Avon 2003 Annual Report Download - page 72

2002 Special charges (net of adjustment to the 2001 charges) by category of expenditures were as follows:
Accrued
Severance Cost Contract
and Related of Sales Termination Other
Costs Charge Costs 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
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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 (primarily 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 Postemployment
Benefits,” severance plans, or with other accounting literature. Approximately
1,000 employees, or 2.0% of the total workforce, will receive severance benefits.
Approximately 45% of the number of employees to be terminated related to
facility rationalizations and the supply chain function, which primarily represents
employees within the manufacturing and distribution functions. Approximately
20% of the number of employees to be terminated related to the sales transfor-
mation initiatives, which represent employees within the sales function. The
remainder of the employee severance costs is associated with workforce reduc-
tion programs, which span much of the organization including the functional
areas of marketing, 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 discontinuation 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).
While project plans associated with these initiatives have not changed, the
Company has experienced favorable adjustments to its original cost estimates.
As a result, the Company reversed $1.8 pretax ($1.3 after tax, or $.005 per
diluted share) in 2003, against the Special charge line in the Consolidated
Statements of Income, where the estimates were originally recorded. The favor-
able adjustments in 2003 primarily relate to certain employees pursuing reas-
signments to other locations and favorable contract termination negotiations,
partially offset by higher than expected severance costs for certain initiatives.