Avon Products (AVP) 10-Q 30 Apr 10 2010 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information
	3 Months Ended Mar. 31, 2010	Mar. 31, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	2010-03-31
Document Fiscal Year Focus	2,010
Document Fiscal Period Focus	Q1
Trading Symbol	AVP
Entity Registrant Name	AVON PRODUCTS INC
Entity Central Index Key	0000008868
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		428,403,476

CONSOLIDATED STATEMENTS OF INCO

CONSOLIDATED STATEMENTS OF INCOME (USD $)
In Millions, except Per Share data	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net sales	2458.7	2157.7
Other revenue	31.7	29.2
Total revenue	2490.4	2186.9
Costs, expenses and other:
Cost of sales	948.4	811.2
Selling, general and administrative expenses	1349.2	1207.3
Operating profit	192.8	168.4
Interest expense	21.8	24.8
Interest income	-4.9	-7.3
Other expense, net	48.2	4.2
Total other expenses	65.1	21.7
Income before taxes	127.7	146.7
Income taxes	-84.4	-29.2
Net income	43.3	117.5
Net income attributable to noncontrolling interest	-0.8	-0.2
Net income attributable to Avon	42.5	117.3
Earnings per share:
Basic	0.1	0.27
Diluted	0.1	0.27
Cash dividends per common share	0.22	0.21

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS (USD $)
In Millions	3 Months Ended Mar. 31, 2010	12 Months Ended Dec. 31, 2009
Current Assets
Cash and cash equivalents	1122.9	1311.6
Accounts receivable, net	748	779.7
Inventories	1104.6	1067.5
Prepaid expenses and other	891.5	1030.5
Total current assets	3,867	4189.3
Property, plant and equipment, at cost	2721.2	2699.3
Less accumulated depreciation	-1185.1	-1169.7
Property, Plant and Equipment, Net, Total	1536.1	1529.6
Other assets	1415.4	1113.8
Total assets	6818.5	6832.7
Current Liabilities
Debt maturing within one year	770.2	138.1
Accounts payable	742.6	754.7
Accrued compensation	268.3	291
Other accrued liabilities	695.1	697.1
Sales and taxes other than income	241.2	259.2
Income taxes	87.8	134.7
Total current liabilities	2805.2	2274.8
Long-term debt	1828.3	2307.8
Employee benefit plans	572.9	588.9
Long-term income taxes	203.8	173.8
Other liabilities	123	174.8
Total liabilities	5533.2	5520.1
Contingencies (Note 5)
Shareholders' Equity
Common stock	186.3	186.1
Additional paid-in capital	1965.2	1,941
Retained earnings	4331.9	4383.9
Accumulated other comprehensive loss	-683.2	-692.6
Treasury stock, at cost	-4556.1	-4545.8
Total Avon shareholders' equity	1244.1	1272.6
Noncontrolling interest	41.2	40
Total shareholders' equity	1285.3	1312.6
Total liabilities and shareholders' equity	6818.5	6832.7

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions	3 Months Ended Mar. 31, 2010		3 Months Ended Mar. 31, 2009
Cash Flows from Operating Activities
Net income	43.3		117.5
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44.3		42.8
Provision for doubtful accounts	52.8		47.9
Provision for obsolescence	20		24.8
Share-based compensation	20		17.3
Deferred income taxes	20.6		1.3
Charge for Venezuelan monetary assets and liabilities	46.1
Other	21.4		18.3
Changes in assets and liabilities:
Accounts receivable	-45.3		-32.3
Inventories	-62.6		-106.6
Prepaid expenses and other	-26.5		-9.4
Accounts payable and accrued liabilities	-41.1		(111)
Income and other taxes	-68.9		-50.5
Noncurrent assets and liabilities	(7)		-20.8
Net cash provided (used) by operating activities	17.1		-60.7
Cash Flows from Investing Activities
Capital expenditures	-56.8		-51.1
Disposal of assets	3.8		1.6
Purchases of investments	-0.3		-0.1
Proceeds from sale of investments	1.4		45.7
Acquisitions and other investing activities	-146.1
Net cash used by investing activities	(198)		-3.9
Cash Flows from Financing Activities
Cash dividends	-95.3		-89.5
Debt, net (maturities of three months or less)	133.1		-69.4
Proceeds from debt	6.1		883
Repayment of debt	(10)		-134.4
Proceeds from exercise of stock options	7.4		0.2
Excess tax benefit realized from share-based compensation	0.7		-0.1
Repurchase of common stock	-10.4		-1.5
Net cash provided by financing activities	31.6	[1]	588.3	[1]
Effect of exchange rate changes on cash and equivalents	-39.4		(26)
Net (decrease) increase in cash and equivalents	-188.7		497.7
Cash and equivalents at beginning of year	1311.6		1104.7
Cash and equivalents at end of period	1122.9		1602.4
[1]Non-cash financing activities in 2010 and 2009 included the change in fair market value of interest-rate swap agreements of $17.7 and $(4.4), respectively. Non-cash financing activities in 2009 also includes $4.5 million of shares that were repurchased by us in connection with employees using shares to pay withholding taxes upon the vesting of their restricted stock units. The withholding taxes were not settled at March 31, 2009.

1_CONSOLIDATED STATEMENTS OF CA

CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Millions	3 Months Ended Mar. 31, 2010	3 Months Ended Mar. 31, 2009
Net cash provided (used by) financing activities, Non-cash financing activities change in fair market value of interest rate swap agreements	17.7	-4.4
Net cash provided (used by) financing activities, Non-cash financing activities shares repurchased in connection with employees using shares to pay withholding taxes upon the vesting of restricted stock unit		4.5

ACCOUNTING POLICIES

ACCOUNTING POLICIES
	3 Months Ended Mar. 31, 2010
ACCOUNTING POLICIES	1. ACCOUNTING POLICIES Basis of Presentation We prepare our unaudited interim consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP). Except for the foreign currency implications of our subsidiary in Venezuela (Avon Venezuela) being considered highly inflationary, we consistently applied the accounting policies described in our 2009 Annual Report on Form 10-K (2009 Form 10-K) in preparing these unaudited financial statements. In our opinion, we made all adjustments of a normal recurring nature that are necessary for a fair statement of the results for the interim periods. Results for interim periods are not necessarily indicative of results for a full year. You should read these unaudited interim consolidated financial statements in conjunction with our consolidated financial statements contained in our 2009 Form 10-K. When used in these notes, the terms Avon, Company, we or us mean Avon Products, Inc. For interim consolidated financial statement purposes, our tax provision is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. We also provide for accruals under our various employee benefit plans for each quarter based on one quarter of the estimated annual expense. We have reclassified some immaterial amounts in the consolidated financial statements and accompanying notes for comparative purposes. We reclassified $7.1 of fees from selling, general and administrative expenses to other revenue on the Consolidated Statements of Income for the three months ended March31, 2009. Foreign Currency Financial statements of foreign subsidiaries operating in other than highly inflationary economies are translated into U.S. dollars from the respective subsidiarys functional currency at period-end exchange rates for assets and liabilities and average exchange rates during the year for income and expense accounts. The resulting translation adjustments are recorded within accumulated other comprehensive loss (AOCI). Gains or losses resulting from the impact of changes in foreign currency rates on assets and liabilities denominated in a currency other than the functional currency are recorded in Other expense, net. For financial statements of Avon subsidiaries operating in highly inflationary economies, the U.S. dollar is required to be used as the functional currency. Highly inflationary accounting requires monetary assets and liabilities, such as cash, receivables and payables, to be remeasured into U.S. dollars at the current exchange rate at the end of each period with the impact of any changes in exchange rates being recorded in income. We record the impact of changes in exchange rates on monetary assets and liabilities in Other expense, net. Similarly, deferred tax assets and liabilities are remeasured into U.S. dollars at the current exchange rates; however, the impact of changes in exchange rates is recorded in Income taxes in the Consolidated Statement of Income. Nonmonetary assets and liabilities, such as inventory, property, plant and equipment and prepaid expenses

EARNINGS PER SHARE AND SHARE RE

EARNINGS PER SHARE AND SHARE REPURCHASES
	3 Months Ended Mar. 31, 2010
EARNINGS PER SHARE AND SHARE REPURCHASES	2. EARNINGS PER SHARE AND SHARE REPURCHASES We compute earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Our participating securities are our grants of restricted stock and restricted stock units which contain non-forfeitable rights to dividend equivalents. (shares in millions) Three Months Ended March31, Components of Basic and Diluted Earnings per Share 2010 2009 Numerator: Net income attributable to Avon $ 42.5 $ 117.3 Earnings allocated to participating securities (.3 ) (1.1 ) Net income allocated to common shareholders 42.2 116.2 Denominator: Basic EPS weighted-average shares outstanding 427.72 426.37 Diluted effect of assumed conversion of stock options 3.34 0.08 Diluted EPS adjusted weighted-average shares outstanding 431.06 426.45 Earnings per Common Share: Basic EPS $ .10 $ .27 Diluted EPS $ .10 $ .27 At March31, 2010 and 2009, we did not include stock options to purchase 14.8million shares and 22.1million shares of Avon common stock, respectively, in the calculations of diluted earnings per share because their inclusion would have been anti-dilutive. We purchased approximately 0.3million shares of Avon common stock for $10.4 during the first three months of 2010, as compared to approximately 0.3million shares of Avon common stock for $6.0 during the first three months of 2009 under our previously announced share repurchase program and through acquisition of stock from employees in connection with tax payments upon vesting of restricted stock units.

INVENTORIES

INVENTORIES
	3 Months Ended Mar. 31, 2010
INVENTORIES	3. INVENTORIES Components of Inventories March31, 2010 December31, 2009 Raw materials $ 381.7 $ 335.9 Finished goods 722.9 731.6 Total $ 1,104.6 $ 1,067.5

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS
	3 Months Ended Mar. 31, 2010
EMPLOYEE BENEFIT PLANS	4. EMPLOYEE BENEFIT PLANS Three Months Ended March31, 2010 Pension Benefits Net Periodic Benefit Costs U.S. Plans Non-U.S. Plans PostretirementBenefits 2010 2009 2010 2009 2010 2009 Service cost $ 3.2 $ 2.8 $ 3.7 $ 3.5 $ .7 $ .9 Interest cost 8.0 10.8 10.1 9.5 1.8 2.8 Expected return on plan assets (8.4 ) (11.3 ) (9.6 ) (8.6 ) (.6 ) (.6 ) Amortization of prior service credit (.1 ) (.1 ) (.3 ) (.2 ) (4.3 ) (1.5 ) Amortization of actuarial losses 8.9 8.1 3.5 2.9 1.0 .7 Net periodic benefit costs $ 11.6 $ 10.3 $ 7.4 $ 7.1 $ (1.4 ) $ 2.3 We previously disclosed in our financial statements for the year ended December31, 2009, that we expected to contribute approximately $15 to $20 and $30 to $40 to our U.S. and non-U.S. pension plans, respectively, in 2010. As of March31, 2010, we made approximately $5 and $2 of contributions to the U.S. and non-U.S pension plans, respectively. We anticipate contributing approximately $10 to $15 and $28 to $38 to fund our U.S. and non-U.S. pension plans, respectively, during the remainder of 2010. Our funding requirements may be impacted by regulations or interpretations thereof.

CONTINGENCIES

CONTINGENCIES
	3 Months Ended Mar. 31, 2010
CONTINGENCIES	5. CONTINGENCIES In 2002, 2003 and 2004, our Brazilian subsidiary received a series of excise tax assessments from the Brazilian tax authorities for alleged tax deficiencies during the years 1997-2001 asserting that the establishment in 1995 of separate manufacturing and distribution companies in that country was done without a valid business purpose and that Avon Brazil did not observe minimum pricing rules to define the taxable basis of excise tax, based on purported market sales data. The structure adopted in 1995 is comparable to that used by other companies in Brazil. We believe that our Brazilian corporate structure is appropriate, both operationally and legally, and that the assessments are unfounded. This matter is being vigorously contested and in the opinion of our outside counsel, the likelihood that the assessments ultimately will be upheld is remote. Management believes that the likelihood that the assessments will have a material impact on our consolidated financial position, results of operations or cash flows is correspondingly remote. As of March31, 2010, the total assessments related to these remote contingencies, including penalties and accruing interest, amounted to approximately $598 at the exchange rate on March31, 2010. In the event that assessments are upheld in the earlier stages of review, it may be necessary for us to provide security to pursue further appeals, which, depending on the circumstances, may result in a charge to income. We are currently awaiting decisions at the first administrative level for the 2002 assessment and at the second administrative level for the 2003 and 2004 assessments. It is not possible to make a reasonable estimate of the amount or range of expense that could result from an unfavorable outcome in respect of these or any additional assessments that may be issued for subsequent periods. As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the Foreign Corrupt Practices Act (FCPA) and related U.S. and foreign laws in China and additional countries. The internal investigation, which is being conducted under the oversight of our Audit Committee, began in June 2008. As we reported in October 2008, we voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation, and we are continuing to cooperate with both agencies and have signed tolling agreements with them. As previously reported in July 2009, in connection with the internal investigation, we commenced compliance reviews regarding the FCPA and related U.S. and foreign laws in additional countries in order to evaluate our compliance efforts. We are conducting these compliance reviews in a number of other countries selected to represent each of the Companys four other international geographic segments. The internal investigation and compliance reviews are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third-party agents and others, in c

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME
	3 Months Ended Mar. 31, 2010
COMPREHENSIVE INCOME	6. COMPREHENSIVE INCOME ThreeMonthsEnded March 31, Components of Comprehensive Income 2010 2009 Net income $ 43.3 $ 117.5 Foreign currency translation adjustments 2.3 (109.8 ) Change in unrealized gains from available-for-sale securities (.1 ) Change in derivative losses on cash flow hedges 1.0 1.0 Adjustments for amortization of net actuarial loss, prior service cost, and transition obligation, net of taxes 6.2 7.0 Comprehensive income 52.7 15.7 Less: comprehensive income attributable to noncontrolling interest (1.2 ) (2.5 ) Comprehensive income attributable to Avon $ 51.5 $ 13.2

SEGMENT INFORMATION

SEGMENT INFORMATION
	3 Months Ended Mar. 31, 2010
SEGMENT INFORMATION	7. SEGMENT INFORMATION Summarized financial information concerning our reportable segments was as follows: Three Months Ended March31, 2010 2009 Revenue Operating Profit (Loss) Revenue Operating Profit (Loss) Latin America $ 971.7 $ 88.0 $ 794.0 $ 88.2 North America 522.1 43.7 532.8 22.5 Central Eastern Europe 410.3 68.6 321.4 48.3 Western Europe, Middle East Africa 299.7 22.2 243.2 6.0 Asia Pacific 220.4 26.4 199.6 15.2 China 66.2 (10.1 ) 95.9 13.5 Total from operations 2,490.4 238.8 2,186.9 193.7 Global and other (46.0 ) (25.3 ) Total $ 2,490.4 $ 192.8 $ 2,186.9 $ 168.4 Our consolidated net sales by classes of principal products were as follows: Three Months Ended March 31, 2010 2009 Beauty(1) $ 1,777.8 $ 1,562.3 Fashion(2) 440.2 388.7 Home(3) 240.7 206.7 Net sales $ 2,458.7 $ 2,157.7 Other revenue(4) 31.7 29.2 Total revenue $ 2,490.4 $ 2,186.9 (1) Beauty includes color cosmetics, fragrances, skin care and personal care. (2) Fashion includes fashion jewelry, watches, apparel, footwear and accessories. (3) Home includes gift and decorative products, housewares, entertainment and leisure products and childrens and nutritional products. (4) Other revenue primarily includes shipping and handling fees billed to Representatives. Sales from Health and Wellness products and mark. are included among these categories based on product type.

SUPPLEMENTAL BALANCE SHEET INFO

SUPPLEMENTAL BALANCE SHEET INFORMATION
	3 Months Ended Mar. 31, 2010
SUPPLEMENTAL BALANCE SHEET INFORMATION	8. SUPPLEMENTAL BALANCE SHEET INFORMATION At March31, 2010 and December31, 2009, prepaid expenses and other included the following: Components of Prepaid Expenses and Other March31, 2010 December 31, 2009 Deferred tax assets $ 266.9 $ 303.2 Receivables other than trade 82.0 143.3 Prepaid taxes and tax refunds receivable 293.7 296.9 Prepaid brochure costs, paper and other literature 107.2 122.8 Short-term investments 19.5 26.8 Property, plant and equipment held for sale 8.2 8.2 Deferred charge 36.9 Other 114.0 92.4 Prepaid expenses and other $ 891.5 $ 1,030.5 At March31, 2010 and December31, 2009, other assets included the following: Components of Other Assets March31, 2010 December31, 2009 Deferred tax assets $ 536.4 $ 527.3 Goodwill (Note 10) 321.6 224.8 Intangible assets (Note 10) 113.6 13.8 Investments 51.4 49.8 Deferred software 114.0 112.0 Interest-rate swap agreements (Note 11 and 12) 63.9 54.9 Other 214.5 131.2 Other assets $ 1,415.4 $ 1,113.8

RESTRUCTURING INITIATIVES

RESTRUCTURING INITIATIVES
	3 Months Ended Mar. 31, 2010
RESTRUCTURING INITIATIVES	9. RESTRUCTURING INITIATIVES 2005 Restructuring Program In November 2005, we announced a multi-year turnaround plan to restore sustainable growth. As part of our turnaround plan we launched a restructuring program in late 2005 (the 2005 Restructuring Program). Restructuring initiatives under this program include: enhancement of organizational effectiveness, including efforts to flatten the organization and bring senior management closer to consumers through a substantial organization downsizing; implementation of a global manufacturing strategy through facilities realignment; implementation of additional supply chain efficiencies in distribution; and streamlining of transactional and other services through outsourcing and moves to lower-cost countries. We have approved and announced all of the initiatives that are part of our 2005 Restructuring Program. We expect to record total restructuring charges and other costs to implement restructuring initiatives of approximately $530 before taxes. We have recorded total costs to implement, net of adjustments, of $524.4 ($0.1 in the first three months of 2010, $20.1 in 2009, $60.6 in 2008, $158.3 in 2007, $228.8 in 2006, and $56.5 in 2005) for actions associated with our restructuring initiatives. Restructuring ChargesFirst Quarter 2010 During the first quarter of 2010, we recorded net benefits of $(1.1) associated with previously approved initiatives that are part of our 2005 Restructuring Program. We also incurred implementation costs of $0.4 for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations, and recorded accelerated depreciation of $0.8 associated with our initiatives to realign certain distribution operations, resulting in total costs to implement during the first quarter of 2010 of $0.1. These costs to implement were recorded in selling, general and administrative expenses. Restructuring ChargesFirst Quarter 2009 During the first quarter of 2009, we recorded net benefits of $(1.8) associated with previously approved initiatives that are part of our 2005 Restructuring Program. We also incurred implementation costs of $4.4 for professional service fees, primarily associated with our initiatives to outsource certain finance processes and realign certain distribution operations, and recorded accelerated depreciation of $1.9 associated with our initiatives to realign certain distribution operations, resulting in total costs to implement during the first quarter of 2009 of $4.5. These costs to implement were recorded in selling, general and administrative expenses. The liability balances for the initiatives under the 2005 Restructuring Program are shown below: Employee- Related Costs Balance December31, 2009 $ 42.9 2010 Charges .6 Adjustments (1.7 ) Cash payments (10.4 ) Non-cash write-offs Foreign exchange (1.0 ) Balance March31, 2010 $ 30.4 The following table presents the restructuring charges incurred to date, net of adjustments

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS
	3 Months Ended Mar. 31, 2010
GOODWILL AND INTANGIBLE ASSETS	10. GOODWILL AND INTANGIBLE ASSETS In March 2010, we acquired Liz Earle Beauty Co. Limited. The acquired business is included in our Western Europe, Middle East Africa operating segment. The preliminary purchase price allocation resulted in goodwill of $80.2, trademarks of $74 and customer relationships of $18.5 with a 9-year useful life. Goodwill Latin America Central Eastern Europe Western Europe, MiddleEast Africa Asia Pacific China Total Balance at December31, 2009 $ 94.9 $ 8.9 $ 33.9 $ 11.9 $ 75.2 $ 224.8 Acquisitions 80.2 80.2 Foreign exchange 17.6 (.9 ) (.1 ) 16.6 Balance at March31, 2010 $ 112.5 $ 8.9 $ 113.2 $ 11.8 $ 75.2 $ 321.6 Intangible assets March31, 2010 December31, 2009 Gross Amount Accumulated Amortization Gross Amount Accumulated Amortization Amortized Intangible Assets Customer relationships $ 62.3 $ (35.9 ) $ 38.5 $ (31.0 ) Licensing agreements 49.7 (44.4 ) 42.3 (37.5 ) Noncompete agreements 8.1 (6.6 ) 7.4 (5.9 ) Trademarks 80.6 (.2 ) Total $ 200.7 $ (87.1 ) $ 88.2 $ (74.4 ) Estimated Amortization Expense: 2010 $ 6.7 2011 6.7 2012 6.7 2013 4.5 2014 3.7 Aggregate amortization expense during the three months ended March31, 2010 and 2009 was $0.8 and $3.6 respectively.

FAIR VALUE

FAIR VALUE
	3 Months Ended Mar. 31, 2010
FAIR VALUE	11. FAIR VALUE We adopted the fair value measurement provisions required by the Fair Value Measurements and Disclosures Topic of the Codification as of January1, 2008, with the exception of the application of the provisions to non-recurring, nonfinancial assets and liabilities, which was adopted as of January1, 2009 with no impact. The adoption of the fair value measurement provisions did not have a material impact on our fair value measurements. The fair value measurement provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value measurement provisions established a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows: Level 1Quoted prices in active markets for identical assets or liabilities. Level 2Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly. Level 3Unobservable inputs based on our own assumptions. The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March31, 2010: Level1 Level2 Total Assets: Available-for-sale securities $ 2.0 $ 2.0 Interest-rate swap agreements $ 63.9 63.9 Foreign exchange forward contracts 1.7 1.7 Total $ 2.0 $ 65.6 $ 67.6 Liabilities: Interest-rate swap agreements $ 11.8 $ 11.8 Foreign exchange forward contracts 7.0 7.0 Total $ 18.8 $ 18.8 Fair Value of Financial Instruments The net asset (liability) amounts recorded in the balance sheet (carrying amount) and the estimated fair values of financial instruments at March31, 2010 and December31, 2009, respectively, consisted of the following: 2010 2009 Carrying Amount Fair Value Carrying Amount Fair Value Cash and cash equivalents $ 1,122.9 $ 1,122.9 $ 1,311.6 $ 1,311.6 Available-for-sale securities 2.0 2.0 1.9 1.9 Grantor trust cash and cash equivalents 6.4 6.4 7.6 7.6 Short term investments 19.5 19.5 26.8 26.8 Debt maturing within one year 770.2 770.2 138.1 138.1 Long-term debt, net of related discount or premium 1,828.3 1,857.0 2,307.8 2,441.0 Foreign exchange forward contracts (5.3 ) (5.3 ) (2.9 ) (2.9 ) Interest-rate swap agreements 52.1 52.1 43.9 43.9 The methods and assumptions used to estimate fair value are as follows: Cash and cash equivalents, Grantor trust cash and cash equivalents and Short term investments Given the short term nature of these financial instruments, the stated cost approximates fair value.

DERIVATIVE INSTRUMENTS AND HEDG

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
	3 Months Ended Mar. 31, 2010
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES	12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Derivatives are recognized on the balance sheet at their fair values. The following table presents the fair value of derivative instruments outstanding at March31, 2010: Asset Liability BalanceSheet Classification Fair Value BalanceSheet Classification Fair Value Derivatives designated as hedges: Interest-rate swap agreements Otherassets $ 53.6 OtherLiabilities $ 1.5 Foreign exchange forward contracts Prepaidexpensesandother AccountsPayable Total derivatives designated as hedges $ 53.6 $ 1.5 Derivatives not designated as hedges: Interest-rate swap agreements Otherassets $ 10.3 Other Liabilities $ 10.3 Foreign exchange forward contracts Prepaidexpensesand other 1.7 Accounts Payable 7.0 Total derivatives not designated as hedges $ 12.0 $ 17.3 Total derivatives $ 65.6 $ 18.8 When we become a party to a derivative instrument, we designate the instrument as a fair value hedge, a cash flow hedge, a net investment hedge, or a non-hedge. We assess, both at the hedges inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The ineffective portion of a derivatives gain or loss, if any, is recorded in earnings in other expense, net on the Consolidated Statements of Income. When we determine that a derivative is not highly effective as a hedge, hedge accounting is discontinued. When it is probable that a hedged forecasted transaction will not occur, we discontinue hedge accounting for the affected portion of the forecasted transaction, and reclassify gains or losses that were accumulated in AOCI to earnings. Interest Rate Risk We use interest-rate swap agreements, which effectively convert the fixed rate on long-term debt to a floating interest rate, to manage our interest rate exposure. These agreements are designated as fair value hedges. At March31, 2010, we held interest-rate swap agreements that effectively converted approximately 76% of our outstanding long-term, fixed-rate borrowings to a variable interest rate based on LIBOR. Our total exposure to floating interest rates at March31, 2010, was approximately 84%. At March31, 2010, we had interest-rate swap agreements designated as fair value hedges of fixed-rate debt, with notional amounts totaling $1,875. During the three months ended March31, 2010, we recorded a net gain of $17.7 in interest expense for these interest-rate swap agreements designated as fair value hedges. The gain on these interest-rate swap agreements was offset by an equal and offsetting loss in interest expense on our fixed-rate debt. During the three months ended March31, 2009, we recorded a net loss of $3.1 in interest expense for these interest-rate swap agreements designated as fair value hedges. The loss on these interest-rate swap agreements was offset