Black & Decker 2015 Annual Report Download - page 47

33
(f) This amount principally represents contributions either required by regulations or laws or, with respect to unfunded
plans, necessary to fund current benefits. The Company has not presented estimated pension and post-retirement
funding beyond 2016 as funding can vary significantly from year to year based upon changes in the fair value of the
plan assets, actuarial assumptions, and curtailment/settlement actions.
(g) These amounts represent future contract adjustment payments to holders of the Company's Equity Purchase Contracts.
See Note H, Long-Term Debt and Financing Arrangements for further discussion.
To the extent the Company can reliably determine when payments will occur pertaining to unrecognized tax liabilities, the
related amount will be included in the table above. However, due to the high degree of uncertainty regarding the timing of
potential future cash flows associated with the $343.9 million of such liabilities at January 2, 2016, the Company is unable to
make a reliable estimate of when (if at all) amounts may be paid to the respective taxing authorities.
Aside from debt payments, for which there is no tax benefit associated with repayment of principal, tax obligations and the equity
purchase contract fees, payment of the above contractual obligations will typically generate a cash tax benefit such that the net
cash outflow will be lower than the gross amounts summarized above.
Other Significant Commercial Commitments:
Amount of Commitment Expirations Per Period
(Millions of Dollars) Total 2016 2017-2018 2019-2020 Thereafter
U.S. lines of credit............................................... $ 1,750 $ — $ — $ 1,750 $ —
Short-term borrowings, long-term debt and lines of credit are explained in detail within Note H, Long-Term Debt and Financing
Arrangements.
MARKET RISK
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments,
currencies, commodities and other items traded in global markets. The Company is exposed to market risk from changes in
foreign currency exchange rates, interest rates, stock prices, bond prices and commodity prices, amongst others.
Exposure to foreign currency risk results because the Company, through its global businesses, enters into transactions and
makes investments denominated in multiple currencies. The Company’s predominant currency exposures are related to the
Euro, Canadian Dollar, British Pound, Australian Dollar, Brazilian Real, Argentine Peso, the Chinese Renminbi (“RMB”) and
the Taiwan Dollar. Certain cross-currency trade flows arising from sales and procurement activities, as well as affiliate cross-
border activity, are consolidated and netted prior to obtaining risk protection through the use of various derivative financial
instruments which may include: purchased basket options, purchased options, collars, cross currency swaps and currency
forwards. The Company is thus able to capitalize on its global positioning by taking advantage of naturally offsetting exposures
and portfolio efficiencies to reduce the cost of purchasing derivative protection. At times, the Company also enters into forward
exchange contracts and purchases options to reduce the earnings and cash flow impact of non-functional currency denominated
receivables and payables, primarily for affiliate transactions. Gains and losses from these hedging instruments offset the gains
or losses on the underlying net exposures (the assets and liabilities being hedged). Management determines the nature and
extent of currency hedging activities, and in certain cases, may elect to allow certain currency exposures to remain un-hedged.
The Company may also enter into cross-currency swaps and forward contracts to hedge the net investments in certain
subsidiaries and better match the cash flows of operations to debt service requirements. Management estimates the foreign
currency impact from its derivative financial instruments outstanding at the end of 2015 would have been approximately
$27 million pre-tax loss based on a hypothetical 10% adverse movement in all net derivative currency positions; this effect
would occur from the strengthening of foreign currencies relative to the U.S. dollar. The Company follows risk management
policies in executing derivative financial instrument transactions, and does not use such instruments for speculative purposes.
The Company generally does not hedge the translation of its non-U.S. dollar earnings in foreign subsidiaries, but may choose to
do so in certain instances.
As mentioned above, the Company routinely has cross-border trade and affiliate flows that cause an impact on earnings from
foreign exchange rate movements. The Company is also exposed to currency fluctuation volatility from the translation of
foreign earnings into U.S. dollars and the economic impact of foreign currency volatility on monetary assets held in foreign
currencies. It is more difficult to quantify the transactional effects from currency fluctuations than the translational effects.
Aside from the use of derivative instruments, which may be used to mitigate some of the exposure, transactional effects can
potentially be influenced by actions the Company may take. For example, if an exposure occurs from a European entity
sourcing product from a U.S. supplier it may be possible to change to a European supplier. Management estimates the