Restructuring Initiatives

2005 and 2009 Restructuring Programs

We launched restructuring programs in late 2005 (the "2005 Restructuring Program") and in February 2009 (the "2009 Restructuring Program"). The 2005 and 2009 Restructuring Programs initiatives include:


•	enhancement of organizational effectiveness, including efforts to flatten the organization and bring senior management closer to consumers through a substantial organizational downsizing;


•	implementation of a global manufacturing strategy through facilities realignment;


•	implementation of additional supply chain efficiencies in distribution;


•	restructuring our global supply chain operations;


•	realigning certain local business support functions to a more regional base to drive increased efficiencies; and


•	streamlining of transactional and other services through outsourcing, moves to lower-cost countries, and reorganizing certain other functions.

We have approved and announced all of the initiatives that are part of our 2005 and 2009 Restructuring Programs. We believe that we have substantially realized the anticipated savings associated with our 2005 Restructuring Program, and we are on track to achieve our anticipated savings associated with our 2009 Restructuring Program. The savings achieved from these Restructuring Programs have been offset by investments in Representative Value Proposition and advertising. Since 2005, we have recorded total costs to implement restructuring initiatives of $527.1 before taxes for actions associated with the 2005 Restructuring Program, but we expect our total costs when fully implemented to be approximately $525 before taxes when considering historical and future costs along with expected gains from sales of properties. With regards to the 2009 Restructuring Program, we have recorded total costs to implement restructuring initiatives of $255.0 before taxes and expect total costs to implement to reach approximately $260 before taxes. We have incurred and will incur other costs to implement restructuring initiatives for other professional services and accelerated depreciation. The future costs are expected to be partially offset by expected gains on the sales of properties exited due to restructuring initiatives.

Restructuring Charges – 2010

During 2010, we recorded total costs to implement of $80.7 associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following:


•	net charge of $41.3 primarily for employee-related costs, including severance and pension benefits;


•	implementation costs of $27.7 for professional service fees, primarily associated with our initiatives to outsource certain finance processes, realign certain distribution operations, realign certain support functions to a more regional basis and realign certain manufacturing facilities; and


•	accelerated depreciation of $11.7 associated with our initiatives to realign certain distribution operations and close certain manufacturing operations.

Of the total costs to implement, $71.2 was recorded in selling, general and administrative expenses and $9.5 was recorded in cost of sales for 2010.

Restructuring Charges – 2011

During 2011, we recorded total costs to implement of $40.0 associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following:


•	net charge of $3.4 primarily for employee-related costs, including severance and pension benefits;


•	implementation costs of $27.2 for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations, realign certain support functions to a more regional basis and realign certain manufacturing facilities; and


•	accelerated depreciation of $14.6 associated with our initiatives to realign certain distribution operations and close certain manufacturing operations, offset by a net gain of $5.2 primarily due to the sale of a facility in Germany.

Of the total costs to implement, $28.8 was recorded in selling, general and administrative expenses and $11.2 was recorded in cost of sales for 2011.

Restructuring Charges – 2012

During 2012, we recorded total costs to implement of $.1 associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following:


•	net benefit of $12.1 as a result of adjustments to the reserve, partially offset by employee-related costs;


•	implementation costs of $8.9 for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations; and


•	accelerated depreciation of $4.7 associated with our initiatives to realign certain distribution operations and close certain manufacturing operations, offset by a net gain of $1.4 due to the sale of machinery and equipment in Germany.

Of the total cost to implement, a net benefit of $3.0 was recorded in selling, general and administrative expenses and total costs to implement of $3.1 were recorded in cost of sales for 2012.

The liability balances, which primarily consist of employee-related costs, for the initiatives under the 2005 and 2009 Restructuring Programs are shown below:



	Total
Balance December 31, 2009	$	149.0
2010 Charges	64.6
Adjustments	(23.3		)
Cash payments	(49.2		)
Non-cash write-offs	(1.7		)
Foreign exchange	(3.5		)
Balance December 31, 2010	$	135.9
2011 Charges	25.6
Adjustments	(22.2		)
Cash payments	(64.1		)
Non-cash write-offs	.3
Foreign exchange	(1.6		)
Balance December 31, 2011	$	73.9
2012 Charges	2.3
Adjustments	(14.4		)
Cash payments	(41.5		)
Non-cash write-offs	1.0
Foreign exchange	(.3		)
Balance December 31, 2012	$	21.0

Non-cash write-offs associated with employee-related costs are the result of settlement, curtailment and special termination benefit charges for pension plans and postretirement due to the initiatives implemented.

The following table presents the restructuring charges incurred to date, net of adjustments, under our 2005 and 2009 Restructuring Programs:



	Employee- Related Costs		Asset Write-offs		Inventory Write-offs		Currency Translation Adjustment Write-offs		Contract Terminations/ Other		Total
Charges incurred on approved initiatives	$	482.5	$	10.8	$	7.2	$	11.6	$	21.6	$	533.7

The charges, net of adjustments, of initiatives under the 2005 and 2009 Restructuring Programs by reportable business segment were as follows:



	Latin America			Europe, Middle East & Africa			North America			Asia Pacific			Corporate			Total
2005	$	3.5		$	12.7		$	6.9		$	22.4		$	6.1		$	51.6
2006	34.6			52.0			61.8			14.2			29.5			192.1
2007	14.9			69.8			7.0			4.9			12.7			109.3
2008	1.9			20.7			(1.1		)	(.7		)	(3.0		)	17.8
2009	19.2			52.5			26.7			19.9			12.0			130.3
2010	13.6			(.8		)	17.8			(.3		)	11.0			41.3
2011	2.1			1.9			(1.1		)	(.3		)	.8			3.4
2012	(7.8		)	(1.0		)	(1.7		)	(.4		)	(1.2		)	(12.1		)
Charges incurred on approved initiatives	$	82.0		$	207.8		$	116.3		$	59.7		$	67.9		$	533.7

The amounts shown in the tables above as charges recorded to date relate to initiatives that have been approved and recorded in the financial statements as the costs are probable and estimable.

Additional Restructuring Charges 2012

In an effort to improve operating performance, we identified certain actions in 2012 that we believe will enhance our operating model, reduce costs, and improve efficiencies. In addition, management approved the relocation of our corporate headquarters in New York City. As a result of the analysis and the actions taken, during 2012, we recorded total costs to implement these various restructuring initiatives of $73.9 before taxes associated with approved initiatives, and the costs consisted of the following:


•	net charge of $53.4 primarily for employee-related costs, including severance and pension benefits;


•	contract termination costs of $12.0 associated with the relocation of our corporate headquarters;


•	implementation costs of $5.8 for professional service fees; and


•	accelerated depreciation of $2.7 associated with the relocation of our corporate headquarters.

Total costs to implement were recorded in selling, general and administrative expenses for the year ended December 31, 2012. The majority of future cash payments associated with these charges are expected to be made during 2013.

The liability balance for these various restructuring initiatives as of December 31, 2012 is as follows:



	Employee- Related Costs			Contract Terminations/Other			Total
2012 Charges	$	53.4		$	12.0		$	65.4
Cash payments	(33.9		)	(.2		)	(34.1		)
Non-cash write-offs	(1.6		)	—			(1.6		)
Foreign exchange	(.3		)	—			(.3		)
Balance at December 31, 2012	$	17.6		$	11.8		$	29.4

The charges approved to date under the additional restructuring initiatives by reportable business segment were as follows: $13.8 in Latin America, $10.2 in Europe, Middle East & Africa, $4.7 in North America, $4.3 in Asia Pacific, and $32.4 in Corporate.

$400M Cost Savings Initiative

On December 11, 2012, we announced initial steps of a cost savings initiative (the "$400M Cost Savings Initiative"), in an effort to stabilize the business and return Avon to sustainable growth. The $400M Cost Savings Initiative includes a global headcount reduction and related actions, as well as our exit from the South Korea and Vietnam markets. As part of the $400M Cost Savings Initiative, we identified certain actions in the fourth quarter of 2012, the majority of which are expected to take effect in 2013, that we believe will accelerate top line growth and reduce costs. As a result of these actions, we recorded total costs to implement these restructuring initiatives of $50.7 before taxes associated with approved initiatives. For the initiatives approved to date, we expect our total costs to implement to be in the range of $70 to $80 before taxes. At this time we are unable to quantify the total costs when the initiative is fully implemented. In connection with the initial steps of the $400M Cost Savings Initiative, we expect to realize annualized savings of approximately $70 before taxes.

The total cost to implement recorded in 2012 related to these initiatives consisted of the following:


•	net charge of $45.2 primarily for employee-related costs, including severance and pension benefits;


•	accelerated depreciation of $2.2 associated with the closure and rationalization of certain facilities;


•	net charge of $1.9 primarily related to contract termination costs associated with the closure of certain facilities and our exit from the South Korea market; and


•	inventory write-offs of $1.4 associated with the exit of our South Korea and Vietnam markets.

Of the total cost to implement, $49.3 was recorded in selling, general and administrative expenses and $1.4 was recorded in cost of sales for 2012. Cash payments associated with these charges are expected to be made primarily during 2013.

The liability balance for the $400M Cost Savings Initiative as of December 31, 2012 is as follows:



	Employee- Related Costs			Inventory Write-offs			Contract Terminations/Other			Total
2012 Charges	$	45.2		$	1.4		$	1.9		$	48.5
Cash payments	(3.2		)	—			(.2		)	(3.4		)
Non-cash write-offs	(.8		)	(1.4		)	—			(2.2		)
Foreign exchange	.1			—			—			.1
Balance at December 31, 2012	$	41.3		$	—		$	1.7		$	43.0

The following table presents the restructuring charges incurred to date, net of adjustments, under our $400M Cost Savings Initiative, along with the charges expected to be incurred under the plan:



	Employee- Related Costs		Inventory Write-offs		Currency Translation Adjustment Write-offs			Contract Terminations/ Other		Total
Charges incurred to date	$	45.2	$	1.4	$	—		$	1.9	$	48.5
Charges to be incurred on approved initiatives	6.4		—		(3.2		)	2.1		5.3
Total expected charges on approved initiatives	$	51.6	$	1.4	$	(3.2	)	$	4.0	$	53.8

The charges, net of adjustments, of initiatives under the $400M Cost Savings Initiative by reportable business segment were as follows:



	Latin America		Europe, Middle East & Africa		North America			Asia Pacific			Corporate		Total
Charges incurred to date	$	12.9	$	1.1	18.0			$	12.9		$	3.6	$	48.5
Charges to be incurred on approved initiatives	8.6		1.0		(2.4		)	(2.1		)	.2		5.3
Total expected charges on approved initiatives	$	21.5	$	2.1	$	15.6		$	10.8		$	3.8	$	53.8

As noted previously, for the initiatives approved to date, we expect to record total costs to implement in the range of $70 to $80 before taxes under the $400M Cost Savings Initiative. The amounts shown in the tables above as charges recorded to date relate to initiatives that have been approved and recorded in the financial statements as the costs are probable and estimable. The amounts shown in the tables above as total expected charges on approved initiatives represent charges recorded to date plus charges yet to be recorded for approved initiatives as the relevant accounting criteria for recording an expense have not yet been met. In addition to the charges included in the tables above, we have incurred and will incur other costs to implement restructuring initiatives such as other professional services and accelerated depreciation.