Avon 2015 Annual Report Download - page 42

PART II
Performance Metrics
Within this MD&A, in addition to our key financial metrics of revenue, operating profit and operating margin, we utilize the performance
metrics defined below to assist in the evaluation of our business.
Performance Metrics Definition
Change in Active Representatives This metric is a measure of Representative activity based on the number of unique
Representatives submitting at least one order in a sales campaign, totaled for all campaigns in
the related period. To determine the change in Active Representatives, this calculation is
compared to the same calculation in the corresponding period of the prior year. Orders in
China are excluded from this metric as our business in China is predominantly retail. Liz Earle
was also excluded from this calculation as it did not distribute through the direct-selling
channel.
Change in units sold This metric is based on the gross number of pieces of merchandise sold during a period, as
compared to the same number in the same period of the prior year. Units sold include
samples sold and products contingent upon the purchase of another product (for example,
gift with purchase or discount purchase with purchase), but exclude free samples.
Change in Average Order This metric is a measure of Representative productivity. The calculation is the difference of the
year-over-year change in revenue on a Constant $ basis and the Change in Active
Representatives. Change in Average Order may be impacted by a combination of factors such
as inflation, units, product mix, and/or pricing.
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”),
we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S.
dollars, including changes in: revenue, operating profit, Adjusted operating profit, operating margin and Adjusted operating margin. We
also refer to these adjusted financial measures as Constant $ items, which are Non-GAAP financial measures. We believe these measures
provide investors an additional perspective on trends and underlying business results. To exclude the impact of changes due to the
translation of foreign currencies into U.S. dollars, we calculate current-year results and prior-year results at a constant exchange rate. Foreign
currency impact is determined as the difference between actual growth rates and constant-currency growth rates.
We also present gross margin, selling, general and administrative expenses as a percentage of revenue, total and net global expenses,
operating profit, operating margin and effective tax rate on a Non-GAAP basis. The discussion of our segments presents operating profit and
operating margin on a Non-GAAP basis. We refer to these Non-GAAP financial measures as “Adjusted.” We have provided a quantitative
reconciliation of the difference between the Non-GAAP financial measures and the most directly comparable financial measures calculated
and reported in accordance with GAAP. The Company uses the Non-GAAP financial measures to evaluate its operating performance and
believes that it is meaningful for investors to be made aware of, on a period-to-period basis, the impacts of 1) costs to implement (“CTI”)
restructuring initiatives, 2) costs and charges related to the devaluations of Venezuelan currency in February 2015, March 2014 and February
2013, combined with being designated as a highly inflationary economy, and a valuation allowance for deferred tax assets related to
Venezuela (“Venezuelan special items”), 3) the $89 accrual recorded in 2013 for the settlements related to the Foreign Corrupt Practices Act
(“FCPA”) investigations, the additional $46 accrual in 2014 for the settlements related to the FCPA investigations and, in the fourth quarter
of 2014, the associated approximate $19 net tax benefit (“FCPA accrual”), 4) the settlement charges associated with the U.S. pension plan
(“Pension settlement charge”), 5) the goodwill impairment charge related to the Egypt business, and the goodwill and intangible asset
impairment charges and a valuation allowance for deferred tax assets related to the China business (“Asset impairment and other charges”),
6) various other items associated with the sale of Liz Earle, the separation of the North America business and debt-related charges (“Other
items”) and, as it relates to our effective tax rate discussion, 7) the non-cash income tax adjustments associated with our deferred tax assets
recorded in 2015 and 2014, and an income tax benefit realized as a result of tax planning strategies (“Special tax items”). The Company
believes investors find the Non-GAAP information helpful in understanding the ongoing performance of operations separate from items that
may have a disproportionate positive or negative impact on the Company’s financial results in any particular period. These Non-GAAP
measures should not be considered in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP.
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