Avon 2012 Annual Report Download - page 29

PART II
Operating Profit
2012 2011 2010 2009 2008
Costs to implement restructuring initiatives related to our cost savings
initiative, multi-year restructuring programs, and other restructuring
initiatives $124.7 $ 40.0 $80.7 $171.0 $ 59.3
Inventory obsolescence benefit related to our product line
simplification program – – – – (13.0)
Venezuelan special items(2) – – 79.5 – –
Impairment charges(3) 253.0 263.0 – – –
In addition to the items impacting operating profit identified above, (loss) income from continuing operations, net of tax during 2012 was impacted bya
benefit recorded to other expense, net of $23.8 before tax ($15.7 after tax) due to the release of a provision in the fourth quarter associated with the excess
cost of acquiring U.S. dollars in Venezuela at the regulated market rate as compared to the official exchange rate. This provision was released as the Company
capitalized the associated intercompany liabilities. Also, during the fourth quarter of 2012, we determined that the Company may repatriate offshore cash to
meet certain domestic funding needs. Accordingly, we are no longer asserting that the undistributed earnings of foreign subsidiaries are indefinitely
reinvested, and therefore, we recorded an additional provision for income taxes of $168.3. See the “Results Of Continuing Operations – Consolidated”
section within MD&A on pages 29 through 33 of our 2012 Annual Report, and Note 7, Income Taxes, on pages F-19 through F-22 of our 2012 Annual
Report for further information.
(2) During 2010, our operating margin was negatively impacted by the devaluation of the Venezuelan currency coupled with a required change to account for
operations in Venezuela on a highly inflationary basis. As a result of using the historic dollar cost basis of nonmonetary assets, such as inventory, acquired
prior to the devaluation, during 2010 operating profit was negatively impacted by $79.5 for the difference between the historical cost at the previous official
exchange rate of 2.15 and the new official exchange rate of 4.30. In addition to the negative impact to operating profit, during 2010 we also recorded net
charges of $46.1 in other expense, net and $12.7 in income taxes, reflecting the write-down of monetary assets and liabilities and deferred tax benefits. See
discussion of Venezuela within the “Segment Review – Latin America” section within MD&A on pages 34 through 37 of our 2012 Annual Report for further
information.
(3) During 2012, our operating margin was negatively impacted by non-cash impairment charges associated with goodwill and intangible assets of our Silpada
business, and goodwill of our China business. During 2011, our operating margin was negatively impacted by a non-cash impairment charge associated with
goodwill and an intangible asset of our Silpada business. See Note 17, Goodwill and Intangible Assets, on pages F-48 through F-51 of our 2012 Annual
Report for further information.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (“MD&A”)
(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 2012 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.
Refer to the Non-GAAP Financial Measures section on pages 24 through 25 of this 2012 Annual Report 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 worldwide, primarily in the direct-
selling channel. We presently have sales operations in 65 countries and territories, including the United States (“U.S.”), and distribute products
in 43 more. Our reportable segments are based on geographic operations and include commercial business units in Latin America; Europe,
Middle East & Africa; North America; and Asia Pacific. Our product categories are Beauty, Fashion and Home. Beauty consists of color
cosmetics, fragrances, skin care and personal care. Fashion consists of jewelry, watches, apparel, footwear, accessories and children’s products.
Home consists of gift and decorative products, housewares, entertainment and leisure products, children’s products and nutritional products.
Sales are made to the ultimate consumer principally through direct selling by more than 6 million active independent Representatives, who are
independent contractors and not our employees. The success of our business is highly dependent on recruiting, retaining and servicing our
Representatives. During 2012, approximately 85% of our consolidated revenue was derived from operations outside the U.S.
Total revenue in 2012 declined 5% due to unfavorable foreign exchange. Constant $ revenue was relatively unchanged, as a 1% increase in
average order was offset by a 1% decline in Active Representatives. Sales of products in the Beauty category decreased 5% primarily due to