Avon 2000 Annual Report Download - page 11

Capital Resources > Total debt of $1,213.6 at December
31, 2000 increased $206.2 from $1,007.4 at December
31, 1999, compared with an increase of $751.1 from
December 31, 1998. At December 31 , 1999, other accrued
liabilities included approximately $106.4, related to secu-
rities lending activities. These liabilities were repaid in
2000. See Note 4of the Notes to Consolidated Financial
Statements for further discussion of these transactions.
During 2000 and 1999, cash flows from operating activi-
ties combined with cash on hand and higher debt levels
were used for repurchase of common stock, dividends,
capital expenditures and the acquisition of a manufactur-
ing facility in Poland in 1999.
At December 31, 2000, debt maturing within one
year consisted of borrowings from banks of $104.6 and
the current maturities of long-term debt of $.8. Manage-
ment believes that cash from operations and available
sources of financing are adequate to meet anticipated
requirements for working capital, dividends, capital
expenditures, the remainder of the stock repurchase pro-
gram and other cash needs.
In July 2000, the Company issued in a private
placement $735.8 principal amount at maturity of zero
coupon convertible senior notes (“Convertible Notes”)
due July 12, 2020, with proceeds of approximately
$350.0. The issue price per note was $475.66, being
47.566% of the principal amount of $1,000 per note at
maturity. The Convertible Notes have a 3.75% yield
to maturity and are convertible at any time into the
Company’s common stock at a conversion rate of 8.2723
shares of common stock per $1,000 principal amount at
maturity of the Convertible Notes (equivalent to a con-
version price of $57.50 per share based on the initial
offering price of the Convertible Notes). The Convertible
Notes may be redeemed at the option of the Company on
or after July 12, 2003, at a redemption price equal to the
issue price plus accrued original issue discount to the
redemption date. The holders can require the Company
to purchase all or a portion of the Convertible Notes on
July 12, 2003, July 12, 2008 and July 12, 2013, at the
redemption price per note of $531.74, $640.29 and
$771.00, respectively. The holders may also require the
Company to repurchase the Convertible Notes if a funda-
mental change, as defined, involving Avon occurs prior to
July 12, 2003. The Company has the option to pay the
purchase price or, if a fundamental change has occurred,
the repurchase price in cash or common stock or a combi-
nation of cash and common stock. The indenture under
which the Convertible Notes were issued restricts the
Company’s ability to merge with or consolidate into
another company or to sell substantially all of the
Company’s assets.
The Company also granted to the initial purchasers
of the Convertible Notes an over-allotment option to
purchase an additional $105.0 of Convertible Notes.
As of August 8, 2000, the over-allotment option had
been exercised and additional Convertible Notes with
an aggregate principal amount at maturity of approxi-
mately $105.0 were purchased by the initial purchasers
from the Company for proceeds of approximately $50.0.
The net proceeds from the offering (including
the proceeds of the over-allotment option) were used for
general corporate purposes, including the repayment of
short-term debt.
In November 1999, the Company issued $500.0 of
unsubordinated, unsecured notes payable (the “Notes”) in
a private offering to institutional investors. The proceeds
from this issuance were used for general corporate pur-
poses, including the repayment of outstanding short-term
borrowings incurred to finance the acceleration of the
Company’s share repurchase program.
In connection with the November 1999 offering,
Avon entered into five-year and ten-year interest rate
swap contracts with notional amounts of $200.0 and
$300.0, respectively, to effectively convert fixed interest
on the Notes to a variable interest rate, based on commer-
cial paper rates. In November 2000, these interest rate
swap contracts were terminated. The cost to settle these
contracts is being amortized over the remaining term of
the underlying debt. At the same time, the Company
entered into new four-year and nine-year interest rate
swap contracts with notional amounts of $200.0 and
$300.0, respectively, to effectively convert fixed interest
on the Notes to a variable interest rate, based on libor.
In May 2000, the Company entered into an interest
rate cap agreement with a notional amount of $150.0
expiring on May 31, 2001, to convert a variable interest
rate, resulting from the interest rate swaps above, to a
fixed interest rate. The cap rate under this contract is 7%.
In May 1998, Avon issued $100.0 of bonds embed-
ded with option features (the “Bonds”) to pay down com-
mercial paper borrowings. The Bonds have a twenty-year
maturity; however, after five years, the Bonds, at the
holder’s option, can be sold back to the Company at par
or can be called at par by the underwriter and resold to
investors as fifteen-year debt. The coupon rate on the
Bonds is 6.25% for the first five years, but will be refi-
nanced at 5.69% plus the then corporate spread if the
Bonds are reissued.
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