Avon 2004 Annual Report Download - page 39

In April 2003, the call holder of $100.0, 6.25% Notes
due May 2018 (the “Notes”), embedded with put and
call option features, exercised the call option associ-
ated with these Notes, and thus became the sole note
holder of the Notes. Pursuant to an agreement with the
sole note holder, Avon modified these Notes into $125.0
aggregate principal amount of 4.625% notes due May 15,
2013. The modified principal amount represented the
original value of the putable/callable notes, plus the mar-
ket value of the related call option and approximately
$4.0 principal amount of additional notes issued for cash.
In May 2003, $125.0 principal amount of registered
senior notes were issued in exchange for the modified
notes held by the sole note holder. No cash proceeds
were received by the Company. The registered senior
notes mature on May 15, 2013, and bear interest at a
per annum rate of 4.625%, payable semi-annually (the
“4.625% Notes”). The 4.625% Notes were issued under
the Company’s $1,000.0 debt shelf registration state-
ment. The transaction was accounted for as an exchange
of debt instruments and, accordingly, the premium
related to the original notes is being amortized over
the life of the new 4.625% Notes. At December 31, 2004
and 2003, the carrying value of the 4.625% Notes rep-
resents the $125.0 principal amount, net of the unamor-
tized discount to face value of $.7 and $.8, respectively,
and the premium related to the call option associated
with the original notes of $17.7 and $19.2, respectively.
Annual maturities of long-term debt (including unamortized discounts and premiums and excluding the adjustments
for debt with fair value hedges) outstanding at December 31, 2004, are as follows:
After
2005 2006 2007 2008 2009 2009 Total
Maturities $5.7 $91.5 $101.8 $.2 $300.1 $375.0 $874.3
Other Financing
Avon has a five-year, $600.0 revolving credit and com-
petitive advance facility (the “credit facility”), which
expires in 2006. The credit facility may be used for gen-
eral corporate purposes, including financing working
capital and capital expenditures and supporting stock
repurchase programs. The interest rate on borrowings
under the credit facility is based on LIBOR or on the
higher of prime or 1
⁄2% plus the federal funds rate. The
credit facility has an annual facility fee, payable quar-
terly, of $0.5, based on Avon’s current credit ratings. The
credit facility contains various covenants, including one
financial covenant which requires Avon’s interest cover-
age ratio (determined in relation to Avon’s consolidated
pretax income and interest expense) to equal or exceed
4:1. At December 31, 2004, Avon was in compliance
with all covenants in the credit facility. At December 31,
2004 and 2003, there were no borrowings under the
credit facility. Avon maintains a $600.0 commercial
paper program, which is supported by the credit facil-
ity. Outstanding commercial paper effectively reduces
the amount available for borrowing under the credit
facility. At December 31, 2004, Avon had $26.9 of com-
mercial paper outstanding at an average annual inter-
est rate of 2.1%.
At December 31, 2004, Avon had an international com-
mitted line of credit of $1.0 of which no amounts were
outstanding. The fee on this line is .25% on the unused
portion. At December 31, 2004 and 2003, notes payable
included short-term borrowings of international subsid-
iaries at average annual interest rates of approximately
4.9% and 6.0%, respectively.
At December 31, 2004 and 2003, Avon also had letters
of credit outstanding totaling $25.0 and $26.4, respec-
tively, which primarily guarantee various insurance
activities. In addition, Avon had outstanding letters of