DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We operate globally, with manufacturing and distribution facilities in various countries around the world. We may reduce our exposure to fluctuations in the fair value and cash flows associated with changes in interest rates and foreign exchange rates by creating offsetting positions, including through the use of derivative financial instruments. If we use foreign currency-rate sensitive and interest-rate sensitive instruments to hedge a certain portion of our existing and forecasted transactions, we would expect that any gain or loss in value of the hedge instruments generally would be offset by decreases or increases in the value of the underlying forecasted transactions.

We do not enter into derivative financial instruments for trading or speculative purposes, nor are we a party to leveraged derivatives. 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 Transaction.

Derivatives are recognized in the Consolidated Balance Sheets at their fair values. The following table presents the fair value of derivative instruments at September 30, 2022:


	Asset			Liability
	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives designated as hedges:
Foreign exchange forward contracts	Prepaid expenses and other	$	2.4	Accounts payable	$	1.2

Derivatives not designated as hedges:
Foreign exchange forward contracts	Prepaid expenses and other	$	4.8	Accounts payable	$	6.9
Total derivatives		$	7.2		$	8.1

Derivatives are recognized in the Consolidated Balance Sheets at their fair values. The following table presents the fair value of derivative instruments at December 31, 2021:


	Asset			Liability
	Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
Derivatives not designated as hedges:
Foreign exchange forward contracts	Prepaid expenses and other	$	—	Accounts payable	$	2.7
Total derivatives		$	—		$	2.7

Interest Rate Risk

Approximately 35% and 5% of our debt portfolio at September 30, 2022 and December 31, 2021, respectively, was exposed to floating interest rates, which relates to our short-term debt portfolio.

Foreign Currency Risk

We may use foreign exchange forward contracts to manage a portion of our foreign currency exchange rate exposures. At September 30, 2022, we had outstanding third-party foreign exchange forward contracts with notional amounts totaling approximately $45 for various currencies, all of which were designated as cash flow hedges.

During the nine-month period ended September 30, 2022, the Company entered into foreign exchange forward contracts with Natura &Co Luxembourg, a subsidiary of Natura &Co Holding, to manage a portion of its foreign currency exchange rate exposures. At September 30, 2022, we had outstanding related party foreign exchange forward contracts with notional amounts totaling approximately $555 for various currencies for up to 12 months, of which $135 were designated as cash flow hedges. In addition we had $6.3 Accounts Receivable and $7.8 Accounts Payable recorded in our Consolidated Balance Sheets associated with these transactions, all of which are expected to be reclassified into earnings within the next 12 months.

We may use foreign exchange forward contracts to manage foreign currency exposure of certain balance sheet items. The change in fair value of these items is immediately recognized in earnings and substantially offsets the foreign currency

translation impact recognized in earnings relating to the associated balance sheet items. During the three months ended September 30, 2022 and 2021, we recorded a gain of $24.0 and $2.8, respectively, in other (expense) income, net in our Consolidated Statements of Operations related to these undesignated foreign exchange forward contracts. During the nine months ended September 30, 2022 and 2021, we recorded a gain of $36.3 and $1.5, respectively, in other (expense) income, net in our Consolidated Statements of Operations related to these undesignated foreign exchange forward contracts.