Black & Decker 2010 Annual Report Download - page 79

expensed as incurred. Depreciation and amortization are provided using straight-line methods over the
estimated useful lives of the assets as follows:
Useful Life
(Years)
Land improvements ............................................................ 10–20
Buildings ................................................................... 40
Machinery and equipment ....................................................... 3–15
Computer software ............................................................ 3–5
Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease.
The Company reports depreciation and amortization of property, plant and equipment in cost of sales and
selling, general and administrative expenses based on the nature of the underlying assets. Depreciation and
amortization related to the production of inventory and delivery of services are recorded in cost of sales.
Depreciation and amortization related to distribution center activities, selling and support functions are
reported in selling, general and administrative expenses.
The Company assesses its long-lived assets for impairment when indicators that the carrying values may not
be recoverable are present. In assessing long-lived assets for impairment, the Company groups its long-lived
assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated (“asset
group”) and estimates the undiscounted future cash flows that are directly associated with and expected to be
generated from the use of and eventual disposition of the asset group. If the carrying value is greater than the
undiscounted cash flows, an impairment loss must be determined and the asset group is written down to fair
value. The impairment loss is quantified by comparing the carrying amount of the asset group to the estimated
fair value, which is determined using weighted-average discounted cash flows that consider various possible
outcomes for the disposition of the asset group.
GOODWILL AND OTHER INTANGIBLE ASSETS — Goodwill represents costs in excess of fair values
assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at
estimated fair value. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are
tested for impairment annually during the third quarter, and at any time when events suggest an impairment
more likely than not has occurred. To assess goodwill for impairment, the Company determines the fair value
of its reporting units, which are primarily determined using management’s assumptions about future cash flows
based on long-range strategic plans. This approach incorporates many assumptions including future growth
rates, discount factors and tax rates. In the event the carrying value of a reporting unit exceeded its fair value,
an impairment loss would be recognized to the extent the carrying amount of the reporting unit’s goodwill
exceeded the implied fair value of the goodwill. Indefinite-lived intangible asset carrying amounts are tested
for impairment by comparing to current fair market value, usually determined by the estimated cost to lease
the asset from third parties. Intangible assets with definite lives are amortized over their estimated useful lives
generally using an accelerated method. Under this accelerated method, intangible assets are amortized
reflecting the pattern over which the economic benefits of the intangible assets are consumed. Definite-lived
intangible assets are also evaluated for impairment when impairment indicators are present. If the carrying
value exceeds the total undiscounted future cash flows, a discounted cash flow analysis is performed to
determine the fair value of the asset. If the carrying value of the asset were to exceed the fair value, it would
be written down to fair value. No goodwill or other significant intangible asset impairments were recorded
during 2010, 2009 or 2008.
FINANCIAL INSTRUMENTS — Derivative financial instruments are employed to manage risks, including
foreign currency, interest rate exposures and commodity prices and are not used for trading or speculative
purposes. The Company recognizes all derivative instruments, such as interest rate swap agreements, foreign
currency options, commodity contracts and foreign exchange contracts, in the Consolidated Balance Sheets at
fair value. Changes in the fair value of derivatives are recognized periodically either in earnings or in
Shareowners’ Equity as a component of other comprehensive income, depending on whether the derivative
financial instrument is undesignated or qualifies for hedge accounting, and if so, whether it represents a fair
value, cash flow, or net investment hedge. Changes in the fair value of derivatives accounted for as fair value
66