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 and Republic of Ireland markets.

As a result of the actions approved to-date, we have recorded total costs to implement these restructuring initiatives of $119.1 before taxes, of which $68.4 before taxes was recorded in 2013. For the actions approved to-date, we expect our total costs to implement restructuring to be in the range of $140 to $150 before taxes. The additional charges not yet incurred associated with the actions approved to-date of approximately $20 to $30 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 $165 to $170 (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 – 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. The majority of cash payments, if applicable, associated with these charges were made in 2013 and the remaining are expected to be made during 2014.

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, 2013 is as follows:



	Employee- Related Costs			Inventory/ Asset Write-offs			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

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		Currency Translation Adjustment Write-offs			Contract Terminations/ Other		Total
Charges incurred to date	$	95.6	$	.7	$	(3.5	)	$	6.7	$	99.5
Estimated charges to be incurred on approved initiatives	2.2		—		6.0			7.7		15.9
Total expected charges on approved initiatives	$	97.8	$	.7	$	2.5		$	14.4	$	115.4

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
Charges incurred to date	24.0		16.7		23.3		14.2		21.3		99.5
Estimated charges to be incurred on approved initiatives	1.9		12.1		—		.4		1.5		15.9
Total expected charges on approved initiatives	$	25.9	$	28.8	$	23.3	$	14.6	$	22.8	$	115.4

As noted previously, for the initiatives approved to-date, we expect to record total costs to implement restructuring in the range of $140 to $150 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 – 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 associated with previously approved initiatives, and 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.

Total costs to implement were recorded in selling, general and administrative expenses in the Consolidated Statements of Income for the year ended December 31, 2013.

The liability balance for these various restructuring initiatives as of December 31, 2013 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

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

2005 and 2009 Restructuring Programs

We launched restructuring programs in 2005 and 2009 (collectively, the "2005 and 2009 Restructuring Programs") with initiatives designed to enhance our organizational effectiveness, implement a global manufacturing strategy and additional supply chain efficiencies in distribution, restructure our global supply chain operations, realign certain local business support functions to a more regional base, and streamline transactional and other services.

Restructuring Charges – 2013

During 2013, we recorded net benefits as a result of adjustments to the reserve of $7.5 primarily in selling, general and administrative expenses, associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs. The net benefit primarily consisted of a net gain of $4.9 due to the sale of a facility in the U.S., as well as adjustments the reserve for employee-related costs.

Restructuring Charges – 2012

During 2012, we recorded total costs to implement of $.1 associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs 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.

Of the total cost to implement, 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.

Restructuring Charges – 2011

During 2011, we recorded total costs to implement of $40.0 associated with previously approved initiatives that are part of our 2005 and 2009 Restructuring Programs, and the costs consisted of the following:


•	net charge of $3.4 primarily for employee-related costs, including severance and pension benefits;


•	implementation costs of $27.2 for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations, realign certain support functions to a more regional basis and realign certain manufacturing facilities;


•	accelerated depreciation of $14.6 associated with our initiatives to realign certain distribution operations and close certain manufacturing operations; and


•	a net gain of $5.2 primarily due to the sale of a facility in Germany.

Of the total costs to implement, $28.8 was recorded in selling, general and administrative expenses and $11.2 was recorded in cost of sales, in the Consolidated Statements of Income.

The liability balance, which primarily consists of employee-related costs, for the initiatives under the 2005 and 2009 Restructuring Programs is as follows:



	Total
Balance December 31, 2010	$	135.9
2011 Charges	25.6
Adjustments	(22.2		)
Cash payments	(64.1		)
Non-cash write-offs	.3
Foreign exchange	(1.6		)
Balance December 31, 2011	$	73.9
2012 Charges	2.3
Adjustments	(14.4		)
Cash payments	(41.5		)
Non-cash write-offs	1.0
Foreign exchange	(.3		)
Balance December 31, 2012	$	21.0
2013 Charges	.7
Adjustments	(4.6		)
Cash payments	(15.9		)
Non-cash write-offs	—
Foreign exchange	—
Balance December 31, 2013	$	1.2

The 2005 and 2009 Restructuring Programs are substantially complete.