Avon 2008 Annual Report Download - page 80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. Restructuring Initiatives
2005 Program
In November 2005, we announced a multi-year turnaround plan to
restore sustainable growth. As part of our turnaround plan, we
launched a restructuring program in late 2005 (the “2005
Program”) and restructuring initiatives under this program 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
outsourcing and moves to low-cost countries.
In January 2008, we announced the final initiatives that are part
of the 2005 Program. We expect to record restructuring charges
and other costs to implement restructuring initiatives of approx-
imately $530 before taxes. Through December 31, 2008, we
have recorded total costs to implement, net of adjustments, of
$504.2 ($60.6 in 2008, $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.
2009 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 ex-
pected to focus on restructuring our global supply chain opera-
tions, 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.
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 was com-
pleted during 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
severance, pension and other termination benefits, asset
impairment charges and cumulative foreign currency trans-
lation 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
activities that are a part of our restructuring initiatives were
approved. Specific actions for this phase of our restructuring
initiatives 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
closure 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 expect-
ed to be completed in phases through 2009. The realignment 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 completed in phases through
2010.