Restructuring Initiatives

Transformation Plan

In January 2016, we announced a transformation plan ("the Transformation Plan"), which includes cost reduction efforts to continue to improve our cost structure and to enable us to reinvest in growth. As a result of this plan, we have targeted pre-tax annualized cost savings of approximately $350 after three years, with an estimated $200 from supply chain reductions and an estimated $150 from other cost reductions, which are expected to be achieved through restructuring actions, as well as other cost-savings strategies that will not result in restructuring charges. We plan to reinvest a portion of these cost savings in growth initiatives, including media, social selling and information technology systems that will help us modernize our business. We initiated the Transformation Plan in order to enable us to achieve our long-term goals of double-digit operating margin and mid single-digit constant-dollar revenue growth. 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 Thailand, a smaller, under-performing market. These operating model changes include the streamlining of our corporate functions to align with the current and future needs of the business and an information technology infrastructure outsourcing initiative.

As a result of these restructuring actions approved-to-date, we have recorded total costs to implement these restructuring initiatives of $106.1 before taxes, of which $83.7 was recorded in 2016, in the Consolidated Statements of Operations. The additional charges not yet incurred associated with the restructuring actions approved to-date of approximately $20 to $30 before taxes are expected to be recorded primarily in 2017. At this time we are unable to quantify the total costs to implement these restructuring initiatives that will be incurred through the time the Transformation Plan is fully implemented as we have not yet identified all actions to be taken.

Restructuring Charges - 2016

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


•	net charge of $62.6 primarily 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 year ended December 31, 2016, $83.3 was recorded in selling, general and administrative expenses and $.4 was recorded in cost of sales.

Restructuring Charges - 2015

During 2015, we recorded costs to implement of $22.4 related to the Transformation Plan in selling, general and administrative expenses, in the Consolidated Statements of Operations. The costs consisted of $21.4 of employee-related costs due to severance benefits and $1.0 of implementation costs for professional service fees.

The liability balance for the Transformation Plan at December 31, 2016 is as follows:



	Employee-Related Costs			Inventory Write-offs			Foreign Currency Translation Adjustment Write-offs			Contract Terminations/Other			Total
2015 charges	$	21.4		$	—		$	—		$	—		$	21.4
Balance at December 31, 2015	$	21.4		$	—		$	—		$	—		$	21.4
2016 charges	73.4			.4			2.7			8.7			85.2
Adjustments	(10.8		)	—			—			—			(10.8		)
Cash payments	(34.6		)	—			—			(5.9		)	(40.5		)
Non-cash write-offs	—			(.4		)	(2.7		)	—			(3.1		)
Foreign exchange	(.8		)	—			—			—			(.8		)
Balance at December 31, 2016	$	48.6		$	—		$	—		$	2.8		$	51.4

The majority of cash payments, if applicable, associated with this liability are expected to be made during 2017.

The following table presents the restructuring charges incurred to date, under the Transformation Plan, along with the estimated charges expected to be incurred on approved initiatives under the plan:



	Employee- Related Costs		Inventory Write-offs		Foreign Currency Translation Adjustment Write-offs		Contract Terminations/Other		Total
Charges incurred to-date on approved initiatives	$	84.0	$	.4	$	2.7	$	8.7	$	95.8
Estimated charges to be incurred on approved initiatives	6.2		—		—		1.9		8.1
Total expected charges on approved initiatives	$	90.2	$	.4	$	2.7	$	10.6	$	103.9

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 plan, by reportable segment are as follows:



	Europe, Middle East & Africa		South Latin America		North Latin America		Asia Pacific		Global & Other Operating Segments		Total
2015	$	—	$	—	$	—	$	—	$	21.4	$	21.4
2016	30.9		13.2		4.4		11.7		14.2		74.4
Charges incurred to-date on approved initiatives	30.9		13.2		4.4		11.7		35.6		95.8
Estimated charges to be incurred on approved initiatives	1.9		—		—		—		6.2		8.1
Total expected charges on approved initiatives	$	32.8	$	13.2	$	4.4	$	11.7	$	41.8	$	103.9

We expect our total costs to implement restructuring on approved initiatives to be an estimated $95 to $105 before taxes under the Transformation Plan. 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 continue to incur other costs to implement restructuring initiatives such as professional services fees and accelerated depreciation.

Additional Restructuring Charges 2015

As a result of the then-current economic environment, including the impact of foreign currency movements and inflation on our expenses, and in an effort to continue to improve our cost structure, we identified certain actions during 2015 that we believe would reduce ongoing costs. These actions primarily consisted of global headcount reductions.

As a result of these restructuring actions, we recorded costs to implement of $28.9 before taxes, of which a net benefit of $.8 was recorded in 2016, in selling, general and administrative expenses, in the Consolidated Statements of Operations. There are no material remaining costs for restructuring actions approved-to-date.

Restructuring Charges – 2016

During 2016, we recorded a net benefit of $.8 in selling, general and administrative expenses, in the Consolidated Statements of Operations, primarily for employee-related costs due to severance benefits.

Restructuring Charges - 2015

During 2015, we recorded costs to implement of $29.7 in selling, general and administrative expenses, in the Consolidated Statements of Operations. The costs consisted of the following:


•	charge of $22.1 for employee-related costs due to severance benefits; and


•	implementation costs of $7.6 primarily for professional service fees associated with Global and Asia Pacific.

The liability balance, which primarily consists of employee-related costs, for these various restructuring initiatives at December 31, 2016 is as follows:



	Total
2015 charges	$	24.9
Adjustments	(2.8		)
Cash payments	(17.8		)
Foreign exchange	(.3		)
Balance at December 31, 2015	$	4.0
2016 charges	—
Adjustments	(.7		)
Cash payments	(2.2		)
Foreign exchange	—
Balance at December 31, 2016	$	1.1

The majority of cash payments, if applicable, associated with this liability are expected to be made during 2017.

The charges approved to date under these various restructuring initiatives by reportable business segment were as follows:



	Europe, Middle East & Africa		South Latin America		North Latin America		Asia Pacific		Global & Other Operating Segments		Total
Total charges incurred	$	4.2	$	2.6	$	.2	$	5.7	$	8.6	$	21.3

In addition to the charges included in the tables above, we have incurred other costs to implement restructuring initiatives such as professional services fees.

$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, which included the North America business which has since been presented as discontinued operations for all periods presented. 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.

As a result of the restructuring actions associated with the $400M Cost Savings Initiative, we recorded total costs to implement these restructuring initiatives of $164.0 before taxes, of which a net benefit of $1.5 was recorded in 2016. There are no significant remaining costs for restructuring actions approved-to-date as the actions associated with the $400M Cost Savings Initiative are substantially complete.

Restructuring Charges – 2016

During 2016, we recorded a net benefit of $1.5 related to the $400M Cost Savings Initiative, in the Consolidated Statements of Operations, primarily for employee-related costs due to severance benefits. Of the net benefit during year ended December 31, 2016, a net benefit of $1.7 was recorded in selling, general and administrative expenses and a charge of $.2 was recorded in cost of sales.

Restructuring Charges – 2015

During 2015, we recorded a net benefit of $3.5 related to the $400M Cost Savings Initiative, in selling, general and administrative expenses, in the Consolidated Statements of Operations. The costs consisted of the following:


•	net benefit of $4.4 primarily for employee-related benefits, associated with severance;


•	implementation costs of $.9 primarily related to professional service fees associated with our Europe, Middle East & Africa and Asia Pacific businesses;


•	benefit of $.4 primarily related to the accumulated foreign currency translation adjustments associated with Asia Pacific markets;


•	accelerated depreciation of $.3 associated with the closure and rationalization of certain facilities; and


•	contract termination and other charge of $.1, primarily related to Asia Pacific.

Restructuring Charges – 2014

During 2014, we recorded total costs to implement of $83.9 related to the $400M Cost Savings Initiative, in selling, general and administrative expenses, in the Consolidated Statements of Operations. The costs consisted of the following:


•	net charge of $57.9 primarily for employee-related costs, including severance benefits;


•	accelerated depreciation of $12.2 associated with the closure and rationalization of certain facilities and other assets;


•	contract termination and other 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;


•	implementation costs of $3.8 primarily related to professional service fees; and


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

The liability balance for the $400M Cost Savings Initiative at December 31, 2016 is as follows:



	Employee- Related Costs			Inventory/ Asset Write-offs			Foreign Currency Translation Adjustment Write-offs			Contract Terminations/ Other			Total
Balance at December 31, 2013	$	25.9		$	—		$	—		$	1.6		$	27.5
2014 Charges	64.2			—			3.7			7.4			75.3
Adjustments	(6.3		)	—			—			(1.1		)	(7.4		)
Cash payments	(44.8		)	—			—			(6.9		)	(51.7		)
Non-cash write-offs	.2			—			(3.7		)	—			(3.5		)
Foreign exchange	(2.1		)	—			—			(.1		)	(2.2		)
Balance at December 31, 2014	$	37.1		$	—		$	—		$	.9		$	38.0
2015 Charges	.6			—			(.4		)	.3			.5
Adjustments	(5.0		)	—			—			(.1		)	(5.1		)
Cash payments	(25.8		)	—			—			(.6		)	(26.4		)
Non-cash write-offs	.4			—			.4			—			.8
Foreign exchange	(1.5		)	—			—			(.1		)	(1.6		)
Balance at December 31, 2015	$	5.8		$	—		$	—		$	.4		$	6.2
2016 Charges	(.1		)	.2			—			—			.1
Adjustments	(1.6		)	—			—			—			(1.6		)
Cash payments	(1.6		)	—			—			(.3		)	(1.9		)
Non-cash write-offs	—			(.2		)	—			—			(.2		)
Foreign exchange	(.1		)	—			—			—			(.1		)
Balance at December 31, 2016	$	2.4		$	—		$	—		$	.1		$	2.5

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 majority of cash payments, if applicable, associated with this liability are expected to be made during 2017.

The following table presents the restructuring charges incurred to-date, net of adjustments, under our $400M Cost Savings Initiative:



	Employee- Related Costs		Inventory/ Asset Write-offs		Foreign Currency Translation Adjustment Write-offs			Contract Terminations/ Other		Total
Total charges incurred	$	124.4	$	.9	$	(.2	)	$	12.9	$	138.0

The charges, net of adjustments, of initiatives under the $400M Cost Savings Initiative by reportable business segment were as follows:



	Europe, Middle East & Africa			South Latin America			North Latin America			Asia Pacific		Global & Other Operating Segments			Total
2012	$	1.1		$	11.5		$	1.2		$	11.4	$	5.3		$	30.5
2013	13.1			1.4			(.3		)	4.3		27.2			45.7
2014	12.3			15.4			5.6			6.5		28.2			68.0
2015	(1.2		)	(.6		)	(.9		)	.2		(2.2		)	(4.7		)
2016	(1.2		)	.2			(.3		)	—		(.2		)	(1.5		)
Total charges incurred	$	24.1		$	27.9		$	5.3		$	22.4	$	58.3		$	138.0

As noted previously, we have recorded total costs to implement of $164.0 before taxes under the $400M Cost Savings Initiative. The amounts shown in the tables above as total charges incurred relate to initiatives that have been approved and recorded in the financial statements. No material additional charges are expected to be incurred. In addition to the charges included in the tables above, we have incurred other costs to implement restructuring initiatives such as other professional services and accelerated depreciation.

Other Restructuring Initiatives

During 2016, 2015 and 2014, we recorded a net benefit of $4.0 and net charges of $.5 and $2.1, respectively, in selling, general and administrative expenses, in the 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, 2016.