Avon 2005 Annual Report Download - page 28

NOTES฀TO฀CONSOLIDATED฀FINANCIAL฀STATEMENTS
Postretirement Benefits
In May 2004, the FASB issued FASB Staff Position (“FSP”) No.
106-2, “Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization
Act of 2003” (the “Act”). FSP No. 106-2 provides guidance on
accounting for the effects of the new Medicare prescription drug
legislation by employers whose prescription drug benefits are
actuarially equivalent to the drug benefit under Medicare Part D.
Among other things, the new law will expand Medicare to include
an outpatient prescription drug benefit beginning in 2006, as well
as a federal subsidy for sponsors of retiree health care benefit plans
that provide a benefit that is at least actuarially equivalent to the
new Medicare drug benefits. This new FSP was effective July 1,
2004. We concluded that our U.S. post-retirement medical plan
provides a benefit that is actuarially equivalent to the drug benefit
provided in Medicare Part D coverage and recognized the Act’s
financial effect retrospectively to the date of enactment beginning
in the third quarter of 2004. The adoption of FSP No. 106-2 was
not material to the Consolidated Financial Statements.
3฀ INVENTORIES
Inventories at December 31 consisted of the following:
2005 2004
Raw materials $208.3 $183.2
Finished goods 593.4 557.3
Total $801.7 $740.5
4DEBT฀AND฀฀ OTHER฀FINANCING
Debt
Debt at December 31 consisted of the following:
2005 2004
Debt maturing within one year:
Notes payable $ 44.0 $ 19.1
Commercial paper 756.9 26.9
1.06% Yen Notes, due September 2006 76.7 –
Current portion of long-term debt 4.9 5.7
Total $882.5 $ 51.7
Long-term debt:
1.06% Yen Notes, due September 2006 $ – $ 86.6
6.55% Notes, due August 2007 100.0 100.0
7.15% Notes, due November 2009 300.0 300.0
4.625% Notes, due May 2013 108.3 106.6
4.20% Notes, due July 2018 248.9 248.9
Other, payable through 2010 with
interest from 1% to 16% 12.3 12.7
Total long-term debt 769.5 854.8
Adjustments for debt with fair
value hedges 1.9 17.2
Less current portion (4.9) (5.7)
Total $766.5 $866.3
Other long-term debt, payable through 2010, consists of obligations
under capital leases, which primarily relate to leases of automobiles.
Adjustments for debt with fair value hedges includes adjustments
to reflect net unrealized (losses) gains of ($15.3) and $6.9 on debt
with fair value hedges at December 31, 2005 and 2004, respec-
tively, and unamortized gains on terminated swap agreements
and swap agreements no longer designated as fair value hedges
of $17.2 and $10.3 at December 31, 2005 and 2004, respectively
(see Note 7, Financial Instruments and Risk Management).
At December 31, 2005, we held interest rate swap contracts that
swap approximately 60% of our long-term debt to variable rates
(see Note 7, Financial Instruments and Risk Management).