Black & Decker 2015 Annual Report Download - page 50

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During the fourth quarter of 2015, in connection with its quarterly forecasting cycle, the Company updated the forecasted
operating results for each of its businesses based on the most recent financial results and best estimates of future operations.
The updated forecasts reflected an expected decline in near-term revenue growth and profitability for the Infrastructure
reporting unit within the Industrial segment, primarily due to ongoing difficult market conditions in the oil & gas industry,
particularly in certain markets such as China and Russia, as well as continued declines in scrap steel prices. Accordingly, in
connection with the preparation of the Consolidated Financial Statements for the year ended January 2, 2016, the Company
performed an updated impairment analysis with respect to the Infrastructure reporting unit, which included approximately $273
million of goodwill at year-end. Based on this analysis, which included revised assumptions of near-term revenue growth and
profitability levels, it was determined that the fair value of the Infrastructure reporting unit exceeded its carrying value by 13%.
Therefore, management concluded it was not more-likely-than-not that an impairment had occurred. Management is confident
in the long-term viability and success of the Infrastructure reporting unit based on the strong long-term growth prospects of the
markets and geographies served, the intensified focus and investments being made in organic growth initiatives (bolstered by
the recently implemented SFS 2.0 program), and Infrastructure's leading market position in its respective industries.
In the event that future operating results of any of the Company's reporting units do not meet current expectations,
management, based upon conditions at the time, would consider taking restructuring or other actions as necessary to maximize
revenue growth and profitability. Accordingly, the above sensitivity analyses, while useful, should not be used as a sole
predictor of potential impairment. A thorough analysis of all the facts and circumstances existing at that time would need to be
performed to determine if recording an impairment loss would be appropriate.
DEFINED BENEFIT OBLIGATIONS — The valuation of pension and other postretirement benefits costs and obligations is
dependent on various assumptions. These assumptions, which are updated annually, include discount rates, expected return on
plan assets, future salary increase rates, and health care cost trend rates. The Company considers current market conditions,
including interest rates, to establish these assumptions. Discount rates are developed considering the yields available on high-
quality fixed income investments with maturities corresponding to the duration of the related benefit obligations. The
Company’s weighted-average discount rates for the United States and international pension plans were 4.25% and 3.25%,
respectively, at January 2, 2016. The Company’s weighted-average discount rate for the United States and international
pension plans was 3.75% and 3.25%, respectively at January 3, 2015. As discussed further in Note L, Employee Benefit Plans,
the Company develops the expected return on plan assets considering various factors, which include its targeted asset allocation
percentages, historic returns, and expected future returns. The Company’s expected rate of return assumptions for the United
States and international pension plans were 6.50% and 5.25%, respectively, at January 2, 2016. The Company will use a 5.60%
weighted-average expected rate of return assumption to determine the 2016 net periodic benefit cost. A 25 basis point reduction
in the expected rate of return assumption would increase 2016 net periodic benefit cost by approximately $5 million on a pre-
tax basis.
The Company believes that the assumptions used are appropriate; however, differences in actual experience or changes in the
assumptions may materially affect the Company’s financial position or results of operations. To the extent that actual (newly
measured) results differ from the actuarial assumptions, the difference is recognized in accumulated other comprehensive
income, and, if in excess of a specified corridor, amortized over future periods. The expected return on plan assets is
determined using the expected rate of return and the fair value of plan assets. Accordingly, market fluctuations in the fair value
of plan assets can affect the net periodic benefit cost in the following year. The projected benefit obligation for defined benefit
plans exceeded the fair value of plan assets by $692 million at January 2, 2016. A 25 basis point reduction in the discount rate
would have increased the projected benefit obligation by approximately $85 million at January 2, 2016. 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 in their place the Company implemented defined contribution benefit plans. The vast majority 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 $11 million of defined benefit plan expense in 2015, which may fluctuate in future years depending upon
various factors including future discount rates and actual returns on plan assets.
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 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