Avon 2015 Annual Report Download - page 61

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At February 12, 2015, the SIMADI exchange rate was approximately 170, as compared to the SICAD II exchange rate of approximately 50
that we used previously, which caused the recognition of a devaluation of approximately 70%. As a result of our change to the SIMADI rate,
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.
Additionally, certain non-monetary assets are carried at their historical U.S. dollar cost subsequent to the devaluation. Therefore, these costs
will impact the income statement during 2015 at a disproportionate rate as they were not devalued based on the new exchange rates, but
were expensed at their historical U.S. dollar value. As a result of using the historical U.S. dollar cost basis of non-monetary assets, such as
inventories, these assets continued to be remeasured, following the change to the SIMADI rate, at the applicable rate at the time of their
acquisition. As a result, we determined that an adjustment of approximately $11 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 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.
In addition, in February 2015, we reviewed Avon Venezuela’s long-lived assets to determine whether the 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 approximately $90 to selling, general
and administrative expenses was recorded to reflect the write-down of the long-lived assets to estimated fair value of approximately $16,
which was recorded in the first quarter of 2015. Further devaluations or regulatory actions may further impair the carrying value of Avon
Venezuela’s long-lived assets.
At December 31, 2015, the SIMADI exchange rate was approximately 200. During 2015, Avon Venezuela (using an average exchange rate
which included SICAD II exchange rates in the first part of the first quarter and SIMADI exchange rates in the latter part of the first quarter
and the entire second, third and fourth quarters) represented less than 1% of Avon’s consolidated revenue and less than 3% of Avon’s
consolidated Adjusted operating profit. While the rate in the SIMADI market will vary, the ongoing impacts primarily related to the
remeasurement of Avon Venezuela’s financial statements are not expected to have a material impact on Avon’s consolidated results.
The Company continuously monitors factors such as our ability to access and transact in the various exchange mechanisms currently in place,
the political and economic environment in Venezuela and our ability to effectively make key operational decisions in regard to its Venezuela
operations. If the Company is unable to make key operational decisions regarding its business in Venezuela, on an ongoing basis, the
Company may conclude that it should deconsolidate its operations in Venezuela. At December 31, 2015, we had a net asset position in
Avon Venezuela of approximately $33 and accumulated foreign currency translation adjustments within accumulated other comprehensive
income (loss) (shareholders’ equity) associated with foreign currency movements before Venezuela was accounted for as a highly inflationary
economy of approximately $81.
Argentina Discussion
In 2011, the Argentine government introduced restrictive foreign currency exchange controls. In December 2015, the Argentine government
began the process of removing foreign currency exchange controls; however, some uncertainty exists regarding the foreign currency
exchange controls in the future. Unless foreign exchange is made more readily available, Avon Argentina’s operations may be negatively
impacted. At December 31, 2015, we had a net asset position of approximately $92 associated with our operations in Argentina, including
cash of approximately $48. During 2015, Avon Argentina represented approximately 7% of Avon’s consolidated revenue and approximately
18% of Avon’s consolidated Adjusted operating profit.
A V O N 2015 49
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