Avon 2011 Annual Report Download - page 14

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PART I
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 for the foreseeable
future.
We also continue to implement an enterprise resource planning (“ERP”) system on a worldwide basis, which is expected to improve the
efficiency of our supply chain and financial transaction processes. The implementation is expected to continue in phases over the next several
years. We have completed implementation in our most significant markets.
See Item 2, Properties, for additional information regarding the location of our principal manufacturing facilities.
Product Categories
Two of our three product categories account for 10% or more of consolidated net sales in 2011. The following is the percentage of net
sales by product category for the years ended December 31:
2011 2010 2009
Beauty 73% 71% 72%
Fashion 18% 19% 18%
Home 9% 10% 10%
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 a party 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 typically have a seasonal pattern characteristic of many companies selling Beauty, gift and decorative products,
apparel, and fashion jewelry. Holiday sales generally cause a sales 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:
2011 2010
Fourth quarter revenues as a % of total revenue 27% 29%
Fourth quarter operating profit as a % of total operating profit 2% 33%
The fourth quarter operating profit comparison between 2011 and 2010 was unfavorably impacted by a $263.0 impairment charge, or 31%
of full year operating profit, recognized in the fourth quarter of 2011. The fourth quarter operating profit comparison was partially offset by
lower costs to implement our restructuring initiatives in 2011 compared to 2010. The fourth quarter of 2011 included costs to implement
our restructuring initiatives of $8.7, whereas the fourth quarter of 2010 included $58.3 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 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 sustained our focus on new technology and product
innovation to deliver first-to-market products that provide visible consumer benefits.
Our global 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 Argentina, Brazil,
China, Mexico, Poland and South Africa. In 2010, we invested in our R&D facility in Shanghai, China to increase our ability to develop
products to better meet Asian consumers’ needs.