Debt and Other Financing

Debt

Debt at December 31 consisted of the following:



	2013			2012
Debt maturing within one year:
Notes payable	$	159.4		$	180.6
Current portion of long-term debt	28.6			391.4
Total	$	188.0		$	572.0
Long-term debt:
4.80% Notes, due March 2013	$	—		$	250.0
4.625% Notes, due May 2013	—			124.0
5.625% Notes, due March 2014	—			499.4
Term Loan, 25% due June 2014 and remainder due June 2015	52.5			550.0
2.60% Senior Notes, Series A, due November 2015	—			142.0
2.375% Notes, due March 2016	249.9			—
5.75% Notes, due March 2018	249.6			249.6
4.20% Notes, due July 2018	249.6			249.6
6.50% Notes, due March 2019	347.7			347.3
Other debt, payable through 2019 with interest from .9% to 7.2%	67.9			75.5
4.60% Notes, due March 2020	499.3			—
4.03% Senior Notes, Series B, due November 2020	—			290.0
4.18% Senior Notes, Series C, due November 2022	—			103.0
5.00% Notes, due March 2023	495.5			—
6.95% Notes, due March 2043	249.3			—
Total	2,461.3			2,880.4
Adjustments for debt with fair value hedges	—			93.1
Amortization of swap termination	100.0			41.7
Less current portion	(28.6		)	(391.4		)
Total long-term debt	$	2,532.7		$	2,623.8

Notes payable included short-term borrowings of international subsidiaries at average annual interest rates of approximately 6.5% at December 31, 2013 and 8.6% at December 31, 2012.

Other debt, payable through 2019, included obligations under capital leases of $11.6 at December 31, 2013 and $13.9 at December 31, 2012, which primarily relate to leases of automobiles and equipment. In addition, other debt, payable through 2019, at December 31, 2013 and 2012, included financing obligations of $56.3 and $61.6, respectively, of which $44.5 and $48.4, respectively, relates to the sale and leaseback of equipment in one of our distribution facilities in North America entered into in 2009.

Adjustments for debt with fair value hedges include adjustments to reflect a net unrealized gain of $93.1 at December 31, 2012. We held interest-rate swap contracts that effectively converted approximately 62% at December 31, 2012, of our long-term fixed-rate borrowings to a variable interest rate based on LIBOR. As of December 31, 2013, all interest-rate swap agreements had been terminated either in conjunction with the repayment of the associated debt or in the January 2013 and March 2012 swap termination transactions. See Note 8, Financial Instruments and Risk Management.

Term Loan Agreement

On June 29, 2012, we entered into a $500.0 term loan agreement (the "term loan agreement"). Subsequently on August 2, 2012, we borrowed an incremental $50.0 of principal from subscriptions by new lenders under the term loan agreement. Pursuant to the term loan agreement, we are required to repay an amount equal to 25% of the aggregate remaining principal amount of the term loan on June 29, 2014, and the remaining outstanding principal amount of the term loan on June 29, 2015. Amounts repaid or prepaid under the term loan agreement may not be reborrowed. Borrowings under the term loan agreement bear interest, at our option, at a rate per annum equal to LIBOR plus an applicable margin or a floating base rate plus an applicable margin, in each case subject to adjustment based on our credit ratings. The term loan agreement also provides for mandatory prepayments and voluntary prepayments. Subject to certain exceptions (including the issuance of commercial paper and draw-downs on our revolving credit facility), we are required to prepay the term loan in an amount equal to 50% of the net cash proceeds received from any incurrence of debt for borrowed money in excess of $500.

In March 2013, we entered into the first amendment to the term loan agreement. This amendment primarily related to (i) adding a provision whereby the lenders may, at our discretion, decline receipt of prepayments, and (ii) adding a subsidiary debt covenant and conforming the interest coverage ratio and leverage ratio covenants to those contained in the revolving credit facility (discussed below under "Debt Covenants"). Later in March 2013, we repaid $380.0 of the outstanding principal amount of the term loan agreement with a portion of the proceeds from the issuance of the Notes (as defined below under "Public Notes"), which repayment resulted in a loss in the first quarter of 2013 of $1.6 on extinguishment of debt associated with the write-off of debt issuance costs related to the term loan agreement. On July 25, 2013, we prepaid $117.5 of the outstanding principal balance under the term loan agreement, without prepayment penalties. At December 31, 2013, there was $52.5 outstanding under the term loan agreement. Based on amounts outstanding at December 31, 2013, $13.1 is required to be repaid on June 29, 2014 and was included within debt maturing within one year, and the remaining $39.4 is required to be repaid on June 29, 2015 and was included within long-term debt, in the Consolidated Balance Sheets.

Private Notes

On November 23, 2010, we issued, in a private placement exempt from registration under the Securities Act of 1933, as amended, $142.0 principal amount of 2.60% Senior Notes, Series A, due November 23, 2015, $290.0 principal amount of 4.03% Senior Notes, Series B, due November 23, 2020, and $103.0 principal amount of 4.18% Senior Notes, Series C, due November 23, 2022 (collectively, the "Private Notes"). The proceeds from the sale of the Private Notes were used to repay existing debt and for general corporate purposes.

On March 29, 2013, we prepaid our Private Notes. The prepayment price was equal to 100% of the principal amount of $535.0, plus accrued interest of $6.9 and a make-whole premium of $68.0. In connection with the prepayment of our Private Notes, we incurred a loss on extinguishment of debt of $71.4 in the first quarter of 2013, which included the make-whole premium and the write-off of $3.4 of debt issuance costs related to the Private Notes.

Public Notes

In April 2003, the call holder of $100.0 principal amount of 6.25% Notes due May 2018 (the "6.25% Notes"), embedded with put and call option features, exercised the call option associated with these 6.25% Notes, and thus became the sole note holder of the 6.25% Notes. Pursuant to an agreement with the sole note holder, we modified these 6.25% 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 bear interest at a per annum rate of 4.625%, payable semi-annually, and matured on May 15, 2013 (the "4.625% Notes"). The transaction was accounted for as an exchange of debt instruments and, accordingly, the premium related to the original notes was amortized over the life of the new 4.625% Notes. The 4.625% Notes were repaid in full at maturity. At December 31, 2012, the carrying value of the 4.625% Notes represented the $125.0 principal amount, net of the unamortized discount to face value of $1.0.

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 represented the $250.0 principal amount, net of the unamortized discount to face value of $.4 and $.4 at December 31, 2013 and 2012, respectively. The net proceeds from the offering were used to repay indebtedness outstanding under our commercial paper program and for general corporate purposes.

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 rate equal to 4.80%, payable semi-annually, and matured on March 1, 2013, (the "2013 Notes"). $250.0 of the notes bear interest at a per annum 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 indebtedness outstanding under our commercial paper program and for general corporate purposes. The 2013 Notes were repaid in full at maturity. At December 31, 2012, the carrying value of the 2013 Notes represented the $250.0 principal amount, net of an immaterial amount of the unamortized discount to face value. The carrying value of the 2018 Notes represented the $250.0 principal amount, net of the unamortized discount to face value of $.4 at December 31, 2013 and $.4 at December 31, 2012.

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 rate equal to 5.625%, payable semi-annually, and were scheduled to mature on March 1, 2014 (the "2014 Notes").

$350.0 of the notes bear interest at a per annum 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 indebtedness outstanding under our commercial paper program and for general corporate purposes. On April 15, 2013 we prepaid the 2014 Notes at a prepayment price equal to 100% of the principal amount of $500.0, plus accrued interest of $3.4 and a make-whole premium of $21.7. In connection with the prepayment of our 2014 Notes, we incurred a loss on extinguishment of debt of $13.0 in the second quarter of 2013 consisting of the $21.7 make-whole premium for the 2014 Notes and the write-off of $1.1 of debt issuance costs and discounts related to the initial issuance of the 2014 Notes, partially offset by a deferred gain of $9.8 associated with the January 2013 interest-rate swap agreement termination. See Note 8, Financial Instruments and Risk Management for more information. At December 31, 2012, the carrying value of the 2014 Notes represented the $500.0 principal amount, net of the unamortized discount to face value of $.6. The carrying value of the 2019 Notes represented the $350.0 principal amount, net of the unamortized discount to face value of $2.3 at December 31, 2013 and $2.7 at December 31, 2012.

In March 2013, we issued, in a public offering, $250.0 principal amount of 2.375% Notes, due March 15, 2016 (the "2016 Notes"), $500.0 principal amount of 4.60% Notes, due March 15, 2020 (the "2020 Notes"), $500.0 principal amount of 5.00% Notes, due March 15, 2023 (the "2023 Notes") and $250.0 principal amount of 6.95% Notes, due March 15, 2043 (the "2043 Notes") (collectively, the "Notes"). The net proceeds from these Notes were used to repay $380.0 of the outstanding principal amount of the term loan agreement, to prepay the Private Notes and 2014 Notes (plus make-whole premium and accrued interest), and to repay the 4.625% Notes, due May 15, 2013 at maturity. Interest on the Notes is payable semi-annually on March 15 and September 15 of each year. The carrying value of the 2016 Notes represented the $250.0 principal amount, net of the unamortized discount to face value of $.1 at December 31, 2013. The carrying value of the 2020 Notes represented the $500.0 principal amount, net of the unamortized discount to face value of $.7 at December 31, 2013. The carrying value of the 2023 Notes represented the $500.0 principal amount, net of the unamortized discount to face value of $4.5 at December 31, 2013. The carrying value of the 2043 Notes represented the $250.0 principal amount, net of the unamortized discount to face value of $.7 at December 31, 2013.

Maturities of Long-Term Debt

Annual maturities of long-term debt, which includes our notes (including unamortized discounts and premiums), capital leases and financing obligations outstanding at December 31, 2013, are as follows:



	2014		2015		2016		2017		2018		2019 and Beyond		Total
Maturities	$	28.6	$	53.7	$	258.6	$	6.2	$	506.5	$	1,616.6	$	2,470.2

Other Financing

Revolving Credit Facility

In March 2013, we entered into a four-year $1 billion revolving credit facility (the “revolving credit facility”), which expires in March 2017. The revolving credit facility replaced the previous $1 billion revolving credit facility (the "2010 revolving credit facility"), which was terminated in March 2013 prior to its scheduled expiration in November 2013. There were no amounts drawn under the 2010 revolving credit facility on the date of termination and no early termination penalties were incurred. In the first quarter of 2013, $1.2 was recorded for the write-off of issuance costs related to the 2010 revolving credit facility. As discussed below under "Commercial Paper Program," the $1 billion available under the revolving credit facility is effectively reduced by the principal amount of any commercial paper outstanding. Borrowings under the revolving credit facility bear interest, at our option, at a rate per annum equal to LIBOR plus an applicable margin or a floating base rate plus an applicable margin, in each case subject to adjustment based on our credit ratings. The revolving credit facility has an annual fee of approximately $2.0, payable quarterly, based on our current credit ratings. The revolving credit facility may be used for general corporate purposes. As of December 31, 2013, there were no amounts outstanding under the revolving credit facility, and as of December 31, 2012, there were no amounts outstanding under the 2010 revolving credit facility.

Debt Covenants

The revolving credit facility and the term loan agreement (collectively, "the debt agreements") contain covenants limiting our ability to incur liens and enter into mergers and consolidations or sales of substantially all our assets. The debt agreements also contain covenants that limit our subsidiary debt to existing subsidiary debt at February 28, 2013 plus $500.0, with certain other exceptions. In addition, the debt agreements contain financial covenants which require our interest coverage ratio at the end of each fiscal quarter to equal or exceed 4:1 and our leverage ratio to not be greater than 3.75:1 at the end of the fiscal quarter ended December 31, 2013 and each subsequent fiscal quarter on or prior to September 30, 2014, and 3.5:1 at the end of each fiscal quarter thereafter. In addition, the debt agreements contain customary events of default and cross-default provisions. The interest coverage ratio is determined by dividing our consolidated EBIT (as defined in the debt agreements) by our consolidated interest expense, in each case for the period of four fiscal quarters ending on the date of determination. The leverage ratio is determined by dividing the amount of our consolidated funded debt on the date of determination by our consolidated EBITDA (as defined in the debt agreements) for the period of four fiscal quarters ending on the date of determination. When calculating the interest coverage and leverage ratios, the debt agreements allow us, subject to certain conditions and limitations, to add back to our consolidated net income, among other items: (i) extraordinary and other non-cash losses and expenses, (ii) one-time fees, cash charges and other cash expenses, premiums or penalties incurred in connection with any asset sale, equity issuance or incurrence or repayment of debt or refinancing or modification or amendment of any debt instrument and (iii) cash charges and other cash expenses, premiums or penalties incurred in connection with any restructuring or relating to any legal or regulatory action, settlement, judgment or ruling, in an aggregate amount not to exceed $400.0 for the period from October 1, 2012 until the termination of commitments under the debt agreements; provided, that restructuring charges incurred after December 31, 2014 shall not be added back to our consolidated net income. As of December 31, 2013, and based on then applicable interest rates, the full $1 billion revolving credit facility, less the principal amount of commercial paper outstanding (which was $0 at December 31, 2013), could have been drawn down without violating any covenant. We were in compliance with our interest coverage and leverage ratios under the debt agreements for the four fiscal quarters ended December 31, 2013.

The indentures governing the notes described under the caption “Public Notes” below contain certain covenants, including limitations 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. In addition, these indentures contain customary events of default and cross-default provisions. Further, we would be required to make an offer to repurchase the 2018 Notes, the 2019 Notes and each series of the Notes (as defined above) 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 credit ratings downgrade to below investment grade. In addition, the indenture governing the Notes contains interest rate adjustment provisions depending on our credit ratings.

Commercial Paper Program

We also maintain a $1 billion commercial paper program, which is supported by the revolving credit facility. Under this program, we may issue from time to time unsecured promissory notes in the commercial paper market in private placements exempt from registration under federal and state securities laws, for a cumulative face amount not to exceed $1 billion outstanding at any one time and with maturities not exceeding 270 days from the date of issue. The commercial paper short-term notes issued under the program are not redeemable prior to maturity and are not subject to voluntary prepayment. Outstanding commercial paper effectively reduces the amount available for borrowing under the revolving credit facility. Beginning in 2012 and continuing through 2013, the demand for our commercial paper declined, partially impacted by the rating agency actions described below. We have not had significant borrowings of commercial paper in 2013, and as of December 31, 2013, there was no outstanding commercial paper under this program.

Letters of Credit

At December 31, 2013 and December 31, 2012, we also had letters of credit outstanding totaling $19.9 and $21.4, respectively, which primarily guarantee various insurance activities. In addition, we had outstanding letters of credit for trade activities and commercial commitments executed in the ordinary course of business, such as purchase orders for normal replenishment of inventory levels.

Additional Information

Our long-term credit ratings are Baa3 (Stable Outlook) with Moody's and BBB- (Negative Outlook) with S&P, which are on the low end of investment grade, and BB (Negative Outlook) with Fitch, which is below investment grade. In February 2013, Fitch lowered their long-term credit rating from BBB- (Negative Outlook) to BB+ (Stable Outlook) and Moody's lowered their long-term credit rating from Baa1 (Negative Outlook) to Baa2 (Stable Outlook). In November 2013, Fitch lowered their long-term credit rating from BB+ (Stable Outlook) to BB (Negative Outlook) and Moody's placed Avon's long-term credit rating of Baa2 (Stable Outlook) on review for possible downgrade. In February 2014, Moody’s lowered their long-term credit rating from Baa2 (Stable Outlook) to Baa3 (Stable Outlook). Additional rating agency reviews could result in a further change in outlook or downgrade, which could limit our access to new financing, particularly short-term financing, reduce our flexibility with respect to working capital needs, affect the market price of some or all of our outstanding debt securities, as well as most likely result in an increase in financing costs, including interest expense under certain of our debt instruments, and less favorable covenants and financial terms of our financing arrangements.