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The Wall Street Journal
Source: http://online.wsj.com/news/articles/SB10001424052702304888404579380600458283052?KEYWORDS=avon+cosmetics
EARNINGS
Avon May Need to Pay $132 Million to Settle
Bribery Probe
Beauty Company's Higher Estimate Contributes to Fourth-Quarter
Loss
By SERENA NG and JOANN S. LUBLIN
Updated Feb. 14, 2014 3:00 a.m. ET
Sheri McCoy
Avon Products Inc. said it might need to pay as much as $132 million to settle a
federal bribery probe, significantly increasing its estimates for the cost of resolving
the years long investigation into its past conduct in China and other countries.
The beauty company had previously offered to pay $12 million to settle the case
last June, a sum that was rejected by federal regulators as too low. Avon, based in
New York, said in its earnings report Thursday that it has now set aside $89 million
for financial penalties, but said it might have to add a further $43 million based on
the current status of its settlement talks with the Justice Department and Securities and Exchange
Commission.
The new estimate helped send Avon's results into the red, with a $69.1 million loss for the last three
months of 2013.
Executives at Avon are in advanced discussions to resolve the investigation under the Foreign
Corrupt Practices Act and had hoped to reach a settlement with regulators before reporting fullyear results Thursday, people familiar with the matter said. The company said Thursday it hadn't yet
reached a deal and couldn't predict when one would be struck. But the specific settlement range Avon
disclosed indicates both sides are close to reaching an agreement, a person familiar with the matter said.
Anything the company pays to resolve the matter with the federal government would be in addition to
the already heavy costs of investigating the matter internally. Avon has spent roughly $340 million in
legal and other costs on the investigation, which began in 2008 after the company disclosed it was
looking into allegations of improper payments to officials in China and also reported its investigation to
the SEC and Justice Department.
Chief Financial Officer Kimberly Ross said Avon has enough liquidity to cover the financial penalties.
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Authorities have been investigating whether Avon breached the U.S. antibribery law by providing gifts
or making payments to government officials to get licenses to sell its products. The company has said it
is cooperating with the investigation.
The Avon Products logo displayed on a lipstick. The
cosmetics retailer said it might have to pay $132
million to settle a federal bribery probe. Bloomberg
News
Avon's management, led by Chief Executive Sheri McCoy,
has been looking to end the costly investigation so it can
focus its energy on turning around the company's
struggling business.
In the fourth quarter, Avon's total revenue fell 10% to $2.67 billion amid a decline in the company's
active representatives—mostly women who sell its cosmetics, accessories and other consumer products
to other women.
Ms. McCoy has run Avon since April 2012, but has yet to reverse sales declines in many countries.
"Frankly, some parts of the turnaround have been more challenging than anticipated," she said on a
conference call Thursday, adding Avon's business was hurt in the second half of the year by
macroeconomic issues and "missteps in execution" in areas such as recruitment and product pricing.
She said Avon has put some significant problems behind it and is trying to go from stabilizing its
business in some markets to growing them.
Sales in North America plunged 21% in the fourth quarter from a year earlier, amid a drop in active
salespeople and lower average orders. Revenue in China fell 48%. Sales in Latin America—which
accounts for the bulk of the company's business—fell 7%.
Write to Serena Ng at serena.ng@wsj.com and Joann S. Lublin at joann.lublin@wsj.com
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