Avon 2001 Annual Report Download - page 12

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to meet anticipated requirements for working capital,
dividends, capital expenditures, the stock repurchase pro-
gram and other cash needs.
Avon has a five-year $600.0 revolving credit and
competitive advance facility (the “credit facility”), which
expires in 2006. The credit facility may be used for gen-
eral corporate purposes, including financing working
capital and capital expenditures and supporting the stock
repurchase program. The interest rate on borrowings
under the credit facility is based on LIBOR or on the
higher of prime or 1/2% plus the federal funds rate. The
credit facility has an annual facility fee, payable quarterly,
of $0.5, based on Avon’s current credit ratings. The credit
facility contains customary covenants, including one
which requires Avon’s interest coverage ratio (determined
in relation to Avon’s consolidated pretax income and inter-
est expense) to equal or exceed 4:1. At December 31,
2002, Avon was in compliance with all covenants in the
credit facility. At December 31, 2002 and December 31,
2001, there were no borrowings under the credit facility.
Avon maintains a $600.0 commercial paper program,
which is supported by the credit facility. Outstanding
commercial paper effectively reduces the amount available
for borrowing under the credit facility. At December 31,
2002 and December 31, 2001, Avon had no commercial
paper outstanding.
The cost of borrowings under the credit facility, as
well as the amount of the facility fee and utilization fee
(applicable only if more than 50% of the facility is bor-
rowed), depend on Avon’s credit ratings. A downgrade in
Avon’s credit ratings would increase the cost to Avon of
maintaining and borrowing under the credit facility, or
preclude Avon from issuing commercial paper or increase
the cost to Avon of issuing commercial paper in the future.
The credit facility does not contain a rating downgrade
trigger that would prevent Avon from borrowing under
the credit facility. The credit facility would become
unavailable for borrowing only if Avon were to fail to sat-
isfy one of the conditions to borrowing in the facility.
These conditions to borrowing are generally based on the
accuracy of certain representations and warranties, compli-
ance by Avon with the covenants in the credit facility (dis-
cussed above) and the absence of defaults, including but
not limited to bankruptcy and insolvency, change of con-
trol, failure to pay other material debts and failure to stay
or pay material judgments, as those events are described
more fully in the credit facility agreement.
At December 31, 2002, Avon was in compliance
with all covenants in its indentures (see Note 4, Debt and
Other Financing). Such indentures do not contain any rat-
ing downgrade triggers that would accelerate the maturity
of its debt. Neither the credit facility nor any of the inden-
tures contains any covenant or other requirement relating
to maintenance of a positive shareholders’ equity balance.
Avon had uncommitted domestic lines of credit
available of $37.9 in 2002 and 2001 with various banks.
In addition, as of December 31, 2002 and 2001, there
were international lines of credit totaling $411.4 and
$457.4, respectively, of which $63.9 and $87.9, respec-
tively, were outstanding and included in Notes payable
and Long-term debt. At December 31, 2002 and 2001,
Avon had letters of credit outstanding totaling $27.7
and $25.9, respectively, which guarantee various insurance
activities. In addition, Avon had outstanding letters
of credit for various trade activities and commercial
commitments executed in the ordinary course of business,
such as purchase orders for normal replenishment of
inventory levels.
On February 25, 2003, the Company filed a
Registration Statement on Form S-3 with the SEC, which
is intended to register $1,000.0 of debt securities. The
Registration Statement is not yet effective as of the date
of this filing.
Debt and Contractual Financial Obligations and Commitments > At December 31, 2002, Avon’s debt and contractual finan-
cial obligations and commitments by due date were as follows:
2007 and
2003 2004 2005 2006 Beyond Total
Notes payable $ 63.7 $ — $ — $ — $ — $ 63.7
Long-term debt 538.6(1) 200.0 — 75.0 400.0 1,213.6
Capital lease obligations 2.9 4.4 1.9 .1 .2 9.5
Operating leases 72.8 57.3 43.3 32.5 193.6 399.5
Other long-term obligations 6.1 2.5 — — — 8.6
Total debt and contractual financial
obligations and commitments(2) $684.1 $264.2 $45.2 $107.6 $593.8 $1,694.9
(1) $100.0 of bonds embedded with option features maturing in May 2018 can be sold back to Avon at par or can be called at par by the call option holder
and resold to investors as 15-year debt in May 2003. Convertible Notes of $438.4 maturing in 2020 may be redeemed at the option of Avon on or after
July 12, 2003. In addition, at the holders’ option, the Convertible Notes may be sold to Avon, for cash or shares at Avon’s discretion, at the redemption
price on July 12, 2003, July 12, 2008 and July 12, 2013.
(2) The amount of debt and contractual financial obligations and commitments excludes amounts due pursuant to derivative transactions.