Black & Decker 2011 Annual Report Download - page 48

36
discounted to present value. The cash outflows related to risk insurance claims are expected to occur over a maximum of 13 years. The
Company believes the liabilities recorded for these U.S. risk insurance reserves, totaling $112 million and $106 million as of
December 31, 2011 and January 1, 2011, respectively, are adequate. Due to judgments inherent in the reserve estimation process it is
possible the ultimate costs will differ from this estimate.
WARRANTY — The Company provides product and service warranties which vary across its businesses. The types of warranties
offered generally range from one year to limited lifetime, while certain products carry no warranty. Further, the Company sometimes
incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim
experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information
becomes available. The Company believes the $129 million reserve for expected warranty claims as of December 31, 2011 is
adequate, but due to judgments inherent in the reserve estimation process, including forecasting future product reliability levels and
costs of repair as well as the estimated age of certain products submitted for claims, the ultimate claim costs may differ from the
recorded warranty liability. The Company also establishes a reserve for product recalls on a product-specific basis during the period in
which the circumstances giving rise to the recall become known and estimable for both company initiated actions and those required
by regulatory bodies.
OFF-BALANCE SHEET ARRANGEMENT
SYNTHETIC LEASES — The Company is a party to synthetic leasing programs for one of its major distribution centers and certain
U.S. personal property, predominately vehicles and equipment. The programs qualify as operating leases for accounting purposes,
such that only the monthly rent expense is recorded in the Statement of Operations and the liability and value of the underlying assets
are off-balance sheet.
These lease programs are utilized primarily to reduce overall cost and to retain flexibility. The cash outflows for lease payments
approximate the $6 million of rent expense recognized in fiscal 2011. As of December 31, 2011 the estimated fair value of assets and
remaining obligations for these properties were $36 million and $32 million, respectively.
CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements contained in this Annual Report on Form 10-K that are not historical, including but not limited to those regarding
the Company’s ability to: (i) meet its long term financial objectives including: 4-6% organic revenue growth; 10-12% total revenue
growth; mid-teens percentage EPS growth; free cash flow greater than or equal to net income; ROCE between 12-15%; continued
dividend growth; and a strong investment grade credit rating; (ii) meet its long term capital allocation objectives pertaining to free
cash flow including, investing approximately 2/3 in acquisitions and returning approximately 1/3 to shareowners as the Company
remains committed to dividend growth and opportunistic share buy backs; (iii) achieve approximately $80 million in cost synergies in
connection with the acquisition of Niscayah by the end of 2013; (iv) achieve a benefit of approximately $0.45 of earnings per diluted
share (excluding expected acquisition related charges of $60-$80 million) by 2014 as a result of the Niscayah acquisition; (v) achieve
$450 million ($485 million on an annualized basis) in cost synergies by the end of 2012 in connection with the integration of Black &
Decker which will help fuel future profit growth and facilitate global cost leadership; (vi) achieve $300 million to $400 million in
revenue synergies by 2013 resulting from the Merger, which implies a benefit of $0.35 to $0.50 of earnings per diluted share; and
(vii) generate full year 2012 diluted earnings per share in the range of $4.71 to $4.97; generate full year 2012 EPS in the range of
$5.75 to $6.00 per diluted share (excluding merger & acquisition related charges); and generate free cash flow for 2012 (excluding
merger & acquisition related charges and payments) of approximately $1.2 billion (collectively, the “Results”); are “forward looking
statements” and subject to risk and uncertainty.
These forward looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions
that are difficult to predict. There are a number of risks, uncertainties and important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements. In addition to any such risks, uncertainties and other factors
discussed elsewhere herein, the risks, uncertainties and other factors that could cause or contribute to actual results differing materially
from those expressed or implied in the forward looking statements include, without limitation, those set forth under Item 1A Risk
Factors hereto and any material changes thereto set forth in any subsequent Quarterly Reports on Form 10-Q, the Company’s other
filings with the Securities and Exchange Commission, and those set forth below.
The Company’s ability to deliver the Results is dependent, or based, upon: (i) the Company’s ability to effectively execute its
integration plans to identify and estimate key synergy drivers; achieve the cost and revenue synergies, capitalize on growth
opportunities and achieve the anticipated results of the Merger and the Niscayah acquisition; (ii) the Company’s success in driving
brand expansion, achieving increased access to global markets through established distribution channels and cross selling
opportunities; (iii) the ability of the Company to generate organic net sales increase of 1-2% on a pro forma basis (if Niscayah was
owned for the full year 2011); (iv) the Company’s ability to deliver on proactive cost containment actions; (v) the Company’s ability
to achieve a tax rate of approximately 22-23% in 2012, creating an ~$0.50 headwind compared to the 2011 rate of 14.0%; (vi) the