Avon 2004 Annual Report Download - page 60

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Global Beauty 81
Notes to Consolidated
Financial Statements
Approximately 45% of the number of employees termi-
nated related to facility rationalizations and the supply
chain function, which primarily represented employees
within the manufacturing and distribution functions.
Approximately 20% of the number of employees ter-
minated related to the sales transformation initiatives,
which represented employees within the sales func-
tion. The remainder of the employee severance costs
was associated with workforce reduction programs,
which span much of the organization including the
functional areas of marketing, information technology,
human resources, research and development and
strategic planning.
The cost of sales charge for inventory write-downs
primarily represented losses associated with store and
branch closures (primarily Asia Pacific) as well as the
discontinuation of selected product lines (Europe).
Contract termination costs primarily represented lease
buyout costs related to store and branch closures
(primarily Asia Pacific) and contract cancellation fees
with store owners (Asia Pacific).
Other costs primarily represented administrative
expenses associated with a facility rationalization,
employee and union communication costs, pension
termination benefits and legal and professional fees
(primarily Europe).
While project plans associated with these initiatives
have not changed, the Company has experienced
favorable adjustments to its original cost estimates. As
a result, the Company reversed pretax amounts total-
ing $.7 and $1.8 in 2004 and 2003, respectively, in the
special charge line in the Consolidated Statements of
Income, where the estimates were originally recorded.
The favorable adjustments in 2003 primarily relate to
certain employees pursuing reassignments to other
locations and favorable contract termination negotia-
tions, partially offset by higher than expected severance
costs for certain initiatives. The favorable adjustments
in 2004 primarily relate to lower than expected
spending in Europe.
Liability Balance for 2002 Special Charges
The liability balances for special charges were as follows:
Accrued
Severance Cost Contract
and Related of Sales Termination Other
Costs Charge Costs Costs Total
Provision $ 34.9 $ 2.0 $ 2.4 $ 4.3 $ 43.6
Non-cash write-offs (2.0) (1.3) (3.3)
Cash payments (4.1) (1.4) (.8) (6.3)
Balance at December 31, 2002 30.8 1.0 2.2 34.0
Foreign exchange 3.9 .1 .5 4.5
Adjustment (1.2) (.5) (.1) (1.8)
Cash payments (21.8) (.6) (1.1) (23.5)
Balance at December 31, 2003 11.7 1.5 13.2
Adjustment .4 — — (1.1) (.7)
Cash payments (10.7) (.3) (11.0)
Balance at December 31, 2004 $ 1.4 $ $ $ .1 $ 1.5