Avon 2012 Annual Report Download - page 16

$50.7 million before taxes was recorded in the fourth quarter of 2012. At this time we are unable to quantify the total costs when the
initiative is fully implemented. In connection with the initial steps of the $400M Cost Savings Initiative, we expect to realize annualized
savings of approximately $70 million before taxes. See the “Overview” section within MD&A on pages 22 through 23 of our 2012 Annual
Report for further information
We may not realize anticipated savings or benefits from one or more initiatives arising under our restructuring and cost-savings programs or other
initiatives in full or in part or within the time periods we expect. Other events and circumstances, such as financial and strategic difficulties and
delays or unexpected costs, may occur which could result in our not realizing all or any of the anticipated savings or benefits. If we are unable to
realize these savings or benefits, our ability to continue to fund other initiatives may be adversely affected. In addition, our plans to invest these
savings and benefits ahead of future growth means that such costs will be incurred whether or not we realize these savings and benefits. We are
also subject to the risks of labor unrest, negative publicity and business disruption in connection with our restructuring and cost-savings programs
and other initiatives. Failure to realize anticipated savings or benefits from our restructuring and cost-savings programs and other initiatives could
have a material adverse effect on our business, prospects, financial condition, liquidity, results of operations and cash flows.
There can be no assurance that we will be able to reverse declining margins and net income
and achieve profitable growth.
There can be no assurance that we will be able to reverse declining margins and net income and achieve profitable growth in the future,
particularly in our largest markets, such as Brazil and the U.S., and developing and emerging markets, such as Mexico and Russia. Our gross
margin in 2012 declined to 61.1%, compared to 63.3% in 2011 and 62.8% in 2010. Our operating margin in 2012 declined to 2.9%,
compared to 7.6% in 2011 and 9.9% in 2010. In 2012. we had a net loss of $38.2 million, as compared to net income of $517.8 million
and $609.3 million in 2011 and 2010, respectively. Reversing these trends will depend on our ability to improve financial and operational
performance and execution of our global business strategy. There can be no assurance that we will be able to achieve these goals.
To reverse these trends in margins and net income and achieve profitable growth, we also need to successfully implement certain initiatives
including our restructuring and cost-savings initiatives, and there can no assurance that we will be able to do so. Our achievement of
profitable growth is also subject to the strengths and weaknesses of our individual markets, including our international markets, which are
or may be impacted by global economic conditions. We cannot assure that our broad-based geographic portfolio will be able to withstand
an economic downturn, recession, cost or wage inflation, commodity cost pressures, economic or political instability, competitive pressures
or other market pressures in one or more particular regions.
Failure to reverse declining margins and net income and achieve profitable growth could have a material adverse effect on our business,
prospects, financial condition, liquidity, results of operations and cash flows.
Our business is conducted worldwide primarily in one channel, direct selling.
Our business is conducted worldwide, primarily in the direct-selling channel. Sales are made to the ultimate consumer principally through
more than 6 million active independent Representatives worldwide. There is a high rate of turnover among Representatives, which is a
common characteristic of the direct selling business. In order to reverse losses of Representatives and grow our business in the future, we
need to recruit, retain and service Representatives on a continuing basis and create attractive Representative earning opportunities,
successfully implement initiatives such as Service Model Transformation and the One Simple Sales Model in the U.S., improve our product
offerings and improve our marketing and advertising, among other things, and there can be no assurance that we will be able to achieve
these objectives. Additionally, consumer purchasing habits, including reducing purchases of beauty and related products generally, or
reducing purchases from Representatives or buying beauty and related products in channels other than in direct selling, such as retail, could
reduce our sales, impact our ability to execute our global business strategy or have a material adverse effect on our business, prospects,
financial condition, liquidity, results of operations and cash flows. Additionally, if our competitors establish greater market share in the
direct-selling channel, our business, prospects, financial condition, liquidity, results of operations and cash flows may be adversely affected.
Furthermore, if any government bans or severely restricts our business method of direct selling, our business, prospects, financial condition,
liquidity, results of operations and cash flows may be materially adversely affected.
We are subject to financial risks related to our international operations, including exposure to
foreign currency fluctuations.
We operate globally, through operations in various locations around the world, and derive approximately 85% of our consolidated revenue
from our operations outside of the U.S.
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