Avon 2012 Annual Report Download - page 10

PART I
(Dollars in millions, except per share data)
ITEM 1. BUSINESS
When used in this report, the terms “Avon,” “Company,” “we,” “our” or “us” mean, unless the context otherwise indicates, Avon
Products, Inc. and its majority and wholly owned subsidiaries.
General
We are a global manufacturer and marketer of beauty and related products. We commenced operations in 1886 and were incorporated in
the State of New York on January 27, 1916. We conduct our business in the highly competitive beauty industry and compete against other
consumer packaged goods (“CPG”) and direct-selling companies to create, manufacture and market beauty and non-beauty-related
products. Our product categories are Beauty, Fashion and Home. Beauty consists of color cosmetics, fragrances, skin care and personal care.
Fashion consists of fashion jewelry, watches, apparel, footwear, accessories and children’s products. Home consists of gift and decorative
products, housewares, entertainment and leisure products, children’s products and nutritional products.
Unlike most of our CPG competitors, which sell their products through third-party retail establishments (e.g., drug stores and department
stores), our business is conducted worldwide primarily in one channel, direct selling. Our reportable segments are based on geographic
operations and include commercial business units in Latin America; Europe, Middle East & Africa; North America; and Asia Pacific. We have
centralized operations for Global Brand Marketing and Global Sales, and also have regional operations for marketing, sales, and supply
chain. Financial information relating to our reportable segments is included in the “Segment Review” section within Management’s
Discussion and Analysis of Financial Condition and Results of Operations, which we refer to in this report as “MD&A”, on pages 22 through
47 of this 2012 Annual Report on Form 10-K, which we refer to in this report as our “2012 Annual Report”, and in Note 13, Segment
Information, to the Consolidated Financial Statements on pages F-39 through F-41 of our 2012 Annual Report. We refer to each of the
Notes to the Consolidated Financial Statements in this 2012 Annual Report as a “Note”. Information about geographic areas is included in
Note 13, Segment Information on pages F-39 through F-41 of our 2012 Annual Report.
We recently outlined initial steps toward achieving a cost-savings target of $400 before taxes by the end of 2015. In connection with this
cost-savings target, on December 11, 2012, we announced initial steps of a cost savings initiative (the “$400M Cost Savings Initiative”), in
an effort to stabilize the business and return Avon to sustainable growth. The $400M Cost Savings Initiative includes a global headcount
reduction and related actions, as well as our exit from the South Korea and Vietnam markets. As part of the $400M Cost Savings Initiative,
we identified certain actions in the fourth quarter of 2012, the majority of which are expected to take effect in 2013, that we believe will
accelerate top line growth and reduce costs.
We have also been completing other various initiatives, including our 2005 and 2009 Restructuring Programs and other restructuring
initiatives taken in the earlier part of 2012. Additional information regarding our initiatives is included in the “Overview” section within
MD&A on pages 22 through 23, and in Note 15, Restructuring Initiatives on pages F-42 through F-46 of our 2012 Annual Report.
In July 2010, we purchased substantially all the assets and liabilities of Silpada Designs, Inc. (“Silpada”), a direct seller of jewelry products,
primarily in North America. We are currently assessing our strategic alternatives for Silpada. Additionally, in December 2010 we sold the
ownership interest in Avon Products Company Limited (“Avon Japan”) to Devon Holdings K.K., an affiliate of TPG Capital.
Distribution
We presently have sales operations in 65 countries and territories, including the United States (“U.S.”), and distribute our products in 43
other countries and territories. Unlike most of our competitors, which sell their products through third-party retail establishments (e.g., drug
stores and department stores), we primarily sell our products to the ultimate consumer through the direct-selling channel. In our case, sales
of our products are made to the ultimate consumer principally through direct selling by more than 6 million active independent
Representatives. Representatives are independent contractors and not our employees. Representatives earn by purchasing products directly
from us at a discount from a published brochure price and selling them to their customers, the ultimate consumer of our products.
Representatives can start their Avon businesses for a nominal fee, or in some markets, for no fee at all. We generally have no arrangements
with end users of our products beyond the Representative, except as described below. No single Representative accounts for more than
10% of our net sales.
A V O N 2012 3