Avon 2003 Annual Report Download - page 48

Pension and Postretirement Benefits
In December 2003, the FASB issued a revised FAS No. 132, “Employers’
Disclosures about Pensions and Other Postretirement Benefits,” to improve
financial statement disclosures for defined benefit plans. FAS No. 132 requires
new disclosure requirements, which have been included in Note 10, Employee
Benefit Plans.
In January 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-a,
“Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003” (the “Act”). Among other
things, the new law will expand Medicare to include an outpatient prescription
drug benefit beginning in 2006. Under FSP No. 106-a, companies may choose
to report the effects of the Act in financial statements for the period that covers
the date of the enactment (December 8, 2003) or they may choose to defer rec-
ognizing the effects of the Act until guidance is issued by the FASB. Avon has
elected to defer accounting for the effects of the Act. Accordingly, Avon’s accu-
mulated postretirement obligation and net postretirement health care costs do
not reflect the effects of the Act on the plans. Avon is currently assessing the
implications of this Act on the Consolidated Financial Statements.
3. Inventories
Inventories at December 31 consisted of the following:
2003 2002
Raw materials $152.0 $165.6
Finished goods 501.4 449.1
Total $653.4 $614.7
4. Debt and Other Financing
Debt
Debt at December 31 consisted of the following:
2003 2002
Debt maturing within one year:
Notes payable $ 39.7 $ 63.7
6.90% Notes, due November 2004 200.0 —
Convertible Notes, due July 2020 (a) —438.4
6.25% Notes, due May 2018 (b) —100.0
Current portion of long-term debt 4.4 3.1
Total $244.1 $605.2
Long-term debt:
6.90% Notes, due November 2004 $ — $200.0
1.06% Yen Notes, due September 2006 84.2 75.0
6.55% Notes, due August 2007 100.0 100.0
7.15% Notes, due November 2009 300.0 300.0
4.625% Notes, due May 2013 (b) 105.0 —
4.20% Notes, due July 2018 (c) 248.8 —
Other, payable through 2018 with
interest from 1% to 19%(d) 11.8 9.7
Total long-term debt 849.8 684.7
Adjustments for debt with fair value hedges (e) 32.3 85.4
Less current portion (4.4) (3.1)
Total $877.7 $767.0
(a) The Convertible Notes were zero coupon convertible senior notes due 2020 (the
“Convertible Notes”) with $840.8 principal amount at maturity. The Convertible Notes
had a 3.75% yield to maturity and were 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 were redeemable 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 could 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, respectively. The holders could also require Avon
to repurchase the Convertible Notes if a fundamental change, as defined, involving Avon
occurred prior to July 12, 2003. Avon had the option to pay the purchase price or, if a
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