Avon 2010 Annual Report Download - page 24

PART I
Our information technology systems may be susceptible to disruptions.
We employ information technology systems to support our business, including systems to support financial reporting, an enterprise resource
planning system which we are implementing on a worldwide basis, and an internal communication and data transfer network. We also
employ information technology systems to support Representatives in many of our markets, including electronic order collection and
invoicing systems and on-line training. We have Internet sites in many of our markets, including business-to-business sites to support
Representatives. We have undertaken initiatives to increase our reliance on employing information technology systems to support our
Representatives, as well as initiatives, as part of our multi-year restructuring program, to outsource certain services, including the provision of
global human resources information technology systems to our employees and other information technology processes. Any of these
systems may be susceptible to outages or disruptions due to the complex landscape of localized applications and architectures as well as
incidents due to legacy or unintegrated systems or both, fire, floods, power loss, telecommunications failures, terrorist attacks, break-ins and
similar events. There may be other challenges and risks as we upgrade, modernize, and standardize our information technology systems on a
worldwide basis. Despite the implementation of network security measures, our systems may also be vulnerable to computer viruses, data
security breaches, break-ins and similar disruptions from unauthorized tampering with these systems. The occurrence of these or other
events could disrupt our information technology systems and adversely affect our operation.
Third-party suppliers provide, among other things, the raw materials used to manufacture our
Beauty products, and the loss of these suppliers or a disruption or interruption in the supply
chain may adversely affect our business.
We manufacture and package almost all of our Beauty products. Raw materials, consisting chiefly of essential oils, chemicals, containers and
packaging components, are purchased from various third-party suppliers for our Beauty products. Almost all of our non-Beauty products are
purchased from various suppliers. Additionally, we produce the brochures that are used by Representatives to sell Avon products. The loss of
multiple suppliers or a significant disruption or interruption in the supply chain could have a material adverse effect on the manufacturing
and packaging of our Beauty products, the purchasing of our non-Beauty products or the production of our brochures. This risk may be
exacerbated by SSI, which is shifting our purchasing strategy toward a globally-coordinated effort. Furthermore, increases in the costs of raw
materials or other commodities may adversely affect our profit margins if we are unable to pass along any higher costs in the form of price
increases or otherwise achieve cost efficiencies in manufacturing and distribution.
The loss of or a disruption in our manufacturing and distribution operations could adversely
affect our business.
Our principal properties consist of worldwide manufacturing facilities for the production of Beauty products, distribution centers where
offices are located and where finished merchandise is packed and shipped to Representatives in fulfillment of their orders, and one principal
research and development facility. Additionally, we also use third party manufacturers to manufacture certain of our products. Therefore, as
a company engaged in manufacturing, distribution and research and development on a global scale, we are subject to the risks inherent in
such activities, including industrial accidents, environmental events, fires, strikes and other labor or industrial disputes, disruptions in logistics
or information systems, loss or impairment of key manufacturing or distribution sites, product quality control, safety, licensing requirements
and other regulatory or government issues, as well as natural disasters, pandemics, border disputes, acts of terrorism and other external
factors over which we have no control. These risks may be exacerbated by our efforts to increase facility consolidation covering our
manufacturing, distribution and supply footprints or if we are unable to successfully enhance our disaster recovery planning. The loss of, or
damage to, any of our facilities or centers, or that of our third party manufacturers could have a material adverse effect on our business,
results of operations and financial condition.
Our success depends, in part, on the quality and safety of our products.
Our success depends, in part, on the quality and safety of our products, including the procedures we employ to detect the likelihood of
hazard, manufacturing issues and unforeseen product misuse. If our products are found to be defective or unsafe, or if they otherwise fail
to meet our Representatives’ or end customers’ standards, our relationship with our Representatives or end customers could suffer, we
could need to recall some of our products, our reputation or the appeal of our brand could be diminished, and we could lose market
share and/or become subject to liability claims, any of which could result in a material adverse effect on our business, results of operations
and financial condition.