Avon 2013 Annual Report Download - page 32

PART II
We also present gross margin, selling, general and administrative expenses as a percentage of revenue, total and net global expenses,
operating profit, operating margin and effective tax rate on a Non-GAAP basis. The discussion of our segments presents operating profit and
operating margin on a Non-GAAP basis. We refer to these Non-GAAP financial measures as “Adjusted.” We have provided a quantitative
reconciliation of the difference between the Non-GAAP financial measures and the financial measures calculated and reported in accordance
with GAAP. The Company uses the Non-GAAP financial measures to evaluate its operating performance and believes that it is meaningful
for investors to be made aware of, on a period-to-period basis, the impacts of 1) costs to implement (“CTI”) restructuring initiatives, 2) costs
and charges related to the devaluation of Venezuelan currency in February 2013 combined with being designated as a highly inflationary
economy, a valuation allowance for deferred tax assets related to Venezuela, and the benefit related to the release of a provision associated
with the excess cost of acquiring U.S. dollars in Venezuela (“Venezuelan special items”), 3) the $89 accrual for the potential settlements
related to the FCPA investigations (“FCPA accrual”), 4) 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 SMT project (“Asset
impairment and other charges”), 5) costs and charges related to the extinguishment of debt (“Loss on extinguishment of debt”) and 6) the
additional provision 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.
The Venezuelan special items include the impact on the Consolidated Statements of Income in 2013, caused by the devaluation 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 inventory and prepaid expenses. For non-monetary assets, the Venezuelan special items include the earnings
impact caused by the difference between the historical cost of the assets at the previous official exchange rate of 4.30 and the revised
official exchange rate of 6.30. 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 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),
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). 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).
The Special tax items 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 15, Restructuring Initiatives on pages F-45 through F-49 of our 2013 Annual Report, “Results Of Continuing Operations –
Consolidated” below, “Segment Review – Latin America” below, Note 16, Contingencies on pages F-50 through F-52 of our 2013 Annual
Report, Note 17, Goodwill and Intangible Assets on pages F-52 through F-53 of our 2013 Annual Report, Note 1, Description of the
Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2013 Annual Report, Note 5, Debt and Other
Financing on pages F-17 through F-21 of our 2013 Annual Report, “Liquidity and Capital Resources” below and Note 7, Income Taxes on
pages F-22 through F-25 of our 2013 Annual Report for more information on these items.
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.