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cash-flow hedges. As of June 30, 2003, these cash-flow hedges were highly effective, in all material respects. 

As a matter of policy, the Company only enters into contracts with counterparties that have at least an “A” (or equivalent)credit rating. The counterparties to these con- tracts are major financial institutions. The Company does not have significant exposure to any one counterparty. Exposure to credit loss in the event of nonperformance by any of the counterparties is limited to only the recog- nized, but not realized, gains attributable to the contracts. Management believes risk of loss under these hedging contracts is remote and in any event would not be mate- rial to the Company’s consolidated financial results. The contracts have varying maturities through the end of June 2004. Costs associated with entering into such contracts have not been material to the Company’s consolidated financial results. The Company does not utilize derivative financial instruments for trading or speculative purposes. At June 30, 2003, the Company had foreign currency con- tracts in the form of forward exchange contracts and option contracts in the amount of $476.7 million and $57.7 million, respectively. The foreign currencies included in forward exchange contracts (notional value stated in U.S. dollars) are principally the Euro ($114.0 million),Swiss franc ($61.9 million), Japanese yen ($56.0 million), British pound ($49.8 million), Canadian dollar ($37.7 million), South Korean won ($37.6 million) and Australian dollar ($30.6 million). The foreign curren- cies included in the option contracts (notional value stated in U.S. dollars) are principally the Swiss franc ($21.9 million),C anadian dollar ($21.0 million) and Euro ($11.7 million). At June 30, 2002, the Company had for- eign currency contracts in the form of forward exchange contracts in the amount of $227.2 million. The foreign currencies included in these contracts (notional value stated in U.S. dollars) are principally the Japanese yen ($70.7 million), Euro ($31.7 million), British pound ($26.2 million), Australian dollar ($16.0 million), Swiss franc ($11.8 million), Danish krone ($11.6 million) and Canadian dollar ($10.5 million). 

## Interest Rate Risk Management 

The Company enters into interest rate derivative contracts to manage the exposure to fluctuations of interest rates on its funded and unfunded indebtedness, as well as cash investments, for periods consistent with the identified exposures. All interest rate derivative contracts are with large financial institutions rated as strong investment grade by a major rating agency. 

In May 2003, the Company entered into an interest rate swap agreement with a notional amount of $250.0 

million to effectivelyconvert fixed interest on the existing 6% Senior Notes to a variable interest rate based on LIBOR. The interest rate swap was designated as a fair value hedge. As of June 30, 2003, the fair value hedge was highly effective, in all material respects. 

Information regarding the interest rate swap is pre- sented in the following table: 

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Additionally, in May 2003, the Company entered into a series of treasury lock agreements on a notional amount totaling $195.0 million at a weighted average all-in rate of 4.53%. These treasury lock agreements expire in Septem- ber 2003 and are used to hedge the exposure to a possi- ble rise in interest rates prior to the anticipated issuance of new debt, if completed. The agreements will be settled upon the issuance of the new debt and any realized gain or loss to be received or paid by the Company will be amortized in interest expense over the life of new debt. The treasury lock agreements were designated as cash flow hedges. As of June 30, 2003, the cash flow hedges were highly effective, in all material respects. 

## Fair Value of Financial Instruments 

The following methods and assumptions were used to estimate the fair value of each class of financial instru- ments for which it is practicable to estimate that value: 

## Cash and cash equivalents: 

The carrying amount approximates fair value, primarily because of the short maturity of cash equivalent instruments. 

## Long-term debt: 

The fair value of the Company’s long-term debt was esti- mated based on the current rates offered to the Company for debt with the same remaining maturities. Included in such amount, where applicable, is the fair value of the Company’s commercial paper. 

## Cumulative redeemable preferred stock: 

The fair value of the cumulative redeemable preferred stock is estimated utilizing a cash flow analysis at a discount rate equal to rates available for debt with terms similar to the preferred stock. 

## Foreign exchange and interest rate contracts: 

The fair value of forwards, swaps, options and treasury rate locks is the estimated amount the Company would receive or pay to terminate the agreements. 

