Avon 2006 Annual Report Download - page 76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-Lived Assets by Major Country
2006 2005 2004
U.S. $ 418.2 $ 431.0 $ 415.3
Colombia 145.1 163.3 –
Poland 123.4 121.1 135.0
All other 792.5 703.6 649.5
Total $1,479.2 $1,419.0 $1,199.8
A major country is defined as one with long-lived assets greater
than 10% of consolidated long-lived assets. Long-lived assets
primarily include property, plant and equipment and intangible
assets. Colombia’s long-lived assets consist primarily of goodwill
and intangible assets associated with the 2005 acquisition of this
business (See Note 16, Goodwill and Intangible Assets). Poland’s
long-lived assets consist primarily of property, plant and equip-
ment related to a European manufacturing facility.
Revenue by Product Category
2006 2005 2004
Beauty (1) $6,028.8 $5,588.7 $5,259.6
Beauty Plus (2) 1,676.6 1,527.0 1,401.9
Beyond Beauty (3) 971.9 949.5 994.7
Net sales 8,677.3 8,065.2 7,656.2
Other revenue (4) 86.6 84.4 91.6
Total revenue $8,763.9 $8,149.6 $7,747.8
(1) Beauty includes cosmetics, fragrances, skin care and toiletries.
(2) Beauty Plus includes fashion jewelry, watches, apparel and accessories.
(3) Beyond Beauty includes home products and gift and decorative
products.
(4) Other primarily includes shipping and handling fees billed to
Representatives.
NOTE 12. Leases and Commitments
Minimum rental commitments under noncancellable operating
leases, primarily for equipment and office facilities at
December 31, 2006, are included in the following table under
leases. Purchase obligations include commitments to purchase
paper, inventory and other services.
Year Leases
Purchase
Obligations
2007 $ 88.0 $222.9
2008 70.6 87.5
2009 54.3 62.0
2010 36.8 47.9
2011 32.6 16.3
Later years 69.9 79.4
Sublease rental income (11.3) –
Total $340.9 $516.0
Rent expense in 2006 was $114.7 (2005 – $109.2; 2004 –
$109.9). Plant construction, expansion and modernization proj-
ects with an estimated cost to complete of approximately $76.4
were in progress at December 31, 2006.
NOTE 13. Restructuring Initiatives
In November 2005, we announced a multi-year turnaround plan
as part of a major drive to fuel revenue growth and expand
profit margins, while increasing consumer investments. As part
of our turnaround plan, restructuring initiatives include:
• enhancement of organizational effectiveness, including efforts
to flatten the organization and bring senior management
closer to consumers through a substantial organization
downsizing;
• implementation of a global manufacturing strategy through
facilities realignment;
• additional supply chain efficiencies in 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
implement these initiatives in the range of $500.0 before taxes.
We incurred a significant portion of the total costs to implement
these initiatives during 2006, but we expect to incur additional
significant charges over the next few years.
Restructuring Charges – 2005
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 included:
• organization realignment and downsizing in each region and
global through a process called “delayering,” taking out layers
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 were completed during 2006,
except for the move of certain services from markets within
Europe to lower cost shared service centers, which is expected to
be completed in phases through 2008.
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