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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549
                    ...
PART I
ITEM 1. BUSINESS                                             mation	about	the	discontinued	European	security	
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accessories.	 Consumer	 portable	 power	 prod-                The	Corporation’s	product	service	program	sup-
             ...
The	materials	used	in	the	various	manufacturing	             For	additional	information	with	respect	to	these	
p
	 rocesse...
e
	 lectronic	keyless	entry	systems,	exit	devices,	key-            sold	outside	of 	the	United	States	for	residential	
   ...
of 	12	months	and	short	term	as	a	period	of 	time	           ture	products	that	are	competitive	with	a	number	
           ...
The	Corporation	owns	a	number	of 	United	States	           As	 of 	 December	 31,	 2006,	 the	 Corporation	
              ...
ment.	The	Corporation	is	engaged	in	continuing	               particular	 fiscal	 quarter	 or	 year,	 in	 the	 opinion	
ac...
(f) Executive Officers and                                  • LES H. IRELAND – 42
    Other Senior Officers               ...
• MARK M. ROTHLEITNER – 48                                • MICHAEL A. TYLL – 50
  Vice	President	–	Investor	Relations	and...
ITEM 1A. RISK FACTORS                                        i
                                                           ...
• The inability to generate sufficient cash flows           manufacturing	failures,	telephone	or	information	
            ...
sites	 that	 have	 never	 been	 owned	 or	 operated	         could	adversely	affect	our	results	of 	operations.	
         ...
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black&decker 10k06

  1. 1. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER December 31, 2006 1-1553 THE BLACK & DECKER CORPORATION (Exact name of registrant as specified in its charter) Maryland 52-0248090 (State of Incorporation) (I.R.S. Employer Identification Number) Towson, Maryland 21286 (Address of principal executive offices) (Zip Code) 410-716-3900 Registrant’s telephone number, including area code: Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $.50 per share New York Stock Exchange None Securities registered pursuant to Section 12(g) of the Act: Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in defini- tive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer X Accelerated filer Non-accelerated filer Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2006, was $6.18 billion. The number of shares of Common Stock outstanding as of January 26, 2007, was 65,600,202. The exhibit index as required by Item 601(a) of Regulation S-K is included in Item 15 of Part IV of this report. Documents Incorporated by Reference: Portions of the registrant’s definitive Proxy Statement for the 2007 Annual Meeting of Stockholders are incorporated by reference in Part III of this Report.
  2. 2. PART I ITEM 1. BUSINESS mation about the discontinued European security hardware business, see the discussion in Note 3 (a) General Development of Notes to Consolidated Financial Statements of Business included in Item 8 of Part II of this report. The Black & Decker Corporation (collectively with (b) Financial Information About its subsidiaries, the Corporation), incorporated in Business Segments M aryland in 1910, is a leading global manufacturer and marketer of power tools and accessories, The Corporation operates in three reportable hardware and home improvement products, and business segments: Power Tools and Accessories, technology-based fastening systems. With products including consumer and industrial power tools and services marketed in over 100 countries, the and accessories, lawn and garden tools, electric C orporation enjoys worldwide recognition of its cleaning, automotive, and lighting products, and strong brand names and a superior reputation for product service; Hardware and Home Improvement, quality, design, innovation, and value. including security hardware and plumbing products; and Fastening and Assembly Systems. For additional The Corporation is one of the world’s leading information about these segments, see Note 18 p roducers of power tools, power tool accesso- of Notes to Consolidated Financial Statements ries, and residential security hardware, and the included in Item 8 of Part II, and Management’s Corporation’s product lines hold leading market D iscussion and Analysis of Financial Condition share positions in these industries. The Corpora- and Results of Operations included in Item 7 of tion is also a major global supplier of engineered Part II of this report. fastening and assembly systems. The Corpora- tion is one of the leading producers of faucets (c) Narrative Description in North America. These assertions are based on of the Business total volume of sales of products compared to the total market for those products and are sup- The following is a brief description of each of the ported by market research studies sponsored by Corporation’s reportable business segments. the Corporation as well as independent industry POWER TOOLS AND ACCESSORIES s tatistics available through various trade organiza- tions and periodicals, internally generated market The Power Tools and Accessories segment has data, and other sources. worldwide responsibility for the manufacture and sale of consumer (home use) and industrial During the first quarter of 2006, the Corporation corded and cordless electric power tools and equip- acquired Vector Products, Inc. (Vector). The ad- ment, lawn and garden tools, consumer portable dition of Vector to the Corporation’s Power Tools power products, home products, accessories and and Accessories segment allows the Corporation attachments for power tools, and product service. to offer customers a broader range of products. In addition, the Power Tools and Accessories During the fourth quarter of 2004, the Corpora- segment has responsibility for the sale of security tion acquired the Porter-Cable and Delta Tools hardware to customers in Mexico, Central America, Group from Pentair, Inc. The Porter-Cable and the Caribbean, and South America; for the sale Delta Tools Group (also referred to herein as the of plumbing products to customers outside of “Tools Group”) included the Porter-Cable, Delta, the United States and Canada; and for sales of DeVilbiss Air Power Company, Oldham Saw, and household products, principally in Europe and FLEX businesses. The Corporation sold the FLEX Brazil. business in November 2005. Power tools and equipment include drills, screw- In November 2005, the Corporation completed drivers, impact wrenches and drivers, hammers, the sale of DOM security hardware. In January wet/dry vacuums, lights, radio/chargers, saws, 2004, the Corporation completed the sale of two grinders, band saws, plate joiners, jointers, lathes, European security hardware businesses, Corbin dust management systems, routers, planers, and NEMEF . The divested businesses are reflected sanders, benchtop and stationary machinery, air as discontinued operations in the Consolidated tools, building instruments, air compressors, gen- Financial Statements included in Item 8 of Part erators, laser products, jobsite security systems, II of this report, and as such, operating results, and WORKMATE® project centers and related assets and liabilities, and cash flows of the dis- products. Lawn and garden tools include hedge continued European security hardware business t rimmers, string trimmers, lawn mowers, edgers, have been reported separately from the continuing pruners, shears, shrubbers, blower/vacuums, power sprayers, pressure washers, and related operations of the Corporation. For additional infor- 1 BLACK & DECKER
  3. 3. accessories. Consumer portable power prod- The Corporation’s product service program sup- ports its power tools and lawn and garden tools. ucts include inverters, jump-starters, vehicle R eplacement parts and product repair services are battery chargers, rechargeable spotlights, and available through a network of company-operated other related products. Home products include s ervice centers, which are identified and listed in stick, canister and hand-held vacuums; flexible p roduct information material generally included in flashlights; and wet scrubbers. Power tool ac- product packaging. At December 31, 2006, there cessories include drill bits, hammer bits, router were approximately 125 such service centers, of bits, hacksaws and blades, circular saw blades, which roughly three-quarters were located in the jig and reciprocating saw blades, screwdriver United States. The remainder was located around bits and quick-change systems, bonded and the world, primarily in Canada and Asia. These other abrasives, and worksite tool belts and bags. c ompany-operated service centers are supple- P roduct service provides replacement parts and mented by several hundred authorized service repair and maintenance of power tools, equip- centers operated by independent local owners. ment, and lawn and garden tools. The Corporation also operates reconditioning Power tools, lawn and garden tools, portable c enters in which power tools, lawn and garden power products, home products, and acces- tools, and electric cleaning and lighting products sories are marketed around the world under are reconditioned and then re-sold through numer- the BLACK & DECKER name as well as other ous company-operated factory outlets and service trademarks, and trade names, including, with- c enters and various independent distributors. out limitation, BLACK & DECKER; ORANGE AND Most of the Corporation’s consumer power tools, BLACK COLOR SCHEME; POWERFUL SOLUTIONS; l awn and garden tools, and electric cleaning, FIRESTORM; GELMAX COMFORT GRIP; MOUSE; automotive, and lighting products sold in the BULLSEYE; PIVOT DRIVER; STORMSTATION; United States carry a two-year warranty, pursu- WORKMATE; BLACK & DECKER XT; VERSAPAK; ant to which the consumer can return defective SMARTDRIVER; QUANTUM PRO; CYCLONE; p roducts during the two years following the N AV I G ATO R ; D R AG S T E R ; S A N D S TO R M ; p urchase in exchange for a replacement product PROJECTMATE; PIVOTPLUS; QUICK CLAMP; or repair at no cost to the consumer. Most of SIGHT LINE; CROSSFIRE; CROSSHAIR; 360°; the Corporation’s industrial power tools sold in QUATTRO; DECORMATE; LASERCROSS; AUTO- the United States carry a one-year service war- WRENCH; SHOPMASTER BY DELTA; DEWALT; ranty and a three-year warranty for manufacturing YELLOW AND BLACK COLOR SCHEME; GUAR- defects. Products sold outside of the United States ANTEED TOUGH; XRP; SITELOCK; PORTER- generally have varying warranty arrangements, CABLE; GRAY AND BLACK COLOR SCHEME; depending upon local market conditions and laws TIGER SAW; PORTA-BAND; POWERBACK; and regulations. EASY AIR; JOB BOSS; DELTA; THE DELTA TRIANGLE LOGO; UNISAW; BIESEMEYER; The Corporation’s product offerings in the Power BLACK AND WHITE COLOR SCHEME; DAPC; Tools and Accessories segment are sold primarily EMGLO; AFS AUTOMATIC FEED SPOOL; GROOM to retailers, wholesalers, distributors, and jobbers, ‘N’ EDGE; HEDGE HOG; GRASS HOG; EDGE HOG; a lthough some discontinued or reconditioned pow- LEAF HOG; LAWN HOG; STRIMMER; REFLEX; er tools, lawn and garden tools, consumer portable VAC ‘N’ MULCH; EXCELL; ALLIGATOR; TRIM power products, and electric cleaning and light- ‘N’ EDGE; HDL; TOUGH TRUCK; FLEX TUBE; ing products are sold through company-operated VECTOR; ELECTROMATE; SIMPLE START; DUST- service centers and factory outlets directly to end BUSTER; SNAKELIGHT; SCUMBUSTER; STEAM- u sers. Sales to two of the segment’s customers, BUSTER; CYCLOPRO; SWEEP & COLLECT; CLICK The Home Depot and Lowe’s Home Improvement & GO; B&D; BULLET; QUANTUM PRO; PIRANHA; Warehouse, accounted for greater than 10% of the SCORPION; QUICK CONNECT; PILOT POINT; Corporation’s consolidated sales for 2006, 2005, RAPID LOAD; ROCK CARBIDE; TOUGH CASE; MAX and 2004. For additional information regarding LIFE; RAZOR; OLDHAM; DEWALT SERVICENET; sales to The Home Depot and Lowe’s Home DROP BOX EXPRESS; and GUARANTEED REPAIR Improvement Warehouse, see Note 18 of Notes COST (GRC). to Consolidated Financial Statements included in Item 8 of Part II of this report. The composition of the Corporation’s sales by product groups for 2006, 2005, and 2004 is The principal materials used in the manufacturing included in Note 18 of Notes to Consolidated of products in the Power Tools and Accessories Financial Statements included in Item 8 of Part II segment are batteries, copper, aluminum, steel, of this report. Within each product group shown, certain electronic components, engines, and plas- there existed no individual product that accounted tics. These materials are used in various forms. for greater than 10% of the Corporation’s consoli- For example, aluminum or steel may be used in dated sales for 2006, 2005, or 2004. the form of wire, sheet, bar, and strip stock. 2 BLACK & DECKER
  4. 4. The materials used in the various manufacturing For additional information with respect to these p rocesses are purchased on the open market, and and other properties owned or leased by the Cor- the majority are available through multiple sources poration, see Item 2, “Properties.” and are in adequate supply. The Corporation has The Corporation holds various patents and licens- experienced no significant work stoppages to date es on many of its products and processes in the as a result of shortages of materials. Power Tools and Accessories segment. Although The Corporation has certain long-term commit- these patents and licenses are important, the Cor- ments for the purchase of various component poration is not materially dependent on such pat- parts and raw materials and believes that it is ents or licenses with respect to its operations. unlikely that any of these agreements would be The Corporation holds various trademarks that are terminated prematurely. Alternate sources of sup- e mployed in its businesses and operates under ply at competitive prices are available for most v arious trade names, some of which are stated items for which long-term commitments exist. previously. The Corporation believes that these Because the Corporation is a leading producer of trademarks and trade names are important to the power tools and accessories, in a limited number m arketing and distribution of its products. of instances, the magnitude of the Corporation’s purchases of certain items is of such significance A significant portion of the Corporation’s sales that a change in the Corporation’s established in the Power Tools and Accessories segment is supply relationship may cause disruption in the derived from the do-it-yourself and home modern- marketplace and/or a temporary price imbalance. ization markets, which generally are not seasonal While the Corporation believes that the termination in nature. However, sales of certain consumer and of any of these commitments would not have a industrial power tools tend to be higher during the material adverse effect on the operating results of period immediately preceding the Christmas gift- the Power Tools and Accessories segment over the giving season, while the sales of most lawn and long term, the termination of a limited number of garden tools are at their peak during the late winter these commitments would have an adverse effect and early spring period. Most of the Corporation’s over the short term. In this regard, the Corporation other product lines within this segment generally defines long term as a period of time in excess are not seasonal in nature, but are influenced by of 12 months and short term as a period of time other general economic trends. under 12 months. The Corporation is one of the world’s leaders in Principal manufacturing and assembly facilities of the manufacturing and marketing of portable the power tools, lawn and garden tools, electric power tools, electric lawn and garden tools, and c leaning and lighting products, and accessories accessories. Worldwide, the markets in which b usinesses the in United States located Jackson, are in the Corporation sells these products are highly Tennessee; Decatur, Arkansas; Shelbyville, Ken- c ompetitive on the basis of price, quality, and af- tucky; and Tampa, Florida. The principal distri- ter-sale service. A number of competing domestic bution facilities in the United States, other than and foreign companies are strong, well-established those located at the manufacturing and assembly manufacturers that compete on a global basis. f acilities listed above, are located in Fort Mill, Some of these companies manufacture products South Carolina, and Rialto, California. that are competitive with a number of the Corpo- ration’s product lines. Other competitors restrict Principal manufacturing and assembly facilities their operations to fewer categories, and some of the power tools, lawn and garden tools, elec- offer only a narrow range of competitive products. tric cleaning and lighting products, and acces- C ompetition from certain of these manufacturers sories businesses outside of the United States has been intense in recent years and is expected are located in Suzhou, China; Usti nad Labem, to ontinue. c Czech Republic; Buchlberg, ermany; Perugia, G Italy; Spennymoor, England; Reynosa, Mexico; HARDWARE AND HOME IMPROvEMENT and Uberaba, Brazil. In addition to the principal facilities described above, the manufacture and The Hardware and Home Improvement segment assembly of products for the Power Tools and has worldwide responsibility for the manufacture Accessories segment also occurs at the facility and sale of security hardware products (except for of its 50%-owned joint venture located in Shen the sale of security hardware in Mexico, Central Zhen, China. The principal distribution facilities America, the Caribbean, and South America). It o utside of the United States, other than those also has responsibility for the manufacture of l ocated at the manufacturing facilities listed above, plumbing products and for the sale of plumbing consist of a central-European distribution center products to customers in the United States and in Tongeren, Belgium, and facilities in Aarschot, Canada. Security hardware products consist of Belgium; Northampton, England; Dubai, United residential and light commercial door locksets, Arab Emirates; and Brockville, Canada. 3 BLACK & DECKER
  5. 5. e lectronic keyless entry systems, exit devices, key- sold outside of the United States for residential use generally have similar warranty arrangements. ing systems, tubular and mortise door locksets, Such arrangements vary, however, depending upon general hardware, decorative hardware, lamps, and local market conditions and laws and regulations. brass ornaments. General hardware includes door Most of the Corporation’s plumbing products sold hinges, cabinet hinges, door stops, kick plates, in the United States carry a lifetime warranty with and house numbers. Decorative hardware includes r espect to function and finish, pursuant to which cabinet hardware, switchplates, door pulls, and the consumer can return defective product in push plates. Plumbing products consist of a variety exchange for a replacement product or repair at of conventional and decorative lavatory, kitchen, no cost to the consumer. and tub and shower faucets, bath and kitchen a ccessories, and replacement parts. The Corporation’s product offerings in the Hard- ware and Home Improvement segment are sold Security hardware products are marketed under a primarily to retailers, wholesalers, distributors, variety of trademarks and trade names, including, and jobbers. Certain security hardware products w ithout limitation, KWIKSET SECURITY; KWIKSET are sold to commercial, institutional, and industrial M AXIMUM SECURITY; KWIKSET ULTRAMAX; customers. Sales to two of the segment’s custom- SIGNATURES; KWIKSET; BEAUTY OF STRENGTH; ers, The Home Depot and Lowe’s Home Improve- BLACK & DECKER; TYLO; POLO; AVALON; ment Warehouse, accounted for greater than ASHFIELD; SMARTSCAN; SMARTKEY; SMART- 10% of the Corporation’s consolidated sales for CODE; VENETIAN BRONZE; POWERBOLT; KWIK 2006, 2005, and 2004. For additional information INSTALL; GEO; SAFE-LOCK BY BLACK & DECKER; r egarding sales to The Home Depot and Lowe’s BALDWIN; THE ESTATE COLLECTION; THE Home Improvement Warehouse, see Note 18 of IMAGES COLLECTION; ARCHETYPES; LIFETIME Notes to Consolidated Financial Statements in- F I N I S H ; T I M E L E S S C R A F T S M A N S H I P ; cluded in Item 8 of Part II of this report. L OGAN; SPRINGFIELD; HAMILTON; BLAKE- LY; MANCHESTER; CANTERBURY; MADISON; The principal materials used in the manufacturing STONEGATE; EDINBURGH; KENSINGTON; of products in the Hardware and Home Improve- BRISTOL; TREMONT; PEYTON; PASADENA; RICH- ment segment are zamak, brass, aluminum, LAND; WEISER; WEISER LOCK; COLLECTIONS steel, and ceramics. The materials used in the BY WEISER LOCK; WELCOME HOME SERIES; various manufacturing processes are purchased ELEMENTS SERIES; BASICS BY WEISER LOCK; on the open market, and the majority are available B RILLIANCE LIFETIME ANTI-TARNISH FINISH; through multiple sources and are in adequate sup- POWERBOLT; POWERBOLT KEYLESS ACCESS ply. The Corporation has experienced no significant S YSTEM; WEISERBOLT; and ENTRYSETS. work stoppages to date as a result of shortages Plumbing products are marketed under the of materials. trademarks and trade names PRICE PFISTER; The Corporation has certain long-term com- CLASSIC SERIES BY PRICE PFISTER; PRICE mitments for the purchase of various finished PFISTER PROFESSIONAL SERIES; BACH; SOLO; goods, component parts, and raw materials CONTEMPRA; MARIELLE; CARMEL; PARISA; and believes that it is unlikely that any of these S AVANNAH; CATALINA; GEORGETOWN; TREVISO; agreements would be terminated prematurely. AVALON; and ASHFIELD. Alternate sources of supply at competitive prices The composition of the Corporation’s sales by are available for most items for which long-term p roduct groups for 2006, 2005, and 2004 is commitments exist. Because the Corporation is a included in Note 18 of Notes to Consolidated leading producer of residential security hardware Financial Statements included in Item 8 of Part II and faucets, in a limited number of instances, the of this report. Within each product group shown, magnitude of the Corporation’s purchases of cer- there existed no individual product that accounted tain items is of such significance that a change in for greater than 10% of the Corporation’s consoli- the Corporation’s established supply relationship dated sales for 2006, 2005, or 2004. may cause disruption in the marketplace and/or a temporary price imbalance. While the Corpora- Most of the Corporation’s security hardware tion believes that the termination of any of these p roducts sold in the United States carry a war- commitments would not have a material adverse ranty, pursuant to which the consumer can return effect on the operating results of the Hardware defective product during the warranty term in and Home Improvement segment over the long exchange for a replacement product at no cost term, the termination of a limited number of these to the consumer. Warranty terms vary by product commitments would have an adverse effect over and carry a lifetime warranty with respect to the short term. In this regard, the Corporation mechanical operations and range from a 5-year to defines long term as a period of time in excess a lifetime warranty with respect to finish. Products 4 BLACK & DECKER
  6. 6. of 12 months and short term as a period of time ture products that are competitive with a number of the Corporation’s product lines. Other competi- under 12 months. tors restrict their operations to fewer categories, From time to time, the Corporation enters into and some offer only a narrow range of competi- commodity hedges on certain raw materials used tive products. Competition from certain of these in the manufacturing process to reduce the risk manufacturers has been intense in recent years of market price fluctuations. As of December 31, and is expected to continue. 2006, the amount of commodity hedges outstand- ing was not material. FASTENING AND ASSEMBLY SYSTEMS Principal manufacturing and assembly facilities of The Corporation’s Fastening and Assembly Systems the Hardware and Home Improvement segment in segment has worldwide responsibility for the de- the United States are located in Denison, Texas; velopment, manufacture and sale of an extensive and Reading, Pennsylvania. line of metal and plastic fasteners and engineered fastening systems for commercial applications, Principal manufacturing and assembly facilities including blind riveting, stud welding, specialty of the Hardware and Home Improvement seg- screws, prevailing torque nuts and assemblies, ment outside of the United States are located in insert systems, metal and plastic fasteners, and Mexicali and Nogales, Mexico. The principal dis- self-piercing riveting systems. The fastening and tribution facilities in the United States, other than assembly systems products are marketed under a those located at the manufacturing and assembly variety of trademarks and trade names, including, facilities listed above, are located in Mira Loma, without limitation, EMHART TEKNOLOGIES; C alifornia; and Charlotte, North Carolina. EMHART FASTENING TEKNOLOGIES; EMHART; For additional information with respect to these AUTOSET; DODGE; DRIL-KWICK; F-SERIES; GRIPCO; and other properties owned or leased by the GRIPCO ASSEMBLIES; HELI-COIL; JACK NUT; C orporation, see Item 2, “Properties.” KALEI; MASTERFIX; NPR; NUT-FAST; PARKER- KALON; PLASTIFAST; PLASTI-KWICK; POINT & The Corporation holds various patents and SET; POP; POP-LOK; POPMATIC; POPNUT; POP- l icenses on many of its products and processes SERT; POWERLINK; PROSET; SMARTSET; SWS; in the Hardware and Home Improvement seg- TUCKER; ULTRA-GRIP; ULTRASERT; WARREN; ment. Although these patents and licenses are WELDFAST; and WELL-NUT. The Fastening and important, the Corporation is not materially A ssembly Systems segment provides platform- d ependent on such patents or licenses with respect m anagement and engineering services in addition to its operations. to the manufacture and sale of the products The Corporation holds various trademarks that p reviously described. are employed in its businesses and operates The composition of the Corporation’s sales by under various trade names, some of which are p roduct groups for 2006, 2005, and 2004 is stated above. The Corporation believes that these included in Note 18 of Notes to Consolidated trademarks and trade names are important to the Financial Statements included in Item 8 of Part II m arketing and distribution of its products. of this report. Within each product group shown, A significant portion of the Corporation’s sales there existed no individual product that accounted in the Hardware and Home Improvement seg- for greater than 10% of the Corporation’s consoli- ment is derived from the do-it-yourself and home dated sales for 2006, 2005, or 2004. modernization markets, which generally are not The principal markets for these products include seasonal in nature, but are influenced by trends the automotive, transportation, electronics, aero- in the residential and commercial construction space, machine tool, and appliance industries. m arkets and other general economic trends. S ubstantial sales are made to automotive manu- The Corporation is one of the world’s leading facturers worldwide. p roducers of residential security hardware and Products are marketed directly to customers and is one of the leading producers of faucets in also through distributors and representatives. North America. Worldwide, the markets in which These products face competition from many the Corporation sells these products are highly manufacturers in several countries. Product c ompetitive on the basis of price, quality, and q uality, performance, reliability, price, delivery, after-sale service. A number of competing and technical and application engineering services domestic and foreign companies are strong, well- are the primary competitive factors. There is little established manufacturers that compete on a seasonal variation in sales. g lobal basis. Some of these companies manufac- 5 BLACK & DECKER
  7. 7. The Corporation owns a number of United States As of December 31, 2006, the Corporation e mployed approximately 25,500 persons in its and foreign patents, trademarks, and license operations worldwide. Approximately 500 employ- rights relating to the fastening and assembly ees in the United States are covered by collective s ystems business. While the Corporation considers bargaining agreements. During 2006, no collective those patents, trademarks, and license rights to bargaining agreements were negotiated. One be valuable, it is not materially dependent upon agreement is scheduled for negotiation during such patents or license rights with respect to 2007. Also, the Corporation has government- its operations. m andated collective bargaining arrangements or Principal manufacturing facilities of the Fastening union contracts with employees in other countries. and Assembly Systems segment in the United The Corporation’s operations have not been States are located in Danbury, Connecticut; Mont- a ffected significantly by work stoppages and, in pelier, Indiana; Campbellsville and Hopkinsville, the opinion of management, employee relations Kentucky; and Chesterfield, Michigan. Principal are good. As more fully described under the manufacturing and assembly facilities outside caption “Restructuring and Integration Actions” of the United States are located in Birmingham, in Management’s Discussion and Analysis of England; Giessen, Germany; and Toyohashi, Japan. Financial Condition and Results of Operations, For additional information with respect to these the Corporation is committed to continuous pro- and other properties owned or leased by the ductivity improvement and continues to evaluate C orporation, see Item 2, “Properties.” opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capac- The raw materials used in the fastening and as- ity. As a consequence, the Corporation may, sembly systems business consist primarily of from time to time, transfer production from one ferrous and nonferrous metals in the form of wire, manufacturing facility to another, outsource cer- bar stock, and strip and sheet metals; plastics; tain production, or close certain manufacturing and rubber. These materials are readily available facilities. Such production transfers, outsourcing, from a number of suppliers. and/or facility closures may result in a dete- rioration of employee relations at the impacted OTHER INFORMATION l ocations or elsewhere in the Corporation. The Corporation’s product development program The Corporation’s operations are subject to foreign, for the Power Tools and Accessories segment is f ederal, state, and local environmental laws and coordinated from the Corporation’s headquarters r egulations. Many foreign, federal, state, and local in Towson, Maryland. Additionally, product g overnments also have enacted laws and regula- d evelopment activities are performed at facilities tions that govern the labeling and packaging of within the United States in Fort Lauderdale, Florida, products and limit the sale of products containing H ampstead, Maryland, and Jackson, Tennessee, and certain materials deemed to be environmentally at facilities in Maltby and Spennymoor, England; s ensitive. These laws and regulations not only Brockville, Canada; Perugia, Italy; Suzhou, China; limit the acceptable methods for the discharge Buchlberg and Idstein, Germany; Mooroolbark, of pollutants and the disposal of products and A ustralia; Uberaba, Brazil; and Reynosa, Mexico. components that contain certain substances, but Product development activities for the Hardware also require that products be designed in a man- and Home Improvement segment are performed ner to permit easy recycling or proper disposal at facilities in Lake Forest, California, and Reading, of environmentally sensitive components such as Pennsylvania. nickel cadmium batteries. The Corporation seeks to comply fully with these laws and regulations. Product development activities for the Fastening Although compliance involves continuing costs, and Assembly Systems segment are performed the ongoing costs of compliance with existing at facilities within the United States in Danbury e nvironmental laws and regulations have not had, and Shelton, Connecticut; Montpelier, Indiana; nor are they expected to have, a material adverse Campbellsville, Kentucky; Chesterfield and effect upon the Corporation’s capital expenditures F armington Hills, Michigan; and at facilities in or financial position. Birmingham, England; Maastricht, Netherlands; Giessen, Germany; and Toyohashi, Japan. Pursuant to authority granted under the Compre- hensive Environmental Response, Compensation Costs associated with development of new prod- and Liability Act of 1980 (CERCLA), the United ucts and changes to existing products are charged States Environmental Protection Agency (EPA) has to operations as incurred. See Note 1 of Notes issued a National Priority List (NPL) of sites at to Consolidated Financial Statements included which action is to be taken to mitigate the risk of in Item 8 of Part II of this report for amounts of r elease of hazardous substances into the environ- expenditures for product development activities. 6 BLACK & DECKER
  8. 8. ment. The Corporation is engaged in continuing particular fiscal quarter or year, in the opinion activities with regard to various sites on the NPL of management there exists no known potential and other sites covered under analogous state exposures that would have a material adverse ef- environmental laws. As of December 31, 2006, fect on the financial condition or on the financial the Corporation had been identified as a poten- results of the Corporation beyond any such fiscal tially responsible party (PRP) in connection with quarter or year. a pproximately 25 sites being investigated by fed- eral or state agencies under CERCLA or analogous (d) Financial Information state environmental laws. The Corporation also is About Geographic Areas engaged in site investigations and remedial activi- ties to address environmental contamination from Reference is made to Note 18 of Notes to past operations at current and former manufactur- C onsolidated Financial Statements, entitled “Busi- ing facilities in the United States and abroad. ness Segments and Geographic Information”, included in Item 8 of Part II of this report. To minimize the Corporation’s potential liability with respect to these sites, management has under- (e) Available Information taken, when appropriate, active participation in steering committees established at the sites and The Corporation files annual, quarterly, and cur- has agreed to remediation through consent orders rent reports, proxy statements, and other docu- with the appropriate government agencies. Due to ments with the Securities and Exchange Commis- uncertainty as to the Corporation’s involvement in sion (SEC) under the Securities Exchange Act of some of the sites, uncertainty over the remedial 1934 (the Exchange Act). The public may read m easures to be adopted, and the fact that and copy any materials that the Corporation files i mposition of joint and several liability with the with the SEC at the SEC’s Public Reference Room right of contribution is possible under CERCLA at 100 F Street, NE, Washington, DC 20549. The and other laws and regulations, the liability of public may obtain information on the operation the Corporation with respect to any site at which of the Public Reference Room by calling the SEC remedial measures have not been completed can- at 1-800-SEC-0330. Also, the SEC maintains an not be established with certainty. On the basis of Internet website that contains reports, proxy and periodic reviews conducted with respect to these i nformation statements, and other information sites, however, the Corporation has established r egarding issuers, including the Corporation, that appropriate liability accruals. The Corporation’s file electronically with the SEC. The public can estimate of the costs associated with environmen- o btain any documents that the Corporation files tal exposures is accrued if, in management’s judg- with the SEC at http://www.sec.gov. ment, the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. The Corporation also makes available free of charge on or through its Internet website (http://www.bdk.com) As of December 31, 2006, the Corporation’s the Corporation’s Annual Report on Form 10-K, a ggregate probable exposure with respect to Q uarterly Reports on Form 10-Q, Current Reports environmental liabilities, for which accruals have on Form 8-K, and, if applicable, amendments been established in the consolidated financial to those reports filed or furnished pursuant to statements, was $76.4 million. In the opinion of Section 13(a) of the Exchange Act as soon as management, the amount accrued for probable r easonably practicable after the Corporation exposure for aggregate environmental liabilities is e lectronically files such material with, or furnishes adequate and, accordingly, the ultimate resolution it to, the SEC. of these matters is not expected to have a material adverse effect on the Corporation’s consolidated Black & Decker’s Corporate Governance Poli- financial statements. As of December 31, 2006, cies and Procedures Statement is available free the Corporation had no known probable but inesti- of charge on or through its Internet website mable exposures relating to environmental matters (http://www.bdk.com) or in print by calling (800) that are expected to have a material adverse effect 992-3042 or (410) 716-2914. The Statement on the Corporation. There can be no assurance, contains charters of the standing committees of however, that unanticipated events will not require the Board of Directors, the Code of Ethics and the Corporation to increase the amount it has Standards of Conduct, and the Code of Ethics for accrued for any environmental matter or accrue Senior Financial Officers. for an environmental matter that has not been In April 2006, the Corporation submitted to the p reviously accrued because it was not considered New York Stock Exchange the CEO certification probable. While it is possible that the increase or r equired by Section 303A.12(a) of the New York establishment of an accrual could have a mate- Stock Exchange Listed Company Manual. rial adverse effect on the financial results for any 7 BLACK & DECKER
  9. 9. (f) Executive Officers and • LES H. IRELAND – 42 Other Senior Officers Vice President of the Corporation and President – Europe/Middle East/Africa, of the Corporation Power Tools and Accessories, The current Executive Officers and Other Senior January 2005 – present; O fficers of the Corporation, their ages, current Vice President of the Corporation and offices or positions, and their business experience Managing Director – Commercial Operations, during the past five years are set forth below. Europe, Black & Decker Consumer Group, • NOLAN D. ARCHIBALD – 63 Power Tools and Accessories Group, November 2001 – January 2005. Chairman, President, and Chief Executive Officer, • THOMAS D. KOOS – 43 January 1990 – present. Group Vice President of the Corporation and President – Consumer Products Group, • BRUCE W. BROOKS – 42 Power Tools and Accessories, Vice President of the Corporation and President – March 2004 – present; Construction Tools, Industrial Products Group, Power Tools and Accessories, Vice President of the Corporation and President – May 2005 – present; Black & Decker Consumer Products, Power Tools and Accessories Group, Vice President and General Manager – January 2001 – March 2004. Construction Tools, Industrial Products Group, Power Tools and Accessories, • MICHAEL D. MANGAN – 50 October 2004 – May 2005; Senior Vice President and Chief Financial Officer, Vice President Marketing – DeWALT Professional January 2000 – present. Products, Power Tools and Accessories Group, July 2003 – October 2004; • PAUL F. McBRIDE – 51 Senior Vice President – Human Resources Vice President Marketing – and Corporate Initiatives, Black & Decker Consumer Products, March 2004 – present; Power Tools and Accessories Group, July 2000 – July 2003. Executive Vice President of the Corporation and President – Power Tools and • jAMES T. CAUDILL – 39 Accessories Group, Group Vice President of the Corporation and April 1999 – March 2004. President – Hardware and Home Improvement, July 2006 – present; • CHRISTINA M. McMULLEN – 51 Vice President and Controller, Vice President of the Corporation and President – April 2000 – present. Hardware and Home Improvement, May 2005 – July 2006; • jAMES R. RASKIN – 46 Vice President and General Manager – Vice President of the Corporation and Accessories, Industrial Products Group, Vice President – Business Development, Power Tools and Accessories Group, July 2006 – present; October 2004 – May 2005; Vice President – Business Development, Vice President – Accessories, May 2002 – July 2006; DeWALT Professional Products, Vice President – Marketing, Power Tools and Accessories Group, Consumer Products Group, November 2001 – October 2004. September 2001 – May 2002. • CHARLES E. FENTON – 58 • STEPHEN F. REEvES – 47 Senior Vice President and General Counsel, Vice President of the Corporation and December 1996 – present. Vice President – Global Finance, Power Tools and Accessories, March 2004 – present; Vice President of the Corporation and Vice President – Finance, Power Tools and Accessories Group, April 2000 – March 2004. 8 BLACK & DECKER
  10. 10. • MARK M. ROTHLEITNER – 48 • MICHAEL A. TYLL – 50 Vice President – Investor Relations and Treasurer, Group Vice President of the Corporation and January 2000 – present. President – Fastening and Assembly Systems, April 2006 – present; • ROBERT I. ROWAN – 46 President – Automotive Division, Vice President of the Corporation and President – Fastening and Assembly Systems, Power Tools and Accessories, Consumer January 2001 – April 2006. Products Group, Power Tools and Accessories, February 2006 – present; (g) Forward-Looking Statements Vice President and General Manager, The Private Securities Litigation Reform Act of Consumer Power Tools and Accessories, 1995 (the Reform Act) provides a safe harbor Power Tools and Accessories, for forward-looking statements made by or on July 2003 – February 2006; b ehalf of the Corporation. The Corporation and its Vice President – Outdoor Products, r epresentatives may, from time to time, make written Consumer Products Group, Power Tools or verbal forward-looking statements, including and Accessories Group, statements contained in the Corporation’s filings September 2001 – July 2003. with the Securities and Exchange Commission and in its reports to stockholders. Generally, the • EDWARD j. SCANLON – 52 inclusion of the words “believe,” “expect,” “intend,” Vice President of the Corporation and “estimate,” “anticipate,” “will,” and similar expres- President – Commercial Operations, North and sions identify statements that constitute “forward- South America, Power Tools and Accessories, l ooking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section March 2004 – present; 21E of the Securities Exchange Act of 1934 and Vice President of the Corporation and that are intended to come within the safe harbor President – Commercial Operations, protection provided by those sections. All state- North America, Power Tools and ments addressing operating performance, events, Accessories Group, or developments that the Corporation expects or May 1999 – March 2004. anticipates will occur in the future, including state- ments relating to sales growth, earnings or earnings • jOHN W. SCHIECH – 48 per share growth, and market share, as well as Group Vice President of the Corporation statements expressing optimism or pessimism and President – Industrial Products Group, about future operating results, are forward-looking Power Tools and Accessories, statements within the meaning of the Reform Act. March 2004 – present; The forward-looking statements are and will be based upon management’s then-current views and Vice President of the Corporation and President – a ssumptions regarding future events and operat- DeWALT Professional Products, Power Tools ing performance, and are applicable only as of and Accessories Group, the dates of such statements. The Corporation January 2001 – March 2004. undertakes no obligation to update or revise any f orward-looking statements, whether as a result of • NATALIE A. SHIELDS – 50 new information, future events, or otherwise. Vice President and Corporate Secretary, By their nature, all forward-looking statements April 2006 – present; i nvolve risks and uncertainties, including without International Tax and Trade Counsel, limitations the risks described under the caption June 1993 – April 2006. “Risk Factors” that could materially harm the Corporation’s business, financial condition, and • BEN S. SIHOTA – 48 results of operations. You are cautioned not to Vice President of the Corporation and President – place undue reliance on the Corporation’s forward- Asia Pacific, Power Tools and Accessories, looking statements. February 2006 – present; President – Asia, Power Tools and Accessories, September 2000 – February 2006. 9 BLACK & DECKER
  11. 11. ITEM 1A. RISK FACTORS i ncreases in the costs of purchased raw materials, component parts or finished goods could result in Many of the factors that affect our business and manufacturing interruptions, delays, inefficiencies o perations involve risk and uncertainty. The factors or our inability to market products. In addition, described below are some of the risks that could our profit margins would decrease if prices of m aterially harm our business, financial condition, purchased raw materials, component parts, or and results of operations. finished goods increase and we are unable to pass • Our business depends on the strength of the on those increases to our customers. economies in various parts of the world, par- • We face significant global competition. The ticularly in the United States and Europe. We markets in which we sell products are highly conduct business in various parts of the world, competitive on the basis of price, quality, and primarily in the United States and Europe and, after-sale service. A number of competing do- to a lesser extent, in Mexico, Central America, mestic and foreign companies are strong, well- the Caribbean, South America, Canada, Asia and established manufacturers that compete globally Australia. As a result of this worldwide exposure, with us. Some of our major customers sell their our net revenue and profitability could be harmed own “private label” brands that compete directly as a result of economic conditions in our major with our products. Price reductions taken by us in markets, including, but not limited to, recession, response to customer and competitive pressures, inflation and deflation, general weakness in retail, as well as price reductions and promotional ac- automotive and construction markets, and changes tions taken to drive demand that may not result in consumer purchasing power. in anticipated sales levels, could also negatively impact our business. Competition has been intense • Changes in customer preferences, the inability in recent years and is expected to continue. If we to maintain mutually beneficial relationships with are unable to maintain a competitive advantage, large customers, and the inability to penetrate loss of market share, revenue, or profitability may new channels of distribution could adversely result. affect our business. We have a number of major • Low demand for new products and the inability customers, including two large customers that, in to develop and introduce new products at favorable the aggregate, constituted approximately 33% of margins could adversely impact our performance our consolidated sales in 2006. The loss of either of and prospects for future growth. Our competitive these large customers, a material negative change advantage is due in part to our ability to develop in our relationship with these large customers or and introduce new products in a timely manner other major customers, or changes in consumer at favorable margins. The uncertainties associated preferences or loyalties could have an adverse with developing and introducing new products, effect on our business. Our major customers are such as market demand and costs of develop- volume purchasers, a few of which are much larger ment and production, may impede the successful than us and have strong bargaining power with development and introduction of new products suppliers. This limits our ability to recover cost on a consistent basis. Market acceptance of the increases through higher selling prices. Changes new products introduced in 2006 and scheduled in purchasing patterns by major customers could for introduction in 2007 may not meet sales negatively impact manufacturing volumes and expectations due to various factors, such as our inventory levels. Further, our inability to continue failure to accurately predict market demand and to penetrate new channels of distribution may evolving industry standards, to resolve technical have a negative impact on our future results. challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies. Our • The inability to obtain raw materials, compo- investments in productive capacity and commit- nent parts, and/or finished goods in a timely ments to fund advertising and product promotions and cost-effective manner from suppliers would in connection with these new products could be adversely affect our ability to manufacture and excessive if those expectations are not met. market our products. We purchase raw materials and component parts from suppliers to be used • Price increases could impact the demand for in the manufacturing of our products. In addition, our products from customers and end-users. We we purchase certain finished goods from suppli- have recently increased the prices of our products for our U.S. power tools and accessories business ers. In a limited number of circumstances, the and hardware and home improvement business. magnitude of our purchases of certain items is of An adverse reaction by our customers or end-users such significance that a change in our established to these price increases could negatively impact supply relationships may cause disruption in the our anticipated sales, profitability, manufacturing marketplace, a temporary price imbalance, or both. volumes, and/or inventory levels. Changes in our relationships with suppliers or 10 BLACK & DECKER
  12. 12. • The inability to generate sufficient cash flows manufacturing failures, telephone or information technology (IT) system failure, computer viruses to support operations and other activities could or other third-party tampering with IT systems, prevent future growth and success. Our inability could halt or delay manufacturing and hinder our to generate sufficient cash flows to support capi- ability to ship in a timely manner or otherwise tal expansion, business acquisition plans, share routinely conduct business. Any of these events repurchases and general operating activities could could result in the loss of customers, a decrease negatively affect our operations and prevent our in revenue, or the incurrence of significant costs expansion into existing and new markets. Our to eliminate the problem or failure. ability to generate cash flows is dependent in part upon obtaining necessary financing at favorable • Our products could be subject to product liability interest rates. Interest rate fluctuations and other claims and litigation. We manufacture products capital market conditions may prevent us from that create exposure to product liability claims doing so. and litigation. If our products are not properly manufactured or designed, personal injuries or • Our success depends on our ability to improve property damage could result, which could subject productivity and streamline operations to control us to claims for damages. The costs associated or reduce costs. We are committed to continuous with defending product liability claims and payment productivity improvement and continue to evaluate of damages could be substantial. Our reputation opportunities to reduce fixed costs, simplify or could also be adversely affected by such claims, improve processes, and eliminate excess capac- whether or not successful. ity. We have also undertaken restructuring and integration actions as described in Note 20 of • Our products could be recalled. The Consumer Notes to Consolidated Financial Statements and Product Safety Commission or other applicable in “Management’s Discussion and Analysis of regulatory bodies may require the recall, repair Financial Condition and Results of Operations”. or replacement of our products if those products The ultimate savings realized from restructuring are found not to be in compliance with applicable and integration actions may be mitigated by many standards or regulations. A recall could increase factors, including economic weakness, competitive costs and adversely impact our reputation. pressures, and decisions to increase costs in areas • We may have additional tax liabilities. We are such as promotion or research and development subject to income taxes in the United States and above levels that were otherwise assumed. Our numerous foreign jurisdictions. Significant judg- failure to achieve projected levels of efficiencies ment is required in determining our worldwide and cost reduction measures and to avoid delays provision for income taxes. In the ordinary course in or unanticipated inefficiencies resulting from of our business, there are many transactions and manufacturing and administrative reorganiza- calculations where the ultimate tax determination tion actions in progress or contemplated would is uncertain. We are regularly under audit by tax adversely affect our results of operations. authorities. Although we believe our tax estimates • The inability to successfully integrate the are reasonable, the final outcome of tax audits and operations of acquired businesses or to identify any related litigation could be materially different new acquisition opportunities could negatively than that which is reflected in historical income impact our prospect for future growth and prof- tax provisions and accruals. Based on the status itability. We expend significant resources on of a given tax audit or related litigation, a material identifying opportunities to acquire new lines of effect on our income tax provision or net income business and companies that could contribute may result in the period or periods from initial to our success and expansion into existing and recognition in our reported financial results to new markets. Our inability to successfully identify the final closure of that tax audit or settlement of a cquisition opportunities, integrate the operations related litigation when the ultimate tax and related of acquired businesses, or realize the anticipated cash flow is known with certainty. cost savings, synergies and other benefits related • We are subject to current environmental and to the acquisition of those businesses could have other laws and regulations. We are subject to a material adverse effect on our business, financial environmental laws in each jurisdiction in which condition and future growth. Acquisitions may also we conduct business. Some of our products in- have a material adverse effect on our operating corporate substances that are regulated in some results due to large write-offs, contingent liabilities, jurisdictions in which we conduct manufacturing substantial depreciation, or other adverse tax or operations. We could be subject to liability if we audit consequences. do not comply with these regulations. In addition, • Failures of our infrastructure could have a we are currently and may, in the future, be held material adverse effect on our business. We responsible for remedial investigations and clean- are heavily dependent on our infrastructure. Sig- up costs resulting from the discharge of hazard- nificant problems with our infrastructure, such as ous substances into the environment, including 11 BLACK & DECKER
  13. 13. sites that have never been owned or operated could adversely affect our results of operations. We have outstanding variable-rate and fixed-rate by us but at which we have been identified as a borrowings. To meet our cash requirements, we potentially responsible party under federal and may incur additional borrowings in the future state environmental laws and regulations. Changes u nder our existing or future borrowing facilities. in environmental and other laws and regulations An increase in interest rates could adversely affect in both domestic and foreign jurisdictions could our results of operations. adversely affect our operations due to increased costs of compliance and potential liability for • We operate a global business that exposes non-compliance. us to additional risks. Our sales outside of the • If our goodwill or indefinite-lived intangible United States accounted for approximately 36% of assets become impaired, we may be required to our consolidated net revenue in 2006. We continue record a significant charge to earnings. Under to expand into foreign markets. The future growth U nited States generally accepted accounting and profitability of our foreign operations are subject to a variety of risks and uncertainties, p rinciples, goodwill and indefinite-lived intangible such as tariffs, nationalization, exchange controls, assets are not amortized but are reviewed for interest rate fluctuations, civil unrest, governmen- i mpairment on an annual basis or more frequently tal changes, limitations on foreign investment in whenever events or changes in circumstances local business and other political, economic and i ndicate that their carrying value may not be recov- regulatory risks inherent in conducting business erable. We may be required to record a significant internationally. Over the past several years, such charge to earnings in our financial statements factors have become increasingly important as a during the period in which any impairment of result of our higher percentage of manufactur- our goodwill or indefinite-lived intangible assets is ing in China, Mexico and the Czech Republic and determined, resulting in an impact on our results purchases of products and components from of operations. foreign countries. • Changes in accounting may affect our reported • Catastrophic events may disrupt our business. earnings. For many aspects of our business, Unforeseen events, including war, terrorism and United States generally accepted accounting other international conflicts, public health issues, principles, including pronouncements, implemen- and natural disasters such as earthquakes, tation guidelines, and interpretations, are highly h urricanes or other adverse weather and climate complex and require subjective judgments. Changes conditions, whether occurring in the United States in these accounting principles, including their or abroad, could disrupt our operations, disrupt interpretation and application, could significantly the operations of our suppliers or customers, or change our reported earnings, adding significant result in political or economic instability. These volatility to our reported results without a compa- events could reduce demand for our products and rable underlying change in our cash flows. make it difficult or impossible for us to manufac- • We are exposed to adverse changes in currency ture our products, deliver products to customers, exchange rates, raw material commodity prices or or to receive products from suppliers. interest rates, both in absolute terms and relative The foregoing list is not exhaustive. There can be to competitors’ risk profiles. We have a number no assurance that we have correctly identified of manufacturing sites throughout the world and and appropriately assessed all factors affecting sell our products in more than 100 countries. our business or that the publicly available and As a result, we are exposed to movements in the other information with respect to these matters exchange rates of various currencies against the is complete and correct. Additional risks and United States dollar and against the currencies of uncertainties not presently known to us or that countries in which we have manufacturing facili- we currently believe to be immaterial also may ties. We believe our most significant foreign cur- adversely impact our business. Should any risks rency exposures are the euro, pound sterling and or uncertainties develop into actual events, these Chinese renminbi. A decrease in the value of the developments could have material adverse effects euro and pound sterling relative to the U.S. dollar on our business, financial condition, and results could adversely affect our results of operations. of operations. An increase in the value of the Chinese renminbi relative to the U.S. dollar could adversely affect ITEM 2. PROPERTIES our results of operations. We utilize materials in the manufacturing of our products that include The Corporation operates 41 manufacturing facili- certain components and raw materials that are ties around the world, including 25 located outside subject to commodity price volatility. We believe of the United States in 9 foreign countries. The our most significant commodity-related exposures major properties associated with each business are to steel, resins, copper, aluminum, and zinc. segment are listed in “Narrative Description of the An increase in the market prices of these items Business” in Item 1(c) of Part I of this report. 12 BLACK & DECKER

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