Black & Decker 2015 Annual Report Download - page 104

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EXPECTED FUTURE BENEFIT PAYMENTS — Benefit payments, inclusive of amounts attributable to estimated future
employee service, are expected to be paid as follows over the next 10 years:
(Millions of Dollars) Total Year 1 Year 2 Year 3 Year 4 Year 5 Years 6-10
Future payments........................... $ 1,567.9 $ 152.0 $ 196.1 $ 149.9 $ 148.2 $ 150.6 $ 771.1
These benefit payments will be funded through a combination of existing plan assets and amounts to be contributed in the
future by the Company.
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 7.1% for 2016, 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 2, 2016 by approximately $1.8 million to $2.0 million, and would have an immaterial effect on
the net periodic post-retirement benefit cost.
M. FAIR VALUE MEASUREMENTS
FASB ASC 820, "Fair Value Measurement," 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 observable 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
January 2, 2016:
Money market fund........................................................................................ $ 7.0 $ 7.0 $ —
Derivative assets............................................................................................. $ 79.3 $ — $ 79.3
Derivative liabilities....................................................................................... $ 96.1 $ — $ 96.1
January 3, 2015:
Money market fund........................................................................................ $ 9.9 $ 9.9 $ —
Derivative assets............................................................................................. $ 144.2 $ — $ 144.2
Derivative liabilities....................................................................................... $ 148.4 $ — $ 148.4
As discussed in Note T, Discontinued Operations, the Company recorded a pre-tax impairment loss of $60.7 million in the
fourth quarter of 2014 in order to measure the Security segment's Spain and Italy operations at their estimated fair values less
cost to sell. The estimated fair values were determined using Level 3 inputs, including relevant market information as well as a
discounted cash flow analysis based on estimated projections.
The Company had no other significant non-recurring fair value measurements, nor any financial assets or liabilities measured
using Level 3 inputs, during 2015 and 2014.