Avon 2013 Annual Report Download - page 18

PART I
Another risk associated with our international operations is the possibility that a foreign government may impose currency remittance
restrictions. Due to the possibility of government restrictions on transfers of cash out of the country and control of exchange rates, we may
not be able to immediately repatriate cash at the official exchange rate. If this should occur, or if the official exchange rate devalues, it may
have a material adverse effect on our business, assets, financial condition, liquidity, results of operations or cash flows. For example, currency
restrictions enacted by the Venezuelan government in 2003 have become more restrictive and have impacted the ability of our subsidiary in
Venezuela (Avon Venezuela) to obtain foreign currency at the official rate to pay for imported products. We are currently unable to predict
the likelihood of government approvals of these requests, or if approved, the estimated time for remittance. Unless official foreign exchange
is made more readily available, Avon Venezuela’s operations will continue to be negatively impacted as it will need to obtain more of its
foreign currency needs from non-government sources where the exchange rate is less favorable than the official rate.
Inflation is another risk associated with our international operations. For example, Venezuela has been designated as a highly inflationary
economy, and in February 2013 the Venezuelan government devalued its currency for the second time since January 1, 2010. Gains and
losses resulting from the remeasurement of the financial statements of subsidiaries operating in highly inflationary economies are recorded
in earnings. Given Venezuela’s designation as a highly inflationary economy, and the potential for a future devaluation, our revenue,
operating profit and net (loss) income could be negatively impacted further. See “Segment Review - Latin America” within MD&A on
pages 38 through 41 of our 2013 Annual Report for additional information regarding Venezuela. In addition, there can be no assurance that
other countries in which we operate, such as Argentina, will not also become highly inflationary and that our revenue, operating profit and
net (loss) income will not be adversely impacted as a result.
We are engaged in ongoing settlement discussions with the DOJ and the staff of the SEC
related to their investigations of FCPA and related matters. Based on these discussions,
including the level of monetary payments being discussed, we recorded an aggregate accrual
for these matters of $89 million during the year ended December 31, 2013, and we estimate
the total aggregate amount of any potential settlements with the government could exceed
this accrual by up to approximately $43 million. Although we are working to resolve these
investigations through settlement, there can be no assurance that our efforts to reach
settlements will be successful or, if they are, what the timing or terms of any such settlements
would be.
We have substantially completed our internal investigation and compliance reviews regarding the Foreign Corrupt Practices Act (“FCPA”)
and related U.S. and foreign laws in China and additional countries. We have conducted 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 have
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. 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 United States Securities and Exchange Commission (“SEC”) and the
United States Department of Justice (“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. We also have made factual
presentations which are now substantially complete.
As previously reported in our Quarterly Report on Form 10-Q for the period ending June 30, 2013, in June 2013 we made an offer of
settlement to the DOJ and the SEC that, among other terms, would have included payment of monetary penalties of approximately $12
million. Although our offer was rejected by the DOJ and the staff of the SEC, we accrued the amount of our offer in the second quarter of
2013.