Avon 2014 Annual Report Download - page 55

North America – 2014 Compared to 2013
%/Point Change
2014 2013 US$ Constant $
Total revenue $1,203.4 $1,458.2 (17)% (17)%
Operating loss (72.5) (60.1) (21)% (21)%
CTI restructuring 28.2 12.5
Pension settlement charge 26.9 –
Adjusted operating loss $ (17.4) $ (47.6) 63% 63%
Operating margin (6.0)% (4.1)% (1.9) (1.9)
CTI restructuring 2.3 .9
Pension settlement charge 2.2 –
Adjusted operating margin (1.4)% (3.3)% 1.9 1.8
Change in Active Representatives (18)%
Change in units sold (22)%
Amounts in the table above may not necessarily sum due to rounding.
Total revenue decreased 17% on both a reported and Constant $ basis compared to the prior-year period, primarily due to a decrease in
Active Representatives. Sales from Beauty products and Fashion & Home products each declined 17% on both a reported and Constant $
basis. In addition, we believe units were negatively impacted by the decreased depth and frequency of discounting, primarily during the first
half of 2014. We continue to adjust the balance of both the depth and frequency of discounting in an effort to drive revenue and maximize
profitability.
Operating margin was negatively impacted by 2.2 points from settlement charges associated with the U.S. pension plan as discussed in more
detail below. Operating margin was also negatively impacted by 1.4 points as compared to the prior-year period from higher CTI
restructuring. Adjusted operating margin increased 1.9 points, or 1.8 points on a Constant $ basis, primarily as a result of:
• a benefit of 1.1 points due to lower net brochure costs, which was primarily as a result of cost savings initiatives;
• a benefit of 1.0 point due to reduced advertising spend, which was primarily attributable to a shift towards more cost-effective
recruitment strategies;
• a benefit of .5 points due to lower Representative and sales leader expense primarily due to lower commissions and reduced appointments
of new Representatives;
• a benefit of .4 points due to lower distribution expenses, primarily resulting from our cost savings initiatives, including the closure of the
Atlanta distribution facility that was associated with the $400M Cost Savings Initiative; and
• a net decline of 1.6 points due to the unfavorable impact of declining revenue with respect to our fixed expenses, partially offset by lower
fixed expenses primarily resulting from our cost savings initiatives, mainly reductions in headcount that were associated with the $400M
Cost Savings Initiative, and reduced field spending.
In an effort to reduce our pension benefit obligations, in March 2014, we offered former employees who are vested and participate in the
U.S. pension plan a payment that would fully settle our pension plan obligation to those participants who elected to receive such payment.
The election period ended during the second quarter of 2014 and the payments were made in June 2014 from our plan assets. As a result of
the lump-sum payments made, in the second quarter of 2014, we recorded a settlement charge of approximately $24. Because the
settlement threshold was exceeded in the second quarter of 2014, settlement charges of approximately $5 and approximately $7 were also
recorded in the third and fourth quarters of 2014, respectively, as a result of additional payments from our U.S. pension plan. These
settlement charges were allocated between Global Expenses and the operating results of North America.
We continue to expect year-over-year revenue declines within North America. We are focused on restoring field health, improving our
brochure and creating a sustainable cost base which may include additional restructuring actions.
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