Avon 2015 Annual Report Download - page 127

NOTE 14. 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 beginning in the fourth quarter of 2015 that we believe will reduce ongoing
costs, primarily consisting of global headcount reductions relating to 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
$22.4 before taxes, during 2015 in selling, general and administrative expenses, in the Consolidated Statements of Operations. These costs
to implement consisted of $21.4 of employee-related costs due to severance benefits and $1.0 of implementation costs for professional
service fees and were recorded in Corporate. The liability balance for the employee-related costs associated with these restructuring actions
as of December 31, 2015 is $21.4. The majority of cash payments, if applicable, associated with these charges are expected to be made
during 2016.
The additional charges not yet incurred associated with the restructuring actions approved to-date of approximately $10 before taxes are
expected to be recorded primarily in 2016. In connection with the restructuring actions approved to-date associated with the Transformation
Plan, we expect to realize annualized savings of approximately $10 to $15 (before tax). We expect to begin to realize savings in 2018 and
are expected to achieve the annualized savings beginning in 2019. The annualized savings represent the net reduction of expenses that will
no longer be incurred by Avon.
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.
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 will reduce ongoing
costs. These actions primarily consisted of global headcount reductions.
As a result of these restructuring actions, we recorded total costs to implement these restructuring initiatives of $29.7 before taxes, during
2015 in selling, general and administrative expenses, in the Consolidated Statements of Operations. There are no material remaining costs
for restructuring actions approved-to-date as the actions associated with these various restructuring initiatives are substantially complete. In
connection with these restructuring actions, we expect to realize annualized savings of approximately $30 before taxes. We began to realize
savings in the second quarter of 2015 and have achieved the annualized savings beginning in the third quarter of 2015. The annualized
savings represent the net reduction of expenses that will no longer be incurred by Avon.
Costs to implement of $29.7 were recorded during 2015 and 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 Corporate and Asia Pacific.
The majority of cash payments, if applicable, associated with these charges were made during 2015.
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