Avon 2006 Annual Report Download - page 14

PART I
products, monitoring the markets for misuses of such trade-
marks by others, and by taking appropriate steps to stop any
infringing activities.
Seasonal Nature of Business
Our sales and earnings have a marked seasonal pattern character-
istic of many companies selling CFT, gift and decorative prod-
ucts, apparel, and fashion jewelry. Holiday sales cause a sales
peak in the fourth quarter of the year; however, the sales vol-
ume of holiday gift items is, by its nature, difficult to forecast.
Fourth quarter revenue was approximately 30% of total revenue
in 2006 and 2005, and fourth quarter operating profit was
approximately 37% and 26% of total operating profit in 2006
and 2005, respectively. The fourth quarter operating profit
comparison between 2006 and 2005 was impacted by costs to
implement our restructuring initiatives and PLS program. In
2005, cost to implement of $56.5 was all recorded in the fourth
quarter whereas only $43.6 of full-year 2006 cost to implement
of $228.8 was recorded in the fourth quarter of 2006. The
fourth quarter of 2006 also includes costs of $41.6 of full-year
2006 costs of $81.4 related to our PLS program.
Research and Product Development
Activities
New products are essential to growth in the highly competitive
cosmetics industry. Our research and development department’s
efforts are significant to developing new products, including
formulating effective beauty treatments relevant to women's
needs, and redesigning or reformulating existing products. To
increase our brand competitiveness, we have increased our focus
on new technology and product innovation to deliver
first-to-market products that deliver visible consumer benefits.
Our research and development facility is located in Suffern, NY.
A team of researchers and technicians apply the disciplines of
science to the practical aspects of bringing products to market
around the world. Relationships with dermatologists and other
specialists enhance our ability to deliver new formulas and
ingredients to market. Additionally, we have satellite research
facilities located in Brazil, China, Japan, Mexico and Poland.
In 2006, our most significant product launches included ANEW
Clinical THERMAFIRM Face Lifting Cream, ANEW Clinical EYE
LIFT, superFULL Mascara, Avon Solutions Ageless Results,Ultra
Moisture Rich Metallic Lipstick, Avon Crystal Aura fragrance,
Avon Blue Rush fragrance, and Derek Jeter DRIVEN fragrance.
The amounts incurred on research activities relating to the devel-
opment of new products and the improvement of existing prod-
ucts were $65.8 in 2006, $64.2 in 2005, and $63.1 in 2004. This
research included the activities of product research and
development and package design and development. Most of
these activities were related to the development of CFT products.
Environmental Matters
In general, compliance with environmental regulations impacting
our global operations has not had, and is not anticipated to
have, any material adverse effect upon the capital expenditures,
financial position or competitive position of Avon.
Employees
At December 31, 2006 and 2005, we employed approximately
40,300 and 43,000 full-time equivalent employees, respectively.
Of these, approximately 6,600 and 7,300, respectively, were
employed in the United States and 33,700 and 35,700,
respectively, in other countries.
Website Access to Reports
Our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those
reports, are and have been throughout 2006, available without
charge on our investor website (www.avoninvestor.com) as soon
as reasonably practicable after they are filed with or furnished to
the Securities and Exchange Commission (the “SEC”). We also
make available on our website the charters of our Board
Committees, our Corporate Governance Guidelines and our
Code of Business Conduct and Ethics. Copies of these SEC
reports and other documents are also available, without charge,
from Investor Relations, Avon Products, Inc., 1345 Avenue of the
Americas, New York, NY 10105-0196 or by sending an email to
[email protected] or by calling [phone].
Information on our website does not constitute part of this
report. Additionally, our filings with the SEC may be read and
copied at the SEC Public Reference Room at 100 F Street, N.E.
Room 1580 Washington, DC 20549. Information on the oper-
ation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. These filings are also available on the SEC’s
website at www.sec.gov free of charge as soon as reasonably
practicable after we have filed or furnished the above referenced
reports.
ITEM 1A. RISK FACTORS
You should carefully consider each of the following risks asso-
ciated with an investment in our publicly traded securities and all
of the other information in this 2006 Annual Report on Form
10-K. Our business may also be adversely affected by risks and
uncertainties not presently known to us or that we currently
believe to be immaterial. If any of the events contemplated by
the following discussion of risks should occur, our business,
prospects, financial condition and results of operations may
suffer.