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 was 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 was 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. A portion of the professional service fees associated with the North America business are contingent upon the achievement of operating profit targets. These fees were recognized over the period that the services were 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 restructuring actions associated with the $400M Cost Savings Initiative, we have recorded total costs to implement these restructuring initiatives of $230.4 before taxes, of which $111.3 before taxes was recorded in 2014. For these restructuring actions, we expect our total costs to implement restructuring to be approximately $250 before taxes. The additional charges not yet incurred associated with the restructuring actions approved to-date of approximately $20 before taxes are expected to be recorded primarily in 2015. In connection with the restructuring actions associated with the $400M Cost Savings Initiative, we expect to realize annualized savings of approximately $275 to $285 (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 – 2014

During 2014, we recorded total costs to implement of $111.3 related to the $400M Cost Savings Initiative, 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:


•	net charge of $72.0 primarily for employee-related costs, including severance benefits;


•	accelerated depreciation of $13.0 associated with the closure and rationalization of certain facilities and other assets;


•	contract termination and other net charges of $6.3, primarily related to the costs associated with the closure of the France market and the exit of the Service Model Transformation ("SMT") facility;


•	charge of $3.7 primarily related to the accumulated foreign currency translation adjustments associated with the closure of the France market; and


•	implementation costs of $16.3 primarily related to professional service fees associated with our North America business.

The majority of cash payments, if applicable, associated with these charges were made in 2014 and the remaining are expected to be made during 2015.

Restructuring Charges – 2013

During 2013, we recorded total costs to implement of $68.4 related to the $400M Cost Savings Initiative, and the costs consisted of the following:


•	net charge of $50.4 primarily for employee-related costs, including severance and pension and postretirement benefits;


•	accelerated depreciation of $13.9 associated with the closure and rationalization of certain facilities;


•	contract termination and other charges of $4.8, primarily related to the costs associated with our exit from the Republic of Ireland market;


•	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 $3.3 for professional service fees;


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


•	net loss of $.2 due to the sale of a facility in the U.S.

Of the total costs to implement, $69.1 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.

Restructuring Charges – 2012

During 2012, we recorded total costs to implement of $50.7 related to the $400M Cost Savings Initiative, and the costs consisted of the following:


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


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


•	contract termination and other charges of $1.9 primarily related to 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 costs to implement, $49.3 was recorded in selling, general and administrative expenses and $1.4 was recorded in cost of sales, in the Consolidated Statements of Income.

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



	Employee- Related Costs			Inventory/ Asset Write-offs			Foreign Currency Translation Adjustment 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
2013 Charges	54.4			.1			(3.5		)	5.3			56.3
Adjustments	(4.0		)	(.8		)	—			(.5		)	(5.3		)
Cash payments	(44.9		)	—			—			(4.8		)	(49.7		)
Non-cash write-offs	(.2		)	.7			3.5			—			4.0
Foreign exchange	.1			—			—			.1			.2
Balance at December 31, 2013	$	46.7		$	—		$	—		$	1.8		$	48.5
2014 Charges	80.4			—			3.7			7.4			91.5
Adjustments	(8.4		)	—			—			(1.1		)	(9.5		)
Cash payments	(66.9		)	—			—			(7.5		)	(74.4		)
Non-cash write-offs	.6			—			(3.7		)	—			(3.1		)
Foreign exchange	(2.3		)	—			—			(.1		)	(2.4		)
Balance at December 31, 2014	$	50.1		$	—		$	—		$	.5		$	50.6

Non-cash write-offs associated with employee-related costs are the result of settlements, curtailments and special termination benefits for pension and postretirement benefits 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		Foreign Currency Translation Adjustment Write-offs		Contract Terminations/ Other		Total
Charges incurred to date	$	167.6	$	.7	$	.2	$	13.0	$	181.5
Estimated charges to be incurred on approved initiatives	4.4		4.1		—		6.0		14.5
Total expected charges on approved initiatives	$	172.0	$	4.8	$	.2	$	19.0	$	196.0

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
2014	24.5		19.9		14.0		6.5		17.1		82.0
Charges incurred to date	48.5		36.6		37.3		20.7		38.4		181.5
Estimated charges to be incurred on approved initiatives	2.2		—		11.5		.8		—		14.5
Total expected charges on approved initiatives	$	50.7	$	36.6	$	48.8	$	21.5	$	38.4	$	196.0

As noted previously, we expect to record total costs to implement restructuring of approximately $250 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.

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.

Restructuring Charges – 2014

As a result of the analysis and the actions taken, during 2014, we recorded total costs to implement of $1.8 in selling, general and administrative expenses, in the Consolidated Statements of Income, primarily consisting of contract termination costs associated with the relocation of our corporate headquarters.

Restructuring Charges – 2013

As a result of the analysis and the actions taken, during 2013, we recorded total costs to implement of $5.0 in selling, general and administrative expenses in the Consolidated Statements of Income, primarily consisting of contract termination costs of $6.1 associated with the relocation of our corporate headquarters, partially offset by other immaterial adjustments to the reserve for employee-related costs.

Restructuring Charges – 2012

During 2012, we recorded total costs to implement of $73.9, in selling, general and administrative expenses, in the Consolidated Statements of Income. 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.

The liability balance for these various restructuring initiatives as of December 31, 2014 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
2013 Charges	.8			6.1			6.9
Adjustments	(1.9		)	—			(1.9		)
Cash payments	(14.4		)	(5.6		)	(20.0		)
Foreign exchange	(.1		)	—			(.1		)
Balance at December 31, 2013	$	2.0		$	12.3		$	14.3
2014 Charges	—			1.9			1.9
Adjustments	(.1		)	—			(.1		)
Cash payments	(1.5		)	(5.7		)	(7.2		)
Balance at December 31, 2014	$	.4		$	8.5		$	8.9

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

In addition, during 2014 we recorded total costs to implement of $1.1 and during 2013 a net benefit as a result of adjustments to the reserve of $7.5 primarily 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. The net benefit in 2013 primarily consisted of a net gain of $4.9 due to the sale of a facility in the U.S., as well as adjustments to the reserve for employee-related costs. During 2012, we recorded total costs to implement of $.1, of which 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, in the Consolidated Statements of Income, associated with the restructuring programs launched in 2005 and 2009. The total costs to implement in 2012 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;


•	accelerated depreciation of $4.7 associated with our initiatives to realign certain distribution operations and close certain manufacturing operations; and


•	a net gain of $1.4 due to the sale of machinery and equipment in Germany.