RESTRUCTURING INITIATIVES

$400M Cost Savings Initiative

In 2012, we announced a cost savings initiative (the "$400M Cost Savings Initiative") in an effort to stabilize the business and return Avon to sustainable growth, which is expected to be achieved through restructuring actions as well as other cost-savings strategies that will not result in restructuring charges. The $400M Cost Savings Initiative is designed to reduce our operating expenses as a percentage of total revenue to help us achieve a targeted low double-digit operating margin by 2016. The restructuring actions under the $400M Cost Savings Initiative primarily consist of global headcount reductions and related actions, as well as the restructuring or closure of certain smaller, under-performing markets, including our exit from the South Korea, Vietnam, Republic of Ireland and Bolivia markets. Other costs to implement these restructuring initiatives consist primarily of professional service fees and accelerated depreciation, and also include professional service fees associated with our North America business. The professional service fees associated with the North America business are contingent upon the achievement of operating profit targets. These fees are recognized over the period that the services are provided and are based upon our estimate of the total amount expected to be paid, which may change based on actual results.

As a result of the actions approved to-date, we have recorded total costs to implement these restructuring initiatives of $141.2 before taxes, of which $22.1 before taxes was recorded in the first three months of 2014. For the actions approved to-date, we expect our total costs to implement restructuring to be in the range of $180 to $200 before taxes. The additional charges not yet incurred associated with the actions approved to-date of approximately $40 to $60 before taxes are expected to be recorded primarily in 2014. At this time we are unable to quantify the total costs to implement these restructuring initiatives that will be incurred through the time the initiative is fully implemented. In connection with the restructuring actions approved to-date associated with the $400M Cost Savings Initiative, we expect to realize annualized savings of approximately $190 to $200 (both before taxes). For market closures, the annualized savings represent the foregone selling, general and administrative expenses as a result of no longer operating in the respective markets. For actions that did not result in the closure of a market, the annualized savings represent the net reduction of expenses that will no longer be incurred by Avon. The annualized savings do not incorporate the impact of the decline in revenue associated with these actions (including market closures), which is not expected to be material.

Restructuring Charges – Three Months Ended March 31, 2014

During the three months ended March 31, 2014, we recorded costs to implement of $22.1 related to the $400M Cost Savings Initiative, and the costs consisted of the following:


•	charge of $14.9 primarily for employee-related costs, primarily severance benefits;


•	implementation costs of $4.5 primarily for professional service fees associated with our North America business;


•	accelerated depreciation of $1.4 associated with the closure and rationalization of certain facilities; and


•	contract termination and other charges of $1.3 primarily related to the costs associated with our exit from the Service Model Transformation ("SMT") facility.

Total costs to implement of $22.1 were recorded in selling, general and administrative expenses in the Consolidated Statements of Income for the three months ended March 31, 2014. The majority of cash payments, if applicable, associated with these charges are expected to be made during 2014.

Restructuring Charges – Three Months Ended March 31, 2013

During the three months ended March 31, 2013, we recorded costs to implement of $20.3 related to the $400M Cost Savings Initiative, and the costs consisted of the following:


•	net charge of $13.3 primarily for employee-related costs, including severance benefits;


•	accelerated depreciation of $6.9 associated with the closure and rationalization of certain facilities;


•	implementation costs of $.4 for professional service fees; and


•	net benefit of $.3 due to inventory adjustments.

Of the total costs to implement, $20.6 was recorded in selling, general and administrative expenses and a net benefit of $.3 was recorded in cost of sales for the three months ended March 31, 2013, in the Consolidated Statements of Income.

The liability balance for the $400M Cost Savings Initiative as of March 31, 2014 is as follows:



	Employee- Related Costs			Contract Terminations/Other			Total
Balance at December 31, 2013	$	46.7		$	1.8		$	48.5
2014 charges	17.7			1.3			19.0
Adjustments	(2.8		)	—			(2.8		)
Cash payments	(18.7		)	(.2		)	(18.9		)
Foreign exchange	(.6		)	—			(.6		)
Balance at March 31, 2014	$	42.3		$	2.9		$	45.2

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



	Employee- Related Costs		Inventory/Asset Write-offs		Currency Translation Adjustment Write-offs			Contract Terminations/Other		Total
Charges incurred to date	$	110.5	$	.7	$	(3.5	)	$	8.0	$	115.7
Estimated charges to be incurred on approved initiatives	.8		—		3.7			7.2		11.7
Total expected charges on approved initiatives	$	111.3	$	.7	$	.2		$	15.2	$	127.4

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
2012	$	12.9	$	1.1	$	18.0	$	12.9	$	3.6		$	48.5
2013	11.1		15.6		5.3		1.3		17.7			51.0
First quarter 2014	13.8		2.0		.7		.3		(.6		)	16.2
Charges incurred to date	37.8		18.7		24.0		14.5		20.7			115.7
Estimated charges to be incurred on approved initiatives	1.0		9.8		—		.1		.8			11.7
Total expected charges on approved initiatives	$	38.8	$	28.5	$	24.0	$	14.6	$	21.5		$	127.4

As noted previously, for the initiatives approved to-date, we expect to record total costs to implement restructuring in the range of $180 to $200 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 service fees and accelerated depreciation.

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, we have relocated our corporate headquarters in New York City.

During the three months ended March 31, 2014, we recorded no additional costs to implement and during the three months ended March 31, 2013, we recorded total costs to implement of $.2, in selling, general and administrative expenses, in the Consolidated Statements of Income.

The liability balance for these various restructuring initiatives as of March 31, 2014 is as follows:



	Employee- Related Costs			Contract Terminations/Other			Total
Balance at December 31, 2013	$	2.0		$	12.3		14.3
Cash payments	(.6		)	(.6		)	(1.2		)
Balance at March 31, 2014	$	1.4		$	11.7		$	13.1

The actions associated with these various restructuring initiatives are substantially complete.

In addition, during the three months ended March 31, 2014, we recorded total costs to implement of $.6 in selling, general and administrative expenses, and during the three months ended March 31, 2013, we recorded a net benefit of $.2 in cost of sales, in the Consolidated Statements of Income, associated with the restructuring programs launched in 2005 and 2009, which are substantially complete.