Avon 2014 Annual Report Download - page 83

applicable rate at the time of acquisition. The remeasurement of non-monetary assets at the historical U.S. dollar cost basis causes a
disproportionate expense as these assets are consumed in operations, negatively impacting operating profit and net income during 2014.
Also as a result, we determined that an adjustment of $115.7 to cost of sales was needed to reflect certain non-monetary assets at their net
realizable value, which was recorded in the first quarter of 2014. In addition, at March 31, 2014, we reviewed Avon Venezuela’s long-lived
assets to determine whether the carrying amount of the assets were recoverable, and determined that they were. As such, no impairment of
Avon Venezuela’s long-lived assets was required. In February 2015, the Venezuelan government announced that the SICAD II market would
no longer be available, and a new open market foreign exchange system (“SIMADI”) was created. We believe that significant uncertainty
exists regarding the foreign exchange mechanisms in Venezuela, as well as how any such mechanisms will operate in the future and the
availability of U.S. dollars under each mechanism. We are still evaluating our future access to funds through the SIMADI or other similar
markets.
Effective February 13, 2013, the Venezuelan government devalued its currency by approximately 32% and as such we recorded a one-time,
after-tax loss of $50.7 ($34.1 in other expense, net, and $16.6 in income taxes) in the first quarter of 2013, primarily reflecting the write-
down of monetary assets and liabilities and deferred tax benefits. In addition, as a result of using the historical U.S. dollar cost basis of non-
monetary assets, such as inventories, acquired prior to the devaluation, operating profit and net loss during 2013 were negatively impacted.
Revenue Recognition
Net sales primarily include sales generated as a result of Representative orders less any discounts, taxes and other deductions. We recognize
revenue upon delivery, when both title and the risks and rewards of ownership pass to the independent Representatives, who are our
customers. Our internal financial systems accumulate revenues as orders are shipped to the Representative. Since we report revenue upon
delivery, revenues recorded in the financial system must be reduced for an estimate of the financial impact of those orders shipped but not
delivered at the end of each reporting period. We use estimates in determining the adjustments to revenue and operating profit for orders
that have been shipped but not delivered as of the end of the period. These estimates are based on daily sales levels, delivery lead times,
gross margin and variable expenses. We also record a provision for estimated sales returns based on historical experience with product
returns. In addition, we estimate an allowance for doubtful accounts on receivable balances based on an analysis of historical data and
current circumstances.
Other Revenue
Other revenue is primarily comprised of shipping and handling and order processing fees billed to Representatives.
Cash and Cash Equivalents
Cash equivalents are stated at cost plus accrued interest, which approximates fair value. Cash equivalents are generally high-quality, short-
term money market instruments with an original maturity of three months or less and consist of time deposits with a number of U.S. and
non-U.S. commercial banks and money market fund investments.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. We classify inventory into
various categories based upon its stage in the product life cycle, future marketing sales plans and the disposition process. We assign a
degree of obsolescence risk to products based on this classification to determine the level of obsolescence provision.
Prepaid Brochure Costs
Costs to prepare brochures are initially deferred to prepaid expenses and other and are expensed to selling, general and administrative
expenses over the campaign length. In addition, fees charged to Representatives for brochures are initially deferred and presented as a
reduction to prepaid expenses and other and are recorded as a reduction to selling, general and administrative expenses over the campaign
length. The campaign length is typically two weeks in the U.S. and two to four weeks for most markets outside of the U.S.
Brochure costs and associated fees that are presented as prepaid expenses and other were $29.9 at December 31, 2014 and $38.3 at
December 31, 2013. Additionally, paper stock is purchased in advance of creating the brochures. Prepaid expenses and other include paper
supply of $8.5 at December 31, 2014 and $9.1 at December 31, 2013.
Brochure costs expensed to selling, general and administrative expenses amounted to $389.7 in 2014, $461.7 in 2013 and $506.3 in 2012.
The fees charged to Representatives recorded as a reduction to selling, general and administrative expenses amounted to $243.3 in 2014,
$274.1 in 2013 and $285.9 in 2012.
A V O N 2014 F-9