Black & Decker 2014 Annual Report Download - page 90

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76
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 January 3, 2015 and December 28, 2013 (in millions):
Year-to-date 2014
(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............................... $(34.3)Interest Expense $—$—
Foreign Exchange Contracts...................... $ 40.6 Cost of sales $ 0.2 $ —
Year-to-date 2013
(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*)
Foreign Exchange Contracts...................... $ 5.1 Cost of sales $ (3.4)$ —
* Includes ineffective portion and amount excluded from effectiveness testing on derivatives.
For 2014 and 2013, the hedged items’ impact to the Consolidated Statement of Operations was a loss of $0.2 million and a gain
of $3.4 million, respectively, in Cost of Sales. There was no impact related to the interest rate contracts’ hedged items for any
period presented.
During 2014, 2013 and 2012, an after-tax loss of $7.5 million, $11.7 million and $2.9 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 Contracts: 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. As of January 3, 2015, the Company had $400 million of forward
starting swaps outstanding which were executed in 2014. The objective of the hedges is to offset the expected variability on future
payments associated with the interest rate on debt instruments expected to be issued in 2018. Gains or losses on the swaps are
recorded in Accumulated other comprehensive loss and will be subsequently reclassified into earnings as the future interest expense
is recognized in earnings or as ineffectiveness occurs. At December 28, 2013, all interest rate swaps designated as cash flow
hedges were terminated as discussed below.
In 2012, the Company terminated forward starting interest rate swaps with an aggregate notional amount of $400 million fixing
10 years of interest payments at 4.78%. The objective of the hedges was to offset the expected variability on future payments
associated with the interest rate on debt instruments. The terminations resulted in cash payments of $102.6 million, which were
recorded in Accumulated other comprehensive loss and will be amortized to earnings over future periods. 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 Statements of Cash Flows.
Foreign Currency Contracts
Forward Contracts: Through its global businesses, the Company enters into transactions and makes investments denominated in
multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from
subsidiaries with non-US dollar functional currencies which creates currency-related volatility in the Company’s results of
operations. The Company utilizes forward contracts to hedge these forecasted purchases and sales of inventory. Gains and losses
reclassified from Accumulated other comprehensive loss for the effective and ineffective portions of the hedge as well as any
amounts excluded from effectiveness testing are recorded in Cost of sales. Gains and losses incurred after a hedge has been de-
designated are not recorded in Accumulated other comprehensive income (loss), but are recorded directly to the Consolidated
Statements of Operations in Other-net. At January 3, 2015, the notional value of the forward currency contracts outstanding was
$369.5 million, maturing on various dates through 2015. At December 28, 2013, the notional value of the forward currency
contracts outstanding was $270.1 million, maturing on various dates in 2014.
Purchased Option Contracts: The Company and its subsidiaries enter into various inter-company transactions whereby the notional
values are denominated in currencies other than the functional currencies of the party executing the trade. In order to better match
the cash flows of its inter-company obligations with cash flows from operations, the Company enters into purchased option
contracts. Gains and losses reclassified from Accumulated other comprehensive income (loss) for the effective and ineffective
portions of the hedge as well as any amounts excluded from effectiveness testing are recorded in Cost of sales. At January 3, 2015,