Financial Instruments

6 Months Ended

Jun. 30, 2011

Financial Instruments

Financial Instruments

12. Financial Instruments

Derivative financial instruments are either foreign exchange contracts recorded at fair value to hedge currency fluctuations for transactions denominated in foreign currencies, interest rate swaps or commodity swaps of forecasted commodity purchases. Deferred compensation programs' assets are for programs where select employees can defer compensation until death, disability or other termination of employment.

We do not enter into financial instruments for trading or speculative purposes. We principally use financial instruments to reduce the impact of changes in foreign currency exchange rates, interest rates and commodities used as raw materials in our products. The principal derivative financial instruments we enter into on a routine basis are foreign exchange contracts. In addition, from time to time, we enter into interest rate swaps and commodity swaps.

As of June 30, 2011, we had fixed to floating interest rate swaps with an aggregate notional principal amount of $900 million. These swap agreements hedge changes in the fair value of a portion of our existing fixed rate debt that result from changes in a benchmark interest rate (U.S. LIBOR). The swap agreements were designated and classified as fair value hedges in accordance with the authoritative guidance on derivatives and hedging (ASC 815). The unrealized gain on these interest rate swap contracts and the offsetting unrealized loss on the related debt were $37.8 million as of June 30, 2011.

We enter into foreign exchange contracts primarily to hedge forecasted sales and purchases denominated in select foreign currencies, thereby limiting currency risk that would otherwise result from changes in exchange rates. The periods of the foreign exchange contracts correspond to the periods of the forecasted transactions, which generally do not exceed 12 to 15 months subsequent to the latest balance sheet date. We also enter into foreign exchange contracts to hedge our risk to changes in the fair value of recognized foreign currency denominated assets and liabilities and to hedge a portion of our net investments in certain foreign subsidiaries. The effective portions of cash flow hedges are reported in other comprehensive income and are recognized in the statement of income when the hedged item affects earnings. The ineffective portion of all hedges is recognized in current period earnings. In addition, changes in fair value of all economic hedge transactions are immediately recognized in current period earnings. Our primary foreign currency hedge contracts pertain to the U.S. dollar, the Canadian dollar, the Euro and the Australian dollar. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at June 30, 2011 was $815.3 million.

We enter into commodity swaps to manage the price risk associated with forecasted purchases of materials used in our operations. We account for these commodity derivatives as economic hedges or cash flow hedges. Changes in the fair value of economic hedges are recorded directly into current period earnings. There were no material commodity swap contracts outstanding as of June 30, 2011.

The counterparties to our derivative contracts are major financial institutions. We are subject to credit risk on these contracts equal to the fair value of these instruments. As of the date of these financial statements, management believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial.

The fair values of foreign exchange derivative instruments on the condensed consolidated balance sheet as of June 30, 2011 and December 31, 2010 were:

(in millions)		Fair Value
	Balance Sheet Location	June 30, 2011		December 31, 2010
Assets
Foreign exchange contracts	Other current assets	$	4.8	$	4.6
Commodity contracts	Other current assets		0.6		1.0
Interest rate contracts	Other current assets		3.4		—
	Other assets		34.4		36.7
	Total assets	$	43.2	$	42.3
Liabilities
Foreign exchange contracts	Other current liabilities	$	14.2	$	12.9
Commodity contracts	Other current liabilities		0.1		—
	Total liabilities	$	14.3	$	12.9

The effects of derivative financial instruments on the statement of income and other comprehensive income (OCI) for the six months ended June 30, 2011 and 2010 were:

(in millions)	Gain (Loss)
	Recognized in  OCI (Effective Portion)					Recognized in Income
Type of hedge	2011			2010		Location of Gain (Loss) Recognized in Income	2011			2010
Cash flow	$	(4.8	)	$	0.3	Net sales	$	(7.5	)	$	(9.2	)
						Cost of products sold		0.9			0.5
						Interest expense		—			(0.4	)
Fair value		—			—	Interest expense		10.1			10.0
						Other expense, net		(16.4	)		(2.7	)
Net investment		—			0.4			—			—
Total	$	(4.8	)	$	0.7		$	(12.9	)	$	(1.8	)

The effects of derivative financial instruments on the statement of income and other comprehensive income (OCI) for the three months ended June 30, 2011 and 2010 were:

(in millions)	Gain (Loss)
	Recognized in  OCI (Effective Portion)						Recognized in Income
Type of hedge	2011			2010			Location of Gain (Loss) Recognized in Income	2011			2010
Cash flow	$	(3.7	)	$	(1.7	)	Net sales	$	(3.4	)	$	(2.3	)
							Cost of products sold		0.4			0.1
							Interest expense					(0.4	)
Fair value		—			—		Interest expense		5.1			5.0
							Other expense, net		(5.0	)		(1.0	)
Total	$	(3.7	)	$	(1.7	)		$	(2.9	)	$	1.4

In the six and three months ended June 30, 2011 and 2010, the ineffective portion of cash flow hedges recognized in other expense (income), net, was insignificant. The Company has designated certain foreign currency denominated nonderivative financial instruments as hedges of the currency exposure of net investments in foreign operations in accordance with authoritative guidance on foreign currency translation (ASC 830) and derivatives and hedging (ASC 815). The changes in net unrealized (losses) gains for nonderivative financial instruments in accumulated other comprehensive loss in the six months ended June 30, 2011 and 2010 were $(35.0) million and $64.2 million, respectively. The changes in net unrealized (losses) gains for nonderivative financial instruments in accumulated other comprehensive loss in the three months ended June 30, 2011 and 2010 were $(10.3) million and $40.2 million, respectively.