Black & Decker 2014 Annual Report Download - page 89

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75
weighted average price per share of common stock, as measured under the terms of the capped call transactions, exceeds the upper
strike price of the capped call transactions, the value the Company expects to receive upon the exercise of the capped call transactions
(or portions thereof) will be approximately equal to (x) the excess of the upper strike price of the capped call transactions over
the lower strike price of the capped call transactions times (y) the number of shares of common stock relating to the capped call
transactions (or the portions thereof) being exercised, in each case as determined under the terms of the capped call transactions.
As a result, the dilution mitigation under the capped call transactions will be limited based on such capped value.
I. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity
prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency
swaps, purchased currency options, foreign exchange contracts and commodity contracts, are used to mitigate interest rate exposure,
foreign currency exposure and commodity price exposure.
Financial instruments are not utilized for speculative purposes. If the Company elects to do so and if the instrument meets the
criteria specified in ASC 815, Derivatives and Hedging, management designates its derivative instruments as cash flow hedges,
fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial
instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives
and other productivity improvement projects.
A summary of the fair value of the Company’s derivatives recorded in the Consolidated Balance Sheets at January 3, 2015 and
December 28, 2013 follows (in millions):
Balance Sheet
Classification 2014 2013
Balance Sheet
Classification 2014 2013
Derivatives designated as
hedging instruments:
Interest Rate Contracts Cash
Flow ............................................ LT other assets.............. —— LT other liabilities........ $ 34.3 —
Interest Rate Contracts Fair
Value........................................... Other current assets...... 13.2 21.7 Accrued expenses......... 1.1 3.3
LT other assets.............. —— LT other liabilities........ 19.1 139.3
Foreign Exchange Contracts
Cash Flow ................................... Other current assets...... 43.3 3.7 Accrued expenses......... 1.7 0.3
Net Investment Hedge ................ Other current assets...... 75.4 1.4 Accrued expenses......... 0.1 52.6
$ 131.9 $ 26.8 $ 56.3 $ 195.5
Derivatives not designated as
hedging instruments:
Foreign Exchange Contracts....... Other current assets...... $ 12.3 $ 64.9 Accrued expenses......... $ 92.1 $ 10.4
LT other assets.............. —— LT other liabilities........ —6.4
$ 12.3 $ 64.9 $ 92.1 $ 16.8
The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company
is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to
the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial
institutions and does not anticipate non-performance by any of its counterparties. Further, as more fully discussed in Note M, Fair
Value Measurements, the Company considers non-performance risk of its counterparties at each reporting period and adjusts the
carrying value of these assets accordingly. The risk of default is considered remote.
In 2014 and 2013, significant cash flows related to derivatives including those that are separately discussed in Cash Flow Hedges,
Fair Value Hedges and Net Investment Hedges below resulted in net cash paid of $14.6 million and cash received of $27.4 million,
respectively.
CASH FLOW HEDGES — There was a $50.9 million and a $77.3 million after-tax loss as of January 3, 2015 and December 28,
2013, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax gain of
$12.6 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.