Avon 2013 Annual Report Download - page 85

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NOTE 2. New Accounting Standards
New Accounting Standard Implemented
In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-02, Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income. ASU 2013-02 requires entities to report, either on the face of the income statement or in the
notes, the effect of significant reclassifications out of AOCI on the respective line items in net income if the amount being reclassified is
required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified
in their entirety from AOCI to net income in the same reporting period, an entity is required to cross-reference other disclosures required
under GAAP that provide additional detail about those amounts. See Note 6, Accumulated Other Comprehensive Loss, for the required
disclosures. ASU 2013-02 is effective as of January 1, 2013 for Avon and did not have a significant impact on our financial statements, other
than presentation.
NOTE 3. Discontinued Operations
Silpada
On June 30, 2013, the Company entered into an agreement to sell its Silpada jewelry business (“Silpada”) for $85, plus an earn-out of up to
$15 if Silpada achieves specific earnings targets over two years. Silpada was previously reported within our North America segment and has
been classified within discontinued operations for all periods presented. The transaction closed on July 3, 2013. Proceeds from the sale were
used for general corporate purposes, including the repayment of outstanding debt. The benefit associated with the earn-out will be
recorded in discontinued operations only when it becomes realizable by Avon. In 2013, we recorded a loss on sale of $79.4 before tax
($50.4 net of tax), which represented the difference between the carrying value of the Silpada business and the proceeds. Of the total loss
on sale, $79.0 before tax ($50.0 net of tax), was recorded in the second quarter of 2013, reflecting the expected loss on sale at that time.
In the first quarter of 2013, the Company disclosed that it was reviewing strategic alternatives for Silpada. In connection with this review, we
ran a broad auction process that included potential financial and strategic buyers. The initial offers that were received through April of 2013
were lower than the carrying value of Silpada. At that time, we did not believe that these offers were representative of the underlying fair
value of the Silpada business. In June 2013, the Company received final offers for the Silpada business that were also at a level below what
previously had been expected as the fair value of the business. The Company decided to agree to the offer that emerged at the time as the
highest bid, based in part on consideration of a) the timeline and investment required to return the business to historical levels of profitability
and b) the deterioration of Silpada’s business performance in the second quarter of 2013. The Company also considered that this divestiture
would allow greater focus of time and resources on the core Avon business. This transaction was approved by the Board of Directors on
June 26, 2013, subject to certain conditions which were satisfied on June 30, 2013.
Summarized financial information for discontinued operations is shown below:
Year ended December 31,
2013 2012 2011
Total revenue $ 54.5 $ 155.7 $ 192.1
Operating loss(1) (81.0) (210.2) (237.4)
(1) Operating loss for the year ended December 31, 2013 includes a pre-tax charge of $79.0 recorded in the second quarter of 2013, reflecting the expected loss
on sale at that time, as well as an additional loss on sale of $.4 before tax recorded in the third quarter of 2013.
Silpada was acquired in July 2010. Silpada had historically generated positive cash flows and was expected to continue to generate positive
cash flows; however, the expected cash flows of the business as of the date of our impairment analysis were not at a level sufficient to
support the carrying value of the business. Since the acquisition in 2010, the Silpada business did not achieve our revenue, earnings and
cash flows expectations primarily due to lower consumer spending, higher silver prices and increased competition. When compared to our
initial projections for the business at the time of the acquisition, the future expectations for Silpada utilized in the 2011 and 2012
impairment analyses represented a significant decrease in the future cash flows that were expected to be generated by Silpada. This
reduction in future expectations led to material impairments of $263 and $209 being recorded during the fourth quarters of 2011 and
2012, respectively.
A V O N 2013 F-15