Black & Decker 2015 Annual Report Download - page 111

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The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities.
Tax years 2008 and 2009 have been settled with the Internal Revenue Service as of December 23, 2014 and tax years 2010, 2011,
and 2012 are currently under audit. The Company also files many state and foreign income tax returns in jurisdictions with varying
statutes of limitations. Tax years 2011 and forward generally remain subject to examination by most state tax authorities. In
significant foreign jurisdictions, tax years 2010 and forward generally remain subject to examination.
R. COMMITMENTS AND GUARANTEES
COMMITMENTS — The Company has non-cancelable operating lease agreements, principally related to facilities, vehicles,
machinery and equipment. Minimum payments have not been reduced by minimum sublease rentals of $1.6 million due in the
future under non-cancelable subleases. Rental expense, exclusive of sublease income, for operating leases was $121.5 million
in 2015, $135.9 million in 2014, and $146.2 million in 2013.
The following is a summary of the Company’s future commitments which span more than one future fiscal year:
(Millions of Dollars) Total 2016 2017 2018 2019 2020 Thereafter
Operating lease obligations............... $ 251.0 $ 73.0 $ 57.0 $ 41.0 $ 29.0 $ 22.0 $ 29.0
Marketing commitments ................... 69.5 26.9 26.5 8.8 4.5 2.8 —
Total................................................... $ 320.5 $ 99.9 $ 83.5 $ 49.8 $ 33.5 $ 24.8 $ 29.0
The Company has numerous assets, predominantly real estate, vehicles and equipment, under various lease arrangements. The
Company routinely exercises various lease renewal options and from time to time purchases leased assets for fair value at the
end of lease terms.
The Company is a party to synthetic leases for one of its major distribution centers and one of its office buildings. The
programs qualify as operating leases for accounting purposes, where only the monthly lease cost is recorded in earnings and the
liability and value of the underlying assets are off-balance sheet. As of January 2, 2016, the estimated fair value of assets and
remaining obligation for the properties were $39.5 million and $34.4 million, respectively.
GUARANTEES — The Company's financial guarantees at January 2, 2016 are as follows:
(Millions of Dollars) Term
Maximum
Potential
Payment
Carrying
Amount of
Liability
Guarantees on the residual values of leased properties....... One to four years $ 34.4 $ —
Standby letters of credit ...................................................... Up to three years 78.7 —
Commercial customer financing arrangements................... Up to six years 56.9 16.9
Total..................................................................................... $ 170.0 $ 16.9
The Company has guaranteed a portion of the residual value arising from its previously mentioned synthetic leases. The lease
guarantees aggregate $34.4 million while the fair value of the underlying assets is estimated at $39.5 million. The related assets
would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss
associated with these lease guarantees.
The Company has issued $78.7 million in standby letters of credit that guarantee future payments which may be required under
certain insurance programs.
The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and
Canadian Mac Tool distributors and franchisees for their initial purchase of the inventory and truck necessary to function as a
distributor and franchisee. In addition, the Company provides limited and full recourse guarantees to financial institutions that
extend credit to certain end retail customers of its U.S. Mac Tool distributors and franchisees. The gross amount guaranteed in
these arrangements is $56.9 million and the $16.9 million carrying value of the guarantees issued is recorded in debt and other
liabilities as appropriate in the Consolidated Balance Sheets.
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.