Avon 2003 Annual Report Download - page 25

Management’s Discussion and Analysis of Financial Condition and Results of Operations
management’s discussion
Debt and Contractual Financial Obligations and Commitments
At December 31, 2003, Avon’s debt and contractual financial obligations and commitments by due date were as follows:
2009 and
2004 2005 2006 2007 2008 Beyond Total
Notes payable $ 39.7 $ — $ — $ — $ — $ — $ 39.7
Long-term debt 200.0 — 84.2 100.0 — 675.0 1,059.2
Capital lease obligations 4.4 4.9 2.2 .1 .1 .1 11.8
Total debt 244.1 4.9 86.4 100.1 .1 675.1 1,110.7
Operating leases 75.8 56.2 41.0 32.7 30.7 137.1 373.5
Purchase obligations 84.2 76.2 48.8 45.7 36.8 — 291.7
Benefit payments 138.3 104.5 111.3 118.3 123.1 670.0 1,265.5
Other long-term Obligations 25.2 7.5 — — — — 32.7
Total debt and contractual financial
obligations and commitments (1) $567.6 $249.3 $287.5 $296.8 $190.7 $1,482.2 $3,074.1
(1) The amount of debt and contractual financial obligations and commitments excludes amounts due pursuant to derivative transactions. The table also excludes information on Avon’s
recurring purchases of inventory as these purchase orders are non-binding, are generally consistent from year to year and are short-term in nature.
See Note 4, Debt and Other Financing, and Note 12, Leases and Commitments, for further information on Avon’s debt and contractual financial obligations
and commitments.
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During 2003 the Company began preliminary development of a global supply
chain system with globally integrated processes supported by contemporary
information technology. Part of this project involves the development of a new
common systems platform, known as enterprise resource planning or “ERP.”
In 2003, approximately $3.0 was capitalized associated with the project. The
Company intends to take a phased approach to this project and in 2004 capital
investment is estimated to be in the range of $10.0 to $15.0 related to a North
America implementation. Subsequent phases and additional levels of spending
associated with this project will require further evaluation.
Net Cash Used by Financing Activities
Net cash used in financing activities in 2003 was $163.7 higher than in 2002
mainly driven by the following:
• redemption of Avon’s convertible Notes of $398.9 in July 2003,
• higher repurchases of common stock, and
• higher dividend payments.
These uses of cash were partially offset by the following:
• the issuance in June 2003 of $250.0 of 4.20% registered notes
(see Note 4, Debt and Other Financing), and
• higher proceeds from stock option exercises.
In September 2000, Avon’s Board approved a share repurchase program under
which the Company may buy up to $1,000.0 of its outstanding stock over a five-
year period. Avon purchased approximately 3.5 million shares of Avon common
stock for $214.3 during 2003, compared with $178.6 spent for the repurchase
of approximately 3.5 million shares during 2002. As of December 31, 2003, the
Company had repurchased approximately 10.9 million shares at a total cost of
approximately $551.7 under this program.
In January 2003, Avon’s Board approved an increase in the quarterly dividend
to $.21 per share from $.20. Dividends of $.84 per share were declared and
paid in 2003 as compared to $.80 per share in 2002.