Black & Decker 2011 Annual Report Download - page 95

83
Asset Category
2010
Level
1
Level 2
Cash and cash equivalents ....................................................................
$ 18.1 $ 1.2 $ 16.9
Equity securities
U.S. equity securities ...............................................................................
513.2 7.2 506.0
Foreign equity securities ..........................................................................
513.4 24.6 488.8
Fixed income securities
Government securities .............................................................................
281.9 9.0 272.9
Corporate securities .................................................................................
285.9 16.1 269.8
Mortgage-backed securities .....................................................................
78.0 18.4 59.6
Insurance contracts ...............................................................................
31.4 — 31.4
Other .......................................................................................................
29.3 — 29.3
Total .........................................................................................................
$ 1,751.2 $ 76.5 $ 1,674.7
U.S. and foreign equity securities primarily consist of companies with large market capitalizations and to a lesser extent mid and small
capitalization securities. Government securities primarily consist of U.S. Treasury securities and foreign government securities with
deminimus default risk. Corporate fixed income securities include publicly traded U.S. and foreign investment grade and to a small
extent high yield securities. Mortgage-backed securities predominantly consist of U.S. holdings. Assets held in insurance contracts are
invested in the general asset pools of the various insurers, mainly debt and equity securities with guaranteed returns. Other
investments include diversified private equity holdings. The level 2 investments are primarily comprised of institutional mutual funds
that are not publicly traded; the investments held in these mutual funds are generally level 1 publicly traded securities.
The Company’s investment strategy for pension plan assets includes diversification to minimize interest and market risks. Plan assets
are rebalanced periodically to align with target asset allocations. Currently, the Company’s target allocations include 25%-45% in
equity securities, 50%-70% in fixed income securities and up to 10% in other securities. Maturities of investments are not necessarily
related to the timing of expected future benefit payments, but adequate liquidity to make immediate and medium term benefit
payments is ensured.
CONTRIBUTIONS The Company’s funding policy for its defined benefit plans is to contribute amounts determined annually on an
actuarial basis to provide for current and future benefits in accordance with federal law and other regulations. The Company expects to
contribute approximately $110 million to its pension and other post-retirement benefit plans in 2012.
EXPECTED FUTURE BENEFIT PAYMENTS Benefit payments, inclusive of amounts attributable to estimated future employee
service, are expected to be paid as follows over the next 10 years:
(Millions of Dollars)
Total
Year 1
Year 2
Year 3
Year 4
Year 5
Years
6
-
10
Future payments ................................
.......................
$ 1,553.8 $ 155.0 $ 153.0 $ 156.0 $ 155.6 $ 152.7 $ 781.5
These benefit payments will be funded through a combination of existing plan assets and amounts to be contributed in the future by
the Company.
HEALTH CARE COST TRENDS The weighted average annual assumed rate of increase in the per-capita cost of covered benefits
(i.e., health care cost trend rate) is assumed to be 7.6% for 2012, reducing gradually to 4.5% by 2028 and remaining at that level
thereafter. A one percentage point change in the assumed health care cost trend rate would affect the post-retirement benefit obligation
as of December 31, 2011 by approximately $3.0 million and would have an immaterial effect on the net periodic post-retirement
benefit cost.
M. FAIR VALUE MEASUREMENTS
ASC 820 defines, establishes a consistent framework for measuring, and expands disclosure requirements about fair value. ASC 820
requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s
market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations whose inputs and significant value drivers are observable.
Level 3 — Instruments that are valued using unobservable inputs.