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 primarily uses derivatives to manage its interest rate exposure, to achieve a desired proportion of variable and fixed-rate debt, to manage the risk associated with the volatility of future cash flows denominated in foreign currencies and to manage changes in fair value resulting from changes in foreign currency exchange rates.

The Company enters into interest rate swaps related to existing 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 derivatives to hedge interest rates on anticipated issuances of debt securities occurring within one year or less of the inception date of the derivative, and the Company uses these instruments to reduce the volatility in future interest payments that would be made pursuant to the anticipated debt issuances. These derivatives are designated as cash flow hedges.

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. Hedging instruments are not available for certain currencies in countries in which the Company has operations. In these cases, the Company uses alternative means in an effort to achieve an economic offset to the local currency exposure such as invoicing and/or paying intercompany and third party transactions in U.S. Dollars.

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. 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 months ended March 31, 2014 and 2013.

The following table summarizes the Company’s outstanding derivative instruments and their effects on the Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013 (in millions):



		Assets					Liabilities
Derivatives designated as hedging instruments	Balance Sheet Location	March 31, 2014		December 31, 2013		Balance Sheet Location	March 31, 2014		December 31, 2013
Interest rate swaps	Other assets	$	22.3	$	23.1	Other noncurrent liabilities	$	29.4	$	35.5
Foreign exchange contracts on inventory-related purchases	Prepaid expenses and other	4.1		2.9		Other accrued liabilities	1.5		1.2
Foreign exchange contracts on intercompany borrowings	Prepaid expenses and other	0.1		—		Other accrued liabilities	0.1		0.2
Total assets		$	26.5	$	26.0	Total liabilities	$	31.0	$	36.9

The fair values of outstanding derivatives that are not designated as hedges for accounting purposes were not material as of March 31, 2014 and December 31, 2013.

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 Statements of Operations (in millions):



Derivatives in fair value hedging relationships	Location of gain (loss) recognized in income	Amount of gain (loss) recognized in income
		Three Months Ended
		March 31,
		2014			2013
Interest rate swaps	Interest expense, net	$	5.3		$	(6.6	)
Fixed-rate debt	Interest expense, net	$	(5.3	)	$	6.6

The Company did not realize any ineffectiveness related to fair value hedges during the three months ended March 31, 2014 and 2013.

Cash Flow Hedges

The following table presents the pretax effects of derivative instruments designated as cash flow hedges on the Company’s Condensed Consolidated Statements of Operations and accumulated other comprehensive income (loss) (“AOCI”) (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
		March 31,
		2014			2013
Foreign exchange contracts on inventory-related purchases	Cost of products sold	$	1.9		$	0.5
Forward interest rate swaps	Interest expense, net	(0.2		)	(0.2		)
		$	1.7		$	0.3



Derivatives in cash flow hedging relationships	Amount of gain (loss) recognized in AOCI
	Three Months Ended
	March 31,
	2014		2013
Foreign exchange contracts on inventory-related purchases	$	2.7	$	1.2
Foreign exchange contracts on intercompany borrowings	—		2.4
	$	2.7	$	3.6

The Company did not realize any ineffectiveness related to cash flow hedges during the three months ended March 31, 2014 and 2013.

As of March 31, 2014, the Company expects to reclassify income of $3.2 million into earnings during the next 12 months.