Avon 2014 Annual Report Download - page 89

Download and view the complete annual report

Please find page 89 of the 2014 Avon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 130

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130

NOTE 2. New Accounting Standards
Standards to be Implemented
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09, Revenue from Contracts
with Customers, issued as a new Topic, Accounting Standards Codification Topic 606. The core principle of the guidance is that a Company
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. This standard is effective beginning in 2017 and can be
adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the effect that
adopting this new accounting guidance will have on our consolidated financial statements.
NOTE 3. Discontinued Operations
Silpada
On June 30, 2013, the Company entered into an agreement to sell its Silpada jewelry business (“Silpada”) for $85, plus an earn-out of up to
$15 if Silpada achieves specific earnings targets over two years. Silpada was previously reported within our North America segment and has
been classified within discontinued operations for all periods presented. The transaction closed on July 3, 2013. Proceeds from the sale were
used for general corporate purposes, including the repayment of outstanding debt. The benefit associated with the earn-out will be
recorded in discontinued operations only when it becomes realizable by Avon. As of December 31, 2014, we do not believe that the
financial performance of Silpada will result in the achievement of the earn-out for fiscal year 2014. In 2013, we recorded a loss on sale of
$79.4 before tax ($50.4 after tax), which represented the difference between the carrying value of the Silpada business and the proceeds. Of
the total loss on sale, $79.0 before tax ($50.0 after tax), was recorded in the second quarter of 2013, reflecting the expected loss on sale at
that time.
In the first quarter of 2013, the Company disclosed that it was reviewing strategic alternatives for Silpada. In connection with this review, we
ran a broad auction process that included potential financial and strategic buyers. The initial offers that were received through April of 2013
were lower than the carrying value of Silpada. At that time, we did not believe that these offers were representative of the underlying fair
value of the Silpada business. In June 2013, the Company received final offers for the Silpada business that were also at a level below what
previously had been expected as the fair value of the business. The Company decided to agree to the offer that emerged at the time as the
highest bid, based in part on consideration of a) the timeline and investment required to return the business to historical levels of profitability
and b) the deterioration of Silpada’s business performance in the second quarter of 2013. The Company also considered that this divestiture
would allow greater focus of time and resources on the core Avon business. This transaction was approved by the Board of Directors on
June 26, 2013, subject to certain conditions which were satisfied on June 30, 2013.
Summarized financial information for discontinued operations is shown below:
Years ended December 31,
2013 2012
Total revenue $ 54.5 $ 155.7
Operating loss(1) (81.0) (210.2)
(1) Operating loss for the year ended December 31, 2013 includes a charge of $79.0 before tax recorded in the second quarter of 2013, reflecting the expected
loss on sale at that time, as well as an additional loss on sale of $.4 before tax recorded in the third quarter of 2013. Operating loss for the year ended
December 31, 2012 includes an impairment charge of $209.0 before tax recorded in the fourth quarter of 2012, as discussed further below.
Silpada was acquired in July 2010. Silpada had historically generated positive cash flows and was expected to continue to generate positive
cash flows; however, the expected cash flows of the business as of the date of our impairment analysis were not at a level sufficient to
support the carrying value of the business. Since the acquisition in 2010, the Silpada business did not achieve our revenue, earnings and
cash flows expectations primarily due to lower consumer spending, higher silver prices and increased competition. When compared to our
initial projections for the business at the time of the acquisition, the future expectations for Silpada utilized in the 2012 impairment analysis
represented a significant decrease in the future cash flows that were expected to be generated by Silpada. This reduction in future
expectations led to a material impairment of $209.0 being recorded during the fourth quarter of 2012.
A V O N 2014 F-15