Avon 2000 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... 11% 40 Cash Flows 40 Working Capital 41 Capital Resources 42 Inventories 42 Capital Expenditures 42 Foreign Operations 44 Risk Management Strategies and Market Rate Sensitive Instruments 45 Other Information 45 Euro 46 Results of Operations by Quarter 47 Market Prices Per Share of Common Stock by...

  • Page 3
    ...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 pro...

  • Page 4
    ... offset by declines in Puerto Rico, due to inventory variations related to the consolidation of operations, and in Mexico and the Philippines, resulting from higher sales of a lower margin mix of cosmetics, fragrance and toiletries ("cft") products and selective price cuts to meet competition...

  • Page 5
    ...31 Net Sales North America: u.s. Other* Total International: Latin America North†Latin America South†Latin America Europe Pacific Total Total from operations Global expenses Special and non-recurring charges Operating profit * Includes operating information for Canada and Puerto Rico. 2000...

  • Page 6
    ... level with 1999 due to savings in marketing and cost savings on purchase orders, offset by a decrease in gross margin due to increased sales of lower margin items and selective pricing cuts. In Argentina, operating margin declined as incentives and advertising expenses were increased to solidify...

  • Page 7
    ... in mix to higher margin items, partially offset by the cost of shipping increased orders. The operating margin improvement in Russia was primarily due to a favorable comparison against the prior year's discount pricing policy and product sourcing, as well as tight expense controls on a higher sales...

  • Page 8
    ... 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...

  • Page 9
    ... plan, lower benefit expenses, insurance proceeds received in 2000 related to the 1998 hurricane losses in Central America, the 1999 ï¬,ood losses in Venezuela and 1999 earthquake losses in Taiwan, and savings in global marketing departments, partially offset by increased investments in information...

  • Page 10
    ... offset by higher net income. The increase in inventory was mainly due to higher sales volume and additional stock on hand to protect service levels. Accounts payable and accrued expenses reï¬,ected the payout of the Company's long-term incentive plan in 2000, as well as a decline in days in...

  • Page 11
    ... cap rate under this contract is 7%. 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...

  • Page 12
    ... 2000 and 1999, there were international lines of credit totaling $449.5 and $399.5, respectively, of which $74.8 and $81.6, respectively, were outstanding. Inventories > Avon's products are marketed during 12 to many companies selling cft, fashion jewelry and accessories, gift and decorative items...

  • Page 13
    ... 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...

  • Page 14
    ...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...

  • Page 15
    ... of the u.s. dollar against the foreign contracts. The impact of payoffs on option contracts is not significant to this calculation. In 2000, net foreign exchange losses associated with the Company's foreign exchange contracts did not represent a material loss in fair value, earnings or cash ï¬,ows...

  • Page 16
    ... Emerging Issues Task Force ("eitf") 00-10, "Accounting for Shipping and Handling Fees and Costs." See Note 2 of the Notes to Consolidated Financial Statements. ** First quarter 1999 includes a special and non-recurring charge of $46.0 for inventory write-downs. (1) The sum of per share amounts for...

  • Page 17
    ... the New York Stock Exchange. At December 31, 2000, there were 21,978 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...

  • Page 18
    ...: Cost of sales* Marketing, distribution and administrative expenses Special charges Operating profit Interest expense Interest income Other expense (income), net Total other expenses Income from continuing operations before taxes, minority interest and cumulative effect of accounting change Income...

  • Page 19
    ...assets Total assets Liabilities and Shareholders' (Deficit) Equity Current liabilities Debt maturing within one year Accounts payable Accrued compensation Other accrued liabilities Sales and taxes other than income Income taxes Total current liabilities Long-term debt Employee benefit plans Deferred...

  • Page 20
    ... (gains) Deferred income taxes Special charges Other Changes in assets and liabilities: Accounts receivable Income tax receivable Inventories Prepaid expenses and other Accounts payable and accrued liabilities Income and other taxes Noncurrent assets and liabilities Net cash provided by operating...

  • Page 21
    ... Total comprehensive income Dividends- $.68 per share Two-for-one stock split effected in the form of a stock dividend from retained earnings (Note 9) Exercise of stock options, including tax benefits Grant, cancellation and amortization of restricted stock Repurchase of common stock Benefit plan...

  • Page 22
    ... 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 ("cft"); Beauty Plus which consists of jewelry, watches and accessories and...

  • Page 23
    ...-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...

  • Page 24
    ... 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...

  • Page 25
    ..., the Company purchased 260,000 shares of Avon common stock at a purchase price of $11.5 under these contracts. 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...

  • Page 26
    ...The holders may also require the Company to repurchase the Convertible Notes if a fundamental change, as defined, involving Avon occurs prior to July 12, 2003. The Company has the option to pay the purchase price or, if a fundamental change has occurred, the repurchase price in cash or common stock...

  • Page 27
    ... have no compensating balances or fees. At December 31, 2000 and 1999, 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...

  • Page 28
    ... of income and expense for tax and financial reporting purposes at December 31 consisted of the following: 2000 Deferred tax assets: Postretirement benefits Accrued expenses and reserves Special and non-recurring charges Employee benefit plans Foreign operating loss carryforwards Capital loss...

  • Page 29
    ... 1,374,400 shares of Avon common stock at an average price of $37.09 per share at December 31, 2000. The contracts mature over the next 10 months and provide for physical or net share settlement to the Company. Accordingly, no adjustment for subsequent changes in fair value has been recognized...

  • Page 30
    ... 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...

  • Page 31
    ...81 The 1993 Stock Incentive Plan (the "1993 Plan"), and the Avon Products, Inc. 2000 Stock Incentive Plan (the "2000 Plan"), which replaced the 1993 Plan effective May 4, 2000, provide for several types of equity-based incentive compensation awards. Under the 2000 Plan, the maximum number of shares...

  • Page 32
    ...at a 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...

  • Page 33
    ... 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 Pension Benefits 2000 1999 Change in benefit obligation: Beginning balance Service cost Interest cost Actuarial (loss...

  • Page 34
    ...: Pension Benefits 1999 6.8% 4.0 8.8 Postretirement Benefits 2000 1999 1998 8.0% 7.0% 7.2% 4.5 4.5 4.5 n/a n/a n/a Discount rate Rate of compensation increase Rate of return on assets 2000 7.2% 4.0 8.8 1998 7.1% 4.0 9.2 For 2000, the assumed rate of future increases in the per capita cost of...

  • Page 35
    ... 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...

  • Page 36
    ...information for Puerto Rico, Canada and Discovery Toys. The following table presents consolidated net sales by classes of principal products, as of December 31: 2000 Cosmetics, fragrance and toiletries Beauty Plus: Fashion Jewelry Accessories Apparel Watches Beyond Beauty and Other* Total net sales...

  • Page 37
    ...$445.5 Employee severance costs Inventories Writedown of assets to net realizable value Field program buy-out Other Special Charges $ 56.4 - 31.8 14.4 13.9 $116.5 Total $ 56.4 37.9 31.8 14.4 13.9 $154.4 Rent expense in 2000 was $85.4 (1999-$84.5; 1998-$84.7). Various construction and information...

  • Page 38
    ... Commission, the Company is providing information that principally concerns an item included in its special charge reported for the first quarter of 1999. The item consists of an order management software system for sales representatives known as the first project, of which $15 million in costs...

  • Page 39
    ...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...

  • Page 40
    ... effect of accounting changes Net income Cash dividends per share Common Preferred Balance sheet data Working capital Capital expenditures Property, plant and equipment, net Total assets Debt maturing within one year Long-term debt Total debt Shareholders' (deficit) equity Number of employees United...

  • Page 41
    ... 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." (10) In 1992...

  • Page 42
    ... New York, NY 10019-6013 Transfer Agent and Registrar EquiServe P.O. Box 2500 Jersey City, NJ 07303-2500 (201) 324-0498 Form 10-K Any shareholder may obtain a copy of the company's 2000 annual report (Form 10-K) by writing to: Shareholder Relations Avon Products, Inc 1345 Avenue of the Americas New...

  • Page 43
    ...: Jeffrey Apoian, New York, NY Williams sisters photography: George Holz, New York, NY Printing: Avanti/Case-Hoyt, Rochester, NY 9 Paula Stern, Ph.D.* President, The Stern Group 10 Lawrence A. Weinbach* Chairman, President and Chief Executive Officer, Unisys Corporation *Audit Committee Member