Black & Decker 2011 Annual Report Download - page 96

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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 Company’s financial assets and liabilities that are measured at fair value on a recurring basis for each
of the hierarchy levels (millions of dollars):
Total
Carrying
Value
Level 1
Level 2
Level 3
December 31, 2011:
Derivative assets ................................................................
.........................
$ 142.5
$ —
$ 142.5
$ —
Derivatives liabilities ................................................................
..................
$ 181.7
$ —
$ 181.7
$ —
Money market fund ................................................................
....................
$ 39.0
$ 39.0
$ —
$ —
January 1, 2011:
Derivative assets ................................................................
.........................
$ 55.0
$ —
$ 55.0
$ —
Derivatives liabilities ................................................................
..................
$ 115.7
$ —
$ 115.7
$ —
Money market fund ................................................................
....................
$ 716.7
$ 716.7
$ —
$ —
At December 31, 2011 there were no assets and liabilities that were measured at fair value on a non-recurring basis.
A summary of the Company’s financial instruments carrying and fair values at December 31, 2011 and January 1, 2011 follows. Refer
to Note I, Derivative Financial Instruments, for more details regarding derivative financial instruments, and Note H, Long-Term Debt
and Financing Arrangements, for more information regarding carrying values of the long-term debt shown below.
2011
2010
(millions of dollars)
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Long-term debt, including current portion
$ 3,452.2 $ 3,623.4 $ 3,434.2
$ 3,607.1
Derivative assets
$ 142.5 $ 142.5 $ 55.0
$ 55.0
Derivative liabilities
$ 181.7 $ 181.7 $ 115.7
$ 115.7
The fair values of long-term debt instruments are estimated using a discounted cash flow analysis using the Company’s marginal
borrowing rates. The fair values of foreign currency and interest rate swap agreements, comprising the derivative assets and liabilities
in the table above, are based on current settlement values.
As discussed in Note B, Accounts and Notes Receivable, the Company has a deferred purchase price receivable related to sales of
trade receivables. The deferred purchase price receivable will be repaid in cash as receivables are collected, generally within 30 days,
and as such the carrying value of the receivable approximates fair value.
N. OTHER COSTS AND EXPENSES
Other-net is primarily comprised of intangible asset amortization expense (See Note F Goodwill and Intangible Assets for further
discussion), currency related gains or losses, environmental expense and merger and acquisition-related charges primarily consisting
of transaction costs, partially offset by pension curtailments and settlements. During the years ended December 31, 2011 and
January 1, 2011, Other-net included $51.2 million and $36.3 million in merger and acquisition related costs, respectively.
Research and development costs, which are classified in SG&A, were $147.2 million, $131.4 million and $18.3 million for fiscal
years 2011, 2010 and 2009, respectively.