Black & Decker 2011 Annual Report Download - page 21

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The Company’s business is subject to risks associated with sourcing and manufacturing overseas.
The Company imports large quantities of finished goods, component parts and raw materials. Substantially all of its import operations
are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements, bilateral actions or, in
some cases unilateral action. In addition, the countries in which the Company’s products and materials are manufactured or imported
may from time to time impose additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on
manufacturing operations) or adversely modify existing restrictions. Imports are also subject to unpredictable foreign currency
variation which may increase the Company’s cost of goods sold. Adverse changes in these import costs and restrictions, or the
Company’s suppliers’ failure to comply with customs regulations or similar laws, could harm the Company’s business.
The Company’s operations are also subject to the effects of international trade agreements and regulations such as the North American
Free Trade Agreement, and the activities and regulations of the World Trade Organization. Although these trade agreements generally
have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas
assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect the
Company’s business, such as setting quotas on products that may be imported from a particular country into key markets including the
U.S. or the European Union, or making it easier for other companies to compete, by eliminating restrictions on products from
countries where the Company’s competitors source products.
The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues
that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather or
increased homeland security requirements in the U.S. and other countries. These issues could delay importation of products or require
the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be
available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business and
financial condition.
The Company’s success depends on its ability to improve productivity and streamline operations to control or reduce costs.
The Company is committed to continuous productivity improvement and evaluating opportunities to reduce fixed costs, simplify or
improve processes, and eliminate excess capacity. The Company has undertaken restructuring actions, the savings of which may be
mitigated by many factors, including economic weakness, competitive pressures, and decisions to increase costs in areas such as sales
promotion or research and development above levels that were otherwise assumed. Failure to achieve or delays in achieving projected
levels of efficiencies and cost savings from such measures, or unanticipated inefficiencies resulting from manufacturing and
administrative reorganization actions in progress or contemplated, would adversely affect the Company’s results.
The performance of the Company may suffer from business disruptions associated with information technology, system
implementations, or catastrophic losses affecting distribution centers and other infrastructure.
The Company relies heavily on computer systems to manage and operate its businesses, and record and process transactions.
Computer systems are important to production planning, customer service and order fulfillment among other business-critical
processes. Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and
earnings performance of the various businesses in many countries.
Despite efforts to prevent such situations, insurance policies and loss control and risk management practices that partially mitigate
these risks, the Company’s systems may be affected by damage or interruption from, among other causes, power outages, computer
viruses, or security breaches. Computer hardware and storage equipment that is integral to efficient operations, such as e-mail,
telephone and other functionality, is concentrated in certain physical locations in the various continents in which the Company
operates.
In addition, the Company is in the process of system conversions to SAP as well as other applications to provide a common platform
across most of its businesses. There can be no assurances that expected expense synergies will be achieved or that there will not be
delays to the expected timing of such synergies. It is possible the costs to complete the system conversions may exceed current
expectations, and that significant costs may be incurred that will require immediate expense recognition as 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.