Black & Decker 2014 Annual Report Download - page 25

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opposed to capitalization. The risk of disruption to key operations is increased when complex system changes such as the SAP
conversions are undertaken. If systems fail to function effectively, or become damaged, operational delays may ensue and the
Company may be forced to make significant expenditures to remedy such issues. Any significant disruption in the Company’s
computer operations could have a material adverse impact on its business and results.
The Company’s operations are significantly dependent on infrastructure, notably certain distribution centers and security alarm
monitoring facilities, which are concentrated in various geographic locations. If any of these were to experience a catastrophic
loss, such as a fire, earthquake, hurricane, or flood, it could disrupt operations, delay production, shipments and revenue and
result in large expenses to repair or replace the facility. The Company maintains business interruption insurance, but it may not
fully protect the Company against all adverse effects that could result from significant disruptions.
Unforeseen events, including war, terrorism and other international conflicts and public health issues, whether occurring in the
United States or abroad, could disrupt the Company's operations, disrupt the operations of its suppliers or customers, or result
in political or economic instability. These events could reduce demand for its products and make it difficult or impossible for
the Company to manufacture its products, deliver products to customers, or to receive materials from suppliers.
The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions
which could affect the ability to obtain raw materials, component parts, freight, energy, labor and sourced finished goods in
a timely and cost-effective manner.
The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to, steel, zinc,
copper, brass, aluminum, and nickel. Additionally, the Company uses other commodity-based materials for components and
packaging including, but not limited to, plastics, resins, wood and corrugated products. The Company’s cost base also reflects
significant elements for freight, energy and labor. The Company also sources certain finished goods directly from vendors. If
the Company is unable to mitigate any inflationary increases through various customer pricing actions and cost reduction
initiatives, its profitability may be adversely affected.
Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce prices; there can
be no assurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures)
to offset any such price concessions which could adversely impact results of operations and cash flows.
Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited
number of suppliers may either cease operations or require additional financial assistance from the Company in order to fulfill
their obligations. In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such
significance that a change in established supply relationships with suppliers or increase in the costs of purchased raw materials,
component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or an inability to market
products. Changes in value-added tax rebates currently available to the Company or to its suppliers could also increase the
costs of the Company’s manufactured products as well as purchased products and components and could adversely affect the
Company’s results.
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.
The Company generates approximately 25% 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;