Avon 2009 Annual Report Download - page 79

We recognize interest and penalties accrued related to unrecog-
nized taxbenefits in the provision for income taxes. We had $25.9
at December 31, 2009,and $22.5 at December 31, 2008, accrued
for interest and penalties,net of taxbenefit. We recorded an
expense of $1.6 during2009, abenefit of $3.2 during 2008 and an
expense of $3.3 during 2007 for interest and penalties, net of taxes.
We file income tax returns in the U.S. federal jurisdiction, and
various states and foreign jurisdictions. As of December 31, 2009,
the tax years that remained subject to examination by major tax
jurisdiction for our most significant subsidiaries were as follows:
Jurisdiction Open Years
Brazil 2004 –2009
China 2004 –2009
Mexico 2004 –2009
Poland 2004 –2009
Russia 2007 –2009
United States 2006 –2009
We anticipate that it is reasonably possible that the total amount
of unrecognized tax benefits could decrease in the range of $45 to
$55 within the next 12 months due to the closure of tax years by
expiration of the statute of limitations and audit settlements.
NOTE 7. Financial Instruments and Risk Management
We operate globally, with manufacturing and distribution facilities in various locations around the world. We may reduce our exposure to
fluctuations in cash flows associated with changes in interest rates and foreign exchange rates by creating offsetting positions through the
use of derivative financial instruments. Since we use foreign currency-rate sensitive and interest-rate sensitive instruments to hedge acertain
portion of our existing and forecasted transactions, we expect that any gain or loss in value of the hedge instruments generally would be
offset by decreases or increases in the value of the underlying forecasted transactions.
We do not enter into derivative financial instruments for trading or speculative purposes, nor are we aparty to leveraged derivatives. The
master agreements governing our derivative contracts generally contain standard provisions that could trigger early termination of the con-
tracts in certain circumstances, including if we were to merge with another entity and the creditworthiness of the surviving entity were to be
“materially weaker” than that of Avon prior to the merger.
Derivatives are recognized on the balance sheet at their fair values. The following table presents the fair value of derivative instruments
outstanding at December 31, 2009:
Asset Liability
Balance Sheet
Classification Fair Value
Balance Sheet
Classification Fair Value
Derivatives designated as hedges:
Interest-rate swap agreements Other assets $46.7 Other Liabilities $2.8
Foreign exchange forward contracts Prepaid expenses and other –Accounts Payable –
Total derivatives designated as hedges $46.7 $2.8
Derivatives not designated as hedges:
Interest-rate swap agreements Other assets $8.2 Other Liabilities $8.2
Foreign exchange forward contracts Prepaid expenses and other 5.1 Accounts Payable 8.0
Total derivatives not designated as hedges $13.3 $16.2
Total derivatives $60.0 $19.0
Accounting Policies
Derivatives are recognized on the balance sheet at their fair
values. When we become aparty to aderivative instrument, we
designate, for financial reporting purposes, the instrument as afair
value hedge, acash flow hedge, anet investment hedge, or a
non-hedge. The accounting for changes in fair value (gains or
losses) of aderivative instrument depends on whether we had
designated it and it qualified as part of ahedging relationship and
further, on the type of hedging relationship.
•Changes in the fair value of aderivative that is designated as a
fair value hedge, along with the loss or gain on the hedged
asset or liability that is attributable to the hedged risk are
recorded in earnings.
AVON2009 F-15