Black & Decker 2014 Annual Report Download - page 91

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the notional value of option contracts outstanding was $185.0 million, maturing on various dates through 2015. As of December 28,
2013, the notional value of purchased option contracts was $120.0 million, maturing on various dates in 2014.
FAIR VALUE HEDGES
Interest Rate Risk: In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company
enters into interest rate swaps. In 2014, the Company entered into interest rate swaps on the first five years of the Company's
$400 million 5.75% notes due 2053. In 2012, the Company entered into interest rate swaps with notional values which equaled
the Company's$400 million 3.40% notes due 2021 and $150 million 7.05% notes due 2028. These interest rate swaps effectively
converted the Company's fixed rate debt to floating rate debt based on LIBOR, thereby hedging the fluctuation in fair value
resulting from changes in interest rates.
Previously, the Company entered into interest rate swaps related to certain of its notes payable which were subsequently terminated
as discussed below.
In 2014, the Company terminated $400 million of interest rate swaps hedging the Company's $400 million 5.20% notes due 2040.
These terminations resulted in cash payments of $33.4 million and the resulting loss of $38.9 million was deferred and will be
amortized to earnings over the life of the remaining notes.
In 2012, the Company terminated interest rates swaps with notional values equal to the Company's $300 million 4.75% notes due
in 2014, $300 million 5.75% notes due in 2016, $200 million 4.90% notes due in 2012, $250 million 6.15% notes due in 2013
and $400 million 3.40% notes due in 2021. These terminations resulted in cash receipts of $58.2 million. The resulting gain of
$44.7 million was deferred and will be amortized to earnings over the remaining life of the notes.
In 2013, the Company repurchased the $300 million 5.75% notes due in 2016 and, as a result, $8.1 million of the previously
deferred gain was recognized in earnings at that time. In 2012, the Company repurchased the $250 million 6.15% notes due in
2013 and $300 million 4.75% notes due in 2014 and, as a result, $11.1 million of the previously deferred gain was recognized in
earnings at that time.
The changes in fair value of the interest rate swaps during the period were recognized in earnings as well as the offsetting changes
in fair value of the underlying notes. The notional value of open contracts was $950.0 million as of both January 3, 2015 and
December 28, 2013. A summary of the fair value adjustments relating to these swaps is as follows (in millions):
Year-to-Date 2014 Year-to-Date 2013
Income Statement
Classification
Gain/(Loss) on
Swaps*
Gain /(Loss) on
Borrowings
Gain/(Loss) on
Swaps*
Gain /(Loss) on
Borrowings
Interest Expense..................................................... $ 123.5 $ (123.9)$(141.0) $ 141.0
* Includes ineffective portion and amount excluded from effectiveness testing on derivatives.
In addition to the fair value adjustments in the table above, the net swap accruals for each period and amortization of the gains on
terminated swaps are also reported as a reduction of interest expense and totaled $19.2 million and $31.4 million for 2014 and
2013, respectively. Interest expense on the underlying debt was $54.6 million and $44.7 million for 2014 and 2013, respectively.
NET INVESTMENT HEDGES
Foreign Exchange Contracts: The Company utilizes net investment hedges to offset the translation adjustment arising from re-
measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated
other comprehensive loss were losses of $37.2 million and $76.8 million at January 3, 2015 and December 28, 2013, respectively.
As of January 3, 2015, the Company had foreign exchange contracts that mature on various dates through 2015 with notional
values totaling $1.3 billion outstanding hedging a portion of its British pound sterling, Mexican peso, Japanese yen, and Canadian
dollar denominated net investment. As of December 28, 2013, the Company had foreign exchange contracts maturing on various
dates through 2014 with notional values totaling $979.0 million outstanding hedging a portion of its pound sterling denominated
net investment. For the year ended January 3, 2015 and December 28, 2013, maturing foreign exchange contracts resulted in net
cash paid of $61.4 million and net cash receipts of $3.6 million, respectively. Gains and losses on net investment hedges remain
in Accumulated other comprehensive income (loss) until disposal of the underlying assets. The pre-tax gain or loss from fair value
changes was as follows (in millions):