Black & Decker 2012 Annual Report Download - page 24

10
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.
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, nickel and resin. Additionally, the Company uses other commodity-based materials for components
and packaging including, but not limited to, plastics, wood and other 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.