Avon 2007 Annual Report Download - page 40

PART II
capital, dividends, capital expenditures, the share repurchase
program, possible acquisitions and other cash needs in the short
and long term.
We may, from time to time, seek to repurchase our equity or to
retire our outstanding debt, in open market purchases, privately
negotiated transactions, pursuant to derivative instruments or
otherwise. During 2007, we repurchased approximately
17.3 million shares of our common stock for an aggregate pur-
chase price of approximately $667 million. In February 2005, our
Board of Directors approved a share repurchase program for the
repurchase of $1,000.0 of our common stock over a five-year
period. This program was completed in December 2007. In
October 2007, our Board of Directors approved a share
repurchase program for the repurchase of $2,000.0 of our
common stock over a five-year period, which began in December
2007 following completion of the previous $1,000.0 share
repurchase program.
Retirements of debt will depend on prevailing market conditions,
our liquidity requirements, contractual restrictions and other
factors, and the amounts involved may be material. We may also
elect to incur additional debt or issue equity or convertible secu-
rities to finance ongoing operations, acquisitions or to meet our
other liquidity needs. We expect to issue additional long-term
debt as we seek to reduce our outstanding commercial paper. In
August 2007, we entered into treasury lock agreements (the
“locks”) with notional amounts totaling $500.0 that expired on
January 31, 2008. The locks have been designated as cash flow
hedges and are being used to hedge exposure to a possible rise
in interest rates, as we expect to incur long-term debt to
refinance our commercial paper. At December 31, 2007, we
recorded unrealized losses of $25.3 in accumulated other com-
prehensive loss related to the locks. On January 31, 2008, we
extended the maturity date of the locks to July 31, 2008, as we
expect to incur long-term debt by this date. Any issuances of
equity securities or convertible securities could have a dilutive
effect on the ownership interest of our current shareholders and
may adversely impact earnings per share in future periods. Our
liquidity could also be impacted by dividends, capital investments
and acquisitions. At any given time, we may be in discussions
and negotiations with potential acquisition candidates. Acquis-
itions, by their nature, involve numerous risks and uncertainties.
Balance Sheet Data
2007 2006
Cash and cash equivalents $ 963.4 $1,198.9
Total debt 2,097.4 1,786.3
Working capital 462.0 809.2
The increase in total debt and decrease in working capital primar-
ily relates to higher short-term commercial paper borrowings.
Cash Flows
2007 2006 2005
Net cash provided by
operating activities $ 589.8 $ 796.1 $ 895.5
Net cash used by investing
activities (287.2) (207.9) (343.1)
Net cash used by financing
activities (597.1) (490.4) (226.7)
Effect of exchange rate
changes on cash and
equivalents 59.0 42.4 (36.6)
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased by $206.3
during 2007, primarily due to higher payments for inventory
purchases, higher incentive-based compensation payments in
2007 for compensation earned in 2006 and higher interest
payments, partially offset by lower payments associated with
restructuring initiatives.
We expect cash provided by operating activities for full-year
2008 to be substantially higher than full-year 2007.
Inventory levels have continued to increase during 2007 from
$900.3 at December 31, 2006 to $1,041.8 at December 31,
2007, partially driven by actions taken in an effort to ensure serv-
ice levels to our Representatives and due to the impacts of for-
eign exchange. New inventory life cycle management processes
leveraged with initiatives such as PLS, SSI, ERP implementation
and the Sales and Operations Planning process are expected to
improve inventory levels in the long-term. We expect these ini-
tiatives to help us deliver targeted improvements of a 3 to 5
inventory day reduction each year, starting in 2008, for the next
4 to 5 years.
We maintain defined benefit pension plans and unfunded supple-
mental pension benefit plans (see Note 10, Employee Benefit
Plans). Our funding policy for these plans is based on legal
requirements and cash flows. The amounts necessary to fund
future obligations under these plans could vary depending on
estimated assumptions (as detailed in “Critical Accounting
Estimates”). The future funding for these plans will depend on
economic conditions, employee demographics, mortality rates,
the number of associates electing to take lump-sum dis-
tributions, investment performance and funding decisions. Based
on current assumptions, we expect to contribute approximately
$9 and $23 to our U.S. and international pension plans,
respectively, in 2008.
Net cash provided by operating activities decreased by $99.4
during 2006, primarily due to cash payments of approximately