Document/Exhibit Description Pages Size
1: 10-K December 31, 2000 31 108K
3: EX-10.17 Material Contract 5 17K
4: EX-13 Annual or Quarterly Report to Security Holders 56 256K
5: EX-21 Subsidiaries of the Registrant 3 13K
6: EX-24 Power of Attorney 2 10K
2: EX-99 Ex-Index 5 29K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-4881
AVON PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
New York 13-0544597
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1345 Avenue of the Americas, New York, N.Y. 10105-0196
(New address of principal executive offices)
(212) 282-5000
(Telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common stock (par value $.25) New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ].
The aggregate market value of Common Stock (par value $.25) held
by non-affiliates at February 28, 2001 was $10.1 billion.
The number of shares of Common Stock (par value $.25) outstanding
at February 28, 2001 was 237,927,022.
Documents Incorporated by Reference
Parts I and II Portions of the 2000 Annual Report to Shareholders.
Part III Portions of the Proxy Statement for the 2001 Annual
Meeting of Shareholders.
PART I
ITEM 1. BUSINESS
Certain statements in this report which are not historical facts or
information are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, including, but not
limited to, the information set forth herein. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, levels of activity, performance or
achievement of Avon Products, Inc. ("Avon" or the "Company"), or industry
results, to be materially different from any future results, levels of
activity, performance or achievement expressed or implied by such forward-
looking statements. Such factors include, among others, the following:
General economic and business conditions; the ability of the Company to
implement its business strategy; the Company's access to financing and its
management of foreign currency risks; the Company's ability to successfully
identify new business opportunities; the Company's ability to attract and
retain key executives; the Company's ability to achieve anticipated cost
savings and profitability targets; the impact of substantial currency
exchange devaluations in the Company's principal foreign markets; changes
in the industry; competition; the effect of regulatory and legal
restrictions imposed by foreign governments; the effect of regulatory and
legal proceedings and other factors as discussed in Item 1 of this Form 10-
K. As a result of the foregoing and other factors, no assurance can be
given as to the future results and achievements of the Company. Neither
the Company nor any other person assumes responsibility for the accuracy
and completeness of these statements.
General
The Company is a global manufacturer and marketer of beauty and
related products, which include cosmetics, fragrance and toiletries
("CFT"); "Beauty Plus" which consists of jewelry, watches and accessories,
and apparel; and "Beyond Beauty" which consists of gift and decorative,
home entertainment, and health and nutrition products. Avon commenced
operations in 1886 and was incorporated in the State of New York on January
27, 1916. Avon's business is comprised of one industry segment, direct
selling, which is conducted in North America, Latin America, the Pacific
and Europe. The Company's reportable segments are based on geographic
operations. Financial information relating to the reportable segments is
incorporated by reference to the analysis of net sales and operating profit
by geographic area, and to Note 11 of the Notes to the Consolidated
Financial Statements, on pages 35 and 66, respectively in Avon's 2000
Annual Report to Shareholders.
Business Process Redesign
In October 1997, the Company announced a worldwide business process
redesign ("BPR") program to streamline operations and improve
profitability through margin improvement and expense reductions. The
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special and non-recurring charges associated with this program totaled
$151.2 pretax ($121.9 net of tax, or $.47 per share on a basic and
diluted basis) for the year ended December 31, 1999 and $154.4 pretax
($122.8 net of tax, or $.46 per share on a basic and diluted basis) for
the year ended December 31, 1998. At December 31, 2000, the remaining
liability balance was $7.9, which relates primarily to severance costs
that will be paid in 2001.
Total savings from BPR initiatives reduced costs by approximately
$400 in 2000 versus 1997 levels, with a portion of the savings being
reinvested primarily in consumer-focused initiatives.
Global Business Strategy
In 2000, the Company focused on strategic priorities to drive
revenue growth and expand its customer base around the world by building
on the Company's strength as a beauty marketer and a leading home direct
seller. Our business strategy includes, but is not limited to, plans to
accelerate growth in our core beauty business, expanding market share,
upgrading our beauty image and new product innovation; building a global
portfolio of jewelry and accessories; developing innovative programs to
train, motivate and retain Representatives; exploiting retail
opportunities; and developing new businesses. The Company expects that
BPR programs will continue to provide resources to fund these strategic
growth initiatives and contribute to earnings growth. Spending for
product innovation and advertising are also key components in building a
global beauty image and reaching the end consumer. In 2000, the Company
committed much of its strategic spending to the launch of its first-ever
global advertising campaign, supported by investments in consumer
sampling and upgrades to its sales brochures. Additionally, in the
fourth quarter of 2000, the Company significantly expanded its use of
Internet technology. In 2001, the Company will launch a new global
product category of women's health and wellness products and plans to
sell a new retail brand of products at Avon Centers located in the stores
of two major retailers.
Avon's global strategies include the following key growth
initiatives:
Direct Selling Contemporization
The Company continues to modernize its direct selling channel and
Representative experience, enabling it to reach women quickly and
efficiently by offering to Representatives training, enhanced earnings
opportunities and career options. In 2000, the Company rolled out a
global Sales Leadership program in several of its largest markets around
the world. The Sales Leadership program is a modified multi-level
selling system which gives Representatives the opportunity to earn
commissions on their own sales, as well as from downstream sales of
Representatives they recruit. This program limits the number of levels
to three and continues to focus on individual product sales.
The Company also implemented a Representative development strategy
in 2000. This strategy focuses on the professional training and
development of Representatives through the Avon Beauty Advisor program,
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which gives Representatives the most extensive beauty training ever
offered by Avon. Under this program, Representatives enroll in a series
of courses designed to upgrade their makeup and skin care consulting
skills and teach them about the latest advances in beauty products.
Successful graduates are certified as beauty advisors.
Avon is licensing Representatives to operate stand-alone kiosks
selling Avon's core beauty products in shopping malls across the U.S. In
addition to increasing their personal sales, entrepreneurial
Representatives also use the kiosks to recruit new Representatives to
Avon.
In addition to the Sales Leadership program and Representative
development strategy, the Company built and relaunched its Avon.com
internet site in the United States during 2000. In September 2000, the
Company announced to its Representatives a new online marketing tool
called, youravon.com. The site features Avon's full product line and
helps U.S. sales Representatives build their own Avon business by
enabling them to sell online through their own personalized web pages,
developed in partnership with the Company. Using their own personalized
consumer-facing Web sites, e-Representatives provide their family of
customers with 24x7 access to Avon products. At the same time, e-
Representatives have the advantage of business-to-business capabilities
that connect them seamlessly to Avon's order and fulfillment systems.
While their customers benefit from the speed, convenience and delivery
flexibility of online ordering, Avon e-Representatives are able to
promote special products, target specific groups of customers, place and
track orders online, and capitalize on e-mail to share product
information, selling tips and marketing incentives. Self-paced online
training also is available, as well as up-to-the-minute news about the
Company. Available to the Representatives and District Sales Managers
are new on-line tools that will allow them to engage in more value-added
activities, such as recruiting, training and selling. Avon also
continues to sell products directly to consumers on Avon's internet site
if they choose not to purchase through a Representative.
The Company annually produces more than 600 million brochures in a
dozen languages, utilizing common imagery and layouts from a single
global database to enhance its global beauty image. Avon is upgrading
the quality of brochures in several of its largest markets, including the
United Kingdom and is testing the concept in the U.S.
Complementary Access
To accelerate growth in established industrial regions such as the
U.S., Western Europe and Japan, the Company has developed new channels to
reach more customers and improve access to its products through licensed
kiosks and Express Centers in the U.S., toll-free telephone
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numbers, direct mail and "on line" shopping via the Internet. These
complementary access programs will further increase sales to an entirely
new customer segment -- women who prefer to do their shopping in stores
and malls.
Access strategies also have helped reach new customers in the Pacific
Region. For example, the Philippines, India and Indonesia use
decentralized branches and satellite stores to serve Representatives and
customers. Representatives come to a branch near their homes to place and
pick up product orders for their customers. The branches also create
visibility for Avon with consumers and help reinforce the Company's beauty
image. In Malaysia, Avon has numerous franchised beauty boutiques, which
are staffed by franchise Representatives and are located in areas with
high concentrations of Representatives. The boutiques provide more direct
and personal service to Representatives and their customers.
Additionally, in China, Venezuela and Taiwan, beauty counters managed by
Avon Representatives are in retail store chains.
In 2001, Avon will open Avon Centers in the stores of Sears, Roebuck
and Company ("Sears") and J.C. Penney Company, Inc. ("J.C. Penney"), to
sell a new line of Avon products called "beComing". The new line will
offer beauty products, as well as a selection of jewelry and accessories
and well-being products. The "beComing" line will be priced
significantly higher than the core Avon line, but well below prestige
brands. This retail partnership leverages Avon's product development and
manufacturing capabilities with the retail expertise of Sears and J.C.
Penney. It is expected that approximately 200 "store-within-a-store"
locations will open in the latter half of 2001. The new retail strategy
is intended to enable Avon to access new customers that the Company is
not currently reaching through the direct selling channel.
Image Enhancement
The Company continues to update the image of its core beauty
products and its portfolio of global beauty brands. In the past five
years, CFT products have all undergone extensive upgrades in packaging,
imaging and formulations, consistent with the global brand strategy.
These contemporary products project a consistent, high quality image in
all markets and include brands such as Anew, Skin-So-Soft, Avon Color,
Far Away, Rare Gold, Perceive, and Avon Skin Care. Global brands are
growing rapidly as a percentage of the Company's worldwide CFT business
and in 2000, they accounted for 50% of core beauty sales. Anew
Retroactive, a ground breaking age-reversal cream introduced in 2000,
rolling out globally in 2001, utilizes Avon's exclusive, patent-pending
blend of ingredients formulated to enhance cellular communication and re-
energize aging skin cells. In 2000, the Company launched an upscale
global hair care brand called Advance Techniques and launched a global
jewelry and fashion accessories line around the world. The development
of global brands has also enabled the Company to deliver a consistent
beauty image around the world, as well as improve margins through pricing
and supply chain efficiencies. Avon is also marketing a more vibrant
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beauty image through increased advertising and image-building programs
focused on the consumer. In 2000, the Company launched its first-ever
global advertising campaign entitled "Let's Talk", increased investments
in product sampling and development and upgraded the quality of its
brochure to further strengthen its worldwide beauty image. In 2001,
"Let's Talk" advertising campaigns will include the Williams sisters,
accomplished young sports professionals who, through their embodiment of
Avon's values of empowerment and self-fulfillment, serve as role models
for women everywhere.
In 2001, Avon will launch an entirely new global product category in the
area of women's health and wellness in 15 countries. This new line will
help Avon expand the definition of beauty to include inner health, as
well as outward appearance. The new products will be sold through a
separate catalog and will include vitamins and nutrition supplements,
exercise and fitness items, and a variety of self-care and stress relief
products. Vitamins and nutritional supplements have been developed for
Avon by Roche Consumer Healthcare and will be marketed under the name
VitAdvance. Twenty VitAdvance products are expected to launch in 2001.
In 1998, an important image enhancement came with the opening of the
Avon Centre, a spa, salon and retail store located in Trump Tower, New
York City. The Avon Centre emphasizes health and beauty and offers a
selection of Avon beauty products created exclusively for use at the Avon
Centre.
International Expansion
Avon is one of the most widely recognized brand names in the world.
The Company is particularly well positioned to capitalize on growth in
new international markets due to high demand for quality products,
underdeveloped retail infrastructures, and relatively attractive earnings
opportunities for women. The Company presently has operations in 52
countries outside the United States and its products are distributed in
86 more for coverage in 139 markets, and it continues to expand into new
markets. The Company has entered 26 new markets since 1990, including
Russia and China and rapidly emerging nations throughout Central Europe,
and is currently evaluating several other markets in Eastern Europe and
the Pacific region.
Distribution
Avon's products are sold worldwide by approximately 3.4 million
Representatives, approximately 452,000 of whom are in the United States.
Almost all Representatives are women who sell on a part-time basis.
Representatives are independent contractors or independent dealers, and
are not agents or employees of Avon. Representatives purchase products
directly from Avon and sell them to their customers.
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The Company's products are sold to customers through a combination
of direct selling and marketing utilizing independent Representatives,
licensed kiosks, Express Centers in urban areas, the mail, phone, fax or
"on-line". Representatives go where the customers are, both in the home
and in the workplace.
In the United States, the Representative contacts customers, selling
primarily through the use of brochures which also highlight new products
and specially-priced items for each two-week sales campaign. Product
samples, demonstration products and selling aids such as make-up color
charts are also used. Generally, the Representative forwards an order
every two weeks to a designated distribution center. This order is
processed and the products are assembled at the distribution center and
delivered to the Representative's home, usually by a local delivery
service. The Representative then delivers the merchandise and collects
payment from the customer for her own account. Payment by the
Representative to Avon is customarily made when the next order is
forwarded to the distribution center. The cost of merchandise to the
Representative varies according to the product category and/or to the
total order size for each two-week sales campaign and averages
approximately 60 percent of the recommended selling price.
Avon employs certain electronic order systems to increase
Representative support in the United States and allow them to run their
business more efficiently as well as to improve order processing
accuracy. One of these systems permits Representatives to submit add-on
orders with a touch-tone telephone, enabling them to augment orders
already submitted by placing a phone call. Another system, Avon's
Personal Order Entry Terminal, permits the top-producing Representatives
in the United States to transmit orders electronically by phone line, 24
hours a day, 7 days a week.
In September 2000, the Company announced to its U.S. Representatives
a new online marketing tool called youravon.com. The new online
initiative is available to all Representatives and offers a complete line
of Avon products 24 hours a day, 7 days a week, with no geographic
boundaries. Implementation in certain other key markets is expected
during 2001.
Outside the United States, each sales campaign is generally of a
three or four week duration. Although terms of payment and cost of
merchandise to the Representative vary from country to country, the basic
method of direct selling and marketing by Representatives is essentially
the same as that used in the United States, and substantially the same
merchandising and promotional techniques are utilized.
The recruiting and training of Representatives are the primary
responsibilities of District Sales Managers. In the United States, each
district manager has responsibility for a market area covered by 225
to 300 Representatives. Approximately 1,800 District managers are
employees of Avon and are paid a salary and a sales incentive based
primarily on the increase over the prior year's sales of Avon products by
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Representatives in their district. Personal contacts, including
recommendations from current Representatives (including the Sales
Leadership Program in the U.S.), and local advertising constitute the
primary means of obtaining new Representatives. Because of the high rate
of turnover among Representatives, a characteristic of the direct-selling
method, recruiting and training of new Representatives are continually
necessary.
From time to time, the question of the legal status of
Representatives has arisen, usually in regard to possible coverage under
social benefit laws that would require Avon (and in most instances, the
Representatives) to make regular contributions to social benefit funds.
Although Avon has generally been able to address these questions in a
satisfactory manner, the matter has not been fully resolved in all
countries. If there should be a final determination adverse to Avon in a
country, the cost for future, and possibly past, contributions could be
so substantial in the context of the volume of business of Avon in that
country that it would have to consider discontinuing operations in that
country.
Promotion and Marketing
Sales promotion and sales development activities are directed at
assisting the Representatives, through sales aids such as brochures,
product samples and demonstration products. In order to support the
efforts of Representatives to reach new customers, especially working
women and other individuals who frequently are not at home, specially
designed sales aids, promotional pieces, customer flyers and product and
image enhancing media advertising are used. In addition, Avon seeks to
motivate its Representatives through the use of special incentive
programs that reward superior sales performance. Periodic sales meetings
with Representatives are conducted by the district managers. The meetings
are designed to keep Representatives abreast of product line changes,
explain sales techniques and provide recognition for sales performance.
A number of merchandising techniques, including the introduction of
new products, the use of combination offers, the use of trial sizes and
the promotion of products packaged as gift items, are used. In general
for each sales campaign, a distinctive brochure is published, in which
new products are introduced and selected items are offered at special
prices or are given particular prominence in the brochure. CFT products
are available each sales campaign at consistently low prices, while
maintaining introductory specials and periodic sales on selected items
for limited time periods.
From time to time, various regulations or laws have been proposed or
adopted that would, in general, restrict the frequency, duration or
volume of sales resulting from new product introductions, special
prices or other special price offers. The Company's pricing flexibility
and broad product lines are expected to be able to mitigate the effect of
these regulations.
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Competitive Conditions
The CFT; gift and decorative; apparel; and fashion jewelry and
accessory industries are highly competitive. Avon is one of the leading
manufacturers and distributors of cosmetics and fragrances in the United
States. Its principal competitors are the large and well-known cosmetics
and fragrances companies that manufacture and sell broad product lines
through various types of retail establishments. There are many other
companies that compete in particular products or product lines sold
through retail establishments.
Avon has many competitors in the gift and decorative products and
apparel industries in the United States, including retail establishment
principally department stores, gift shops and direct-mail companies,
specializing in these products.
Avon is one of the leading distributors of fashion jewelry and
accessories for women in the United States. Its principal competition
in the fashion jewelry industry consists of a few large companies and
many small companies that manufacture and sell fashion jewelry for women
through retail establishments.
The number of competitors and degree of competition that Avon faces
in its foreign CFT and fashion jewelry markets varies widely from country
to country. Avon is one of the leading manufacturers and distributors in
the CFT industry in most of its foreign markets, as well as in the
fashion jewelry industry in Europe.
There are a number of direct-selling companies which sell product
lines similar to Avon's, some of which also have worldwide operations and
compete with Avon.
Avon believes that the personalized customer service offered by its
Representatives; the high quality, attractive designs and reasonable
prices of its products; new product introductions; innovative CFT
products; and its guarantee of satisfaction are significant factors in
establishing and maintaining its competitive position.
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Avon's consolidated net sales, by classes of principal products, are
as follows:
Years ended December 31
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2000 1999 1998
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Cosmetics, fragrance and toiletries $3,501.3 $3,220.8 $3,181.1
Beauty Plus:
Fashion jewelry 323.4 313.4 294.5
Accessories 275.8 223.9 222.4
Apparel 476.3 474.5 469.1
Watches 68.6 49.8 42.1
Beyond Beauty and other* 1,028.3 1,006.7 1,003.5
Total net sales $5,673.7 $5,289.1 $5,212.7
* Beyond Beauty and Other primarily includes home products, gift and
decorative, health and nutrition, and candles.
International Operations
Avon's international operations are subject to certain customary
risks inherent in carrying on business abroad, including the risk of
adverse currency fluctuations, currency remittance restrictions and
unfavorable economic and political conditions.
Avon's international operations are conducted primarily through
subsidiaries in 52 countries and Avon's products are distributed in some
86 other countries.
Manufacturing
Avon manufactures and packages almost all of its CFT products. Raw
materials, consisting chiefly of essential oils, chemicals, containers
and packaging components, are purchased from various suppliers. Packages,
consisting of containers and packaging components, are designed by its
staff of artists and designers.
The design and development of new products are affected by the cost
and availability of materials such as glass, plastics and chemicals. Avon
believes that it can continue to obtain sufficient raw materials and
supplies to manufacture and produce its products.
Avon has nineteen manufacturing laboratories around the world, one
of which is principally devoted to the manufacture of fashion jewelry. In
the United States, Avon's CFT products are produced in three
manufacturing laboratories for the four distribution centers and all
kiosks and Express centers. Most products sold in foreign countries are
manufactured in Avon's facilities abroad.
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The fashion jewelry line is generally developed by Avon's staff
and produced in its manufacturing laboratory in Puerto Rico or by several
independent manufacturers.
Trademarks and Patents
Avon's business is not materially dependent on third party patent or
other intellectual property rights and Avon is not a party to any
material license, franchise or concession. The Company, however, does
seek to protect its key proprietary technologies by aggressively pursuing
comprehensive patent coverage in all major markets.
Avon's major trademarks are protected by registration in the United
States and the other countries where its products are marketed as well as
in many other countries throughout the world.
SEASONAL NATURE OF BUSINESS
Avon's sales and earnings have a marked seasonal pattern
characteristic of many companies selling CFT; gift and decorative
products; apparel; and fashion jewelry. Christmas sales cause a sales
peak in the fourth quarter of the year. Fourth quarter net sales were
approximately 30 percent of total net sales in both 2000 and 1999,
respectively, and before special and non-recurring charges, fourth
quarter operating profit was 33 percent and 35 percent of total operating
profit in 2000 and 1999, respectively.
RESEARCH ACTIVITIES
Avon's research and development department is a leader in the
industry, based on the number of new product launches, including
formulating effective beauty treatments relevant to women's needs. In
addition, Avon's research and development supports its environmental
responsibilities.
A team of researchers and technicians apply the disciplines of
science to the practical aspects of bringing products to market around
the world. Relationships with well known dermatologists and other
specialists extend Avon's own research to deliver new formulas and
ingredients. Each year, Avon researchers test and develop more than 600
products in the CFT and Beauty Plus categories.
Avon has pioneered many innovative products, including Skin-So-Soft,
its best-selling bath oil; BioAdvance, the first skin care product with
stabilized retinol, the purest form of Vitamin A; and Collagen Booster,
the premier product to capitalize on Vitamin C technology. Avon also
introduced the benefits of aromatherapy to millions of American women,
encapsulated color for the Color-Release line and introduced alpha-
hydroxy acid for cosmetic use in the Anew Perfecting Complex products.
Today, Avon's Anew product line has been expanded to include
technologically advanced products such as Retroactive, launched in the
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fourth quarter of 2000, Retinol Recovery Complex PM Treatment, Night
Force Vertical Lifting Complex, Clearly C 10% Vitamin C Serum and
Luminosity Brightening Complex. Retroactive utilizes Avon's exclusive
Rejuvi-cell complex, a patent pending blend of ingredients formulated to
enhance cellular communication and re-energize aging skin cells. Night
Force employs a patented material named AVC10, a molecule that was
engineered by Avon researchers over a three-year period. Luminosity
Brightening Complex contains Diamonex, Avon's exclusive skin brightening
system. Avon has introduced Hydra Finish Lip Color, the first lipstick
developed with 20% water, and Perceive, a fragrance which uses the mood-
enhancing effects of pheromone technology. In 2000, the Company launched
a complete renovation of Avon Color with improved formulas and redesigned
packaging, rolled out a reformulated Anew All-In-One skin care regimen,
launched Positivity, a new line of skin care products for menopausal
women, and launched Advance Techniques, a full line of upscale patented
hair-care products. In 2001, there will be updated packaging for the
Anew line and Anew Retroactive.
The amounts incurred on research activities relating to the
development of new products and the improvement of existing products
were $43.1 million in 2000, $38.2 million in 1999, and $31.4 million in
1998. This research included the activities of product research and
development and package design and development. Most of these activities
are related to the development of CFT products.
ENVIRONMENTAL MATTERS
Pursuant to Avon's global environmental policy, environmental audits
are conducted to ensure Avon facilities around the world meet or exceed
local regulatory standards. A corporate environmental operations
committee ensures that opportunities for environmental performance
improvements are reflected in our products, packaging and manufacturing
processes.
In general, compliance with environmental regulations impacting
Avon's global operations has not had, and is not anticipated to have, any
material effect upon the capital expenditures, financial position or
competitive position of Avon.
EMPLOYEES
At December 31, 2000, Avon employed 43,000 people. Of these, 9,800
were employed in the United States and 33,200 in other countries. The
number of employees tends to rise from a low point in January to a high
point in November and decreases somewhat in December when Christmas
shipments are completed.
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ITEM 2. PROPERTIES
Avon's principal properties consist of manufacturing laboratories
for the production of CFT and fashion jewelry and distribution centers
where offices are located and where finished merchandise is warehoused
and shipped to Representatives in fulfillment of their orders.
Substantially all of these properties are owned by Avon or its
subsidiaries, are in good repair, adequately meet Avon's needs and
operate at reasonable levels of productive capacity.
The domestic manufacturing laboratories are located in Morton Grove,
IL; Springdale, OH; and Suffern, NY; the distribution centers are located
in Atlanta, GA; Glenview, IL; Newark, DE; and Pasadena, CA. Other
properties include five manufacturing laboratories and twenty
distribution centers in Europe; five manufacturing laboratories and
fourteen distribution centers in Latin America; two manufacturing
laboratories and two distribution centers in North America (other than in
the United States); and four manufacturing laboratories and eleven
distribution centers in the Pacific region. The research and development
laboratories are located in Suffern, NY. Avon leases space for its
executive and administrative offices in New York City and its fashion
jewelry manufacturing facility in Puerto Rico.
ITEM 3. LEGAL PROCEEDINGS
Various lawsuits and claims (asserted and unasserted), arising in
the ordinary course of business or related to businesses previously sold,
are pending or threatened against Avon.
In 1991, a class action lawsuit was initiated against Avon on behalf
of certain classes of holders of Avon's Preferred Equity-Redemption
Cumulative Stock ("PERCS"). This lawsuit alleges various contract and
securities law claims relating to the PERCS (which were fully redeemed
that year). While it is not possible to predict the outcome of
litigation, Avon has rejected the assertions in this case, believes it
has meritorious defenses to the claims and is vigorously contesting this
lawsuit. It is anticipated that a trial may take place in late 2001.
In the opinion of Avon's management, based on its review of the
information available at this time, the total cost of resolving such
contingencies should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
Avon is involved in a number of proceedings arising out of the
federal Superfund law and similar state laws. In some instances Avon,
along with other companies, has been designated as a potentially
responsible party which may be liable for costs associated with these
various hazardous waste sites. Based upon Avon's current knowledge of the
proceedings, management believes, without taking into consideration any
insurance recoveries, if any, that in the aggregate they would not have a
material adverse impact on Avon's consolidated financial position,
results of operations or cash flows.
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As disclosed in a Form 8-K filed September 14, 2000, in response to
a private investigation by the Securities and Exchange Commission
("SEC"), the Company is providing information that principally concerns
an item included in its special charge reported for the first quarter of
1999. The item consists of an order management software system for sales
representatives known as the "FIRST" project, of which $15 million in
costs were written off as part of the special charge. The balance of the
project's development costs, amounting to approximately $25 million,
continue to be carried as an asset on the books of the Company.
The Company is fully cooperating with the SEC. The SEC has stated
that its inquiry should not be construed as an indication by the
Commission or its staff that any violations of law have occurred, nor
should it be considered a reflection upon any person, entity or security.
The outcome of this investigation cannot be predicted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 2000.
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
This information is incorporated by reference to "Market Prices per
Share of Common Stock by Quarter" on page 47 of Avon's 2000 Annual Report
to Shareholders.
PART II
ITEM 6. SELECTED FINANCIAL DATA
The information for the five-year period 1996 through 2000 is
incorporated by reference to the "Eleven-Year Review" on pages 70 and 71
of Avon's 2000 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
This information is incorporated by reference to "Management's
Discussion and Analysis" on pages 33 through 45 of Avon's 2000 Annual
Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information is incorporated by reference to "Risk Management
Strategies and Market Rate Sensitive Instruments" on pages 44 through 45
and Note 7 on pages 59 and 60 of Avon's 2000 Annual Report to
Shareholders for information concerning market risk sensitive
instruments.
-13-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference to the "Consolidated
Financial Statements and Notes" on pages 48 through 68, together with the
report thereon of PricewaterhouseCoopers LLP, on page 69, and "Results of
Operations by Quarter" on pages 46 and 47 of Avon's 2000 Annual Report to
Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated by reference to the
"Election of Directors" and "Information Concerning the Board of
Directors" sections of Avon's Proxy Statement for the 2001 Annual
Meeting of Shareholders.
Officers are elected by the Board of Directors at its first meeting
following the Annual Meeting of Shareholders. Officers serve until the
first meeting of the Board of Directors following the Annual Meeting of
Shareholders at which Directors are elected for the succeeding year, or
until their successors are elected, except in the event of death,
resignation or removal, or the earlier termination of the term of office.
Information regarding employment contracts between Avon and named
executive officers is incorporated by reference to the "Contracts with
Executives" section of Avon's Proxy Statement for the 2001 Annual Meeting
of Shareholders.
Listed below are the executive officers of Avon, each of whom
(except as noted) has served in various executive and operating
capacities with Avon during the past five years:
Elected
Title Name Age Officer
----- ---- --- -------
Chief Executive Officer and Director... Andrea Jung 42 1997(1)
President and
Chief Operating Officer,
and Director Susan J. Kropf 52 1997(2)
Executive Vice President, Asia Pacific....Fernando Lezama 61 1997
Executive Vice President and
Chief Financial Officer................Robert J. Corti 51 1988
Senior Vice President and
General Counsel........................Gilbert L. Klemann, II 50 2001(3)
Senior Vice President, Human Resources....Jill Kanin-Lovers 49 1998
Vice President and Controller.............Janice Marolda 40 1998
-14-
(1) Andrea Jung has been the Chief Executive Officer of Avon since
November 1999 concurrently holding the position of President until
January 2001. Ms. Jung joined Avon in January 1994 as President,
Product Marketing and was promoted to Executive Vice President,
Global Marketing and New Business in March 1997. From January 1998
to November 1999 she was President and Chief Operating Officer of
Avon.
(2) Susan J. Kropf was elected President and Chief Operating Officer,
effective January 2001. She had been elected Executive Vice
President, Chief Operating Officer, North America and Global
Business Operations effective November 1999. Previously she had
been Executive Vice President and President, North America and
prior to that she had served as Senior Vice President, U.S.
Marketing and Vice President, Product Development. Mr. Kropf has
been with Avon for 30 years.
(3) Gilbert L. Klemann, II was elected Senior Vice President and
General Counsel of Avon effective January 1, 2001. Prior to
joining Avon he had been an Executive Vice President of Fortune
Brands, Inc. (formerly American Brands, Inc.)from 1998-1999 with
responsibilities that included corporate development, legal and
administrative functions. He was the Senior Vice President and
General Counsel of American Brands, Inc. during the period 1991-
1997 and previously was a partner in the New York law firm of
Chadbourne & Parke.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the "Information
Concerning the Board of Directors" and "Executive Compensation" sections
of Avon's Proxy Statement for the 2001 Annual Meeting of Shareholders.
-15-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the "Ownership of
Shares" section of Avon's Proxy Statement for the 2001 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the "Contracts
with Executives" section of Avon's Proxy Statement for the 2001 Annual
Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS
ON FORM 8-K
Annual
Report to
Shareholders Form 10-K
Page Number Page Number
----------- -----------
(a) 1. Consolidated Financial Statements of
Avon Products, Inc. and Subsidiaries
Consolidated statements of income for
each of the years in the three-year
period ended December 31, 2000........ 48 20
Consolidated balance sheets at
December 31, 2000 and 1999............. 49 21
Consolidated statements of cash flows
for each of the years in the three-year
period ended December 31, 2000......... 50 22
Consolidated statements of changes in
shareholders' (deficit) for each
of the years in the three-year period
ended December 31, 2000................ 51 23
Notes to consolidated financial
statements............................. 52-68 24-48
Report of Independent Accountants
PricewaterhouseCoopers LLP............. 69 50
-16-
(a) 2. Financial Statement Schedule
Report of Independent Accountants on
Financial Statement Schedule
PricewaterhouseCoopers LLP S-1
Consent of Independent Accountants
PricewaterhouseCoopers LLP S-2
Financial statement schedule for each
of the years in the three-year period
ended December 31, 2000...............
II. Valuation and qualifying
accounts............. S-3
-17-
Financial statements of the registrant and all other financial statement
schedules are omitted because they are not applicable or because the
required information is shown in the consolidated financial statements
and notes.
(a)3. Exhibits
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Avon, filed with the
Secretary of State of the State of New York on May 8, 2000
(incorporated by reference to Exhibit 3.4 to Avon's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000).
3.2 By-laws of Avon, as restated, effective December 2, 1999 (incorporated
by reference to Exhibit 3.2 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1999).
4.1 Amended and Restated Revolving Credit and Competitive Advance
Facility Agreement, dated as of August 8, 1996, among Avon, Avon
Capital Corporation and a group of banks and other lenders
(incorporated by reference to Exhibit 4.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
4.2 Indenture dated as of August 1, 1997 between Avon as Issuer, and
The Chase Manhattan Bank, as Trustee relating to the 6.55% Notes
due 2007 (incorporated by reference to Exhibit 4.2 to Avon's
Registration Statement on Form S-4, Registration Statement No.
33-41299 filed December 1, 1997).
4.3 Rights Agreement, dated as of March 30, 1998 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of New
York (incorporated by reference to Exhibit 4 to Avon's
Registration Statement on Form 8-A, filed March 18, 1998).
4.4 Indenture dated as of November 9, 1999 between Avon as Issuer and
The Chase Manhattan Bank, as Trustee relating to the 6.9% Notes
due November 15, 2004 and the 7.15% Notes due November 15, 2009
(incorporated by reference to Exhibit 4.4 to Avon's Registration
Statement on Form S-4, Registration Statement No. 33-92333 filed
December 8, 1999).
10.1* Avon Products, Inc. 1993 Stock Incentive Plan, approved by
stockholders on May 6, 1993 (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
-18-
10.2* Form of Stock Option Agreement to the Avon Products, Inc. 1993
Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1993).
10.3* First Amendment to the 1993 Avon Stock Incentive Plan effective
January 1, 1997, approved by stockholders on May 1, 1997
(incorporated by reference to exhibit 10.1 to Avon's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
10.4* Avon Products, Inc. 1997 Long-Term Incentive Plan, effective as of
January 1, 1997 approved by stockholders on May 1, 1997
(incorporated by reference to Exhibit 10.4 to Avon's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.5* Supplemental Executive Retirement Plan and Supplemental Life Plan
of Avon Products, Inc., as amended and restated as of July 1, 1998
(incorporated by reference to Exhibit 10.5 to Avon's Annual Report
on Form 10-K for the year ended December 31, 1998).
10.6* Benefit Restoration Pension Plan of Avon Products, Inc., effective
as of January 1, 1994 (incorporated by reference to Exhibit 10.7
to Avon's Annual Report on Form 10-K for the year ended December
31, 1994).
10.7* Trust Agreement, amended and restated as of March 2, 1990, between
Avon and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990 and refiled under Form SE for the
year ended December 31, 1996).
10.8* First Amendment, dated as of January 30, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.2 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.9* Second Amendment, dated as of June 12, 1992 to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.3 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
10.10* Third Amendment, dated as of November 5, 1992, to the Trust
Agreement, dated as of March 2, 1990, by and between Avon and
Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit
10.4 to Avon's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993).
-19-
10.11* The Avon Products, Inc. Deferred Compensation Plan, as amended and
restated as of July 1, 1998 (incorporated by reference to Exhibit
4(b) to Avon's Registration Statement on Form S-8, Registration
No. 33-65989 filed October 22, 1998).
10.12* Trust Agreement, dated as of April 21, 1995, between Avon and
Chemical Bank, amending and restating the Trust Agreement as of
August 3, 1989 between Avon and Manufacturers Hanover Trust
Company (incorporated by reference to Exhibit 10.14 to Avon's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.13* Stock Option Agreement between Avon and Stanley C. Gault dated
November 4, 1999 (incorporated by reference to Exhibit 10.13 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1999).
10.14* Avon Products, Inc. 2000 Stock Incentive Plan (incorporated by
reference to Appendix A to the Company's Proxy Statement on Form
14A as filed with the Commission on March 27, 2000 (File No. 1-
04881)).
10.15* Employment Agreement dated as of December 11, 1997 between Avon
and Andrea Jung (incorporated by reference to Exhibit 10.20 to
Avon's Annual Report on Form 10-K for the year ended December 31,
1997).
10.16* Form of Employment Agreement, dated as of September 1, 1994,
between Avon and certain senior officers (incorporated by
reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1994).
10.17* Avon Products, Inc. Compensation Plan for Non-Employee Directors,
amended and restated, effective June 1, 2000.
10.18* Avon Products, Inc. Board of Directors' Deferred Compensation
Plan, amended and restated, effective January 1, 1997
(incorporated by reference to Exhibit 10.23 to Avon's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.19* Trust Agreement, dated as of December 31, 1991, between Avon and
Manufacturers Hanover Trust Company (incorporated by reference to
Exhibit 10.23 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1991 and refiled under Form SE for the year
ended December 31, 1996).
10.20* First Amendment, dated as of November 5, 1992, to the Trust
Agreement dated as of December 31, 1991, by and between Avon and
Manufacturers Hanover Trust Company (incorporated by reference to
Exhibit 10.7 to Avon's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993).
-20-
10.21* Stock Option Agreement between Avon and Andrea Jung dated June 4,
1998 (incorporated by reference to Exhibit 10.2 to Avon's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 2000 incorporated by reference in response to Items
1,5 through 8 in this filing.
18 Preferability letter from PricewaterhouseCoopers LLP regarding
change in accounting principle (incorporated by reference to Exhibit 18
to Avon's Annual Report on Form 10-K for the year ended December 31, 1999).
21 Subsidiaries of the registrant.
23 Consent of PricewaterhouseCoopers LLP (set forth on page S-2 of
this Annual Report on Form 10-K).
24 Power of Attorney
-21-
* The Exhibits identified above and in the Exhibit Index with an
asterisk (*) are management contracts or compensatory plans or
arrangements.
(b) Reports on Form 8-K
On February 8, 2001, the Company filed a Form 8-K to detail
restatements of financial information for the first three quarters
of 2000 as a result of the adoption of SAB No. 101 and EITF 00-10.
(c) Avon's Annual Report on Form 10-K for the year ended December 31,
2000, at the time of filing with the Securities and Exchange
Commission, shall modify and supersede all prior documents filed
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act
of 1934 for purposes of any offers or sales of any securities
after the date of such filing pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of
1933, which incorporates by reference such Annual Report on Form
10-K.
-22-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 9th day of March 2001.
Avon Products, Inc.
/s/WARD M. MILLER, JR.
----------------------
Ward M. Miller, Jr.
Senior Vice President, Corporate
Counsel and Secretary
-23-
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
---------------
Andrea Jung Chief Executive
Officer and Director -
Principal Executive Officer March 9, 2001
---------------
Susan J. Kropf President March 9, 2001
and Chief Operating Officer -
and Director
---------------
Robert J. Corti Executive Vice President and
Chief Financial Officer -
Principal Financial Officer March 9, 2001
---------------
Janice Marolda Vice President and
Controller - Principal
Accounting Officer March 9, 2001
-24-
---------------
Brenda C. Barnes Director March 9, 2001
---------------
Edward T. Fogarty Director March 9, 2001
---------------
Stanley C. Gault Chairman of the
Board and Director March 9, 2001
---------------
Fred Hassan Director March 9, 2001
---------------
Maria Elena Lagomasino Director March 9, 2001
---------------
Ann S. Moore Director March 9, 2001
---------------
Lawrence A. Weinbach Director March 9, 2001
/s/WARD M. MILLER, JR.
---------------------
Ward M. Miller, Jr. Attorney-in-fact March 9, 2001
-25-
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Avon Products, Inc.:
Our audits of the consolidated financial statements referred to in our
report dated January 25, 2001, appearing in the 2000 Annual Report to
Shareholders of Avon Products, Inc., which report and consolidated
financial statements are incorporated by reference in this Annual Report
on Form 10-K, also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 25, 2001
S-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements on Form S-3 (Reg. No. 33-45808) and Form S-8 (Reg. Nos. 33-
43820, 33-47209, 33-65989 and 33-65998) of Avon Products, Inc. of our
report dated January 25, 2001 relating to the financial statements which
appear in the 2000 Annual Report to Shareholders, which is incorporated
in this Annual Report on Form 10-K. We also consent to the incorporation
by reference of our report dated January 25, 2001 relating to the
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2001
S-2
AVON PRODUCTS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(In millions)
Years ended December 31
Additions
---------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
of period expenses accounts Deductions of
period
--------- -------- -------- ---------- --------
-
2000
Allowance for doubtful
accounts receivable $ 40.0 $ 94.3 $ -- $95.1(a) $39.2
======== ======= ======= ====== =====
1999
Allowance for doubtful
accounts receivable $ 49.0 $ 87.5 $ -- $96.5(a) $40.0
======= ======= ======= ===== =====
1998
Allowance for doubtful
accounts receivable $ 35.5 $ 91.3 $ -- $77.8(a) $49.0
======= ======= ======= ===== =====
(a) Accounts written off, net of recoveries and foreign currency
translation adjustment.
S-3
Dates Referenced Herein and Documents Incorporated by Reference
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