In the last ten quarters, the biggest warranty acquisition adjustment of all was reported by Associated Materials LLC. In its annual report for 2010, the company detailed how it merged with Carey Acquisition Corp. and how its warranty reserve grew in size by $58 million because of that merger. On October 12, 2010, the company had a warranty reserve fund balance of $35.15 million. The next day, once the merger was completed, that balance had jumped to $93.39 million. By the end of the year, it had grown to $94.71 million, thanks to an excess of accruals over claims.

Stanley Black & Decker

The second-largest warranty acquisition of the past two-and-a-half years was the merger of Black & Decker Corp. and The Stanley Works into an entity now called Stanley Black & Decker Inc. The merger was completed on March 12, 2010. It was first reflected in the books during the financial report covering the first quarter of 2010, when the new parent company added $51.5 million to its warranty reserve fund to reflect a "liability assumed in the merger."

Black & Decker, meanwhile, filed its last annual report for the calendar year 2009, and never filed a separate financial report covering the first quarter of 2010. Its final annual report listed a year-end 2009 warranty reserve fund balance of $50.7 million -- slightly less than the fund evidently held ten weeks later on March 12.

One need only glance at the chart below to see what happened after the companies merged. For years, Stanley Works' warranty expenses were tightly bound in a range between 0.5% and 0.6% of revenue. But then beginning in 2010, the claims and accrual rates rose, eventually topping one percent for the first time.

Pulte Homes Inc. acquired Centex Corp. in August 2009. And in its financial report for the quarter ended September 30, 2009, the newly-renamed PulteGroup Inc. reported a $42.4 million increase in its warranty reserves due to the acquisition. That turned out to be the third-largest warranty acquisition adjustment seen in the past ten quarters.

Energy Conversion Devices Inc. acquired Solar Integrated Technologies Inc. on August 19, 2009. In its financial report for the quarter ended December 31, 2009, the company added a liability of $38.5 million to its warranty reserve fund due to the merger. And that turned out to be the fourth-largest warranty acquisition for the past ten quarters.

Scooping Up Nortel

The fifth-largest warranty acquisition was of Nortel�s Metro Ethernet Networks business by Ciena Corp. Ciena bought the optical networking and Ethernet assets of the Nortel unit in a transaction that was completed on March 19, 2010. In the financial report for the quarterly period ended April 30, 2010, Ciena added $26 million to its warranty reserve fund due to the acquisition.

Ciena's warranty reserve balance grew from $40.2 million in October 2009 to $64.7 million in April 2010. But that also includes an adjustment that reduced the company's warranty liability by $3.3 million, which removed an excess of warranty accruals that the company said was caused by an error in the methodology used to compute the annual failure rate. And, of course, it includes all the routine claims paid and accruals made during the period.

In recent years, Terex Corp. has made numerous acquisitions. It acquired the construction equipment company A.S.V. Inc. on February 26, 2008. It acquired the Port Equipment Business from Fantuzzi Industries S.à.r.l on July 23, 2009. Among the $512 million in liabilities assumed in that deal were an additional $24.2 million in warranty liabilities, detailed in the financial report for the quarter ended September 30, 2009.

Danaher Corp. made its top ten acquisition just a few months ago. On June 30, 2011, Danaher acquired all the outstanding shares of common stock of medical test equipment maker Beckman Coulter Inc. And that transaction closed just in time to be included in the financial report for the quarterly period ended July 1, 2011. The company said its warranty reserve fund balance grew from $130.1 million to $152.2 million after accounting for the acquisition plus a slight excess of accruals over claims.

Small Appliance Acquisition

Helen of Troy Ltd., in its annual reports for the fiscal year ending February 28, 2011, reported what turns out to be the eighth-largest warranty liability acquisition since 2009. It acquired portable heater/humidifier manufacturer Kaz Inc. on December 31, 2010, and reported an increased warranty liability of $20.6 million in conjunction with that deal.

And although Helen of Troy's regular claims exceeded accruals during the fiscal year, and therefore somewhat reduced the reserve fund balance, this acquisition helped drive up the company's combined warranty reserve fund balance from $5.2 million at the beginning of the year to $24 million by the end of the year.

Westinghouse Air Brake Technologies Corp., also known as Wabtec, reported an acquisition-related increase of $13.4 million in its warranty reserves during the first quarter of 2011. That and a slight excess of accruals over claims helped boost its warranty reserve balance from $35.5 million at the end of December 2010 to $50.6 million at the end of March 2011.

Wabtec has made numerous railroad equipment-related acquisitions in recent years. It acquired the Brush Traction Group in February 2011, assuming $59.6 million in assets and $28.6 million in liabilities as part of the deal. This is the transaction most likely to be responsible for the boost in warranty liabilities. Acquisitions reported in 2010 include Swiger Coil Systems; the Bach-Simpson Corp.; G&B Specialties Inc.; and Xorail LLC. But together they boosted warranty liabilities by only a net $215,000.

Agilent Buys Varian

Our final top ten deal maker is Agilent Technologies Inc. The company, itself an HP spin-off formed in 1999, completed its acquisition of scientific instrument maker Varian Inc. on May 14, 2010. Coincidentally, Agilent completed the sale of its Network Solutions Division to JDS Uniphase Corp. two weeks before, on May 1.

In its financial report for the fiscal quarter ended July 31, 2010, Agilent announced the addition of a net $13.0 million in warranty liabilities to its warranty reserve. We don't know how much of that was due to Varian arriving as opposed to the JDS Uniphase sale. But JDS Uniphase never reported any boost in its warranty reserve balance caused by that acquisition. And Varian Inc. had $13.1 million in its warranty reserve as of April 2, 2010. So it's likely to be mostly or entirely caused by the Varian deal.

At the other extreme, companies are constantly selling off divisions, lines of business, brand names, and subsidiaries. If these business units issued product warranties, chances are that the divestiture includes some amount of transferred warranty liabilities.

Most times, it's the entire company that's acquired. That's why we found 189 acquisitions, but only 40 divestitures. Most of the difference, we believe, is accounted for by companies swallowed whole by their acquirer. Rather than report a 100% divestiture of their warranty reserves, most of the completely acquired companies simply cease reporting, and drop off our list.

Buying Entire Companies

So far in 2011, some of the bigger acquisitions have included Beckman Coulter Inc. and Bucyrus International Inc. We already noted Danaher's acquisition of Beckman Coulter above. In contrast, Bucyrus has yet to show up as a warranty liability acquisition on the books of its buyer, Caterpillar Inc. In fact, it may never show up. Caterpillar rarely makes any kind of adjustments to its warranty accounts -- not even for foreign currency fluctuations.

In total, we recorded 18 "complete" acquisitions in 2010. Some of the largest deals included 3Com Corp.; Baldor Electric Co.; CommScope Inc.; CPI International Inc.; Goodman Global Inc.; Palm Inc.; and the aforementioned Varian Inc. 3Com and Palm went to HP. Baldor went to the French firm ABB. CommScope, CPI and Goodman went private.

We recorded 27 "complete" acquisitions in 2009. Some of the largest of those deals included Black & Decker Corp.; Building Materials Corp. of America; Centex Corp.; Fleetwood Enterprises Inc.; Nortel Networks Corp.; and Sun Microsystems Inc.

Black & Decker, Centex, and Nortel were discussed above. Building Materials Corp. of America was acquired by GAF, which is privately-held. Fleetwood Enterprises was liquidated after going bankrupt. And Sun Microsystems was acquired by Oracle Corp., which has yet to begin reporting its warranty expenses.

Selling Small Units

And then there are the companies that sold only a part of themselves to another company. General Motors Co. leads this list of warranty divestitures, reducing its warranty reserve fund balance by $77 million in August 2009 to reflect the sale of its Saab business unit.