Avon 2007 Annual Report Download - page 81

During the fourth quarter 2007, we announced the final ini-
tiatives that are part of our restructuring plan. We expect to
record restructuring charges and other costs to implement
restructuring initiatives of approximately $530 before taxes. We
have recorded total costs to implement, net of adjustments, of
$443.6 ($158.3 in 2007, $228.8 in 2006, and $56.5 in 2005) for
actions associated with our restructuring initiatives. We expect to
record a majority of the remaining costs by the end of 2009.
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 initiatives that had been approved to date,
we recorded total costs to implement in 2005 of $56.5, and the
costs consisted of the following:
• charges of $43.2 for employee-related costs, including sev-
erance, pension and other termination benefits, asset impair-
ment charges and cumulative foreign currency translation
charges previously recorded directly to shareholders’ equity;
• charges of $8.4 for inventory write-off; and
• other costs to implement of $4.9 for professional service fees
related to the implementation of these initiatives.
Of the total costs to implement, $48.1 was recorded in selling,
general and administrative expenses in 2005, and $8.4 was
recorded in cost of sales in 2005.
Approximately 58% of these charges resulted in cash
expenditures, with a majority of the cash payments made during
2006.
Restructuring Charges – 2006
During 2006 and January 2007, additional exit and disposal activ-
ities that are a part of our restructuring initiatives were
approved. Specific actions for this phase of our restructuring ini-
tiatives 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 phased outsourcing of certain services, including certain
key human resource and customer service processes;
• the realignment of certain North America distribution
operations;
• the exit of certain unprofitable operations, including the clo-
sure of the Avon Salon & Spa; and
• the reorganization of certain functions, primarily sales-related
organizations.
Many of the actions were completed in 2006, including the
delayering program. A majority of the remaining actions were
completed in 2007. The outsourcing of certain services is
expected to be completed in phases through 2009. The realign-
ment of certain North America distribution operations is
expected to be completed in phases through 2012. The
reorganization of one of our functions is expected to be com-
pleted in phases through 2010.
In connection with initiatives that had been approved to date,
we recorded total costs to implement in 2006 of $228.8, and
the costs consisted of the following:
• charges of $218.3 for employee-related costs, including sev-
erance, pension and other termination benefits;
• favorable adjustments of $16.1, primarily relating to a higher
than expected number of employees successfully pursuing
reassignments to other positions and higher than expected
turnover (employees leaving prior to termination); and
• other costs to implement of $24.9 and $1.7 for professional
service fees related to the implementation of these initiatives
and accelerated depreciation, respectively.
Of the total costs to implement, $229.1 was recorded in selling,
general and administrative expenses in 2006, and a favorable
adjustment of $.3 was recorded in cost of sales in 2006.
Approximately 85% of these charges resulted in cash
expenditures, with a majority of the cash payments made during
2007.
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