Fair Value Measurements

3 Months Ended

Apr. 01, 2017

Notes To Financial Statements [Abstract]

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 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 values of these financial instruments through the use of matrix or model pricing, which utilizes observable inputs such as market interest and currency rates. When determining the fair values 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		Level 1		Level 2		Level 3
April 1, 2017
Money market fund	$	4.3	$	4.3	$	—	$	—
Derivative assets	$	39.9	$	—	$	39.9	$	—
Derivative and non-derivative liabilities	$	1,031.5	$	—	$	1,031.5	$	—
Contingent consideration liability	$	84.0	$	—	$	—	$	84.0
December 31, 2016
Money market fund	$	4.3	$	4.3	$	—	$	—
Derivative assets	$	110.2	$	—	$	110.2	$	—
Derivative liabilities	$	97.6	$	—	$	97.6	$	—

The following table presents the carrying values and fair values of the Company's financial assets and liabilities, as well as the Company's debt, as of April 1, 2017 and December 31, 2016:



	April 1, 2017				December 31, 2016
(Millions of Dollars)	Carrying Value		Fair Value		Carrying Value		Fair Value
Other investments	$	8.9	$	9.2	$	8.9	$	9.2
Derivative assets	$	39.9	$	39.9	$	110.2	$	110.2
Derivative and non-derivative liabilities	$	1,031.5	$	1,031.5	$	97.6	$	97.6
Long-term debt, including current portion	$	3,823.7	$	3,991.4	$	3,823.1	$	3,967.4

As discussed in Note F, Acquisitions, the Company recorded a contingent consideration liability in the first quarter of 2017 relating to the Craftsman brand acquisition representing the Company's obligation to make future payments to Sears Holdings of between 2.5% and 3.5% on new Stanley Black & Decker sales of Craftsman products through March 2032. The estimated fair value of this liability is $84.0 million at April 1, 2017. The fair value was estimated using Level 3 inputs, including the contractual royalty rates and future sales projections. There was no change in the fair value of the contingent consideration from the date of acquisition through April 1, 2017.

The Company had no other significant non-recurring fair value measurements, nor any financial assets measured using Level 3 inputs, during the first three months of 2017 or 2016.

The money market fund and other investments outlined in the tables above relate to the West Coast Loading Corporation ("WCLC") trust and are considered Level 1 instruments within the fair value hierarchy. The long-term debt instruments are considered Level 2 instruments and are measured using the stated cash flows in each obligation discounted at the Company’s marginal borrowing rates. The differences between the carrying values and fair values of long-term debt are attributable to the stated interest rates differing from the Company's marginal borrowing rates. The fair values of the Company's variable rate short-term borrowings approximate their carrying values at April 1, 2017 and December 31, 2016. 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 D, Financing Receivables, 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.

Refer to Note I, Financial Instruments, for more details regarding financial instruments, Note R, Commitments and Contingencies, for more details regarding the other investments related to the WCLC trust, and Note H, Long-Term Debt and Financing Arrangements, for more information regarding the carrying values of the long-term debt.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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