Black & Decker 2010 Annual Report Download - page 56

obligations. In these cases, management uses its judgment, based on the surrounding facts and circumstances,
to record a specific reserve for those customers against amounts due to reduce the receivable to the amount
expected to be collected. These specific reserves are reevaluated and adjusted as additional information is
received. Second, a reserve is determined for all customers based on a range of percentages applied to
receivable aging categories. These percentages are based on historical collection and write-off experience.
If circumstances change, for example, due to the occurrence of higher than expected defaults or a significant
adverse change in a major customer’s ability to meet its financial obligation to the Company, estimates of the
recoverability of receivable amounts due could be reduced.
INVENTORIES — LOWER OF COST OR MARKET, SLOW MOVING AND OBSOLETE — Inventories in
the U.S. are predominantly valued at the lower of LIFO cost or market, while non-U.S. inventories are valued
at the lower of FIFO cost or market. The calculation of LIFO reserves, and therefore the net inventory
valuation, is affected by inflation and deflation in inventory components. The Company ensures all inventory
is valued at the lower of cost or market, and continually reviews the carrying value of discontinued product
lines and stock-keeping-units (“SKUs”) to determine that these items are properly valued. The Company also
continually evaluates the composition of its inventory and identifies obsolete and/or slow-moving inventories.
Inventory items identified as obsolete and/or slow-moving are evaluated to determine if write-downs are
required. The Company assesses the ability to dispose of these inventories at a price greater than cost. If it is
determined that cost is less than market value, cost is used for inventory valuation. If market value is less than
cost, the Company writes down the related inventory to that value. If a write down to the current market value
is necessary, the market value cannot be greater than the net realizable value, or ceiling (defined as selling
price less costs to sell and dispose), and cannot be lower than the net realizable value less a normal profit
margin, also called the floor. If the Company is not able to achieve its expectations regarding net realizable
value of inventory at its current value, further write-downs would be recorded.
PROPERTY, PLANT AND EQUIPMENT — The Company generally values Property, Plant and Equipment
(“PP&E”) at historical cost less accumulated depreciation. Impairment losses are recorded when indicators of
impairment, such as plant closures, are present and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amount. The impairment loss is quantified by comparing the carrying
amount of the assets to the weighted average discounted cash flows, which consider various possible outcomes
for the disposition of the assets (i.e. sale, leasing, etc.). Primarily as a result of plant rationalization, certain
facilities and equipment are not currently used in operations. The Company recorded $24 million in asset
impairment losses in 2010 primarily as a result of restructuring initiatives, and such losses may occur in the
future.
GOODWILL AND INTANGIBLE ASSETS — The Company acquires businesses in purchase transactions that
result in the recognition of goodwill and other intangible assets. The determination of the value of intangible
assets requires management to make estimates and assumptions. In accordance with Accounting Standards
Codification (“ASC”) 350-20 “Goodwill” acquired goodwill and indefinite-lived intangible assets are not
amortized but are subject to impairment testing at least annually and when an event occurs or circumstances
change that indicate it is more likely than not an impairment exists. Other intangible assets are amortized and
are tested for impairment when appropriate. The Company completed the Merger and acquisitions in 2010 and
2009 valued at $5.2 billion and $24 million, respectively. The assets and liabilities of acquired businesses are
recorded at fair value at the date of acquisition. Goodwill represents costs in excess of fair values assigned to
the underlying net assets of acquired businesses. The Company reported $5.942 billion of goodwill and
$1.652 billion of indefinite-lived trade names at January 1, 2011.
In accordance with ASC 350-20, management tests goodwill for impairment at the reporting unit level. A
reporting unit is a reportable operating segment as defined in ASC 280, “Segment Reporting,” or one level
below a reportable operating segment (component level) as determined by the availability of discrete financial
information that is regularly reviewed by operating segment management or an aggregate of component levels
of a reportable operating segment having similar economic characteristics. As a result of organization structure
simplification effective in the beginning of fiscal 2010, the Company modified the number of reporting units
from seven (pre-merger) to six. If the carrying value of a reporting unit (including the value of goodwill) is
43