Avon 2010 Annual Report Download - page 78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
wholly-owned subsidiaries. The Notes contain certain covenants that have the effect of limiting under certain circumstances the ability of the
Company and certain of its subsidiaries to, among other things, merge with other entities, create new liens, incur additional indebtedness or
substantially change the general nature of the business of the Company and its subsidiaries, taken as a whole. The Notes also require the
Company to comply with an interest coverage ratio (determined in relation to our consolidated pretax income and interest expense) to equal
or exceed 4:1 and contain customary default provisions, including cross-default provisions. The proceeds from the sale of the Notes were
used to repay existing debt and for general corporate purposes.
In March 2009, we issued $850.0 principal amount of notes payable in a public offering. $500.0 of the notes bear interest at a per annum
coupon rate equal to 5.625%, payable semi-annually, and mature on March 1, 2014 (the “2014 Notes”). $350.0 of the notes bear interest
at a per annum coupon rate equal to 6.50%, payable semi-annually, and mature on March 1, 2019 (the “2019 Notes”). The net proceeds
from the offering of $837.6 were used to repay the outstanding indebtedness under our commercial paper program and for general
corporate purposes. The carrying value of the 2014 Notes represents the $500.0 principal amount, net of the unamortized discount to face
value of $1.7 at December 31, 2010. The carrying value of the 2019 Notes represents the $350.0 principal amount, net of the unamortized
discount to face value of $3.6 at December 31, 2010.
In March 2008, we issued $500.0 principal amount of notes payable in a public offering. $250.0 of the notes bear interest at a per annum
coupon rate equal to 4.80%, payable semi-annually, and mature on March 1, 2013, (the “2013 Notes”). $250.0 of the notes bear interest
at a per annum coupon rate of 5.75%, payable semi-annually, and mature on March 1, 2018 (the “2018 Notes”). The net proceeds from
the offering of $496.3 were used to repay outstanding indebtedness under our commercial paper program and for general corporate
purposes. The carrying value of the 2013 Notes represents the $250.0 principal amount, net of the unamortized discount to face value of
$.2 at December 31, 2010, and $.2 at December 31, 2009. The carrying value of the 2018 Notes represents the $250.0 principal amount,
net of the unamortized discount to face value of $.6 at December 31, 2010, and $.7 at December 31, 2009.
In January 2006, we issued in a public offering $500.0 principal amount of notes payable (the “5.125% Notes”) that mature on January 15,
2011, and bear interest, payable semi-annually, at a per annum rate equal to 5.125%. The net proceeds from the offering were used for
general corporate purposes, including the repayment of short-term domestic debt. The carrying value of the 5.125% Notes represents
the $500.0 principal amount, net of the unamortized discount to face value of $.2 at December 31, 2009. The 5.125% Notes were paid
in January 2011.
In June 2003, we issued to the public $250.0 principal amount of registered senior notes (the “4.20% Notes”). The 4.20% Notes mature on
July 15, 2018, and bear interest at a per annum rate of 4.20%, payable semi-annually. The carrying value of the 4.20% Notes represents the
$250.0 principal amount, net of the unamortized discount to face value of $.6 and $.7 at December 31, 2010 and 2009, respectively.
In April 2003, the call holder of $100.0 principal amount of 6.25% Notes due May 2018 (the “Notes”), embedded with put and call option
features, exercised the call option associated with these Notes, and thus became the sole note holder of the Notes. Pursuant to an
agreement with the sole note holder, we 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 market 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 us. 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 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. The carrying value of the 4.625% Notes represents the $125.0 principal amount,
net of the unamortized discount to face value and the premium related to the call option associated with the original notes totaling $6.3 at
December 31, 2010, and $8.7 at December 31, 2009.
The indentures under which the above notes were issued contain certain covenants, including limits on the incurrence of liens and
restrictions on the incurrence of sale/leaseback transactions and transactions involving a merger, consolidation or sale of substantially all of
our assets. At December 31, 2010, we were in compliance with all covenants in our indentures. Such indentures do not contain any rating
downgrade triggers that would accelerate the maturity of our debt. However, we would be required to make an offer to repurchase the
2013 Notes, 2014 Notes, 2018 Notes, 2019 Notes, the Series A Notes, the Series B Notes and the Series C Notes at a price equal to 101% of
their aggregate principal amount, plus accrued and unpaid interest in the event of a change in control involving Avon and a corresponding
ratings downgrade to below investment grade.