Avon 2003 Annual Report Download - page 5

Management’s Discussion and Analysis of Financial Condition and Results of Operations
management’s discussion
Dollars in millions, except share data
The following discussion of the results of operations and financial condition
of Avon should be read in conjunction with the information contained in the
Consolidated Financial Statements and Notes thereto. These statements have
been prepared in conformity with generally accepted accounting principles in
the U.S. and require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ materially from those estimates. On an ongoing basis, management
reviews its estimates, including those related to allowances for doubtful
accounts receivable, allowances for sales returns, provisions for inventory
obsolescence, income taxes and tax valuation reserves, stock-based compen-
sation, loss contingencies and the determination of discount and other rate
assumptions for pension, postretirement and postemployment benefit
expenses. Changes in facts and circumstances may result in revised esti-
mates, which are recorded in the period during which they become known.
Cautionary Statement for Purposes of the “Safe
Harbor” Statement Under the Private Securities
Litigation Reform Act of 1995
Statements in this report that 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 for-
ward-looking statements involve risks, uncertainties and other factors, which
may cause the actual results, levels of activity, performance or achievement of
Avon Products, Inc. (“Avon” or the “Company”) to be materially different from
any future results 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 follow-
ing: general economic and business conditions in the Company’s markets,
including social, economic and political uncertainties in Latin America, Asia
and Central and Eastern Europe; the Company’s ability to implement its busi-
ness strategies and its Business Transformation initiatives, including the inte-
gration of similar activities across markets to achieve efficiencies; the Company’s
ability to achieve anticipated cost savings and its profitability and growth targets;
the impact of substantial currency fluctuations on the results of the Company’s
foreign operations and the cost of sourcing foreign products and the success of
the Company’s foreign currency hedging and risk management strategies; the
Company’s ability to implement its information systems initiatives; the impact of
possible pension funding obligations and increased pension expense on the
Company’s cash flow and results of operations; the effect of legal, regulatory
and tax proceedings, as well as restrictions imposed on the Company, its oper-
ations or its Representatives by foreign governments; the Company’s ability to
successfully identify new business opportunities; the Company’s access to
financing; and the Company’s ability to attract and retain key executives.
Additional information identifying such factors is contained in Item 1 of the
Company’s Form 10-K report for the year ended December 31, 2003, filed
with the U.S. Securities and Exchange Commission. The Company undertakes
no obligation to update any such forward-looking statements.
Introduction
Avon is a global manufacturer and marketer of beauty and related products.
Avon’s business is primarily comprised of one industry segment, direct selling,
which is conducted worldwide. The Company’s reportable segments are
based on geographic operations in four regions: North America, Latin America,
Europe and the Pacific. Avon presently has sales operations in 60 countries
and territories, including the United States, and distributes product in 72 more.
The product categories include Beauty, which consists of cosmetics, fragrances
and toiletries; Beauty Plus, which consists of fashion jewelry, watches, apparel
and accessories; and Beyond Beauty, which consists of home products, gift
and decorative products and candles. Sales from Health and Wellness products
and the Mark. brand are included among these categories based on product
type. Sales are made to the ultimate consumer principally through approxi-
mately 4.4 million independent Representatives, who are independent con-
tractors and not employees of Avon. Avon is highly dependent on recruiting
and motivating new Representatives.
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