Avon 2015 Annual Report Download - page 56

PART II
The decrease of 90 basis points in Adjusted gross margin was primarily due to the following:
• a decrease of approximately 140 basis points due to the unfavorable impact of foreign currency transaction losses and foreign currency
translation, driven by Europe, Middle East & Africa and Latin America; and
• an increase of 80 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).
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2014 decreased approximately $535 compared to 2013. 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 $89 accrual
for the settlements relating to the FCPA investigations recorded in 2013, lower expenses related to our Service Model Transformation (“SMT”)
project as a result of our decision to halt the further roll-out beyond the pilot market of Canada in the fourth quarter of 2013, lower professional
and related fees associated with the FCPA investigation and compliance reviews and lower bad debt expense. Partially offsetting the decrease in
selling, general and administrative expenses was the additional $46 accrual recorded in the first quarter of 2014 for the settlements related to the
FCPA investigations and a higher amount of CTI restructuring primarily associated with the $400M Cost Savings Initiative.
Selling, general and administrative expenses and Adjusted selling, general and administrative expenses as a percentage of revenue decreased
80 basis points and 120 basis points, respectively, compared to 2013. The selling, general and administrative expenses as a percentage of
revenue comparison was impacted by a higher amount of CTI restructuring as compared to the prior-year period. Additionally, in the
current-year period, selling, general and administrative expenses as a percentage of revenue was impacted by the additional $46 accrual
recorded in the first quarter of 2014 for the settlements related to the FCPA investigations, approximately $16 associated with our
Venezuela operations for certain non-monetary assets carried at the historical U.S. dollar cost following a devaluation, and the approximate
$10 aggregate settlement charges recorded in 2014 associated with the payments made to former employees who were vested and
participated in the U.S. defined benefit pension plan. In the prior-year period, selling, general and administrative expenses as a percentage of
revenue was impacted by the $89 accrual for the settlements relating to the FCPA investigations and $5 associated with our Venezuela
operations for certain non-monetary assets carried at the historical U.S. dollar cost following a devaluation.
See Note 14, Restructuring Initiatives on pages F-45 through F-48 of our 2015 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 2015 Annual Report
for more information on SMT, 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 “Segment Review – Latin America”
in this MD&A for a further discussion of our Venezuela operations.
The decrease of 120 basis points in Adjusted selling, general and administrative expenses as a percentage of revenue was primarily due to
the following:
• a decrease of 80 basis points from lower expenses related to our SMT project as a result of our decision to halt the further roll-out beyond
the pilot market of Canada in the fourth quarter of 2013;
• a decrease of 50 basis points primarily due to the impact of Constant $ revenue growth with respect to our fixed expenses. In addition,
lower fixed expenses, primarily resulting from our cost savings initiatives, mainly reductions in headcount, were largely offset by the
inflationary impact on our expenses;
• a decrease of 30 basis points as a result of the net impact of the incremental tax credits in Brazil recognized as revenue in 2014 and 2013;
• a decrease of 30 basis points from lower Representative and sales leader expense, primarily in Latin America;
• a decrease of 30 basis points from lower bad debt expense; and
• a decrease of 30 basis points from lower professional and related fees associated with the FCPA investigation and compliance reviews.
These items were partially offset by the following:
• an increase of approximately 100 basis points due to the unfavorable impact of foreign currency translation and foreign currency
transaction losses.
See “Segment Review – Latin America” in this MD&A for a further discussion of the tax credits in Brazil.
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