Avon 2014 Annual Report Download - page 34

PART II
(“FCPA accrual”), 4) the settlement charges associated with the U.S. pension plan (“Pension settlement charge”), 5) the goodwill and
intangible asset impairment charges and a valuation allowance for deferred tax assets related to the China business, as well as the
capitalized software impairment charge related to our Service Model Transformation (“SMT”) project (“Asset impairment and other
charges”), 6) costs and charges related to the extinguishment of debt (“Loss on extinguishment of debt”), and 7) the non-cash income tax
charge associated with our deferred tax assets recorded in 2014, and the additional provision recorded in 2012 for income taxes as we are
no longer asserting that the undistributed earnings of foreign subsidiaries are indefinitely reinvested (“Special tax items”). The Company
believes investors find the Non-GAAP information helpful in understanding the ongoing performance of operations separate from items that
may have a disproportionate positive or negative impact on the Company’s financial results in any particular period. These Non-GAAP
measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
The Venezuelan special items include the impact on the Consolidated Statements of Income in 2014 and 2013 caused by the devaluations
of Venezuelan currency on monetary assets and liabilities, such as cash, receivables and payables; deferred tax assets and liabilities; and non-
monetary assets, such as inventories. For non-monetary assets, the Venezuelan special items include the earnings impact caused by the
difference between the historical U.S. dollar cost of the assets at the previous exchange rate and the revised exchange rate. In 2014, the
Venezuelan special items also include an adjustment of $116 to reflect certain non-monetary assets at their net realizable value. In 2013, the
devaluation was as a result of the change in the official exchange rate, which moved from 4.30 to 6.30, and in 2014, the devaluation was
caused as a result of moving from the official exchange rate of 6.30 to the SICAD II exchange rate of approximately 50. The Venezuelan
special items also include the impact on the Consolidated Statements of Income caused by a valuation allowance for deferred tax assets
related to Venezuela recorded in the fourth quarter of 2013, as well as the release of a provision in the fourth quarter of 2012 associated
with the excess cost of acquiring U.S. dollars in Venezuela at the regulated market rate as compared with the official exchange rate.
The Pension settlement charge includes the impact on the Consolidated Statements of Income in the second, third and fourth quarters of
2014 associated with the payments made to former employees who are vested and participate in the U.S. pension plan. Such payments fully
settle our pension plan obligation to those participants who elected to receive such payment.
The Asset impairment and other charges include the impact on the Consolidated Statements of Income caused by the goodwill and
intangible asset impairment charges and a valuation allowance for deferred tax assets related to the China business in the third quarter of
2013, and the goodwill impairment charge related to the China business in the third quarter of 2012. The Asset impairment and other
charges also include the impact on the Consolidated Statements of Income caused by the capitalized software impairment charge related to
our SMT project in the fourth quarter of 2013.
The Loss on extinguishment of debt includes the impact on the Consolidated Statements of Income 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 below in
“Liquidity and Capital Resources”), 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 defined below in “Liquidity and Capital Resources”). The Loss on
extinguishment of debt also includes the impact on the Consolidated Statements of Income 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 below in “Liquidity and
Capital Resources”).
The Special tax items include the impact during 2014 on the provision for income taxes in the Consolidated Statements of Income due to a
non-cash income tax charge primarily associated with a valuation allowance to reduce our U.S. deferred tax assets to an amount that is
“more likely than not” to be realized. This valuation allowance was primarily due to the strengthening of the U.S. dollar against currencies of
some of our key markets and, to a lesser extent, the finalization of the FCPA settlements. The Special tax items also include the impact
during 2012 on the provision for income taxes in the Consolidated Statements of Income of our decision to no longer assert that the
undistributed earnings of foreign subsidiaries are indefinitely reinvested. During the fourth quarter of 2012, we determined that the
Company may repatriate offshore cash to meet certain domestic funding needs.
See Note 14, Restructuring Initiatives on pages F-43 through F-47 of our 2014 Annual Report, “Results Of Operations – Consolidated”
below, “Segment Review – Latin America” below, Note 15, Contingencies on pages F-47 through F-49 of our 2014 Annual Report, Note 11,
Employee Benefit Plans on pages F-32 through F-40 of our 2014 Annual Report, Note 16, Goodwill and Intangible Assets on pages F-49