Black & Decker 2012 Annual Report Download - page 72

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PROPERTY, PLANT AND EQUIPMENT — The Company generally values property, plant and equipment (“PP&E”),
including capitalized software, at historical cost less accumulated depreciation and amortization. Costs related to maintenance
and repairs which do not prolong the asset's useful life are 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 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 2012, 2011 or 2010.
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