FORM 8-K |
Avon Products, Inc. | ||||
(Exact name of registrant as specified in charter) | ||||
New York | 1-4881 | 13-0544597 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
AVON PRODUCTS, INC. | |||||||||||||||
(Registrant) | |||||||||||||||
By | /s/ Robert Loughran | ||||||||||||||
Name: Robert Loughran | |||||||||||||||
Title: Vice President and Corporate Controller |
Exhibit | ||
No. | Description | |
99.1 | Press Release of Avon Products, Inc. dated October 31, 2013 |
Avon Reports Third-Quarter 2013 Results | ||||
Third-Quarter Revenue Down 7%; Down 1% in Constant Dollars1 | ||||
Operating Profit $68 Million; Adjusted1 Operating Profit $125 Million | ||||
Operating Margin 2.9%, down from 4.4% in the Third-Quarter 2012 | ||||
Adjusted1 Operating Margin 5.4%, down from 6.2% in the Third-Quarter 2012 |
• | Based on the significant lowering of our long-term revenue and earnings projections for China and the decline in revenue performance in the third quarter, which was significantly below our expectations, the Company completed an interim impairment analysis of China operations. As a result, the Company recorded a non-cash impairment charge of $42 million pre-tax, and a valuation allowance for deferred tax assets related to China of $9 million, or a combined $0.12 per diluted share. |
• | As a result of the 32% devaluation of Venezuelan currency, and using the U.S. historic dollar-cost basis of non-monetary assets, such as inventory, third-quarter 2013 operating profit was negatively impacted by approximately $15 million, or $.03 per diluted share. |
Latin America | |||||||||||
$ in millions | Third-Quarter 2013 | YTD 2013 | |||||||||
% var. vs 3Q12 | % var. vs 9M12 | ||||||||||
Total revenue | $ | 1,207.7 | (5)% | $ | 3,604.2 | (2)% | |||||
C$ revenue | 6% | 7% | |||||||||
Change in Active Representatives | (1)% | 2% | |||||||||
Change in units sold | (6)% | (2)% | |||||||||
Operating profit | 121.7 | (14)% | 370.9 | 20% | |||||||
Adjusted operating profit | 136.7 | (4)% | 417.8 | 31% | |||||||
Operating margin | 10.1 | % | (110) bps | 10.3 | % | 190 bps | |||||
Adjusted operating margin | 11.3 | % | 10 bps | 11.6 | % | 290 bps | |||||
• | Third-quarter constant-dollar revenue growth was favorably impacted by approximately two points due to the recognition of tax credits in Brazil in the third quarter of 2013, associated with a change in estimate of expected recoveries of VAT. The region's revenue growth was also due to higher average order, which benefited from pricing, including inflationary impacts, primarily in Argentina and Venezuela, and new Beauty product launches. |
• | Brazil revenue was up 1%, or 13% in constant dollars, which included an approximate four-point benefit due to the VAT credits. Revenue growth was also due to higher average order, primarily due to benefits from pricing, new Beauty product launches and continued strength in Fashion & Home. Constant-dollar revenue growth was driven by both Beauty and Fashion & Home. |
• | Mexico revenue was down 5%, or 7% in constant dollars, primarily driven by lower average order, partially offset by an increase in Active Representatives. Revenue in Mexico was negatively impacted by slowing economic activity and increased discounting by retail competition while we selectively raised prices. |
• | Venezuela revenue was down 22%, or up 15% in constant dollars, due to higher average order, benefiting from the inflationary impact on pricing that was partially offset by a decrease in units sold. Higher average order was partially offset by a decrease in Active Representatives, which was impacted by continued economic and political instability as well as service issues. |
• | Adjusted operating margin was favorably impacted by a benefit of 150 basis points associated with the Brazil VAT credits. The increase in Adjusted operating margin was also due to higher gross margin, primarily due to the favorable net impact of mix and pricing. These impacts were partially offset by higher Representative and sales leader investment, primarily in Brazil to support new product launches, and higher legal and bad debt expenses, largely in Brazil. Higher transportation costs, primarily in Argentina and Venezuela, were also a factor. |
Europe, Middle East & Africa | |||||||||||
$ in millions | Third-Quarter 2013 | YTD 2013 | |||||||||
% var. vs 3Q12 | % var. vs 9M12 | ||||||||||
Total revenue | $ | 619.2 | —% | $ | 2,030.7 | 1% | |||||
C$ revenue | 2% | 3% | |||||||||
Change in Active Representatives | (1)% | 2% | |||||||||
Change in units sold | —% | 3% | |||||||||
Operating profit | 61.4 | 15% | 276.9 | 53% | |||||||
Adjusted operating profit | 61.0 | 16% | 289.4 | 50% | |||||||
Operating margin | 9.9 | % | 130 bps | 13.6 | % | 460 bps | |||||
Adjusted operating margin | 9.9 | % | 140 bps | 14.3 | % | 470 bps | |||||
• | Third-quarter constant-dollar revenue growth was due to higher average order, which was partially offset by a decrease in Active Representatives. |
• | In Russia, revenue was down 4%, or 2% in constant dollars, primarily due to lower average order, which was partially offset by an increase in Active Representatives. |
• | U.K. revenue was down 4%, or 2% in constant dollars, primarily due to a decrease in Active Representatives, which was partially offset by higher average order. |
• | Turkey revenue was down 13%, or 4% in constant dollars, due to a decrease in Active Representatives, which was partially offset by higher average order. |
• | South Africa revenue was down 1%, or up 21% in constant dollars, due to higher average order, largely driven by an increase in units sold, as well as an increase in Active Representatives. |
• | Adjusted operating margin increased partially due to lower field compensation, primarily in Turkey, and higher gross margin. Gross margin benefited from lower material and overhead costs, which were partially offset by the unfavorable impact of foreign exchange. Additionally, lower net brochure costs also contributed to the operating margin increase. These items were partially offset by higher advertising costs. |
North America | |||||||||||
$ in millions | Third-Quarter 2013 | YTD 2013 | |||||||||
% var. vs 3Q12 | % var. vs 9M12 | ||||||||||
Total revenue | $ | 328.6 | (19)% | $ | 1,087.4 | (15)% | |||||
C$ revenue | (18)% | (15)% | |||||||||
Change in Active Representatives | (16)% | (14)% | |||||||||
Change in units sold | (15)% | (13)% | |||||||||
Operating loss | (32.7 | ) | * | (53.5 | ) | * | |||||
Adjusted operating loss | (33.5 | ) | * | (43.2 | ) | * | |||||
Operating margin | (10.0 | )% | (780) bps | (4.9 | )% | (450) bps | |||||
Adjusted operating margin | (10.2 | )% | (830) bps | (4.0 | )% | (450) bps | |||||
• | Third-quarter constant-dollar revenue decline was primarily due to a decrease in Active Representatives. Active Representatives were negatively impacted by recruitment challenges. |
• | In the third quarter of 2013, revenue in Canada was adversely impacted due to significant field disruptions as a result of the piloting of the Service Model Transformation (“SMT”) technology platform and associated business process changes initiated in the second quarter of 2013. |
• | North America Beauty sales declined 20%, driven primarily by skincare and fragrance, while Fashion & Home sales declined 16%, on both a reported and constant-dollar basis. |
• | The decline in Adjusted operating margin was primarily due to the impact on margin of the revenue decline with respect to fixed expenses. In addition, gross margin was lower, primarily due to actions to drive the sale of excess inventory and the unfavorable net impact of mix and pricing. Higher transportation costs also contributed to the operating margin decrease. These items were partially offset by lower net brochure costs, lower Representative and sales leader investments and benefits resulting from the Company’s cost-savings initiatives. |
Asia Pacific | |||||||||||
$ in millions | Third-Quarter 2013 | YTD 2013 | |||||||||
% var. vs 3Q12 | % var. vs 9M12 | ||||||||||
Total revenue | $ | 167.4 | (22)% | $ | 565.5 | (14)% | |||||
C$ revenue | (19)% | (13)% | |||||||||
Change in Active Representatives¹ | (10)% | (8)% | |||||||||
Change in units sold | (24)% | (15)% | |||||||||
Operating loss | (39.7 | ) | (31)% | (12.2 | ) | * | |||||
Adjusted operating profit | 2.6 | (82)% | 31.0 | (32)% | |||||||
Operating margin | (23.7 | )% | (970) bps | (2.2 | )% | (160) bps | |||||
Adjusted operating margin | 1.6 | % | (500) bps | 5.5 | % | (140) bps | |||||
• | Third-quarter constant-dollar revenue decline was driven by the unfavorable results of China and a decrease in Active Representatives in the other Asia Pacific markets. The region's revenue was also negatively impacted by approximately one point as a result of the Company’s decision to exit the South Korea and Vietnam markets. |
• | Revenue in the Philippines was down 9%, or 5% in constant dollars, as ongoing operational challenges in that market contributed to the decrease in Active Representatives and a decline in unit sales. |
• | Revenue in China was down 67%, or 69% in constant dollars, primarily due to declines in unit sales, partly due to the Company’s actions intended to reduce inventory levels held by beauty boutiques, which negatively impacted sales. Additionally, the number of beauty boutiques declined. |
• | The decline in Adjusted operating margin was primarily due to the impact on margin of the revenue decline with respect to fixed expenses, and higher advertising costs, largely in the Philippines. Adjusted operating margin was also negatively impacted by lower gross margin, primarily driven by the underperformance of skincare. These items were partially offset by benefits resulting from the Company’s cost-savings initiatives. |
Global Expenses | |||||||||||
$ in millions | Third-Quarter 2013 | YTD 2013 | |||||||||
% var. vs 3Q12 | % var. vs 9M12 | ||||||||||
Total global expenses | $ | 152.1 | (6)% | $ | 456.1 | (11)% | |||||
Allocated to segments | (109.6 | ) | (5)% | (318.4 | ) | (8)% | |||||
Net global expenses | 42.5 | (8)% | 137.7 | (18)% | |||||||
Adjusted net global expenses | 41.8 | (8)% | 123.3 | (13)% | |||||||
• | Adjusted net global expenses decreased, primarily due to lower professional and related fees associated with the FCPA matter as well as lower consulting fees, partially offset by higher expenses related to the SMT project. |
Contacts: | |
INVESTORS: | MEDIA: |
Amy Low Chasen | Jennifer Vargas |
Natalija Jovasevic | (212) 282-5404 |
(212) 282-5320 |
Footnotes | |
1 “Adjusted” items refer to financial results presented in accordance with U.S. GAAP that have been adjusted to exclude certain costs as described below, under “Non-GAAP Financial Measures.” We also refer to Adjusted financial measures as Constant $ items, which are Non-GAAP financial measures as described below under “Non-GAAP Financial Measures.” | |
2 In the first quarter of 2013, we renamed our "Growth in Active Representatives" performance metric as "Change in Active Representatives." In addition, we revised the definition of this metric to exclude China. As previously disclosed, our business in China is predominantly retail, and as a result, we do not believe including China within the Change in Active Representatives calculation provides for a relevant indicator of underlying business trends. There were no changes to the underlying calculation other than the exclusion of China. | |
• | our ability to improve our financial and operational performance and execute fully our global business strategy, including our ability to implement the key initiatives of, and realize the projected benefits (in the amounts and time schedules we expect) from, our stabilization strategies, cost savings initiative, multi-year restructuring programs and other initiatives, product mix and pricing strategies, enterprise resource planning, customer service initiatives, sales and operation planning process, outsourcing strategies, Internet platform and technology strategies, information technology and related system enhancements and cash management, tax, foreign currency hedging and risk management strategies, and any plans to invest these projected benefits ahead of future growth; |
• | the possibility of business disruption in connection with our stabilization strategies, cost savings initiative, multi-year restructuring programs, SMT or other initiatives; |
• | our ability to reverse declining margins and net income, particularly in North America, and to achieve profitable growth, particularly in our largest markets such as Brazil and developing and emerging markets such as Mexico and Russia; |
• | our ability to improve working capital and effectively manage doubtful accounts and inventory and implement initiatives to reduce inventory levels, including the potential impact on cash flows and obsolescence; |
• | our ability to reverse declines in Active Representatives, to implement our sales Leadership program globally, to generate Representative activity, to increase the number of consumers served per Representative and their engagement online, to enhance branding and the Representative and consumer experience and increase Representative productivity through field activation programs and technology tools and enablers, execution of SMT and other investments in the direct-selling channel, and to compete with other direct-selling organizations to recruit, retain and service Representatives and to continue to innovate the direct-selling model; |
• | general economic and business conditions in our markets, including social, economic and political uncertainties in the international markets in our portfolio; |
• | the effect of economic factors, including inflation and fluctuations in interest rates and currency exchange rates, as well as the designation of Venezuela as a highly inflationary economy and the devaluation of its currency, foreign exchange restrictions, particularly currency restrictions in Venezuela and Argentina, and the potential effect of such factors on our business, results of operations and financial condition; |
• | any developments in or consequences of investigations and compliance reviews, and any litigation related thereto, including the ongoing investigations and compliance reviews of FCPA and related U.S. and foreign law matters in China and additional countries, as well as any disruption or adverse consequences resulting from such investigations, reviews, related actions or litigation, including our ability to reach a settlement with the SEC and the DOJ with regard to the ongoing FCPA investigations or, if a settlement is reached, the timing of any such settlement or the terms of such settlement; |
• | a general economic downturn, a recession globally or in one or more of our geographic regions, or sudden disruption in business conditions, and the ability of our broad-based geographic portfolio to withstand an economic downturn, recession, cost inflation, commodity cost pressures, economic or political instability, competitive or other market pressures or conditions; |
• | the effect of political, legal, tax and regulatory risks imposed on us in the U.S. and abroad, our operations or our Representatives, including foreign exchange or other restrictions, adoption, interpretation and enforcement of foreign laws, including in jurisdictions such as Brazil, Russia, Venezuela and Argentina, and any changes thereto, as well as reviews and investigations by government regulators that have occurred or may occur from time to time, including, for example, local regulatory scrutiny in China; |
• | the impact of changes in tax rates on the value of our deferred tax assets, and declining earnings, including the amount of any domestic source loss and the type, jurisdiction and timing of any foreign source income, on our ability to realize foreign tax credits in the U.S.; |
• | our access to cash and short-term financing, and our ability to secure financing or financing at attractive rates; |
• | any changes to our credit ratings and the impact of such changes on our financing costs, rates, terms, debt service obligations and access to lending sources; |
• | the impact of any significant restructuring charges or significant legal or regulatory settlements on our ability to comply with certain covenants in our debt instruments; |
• | our ability to attract and retain key personnel; |
• | competitive uncertainties in our markets, including competition from companies in the cosmetics, fragrances, skincare and toiletries industry, some of which are larger than we are and have greater resources; |
• | the impact of the typically seasonal nature of our business, adverse effect of rising energy, commodity and raw material prices, changes in market trends, purchasing habits of our consumers and changes in consumer preferences, particularly given the global nature of our business and the conduct of our business in primarily one channel; |
• | other sudden disruption in business operations beyond our control as a result of events such as acts of terrorism or war, natural disasters, pandemic situations, large-scale power outages and similar events; |
• | key information technology systems, process or site outages and disruptions; |
• | the risk of product or ingredient shortages resulting from our concentration of sourcing in fewer suppliers; |
• | the impact of possible pension funding obligations, increased pension expense and any changes in pension regulations or interpretations thereof on our cash flow and results of operations; |
• | our ability to successfully identify new business opportunities and strategic alternatives and identify and analyze acquisition candidates, secure financing on favorable terms and negotiate and consummate acquisitions, as well as to successfully integrate or manage any acquired business; |
• | disruption in our supply chain or manufacturing and distribution operations; |
• | the quality, safety and efficacy of our products; |
• | the success of our research and development activities; |
• | our ability to protect our intellectual property rights; and |
• | the risk of an adverse outcome in any material pending and future litigations or with respect to the legal status of Representatives. |
Three Months Ended | Percent Change | Nine Months Ended | Percent Change | ||||||||||||||||||||
September 30 | September 30 | ||||||||||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||||||||||
Net sales | $ | 2,265.3 | $ | 2,472.7 | (8 | )% | $ | 7,139.2 | $ | 7,492.1 | (5 | )% | |||||||||||
Other revenue | 57.6 | 37.9 | 148.6 | 117.1 | |||||||||||||||||||
Total revenue | 2,322.9 | 2,510.6 | (7 | )% | 7,287.8 | 7,609.2 | (4 | )% | |||||||||||||||
Cost of sales | 871.7 | 971.2 | 2,732.5 | 2,915.6 | |||||||||||||||||||
Selling, general and administrative expenses | 1,340.9 | 1,384.8 | 4,068.8 | 4,337.4 | |||||||||||||||||||
Impairment of goodwill and intangible asset | 42.1 | 44.0 | 42.1 | 44.0 | |||||||||||||||||||
Operating profit | 68.2 | 110.6 | (38 | )% | 444.4 | 312.2 | 42 | % | |||||||||||||||
Interest expense | 30.3 | 27.3 | 90.8 | 76.8 | |||||||||||||||||||
Loss on extinguishment of debt | — | — | 86.0 | — | |||||||||||||||||||
Interest income | (3.4 | ) | (3.8 | ) | (8.2 | ) | (10.5 | ) | |||||||||||||||
Other expense, net | 9.7 | 4.8 | 69.6 | 28.6 | |||||||||||||||||||
Total other expenses | 36.6 | 28.3 | 238.2 | 94.9 | |||||||||||||||||||
Income from continuing operations, before taxes | 31.6 | 82.3 | (62 | )% | 206.2 | 217.3 | (5 | )% | |||||||||||||||
Income taxes | (38.0 | ) | (46.1 | ) | (139.5 | ) | (87.8 | ) | |||||||||||||||
(Loss) income from continuing operations, net of tax | (6.4 | ) | 36.2 | (118 | )% | 66.7 | 129.5 | (48 | )% | ||||||||||||||
Income (loss) from discontinued operations, net tax | 0.6 | (3.6 | ) | (50.9 | ) | (6.6 | ) | ||||||||||||||||
Net (loss) income | (5.8 | ) | 32.6 | 15.8 | 122.9 | ||||||||||||||||||
Net loss (income) attributable to noncontrolling interests | 0.3 | (1.0 | ) | (3.1 | ) | (3.2 | ) | ||||||||||||||||
Net (loss) income attributable to Avon | $ | (5.5 | ) | $ | 31.6 | (117 | )% | $ | 12.7 | $ | 119.7 | (89 | )% | ||||||||||
(Loss) earnings per share:(1) | |||||||||||||||||||||||
Basic | |||||||||||||||||||||||
Basic EPS from continuing operations | $ | (.01 | ) | $ | .08 | (113 | )% | $ | .15 | $ | .29 | (48 | )% | ||||||||||
Basic EPS from discontinued operations | $ | — | $ | (.01 | ) | $ | (.12 | ) | $ | (.02 | ) | ||||||||||||
Basic EPS attributable to Avon | $ | (.01 | ) | $ | .07 | (114 | )% | $ | .03 | $ | .27 | (89 | )% | ||||||||||
Diluted | |||||||||||||||||||||||
Diluted EPS from continuing operations | $ | (.01 | ) | $ | .08 | (113 | )% | $ | .15 | $ | .29 | (48 | )% | ||||||||||
Diluted EPS from discontinued operations | $ | — | $ | (.01 | ) | $ | (.12 | ) | $ | (.02 | ) | ||||||||||||
Diluted EPS attributable to Avon | $ | (.01 | ) | $ | .07 | (114 | )% | $ | .03 | $ | .27 | (89 | )% | ||||||||||
Weighted-average shares outstanding: | |||||||||||||||||||||||
Basic | 433.5 | 432.1 | 433.3 | 431.8 | |||||||||||||||||||
Diluted | 433.5 | 432.5 | 434.2 | 432.5 | |||||||||||||||||||
(1) Under the two-class method, (loss) earnings per share is calculated using net (loss) earnings allocable to common shares, which is derived by reducing net (loss) earnings by the (loss) earnings allocable to participating securities. Net (loss) earnings allocable to common shares used in the basic and diluted (loss) earnings per share calculation were ($5.4) and $30.8 for the three months ended September 30, 2013 and 2012, respectively. Net earnings allocable to common shares used in the basic and diluted earnings per share calculation were $12.6 and $117.0 for the nine months ended September 30, 2013 and 2012, respectively. | |||||||||||||||||||||||
September 30 | December 31 | |||||||
2013 | 2012 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 808.3 | $ | 1,206.9 | ||||
Accounts receivable, net | 690.2 | 752.1 | ||||||
Inventories | 1,200.0 | 1,101.1 | ||||||
Prepaid expenses and other | 733.5 | 827.0 | ||||||
Current assets of discontinued operations | — | 41.8 | ||||||
Total current assets | 3,432.0 | 3,928.9 | ||||||
Property, plant and equipment, at cost | 2,499.8 | 2,684.8 | ||||||
Less accumulated depreciation | (1,110.6 | ) | (1,158.8 | ) | ||||
Property, plant and equipment, net | 1,389.2 | 1,526.0 | ||||||
Goodwill | 279.6 | 330.3 | ||||||
Other intangible assets, net | 33.1 | 40.6 | ||||||
Other assets | 1,394.4 | 1,407.9 | ||||||
Noncurrent assets of discontinued operations | — | 148.8 | ||||||
Total assets | $ | 6,528.3 | $ | 7,382.5 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current Liabilities | ||||||||
Debt maturing within one year | $ | 243.1 | $ | 572.0 | ||||
Accounts payable | 865.2 | 914.3 | ||||||
Accrued compensation | 266.5 | 264.7 | ||||||
Other accrued liabilities | 551.4 | 645.3 | ||||||
Sales and taxes other than income | 180.8 | 210.6 | ||||||
Income taxes | 47.8 | 73.6 | ||||||
Current liabilities of discontinued operations | — | 24.1 | ||||||
Total current liabilities | 2,154.8 | 2,704.6 | ||||||
Long-term debt | 2,541.2 | 2,623.8 | ||||||
Employee benefit plans | 541.7 | 637.6 | ||||||
Long-term income taxes | 49.0 | 52.0 | ||||||
Other liabilities | 114.0 | 131.1 | ||||||
Noncurrent liabilities of discontinued operations | — | 0.1 | ||||||
Total liabilities | $ | 5,400.7 | $ | 6,149.2 | ||||
Shareholders’ Equity | ||||||||
Common stock | $ | 189.4 | $ | 188.3 | ||||
Additional paid-in-capital | 2,169.2 | 2,119.6 | ||||||
Retained earnings | 4,292.1 | 4,357.8 | ||||||
Accumulated other comprehensive loss | (959.3 | ) | (876.7 | ) | ||||
Treasury stock, at cost | (4,580.1 | ) | (4,571.9 | ) | ||||
Total Avon shareholders’ equity | 1,111.3 | 1,217.1 | ||||||
Noncontrolling interests | 16.3 | 16.2 | ||||||
Total shareholders’ equity | $ | 1,127.6 | $ | 1,233.3 | ||||
Total liabilities and shareholders’ equity | $ | 6,528.3 | $ | 7,382.5 | ||||
Nine Months Ended | ||||||||
September 30 | ||||||||
2013 | 2012 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 15.8 | $ | 122.9 | ||||
Loss from discontinued operations, net of tax | 50.9 | 6.6 | ||||||
Income from continuing operations | $ | 66.7 | $ | 129.5 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 174.9 | 158.4 | ||||||
Provision for doubtful accounts | 175.6 | 191.1 | ||||||
Provision for obsolescence | 84.6 | 83.8 | ||||||
Share-based compensation | 35.9 | 34.7 | ||||||
Deferred income taxes | (49.2 | ) | (101.9 | ) | ||||
Charge for Venezuelan monetary assets and liabilities | 34.1 | — | ||||||
Impairment of goodwill and intangible asset | 42.1 | 44.0 | ||||||
Other | 43.4 | 44.5 | ||||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (164.8 | ) | (186.3 | ) | ||||
Inventories | (224.0 | ) | (228.0 | ) | ||||
Prepaid expenses and other | 58.7 | 68.1 | ||||||
Accounts payable and accrued liabilities | (61.7 | ) | 71.6 | |||||
Income and other taxes | (36.8 | ) | (37.1 | ) | ||||
Noncurrent assets and liabilities | (83.2 | ) | (64.6 | ) | ||||
Net cash provided by operating activities of continuing operations | 96.3 | 207.8 | ||||||
Cash Flows from Investing Activities | ||||||||
Capital expenditures | (118.2 | ) | (134.7 | ) | ||||
Disposal of assets | 15.5 | 13.2 | ||||||
Purchases of investments | (23.7 | ) | (1.9 | ) | ||||
Proceeds from sale of investments | 6.4 | 2.0 | ||||||
Net cash used by investing activities of continuing operations | (120.0 | ) | (121.4 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Cash dividends | (79.8 | ) | (300.6 | ) | ||||
Debt, net (maturities of three months or less) | 49.0 | (624.5 | ) | |||||
Proceeds from debt | 1,481.1 | 713.7 | ||||||
Repayment of debt | (1,927.9 | ) | (90.0 | ) | ||||
Interest rate swap termination | 88.1 | 43.6 | ||||||
Proceeds from exercise of stock options | 18.2 | 7.9 | ||||||
Excess tax benefit realized from share-based compensation | (0.7 | ) | (3.4 | ) | ||||
Repurchase of common stock | (8.4 | ) | (8.5 | ) | ||||
Net cash used by financing activities of continuing operations | (380.4 | ) | (261.8 | ) | ||||
Net cash (used) provided by operating activities of discontinued operations | (4.0 | ) | 11.8 | |||||
Net cash provided (used) by investing activities of discontinued operations | 84.8 | (0.2 | ) | |||||
Net cash provided by discontinued operations | 80.8 | 11.6 | ||||||
Effect of exchange rate changes on cash and equivalents | (78.0 | ) | 16.2 | |||||
Net decrease in cash and equivalents | (401.3 | ) | (147.6 | ) | ||||
Cash and equivalents at beginning of year (1) | $ | 1,209.6 | $ | 1,245.1 | ||||
Cash and equivalents at end of period (2) | $ | 808.3 | $ | 1,097.5 |
THREE MONTHS ENDED SEPTEMBER 30, 2013 |
REGIONAL RESULTS | ||||||||||||||||||
$ in Millions | Total Revenue US$ | C$ (2) | Units Sold | Price/Mix C$ (2) | Active Reps (1) | Average Order C$ (2) | ||||||||||||
% var. vs 3Q12 | % var. vs 3Q12 | % var. vs 3Q12 | % var. vs 3Q12 | % var. vs 3Q12 | % var. vs 3Q12 | |||||||||||||
Latin America (2) | $ | 1,207.7 | (5)% | 6% | (6)% | 12% | (1)% | 7% | ||||||||||
Europe, Middle East & Africa | 619.2 | — | 2 | — | 2 | (1) | 3 | |||||||||||
North America | 328.6 | (19) | (18) | (15) | (3) | (16) | (2) | |||||||||||
Asia Pacific (1) | 167.4 | (22) | (19) | (24) | 5 | (10) | (9) | |||||||||||
Total from operations | 2,322.9 | (7) | (1) | (7) | 6 | (3) | 2 | |||||||||||
Global and other | — | — | — | — | — | — | — | |||||||||||
Total | $ | 2,322.9 | (7)% | (1)% | (7)% | 6% | (3)% | 2% | ||||||||||
2013 GAAP Operating Profit (Loss)US$ | % var. vs 3Q12 | 2013 GAAP Operating Margin US$ | 2013 Adjusted Operating Profit (Loss) US$ (3) | 2012 Adjusted Operating Profit (Loss) US$ (3) | 2013 Adjusted Operating Margin (3) | 2012 Adjusted Operating Margin (3) | ||||||||||||
Latin America | $ | 121.7 | (14)% | 10.1% | $ | 136.7 | $ | 142.3 | 11.3% | 11.2% | ||||||||
Europe, Middle East & Africa | 61.4 | 15 | 9.9 | 61.0 | 52.6 | 9.9 | 8.5 | |||||||||||
North America | (32.7 | ) | * | (10.0) | (33.5 | ) | (7.5 | ) | (10.2) | (1.9) | ||||||||
Asia Pacific | (39.7 | ) | (31) | (23.7) | 2.6 | 14.2 | 1.6 | 6.6 | ||||||||||
Total from operations | 110.7 | (29) | 4.8 | 166.8 | 201.6 | 7.2 | 8.0 | |||||||||||
Global and other | (42.5 | ) | 8 | — | (41.8 | ) | (45.4 | ) | — | — | ||||||||
Total | $ | 68.2 | (38)% | 2.9% | $ | 125.0 | $ | 156.2 | 5.4% | 6.2% |
CATEGORY SALES (US$) |
Consolidated | ||||||||
US$ | C$ | |||||||
% var. vs 3Q12 | % var. vs 3Q12 | |||||||
Beauty (color cosmetics/fragrances/skincare/personal care) | $ | 1,660.0 | (9)% | (2)% | ||||
Fashion (jewelry/watches/apparel/footwear/accessories/children's) | 362.7 | (11) | (6) | |||||
Home (gift & decorative products/housewares/entertainment & leisure/children's/nutrition) | 242.6 | (1) | 6 | |||||
Net sales | $ | 2,265.3 | (8)% | (2)% | ||||
Other revenue | 57.6 | 52 | 59 | |||||
Total revenue | $ | 2,322.9 | (7)% | (1)% | ||||
Beauty Category: | ||||||||
Fragrance | (8)% | (1)% | ||||||
Color | (5) | 2 | ||||||
Skincare | (12) | (6) | ||||||
Personal care | (11) | (5) | ||||||
Fashion & Home | (7) | (2) | ||||||
* calculation not meaningful | ||||||||
(1) In the first quarter of 2013, we revised the definition of Active Representatives to exclude China. As previously disclosed, our business in China is predominantly retail, and as a result, we do not believe including China within the Change in Active Representatives calculation provides for a relevant indicator of underlying business trends. There were no changes to the underlying calculation other than the exclusion of China. | ||||||||
(2) The $C Revenue, Price/Mix, and Average Order financial measures include the impact of the Value Added Taxes credits recognized in Brazil during the third quarter of 2013, which contributed approximately 2 points to Latin America and approximately 1 point to Total Avon financial measures. | ||||||||
(3) For a further discussion on our Non-GAAP financial measures, please refer to our discussion of Non-GAAP financial measures in this release and reconciliations of our Non-GAAP financial measures to related GAAP financial measure in the following supplemental schedules. |
NINE MONTHS ENDED SEPTEMBER 30, 2013 |
REGIONAL RESULTS | ||||||||||||||||||
$ in Millions | Total Revenue US$ | C$ | Units Sold | Price/Mix C$ | Active Reps (1) | Average Order C$ | ||||||||||||
% var. vs 9M12 | % var. vs 9M12 | % var. vs 9M12 | % var. vs 9M12 | % var. vs 9M12 | % var. vs 9M12 | |||||||||||||
Latin America | $ | 3,604.2 | (2)% | 7% | (2)% | 9% | 2% | 5% | ||||||||||
Europe, Middle East & Africa | 2,030.7 | 1 | 3 | 3 | — | 2 | 1 | |||||||||||
North America | 1,087.4 | (15) | (15) | (13) | (2) | (14) | (1) | |||||||||||
Asia Pacific (1) | 565.5 | (14) | (13) | (15) | 2 | (8) | (5) | |||||||||||
Total from operations | 7,287.8 | (4) | — | (4) | 4 | (1) | 1 | |||||||||||
Global and other | — | — | — | — | — | — | — | |||||||||||
Total | $ | 7,287.8 | (4)% | —% | (4)% | 4% | (1)% | 1% | ||||||||||
2013 GAAP Operating Profit (Loss)US$ | % var. vs 9M12 | 2013 GAAP Operating Margin US$ | 2013 Adjusted Operating Profit (Loss) US$ (2) | 2012 Adjusted Operating Profit US$ (2) | 2013 Adjusted Operating Margin (2) | 2012 Adjusted Operating Margin (2) | ||||||||||||
Latin America | $ | 370.9 | 20% | 10.3% | $ | 417.8 | $ | 319.8 | 11.6% | 8.7% | ||||||||
Europe, Middle East & Africa | 276.9 | 53 | 13.6 | 289.4 | 193.1 | 14.3 | 9.6 | |||||||||||
North America | (53.5 | ) | * | (4.9) | (43.2 | ) | 6.1 | (4.0) | 0.5 | |||||||||
Asia Pacific | (12.2 | ) | * | (2.2) | 31.0 | 45.5 | 5.5 | 6.9 | ||||||||||
Total from operations | 582.1 | 21 | 8.0 | 695.0 | 564.5 | 9.5 | 7.4 | |||||||||||
Global and other | (137.7 | ) | 18 | — | (123.3 | ) | (141.2 | ) | — | — | ||||||||
Total | $ | 444.4 | 42% | 6.1% | $ | 571.7 | $ | 423.3 | 7.8% | 5.6% |
CATEGORY SALES (US$) |
Consolidated | ||||||||
US$ | C$ | |||||||
% var. vs 9M12 | % var. vs 9M12 | |||||||
Beauty (color cosmetics/fragrances/skincare/personal care) | $ | 5,215.7 | (6)% | (1)% | ||||
Fashion (jewelry/watches/apparel/footwear/accessories/children's) | 1,182.3 | (6) | (3) | |||||
Home (gift & decorative products/housewares/entertainment & leisure/children's/nutrition) | 741.2 | 5 | 11 | |||||
Net sales | $ | 7,139.2 | (5)% | —% | ||||
Other revenue | 148.6 | 27 | 29 | |||||
Total revenue | $ | 7,287.8 | (4)% | —% | ||||
Beauty Category: | ||||||||
Fragrance | (3)% | 3% | ||||||
Color | (5) | — | ||||||
Skincare | (11) | (7) | ||||||
Personal care | (6) | (2) | ||||||
Fashion & Home | (2) | 2 | ||||||
* calculation not meaningful | ||||||||
(1) In the first quarter of 2013, we revised the definition of Active Representatives to exclude China. As previously disclosed, our business in China is predominantly retail, and as a result, we do not believe including China within the Change in Active Representatives calculation provides for a relevant indicator of underlying business trends. There were no changes to the underlying calculation other than the exclusion of China. | ||||||||
(2) For a further discussion on our Non-GAAP financial measures, please refer to our discussion of Non-GAAP financial measures in this release and reconciliations of our Non-GAAP financial measures to the related GAAP financial measure in the following supplemental schedules. |
$ in Millions (except per share data) | THREE MONTHS ENDED SEPTEMBER 30, 2013 | |||||||||||||||||||
Reported (GAAP) | CTI restructuring initiatives | Venezuelan special items | China impairment and other charges | Adjusted (Non-GAAP) | ||||||||||||||||
Cost of sales | $ | 871.7 | $ | — | $ | 14.9 | $ | — | $ | 856.8 | ||||||||||
Selling, general and administrative expenses | 1,340.9 | (0.2 | ) | — | — | 1,341.1 | ||||||||||||||
Impairment of goodwill and intangible asset | 42.1 | — | — | (42.1 | ) | — | ||||||||||||||
Operating profit | 68.2 | (0.2 | ) | 14.9 | 42.1 | 125.0 | ||||||||||||||
(Loss) income from continuing operations, before taxes | 31.6 | (0.2 | ) | 14.9 | 42.1 | 88.4 | ||||||||||||||
Income taxes | (38.0 | ) | 0.9 | — | 8.3 | (28.8 | ) | |||||||||||||
(Loss) income from continuing operations, net of tax | $ | (6.4 | ) | $ | 0.7 | $ | 14.9 | $ | 50.4 | $ | 59.6 | |||||||||
Diluted EPS from continuing operations | $ | (0.01 | ) | $ | — | $ | 0.03 | $ | 0.12 | $ | 0.14 | |||||||||
Gross margin | 62.5 | % | — | 0.6 | — | 63.1 | % | |||||||||||||
SG&A as a % of revenues | 57.7 | % | — | — | — | 57.7 | % | |||||||||||||
Operating margin | 2.9 | % | — | 0.6 | 1.8 | 5.4 | % | |||||||||||||
Effective tax rate | 120.1 | % | (0.9 | ) | (6.8 | ) | (79.8 | ) | 32.5 | % | ||||||||||
SEGMENT OPERATING PROFIT (LOSS) | ||||||||||||||||||||
Latin America | $ | 121.7 | $ | 0.1 | $ | 14.9 | $ | — | $ | 136.7 | ||||||||||
Europe, Middle East & Africa | 61.4 | (0.4 | ) | — | — | 61.0 | ||||||||||||||
North America | (32.7 | ) | (0.8 | ) | — | — | (33.5 | ) | ||||||||||||
Asia Pacific | (39.7 | ) | 0.2 | — | 42.1 | 2.6 | ||||||||||||||
Global and other | (42.5 | ) | 0.7 | — | — | (41.8 | ) | |||||||||||||
Total | $ | 68.2 | $ | (0.2 | ) | $ | 14.9 | $ | 42.1 | $ | 125.0 | |||||||||
SEGMENT OPERATING MARGIN | ||||||||||||||||||||
Latin America | 10.1 | % | — | 1.2 | — | 11.3 | % | |||||||||||||
Europe, Middle East & Africa | 9.9 | % | (0.1 | ) | — | — | 9.9 | % | ||||||||||||
North America | (10.0 | )% | (0.2 | ) | — | — | (10.2 | )% | ||||||||||||
Asia Pacific | (23.7 | )% | 0.1 | — | 25.1 | 1.6 | % | |||||||||||||
Global and other | — | — | — | — | — | |||||||||||||||
Total | 2.9 | % | — | 0.6 | 1.8 | 5.4 | % |
$ in Millions (except per share data) | NINE MONTHS ENDED SEPTEMBER 30, 2013 | |||||||||||||||||||||||||||
Reported (GAAP) | CTI restructuring initiatives | Venezuelan special items | FCPA accrual | China impairment and other charges | Loss on extinguishment of debt | Adjusted (Non-GAAP) | ||||||||||||||||||||||
Cost of sales | $ | 2,732.5 | $ | (0.9 | ) | $ | 39.7 | $ | — | $ | — | $ | — | $ | 2,693.7 | |||||||||||||
Selling, general and administrative expenses | 4,068.8 | 29.4 | 5.0 | 12.0 | — | — | 4,022.4 | |||||||||||||||||||||
Impairment of goodwill and intangible assets | 42.1 | — | — | — | (42.1 | ) | — | — | ||||||||||||||||||||
Operating profit | 444.4 | 28.5 | 44.7 | 12.0 | 42.1 | — | 571.7 | |||||||||||||||||||||
Income from continuing operations, before taxes | 206.2 | 28.5 | 78.8 | 12.0 | 42.1 | 86.0 | 453.5 | |||||||||||||||||||||
Income taxes | (139.5 | ) | (8.3 | ) | 16.6 | — | 8.3 | (31.6 | ) | (154.3 | ) | |||||||||||||||||
Income from continuing operations, net of tax | $ | 66.7 | $ | 20.2 | $ | 95.4 | $ | 12.0 | $ | 50.4 | $ | 54.4 | $ | 299.1 | ||||||||||||||
Diluted EPS from continuing operations | $ | 0.15 | $ | 0.05 | $ | 0.22 | $ | 0.03 | $ | 0.12 | $ | 0.12 | $ | 0.68 | ||||||||||||||
Gross margin | 62.5 | % | — | 0.5 | — | — | — | 63.0 | % | |||||||||||||||||||
SG&A as a % of revenues | 55.8 | % | (0.4 | ) | (0.1 | ) | (0.2 | ) | — | — | 55.2 | % | ||||||||||||||||
Operating margin | 6.1 | % | 0.4 | 0.6 | 0.2 | 0.6 | — | 7.8 | % | |||||||||||||||||||
Effective tax rate | 67.6 | % | (0.3 | ) | (17.8 | ) | (1.2 | ) | (14.8 | ) | 0.6 | 34.0 | % | |||||||||||||||
SEGMENT OPERATING PROFIT (LOSS) | ||||||||||||||||||||||||||||
Latin America | $ | 370.9 | $ | 2.2 | $ | 44.7 | $ | — | $ | — | $ | 417.8 | ||||||||||||||||
Europe, Middle East & Africa | 276.9 | 12.5 | — | — | — | 289.4 | ||||||||||||||||||||||
North America | (53.5 | ) | 10.3 | — | — | — | (43.2 | ) | ||||||||||||||||||||
Asia Pacific | (12.2 | ) | 1.1 | — | — | 42.1 | 31.0 | |||||||||||||||||||||
Global and other | (137.7 | ) | 2.4 | — | 12.0 | — | (123.3 | ) | ||||||||||||||||||||
Total | $ | 444.4 | $ | 28.5 | $ | 44.7 | $ | 12.0 | $ | 42.1 | $ | 571.7 | ||||||||||||||||
SEGMENT OPERATING MARGIN | ||||||||||||||||||||||||||||
Latin America | 10.3 | % | 0.1 | 1.2 | — | — | 11.6 | % | ||||||||||||||||||||
Europe, Middle East & Africa | 13.6 | % | 0.6 | — | — | — | 14.3 | % | ||||||||||||||||||||
North America | (4.9 | )% | 0.9 | — | — | — | (4.0 | )% | ||||||||||||||||||||
Asia Pacific | (2.2 | )% | 0.2 | — | — | 7.4 | 5.5 | % | ||||||||||||||||||||
Global and other | — | — | — | — | — | — | ||||||||||||||||||||||
Total | 6.1 | % | 0.4 | 0.6 | 0.2 | 0.6 | 7.8 | % |
$ in Millions (except per share data) | THREE MONTHS ENDED SEPTEMBER 30, 2012 | |||||||||||||||
Reported (GAAP) | CTI restructuring initiatives | China impairment and other charges | Adjusted (Non-GAAP) | |||||||||||||
Cost of sales | $ | 971.2 | $ | (0.1 | ) | $ | — | $ | 971.3 | |||||||
Selling, general and administrative expenses | 1,384.8 | 1.7 | — | 1,383.1 | ||||||||||||
Impairment of goodwill and intangible asset | 44.0 | — | 44.0 | — | ||||||||||||
Operating profit | 110.6 | 1.6 | 44.0 | 156.2 | ||||||||||||
Income from continuing operations, before taxes | 82.3 | 1.6 | 44.0 | 128.0 | ||||||||||||
Income taxes | (46.1 | ) | (0.7 | ) | — | (46.9 | ) | |||||||||
Income from continuing operations, net of tax | $ | 36.2 | $ | 0.9 | $ | 44.0 | $ | 81.1 | ||||||||
Diluted EPS from continuing operations | $ | 0.08 | $ | — | $ | 0.10 | $ | 0.18 | ||||||||
Gross margin | 61.3 | % | — | — | 61.3 | % | ||||||||||
SG&A as a % of revenues | 55.2 | % | (0.1 | ) | — | 55.1 | % | |||||||||
Operating margin | 4.4 | % | 0.1 | 1.8 | 6.2 | % | ||||||||||
Effective tax rate | 56.0 | % | 0.1 | (19.5 | ) | 36.6 | % | |||||||||
SEGMENT OPERATING PROFIT (LOSS) | ||||||||||||||||
Latin America | $ | 142.2 | $ | 0.1 | $ | — | $ | 142.3 | ||||||||
Europe, Middle East & Africa | 53.6 | (1.0 | ) | — | 52.6 | |||||||||||
North America | (8.8 | ) | 1.3 | — | (7.5 | ) | ||||||||||
Asia Pacific | (30.2 | ) | 0.4 | 44.0 | 14.2 | |||||||||||
Global and other | (46.2 | ) | 0.8 | — | (45.4 | ) | ||||||||||
Total | $ | 110.6 | $ | 1.6 | $ | 44.0 | $ | 156.2 | ||||||||
SEGMENT OPERATING MARGIN | ||||||||||||||||
Latin America | 11.2 | % | — | — | 11.2 | % | ||||||||||
Europe, Middle East & Africa | 8.6 | % | (0.2 | ) | — | 8.5 | % | |||||||||
North America | (2.2 | )% | 0.3 | — | (1.9 | )% | ||||||||||
Asia Pacific | (14.0 | )% | 0.2 | 20.4 | 6.6 | % | ||||||||||
Global and other | — | — | — | — | ||||||||||||
Total | 4.4 | % | 0.1 | 1.8 | 6.2 | % |
$ in Millions (except per share data) | NINE MONTHS ENDED SEPTEMBER 30, 2012 | |||||||||||||||
Reported (GAAP) | CTI restructuring initiatives | China impairment and other charges | Adjusted (Non-GAAP) | |||||||||||||
Cost of sales | $ | 2,915.6 | $ | 3.2 | $ | — | $ | 2,912.4 | ||||||||
Selling, general and administrative expenses | 4,337.4 | 63.9 | — | 4,273.5 | ||||||||||||
Impairment of goodwill and intangible asset | 44.0 | — | (44.0 | ) | — | |||||||||||
Operating profit | 312.2 | 67.1 | 44.0 | 423.3 | ||||||||||||
Income from continuing operations, before taxes | 217.3 | 67.1 | 44.0 | 328.4 | ||||||||||||
Income taxes | (87.8 | ) | (22.1 | ) | — | (109.9 | ) | |||||||||
Income from continuing operations, net of tax | $ | 129.5 | $ | 45.0 | $ | 44.0 | $ | 218.5 | ||||||||
Diluted EPS from continuing operations | $ | 0.29 | $ | 0.10 | $ | 0.10 | $ | 0.49 | ||||||||
Gross margin | 61.7 | % | — | — | 61.7 | % | ||||||||||
SG&A as a % of revenues | 57.0 | % | (0.8 | ) | — | 56.2 | % | |||||||||
Operating margin | 4.1 | % | 0.9 | 0.6 | 5.6 | % | ||||||||||
Effective tax rate | 40.4 | % | (0.1 | ) | (6.8 | ) | 33.5 | % | ||||||||
SEGMENT OPERATING PROFIT (LOSS) | ||||||||||||||||
Latin America | $ | 307.9 | $ | 11.9 | $ | — | $ | 319.8 | ||||||||
Europe, Middle East & Africa | 181.4 | 11.7 | — | 193.1 | ||||||||||||
North America | (5.4 | ) | 11.5 | — | 6.1 | |||||||||||
Asia Pacific | (3.7 | ) | 5.2 | 44.0 | 45.5 | |||||||||||
Global and other | (168.0 | ) | 26.8 | — | (141.2 | ) | ||||||||||
Total | $ | 312.2 | $ | 67.1 | $ | 44.0 | $ | 423.3 | ||||||||
SEGMENT OPERATING MARGIN | ||||||||||||||||
Latin America | 8.4 | % | 0.3 | — | 8.7 | % | ||||||||||
Europe, Middle East & Africa | 9.0 | % | 0.6 | — | 9.6 | % | ||||||||||
North America | (0.4 | )% | 0.9 | — | 0.5 | % | ||||||||||
Asia Pacific | (0.6 | )% | 0.8 | 6.7 | 6.9 | % | ||||||||||
Global and other | — | — | — | — | ||||||||||||
Total | 4.1 | % | 0.9 | 0.6 | 5.6 | % |
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