Black & Decker 2010 Annual Report Download - page 117

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 8.5% for 2011, 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 January 1, 2011 by approximately
$3 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.
The Company holds various derivative financial instruments that are employed to manage risks, including
foreign currency and interest rate exposures. These financial instruments are carried at fair value and are
included within the scope of ASC 820. The Company determines the fair value of derivatives through the use
of matrix or model pricing, which utilizes verifiable inputs such as market interest and currency rates. When
determining the fair value of these financial instruments for which Level 1 evidence does not exist, the
Company considers various factors including the following: exchange or market price quotations of similar
instruments, time value and volatility factors, the Company’s own credit rating and the credit rating of the
counter-party.
The following table presents the fair value and the hierarchy levels, for financial assets and liabilities that are
measured at fair value on a recurring basis (millions of dollars):
Total Carrying
Value Level 1 Level 2 Level 3
January 1, 2011:
Derivative assets .................................... $55.0 $ - $55.0 $ -
Derivatives liabilities ................................. $115.7 $ - $115.7 $ -
Money market fund .................................. $716.7 $716.7 $ - $ -
January 2, 2010:
Derivative assets .................................... $33.3 $ - $33.3 $ -
Derivatives liabilities ................................. $84.7 $ - $84.7 $ -
Money market fund .................................. $210.8 $210.8 $ - $ -
The following table presents the fair value and the hierarchy levels, for assets and liabilities that were
measured at fair value on a non-recurring basis during 2010 (millions of dollars):
Carrying Value
January 1,
2011 Level 1 Level 2 Level 3
Total Losses
Year to Date
Long-lived assets held and used ............... $33.5 $ - $ - $33.5 $(24.0)
In accordance with the provisions of ASC 820, long-lived assets with a carrying amount of $57.5 million were
written down to $33.5 million fair value (approximately $30 million of which is included in the CDIY
segment) during the year ended January 1, 2011. This was a result of restructuring-related asset impairments
more fully described in Note O, Restructuring and Asset Impairments. Fair value for these impaired production
assets was based on the present value of discounted cash flows. This included an estimate for future cash flows
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