Avon 2008 Annual Report Download - page 29

• the automation of certain distribution processes;
• the exit of certain unprofitable operations, including the clo-
sure of the Avon Salon & Spa, the closure of our operations in
Indonesia, the exit of a product line in China and the exit of
the beComing product line in the U.S.; and
• the reorganization of certain functions, primarily sales-related
organizations.
Actions implemented under these restructuring initiatives
resulted in savings of approximately $270 in 2008, as compared
to savings of approximately $230 in 2007. We expect to achieve
annualized savings of approximately $430 once all initiatives are
fully implemented by 2011-2012. We expect the savings to
reach approximately $300 in 2009.
2009 Restructuring Program
In February 2009, we announced a new restructuring program
under our multi-year turnaround plan (the “2009 Program”).
The restructuring initiatives under the 2009 Program are
expected to focus on restructuring our global supply chain
operations, realigning certain local business support functions to
a more regional basis to drive increased efficiencies, and stream-
lining transaction-related services, including selective outsourc-
ing. We expect to incur restructuring charges and other costs to
implement these initiatives in the range of $300 to $400 before
taxes over the next several years. We are targeting annualized
savings under the 2009 Program of approximately $200 upon
full implementation by 2012-2013.
See Note 14, Restructuring Initiatives, on pages F-28 through
F-31 of this 2008 Annual Report on Form 10-K.
NEW ACCOUNTING STANDARDS
Information relating to new accounting standards is included
Note 2, New Accounting Standards, on pages F-10 through F-11
of this 2008 Annual Report on Form 10-K.
Key Performance Indicators
Within the following discussion and analysis, we utilize the key performance indicators (“KPIs”) defined below to assist in the evaluation of
our business.
KPI Definition
Growth in Active Representatives This indicator is based on the number of Representatives submitting an order in a campaign,
totaled for all campaigns in the related period. This amount is divided by the number of bill-
ing days in the related period, to exclude the impact of year-to-year changes in billing days
(for example, holiday schedules). To determine the growth in Active Representatives, this
calculation is compared to the same calculation in the corresponding period of the prior
year.
Change in Units This indicator is based on the gross number of pieces of merchandise sold during a period,
as compared to the same number in the same period of the prior year. Units sold include
samples sold and product contingent upon the purchase of another product (for example,
gift with purchase or purchase with purchase), but exclude free samples.
Inventory Days This indicator is equal to the number of days of historical cost of sales covered by the
inventory balance at the end of the period.
CRITICAL ACCOUNTING ESTIMATES
We believe the accounting policies described below represent
our critical accounting policies due to the estimation processes
involved in each. See Note 1, Description of the Business and
Summary of Significant Accounting Policies, for a detailed dis-
cussion of the application of these and other accounting policies.
Restructuring Reserves
We record severance-related expenses once they are both prob-
able and estimable in accordance with the provisions of FAS
No. 112, Employer’s Accounting for Post-Employment Benefits,
for severance provided under an ongoing benefit arrangement.
One-time, involuntary benefit arrangements and disposal costs,
primarily contract termination costs, are accounted for under the
provisions of FAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. One-time, voluntary benefit arrange-
ments are accounted for under the provisions of FAS No. 88,
Employers’ Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits.We
evaluate impairment issues under the provisions of FAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
We estimate the expense for these initiatives, when approved by
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