0000008868-01-500013.txt : 20011107
0000008868-01-500013.hdr.sgml : 20011107
ACCESSION NUMBER: 0000008868-01-500013
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011102
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AVON PRODUCTS INC
CENTRAL INDEX KEY: 0000008868
STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844]
IRS NUMBER: 130544597
STATE OF INCORPORATION: NY
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-04881
FILM NUMBER: 1774219
BUSINESS ADDRESS:
STREET 1: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
BUSINESS PHONE: 9149352588
MAIL ADDRESS:
STREET 1: PECK & MIDLAND AVE
STREET 2: PECK & MIDLAND AVE
CITY: RYE
STATE: NY
ZIP: 10580
10-Q
1
form10q93001.txt
AVON PRODUCTS, INC. FORM 10-Q
11/02/01 PM
CONFORMED COPY
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001
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
(Address of principal executive offices)
(212) 282-5000
(Telephone Number)
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 ___
The number of shares of Common Stock (par value $.25) outstanding at
September 30, 2001 was 236,234,721
Table of Contents
Part I. Financial Information
Page
Numbers
-------
Item 1. Financial Statements
Consolidated Statements of Income
Three Months Ended September 30, 2001 and
September 30, 2000................................ 3
Nine Months Ended September 30, 2001 and
September 30, 2000.............................. 4
Consolidated Balance Sheets
September 30, 2001 and December 31, 2000............ 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and
September 30, 2000................................ 6
Notes to Consolidated Financial Statements............. 7 - 19
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition.......... 20 - 30
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K....................... 31
Signatures...................................................... 32
2
PART I. FINANCIAL INFORMATION
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
Three months ended
September 30
------------------
2001 2000
------- -------
(unaudited)
Net sales........................................... $1,412.8 $1,336.0
Other revenue....................................... 9.7 9.7
-------- --------
Total revenue....................................... 1,422.5 1,345.7
Costs, expenses and other:
Cost of sales ................................... 525.0 490.2
Marketing, distribution and administrative
expenses........................................ 722.3 686.9
Contract settlement gain, net of related
expenses (Note 13).............................. (25.9) -
Asset impairment charge (Note 14)................. 23.9 -
-------- --------
Operating profit.................................... 177.2 168.6
Interest expense.................................. 16.1 22.4
Interest income................................... (3.5) (2.1)
Other expense, net................................ 12.4 4.0
-------- --------
Total other expense, net ........................... 25.0 24.3
-------- --------
Income before taxes and minority interest........... 152.2 144.3
Income taxes........................................ 51.3 51.1
-------- --------
Income before minority interest..................... 100.9 93.2
Minority interest................................... (0.6) (0.9)
-------- --------
Net income ......................................... $ 100.3 $ 92.3
======== ========
Earnings per share:
Basic............................................. $ .42 $ .39
======== ========
Diluted........................................... $ .42 $ .38
======== ========
The accompanying notes are an integral part of these statements.
3
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
Nine months ended
September 30
------------------
2001 2000
------ -------
(unaudited)
Net sales........................................... $4,212.5 $4,025.3
Other revenue....................................... 30.5 30.1
-------- --------
Total revenue....................................... 4,243.0 4,055.4
Costs, expenses and other:
Cost of sales ................................... 1,548.6 1,479.6
Marketing, distribution and administrative
expenses........................................ 2,137.6 2,049.0
Contract settlement gain, net of related
expenses (Note 13).............................. (25.9) -
Asset impairment charge (Note 14)................. 23.9 -
-------- --------
Operating profit.................................... 558.8 526.8
Interest expense.................................. 54.7 65.1
Interest income................................... (9.7) (6.0)
Other expense, net................................ 21.3 18.8
-------- --------
Total other expense, net ........................... 66.3 77.9
-------- --------
Income from continuing operations before taxes,
minority interest and cumulative effect
of accounting changes............................. 492.5 448.9
Income taxes........................................ 170.4 159.4
-------- --------
Income before minority interest and cumulative
effect of accounting changes...................... 322.1 289.5
Minority interest................................... (2.1) (1.9)
-------- --------
Income from continuing operations before
cumulative effect of accounting changes........... 320.0 287.6
Cumulative effect of accounting changes, net of taxes (0.3) (6.7)
-------- --------
Net income ......................................... $ 319.7 $ 280.9
======== ========
Basic earnings per share:
Continuing operations............................. $ 1.35 $ 1.21
Cumulative effect of accounting changes........... - (0.03)
-------- --------
$ 1.35 $ 1.18
======== ========
Diluted earnings per share:
Continuing operations ............................ $ 1.33 $ 1.20
Cumulative effect of accounting changes........... - (0.03)
-------- --------
$ 1.33 $ 1.17
======== ========
The accompanying notes are an integral part of these statements.
4
AVON PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(In millions)
September 30 December 31
2001 2000
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents........................ $ 185.1 $ 122.7
Accounts receivable.............................. 514.1 499.0
Income tax receivable ........................... - 95.2
Inventories...................................... 728.2 610.6
Prepaid expenses and other....................... 237.7 218.2
-------- --------
Total current assets............................. 1,665.1 1,545.7
-------- --------
Property, plant and equipment, at cost........... 1,539.1 1,523.1
Less accumulated depreciation.................... 775.7 754.7
-------- --------
763.4 768.4
Other assets..................................... 529.8 512.3
-------- --------
Total assets..................................... $2,958.3 $2,826.4
======== ========
LIABILITIES AND SHAREHOLDERS'(DEFICIT) EQUITY
Current liabilities:
Debt maturing within one year.................... $ 79.6 $ 105.4
Accounts payable................................. 350.5 391.3
Accrued compensation............................. 130.3 138.2
Other accrued liabilities........................ 269.7 251.7
Sales and taxes other than income................ 95.9 101.1
Income taxes..................................... 378.8 371.6
-------- --------
Total current liabilities........................ 1,304.8 1,359.3
-------- --------
Long-term debt................................... 1,251.1 1,108.2
Employee benefit plans........................... 388.7 397.2
Deferred income taxes............................ 29.9 31.3
Other liabilities................................ 100.3 95.2
Contingencies (Note 6)
Share repurchase commitments - 51.0
Shareholders'(deficit) equity:
Common stock..................................... 89.0 88.6
Additional paid-in capital....................... 914.2 824.1
Retained earnings................................ 1,324.6 1,139.8
Accumulated other comprehensive loss ........... (444.4) (399.1)
Treasury stock, at cost.......................... (1,999.9) (1,869.2)
-------- --------
Total shareholders'(deficit) equity.............. (116.5) (215.8)
-------- --------
Total liabilities and shareholders'(deficit) equity $2,958.3 $2,826.4
======== ========
The accompanying notes are an integral part of these statements.
5
AVON PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Nine months ended
September 30
------------------
2001 2000
---- ----
(unaudited)
Cash flows from operating activities:
Net income.............................................. $ 319.7 $ 280.9
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Special and non-recurring payments...................... (4.4) (14.6)
Cumulative effect of accounting changes................. 0.3 6.7
Depreciation and amortization........................... 81.2 69.4
Provision for doubtful accounts......................... 79.1 70.2
Foreign exchange losses................................. 1.4 2.3
Amortization of debt discounts (premiums)............... 11.1 (1.8)
Deferred income taxes................................... (1.0) 5.4
Asset impairment charge................................. 23.9 -
Other................................................... 11.4 8.2
Changes in assets and liabilities:
Accounts receivable................................... (116.0) (103.7)
Income tax receivable................................. 95.2 -
Inventories........................................... (137.6) (204.6)
Prepaid expenses and other............................ (31.5) (33.7)
Accounts payable and other accrued liabilities........ (0.4) (85.8)
Income and other taxes................................ 13.0 (3.7)
Noncurrent assets and liabilities..................... 3.0 3.9
------ ------
Net cash provided by (used in) operating activities..... 348.4 (0.9)
------ ------
Cash flows from investing activities:
Capital expenditures.................................... (101.1) (126.3)
Disposal of assets...................................... 7.1 5.7
Other investing activities.............................. (5.8) (1.2)
------ ------
Net cash used in investing activities................... (99.8) (121.8)
------ ------
Cash flows from financing activities:
Cash dividends.......................................... (136.9) (133.6)
Book overdraft.......................................... (1.3) (12.5)
Debt, net (maturities of three months or less).......... (7.1) 26.1
Proceeds from short-term debt........................... 58.1 48.6
Retirement of short-term debt........................... (75.0) (184.4)
Proceeds from long-term debt............................ 76.3 400.1
Retirement of long-term debt............................ (.1) (.2)
Repurchase of common stock.............................. (130.7) (47.1)
Proceeds from exercise of stock options, net of taxes... 35.1 18.3
------ -------
Net cash (used in) provided by financing activities..... (181.6) 115.3
------ ------
Effect of exchange rate changes on cash and
cash equivalents...................................... (4.6) (16.0)
------ ------
Net increase (decrease) in cash and cash equivalents.... 62.4 (23.4)
Cash and cash equivalents at beginning of period........ 122.7 117.4
------ ------
Cash and cash equivalents at end of period.............. $ 185.1 $ 94.0
======= ======
The accompanying notes are an integral part of these statements.
6
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
1. ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
contained in Avon's 2000 Annual Report to Shareholders. The interim statements
are unaudited but include all adjustments, consisting of normal recurring
adjustments, that management considers necessary to fairly present the results
for the interim periods. Results for interim periods are not necessarily
indicative of results for a full year. The year-end balance sheet data was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Effective January 1, 2001, Avon adopted Statement of Financial Accounting
Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by FAS No. 138, "Accounting for Certain Derivative
Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. In
accordance with the provisions of FAS No. 133, Avon recorded a charge to
earnings of $0.3, net of a tax benefit of $0.2, in the first quarter of 2001
to reflect the change in the time value of Avon's outstanding options from the
dates of the options' inception through the date of transition (January 1,
2001). Avon also recorded a charge to shareholders' (deficit) equity of $3.9,
net of a tax benefit of $2.1, included in accumulated other comprehensive loss
in the Consolidated Balance Sheets to recognize the fair value of all
derivatives designated as cash flow hedging instruments, which Avon expects to
reclassify into earnings within the next twelve months. These charges are
reflected as a cumulative effect of an accounting change in the accompanying
Consolidated Financial Statements. See Notes 7 and 11 of the Notes to
Consolidated Financial Statements.
Effective January 1, 2000, Avon adopted Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides the Securities and Exchange Commission's views in applying generally
accepted accounting principles to revenue recognition in the financial
statements. As a result of adopting SAB 101, Avon changed its revenue
recognition policy to recognize revenue upon delivery, when both title and
risks and rewards of ownership pass to the independent Representative. In
accordance with the provisions of SAB 101, Avon recorded a charge to earnings
of $6.7, net of a tax benefit of $3.5, in the first quarter of 2000 to reflect
the accounting change. This charge is reflected as a cumulative effect of an
accounting change in the accompanying Consolidated Financial Statements.
Restatements were made to previously reported 2000 quarterly information to
reflect the adoption of SAB 101.
For the year ended December 31, 2000, Avon adopted the provisions of
Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and
Handling Fees and Costs", which requires that amounts billed to customers for
shipping and handling fees be classified as revenues. EITF 00-10 also
requires the disclosure of the income statement classification of any shipping
and handling costs. 2000 quarterly information was restated to reflect
shipping and handling fees, previously reported in Marketing, distribution and
administration expenses, in Other revenue in the Consolidated Statements of
Income. For the three months ended September 30, 2001 and 2000, shipping and
handling costs aggregated $129.6 and $121.4, respectively. For the nine
months ended September 30, 2001 and 2000, shipping and handling costs
aggregated $385.6 and $361.9, respectively. These costs are included in
Marketing, distribution and administrative expenses in the Consolidated
Statements of Income.
7
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
In May 2000, the EITF reached a consensus on EITF 00-14, "Accounting for
Certain Sales Incentives", which provides guidance on accounting for
discounts, coupons, rebates and free products, as well as the income statement
classification of these discounts, coupons, rebates and free products. EITF
00-14 is effective January 1, 2002 for Avon. Avon is currently evaluating the
impact of this new guidance.
In April 2001, the EITF reached a consensus on EITF 00-25, "Accounting
for Consideration from a Vendor to a Retailer in Connection with the Purchase
or Promotion of the Vendor's Products", which provides guidance on the income
statement classification of consideration from a vendor to a retailer in
connection with the retailer's purchase of the vendor's products or to promote
sales of the vendor's products. EITF 00-25 is effective January 1, 2002 for
Avon. Avon is currently evaluating the impact of this new guidance.
In September 2001, the EITF issued EITF 01-09, "Accounting for
Consideration Given by a Vendor to a Customer or Reseller of the Vendor's
Products", which addresses the accounting for consideration given by a vendor
to a customer or a reseller of the vendor's products. Avon is currently
evaluating the impact of this new guidance.
In August 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations", which addresses the accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated retirement costs. FAS 143 is effective January 1, 2003 for
Avon. Avon is currently evaluating the impact of this new guidance.
In October 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which addresses the accounting
and reporting for the impairment and disposal of long-lived assets. FAS 144
is effective January 1, 2002 for Avon. Avon is currently evaluating the
impact of this new guidance.
To conform to the 2001 presentation, certain reclassifications were made
to the prior periods' consolidated financial statements and the accompanying
footnotes.
2. INFORMATION RELATING TO THE STATEMENTS OF CASH FLOWS
"Net cash provided by (used in) operating activities" includes the
following cash payments for interest and income taxes:
Nine months ended
September 30
------------------
2001 2000
---- ----
Interest............................................ $ 38.7 $ 65.6
Income taxes, net of refunds received............... 62.4 151.0
3. EARNINGS PER SHARE
Basic earnings per share ("EPS") are computed by dividing net income by
the weighted-average number of shares outstanding during the period. Diluted
earnings per share are calculated to give effect to all potentially dilutive
common shares that were outstanding during the period.
8
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
For the three and nine months ended September 30, 2001 and 2000, the
components of basic and diluted earnings per share are as follows:
Three Months Nine Months
Ended September 30 Ended September 30
2001 2000 2001 2000
Numerator:
Basic:
Income from continuing operations
before cumulative effect of
accounting changes $ 100.3 $ 92.3 $ 320.0 $ 287.6
Cumulative effect of accounting changes - - (0.3) (6.7)
-------- ------- ------- ------
Net Income $ 100.3 $ 92.3 $ 319.7 $ 280.9
======== ======= ======= ======
Diluted:
Income from continuing operations
before cumulative effect of accounting
changes $ 100.3 $ 92.3 $ 320.0 $ 287.6
Interest expense on convertible notes,
net of taxes 2.5 2.0 7.5 2.0
-------- ------- ------- ------
Income for purposes of computing
diluted EPS before cumulative effect
of accounting changes 102.8 94.3 327.5 289.6
Cumulative effect of accounting changes - - (0.3) (6.7)
-------- ------- ------- -----
Net income for purposes of computing
diluted EPS $ 102.8 $ 94.3 $ 327.2 $ 282.9
======== ======= ======= ======
Denominator:
Basic EPS weighted-average shares
outstanding 236.28 237.54 236.97 237.56
Dilutive effect of:
Assumed conversion of
stock options and settlement of
forward contracts (1) 2.49 2.10 2.16 1.89
Assumed conversion of convertible
notes 6.96 5.87 6.96 1.97
-------- ------- ------- ------
Diluted EPS adjusted weighted-average
shares outstanding 245.73 245.51 246.09 241.42
======== ======= ======= ======
Basic EPS:
Continuing operations $ .42 $ .39 $ 1.35 $ 1.21
Cumulative effect of accounting
changes - - - (.03)
-------- ------- ------- -------
$ .42 $ .39 $ 1.35 $ 1.18
======== ======= ======= =======
Diluted EPS:
Continuing operations $ .42 $ .38 $ 1.33 $ 1.20
Cumulative effect of accounting
changes - - - (.03)
-------- ------- ------- ------
$ .42 $ .38 $ 1.33 $ 1.17
======== ======= ======= ======
(1) At September 30, 2000, stock options and forward contracts to purchase
Avon common stock totaling 1.0 million shares, are excluded from the
calculation of diluted earnings per share calculation because
their impact is anti-dilutive.
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Avon purchased approximately 3,200,000 shares of Avon common stock for
$130.7 during the first nine months of 2001, as compared to approximately
1,200,000 shares of Avon common stock for $47.1 during the first nine months
of 2000.
In connection with Avon's share repurchase program, Avon entered into
forward contracts to purchase approximately 271,000 shares of Avon common
stock at an average price of $45.83 per share at September 30, 2001. The
contracts mature in October 2002 and provide for physical or net share
settlement to Avon. Accordingly, no adjustment for subsequent changes in fair
value has been recognized.
4. INVENTORIES
September 30 December 31
2001 2000
------- ------
Raw materials................ $188.5 $168.0
Finished goods............... 539.7 442.6
------- ------
$728.2 $610.6
======= ======
5. DIVIDENDS
Cash dividends paid per share of common stock were $.19 and $.57 for the
three and nine months ended September 30, 2001, respectively, and $.185 and
$.555 for the comparable periods of 2000. On February 1, 2001, Avon increased
the indicated annual dividend rate to $.76 from $.74.
6. CONTINGENCIES
In 1991, a class action suit 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). A trial
of this action commenced in October 2001 in the United States District Court
for the Southern District of New York. Avon believes it has meritorious
defenses to the claims asserted. However, it is not possible to predict the
outcome of litigation and it is reasonably possible that the trial, and any
possible appeal, could be decided unfavorably. Management is unable to make a
meaningful estimate of the amount or range of loss that could result from an
unfavorable outcome but, under some of the damage theories presented, an
adverse award could be material.
Various other 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 the opinion of Avon's management,
based on its review of the information available at this time, the total cost
of resolving such other contingencies at September 30, 2001 should not have a
material adverse impact on Avon's consolidated financial position, results of
operations or cash flows.
In 1998, the Argentine tax authorities denied certain past excise
tax credits taken by Avon's subsidiary in Argentina and assessed this
subsidiary for the corresponding taxes. Avon vigorously contested this
assessment through local administrative and judicial proceedings since
1998. In the third quarter of 2001, the Argentine government issued a
decree permitting taxpayers to satisfy certain tax liabilities on
favorable terms using Argentine government bonds as payment. Avon
decided to settle this contested tax assessment by applying for relief
under this new government program and purchased bonds to tender in
settlement of the aforementioned assessment. As a result, a pre-tax
10
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
charge of $6.4 million ($3.4 after-tax, or $.01 per diluted share) was
included in Other expense, net in the Consolidated Statements of Income
in the third quarter of 2001.
Avon has been responding to a formal investigation by the Securities and
Exchange Commission ("SEC") commenced in August 2000, and has furnished to the
SEC information that principally concerns a special charge reported by Avon in
the first quarter of 1999, which included the write-off of approximately $15.0
in pre-tax costs associated with an order management software system known as
the FIRST project. The balance of the FIRST project's development costs had
been carried as an asset until the current period, when Avon recorded a pre-
tax charge of $23.9 ($14.5 after-tax, or $.06 per diluted share) to write off
the carrying value of costs related to that project. (See Note 14, Asset
Impairment Charge).
7. COMPREHENSIVE INCOME (LOSS)
For the three and nine months ended September 30, 2001 and 2000, the
components of comprehensive income are as follows:
Three Months Nine Months
Ended September 30 Ended September 30
2001 2000 2001 2000
Net income $ 100.3 $ 92.3 $ 319.7 $ 280.9
Other comprehensive loss:
Foreign currency translation and
transaction adjustments (20.0) (17.8) (39.5) (41.4)
Unrealized loss on available-
for-sale securities,
net of taxes of $0.6 and $0.8 (2.8) (4.5) (4.3) (4.5)
Net gains (losses) on derivative
instruments, net of
taxes of ($0.2) and $0.9 0.6 - (1.5) -
------- ------ ------- -------
Comprehensive income $ 78.1 $ 70.0 $ 274.4 $ 235.0
======= ====== ======= =======
As of September 30, 2001, Avon expects to reclassify $1.7 of net losses on
derivative instruments designated as cash flow hedges from accumulated other
comprehensive loss on the Consolidated Balance Sheet to earnings during the
next twelve months.
For the three and nine months ended September 30, 2001, the components of the
net gains (losses) on derivative instruments are as follows:
Three Months Nine Months
Ended September 30 Ended September 30
2001 2001____
Net gains (losses) on derivative instruments:
Cumulative effect of accounting change, $ - $ (3.9)
net of taxes of $2.1
Net gains on derivative instruments,
net of taxes of ($1.6) and ($0.2) 3.0 0.4
Reclassification of (gains)losses
to earnings, net of taxes of
$1.4 and ($1.0) (2.4) 2.0
------- --------
Net gains (losses) on derivative instruments $ 0.6 $ (1.5)
======= ========
11
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
8. SPECIAL AND NON-RECURRING CHARGES
In October 1997, Avon announced a worldwide business process redesign
program to streamline operations and improve profitability through margin
improvement and expense reductions. The special and non-recurring charges
associated with this program totaled $151.2 pretax ($121.9 net of taxes, or
$.47 per share on a basic and diluted basis) for the year ended December 31,
1999 and $154.4 pretax ($122.8 net of tax, or $.46 per share on a basic and
diluted basis) for the year ended December 31, 1998.
The 1999 special and non-recurring charges by business segment are as
follows:
North America $ 33.6
Latin America 14.7
Europe 69.8
Pacific 11.8
Corporate 21.3
-------
Total $ 151.2
=======
The 1999 special and non-recurring charges by category of expenditures are
as follows:
Special Cost of
Charges Sales Charge Total
------- ------------ -----
Employee severance costs $ 57.0 $ - $ 57.0
Inventories - 46.0 46.0
Write-down of assets to
net realizable value 26.4 - 26.4
Recognition of foreign currency
translation adjustment 9.8 - 9.8
Other 12.0 - 12.0
------- ------ ------
Total $ 105.2 $ 46.0 $ 151.2
======= ======= =======
Employee severance costs are expenses, both domestic and international,
associated with the realignment of Avon's global operations. Certain employee
severance costs were accounted for in accordance with Avon's existing FAS No.
112 ("Employers' Accounting for Postemployment Benefits") severance plans.
Remaining severance costs were accounted for in accordance with other existing
accounting literature. The workforce was reduced by 3,700 associates, or 9%
of the total. Approximately one-half of the terminated employees related to
facility closures. As of September 30, 2001, all employees under the program
have been terminated.
Inventory-related charges represent losses to write-down the carrying
value of non-strategic inventory prior to disposal. The charges primarily
result from a new business strategy for product dispositions which
fundamentally changes the way Avon markets and sells certain inventory. This
new strategy, approved and effective in March 1999, is meant to complement
other redesign initiatives, with the objective of reducing inventory clearance
sales, building core brochure sales and building global brands.
The write down of assets (primarily fixed and other assets) relates to the
restructuring of operations in Western Europe, including the closure of a
jewelry manufacturing facility in Ireland, and the write-down of software, the
use of which is no longer consistent with the strategic direction of Avon. By
centralizing certain key functional areas and exiting unprofitable situations,
Avon plans to increase operating efficiencies and ultimately, profit growth in
the long-term.
12
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
The recognition of a foreign currency translation adjustment relates to
the closure of the jewelry manufacturing facility in Ireland.
The "Other" category primarily represents contract termination costs,
legal and consulting fees and other costs associated with the facility
closures.
The liability balance at September 30, 2001 is as follows:
Special Cost of
Charge Sales Charge Total
------- ------------ -----
Balance at December 31, 2000 $ 7.9 $ - $ 7.9
Cash expenditures (4.4) - (4.4)
------ ---- -----
Balance at September 30, 2001 $ 3.5 $ - $ 3.5
====== ===== ======
The balance at September 30, 2001, relates primarily to employee severance
costs that will be paid in accordance with the original plan during 2001.
9. SEGMENT INFORMATION
Summarized financial information concerning Avon's reportable segments is
as follows:
Three Months Ended
September 30
------------------
2001 2000
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
--------- --------- --------- ---------
North America:
U.S. $ 453.0 $ 67.2 $ 421.2 $ 61.1
Other* 60.0 23.4 57.1 4.4
--------- ------- --------- --------
Total 513.0 90.6 478.3 65.5
--------- ------- --------- --------
International:
Latin America North** 247.1 64.5 212.5 52.1
Latin America South** 239.5 48.0 254.8 53.9
--------- ------- -------- --------
Latin America 486.6 112.5 467.3 106.0
Pacific 191.3 26.5 195.7 26.8
Europe 221.9 28.9 194.7 22.1
--------- ------- -------- --------
Total International 899.8 167.9 857.7 154.9
--------- ------- -------- --------
Total from operations 1,412.8 258.5 1,336.0 220.4
Global expenses - (81.3) - (51.8)
--------- ------- --------- --------
Total $ 1,412.8 $ 177.2 $ 1,336.0 $ 168.6
========= ======= ========= ========
*Includes operating information for Canada, Puerto Rico and the U.S. retail
business.
**Latin America North primarily includes the markets of Mexico, Venezuela and
Central America. Latin America South primarily includes the markets of
Brazil, Argentina, Chile and Peru.
13
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Nine Months Ended
September 30
------------------
2001 2000
---- ----
Net Operating Net Operating
Sales Profit Sales Profit
---------- --------- -------- ---------
North America:
U.S. $ 1,395.5 $ 251.3 $ 1,328.5 $ 238.4
Other* 176.1 31.3 174.5 15.8
--------- -------- --------- -------
Total 1,571.6 282.6 1,503.0 254.2
--------- -------- --------- -------
International:
Latin America North** 715.7 182.4 614.7 149.3
Latin America South** 694.8 123.3 718.0 134.7
--------- -------- --------- -------
Latin America 1,410.5 305.7 1,332.7 284.0
Pacific 557.4 75.8 584.7 78.8
Europe 674.8 98.2 604.9 78.5
--------- -------- --------- -------
Total International 2,642.7 479.7 2,522.3 441.3
--------- -------- --------- -------
Total from operations 4,214.3 762.3 4,025.3 695.5
Global expenses (1.8) (203.5) - (168.7)
--------- -------- --------- -------
Total $ 4,212.5 $ 558.8 $ 4,025.3 $ 526.8
========= ======== ========= =======
*Includes operating information for Canada, Puerto Rico and the U.S. retail
business.
**Latin America North primarily includes the markets of Mexico, Venezuela and
Central America. Latin America South primarily includes the markets of
Brazil, Argentina, Chile and Peru.
14
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
The following table presents consolidated net sales by classes of
principal products as follows:
Three Months Nine Months
Ended September 30 Ended September 30
2001 2000 2001 2000
Beauty* $ 885.8 $ 840.6 $2,690.8 $2,548.0
Beauty Plus** 294.6 278.7 870.8 832.1
Beyond Beauty*** 232.4 216.7 650.9 645.2
------- -------- ------- -------
Total net sales $1,412.8 $1,336.0 $4,212.5 $4,025.3
*Beauty includes cosmetics, fragrances, toiletries and health and well being.
**Beauty Plus includes fashion jewelry, accessories, apparel, watches and
health and well being.
***Beyond Beauty primarily includes home products, gift and decorative, health
and well being, and candles.
Sales from health and well being products are divided among the three
categories based on product segmentations.
To conform to the 2001 presentation, certain reclassifications were made
to the prior periods' segment information.
10. Other Financing Activities
In connection with Avon's share repurchase program, Avon entered into
forward contracts to purchase approximately 271,000 shares of Avon common
stock at an average price of $45.83 per share at September 30, 2001. The
contracts mature in October 2002 and provide for physical or net share
settlement to Avon. Accordingly, no adjustment for subsequent changes in fair
value has been recognized.
11. Financial Instruments and Risk Management
Avon operates globally, with manufacturing and distribution facilities in
various locations around the world. Avon may reduce its exposure to
fluctuations in interest rates and foreign exchange rates by creating
offsetting positions through the use of derivative financial instruments.
Avon currently does not enter into derivative financial instruments for
trading purposes, nor is Avon a party to leveraged derivatives.
Derivatives are recognized on the balance sheet at their fair values. The
accounting for changes in fair value (gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of
a hedging relationship and further, on the type of hedging relationship.
Changes in the fair value of a derivative that is designated as a fair value
hedge, along with the loss or gain on the hedged asset or liability that is
attributable to the hedged risk, are recorded in current earnings. Changes in
the fair value of a derivative that is designated as a cash flow hedge are
recorded in other comprehensive income ("OCI") to the extent effective and
reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. Changes in the fair value of a
derivative that is designated as a hedge of a net investment in a foreign
operation are recorded in foreign currency translation adjustments within OCI
to the extent effective as a hedge. Changes in the fair value of a derivative
not designated as a hedging instrument are recognized in current earnings.
15
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Avon assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The ineffective portion of the derivative's gain or loss, if any, is recorded
in current earnings. Prior to June 1, 2001, Avon excluded the change in the
time value of option contracts from its assessment of hedge effectiveness.
Effective June 1, 2001, Avon includes the change in the time value of options
in its assessment of hedge effectiveness. When Avon determines that a
derivative is not highly effective as a hedge, hedge accounting is
discontinued prospectively. When hedge accounting is discontinued because it
is probable that a forecasted transaction will not occur, Avon discontinues
hedge accounting for the affected portion of the forecasted transaction, and
reclassifies gains and losses that were accumulated in OCI to earnings.
Interest Rates
Avon uses interest rate swaps to hedge interest rate risk on its debt. In
addition, Avon may periodically employ interest rate caps and forward interest
rate agreements to reduce exposure, if any, to increases in variable interest
rates.
Avon has entered into interest rate swap contracts that effectively
convert a portion of its fixed-rate debt to a variable-rate based on LIBOR.
Avon has designated the interest rate swaps as fair value hedges. At September
30, 2001, $550.0 of Avon's outstanding long-term debt is designated as the
hedged items to the interest rate swap contracts. Accordingly, long-term debt
increased by $53.3 during the nine months ended September 30, 2001, with a
corresponding increase to Other assets to reflect the fair values of
outstanding interest rate swaps. There were no amounts of hedge
ineffectiveness for the three and nine months ended September 30, 2001 related
to these interest rate swaps.
In September 2001, Avon terminated an interest rate swap contract with a
notional amount of $100.0, effective November 15, 2001. At inception, the
swap was designated as a hedge of a portion of Avon's five-year, $200.0 bonds
and accordingly both the interest rate swap and underlying debt were adjusted
to reflect their fair values at September 30, 2001. Effective with the
termination of the swap, the fair value adjustment to the underlying debt will
be amortized over the remaining term of that debt.
In September 2001, Avon entered into two forward interest rate
agreements, each with a notional amount of $150.0, to protect against
increases in interest rates on a portion of Avon's fixed to variable interest
rate swap contracts. The agreements provide six-month LIBOR interest rate
locks at 2.48% and 2.915% for the periods November 15, 2001 to May 15, 2002
and May 15, 2002 to November 15, 2002, respectively. The forward interest
rate agreements have not been designated as hedges and have been recorded in
the Consolidated Financial Statements at fair value. Subsequent to September
30, 2001, Avon entered into a forward interest rate agreement with a notional
amount of $250.0 to protect against increases on a portion of Avon's fixed to
variable interest rate swap contracts. The agreement provides a six-month
LIBOR interest rate lock at 2.28% for the period November 15, 2001 to
May 15, 2002.
16
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Foreign Currency
Avon uses foreign currency forward contracts and options to hedge
portions of its forecasted foreign currency cash flows resulting from
forecasted royalties, intercompany loans, and other anticipated foreign
currency transactions where there is a high probability that anticipated
exposures will materialize, including third-party and intercompany foreign
currency transactions. These contracts have been designated as cash flow
hedges.
For the three and nine months ended September 30, 2001, the net gain
related to the ineffective portion of Avon's cash flow hedging instruments and
the net loss related to the portion of the hedging instrument excluded from
the assessment of hedge effectiveness (time value of options prior to June 1,
2001) was not material. For the three and nine months ended September 30,
2001, the net gain reclassified from OCI to earnings for cash flow hedges that
have been discontinued, because the forecasted transactions are not probable
of occurring, was not material.
As of September 30, 2001, Avon expects to reclassify $1.7 of net losses
on derivative instruments designated as cash flow hedges from accumulated
other comprehensive loss to earnings during the next 12 months due to (a)
foreign currency royalties (b) intercompany loan settlements and (c) actual
foreign currency denominated purchases or receipts. The maximum remaining
term over which Avon is hedging exposures to the variability of cash flows for
all forecasted transactions is 15 months.
Avon also enters into foreign currency forward contracts and options to
protect against the adverse effects that exchange rate fluctuations may have
on the earnings of its foreign subsidiaries. These derivatives do not qualify
for hedge accounting and the gains and losses on these derivatives have been
recognized in current earnings.
Hedges of Net Investments in Foreign Operations
Avon uses foreign currency forward contracts and foreign currency
denominated debt to hedge the foreign currency exposure related to the net
assets of certain of its foreign subsidiaries.
During 2001, Avon entered into loan agreements and notes payable to
borrow Japanese yen to hedge Avon's net investment in its Japanese subsidiary
(see Note 12 of the Notes to Consolidated Financial Statements). For the nine
months ended September 30, 2001, a $0.1 loss related to the revaluation of
this foreign currency denominated debt was included in foreign currency
translation adjustments within accumulated other comprehensive loss on the
Consolidated Balance Sheets.
Credit and Market Risk
Avon attempts to minimize its credit exposure to counterparties by
entering into interest rate swap and cap contracts only with major
international financial institutions with "A" or higher credit ratings as
issued by Standard & Poor's Corporation. Avon's foreign currency and interest
rate derivatives are comprised of over-the-counter forward contracts or
options with major international financial institutions. Although Avon's
theoretical credit risk is the replacement cost at the then estimated fair
value of these instruments, management believes that the risk of incurring
losses is remote and that such losses, if any, would not be material.
17
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
12. Debt
In September 2001, Avon issued 9,000.0 Japanese yen of notes payable (the
"Yen Notes"). The Yen Notes are unsecured and unsubordinated obligations of
Avon. The Yen Notes bear interest at a per annum rate of 1.06% and mature on
September 20, 2006. Interest on the Yen Notes is payable semi-annually. The
agency agreement under which the Yen Notes were issued limits the incurrence
of liens. The net proceeds from the issuance of the Yen Notes were used for
general corporate purposes, including the repayment of short-term debt. The
Yen Notes are designated as a hedge of Avon's net investment in its Japanese
subsidiary.
In February 2001, Avon entered into a loan agreement to borrow 5,500.0
Japanese yen. The loan bore interest at a per annum rate equal to 0.875% and
matured on April 9, 2001. Interest on the loan was paid at maturity. In
April 2001, Avon amended this loan agreement to increase the amount borrowed
to 8,000.0 Japanese yen and to extend the maturity to May 15, 2001. The loan
bore interest at a per annum rate equal to 0.485%. Interest on the loan was
paid at maturity. In May 2001, Avon further amended this loan agreement to
extend the maturity to July 12, 2001. The loan bore interest at a per annum
rate equal to 0.455%. Interest on the loan was paid at maturity. In July
2001, Avon further amended this loan agreement twice to extend the maturity to
August 9, 2001. The loan bore interest at a per annum rate equal to 0.435%.
Interest on the loan was paid at maturity. In August 2001, Avon further
amended this loan agreement to extend the maturity first to August 31, 2001
and then to September 14, 2001. During these periods, the loan bore interest
at per annum rates equal to 0.435% and 0.425%, respectively. Interest on the
loan was paid at maturity. In September 2001, Avon further amended this loan
agreement to extend the maturity to September 20, 2001 on which date it,
together with the interest thereon, was repaid with the proceeds from the Yen
Notes. The loan bore interest at a per annum rate equal to 0.425%. The loan
was designated as a hedge of Avon's net investment in its Japanese subsidiary.
See Note 11 of the Notes to Consolidated Financial Statements.
In May 2001, Avon entered into an agreement with various banks to replace
Avon's existing revolving credit and competitive advance facility agreement,
which was due to expire in August 2001, with a new five-year $600.0 revolving
credit and competitive advance facility agreement, which expires in 2006. The
new agreement and the prior agreement are referred to, collectively, as the
"credit facility".
The credit facility may be used for general corporate purposes, including
financing working capital and capital expenditures, providing support for the
issuance of commercial paper and supporting the stock repurchase program. The
interest rate on borrowings under the credit facility is based on LIBOR,
prime, or federal fund rates. The credit facility has an annual facility fee
of $0.5. The credit facility contains a covenant for interest coverage, as
defined. Avon is in compliance with this covenant at September 30, 2001. At
September 30, 2001, there were no borrowings under the credit facility.
13. Contract Settlement
In July 2001, Avon announced that, due to a change in Sears Roebuck and
Company's ("Sears") business strategy, which will include de-emphasizing
cosmetics, Avon would not proceed with the launch of its retail brand,
beComing, in Sears stores this fall. In July 2001, Avon and Sears reached an
agreement, under which Avon received a contract settlement gain, net of
related expenses, of approximately $25.9 pretax ($15.7 after-tax, or $.06 per
diluted share) to compensate Avon for lost profits and incremental expenses as
a result of the cancellation of the retail agreement.
18
AVON PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share data)
Avon launched the beComing brand in select J.C. Penney stores in the
third quarter of 2001.
The termination of the retail venture with Sears resulted in a gain in
the third quarter of 2001 but will impact subsequent periods due to the loss
of anticipated contribution from the Sears business. The aggregate impact of
the termination is expected to be neutral for the remainder of 2001 and 2002.
14. Asset Impairment Charge
In September 2001 Avon determined that an order management system known
as the "FIRST" project would not be implemented and would be abandoned. As a
result, Avon recorded in the third quarter of 2001 a non-cash Asset impairment
charge of $23.9 pre-tax ($14.5 after-tax, or $.06 per diluted share) to write
off the carrying value of costs related to the abandoned FIRST project.
The decision not to use FIRST was based on various factors, including an
assessment of the needs of target markets, changes in Avon's business
strategies, project management and implementation costs, and costs for the
ongoing support of FIRST following implementation.
As the FIRST project has been abandoned, under FAS No. 121, "Accounting
for the Impairment of Long Lived Assets and for Long Lived Assets to be
Disposed of", Avon recorded a charge in the third quarter of 2001 to write
off the carrying value of the abandoned asset.
The non-cash charge included software development costs, certain
hardware, software interfaces and other related costs. Prior to the write
off, the capitalized software was included in Other assets on the
Consolidated Balance Sheet.
Avon has been responding to a formal investigation by the SEC commenced
in August 2000, and has furnished to the SEC information regarding the FIRST
project and a special charge reported by Avon in the first quarter of 1999,
which included the write off of approximately $15.0 in pre-tax costs
associated with FIRST. The balance of the project's development costs was
carried as an asset until the current period. As part of a resolution of the
investigation or at the conclusion of a contested proceeding, there may be a
finding that Avon knew or should have known in the first quarter of 1999 that
it was not probable that FIRST would be implemented and therefore the entire
FIRST asset should have been written off as abandoned at that time. In that
connection, it may also be necessary for Avon to restate its financial
statements to write off the entire FIRST asset in the first quarter of 1999.
If Avon were to restate its financial statements to write off the FIRST asset
in the first quarter of 1999, then the charge recorded in the third quarter
of 2001 and other FIRST-related items recorded in prior periods would also be
restated. (See Note 6, Contingencies).
15. Subsequent Event
On November 1, 2001, Avon declared a quarterly dividend on its common
stock of $.19 per share, payable December 3, 2001, to shareholders of record
on November 15, 2001.
19
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
ITEM 2. Management's Discussion and Analysis of the Results of Operations
and Financial Condition
Results of Operations
Consolidated
Avon's net income for the third quarter and nine-month period of 2001
was $100.3 and $319.7, respectively, or $.42 and $1.33 per share on a
diluted basis, respectively, compared with net income of $92.3 and $280.9,
respectively, or $.38 and $1.17 per share on a diluted basis, respectively,
for the same periods of 2000. Operating profit was $177.2 and $558.8 for
the third quarter and nine-month period in 2001, respectively, compared
with $168.6 and $526.8, respectively, for the comparable periods of 2000.
The third quarter and nine-month period of 2001 included the
following unusual items: an Asset impairment charge of $23.9 ($14.5
after-tax, or $.06 per diluted share) related to the write off of the
remaining carrying value of an order management system that had been
under development (see Notes 6 and 14 of the Notes to Consolidated
Financial Statements); a charge of $6.4 ($3.4 after-tax, or $.01 per
diluted share) related to the settlement of a tax liability in Argentina
(see Note 6 of the Notes to Consolidated Financial Statements); and a
Contract settlement gain, net of related expenses, of $25.9 ($15.7 after-
tax, or $.06 per diluted share) related to the cancellation of a retail
agreement between Avon and Sears (see Note 13 of the Notes to
Consolidated Financial Statements).
Effective January 1, 2001, Avon adopted Statement of Financial Accounting
Standards ("FAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by FAS No. 138, "Accounting for Certain Derivative
Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. In
accordance with the provisions of FAS No. 133, Avon recorded a charge to
earnings of $0.3, net of a tax benefit of $0.2, in the first quarter of 2001
to reflect the change in the time value of Avon's outstanding options from the
dates of the options' inception through the date of transition (January 1,
2001). Avon also recorded a charge to shareholders' (deficit) equity of $3.9,
net of a tax benefit of $2.1, included in accumulated other comprehensive loss
in the Consolidated Balance Sheets to recognize the fair value of all
derivatives designated as cash flow hedging instruments, which Avon expects to
reclassify into earnings within the next 12 months. These charges are
reflected as a cumulative effect of an accounting change in the accompanying
Consolidated Financial Statements. See Notes 7 and 11 of the Notes to
Consolidated Financial Statements.
Effective January 1, 2000, Avon changed its revenue recognition
policy in accordance with the provisions of Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements". The
cumulative effect of the change on prior years resulted in a charge of
$6.7, net of a tax benefit of $3.5, or $.03 per share on a basic and
diluted basis, in the first quarter of 2000, which was included in net
20
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
income for the nine-months ended September 30, 2000. For the three months
and nine months ended September 30, 2000, the impact of the accounting
change was to decrease net income before the cumulative effect of the
accounting change by $0.7 and $4.7, respectively.
Consolidated net sales for the third quarter and nine-month period
of 2001 increased 6% and 5%, respectively, over the same periods of 2000.
The sales improvement for both the third quarter and nine-month period
was a result of increases in Europe, Latin America and North America,
partially offset by a decline in the Pacific region. Excluding the
impact of foreign currency exchange, consolidated net sales rose 12% and
10% for the third quarter and nine-month period of 2001, respectively,
over the comparable periods of 2000, with increases in all regions.
Gross margin decreased 0.5 percentage point in the third quarter of
2001 resulting from declines in Europe and North America, partially
offset by an improvement in the Pacific region. Gross margin in the
nine-month period of 2001 remained level with the same period of 2000
primarily due to improvements in the Pacific region and Latin America,
offset by declines in North America and Europe.
Marketing, distribution and administrative expenses increased $35.4 and
$88.6, or 5% and 4%, for the third quarter and nine-month period of 2001,
respectively, over the comparable periods of 2000. Avon has continued to
invest in consumer-related initiatives such as additional spending on
advertising and enhanced brochures. Operating expenses decreased as a
percentage of sales to 50.6% and 50.3% for the third quarter and nine-month
period of 2001, respectively, from 51.0% and 50.5% for the comparable periods
of 2000. The third quarter and nine-month period improvements were primarily
due to improved expense ratios in all regions except the Pacific region which
remained level for the third quarter and declined for the nine month period.
Interest expense of $16.1 and $54.7 for the third quarter and nine-
month period of 2001, respectively, decreased $6.3 and $10.4,
respectively, versus the comparable periods of 2000, primarily as a
result of a decline in domestic interest rates in 2001. Interest income
of $3.5 and $9.7 for the third quarter and nine-month period of 2001,
respectively, increased $1.4 and $3.7, respectively, over the comparable
periods of 2000 primarily due to stronger cash flow levels during 2001.
Other expense, net of $12.4 for the third quarter of 2001 was $8.4
unfavorable to the comparable period of 2000 mainly due to the settlement
of a tax assessment in Argentina of $6.4 in 2001. Other expense, net of
$21.3 for the nine-month period of 2001 was $2.5 unfavorable to the
comparable period of 2000 mainly due to the settlement of the tax
assessment in Argentina in 2001, partially offset by foreign exchange
losses during 2000 on Brazil real contracts as well as favorable foreign
exchange movements in 2001 on Japanese yen contracts.
The effective tax rate was 33.7% and 34.6% for the third quarter and
nine-month period of 2001, respectively, versus 35.4% and 35.5%,
respectively, for the comparable periods of 2000, due to repatriation
planning, as well as the earnings mix and tax rates of international
subsidiaries.
The following discussion addresses net sales and operating profit by
reportable segment as presented in Note 9:
21
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
North America
Net sales grew 7% and 5% for the third quarter and nine-month period
of 2001, respectively, over the comparable periods of 2000. The U.S
business, which represents almost 90% of the North American segment,
reported a sales increase of 8% and 5% for the third quarter and nine-
month period of 2001, respectively. The increase in both periods resulted
from a 3% increase in the number of average Representatives due to the
successful implementation of Avon's career strategies, particularly Sales
Leadership, as well as the strength of Avon's marketing plans. The third
quarter sales increase was also driven by a 13% growth in units due to the
success of a Kiss Goodbye to Breast Cancer lipstick campaign and inventory
clearance programs, partially offset by a temporary pause in recruitment
resulting from the events of September 11th.
U.S. beauty sales grew 5% for the third quarter of 2001 reflecting a
strong increase in color cosmetics due in part to the success of a
Holographix Shade Event, an increase in promotional items, and the Breast
Cancer lipstick campaign, coupled with an increase in the fragrance
category resulting from a preferred preview program for the launch of the
Little Black Dress fragrance. Hair care and skin care reported declines
for the quarter due to unfavorable comparisons against last year's
launches of Botanisource and Advance Techniques. Sales in the Beauty Plus
category also increased in the third quarter of 2001 due to growth in
jewelry and watches driven by increased exposure in the brochure, and
growth in footwear, eyewear and totes, partially offset by a decline in
apparel due to sales softness in casual wear and innerwear. The increases
in jewelry, watches and accessories were also due to inventory clearance
events. The Beyond Beauty category increased for the third quarter of
2001 primarily due to greater gift sales as a result of more successful
new products and increased exposure in the brochure, partially offset by a
decline in toy sales due to the underperformance of seasonal new products.
The U.S. sales increase for the nine-month period of 2001 reflects a
5% increase in the Beauty category with double-digit percentage increases
in color cosmetics, skin care and hair care. Color cosmetics increased
due to new product introductions, including the Breast Cancer lipstick
campaign, the launch of Beyond Color and other promotional events. Skin
care increased due to the successful relaunch of Anew Retroactive as well
as new product introductions. The increase in hair care was driven by new
product launches and increased exposure in the brochures. Sales in the
Beauty Plus category also grew in the nine-month period of 2001 due to
increases in apparel and accessories and watches, partially offset by a
decline in jewelry. Beyond Beauty sales grew in the nine-month period of
2001, driven by an increase in gifts, partially offset by declines in toys
and home entertainment.
The successful launch of the new Health and Wellness line of vitamins
and fitness products also contributed to the U.S. sales growth in both
periods of 2001, particularly in the Beyond Beauty category.
Operating profit in North America increased 38% and 11%, (U.S. increased
10% and 5%) for the third quarter and nine-month period of 2001, respectively,
over the comparable periods of 2000. Excluding the benefit of the contract
settlement with Sears, operating profit in North America increased mid-single
digit percentage points for both the third quarter and nine-month period of
2001, respectively. These increases were primarily attributable to sales
increases in the U.S. and Puerto Rico, partially offset by costs associated
with the U.S. retail business which launched in September 2001. Operating
profit margin in North America improved 3.9 points for the third quarter and
1.1 points for the nine-month period of 2001 primarily due to the benefit of
the contract settlement with Sears. Excluding the benefit of the contract
22
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
settlement with Sears, operating profit margin in North America declined
slightly for both the third quarter and nine-month period of 2001 primarily due
to investments associated with the U.S. retail business, partially offset by
margin improvements in the U.S direct selling business. Operating profit
margin in the U.S. improved for both the third quarter and nine-month period of
2001 due to a lower operating expense ratio driven by Business Process Redesign
("BPR") savings, partially offset by higher investments in the internet and
health and well-being business and a lower gross margin resulting from
inventory clearance.
International
International net sales in U.S. dollars increased 5% for both the
third quarter and nine-month period of 2001 compared to the same periods
of 2000. The improvement in both periods was a result of increases in
Europe and Latin America, partially offset by a decline in the Pacific
region. Excluding the effect of foreign currency exchange, international
sales increased 14% and 13% for the third quarter and nine-month period
of 2001, respectively, with double-digit percentage increases in the
Europe and Latin America regions and a mid-single digit percentage
increase in the Pacific region in both periods.
In Europe, sales increased 14% and 12% for the third quarter and
nine-month period of 2001, respectively, driven by growth in Central and
Eastern Europe, primarily Poland and Russia, partially offset by a sales
decline in Germany. The sales improvement for both periods in Central
and Eastern Europe resulted from double-digit percentage increases in
average Representatives and units. Poland's continued strong sales
growth has been aided by the successful implementation of the Sales
Leadership Strategy (launched in 2000). This strategy has resulted in
increased market penetration and, along with continued focus on
Representative retention, contributed to a dramatic increase in staff
count levels. In Russia, the sales increases resulted from an
improvement in the economy, coupled with an increase in the average order
resulting from a change in the commission structure in 2001. U.S. dollar
sales in the U.K increased for the third quarter of 2001 but were level
with 2000 for the nine-month period of 2001. However, local currency
sales in the U.K. increased 7% for both the third quarter and nine-month
period of 2001, driven by an increase in customers and units. The sales
decline in Germany was primarily the result of a weak economic climate,
which negatively impacted business in the third quarter and nine-month
period of 2001. Excluding the impact of exchange, Europe sales grew 17%
for both periods as exchange unfavorably impacted most major markets
within the region.
In Latin America, sales increased 4% and 6% in the third quarter and
nine-month period of 2001, respectively, mainly due to double-digit
percentage growth in Venezuela and Mexico partially offset by declines in
Brazil and Chile. The sales increases in Venezuela and Mexico for both
periods were primarily driven by strong increases in average
Representatives, units and customers. Venezuela had double-digit
percentage sales growth in the Beauty category resulting from competitive
pricing in fragrance and personal care. The increases in Mexico were
driven by strong performance in fragrance and skin care due to new
product introductions. In Brazil, local currency sales increased double-
digits for both the third quarter and nine-month period of 2001, driven
by an increase in units, average representatives and customers, but U.S.
dollar sales were negatively impacted by foreign exchange. Despite a
weak economic and political environment, sales in Argentina increased for
both periods primarily due to the successful launch of Avon's anti-aging
product Retroactive. Since 1991, Argentina has maintained the peso at a
one-to-one ratio with the U.S. dollar. During the second quarter of
2001, the Argentine ratio came under increased pressure due to three
23
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
consecutive years of recession and repeated government financing issues.
While the peso did not devalue during this time, the problems in
Argentina had a negative impact on other currencies in the region,
including the Brazilian real and the Chilean peso. As a result, Avon
Brazil's and Avon Chile's U.S. dollar results were adversely impacted.
The negative effect of exchange rates was reduced by foreign exchange
contracts previously in place and several actions taken by local
management to offset these weaker currencies. Excluding the impact of
exchange, sales in Latin America increased 15% and 14% for the third
quarter and nine-month period of 2001, respectively.
In 2001, U.S. dollar sales for most major markets in the Pacific region
were negatively impacted by foreign exchange, most significantly Japan, Taiwan
and the Philippines. U.S. dollar sales in the Pacific region declined 2% and
5% for the third quarter and nine-month period of 2001, respectively, but
increased 8% and 7%, respectively, in local currency. Despite U.S. dollar
declines in the region, sales in China grew 52% and 41% for the third quarter
and nine-month period of 2001, respectively, which was driven by sales
initiatives, the opening of Beauty Boutiques and the success of consumer
initiatives. Despite the weakness of the local economy, Japan's local currency
sales increased 2% for the nine-month period of 2001 but remained flat for the
third quarter. The Philippines posted strong increases in average
Representatives, customers and units, which resulted in double-digit percentage
local currency sales growth for both periods of 2001 versus 2000. U.S. dollar
and local currency sales in Taiwan declined for both the third quarter and
nine-month period of 2001 due to that country's economic slowdown, which has
negatively impacted employment rates and consumer spending this year.
International operating profit increased 8% and 9% in the third
quarter and nine-month period of 2001, respectively, compared to the same
periods of 2000.
Operating profit in Europe increased 31% and 25% for the third quarter
and nine-month period of 2001, respectively, primarily due to the sales
increases discussed above, as well as operating profit margin improvements in
Russia, the United Kingdom and the Ukraine, partially offset by margin
declines in most Western European markets (primarily Germany), Poland and
South Africa. Operating profit improvements in Russia for both the third
quarter and nine-month period of 2001 were due to significant sales growth,
which led to an improvement in the expense ratio, and an improvement in gross
margin due to a reduction in custom duties on certain products. The operating
margin improvement in the United Kingdom for both the third quarter and nine-
month period resulted from an improvement in the expense ratio due to tighter
expense management and favorable comparisons against product supply
difficulties in 2000. The operating margin improvement in the Ukraine for the
third quarter and nine-month period was due to an improvement in the expense
ratio resulting from sales growth of over 60% for both periods, and an
improvement in gross margin, which benefited from a reduction in import
duties. The operating profit margin decline in Poland was driven by a
decrease in gross margin mainly due to a sourcing benefit in 2000 that did not
repeat in 2001. The operating profit margin decline in South Africa was due
to fixed expenses on lower sales volume. Operating margins in most Western
European markets (primarily Germany) continue to be negatively impacted by a
weak economic environment. Overall, the operating margin in Europe for the
third quarter and nine-month period of 2001 increased 1.7 and 1.6 points,
respectively, as compared to the prior year.
In Latin America, operating profit for the third quarter and nine-
month period of 2001 increased 6% and 8%, respectively, as compared to
the same periods of 2000. The operating profit improvement for both
periods resulted from the sales increases discussed above, as well as
operating profit margin improvements in Mexico and Venezuela, partially
24
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
offset by operating profit margin declines in Argentina and Chile. The
operating margin improvement in Mexico for both periods was due to
successful vendor negotiations to lower product costs, a decrease in
damaged merchandise returns as a result of moving to a new distribution
center and a reduction in local housing taxes. Venezuela's third quarter
and nine-month period operating margin improvement reflects a favorable
expense ratio resulting from lower Representative program costs and lower
distribution costs as a result of late 1999 flooding that impacted 2000
results. In Argentina, operating margin declined for both periods due to
an increase in advertising and incentive programs. Brazil's operating
margin was flat for the nine-month period while declining in the quarter
due to a decline in gross margin resulting from a change in product mix
driven by customer's migration to lower priced items. Overall, the third
quarter and nine-month operating margin in Latin America was favorable
0.4 point versus the comparable periods of 2000.
Operating profit in the Pacific region declined 1% and 4% for the
third quarter and nine-month period of 2001, respectively, resulting from
the negative impact of foreign currency translation. Excluding the
impact of foreign exchange, operating profit increased 12% and 10% for
the third quarter and nine-month period of 2001, respectively, with
increases in most major markets. China's operating margin improved
significantly for both the third quarter and nine-month period of 2001
due to a favorable expense ratio resulting from higher sales. Japan's
operating margin improved for the third quarter and nine-month period
largely due to BPR efforts, which continue to generate significant
savings across all expense areas. Operating margin in Taiwan declined in
both the third quarter and nine-month period of 2001 due to fixed
expenses on a lower sales base, as well as an increase in consumer
initiatives. Overall, operating margin in the Pacific region for the
third quarter and nine-month period of 2001 was up 0.2 point and 0.1
point, respectively, versus the comparable periods of 2000.
Global Expenses
Global expenses increased 57% and 21% for the third quarter and nine-
month period of 2001, respectively, versus the same periods of 2000 primarily
due to the Asset impairment charge of $23.9 in 2001 previously discussed.
Excluding this charge, Global expenses increased 11% and 7% for the third
quarter and nine-month period of 2001, respectively, primarily due to
insurance proceeds received in 2000 related to flood losses in Latin America.
Cash Flows
Excluding changes in debt, there was a net increase in cash of $10.2 for
the first nine months of 2001 compared with a decrease of $313.6 for the
comparable period of 2000. The $323.8 variance resulted from higher net cash
provided by operations which reflects higher net income (including the cash
settlement from Sears), the receipt of an income tax refund in 2001, as well
as higher working capital needs in 2000, which included the payout of the
long-term incentive plan, the timing of cash payments and a larger increase in
inventories. These sources of cash were partially offset by higher
repurchases of Avon common stock in 2001.
Avon purchased approximately 3,200,000 shares of Avon common stock for
$130.7 during the first nine months of 2001, as compared to approximately
1,200,000 shares of Avon common stock for $47.1 during the first nine months
of 2000.
Capital Resources
Total debt increased $117.1 to $1,330.7 at September 30, 2001 from $1,213.6
25
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
at December 31, 2000, principally due to the issuance of Japanese yen
denominated notes payable in September 2001, which are designated as a hedge of
Avon's net investment in its Japanese subsidiary, and an adjustment of $53.3 to
reflect the fair value of outstanding interest rate swaps as of September 30,
2001. Total debt of $1,330.7 at September 30, 2001 was $33.1 higher than total
debt of $1,297.6 at September 30, 2000, primarily due to the Japanese yen
denominated notes payable, discussed above, and the adjustment of $53.3 in 2001
to reflect the fair value of outstanding interest rate swaps.
In September 2001, Avon issued 9,000.0 Japanese yen of notes payable (the
"Yen Notes"). The Yen Notes are unsecured and unsubordinated obligations of
Avon. The Yen Notes bear interest at a per annum rate of 1.06% and mature on
September 20, 2006. Interest on the Yen Notes is payable semi-annually. The
agency agreement under which the Yen Notes were issued limits the incurrence
of liens. The net proceeds from the issuance of the Yen Notes were used for
general corporate purposes, including the repayment of short-term debt. The
Yen Notes are designated as a hedge of Avon's net investment in its Japanese
subsidiary.
In February 2001, Avon entered into a loan agreement to borrow 5,500.0
Japanese yen. The loan bore interest at a per annum rate equal to 0.875% and
matured on April 9, 2001. Interest on the loan was paid at maturity. In
April 2001, Avon amended this loan agreement to increase the amount borrowed
to 8,000.0 Japanese yen and to extend the maturity to May 15, 2001. The loan
bore interest at a per annum rate equal to 0.485%. Interest on the loan was
paid at maturity. In May 2001, Avon further amended this loan agreement to
extend the maturity to July 12, 2001. The loan bore interest at a per annum
rate equal to 0.455%. Interest on the loan was paid at maturity. In July
2001, Avon further amended this loan agreement to extend the maturity to
August 9, 2001. The loan bore interest at a per annum rate equal to 0.435%.
Interest on the loan was paid at maturity. In August 2001, Avon further
amended this loan agreement to extend the maturity first to August 31, 2001
and then to September 14, 2001. During these periods, the loan bore interest
at per annum rates equal to 0.435% and 0.425%, respectively. Interest on the
loan was paid at maturity. In September 2001, Avon further amended this loan
agreement to extend the maturity to September 20, 2001 on which date it,
together with the interest thereon, was repaid with the proceeds from the Yen
Notes. The loan bore interest at a per annum rate equal to 0.425%. The loan
is designated as a hedge of Avon's net investment in its Japanese subsidiary.
See Note 11 of the Notes to Consolidated Financial Statements.
In May 2001, Avon entered into an agreement with various banks to replace
Avon's existing revolving credit and competitive advance facility agreement,
which was due to expire in August 2001, with a new five-year $600.0 revolving
credit and competitive advance facility agreement, which expires in 2006. The
new agreement and the prior agreement are referred to, collectively, as the
"credit facility".
The credit facility may be used for general corporate purposes, including
financing working capital and capital expenditures, providing support for the
issuance of commercial paper and supporting the stock repurchase program. The
interest rate on borrowings under the credit facility is based on LIBOR,
prime, or federal fund rates. The credit facility has an annual facility fee
of $0.5. The credit facility contains a covenant for interest coverage, as
defined. Avon is in compliance with this covenant at September 30, 2001. At
September 30, 2001, there were no borrowings under the credit facility.
At September 30, 2001, there were $9.0 of borrowings outstanding under
uncommitted lines of credit.
Management currently believes that cash from operations and available
financing alternatives are adequate to meet anticipated requirements for
working capital, dividends, capital expenditures, the stock repurchase program
and other cash needs.
26
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
Working Capital
As of September 30, 2001 and December 31, 2000, current assets exceeded
current liabilities by $360.3 and $186.4, respectively. The increase of
current assets over current liabilities of $173.9 was primarily due to higher
inventories and a decrease in accounts payable, reflecting the seasonal
pattern of Avon's operations and the repayment of commercial paper borrowings.
The increase was partially offset by the receipt of an income tax refund in
2001.
Financial Instruments and Risk Management Strategies
Avon operates globally, with manufacturing and distribution facilities in
various locations around the world. Avon may reduce its exposure to
fluctuations in interest rates and foreign exchange rates by creating
offsetting positions through the use of derivative financial instruments.
Avon currently does not enter into derivative financial instruments for
trading purposes, nor is Avon a party to leveraged derivatives.
Derivatives are recognized on the balance sheet at their fair values. The
accounting for changes in fair value (gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of
a hedging relationship and further, on the type of hedging relationship.
Changes in the fair value of a derivative that is designated as a fair value
hedge, along with the loss or gain on the hedged asset or liability that is
attributable to the hedged risk, are recorded in current earnings. Changes in
the fair value of a derivative that is designated as a cash flow hedge are
recorded in other comprehensive income ("OCI") to the extent effective and
reclassified into earnings in the same period or periods during which the
hedged transaction affects earnings. Changes in the fair value of a
derivative that is designated as a hedge of a net investment in a foreign
operation are recorded in foreign currency translation adjustments within OCI
to the extent effective as a hedge. Changes in the fair value of a derivative
not designated as a hedging instrument are recognized in current earnings.
Avon assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items.
The ineffective portion of the derivative's gain or loss, if any, is recorded
in current earnings. Prior to June 1, 2001, Avon excluded the change in the
time value of options in its assessment of hedge effectiveness. Effective
June 1, 2001, Avon includes the change in the time value of option contracts
in its assessment of hedge effectiveness. When Avon determines that a
derivative is not highly effective as a hedge, hedge accounting is
discontinued prospectively. When hedge accounting is discontinued because it
is probable that a forecasted transaction will not occur, Avon discontinues
hedge accounting for the affected portion of the forecasted transaction and
reclassifies gains and losses that were accumulated in OCI to earnings.
Interest Rates
Avon uses interest rate swaps to hedge interest rate risk on its debt. In
addition, Avon may periodically employ interest rate caps and forward interest
rate agreements to reduce exposure, if any, to increases in variable interest
rates.
Avon has entered into interest rate swap contracts that effectively
convert a portion of its fixed-rate debt to a variable-rate based on LIBOR.
Avon has designated the interest rate swaps as fair value hedges. At September
30, 2001, $550.0 of Avon's outstanding long-term debt is designated as the
27
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
hedged items to the interest rate swap contracts. Accordingly, long-term debt
increased by $53.3 during the nine months ended September 30, 2001 with a
corresponding increase to Other assets to reflect the fair values of
outstanding interest rate swaps. There were no amounts of hedge
ineffectiveness for the three and nine months ended September 30, 2001 related
to these interest rate swaps.
In September 2001, Avon terminated an interest rate swap contract with a
notional amount of $100.0, effective November 15, 2001. At inception, the
swap was designated as a hedge of a portion of Avon's five-year, $200.0 bonds
and accordingly both the interest rate swap and underlying debt were adjusted
to reflect their fair values at September 30, 2001. Effective with the
termination of the swap, the fair value adjustment to the underlying debt will
be amortized over the remaining term of that debt.
In September 2001, Avon entered into two forward interest rate
agreements, each with a notional amount of $150.0, to protect against
increases in interest rates on a portion of Avon's fixed to variable interest
rate swap contracts. The agreements provide six-month LIBOR interest rate
locks at 2.48% and 2.915% for the periods November 15, 2001 to May 15, 2002
and May 15, 2002 to November 15, 2002, respectively. The forward interest
rate agreements have not been designated as hedges and have been recorded in
the Consolidated Financial Statements at fair value.
Foreign Currency
Avon uses foreign currency forward contracts and options to hedge
portions of its forecasted foreign currency cash flows resulting from
forecasted royalties, intercompany loans, and other anticipated foreign
currency transactions where there is a high probability that anticipated
exposures will materialize, including third-party and intercompany foreign
currency transactions. These contracts have been designated as cash flow
hedges.
For the three and nine months ended September 30, 2001, the net gain
related to the ineffective portion of Avon's cash flow hedging instruments and
the net loss related to the portion of the hedging instrument excluded from
the assessment of hedge effectiveness (time value of options prior to June 1,
2001) were not material. For the three and nine months ended September 30,
2001, the net gain reclassified from OCI to earnings for cash flow hedges that
have been discontinued, because the forecasted transactions are not probable
of occurring, was not material.
As of September 30, 2001, Avon expects to reclassify $1.7 of net losses
on derivative instruments designated as cash flow hedges from accumulated
other comprehensive loss to earnings during the next 12 months due to (a)
foreign currency royalties (b) intercompany loan settlements and (c) actual
foreign currency denominated purchases or receipts. The maximum remaining
term over which Avon is hedging exposures to the variability of cash flows for
all forecasted transactions is 15 months.
Avon also enters into foreign currency forward contracts and options to
protect against the adverse effects that exchange rate fluctuations may have
on the earnings of its foreign subsidiaries. These derivatives do not qualify
for hedge accounting and the gains and losses on these derivatives have been
recognized in current earnings.
Hedges of Net Investments in Foreign Operations
Avon uses foreign currency forward contracts and foreign currency
denominated debt to hedge the foreign currency exposure related to the net
assets of certain of its foreign subsidiaries.
28
AVON PRODUCTS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(In millions, except share data)
During 2001, Avon entered into loan agreements and notes payable to
borrow Japanese yen to hedge Avon's net investment in its Japanese subsidiary
(See Note 12 of the Notes to Consolidated Financial Statements). For the nine
months ended September 30, 2001, a $0.1 loss related to the revaluation of
foreign currency denominated debt was included in foreign currency translation
adjustments within accumulated other comprehensive loss on the Consolidated
Balance Sheets.
Other Financing Activities
In connection with Avon's share repurchase program, Avon has entered into
forward contracts to purchase approximately 271,000 shares of Avon common
stock at an average price of $45.83 per share at September 30, 2001. The
contracts mature in October 2002 and provide for physical or net share
settlement to Avon. Accordingly, no adjustment for subsequent changes in fair
value has been recognized.
Credit and Market Risk
Avon attempts to minimize its credit exposure to counterparties by
entering into interest rate swap and cap contracts only with major
international financial institutions with "A" or higher credit ratings as
issued by Standard & Poor's Corporation. Avon's foreign currency and
interest rate derivatives are comprised of over-the-counter forward contracts
or options with major international financial institutions. Although Avon's
theoretical credit risk is the replacement cost at the then estimated fair
value of these instruments, management believes that the risk of incurring
losses is remote and that such losses, if any, would not be material.
Euro
A single currency called the euro was introduced in Europe on January 1,
1999. Twelve of the fifteen member countries of the European Union adopted
the euro as their common legal currency on that date. Fixed conversion rates
between these participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The legacy
currencies are scheduled to remain legal tender as denominations of the euro
until June 30, 2002 after which they will be withdrawn from circulation.
During this transition period, parties may settle transactions using either
the euro or a participating country's legacy currency. Beginning in January
2002, new euro-denominated bills and coins will be issued.
Avon operating subsidiaries affected by the euro conversion have
established plans to address issues raised by the euro currency
conversion. These issues include, among others, the need to adapt
information technology systems, business processes and equipment to
accommodate euro-denominated transactions, the impact of one common
currency on pricing and recalculating currency risk. Avon does not
expect system and equipment conversion costs to be material. Due to the
numerous uncertainties associated with the market impact of the euro
conversion, Avon cannot reasonably estimate the effects one common
currency will have on pricing and the resulting impact, if any, on
results of operations, financial condition or cash flows.
Other Information
On September 6, 2001 Avon's board of directors elected its Chief
Executive Officer, Andrea Jung, to the additional post of chairman of the
board of directors effective immediately. She succeeds Stanley C. Gault who
has served as non-executive chairman since November 1999. Mr. Gault will
continue as a director of Avon.
29
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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 are
based on management's reasonable current assumptions and expectations. Such
forward-looking statements involve risks, uncertainties and other factors which
may cause the actual results, levels of activity, performance or achievement of
Avon to be materially different from any future results, levels of activity,
performance or achievement expressed or implied by such forward-looking
statements, and there can be no assurance that actual results will not differ
materially from management's expectations. Such factors include, among others,
the following: general economic and business conditions in the Company's
markets, including the potential impact on consumer confidence of the September
11 attacks; Avon's ability to implement its business strategy; Avon's ability
to successfully identify new business opportunities; Avon's access to
financing; the impact of substantial currency fluctuations in Avon's principal
foreign markets; Avon's ability to attract and retain key executives; Avon's
ability to achieve anticipated cost savings and profitability targets; changes
in the industry; competition; the effect of regulatory, tax and legal
proceedings and restrictions imposed by domestic and foreign governments; and
other factors discussed in Item 1 of Avon's 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 Avon. Neither Avon nor any other person assumes
responsibility for the accuracy and completeness of such forward-looking
statements, nor undertakes an obligation to update them.
30
AVON PRODUCTS, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
------- ------------------------
4.1 Agency Agreement dated September 20, 2001 between Avon
and HSBC Bank plc, as initial principal paying agent,
relating to the JPY 9,000,000,000 1.06 percent
Notes due 2006.
(b) Reports on Form 8-K.
On September 5, 2001, Avon filed a Form 8-K to announce that it issued a
press release updating its previous earnings guidance for its third
quarter and full-year 2001.
31
SIGNATURES
Pursuant to the requirements 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.
AVON PRODUCTS, INC.
-------------------
(Registrant)
Date: November 2, 2001 By /s/ Janice Marolda
-------------------------------
Janice Marolda
Vice President,
Controller
Principal Accounting Officer
Signed both on behalf of the
registrant and as principal
accounting officer.
32
EX-4
3
exhibit493001.txt
AVON PRODUCTS, INC. EXHIBIT 4 TO FORM 10-Q
20 September 2001
AVON PRODUCTS, INC.
And
HSBC BANK PLC
AGENCY AGREEMENT
relating to
JPY 9,000,000,000
1.06 per cent.
Notes due 2006
LINKLATERS
& ALLIANCE
LINKLATERS
Ref: CEMC/TSYJ/RAZP
This Agreement is made on 20 September 2001 between:
(1) AVON PRODUCTS, INC. (the "Issuer"), and
(2) HSBC BANK PLC as initial principal paying agent.
(A) The Issuer proposes to issue JPY 9,000,000,000 principal amount of Notes
to be known as its 1.06 per cent. Notes due 2006.
(B) The definitive Notes for which the Global Note referred to below may be
exchanged (subject to its provisions) will be in bearer form in the
denomination of JPY 1,000,000 each with interest Coupons attached.
1 Interpretation
Terms defined in the Notes have the same meanings in this Agreement
(except where otherwise defined in this Agreement) and:
"Agents" means the Principal Paying Agent and the Paying Agents or any of
them
"Clearing Systems" means Euroclear Bank S.A./N.V., as operator of the
Euroclear System ("Euroclear"), and Clearstream Banking, societe anonyme
("Clearstream, Luxembourg") (or any successor operator)
"Conditions" means the terms and conditions set out in Schedule 1 as
modified, with respect to any Notes represented by the Global Note, by the
provisions of the Global Note and any reference to a particularly numbered
Condition shall be construed accordingly
"Coupons" means the coupons relating to the Notes in definitive form
"Global Note" means the permanent global Note which will represent the
Notes, after exchange of the Temporary Global Note, substantially in the
form set out in Schedule 3
"Notes" means the JPY9,000,000,000 1.06 per cent. Notes due 2006 of the
Issuer and (except in Clause 3) includes the Global Note
"outstanding" means, in relation to the Notes, all the Notes issued except
(a) those which have been redeemed in accordance with the Conditions, (b)
those in respect of which the date for redemption in accordance with the
Conditions has occurred and the redemption moneys (including all interest
accrued on such Notes to the date for such redemption and any interest
payable under the Conditions after such date) have been duly paid to the
Principal Paying Agent as provided in this Agreement and remain available
for payment against presentation and surrender of Notes and/or Coupons, as
the case may be, (c) those in respect of which claims have become void,
(d) those which have been purchased and cancelled as provided in the
Conditions, (e) those mutilated or defaced Notes which have been
surrendered in exchange for replacement Notes, (f) (for the purpose only
of determining how many Notes are outstanding and without prejudice to
their status for any other purpose) those Notes alleged to have been lost,
stolen or destroyed and in respect of which replacement Notes have been
issued, and (g) the Global Note to the extent that it shall have been
exchanged for definitive Notes pursuant to its provisions; provided that
for the purposes of (1) ascertaining the right to attend and vote at any
meeting of the Noteholders and (2) the determination of how many Notes are
outstanding for the purposes of Schedule 3 those Notes which are
beneficially held by, or are held on behalf of, the Issuer or any of its
Subsidiaries and not cancelled shall (unless and until ceasing to be so
held) be deemed not to remain outstanding
--------------------------------------------------------------------------------
A01019439/1.0/18 Sep 2001
-1-
"Paying Agents" means the paying agents in respect of the Notes appointed
from time to time under this Agreement or an agreement supplemental to it
and includes the Principal Paying Agent
"Principal Paying Agent" means the principal paying agent for the time
being in respect of the Notes appointed from time to time under this
Agreement or an agreement supplemental to it, in its capacity as principal
paying agent
"Subsidiary" means a corporation more than 50 per cent. of the outstanding
voting stock of which is owned, directly or indirectly, by the Issuer or
by one or more Subsidiaries, or by the Issuer and one or more
Subsidiaries. For the purposes of this definition "voting stock" means
stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
"Temporary Global Note" means the temporary global note which will
represent the Notes on issue substantially in the form set out in Schedule
2.
2 Appointment
The Issuer appoints the Agents as its agents in respect of the Notes in
accordance with the Conditions at their respective specified offices
referred to in the Notes. Except in Clause 13, references to the Agents
are to them acting solely through such specified offices. Each Agent shall
perform the duties required of it by the Conditions. The obligations of
the Agents are several and not joint.
3 Form of the Notes
3.1 The Temporary Global Note and the Global Note: The Notes will initially be
represented by the Temporary Global Note in the principal amount of JPY
9,000,000,000. Interests in the Temporary Global Note will be exchangeable
for interests in the Global Note as set out in the Temporary Global Note.
The Global Note will be exchangeable for definitive Notes as set out in
the Global Note. Immediately before issue, the Issuer shall deliver to the
Principal Paying Agent and the Principal Paying Agent (or its agent on its
behalf) shall authenticate the duly executed Temporary Global Note and the
Global Note. The Principal Paying Agent shall then return the Temporary
Global Note and the Global Note to or to the order of the Issuer for
delivery to a depositary common to Euroclear and Clearstream, Luxembourg.
3.2 The Definitive Notes: The definitive Notes and the Coupons will be
security printed in accordance with applicable legal requirements
substantially in the forms set out in Schedule 1. The Notes will be
endorsed with the Conditions.
3.3 Signature: The Temporary Global Note, the Global Note, the definitive
Notes and the Coupons will be signed manually or in facsimile by an
authorised officer of the Issuer. The Global Note will be executed as a
deed. The Issuer may use the facsimile signature of any person who at the
date of this Agreement is authorised to sign on behalf of the Issuer even
if at the time of issue of any Notes and/or Coupons he no longer holds
that office. Notes and/or Coupons will (provided in the case of the Notes,
that they have been duly authenticated) be binding and valid obligations
of the Issuer.
3.4 Exchange of Temporary Global Note for Global Note: On and after the Global
Note Exchange Date (as defined in the Temporary Global Note), the
Principal Paying Agent shall, on presentation to it or to its order of the
Temporary Global Note and the Global Note, procure the exchange of
interests in the Temporary Global Note for interests of an equal principal
amount
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in the Global Note in accordance with Temporary Global Note. On
exchange in full of the Temporary Global Note the Principal Paying Agent
shall cancel it.
3.5 Exchange of Global Note for Definitive Notes:
3.5.1 Notification of request for definitive Notes: The Principal Paying
Agent, on receiving notice in accordance with the terms of the Global
Note that its holder requires to exchange the Global Note, or an
interest in it, for definitive Notes, shall forthwith notify the
Issuer of such request.
3.5.2 Authentication and exchange: At least 14 days before any Definitive
Note Exchange Date (as defined in the Global Note), the Issuer will
deliver or procure the delivery of definitive Notes in an aggregate
principal amount equal to the outstanding principal amount of the
Global Note or such lesser interest in the Global Note which is to be
exchanged to or to the order of the Principal Paying Agent. Such
definitive Notes shall have attached all Coupons in respect of
interest which has not already been paid against presentation of the
Global Note. The Principal Paying Agent (or its agent on its behalf)
shall authenticate such definitive Notes and shall make them and the
Coupons available for exchange against the Global Note in accordance
with the Global Note. Definitive Notes and Coupons may not be
delivered in the United States. If the Global Note is not to be
exchanged in full, the Principal Paying Agent shall endorse, or
procure the endorsement of, a memorandum of the principal amount of
the Global Note exchanged in the appropriate schedule to the Global
Note and shall return the Global Note to the holder. On exchange in
full of the Global Note the Principal Paying Agent shall cancel it
and, if so requested by the holder, return it to the holder.
4 Payment
4.1 Payment to Principal Paying Agent: The Issuer will not later than the day
on which any payment in respect of the Notes becomes due, transfer to the
Principal Paying Agent such amount as may be required for the purposes of
such payment. The Issuer will confirm to the Principal Paying Agent by
3.00 p.m. (local time in the city of the Principal Paying Agent's
specified office) on the Business Day in the city of the Principal Paying
Agent's specified office immediately preceding the due date for any such
payment that irrevocable instructions have been issued by it for such
payment to be made to the Principal Paying Agent. In this Clause the date
on which a payment in respect of the Notes becomes due means the first
date on which the holder of a Note or Coupon could claim the relevant
payment by transfer to an account under the Conditions, but disregarding
the necessity for it to be a Business Day in any particular place of
presentation. For the purposes of this sub-Clause 4.1, "Business Day"
means a day on which commercial banks are open for business and foreign
exchange markets settle payment.
4.2 Notification of non-payment: The Principal Paying Agent will forthwith
notify by fax each of the other Paying Agents and the Issuer if it has not
by the time specified for its receipt received the confirmation referred
to in sub-Clause 4.1.
4.3 Payment by Paying Agents:
Unless they receive a notification from the Principal Paying Agent under
sub-Clause 4.2, the Paying Agents will, subject to and in accordance with
the Conditions and the requirements of applicable law, pay or cause to be
paid on behalf of the Issuer on and after each due date therefore the
amounts due in respect of the Notes and Coupons and will be entitled to
claim any amounts so paid from the Principal Paying Agent. If any payment
provided for in sub-
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Clause 4.1 is made late but otherwise in accordance with this Agreement,
the Paying Agents will nevertheless make such payments in respect of the
Notes and Coupons. However, unless and until the full amount of any such
payment has been made to the Principal Paying Agent, none of the Paying
Agents will be bound to make such payments.
The Principal Paying Agent agrees that all payments in respect of the
Notes shall be made by the Principal Paying Agent at its specified office
in London or at such other offices of any of the Paying Agents located
outside the United States as the Issuer and the Principal Paying Agent may
agree to from time to time. The Paying Agents agree that payments will not
be made pursuant to presentation of a Note or Coupon to a Paying Agent
within the United States or the making of any other demand for payment to
a Paying Agent within the United States and that payments will not be made
by mail to an address in the United States or by wire transfer to or for
an account maintained in the United States.
4.4 Reimbursement of Paying Agents: The Principal Paying Agent will on demand
promptly reimburse each Paying Agent for payments in respect of the Notes
and Coupons properly made by it in accordance with the Conditions and this
Agreement.
4.5 Late Payment: If the Principal Paying Agent has not by the due date for
any payment in respect of the Notes received the full amount payable on
such date but receives it later, it will forthwith give notice to the
other Paying Agents and the Noteholders that it has received such full
amount.
4.6 Method of payment to Principal Paying Agent: All sums payable to the
Principal Paying Agent hereunder will be paid in Japanese Yen and in
immediately available or same day funds to such account with such bank in
Tokyo as the Principal Paying Agent may from time to time notify to the
Issuer.
4.7 Moneys held by Principal Paying Agent: The Principal Paying Agent may deal
with moneys paid to it under this Agreement in the same manner as other
moneys paid to it as a banker by its customers except that (1) it may not
exercise any lien, right of set-off or similar claim in respect of them
and (2) it shall not be liable to anyone for interest on any sums held by
it under this Agreement.
4.8 Partial Payments: If on presentation of a Note or Coupon only part of the
amount payable in respect of it is paid (except as a result of a deduction
of tax permitted by the Conditions), the Paying Agent to whom the Note or
Coupon is presented shall procure that such Note or Coupon is enfaced with
a memorandum of the amount paid and the date of payment.
5 Repayment
If claims in respect of any principal or interest become void under the
Conditions, the Principal Paying Agent shall forthwith repay to the Issuer
the amount which would have been due if presentations for payment had been
made before such claims became void. The Principal Paying Agent shall not
however be otherwise required or entitled to repay to the Issuer any sums
received by it under this Agreement. 6 Early Redemption
6.1 Notice of Redemption: If the Issuer intends to redeem all of the Notes
before their stated maturity date, it shall, at least 14 days before the
latest date for the publication of the notice of redemption required to be
given to Noteholders, give notice of its intention to the Principal Paying
Agent stating the date on which such Notes are to be redeemed. The
Principal Paying
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Agent shall promptly notify the Paying Agents of the receipt by it of any
such notification from the Issuer.
6.2 Redemption Notice: The Principal Paying Agent shall publish the notice
required in connection with such redemption. Such notice shall specify the
date fixed for redemption, the redemption price and the manner in which
redemption will be effected. Such notice will be published in accordance
with Condition 11.
7 Cancellation, Destruction and Records
7.1 Cancellation by Paying Agents: All Notes which are redeemed (together with
such unmatured Coupons as are attached to or are surrendered with them at
the time of such redemption), and all Coupons which are paid, shall be
cancelled forthwith by the Paying Agent by or through which they are
redeemed or paid. Such Paying Agent shall send to the Principal Paying
Agent the details required by the Principal Paying Agent for the purposes
of this Clause and the cancelled Notes and Coupons.
7.2 Cancellation by Issuer: If the Issuer or any of its Subsidiaries purchases
any Notes or Coupons which in accordance with the Conditions it elects to
cancel following such purchase, the Issuer shall cancel or procure the
cancellation of such Notes and Coupons and shall forthwith send any such
cancelled definitive Notes and Coupons to the Principal Paying Agent.
7.3 Certification of Payment Details: The Principal Paying Agent shall as soon
as possible and in any event within four months after the date of any such
redemption or payment send to the Issuer a certificate stating (1) the
aggregate principal amount of Notes which have been redeemed or purchased
and cancelled and the aggregate amount paid in respect of Coupons which
have been paid and cancelled, (2) the certificate numbers of such Notes,
(3) the total numbers by maturity date of such Coupons and (4) the total
number and the maturity dates of unmatured Coupons not surrendered with
Notes redeemed.
7.4 Destruction: Unless otherwise instructed by the Issuer, or unless, in the
case of the Global Note, it is to be returned to its holder in accordance
with its terms, the Principal Paying Agent shall destroy the cancelled
Notes and Coupons in its possession and send the Issuer a destruction
certificate giving the certificate numbers of such Notes in numerical
sequence, the total numbers by maturity date and the aggregate amount paid
in respect of such Coupons and particulars of the Coupons attached to or
surrendered with such Notes.
7.5 Records: The Principal Paying Agent shall keep a full and complete record
of the purchase, redemption, replacement, cancellation and destruction of
all Notes and Coupons (but need not record the certificate numbers of
Coupons). It shall make such record available at all reasonable times to
the Issuer.
8 Replacement Notes and Coupons
8.1 Stocks of Notes and Coupons: The Issuer shall, if Notes are issued in
definitive form, cause a sufficient quantity of additional forms of Notes
and Coupons to be made available, upon request, to the Principal Paying
Agent (in such capacity the "Replacement Agent") for the purpose of
issuing replacement Notes and Coupons.
8.2 Replacement: The Replacement Agent shall issue replacement Notes and
Coupons in accordance with the Conditions.
8.3 Coupons on replacement Notes: In the case of a mutilated or defaced
Note, the Replacement Agent shall ensure that (unless such indemnity
as the Issuer may require is
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given) any replacement Note only has attached to it Coupons corresponding
to those attached to the Note which it replaces.
8.4 Cancellation: The Replacement Agent shall cancel and, unless otherwise
instructed by the Issuer, destroy any mutilated or defaced Notes or
Coupons replaced by it and shall send the Issuer a certificate giving the
information specified in Clause 7.4.
8.5 Notification: The Replacement Agent shall, on issuing a replacement Note
or Coupon, forthwith inform the other Paying Agents and the Issuer the
certificate numbers of the replacement Note or Coupon and of the Note or
Coupon which it replaces.
8.6 Presentation of replaced Note or Coupon: If a Note or Coupon which has
been replaced is presented to a Paying Agent for payment, that Paying
Agent shall forthwith inform the Principal Paying Agent, which shall
inform the Issuer.
9 Notices
9.1 Publication: At the request and expense of the Issuer, the Principal
Paying Agent shall arrange for the publication of all notices to
Noteholders. Notices to Noteholders shall be published in accordance with
the Conditions.
9.2 Notice of Default: The Principal Paying Agent shall promptly notify the
Issuer and the Noteholders of any notice received by it under Condition 8.
10 Documents and Forms
The Issuer shall send to the Paying Agents:
10.1 specimen Notes (but only if definitive Notes are issued)
10.2 sufficient copies of all documents required by the Notes (and the Paying
Agents shall make them so available to Noteholders) and
10.3 as required, forms of voting certificates and block voting instructions,
together with instructions as to how to complete, deal with and record the
issue of such forms (and the Paying Agents shall make such documents
available to Noteholders and perform their other functions as set out in
Schedule 3).
11 Indemnity
11.1 By Issuer: The Issuer will indemnify each Agent against any loss,
liability, cost, claim, action, demand or expense (including, but not
limited to, all reasonable costs, charges and expenses paid or incurred in
disputing or defending any of the foregoing) which it may incur or which
may be made against it arising out of or in relation to or in connection
with its appointment or the exercise of its functions hereunder, except
such as may result from a breach by it of this Agreement or its wilful
default, negligence or bad faith or that of its officers or employees.
If any action, claim or demand shall be brought or asserted against any of
the Agents in respect of which indemnity may be sought from the Issuer as
herein provided, such Agent shall promptly notify the Issuer in writing,
and the Issuer shall have the option to assume the defence thereof,
including the employment of lawyers (who shall be lawyers to whom such
Agent shall have no reasonable objection) and the payment of all expenses.
Such Agent shall have the right to employ separate lawyers in any such
action and participate in the defence thereof, but the fees and expenses
of such lawyers shall be at the expense of such Agent unless the Issuer
has failed to assume such defence and has failed to employ lawyers for
such
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purposes as promptly as practicable after such Agent's request in writing
to do so. The Issuer shall not be liable to indemnify any of the Agents
for the settlement of such action effected without the Issuer's prior
written consent.
11.2 By Agents: Each Agent shall indemnify the Issuer against any loss,
liability, cost, claim, action, demand or expense (including, but not
limited to, all reasonable costs, charges and expenses paid or incurred in
disputing or defending any of the foregoing) which the Issuer may incur or
which may be made against it arising out of or in relation to or in
connection with the breach by that Agent of this Agreement or its wilful
default, negligence or bad faith or that of its officers or employees.
12 General
12.1 No agency or trust: In acting under this Agreement (except as provided in
Clause 4.7) the Agents shall have no obligation towards or relationship of
agency or trust with any Noteholder or Couponholder and need only perform
the duties set out specifically in this Agreement and the Conditions and
any duties necessarily incidental to them.
12.2 Holder to be treated as owner: Except as otherwise required by law, each
Agent will treat the holder of a Note or Coupon as its absolute owner as
provided in the Conditions and will not be liable for doing so.
12.3 No lien: No Agent shall exercise any lien, right of set-off or similar
claim against any Noteholder or Couponholder in respect of moneys payable
by it under this Agreement.
12.4 Taking of advice: Each Agent may consult on any legal matter any
independent legal adviser selected by it and it shall not be liable in
respect of anything done, or omitted to be done, relating to that matter
in good faith in accordance with that adviser's opinion.
12.5 Reliance on documents etc.: No Agent shall be liable in respect of
anything done or suffered by it in reliance on a Note, Coupon or other
document reasonably believed by it to be genuine and to have been signed
by the proper parties.
12.6 Other relationships: Any Agent and any other person, whether or not acting
for itself, may acquire, hold or dispose of any Note, Coupon or other
security (or any interest therein) of the Issuer or any other person, may
enter into or be interested in any contract or transaction with any such
person, and may act on, or as depositary, trustee or agent for, any
committee or body of holders of securities of any such person, in each
case with the same rights as it would have had if that Agent were not an
Agent and need not account for any profit.
13 Changes in Agents
13.1 Appointment and Termination of Appointment: The Issuer may at any time
appoint additional Paying Agents and/or terminate the appointment of any
Agent by giving to the Principal Paying Agent and that Agent at least 60
days' notice to that effect, which notice shall expire at least 30 days
before or after any due date for payment of any Notes or Coupons.
13.2 Resignation: Any Agent may resign its appointment at any time by giving
the Issuer, and the Principal Paying Agent at least 60 days' notice to
that effect, which notice shall expire at least 30 days before or after
any due date for payment of any Notes or Coupons.
13.3 Condition to Resignation and Termination: No resignation or (subject to
sub-Clause 13.5) termination of the appointment of the Principal Paying
Agent shall, however, take effect until a new Principal Paying Agent
(which shall be a bank or trust company) has been appointed and
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no resignation or termination of the appointment of a Paying Agent shall
take effect if there would not then be Paying Agents as required by the
Condition; provided however, that if within 30 days of the resignation or
termination of Principal Paying Agent or a Paying Agent the Issuer has not
appointed a successor Principal Paying Agent or, if required, Paying
Agent, such Principal Paying Agent or Paying Agent, as the case may be,
may itself appoint a successor, such successor shall be a reputable and
experienced bank or financial institution.
13.4 Change of Office: If an Agent changes the address of its specified office
in a city it shall give the Issuer, and the Principal Paying Agent at
least 60 days' notice of the change, giving the new address and the date
on which the change is to take effect.
13.5 Automatic Termination: The appointment of the Principal Paying Agent shall
forthwith terminate if the Principal Paying Agent becomes incapable of
acting, is adjudged bankrupt or insolvent, files a voluntary petition in
bankruptcy, makes an assignment for the benefit of its creditors, consents
to the appointment of a receiver, administrator or other similar official
of all or a substantial part of its property or admits in writing its
inability to pay or meet its debts as they mature or suspends payment
thereof, or if a resolution is passed or an order made for the winding-up
or dissolution of the Agent, a receiver, administrator or other similar
official of the Agent or all or a substantial part of its property is
appointed, a court order is entered approving a petition filed by or
against it under applicable bankruptcy or insolvency law, or a public
officer takes charge or control of the Agent or its property or affairs
for the purpose of rehabilitation, conservation or liquidation. In such
event a successor Principal Paying Agent qualified as aforesaid shall be
forthwith appointed by the Issuer.
13.6 Delivery of records: If the Principal Paying Agent resigns or its
appointment is terminated, it shall on the date on which the resignation
or termination takes effect pay to the new Principal Paying Agent any
amount held by it for payment in respect of the Notes or Coupons and
deliver to the new Principal Paying Agent all records kept by it and all
Notes and Coupons held by it pursuant to this Agreement.
13.7 Successor Corporations: A corporation into which an Agent is merged or
converted or with which it is consolidated or which results from a merger,
conversion or consolidation to which it is a party shall, to the extent
permitted by applicable law, be the successor Agent under this Agreement
without further formality. The Agent concerned shall forthwith notify such
an event to the other parties to this Agreement.
13.8 Notices: The Principal Paying Agent shall give to Noteholders in
accordance with the Conditions not less than 30 days' notice of any such
proposed appointment, termination, resignation or change of which it is
aware. The Issuer shall give Noteholders, as soon as practicable, notice
of any termination under sub-Clause 13.5 of which it is aware.
14 Commissions, Fees and Expenses
14.1 Fees: The Issuer will pay to the Principal Paying Agent the sum as set out
in an exchange of letters of even date herewith between the Issuer and the
Principal Paying Agent in payment of the commissions, fees and expenses in
respect of the Agents' services and the Issuer need not concern itself
with their apportionment between the Agents.
14.2 The Principal Paying Agent hereby acknowledges that receipt of such sum
shall be in full satisfaction of all such commissions, fees and expenses
(apart from any reasonable out-of-pocket expenses of the Agents incurred
after the date hereof).
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14.3 Costs: The Issuer will also pay on demand all reasonable out-of-pocket
expenses (including legal, notice publication, telex and postage expenses)
properly incurred by the Agents in connection with their services together
with any applicable value added tax and stamp, issue, documentary or other
taxes and duties.
15 Communications
15.1 Notices: Any communication shall be by letter or fax:
in the case of the Issuer, to it at:
Avon Products, Inc.
1345 Avenue of the Americas
New York, NY 10105 U.S.A.
Fax no.: 212 282 6116
Attention: Treasurer
and, in the case of any of the Agents, to it care of:
HSBC Bank plc
Mariner House
Pepys Street
London
EC3N 4DA
Fax no: 44 20 7260 8932
Tel No 44 20 7260 6702
Attention: The Manager, Issuer Services Operations, BPA
or any other address of which written notice has been given to the parties
in accordance with this Clause. Such communications will take effect, in
the case of a letter, when delivered or, in the case of a fax, when
despatched. Communications not by letter shall be confirmed by letter but
failure to send or receive the letter of confirmation shall not invalidate
the original communication.
15.2 Notices through Principal Paying Agent: All communications relating to
this Agreement between the Issuer and any of the Agents or between the
Agents themselves shall be made (except where otherwise expressly
provided) through the Principal Paying Agent.
16 Amendment
This Agreement may be amended by agreement between the Issuer and the
Principal Paying Agent without the consent of the Noteholders or
Couponholders if the amendment is of a formal, minor or technical nature
or is made to correct a manifest error and any such amendment shall be
made in any manner which the Issuer and the Principal Paying Agent may
reasonably consider to be necessary or desirable, and which shall not
adversely affect the interests of the Noteholders.
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17 Contracts (Rights of Third Parties) Act 1999
Any person who is not a party to this Agreement has no right under the
Contracts (Rights of Third Parties) Act 1999 to enforce any term of this
Agreement.
18 Governing Law and Submission
18.1 Governing Law: This Agreement shall be governed by and construed in
accordance with English law.
18.2 Jurisdiction: The courts of England are to have jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement and
accordingly any legal action or proceedings arising out of or in
connection with this Agreement ("Proceedings") may be brought in such
courts. Each of the Issuer and the Agents not incorporated in England and
Wales irrevocably submits to the jurisdiction of such courts and waives
any objection to Proceedings in such courts whether on the ground of venue
or on the ground that the Proceedings have been brought in an inconvenient
forum. These submissions are for the benefit of the other parties hereto
and shall not limit the right of any party hereto to take Proceedings in
any other court of competent jurisdiction nor shall the taking of
Proceedings in any one or more jurisdictions preclude the taking of
Proceedings in any other jurisdiction (whether concurrently or not).
18.3 Service of Process: The Issuer irrevocably appoints Avon Cosmetics Ltd.,
Nunn Mills Road, Northampton, NN1 5PA, United Kingdom, attn: President,
for the limited purpose of acting as its authorised agent in England for
service of process in any Proceedings in England solely in connection with
the Notes. If for any reason such agent shall cease to be such agent for
the service of process, the Issuer shall promptly appoint a substitute
agent for service of process in England and deliver to the Principal
Paying Agent a copy of the new agent's acceptance of that appointment
within 30 days. Nothing herein shall affect the right to serve process in
any other manner permitted by law.
In witness whereof this Agreement has been entered into on the date stated at
the beginning.
AVON PRODUCTS, INC.
By: /s/ Richard J. Valone
HSBC BANK PLC
By: /s/ Paul Olive
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SCHEDULE 1
Form of Definitive Note
On the front:
Denomination ISIN Certif. No.
1000000 XS0135753126
JPY 1,000,000
AVON PRODUCTS, INC.
(Incorporated with limited liability in the State of New York)
JPY 9,000,000,000
1.06 per cent. Notes due 2006
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
This Note forms part of a series designated as specified in the title (the
"Notes") of Avon Products, Inc. (the "Issuer"). The Notes are subject to the
terms and conditions (the "Conditions") endorsed hereon.
The Issuer for value received hereby promises to pay to the bearer of this Note
on 20 September 2006, or on such earlier date as the principal sum mentioned
below may become payable in accordance with the Conditions, the principal sum
of:
JPY1,000,000
(One Million Japanese yen)
together with interest on such principal sum from 20 September 2001 at the rate
of 1.06 per cent. per annum payable semi-annually in arrear on 20 March and 20
September in each year, subject to and in accordance with the Conditions.
This Note shall not be valid or become obligatory for any purpose until
authenticated by or on behalf of the Principal Paying Agent.
In witness whereof the Issuer has caused this Note to be signed in facsimile on
its behalf.
Dated 20 September 2001
AVON PRODUCTS, INC.
By:
Duly authorised officer
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This Note is authenticated by or
on behalf of the Principal Paying Agent.
By:
Authorised Signatory
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On the back:
Terms and Conditions of the Notes
The following are the terms and conditions substantially in the form in which
they will be endorsed on the Notes in definitive form (if issued):
The issue of the JPY9,000,000,000 1.06 per cent. Notes due 2006 (the "Notes")
was authorised by a resolution of the Board of Directors of Avon Products, Inc.
(the "Issuer") on 6 December 2000. An agency agreement dated 20 September 2001
(the "Agency Agreement") has been entered into in relation to the Notes between
the Issuer and HSBC Bank plc as initial principal paying agent. The principal
paying agent and the paying agent(s) for the time being (if any) are referred
to below respectively as the "Principal Paying Agent" and the "Paying Agents"
(which expression shall include the Principal Paying Agent). The Agency
Agreement includes the form of the Notes and the coupons relating to them (the
"Coupons"). The holders of the Notes (the "Noteholders") and the holders of the
Coupons (whether or not attached to the Notes) (the "Couponholders") are
entitled to the benefit of, are bound by, and are deemed to have notice of, all
the provisions of the Agency Agreement applicable to them. Copies of the Agency
Agreement are available for inspection by the Noteholders and the Couponholders
during normal business hours at the specified offices of the Paying Agents.
1 Form, Denomination and Title
(a) Form and denomination
The Notes are serially numbered and in bearer form in the denomination of
JPY1,000,000 each with Coupons attached on issue.
(b) Title
Title to the Notes and Coupons passes by delivery. The holder of any Note
or Coupon will (except as otherwise required by law) be treated as its
absolute owner for all purposes (whether or not it is overdue and
regardless of any notice of ownership, trust or any interest in it, any
writing on it, or its theft or loss) and no person will be liable for so
treating the holder.
2 Status
The Notes and Coupons constitute (subject to Condition 3) unsecured
obligations of the Issuer and shall at all times rank pari passu, without
any preference among themselves, with all other present and future
unconditional, unsecured and unsubordinated obligations of the Issuer,
save for such exceptions as may be provided by applicable legislation.
3 Negative Pledge
The Issuer shall not, and shall not permit any Subsidiary to issue,
assume, incur or guarantee any Indebtedness secured by a Lien, except
Permitted Liens, on any Principal Property or any shares of Capital Stock
of any Subsidiary ("Secured Debt"), without at the same time effectively
providing that the Notes shall be secured equally and rateably with (or
prior to) the Indebtedness so secured for so long as such Indebtedness is
so secured, unless after giving effect thereto, the aggregate amount of
Secured Debt, together with all Attributable Debt of the Issuer and its
Subsidiaries in respect of Restricted Sale/Leaseback Transactions would
not exceed 20% of Consolidated Net Tangible Assets.
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"Attributable Debt" in respect to any Sale/Leaseback Transaction, means,
as of any time of determination, the present value (discounted at the rate
per annum equal to the rate of interest implicit in the lease involved in
such Sale/Leaseback Transaction, as determined in good faith by the
Issuer) of the obligation of the lessee thereunder for rental payments
(excluding, however, any amounts required to be paid by such lessee,
whether or not designated as rent or additional rent, on account of
maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges or any amounts required to be paid by such lessee
thereunder contingent upon the amount of sales or similar contingent
awards) during the remaining term of such lease (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended). In the case of any lease which is terminable by the lessee upon
the payment of a penalty, such rental payments shall also include the
amount of such penalty, but no rental payments shall be considered as
required to be paid under such lease subsequent to the first date upon
which it may be so terminated.
"Board of Directors" means, with respect to any person, either the board
of directors of such person or any duly authorised committee of that
board.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock,
including, without limitation, with respect to partnerships, partnership
interests (whether general or limited) and any other interest or
participation that confers on a person the right to receive a share of the
profits and losses of, or distributions of assets of, such partnership.
"Consolidated Net Tangible Assets" means (a) the total amount of assets
(less applicable reserves and other properly deductible items) which under
U.S. GAAP would be included on the most recent audited annual consolidated
balance sheet of the Issuer and its consolidated Subsidiaries after
deducting therefrom, without duplication, the sum of (i) all current
liabilities and (ii) all goodwill, trade names, trademarks, patents,
unamortised debt discount and expense and other like intangibles, which in
each case under U.S. GAAP would be included on such consolidated balance
sheet.
"Indebtedness" means, with respect to any person, any indebtedness of such
person, whether or not contingent, in respect of (i) borrowed money
evidenced by bonds, notes, debentures, loan agreements or similar
instruments, (ii) indebtedness secured by a mortgage, pledge, lien,
charge, encumbrance of any security interest existing on property owned by
such person, (iii) the reimbursement obligations, contingent or otherwise,
in connection with any letters of credit actually issued or amounts
representing the balance that constitutes an accrued expense or trade
payable or (iv) any lease of property by such person as lessee which is
reflected in such person's consolidated balance sheet as a capitalised
lease in accordance with U.S. GAAP, in the case of items of Indebtedness
under (i) through (iii) above to the extent that any such items (other
than letters of credit) would appear as a liability on such person's
consolidated balance sheet in accordance with U.S. GAAP, and also
includes, to the extent not otherwise included, any obligation by such
person to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of
business), Indebtedness of another person.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement
to sell or give a security interest in and any filing of or agreement to
give any financing statement under the
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Uniform Commercial Code of any State of the United States or equivalent
statutes of any other jurisdiction).
"Permitted Liens" means any of the following: (a) Liens on any Principal
Property acquired by the Issuer or a Subsidiary after the Closing Date to
secure or provide for the payment or financing of all or any part of the
purchase price thereof or construction of fixed improvements thereon
(prior to, at the time of or within 180 days after the latest of the
acquisition, completion of construction or commencement of commercial
operation thereof); (b) Liens on any shares of stock or Principal Property
acquired by the Issuer or a Subsidiary after the Closing Date existing at
the time of such acquisition; (c) Liens on any shares of stock or
Principal Property of a corporation which is merged into or consolidated
with the Issuer or a Subsidiary or substantially all of the assets of
which are acquired by the Issuer or a Subsidiary; (d) Liens securing
Indebtedness of a Subsidiary owing to the Issuer or another Subsidiary;
(e) Liens existing on the Closing Date; (f) Liens on any Principal
Property being constructed or improved securing loans to finance such
construction or improvements; (g) Liens in favour of governmental bodies
of the United States or any State thereof or any other country or
political subdivision thereof to secure partial, progress or advance
payments pursuant to any contract or statute, or to secure any
Indebtedness incurred or guaranteed for the purpose of financing all or
any part of the cost of acquiring, constructing or improving the property
subject to such Liens; (h) Liens securing taxes, assessments or
governmental charges or levies not yet delinquent, or already delinquent
but the validity of which is being contested in good faith; (i) Liens
arising by reason of deposits necessary to qualify the Issuer or any
Subsidiary to conduct business, maintain self-insurance, or obtain the
benefit of, or comply with, any law; and (j) extensions, renewals or
replacement of Liens referred to in the foregoing clauses provided that
the Indebtedness secured is not increased nor the Lien extended to any
additional assets.
"Principal Property" means any manufacturing plant, testing or research
and development facility, distribution facility, processing plant or
warehouse (including, without limitation, land, fixtures and equipment),
owned or leased by the Issuer or any Subsidiary (including any of the
foregoing acquired or leased after the Closing Date) and located within
the United States of America, its territories and possessions, unless the
Board of Directors of the Issuer determines in good faith that such plant
or facility is not of material importance to the total business conducted
by the Issuer and its consolidated Subsidiaries.
"Restricted Sale/Leaseback Transaction" means any Sale/Leaseback
Transaction entered into by the Issuer or any Subsidiary after the Closing
Date, except: (i) Sale/Leaseback Transactions entered into by and between
the Issuer or a Subsidiary and one or more Subsidiaries of the Issuer;
(ii) Sale/Leaseback Transactions as to which, during the period commencing
60 days prior to and ending 120 days after entering into such
Sale/Leaseback Transaction, the Issuer or a Subsidiary applies an amount
equal to the Attributable Debt with respect to such Sale/Leaseback
Transaction to the acquisition, directly or indirectly and in whole or in
part, of one or more Principal Properties or to the retirement of
long-term Indebtedness (other than mandatory prepayment or retirement) of
the Issuer or any Subsidiary; and (iii) Sale/Leaseback Transactions
involving the taking back of a lease for a period of three years or less.
"Sale/Leaseback Transaction" means any arrangement, directly or
indirectly, with any person whereby the Issuer or any Subsidiary shall
sell or transfer any Principal Property whether now owned or hereafter
acquired, and then or thereafter rent or lease as lessee such
Principal
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A01019439/1.0/18 Sep 2001
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Property or any part thereof which the Issuer or such Subsidiary, as the
case may be, intends to use for substantially the same purpose as the
Principal Property being sold or transferred.
" Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Issuer or by one
or more Subsidiaries, or by the Issuer and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
In the event of any claim or assertion by any Noteholder or Couponholder
of non-compliance by the Issuer with Condition 3, a certificate signed by
an authorised officer of the Issuer setting forth its calculation of its
compliance with Condition 3 shall, in the absence of manifest error, be
conclusive and binding on the Noteholders.
4 Interest
The Notes bear interest from 20 September 2001 and such interest will be
payable semi-annually in arrear on 20 March and 20 September in each year.
Each Note will cease to bear interest from the due date for redemption
unless, upon due presentation, payment of principal is improperly withheld
or refused. In such event, it shall continue to bear interest in
accordance with this Condition (both before and after judgement) until
whichever is the earlier of (i) the day on which all sums due in respect
of such Note up to that day are received by or on behalf of the relevant
Noteholder, and (ii) the day seven days after the Principal Paying Agent
has notified Noteholders of receipt of all sums due in respect of all the
Notes up to that seventh day (except to the extent that there is failure
in the subsequent payment to the relevant holders under these Conditions).
If interest is required to be calculated for a period of less than one
year, it will be calculated on the basis of the actual number of days in
the calculation period in respect of which the interest payment is being
made divided by 365 (or, where any portion of the calculation period falls
in a leap year, the sum of (i) the actual number of days in that portion
of the calculation period falling in a leap year divided by 366 and (ii)
the actual number of days in that portion of the calculation period
falling in a non-leap year divided by 365).
5 Redemption and Purchase
(a) Final redemption
Unless previously redeemed, or purchased and cancelled, the Notes will be
redeemed at their principal amount on 20 September 2006.
(b) Redemption for taxation reasons
The Notes may be redeemed at the option of the Issuer in whole, but not in
part, at any time, on giving not less than 30 nor more than 60 days'
notice to the Noteholders (which notice shall be irrevocable), at their
principal amount (together with interest accrued to the date fixed for
redemption), if (i) the Issuer has or will become obliged to pay
additional amounts as provided or referred to in Condition 7 as a result
of any change in, or amendment to, the laws or regulations of the United
States or any political subdivision or any authority thereof or therein
having power to tax, or any change in the application or official
interpretation of such laws or regulations, which change or amendment
becomes effective on or after 20 September 2001, and (ii) such obligation
cannot be avoided by the Issuer taking reasonable measures available
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A01019439/1.0/18 Sep 2001
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to it, provided that no such notice of redemption shall be given earlier
than 90 days prior to the earliest date on which the Issuer would be
obliged to pay such additional amounts were a payment in respect of the
Notes then due. Prior to the publication of any notice of redemption
pursuant to this paragraph, the Issuer shall deliver to the Principal
Paying Agent a certificate signed by a duly authorised officer of the
Issuer stating that the Issuer is entitled to effect such redemption and
setting forth a statement of facts showing that the conditions precedent
to the right of the Issuer so to redeem have occurred, and an opinion of
independent legal advisers of recognised standing to the effect that the
Issuer has or will become obliged to pay such additional amounts as a
result of such change or amendment.
(c) Purchase
The Issuer and any of its Subsidiaries may at any time purchase Notes in
the open market or otherwise at any price (provided that they are
purchased with all unmatured Coupons relating to them). Such Notes may be
held, resold or surrendered for cancellation.
(d) Cancellation
All Notes so redeemed or purchased and surrendered for cancellation and
any unmatured Coupons attached to or surrendered with them will be
cancelled and may not be re-issued or resold.
6 Payments
(a) Method of Payment
Payments of principal and interest will be made against presentation and
surrender of the Notes, or, as the case may be, Coupons, at the specified
office outside Japan of any of the Paying Agents. Payments on the Notes
and Coupons will be made only outside the United States and its
possessions except as permitted by U.S. Treasury regulations. Such
payments will be made by Japanese Yen cheque drawn on, or by transfer to a
Japanese Yen account maintained by the payee with, a bank in Tokyo,
subject in all cases to any fiscal or other laws and regulations; but
without prejudice to the provisions of Condition 7. Payments of interest
due in respect of any Note other than on presentation and surrender of
matured Coupons shall be made only against presentation and either
surrender or endorsement (as appropriate) of the relevant Note.
(b) Surrender of unmatured Coupons
Each Note should be presented for redemption together with all unmatured
Coupons relating to it, failing which the amount of any such missing
unmatured Coupon (or, in the case of payment not being made in full, that
proportion of the amount of such missing unmatured Coupon which the sum of
principal so paid bears to the total principal amount due) will be
deducted from the sum due for payment. Each amount so deducted will be
paid in the manner mentioned above against surrender of the relevant
missing Coupon not later than 10 years after the Relevant Date (as defined
in Condition 6) for the relevant payment of principal, but not thereafter.
(c) Payments on business days
A Note or Coupon may only be presented for payment on a day which is a
business day in the place of presentation, New York and Tokyo. No further
interest or other payment will be made as a consequence of the day on
which the relevant Note or Coupon may be presented for
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A01019439/1.0/18 Sep 2001
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payment under this paragraph falling after the due date. In this Condition
"business day" means a day on which commercial banks and foreign exchange
markets are open.
7 Taxation
All payments of principal and interest by or on behalf of the Issuer in
respect of the Notes and the Coupons shall be made free and clear of, and
without withholding or deduction for, any taxes, duties, assessments or
governmental charges of whatever nature imposed, levied, collected,
withheld or assessed by or within the United States or any authority
therein or thereof having power to tax, unless such withholding or
deduction is required by law. In that event the Issuer shall pay such
additional amounts as will result in receipt by the Noteholders and the
Couponholders of such amounts as would have been received by them had no
such withholding or deduction been required, except that no such
additional amounts shall be required for or on account of:
(i) any tax, assessment or other governmental charge which would not have
been so imposed but for (i) the existence of any present or former
connection between such holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over,
such holder if such holder is an estate, a trust, a partnership or a
corporation) and the United States, including, without limitation,
such holder (or such fiduciary, settlor, beneficiary, member or
shareholder or possessor) being or having been present therein, being
or having been a citizen or resident thereof, being or having been
engaged in a trade or business therein or having or having had a
permanent establishment therein; (ii) the failure of such holder to
comply with any certification, identification or information
reporting requirements (other than any requirement due to a change in
the law or regulations of the United States, the effect of which
requirement is the disclosure to the Issuer, any Paying Agent or any
United States governmental authority of the nationality, residence or
identity of a beneficial owner of a Note or Coupon who is a United
States Alien) under the income tax laws and regulations of the United
States, without regard to any tax treaty, or taxing authority thereof
or therein to establish entitlement to an exemption from withholding
as a United States Alien; or (iii) the presentation of a Note or
Coupon for payment on a date more than 30 days after the Relevant
Date except to the extent that the holder thereof would have been
entitled to an additional amount on presenting the same for payment
on such thirtieth day
(ii) any estate, inheritance, gift, sales, transfer, personal property or
any similar tax, assessment or governmental charge
(iii) any tax, assessment or other governmental charge which is payable
other than by deduction or withholding from payments of principal of
or interest on such Note or Coupon or by direct payment of the Issuer
in respect of claims made against the Issuer
(iv) any tax, assessment or other governmental charge imposed by reason of
such holder's past or present status as a personal holding company,
private foundation or other tax exempt organisation, passive foreign
investment company, foreign personal holding company or controlled
foreign corporation for United States purposes or as a corporation
that accumulates earnings to avoid U.S. federal income tax
(v) any tax, assessment or other governmental charge imposed by reason of
such holder's owning or having owned, directly or indirectly,
actually or constructively, 10 per cent. or more of the total
combined voting power of all classes of stock of the Issuer entitled
to
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A01019439/1.0/18 Sep 2001
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vote (as defined in section 871(h)(3) of the U.S. Internal Revenue
Code of 1986, as amended)
(vi) any payment to an individual which is required to be made pursuant to
any European Union Directive on the taxation of savings implementing
the conclusions of the ECOFIN Council meeting of 26-27 November 2000
or any law implementing or complying with, or introduced in order to
conform to, such Directive
(vii) any withholding or deduction which results from a Note or Coupon
presented for payment by or on behalf of a Noteholder or Couponholder
who would have been able to avoid such withholding or deduction by
presenting the relevant Note or Coupon to another Paying Agent in a
Member State of the European Union or
(viii) any combination of items (i), (ii), (iii), (iv), (v), (vi) or
(vii),
nor shall such additional amounts be paid with respect to a payment of
principal of or interest on any Note or Coupon (i) to a holder that is not the
beneficial owner of such Note or Coupon to the extent that the beneficial owner
thereof would not have been entitled to the payment of such additional amounts
had such beneficial owner been the holder of such Note or Coupon or (ii) to any
holder who is not a United States Alien.
In these Conditions:
"Relevant Date" means the date on which the payment in question first becomes
due, provided that if the full amount payable has not been received by the
Principal Paying Agent on or prior to such due date, it means the date on which
(the full amount having been so received) notice to that effect has been given
to the Noteholders in accordance with Condition 11;
"United States" means the United States of America (including the States and
the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction; and
"United States Alien" means any person who is, for U.S. federal income tax
purposes, as to the United States: (i) a foreign corporation; (ii) a foreign
partnership; (iii) a non-resident alien individual; or (iv) a foreign estate or
trust.
Any reference in these Conditions to principal or interest shall be deemed to
include any additional amounts in respect of principal or interest (as the case
may be) which may be payable under this Condition 7.
If the Issuer becomes subject at any time to any taxing jurisdiction other than
or in addition to the United States, references in these Conditions to the
United States shall be construed as references to the United States and/or such
other jurisdiction as the case may be.
8 Events of Default
If any of the following events occurs and is continuing:
(a) default in the payment of any amount payable in respect of any of the
Notes when due and, in the case of failure to pay interest,
continuance of such default for a period of 30 days or
(b) default in the performance of any covenant or an agreement of the
Issuer in the Notes and the continuance of such default for a period
of 60 days after there has been given, by registered or certified
mail, to the Issuer and Principal Paying Agent by the holders of at
least 25% in principal amount of the outstanding Notes a written
notice specifying
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A01019439/1.0/18 Sep 2001
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such default and requiring it to be remedied and stating that such
notice is a "Notice of Default" pursuant to this Condition 8(b) or
(c) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Issuer of a voluntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganisation or other similar law or (ii) a decree or
order adjudging the Issuer a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganisation, arrangement,
adjustment or composition of or in respect of the Issuer under any
applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official
of the Issuer or of any substantial part of its property, or ordering
the winding-up or liquidation of its affairs, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days or
(d) the commencement by the Issuer of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganisation or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent
by it to the entry of a decree or order for relief in respect of the
Issuer in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganisation or other
similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by it of a petition or
answer or consent seeking reorganisation or relief under any
applicable Federal or State law, or the consent by it to the filing
of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Issuer or of any substantial part of
its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by the Issuer in furtherance of any such action, or
(e) a default under any bond, debenture, note or other evidence of
Indebtedness for money borrowed by the Issuer, whether such
Indebtedness now exists or shall hereafter be created, which default
shall constitute a failure to pay the principal of Indebtedness
having an aggregate principal amount outstanding of at least U.S.$50
million when due and payable after the expiration of any applicable
grace period with respect thereto or shall have resulted in such
Indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable, without
such Indebtedness having been discharged, or such acceleration having
been rescinded or annulled, within a period of 30 days after there
shall have been given, by registered or certified mail, to the Issuer
and the Principal Paying Agent by the holders of at least 25% in
principal amount of the Notes then outstanding a written notice
specifying such default and requiring the Issuer to cause such
Indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of
Default" pursuant to this Condition 8(e);
then any Note may, by notice in writing given to the Issuer and to the
Principal Paying Agent at its specified office by the holders of at least
25% in principal amount of the Notes then outstanding, be declared
immediately due and payable at its principal amount together with accrued
interest without further formality unless such event of default shall have
been remedied prior to the receipt of such notice by the Principal Paying
Agent.
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For the purposes of paragraph (e) of this Condition, any indebtedness
which is in a currency other than U.S. dollars shall be translated into
U.S. dollars at the spot rate for the sale of U.S. dollars against the
purchase of the relevant currency quoted by any leading bank reasonably
selected by the Issuer on the date upon which the principal amount of the
relevant Indebtedness is being calculated.
9 Prescription
Claims in respect of principal and interest will become void unless
presentation for payment is made as required by Condition 6 within a
period of 10 years in the case of principal and five years in the case of
interest from the appropriate Relevant Date.
10 Replacement of Notes and Coupons
If any Note or Coupon is lost, stolen, mutilated, defaced or destroyed it
may be replaced at the specified office of the Principal Paying Agent
subject to all applicable laws, upon payment by the claimant of the
expenses incurred in connection with such replacement and on such terms as
to evidence, security, indemnity and otherwise as the Issuer may
reasonably require. Mutilated or defaced Notes or Coupons must be
surrendered before replacements will be issued.
11 Notices
All notices regarding the Notes and/or Coupons shall be given or made by
the Principal Paying Agent in the event that all Noteholders and
Couponholders are known to the Principal Paying Agent, or if that is not
the case, shall be valid if published in a leading newspaper having
general circulation in London (which is expected to be the Financial
Times). Any such notice shall be deemed to have been given on the date of
such publication or, if published more than once or on different dates, on
the first date on which publication is made. If publication as provided
above is not practicable, notice will be given in such other manner, and
shall be deemed to have been given on such date, as the Principal Paying
Agent may approve. Couponholders will be deemed for all purposes to have
notice of the contents of any notice given to the Noteholders in
accordance with this Condition.
12 Meeting of Noteholders
The Agency Agreement contains provisions for convening meetings of
Noteholders to consider matters affecting their interests, including the
modification of any of these Conditions. Any such modification may be made
if sanctioned by an Extraordinary Resolution. The quorum for any meeting
convened to consider an Extraordinary Resolution will be persons holding
or representing at least 51 per cent. in principal amount of the Notes for
the time being outstanding, or at any adjourned meeting two or more
persons being or representing Noteholders whatever the principal amount of
the Notes held or represented, unless the business of such meeting
includes consideration of proposals, inter alia, (i) to modify the
maturity of the Notes or the dates on which interest is payable in respect
of the Notes, (ii) to reduce or cancel the principal amount of, or
interest on, the Notes, (iii) to change the currency of payment of the
Notes, or (iv) to modify the provisions concerning the quorum required at
any meeting of Noteholders or the majority required to pass an
Extraordinary Resolution, in which case the necessary quorum will be two
or more persons holding or representing not less than two-thirds, or at
any adjourned meeting not less than one third, in principal amount of the
Notes for the time being outstanding. Any Extraordinary Resolution duly
passed shall be
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binding on all Noteholders (whether or not they were present at the
meeting at which such resolution was passed) and on all Couponholders.
13 Paying Agents
The initial specified office of the initial Principal Paying Agent is set
out below. The Issuer may at any time vary or terminate the appointment of
any Paying Agent or appoint further or other Paying Agents, provided that
there will always be a Paying Agent with a specified office in a major
European financial centre, and, in circumstances where in such centre
there is an obligation to withhold or deduct tax pursuant to any European
Union Directive on the taxation of savings implementing the conclusions of
the ECOFIN Council meeting of 26-27 November 2000 or any law implementing
or complying with, or introduced in order to conform to, such Directive,
if possible a Paying Agent with a specified office in a European Member
State where there is no such obligation. Notice of any such variation,
termination or appointment will be given in accordance with Condition 11.
14 Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the
Notes under the Contracts (Rights of Third Parties) Act 1999.
15 Governing Law
(a) Governing Law:
The Agency Agreement, the Notes and the Coupons are governed by and shall
be construed in accordance with English law.
(b) Jurisdiction:
The courts of England are to have jurisdiction to settle any disputes
which may arise out of or in connection with the Notes or the Coupons and
accordingly any legal action or proceedings arising out of or in
connection with the Notes or the Coupons ("Proceedings") may be brought in
such courts. The Issuer irrevocably submits to the jurisdiction of such
courts and waives any objection to Proceedings in such courts whether on
the ground of venue or on the ground that the Proceedings have been
brought in an inconvenient forum. This submission is made for the benefit
of each of the Noteholders and Couponholders and shall not limit the right
of any of them or the Issuer to take Proceedings in any other court of
competent jurisdiction nor shall the taking of Proceedings in one or more
jurisdictions preclude the taking of Proceedings in any other jurisdiction
(whether concurrently or not).
(c) Agent for Service of Process:
The Issuer irrevocably appoints Avon Cosmetics Ltd., Nunn Mills Road,
Northampton, NN1 5PA, United Kingdom, attn: President, for the limited
purpose of acting as its agent in England to receive service of process in
any Proceedings in England solely in connection with the Notes and the
Coupons. If for any reason such agent ceases to be such agent for the
service of process, the Issuer will promptly appoint a substitute process
agent and notify the Noteholders of such appointment. Nothing herein shall
affect the right to serve process in any other manner permitted by law.
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A01019439/1.0/18 Sep 2001
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PRINCIPAL PAYING AGENT
HSBC Bank plc
Mariner House
Pepys Street
London
EC3N 4DA
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A01019439/1.0/18 Sep 2001
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Form of Coupon
On the front:
AVON PRODUCTS, INC.
JPY 9,000,000,000 1.06 per cent. Notes due 2006
Coupon for JPY [o] due on [20 March/20 September] 2002/3/4/5/6
This Coupon is payable to bearer (subject to the Conditions endorsed on the
Note to which this Coupon relates, which shall be binding upon the holder of
this Coupon whether or not it is for the time being attached to such Note) at
the specified offices of the Paying Agents set out on the reverse hereof (or
any further or other Paying Agents or specified offices duly appointed or
nominated and notified to the Noteholders).
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
AVON PRODUCTS, INC.
By:
Duly Authorised Officer
Cp No. Denomination ISIN Certif. No.
1000000 XS0135753126
On the back:
PRINCIPAL PAYING AGENT
HSBC Bank plc, Mariner House, Pepys Street, London, EC3N 4DA
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A01019439/1.0/18 Sep 2001
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SCHEDULE 2
Form Of Temporary Global Note
AVON PRODUCTS, INC.
(Incorporated with limited liability in New York)
JPY 9,000,000,000
1.06 per cent. Notes due 2006
ISIN XS0135753126
Temporary Global Note
Avon Products, Inc. (the "Issuer") for value received promises to pay to bearer
the sum of
NINE BILLION JAPANESE YEN (JPY 9,000,000,000)
on 20 September 2006 (or on such earlier date as such principal sum may become
payable in accordance with the terms and conditions (the "Conditions") of the
Notes designated above (the "Notes") set out in Schedule 1 to the agency
agreement dated 20 September 2001 (the "Agency Agreement") between the Issuer
and HSBC Bank plc as principal paying agent (the "Principal Paying Agent") upon
presentation and surrender of this Temporary Global Note and to pay interest at
the rate of 1.06 per cent per annum on such principal sum semi-annually in
arrear on each 20 March and 20 September in each year in accordance with the
Conditions.
On or after 31 October 2001 (the "Global Note Exchange Date") this Temporary
Global Note may be exchanged in whole but not in part (free of charge to the
holder) by its presentation and, on exchange in full, surrender to or to the
order of the Principal Paying Agent for interests in a permanent Global Note
(the "Global Note") in bearer form in an aggregate principal amount equal to
the principal amount of this Temporary Global Note submitted for exchange with
respect to which there shall be presented to the Principal Paying Agent a
certificate dated no earlier than the Global Note Exchange Date from Euroclear
Bank S.A./N.V., as operator of the Euroclear System ("Euroclear") or
Clearstream Banking, societe anonyme ("Clearstream, Luxembourg") substantially
to the following effect:
"Certificate
Avon Products Inc. (the "Issuer")
JPY 9,000,000,000
1.06 per cent. Notes due 2006
Common Code 013575312 ISIN XS0135753126 (the "Notes")
This is to certify that, based solely on certifications we have received in
writing, by tested telex or by electronic transmission from member
organisations appearing in our records as persons being entitled to a portion
of the principal amount set out below (our "Member Organisations")
substantially to the effect set out in the temporary global Note in respect of
the Notes, as of the date hereof, o principal amount of the Notes (1) is owned
by persons that are not citizens or residents of the United States, domestic
partnerships, domestic corporations or any estate or trust the income of which
is subject to United States federal income taxation regardless of its source
("United States persons"), (2) is owned by United States persons that (a) are
foreign branches of United States financial institutions (as defined in the
applicable U.S. Treasury Regulations ("financial institutions")) purchasing for
their own account or for resale, or (b) acquired the Notes through foreign
branches of United States financial institutions and who hold the Notes through
such United States financial institutions on the date hereof (and in either
case (a) or (b), each such United States financial institution has agreed, on
its own
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A01019439/1.0/18 Sep 2001
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behalf or through its agent, that we may advise the Issuer or the
Issuer's agent that it will comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and
the regulations thereunder), or (3) is owned by United States or foreign
financial institutions for purposes of resale during the restricted period (as
defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and to
the further effect that United States or foreign financial institutions
described in clause (3) above (whether or not also described in clause (1) or
(2)) have certified that they have not acquired the Notes for purposes of
resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
As used herein, "United States" means the United States of America (including
the States and the District of Columbia) and its "possessions" include Puerto
Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the
Northern Mariana Islands.
We further certify (1) that we are not making available herewith for exchange
(or, if relevant, exercise of any rights or collection of any interest) any
portion of the temporary global Note excepted in such certificates of Member
Organisations and (2) that as of the date hereof we have not received any
notification from any of our Member Organisations to the effect that the
statements made by such Member Organisation with respect to any portion of the
part submitted herewith for exchange (or, if relevant, exercise of any rights
or collection of any interest) are no longer true and cannot be relied upon as
of the date hereof.
We understand that this certificate is required in connection with certain tax
laws and, if applicable certain securities laws, of the United States. In
connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certification is or would be relevant,
we irrevocably authorise you to produce this certification to any interested
party in such proceedings.
Yours faithfully
[Euroclear Bank S.A./N.V., as operator of the Euroclear System] or [Clearstream
Banking, societe anonyme]
By: o Dated: o"
Any person appearing in the records of Euroclear or Clearstream, Luxembourg as
entitled to an interest in this Temporary Global Note may require the exchange
of an appropriate part of this Temporary Global Note for an equivalent interest
in the Global Note by delivering or causing to be delivered to Euroclear or
Clearstream, Luxembourg a certificate dated not more than 15 days before the
Global Note Exchange Date in substantially the following form (copies of which
will be available at the office of Euroclear in Brussels and Clearstream,
Luxembourg in Luxembourg):
"Certificate
Avon Products Inc. (the "Issuer")
JPY 9,000,000,000
1.06 per cent. Notes due 2006
Common Code 013575312 ISIN XS0135753126 (the "Notes")
To: Euroclear Bank S.A./N.V., as operator of the Euroclear System or
Clearstream Banking, societe anonyme.
This is to certify that as of the date hereof, and except as set out below, the
Notes held by you for our account (1) are owned by person(s) that are not
citizens or residents of the United States, domestic partnerships, domestic
corporations or any estate or trust the income of which is subject to United
States federal income taxation regardless of its source ("United States
person(s)"), (2) are owned by
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A01019439/1.0/18 Sep 2001
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United States person(s) that (a) are foreign branches of United States
financial institutions (as defined in the applicable U.S. Treasury Regulations
Section ("financial institutions")) purchasing for their own account or for
resale, or (b) acquired the Notes through foreign branches of United States
financial institutions and who hold the Notes through such United States
financial institutions on the date hereof (and in either case (a) or (b), each
such United States financial institution hereby agrees, on its own behalf or
through its agent, that you may advise the Issuer or the Issuer's agent that it
will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder), or
(3) are owned by United States or foreign financial institution(s) for purposes
of resale during the restricted period (as defined in U.S. Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(7)), and in addition if the owner of the Notes is a
United States or foreign financial institution described in clause (3) above
(whether or not also described in clause (1) or (2)) this is to further certify
that such financial institution has not acquired the Notes for purposes of
resale directly or indirectly to a United States person or to a person within
the United States or its possessions.
As used herein, "United States" means the United States of America (including
the States and the District of Columbia) and its "possessions" include Puerto
Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the
Northern Mariana Islands.
We undertake to advise you promptly by tested telex on or prior to that date on
which you intend to submit your certificate relating to the Notes held by you
for our account in accordance with your documented procedures if any applicable
statement herein is not correct on such date, and in the absence of any such
notification it may be assumed that this certificate applies as of such date.
This certificate excepts and does not relate to o principal amount of such
interest in the Notes in respect of which we are not able to certify and as to
which we understand exchange for an equivalent interest in the Global Note (or,
if relevant, exercise of any rights or collection of any interest) cannot be
made until we do so certify.
We understand that this certificate is required in connection with certain tax
laws and, if applicable certain securities laws, of the United States. In
connection therewith, if administrative or legal proceedings are commenced or
threatened in connection with which this certificate is or would be relevant,
we irrevocably authorise you to produce this certificate to any interested
party in such proceedings.
Dated:
By:
[Name of person giving certificate]
As, or as agent for, the beneficial owner(s) of the above Notes to which this
certificate relates."
Upon any exchange of a part of this Temporary Global Note for an equivalent
interest in the Global Note, the portion of the principal amount hereof so
exchanged shall be endorsed by or on behalf of the Principal Paying Agent in
the Schedule hereto, whereupon the principal amount hereof shall be reduced for
all purposes by the amount so exchanged and endorsed.
The Global Note will be exchangeable in accordance with its terms for
definitive Notes (the "Definitive Notes") with Coupons attached. The Global
Note and the Definitive Notes will be substantially in the forms scheduled to
the Agency Agreement.
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This Temporary Global Note is subject to the Conditions and until the whole of
this Temporary Global Note shall have been exchanged for equivalent interests
in the Global Note the holder hereof shall in all respects be entitled to the
same benefits as if he were the holder of the Global Note for interests in
which it may be exchanged (or the relevant part of it as the case may be)
except that (unless exchange of this Temporary Global Note for the relevant
interest in the Global Note shall be improperly withheld or refused by or on
behalf of the Issuer) no person shall be entitled to receive any payment on
this Temporary Global Note.
No provision of this Temporary Global Note shall alter or impair the obligation
of the Issuer to pay the principal and premium of and interest on the Notes
when due in accordance with the Conditions.
This Temporary Global Note shall not be valid or become obligatory for any
purpose until authenticated by or on behalf of the Principal Paying Agent.
This Temporary Global Note shall be governed by and construed in accordance
with English law.
In witness whereof the Issuer has caused this Temporary Global Note to be
signed on its behalf.
Dated 20 September 2001
AVON PRODUCTS INC.
By:
This Temporary Global Note is authenticated by or on behalf of the Principal
Paying Agent.
By:
Authorised Signatory
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
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Schedule of Exchanges for Interests In the Global Note
The following exchanges of an interest in this Temporary Global Note for an
interest in the Global Note have been made:
Date of Exchange Amount of decrease Principal amount of Notation made by
in principal amount this Temporary Global or on behalf of
of this Temporary Note following such the Principal
Global Note decrease Paying Agent
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A01019439/1.0/18 Sep 2001
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SCHEDULE 3
Form of Global Note
AVON PRODUCTS, INC.
(Incorporated with limited liability in the State of New York)
JPY 9,000,000,000
1.06 per cent. Notes due 2006
ISIN: XS0135753126
Global Note
Avon Products, Inc. (the "Issuer") for value received promises to pay to bearer
the principal amount referred to in the next paragraph not exceeding
NINE BILLION JAPANESE YEN (JPY 9,000,000,000)
on 20 September 2006 (or on such earlier date as such principal amount may
become payable in accordance with the terms and conditions (the "Conditions")
of the Notes designated above (the "Notes") set out in Schedule 1 to the agency
agreement dated 20 September 2001 (the "Agency Agreement") between the Issuer
and HSBC Bank plc as principal paying agent upon presentation and surrender of
this Global Note and to pay interest at the rate of 1.06 per cent. per annum on
such principal amount semi-annually in arrear on 20 March and 20 September in
each year in accordance with the Conditions. The principal paying agent and the
paying agents for the time being are referred to respectively as the "Principal
Paying Agent" and the "Paying Agents" (which expression shall include the
Principal Paying Agent).
The aggregate principal amount from time to time of this Global Note shall be
that amount not exceeding JPY 9,000,000,000 as shall be shown by the latest
entry in the fourth column of Schedule A hereto, which shall be completed by or
on behalf of the Principal Paying Agent upon the redemption or purchase and
cancellation of Notes represented hereby or the partial exchange hereof for
definitive Notes ("Definitive Notes") or exchange for direct enforcement rights
all as described below.
This Global Note is exchangeable in whole but not, except as provided in the
next paragraph, in part (free of charge to the holder) for the Definitive Notes
described below (1) at the option of the Noteholder (2) if this Global Note is
held on behalf of Euroclear or Clearstream, Luxembourg or the Alternative
Clearing System (each as defined under "Notices" below) and any such clearing
system is closed for business for a continuous period of 14 days (other than by
reason of holidays, statutory or otherwise) or announces an intention
permanently to cease business or does in fact do so, (3) if principal in
respect of any Notes is not paid when due and payable or (4) if the Issuer
would suffer a material disadvantage in respect of the Notes as a result of a
change in the laws or regulations (taxation or otherwise) of any jurisdiction
referred to in Condition 7 which would not be suffered were the Notes in
definitive form and a certificate to such effect signed by a duly authorised
officer of the Issuer is delivered to the Principal Paying Agent for display to
Noteholders (unless a default notice has been given as referred to in "Default"
below). Thereupon (in the case of (2) or (3) above) the holder may give notice
to the Principal Paying Agent, and (in the case of (4) above) the Issuer may
give notice to the Principal Paying Agent and the Noteholders, of its intention
to exchange this Global Note for Definitive Notes on or after the Definitive
Note Exchange Date (as defined below) specified in the notice.
If principal in respect of any Notes is not paid when due and payable, the
holder of this Global Note may by notice to the Principal Paying Agent (which
may but need not be the default notice referred to in "Default" below) require
the exchange of a specified principal amount of this Global Note (which
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A01019439/1.0/18 Sep 2001
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may be
equal to or (provided that if this Global Note is held by or on behalf of
Euroclear, Clearstream, Luxembourg and/or the Alternative Clearing System and
Euroclear, Clearstream, Luxembourg and/or the Alternative Clearing System, as
the case may be, agree) less than the outstanding principal amount of Notes
represented hereby) for Definitive Notes on or after the Definitive Note
Exchange Date specified in such notice.
On or after any Definitive Note Exchange Date the holder of this Global Note
may surrender this Global Note or, in the case of a partial exchange, present
it for endorsement to or to the order of the Principal Paying Agent. In
exchange for this Global Note, or on endorsement in respect of the part to be
exchanged, the Issuer shall deliver, or procure the delivery of, an equal
aggregate principal amount of duly executed and authenticated Definitive Notes
(having attached to them all Coupons in respect of interest which has not
already been paid on this Global Note), security printed in accordance with
applicable legal requirements and substantially in the form set out in Schedule
1 to the Agency Agreement. On exchange in full of this Global Note, the Issuer
will, if the holder so requests, procure that it is cancelled and returned to
the holder together with the relevant Definitive Notes.
"Definitive Note Exchange Date" means a day falling not less than 60 days, or
in the case of exchange following principal in respect of any Notes not being
paid when due and payable 30 days, after that on which the notice requiring
exchange is given and on which banks are open for business in the city in which
the specified office of the Principal Paying Agent is located and, except in
the case of exchange pursuant to (1) above, in the cities in which Euroclear
and Clearstream, Luxembourg or, if relevant, the Alternative Clearing System,
are located.
If, for any actual or alleged reason which would not have been applicable had
there been no exchange of this Global Note (or part of this Global Note) or in
any other circumstances whatsoever, the Issuer does not perform or comply with
any one or more of what are expressed to be its obligations under any
Definitive Notes, then any right or remedy relating in any way to the
obligation(s) in question may be exercised or pursued on the basis of this
Global Note, despite its stated cancellation after its exchange in full, as an
alternative, or in addition, to the Definitive Notes (or the Coupons relating
to them as appropriate). With this exception, upon exchange in full of this
Global Note for Definitive Notes, this Global Note shall become void.
Except as otherwise described herein, this Global Note is subject to the
Conditions and, until it is exchanged for Definitive Notes, its holder shall in
all respects be entitled to the same benefits as if it were the holder of the
Definitive Notes for which it may be exchanged and as if such Definitive Notes
had been issued on the date of this Global Note.
The Conditions shall be modified with respect to Notes represented by this
Global Note by the following provisions:
Payments
Principal and interest in respect of this Global Note shall be paid to its
holder against presentation and (if no further payment falls to be made on it)
surrender of it to or to the order of the Principal Paying Agent (or to or to
the order of such other Paying Agent as shall have been notified to the
Noteholders for this purpose) who shall endorse such payment or cause such
payment to be endorsed in the appropriate Schedule hereto (such endorsement
being prima facie evidence that the payment in question has been made).
References in the Conditions to Coupons and Couponholders shall be construed
accordingly. No person shall however be entitled to receive any payment on this
Global Note (or such part of this Global Note which is required to be
exchanged) falling due after any Definitive Note Exchange Date, unless exchange
of this Global Note for Definitive Notes is improperly withheld or refused by
or on behalf of the Issuer or the Issuer does not perform or comply with any
one
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A01019439/1.0/18 Sep 2001
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or more of what are expressed to be its obligations under any Definitive Notes.
Condition 7(vii) will apply to Definitive Notes only.
Notices
So long as this Global Note is held on behalf of Euroclear Bank S.A./N.V., as
operator of the Euroclear system ("Euroclear") or Clearstream Banking, societe
anonyme ("Clearstream, Luxembourg") or any other clearing system (the
"Alternative Clearing System"), notices required to be given to Noteholders may
be given by their being delivered to Euroclear, Clearstream, Luxembourg or, as
the case may be, the Alternative Clearing System, rather than by publication as
required by the Conditions.
Prescription
Claims in respect of principal and interest in respect of this Global Note will
become void unless it is presented for payment within a period of 10 years (in
the case of principal) and five years (in the case of interest) from the
appropriate Relevant Date (as defined in Condition 7).
Meetings
The holder hereof shall (unless this Global Note represents only one Note) be
treated as two persons for the purposes of any quorum requirements of a meeting
of Noteholders and, at any such meeting, as having one vote in respect of each
JPY 1,000,000 in principal amount of the Notes for which this Global Note may
be exchanged.
Cancellation and Purchase
Cancellation of any Note represented by this Global Note which is required by
the Conditions to be cancelled will be effected by reduction in the principal
amount of this Global Note on its presentation to or to the order of the
Principal Paying Agent for notation in Schedule A. Notes may only be purchased
by the Issuer or any of its subsidiaries if (where they should be cancelled in
accordance with the Conditions) they are purchased together with the right to
receive all future payments of interest thereon.
Default
Subject to the requirements of Condition 8, the holder hereof may exercise the
right to declare Notes represented by this Global Note due and payable under
Condition 8 by stating in the notice (the "default notice") to the Principal
Paying Agent the principal amount of Notes (which may be less than the
outstanding principal amount hereof) to which such notice relates.
If principal in respect of any Notes is not paid when due and payable (but
subject as provided below), the holder of this Global Note may from time to
time elect that Direct Rights under the provisions of Schedule C shall come
into effect. Such election shall be made by notice to the Principal Paying
Agent and presentation of this Global Note to or to the order of the Principal
Paying Agent for reduction of the principal amount of Notes represented by this
Global Note to JPY zero (or to such other figure as shall be specified in the
notice) by endorsement in Schedule A and the corresponding endorsement in
Schedule C of such principal amount of Notes formerly represented hereby as the
principal amount of Notes in respect of which Direct Rights have arisen under
Schedule C. Upon such notice being given the appropriate Direct Rights shall
take effect.
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No such election may however be made on or before a Definitive Note Exchange
Date fixed in accordance with this Global Note with respect to the Notes to
which that Definitive Note Exchange Date relates unless the holder elects in
such notice that the exchange in question shall no longer take place.
No provision of this Global Note shall alter or impair the obligation of the
Issuer to pay the principal and interest on the Notes when due in accordance
with the Conditions.
This Global Note is a bearer document and negotiable and accordingly:
(a) is freely transferable by delivery and such transfer shall operate to
confer upon the transferee all rights and benefits appertaining to it and
to bind the transferee with all obligations appertaining to it pursuant to
the Conditions
(b) the holder of this Global Note is and shall be absolutely entitled as
against all previous holders to receive all amounts by way of principal,
interest or otherwise payable in respect of this Global Note and the
Issuer has waived against such holder and any previous holder of this
Global Note all rights of set-off or counterclaim which would or might
otherwise be available to it in respect of the obligations evidenced by
this Global Note
(c) payment upon due presentation of this Global Note as provided herein shall
operate as a good discharge against such holder and all previous holders
of this Global Note.
This Global Note shall not be valid or become obligatory for any purpose until
authenticated by or on behalf of the Principal Paying Agent.
This Global Note shall be governed by and construed in accordance with English
law.
In witness whereof this Global Note has been executed as a deed on 20 September
2001.
AVON PRODUCTS, INC.
By:
Duly authorised officer
Certificate of Authentication
This Global Note is authenticated by or on behalf of the Principal Paying
Agent.
By:
Authorised Signatory
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
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SCHEDULE A
Principal Amount of this Global Note
Reductions in the principal amount of this Global Note following redemption or
partial exchange for Definitive Notes or exchange for Direct Rights or the
purchase and cancellation of Notes are entered in the second and third columns
below.
Date Reason for reduction Amount of such Principal amount of Notation made by or
in the principal reduction this Global Note on behalf of the
amount of this following such Principal Paying
Global Note* reduction Agent
* State whether reduction following (1) redemption of Notes or (2) purchase and
cancellation of Notes or (3) exchange of part of this Global Note for
Definitive Notes or for Direct Rights.
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SCHEDULE B
Interest Payments in Respect of this Global Note
The following payments of interest in respect of this Global Note and the Notes
represented by this Global Note have been made:
Date Made Amount of Interest Amount of interest Notation made by or on
due and payable paid behalf of the Principal
Paying Agent
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SCHEDULE C
Direct Enforcement Rights
This Global Note has effect as a deed poll conferring on Relevant Account
Holders the Direct Rights referred to in this Schedule in respect of the
principal amount of Notes stated in paragraph 3.5 of this Schedule.
1 Interpretation In this Schedule, terms are used with the same meanings as
in this Global Note, and in addition:
"Clearing System Operator" means the operator of each of Euroclear and
Clearstream, Luxembourg and, if relevant, the Alternative Clearing System
"Direct Rights" means the rights referred to in paragraph 2
"Entry" means any entry relating to this Global Note (or to the relevant
part of it) or the Notes represented by it which is or has been made in
the securities account of any account holder with a Clearing System
Operator and "Entries" shall have a corresponding meaning
"Principal Amount" means, in respect of any Entry, the amount which would
be due to the holder of the account in which such Entry is credited were
the principal amount of this Global Note or the Notes represented by it in
respect of which such Entry was made to be paid in full at its maturity
"Relevant Account Holder" means the holder of any account with a Clearing
System Operator which at the Relevant Time has credited to its securities
account with such Clearing System Operator an Entry or Entries in respect
of this Global Note (or the relevant part of it) or the Notes represented
by it except for a Clearing System Operator in its capacity as an account
holder of another Clearing System Operator and
"Relevant Time" means the time when Direct Rights take effect as
contemplated by this Global Note.
2 Direct Rights: Each Relevant Account Holder shall at the Relevant Time
acquire against the Issuer all rights which the Relevant Account Holder in
question would have had if, immediately before the Relevant Time, it had
been the holder of the Definitive Notes issued on the issue date of this
Global Note in an aggregate principal amount equal to the Principal Amount
of the relevant Entry including, without limitation, the right to receive
all payments due at any time in respect of such Definitive Notes, other
than payments corresponding to any already made under this Global Note. No
further action shall be required on the part of any person in order for
such Direct Rights to be acquired and for each Relevant Account Holder to
have the benefit of, and to enforce, rights corresponding to all the
provisions of the relevant Definitive Notes as if they had been issued and
as if such provisions had been specifically incorporated in this Schedule,
other than the right to receive payments corresponding to any already made
under this Global Note.
3 Evidence: The records of each Clearing System Operator shall, in the
absence of manifest error, be conclusive evidence of the identity of the
Relevant Account Holders, the number of Entries credited to the securities
account of each Relevant Account Holder with such Clearing System Operator
at the Relevant Time and the Principal Amount of an Entry. For the
purposes of this Clause a statement issued by a Clearing System Operator
stating:
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3.1 the name of the Relevant Account Holder to or in respect of which it is
issued
3.2 the number of Entries credited to the securities account of such Relevant
Account Holder with such Clearing System Operator as at the opening of
business on the first day on which the Clearing System Operator is open
for business following the Relevant Time and
3.3 the Principal Amount of any Entry in the accounts of such Clearing System
Operator, shall be conclusive evidence of the records of such Clearing
System Operator at the Relevant Time (but without prejudice to any other
means of producing such records in evidence). In the event of a dispute,
in the absence of manifest error, the determination of the Relevant Time
by a Clearing System Operator shall be final and conclusive for all
purposes in connection with the Relevant Account Holders with securities
accounts with such Clearing System Operator.
Any Relevant Account Holder may, in any proceedings relating to this
Global Note, protect and enforce its rights arising out of this Schedule
in respect of any Entry to which it is entitled upon the basis of a
statement by a Clearing System Operator as provided in this Clause and a
copy of this Global Note certified as being a true copy by a duly
authorised officer of any Clearing System Operator or the Principal Paying
Agent without the need for production in such proceedings or in any court
of the actual records or this Global Note. Any such certification shall be
binding, except in the case of manifest error or as may be ordered by any
court of competent jurisdiction, upon the Issuer and all Relevant Account
Holders. This Clause shall not limit any right of any Relevant Account
Holder to the production of the originals of such records or documents in
evidence.
3.4 Title to Entries: Any Relevant Account Holder may protect and enforce its
rights arising out of this Global Note in respect of any Entry to which it
is entitled in its own name without the necessity of using the name of or
obtaining any authority from any predecessor in title. Any Relevant
Account Holder is entitled to receive payment of the Principal Amount of
its Entry and of all other sums referable to its Direct Rights to the
exclusion of any other person and payment in full by the Issuer to such
Relevant Account Holder shall discharge the Issuer from all obligations in
respect of such Entry and such Direct Rights.
3.5 Principal Amount: The principal amount of Notes in respect of which Direct
Rights have arisen under this Global Note is shown by the latest entry in
the third column below:
Date Amount of increase in Initial principal amount Notation made by or on
principal amount of Notes and principal amount behalf of the Principal
in respect of which following such increase Paying Agent (other than
Direct Rights have arisen in respect of initial
principal amount)
20 September 2001 Not applicable JPY zero Not applicable
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SCHEDULE 4
Provisions for Meetings of Noteholders
Interpretation
1 In this Schedule:
1.1 references to a meeting are to a meeting of Noteholders and include,
unless the context otherwise requires, any adjournment
1.2 "agent" means a holder of a voting certificate or a proxy for a Noteholder
1.3 "block voting instruction" means an instruction issued in accordance with
paragraphs 8 to 14
1.4 "Extraordinary Resolution" means a resolution passed at a meeting duly
convened and held in accordance with this Agreement by a majority of at
least 75 per cent. of the votes cast
1.5 "voting certificate" means a certificate issued in accordance with
paragraphs 5, 6, 7 and 14 and
1.6 references to persons representing a proportion of the Notes are to
Noteholders or agents holding or representing in the aggregate at least
that proportion in principal amount of the Notes for the time being
outstanding.
Powers of meetings
2 A meeting shall, subject to the Conditions and without prejudice to any
powers conferred on other persons by this Agreement, have power by
Extraordinary Resolution:
2.1 to sanction any proposal by the Issuer for any modification, abrogation,
variation or compromise of, or arrangement in respect of, the rights of
the Noteholders and/or the Couponholders against the Issuer, whether or
not those rights arise under the Notes
2.2 to sanction the exchange or substitution for the Notes of, or the
conversion of the Notes into, shares, notes or other obligations or
securities of the Issuer or any other entity
2.3 to assent to any modification of this Agreement, the Notes or the Coupons
proposed by the Issuer or the Principal Paying Agent
2.4 to authorise anyone to concur in and do anything necessary to carry out
and give effect to an Extraordinary Resolution
2.5 to give any authority, direction or sanction required to be given by
Extraordinary Resolution
2.6 to appoint any persons (whether Noteholders or not) as a committee or
committees to represent the Noteholders' interests and to confer on them
any powers or discretions which the Noteholders could themselves exercise
by Extraordinary Resolution and
2.7 to approve the substitution of any entity for the Issuer (or any previous
substitute) as principal debtor under this Agreement
provided that the special quorum provisions in paragraph 19 shall apply to
any Extraordinary Resolution (a "special quorum resolution") for the
purpose of sub-paragraph 2.2 or 2.7 or for the purpose of making a
modification to this Agreement, the Notes or the Coupons which would have
the effect of:
(ix) modifying the maturity of the Notes or the dates on which interest is
payable on them or
(x) reducing or cancelling the principal amount of, or interest on, the
Notes or
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(xi) changing the currency of payment of the Notes or
(xii) modifying the provisions in this Schedule concerning the quorum
required at a meeting or the majority required to pass an
Extraordinary Resolution or
(xiii) amending this proviso.
Convening a meeting
3 The Issuer may at any time convene a meeting. If it receives a written
request by Noteholders holding at least 10 per cent. in principal amount
of the Notes for the time being outstanding and is indemnified to its
satisfaction against all costs and expenses, the Issuer shall convene a
meeting. Every meeting shall be held at a time and place approved by the
Principal Paying Agent.
4 At least 21 days' notice (exclusive of the day on which the notice is
given and of the day of the meeting) shall be given to the Noteholders. A
copy of the notice shall be given by the party convening the meeting to
the other parties. The notice shall specify the day, time and place of
meeting and the nature of the resolutions to be proposed and shall explain
how Noteholders may appoint proxies or representatives, obtain voting
certificates and use block voting instructions and the details of the time
limits applicable.
Arrangements for voting
5 If a holder of a Note wishes to obtain a voting certificate in respect of
it for a meeting, he must deposit it for that purpose at least 48 hours
before the time fixed for the meeting with a Paying Agent or to the order
of a Paying Agent with a bank or other depositary nominated by the Paying
Agent for the purpose. The Paying Agent shall then issue a voting
certificate in respect of it.
6 A voting certificate shall:
6.1 be a document in the English language
6.2 be dated
6.3 specify the meeting concerned and the certificate numbers of the Notes
deposited and
6.4 entitle, and state that it entitles, its bearer to attend and vote at that
meeting in respect of those Notes.
7 Once a Paying Agent has issued a voting certificate for a meeting in
respect of a Note, it shall not release the Note until either:
7.1 the meeting has been concluded, or
7.2 the voting certificate has been surrendered to the Paying Agent which
issued it.
8 If a holder of a Note wishes the votes attributable to it to be included
in a block voting instruction for a meeting, then, at least 48 hours
before the time fixed for the meeting, (i) he must deposit the Note for
that purpose with a Paying Agent or to the order of a Paying Agent with a
bank or other depositary nominated by the Paying Agent for the purpose and
(ii) he or a duly authorised person on his behalf must direct the Paying
Agent how those votes are to be cast. The Paying Agent shall issue a block
voting instruction in respect of the votes attributable to all Notes so
deposited.
9 A block voting instruction shall:
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9.1 be a document in the English language
9.2 be dated
9.3 specify the meeting concerned
9.4 list the total number and certificate numbers of the Notes deposited,
distinguishing with regard to each resolution between those voting for and
those voting against it
9.5 certify that such list is in accordance with Notes deposited and
directions received as provided in paragraphs 8, 11 and 14 and
9.6 appoint a named person (a "proxy") to vote at that meeting in respect of
those Notes and in accordance with that list.
A proxy need not be a Noteholder.
10 Once a Paying Agent has issued a block voting instruction for a meeting in
respect of the votes attributable to any Notes:
10.1 it shall not release the Notes, except as provided in paragraph 11, until
the meeting has been concluded and
10.2 the directions to which it gives effect may not be revoked or altered
during the 48 hours before the time fixed for the meeting.
11 If the receipt for a Note deposited with a Paying Agent in accordance with
paragraph 8 is surrendered to the Paying Agent at least 48 hours before
the time fixed for the meeting, the Paying Agent shall release the Note
and exclude the votes attributable to it from the block voting
instruction.
12 Each block voting instruction shall be deposited at least 24 hours before
the time fixed for the meeting at the specified office of the Principal
Paying Agent or such other place as the Issuer shall designate or approve,
and in default it shall not be valid unless the chairman of the meeting
decides otherwise before the meeting proceeds to business. If the Issuer
requires, a notarially certified copy of each block voting instruction
shall be produced by the proxy at the meeting but the Issuer need not
investigate or be concerned with the validity of the proxy's appointment.
13 A vote cast in accordance with a block voting instruction shall be valid
even if it or any of the Noteholders' instructions pursuant to which it
was executed has previously been revoked or amended, unless written
intimation of such revocation or amendment is received from the relevant
Paying Agent by the Principal Paying Agent at its specified office (or
such other place as may have been specified by the Issuer for the purpose)
or by the chairman of the meeting in each case at least 24 hours before
the time fixed for the meeting.
14 No Note may be deposited with or to the order of a Paying Agent at the
same time for the purposes of both paragraph 5 and paragraph 8 for the
same meeting.
Chairman
15 The chairman of a meeting shall be such person as the Issuer may nominate
in writing, but if no such nomination is made or if the person nominated
is not present within 15 minutes after the time fixed for the meeting the
Noteholders or agents present shall choose one of their number to be
chairman, failing which the Issuer may appoint a chairman.
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16 The chairman may, but need not, be a Noteholder or agent. The chairman of
an adjourned meeting need not be the same person as the chairman of the
original meeting.
Attendance
17 The following may attend and speak at a meeting:
17.1 Noteholders and agents
17.2 the chairman
17.3 the Issuer and the Principal Paying Agent (through their respective
representatives) and their respective financial and legal advisers.
No one else may attend or speak.
Quorum and Adjournment
18 No business (except choosing a chairman) shall be transacted at a meeting
unless a quorum is present at the commencement of business. If a quorum is
not present within 15 minutes from the time initially fixed for the
meeting, it shall, if convened on the requisition of Noteholders, be
dissolved. In any other case it shall be adjourned until such date, not
less than 14 nor more than 42 days later, and time and place as the
chairman may decide. If a quorum is not present within 15 minutes from the
time fixed for a meeting so adjourned, the meeting shall be dissolved.
19 Two or more Noteholders or agents present in person shall be a quorum:
19.1 in the cases marked "No minimum proportion" in the table below, whatever
the proportion of the Notes which they represent
19.2 in any other case, only if they represent the proportion of the Notes
shown by the table below.
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Column 1 Column 2 Column 3
===============================================================================================
Purpose of meeting Any meeting except one Meeting previously adjourned
referred to in column 3 through want of a quorum
------------------------------------------------------
Required proportion: Required proportion:
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To pass a special quorum resolution 66.67per cent. 33.33 per cent.
-----------------------------------------------------------------------------------------------
To pass any other Extraordinary 51 per cent. No minimum proportion
Resolution
-----------------------------------------------------------------------------------------------
Any other purpose 10 per cent. No minimum proportion
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20 The chairman may with the consent of (and shall if directed by) a meeting
adjourn the meeting from time to time and from place to place. Only
business which could have been transacted at the original meeting may be
transacted at a meeting adjourned in accordance with this paragraph or
paragraph 18.
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21 At least 10 days' notice of a meeting adjourned through want of a quorum
shall be given in the same manner as for an original meeting and that
notice shall state the quorum required at the adjourned meeting. No notice
need, however, otherwise be given of an adjourned meeting.
Voting
22 Each question submitted to a meeting shall be decided by a show of hands
unless a poll is (before, or on the declaration of the result of, the show
of hands) demanded by the chairman, the Issuer or one or more persons
representing 5 per cent. of the Notes.
23 Unless a poll is demanded a declaration by the chairman that a resolution
has or has not been passed shall be conclusive evidence of the fact
without proof of the number or proportion of the votes cast in favour of
or against it.
24 If a poll is demanded, it shall be taken in such manner and (subject as
provided below) either at once or after such adjournment as the chairman
directs. The result of the poll shall be deemed to be the resolution of
the meeting at which it was demanded as at the date it was taken. A demand
for a poll shall not prevent the meeting continuing for the transaction of
business other than the question on which it has been demanded.
25 A poll demanded on the election of a chairman or on a question of
adjournment shall be taken at once.
26 On a show of hands every person who is present in person and who produces
a Note or a voting certificate or is a proxy has one vote. On a poll every
such person has one vote for each Note so produced or represented by the
voting certificate so produced or for which he is a proxy or
representative. Without prejudice to the obligations of proxies, a person
entitled to more than one vote need not use them all or cast them all in
the same way.
27 In case of equality of votes the chairman shall both on a show of hands
and on a poll have a casting vote in addition to any other votes which he
may have.
Effect and Publication of an Extraordinary Resolution
28 An Extraordinary Resolution shall be binding on all the Noteholders,
whether or not present at the meeting, and on all the Couponholders and
each of them shall be bound to give effect to it accordingly. The passing
of such a resolution shall be conclusive evidence that the circumstances
justify its being passed. The Issuer shall give notice of the passing of
an Extraordinary Resolution to Noteholders within 14 days but failure to
do so shall not invalidate the resolution.
Minutes
29 Minutes shall be made of all resolutions and proceedings at every meeting
and, if purporting to be signed by the chairman of that meeting or of the
next succeeding meeting, shall be conclusive evidence of the matters in
them. Until the contrary is proved every meeting for which minutes have
been so made and signed shall be deemed to have been duly convened and
held and all resolutions passed or proceedings transacted at it to have
been duly passed and transacted.
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