Black & Decker 2011 Annual Report Download - page 23

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The Company generates approximately 28% of its revenues from Europe (which increases to 31% on a pro-forma basis with the full
year impact of the Niscayah acquisition). Each of the Company’s segments generate sales from the European marketplace, with the
sales activity being somewhat concentrated within France, the Nordic region, Germany and the UK. While the Company believes any
downturn in the European marketplace would be offset to some degree by sales growth in emerging markets and stability in North
America, the Company’s future growth, profitability and financial liquidity could be affected, in several ways, including but not
limited to the following:
• depressed consumer and business confidence may decrease demand for our products and services;
• our customers may implement cost-reduction initiatives or delay purchases to address inventory levels;
• significant declines of foreign currency values in countries where the Company operates could impact both the revenue
growth and overall profitability in those geographies;
• a devaluation of or a break-up of the Euro could have an effect on the credit worthiness (as well as the availability of
funds) of customers impacting the collectability of receivables;
• a devaluation of or break of the Euro could have an adverse effect on the value of financial assets of the Company in the
effected countries;
• a slowdown in global merger and acquisition activity could limit the Company from expanding through acquisition;
• the impact of an event (individual country default or break up of the Euro) could have an adverse impact on the global
credit markets and global liquidity potentially impacting the Company’s ability to access the credit markets and to raise
capital.
The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact
profitability.
The Company manufactures and sells 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 2011, foreign currency translation positively impacted revenues by approximately $200 million and
diluted earnings per share by approximately $0.17. The translation impact will vary over time 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 has incurred, and may incur in the future, significant indebtedness, or issue additional equity securities, in
connection with mergers or acquisitions which may impact the manner in which it conducts business or the Company’s access to
external sources of liquidity. The potential issuance of such securities may limit the Company’s ability to implement elements of its
growth strategy and may have a dilutive effect on earnings.
As described in Note H, Long-Term Debt and Financing Arrangements, of the Notes to the Consolidated Financial Statements in
Item 8, the Company has a committed revolving credit agreement expiring in March 2015 supporting borrowings up to $1.2 billion.
Further, in connection with the Niscayah acquisition, the Company entered into a revolving credit agreement in July 2011 that will
expire in July 2012. This facility had $750 million capacity at December 2011. No amounts were outstanding against either facility at
December 31, 2011.
The instruments and agreements governing certain of the Company’s current indebtedness contain requirements or restrictive
covenants that include, among other things:
• a limitation on creating liens on certain property of the Company and its subsidiaries;
• a restriction on entering into certain sale-leaseback transactions;
• customary events of default. If an event of default occurs and is continuing, the Company might be required to repay all
amounts outstanding under the respective instrument or agreement; and