Avon 2000 Annual Report Download - page 26

4Debt and Other Financing
Debt at December 31 consisted of the following (see also
Note 7of the Notes to Consolidated Financial Statements
regarding financial instruments):
2000 1999
Maturing within one year:
Notes payable $ 104.6 $305.2
Current portion of long-term debt .8 .8
Total $ 105.4 $306.0
Long-term debt:
6.90% Notes, due 2004 $ 200.0 $200.0
6.55% Notes, due 2007 100.0 100.0
7.15% Notes, due 2009 300.0 300.0
6.25% Bonds, due 2018 100.0 100.0
Convertible Notes, due 2020 407.0 —
Other, payable through 2005 with
interest from 3% to 15% 2.0 2.2
Less current portion (.8) (.8)
Total $1,108.2 $701.4
Annual maturities of long-term debt for each of the
next five years are: 2001–$.8; 2002– $.6; 2003 –$.4;
2004–$200.1; and 2005 and beyond – $907.1.
In July 2000, the Company issued in a private
placement $735.8 principal amount at maturity of zero-
coupon convertible senior notes (the “Convertible Notes”),
due July 12, 2020 with proceeds of approximately
$350.0. The issue price per Convertible 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 conversion price of $57.50 per share based on the ini-
tial 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 dis-
count 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 pur-
chase an additional $105.0 of Convertible Notes. As of
August 8, 2000, the over-allotment option had been exer-
cised and additional Convertible Notes with an aggregate
principal amount at maturity of approximately $105.0
were purchased by the initial purchasers from the
Company for proceeds of approximately $50.0.
The net proceeds from the offering (including the
proceeds of the over-allotment option) were used for gen-
eral corporate purposes, including the repayment of short-
term debt.
In November 1999, Avon issued $500.0 of notes
payable (the “Notes”) in a private offering to institutional
investors. The Notes are unsubordinated, unsecured obli-
gations of the Company. $200.0 of the Notes bear interest
at a per annum rate equal to 6.90% and mature on
November 15, 2004. $300.0 of the Notes bear interest at
a per annum rate equal to 7.15% and mature on
November 15, 2009. Interest on the Notes is payable
semi-annually. The indenture under which the Notes
were issued limits the incurrence of liens and restricts the
incurrence of sales and leaseback transactions and transac-
tions involving mergers, consolidation or a sale of sub-
stantially all of the Company’s assets.
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
rates on the Notes to a variable interest rate, based on
commercial paper rates. In November 2000, these inter-
est 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, Avon 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%.d interest rate. The
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