $12.8 were
made in cash, which was then used to purchase Avon shares in the open
market. In 1998, Avon contributed 62,520 shares of treasury stock to an
employees' savings plan and recognized expense for its fair value. In
addition, during 1997, the Company contributed an additional 120,000
shares, for which the expense had been accrued at December 31, 1996.
Board of Directors Remuneration - Effective May 1, 1997, the Company
discontinued the Board retirement plan, which was applicable only to
non-management directors. Directors retiring after that date have had
the actuarial value of their accrued retirement benefits converted to a
one-time grant of common stock which is restricted as to transfer until
retirement. Shares totaling 52,786 were issued to directors as a result
of the discontinuance of the plan. As a replacement for such plan,
effective on and after May 1, 1997, each non-management director is
annually granted options to purchase 4,000 shares of common stock, at an
exercise price based on the fair market price of the stock on the date
of grant. The annual grant made in 1999 and 1998 consisted of 36,000
options in each year with an exercise price of $51.38 and $41.31,
respectively.
Also effective as of May 1, 1997, the annual retainer paid to non-
management directors was changed to consist of $.025 cash plus an annual
grant of shares having a value of $.025 based on the average closing
market price of the stock for the ten days preceding the date of grant.
These shares are also restricted as to transfer until the director
retires from the Board. The annual grant made in 1999 and 1998
consisted of a total of 4,284 and 5,472 shares, respectively.
10. Employee Benefit Plans
Retirement Plans - Avon and certain subsidiaries have contributory and
noncontributory retirement plans for substantially all employees. Benefits
under these plans are generally based on an employee's years of service and
average compensation near retirement. Plans are funded on a current basis
except where funding is not required. Plan assets consist primarily of equity
securities, corporate and government bonds and bank deposits.
Effective July 1998, the defined benefit retirement plan covering U.S.-based
employees was converted to a cash balance plan with benefits determined by
compensation credits related to age and service and interest credits based on
individual account balances and prevailing interest rates. Additional
amendments include a ten-year transitional benefit arrangement for certain
employees covered under the existing defined benefit retirement plan.
<PAGE 55>
Postretirement Benefits - Avon provides health care and life insurance
benefits for the majority of employees who retire under Avon's retirement
plans in the United States and certain foreign countries. The cost of such
health care benefits is shared by Avon and its retirees.
The following provides a reconciliation of benefit obligations, plan
assets and funded status of these plans:
Pension Postretirement
Benefits Benefits
1999 1998 1999 1998
Change in benefit obligation:
Beginning balance $(999.8) $(889.9) $(201.8) $(197.1)
Service cost (38.1) (35.4) (3.6) (3.3)
Interest cost (67.6) (64.5) (13.4) (13.0)
Actuarial (loss) gain 43.5 (83.0) 19.5 1.4
Benefits paid 155.1 84.9 12.1 10.2
Plan amendments (2.9) - 5.5 -
Settlements/special
termination benefits (17.2) - - -
Other 7.8 (11.9) .1 -
Ending balance $(919.2) $(999.8) $(181.6) $(201.8)
Change in plan assets:
Beginning balance $ 863.1 $ 785.5 $ - $ -
Actual return on
plan assets 113.7 102.9 - -
Company contributions 36.1 61.3 12.1 10.2
Plan participant - -
contributions 2.2 1.5 - -
Benefits paid (155.1) (84.9) (12.1) (10.2)
Other - (3.2) - -
Ending balance $ 860.0 $ 863.1 $ - $ -
Funded status of the plan $ (59.2) $(136.7) $(181.6) $(201.8)
Unrecognized actuarial
loss(gain) 48.1 139.3 (26.1) (6.2)
Unrecognized prior
service cost 3.0 (9.6) (5.0) -
Unrecognized net transition
obligation(asset) 1.6 1.3 .4 -
Accrued benefit cost $ (6.5) $ (5.7) $(212.3) $(208.0)
Amount recognized in the
statements:
Prepaid benefit $ 138.8 $ 138.0 $ - $ -
Accrued liability (145.3) (143.7) (212.3) (208.0)
Additional minimum liability (22.0) (19.7) - -
Intangible asset 7.9 4.3 - -
Accumulated other
comprehensive income 14.1 15.4 - -
$ (6.5) $ (5.7) $(212.3) $(208.0)
At December 31, 1999 and 1998, the weighted-average discount rates used
in determining the pension benefit obligation were 7.1% and 6.7%,
respectively. At December 31, 1999 and 1998, the weighted-average
discount rates used in determining the postretirement benefit obligation
were 8.0% and 7.0%, respectively.
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for pension and postretirement benefit plans
with accumulated benefit obligations in excess of plan assets were
$428.8, $381.4, and $39.4, respectively, as of December 31, 1999 and
$435.4, $397.7, and $30.7, respectively, as of December 31, 1998.
Net periodic benefit cost for the years ended December 31 was determined as
follows:
Pension Postretirement
Benefits Benefits
1999 1998 1997 1999 1998 1997
Service cost $ 38.1 $ 35.4 $ 35.2 $ 3.6 $ 3.3 $ 3.0
Interest cost 67.6 64.5 63.1 13.4 13.0 13.0
Expected return on plan assets (69.6) (64.0) (58.9) - - -
Amortization of transition
(liability) asset (.7) (6.8) (6.8) - - -
Amortization of prior
service cost .8 (.4) 3.6 - - -
Amortization of actuarial
losses (gains) 10.2 12.3 7.7 (.4) - -
Settlements or curtailments 3.5 - 4.6 - - -
Other - .3 - - - -
Net periodic benefit cost $ 49.9 $ 41.3 $ 48.5 $16.6 $16.3 $16.0
<PAGE> 56
The weighted-average assumptions used to determine the data for the
years ended December 31 are as follows:
Pension Postretirement
Benefits Benefits
1999 1998 1997 1999 1998 1997
Discount rate 6.8% 7.1% 7.4% 7.0% 7.2% 7.7%
Rate of compensation increase 4.0 4.0 4.7 4.5 4.5 4.5
Rate of return on assets 8.8 9.2 9.2 N/A N/A N/A
For 1999, the assumed rate of future increases in the per capita cost of
health care benefits (the health care cost trend rate) was 7.4% for pre-65
claims (7.1% for post-65 claims) and will gradually decrease each year
thereafter to 5.0% in 2005 and beyond. The healthcare cost trend rate
assumption has a significant effect on the amounts reported. A one-percentage
point change in the assumed health care cost trend rates would have the
following effects:
1 Percentage 1 Percentage
(In millions) Point Increase Point Decrease
Effect on total of service
and interest cost components $ 2.4 $ 2.0
Effect on postretirement benefit
obligation 20.7 17.0
Supplemental Executive Retirement and Life Insurance Plans - Avon has a
Supplemental Executive Retirement Plan ("SERP") which is a defined benefit
plan under which Avon will pay supplemental pension benefits to key executives
in addition to amounts received under Avon's retirement plan. The annual cost
of this plan has been included in the determination of the net periodic
benefit cost shown above and in 1999 amounted to $10.1 (1998 - $6.1; 1997 -
$5.5). The accumulated benefit obligation under this plan at December 31,
1999 was $29.3 (1998 - $21.9) and is primarily included in Employee Benefit
Plans.
Avon also maintains a Supplemental Life Insurance Plan ("SLIP") under
which additional death benefits ranging from $.35 to $2.0 are provided
to certain active and retired officers. Avon has acquired corporate-
owned life insurance policies to provide partial funding of the
benefits. The cash surrender value of these policies at December 31,
1999 was $24.2 (1998 - $22.4) and is held in a grantor trust.
Avon has established a grantor trust to provide funding for the benefits
payable under the SERP and SLIP. The trust is irrevocable and assets
contributed to the trust can only be used to pay such benefits with certain
exceptions. The assets held in the trust at December 31, 1999, amounting to
$99.6 (1998 - $94.5), consisted of a fixed income portfolio, a managed
portfolio of equity securities and corporate-owned life insurance policies.
These assets are included in Other Assets.
Postemployment Benefits - Avon provides postemployment benefits which include
salary continuation, severance benefits, disability benefits, continuation of
health care benefits and life insurance coverage to former employees after
employment but before retirement. At December 31, 1999, the accrued cost for
postemployment benefits was $38.5 (1998 - $33.5) and is included in Employee
Benefit Plans.
11. Segment Information
The Company's reportable segments are based on geographic operations and
include a North American business unit and International business units
in Latin America, Pacific and Europe regions. The segments have similar
business characteristics and each offers similar products through common
customer access methods.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements.
The Company evaluates the performance of its operating segments based on
operating profits or losses. Segment revenues reflect direct sales of
products to representatives based on their geographic location.
Intersegment sales and transfers are not significant. Each segment
records direct expenses related to its employees and its operations. The
Company does not allocate income taxes, foreign exchange gains or
losses, or corporate overhead expenses to operating segments.
Identifiable assets are primarily those directly used in the operations
of each segment. Corporate and other identifiable assets include cash,
investments, deferred tax assets and prepaid pension assets.
Summarized financial information concerning the Company's reportable segments
as of December 31, is shown in the following table. Net sales and operating
profit by reportable segment are presented on page 5.
Identifiable Assets:
1999 1998 1997
North America
US $ 536.9 $ 497.2 $ 516.0
Other* 130.3 111.9 118.3
Total 667.2 609.1 634.3
International
Latin America 523.7 530.8 481.4
Europe 412.8 390.1 361.9
Pacific 410.6 379.9 376.7
Total 1,347.1 1,300.8 1,220.0
Corporate and other 514.3 523.6 418.6
Total identifiable assets $2,528.6 $2,433.5 $2,272.9
<PAGE> 57
Capital Expenditures:
1999 1998 1997
North America
US $ 39.2 $ 32.1 $ 24.0
Other* 10.6 11.7 5.2
Total 49.8 43.8 29.2
International
Latin America 51.9 33.5 21.4
Europe 39.6 28.8 17.5
Pacific 33.6 28.1 41.2
Total 125.1 90.4 80.1
Corporate and Other 28.5 55.3 60.1
Total capital expenditures $ 203.4 $ 189.5 $ 169.4
Depreciation and Amortization:
1999 1998 1997
North America
US $ 23.7 $ 19.2 $ 17.9
Other* 3.0 2.4 2.2
Total 26.7 21.6 20.1
International
Latin America 12.8 12.0 10.7
Europe 15.4 14.9 14.8
Pacific 16.1 11.2 15.3
Total 44.3 38.1 40.8
Corporate and Other 12.0 12.3 11.2
Total depreciation
and amortization $ 83.0 $ 72.0 $ 72.1
*Includes operating information for Puerto Rico, Dominican Republic, Canada
and Discovery Toys.
The following table presents consolidated net sales by classes of principal
products, as of December 31:
1999 1998 1997
Cosmetics, fragrance and toiletries $3,226.1 $3,176.6 $3,093.9
Beauty Plus:
Jewelry and accessories 455.4 408.1 370.2
Apparel 556.1 567.7 565.6
1,011.5 975.8 935.8
Non-core* 1,051.5 1,060.3 1,049.7
Total net sales $5,289.1 $5,212.7 $5,079.4
* Non-core category primarily includes gift and decorative and home
entertainment items.
Foreign Exchange - Financial statement translation of subsidiaries
operating in highly inflationary economies and foreign currency
transactions resulted in losses (gains) in 1999 netting to $7.5 (1998 -
($1.1); 1997 - $2.2), which are included in other expense (income), net
and income taxes. In addition, cost of sales and expenses include the
unfavorable impact of the translation of inventories and prepaid
expenses at historical rates in countries with highly inflationary
economies in 1999 of $7.1 (1998 - $15.8; 1997 - $6.0).
12. Leases and Commitments
Minimum rental commitments under noncancellable operating leases,
primarily for equipment and office facilities at December 31, 1999,
consisted of the following:
Year
2000 $ 70.0
2001 53.2
2002 39.8
2003 31.0
2004 27.2
Later years 250.3
Sublease rental income (6.5)
Total $465.0
Rent expense in 1999 was $84.5 (1998 - $84.7; 1997 - $88.2). Various
construction and information systems projects were in progress at
December 31, 1999 with an estimated cost to complete of approximately
$126.1.
13. 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.
Special and non-recurring charges by business segment are as follows:
1999 1998
North America $33.6 $ 84.6
Latin America 14.7 6.3
Europe 69.8 18.2
Pacific 11.8 27.3
Corporate 21.3 18.0
Total $151.2 $154.4
Special and non-recurring charges by category of expenditures are as
follows for the years ended December 31:
1999
Special Cost of
Charges 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
$105.2 $46.0 $151.2
<PAGE> 58
1998
Special Cost of
Charges Sales Charge Total
Employee severance
costs $ 56.4 $ - $ 56.4
Inventories - 37.9 37.9
Write-down of assets
to net realizable
value 31.8 - 31.8
Field program buy-out 14.4 - 14.4
Other 13.9 - 13.9
$116.5 $37.9 $154.4
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 accounting literature.
The workforce will be reduced by approximately 3,700 employees, or 9% of
the total. Approximately one-half of the terminated employees related
to the facility closures. As of December 31, 1999, substantially all
employees have been terminated.
Inventory-related charges represent losses to write down the carrying
value of non-strategic inventory prior to disposal. The 1999 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 1998 charges resulted from the
closure of facilities, discontinuation of certain product lines, size-
of-line reductions and a change in strategy for product dispositions.
The 1999 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 1998 write-down of assets relates to the closure of a
Far East buying office and manufacturing facilities in Puerto Rico and
the Dominican Republic. As a result of ongoing government restrictions,
the Company has also decided to close certain branches and a regional
office in China. Also, write-downs include assets (primarily fixed and
intangible assets) associated with the divestiture of the Discovery Toys
business unit, which was effective January 15, 1999.
The field program buy-out represents costs to terminate the
Company's prior representative recruitment program in the U.S.
The recognition of foreign currency translation adjustment relates
to the closure of the jewelry manufacturing facility in Ireland.
"Other" category primarily represents lease and contract termination
costs, litigation costs, and other costs associated with the facility
closures.
The liability balance included in other accrued liabilities as of
December 31, 1999 and 1998 is as follows:
Special Cost of
Charges Sales Charge Total
Provision $116.5 $37.9 $154.4
Cash expenditures (66.0) (66.0)
Non-cash write-offs (22.0) (37.9) (59.9)
Balance at
December 31, 1998 28.5 - 28.5
Provision 105.2 46.0 151.2
Cash expenditures (67.1) (67.1)
Non-cash write-offs (40.4) (46.0) (86.4)
Balance at
December 31, 1999 $ 26.2 $ - $ 26.2
The balance at December 31, 1999 relates primarily to employee
severance costs that will be paid during 2000.
14. Contingencies
Various lawsuits and claims (asserted and unasserted), arising in the
ordinary course of business or related to businesses previously sold,
are pending or threatened against Avon.
In 1991, a class action lawsuit was initiated against Avon on behalf
of certain classes of holders of Avon's Preferred Equity-Redemption
Cumulative Stock ("PERCS"). This lawsuit alleges various contract and
securities law claims relating to the PERCS (which were fully redeemed
that year). Avon has rejected the assertions in this case, believes it
has meritorious defenses to the claims and is vigorously contesting this
lawsuit. It is anticipated that a trial may take place later in 2000.
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 December 31, 1999 should not have a material adverse
impact on Avon's consolidated financial position, results of operations
or cash flows.
15. Subsequent Event
On February 3, 2000 Avon's Board approved an increase in the
quarterly cash dividend to $.185 per share from $.18. The first
dividend at the new rate will be paid on March 1, 2000 to shareholders
of record on February 16, 2000. On an annualized basis, the new
dividend rate will be $.74 per share.
<PAGE> 59
Report of Management
The accompanying consolidated financial statements of Avon Products,
Inc. have been prepared by management in conformity with generally
accepted accounting principles and necessarily include amounts that are
based on judgments and estimates. The audit report of
PricewaterhouseCoopers LLP, independent accountants, on these financial
statements is the result of their audits of these consolidated financial
statements, which were performed in accordance with generally accepted
auditing standards.
Avon maintains an internal control structure and related systems,
policies and procedures designed to provide reasonable assurance that
assets are safeguarded, transactions are executed in accordance with
appropriate authorization and accounting records may be relied upon for
the preparation of financial information. Avon also maintains an
internal audit department that evaluates and formally reports to
management on the adequacy and effectiveness of controls, policies and
procedures.
The audit committee of the board of directors, comprised solely of
outside directors, has an oversight role in the area of financial
reporting and internal controls. This committee meets several times
during the year with management, PricewaterhouseCoopers LLP and the
internal auditors to monitor the proper discharge of each of their
respective responsibilities. PricewaterhouseCoopers LLP and the internal
auditors have free access to management and to the audit committee to
discuss the results of their activities and the adequacy of controls.
It is management's opinion that Avon's policies and procedures,
reinforced by the internal control structure, provide reasonable
assurance that operations are managed in a responsible and professional
manner with a commitment to the highest standard of business conduct.
Andrea Jung Robert J. Corti
Chief Executive Officer Executive Vice President,
Chief Financial Officer
Report of Independent Accountants
To the Board of Directors and Shareholders of Avon Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, cash flows and changes in
shareholders' equity present fairly, in all material respects, the
financial position of Avon Products, Inc. at December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles in the United States. These
financial statements are the responsibility of Avon's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United
States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 27, 2000
<PAGE> 60
Eleven-Year Review
In millions, except per share and employee data
1999 1998 1997 1996
Income data
Net sales $5,289.1 $5,212.7 $5,079.4 $4,814.2
Operating Profit (1) 549.4 473.2 537.8 538.0
Interest expense (1) 43.2 34.7 35.5 33.2
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 506.6(5) 455.9(5) 534.9 510.4
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 302.4(5) 265.1(5) 337.0 319.0
Income from
continuing operations 302.4(5) 270.0(5) 338.8 317.9
Income (loss) from
discontinued
operations, net - - - -
Cumulative effect
of accounting
changes, net - - - -
Net income 302.4(5) 270.0(5) 338.8 317.9
Earnings (loss) per share
- basic (2) (3)
Continuing operations $ 1.18(5) $ 1.03(5) $ 1.28 $ 1.19
Discontinued operations - - - -
Cumulative effect of
accounting changes - - - -
Net income 1.18(5) 1.03(5) 1.28 1.19
Earnings (loss) per share
- diluted (2) (3)
Continuing operations $ 1.17(5) $ 1.02(5) $ 1.27 $ 1.18
Discontinued operations - - - -
Cumulative effect of
accounting changes - - - -
Net income 1.17(5) 1.02(5) 1.27 1.18
Cash dividends per share
Common $ .72 $ .68 $ .63 $ .58
Preferred - - - -
Balance sheet data
Working capital $ (375.0) $ 11.9 $ (11.9) $ (41.7)
Capital expenditures 203.4 189.5 169.4 103.6
Property, plant and
equipment, net 734.8 669.9 611.0 566.6
Total assets 2,528.6 2,433.5 2,272.9 2,222.4
Debt maturing within one year 306.0 55.3 132.1 97.1
Long-term debt 701.4 201.0 102.2 104.5
Total debt 1,007.4 256.3 234.3 201.6
Shareholders' (deficit) equity (406.1) 285.1 285.0 241.7
Number of employees
United States 8,800 8,000 8,100 7,800
International 31,700 25,900 26,900 25,900
Total employees (4) 40,500 33,900 35,000 33,700
<PAGE> 61
1995 1994 1993 1992
Income data
Net sales $4,492.1 $4,266.5 $3,844.1 $3,660.5
Operating Profit (1) 500.8 489.5 427.4 339.9
Interest expense (1) 34.6 44.7 39.4 38.4
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 465.0 433.8 394.6 290.0(7)
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 288.6 270.3 243.8 169.4(7)
Income from
continuing operations 286.1 264.8 236.9 164.2(7)
Income (loss) from
discontinued
operations, net (29.6) (23.8) 2.7 10.8
Cumulative effect
of accounting
changes, net - (45.2)(6) (107.5)(6) -
Net income 256.5 195.8 132.1 175.0(7)
Earnings (loss) per share
- basic (2) (3)
Continuing operations $ 1.05 $ .94 $ .82 $ 57(7)
Discontinued operations (.11) (.09) .01 .04
Cumulative effect of
accounting changes - (.16) (.37) -
Net income .94 .69 .46 .61(7)
Earnings(loss) per share
diluted (2) (3)
Continuing operations $ 1.05 $ .93 $ .82 $ .57(7)
Discontinued operations (.11) (.08) .01 .04
Cumulative effect of
accounting changes - (.16) (.37) -
Net income .94 .69 .46 .61(7)
Cash dividends per share
Common $ .53 $ .48 $ .43 $ 38
Preferred - - - -
Balance sheet data
Working capital $ (30.3) $ 9.3 $ 23.1 $ (99.5)
Capital expenditures 72.7 99.9 58.1 62.7
Property, plant and
equipment, net 537.8 528.4 476.2 476.7
Total assets 2,052.8 1,978.3 1,918.7 1,692.6
Debt maturing within one year 47.3 61.2 70.4 37.3
Long-term debt 114.2 116.5 123.7 177.7
Total debt 161.5 177.7 194.1 215.0
Shareholders' (deficit) equity 192.7 185.6 314.0 310.5
Number of employees
United States 8,000 7,900 8,000 8,700
International 23,800 22,500 21,500 20,700
Total employees (4) 31,800 30,400 29,500 29,400
Avon Products, Inc.
1991 1990 1989
Income data
Net sales $3,441.0 $3,291.6 $2,998.3
Operating Profit (1) 430.9 409.9 369.8
Interest expense (1) 71.6 74.1 115.2
Income from continuing
operations before taxes,
minority interest and
cumulative effect of
accounting changes 352.9 305.6 252.9
Income from continuing
operations before
minority interest and
cumulative effect of
accounting changes 209.3 180.3 134.1
Income from
continuing operations 204.8 174.1 126.5
Income (loss) from
discontinued
operations, net (69.1) 21.2 (71.9)
Cumulative effect
of accounting
changes, net - - -
Net income 135.7 195.3 54.6
Earnings (loss) per share
- basic (2) (3)
Continuing operations $ .65(8) $ .61 $ .41(10)
Discontinued operations (.24) .09 (.33)
Cumulative effect of
accounting changes - - -
Net income .41(8) .70 .08(10)
Earnings (loss) per share
- diluted (2) (3)
Continuing operations $ .71(8) $ .58 $ .40(10)
Discontinued operations (.24) .07 (.32)
Cumulative effect of
accounting changes - - -
Net income .47(8) .65 .08(10)
Cash dividends per share
Common $ 1.10(9) $ .25 $ .25
Preferred .253 .50 .50
Balance sheet data
Working capital $ (135.3) $ 71.6 $ 56.3
Capital expenditures 61.2 36.3 33.3
Property, plant and
equipment, net 468.5 467.2 472.5
Total assets 1,693.3 2,010.1 1,994.1
Debt maturing within one year 143.8 207.1 151.7
Long-term debt 208.1 334.8 673.2
Total debt 351.9 541.9 824.9
Shareholders' (deficit) equity 251.6 393.4 228.3
Number of employees
United States 9,200 9,500 9,400
International 20,900 20,300 19,900
Total employees (4) 30,100 29,800 29,300
(1) Certain reclassifications have been made to conform to the current
full year presentation.
(2) Two-for-one stock splits were distributed in September 1998 and
June 1996. All per share data in this report, unless indicated, have
been restated to reflect the splits.
(3) Effective for the year ended December 31, 1997, the Company adopted
FAS No. 128, "Earnings per Share". FAS No. 128 establishes standards
for computing and presenting earnings per share ("EPS") and replaces the
presentation of previously disclosed EPS with both basic and diluted
EPS. Based upon the Company's capitalization structure, the EPS amounts
calculated in accordance with FAS No. 128 approximated the Company's EPS
amounts in accordance with Accounting Principles Board Opinion No. 15,
"Earnings per Share". All prior period EPS data have been restated in
accordance with FAS No. 128.
(4) Avon's calculation of full-time equivalents, or number of
employees, was revised in 1999. Restatements of prior year data are not
available, and therefore, year over year comparisons are not meaningful.
(5) In 1998, Avon began a worldwide business process redesign program
in order to streamline operations and recorded special and non-recurring
charges of $154.4 ($122.8 net of tax, or $.46 per share on a basic and
diluted basis). Excluding the special and non-recurring charges, net
income in 1998 increased 16% to $392.8 from $338.8. In 1999, special
and non-recurring charges related to this program totaled $151.2 ($121.9
net of tax, or $.47 per share on a basic and diluted basis). Excluding
the special and non-recurring charges, net income in 1999 increased 8%
to $424.3 from $392.8.
(6) Effective January 1, 1994, Avon adopted Statement of Financial
Accounting Standards ("FAS") No. 112, "Employers' Accounting for
Postemployment Benefits", for all applicable operations, and FAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", for its foreign benefit plans. Effective January 1, 1993,
Avon adopted FAS No. 106 for its U.S. retiree health care and life
insurance benefit plans and FAS No. 109, "Accounting for Income Taxes".
Effective January 1, 1988, Avon adopted FAS No. 96, "Accounting for
Income Taxes".
(7) In 1992, Avon began the restructuring of its worldwide
manufacturing and distribution facilities and recorded a provision of
$96.0 ($64.4 after tax, or $.22 per share on a basic and diluted basis).
Income from continuing operations in 1993 increased 4% from $228.6, or
$.79 per share on a basic and diluted basis, excluding the 1992
restructuring charge.
(8) For 1991, in management's opinion, per share amounts assuming
dilution, even though the result is antidilutive, provide the most
meaningful comparison of per share data because they show the full
effect of the conversion of 72 preferred shares into approximately 51.84
common shares on June 3, 1991.
(9) Includes special dividend of $.75 paid in 1991.
(10) In 1989, the calculation of earnings per share was assumed to be
antidilutive and, accordingly, earnings per share were not adjusted for
the conversion of preferred shares into additional common shares.
EXHIBIT 18
<PAGE>
EXHIBIT 18
January 27, 2000
Board of Directors
Avon Products, Inc.
1345 Avenue of the Americas
New York, NY 10105-0196
Dear Directors:
We are providing this letter to you for inclusion as an exhibit to your
Form 10-K filing pursuant to Item 601 of Regulation S-K.
We have audited the consolidated financial statements incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 and issued our report thereon dated January 27, 2000.
Note 1 to the financial statements describes a change in accounting
principle for determining the cost of certain inventories from the Last-
in, First-out ("LIFO") method to the First-in, First-out ("FIFO") method.
It should be understood that the preferability of one acceptable method
of accounting over another for inventory costing has not been addressed
in any authoritative accounting literature, and in expressing our
concurrence below, we have relied on management's determination that this
change in accounting principles is preferable. Based on our reading of
management's stated reasons and justification for this change in
accounting principles in the Form 10-K, and our discussions with
management as to their judgment about the relevant business planning
factors relating to the change, we concur with management that such
change represents, in the Company's circumstances, the adoption of a
preferable accounting principle in conformity with Accounting Principles
Board Opinion No. 20.
Very truly yours,
PricewaterhouseCoopers LLP
New York, New York
EXHIBIT 21
<PAGE>
EXHIBIT 21
AVON PRODUCTS, INC. AND SUBSIDIARIES
Subsidiaries of the Registrant
Avon Products, Inc. ("Avon"), a New York corporation, consolidates all
majority owned subsidiaries. The principal consolidated subsidiaries, all
of which are wholly owned by Avon or its wholly owned subsidiaries,
except as indicated, are listed below. Included on the list below are
subsidiaries which individually are not significant subsidiaries but
primarily represent subsidiaries in countries in which the Company has
direct selling operations. The names of Avon's other consolidated
subsidiaries, which are primarily wholly owned by Avon or its wholly
owned subsidiaries, are not listed because all such subsidiaries,
considered in the aggregate as a single subsidiary, would not constitute
a significant subsidiary.
Incorporation
Company Country or State
- - ------- ----------------
Cosmetics Avon S.A.C.I. Argentina
Avon Cosmetics Pty. Limited Australia
Avon Products Pty. Limited Australia
Avon Cosmetics Vertriebsgesellschaft m.b.h Austria
Arlington Limited Bermuda
Avon International (Bermuda) Ltd. Bermuda
Stratford Insurance Company, Ltd. Bermuda
Productos Avon Bolivia Ltda. Bolivia
Avon Cosmeticos, Ltda. Brazil
Avon Industrial Ltda. Brazil
Nucleo de Atualiza cao Techologia Avon Ltda. (Nata) Brazil
Tortola Interlagos Investments Inc. British VI
Avon Canada, Inc. Canada
Avon Fashions, Inc. - Avon Mode Inc. Canada
Cosmeticos Avon S.A. Chile
Avon Products (Guangzhou) Ltd. (73.845%), China
Avon Manufacturing (Guangzhou) Ltd. (73.845%) China
Avon Kosmetika d.o.o. Croatia
Avon Cosmetics, Spolecnosti S. Rucenlm Omezenym Czech Republic
Avon Capital Corporation Delaware
Avon International Operations, Inc. Delaware
Avon-Lomalinda, Inc. Delaware
Avon (Windsor) Limited Delaware
Manila Manufacturing Company Delaware
Surrey Leasing, Limited Delaware
Productos Avon S.A. Dominican Republic
Productos Avon Ecuador S.A. Ecuador
<PAGE>
Productos Avon, S.A. El Salvador
Avon S.A. France
Avon Cosmetics GmbH Germany
Productos Avon de Guatemala, S.A. Guatemala
Productos Avon, S.A. Honduras
Avon Cosmetics (FEBO) Limited Hong Kong
Avon Cosmetics Hungary KFT Hungary
Avon Service Center, Inc. Illinois
Avon Beauty Productos India Private Limited India
P.T. Avon Indonesia (85%) Indonesia
Albee Dublin Finance Company Ireland
Avon Limited Ireland
Avon Cosmetics Ireland Limited Ireland
Avon Cosmetics S.p.A. Italy
Avon Products Company Limited (66%) Japan
Live and Life Company Limited Japan
Avon Cosmetics (Malaysia) Sendirian Berhad (70%) Malaysia
Beautifont (Malaysia) Sendirian Berhad Malaysia
Maximen Corporation Sdn Bhd Malaysia Avon
Cosmetics, S.A. de C.V. Mexico
Avonova, S. A. de C.V. Mexico
M.I. Holdings, Inc. Missouri
Avon Americas, Ltd. New York
Avon Overseas Capital Corporation New York
Avon Cosmetics Limited New Zealand
Productos Avon de Nicaragua, S.A. Nicaragua
Avon Cosmetics A/S Norway
Productos Avon S.A. Panama
Productos Avon S.A Peru
Cosmeticos Aliados S.A. Peru
Avon Cosmetics, Inc. Philippines
Avon Products Mfg., Inc. Philippines
Beautifont Products, Inc. Philippines
Avon Cosmetics Polska Sp. z.o.o. Poland
Esmeralda Sp. z.o.o. Poland
Avon Cosmeticos, Lda. Portugal
Avon Cosmetics Spal s.r.o. Slovak Republic
Avon Cosmetics (Romania) SRL Romania
Avon Beauty Products Co. (ABPC) Russia Russia
Justine/Avon PTY. Ltd. South Africa
Avon Cosmetics, S.A. Spain
Avon Cosmetics (Taiwan) Ltd. Taiwan
Avon Products Limited Taiwan
Avon Cosmetics (Thailand) Ltd. Thailand
California Manufacturing Company Ltd. Thailand
<PAGE>
Exzacibasi Avon Kosmetik Urunleri Turkey
Sanayi ve Ticaret A.S. (50%) (Joint Venture)
Avon Cosmetics (Ukraine) Ukraine
Avon Cosmetics Export Limited United Kingdom
Avon Cosmetics Limited United Kingdom
Avon European Holdings Ltd. United Kingdom
Avon Fashions (UK) Limited United Kingdom
Avon S.U. Export Limited United Kingdom
Cosmeticos Avon De Uruguay S.A. Uruguay
Avon Cosmetics de Venezuela, C.A. Venezuela
Albee Holdings C.A. Venezuela
EXHIBIT 24
<PAGE>
FORM 10-K
POWER OF ATTORNEY
- - -----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, WARD M. MILLER, JR. and C.
Richard Mathews, and each of them, his or her true and lawful attorneys-
in-fact and agents, with full power of substitution and resubstitution,
in his or her name, place and stead, in any and all capacities, to sign
the 1999 Annual Report on Form 10-K of Avon Products, Inc. and any and
all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents full
power and authority to do and perform each and every act, as fully to all
intents and purposes as they might or could do in person, thereby
ratifying and confirming all that such attorneys-in-fact and agents, or
any of them, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney
as of March 9, 2000.
Signature Title
- - --------- -----
/s/Andrea Jung President, Chief Executive Officer
Andrea Jung and Director -
Principal Executive Officer
/s/Jose Ferreira, Jr. Executive Vice President and
Jose Ferreira, Jr. Chief Operating Officer -
International and New
Business Development
/s/Susan J. Kropf Executive Vice President and
Susan J. Kropf Chief Operating Officer -
North America and
Global Business Operations
/s/Robert J. Corti Executive Vice President and
Robert J. Corti Chief Financial Officer -
Principal Financial Officer
/s/Janice Marolda Vice President and Controller -
Janice Marolda Principal Accounting Officer
Signature Title
- - --------- -----
<PAGE>
/s/Brenda C. Barnes Director
Brenda C. Barnes
/s/Richard S. Barton Director
Richard S. Barton
/s/Stanley C. Gault Chairman of the Board
Stanely C. Gault and Director
/s/Fred Hassan Director
Fred Hassan
/s/Ann S. Moore
Ann S. Moore Director
/s/Lawrence A. Weinbach Director
Lawrence A. Weinbach
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
<PAGE>
EXHIBIT 27
Exhibit 27
Avon Products, Inc.
Financial Data Schedule
This schedule contains summary financial information extracted from the
Avon Products, Inc. financial statements as of December 31, 1999 and for the
year then ended included in the Form 10-K as of December 31, 1999 and is
qualified in its entirety by reference to such financial statements.
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