Avon 2012 Annual Report Download - page 19

PART I
We are currently conducting an internal investigation and compliance reviews focused on
compliance with the Foreign Corrupt Practices Act (“FCPA”) and related United States
(“U.S.”) and foreign laws and we are in discussions with the United States Securities and
Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”)
regarding resolving their investigations of these matters. Based on our most recent
communications with the SEC and the DOJ, we believe it is probable that we will incur a loss
related to the government investigations. We are unable to reasonably estimate the amount
or range of such loss; however, such loss could be material.
As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on
compliance with the FCPA and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being
conducted under the oversight of our Audit Committee, began in June 2008.
As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA
and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance
reviews in a number of countries selected to represent each of the Company’s international geographic segments. The internal investigation
and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel,
entertainment, gifts, use of third-party vendors and consultants and related due diligence, joint ventures and acquisitions, and payments to
third-party agents and others, in connection with our business dealings, directly or indirectly, with foreign governments and their employees.
The internal investigation and compliance reviews of these matters are ongoing. In connection with the internal investigation and
compliance reviews, certain personnel actions, including termination of employment of certain senior members of management, have been
taken, and additional personnel actions may be taken in the future. In connection with the internal investigation and compliance reviews,
we continue to enhance our ethics and compliance program, including our policies and procedures, FCPA compliance-related training, FCPA
third-party due diligence program and other compliance-related resources.
As previously reported in October 2008, we voluntarily contacted the SEC and the DOJ to advise both agencies of our internal investigation.
We have cooperated and continue to cooperate with investigations of these matters by the SEC and the DOJ. We have, among other things,
signed tolling agreements, responded to inquiries, translated and produced documents, assisted with interviews, and provided information
on our internal investigation and compliance reviews, personnel actions taken and steps taken to enhance our ethics and compliance
program. As previously reported in August 2012, we are in discussions with the SEC and the DOJ regarding resolving the government
investigations. These discussions are ongoing. There can be no assurance that a settlement with the SEC and the DOJ will be reached or, if a
settlement is reached, the timing of any such settlement or the terms of any such settlement. We expect any such settlement may include
civil and/or criminal fines and penalties as well as non-monetary remedies, such as oversight requirements and additional remediation and
compliance requirements. We may be required to incur significant future costs to comply with the non-monetary terms of any settlement
with the SEC and the DOJ. Under certain circumstances, we may also be required to advance significant professional fees and expenses to
certain current and former Company employees in connection with these matters. Until any settlement or other resolution of these matters,
we expect to continue to incur costs, primarily professional fees and expenses, which may be significant, in connection with the government
investigations.
At this point we are unable to predict the developments in, outcome of, and economic and other consequences of the government
investigations or their impact on our earnings, cash flow, liquidity, financial condition and ongoing business. However, based on our most
recent communications with the DOJ and the SEC, the Company believes that it is probable that the Company will incur a loss related to the
government investigations. We are unable to reasonably estimate the amount or range of such loss; however, such loss could be material.
A general economic downturn, a recession globally or in one or more of our geographic
regions or sudden disruption in business conditions or other challenges may adversely affect
our business, our access to liquidity and capital, and our credit ratings.
A downturn in the economies in which we sell our products, including any recession in one or more of our geographic regions, or the
current global macro-economic pressures, could adversely affect our business and our access to liquidity and capital. Recent global economic
events over the past few years, including job losses, the tightening of credit markets and failures of financial institutions and other entities,
have resulted in challenges to our business and a heightened concern regarding further deterioration globally. In addition, as mentioned