Report 2: Revlon

Revlon has used derivative financial instruments, primarily the FX contracts to manage risks associated with foreign exchange since 2017. It primarily uses this to hedge its net cash flow projections from intercompany payments and inventory purchases based on currencies other than the USD. Its FX contracts mature in less than 1 year and the notional amount outstanding as of December 31, 2015, 2016, 2017, and 2018 was $76.3, $79.6, $147.1, and nil respectively. Additionally, it utilized the interest rate hedging transactions (the interest rate swap transaction that was initially based on the notion of $400 million) to manage interest rate risk associated with Products Corporation’s variable rate indebtedness in 2017 and 2018. 

            Avon terminated its interest rate swap agreements by December 31, 2016. As of 2018, it utilized the cash and cash equivalents, available-for-sale securities, short-term investments, accounts receivables, debt maturing in less than 1 year, accounts payable, long-term debts, and foreign exchange forward contracts as its financial instruments while in 2019 it used the derivative financial instruments. As of December 31, 2017, and 2016, it recorded $3.7 and $2.8 (carrying amount and fair value in the order) for available-for-sale securities applying assumptions to determine the fair values for some of its financial instruments. The derivative financial instruments are recognized into its Consolidated Balance sheet as a fair value hedge, a cash flow hedge, or a net investment hedge if Avon becomes a party to a derivative instrument and it applies various standards to designate and qualify a derivative into a hedging relationship.

            Estée Lauder has used derivative financial instruments since 2017 to address financial exposures, especially foreign currency exchange fluctuation risks. In its 2018 report, the company documents all the relevant facts that relate to the derivative contract it enters, including hedged items, the risks, strategies for undertaking the hedge transaction as well as formally assessing the value of the hedge at inception and on an ongoing basis. And all the derivative contracts it enters are recorded in its balance sheet as either assets or liabilities and are measured at fair value.

            The three companies operate both in the U.S and international markets. As such they are exposed to currency exchange fluctuation risks. They all have entered into currency derivative contracts to help them lower the effects of currency fluctuations, mitigate the changes in fair value, and to manage the effects of interest rate movements. Initially (earlier than 2017), Revlon and Avon utilized the interest rate hedging transaction but they terminated it for the financial derivative instruments.