Avon 2012 Annual Report Download - page 49

PART II
Total revenue during 2011 declined 4% primarily due to a decrease in Active Representatives, partially offset by favorable foreign exchange.
On a Constant $ basis, revenue decreased 9%. Revenue declined 20% in China during 2011, or 24% in Constant $. Revenue grew 3% in
the Philippines during 2011, benefiting from favorable foreign exchange. Constant $ revenue in the Philippines declined 1% in 2011
reflecting increased competitive activity. The region’s results were negatively impacted by a continued decline in skincare sales during 2011.
Operating margin and adjusted Non-GAAP operating margin increased .2 points, or declined .3 points on a Constant $ basis, primarily as a
result of:
• a decline of 1.1 points due to the impact of lower revenues while continuing to incur overhead expenses that do not vary directly with
revenue;
• a decline of 1.0 point from higher RVP spending;
• a decline of .8 points due to lower gross margin due to adverse product mix and higher commodity costs, partially offset by favorable
pricing;
• a benefit of 3.3 points from lower advertising costs; and
• various other insignificant items that contributed to the decline in operating margin and adjusted Non-GAAP operating margin.
Liquidity and Capital Resources
Our principal sources of funds historically have been cash flows from operations, commercial paper, borrowings under lines of credit, public
offerings of notes, bank financings, and a private placement. At December 31, 2012 we had cash and cash equivalents totaling $1,210. As
disclosed in the “Segment Review – Latin America” section of this MD&A, we held cash balances associated with our Venezuela operations
denominated in Bolívares amounting to approximately $171 when translated at the official exchange rate at December 31, 2012. In February
2013, the Venezuelan government devalued its currency by approximately 32%. Currency restrictions enacted by the Venezuelan government
have limited our ability to repatriate dividends and royalties from our Venezuelan operations. For more details with respect to these currency
restrictions and the currency devaluation, see the “Segment Review – Latin America” section of this MD&A above, and for more information
regarding risks with respect to these currency restrictions, see “Risk Factors – We are subject to financial risks related to our international
operations, including exposure to foreign currency fluctuations” included in Item 1A on pages 7 through 18 of our 2012 Annual Report.
As part of an overall review of our capital structure:
• On November 1, 2012, we announced a decrease in the quarterly dividend from $.23 per share to $.06 per share, for the fourth-quarter
dividend paid in December of 2012. We have maintained the dividend of $.06 for the first quarter of 2013.
• During the fourth quarter of 2012, we determined that the Company may repatriate offshore cash to meet certain domestic funding needs,
including improving our capital structure. Accordingly, we are no longer asserting that the undistributed earnings of foreign subsidiaries are
indefinitely reinvested. See the “Results Of Continuing Operations – Consolidated” section of this MD&A above for more details.
• In January 2013, we terminated interest-rate swap agreements with notional amounts totaling $1,000, for net proceeds of $88.1.
In February 2013, we issued a notice of prepayment of the entire $535 outstanding principal amount of our Private Notes (as defined
below). The prepayment price is equal to 100% of the principal amount, plus accrued interest of approximately $7 and a make-whole
premium estimated to be approximately $65. The estimate of the accrued interest is based on the applicable interest rate on the notes
(which factors in our long-term credit ratings). The estimate of the make-whole premium is based on the applicable interest rate on the
notes (which factors in our long-term credit ratings) and the prices of the relevant U.S. Treasury securities as of the date of the notice of
prepayment. Accordingly, these amounts may change when we make the final calculation of the prepayment price two business days in
advance of the prepayment date, which is March 29, 2013. During 2013, $375 principal amount of our public notes will mature, specifically
$250 principal amount in March 2013 and $125 principal amount in May 2013. We currently expect to repay our Private Notes and
maturities of public notes through the use of available cash on hand, as well as through refinancing transactions in the debt capital markets,
although there can be no assurances that we will be able to obtain financing for these purposes on commercially reasonable terms or at all.
In the event we are unable to obtain such financing, we may elect, among other things, to utilize our revolving credit facility. As noted
below, the revolving credit facility expires in November 2013 and any draw-downs under that facility would have to be repaid upon
expiration. We expect to have funds available to repay any outstanding amounts under the revolving credit facility from cash generated from
operations and, if necessary, reductions in discretionary expenditures.
In March 2014, $500 principal amount of our public notes will mature. We currently expect to repay this maturity through the use of
available cash on hand, as well as through refinancing transactions in the debt capital markets, although there can be no assurances that we