| BLACK & DECKER CORP ITEM 1A RISK FACTORS Many of the factors that affect our business and operations involve risk and uncertainty |
| The factors described below are some of the risks that could materially harm our business, financial condition, and results of operations |
| • Our business depends on the strength of the economies in various parts of the world, particularly in the United States and Europe |
| We conduct business in various parts of the world, primarily in the United States and Europe and, to a lesser extent, in Mexico, Central America, the Caribbean, South America, Canada, Asia and Australia |
| As a result of this worldwide exposure, our net revenue and profitability could be harmed as a result of economic conditions in our major markets, including, but not limited to, recession, inflation and deflation, general weakness in retail, automotive and construction markets, and changes in consumer purchasing power |
| • Changes in customer preferences, the inability to maintain mutually beneficial relationships with large customers, and the inability to penetrate new channels of distribution could adversely affect our business |
| We have a number of major customers, including two large customers that, in the aggregate, constituted approximately 35prca of our consolidated sales in 2005 |
| The loss of either of these large customers, a material negative change in our relationship with these large customers or other major customers, or changes in consumer preferences or loyalties could have an adverse effect on our business |
| Our major customers are volume purchasers, a few of which are much larger than us and have strong bargaining power with suppliers |
| This limits our ability to recover cost increases through higher selling prices |
| Changes in purchasing patterns by major customers could negatively impact manufacturing volumes and inventory levels |
| Further, our inability to continue to penetrate new channels of distribution may have a negative impact on our future results |
| • The inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner from suppliers would adversely affect our ability to manufacture and market our products |
| We purchase raw materials and component parts from suppliers to be used in the manufacturing of our products |
| In addition, we purchase certain finished goods from suppliers |
| In a limited number of circumstances, the magnitude of our purchases of certain items is of such significance that a change in our established supply relationships may cause disruption in the marketplace, a temporary price imbalance, or both |
| Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or our inability to market products |
| In addition, our profit margins would decrease if prices of purchased raw materials, component parts, or finished goods increase and we are unable to pass on those increases to our customers |
| • We face significant global competition |
| The markets in which we sell products are highly competitive on the basis of price, quality, and after-sale service |
| A number of competing domestic and foreign companies are strong, well-established manufacturers that compete globally with us |
| Some of our major customers sell their own “private label” brands that compete directly with our products |
| Price reductions taken by us in response to customer and competitive pressures, as well as price reductions and promotional actions taken to drive demand that may not result in anticipated sales levels, could also negatively impact our business |
| Competition has been intense in recent years and is expected to continue |
| If we are unable to maintain a competitive advantage, loss of market share, revenue, or profitability may result |
| • Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact our performance and prospects for future growth |
| Our competitive advantage is due in part to our ability to develop and introduce new products in a timely manner at favorable margins |
| The uncertainties associated with developing and introducing new products, such as market demand and costs of development and production, may impede the successful development and introduction of new products on a consistent basis |
| Market acceptance of the new products introduced in 2005 and scheduled for introduction in 2006 may not meet sales expectations due to various factors, such as our failure to accurately predict market demand and evolving industry standards, to resolve technical challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies |
| Our investments in productive capacity and commitments to fund advertising and product promotions in connection with these new products could be excessive if those expectations are not met |
| 9 _________________________________________________________________ • The inability to generate sufficient cash flows to support operations and other activities could prevent future growth and success |
| Our inability to generate sufficient cash flows to support capital expansion, business acquisition plans, share repurchases and general operating activities could negatively affect our operations and prevent our expansion into existing and new markets |
| Our ability to generate cash flows is dependent in part upon obtaining necessary financing at favorable interest rates |
| Interest rate fluctuations and other capital market conditions may prevent us from doing so |
| • Our success depends on our ability to improve productivity and streamline operations to control or reduce costs |
| We are committed to continuous productivity improvement and continue to evaluate opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity |
| A description of our restructuring activity during the three years ended December 31, 2005, is included in Note 20 of Notes to Consolidated Financial Statements and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 15 |
| The ultimate savings realized from restructuring actions may be mitigated by many factors, including economic weakness, competitive pressures, and decisions to increase costs in areas such as promotion or research and development above levels that were otherwise assumed |
| Our failure to achieve projected levels of efficiencies and cost reduction measures and to avoid delays in or unanticipated inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated would adversely affect our results of operations |
| • The inability to successfully integrate the operations of acquired businesses or to identify new acquisition opportunities could negatively impact our prospect for future growth and profitability |
| We expend significant resources on identifying opportunities to acquire new lines of business and companies that could contribute to our success and expansion into existing and new markets |
| Our inability to successfully identify acquisition opportunities, integrate the operations of acquired businesses, or realize the anticipated cost savings, synergies and other benefits related to the acquisition of those businesses could have a material adverse effect on our business, financial condition and future growth |
| Acquisitions may also have a material adverse effect on our operating results due to large write-offs, contingent liabilities, substantial depreciation, or other adverse tax or audit consequences |
| • Failures of our infrastructure could have a material adverse effect on our business |
| We are heavily dependent on our infrastructure |
| Significant problems with our infrastructure, such as manufacturing failures, telephone or information technology (IT) system failure, computer viruses or other third-party tampering with IT systems, could halt or delay manufacturing and hinder our ability to ship in a timely manner or otherwise routinely conduct business |
| Any of these events could result in the loss of customers, a decrease in revenue, or the incurrence of significant costs to eliminate the problem or failure |
| • Our products could be subject to product liability claims and litigation |
| We manufacture products that create exposure to product liability claims and litigation |
| If our products are not properly manufactured or designed, personal injuries or property damage could result, which could subject us to claims for damages |
| The costs associated with defending product liability claims and payment of damages could be substantial |
| Our reputation could also be adversely affected by such claims, whether or not successful |
| • Our products could be recalled |
| The Consumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair or replacement of our products if those products are found not to be in compliance with applicable standards or regulations |
| A recall could increase costs and adversely impact our reputation |
| • We may have additional tax liabilities |
| We are subject to income taxes in the United States and numerous foreign jurisdictions |
| Significant judgment is required in determining our worldwide provision for income taxes |
| In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain |
| We are regularly under audit by tax authorities |
| Although we believe our tax estimates are reasonable, the final outcome of tax audits and any related litigation could be materially different than that which is reflected in historical income tax provisions and accruals |
| Based on the status of a given tax audit or related litigation, a material effect on our income tax provision or net income may result in the period or periods from initial recognition in our reported financial results to the final closure of that tax audit or settlement of related litigation when the ultimate tax and related cash flow is known with certainty |
| • We are subject to current environmental and other laws and regulations |
| We are subject to environmental laws in each jurisdiction in which we conduct business |
| Some of our products incorporate substances that are regulated in some jurisdictions in which we conduct manufacturing operations |
| We could be subject to liability if we do not comply with these regulations |
| In addition, we are currently and may, in the future, be held responsible for remedial investigations and clean-up costs resulting from the discharge of hazardous substances into the environment, including sites that have never been owned or operated by us but at which we have been identified as a potentially responsible party under federal and state environmental laws and regulations |
| Changes in environmental and other laws and regulations in both domestic and foreign jurisdictions could adversely affect our operations due to increased costs of compliance and potential liability for non-compliance |
| 10 _________________________________________________________________ • If our goodwill or indefinite-lived intangible assets become impaired, we may be required to record a significant charge to earnings |
| Under United States generally accepted accounting principles, goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable |
| We may be required to record a significant charge to earnings in our financial statements during the period in which any impairment of our goodwill or indefinite-lived intangible assets is determined, resulting in an impact on our results of operations |
| • Changes in accounting may affect our reported earnings |
| For many aspects of our business, United States generally accepted accounting principles, including pronouncements, implementation guidelines, and interpretations, are highly complex and require subjective judgments |
| Changes in these accounting principles, including their interpretation and application, could significantly change our reported earnings, adding significant volatility to our reported results without a comparable underlying change in our cash flows |
| • We are exposed to adverse changes in currency exchange rates, raw material commodity prices or interest rates, both in absolute terms and relative to competitors’ risk profiles |
| We have a number of manufacturing sites throughout the world and sell our products in more than 100 countries |
| As a result, we are exposed to movements in the exchange rates of various currencies against the United States dollar and against the currencies of countries in which we have manufacturing facilities |
| We believe our most significant foreign currency exposures are the euro, pound sterling and Chinese renminbi |
| A decrease in the value of the euro and pound sterling relative to the US dollar could adversely affect our results of operations |
| An increase in the value of the Chinese renminbi relative to the US dollar could adversely affect our results of operations |
| • We operate a global business that exposes us to additional risks |
| Our sales outside of the United States accounted for approximately 34prca of our consolidated net revenue in 2005 |
| We continue to expand into foreign markets |
| The future growth and profitability of our foreign operations are subject to a variety of risks and uncertainties, such as tariffs, nationalization, exchange controls, interest rate fluctuations, civil unrest, governmental changes, limitations on foreign investment in local business and other political, economic and regulatory risks inherent in conducting business internationally |
| Over the past several years, such factors have become increasingly important as a result of our higher percentage of manufacturing in China, Mexico and the Czech Republic and purchases of products and components from foreign countries |
| • Catastrophic events may disrupt our business |
| Unforeseen events, including war, terrorism and other international conflicts, public health issues, and natural disasters such as earthquakes, hurricanes or other adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of our suppliers or customers, or result in political or economic instability |
| These events could reduce demand for our products and make it difficult or impossible for us to manufacture our products, deliver products to customers, or to receive products from suppliers |
| The foregoing list is not exhaustive |
| There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available and other information with respect to these matters is complete and correct |
| Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact our business |
| Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition, and results of operations |