Proctor and Gamble 2016 Annual Report Download - page 31

The Procter & Gamble Company 17
Fiscal year 2015 compared with fiscal year 2014
Gross margin increased 10 basis points to 47.6% of net sales
in 2015. Gross margin benefited from:
• a 200 basis point impact from manufacturing cost savings
and
• a 90 basis point benefit from higher pricing.
These impacts were partially offset by:
• a 110 basis point impact from unfavorable geographic and
product mix, primarily from declines in the higher than
average margin Beauty and Grooming segments as well
as within the Fabric & Home Care and Grooming
segments,
• a 50 basis point impact from unfavorable foreign
exchange,
• a 40 basis point impact from costs related to initiatives and
capacity investments,
• a 30 basis point impact from higher restructuring costs and
• smaller impacts from lower volume scale and higher
commodity costs.
Total SG&A decreased 4% to $20.6 billion, as reduced
overhead and marketing spending was partially offset by
increased foreign exchange transaction charges. SG&A as a
percentage of net sales increased 30 basis points to 29.1%, as
the negative scale impacts of lower net sales and inflationary
impacts were partially offset by cost savings efforts.
• Marketing spending as a percentage of net sales decreased
60 basis points behind lower spending due to efficiency
efforts.
• Overhead spending as a percentage of net sales increased
50 basis points as productivity savings of 60 basis points
from reduced overhead spending were more than offset
by wage inflation, investments in research and
development, the negative scale impacts of lower net sales
and higher restructuring costs.
• Increased foreign exchange transaction charges added
approximately 40 basis points to SG&A as a percentage
of net sales, as current year foreign currency transaction
charges (from revaluing receivables and payables
denominated in a currency other than a local entity’s
functional currency) were partially offset by lower year-
on-year charges for Venezuela remeasurement and
devaluation.
During fiscal 2015, the Company incurred a $2.0 billion ($2.1
billion after tax) charge related to the deconsolidation of its
Venezuelan subsidiaries. See the “Venezuela Impacts” later in
the Results of Operations section.
Non-Operating Items
Fiscal year 2016 compared with fiscal year 2015
• Interest expense was $579 million in 2016, a decrease of
$47 million versus the prior year due to lower average debt
balances.
• Interest income was $182 million in 2016, an increase of
$33 million versus the prior year primarily due to
increasing cash, cash equivalents and investment
securities balances.
• Other non-operating income, which primarily includes
divestiture gains and investment income, decreased $115
million to $325 million, due primarily to lower gains on
minor brand divestitures. In 2016, we had approximately
$300 million in minor brand divestiture gains, including
Escudo and certain hair care brands in Europe and IMEA.
The prior year acquisition and divestiture activities
included approximately $450 million in divestiture gains,
including Zest, Camay, Fekkai and Wash & Go hair care
brands and Vaposteam.
Fiscal year 2015 compared with fiscal year 2014
• Interest expense was $626 million in 2015 a decrease of
$83 million versus the prior year due to lower average debt
balances and a decrease in weighted average interest rates.
• Interest income was $149 million in 2015, an increase of
$50 million versus the prior year due to an increase in cash,
cash equivalents and investment securities.
• Other non-operating income increased $231 million to
$440 million, primarily due to minor brand divestiture
gains. In 2015, we had approximately $450 million in
minor brand divestiture gains, including Zest, Camay,
Fekkai and Wash & Go hair care brands and Vaposteam.
The prior year acquisition and divestiture activities
included approximately $150 million in divestiture gains,
primarily related to the sale of our bleach businesses in
Europe, IMEA and Latin America, our Pert hair care
business in Latin America and MDVIP.
Income Taxes
Fiscal year 2016 compared with fiscal year 2015
The effective tax rate on continuing operations increased 30
basis points to 25.0% in 2016 mainly due to a 260 basis point
negative impact from the unfavorable geographic mix of
earnings, a 130 basis point impact in the current year from the
establishment of valuation allowances on deferred tax assets
related to net operating loss carryforwards and the impact of
favorable discrete adjustments related to uncertain income tax
positions (which netted to 55 basis points in the current year
versus 85 basis points in the prior year), partially offset by a
400 basis point decrease related to the prior year non-
deductibility of the Venezuelan deconsolidation charge.
Fiscal year 2015 compared with fiscal year 2014
The effective tax rate on continuing operations increased 360
basis points to 24.7% in 2015 mainly due to the non-
deductibility of the $2.0 billion Venezuelan deconsolidation
charge. The rate increase caused by lower favorable discrete
adjustments related to uncertain income tax positions (the net
benefit was 80 basis points in fiscal 2015 versus 170 basis
points in fiscal 2014) was largely offset by a decrease related
to favorable geographic earnings mix.
Net Earnings
Fiscal year 2016 compared with fiscal year 2015
Net earnings from continuing operations increased $1.7 billion
or 21% to $10.0 billion primarily due to the base period charge
of $2.1 billion after-tax related to the deconsolidation of