Avon 2013 Annual Report Download - page 29

Impact on Operating Profit
2013 2012 2011 2010 2009
Costs to implement restructuring initiatives related to our
cost savings initiative, multi-year restructuring programs,
and other restructuring initiatives $ 65.9 $124.7 $40.0 $80.7 $171.0
Venezuelan special items(2) 49.6 – – 79.5 –
FCPA accrual(3) 89.0 – – – –
Asset impairment and other charges(4) 159.3 44.0 – – –
In addition to the items impacting operating profit identified above, loss from continuing operations, net of tax during 2013 was impacted by a loss on
extinguishment of debt of $73.0 before tax ($46.2 after tax) in the first quarter of 2013 caused by the make-whole premium and the write-off of debt
issuance costs associated with the prepayment of our Private Notes (as defined in “Capital Resources” within MD&A on pages 49 through 52), as well as the
write-off of debt issuance costs associated with the early repayment of $380 of the outstanding principal amount of the term loan agreement (as definedin
“Capital Resources” within MD&A on pages 49 through 52). Loss from continuing operations, net of tax during 2013 was also impacted by a loss on
extinguishment of debt of $13.0 before tax ($8.2 after tax) in the second quarter of 2013 caused by the make-whole premium and the write-off of debt
issuance costs and discounts, partially offset by a deferred gain associated with the January 2013 interest-rate swap agreement termination, associated with
the prepayment of the 2014 Notes (as defined in “Capital Resources” within MD&A on pages 49 through 52). In addition, loss from continuing operations,
net of tax during 2013 was impacted by valuation allowances for deferred tax assets of $41.8 related to Venezuela and $9.2 related to China. See Note 5,
Debt and Other Financing on pages F-17 through F-21 of our 2013 Annual Report, “Results Of Continuing Operations – Consolidated” within MD&A on
pages 31 through 36, and Note 7, Income Taxes on pages F-22 through F-25 of our 2013 Annual Report for more information.
Income from continuing operations, net of tax during 2012 was impacted by a benefit recorded to other expense, net of $23.8 before tax ($15.7 after tax)
due to the release of a provision in the fourth quarter associated with the excess cost of acquiring U.S. dollars in Venezuela at the regulated market rate as
compared with the official exchange rate. This provision was released as the Company capitalized the associated intercompany liabilities. Also, during the
fourth quarter of 2012, we determined that the Company may repatriate offshore cash to meet certain domestic funding needs. Accordingly, we are no
longer asserting that the undistributed earnings of foreign subsidiaries are indefinitely reinvested, and therefore, we recorded an additional provision for
income taxes of $168.3. See “Results Of Continuing Operations – Consolidated” within MD&A on pages 31 through 36, and Note 7, Income Taxes on pages
F-22 through F-25 of our 2013 Annual Report for more information.
(2) During 2013 and 2010, our operating margin was negatively impacted by the devaluation of the Venezuelan currency, and in 2010 this was coupled with a
required change to account for operations in Venezuela on a highly inflationary basis. In 2013, as a result of using the U.S. historic dollar cost basis of non-
monetary assets, such as inventory, acquired prior to the devaluation, 2013 operating profit was negatively impacted by $49.6, due to the difference between
the historical cost at the previous official exchange rate of 4.30 and the official exchange rate of 6.30. In addition to the negative impact to operating profit,
as a result of the devaluation of Venezuelan currency, during 2013, we recorded a one-time, after-tax loss of $50.7 ($34.1 in other expense, net and $16.6 in
income taxes), primarily reflecting the write-down of monetary assets and liabilities and deferred tax benefits. In 2010, as a result of using the historic dollar
cost basis of non-monetary assets, such as inventory, acquired prior to the devaluation, during 2010 operating profit was negatively impacted by $79.5 for
the difference between the historical cost at the previous official exchange rate of 2.15 and the new official exchange rate of 4.30. In addition to the negative
impact to operating profit, during 2010 we also recorded net charges of $46.1 in other expense, net, and $12.7 in income taxes, reflecting the write-down of
monetary assets and liabilities and deferred tax benefits. See discussion of Venezuela in “Segment Review – Latin America” within MD&A on pages 38
through 41 for more information.
(3) During 2013, our operating margin was negatively impacted by the $89 accrual for the potential settlements related to the FCPA investigations. See Note 16,
Contingencies on pages F-50 through F-52 of our 2013 Annual Report for more information.
(4) During 2013 and 2012, our operating margin was negatively impacted by non-cash impairment charges associated with goodwill and intangible assets of our
China business. In addition, during 2013, our operating margin was negatively impacted by the non-cash impairment charge associated with capitalized
software related to our Service Model Transformation (“SMT”) project in the fourth quarter of 2013. See Note 17, Goodwill and Intangible Assets on pages
F-52 through F-53 of our 2013 Annual Report for more information on China and Note 1, Description of the Business and Summary of Significant Accounting
Policies on pages F-8 through F-14 of our 2013 Annual Report for more information on SMT.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (“MD&A”)
(U.S. dollars in millions, except per share and share data)
You should read the following discussion of the results of operations and financial condition of Avon Products, Inc. and its majority and
wholly owned subsidiaries in conjunction with the information contained in the Consolidated Financial Statements and related Notes
contained in our 2013 Annual Report. When used in this discussion, the terms “Avon,” “Company,” “we,” “our” or “us” mean, unless the
context otherwise indicates, Avon Products, Inc. and its majority and wholly owned subsidiaries.
See “Non-GAAP Financial Measures” on pages 23 through 24 of this MD&A for a description of how Constant dollar (“Constant $”)
growth rates (a Non-GAAP financial measure) are determined.
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