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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, 1997
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.
____________________________________________________
(Exact name of registrant as specified in its charter)
New York 13-0544597
______________________________ __________________
(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
_______________________________ _______________________
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, 1998 was $9.3 billion.
The number of shares of Common Stock (par value $.25) outstanding
at February 28, 1998 was 131,794,374.
Documents Incorporated by Reference
Parts I and II Portions of the 1997 Annual Report to Shareholders.
Part III Portions of the Proxy Statement for the 1998 Annual
Meeting of Shareholders.
1
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. 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 "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;
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 one of the world's leading manufacturers and
marketers of beauty and related products, which include cosmetics,
fragrance and toiletries (CFT); gift and decorative; apparel; and
fashion jewelry and accessories. 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, with
worldwide operations. Financial information relating to geographic areas
is incorporated by reference to the analysis of net sales and pretax
income from operations by geographic area on page 29 in Avon's 1997
Annual Report to Shareholders.
Recent Developments
On October 23, 1997, the Company announced that it has raised its
long-term growth targets for sales and earnings and that it expects to
record special charges in connection with a major re-engineering
program. Commencing in 1998, the long- term target for sales growth has
been raised to 8-10% compounded annually, and its target for earnings
per share growth has been raised to 16-18% annually. Previously, the
Company targeted long-term sales
growth of 6-8% and long-term earnings per share growth of 13-15%. The
higher targets come largely as a result of initiatives currently
underway and others under review intended to reduce costs by
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up to $400.0 million a year by 2000, with $200.0 million of the savings
being reinvested concurrently in advertising and marketing programs to
boost sales. Avon expects to record special charges totaling $150.0-
$200.0 million pretax to cover one-time costs associated with the re-
engineering program. Approximately half the charges are expected to be
recorded in the first quarter of 1998, with the balance to be recorded
in early 1999. Approximately $50.0 million of the charges will be cash
related.
On December 11, 1997, the Company announced several senior
executive changes including the appointment of Charles R. Perrin as Vice
Chairman and Chief Operating Officer and the promotion of Andrea Jung to
President, as part of an overall management succession plan for the
Company. In addition, Andrea Jung and Susan J. Kropf, head of Avon's
North American business, were elected to Avon's Board of Directors,
effective January 5, 1998. Mr. Perrin will serve as Chief Operating
Officer until mid-1998, when he is expected to be elected Chief
Executive Officer, succeeding James E. Preston in that capacity. Mr.
Preston will then continue as Chairman of the Board on a full-time basis
until his current term as director expires in May 1999. Avon expects
Ms. Jung to become Chief Operating Officer later in 1998, succeeding Mr.
Perrin in that capacity.
On February 9, 1998, the Company announced that Robert J. Corti was
promoted to Senior Vice President and Chief Financial Officer, effective
February 5, 1998, succeeding Edwina D. Woodbury, in her CFO capacity.
Ms. Woodbury, an Executive Vice President, will now be responsible full-
time for Avon's business process redesign activities.
Strategy
Avon's global strategy is primarily focused on the following key
growth initiatives:
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
opportunity for women. The Company presently has operations in 44
countries outside the U.S. and its products are distributed in 90 more,
for coverage in 135 markets and it continues to expand into new markets.
The Company has entered 18 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 Asia
Pacific.
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Leveraging Direct Selling Channel
The Company has revitalized its direct selling channel, enabling
the Company to reach women quickly and efficiently as well as introduce
new products that complement the core beauty business. In 1994, Avon
introduced a line of apparel in the U.S., which by 1997 achieved over
$500 million in sales. In 1996 and 1997, the Company had outstanding
success with Barbie dolls, designed exclusively for Avon, making her the
Company's best selling gift product ever. The relationship with Mattel
was expanded in 1997 to include additional products. This array of
products, available through the direct selling channel, increases
earnings opportunities and presents a consistent beauty image to
consumers across a broad product line.
Customer Access and Image Enhancement
To restore and accelerate growth in established industrial nations
such as the U.S., Western Europe and Japan, the Company has developed
new channels to reach customers and improve access to its products
through direct mail catalogs, toll-free telephone numbers, buying by fax
and "on line" with a new home page on the world-wide web, Avon.com. The
Company has also updated the image of its core beauty products and has
created a portfolio of global beauty brands. These contemporary
products project a consistent, high quality image in all markets and
include brands such as Anew, Avon Color, Far Away, Rare Gold, Natori,
Millennia, Josie, and Avon Skin Care. Global brands are growing rapidly
as a percentage of the Company's worldwide CFT business. In 1997 and
1996, they accounted for 39% and 26%, respectively, of core beauty
sales. The development of global brands has also enabled the Company to
achieve major economies of scale by consolidating certain functions like
sourcing and logistics. Avon is also marketing a more vibrant beauty
image through increased promotional spending and image-building
programs.
Distribution
Avon's products are sold worldwide by approximately 2.6 million
Representatives, approximately 445,000 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 directly to their customers.
4
The Company's products are sold to customers through a combination
of direct selling and marketing utilizing independent Representatives,
the mail, phone, fax or "on-line". Representatives go where the
customers are, including in the home or 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 their 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.
In order 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, Avon employs certain electronic order
systems. One of these systems permits Avon 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, seven days a week.
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 managers. In the United States, each
district manager has responsibility for a market area covered by 225 to
300 Representatives. 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 Representatives in their
district.
5
Personal contacts, including recommendations from current
Representatives 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
toward giving selling assistance to the Representatives by making
available 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 manager. 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. Cosmetic,
fragrance and toiletry products are available each sales campaign at
consistently low prices, while maintaining introductory specials and
periodic sales on selected items for limited time periods.
6
From time to time, various regulations or laws have been proposed
or adopted that would, in general, restrict the frequency or duration
of, 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.
Competitive Conditions
The cosmetic, fragrance and toiletry; 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
establishments, 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 cosmetics, fragrance, toiletries and fashion jewelry
markets varies widely from country to country. Avon is one of the
leading manufacturers and distributors in the cosmetics, fragrance and
toiletries 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
Representatives; the high quality, attractive designs and reasonable
prices of its products; new product introductions; and its guarantee of
satisfaction are significant factors in establishing and maintaining its
competitive position.
7
Avon's consolidated net sales, by classes of principal products,
are as follows:
Years ended December 31
1997 1996 1995
(In millions)
Cosmetics, fragrance and toiletries $3,093.9 $2,946.8 $2,797.2
Gift and decorative 1,049.7 934.1 780.6
Apparel 565.6 556.3 500.5
Fashion jewelry and accessories 370.2 377.0 413.8
_______ _______ _______
$5,079.4 $4,814.2 $4,492.1
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 44 countries and Avon's products are distributed in some
90 other countries.
Manufacturing
Avon manufactures and packages almost all of its cosmetic,
fragrance and toiletry 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,
three of which are principally devoted to the manufacture of fashion
jewelry. In the United States, Avon's cosmetic, fragrance and toiletry
products are produced in three manufacturing
8
laboratories for the four distribution centers. Also, in the United
States, Avon's Discovery Toy business is supported by one distribution
center. Most products sold in foreign countries are manufactured in
Avon's facilities abroad.
The fashion jewelry line is generally developed by Avon's staff and
produced in its two manufacturing laboratories in Puerto Rico and Avon's
manufacturing laboratory in Ireland or by several independent
manufacturers.
Trademarks and Patents
Although Avon owns several patents and has several more patent
applications pending in the United States Patent Office, its business,
both in the United States and abroad, is not materially dependent upon
patents or patent protection. Avon has no material licenses, franchises
or concessions.
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.
Contingencies
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. The Company is also
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. In the opinion of Avon's management, based on its review of the
information available at this time, the difference, if any, between the
total cost of resolving such contingencies and reserves recorded by Avon
at December 31, 1997 should not have a material adverse impact on Avon's
consolidated financial position, results of operations or cash flows.
SEASONAL NATURE OF BUSINESS
Avon's sales and earnings have a marked seasonal pattern
characteristic of many companies selling cosmetics, fragrance and
toiletries; 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 30 percent and 31 percent of total net
sales in 1997 and 1996, respectively, and fourth quarter pretax income
9
from continuing operations was 40 percent and 42 percent in 1997 and
1996, 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 extends Avon's own research to deliver new formulas and
ingredients. Each year, Avon researchers test and develop more than 600
products in the cosmetic, fragrance, toiletry and jewelry categories as
well as analyze, evaluate and develop gift and decorative products.
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 Retinol Recovery Complex PM
Treatment and Night Force Vertical Lifting Complex. Night Force employs
a patent-pending material named AVC10, a molecule that was engineered by
Avon researchers over a three-year period.
The amounts incurred on research activities relating to the
development of new products and the improvement of existing products
were $29.9 million in 1997, $30.2 million in 1996 and $27.8 million in
1995. 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 cosmetic, fragrance and toiletry
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
10
capital expenditures, financial position or competitive position of
Avon.
EMPLOYEES
At December 31, 1997, Avon employed 34,995 people. Of these, 8,053
were employed in the United States and 26,942 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.
ITEM 2. PROPERTIES
Avon's principal properties consist of manufacturing laboratories
for the production of cosmetics, fragrance and toiletries 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; Pasadena, CA; and
Discovery Toy's distribution center located in Livermore, CA.
International properties include four manufacturing laboratories,
including a fashion jewelry manufacturing laboratory in Ireland, and ten
distribution centers in Europe; five manufacturing laboratories and
eleven distribution centers in Latin America; one manufacturing and one
distribution center in Canada; and four manufacturing laboratories and
ten 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 facilities in Puerto Rico. During 1997,
the office facilities for the U.S. and global operations were relocated
within New York City.
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). Avon has rejected the assertions in this
case, believes it has meritorious defenses to the claims and is
vigorously contesting this lawsuit.
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In the opinion of Avon's management, based on its review of the
information available at this time, the difference, if any, between the
total cost of resolving such contingencies and reserves recorded by Avon
at December 31, 1997 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.
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, 1997.
______________
Executive Officers of the Registrant
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 1998 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
Chairman of the Board,
Chief Executive Officer
and Director James E. Preston 64 1971
Vice Chairman,
Chief Operating Officer
and Director Charles R. Perrin 52 1998(1)
President and Director Andrea Jung 39 1997(2)
Executive Vice President,
Business Process Redesign Edwina D. Woodbury 46 1990
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Executive Vice President
and Director Susan J. Kropf 49 1997
Executive Vice Presidents Jose Ferreira 41 1997
Fernando Lezama 58 1997
Senior Vice President, General
Counsel and Secretary Ward M. Miller, Jr. 65 1993(3)
Senior Vice President and
Chief Financial Officer Robert J. Corti 48 1988
Senior Vice President Marcia L. Worthing 55 1988
Vice President and Controller Michael R. Mathieson 45 1995
(1) Charles R. Perrin joined Avon as Vice Chairman and Chief Operating
Officer in January 1998. Mr. Perrin has been a member of Avon's Board
of Directors since May 1996. Prior to joining Avon, he was Chairman and
Chief Executive Officer of Duracell International Inc. from 1994 until
1996. He joined Duracell in 1985 as President of its U.S. Business and
was named President and Chief Operating Officer in 1992.
(2) Andrea Jung was elected President in January 1998. 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. Prior to joining Avon, she was Executive Vice President of Nieman
Marcus and Senior Vice President, General Merchandise for I. Magnin.
(3) Ward M. Miller, Jr. was elected Senior Vice President, General
Counsel and Secretary in October 1994. Mr. Miller joined Avon in
February 1993 as Vice President. Prior to joining Avon, he was Senior
Vice President and General Counsel of Nabisco Brands; and Vice
President, Associate General Counsel and Secretary of its parent, RJR
Nabisco.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
This information is incorporated by reference to "Market Prices of
Common Stock by Quarter" on page 40 of Avon's 1997 Annual Report to
Shareholders.
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ITEM 6. SELECTED FINANCIAL DATA
The information for the five-year period 1993 through 1997 is
incorporated by reference to the "Eleven-Year Review" on pages 58 and 59
of Avon's 1997 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 27 through 39 of Avon's 1997 Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference to the "Consolidated
Financial Statements and Notes" on pages 41 through 56, together with
the report thereon of Coopers & Lybrand L.L.P., on page 57, and "Results
of Operations by Quarter" on page 40 of Avon's 1997 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 1998 Annual
Meeting of Shareholders. Information regarding executive officers is
presented in Part I of this report.
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 1998 Annual Meeting of Shareholders.
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 1998 Annual Meeting of
Shareholders.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the "Compensation
Committee Interlocks and Insider Participation" section and the
"Contracts with Executives" section of Avon's Proxy Statement for the
1998 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, 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 statement of income for
each of the years in the three-year
period ended December 31, 1997 41
Consolidated balance sheet at
December 31, 1997 and 1996 42
Consolidated statement of cash flows
for each of the years in the three-year
period ended December 31, 1997 43
Consolidated statement of changes in
shareholders' equity for each of
the years in the three-year period
ended December 31, 1997 44
Notes to consolidated financial
statements 45-56
Report of Independent Accountants
Coopers & Lybrand L.L.P. 57
(a) 2. Financial Statement Schedules
Report of Independent Accountants
Coopers & Lybrand L.L.P. S-1
Consent of Independent Accountants
Coopers & Lybrand L.L.P. S-2
Financial statement schedule for each
of the years in the three-year period
ended December 31, 1997
II.--Valuation and qualifying
accounts S-3
15
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 13, 1996
(incorporated by reference to Exhibit 3.1 to Avon's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996).
3.2 By-laws of Avon, as restated, effective June 6, 1996 (incorporated
by reference to Exhibit 3.2 to Avon's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996).
4.1 Instrument defining the rights of holders of Avon's preferred
share purchase rights to purchase Avon's Series A Junior Participating
Preferred Stock (reference is made to Article IIIA of the restated
Certificate of Incorporation of Avon, filed with the Secretary of State
of New York State on August 12, 1988 and included as Exhibit 3.1 to the
1993 Annual Report on Form 10-K).
4.2 Rights Agreement, dated as of March 30, 1988 (the "Rights
Agreement"), between Avon and First Chicago Trust Company of New York
(as successor to Morgan Shareholder Services Trust Company) incorporated
by reference to Exhibit 1 to Avon's Registration Statement on Form 8-A,
filed April 7, 1988 and refiled under Form SE as of December 31, 1996).
4.3 Amendment, dated as of January 3, 1989, to the Rights Agreement
(incorporated by reference to Exhibit 3 to Avon's Amendment No. 1 on
Form 8, filed January 4, 1989, amending its Registration Statement on
Form 8-A, filed April 7, 1988 and refiled under Form SE as of December
31, 1996).
4.4 Second Amendment, dated as of April 5, 1990, to the Rights
Agreement (incorporated by reference to Exhibit 4(c) to Avon's Current
Report on Form 8-K, dated April 5, 1990 and refiled under Form SE as of
December 31, 1996).
4.5 Third Amendment, dated as of May 10, 1990, to the Rights
Agreement (incorporated by reference to Exhibit 4(d) to Avon's Current
Report on Form 8-K, dated May 10, 1990 and refiled under Form SE as of
December 31, 1996).
16
4.6 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).
4.7 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. 333-41299 filed
December 1, 1997).
4.8 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 to Avon's Registration Statement
on Form 8-A, filed March 18, 1998).
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).
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.
10.5* Supplemental Executive Retirement Plan and Supplemental Life Plan
of Avon Products, Inc., as amended and restated as of September 1, 1994
(incorporated by reference to Exhibit 10.6 to Avon's Annual Report on
Form 10-K for the year ended December 31, 1994).
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).
17
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).
10.11* The Avon Products, Inc. Deferred Compensation Plan, as amended
and restated as of January 1, 1996 (incorporated by reference to
Exhibit 10.12 to Avon's Annual Report on Form 10-K for the year ended
December 31, 1996).
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* Instrument of Amendment, effective as of April 1, 1990, amending
various employee benefit plans and agreements as stipulated in the
Instrument of Amendment (incorporated by reference to Exhibit 10.3 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).
10.14* Employment Agreement, dated as of November 1, 1995, between Avon
and James E. Preston (incorporated by reference to Exhibit 10.16 to
Avon's Annual Report on Form 10-K for the year ended December 31, 1995).
10.15* Stock Option Agreement between Avon and James E. Preston dated
October 30, 1995 (incorporated by reference to Exhibit 10.17 to Avon's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.16* Supplemental Employment Agreement, dated as of December 10, 1997
between Avon and James E. Preston.
10.17* Stock Option Agreement between Avon and James E. Preston dated
December 10, 1997.
18
10.18* Employment Agreement, dated as of December 11, 1997 between Avon
and Charles R. Perrin.
10.19* Stock Option Agreement between Avon and Charles R. Perrin dated
December 10, 1997.
10.20* Employment Agreement dated as of December 11, 1997 between Avon
and Andrea Jung.
10.21* 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).
10.22* Avon Products, Inc. Compensation Plan for Non-Employee Directors,
effective May 1, 1997.
10.23* Avon Products, Inc. Board of Directors' Deferred Compensation
Plan, amended and restated, effective January 1, 1997.
10.24* 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).
10.25* 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).
13 Portions of the Annual Report to Shareholders for the year ended
December 31, 1997 incorporated by reference in response to Items 1,5
through 8 in this filing.
21 Subsidiaries of the registrant.
23 Consent of Coopers & Lybrand L.L.P. (set forth on page S-2 of
this Annual Report on Form 10-K).
24 Power of Attorney
27 Financial Data Schedule
99 Financial statements for the Avon Products, Inc. Employees'
Savings and Stock Ownership Plan and the Avon Mirabella/Lomalinda
Employees' Savings Plan for the year ended December 31, 1997 will be
filed by amendment.
* 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
There was no Form 8-K filed during the fourth quarter of 1997.
19
On March 18, 1998, the Company filed a Form 8-K announcing that on
March 5, 1998, the Board of Directors of Avon Products, Inc., adopted
a new shareholder rights plan, effective as of the close of business on
March 30, 1998, to replace the Company's existing shareholder rights
plan, which expires at the close of business on March 30, 1998.
(c) Avon's Annual Report on Form 10-K for the year ended December 31,
1997, 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.
20
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 23rd day of March 1998.
Avon Products, Inc.
By /s/WARD M. MILLER, JR.
Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
21
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
_________ _____ ____
*
______________________
James E. Preston Chairman of the Board and
Chief Executive Officer -
Principal Executive
Officer and Director March 5, 1998
*
______________________
Charles R. Perrin Vice Chairman, Chief
Operating Officer and
Director March 5, 1998
*
______________________
Robert J. Corti Senior Vice President,
Chief Financial Officer
Principal Financial
Officer March 5, 1998
*
______________________
Michael R. Mathieson Vice President and
Controller - Principal
Accounting Officer March 5, 1998
*
______________________
Andrea Jung President, Avon Products, Inc.
and Director March 5, 1998
*
______________________
Susan J. Kropf Executive Vice President,
President, Avon North America
and Director March 5, 1998
BRENDA BARNES )
RICHARD S. BARTON )
REMEDIOS DIAZ OLIVER )
EDWARD T. FOGARTY ) Directors March 5, 1998
CHARLES S. LOCKE )
ANN S. MOORE )
/s/WARD M. MILLER, JR.
______________________
Ward M. Miller, Jr. Attorney-in-
fact March 5, 1998
S-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Avon Products, Inc.
Our report on the consolidated financial statements of Avon
Products, Inc. and subsidiaries as of December 31, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997 has
been incorporated by reference in this Form 10-K from page 57 of the
1997 Annual Report to Shareholders of Avon Products, Inc. In connection
with our audits of such financial statements, we have also audited the
related financial statement schedule for each of the years in the three-
year period ended December 31, 1997, as listed in the Index under Item
14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule for each of the
years in the three-year period ended December 31, 1997 referred to
above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
New York, New York
February 5, 1998
S-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following
Registration Statements of Avon Products, Inc.: Form S-8 (Reg. No. 33-
47209), Form S-8 (Reg. No. 33-60218), Form S-8 (Reg. No. 33-60918), and
Form S-8 (Reg. No. 33-65998), of our reports dated February 5, 1998 on
our audits of (i) the consolidated financial statements of Avon
Products, Inc. as of December 31, 1997 and 1996 and for each of the
years in the three-year period ended December 31, 1997, which report is
included in the 1997 Annual Report to Shareholders and incorporated by
reference in this Annual Report on Form 10-K and (ii) the 1997, 1996 and
1995 financial statement schedule of Avon Products, Inc., which report
is included in this Annual Report on Form 10-K.
New York, New York
March 23, 1998
S-3
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
1997
Allowance for
doubtful accounts
receivable $36.4 $80.8 $ -- $81.7(a) $35.5
1996
Allowance for
doubtful accounts
receivable $32.6 $79.0 $ -- $75.2(a) $36.4
1995
Allowance for
doubtful accounts
receivable $27.3 $78.0 $ -- $72.7(a) $32.6
(a) Accounts written off, net of recoveries and foreign currency
translation adjustment.