Avon 2001 Annual Report Download - page 35

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Compensation expense under all stock-based
compensation plans in 2002 was $6.6 (2001–$7.5;
2000–$6.6). The unamortized cost of restricted shares
as of December 31, 2002, was $5.6 (2001–$8.5) and
was included in Additional paid-in capital on the
Consolidated Balance Sheets.
Transformation Long-Term Incentive Plans > In 2002, Avon
established a three-year Transformation Long-Term
Incentive Plan providing for performance cash awards
based on the achievement of cumulative Business
Transformation goals over the period 2002 to 2004. It
is reasonably possible that total cash payments of approxi-
mately $50.0 will be made in the first quarter of 2005
in connection with this program. No expense has been
recognized under this plan due to the aggressive nature
of the goals and cumulative aspect of the award formula.
The Company does not anticipate that this incremental
expense will affect its ability meet its financial targets due
to the self-funding nature of this plan.
Board of Directors Remuneration > Each non-management
director is annually granted options to purchase 4,000
shares of common stock, at an exercise price based on the
fair market price of the stock on the date of grant. The
annual grant of restricted shares made in 2002 and 2001
consisted of 36,000 and 32,000 options, respectively, with
an exercise price of $53.11 and $43.12, respectively.
Effective January 1, 2002, the annual cash retainer
paid to non-management directors consists of thirty thou-
sand dollars cash (twenty-five thousand dollars prior to
January 1, 2002) plus an annual grant of restricted shares
having a value of thirty thousand dollars (twenty-five
thousand dollars prior to January 1, 2002) based on the
average closing market price of the stock for the 10 days
preceding the date of grant. These shares are restricted as
to transfer until the director retires from the Board. The
annual grant of restricted shares made in 2002 and 2001
consisted of a total of 4,869 and 5,024 shares, respectively.
In addition, non-management directors are paid one thou-
sand dollars cash for attendance at committee and special
Board meetings. Non-management directors appointed to
chair a committee are also paid three thousand dollars cash
within 30 days following appointment.
Shareholders’ (Deficit) Equity
Share Rights Plan > Avon has a Share Rights Plan under
which one right has been declared as a dividend for each
outstanding share of its common stock. Each right,
which is redeemable at $.005 at any time at Avon’s option,
entitles the shareholder, among other things, to purchase
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one share of Avon common stock at a price equal to one-
half of the then current market price, if certain events have
occurred. The right is exercisable if, among other events,
one party obtains a beneficial ownership of 20% or more of
Avon’s voting stock.
Stock Repurchase Program > In September 2000, Avon’s
Board approved a new share repurchase program under
which the Company may buy up to $1,000.0 of its out-
standing stock over the next five years. As of December
31, 2002, the Company had repurchased approximately
7.4 million shares at a total cost of approximately $337.4
under this program.
Employee Benefit Plans
Savings Plan > The Company offers a qualified defined
contribution plan for U.S.-based employees, the Avon
Products, Inc. 401(k) Personal Savings Account, which
allows eligible participants to contribute 1% to 20% of
qualified compensation through payroll deductions (effec-
tive January 1, 2003, 1% to 25% of qualified compensa-
tion). Avon matches employee contributions dollar for
dollar up to the first 3% of eligible compensation and
fifty cents for each dollar contributed from 4% to 6%
of eligible compensation. In 2002, 2001 and 2000,
matching contributions approximating $14.0, $13.3 and
$12.7, respectively, were made to this plan in cash,
which was then used by the plan to purchase Avon shares
in the open market.
Retirement Plans > Avon and certain subsidiaries have con-
tributory and noncontributory retirement plans for sub-
stantially all employees. Benefits under these plans are
generally based on an employee’s years of service and aver-
age compensation near retirement. Plans are funded on a
current basis except where funding is not required. Plan
assets consist primarily of 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 balance plan with benefits determined by compensa-
tion credits related to age and service and interest credits
based on individual account balances and prevailing inter-
est rates. This conversion also included a 10-year transi-
tional benefit arrangement for certain employees covered
under a pre-existing defined benefit retirement plan who
retire during that 10-year period, which provides them
with the higher of the benefit they would have received
under the previous defined benefit retirement plan and the
current cash balance plan.
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