Avon 2012 Annual Report Download - page 30

unfavorable foreign exchange, and increased 1% on a Constant $ basis. Sales of products in the Fashion category decreased 5%, or 2% on
a Constant $ basis. Sales of products in the Home category decreased 4% primarily due to unfavorable foreign exchange, and increased 2%
on a Constant $ basis.
Our Constant $ revenue was impacted by improvements in Latin America, particularly in Brazil, Mexico, and Venezuela; however, these
improvements were offset by net declines in other regions. In Europe, Middle East & Africa we saw a revenue decline in the United Kingdom
that partially reflects a continued weak macroeconomic environment, competition, and executional challenges. In addition, North America
experienced challenging financial results, partially as a result of the ongoing impact of field transformation and redistricting in the U.S. Asia
Pacific’s revenue decline was primarily due to continuing weak performance of our China operations.
See the “Segment Review” section of this MD&A for additional information related to changes in revenue by segment.
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. As a result of these actions, we recorded total costs to implement these various restructuring
initiatives of $50.7 before taxes associated with approved initiatives. For the initiatives approved to date, we expect our total costs to
implement to be in the range of $70 to $80 before taxes. 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 before taxes.
In an effort to improve operating performance, we identified certain actions in 2012, not associated with the $400M Cost Savings Initiative
and 2005 and 2009 Restructuring Programs, that we believe will enhance our operating model, reduce costs, and improve efficiencies. As a
result of the analysis and the actions taken, we recorded total costs to implement of $73.9 before taxes in 2012. In connection with these
actions, effective in the second quarter of 2012, Central & Eastern Europe and Western Europe, Middle East & Africa are being managed as
a single operating segment. Accordingly, Europe, Middle East & Africa amounts include the results of Central & Eastern Europe and Western
Europe, Middle East & Africa for all periods presented. In connection with these actions, we expect to realize operating profit benefits of
approximately $40 annually and cash flow benefits of approximately $35 after taxes annually beginning in 2013, which will likely be a
mitigating factor against inflationary cost pressures.
Refer to Note 15, Restructuring Initiatives on pages F-42 through F-46 of our 2012 Annual Report for further information.
In conjunction with organizational changes, effective in the second quarter of 2012, the Dominican Republic was included in Latin America
whereas in prior periods it had been included in North America. The impact was not material to either segment. Accordingly, the results of
the Dominican Republic are included in Latin America and excluded from North America for all periods presented.
As part of an overall review of our capital structure, on November 1, 2012, we announced a decrease in our quarterly cash dividend to $.06
per share from $.23 per share, for the fourth-quarter dividend paid in December 2012. We have maintained the dividend of $.06 for the first
quarter of 2013.
As a result of the 32% devaluation of the Venezuelan currency in February 2013, our 2013 operating margin will be negatively impacted. As
a result, we expect the Company’s operating profit to be negatively impacted primarily in the first half of 2013 by approximately $50 of
costs associated with the historical cost in U.S. dollars of nonmonetary assets. In addition to the negative impact to operating margin, as a
result of the devaluation of the Venezuelan currency, during the first quarter of 2013 we expect to record net charges of approximately $34
in “Other expense, net” and approximately $16 in “Income taxes”, reflecting the write-down of monetary assets and liabilities and deferred
tax benefits. Refer to further discussion of Venezuela in the “Segment Review – Latin America” section of this MD&A.
New Accounting Standards
Information relating to new accounting standards is included in Note 2, New Accounting Standards, to our consolidated financial statements
contained in this 2012 Annual Report.
A V O N 2012 23