Black & Decker 2012 Annual Report Download - page 26

12
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 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 and a $1.0 billion 364 day committed credit facility expiring in July 2013. No amounts were outstanding against these
facilities at December 29, 2012.
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
• 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 2012 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.