Avon 2004 Annual Report Download - page 13

Special Charges – Fourth Quarter 2001
In the fourth quarter of 2001, Avon recorded special
charges of $97.4 pretax primarily associated with facility
rationalizations and workforce reduction programs related
to implementation of certain Business Transformation
initiatives. Approximately 80% of the charges related to
future cash expenditures. By December 2004, 99% of these
cash expenditures were made. All payments were funded
by cash flow from operations. In the third quarter of 2002,
Avon recorded an adjustment related to the fourth quarter
2001 charge (see Special Charges – Third Quarter 2002
below). Additionally, in the fourth quarters of 2004 and
2003, Avon recorded pretax benefits of $2.5 and $2.1,
respectively, from adjustments to the fourth quarter
2001 charge (see Note 13, Special Charges).
In 2002, 2003, and 2004, actions associated with the
2001 special charges yielded net savings of approxi-
mately $30.0 (net of transitional costs of approximately
$20.0), $60.0 (net of transitional costs of approximately
$10.0), and $85.0 (net of transitional costs of approxi-
mately $5.0), respectively.
The actions associated with the 2001 special charges
resulted in incremental cash outlays of approximately
$32.0 in 2002 and produced incremental cash flow of
$27.0 in 2003 and $40.0 in 2004. Capital expenditures
associated with the 2001 special charges were approxi-
mately $30.0 in 2002 and $5.0 in 2003. The cash outlays
in 2002, and capital expenditures in 2002 and 2003 were
funded through cash flow from operations.
Special Charges – Third Quarter 2002
Special charges of $43.6 pretax, recorded in the third
quarter of 2002, primarily related to Avon’s Business
Transformation initiatives, including supply chain initia-
tives, workforce reduction programs and sales transfor-
mation initiatives. Approximately 90% of the charges
related to future cash expenditures. Approximately
96% of these expenditures were made by December
2004. Avon also recorded in the third quarter of 2002
a pretax benefit of $7.3 from an adjustment to the spe-
cial charges recorded in the fourth quarter of 2001.
The net effect of the special items was a pretax charge
of $36.3. The $36.3 was included in the Consolidated
Statements of Income for 2002 as a special charge
($34.3) and as inventory write-downs, which were
included in cost of sales ($2.0). In the fourth quarters
of 2004 and 2003, Avon recorded pretax benefits of $.7
and $1.8, respectively, from adjustments to the third
quarter 2002 charge (see Note 13, Special Charges).
In 2003 and 2004, actions associated with the 2002 special
charges yielded net savings of approximately $16.0 (net of
transitional costs of approximately $13.0) and $50.0 (net
of transitional costs of approximately $3.0), respectively.
The actions associated with the 2002 special charges
resulted in incremental cash outlays of approximately
$20.0 in 2002 and produced incremental cash flow of $3.0
in 2003 and $25.0 in 2004. Capital expenditures associated
with Business Transformation initiatives included in the
2002 special charges were approximately $17.0 through
2004 and were funded through cash flow from operations.
On a category basis, 2004 sales in the U.S.
were impacted by increases in Beauty sales of
3% and Beauty Plus sales of 2%, offset by a
9% decrease in the Beyond Beauty category.