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. The restructuring actions under the $400M Cost Savings Initiative primarily consist of global headcount reductions and related actions, as well as the closure of certain smaller, under-performing markets, including South Korea, Vietnam, Republic of Ireland, Bolivia and France. 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 expected to be 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 $194.6 before taxes, of which $75.5 before taxes was recorded in the first nine months of 2014. For the actions approved to-date, we expect our total costs to implement restructuring to be in the range of $205 to $215 before taxes. The additional charges not yet incurred associated with the actions approved to-date of approximately $10 to $20 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 $245 to $255 (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 and Nine Months Ended September 30, 2014

During the three and nine months ended September 30, 2014, we recorded costs to implement of $2.4 and $75.5, respectively, in selling, general and administrative expenses, in the Consolidated Statements of Income, related to the $400M Cost Savings Initiative. The costs consisted of the following:


•	employee-related net benefit of $3.0 during the three months ended September 30, 2014, primarily associated with postretirement benefits, and net charge of $46.5 during the nine months ended September 30, 2014, primarily associated with severance benefits;


•	contract termination and other net benefit of $.5 and net charge of $7.0, respectively, primarily related to the costs associated with the closure of the France market and the exit of the Service Model Transformation ("SMT") facility;


•	accelerated depreciation of $1.9 and $9.4, respectively, associated with the closure and rationalization of certain facilities and other assets;


•	charges of $.1 and $3.8, respectively, primarily related to the accumulated foreign currency translation adjustments associated with the closure of the France market; and


•	implementation costs of $3.9 and $8.8, respectively, primarily related to professional service fees associated with our North America business.

The majority of cash payments, if applicable, associated with these charges are expected to be made during 2014.

Restructuring Charges – Three and Nine Months Ended September 30, 2013

During the three and nine months ended September 30, 2013, we recorded costs to implement of $.6 and $29.4, respectively, related to the $400M Cost Savings Initiative. The costs consisted of the following:


•	net benefit of $1.9 and net charge of $14.6, respectively, primarily for employee-related costs, including severance and pension and postretirement benefits;


•	contract termination and other charges of $.2 and $4.1, respectively, primarily related to costs associated with our exit from the Republic of Ireland market;


•	accelerated depreciation of $1.7 and $13.5, respectively, associated with the closure and rationalization of certain facilities;


•	net benefit of $3.5 due to accumulated foreign currency translation adjustments in the second quarter of 2013 primarily associated with our exit from the Vietnam market;


•	implementation costs of $.6 and $1.4, respectively, for professional service fees; and


•	net benefits $.7 due to inventory adjustments in the first and second quarters of 2013.

For the three months ended September 30, 2013 total costs to implement were recorded in selling, general and administrative expenses. For the nine months ended September 30, 2013, $30.1 of the total costs to implement was recorded in selling, general and administrative expenses and a net benefit of $.7 was recorded in cost of sales, in the Consolidated Statements of Income.

The liability balance for the $400M Cost Savings Initiative as of September 30, 2014 is as follows:



	Employee- Related Costs			Currency Translation Adjustment Write-offs			Contract Terminations/Other			Total
Balance at December 31, 2013	$	46.7		$	—		$	1.8		$	48.5
2014 charges	52.5			3.8			7.6			63.9
Adjustments	(6.0		)	—			(.6		)	(6.6		)
Cash payments	(50.9		)	—			(7.0		)	(57.9		)
Non-cash write-offs	.5			(3.8		)	—			(3.3		)
Foreign exchange	(1.3		)	—			(.1		)	(1.4		)
Balance at September 30, 2014	$	41.5		$	—		$	1.7		$	43.2

Non-cash write-offs associated with employee-related costs are the result of curtailments, settlements and special termination benefits for pension plans due to the initiatives implemented.

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	$	142.1	$	.7	.3		$	13.7	$	156.8
Estimated charges to be incurred on approved initiatives	1.1		—		—		.6		1.7
Total expected charges on approved initiatives	$	143.2	$	.7	$	.3	$	14.3	$	158.5

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
Second quarter 2014	1.6		13.2			9.8			2.6		17.3			44.5
Third quarter 2014	.2		(.9		)	(1.8		)	—		(.9		)	(3.4		)
Charges incurred to date	39.6		31.0			32.0			17.1		37.1			156.8
Estimated charges to be incurred on approved initiatives	1.7		—			(.4		)	.3		.1			1.7
Total expected charges on approved initiatives	$	41.3	$	31.0		$	31.6		$	17.4	$	37.2		$	158.5

As noted previously, for the initiatives approved to-date, we expect to record total costs to implement restructuring in the range of $205 to $215 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 and nine months ended September 30, 2014, we recorded no additional costs to implement and a benefit of $.1, respectively, in selling, general and administrative expenses, in the Consolidated Statements of Income. During the three and nine months ended September 30, 2013, we recorded benefits of $1.2 and $1.0, respectively, in selling, general and administrative expenses, in the Consolidated Statements of Income.

The liability balance for these various restructuring initiatives as of September 30, 2014 is as follows:



	Employee- Related Costs			Contract Terminations/Other			Total
Balance at December 31, 2013	$	2.0		$	12.3		$	14.3
Adjustments	(.1		)	—			(.1		)
Cash payments	(1.5		)	(4.3		)	(5.8		)
Balance at September 30, 2014	$	.4		$	8.0		$	8.4

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

In addition, during the three and nine months ended September 30, 2014, we recorded total costs to implement of $.1 and $1.0, respectively, in selling, general and administrative expenses, and during the three and nine months ended September 30, 2013, we recorded net benefits of $2.1 and $1.9, respectively, in selling, general and administrative expenses, in the Consolidated Statements of Income, associated with the restructuring programs launched in 2005 and 2009, which are substantially complete.