Black & Decker 2010 Annual Report Download - page 104

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2010 and 2009, respectively. Interest expense on the underlying debt was $28.3 million and $25.2 million for
2010 and 2009, respectively.
During 2008, the Company had interest rate swaps identical to the $200 million and $250 million swaps
discussed above that were terminated in December 2008, resulting in pre-tax gains of $16.5 million, offset by
the fair value adjustment to the carrying value of the underlying notes. At January 3, 2009 the carrying
amounts of the $200 million and $250 million notes were increased by $8.4 million and $7.7 million
respectively, related to this adjustment and are being amortized over the remaining term of the notes as a
reduction of interest expense.
NET INVESTMENT HEDGES
Foreign Exchange Contracts: The Company utilizes net investment hedges to offset the translation adjust-
ment 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 $32.7 million and $11.8 mil-
lion at January 1, 2011 and January 2, 2010, respectively. As of January 1, 2011, the Company had foreign
exchange contracts that mature in March 2011 with notional values totaling $223.1 million outstanding
hedging a portion of its euro denominated net investment and foreign exchange contracts that mature at
various dates through April 2011 with notional values of $800.9 million outstanding hedging a portion of its
pound sterling denominated net investment. As of January 2, 2010, the Company had one foreign exchange
contract with a notional value of $223.4 million outstanding hedging a portion of its euro denominated net
investment The Company had foreign exchange contracts mature in 2010 resulting in cash receipts of
$43.9 million and cash payments of $29.0 million. Gains and losses on net investment hedges remain in
Accumulated other comprehensive loss until disposal of the underlying assets. The details of the pre-tax
amounts are below (in millions):
Income Statement
Classification
Amount
Recorded in OCI
Gain (Loss)
Effective Portion
Recorded in Income
Statement
Ineffective
Portion*
Recorded in
Income
Statement
Amount
Recorded in OCI
Gain (Loss)
Effective Portion
Recorded in Income
Statement
Ineffective
Portion*
Recorded in
Income
Statement
Year-to-Date 2010 Year-to-Date 2009
Other, net ..... $(31.4) $— $— $(8.5) $— $—
* Includes ineffective portion and amount excluded from effectiveness testing.
UNDESIGNATED HEDGES
Foreign Exchange Contracts: Currency swaps and foreign exchange forward contracts are used to reduce
risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such
as affiliate loans, payables and receivables). The objective of these practices is to minimize the impact of
foreign currency fluctuations on operating results. The total notional amount of the contracts outstanding at
January 1, 2011 was $2.3 billion of forward contracts and $219.4 million in currency swaps, maturing at
various dates primarily through September 2011 with one currency swap maturing in December 2014. The
total notional amount of the contracts outstanding at January 2, 2010 was $182.6 million of forward contracts
and $160.5 million in currency swaps. Significant cash flows related to undesignated hedges during 2010
included net cash paid of $6.7 million. The income statement impacts related to derivatives not designated as
hedging instruments for 2010 and 2009 are as follows (in millions):
Derivatives Not
Designated as Hedging
Instruments under ASC 815
Income Statement
Classification
Year-to-Date 2010
Amount of Gain (Loss)
Recorded in Income on
Derivative
Year-to-Date 2009
Amount of Gain (Loss)
Recorded in Income on
Derivative
Foreign Exchange Contracts .............. Other, net $38.5 $(7.6)
Cost of Sales $ 1.0 $ —
Commodity Contracts: Commodity contracts were used to manage price risks related to material purcha-
ses — primarily zinc and copper — used in the manufacturing process. The objective of the contracts was to
reduce the variability of cash flows associated with the forecasted purchase of these commodities. In
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