Black & Decker 2010 Annual Report Download - page 25

on the Company’s businesses, including: insolvency of key suppliers resulting in product delays; inability of
customers to obtain credit to finance purchases of the Company’s products and/or customer insolvencies; and
failure of derivative counterparties and other financial institutions negatively impacting the Company’s treasury
operations.
The Company is exposed to market risk from changes in foreign currency exchange rates which could
negatively impact profitability.
The Company manufactures and sell its products in many countries throughout the world. As a result, there is
exposure to foreign currency risk as the Company enters into transactions and makes investments denominated
in multiple currencies. The Company’s predominant exposures are in European, Canadian, British, and Asian
currencies, including the Chinese Renminbi (“RMB”). In preparing its financial statements, for foreign
operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at
current exchange rates, and income and expenses are translated using weighted-average exchange rates. With
respect to the effects on translated earnings, if the U.S. dollar strengthens relative to local currencies, the
Company’s earnings could be negatively impacted. In 2010, foreign currency translation positively impacted
earnings by $0.04 per diluted share. The translation impact has been more material in the past and may be
more material in the future. Although the Company utilizes risk management tools, including hedging, as it
deems appropriate, to mitigate a portion of potential market fluctuations in foreign currencies, there can be no
assurance that such measures will result in all market fluctuation exposure being eliminated. The Company
does not make a practice of hedging its non-U.S. dollar earnings.
The Company sources many products from China and other Asian low-cost countries for resale in other
regions. To the extent the RMB or other currencies appreciate with respect to the U.S. dollar, the Company
may experience cost increases on such purchases. The Company may not be successful at implementing
customer pricing or other actions in an effort to mitigate the related cost increases and thus its profitability
may be adversely impacted.
The Company’s business is subject to risks associated with sourcing and manufacturing overseas.
The Company imports large quantities of finished goods, component parts and raw materials. Substantially all
of its import operations are subject to customs requirements and to tariffs and quotas set by governments
through mutual agreements, bilateral actions or, in some cases unilateral action. In addition, the countries in
which the Company’s products and materials are manufactured or imported may from time to time impose
additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on manufacturing
operations) or adversely modify existing restrictions. Imports are also subject to unpredictable foreign currency
variation which may increase the Company’s cost of goods sold. Adverse changes in these import costs and
restrictions, or the Company’s suppliers’ failure to comply with customs regulations or similar laws, could
harm the Company’s business.
The Company’s operations are also subject to the effects of international trade agreements and regulations such
as the North American Free Trade Agreement, and the activities and regulations of the World Trade
Organization. Although these trade agreements generally have positive effects on trade liberalization, sourcing
flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products
manufactured in a particular country, trade agreements can also impose requirements that adversely affect the
Company’s business, such as setting quotas on products that may be imported from a particular country into
key markets including the U.S. or the European Union, or making it easier for other companies to compete, by
eliminating restrictions on products from countries where the Company’s competitors source products.
The Company’s ability to import products in a timely and cost-effective manner may also be affected by
conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and
shipping capacity, labor disputes, severe weather or increased homeland security requirements in the U.S. and
other countries. These issues could delay importation of products or require the Company to locate alternative
ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on
12