Footnote 6 — Derivatives

The use of financial instruments, including derivatives, exposes the Company to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices. The Company enters into interest rate swaps related to debt obligations with initial maturities ranging from five to ten years. The Company uses interest rate swap agreements to manage its interest rate exposure and to achieve a desired proportion of variable and fixed-rate debt. These derivatives are designated as fair value hedges based on the nature of the risk being hedged. The Company also uses derivative instruments, such as forward contracts, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and changes in fair value resulting from changes in foreign currency exchange rates. The Company's foreign exchange risk management policy generally emphasizes hedging transaction exposures of one-year duration or less and hedging foreign currency intercompany financing activities with derivatives with maturity dates of one year or less. The Company uses derivative instruments to hedge various foreign exchange exposures, including the following: (i) variability in foreign currency-denominated cash flows, such as the hedges of inventory purchases for products produced in one currency and sold in another currency and (ii) currency risk associated with foreign currency-denominated operating assets and liabilities, such as forward contracts and other instruments that hedge cash flows associated with intercompany financing activities. Additionally, the Company purchases certain raw materials which are subject to price volatility caused by unpredictable factors. Where practical, the Company uses derivatives as part of its commodity risk management process. The Company reports its derivative positions in the Condensed Consolidated Balance Sheets on a gross basis and does not net asset and liability derivative positions with the same counterparty. The Company monitors its positions with, and the credit quality of, the financial institutions that are parties to its financial transactions.

Derivative instruments are accounted for at fair value. The accounting for changes in the fair value of a derivative depends on the intended use and designation of the derivative instrument. For a derivative instrument that is designated and qualifies as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is initially reported as a component of accumulated other comprehensive income (loss) ("AOCI"), net of tax, and is subsequently reclassified into earnings when the hedged transaction affects earnings. The ineffective portion of the gain or loss is recognized in current earnings. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized currently in earnings, and such amounts were not material for the three and six months ended June 30, 2011 and 2010.

The following table summarizes the Company's outstanding derivative instruments and their effects on the Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010 (in millions):


		Assets					Liabilities
Derivatives designated as hedging instruments	Balance Sheet Location	June 30, 2011		December 31, 2010		Balance Sheet Location	June 30, 2011		December 31, 2010
Interest rate swaps	Prepaid expenses and other	$	6.5	$	0	Other accrued liabilities	$	0	$	0
Interest rate swaps	Other noncurrent assets		35.0		42.3	Other noncurrent liabilities		0		0
Foreign exchange contracts on inventory-related purchases	Prepaid expenses and other		0.1		1.4	Other accrued liabilities		2.8		2.0
Foreign exchange contracts on intercompany borrowings	Prepaid expenses and other		0.4		1.2	Other accrued liabilities		0.2		0

Total assets		$	42.0	$	44.9	Total liabilities	$	3.0	$	2.0

The fair values of outstanding derivatives that are not designated as hedges for accounting purposes were not material as of June 30, 2011 and December 31, 2010.

The Company is a party to an interest rate swap in an asset position; in the event the interest rate swap is in a liability position, settlement could be accelerated if the Company's credit rating falls below investment grade. The Company is not a party to any derivatives that require collateral to be posted prior to settlement.

Fair Value Hedges

The following table presents the pretax effects of derivative instruments designated as fair value hedges on the Company's Condensed Consolidated Statement of Income for the three and six months ended June 30, 2011 and 2010 (in millions):


Derivatives in fair value relationships	Location of gain (loss) recognized in income		Amount of gain (loss) recognized in income
			Three Months Ended June 30,						Six Months Ended June 30,
			2011			2010			2011			2010
Interest rate swaps		Interest expense, net	$	7.8		$	21.2		$	(0.8	)	$	35.6

Fixed-rate debt		Interest expense, net	$	(7.8	)	$	(21.2	)	$	0.8		$	(35.6)

The Company did not record any ineffectiveness related to fair value hedges during the three and six months ended June 30, 2011 and 2010.

Cash Flow Hedges

The following table presents the pretax effects of derivative instruments designated as cash flow hedges on the Company's Condensed Consolidated Statement of Income and AOCI for the three and six months ended June 30, 2011 and 2010 (in millions):


Derivatives in cash flow hedging relationships	Location of gain (loss) recognized in income		Amount of gain (loss) reclassified from AOCI into income
			Three Months Ended June 30,						Six Months Ended June 30,
			2011			2010			2011			2010
Foreign exchange contracts on inventory-related purchases		Cost of products sold	$	(3.2	)	$	(0.1	)	$	(4.7	)	$	(0.2)
Foreign exchange contracts on intercompany borrowings		Interest expense, net		(0.2	)		0.1			(0.3	)		0.2

			$	(3.4	)	$	0		$	(5.0	)	$	0


Derivatives in cash flow hedging relationships	Location of gain (loss) recognized in income		Amount of gain (loss) recognized in AOCI
			Three Months Ended June 30,					Six Months Ended June 30,
			2011			2010		2011			2010
Foreign exchange contracts on inventory-related purchases		Cost of products sold	$	(1.7	)	$	2.6	$	(7.0	)	$	2.0
Foreign exchange contracts on intercompany borrowings		Interest expense, net		(0.2	)		3.7		(2.1	)		6.1

			$	(1.9	)	$	6.3	$	(9.1	)	$	8.1

The Company did not record any ineffectiveness related to cash flow hedges during the three and six months ended June 30, 2011 and 2010.

The Company estimates that during the next 12 months it will reclassify losses of approximately $2.7 million included in the pretax amount recorded in AOCI as of June 30, 2011 into earnings, as the anticipated cash flows occur.