Avon 2015 Annual Report Download - page 15

PART I
ITEM 1. BUSINESS
(U.S. dollars in millions, except per share data)
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 and Fashion & Home. Beauty consists of skincare (which includes personal care), fragrance and
color (cosmetics). Fashion & Home consists of fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products,
housewares, entertainment and leisure products, children’s products and nutritional products.
Our business is conducted 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; and Asia Pacific. In addition, we operate our business in North
America, which has been presented as discontinued operations for all periods presented and is discussed further below. Financial
information relating to our reportable segments is included in “Segment Review” 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 27 through 60 of this 2015 Annual Report on
Form 10-K, which we refer to in this report as our “2015 Annual Report,” and in Note 12, Segment Information, to the Consolidated
Financial Statements on pages F-42 through F-44 of our 2015 Annual Report. We refer to each of the Notes to the Consolidated Financial
Statements in this 2015 Annual Report as a “Note.” Information about geographic areas is included in Note 12, Segment Information on
pages F-42 through F-44 of our 2015 Annual Report.
In December 2015, we entered into definitive agreements with affiliates of Cerberus Capital Management (“Cerberus”), which include a
$435 investment in Avon by an affiliate of Cerberus through the purchase of our convertible preferred stock and the separation of the North
America business from Avon into a privately-held company, which will include a $100 contribution by Avon, that will be majority-owned and
managed by an affiliate of Cerberus. Avon will retain approximately 20% ownership in this new privately-held company. These transactions
are expected to close concurrently in the first half of 2016. The North America business, which represents the Company’s operations in the
United States, Canada and Puerto Rico, was previously its own reportable segment and has been presented as discontinued operations for
all periods presented. Refer to Note 3, Discontinued Operations and Divestitures, on pages F-15 through F-18 of our 2015 Annual Report,
for additional information regarding the investment by an affiliate of Cerberus and the separation of the North America business.
Distribution
During 2015, we had sales operations in 57 countries and territories, and distributed our products in 15 other countries and territories. In
addition, our North America business (which has been presented as discontinued operations) had sales operations in 3 countries and
territories, and distributed our products in 27 other countries and territories. Unlike most of our CPG 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
Representatives, who are independent contractors and not our employees. As of December 31, 2015, we had nearly 6 million active
Representatives which represents the number of Representatives submitting an order in a sales campaign, totaled for all campaigns during
the year and then divided by the number of campaigns. 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 Representative contacts their customers directly, selling primarily through our brochure, which highlights new products and special
promotions for each sales campaign. In this sense, the Representative, together with the brochure, are the “store” through which our
products are sold. A brochure introducing a new sales campaign is usually generated every three to four weeks for most markets. Generally,
the Representative forwards an order for a campaign to us using the Internet, mail, telephone, or fax. This order is processed and the
products are assembled at a distribution center and delivered to the Representative usually through a combination of local and national
delivery companies. Generally, the Representative then delivers the merchandise and collects payment from the customer for her or his own
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