Financial Instruments

9 Months Ended

Sep. 30, 2011

Financial Instruments

Financial Instruments

(10) Financial Instruments

The fair value of the Company's debt, including the current portion of long-term debt and Preferred Stock, is based on the quoted market prices for the same issues or on the current rates offered for debt of similar remaining maturities. The estimated fair value of such debt and Preferred Stock at September 30, 2011 was approximately $1,215.9 million, which was less than the carrying value of such debt and Preferred Stock at September 30, 2011 of $1,223.3 million. The estimated fair value of such debt and Preferred Stock at December 31, 2010 was approximately $1,259.6 million, which was more than the carrying value of such debt and Preferred Stock at December 31, 2010 of $1,215.4 million.

The carrying amounts of cash and cash equivalents, marketable securities, trade receivables, notes receivable, accounts payable and short-term borrowings approximate their fair values.

Products Corporation also maintains standby and trade letters of credit for various corporate purposes under which Products Corporation is obligated, of which approximately $21.1 million and $21.2 million (including amounts available under credit agreements in effect at that time) were maintained at September 30, 2011 and December 31, 2010, respectively. Included in these amounts is approximately $9.1 million at both September 30, 2011 and December 31, 2010 in standby letters of credit which support Products Corporation's self-insurance programs. The estimated liability under such programs is accrued by Products Corporation.

Derivative Financial Instruments

The Company uses derivative financial instruments, primarily (1) foreign currency forward exchange contracts ("FX Contracts") intended for the purpose of managing foreign currency exchange risk by reducing the effects of fluctuations in foreign currency exchange rates on the Company's net cash flows and (2) interest rate hedging transactions intended for the purpose of managing interest rate risk associated with Products Corporation's variable rate indebtedness.

Foreign Currency Forward Exchange Contracts

The FX Contracts are entered into primarily to hedge the anticipated net cash flows resulting from inventory purchases and intercompany payments denominated in currencies other than the local currencies of the Company's foreign and domestic operations and generally have maturities of less than one year. The U.S. dollar notional amount of the FX Contracts outstanding at September 30, 2011 and December 31, 2010 was $53.9 million and $46.0 million, respectively.

While the Company may be exposed to credit loss in the event of the counterparty's non-performance, the Company's exposure is limited to the net amount that Products Corporation would have received, if any, from the counterparty over the remaining balance of the terms of the FX Contracts. The Company does not anticipate any non-performance and, furthermore, even in the case of any non-performance by the counterparty, the Company expects that any such loss would not be material.

Interest Rate Swap Transactions

Prior to its expiration in April 2010, the Company's floating-to-fixed interest rate swap had a notional amount of $150.0 million initially relating to indebtedness under Products Corporation's former 2006 Term Loan Facility (prior to its complete refinancing in March 2010) and which also related, through its expiration in April 2010, to a notional amount of $150.0 million relating to indebtedness under Products Corporation's 2010 Term Loan Facility (the "2008 Interest Rate Swap"). Under the terms of the 2008 Interest Rate Swap, Products Corporation was required to pay to the counterparty a quarterly fixed interest rate of 2.66% on the $150.0 million notional amount under the 2008 Interest Rate Swap (which, based upon the 4.0% applicable margin, effectively fixed the interest rate on such notional amounts at 6.66% for the 2-year term of such swap), commencing in July 2008, while receiving a variable interest rate payment from the counterparty equal to three-month U.S. dollar LIBOR.

The 2008 Interest Rate Swap was initially designated as a cash flow hedge of the variable interest rate payments on Products Corporation's former 2006 Term Loan Facility (prior to its complete refinancing in March 2010). However, as a result of the 2010 Refinancing, effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap no longer met the criteria to allow for the deferral of the effective portion of unrecognized hedging gains or losses in other comprehensive income, as the scheduled variable interest payment specified on the date originally documented at the inception of the hedge will not occur. As a result, as of March 11, 2010, the Company reclassified an unrecognized loss of $0.8 million from Accumulated Other Comprehensive Loss into earnings.

Quantitative Information — Derivative Financial Instruments

The effects of the Company's derivative instruments on its consolidated financial statements were as follows:

(a) Fair Value of Derivative Financial Instruments in Consolidated Balance Sheet:

	Fair Values of Derivative Instruments
	Assets					Liabilities
Derivatives:	Balance Sheet Classification	September 30, 2011 Fair Value		December 31, 2010 Fair Value		Balance Sheet Classification	September 30, 2011 Fair Value		December 31, 2010 Fair Value
Derivatives not designated as hedging instruments:
FX Contracts(a)	Prepaid expenses and other	$	1.5	$	0.2	Accrued expenses	$	0.2	$	2.1

^(a)  The fair values of the FX Contracts at September 30, 2011 and December 31, 2010 were determined by using observable market transactions of spot and forward rates at September 30, 2011 and December 31, 2010.

(b) Effects of Derivative Financial Instruments on Income for the three months ended September 30, 2011 and 2010:

	(September 30,)	(September 30,)
	Amount of Gain (Loss) Recognized in Foreign Currency (Gains) Losses, Net
	Three months  ended, September 30,
	2011	2010
Derivatives not designated as hedging instruments:
FX Contracts	$2.3	$(2.1)

Effects of Derivative Financial Instruments on Income and Other Comprehensive Income (Loss) ("OCI") for the nine months ended September 30, 2011 and 2010:

		$(0.8)		$(0.8)		$(0.8)		$(0.8)		$(0.8)
	Derivative Instruments Gain (Loss) Effect on  Consolidated Statement of Operations and OCI for the nine months ended September 30,
	Amount of Gain (Loss) Recognized in OCI (Effective Portion)				Income Statement Classification of Gain (Loss) Reclassified from OCI to Income		Amount of Gain (Loss) Reclassified from OCI to Income (Effective Portion)
	2011		2010				2011		2010
Derivatives designated as hedging instruments:
2008 Interest Rate Swap(a)	$	—	$	—		Interest expense	$	—	$	(0.9	)

		$(0.8)		$(0.8)		$(0.8)		$(0.8)		$(0.8)
	Amount of Gain (Loss) Recognized in Foreign Currency (Gains) Losses, Net					Income Statement Classification of Gain (Loss) Reclassified from OCI to Income	Amount of Gain (Loss) Recognized in Interest Expense (Ineffective Portion)
	2011		2010				2011		2010
Derivatives not designated as hedging instruments:
FX Contracts	$	0.5	$	(1.5	)
2008 Interest Rate Swap(a)		—		—		Interest expense		—		(0.8	)
	$	0.5	$	(1.5	)		$	—	$	(0.8	)

^(a) Effective March 11, 2010 (the closing date of the 2010 Refinancing), the 2008 Interest Rate Swap, which expired in April 2010, was no longer designated as a cash flow hedge. (See "Interest Rate Swap Transactions" in this Note 10.)