Avon 2015 Annual Report Download - page 41

In January 2016, we announced a transformation plan (the “Transformation Plan”), which includes investing in growth, reducing costs in an
effort to continue to improve our cost structure and improving our financial resilience. As a result of this plan, we expect to invest $350 into
the business over the next three years with an estimated $150 in media and social selling and $200 related to the service model evolution
and information technology, which will be aimed at improving the overall Representative experience. With respect to cost reductions, we
have targeted pre-tax annualized cost savings of approximately $350 after three years, with an estimated $200 from supply chain reductions
and an estimated $150 from other cost reductions. These cost savings are expected to be achieved through restructuring actions as well as
other cost-savings strategies that will not result in restructuring charges. We are targeting the realization of $70 of these pre-tax cost savings
in 2016. We have initiated this Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin
and mid single-digit constant-dollar revenue growth. While we expect to evaluate options to improve our financial resilience, we have
already implemented actions in this area, including refinancing our revolving credit facility, divesting Liz Earle Beauty Co. Limited (“Liz
Earle”), prepaying our 2.375% Notes (as defined below in “Capital Resources” on pages 59 through 60) and suspending our dividend.
See Note 14, Restructuring Initiatives on pages F-45 through F-48 of our 2015 Annual Report, Note 3, Discontinued Operations and
Divestitures on pages F-15 through F-18 of our 2015 Annual Report and Note 5, Debt and Other Financing on pages F-19 through F-21 of
our Annual Report for more information on these items.
In July 2015, we sold Liz Earle, and as a result, we expect Avon’s Constant $ and reported revenue in 2016 to be negatively impacted by
approximately 1 point. See Note 3, Discontinued Operations and Divestitures on pages F-15 through F-18 of our 2015 Annual Report for
more information.
In February 2015, the Venezuelan government announced that the SICAD II market would no longer be available, and a new foreign
exchange system was created, referred to as the SIMADI exchange (“SIMADI”). SIMADI began operating on February 12, 2015. Use of the
SIMADI exchange rate caused the recognition of a devaluation of approximately 70%. In addition, we recognized impairment charges of
approximately $11 to cost of sales and approximately $90 to selling, general and administrative expenses in order to reflect the write-down
of inventory and long-lived assets, respectively, which was recorded in the first quarter of 2015. We recognized an additional negative
impact of approximately $19 to operating profit and net income relating to these non-monetary assets in the first, second, third and fourth
quarters of 2015 due to the recognition of the cost basis at a higher exchange rate than the rate at which revenue was reported in U.S.
dollars. In addition to the negative impact to operating margin, we recorded an after-tax benefit of approximately $3 (a benefit of
approximately $4 in other expense, net, and a loss of approximately $1 in income taxes) in the first quarter of 2015, primarily reflecting the
write-down of monetary assets and liabilities. See “Segment Review – Latin America” of this MD&A for further discussion of our Venezuela
operations.
New Accounting Standards
Information relating to new accounting standards is included in Note 2, New Accounting Standards, to our consolidated financial statements
contained in this 2015 Annual Report.
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