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Avon to Restructure U.S. Distribution Operations

Avon Products, Inc. announced plans to restructure its U.S. distribution operations to enhance service to its representatives, improve operating efficiencies through new technologies, and achieve other cost savings that can be reinvested in business growth.

The initiative, which is part of the company's previously announced multi-year turnaround plan, includes the building of a state-of-the-art distribution center in the Midwest that will open in 2009. The facility will employ aproximately 500 people when fully operational and will have capacity to ship 50% of U.S. sales volume.

"With these actions, we are transforming our U.S. distribution network, cost structure, and operating effectiveness as we continue to lay the foundation for Avon's return to sustainable growth," said Elizabeth A. Smith, executive vice president and president, North America and Global Marketing, Avon. "Our decision to restructure U.S. distribution will deliver a step-change in technology support for operations and also will enable a significant improvement in service to our U.S. Representatives."

Avon also said that it will phase-out its current distribution branches in Newark, Delaware and Glenview, Illinois, with the closures expected to be completed by mid-2009 and mid-2010, respectively, with a combined loss of approximately 620 positions.

"The decision to phase-out our branches in Newark and Glenview was a difficult one, and the lengthy transition timelines will help support our hard-working and dedicated Associates as they plan the next phase of their careers," Smith said. "We are confident that the actions we are taking are the right long-term decisions for our business and our Representatives as we fortify our leadership in direct selling."

Avon said that it expects to invest approximately $150 million in capital expenditures relating to the new distribution center and for technology and equipment upgrades in other branches. The company plans to upgrade and modernize its Atlanta-based distribution center, and is evaluating options for investing in a new warehouse management system for the Pasadena site.

In addition, Avon said that it expects to record approximately $20 million of charges relating to the restructuring of U.S. distribution in the fourth quarter 2006 for employee-related costs. The company said that it will incur additional expenses totaling approximately $65 million over the next several years, including transition costs and accelerated depreciation on equipment. In addition, Avon expects a net gain of approximately $25 million from the sales of the Newark and Glenview facilities at the end of the project period.

Once the initiative is fully implemented, the company expects to achieve annualized cost savings of approximately $35 million to $45 million, as well as incremental benefits to working capital and improved service to Avon Representatives. The cost savings are part of the company's previously announced multi-year restructuring plan.

Avon said that it is in the process of evaluating potential locations for its new distribution center in the Midwest, with a decision expected to be announced in 2007. The company said that it expects the new distribution center to feature advanced picking technology to improve productivity and order accuracy, in addition to automated systems that will streamline process and work flow.

Avon continues to project that the total cost to implement all of its restructuring initiatives will be in the range of $500 million and that the annualized restructuring savings will exceed $300 million when the plan is fully realized.