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-dollar ("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 we exceeded through restructuring actions, as well as other cost-savings strategies that did 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 $205.4 before taxes, of which $38.0 was recorded during the twelve months ended December 31, 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"). As one element of 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. In January 2019, we announced significant advancements in this strategy, including a structural reset of inventory processes and an aggregate 18% reduction in global workforce. The structural reset of inventory processes includes a 15% reduction in inventory levels and 25% reduction in Stock Keeping Units (SKUs). The structural reset resulted in an incremental one-off inventory obsolescence expense of $88 million recognized at December 31, 2018. As a result of Open Up Avon restructuring actions approved to-date, we have recorded total costs to implement these restructuring initiatives of $143.2 before taxes, which was recorded during the year ended December 31, 2018, in our Consolidated Statements of Operations.

Restructuring Charges - 2018

During the year ended December 31, 2018, we recorded costs to implement of $181.2, of which $38.0 related to the Transformation Plan and $143.2 related to Open Up Avon, in our Consolidated Statements of Operations. The costs consisted of the following:


•	net charges of $43.3 for employee-related costs, including severance benefits;


•	implementation costs of $30.9 primarily related to professional service fees;


•	accelerated depreciation of $5.2;


•	asset impairment of $4.0, primarily related to manufacturing equipment;


•	inventory write-off of $89.8;


•	foreign currency translation adjustment charges of $.7;


•	dual running costs of $4.1; and


•	contract termination and other costs of $3.2.

Of the total costs to implement during the year ended December 31, 2018, $89.7 was recorded in SG&A expenses and $91.5 was recorded in cost of sales.

Restructuring Charges - 2017

During the year ended December 31, 2017, we recorded costs to implement of $60.8 related to the Transformation Plan, in our Consolidated Statements of Operations. The costs consisted of the following:


•	net charge of $26.9 for employee-related costs, including severance benefits, of which $7.9 was associated with the closure of the Australia and New Zealand markets;


•	contract termination and other net charges of $27.3, associated with vacating our previous corporate headquarters, including the impairment of fixed assets;


•	implementation costs of $4.1 primarily related to professional service fees;


•	accelerated depreciation of $1.9; and


•	inventory write-off of $.6 primarily associated with the closure of the Australia and New Zealand markets.

Of the total costs to implement during the year ended December 31, 2017, $60.2 was recorded in SG&A expenses and $.6 was recorded in cost of sales.

Restructuring Charges - 2016

During the year ended December 31, 2016, we recorded costs to implement of $83.7 related to the Transformation Plan, in our Consolidated Statements of Operations. The costs consisted of the following:


•	net charge of $62.6 for employee-related costs, including severance benefits;


•	contract termination and other net charges of $8.7;


•	implementation costs of $7.4 primarily related to professional service fees;


•	charge of $2.7 due to the accumulated foreign currency translation adjustments associated with the closure of the Thailand market;


•	accelerated depreciation of $1.9; and


•	inventory write-off of $.4.

Of the total costs to implement during the year ended December 31, 2016, $83.3 was recorded in SG&A expenses and $.4 was recorded in cost of sales.

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, at December 31, 2018 is as follows:



	Employee-Related Costs			Inventory Write-offs			Foreign Currency Translation Adjustment Write-offs			Contract Terminations/Other			Total
2016 charges	$	73.4		$	0.4		$	2.7		$	8.7		$	85.2
Balance at December 31, 2016	$	48.6		$	—		$	—		$	2.8		$	51.4
2017 charges	$	31.9		$	.6		$	—		$	—		$	32.5
Adjustments	(5.0		)	—			—			27.3			22.3
Cash payments	(34.8		)	—			—			(8.1		)	(42.9		)
Non-cash write-offs	—			(.6		)	—			(14.0		)	(14.6		)
Foreign exchange	.5			—			—			—			.5
Balance at December 31, 2017	$	41.2		$	—		$	—		$	8.0		$	49.2
2018 charges	$	29.5		$	1.4		$	0.7		$	5.5		$	37.1
Adjustments	(12.6		)	—			—			(3.4		)	(16.0		)
Cash payments	(21.3		)	—			—			(6.3		)	(27.6		)
Non-cash write-offs	—			(1.4		)	(0.7		)	—			(2.1		)
Foreign exchange	(2.4		)	—			—			(.2		)	(2.6		)
Balance at December 31, 2018	$	34.4		$	—		$	—		$	3.6		$	38.0

The liability balance for the restructuring actions, primarily associated with Open Up Avon, at December 31, 2018 is as follows:



	Employee-Related Costs			Inventory Write-offs			Foreign Currency Translation Adjustment Write-offs		Contract Terminations/Other		Total
Balance at December 31, 2017	$	—		$	—		$	—	$	—	$	—
2018 charges	$	26.4		$	88.5		$	—	$	0.8	$	115.7
Adjustments	—			—			—		—		—
Cash payments	(6.8		)	—			—		0.3		(6.5		)
Non-cash write-offs	—			(88.5		)	—		—		(88.5		)
Foreign exchange	—			—			—		—		—
Balance at December 31, 2018	$	19.6		$	—		$	—	$	1.1	$	20.7

The majority of cash payments, if applicable, associated with the year-end liability are expected to be made during 2019.

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	$	128.0	$	2.2	$	40.7	$	3.4	$	174.3
Estimated charges to be incurred on approved initiatives	—		—		—		—		—
Total expected charges on approved initiatives	$	128.0	$	2.2	$	40.7	$	3.4	$	174.3

Open Up Avon
Charges incurred to-date	$	26.3	$	88.5	$	2.3	$	—	$	117.1
Estimated charges to be incurred on approved initiatives	—		—		.5		—		.5
Total expected charges on approved initiatives	$	26.3	$	88.5	$	2.8	$	—	$	117.6

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
2018	5.0		4.1		.6			.6			13.4		23.7
Charges incurred to-date	36.8		22.9		4.4			9.2			101.0		174.3
Estimated charges to be incurred on approved initiatives	—		—		—			—			—		—
Total expected charges on approved initiatives	$	36.8	$	22.9	$	4.4		$	9.2		$	101.0	$	174.3

Open Up Avon
2018	32.2		36.4		27.9			14.4			6.2		117.1
Charges incurred to-date	32.2		36.4		27.9			14.4			6.2		117.1
Estimated charges to be incurred on approved initiatives	—		—		—			—			.5		.5
Total expected charges on approved initiatives	$	32.2	$	36.4	$	27.9		$	14.4		$	6.7	$	117.6

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 2018, 2017 and 2016, we recorded net benefits of $.7, $.4 and $5.5, respectively, primarily in SG&A expenses, in our Consolidated Statements of Operations, associated with the restructuring programs launched in 2005 and 2009 and the restructuring initiative launched in 2012 (the "Other Restructuring Initiatives"), each of which are substantially complete. The net benefit in 2016 primarily consisted of a net gain of $3.7 due to the sale of a distribution center in the U.S. The liability balance associated with the Other Restructuring Initiatives is not material at December 31, 2018.