Avon 2010 Annual Report Download - page 83

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We do not enter into derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives. The
master agreements governing our derivative contracts generally contain standard provisions that could trigger early termination of the
contracts 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, 2010:
Asset Liability
Balance Sheet
Classification Fair Value
Balance Sheet
Classification Fair Value
Derivatives designated as hedges:
Interest-rate swap agreements Other assets $114.9 Other Liabilities $ –
Foreign exchange forward contracts Prepaid expenses and other – Accounts Payable –
Total derivatives designated as hedges $114.9 $ –
Derivatives not designated as hedges:
Interest-rate swap agreements Other assets $ 9.9 Other Liabilities $ 9.9
Foreign exchange forward contracts Prepaid expenses and other 11.1 Accounts Payable 4.3
Total derivatives not designated as hedges $ 21.0 $14.2
Total derivatives $135.9 $14.2
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 a party to a derivative instrument, we designate, for
financial reporting purposes, the instrument as a fair value hedge, a cash flow hedge, a net investment hedge, or a non-hedge. The
accounting for changes in fair value (gains or losses) of a derivative instrument depends on whether we had designated it and it qualified as
part of a hedging relationship and further, on the type of hedging relationship.
• Changes in the fair value of a derivative 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.
• Changes in the fair value of a derivative that is designated as a cash flow hedge are recorded in AOCI to the extent effective and
reclassified into earnings in the same period or periods during which the transaction hedged by that derivative also affects earnings.
A V O N 2010 F-19