Avon 2015 Annual Report Download - page 57

Impairment of Goodwill and Intangible Assets
During the third quarter of 2013, we recorded a non-cash impairment charge of approximately $42 for goodwill and intangible assets
associated with our China business. See Note 16, Goodwill and Intangible Assets on pages F-51 through F-53 of our 2015 Annual Report for
more information on China.
See “Segment Review” in this MD&A for additional information related to changes in operating margin by segment.
Other Expense
Interest expense decreased by approximately $9 compared to the prior-year period, primarily due to lower outstanding debt balances
partially offset by higher average interest rates.
Loss on extinguishment of debt in 2013 is comprised of approximately $71 for the make-whole premium and the write-off of debt issuance
costs associated with the prepayment of our private notes issued in 2010 and approximately $2 for the write-off of debt issuance costs
associated with the early repayment of the $380 of outstanding principal amount of a term loan agreement, which occurred in the first
quarter of 2013. In addition, in the second quarter of 2013, we recorded a loss on extinguishment of debt of approximately $13 for the
make-whole premium and the write-off of debt issuance costs, partially offset by a deferred gain associated with the January 2013 interest-
rate swap agreement termination, associated with the prepayment of notes due in 2014. See Note 5, Debt and Other Financing on pages F-
19 through F-21 of our 2015 Annual Report, and “Liquidity and Capital Resources” in this MD&A for more information.
Interest income decreased by approximately $11 compared to the prior-year period, primarily impacted by $12 for interest income that
benefited the fourth quarter of 2013, due to an out-of-period adjustment related to judicial deposits in Brazil.
Other expense, net, increased by approximately $56 compared to the prior-year period, primarily due to higher foreign exchange losses.
Foreign exchange losses increased by approximately $41 compared to the prior-year period, with the most significant impact due to the
weakening of the Russian ruble. In addition, the increase in other expense, net was also due to a more significant impact, approximately $54
in 2014 as compared to approximately $34 in 2013, from the devaluations of the Venezuelan currency on monetary assets and liabilities in
conjunction with highly inflationary accounting. See “Segment Review – Latin America” in this MD&A for a further discussion of our
Venezuela operations.
Effective Tax Rate
The effective tax rate in 2014 was negatively impacted by a non-cash income tax charge of approximately $396. This was largely due to a
valuation allowance, recorded in the fourth quarter of 2014, for deferred tax assets of approximately $375 which is primarily due to the
strengthening of the U.S. dollar against currencies of some of our key markets. The approximate $375 includes the valuation allowance
recorded for U.S. deferred tax assets of approximately $367, as well as approximately $8 associated with other foreign subsidiaries. The
effective tax rates in 2014 and 2013 were impacted by the devaluation of the Venezuelan currency in conjunction with highly inflationary
accounting discussed further within “Segment Review – Latin America” in this MD&A. The effective tax rate in 2013 was also negatively
impacted by the $89 accrual for the settlements related to the FCPA investigations, the non-cash impairment charges for goodwill and
intangible assets associated with our China business of approximately $42, a valuation allowance for deferred tax assets related to China of
approximately $9, and a valuation allowance for deferred tax assets related to Venezuela in the fourth quarter of approximately $42. See
Note 7, Income Taxes on pages F-22 through F-26 of our 2015 Annual Report, for more information.
The Adjusted effective tax rate for 2014 negatively impacted by an adjustment to the carrying value of our state deferred tax balances due
to changes in the expected tax rate, valuation allowances for deferred taxes, including the impact of legislative changes, and an out-of-
period adjustment of approximately $6 recorded in the fourth quarter of 2014.
Discontinued Operations
Loss from discontinued operations, net of tax was $40 compared to a loss of $119 for 2013. During 2013, we recorded a non-cash
impairment charge of approximately $117 ($74 after tax) for capitalized software related to SMT and a charge of approximately $79 ($50
after tax) associated with our Silpada jewelry business which was sold in July 2013. The North America Avon operations achieved lower
operating income in 2014 as compared with 2013 due to lower revenues, higher costs to implement restructuring initiatives and settlement
charges associated with the U.S. pension plan. These were partially offset by significant cost savings from our North America Avon business
as compared to 2013.
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