Avon 2001 Annual Report Download - page 43

PAGE 68
2002 Special charges (net of adjustment to the 2001 charges) by category of expenditures were as follows:
Accrued
Severance Cost of Contract
and Related Sales Termination
Costs Charge Costs Other Costs Total
Supply chain $14.2 $1.4 $ .1 $ 1.8 $17.5
Workforce reduction programs 11.0 — — .6 11.6
Sales transformation initiatives 9.7 .6 2.3 1.9 14.5
Total accrued charges 34.9 2.0 2.4 4.3 43.6
Adjustment to 2001 Special charges (5.7) — — (1.6) (7.3)
Net accrued charges $29.2 $2.0 $2.4 $ 2.7 $36.3
Accrued severance and related costs are expenses,
both domestic and international, associated with supply
chain initiatives (primarily North America, Europe and
the Pacific), workforce reduction programs (all segments
except the Pacific) and sales transformation initiatives (pri-
marily Europe, the Pacific and U.S). Employee severance
costs were accounted for in accordance with the Company’s
existing FAS No. 112, “Employers’ Accounting for Post-
employment Benefits,” severance plans, or with other
accounting literature. Approximately 1,000 employees, or
2.0% of the total workforce, will receive severance bene-
fits. Over 90% of the employee severance costs will be
paid by December 2003.
Approximately 45% of the number of employees to
be terminated related to facility rationalizations and the
supply chain function, which primarily represents employ-
ees within the manufacturing and distribution functions.
Approximately 20% of the number of employees to be ter-
minated related to the sales transformation initiatives,
which represent employees within the sales function. The
remainder of the employee severance costs are associated
with workforce reduction programs, which span much of
the organization including the functional areas of market-
ing, information technology, human resources, research
and development and strategic planning.
The Cost of sales charge for inventory write-downs
primarily represents losses associated with store and
branch closures (primarily Pacific) as well as the discontin-
uation of selected product lines (Europe).
Contract termination costs primarily represent
lease buyout costs related to store and branch closures
(primarily Pacific) and contract cancellation fees with
store owners (Pacific).
Other costs primarily represent administrative
expenses associated with a facility rationalization,
employee and union communication costs, pension
termination benefits and legal and professional fees
(primarily Europe).