Avon 2015 Annual Report Download - page 39

carrying amount of the assets was recoverable. Based on our expected cash flows associated with the asset group, we determined that the carrying amount
of the assets, carried at their historical U.S. dollar cost basis, was not recoverable. As such, an impairment charge of $90.3 to selling, general and
administrative expenses was recorded to reflect the write-down of the long-lived assets to their estimated fair value of $15.7.
In February 2014, the Venezuelan government announced a foreign exchange system which began operating on March 24, 2014, referred to as the SICAD II
exchange (“SICAD II”) and we concluded that we should utilize the SICAD II exchange rate to remeasure our Venezuelan operations effective March 31,
2014. At March 31, 2014, the SICAD II exchange rate was approximately 50, as compared to the official exchange rate of 6.30 that we used previously,
which caused the recognition of a devaluation of approximately 88%. As a result of using the historical United States (“U.S.”) dollar cost basis of non-
monetary assets, such as inventories, these assets continued to be remeasured, following the change to the SICAD II rate, at the applicable rate at the time of
their acquisition. As a result, we determined that an adjustment of $115.7 to cost of sales was needed to reflect certain non-monetary assets, primarily
inventories, at their net realizable value. In 2014, we recognized an additional negative impact of $21.4 to operating profit and net income relating to these
non-monetary assets. In addition to the negative impact to operating profit, as a result of the devaluation of Venezuelan currency, during 2014, we recorded
an after-tax loss of $41.8 ($53.7 in other expense, net, and a benefit of $11.9 in income taxes), primarily reflecting the write-down of monetary assets and
liabilities.
In 2013, as a result of using the historical U.S. dollar cost basis of non-monetary assets, such as inventories, acquired prior to the devaluation, 2013 operating
profit was negatively impacted by $49.6, due to the difference between the historical U.S. dollar 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 and net income, as a result of the devaluation of Venezuelan currency,
during 2013, we recorded an 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.
See discussion of our Venezuela operations in “Segment Review – Latin America” within MD&A on pages 47 through 51 and Note 1, Description of the
Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2015 Annual Report for more information.
(3) During 2014, our operating profit and operating margin were negatively impacted by the additional $46 accrual, and during 2013, our operating profit and
operating margin were negatively impacted by the $89 accrual, both recorded for the settlements related to the FCPA investigations. See Note 15,
Contingencies on pages F-48 through F-51 of our 2015 Annual Report for more information.
(4) During 2015, our operating profit and operating margin were negatively impacted by settlement charges associated with the U.S. defined benefit pension
plan. As a result of the lump-sum payments made to former employees who were vested and participated in the U.S. defined benefit pension plan, in the
third quarter of 2015, we recorded a settlement charge of $23.8. As the settlement threshold was exceeded in the third quarter of 2015, a settlement charge
of $4.1 was also recorded in the fourth quarter of 2015, as a result of additional payments from our U.S. defined benefit pension plan. These settlement
charges were allocated between Global Expenses and Discontinued Operations.
During 2014, our operating profit and operating margin were negatively impacted by settlement charges associated with the U.S. defined benefit pension
plan. As a result of the payments made to former employees who were vested and participated in the U.S. defined benefit pension plan, in the second
quarter of 2014, we recorded a settlement charge of $23.5. As the settlement threshold was exceeded in the second quarter of 2014, settlement charges of
$5.4 and $7.5 were also recorded in the third and fourth quarters of 2014, respectively, as a result of additional payments from our U.S. defined benefit
pension plan. These settlement charges were allocated between Global Expenses and Discontinued Operations.
See “Segment Review – Global and Other Expenses” within MD&A on pages 54 through 56, and Note 11, Employee Benefit Plans on pages F-34 through
F-42 of our 2015 Annual Report for a further discussion of the settlement charges.
(5) During 2015, our operating profit and operating margin were negatively impacted by transaction-related costs of $3.1 associated with the planned separation
of North America that were included in continuing operations.
(6) During 2015, our operating profit and operating margin were negatively impacted by a non-cash impairment charge of $6.9 associated with goodwill of our
Egypt business. During 2013 and 2012, our operating profit and operating margin were negatively impacted by non-cash impairment charges of $42.1 and
$44.0, respectively, associated with goodwill and intangible assets of our China business. See Note 16, Goodwill and Intangible Assets on pages F-51 through
F-53 of our 2015 Annual Report for more information on Egypt and China.
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 2015 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 30 through 32 of this MD&A for a description of how Constant dollar (“Constant $”)
growth rates (a Non-GAAP financial measure) are determined.
Overview
We are a global manufacturer and marketer of beauty and related products. Our business is conducted primarily in the direct-selling
channel. During 2015, we had sales operations in 57 countries and territories, and distributed products in 15 more. In addition, in our North
America business (which has been presented as discontinued operations) we had sales operations in 3 countries and territories, and
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