Avon 2015 Annual Report Download - page 23

however, some uncertainty exists regarding the foreign currency exchange controls in the future. Unless foreign exchange is made more
readily available, Avon Argentina’s operations may be negatively impacted.
Inflation is another risk associated with our international operations. Gains and losses resulting from the remeasurement of the financial
statements of subsidiaries operating in highly inflationary economies are recorded in earnings. High rates of inflation or the related
devaluation of foreign currency may have a material adverse effect on our business, assets, financial condition, liquidity and results of
operations or cash flows. For example, Venezuela has been designated as a highly inflationary economy. See “Segment Review—Latin
America” within MD&A on pages 47 through 51 of our 2015 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 income will not be adversely impacted as a result.
We are subject to a deferred prosecution agreement with the U.S. Department of Justice (the
“DOJ”) and a consent to settlement with the U.S. Securities and Exchange Commission (the
“SEC”) pursuant to which we engaged, at our own expense, an independent compliance
monitor. With the approval of the DOJ and the SEC, the monitor can be replaced by the
Company after 18 months, if the Company agrees to undertake self-reporting obligations for
the remainder of the monitoring period. The monitoring period is scheduled to expire in July
2018. We have been incurring costs in connection with these obligations, and compliance
with these obligations could divert members of management’s time from the operation of
our business. Ongoing costs and burdens could be significant.
In December 2014, the U.S. District Court for the Southern District of New York (the “USDC”) approved a deferred prosecution agreement
between the Company and the DOJ (the “DPA”) and in January 2015, the USDC approved a consent to settlement with the SEC (the
“Consent”) in connection with the previously disclosed Foreign Corrupt Practices Act (the “FCPA”) investigations.
Under the DPA and the Consent, among other things, the Company agreed to have a compliance monitor (the “monitor”). During July
2015, the Company engaged a monitor, who had been approved by the DOJ and SEC. With the approval of the DOJ and the SEC, the
monitor can be replaced by the Company after 18 months, if the Company agrees to undertake self-reporting obligations for the remainder
of the monitoring period. The monitoring period is scheduled to expire in July 2018. There can be no assurance as to whether or when the
DOJ and the SEC will approve replacing the monitor with the Company’s self-reporting.
Under the DPA, the Company also represented that it has implemented and agreed that it will continue to implement a compliance and
ethics program designed to prevent and detect violations of the FCPA and other applicable anti-corruption laws throughout its operations.
The monitor is assessing and monitoring the Company’s compliance with the terms of the DPA. The monitor may recommend changes to
our policies and procedures that we must adopt unless they are unduly burdensome or otherwise inadvisable, in which case we may propose
alternatives, which the DOJ and the SEC may or may not accept. In addition, operating under the oversight of the monitor may result in
additional time and attention on these matters by members of our management, which may divert their time from the operation of our
business. Assuming the monitor is replaced by a self-reporting period, the Company’s self-reporting obligations may be costly or time-
consuming.
We currently cannot estimate the costs that we are likely to incur in connection with ongoing compliance with the DPA and the Consent,
including the monitorship, the costs, if applicable, of self-reporting, and the costs of implementing the changes, if any, to our policies and
procedures required by the monitor. However, these costs could be significant.
If we commit a breach of the DPA, we may be subject to criminal prosecution. Such criminal
prosecution could have a material adverse effect on our business, financial condition, results
of operations or cash flows.
Under the DPA, the DOJ will defer criminal prosecution of the Company for a term of three years in connection with the charged violations
of the FCPA. If the DOJ determines that the Company has knowingly violated the DPA (including the monitoring provisions described in the
preceding risk factor), the DOJ may commence prosecution or extend the term of the DPA for up to one year. If the Company remains in
compliance with the DPA through its term, the charges against the Company will be dismissed with prejudice.
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