Avon 2000 Annual Report Download - page 38

The 1999 writedown of assets (primarily fixed
and other assets) relates to the restructuring of operations
in Western Europe, including the closure of a jewelry
manufacturing facility in Ireland, and the writedown of
software, the use of which is no longer consistent with
the strategic direction of the Company. By centralizing
certain key functional areas and exiting unprofitable situ-
ations, the Company plans to increase operating efficien-
cies and, ultimately, profit growth in the long term. The
1998 writedown of assets relates to the closure of a Far
East buying office and manufacturing facilities in Puerto
Rico and the Dominican Republic. As a result of ongoing
government restrictions, the Company has also decided to
close certain branches and a regional office in China. Also,
writedowns include assets (primarily fixed and intangible
assets) associated with the divestiture of the Discovery
Toys business unit, which was effective January 15, 1999.
The field program buy-out represents costs to ter-
minate the Company’s prior representative recruitment
program in the u.s.
The recognition of a foreign currency translation
adjustment relates to the closure of the jewelry manufac-
turing facility in Ireland.
“Other” category primarily represents lease and
contract termination costs, litigation costs, and other
costs associated with the facility closures.
The liability balance included in other accrued lia-
bilities as of December 31, 2000 and 1999, is as follows:
Cost of
Special Sales
Charges Charge Total
Balance at December 31, 1998 $ 28.5 $ — $ 28.5
Provision 105.2 46.0 151.2
Cash expenditures (67.1) — (67.1)
Non-cash write-offs (40.4) (46.0) (86.4)
Balance at December 31, 1999 26.2 — 26.2
Cash expenditures (18.3) — (18.3)
Balance at December 31, 2000 $ 7.9 $ — $ 7.9
The balance at December 31, 2000, relates prima-
rily to employee severance costs that will be paid in accor-
dance with the original plan during 2001.
14 Contingencies
Various lawsuits and claims (asserted and unasserted),
arising in the ordinary course of business or related to
businesses previously sold, are pending or threatened
against Avon.
In 1991, a class action lawsuit was initiated against
Avon on behalf of certain classes of holders of Avon’s
Preferred Equity-Redemption Cumulative Stock (“percs”).
This lawsuit alleges various contract and securities law
claims relating to the percs (which were fully redeemed
that year). While it is not possible to predict the outcome
of litigation, Avon has rejected the assertions in this case,
believes it has meritorious defenses to the claims and is
vigorously contesting this lawsuit. It is anticipated that a
trial may take place in late 2001.
In the opinion of Avon’s management, based on
its review of the information available at this time, the
total cost of resolving such contingencies at December 31,
2000 should not have a material adverse impact on Avon’s
consolidated financial position, results of operations or
cash flows.
As disclosed in a Form 8-k filed September 14,
2000, in response to a private investigation by the
Securities and Exchange Commission, the Company
is providing information that principally concerns an
item included in its special charge reported for the first
quarter of 1999. The item consists of an order manage-
ment software system for sales representatives known as
the first project, of which $15 million in costs were
written off as part of the special charge. The balance of
the project’s development costs, amounting to approxi-
mately $25 million, continue to be carried as an asset
on the books of the Company.
The Company is fully cooperating with the sec.
The sec has stated that its inquiry should not be con-
strued as an indication by the Commission or its staff that
any violations of law have occurred, nor should it be con-
sidered a reflection upon any person, entity or security.
The outcome of this investigation cannot be predicted.
15 Subsequent Event
On February 1, 2001, Avon’s Board approved an increase
in the quarterly cash dividend to $.19 per share from
$.185. The first dividend at the new rate will be paid on
March 1, 2001, to shareholders of record on February 15,
2001. On an annualized basis, the new dividend rate will
be $.76 per share.
68