FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___ to ___
Commission file number 1-4881
AVON PRODUCTS, INC.
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-0544597
------------------------------- -------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1345 Avenue of the Americas, New York, N.Y. 10105-0196
-------------------------------------------------------
(Address of principal executive offices)
(212) 282-5000
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The number of shares of Common Stock (par value $.25) outstanding at July
31, 2001 was 236,227,584
Table of Contents
Part I. Financial Information
Page
Numbers
-------
Introductory Note - Restatements.............................. 3
Item 1. Financial Statements
Consolidated Statements of Operations
Three Months Ended June 30, 2001 (Restated)
and June 30, 2000............................... 4
Six Months Ended June 30, 2001 (Restated)
and June 30, 2000............................... 5
Consolidated Balance Sheets
June 30, 2001 (Restated) and December 31, 2000...... 6
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 (Restated)
and June 30, 2000............................... 7
Notes to Consolidated Financial Statements (Restated). 8-21
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition
(Restated)............................................ 22-31
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K...................... 32
Signature ..................................................... 33
2
Introductory Note--Restatements
In connection with the settlement of the previously disclosed
investigation by the Securities and Exchange Commission ("SEC") relating to the
write off of an order management software system known as the "FIRST" project,
Avon has restated its Consolidated Financial Statements as of December 31,
2001, 2000 and 1999 and for the years then ended and for each of the fiscal
quarters ended March 31, 1999 through March 31, 2002. Avon had written off
$14.8 pretax, or $10.0 after tax, of FIRST assets in the first quarter of 1999
and $23.9 pretax, or $14.5 after tax, of FIRST assets in the third quarter of
2001. Avon has restated its financial statements to reflect the additional
write off as of March 31, 1999 of all capitalized costs ($23.3 pretax, or $14.0
after tax), associated with the FIRST project as of that date and a reversal of
the charge recorded in the third quarter of 2001. Other FIRST-related activity
(capitalized costs and amortization) recorded during 1999-2002 has also been
restated. A description of the adjustments that comprise the restatements is
set forth in Notes 2 and 10 of the Notes to Consolidated Financial Statements
filed with this Form 10-Q/A.
The accompanying financial statements have been restated to reflect the
restatements discussed above as well as the accounting changes outlined in Note
2. No attempt has been made in this Form 10-Q/A to modify or update any
disclosures except as required to reflect the results of the restatements
discussed above and any changes made to prior period financial information for
which a Form 10-Q/A was not filed.
3
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
PART I. FINANCIAL INFORMATION
Three months ended
June 30
------------------
2001 2000
(Restated Note 2) -------
---------------
(unaudited)
Net sales........................................... $1,457.0 $1,386.4
Other revenue....................................... 10.2 10.0
-------- -------
Total revenue....................................... 1,467.2 1,396.4
Costs, expenses and other:
Cost of sales ................................... 535.7 511.9
Marketing, distribution and administrative expenses 695.4 663.3
-------- --------
Operating profit.................................... 236.1 221.2
Interest expense.................................. 18.9 22.8
Interest income................................... (4.2) (2.1)
Other expense, net................................ 7.3 4.6
-------- --------
Total other expense, net ........................... 22.0 25.3
-------- --------
Income before taxes and minority interest........... 214.1 195.9
Income taxes........................................ 74.7 69.5
-------- --------
Income before minority interest..................... 139.4 126.4
Minority interest................................... (1.5) (1.0)
-------- --------
Net income ......................................... $ 137.9 $ 125.4
======== ========
Earnings per share:
Basic............................................. $ .58 $ .53
======== ========
Diluted........................................... $ .57 $ .52
======== ========
The accompanying notes are an integral part of these statements.
4
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Six months ended
June 30
-----------------
2001 2000
(Restated Note 2)------
---------------
(unaudited)
Net sales........................................... $2,803.4 $2,692.7
Other revenue....................................... 20.8 20.4
-------- -------
Total revenue....................................... 2,824.2 2,713.1
Costs, expenses and other:
Cost of sales ................................... 1,048.2 1,013.3
Marketing, distribution and administrative expenses 1,394.1 1,340.7
-------- --------
Operating profit.................................... 381.9 359.1
Interest expense.................................. 38.6 42.7
Interest income................................... (6.2) (3.9)
Other expense, net................................ 8.9 14.8
-------- --------
Total other expense, net ........................... 41.3 53.6
-------- --------
Income from continuing operations before taxes,
minority interest and cumulative effect
of accounting changes............................. 340.6 305.5
Income taxes........................................ 119.2 108.6
-------- --------
Income before minority interest and cumulative
effect of accounting changes...................... 221.4 196.9
Minority interest................................... (1.5) (1.0)
-------- --------
Income from continuing operations before
cumulative effect of accounting changes........... 219.9 195.9
Cumulative effect of accounting changes, net of taxes (0.3) (6.7)
-------- --------
Net income ......................................... $ 219.6 $ 189.2
======== ========
Basic earnings per share:
Continuing operations............................. $ .93 $ .82
Cumulative effect of accounting changes........... - (.03)
-------- --------
$ .93 $ .79
======== ========
Diluted earnings per share:
Continuing operations ............................ $ .91 $ .82
Cumulative effect of accounting changes........... - (.03)
-------- --------
$ .91 $ .79
======== ========
The accompanying notes are an integral part of these statements.
5
AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
June 30 December 31
2001 2000
(Restated Note 2) -------
---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 151.7 $ 122.7
Accounts receivable.............................. 477.9 499.0
Income tax receivable ........................... - 95.2
Inventories...................................... 686.5 610.6
Prepaid expenses and other....................... 230.9 218.2
-------- --------
Total current assets............................. 1,547.0 1,545.7
-------- --------
Property, plant and equipment, at cost........... 1,518.0 1,520.4
Less accumulated depreciation.................... 757.2 754.7
-------- --------
760.8 765.7
Other assets..................................... 515.1 499.9
-------- --------
Total assets..................................... $2,822.9 $2,811.3
======== ========
LIABILITIES AND SHAREHOLDERS'(DEFICIT)EQUITY
Current liabilities:
Debt maturing within one year.................... $ 145.6 $ 105.4
Accounts payable................................. 348.9 391.3
Accrued compensation............................. 106.3 138.2
Other accrued liabilities........................ 244.0 251.7
Sales and taxes other than income................ 92.7 101.1
Income taxes..................................... 391.5 371.6
-------- --------
Total current liabilities........................ 1,329.0 1,359.3
-------- --------
Long-term debt................................... 1,139.0 1,108.2
Employee benefit plans........................... 383.5 397.2
Deferred income taxes............................ 29.3 31.3
Other liabilities................................ 98.3 95.2
Share repurchase commitments - 51.0
Shareholders'(deficit)equity:
Common stock..................................... 88.8 88.6
Additional paid-in capital....................... 893.3 824.1
Retained earnings................................ 1,254.2 1,124.7
Accumulated other comprehensive loss ........... (422.2) (399.1)
Treasury stock, at cost.......................... (1,970.3) (1,869.2)
-------- --------
Total shareholders'(deficit)equity............... (156.2) (230.9)
-------- --------
Total liabilities and shareholders'(deficit)equity $2,822.9 $2,811.3
======== ========
The accompanying notes are an integral part of these statements.
6
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six months ended
June 30
------------------
2001 2000
(Restated Note 2) ----
---------------
(unaudited)
Cash flows from operating activities:
Net income.............................................. $ 219.6 $ 189.2
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Special and non-recurring payments...................... (4.1) (10.1)
Cumulative effect of accounting changes................. 0.3 6.7
Depreciation and amortization........................... 53.0 45.0
Provision for doubtful accounts......................... 52.4 48.2
Foreign exchange losses................................. 8.1 1.5
Amortization of debt discount(premium) ................. 7.3 (3.3)
Deferred income taxes................................... (5.6) 5.4
Other................................................... 8.2 5.4
Changes in assets and liabilities:
Accounts receivable................................... (45.2) (47.5)
Income tax receivable................................. 95.2 -
Inventories........................................... (89.0) (141.6)
Prepaid expenses and other............................ (20.0) (16.3)
Accounts payable and accrued liabilities.............. (67.5) (130.9)
Income and other taxes................................ 18.3 (5.8)
Noncurrent assets and liabilities..................... 3.0 18.1
------ ------
Net cash provided by(used in) operating activities...... 234.0 (36.0)
------ ------
Cash flows from investing activities:
Capital expenditures.................................... (68.1) (76.5)
Disposal of assets...................................... 6.2 5.2
Other investing activities.............................. (5.3) (1.1)
------ ------
Net cash used by investing activities................... (67.2) (72.4)
------ ------
Cash flows from financing activities:
Cash dividends.......................................... (91.8) (89.7)
Book overdraft.......................................... (1.0) (8.5)
Debt, net (maturities of three months or less).......... 56.8 221.7
Proceeds from short-term debt........................... 41.7 25.6
Retirement of short-term debt........................... (52.4) (42.7)
Retirement of long-term debt............................ (.1) (.1)
Repurchase of common stock.............................. (100.3) (42.1)
Proceeds from exercise of stock options, net of taxes... 16.7 10.5
------ ------
Net cash (used in)provided by financing activities...... (130.4) 74.7
------ ------
Effect of exchange rate changes on cash and equivalents. (7.4) (7.8)
------ ------
Net increase (decrease) in cash and equivalents......... 29.0 (41.5)
Cash and equivalents at beginning of period............. 122.7 117.4
------ ------
Cash and equivalents at end of period................... $ 151.7 $ 75.9
======= ======
The accompanying notes are an integral part of these statements.
7
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
1. ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
contained in Avon's 2000 Annual Report to Shareholders. The interim statements
are unaudited but include all adjustments, consisting of normal recurring
adjustments, that management considers necessary to fairly present the results
for the interim periods. Results for interim periods are not necessarily
indicative of results for a full year. The year-end balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by FAS No. 138, "Accounting for Certain
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. In
accordance with the provisions of FAS No. 133, the Company recorded a charge to
earnings of $0.3, net of a tax benefit of $0.2, in the first quarter of 2001 to
reflect the change in time value of Avon's outstanding options from the dates of
the options' inception through the date of transition (January 1, 2001). The
Company also recorded a charge to shareholders' (deficit) equity of $3.9, net of
a tax benefit of $2.1, included in accumulated other comprehensive loss to
recognize the fair value of all derivatives designated as cash-flow hedging
instruments, which the Company expects to reclassify into earnings within the
next twelve months. These charges are reflected as a cumulative effect of an
accounting change in the accompanying Consolidated Financial Statements. See
Notes 8 and 11 of the Notes to Consolidated Financial Statements.
Effective January 1, 2000, the Company adopted Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides the Securities and Exchange Commission's views in applying generally
accepted accounting principles to revenue recognition in the financial
statements. As a result of adopting SAB 101, Avon changed its revenue
recognition policy to recognize revenue upon delivery, when both title and
risks and rewards of ownership pass to the independent Representative. In
accordance with the provisions of SAB 101, the Company recorded a charge to
earnings of $6.7, net of a tax benefit of $3.5, in the first quarter of 2000 to
reflect the accounting change. This charge is reflected as a cumulative effect
of an accounting change in the accompanying Consolidated Statements of
Operations. Restatements were made to previously reported 2000 quarterly
information to reflect the adoption of SAB 101.
For the year ended December 31, 2000, the Company adopted the provisions
of Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and
Handling Fees and Costs", which requires that amounts billed to customers for
shipping and handling fees be classified as revenues. EITF 00-10 also requires
the disclosure of the income statement classification of any shipping and
handling costs. 2000 quarterly information has been restated to reflect
shipping and handling fees, previously reported in Marketing, distribution &
administration expenses, in Other revenue in the Consolidated Statements of
Operations. For the three months ended June 30, 2001 and 2000, shipping and
handling costs aggregated $130.8 and $121.5, respectively. For the six months
ended June 30, 2001 and 2000, shipping and handling costs aggregated $256.0 and
$240.5, respectively. These costs are included in Marketing, distribution &
administrative expenses in the Consolidated Statements of Operations.
In May 2000, the EITF reached a consensus on EITF 00-14, "Accounting for
Certain Sales Incentives", which provides guidance on accounting for discounts,
coupons, rebates and free products, as well as the income statement
classification of these discounts, coupons, rebates and free products. EITF
00-14 is effective January 1, 2002, for the Company. The Company is currently
evaluating the impact of this new guidance.
8
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
In April 2001, the EITF reached a consensus on EITF 00-25, "Accounting for
Consideration from a Vendor to a Retailer in Connection with the Purchase or
Promotion of the Vendor's Products", which provides guidance on the income
statement classification of consideration from a vendor to a retailer in
connection with the retailer's purchase of the vendor's products or to promote
sales of the vendor's products. EITF 00-25 is effective January 1, 2002, for
the Company. The Company is currently evaluating the impact of this new
guidance.
In June 2001, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards (FAS) No. 141, "Business Combinations", which
addresses the accounting and reporting for business combinations, and FAS No.
142, "Goodwill and Other Intangible Assets", which addresses the accounting and
reporting for acquired goodwill and other intangible assets. FAS 141 is
effective for business combinations completed after June 30, 2001 and FAS 142
is effective January 1, 2002, for the Company. The Company does not expect the
adoption of FAS 141 and 142 to have a material impact on the Consolidated
Financial Statements.
To conform to the 2001 presentation, certain reclassifications were made to
the prior periods' consolidated financial statements and the accompanying
footnotes.
2. RESTATEMENTS AND ACCOUNTING CHANGES
Restatements
In connection with the settlement of a previously disclosed investigation
by the Securities and Exchange Commission relating to the write off of an order
management software system known as the "FIRST" project, Avon has restated its
Consolidated Financial Statements as of December 31, 2001, 2000 and 1999 and
for the years then ended and for each of the fiscal quarters ended March 31,
1999 through March 31, 2002. See Introductory Note-Restatements and Note 10 of
the Notes to Consolidated Financial Statements, "Asset Impairment Charge".
The accompanying financial statements have been restated to reflect the
restatements discussed above as well as the accounting changes outlined in this
Note. No attempt has been made in this Form 10-Q/A to modify or update any
disclosures except as required to reflect the results of the restatements
discussed above and any changes made to prior period financial information for
which a Form 10-Q/A was not filed.
The principal adjustments comprising the restatements are as follows:
o Reclassification of $14.8 of pre-tax charges recorded in the first
quarter of 1999 related to the write off of a portion of the FIRST
project, out of the "Special charges" line and into the "Asset
impairment charge" line;
o An additional Asset impairment charge of $23.3 pretax in the first
quarter of 1999 to reflect the write off of all capitalized costs
associated with the FIRST project as of March 31, 1999;
o Reversal of the third quarter 2001 Asset impairment charge of $23.9
pretax related to the abandonment of the FIRST project; AND
o Restatement of all other activity related to the FIRST project,
consisting of costs incurred and capitalized subsequent to March 31,
1999 and amortization, recorded from the second quarter of 1999
through the first quarter of 2002.
These adjustments resulting from the restatements are reflected in
Management's Discussion & Analysis and the following notes: Special and
Non-Recurring Charges, Earnings per Share, Comprehensive Income (Loss), Segment
Information and Asset Impairment Charge.
Accounting Changes
In addition, the Form 10-Q/A reflects the following changes to prior
period financial information for which a Form 10-Q/A was not previously filed.
These changes are primarily the result of the previously disclosed adoption of
new accounting pronouncements and are unrelated to the restatements described
above and the FIRST project:
9
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
o Reclassifications made to reported 2001 and 2000 financial
information as a result of the adoption of EITF No. 00-14,
"Accounting for Certain Sales Incentives", EITF No. 00-25,
"Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products"
and EITF 01-09 "Accounting for Consideration Given by a Vendor to a
Customer or Reseller of the Vendor's Products". The adoption of these
EITFs had no impact on Operating profit, Net inocme or Earnings per
share; and
o Reclassifications made to reported financial information to conform
with the 2002 presentation primarily related to the sale of
fundraising products in the U.S. Previously, the net sales and
fundraising expenses associated with certain U.S. fundraising
products had been included within Marketing, distribution and
administrative expenses. This reclassification resulted in an
increase to Net sales, Cost of sales and Marketing, distribution and
administrative expenses of $7.1, $4.1 and $3.0, respectively, for the
three months ended June 30, 2001 and $8.2, $4.7 and $3.5,
respectively, for the six months ended June 30, 2001 and had no
impact on reported Operating profit, Net Income or Earnings per
share.
The effects of these restatements and accounting changes on the
Consolidated Financial Statements are set forth below:
Consolidated Statement of Operations
Three Months ended June 30, 2001
----------------------------------------------
As As
Reported(1) (2) Restated(3)
----------- ---- -----------
Net sales $1,452.5 $1,457.0 $1,457.0
Total revenue 1,462.7 1,467.2 1,467.2
Cost of sales 522.5 535.7 535.7
Marketing, distribution and
administrative expenses 704.4 695.7 695.4
Operating profit 235.8 235.8 236.1
Income from continuing operations
before taxes and minority interest 213.8 213.8 214.1
Income taxes 74.6 74.6 74.7
Income from continuing operations
before minority interest 139.2 139.2 139.4
Net income 137.7 137.7 137.9
Basic earnings per share:
Continuing operations $ .58 $ .58 $ .58
Cumulative effect of accounting
changes - - -
-------- ------- -------
$ .58 $ .58 $ .58
======== ======= =======
Diluted earnings per share:
Continuing operations $ .57 $ .57 $ .57
Cumulative effect of accounting
changes - - -
-------- ------- -------
$ .57 $ .57 $ .57
======== ======= =======
10
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Consolidated Statement of Operations
Six Months ended June 30, 2001
---------------------------------------------------
As As
Reported(1) (2) Restated(3)
----------- ---- -----------
Net sales $2,799.7 $2,803.4 $2,803.4
Total revenue 2,820.5 2,824.2 2,824.2
Cost of sales 1,023.6 1,048.2 1,048.2
Marketing, distribution and
administrative expenses 1,415.3 1,394.4 1,394.1
Operating profit 381.6 381.6 381.9
Income from continuing operations
before taxes, minority interest
and cumulative effect of
accounting changes 340.3 340.3 340.6
Income taxes 119.1 119.1 119.2
Income from continuing operations
before minority interest and
cumulative effect of accounting change 221.2 221.2 221.4
Income from continuing operations
before cumulative effect of
accounting changes 219.7 219.7 219.9
Net income 219.4 219.4 219.6
Basic earnings per share:
Continuing operations $ .92 $ .92 $ .93
Cumulative effect of accounting change - - -
-------- -------- -------
$ .92 $ .92 $ .93
======== ======== =======
Diluted earnings per share:
Continuing operations $ .91 $ .91 $ .91
Cumulative effect of accounting
changes - - -
-------- -------- -------
$ .91 $ .91 $ .91
======== ======== =======
Consolidated
Balance Sheet
As of June 30, 2001
---------------------------------
As As
Reported(1) Restated(3)
----------- -----------
Property, plant and equipment, at cost $1,520.7 $1,518.0
Other assets 527.3 515.1
Total assets 2,837.8 2,822.9
Retained earnings 1,269.1 1,254.2
Total liabilities and shareholder's
(deficit) equity 2,837.8 2,822.9
(1) As reported in Avon's Form 10-Q for the quarterly period ended June 30,
2001.
(2) Includes the effects of accounting changes outlined above.
(3) Includes the effects of restatements and accounting changes outlined above.
Note: Refer to Avon's Form 10-Q/A for the quarter ended June 30, 2000 for
restatements to 2000 information.
11
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
3. INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS
"Net cash provided by(used in) operating activities" includes the following
cash payments for interest and income taxes:
Six months ended
June 30
------------------
2001 2000
---- ----
Interest............................................ $ 29.1 $ 50.6
Income taxes, net of refunds received............... 9.9 102.0
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") are computed by dividing net income by the
weighted-average number of shares outstanding during the year. Diluted earnings
per share are calculated to give effect to all potentially dilutive common
shares that were outstanding during the year.
12
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
For the three and six months ended June 30, 2001 and 2000, the components
of basic and diluted earnings per share are as follows:
Three Months Six Months
Ended June 30 Ended June 30
Numerator: 2001 2000 2001 2000
---- ---- ---- ----
Basic:
Income from continuing operations
before cumulative effect of
accounting changes $ 137.9 $ 125.4 $ 219.9 $195.9
Cumulative effect of accounting changes - - (0.3) (6.7)
-------- ------- ------- ------
Net Income $ 137.9 $ 125.4 $ 219.6 $189.2
======== ======= ======= ======
Diluted:
Income from continuing operations
before cumulative effect of accounting
changes $ 137.9 $ 125.4 $ 219.9 $195.9
Interest expense on convertible notes,
net of taxes 2.5 - 5.0 -
-------- ------- ------- ------
Income for purposes of computing diluted
EPS before cumulative effect of
accounting changes 140.4 125.4 224.9 195.9
Cumulative effect of accounting changes - - (0.3) (6.7)
-------- ------- ------- -----
Net income for purposes of computing
diluted EPS $ 140.4 $ 125.4 $ 224.6 $189.2
======== ======= ======= ======
Denominator:
Basic EPS weighted-average shares
outstanding 236.74 237.50 237.32 237.57
Dilutive effect of:
Assumed conversion of
stock options and settlement of
forward contracts (1) 2.10 2.06 2.00 1.78
Assumed conversion of convertible notes 6.96 - 6.96 -
------- ------ ------ ------
Diluted EPS adjusted weighted-average
shares outstanding 245.80 239.56 246.28 239.35
======== ======= ======= ======
Basic EPS:
Continuing operations $ .58 $ .53 $ .93 $ .82
Cumulative effect of accounting
changes - - - (.03)
-------- -------- ------- ------
$ .58 $ .53 $ .93 $ .79
======== ======= ======= ======
Diluted EPS:
Continuing operations $ .57 $ .52 $ .91 $ .82
Cumulative effect of accounting
changes - - - (.03)
-------- -------- ------- ------
$ .57 $ .52 $ .91 $ .79
======== ======= ======= ======
(1) At June 30, 2000, stock options and forward contracts to purchase
Avon common stock totaling 2.3 million shares, are not included in the
earnings per share calculation since their impact is anti-dilutive.
13
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
The Company purchased approximately 2,564,000 shares of common stock for
$101.1 during the first six months of 2001, as compared to approximately
1,060,000 shares of common stock for $42.1 during the first six months of 2000.
At June 30, 2001, 17,990 shares repurchased for $0.8 were not settled until July
2001 and were included in Other accrued liabilities on the Consolidated Balance
Sheets.
5. INVENTORIES
June 30 December 31
2001 2000
----- ----
Raw materials................ $181.4 $168.0
Finished goods............... 505.1 442.6
------ ------
$686.5 $610.6
====== ======
6. DIVIDENDS
Cash dividends paid per share of common stock were $.19 and $.38 for
the three and six months ended June 30, 2001, respectively, and $.185 and $.37
for the corresponding 2000 periods. On February 1, 2001, the Company increased
the indicated annual dividend rate to $.76 from $.74.
7. CONTINGENCIES
Various lawsuits and claims (asserted and unasserted), arising in the
ordinary course of business or related to businesses previously sold, are
pending or threatened against Avon.
In 1991, a class action suit was initiated against Avon on behalf of certain
classes of holders of Avon's Preferred Equity-Redemption Cumulative Stock
("PERCS"). This lawsuit alleges various contract and securities law claims
relating to the PERCS (which were fully redeemed that year). While it is not
possible to predict the outcome of litigation, 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 will take
place in 2001.
In the opinion of Avon's management, based on its review of the information
available at this time, the total cost of resolving such contingencies at June
30, 2001, should not have a material adverse impact on Avon's consolidated
financial position, results of operations or cash flows.
8. COMPREHENSIVE INCOME(LOSS)
For the three and six months ended June 30, 2001 and 2000, the components of
comprehensive income are as follows:
Three Months Six Months
Ended June 30 Ended June 30
2001 2000 2001 2000
---- ---- ---- ----
Net income $ 137.9 $ 125.4 $ 219.6 $ 189.2
Other comprehensive loss:
Foreign currency translation and
transaction adjustments (2.5) (20.9) (19.5) (23.6)
Unrealized loss on available-
for-sale securities,
net of taxes of $0.6 and $0.8 1.1 - (1.5) -
Net losses on derivative
instruments, net of
taxes of $0.2 and $1.0 (0.7) - (2.1) -
------- ------ ------ ------
Comprehensive income $135.8 $104.5 $ 196.5 $165.6
======= ====== ====== ======
14
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
At June 30, 2001, the Company estimates that $1.9 of the net losses
recorded in accumulated other comprehensive loss on the consolidated balance
sheet related to forward contracts designated as cash flow hedges will be
reclassified to earnings during the next twelve months.
For the three and six months ended June 30, 2001, the components of the
net losses on derivative instruments are as follows:
Three Months Six Months
Ended June 30 Ended June 30
2001 2001
--------------- -------------
Net losses on derivative instruments at
Beginning of period $ - $ -
Cumulative effect of accounting change,
net of taxes of $2.1 - (3.9)
Net losses on derivative instruments,
net of taxes of $1.6 and $1.4 (3.1) (2.6)
Reclassification to earnings, net of taxes
of $1.4 and $2.5 2.4 4.4
-------- --------
Net losses on derivative instruments at
June 30, 2001 $ (0.7) $ (2.1)
========= ========
9. 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 $136.4 pretax ($111.9 net of taxes, or $.43
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.
The 1999 special and non-recurring charges by business segment are as
follows:
North America $ 33.6
Latin America 14.7
Europe 69.8
Pacific 11.8
Corporate 6.5
-------
Total $ 136.4
=======
The 1999 special and non-recurring charges by category of expenditures are
as follows:
Special Cost of
Charge Sales Charge Total
------- ------------ -----
Employee severance costs $ 57.0 $ - $ 57.0
Inventories - 46.0 46.0
Write-down of assets to
net realizable value 11.6 - 11.6
Recognition of foreign currency
translation adjustment 9.8 - 9.8
Other 12.0 - 12.0
------- ------ ------
Total $ 90.4 $ 46.0 $ 136.4
======= ======= =======
15
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Employee severance costs are expenses, both domestic and international,
associated with the realignment of the Company's global operations. Certain
employee severance costs were accounted for in accordance with the Company's
existing FAS 112 ("Employers' Accounting for Postemployment Benefits") severance
plans. Remaining severance costs were accounted for in accordance with other
existing accounting literature. The workforce was reduced by 3,700 associates,
or 9% of the total. Approximately one-half of the terminated employees related
to facility closures. As of June 30, 2001, all employees under the program have
been terminated.
Inventory related charges represent losses to write-down the carrying
value of non-strategic inventory prior to disposal. The charges primarily result
from a new business strategy for product dispositions which fundamentally
changes the way the Company markets and sells certain inventory. This new
strategy, approved and effective in March 1999, is meant to complement other
redesign initiatives, with the objective of reducing inventory clearance sales,
building core brochure sales and building global brands.
The write-down of assets (primarily fixed and other assets) mainly
relates to the restructuring of operations in Western Europe, including the
closure of a jewelry manufacturing facility in Ireland. By centralizing certain
key functional areas and exiting unprofitable situations, the Company plans to
increase operating efficiencies and ultimately, profit growth in the long-term.
The recognition of a foreign currency translation adjustment relates to
the closure of the jewelry manufacturing facility in Ireland.
The "Other" category primarily represents contract termination costs,
legal and consulting fees and other costs associated with the facility closures.
The liability balance at June 30, 2001 is as follows:
Special Cost of
Charge Sales Charge Total
------- ------------ -----
Balance at December 31, 2000 $ 7.9 $ - $ 7.9
Cash expenditures (4.1) - (4.1)
------ ----- -----
Balance at June 30, 2001 $ 3.8 $ - $ 3.8
====== ===== ======
The balance at June 30, 2001, related primarily to employee severance costs
that will be paid in accordance with the original plan during 2001.
10. ASSET IMPAIRMENT CHARGE
In the first quarter of 1999, Avon originally recorded a Special charge of
$151.2 pretax, which included the write off of $14.8 in pre-tax costs ($10.0
after tax) associated with a portion of the order management software system
known as the FIRST project. The balance of the FIRST project's development
costs had been carried as an asset until the third quarter of 2001, when Avon
recorded a pre-tax charge of $23.9 ($14.5 after tax) to write off the carrying
value of costs related to that project. The non-cash charge recorded in the
third quarter of 2001 included software development costs, certain hardware,
software interfaces and other related costs. Prior to the write off, the
capitalized software was included in Property, plant and equipment, at cost,
and Other assets on the Consolidated Balance Sheet.
The decision to abandon the FIRST project was based on various factors,
including project management and implementation issues and costs, costs for
ongoing support, and changes in Avon business strategies.
The FIRST project, and the Special charge reported by Avon in the first
quarter of 1999 that included the write off of $14.8 in pre-tax costs
associated with FIRST, were the subject of a formal investigation by the SEC
commenced in August 2000. Avon has settled that matter with the SEC and, as
part of that settlement, has restated its financial statements to reflect the
16
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
additional write off as of March 31, 1999 of all capitalized costs ($23.3
pretax, and $14.0 after tax) associated with the FIRST project as of that date
for a total first quarter write off of $38.1 pretax ($24.0 after tax). Avon has
also reversed the charge recorded in the third quarter of 2001, and has
restated all other FIRST-related activity recorded during 1999-2002.
See the Introductory Note-Restatements and Note 2 of the Notes to
Consolidated Financial Statements, "Restatements and Accounting Changes".
11. SEGMENT INFORMATION
Summarized financial information concerning the Company's reportable
segments is as follows:
Three Months Ended June 30
------------------------------------------
2001 2000
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
------- --------- ------- ---------
North America:
U.S. $ 485.8 $ 101.7 $ 458.2 $ 96.2
Other* 59.4 5.7 58.6 6.6
----- ----- ----- ------
Total 545.2 107.4 516.8 102.8
----- ----- ----- ------
International:
Latin America North** 251.9 70.4 213.6 57.3
Latin America South** 242.3 44.7 247.6 50.9
------ ----- ----- ------
Latin America 494.2 115.1 461.2 108.2
Pacific 184.4 28.5 200.5 29.6
Europe 233.2 42.3 207.9 35.8
----- ----- ----- ------
Total International 911.8 185.9 869.6 173.6
----- ----- ----- ------
Total from operations $1,457.0 $ 293.3 $1,386.4 $ 276.4
Global expenses - (57.2) - (55.2)
-------- ------- -------- -------
Total $1,457.0 $ 236.1 $1,386.4 $ 221.2
======== ======= ======== =======
* Includes operating information for Canada, Puerto Rico and costs associated
with the U.S. retail business.
** Latin America North primarily includes the markets of Mexico, Venezuela and
Central America. Latin America South primarily includes the markets of
Brazil, Argentina, Chile and Peru.
17
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Six Months Ended June 30
------------------------------------------
2001 2000
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
------- --------- ------- ---------
North America:
U.S. $ 946.8 $ 184.1 $ 909.1 $ 177.3
Other* 115.9 8.0 117.3 11.4
------- ----- ------ ------
Total 1,062.7 192.1 1,026.4 188.7
------- ----- ------- ------
International:
Latin America North** 468.2 118.0 401.8 97.2
Latin America South** 455.3 75.3 463.0 80.8
------ ------ ------ ------
Latin America 923.5 193.3 864.8 178.0
Pacific 366.3 49.2 391.6 52.0
Europe 452.7 69.2 409.9 56.4
------- ------ ------ ------
Total International 1,742.5 311.7 1,666.3 286.4
------- ------ ------- ------
Total from operations $2,805.2 $ 503.8 $2,692.7 $ 475.1
Global expenses (1.8) (121.9) - (116.0)
-------- ------- ------- ------
Total $2,803.4 $ 381.9 $2,692.7 $ 359.1
======== ======= ======== ======
* Includes operating information for Canada, Puerto Rico and costs associated
with the U.S. retail business.
** Latin America North primarily includes the markets of Mexico, Venezuela and
Central America. Latin America South primarily includes the markets of
Brazil, Argentina, Chile and Peru.
The following table presents consolidated net sales by classes of principal
products as follows:
Three Months Six Months
Ended June 30 Ended June 30
2001 2000 2001 2000
---- ---- ---- ----
Beauty (cosmetics, fragrance
and toiletries) $ 945.4 $ 884.4 $1,810.6 $1,707.2
Beauty Plus:
Fashion jewelry 65.4 79.1 133.3 156.0
Accessories 62.2 62.6 129.7 124.6
Apparel 125.1 115.7 242.7 225.0
Watches 17.7 16.2 37.6 29.7
Health & Well Being 12.2 6.4 16.3 11.5
------- -------- ------- -------
282.6 280.0 559.6 546.8
Beyond Beauty and Other* 229.0 222.0 433.2 438.7
------- -------- ------- -------
Total net sales $1,457.0 $1,386.4 $2,803.4 $2,692.7
======== ======== ======== ========
* Beyond Beauty and other primarily includes home products, gift and
decorative, health and nutrition, and candles.
To conform to the 2001 presentation, certain reclassifications were made to
the prior periods' segment information.
18
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
12. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates globally, with manufacturing and distribution
facilities in various locations around the world. The Company may reduce its
exposure to fluctuations in interest rates and foreign exchange rates by
creating offsetting positions through the use of derivative financial
instruments. The Company currently does not enter into derivative financial
instruments for trading or speculative purposes, nor is the Company a party to
leveraged derivatives.
All derivatives are recognized on the balance sheet at their fair value.
The accounting for changes in fair value (gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and further, on the type of hedging relationship. Changes
in the fair value of a derivative that is designated as a fair value hedge,
along with the loss or gain on the hedged asset or liability that is
attributable to the hedged risk, are recorded in current earnings. Changes in
the fair value of a derivative that is designated as a cash flow hedge are
recorded in other comprehensive income ("OCI") to the extent effective and
reclassified into earnings in the same period or periods during which the hedged
transaction affects earnings. Changes in the fair value of a derivative that is
designated as a hedge of a net investment in a foreign operation are recorded in
foreign currency translation adjustments within OCI, to the extent effective as
a hedge. Changes in the fair value of a derivative not designated as hedging
instruments are recognized in current earnings.
The Company assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The ineffective portion of the derivative's gain or loss, if any, is recorded in
current earnings. Prior to June 1, 2001, the Company excluded the change in time
value of option contracts from its assessment of hedge effectiveness. Effective
June 1, 2001, the Company includes the change in time value of options in its
assessment of hedge effectiveness. When it is determined that a derivative is
not highly effective as a hedge, the Company discontinues hedge accounting
prospectively. When hedge accounting is discontinued because it is probable that
a forecasted transaction will not occur, the Company discontinues hedge
accounting for the affected portion of the forecasted transaction, and gains and
losses that were accumulated in OCI are recognized in earnings.
Interest Rates
The Company uses interest rate swaps to hedge interest rate risk 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 has entered into interest rate swap contracts that effectively
convert a portion of its fixed-rate debt to a variable rate, based on LIBOR. The
Company has designated the interest rate swaps as fair value hedges. At June 30,
2001, $550.0 of the Company's outstanding long-term debt is designated as the
hedged items to interest rate swap contracts. Accordingly, long-term debt
increased by $22.6 during the six months ended June 30, 2001 with a
corresponding increase to Other assets to reflect the fair value of outstanding
interest rate swaps. There were no amounts of hedge ineffectiveness for the
three and six months ended June 30, 2001, related to these interest rate swaps.
Foreign Currency
The Company uses foreign currency forward contracts and options to hedge
portions of its forecasted foreign currency cash flows resulting from
forecasted royalties, intercompany loans, and other anticipated foreign
currency transactions where there is a high probability that anticipated
exposures will materialize, including third-party and intercompany foreign
currency transactions. These contracts have been designated as cash flow
hedges.
19
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
For the three and six months ended June 30, 2001, the net gain related to
the ineffective portion of the Company's cash-flow hedging instruments, and the
net loss related to the portion of the hedging instrument excluded from the
assessment of hedge effectiveness (time value of options prior to June 1, 2001)
was not material. The net gain reclassified from OCI to earnings for cash-flow
hedges that have been discontinued, because the forecasted transactions are not
probable of occurring, for the three and six months ended June 30, 2001, was not
material.
As of June 30, 2001, the Company expects to reclassify $1.9 of net losses
on derivative instruments from accumulated other comprehensive income to
earnings during the next twelve months due to (a) foreign currency royalties (b)
intercompany loans settlements and (c) actual foreign currency denominated
purchases or receipts. The maximum remaining term over which the Company is
hedging exposures to the variability of cash flows for all forecasted
transactions is eighteen months.
The Company also enters into foreign currency forward contracts and
options to protect against the adverse effects that exchange rate fluctuations
may have on the earnings of its foreign subsidiaries. These derivatives do not
qualify for hedge accounting and the gains and losses on these derivatives are
recognized in current earnings.
Hedges of Net Investments in Foreign Operations
The Company uses foreign-currency forward contracts and foreign currency
denominated debt to hedge the foreign currency exposure related to the net
assets of the Company's foreign subsidiaries.
As of June 30, 2001, the Company has entered into a loan agreement to
borrow Japanese yen to hedge Avon's net investment in its Japanese subsidiary.
For the six months ended June 30, 2001, a $3.5 gain related to the revaluation
of this foreign currency denominated debt was included in foreign currency
translation adjustments within accumulated other comprehensive loss on the
Consolidated Balance Sheets. See Note 13 of the Notes to Consolidated Financial
Statements.
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.
13. DEBT
In February 2001, Avon entered into a loan agreement to borrow 5.5 billion
Japanese yen. The loan bore interest at a per annum rate equal to 0.875% and
matured on April 9, 2001. Interest on the loan was paid at maturity. In April
2001, Avon amended this loan agreement to increase the amount borrowed to 8.0
billion Japanese yen and to extend the maturity to May 15, 2001. The loan bore
interest at a per annum rate equal to 0.485%. Interest on the loan was paid at
maturity. In May 2001, Avon further amended this loan agreement to extend the
maturity to July 12, 2001. The loan bore interest at a per annum rate equal to
0.455%. In July 2001, Avon further amended this loan agreement to extend the
maturity to August 9, 2001. The loan bore interest at a per annum rate equal to
0.435%. In August 2001, Avon further amended this loan agreement to extend the
maturity to August 31, 2001. The loan bears interest at a per annum rate equal
to 0.435%. The loan is designated as a hedge of Avon's net investment in Japan.
See Note 11 to the Notes to Consolidated Financial Statements.
20
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
In May 2001, the Company entered into an agreement with various banks to
replace the Company's existing revolving credit and competitive advance
facility, which was due to expire in August 2001, with a new five-year $600.0
revolving credit and competitive advance facility agreement, which expires in
2006. The new agreement and the prior agreement are referred to, collectively,
as the "credit facility".
The credit facility may be used for general corporate purposes, including
financing working capital and capital expenditures, providing support for the
issuance of commercial paper and supporting the stock repurchase program. The
interest rate on borrowings under the credit facility is based on LIBOR, prime,
or federal fund rates. The credit facility has an annual facility fee of $0.5.
The credit facility contains a covenant for interest coverage, as defined. The
Company is in compliance with this covenant at June 30, 2001. At June 30, 2001,
there were no borrowings under the credit facility.
14. SUBSEQUENT EVENT
In July 2001, the Company announced that, due a change in Sears Roebuck and
Company ("Sears") business strategy, that will include de-emphasizing cosmetics,
Avon will not proceed with the launch of the retail brand, becoming, in Sears
stores this fall. In July 2001, Avon and Sears reached an agreement, under which
Avon received a cash settlement, net of related expenses, of approximately $26.0
to compensate Avon for lost profits and incremental expenses as a result of the
cancellation of the retail agreement. In addition, the Company will receive
store fixturing from Sears (also as a result of the cancellation of the retail
agreement), which may be used in future retail sites.
Avon will continue with the launch of the becoming brand in J.C. Penney
stores in the fall of 2001.
On August 1, 2001, the company declared a quarterly dividend on its common
stock of $.19 per share, payable September 4, 2001, to shareholders of record
on August 16, 2001.
21
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
ITEM 2. Management's Discussion and Analysis of the Results of Operations
and Financial Condition (Restated)
Results of Operations
Consolidated
Avon's net income for the second quarter and six-month period of 2001, was
$137.9 and $219.6, respectively, or $.57 and $.91 per share on a diluted basis,
respectively, compared with net income of $125.4 and $189.2, respectively, or
$.52 and $.79 per share on a diluted basis, respectively, for the same periods
in 2000. Operating profit was $236.1 and $381.9, respectively, in the second
quarter and six-month period in 2001 compared with $221.2 and $359.1,
respectively, for the same periods in 2000.
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities", as amended by FAS No. 138, "Accounting for Certain
Derivative Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. In
accordance with the provisions of FAS No. 133, the Company recorded a charge to
earnings of $0.3, net of a tax benefit of $0.2, in the first quarter of 2001 to
reflect the change in time-value of Avon's outstanding options from the dates of
the options' inception through the date of transition (January 1, 2001). The
Company also recorded a charge to shareholders' (deficit)equity of $3.9, net of
a tax benefit of $2.1, in accumulated other comprehensive loss to recognize the
fair value of all derivatives designated as cash-flow hedging instruments, which
the Company expects to reclassify into earnings within the next twelve months.
These charges are reflected as a cumulative effect of an accounting change in
the accompanying Consolidated Financial Statements. See Notes 8 and 12 of the
Notes to Consolidated Financial Statements.
Effective January 1, 2000, the Company changed its method of accounting for
revenue recognition in accordance with Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements." The cumulative effect of the
change on prior years resulted in a charge of $6.7, net of a tax benefit of
$3.5, or $.03 per share on a basic and diluted basis in the first quarter of
2000, which is included in net income for the six-months ended June 30, 2000.
For the three months and six months ended June 30, 2000, the impact of the
accounting change was to increase/(decrease) net income before the cumulative
effect of the accounting change by $0.4 and ($4.0), respectively.
Consolidated net sales for the second quarter and six-month period of 2001
increased 5% and 4%, respectively, over the same periods of 2000. The sales
improvement in both the second quarter and six-month period was a result of
increases in Europe, Latin America and North America, partially offset by
declines in the Pacific region. Excluding the impact of foreign currency
exchange, consolidated net sales rose 10% and 9% in the second quarter and
six-month period of 2001, respectively, over the comparable periods of the prior
year, with increases in all regions.
Gross margin increased 0.2 percentage point in both the second quarter of
2001 and in the six-month period of 2001 compared to the same periods of 2000.
The second quarter increase resulted from improvements in Latin America,
primarily Mexico and Venezuela, and most markets in the Pacific region,
partially offset by a decline in Europe, mainly in Western European markets. The
six-month increase resulted from improvements in all international regions, most
significantly in Russia, the United Kingdom, Venezuela, Brazil, and most markets
in the Pacific region. Gross margin in North America for both the second quarter
and six-month period of 2001 was flat with the same periods of 2000.
22
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
Marketing, distribution and administrative expenses increased $32.1 and
$53.4, or 5% and 4%, for the second quarter and six-month period of 2001,
respectively, over the comparable periods of 2000 due to increases in all
regions, excluding the Pacific region. Operating expenses decreased as a
percentage of sales to 47.4% in the second quarter of 2001 from 47.5% in the
comparable period of 2000 and remained flat for both six-month periods. The
second quarter improvement was primarily due to improved ratios in Venezuela,
Mexico, Russia, the United Kingdom and Japan, partially offset by higher
expense ratios in Argentina, most Western European markets, South Africa, the
Philippines, Taiwan and costs associated with the U.S. retail business
scheduled for launch in late 2001.
Interest expense of $18.9 and $38.6 in the second quarter and six-month
period of 2001, respectively, decreased $3.9 and $4.1 versus the comparable
periods of 2000, primarily as a result of a decline in domestic interest rates
in 2001. Interest income of $4.2 and $6.2 in the second quarter and six-month
period of 2001, respectively, increased $2.1 and $2.3, respectively, as
compared to the same periods in 2000 primarily due to higher domestic interest
rates and strong cash position during 2001.
Other expense, net of $7.3 in the second quarter of 2001 was $2.7
unfavorable to the comparable period of 2000 mainly due to foreign exchange
losses on Mexican peso and Hungarian forint foreign exchange contracts. Other
expense, net of $8.9 in the six-month period of 2001 was $5.9 favorable to the
comparable period of 2000 mainly due to foreign exchange losses during 2000 on
forward contracts in Brazil as well as favorable foreign exchange movements in
2001 on Japanese yen contracts.
The effective tax rate was 34.9% and 35.0% in the second quarter and
six-month period of 2001, respectively, versus 35.5% in both comparable periods
of 2000, due to dividend planning and the earnings mix and tax rates of
international subsidiaries.
The following discussion addresses net sales and operating profit by
reportable segment as presented in Note 11:
North America
Net sales grew 5% and 4% in the second quarter and six-month period of
2001, respectively, over the comparable periods in 2000. The U.S business,
which represents almost 90% of the North American segment, reported a sales
increase of 6% and 4% for the second quarter and six-month period of 2001. The
increase in both periods resulted from a 4% increase in the number of average
Representatives due to the successful implementation of Avon's career
strategies, particularly Sales Leadership, as well as the strength of Avon's
marketing plans. U.S. sales of cosmetics, fragrance and toiletries ("CFT") grew
5% during both the second quarter and six-month period in 2001. The growth in
CFT reflects strong increases in skin care, color cosmetics and hair care in
both periods. Skin care, the U.S.'s most profitable CFT product line, grew
double-digits in both the second quarter and six-month period of 2001, partly
due to the successful relaunch of Anew Retroactive as well as strong new
product introductions of Anew Line Eliminator and Avon Porefection. Color
cosmetics reported strong increases versus prior year, driven by new product
activity and the relaunch of Beyond Color. Hair care grew over 40% in the
second quarter and six-month period of 2001, due to successful new product
launches and increased exposure in brochures.
The successful launch of the new Health and Wellness line of vitamins
and fitness products contributed to the U.S. sales growth in both periods of
2001. Furthermore, sales of apparel and accessories posted growth of 16% and 18%
in the second quarter and six-month period of 2001, respectively, primarily due
to
23
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
growth in intimate apparel. Partially offsetting the sales improvements in the
above categories was a decline in sales of home entertainment products,
resulting from fewer new product concepts in 2001.
Operating profit in North America increased 4% and 2%, respectively, (U.S.
increased 6% and 4%) for the second quarter and six-month period of 2001 over
the comparable periods in 2000. These increases are primarily attributable to
sales increases in the U.S. and Puerto Rico, partially offset by costs
associated with the U.S. retail business scheduled for launch in late 2001.
Operating profit margin in North America declined 0.2 point in the second
quarter and 0.3 points in the six-month period of 2001 primarily due to a higher
expense ratio associated with the U.S. retail business discussed above.
International
International U.S. dollar net sales for both the second quarter and
six-month period of 2001 increased 5% compared to the same periods in 2000. The
international sales improvement in both periods was a result of increases in the
Europe and Latin America regions. Excluding the effect of foreign currency
exchange, international sales increased 13% in both the second quarter and
six-month period of 2001 with double-digit increases in the Europe and Latin
America regions, as well as a mid-single digit increase in the Pacific region in
both periods.
In Europe, sales increased 12% and 10% in the second quarter and six-month
period of 2001, respectively, driven by growth in Central and Eastern Europe,
primarily Poland and Russia, partially offset by sales declines in most Western
European markets, excluding the UK. The sales improvement in Central and Eastern
Europe, primarily Poland, in both periods resulted from continued increases in
average Representatives and units, and the improvement in Russia was driven by
significant increases in average order size and units. Poland's continued strong
sales growth has been aided by the successful implementation of the Sales
Leadership Strategy (launched in 2000). This has resulted in increased market
penetration and, along with continued focus on Representative retention,
contributed to an increase in staff count levels of over 55% compared to last
year. In Russia, the sales increases resulted from an improvement in that
nation's economy coupled with a change in the commission structure to include
several levels of Representative commissions in 2001 versus only one in 2000.
The sales decline in most Western European markets was primarily the result of a
weak economic climate, which negatively impacted business. In the United
Kingdom, sales increased in local currency, driven by an increase in the average
order size, but U.S. dollar sales were negatively impacted by foreign exchange
in both the second quarter and six-month period of 2001. Excluding the impact of
exchange, Europe sales grew 18% and 17%, 6 point and 7 point variances from
dollar increases in the second quarter and six-month period of 2001,
respectively, largely due to an unfavorable exchange impact in most major
markets within the region.
In Latin America, sales increased 7% in both the second quarter and
six-month period of 2001 mainly due to double-digit growth in Venezuela and
Mexico partially offset by declines in Brazil, Argentina and Chile. The sales
increase in Venezuela and Mexico in both periods was primarily driven by strong
increases in average Representatives, units and customers. Venezuela had
double-digit sales growth in the CFT category as a result of competitive pricing
in fragrance, color cosmetics and personal care. The increases in Mexico were
also driven by strong performance in cosmetic lines due to investments in new
product introductions. In Brazil, local currency sales increased double digits
in both the second quarter and six-month period of 2001, but U.S. dollar sales
were negatively impacted by
24
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
foreign exchange. In Argentina, sales declined in both periods due to a weak
economic environment that has led to high unemployment and lower consumer
spending. Since 1991 Argentina has maintained the peso at a one-to-one peg with
the U.S. Dollar. During the second quarter of 2001, the Argentine peg came under
increased pressure due to three consecutive years of recession and repeated
government financing issues. While the peso did not devalue during this time,
the problems in Argentina had a negative impact on other currencies in the
region, including the Brazilian real and the Chilean peso. As a result, Brazil's
and Chile's U.S. dollar results were adversely impacted. The effect of exchange
rates was reduced by foreign exchange contracts previously in place and several
actions taken by local management to offset these weaker currencies. Excluding
the impact of exchange, sales in Latin America increased 15% and 14% in the
second quarter and six-month period of 2001, respectively.
In 2001, U.S. dollar sales for most major markets in the Pacific region
were negatively impacted by foreign exchange, most significantly Japan and the
Philippines. U.S. dollar sales in the Pacific region declined 8% and 6% in the
second quarter and six-month period of 2001, respectively, but increased 4% and
6%, respectively, in local currency. Despite the weakness of the local economy,
Japan's local currency sales increased 1% and 3% in the second quarter and
six-month period of 2001, respectively. The six-month increase is due to solid
unit growth, particularly in the makeup category, mainly due to a successful
lipstick event featured in 20 million customer flyers. The Philippines also
posted strong increases in units, as well as average Representatives, which
resulted in double-digit local currency sales growth in both periods of 2001
versus 2000, predominantly in the watches category. In China, sales growth of
31% and 36% in the second quarter and six-month period of 2001, respectively,
was driven by sales initiatives, the opening of Beauty Boutiques and the success
of consumer initiatives. U.S. dollar and local currency sales in Taiwan declined
double digits in both the second quarter and six-month period due to that
country's economic slowdown, which has negatively impacted employment rates and
consumer spending this year.
International operating profit increased 7% and 9% in the second quarter
and six-month period of 2001, respectively, compared to the same periods in
2000.
Operating profit in Europe increased 18% and 23% in the second quarter and
six-month period of 2001, respectively, primarily due to the sales increases
discussed above, as well as operating profit margin improvements in Russia, the
United Kingdom and the Ukraine, partially offset by margin declines in most
Western European markets (primarily Germany) and South Africa. Operating profit
improvements in Russia in both the second quarter and six-month period are due
to dramatic sales growth, which led to an improvement in the expense ratio and
gross margin. The operating margin improvement in the United Kingdom in both the
second quarter and six-month period resulted from an increase in gross margin
generated by strong performance of higher margin cosmetic items and an
improvement in the expense ratio due to favorable comparisons against product
supply difficulties in 2000. The operating margin improvement in the Ukraine in
both periods is due to sales growth in 2001 of 68% and 75% in the second quarter
and six-month periods, respectively, which led to an improvement in the expense
ratio. In Germany, lower sales due to weak economic conditions and fixed
expenses on a weaker sales base, led to an increased expense ratio in both the
second quarter and six-month period. Overall, the operating margin in Europe for
the second quarter and six-month period of 2001 increased 0.9 and 1.5 points,
respectively, versus the prior year.
In Latin America, operating profit for the second quarter and six-month
period of 2001 increased 6% and 9%, respectively, as compared to the same
periods in 2000. The operating profit improvement in both periods resulted from
the sales increases discussed above, as well as operating profit margin
25
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
improvements in Venezuela and Mexico, partially offset by operating profit
margin declines in Argentina. Venezuela's second quarter and six-month period
operating margin reflected higher gross margin driven by price increases and
cost improvements and the strong performance of Men's fragrance coupled with a
favorable expense ratio. The operating margin improvement in Mexico in both
periods was due to successful vendor negotiations to lower product costs and a
decrease in returned merchandise destroyed as a result of moving to a new
distribution center. In Argentina, operating margin declined in both periods due
to a difficult economic environment. Brazil's operating margin declined in the
second quarter reflecting a higher expense ratio due to additional investments
in advertising and sampling, while improving in the six-month period due to an
increase in gross margin resulting from effective cost management and strong
vendor negotiations to lower product costs. Overall, the second quarter
operating margin in Latin America was unfavorable 0.2 points versus the prior
year while the six-month operating margin was favorable 0.3 points versus the
prior year.
Operating profit in the Pacific region declined 4% and 5% in the second
quarter and six-month period of 2001, respectively, resulting from the negative
impact of foreign currency translation, discussed above, partially offset by
favorable gross margin. Excluding the impact of foreign exchange, operating
profit increased 10% and 8% in the second quarter and six-month period of 2001,
respectively, with increases in most major markets. Japan's operating margin
improved 2.6 points and 1.3 points in the second quarter and six-month period
largely due to Business Process Redesign ("BPR") efforts, which continue to
generate significant savings across all expense areas. China's operating margin
improved dramatically in both the second quarter and six-month period due to a
favorable operating expense ratio resulting from significantly higher sales.
While gross margin in Taiwan improved due to favorable sales mix versus 2000,
operating margin declined due to fixed expenses on a lower sales base in both
the second quarter and six-month period. Overall, the second quarter and
six-month operating margin in the Pacific was up 0.7 point and 0.2 point,
respectively, versus the prior year.
Global Expenses
Global expenses increased 4% and 5% in the second quarter and six-month
period of 2001, respectively, over the same periods in 2000 primarily due to
insurance proceeds received in 2000 related to 1998 hurricane losses in Central
America.
Cash Flows
Excluding changes in debt, there was a net decrease in cash of $17.0 in the
first half of 2001 compared with a decrease of $246.0 in the comparable period
of 2000. The $229.0 variance resulted from higher net cash provided by
operations which reflects higher net income, the receipt of an income tax refund
in 2001, as well as higher working capital needs in 2000, which included the
payout of the long-term incentive plan, the timing of cash payments and higher
inventories. These sources of cash were partially offset by higher repurchases
of common stock, and increased cash used for investing activities due to the
acquisition of a distributorship in Greece during 2001.
During the first six months of 2001, the Company purchased approximately
2,564,000 shares of common stock for $101.1 compared to approximately 1,060,000
shares of common stock for $42.1 during the first six months of 2000. At June
30, 2001, 17,990 shares repurchased for $0.8 were not settled until July 2001
and were included in Other accrued liabilities on the Consolidated Balance
Sheets.
26
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
Capital Resources
Total debt increased $71.0 to $1,284.6 from $1,213.6 at December 31, 2000,
principally due to a Japanese yen denominated loan obtained in 2001, which is
designated as a hedge of Avon's net investment in Japan, and an adjustment of
$22.6 to reflect the fair value of outstanding interest rate swaps as of June
30, 2001. Total debt of $1,284.6 at June 30, 2001 was $74.4 higher than total
debt of $1,210.2 at June 30, 2000, primarily due to the Japanese Yen denominated
loan, discussed above, and the adjustment of $22.6 in 2001 to reflect the fair
value of outstanding interest rate swaps.
In May 2001, the Company entered into an agreement, with various banks to
replace the Company's existing revolving credit and competitive advance
facility, which was due to expire in August 2001, with a new five-year $600.0
revolving credit and competitive advance facility agreement, which expires in
2006. The new agreement and the prior agreement are referred to, collectively,
as the "credit facility".
The credit facility may be used for general corporate purposes, including
financing working capital and capital expenditures, providing support for the
issuance of commercial paper and supporting the stock repurchase program. The
interest rate on borrowings under the credit facility is based on LIBOR, prime,
or federal fund rates. The credit facility has an annual facility fee of $0.5.
The credit facility contains a covenant for interest coverage as defined. The
Company is in compliance with this covenant at June 30, 2001. At June 30, 2001,
there were no borrowings under the credit facility.
At June 30, 2001, there were $9.0 of borrowings outstanding under
uncommitted lines of credit.
In February 2001, Avon entered into a loan agreement to borrow 5.5 billion
Japanese Yen. The loan bore interest at a per annum rate equal to 0.875% and
matured on April 9, 2001. Interest on the loan was paid at maturity. In April
2001, Avon amended this loan agreement to increase the amount borrowed to 8.0
billion Japanese yen and to extend the maturity to May 15, 2001. The loan bore
interest at a per annum rate equal to 0.485%. Interest on the loan was paid at
maturity. In May 2001, Avon further amended this loan agreement to extend the
maturity to July 12, 2001. The loan bore interest at a per annum rate equal to
0.455%. In July 2001, Avon further amended this loan agreement to extend the
maturity to August 9, 2001. The loan bore interest at a per annum rate equal to
0.435%. In August 2001, Avon further amended this loan agreement to extend the
maturity date to August 31, 2001. The loan bears interest at a per annum rate
equal to 0.435%. The loan is designated as a hedge of Avon's net investment in
Japan. See Note 12 to the Notes to Consolidated Financial Statements.
Management currently believes that cash from operations and available
financing alternatives are adequate to meet anticipated requirements for working
capital, dividends, capital expenditures, the stock repurchase program and other
cash needs.
Working Capital
As of June 30, 2001 and December 31, 2000, current assets exceeded current
liabilities by $218.0 and $186.4, respectively. The increase of current assets
over current liabilities of $31.6 was primarily due to higher inventories and a
decrease in accounts payable, reflecting the seasonal pattern of Avon's
operations, as well as the payout of the Company's 2000 cash incentive programs.
The increase was partially offset by the receipt of an income tax refund in 2001
and the 2001 Japanese yen denominated loan, which hedges Avon's net investment
in Japan.
27
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
Financial Instruments and Risk Management Strategies
The Company operates globally, with manufacturing and distribution
facilities in various locations around the world. The Company may reduce its
exposure to fluctuations in interest rates and foreign exchange rates by
creating offsetting positions through the use of derivative financial
instruments. The Company currently does not enter into derivative financial
instruments for trading or speculative purposes, nor is the Company a party to
leveraged derivatives.
All derivatives are recognized on the balance sheet at their fair value.
The accounting for changes in fair value (gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and further, on the type of hedging relationship. Changes
in the fair value of a derivative that is designated as a fair value hedge,
along with the loss or gain on the hedged asset or liability that is
attributable to the hedged risk are recorded in current earnings. Changes in the
fair value of a derivative that is designated as a cash flow hedge are recorded
in other comprehensive income ("OCI") to the extent effective and reclassified
into earnings in the same period or periods during which the hedged transaction
affects earnings. Changes in the fair value of a derivative that is designated
as a hedge of a net investment in a foreign operation are recorded in foreign
currency translation adjustments within OCI to the extent effective as a hedge.
Changes in the fair value of a derivative not designated as hedging instruments
are recognized in current earnings.
The Company assesses, both at the hedge's inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The ineffective portion of the derivative's gain or loss, if any, is recorded in
current earnings. Prior to June 1, 2001, the Company excluded the change in time
value of options in its assessment of hedge effectiveness. Effective June 1,
2001, the Company includes the change in time value of option contracts in its
assessment of hedge effectiveness. When it is determined that a derivative is
not highly effective as a hedge, the Company discontinues hedge accounting
prospectively. When hedge accounting is discontinued because it is probable that
a forecasted transaction will not occur, the Company discontinues hedge
accounting for the affected portion of the forecasted transaction, and gains and
losses that were accumulated in OCI are recognized in earnings.
Interest Rates
The Company uses interest rate swaps to hedge interest rate risk 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 has entered into interest rate swap contracts that effectively
convert a portion of its fixed-rate debt to a variable-rate based on LIBOR. The
Company has designated the interest rate swaps as fair value hedges. At June
30, 2001, $550.0 of the company's outstanding long-term debt is designated as
the hedged items to interest rate swap contracts. Accordingly, long-term debt
increased by $22.6 during the six months ended June 30, 2001, with a
corresponding increase to Other assets to reflect the fair value of outstanding
interest rate swaps. There were no amounts of hedge ineffectiveness for the
three and six months ended June 30, 2001, related to these interest rate swaps.
Foreign Currency
The Company uses foreign currency forward contracts and options to hedge
portions of its forecasted foreign currency cash flows resulting from
forecasted royalties, intercompany loans, and other anticipated foreign
currency transactions where there is a high probability that anticipated
exposures will materialize, including third-party and intercompany foreign
currency transactions. These contracts have been designated as cash flow
hedges.
28
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
For the three and six months ended June 30, 2001, the net gain related to
the ineffective portion of the Company's cash-flow hedging instruments, and the
net loss related to the portion of the hedging instrument excluded from the
assessment of hedge effectiveness (time value of options prior to June 1, 2001)
was not material. The net gain reclassified from OCI to earnings for cash-flow
hedges that have been discontinued, because the forecasted transactions are not
probable of occurring, for the three and six months ended June 30, 2001, was not
material.
As of June 30, 2001, the Company expects to reclassify $1.9 of net losses
on derivative instruments from accumulated other comprehensive income to
earnings during the next twelve months due to (a) foreign currency royalties (b)
intercompany loan settlements and (b) actual foreign currency denominated
purchases or receipts. The maximum remaining term over which the Company is
hedging exposures to the variability of cash flows for all forecasted
transactions is eighteen months.
The Company also enters into foreign currency forward contracts and options
to protect against the adverse effects that exchange rate fluctuations may have
on the earnings of its foreign subsidiaries. These derivatives do not qualify
for hedge accounting and the gains and losses on these derivatives are
recognized in current earnings.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency forward contracts and foreign currency
denominated debt to hedge the foreign currency exposure related to the net
assets of the Company's foreign subsidiaries.
As of June 30, 2001, the Company has entered into a loan agreement to
borrow Japanese yen to hedge Avon's net investment in its Japanese subsidiary.
For the six months ended June 30, 2001, a $3.5 gain related to the revaluation
of foreign currency denominated debt was included in foreign currency
translation adjustments within accumulated other comprehensive loss on the
Consolidated Balance Sheets.
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.
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
29
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
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.
Other Information
In July 2001, the Company announced that, due a change in Sears' business
strategy, that will include de-emphasizing cosmetics, Avon will not proceed with
the launch of the retail brand, beComing in Sears stores this fall. In July
2001, Avon and Sears reached an agreement, under which Avon received a cash
settlement, net of related expenses, of approximately $26.0 to compensate Avon
for lost profits and incremental expenses as a result of the cancellation of the
retail agreement. In addition, the Company will receive store fixturing from
Sears (also as a result of the cancellation of the retail agreement), which may
be used in future retail sites.
Avon will continue with the launch of the beComing brand in J.C. Penney
stores in the fall of 2001.
The termination of the retail venture with Sears will result in a gain in
the third quarter of 2001 but will impact subsequent periods due to the loss of
anticipated contribution from the Sears business. The aggregate impact of the
termination is expected to be neutral over the remainder of 2001 and 2002.
30
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 Act of 1995. Such forward-looking statements are based on
management's reasonable current assumptions and expectations. Such
forward-looking statements involve risks, uncertainties and other factors which
may cause the actual results, levels of activity, performance or achievement of
the Company to be materially different from any future results, levels of
activity, performance or achievement expressed or implied by such
forward-looking statements, and there can be no assurance that actual results
will not differ materially from management's expectations. Such factors
include, among others, the following: general economic and business conditions;
the Company's ability to implement its business strategy; the Company's ability
to successfully identify new business opportunities; the Company's access to
financing; the impact of substantial currency fluctuations in the Company's
principal foreign markets; the Company's ability to attract and retain key
executives; the Company's ability to achieve anticipated cost savings and
profitability targets; changes in the industry; competition; the effect of
regulatory, tax and legal proceedings and restrictions imposed by domestic and
foreign governments; and other factors discussed in Item 1 of the Company's
Form 10-K/A. 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 such forward-looking statements, nor undertakes an obligation
to update them.
31
AVON PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the second quarter of 2001.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AVON PRODUCTS, INC.
-------------------
(Registrant)
Date: August 12, 2002 By /s/JANICE MAROLDA
--------------------------------------
Janice Marolda
Vice President,
Controller
Principal Accounting Officer
Signed both on behalf of the registrant
and as principal accounting officer.
33