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PART II
as approximately $45 was recognized in 2013 associated with carrying certain non-monetary assets at the historical U.S. dollar cost
following a devaluation. See “Segment Review – Latin America” in this MD&A for a further discussion of Venezuela.
The increase of 130 basis points in Adjusted gross margin was primarily due to the following:
• an increase of 70 basis points due to lower supply chain costs, largely due to 60 points from lower freight costs, primarily in Latin America
due to reduced usage of air freight;
• an increase of 70 basis points due to the favorable net impact of mix and pricing, primarily in Latin America including benefits in pricing
due to the realization of price increases in advance of costs in markets experiencing relatively high inflation (Venezuela and Argentina),
while mix negatively impacted gross margin due to higher growth in Fashion & Home;
• a decrease of 60 basis points due to the unfavorable impact of foreign currency transaction losses and foreign currency translation; and
• various other insignificant items that contributed to the increase in gross margin and Adjusted gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2013 decreased approximately $176 compared to 2012. This decrease is primarily due to
the favorable impact of foreign exchange, lower professional and related fees associated with the FCPA investigation and compliance
reviews, lower CTI restructuring, and lower advertising costs, partially offset by a non-cash impairment charge of approximately $117 for
capitalized software related to SMT, which was recorded during the fourth quarter of 2013, the $89 accrual for the settlements related to
the FCPA investigations and higher distribution costs.
As a percentage of revenue, selling, general and administrative expenses increased 160 basis points, while Adjusted selling, general and
administrative expenses was relatively unchanged compared to 2012. Selling, general and administrative expenses as a percentage of
revenue in 2013 was impacted by a non-cash impairment charge of approximately $117 for capitalized software related to SMT, the $89
accrual for the settlements relating to the FCPA investigations and approximately $5 associated with our Venezuela operations for certain
non-monetary assets carried at the historical U.S. dollar cost following a devaluation, partially offset by lower CTI restructuring.
See Note 14, Restructuring Initiatives, on pages F-43 through F-47 of our 2014 Annual Report for more information on CTI restructuring,
Note 1, Description of the Business and Summary of Significant Accounting Policies on pages F-8 through F-14 of our 2014 Annual Report
for more information on SMT, Note 15, Contingencies on pages F-47 through F-49 of our 2014 Annual Report for more information on the
FCPA investigations and “Segment Review – Latin America” in this MD&A for a further discussion of Venezuela.
The primary drivers of Adjusted selling, general and administrative expenses as a percentage of revenue as compared to the prior year were
the following:
• an increase of 30 basis points from higher distribution costs, driven by increased transportation costs, primarily in Latin America, and
increased costs per unit as a result of lower volume in North America;
• an increase of 20 basis points due to the unfavorable impact of foreign currency translation and foreign currency transaction losses;
• a decrease of 20 basis points from lower administrative expenses, primarily due to lower professional and related fees associated with the
FCPA investigation and compliance reviews, as well as lower compensation costs; and
• a decrease of 20 basis points from lower net brochure costs, primarily in Europe and North America, partially driven by initiatives to reduce
the cost of our brochures.
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, as
compared to a non-cash impairment charge of approximately $44 in the third quarter of 2012 for goodwill, both associated with our China
business. See Note 16, Goodwill and Intangible Assets on pages F-49 through F-51 of our 2014 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 increased by 16% compared to the prior-year period, primarily due to higher average interest rates partially offset by lower
outstanding debt balances.