Black & Decker 2012 Annual Report Download - page 25

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Uncertainty about the financial stability of several countries in the European Union (EU), the risk that those countries may
default on their sovereign debt and related stresses on the European economy could have a significant adverse effect on the
Company's business, results of operations and financial condition.
In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt
in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these EU “peripheral nations” to
continue to service their sovereign debt obligations. These conditions impacted financial markets and resulted in high and
volatile bond yields on the sovereign debt of many EU nations. The financial stress experienced by the peripheral nations has
decreased, and yields on government-issued bonds and their associated volatilities have come off their recent highs. Despite
these improving signs and the extraordinary measures taken by the ECB, through the European Financial Stability Facility,
worries about sovereign finances and their potential contagion effect over other economies in the region persist.
Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery,
sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions. Market and
economic disruptions have affected, and may continue to affect, consumer confidence levels and spending, personal bankruptcy
rates, levels of incurrence and default on consumer debt and home prices, among other factors. There can be no assurance that
the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will
not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be
sufficient to stabilize the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the
economic recovery continues to negatively impact consumer confidence and consumer credit factors, the Company's business
and results of operations could be significantly and adversely affected.
The Company generates approximately 27% of its revenues from Europe. 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 relative 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 products and services;
• 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;
• 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 these 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, Asian and Latin America 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 2012, foreign currency fluctuations negatively
impacted revenues by approximately $270 million and diluted earnings per share by approximately $0.10. 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, 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.