Avon 2003 Annual Report Download - page 49

fundamental change had occurred, the repurchase price in cash or common stock or a
combination of cash and common stock. On June 12, 2003, Avon elected to redeem the
Convertible Notes and issued a redemption notice to the holders of the Convertible
Notes. On July 11, 2003, the holders of $48.3 of the Convertible Notes converted their
notes into approximately 751,000 shares of Avon Common stock in accordance with the
conversion feature of the Convertible Notes. The conversion reduced Treasury stock
by $13.7 and increased Additional paid-in capital by $34.6. On July 14, 2003, Avon
redeemed the remaining Convertible Notes, which were originally issued in 2000, by pay-
ing $398.9, which represented the redemption price of $531.74 for each $1,000 principal
amount at maturity of Convertible Notes that was then outstanding. As a result of the
redemption, deferred issuance costs related to the Convertible Notes of approximately
$6.4 were expensed to Other expense (income), net and $.7 were reclassified to
Additional paid-in capital in the third quarter of 2003.
(b) The $100.0 6.25% Notes due May 2018 (the “Notes”), originally issued in May 1998,
were embedded with put and call option features, which meant that, in May 2003, these
Notes could be put by the holders back to Avon at par or could be called at par by the
callholder and resold to investors as 15-year debt. The coupon rate on the Notes was
6.25% for the first five years, but could be refinanced at 5.69% plus Avon’s then corpo-
rate spread if the Notes were reissued. In April 2003, the callholder exercised the call
option associated with these Notes, and thus became the sole noteholder of the Notes.
Pursuant to an agreement with the sole noteholder, Avon modified these Notes into
$125.0 aggregate principal amount of 4.625% notes due May 15, 2013. Interest was
payable semi-annually. The modified principal amount represented the original value of
the putable/callable notes, plus the market value of the related call option and approxi-
mately $4.0 principal amount of additional notes issued for cash. On May 13, 2003,
$125.0 principal amount of registered senior notes were issued in exchange for the
modified notes held by the sole noteholder. No cash proceeds were received by the
Company. The registered senior notes mature on May 15, 2013, and bear interest at a
per annum rate of 4.625%, payable semi-annually (the “4.625% Notes”). The 4.625%
Notes were issued under the Company’s $1,000.0 debt shelf registration statement.
The transaction was accounted for as an exchange of debt instruments and, accord-
ingly, the premium related to the original notes is being amortized over the life of the
new 4.625% Notes. The carrying value of the 4.625% Notes represents the $125.0
principal amount, net of the unamortized discount to face value of $.8 and the premium
related to the call option associated with the original Notes of $19.2.
(c) On June 23, 2003, Avon issued to the public $250.0 principal amount of registered senior
notes (the “4.20% Notes”) under the Company’s $1,000.0 debt shelf registration statement.
The 4.20% Notes mature on July 15, 2018, and bear interest at a per annum rate of 4.20%,
payable semi-annually. The net proceeds were used to repay a portion of Avon’s convertible
notes, discussed above. The carrying value of the 4.20% Notes represents the $250.0
principal amount, net of the unamortized discount to face value of $1.2.
(d) Includes obligations under capital leases of $11.8 and $9.6 at December 31, 2003
and 2002, respectively.
(e) Adjustments to reflect net unrealized gains of $23.0 and $80.0 on debt with fair value
hedges at December 31, 2003 and 2002, respectively, and unamortized gains on termi-
nated swap agreements of $9.3 and $5.4 at December 31, 2003 and 2002, respectively,
(see Note 7, Financial Instruments and Risk Management).
At December 31, 2003, Avon held interest rate swap contracts with notional
amounts totaling $975.0 (or approximately 90% of total fixed-rate debt) which
swap fixed interest rates for variable rates (see Note 7, Financial Instruments
and Risk Management).
Annual maturities of long-term debt (excluding the adjustments for debt with
fair value hedges) outstanding at December 31, 2003, are as follows:
After
2004 2005 2006 2007 2007 Total
Maturities $4.4 $4.9 $86.4 $100.1 $675.2 $871.0
Other Financing
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 general
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 quar-
terly, of $.5, based on Avon’s current credit ratings. The credit facility contains
various covenants, including one financial covenant which requires Avon’s inter-
est coverage ratio (determined in relation to Avon’s consolidated pretax income
and interest expense) to equal or exceed 4:1. At December 31, 2003, Avon was
in compliance with all covenants in the credit facility. At December 31, 2003 and
2002, 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, 2003 and 2002, Avon had no commercial
paper outstanding.
Avon had uncommitted domestic lines of credit available of $20.0 and $18.9
at December 31, 2003 and 2002, respectively, with various banks which have
no compensating balances or fees.
The maximum borrowings under these combined domestic facilities during
2003 and 2002 were $25.0 and $406.4, respectively, and the annual average
borrowings during each year were approximately $2.7 and $215.3, respectively,
at average annual interest rates of approximately 2.1% and 1.7%, respectively.
Notes to Consolidated Financial Statements
notes to statements
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