Avon 2005 Annual Report Download - page 44

NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS
12฀ LEASES฀AND฀COMMITMENTS
Minimum rental commitments under noncancellable operating
leases, primarily for equipment and office facilities at December 31,
2005, are included in the following table under leases. Purchase
obligations include commitments to purchase paper, inventory and
other services.
Purchase
Year Leases Obligations
2006 $ 87.7 $190.3
2007 70.6 75.8
2008 57.4 39.2
2009 41.4 39.2
2010 35.0 35.2
Later years 89.3 –
Sublease rental income (11.7) –
Total $369.7 $379.7
Rent expense in 2005 was $120.3 (2004 – $109.9; 2003 – $99.2).
Various construction and information systems projects were in
progress at December 31, 2005, with an estimated cost to com-
plete of approximately $92.3.
13฀ RESTRUCTURING฀INITIATIVES
Restructuring Charges – Fourth Quarter 2005
In November 2005, we announced a multi-year restructuring plan
as part of a major drive to fuel revenue growth and expand profit
margins, while increasing consumer investments. Our restructuring
initiatives will include:
• enhancement of organizational effectiveness, including
efforts to flatten the organization and bring senior manage-
ment closer to consumers through a substantial organization
downsizing;
• implementation of a global manufacturing strategy through
facilities realignment;
• additional supply chain efficiencies in the areas of procure-
ment and distribution; and
• streamlining of transactional and other services through out-
sourcing and moves to low-cost countries.
We expect to incur restructuring charges and other costs to imple-
ment these initiatives totaling $300.0 to $500.0 before taxes over
the next several years, with a significant portion of the total costs
to be incurred during 2006.
In December 2005 and January 2006, exit and disposal activities
that are a part of this multi-year restructuring plan were approved.
Specific actions for this initial phase of our multi-year restructuring
plan include:
• organization realignment and downsizing in each region and
global through a process called “delayering”, taking out lay-
ers to bring senior management closer to operations;
• the exit of unprofitable lines of business or markets, including the
closure of unprofitable operations in Asia, primarily Indonesia
and the exit of a product line in China, and the exit of the
beComing product line in the U.S.; and
• the move of certain services from markets within Europe to
lower cost shared service centers.
The actions described above are expected to be completed
during 2006.
In connection with these initiatives, we recorded charges of $51.6
pretax in the fourth quarter of 2005, primarily for employee related
costs, including severance, pension and other termination benefits,
asset impairment charges and cumulative foreign currency transla-
tion charges previously recorded directly to shareholders’ equity.
The charges included $8.4 to cost of sales for inventory write-offs,
and $43.2 to marketing, distribution and administrative expenses.
Approximately 58% of these charges are expected to result in
future cash expenditures, with a majority of the cash payments
expected to be made during 2006. Additionally, we incurred costs
of $4.9 for professional service fees, which are recorded in market-
ing, distribution and administrative expenses, related to the imple-
mentation of these initiatives, resulting in total costs to implement
during 2005 of $56.5.
In November 2005, we
announced a multi-year
restructuring plan as part of
a major drive to fuel revenue
growth and expand profit
margins, while increasing
consumer investments.