Black & Decker 2011 Annual Report Download - page 66

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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 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
2011, 2010, or 2009.
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 hedges are recorded in earnings in the same caption as the
changes in the fair value of the hedged items. Gains and losses on derivatives designated as cash flow hedges, to the extent they are
effective, are recorded in other comprehensive income, and subsequently reclassified to earnings to offset the impact of the hedged
items when they occur.
In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be
terminated and the amount in other comprehensive income would generally be recognized in earnings. Changes in the fair value of
derivatives used as hedges of the net investment in foreign operations, to the extent they are effective, are reported in other
comprehensive income and are deferred until the subsidiary is sold. Changes in the fair value of derivatives not designated as hedges
under ASC 815 “Derivatives and Hedging” (“ASC 815”), and any portion of a hedge that is considered ineffective, are reported in
earnings in the same caption where the hedged items are recognized.
The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early
termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining period
of the debt originally covered by the terminated swap.
REVENUE RECOGNITION — General: The majority of the Company’s revenues result from the sale of tangible products, where
revenue is recognized when the earnings process is complete, collectability is reasonably assured, and the risks and rewards of
ownership have transferred to the customer, which generally occurs upon shipment of the finished product, but sometimes is upon
delivery to customer facilities.