Avon 2005 Annual Report Download - page 2

MANAGEMENT’S฀DISCUSSION฀AND฀ANALYSIS฀
OF฀FINANCIAL฀CONDITION฀AND฀RESULTS฀OF฀OPERATIONS
MANAGEMENT’S฀DISCUSSION฀AND฀ANALYSIS฀
OF฀FINANCIAL฀CONDITION฀AND฀RESULTS฀OF฀OPERATIONS
Effective January 1, 2006, we
began managing operations in
Central and Eastern Europe
and also China as stand-alone
operating segments. We also
began centrally managing
Brand Marketing and the
Supply Chain.
Dollars in millions, except per share data
The following discussion of the results of operations and financial
condition of Avon Products, Inc. and its majority and wholly owned
subsidiaries (“Avon” or the “Company”) should be read in conjunc-
tion with the information contained in the Consolidated Financial
Statements and related Notes. When used in this discussion, the
terms “Avon,” “Company,” “we” or “us” mean, unless the con-
text otherwise indicates, Avon Products, Inc. and its majority and
wholly owned subsidiaries. The Consolidated Financial Statements
have been prepared in conformity with generally accepted account-
ing principles in the U.S. which require us to make estimates and
assumptions that affect the reported amounts of assets and liabili-
ties, 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, we review
our estimates, including those related to restructuring reserves,
allowances for doubtful accounts receivable, allowances for sales
returns, provisions for inventory obsolescence, income taxes and tax
valuation reserves, stock-based compensation, loss contingencies
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. Words such as “estimate,”
“project,” “plan,” “believe,” “expect,” “anticipate,” “intend,”
“planned,” “potential” and similar expressions, or the negative of
those expressions, may identify forward-looking statements. Such
forward-looking statements are based on management’s reason-
able 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 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:
• our ability to implement the key initiatives of our global busi-
ness strategy, including our multi-year restructuring initiatives,
product mix and pricing strategies, enterprise resource planning,
and cash management, tax, foreign currency hedging and risk
management strategies, and our ability to achieve anticipated
benefits from such initiatives;
• the possibility of business disruption in connection with our
multi-year restructuring initiatives;
• our ability to achieve growth objectives, particularly in our largest
markets and new and emerging markets;
• our ability to replace lost sales attributable to the repositioning of
the Beauty Plus and Beyond Beauty business in the United States;
• our ability to successfully identify new business opportunities
and acquisition candidates, and our ability to successfully inte-
grate or manage any acquired business;
• the effect of political, legal and regulatory risks, as well as for-
eign exchange or other restrictions, imposed on us, our opera-
tions or our Representatives by foreign governments;
• our ability to successfully transition our business in China in con-
nection with the resumption of direct selling in that market and
our ability to operate using the direct selling model permitted in
that market;
• the impact of substantial currency fluctuations on the results of
our foreign operations;
• general economic and business conditions in our markets,
including social, economic and political uncertainties in Latin
America, Asia Pacific, Central and Eastern Europe and the
Middle East;
• a general economic downturn, information technology systems
outages, disruption in our supply chain or manufacturing and
distribution operations or other sudden disruption in business
operations beyond our control as a result of events such as
September 11, 2001 or Hurricane Katrina;
• the quality and safety of our products;
• our ability to attract and retain key personnel and executives;
• competitive uncertainties in our markets, including competition
from companies in the cosmetics, fragrances, skin care and toi-
letries industry, some of which are larger than we are and have
greater resources;