Avon 2015 Annual Report Download - page 52

PART II
The decrease of 150 basis points in Adjusted gross margin was primarily due to the following:
• a decrease of approximately 270 basis points due to the unfavorable impact of foreign currency transaction losses and foreign currency
translation;
• a decrease of 40 basis points associated with the net impact of VAT credits in Brazil recognized in revenue in 2014 that did not recur in
2015; and
• a decrease of 20 basis points as a result of the IPI tax law on cosmetics in Brazil that went into effect in May 2015.
These items were partially offset by the following:
• an increase of 130 basis points due to the favorable net impact of mix and pricing, primarily in Latin America, which includes the
realization of price increases in markets experiencing relatively high inflation (Venezuela and Argentina); and
• an increase of approximately 60 basis points due to lower supply chain costs, primarily in Europe, Middle East & Africa which was largely
due to lower overhead costs.
The negative impact of foreign currency transaction losses was partially mitigated by the benefits of pricing as we realized the impact of
inflation in certain of our markets.
See “Segment Review – Latin America” in this MD&A for a further discussion of the VAT credits and IPI tax law in Brazil.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2015 decreased approximately $664 compared to 2014. This decrease is primarily due to
the favorable impact of foreign currency translation, as the strengthening of the U.S. dollar against many of our foreign currencies resulted
in lower reported selling, general and administrative expenses. The decrease in selling, general and administrative expenses is also due to the
additional $46 accrual recorded in the first quarter of 2014 for the settlements related to the FCPA investigations and a lower amount of CTI
restructuring. Partially offsetting the decrease in selling, general and administrative expenses was an approximate $90 impairment charge
recorded in 2015 to reflect the write-down of the long-lived assets to their estimated fair value associated with the devaluation of the
Venezuelan currency in conjunction with highly inflationary accounting, higher Representative, sales leader and field expense, higher foreign
currency transaction costs and higher expenses associated with long-term employee incentive compensation plans as the prior-year period
includes the benefit from the reversal of such accruals that did not recur in the current-year period.
Selling, general and administrative expenses and Adjusted selling, general, and administrative expenses as a percentage of revenue increased
250 basis points and 220 basis points, respectively, compared to 2014. In the current-year period, selling, general and administrative
expenses as a percentage of revenue was impacted by an approximate $90 impairment charge recorded in 2015 to reflect the write-down
of the long-lived assets to their estimated fair value associated with the devaluation of the Venezuelan currency in conjunction with highly
inflationary accounting, the approximate $7 aggregate settlement charges associated with the payments made to former employees who
were vested and participated in the U.S. defined benefit pension plan, approximately $3 of transaction-related costs associated with the
separation of North America that were included in continuing operations, and approximately $1 associated with our Venezuela operations
for certain non-monetary assets carried at the historical U.S. dollar cost following the devaluation of the Venezuelan currency in conjunction
with highly inflationary accounting. In the prior-year period, selling, general and administrative expenses as a percentage of revenue was
impacted by the additional $46 accrual recorded in 2014 for the settlements related to the FCPA investigations that did not recur in 2015,
approximately $16 associated with our Venezuela operations for certain non-monetary assets carried at the historical U.S. dollar cost
following the devaluation of the Venezuelan currency in conjunction with highly inflationary accounting, and the approximate $10
aggregate settlement charges associated with the payments made to former employees who were vested and participated in the U.S.
defined benefit pension plan. Additionally, the selling, general and administrative expenses as a percentage of revenue comparison was
impacted by lower CTI restructuring as compared to the prior-year period.
See “Segment Review – Latin America” in this MD&A and Note 1, Description of the Business and Summary of Significant Accounting
Policies on pages F-8 through F-14 of our 2015 Annual Report for a further discussion of our Venezuela operations, Note 15, Contingencies
on pages F-48 through F-51 of our 2015 Annual Report for more information on the FCPA investigations, “Segment Review – Global and
Other Expenses” in this MD&A and Note 11, Employee Benefit Plans on pages F-34 through F-42 of our 2015 Annual Report for a further
discussion of the pension settlement charges, and Note 14, Restructuring Initiatives on pages F-45 through F-48 of our 2015 Annual Report
for more information on CTI restructuring.
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