Avon 2013 Annual Report Download - page 98

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At times, we may de-designate the hedging relationship of a receive-fixed/pay-variable interest-rate swap agreement. In these cases, we
enter into receive-variable/pay-fixed interest-rate swap agreements that are designated to offset the gain or loss on the de-designated
contract. At December 31, 2013, we do not have undesignated interest-rate swap agreements as the remaining undesignated interest-rate
swap agreements were terminated in conjunction with the repayment of the associated debt. The unrealized loss on these agreements was
immaterial at December 31, 2012. During 2013 and 2012, we recorded an immaterial net loss and an immaterial net gain, respectively, in
other expense, net in the Consolidated Statements of Income, associated with these undesignated interest-rate swap agreements.
There was no hedge ineffectiveness for the years ended December 31, 2013, 2012 and 2011, related to these interest-rate swaps.
During 2007, we entered into treasury lock agreements (the “2007 locks”) with notional amounts totaling $500.0 that expired on July 31,
2008. The 2007 locks were designated as cash flow hedges of the anticipated interest payments on $250.0 principal amount of the 2013
Notes and $250.0 principal amount of the 2018 Notes. The losses on the 2007 locks of $38.0 were recorded in AOCI. $19.2 of the losses
were amortized to interest expense over five years and $18.8 are being amortized over ten years.
During 2005, we entered into treasury lock agreements (the “2005 locks”) that we designated as cash flow hedges and used to hedge
exposure to a possible rise in interest rates prior to the anticipated issuance of ten- and 30-year bonds. In December 2005, we decided that a
more appropriate strategy was to issue five-year bonds given our strong cash flow and high level of cash and cash equivalents. As a result of
the change in strategy, in December 2005, we de-designated the 2005 locks as hedges and reclassified the gain of $2.5 on the 2005 locks
from AOCI to other expense, net. Upon the change in strategy in December 2005, we entered into a treasury lock agreement (the
“additional 2005 locks”) with a notional amount of $250.0 designated as a cash flow hedge of the $500.0 principal amount of five-year
notes payable issued in January 2006. The loss on the additional 2005 locks of $1.9 was recorded in AOCI and was amortized to interest
expense in the Consolidated Statements of Income over five years.
During 2003, we entered into treasury lock agreements (the “2003 locks”) that we designated as cash flow hedges and used to hedge the
exposure to the possible rise in interest rates prior to the issuance of the 4.625% Notes. The loss on the 2003 locks of $2.6 was recorded in
AOCI and was amortized to interest expense in the Consolidated Statements of Income over ten years.
As of December 31, 2013, we expect to reclassify $1.2, net of taxes, of net losses on derivative instruments designated as cash flow hedges
from AOCI to earnings during the next 12 months.
For the years ended December 31, 2013 and 2012, treasury lock agreements impacted AOCI as follows:
2013 2012
Net unamortized losses at beginning of year, net of taxes of $3.7 and $5.8 $(6.8) $(10.7)
Reclassification of net losses to earnings, net of taxes of $1.0 and $2.1 1.7 3.9
Net unamortized losses at end of year, net of taxes of $2.7 and $3.7 $(5.1) $ (6.8)
Foreign Currency Risk
We use foreign exchange forward contracts to manage a portion of our foreign currency exchange rate exposures. At December 31, 2013,
we had outstanding foreign exchange forward contracts with notional amounts totaling approximately $184.7 for the various currencies.
We use foreign exchange forward contracts to manage foreign currency exposure of intercompany loans. These contracts are not
designated as hedges. The change in fair value of these contracts is immediately recognized in earnings and substantially offsets the foreign
currency impact recognized in earnings relating to the intercompany loans. During 2013 and 2012, we recorded a loss of $3.5 and gain of
$7.6, respectively, in other expense, net in the Consolidated Statements of Income related to these undesignated foreign exchange forward
contracts. Also during 2013 and 2012, we recorded a gain of $4.8 and loss of $4.6, respectively, related to the intercompany loans, caused
by changes in foreign currency exchange rates.
We also used a foreign exchange forward contract to hedge the foreign currency exposure related to the net assets of foreign subsidiaries,
which were effective as hedges. Gains of $4.3 and $2.8 for 2012 and 2011, respectively, related to the effective portions of the foreign
exchange forward contract were included in foreign currency translation adjustments within AOCI. The foreign exchange forward contract
was terminated in January 2012, and therefore no gain or loss was recorded during 2013.