Black & Decker 2014 Annual Report Download - page 53

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each of these lines of insurance, the maximum self insured retention is set at no more than $5 million per occurrence. The
process of establishing risk insurance reserves includes consideration of actuarial valuations that reflect the Company’s specific
loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves
required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for
development of these claims, as well as for incurred but not yet reported claims discounted to present value. The cash outflows
related to risk insurance claims are expected to occur over a period of approximately 13 years. The Company believes the
liabilities recorded for these U.S. risk insurance reserves, totaling $102 million and $105 million as of January 3, 2015, and
December 28, 2013, 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 $110 million reserve for expected warranty
claims as of January 3, 2015 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 certain locations, including one of its
major distribution centers, as well as certain U.S. personal property, predominantly 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 $1 million of rent expense recognized in fiscal 2014. As of January 3, 2015 the estimated fair value of assets
and remaining obligations for these properties were $39 million and $34 million, respectively.