Avon 2009 Annual Report Download - page 24

PART I
Our international operations are subject to risks inherent in
conducting business abroad, including, but not limited to, therisk
of adversecurrency fluctuations, currency remittance restrictions
andunfavorable social, economic and political conditions.
See the sections “Risk Factors -Our ability to conduct business,
particularly in international markets, may be affected by political,
legal, tax and regulatory risks” and “Risk Factors -Weare sub-
ject to financial risks related to our international operations,
including exposure to foreign currency fluctuations” in Item 1A
on page 9ofour 2009 Annual Report.
Manufacturing
We manufacture and package almost all of our Beauty products.
Raw materials, consisting chiefly of essential oils, chemicals,
containers and packaging components, are purchased for our
Beauty products from various suppliers. Almost all of our Fashion
and Home products are purchased from various suppliers. Addi-
tionally, we design the brochures that are used by the Repre-
sentatives to sell our products. The loss of any one supplier
would not have amaterial impact on our ability to source raw
materials for our Beauty products or source products for our
Fashion and Home categories or paper for the brochures.
Packages, consisting of containers and packaging components,
are designed by our staff of artists and designers. The design
and development of new Beauty products are affected by the
cost and availability of materials such as glass, plastics and
chemicals. We believe that we can continue to obtain sufficient
raw materials and supplies to manufacture and produce our
Beauty products.
As further described in the“Overview” and “Strategic Initiatives”
sections within MD&A on pages 19 through 22, we continue to
implement SSI to reduce direct and indirect costs of materials,
goods and services. Under this initiative, we are shifting our
purchasing strategy from alocal, commodity-oriented approach
towards aglobally-coordinated effort.
We are also implementing an enterprise resource planning
(“ERP”) system on aworldwide basis, which is expected to
improve the efficiency of our supply chain and financial trans-
action processes. The implementation is expected to continue in
phases over the next several years. We completed implementa-
tion in certain significant markets, and will continue to roll-out
the ERP system over the next several years.
See Item 2, Properties, for additional information regarding the
location of our principal manufacturing facilities.
Product Categories
Each of our three product categories account for 10% or more
of consolidated net sales. The following is the percentage of net
sales by product category for the years ended December 31:
2009 2008 2007
Beauty 72% 72% 70%
Fashion 17% 18% 18%
Home 11% 10% 12%
Trademarks and Patents
Our business is not materially dependent on the existence of
third-party patent, trademark or other third-party intellectual
property rights, and we are not aparty to any ongoing material
licenses, franchises or concessions. We do seek to protect our key
proprietary technologies by aggressively pursuing comprehensive
patent coverage in major markets. We protect our Avon name
and other major proprietary trademarks through registration
of these trademarks in the markets where we sell our products,
monitoring the markets for infringement of such trademarks
by others, and by taking appropriate steps to stop any
infringing activities.
Seasonal Nature of Business
Our sales and earnings have amarked seasonal pattern character-
istic of many companies selling Beauty, gift and decorative prod-
ucts, apparel, and fashion jewelry. Holiday sales cause asales peak
in the fourth quarter of the year; however, the sales volume of
holiday gift items is, by its nature, difficult to forecast. Fourth
quarter revenue and operating data was as follows:
2009 2008
Fourth quarter revenues as a%oftotal
revenue 31% 26%
Fourth quarter operating profit as a%of
total operating profit 40% 28%
The fourth quarter operating profit comparison between 2009
and 2008 was impacted by recessionary pressure and the neg-
ative impact of foreign exchange in 2008. Partially offsetting
these items were costs to implement our restructuring initiatives
which were higher in 2009 than 2008. The fourth quarter of
2009 included costs to implement our restructuring initiatives of
$34.0, whereas the fourth quarter of 2008 included $7.4 of
costs to implement our restructuring initiatives.
Research and Product Development
Activities
New products are essential to growth in the highly competitive
cosmetics industry. Our research and development department’s