Cosmetics giant Avon disclosed in a quarterly earnings report yesterday that it could end up shelling out as much as $132 million to resolve civil and criminal charges resulting from possible violations of the Foreign Corrupt Practices Act.

In a Feb. 13 earnings call, Chief Executive Officer Sheri McCoy said Avon continues to make “significant progress” in its talks with the Securities and Exchange Commission and Department of Justice. “Based on the status of our recent discussions, we believe that a reasonable range for settlement with both agencies would be $89 million to $132 million,” said McCoy. “Our discussions with the government are ongoing and differences remain, but the team is working hard in an effort to bring these matters to a close."

Even though the $132 million estimate is more than Avon initially expected, Avon's Chief Financial Officer Kimberly Ross said, “we feel comfortable from a liquidity perspective, as well as from a debt agreement perspective, that we have ample liquidity to be able to pay for that.” She added that Avon has a bucket of $400 million that can be used for legal matters, and that a little bit over half of that has been used.

Investigative Costs

In October 2008, Avon said in a press release that it had alerted the Justice Department and SEC that it was voluntarily conducting an internal investigation of its China operations over possible violations of the FCPA, which prohibits the bribery of foreign officials. Avon said, under the oversight of the audit committee, that it commenced the investigation in June 2008 after receiving allegations that certain travel, entertainment and other expenses may have been improperly incurred in connection with the company's China operations.

Since then, based on current negotiations with the Department of Justice and SEC, Avon accrued $77 million more in legal costs related to the FCPA investigation than originally forecasted, bringing its year-end total for these matters to $89 million, according to Ross.

So far, Avon has spent more than $300 million since 2009 on “professional and related fees” associated with the FCPA investigation and compliance reviews.  

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