Avon 2001 Annual Report Download - page 28

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Accounting for Costs Associated with Exit or Disposal
Activities > In June 2002, the FASB issued FAS No. 146,
“Accounting for Costs Associated with Exit or Disposal
Activities”. This statement supersedes EITF No. 94-3
“Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)”. FAS No. 146
requires that a liability for a cost associated with an exit
or disposal activity be recognized when the liability is
incurred. Under EITF 94-3, a liability is recognized at the
date an entity commits to an exit plan. FAS No. 146 also
establishes that the liability should initially be measured
and recorded at fair value. The provisions of FAS No. 146
will be effective for any exit and disposal activities initi-
ated after December 31, 2002.
Guarantees > In November 2002, the FASB issued
Interpretation (“FIN”) No. 45, “Guarantor’s Accounting
and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others”, which
requires certain guarantees to be recorded at fair value
rather than the current practice of recording a liability
only when a loss is probable and reasonably estimable and
also requires a guarantor to make new guaranty disclo-
sures, even when the likelihood of making any payments
under the guarantee is remote. The accounting require-
ments of FIN No. 45 are effective for guarantees issued or
modified after December 31, 2002, and the disclosure
requirements are effective for financial statements of
interim or annual periods ending after December 15,
2002. The Company does not expect the adoption of FIN
No. 45 to have a material impact on the Consolidated
Financial Statements. Avon has a 40% interest in
Mirabella Realty Company, (“Mirabella”), a Philippine
company formed to purchase land in the Philippines. The
remaining 60% interest is held by Company-sponsored
retirement plans. The investment is accounted for under
the equity method. At December 31, 2002, Avon guaran-
tees $2.5 of Mirabella’s third-party borrowings. Based on
current facts and circumstances and Mirabella’s financial
position, the likelihood of a payment pursuant to such
guarantee is remote.
Accounting for Stock-Based Compensation >In December
2002, the FASB issued FAS No. 148, “Accounting
for Stock-Based Compensation and Disclosure–An
Amendment of FAS No. 123,” which provides companies
with three transition methods if they choose to adopt
the accounting provisions of FAS No. 123. FAS No. 148
also requires new disclosure requirements that are incre-
mental to FAS No. 123, which have been included in
Note 1, Description of the Business and Summary of
Significant Accounting Policies, and Note 8, Long-Term
Incentive Plans.
Inventories
Inventories at December 31 consisted of the following:
2002 2001
Raw materials $165.6 $167.0
Finished goods 449.1 445.5
Total $614.7 $612.5
Debt and Other Financing
Debt > Debt at December 31 consisted of the following:
2002 2001
Maturing within one year:
Notes payable $ 63.7 $ 87.6
Convertible Notes, due July 2020*438.4 —
6.25% Bonds, due May 2018†100.0 —
Current portion of long-term debt 3.1 1.2
Total $605.2 $ 88.8
Long-term debt:
1.06% Unsecured Yen Notes,
due September 2006 $ 75.0 $ 68.8
Convertible Notes, due July 2020*—422.4
6.90% Unsecured Notes,
due November 2004 200.0 200.0
7.15% Unsecured Notes,
due November 2009 300.0 300.0
6.25% Bonds, due May 2018†—100.0
6.55% Notes, due August 2007 100.0 100.0
Other, payable through 2008
with interest from 3% to 19% 9.7 5.6
Total long-term debt 684.7 1,196.8
Adjustments for debt with
fair value hedges‡85.4 40.7
Less current portion (3.1) (1.2)
Total $767.0 $1,236.3
* The Convertible Notes are zero-coupon convertible senior notes (the
“Convertible Notes”) with $840.8 principal amount at maturity. The
Convertible Notes have a 3.75% yield to maturity and are convertible at
any time into Avon’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 initial offering price of the Convertible Notes). The
Convertible Notes may be redeemed at the option of Avon 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 Avon 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 Convertible Note of $531.74, $640.29 and $771.00, respec-
tively. The holders may also require Avon to repurchase the Convertible
Notes if a fundamental change, as defined, involving Avon occurs prior
to July 12, 2003. Avon has the option to pay the purchase price or, if a
fundamental change has occurred, the repurchase price in cash or com-
mon stock or a combination of cash and common stock. At December
31, 2002, the Company reclassified $438.4 from Long-term debt to
Debt maturing within one year since the holders can require Avon to
purchase all or a portion of the Convertible Notes on July 12, 2003.
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