Avon 2001 Annual Report Download - page 46

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On July 17, 2002, Avon settled a previously dis-
closed formal investigation by the Securities and Exchange
Commission (“SEC”), which commenced in August 2000,
concerning Avon’s write-off of a customized order manage-
ment software system known as the FIRST project. Avon
had written off approximately $15.0 (pretax) of FIRST
assets in the first quarter of 1999 and approximately $24.0
(pretax) of FIRST assets in the third quarter of 2001. The
SEC determined that the entire FIRST asset should have
been written off in the first quarter of 1999 and that the
disclosure regarding the partial write-off was inaccurate.
Avon has restated its financial statements for all periods
from the first quarter of 1999 through the first quarter of
2002 to reflect the write-off of the FIRST project in the
first quarter of 1999, the reversal of the charge recorded in
the third quarter of 2001 and the restatement of other
FIRST-related activity that had been recorded during
1999–2002.
Contract Settlement
In July 2001, Avon announced that, due to a change in
Sears’ business strategy, which included de-emphasizing
cosmetics, Avon would not proceed with the launch of its
retail brand, beComing, in Sears stores in the fall of 2001.
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.
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Supplemental Income Statement Information
For the years ended December 31, 2002, 2001 and 2000,
the components of Other (income) expense, net were
as follows:
2002 2001 2000
Argentina excise tax settlement $ — $ 6.4 $ —
Foreign exchange (gains)
losses, net (16.0) 7.7 12.7
Legal fees 5.7 10.3 4.9
Amortization of debt issue costs
and other financing 6.7 5.0 5.7
Other 1.2 (2.4) (1.8)
Other (income) expense, net $ (2.4) $27.0 $21.5
Subsequent Events
On January 30, 2003, Avon’s Board approved an increase
in the quarterly cash dividend to $.21 per share from
$.20. The first dividend at the new rate will be paid on
March 3, 2003 to shareholders of record on February 14,
2003. On an annualized basis, the new dividend rate is
$.84 per share.
In January 2003, Avon announced that it had
agreed with J.C. Penney to end the business relationship
pursuant to which Avon’s beComing line of products has
been carried in approximately 90 J.C. Penney stores.
The beComing brand will be sold through Avon’s direct
selling channel in the U.S., exclusively by Avon Beauty
Advisors, who are independent Avon sales Representatives
with specialized beauty product training and consultative
selling skills. The details for withdrawing beComing from
J.C. Penney are still being finalized, but Avon’s manage-
ment does not anticipate that repositioning the brand will
significantly affect Avon’s results of operations in 2003.
On February 25, 2003, the Company filed a
Registration Statement on Form S-3 with the SEC, which
is intended to register $1,000.0 of debt securities. The
Registration Statement is not yet effective as of the date
of this filing.
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