Avon 2004 Annual Report Download - page 4

Dollars in millions, except per share data
The following discussion of the results of operations and
financial condition of Avon Products, Inc. (“Avon” or the
“Company”) should be read in conjunction with the
information contained in the Consolidated Financial
Statements and related Notes. These statements have
been prepared in conformity with generally accepted
accounting principles in the U.S. and require manage-
ment 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 rev-
enues 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, provi-
sions for inventory obsolescence, income taxes and tax
valuation reserves, stock-based compensation, loss con-
tingencies and the determination of discount rate and
other rate assumptions for pension, postretirement and
postemployment benefit expenses. Changes in facts
and circumstances may result in revised estimates.
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 forward-looking statements involve
risks, uncertainties and other factors, which may cause the
actual results, levels of activity, performance or achieve-
ment of Avon 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 fol-
lowing: general economic and business conditions in the
Company’s markets, including social, economic and politi-
cal uncertainties in Latin America, Asia Pacific and Central
and Eastern Europe; the Company’s ability to implement
its business, cash management and tax strategies and its
Business Transformation initiatives; the Company’s ability
to achieve anticipated cost savings and its profitability
and growth targets, particularly in its largest markets; the
Company’s ability to implement appropriate product mix
and pricing strategies; the Company’s ability to replace
lost sales attributable to the repositioning of the U.S.
Beyond Beauty business; the impact of substantial cur-
rency 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 Sales Leadership program globally and to
increase Representative productivity; the Company’s abil-
ity to implement its enterprise resource planning project;
the impact of possible pension funding obligations and
increased pension expense on the Company’s cash flow
and results of operations; the impact of stock option
expense pursuant to Statement of Financial Accounting
Standards (“FAS”) No. 123(R); the effect of legal, regulatory
and tax proceedings, as well as restrictions imposed on
the Company, its operations or its Representatives by for-
eign 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 identi-
fying such factors is contained in Item 1 of the Company’s
Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the U.S. Securities and
Exchange Commission. The Company undertakes no obli-
gation to update any such forward-looking statements.
Overview
Business
Avon is a global manufacturer and marketer of beauty
and related products. Avon’s business is conducted
worldwide primarily in one channel, direct selling.
The Company’s reportable segments are based on geo-
graphic operations in four regions: North America, Latin
America, Europe and Asia Pacific. Avon presently has
sales operations in 60 countries and territories, includ-
ing the United States, and distributes product in 62
more. The product categories include Beauty, which
consists of cosmetics, fragrances, skin care and toi-
letries; Beauty Plus, which consists of fashion jewelry,
watches, apparel and accessories; and Beyond Beauty,
which consists of home products, gift and decorative
products, candles and toys. Sales from Health and
Wellness products and mark. are included among these
three categories based on product type. Sales are made
to the ultimate consumer principally through approxi-
mately 4.9 million independent Representatives, who
are independent contractors and not employees of
Avon. Avon is highly dependent on recruiting and moti-
vating new Representatives.
Global Beauty 25
Management’s Discussion and
Analysis of Financial Condition
and Results of Operations