Black & Decker 2010 Annual Report Download - page 127

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.
Following is a summary of the warranty liability activity for the years ended January 1, 2011, January 2, 2010
and January 3, 2009:
(Millions of Dollars) 2010 2009 2008
Beginning balance .................................... $67.4 $65.6 $63.7
Warranties and guarantees issued ......................... 88.5 18.5 21.8
Liability assumed in the Merger.......................... 58.2 ——
Warranty payments ................................... (92.8) (21.0) (22.8)
Acquisitions and other ................................. (1.7) 4.3 2.9
Ending balance ...................................... $119.6 $67.4 $65.6
S. CONTINGENCIES
The Company is involved in various legal proceedings relating to environmental issues, employment, product
liability, workers’ compensation claims and other matters. The Company periodically reviews the status of
these proceedings with both inside and outside counsel, as well as an actuary for risk insurance. Management
believes that the ultimate disposition of these matters will not have a material adverse effect on operations or
financial condition taken as a whole.
In connection with the Merger, the Company assumed certain commitments and contingent liabilities. Black &
Decker was involved in lawsuits in the ordinary course of business, which primarily involve claims for
damages arising out of the use of Black & Decker’s products and allegations of patent and trademark
infringement. Black & Decker also was involved in litigation and administrative proceedings involving
employment matters, commercial disputes, and income tax matters. Some of these lawsuits include claims for
punitive as well as compensatory damages. Additionally, Black & Decker is a party to litigation and
administrative proceedings with respect to claims involving the discharge of hazardous substances into the
environment. Some of these assert claims for damages and liability for remedial investigations and clean-up
costs with respect to sites that have never been owned or operated by Black & Decker but at which Black &
Decker has been identified as a potentially responsible party. Other matters involve current and former
manufacturing facilities.
The Environmental Protection Agency (“EPA”) has provided an affiliate of Black & Decker a “Notice of
Potential Liability” related to environmental contamination found at the Centredale Manor Restoration Project
Superfund site, located in North Providence, Rhode Island. The EPA has discovered a variety of contaminants
at the site, including but not limited to, dioxins, polychlorinated biphenyls, and pesticides. The EPA alleged
that an affiliate of Black & Decker is liable for site clean-up costs under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (“CERCLA”) as a successor to the liability of Metro-
Atlantic, Inc., a former operator at the site, and demanded reimbursement of the EPA’s costs related to this
site. The EPA released a draft Feasibility Study Report in May 2010, which identified and evaluated possible
remedial alternatives for the site.
The estimated remediation costs related to this Centredale site (including the EPA’s past costs as well as costs
of additional investigation, remediation, and related costs such as EPA’s oversight costs, less escrowed funds
contributed by primary potentially responsible parties (PRPs) who have reached settlement agreements with
the EPA), which the Company considers to be probable and reasonably estimable, range from approximately
$68.3 million to $212.8 million, with no amount within that range representing a more likely outcome until
such time as the EPA completes its remedy selection process for the site. The Company’s reserve for this
environmental remediation matter of $68.3 million reflects the fact that the EPA considers Metro-Atlantic, Inc.
to be a primary source of contamination at the site. The Company has determined that it is likely to contest
the EPA’s claims with respect to this site. Further, to the extent that the Company agrees to perform or finance
additional remedial activities at this site, it intends to seek participation or contribution from additional PRPs
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