Black & Decker 2011 Annual Report Download - page 24

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• maintenance of a specified financial ratio. The Company has an interest coverage covenant that must be maintained to
permit continued access to its committed revolving credit facilities. The interest coverage ratio tested for covenant
compliance compares adjusted Earnings Before Interest, Taxes, Depreciation and Amortization to adjusted Interest
Expense (“adjusted EBITDA”/”adjusted Interest Expense”); such adjustments to interest or EBITDA include, but are not
limited to, removal of non-cash interest expense, certain restructuring and other merger and acquisition-related charges as
well as stock-based compensation expense. The ratio required for compliance is 3.5 EBITDA to 1.0 Interest Expense and
is computed quarterly, on a rolling twelve months (last twelve months) basis. Under this covenant definition, the interest
coverage ratio was approximately 14 times EBITDA or higher in each of the 2011 quarterly measurement periods.
Management does not believe it is reasonably likely the Company will breach this covenant. Failure to maintain this ratio
could adversely affect further access to liquidity.
Future instruments and agreements governing indebtedness may impose other restrictive conditions or covenants. Such covenants
could restrict the Company in the manner in which it conducts business and operations as well as in the pursuit of its growth and
repositioning strategies.
The Company is exposed to counterparty risk in its hedging arrangements.
From time to time the Company enters into arrangements with financial institutions to hedge exposure to fluctuations in currency and
interest rates, including forward contracts, options and swap agreements. The failure of one or more counterparties to the Company’s
hedging arrangements to fulfill their obligations could adversely affect the Company’s results of operations.
Tight capital and credit markets or the failure to maintain credit ratings could adversely affect the Company by limiting the
Company’s ability to borrow or otherwise access liquidity.
The Company’s growth plans are dependent on, among other things, the availability of funding to support corporate initiatives and
complete appropriate acquisitions and the ability to increase sales of existing product lines. While the Company has not encountered
financing difficulties to date, the capital and credit markets experienced extreme volatility and disruption in recent years. Market
conditions could make it more difficult for the Company to borrow or otherwise obtain the cash required for significant new corporate
initiatives and acquisitions. In addition, there could be a number of follow-on effects from such a credit crisis 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 services and/or customer insolvencies.
In addition, the major rating agencies regularly evaluate the Company for purposes of assigning credit ratings. The Company’s ability
to access the credit markets, and the cost of these borrowings, is affected by the strength of its credit ratings and current market
conditions. Failure to maintain credit ratings that are acceptable to investors may adversely affect the cost and other terms upon which
the Company is able to obtain financing, as well as access to the capital markets.
The failure to successfully continue to integrate the businesses of Stanley and Black & Decker in the expected time frame could
adversely affect the Company’s future results.
The success of the Merger continues to depend, in large part, on the ability of the Company to realize the anticipated benefits,
including cost savings, from combining the businesses of Stanley and Black & Decker. To realize these anticipated benefits, the
businesses of Stanley and Black & Decker must be successfully integrated. This integration is complex and time-consuming. The
failure to integrate successfully and to successfully manage the challenges presented by the integration process may result in the
combined company not achieving the anticipated benefits of the Merger.
Potential difficulties that may be encountered in the integration process include the following:
• the inability to continue successfully integrating the businesses of Stanley and Black & Decker in a manner that
permits the combined company to achieve the cost savings anticipated to result from the Merger;
• the inability to implement information technology system changes to get the combined businesses on common
platforms;
• complexities associated with managing the larger, more complex, combined business;
• performance shortfalls as a result of the diversion of management’s attention caused by the continued integration of the
companies’ operations.
Additionally, the Company has incurred, and will continue to incur substantial integration-related expenses resulting from the Merger
and other acquisitions. The Company anticipates incurring $242 million of such charges in 2012. While management believes this
estimate is reasonable, the amount of future integration expense is not certain and could result in the Company taking significant
additional charges against earnings in future periods.