Avon 2001 Annual Report Download - page 42

PAGE 67
Special Charges–Third Quarter 2002 > On September 30,
2002, the Company authorized a plan related to the
implementation of its Business Transformation initiatives.
In connection with these initiatives, in the third quarter
of 2002, Avon recorded Special charges of $43.6 pretax
($30.4 after tax, or $.12 per diluted share). These charges
were primarily associated with the following initiatives:
• Supply chain initiatives, including actions to improve
efficiencies and productivity in manufacturing, logis-
tics, transportation and distribution activities;
• Workforce reduction programs focused on realigning
the organization and leveraging regional structures; and
• Sales transformation initiatives, including a shift to a
more variable expense base and changes in the selling
structure due to a variety of initiatives to contemporize
the sales model.
Approximately 90% of the charge will result in
future cash expenditures. Approximately 20% of these
cash expenditures were made in the fourth quarter of
2002, with over 90% of total cash payments to be made
by December 2003. All payments will be funded by cash
flow from operations.
The third quarter charges (net of the $7.3 adjust-
ment to the 2001 Special charges as previously disclosed)
were included in the Consolidated Statements of Income
as Special charges ($34.3) and as inventory write-downs,
which were included in Cost of sales ($2.0).
The third quarter 2002 Special charges (net of
adjustment to the 2001 charges) affected all business
segments as follows:
North Latin Corporate
America* U.S. America Europe Pacific and Other Total
Supply chain $ 3.1 $ 3.2 $ .8 $ 5.9 $4.5 $ — $17.5
Workforce reduction
programs 1.6 1.2 3.3 1.6 — 3.9 11.6
Sales transformation
initiatives — 1.8 — 10.0 2.7 — 14.5
Total accrued charge 4.7(a) 6.2(b) 4.1(c) 17.5(d) 7.2(e) 3.9(f) 43.6
Adjustment to 2001
special charge (2.0) (4.4) — — — (.9) (7.3)
Net accrued charge $ 2.7 $ 1.8 $4.1 $17.5 $7.2 $3.0 $36.3
Number of employee
terminations 152 179 241 302 119 41 1,034
* Excludes amounts related to the U.S.
(a) The majority of the special charge within the North America segment related to the closure of a manufacturing facility in Canada and the transition of
production to existing facilities in the U.S.
(b) The special charge within the U.S. segment primarily related to workforce reduction programs within the sales and supply chain functions.
(c) The majority of the special charge within the Latin America segment included workforce reduction programs in Argentina, Central America and in
Venezuela (across numerous functional areas).
(d) The special charge within Europe primarily related to the restructuring of the sales force in certain Western European markets as well as the reconfigura-
tion of distribution operations in the region.
(e) The special charge within the Pacific segment primarily related to supply chain initiatives in Japan, Australia and the Philippines. In addition, the spe-
cial charge included costs associated with the closure of stores and a procurement center in Hong Kong as well as contract cancellation fees and other
costs resulting from the shutdown of certain sales branches in Malaysia.
(f) The Corporate and other special charge was the result of a workforce reduction program primarily within the information technology department.