RESTRUCTURING INITIATIVES

Transformation Plan and Open Up Avon

Transformation Plan

In January 2016, we initiated a transformation plan (the "Transformation Plan"), in order to enable us to achieve our long-term goals of mid-single-digit Constant $ revenue growth and low double-digit operating margin. The Transformation Plan included three pillars: invest in growth, reduce costs in an effort to continue to improve our cost structure and improve our financial resilience. Under this plan, we had targeted pre-tax annualized cost savings of approximately $350 after three years, which were expected to be achieved through restructuring actions, as well as other cost-savings strategies that would not result in restructuring charges. As part of the Transformation Plan, we identified certain actions, that we believe will reduce ongoing costs, primarily consisting of global headcount reductions relating to operating model changes, as well as the closure of Australia, New Zealand and Thailand, which were smaller, under-performing markets.

As a result of these restructuring actions approved to-date, we have recorded total costs to implement these restructuring initiatives of $203.1 before taxes, of which $36.0 was recorded during the nine months ended September 30, 2018, in our Consolidated Statements of Operations. There are no further restructuring actions to be taken associated with our Transformation Plan, as beginning in the third quarter of 2018, all new restructuring actions approved will operate under our new Open Up Avon plan described below.

Open Up Avon

In September 2018, we initiated a new strategy in order to return Avon to growth ("Open Up Avon"). Under this plan, we are targeting pre-tax annualized cost savings of approximately $400 by 2021, to be generated from efficiencies in manufacturing and sourcing, distribution, general and administrative activities, and back office functions, as well as through revenue management, interest and tax. These savings are expected to be achieved through restructuring actions (that may result in charges related to severance, contract terminations and inventory and other asset write-offs), as well as other cost-savings strategies that would not result in restructuring charges. We initiated Open Up Avon in an attempt to enable us to achieve our goals of low-single-digit constant-dollar revenue growth and low double-digit operating margin by 2021. We plan to reinvest a portion of these cost savings in commercial initiatives, including training for Representatives, and digital and information technology infrastructure initiatives. As a result of these restructuring actions approved to-date, we have recorded total costs to implement these restructuring initiatives of $19.1 before taxes, which was recorded during the nine months ended September 30, 2018, in our Consolidated Statements of Operations.

Costs to Implement Restructuring Initiatives - Three and Nine Months Ended September 30, 2018

During the three months ended September 30, 2018, we recorded costs to implement of $19.8, of which $.7 related to the Transformation Plan and $19.1 related to Open Up Avon, in our Consolidated Statements of Operations. During the nine months ended September 30, 2018, we recorded costs to implement of $55.1, of which $36.0 related to the Transformation Plan and $19.1 related to Open Up Avon, in our Consolidated Statements of Operations. The costs during the three and nine months ended September 30, 2018 consisted of the following:


•	net charges of $6.4 and $31.9, respectively, for employee-related costs, including severance benefits;


•	implementation costs of $11.8 and $17.5, respectively, primarily related to professional service fees;


•	accelerated depreciation of $.9 and $2.5, respectively;


•	asset impairment of $2.5 and $2.5, respectively, primarily related to manufacturing equipment;


•	inventory true-up benefit of $.1 and write-off of $1.0, respectively;


•	foreign currency translation adjustment charges $.7 for the nine months ended September 30, 2018; and


•	contract termination and other net benefits of $1.7 and $1.0, respectively.

Of the total costs to implement during the three months ended September 30, 2018, $19.9 was recorded in selling, general and administrative expenses and a benefit of $.1 was recorded in cost of sales. Of the total costs to implement during the nine months ended September 30, 2018, $54.1 was recorded in selling, general and administrative expenses and $1.0 was recorded in cost of sales.

Costs to Implement Restructuring Initiatives - Three and Nine Months Ended September 30, 2017

During the three and nine months ended September 30, 2017, we recorded costs to implement of $6.5 and $37.5, respectively, related to the Transformation Plan, in the Consolidated Statement of Operations. The costs consisted of the following:


•	net charges of $2.3, and $19.4, respectively, for employee-related costs, including severance benefits;


•	contract termination and other net charges of $2.0 and $14.2, respectively, associated with vacating our previous corporate headquarters, including the impairment of fixed assets;


•	implementation costs of $1.8 and $2.5, respectively, primarily related to professional service fees; and


•	accelerated depreciation of $.4 and $1.4, respectively.

Of the total costs to implement during the three months ended September 30, 2017, all $6.5 was recorded in selling, general and administrative expenses in our Consolidated Statement of Operations. Of the total costs to implement during the nine months ended September 30, 2017, $37.6 was recorded in selling, general and administrative expenses and a benefit of $.1 was recorded in cost of sales in our Consolidated Statement of Operations.

The tables below include restructuring costs such as employee-related costs, inventory write-offs, foreign currency translation write-offs and contract terminations, and do not include other costs to implement restructuring initiatives such as professional services fees and accelerated depreciation.

The liability balance for the restructuring actions, primarily associated with our Transformation Plan, as of September 30, 2018 is as follows:



	Employee-Related Costs			Inventory/ Asset Write-offs			Contract Terminations/Other			Foreign Currency Translation Adjustment Write-offs			Total
Balance at December 31, 2017	$	41.2		$	—		$	8.0		$	—		$	49.2
2018 charges	38.2			3.5			1.4			.7			43.8
Adjustments	(6.3		)	—			3.4			—			(2.9		)
Cash payments	(21.1		)	—			(7.9		)	—			(29.0		)
Non-cash write-offs	—			(3.5		)	—			(.7		)	(4.2		)
Foreign exchange	(2.2		)	—			—			—			(2.2		)
Balance at September 30, 2018	$	49.8		$	—		$	4.9		$	—		$	54.7

The following table presents the restructuring charges incurred to date, under the Transformation Plan and Open Up Avon, along with the estimated charges expected to be incurred on approved initiatives under the plans:



	Employee- Related Costs		Inventory/ Asset Write-offs		Contract Terminations/Other		Foreign Currency Translation Adjustment Write-offs		Total
Transformation Plan
Charges incurred to-date	$	134.9	$	1.9	$	34.7	$	3.4	$	174.9
Estimated charges to be incurred on approved initiatives	.2		—		5.9		—		6.1
Total expected charges on approved initiatives	$	135.1	$	1.9	$	40.6	$	3.4	$	181.0

Open Up Avon
Charges incurred to-date	$	8.0	$	2.5	$	.3	$	—	$	10.8
Estimated charges to be incurred on approved initiatives	—		—		—		—		—
Total expected charges on approved initiatives	$	8.0	$	2.5	$	.3	$	—	$	10.8

The charges, net of adjustments, of initiatives under the Transformation Plan, along with the estimated charges expected to be incurred on approved initiatives under the plans, by reportable segment are as follows:



	Europe, Middle East & Africa		South Latin America			North Latin America			Asia Pacific			Global & Other Operating Segments			Total
Transformation Plan
2015	$	—	$	—		$	—		$	—		$	21.4		$	21.4
2016	30.9		13.2			4.4			9.1			16.8			74.4
2017	.9		5.6			(.6		)	(.5		)	49.4			54.8
First quarter 2018	3.2		5.3			.6			—			—			9.1
Second quarter 2018	4.7		(.1		)	—			—			14.3			18.9
Third quarter 2018	.2		(.1		)	—			—			(3.8		)	(3.7		)
Charges incurred to-date	39.9		23.9			4.4			8.6			98.1			174.9
Estimated charges to be incurred on approved initiatives	.6		—			—			—			5.5			6.1
Total expected charges on approved initiatives	$	40.5	$	23.9		$	4.4		$	8.6		$	103.6		$	181.0

Open Up Avon
Third quarter 2018	$	1.3	$	4.3		$	2.1		$	—		$	3.1		$	10.8
Charges incurred to-date	1.3		4.3			2.1			—			3.1			10.8
Estimated charges to be incurred on approved initiatives	—		—			—			—			—			—
Total expected charges on approved initiatives	$	1.3	$	4.3		$	2.1		$	—		$	3.1		$	10.8

The charges above are not included in segment profit, as this excludes costs to implement restructuring initiatives. The amounts shown in the tables above as charges recorded to-date relate to initiatives that have been approved and recorded in the consolidated 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.

Other Restructuring Initiatives

During the three and nine months ended September 30, 2018, we recorded an immaterial benefit and a benefit of $.7, respectively, in selling, general and administrative expenses, in our Consolidated Statements of Operations, associated with other restructuring initiatives. During the three and nine months ended September 30, 2017, we recorded net benefits of $.3 and $1.0, respectively, in selling, general and administrative expenses, in our Consolidated Statements of Operations, associated with other restructuring initiatives.