Black & Decker 2010 Annual Report Download - page 58

periodic benefit cost in the following year. The projected benefit obligation for defined benefit plans exceeded
the fair value of plan assets by $713 million at January 1, 2011. The Merger resulted in a significant increase
in defined benefit plan obligations and related expense. The primary Black & Decker U.S pension and post
employment benefit plans were curtailed in late 2010, as well as the only material Black & Decker
international plan, and the Company implemented defined contribution benefit plans. As of January 1, 2011,
83% of the projected benefit obligation pertains to plans that have been frozen; the remaining defined benefit
plans that are not frozen are predominantly small domestic union plans and those that are statutorily mandated
in certain international jurisdictions. The Company recognized $39 million of defined benefit plan expense in
2010, inclusive of $20 million in net curtailment/ settlement gains; management expects the expense for these
plans will decrease by approximately $10 million in 2011.
ENVIRONMENTAL — The Company incurs costs related to environmental issues as a result of various laws
and regulations governing current operations as well as the remediation of previously contaminated sites.
Future laws and regulations are expected to be increasingly stringent and will likely increase the Company’s
expenditures related to routine environmental matters.
The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when
it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The
amount of liability recorded is based on an evaluation of currently available facts with respect to each
individual site and includes such factors as existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any
claims for recoveries from insurance or third parties. As assessments and remediation progress at individual
sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal
information that becomes available.
As of January 1, 2011, the Company had reserves of $173 million for remediation activities associated with
Company-owned properties as well as for Superfund sites, for losses that are probable and estimable. The
Merger resulted in a significant increase in environmental reserves and related expense. The range of
environmental remediation costs that is reasonably possible is $157 million to $349 million which is subject to
change in the near term. The Company may be liable for environmental remediation of sites it no longer owns.
Liabilities have been recorded on those sites in accordance with this policy.
INCOME TAXES — Income taxes are accounted for in accordance with ASC 740, Accounting for Income
Taxes, which requires that deferred tax assets and liabilities be recognized, using enacted tax rates, for the
effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax
assets, including net operating losses, are reduced by a valuation allowance if it is “more likely than not” that
some portion or all of the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the
feasibility of ongoing tax planning strategies, the realizability of tax loss carry-forwards and the future reversal
of existing temporary differences. Valuation allowances related to deferred tax assets can be impacted by
changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company
were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future,
the unrealizable amount would be charged to earnings in the period in which that determination is made. By
contrast, if the Company were to determine that it would be able to realize deferred tax assets in the future in
excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable
adjustment to earnings in the period in which that determination is made.
The company is subject to tax in a number of locations, including many state and foreign jurisdictions.
Significant judgment is required when calculating our worldwide provision for income taxes. We consider
many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic
adjustments and which may not accurately anticipate actual outcomes. It is reasonably possible that the amount
of the unrecognized benefit with respect to certain of our unrecognized tax positions will significantly increase
or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits or
final decisions in transfer pricing matters. The Company periodically assesses its liabilities and contingencies
for all tax years still under audit based on the most current available information, which involves inherent
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