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CONFORMED COPY
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, 1998
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 January 31, 1999 was $9.7 billion.
The number of shares of Common Stock (par value $.25) outstanding
at January 31, 1999 was 261,901,384.
Documents Incorporated by Reference
Parts I and II Portions of the 1998 Annual Report to Shareholders.
Part III Portions of the Proxy Statement for the 1999 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, 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 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. 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 32 and 57, respectively, in
Avon's 1998 Annual Report to Shareholders.
Business Process Redesign
On October 23, 1997, the Company announced that it raised its long-
term growth targets for sales and earnings per share and that it expects
to record special charges in connection with a major business redesign
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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 up to $400.0 million a year by 2000, with approximately
$200.0 million of the savings being reinvested concurrently in
advertising and marketing programs to boost sales. In the first quarter
of 1998, the Company recorded $108.4 million pretax of such one-time charges
($84.2 million after tax, or $.32 per share on a basic and diluted basis) in
connection with the business process redesign program. Slightly more
than half of the total pretax charges in the first quarter were to be
cash related with payments in 1998 and 1999. In the third quarter of
1998, the Company recorded additional special charges for business
redesign efforts totaling $46.0 million pretax ($38.6 million after tax, or
$.14 per share on a basic and diluted basis). Approximately 70% of the third
quarter pretax charges were to be cash related with payments in 1998 and
At December 31, 1998, the remaining liability balance was $28.5 million
and relates primarily to severance costs that will be paid during 1999.
The Company expects to record additional one-time charges in 1999 as
plans are finalized.
Global Business Strategy
Business Process Redesign programs will continue to free
resources to fund strategic growth initiatives and drive earnings.
Organizationally, the Company will also continue to leverage economies
of scale in critical functional areas in order to fully resource these
strategies. Avon's global strategies are 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 45 countries outside the U.S. and its products are
distributed in 89 more, for coverage in 135 markets and it continues
to expand into new markets. The Company has entered 19 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.
Direct Selling Contemporization
The Company continues to revitalize its direct selling channel,
enabling the Company to reach women quickly and efficiently by
offering Representatives training, support and earnings opportunities.
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In addition to new leadership, sales training and communication
programs, the Company is planning to increase its leveraging of new
technology such as the Internet to improve customer service, offer
electronic ordering and provide Representatives ways to give instant
feedback. As the first major beauty company to enable consumer
purchases on line in 1997, the site now attracts 300,000 visitors per
month. Additionally, Avon annually produces more than 600 million
brochures in a dozen languages, utilizing common imagery and layouts
from a single global database to enhance global beauty image.
Avon's beauty strategy provides for product excellence in CFT
brands and the introduction of new products that complement this core
beauty business. In 1996 and 1997, the Company had outstanding
success with Barbie dolls, designed exclusively for Avon, making it
the Company's best selling gift product ever. The relationship with
Mattel, which supplies the Barbie dolls, 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.
Complementary Access and Image Enhancement
To accelerate growth in established industrial nations 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 Avon Beauty Centers and Express Centers in the U.S., toll-free
telephone numbers, direct mail and "on line" shopping via the internet
on Avon's web site, Avon.com. Avon Beauty Centers, located in urban
malls across the U.S., are designed to display an upscale beauty
image, showcase the Company's beauty brands and encourage customer
trial of product. Avon Express Centers also provide easy access to
products and allow Representatives to fill orders immediately, rather
than waiting for campaign deliveries. In 1999, Avon intends to
implement a more integrated Internet strategy to focus on improving
access and accelerating growth. These complementary access programs
will further increase Avon's brand awareness and drive global beauty
image.
Strategies to increase the number of "fixed locations" that sell
Avon products also help 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
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visibility for Avon with consumers and help build the Company's beauty
image. Additionally, in Malaysia, Avon has 145 franchised beauty
boutiques, which are staffed by franchise Representatives and located
in areas with high concentrations of Representatives. The boutiques
provide more direct and personal service to Representatives and their
customers.
The Company continues to update the image of its core beauty
products and its portfolio of global beauty brands. In the past four
years, CFT products have all undergone extensive upgrades in
packaging, imaging and formulations, consistent with the global brands
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, Natori, Millennia, Josie,
Starring, Avon Skin Care and Women of Earth. Global brands are
growing rapidly as a percentage of the Company's worldwide CFT
business and in 1998 and 1997, they accounted for 47% and 39%,
respectively, of core beauty sales. 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
beauty image through increased advertising and research and
development spending and image-building programs focused on the
consumer.
In 1998, the Company's most dramatic move in 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.
Through these strategic initiatives designed to focus on high-
quality, affordable products, as well as convenience for the customer,
Avon is not only positioned for continued growth but also
strengthening its image.
Distribution
Avon's products are sold worldwide by approximately 2.8 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.
The Company's products are sold to customers through a
combination of direct selling and marketing utilizing independent
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Representatives, Avon Beauty Centers, 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 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.
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, 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. Personal contacts, including
recommendations from current Representatives and local advertising,
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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 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 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. 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
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 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
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.
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Avon's consolidated net sales, by classes of principal products,
are as follows:
Years ended December 31
1998 1997 1996
(In millions)
Cosmetics, fragrance and toiletries... $3,181.6 $3,093.9 $2,946.8
Gift and decorative...................... 1,050.6 1,049.7 934.1
Apparel.....................................572.0 565.6 556.3
Fashion jewelry and accessories......... 408.5 370.2 377.0
$5,212.7 $5,079.4 $4,814.2
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 45 countries and Avon's products are distributed in
some 89 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 eighteen manufacturing laboratories around the world,
two of which are 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 Beauty and Express centers. Most products sold in foreign
countries are manufactured in Avon's facilities abroad.
The fashion jewelry line is generally developed by Avon's staff
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and produced in its two manufacturing laboratories, one in Puerto Rico
and one in Ireland, 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.
Contingencies
Although Avon has completed its divestiture of all discontinued
operations, various lawsuits and claims (asserted and unasserted), 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, 1998 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 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 30 percent of total net sales
in both 1998 and 1997, respectively, and before one-time charges,
fourth quarter operating profit was 37 percent and 36 percent
of total operating profit in 1998 and 1997, 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
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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 CFT 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 $31.4 million in 1998, $29.9 million in 1997, and $30.2 million
in 1996. 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.
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EMPLOYEES
At December 31, 1998, Avon employed 33,900 people. Of these,
8,000 were employed in the United States and 25,900 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 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 four manufacturing laboratories,
including a fashion jewelry manufacturing laboratory in Ireland, and
ten distribution centers in Europe; five manufacturing laboratories
and nine distribution centers in Latin America; one manufacturing and
three distribution centers in North America (other than in the U.S.);
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 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). 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, 1998 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, 1998.
___________________
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 1999 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 and Director .. James E. Preston 65 1971
Chief Executive Officer and Director Charles R. Perrin 53 1998(1)
President,
Chief Operating Officer and Director..Andrea Jung 40 1997(2)
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Executive Vice President and Director.Susan J. Kropf 50 1997
Executive Vice Presidents.............Jose Ferreira 42 1997
Fernando Lezama 59 1997
Executive Vice President and
Chief Financial Officer. ...........Robert J. Corti 49 1988
Senior Vice President, General Counsel
and Secretary.......................Ward M. Miller, Jr. 66 1993
Senior Vice President.................Jill Kanin-Lovers 47 1998(3)
Vice President and Controller.........Janice Marolda 38 1998(4)
(1) Charles R. Perrin joined Avon as Vice Chairman and Chief
Operating Officer in January 1998 and was later elected Chief
Executive Officer, effective July 1, 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 and was later
elected Chief Operating Officer, succeeding Mr. Perrin in that
capacity, effective July 1, 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.
(3) Jill Kanin-Lovers joined Avon as Senior Vice President, Human
Resources, effective October 1, 1998. Prior to joining Avon, Ms.
Kanin-Lovers was Vice President, Global Operations Human
Resources at IBM and Senior Vice President, Worldwide
Compensation and Benefits Services at American Express.
(4) Janice Marolda was elected Vice President and Controller in June
1998. Ms. Marolda has been with Avon for thirteen years, in both
the U.S. and Global organizations.
PART II
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 43 of Avon's 1998 Annual
Report to Shareholders.
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ITEM 6. SELECTED FINANCIAL DATA
The information for the five-year period 1994 through 1998 is
incorporated by reference to the "Eleven-Year Review" on pages 61 and
62 of Avon's 1998 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 30 through 42 of Avon's 1998 Annual
Report to Shareholders.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion under the heading "Risk Management Strategies and
Market Rate Sensitive Instruments" on page 39 and Note 7 on page 52 of
Avon's 1998 Annual Report to Shareholders for information concerning
market risk sensitive instruments. Such information is incorporated
by reference in this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference to the
"Consolidated Financial Statements and Notes" on pages 44 through 59,
together with the report thereon of PricewaterhouseCoopers LLP, on
page 60, and "Results of Operations by Quarter" on page 43 of Avon's
1998 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 1999 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"
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sections of Avon's Proxy Statement for the 1999 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 1999 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 1999 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 statements of income for
each of the years in the three-year
period ended December 31, 1998........ 44
Consolidated balance sheets at
December 31, 1998 and 1997............. 45
Consolidated statements of cash flows
for each of the years in the three-year
period ended December 31, 1998......... 46
Consolidated statements of changes in
shareholders' equity for each of
the years in the three-year period
ended December 31, 1998................ 47
Notes to consolidated financial
statements............................. 48-59
Report of Independent Accountants
PricewaterhouseCoopers LLP............. 60
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(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, 1998...............
II. Valuation and qualifying
accounts............. S-3
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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).
3.3 Certificate of Amendment of the Certificate of Incorporation of
Avon Products, Inc., filed May 13, 1998 (incorporated by
reference to Exhibit 3.3 to Avon's Quarterly Report on Form 10-Q
for the quarter ended March 30, 1998).
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. 333-41299 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).
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).
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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.
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).
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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. 333-65989 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,
19975).
10.13*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).
10.14* 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).
10.15* Supplemental Employment Agreement, date as of December 10, 1997
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, 1997).
10.16* Stock Option Agreement between Avon and James E. Preston dated
December 10, 1997(incorporated by reference to Exhibit 10.17 to
Avon's Annual Report on Form 10-K for the year ended December
31, 1997).
10.17* Employment Agreement, dated as of December 11, 1997 between
Avon and Charles R. Perrin (incorporated by reference to Exhibit
10.18 to Avon's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.18* Stock Option Agreement between Avon and Charles R. Perrin dated
December 10, 1997 (incorporated by reference to Exhibit 10.19
to Avon's Annual Report on Form 10-K for the year ended December
31, 1997).
10.19* 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).
10.20* Form of Employment Agreement, dated as of September 1, 1994,
between Avon and certain senior officers (incorporated by
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reference to Exhibit 10.2 to Avon's Quarterly Report on Form 10-
Q for the quarter ended September 30, 1994).
10.21* Avon Products, Inc. Compensation Plan for Non-Employee
Directors, effective May 1, 1997 (incorporated by reference to
Exhibit 10.22 to Avon's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.22* 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).
10.23* 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).
10.24* 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).
10.25* Stock Option Agreement between Avon and Charles R. Perrin dated
June 4, 1998 (incorporated by reference to Exhibit 10.1 to
Avon's Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).
10.26* 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, 1998 incorporated by reference in response to
Items 1,5 through 8 in this filing.
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
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
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the year ended December 31, 1998 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 1998.
(c) Avon's Annual Report on Form 10-K for the year ended December
31, 1998, 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.
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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 24th day of February 1999.
Avon Products, Inc.
By /s/WARD M. MILLER, JR.
Ward M. Miller, Jr.
Senior Vice President, General
Counsel and Secretary
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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 Director February 4, 1999
*
_________________
Charles R. Perrin Chief Executive Officer
and Director - Principal
Executive Officer February 4, 1999
*
_______________
Robert J. Corti Executive Vice President,
Chief Financial Officer -
Principal Financial Officer February 4, 1999
*
______________
Janice Marolda Vice President and
Controller - Principal
Accounting Officer February 4, 1999
*
___________
Andrea Jung President and Chief February 4, 1999
Operating Officer and
Director
*
______________
Susan J. Kropf Executive Vice President, February 4, 1999
President, Avon North
America and Director
*
________________
Brenda C. Barnes Director February 4, 1999
*
_________________
Richard S. Barton Director February 4, 1999
*
____________________
Remedios Diaz Oliver Director February 4, 1999
*
_________________
Edward T. Fogarty Director February 4, 1999
*
________________
Stanley C. Gault Director February 4, 1999
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*
_______________
George V. Grune Director February 4, 1999
*
____________
Ann S. Moore Director February 4, 1999
*
___________
Paula Stern Director February 4, 1999
/s/WARD M. MILLER, JR.
____________________________
Ward M. Miller, Jr. Attorney-in-fact February 4, 1999
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S-1
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders of Avon Products, Inc.:
Our audits of the consolidated financial statements referred to
in our report dated February 4, 1999 appearing in the 1998 Annual
Report to Shareholders of Avon Products, Inc. and subsidiaries, 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 list 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 L.L.P.
New York, New York
February 4, 1999
S-1
S-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following
Registration Statements of Avon Products, Inc. on Form S-8 (Reg. Nos.
33-47209, 33-60218, 33-60918 and 33-65998) of our reports dated
February 4, 1999 on our audits of (i) the consolidated financial
statements of Avon Products, Inc. as of December 31, 1998 and 1997 and
for each of the years in the three-year period ended December 31,
1998, which report is included in the 1998 Annual Report to
Shareholders and incorporated by reference in this Annual Report on
Form 10-K, and (ii) the 1998, 1997 and 1996 financial statement
schedule of Avon Products, Inc., which report is included in this
Annual Report on Form 10-K.
PricewaterhouseCoopers L.L.P.
New York, New York
February 24, 1999
S-2
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
1998
Allowance for doubtful
accounts receivable $35.5 $91.3 $ -- $77.8(a) $49.0
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
(a) Accounts written off, net of recoveries and foreign currency
translation adjustment.
S-3