Black & Decker 2011 Annual Report Download - page 82

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70
In 2011 and 2010, significant cash flows related to derivatives including those that are separately discussed in Cash Flow Hedges, Net
Investment Hedges and Undesignated Hedges below resulted in net cash paid of $58.9 million and $64.0 million, respectively. The
Company also received $30.1 million in March 2010 from the termination of $325.0 million notional of fixed to variable interest rate
swaps that became undesignated at the merger date and as a result the cash inflow was reported within investing activities in the
consolidated statement of cash flows. In 2009, the most significant cash flows related to derivatives included cash payments of
$15.5 million on a Great Britain pound currency swap maturity and a Canadian dollar swap termination; both of these swaps were
classified as undesignated.
CASH FLOW HEDGES — There was a $75.9 million after-tax loss and a $50.2 million after-tax loss as of December 31, 2011 and
January 1, 2011, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax loss
of $0.3 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next
twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the
maturity dates.
The tables below detail pre-tax amounts reclassified from Accumulated other comprehensive income (loss) into earnings for active
derivative financial instruments during the periods in which the underlying hedged transactions affected earnings for the twelve
months ended December 31, 2011 and January 1, 2011 (in millions):
Year-to-date 2011
(In millions)
Gain (Loss)
Recorded in OCI
Clas
sification
of
Gain (Loss)
Reclassified from
OCI to Income
Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion)
Gain
(Loss)
Recognized in
Income
(Ineffective Portion*)
Interest Rate Contracts ................................
.................
$ (69.6) Interest expense $ —
$ —
Foreign Exchange Contracts ................................
........
$ (2.9) Cost of sales
$ (21.1) —
Year-to-date 2010
(In millions)
Gain (Loss)
Recorded in OCI
Classification
of
Gain (Loss)
Reclassified from
OCI to Income
Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion)
Gain
(Loss)
Recognized in
Income
(Ineffective Portion*)
Interest Rate Contracts ................................
...................
$ (24.8) Interest expense $ (1.6) $ —
Foreign Exchange Contracts ................................
..........
$ (16.0) Cost of sales
$ (2.3) —
Foreign Exchange Contracts ................................
..........
$ 6.8
Other-net
$ 8.5
—
* Includes ineffective portion and amount excluded from effectiveness testing on derivatives.
For 2011, the hedged items’ impact to the Consolidated Statement of Operations was a reduction of $21.1 million in Cost of Sales. For
2010, the hedged items’ impact to the Consolidated Statement of Operations was a reduction of $2.3 million in Cost of Sales and a
loss of $8.5 million, in Other-net. There was no impact related to the interest rate contracts’ hedged items for any period presented.
The impact of de-designated hedges was immaterial for all periods presented.
During 2011, 2010 and 2009, an after-tax loss of $15.9 million, an after-tax loss of $2.9 million and an after-tax loss of $1.1 million,
respectively, was reclassified from Accumulated other comprehensive income (loss) into earnings (inclusive of the gain/loss
amortization on terminated derivative financial instruments) during the periods in which the underlying hedged transactions affected
earnings.
Interest Rate Contract: The Company enters into interest rate swap agreements in order to obtain the lowest cost source of funds
within a targeted range of variable to fixed-rate debt proportions. At December 31, 2011 and January 1, 2011, the Company had
$400 million of forward starting swaps outstanding fixing the interest rate on the expected refinancing of debt in 2012 as discussed
below.
In May 2010, the Company executed forward starting interest rate swaps with an aggregate notional amount of $400 million fixing
interest at 3.95%. The objective of the hedge was to offset the expected variability on future payments associated with the interest rate
on debt instruments. In connection with the August 31, 2010 issuance of the $400 million of senior unsecured 2040 Term Bonds, as
discussed in Note H, Long Term Debt and Financing Arrangements, these forward-starting interest rate swaps were terminated. The
terminations resulted in cash payments of $48.4 million. This loss ($30.0 million on an after-tax basis) was recorded in Accumulated
other comprehensive loss and will be amortized to earnings over the first ten years in which the interest expense related to the 2040
Term Bonds is recognized. The cash flows stemming from the termination of such interest rate swaps designated as cash flow hedges
are presented within financing activities in the Consolidated Statement of Cash Flows.