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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
X ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended January 1, 2011
OR
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period
from to
COMMISSION
FILE 1-5224
STANLEY BLACK &
DECKER, INC.
(Exact Name Of Registrant As
Specified In Its Charter)
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Connecticut
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06-0548860
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(State Or Other Jurisdiction Of
Incorporation Or Organization)
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(I.R.S. Employer
Identification Number)
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1000 Stanley Drive
New Britain, Connecticut
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06053
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(Address Of Principal Executive
Offices)
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(Zip Code)
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860-225-5111
(Registrants Telephone Number)
Securities Registered Pursuant To Section 12(b) Of The Act:
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Name Of Each Exchange
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Title Of Each Class
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On Which Registered
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Common Stock-$2.50
Par Value per Share
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New York Stock Exchange
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Securities
Registered Pursuant To Section 12(g) Of The
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act of 1933.
Yes
X No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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
12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes
X No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
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 registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
Yes No
X
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated filer X
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Accelerated filer
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Non-accelerated
filer
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Smaller reporting company
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2).
Yes No
X
As of July 2, 2010, the aggregate market values of voting
common equity held by non-affiliates of the registrant was
$8,212,019,983 based on the New York Stock Exchange closing
price for such shares on that date. On February 15, 2011,
the registrant had 167,207,462 shares of common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement to
be filed pursuant to Regulation 14A within 120 days
after the end of the registrants fiscal year are
incorporated by reference in Part III of the Annual Report
on
Form 10-K.
FORM 10-K
PART I
1(a) GENERAL DEVELOPMENT OF BUSINESS
(i) General. The Stanley Works (Stanley) was
founded in 1843 by Frederick T. Stanley and incorporated in
1852. Stanley is a diversified global provider of hand tools,
mechanical access solutions and electronic security solutions.
Stanley®
is a brand recognized around the world for quality and value.
On March 12, 2010, Stanley completed a merger (the
Merger) with the Black & Decker
Corporation (Black & Decker).
Black & Decker, which was incorporated in Maryland in
1910, is a leading global manufacturer and marketer of power
tools and accessories, hardware and home improvement products,
and technology-based (engineered) fastening systems.
Black & Decker enjoys worldwide recognition of its
strong brand names and a superior reputation for quality,
design, innovation and value. In connection with the Merger,
Stanley changed its name to Stanley Black & Decker,
Inc. Throughout this document, references to the
Company refer to Stanley Black & Decker,
Inc. The Companys consolidated financial statements
include Black & Deckers results of operations
and cash flows from March 13, 2010.
As detailed in Note E, Merger and Acquisitions, of the
Notes to the Consolidated Financial Statements in Item 8,
Black & Decker stockholders received 1.275 shares
of Stanley common stock for each share of Black &
Decker common stock outstanding as of the merger date.
Outstanding Black & Decker equity awards (primarily
stock options) were similarly exchanged for Stanley equity
awards. After the exchange was completed, pre-merger Stanley
shareowners retained ownership of 50.5% of the newly combined
company. Based on the $57.86 closing price of Stanley common
stock on March 12, 2010, the aggregate fair value of the
consideration transferred to consummate the Merger was
$4.657 billion.
Management believes the Merger is a transformative event
bringing together two highly complementary companies, with
iconic brands, rich histories and common distribution channels,
yet with minimal product overlap. The Merger also enables a
global offering in hand and power tools, as well as hardware,
thus enhancing the Companys value proposition to
customers. Management believes the value unlocked by the
anticipated $425 million in cost synergies, expected to be
achieved by the end of 2012, will help fuel future growth and
facilitate global cost leadership. This updated cost synergy
estimate represents a $75 million increase from the
original $350 million by March, 2013 at the time of the
Merger. The cost synergy drivers are: business unit and regional
consolidation (management, sales force and shared services
integration), $145 million; purchasing (materials, freight
etc.) $100 million; corporate overhead $95 million;
and manufacturing and distribution facility consolidation,
$85 million. The Company is ahead of plan on the
integration of the two companies and realized $135 million
of the cost synergies in 2010, which is $45 million more
than originally forecasted for the nine month period that
followed the merger. An additional $165 million of cost
synergies are anticipated in 2011, and an incremental
$125 million in 2012 to achieve the total cumulative
$425 million in cost synergies in 2012. Of the
$330 million in cost synergies pertaining to operations
(all but the $95 million of corporate overhead), the
benefit by segment is estimated to be 70% in CDIY, 20% in
Security (mechanical access solutions), and 10% in Industrial.
Management estimates there will be an additional
$200 million in total costs, incurred over the next two
years, to achieve these synergies from the Merger.
Additionally, it is projected that revenue synergies from the
Merger will be in the range of $300 million to
$400 million by 2013, which implies a benefit of
$0.35 $0.50 of earnings per diluted share. Revenue
synergies are expected to add an incremental 50 basis
points (approximately $50 million) to 2011 revenue growth
and have a modest earnings impact, with remaining revenue
synergies to be achieved in 2012 and 2013. The anticipated
revenue synergies will come from: geographic expansion into
Latin America and other emerging markets, leveraging
pre-existing infrastructure (30%); channel and cross-selling of
existing products, such as the sale of power tools through the
Companys industrial and automotive repair distributors
(30%); brand expansion, i.e. utilizing the array of powerful
brands in different product categories and channels and
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expanding across the globe, as exemplified by the recent
introduction of DeWalt hand tools in certain channels, (30%);
and joint new product development, which entails leveraging
development expertise from both legacy companies to pursue new
product opportunities (10%). The CDIY segment is expected to
realize approximately two-thirds of the revenue synergies, and
the remainder will be split evenly in the Industrial and
Security segments. In 2011, the Company intends to increase
capital expenditures to 2.5% 2.8% of revenues
partially as a result of infrastructure improvements to foster
attainment of the revenue synergies. In 2012 and beyond, the
capital expenditure ratio is expected to return to more
historical levels (2.0% 2.5% of revenues) in 2012.
Net sales from continuing operations have increased from
$3.7 billion in 2009 to a record $8.4 billion in 2010,
primarily as a result of the Merger, double digit organic growth
in the legacy Stanley Industrial segment, as well as the effects
of several smaller acquisitions. The Company sold the CST/berger
business in 2008 along with several other small divestitures in
2008. Results have been recast for these discontinued
operations. Refer to Note E, Merger and Acquisitions, and
Note T, Discontinued Operations, of the Notes to the
Consolidated Financial Statements in Item 8 for a
discussion of acquisitions and divestitures over the past three
years.
At January 1, 2011, the Company employed approximately
36,700 people worldwide. The Companys principal
executive office is located at 1000 Stanley Drive, New Britain,
Connecticut 06053 and its telephone number is
(860) 225-5111.
(ii) Restructuring Activities. Information regarding the
Companys restructuring activities is incorporated herein
by reference to the material captioned Restructuring
Activities in Item 7 and Note O, Restructuring
and Asset Impairments, of the Notes to the Consolidated
Financial Statements in Item 8.
1(b) FINANCIAL INFORMATION ABOUT SEGMENTS
Financial information regarding the Companys business
segments is incorporated herein by reference to the material
captioned Business Segment Results in Item 7
and Note P, Business Segments and Geographic Areas, of the
Notes to the Consolidated Financial Statements in Item 8.
1(c) NARRATIVE DESCRIPTION OF BUSINESS
The Companys operations are classified into three
reportable business segments: Construction &
Do-It-Yourself (CDIY), Security, and Industrial. All
segments have significant international operations in developed
countries, but do not have large investments that would be
subject to expropriation risk in developing countries.
Fluctuations in foreign currency exchange rates affect the
U.S. dollar translation of international operations in each
segment.
After consummation of the Merger, the Black & Decker
businesses were assessed and integrated into the Companys
existing reportable segments. The legacy Black &
Decker segments: Power Tools and Accessories,
Hardware & Home Improvement (HHI) and
Fastening and Assembly Systems, were integrated into the
Companys CDIY, Security and Industrial segments,
respectively, with the exception of the Pfister plumbing
products business which was formerly part of HHI but is included
in the CDIY segment. The results of Black &
Deckers operations are presented within each of these
segments and reflect activity since the Merger date.
CDIY
The CDIY segment manufactures and markets hand tools, corded and
cordless electric power tools and equipment, lawn and garden
products, consumer portable power products, home products,
accessories and attachments for power tools, plumbing products,
consumer mechanics tools, storage systems, and pneumatic tools
and fasteners. These products are sold to professional end
users, distributors, and consumers, and are primarily
distributed through retailers (including home centers, mass
merchants, hardware stores, and retail lumber yards). Hand tools
include measuring and leveling tools, planes, hammers,
demolition tools, knives and blades, screwdrivers, saws, chisels
and consumer tackers. Corded and cordless electric power tools
and equipment include drills, impact wrenches and drivers,
wet/dry vacuums, lights, radios/chargers, grinders, various
saws, polishers, plate joiners, jointers, lathes, dust
management systems, routers, planers, tile saws, sanders, air
tools, building instruments, air compressors, laser products,
and
Workmate®
products. Lawn and garden products include hedge trimmers,
string trimmers, lawn mowers, edgers, pruners, shears,
shrubbers, blowers/vacuums, chain saws, and related accessories.
Consumer portable power products include inverters,
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jump-starters, vehicle battery chargers, rechargeable
spotlights, and other related products. Home products are
comprised of stick, canister and hand-held vacuums, flexible
flashlights, paint tools and cleaning solutions. Accessories and
attachments for power tools include drill bits, hammer bits,
router bits, hacksaws and blades, circular saw blades, jig and
reciprocating saw blades, diamond blades, screwdriver bits and
quick-change systems, bonded and other abrasives and worksite
tool belts and bags. Plumbing products consist of a variety of
conventional and decorative lavatory, kitchen, tub and shower
faucets. Consumer mechanics tools include wrenches and sockets.
Storage systems include plastic boxes, sawhorses and storage
units. Pneumatic tools and fasteners include nail guns,
staplers, nails and staples that are used for construction,
remodeling, furniture making, pallet manufacturing and other
applications involving the attachment of wooden materials.
The Companys product service program supports its power
tools and lawn and garden products. Replacement parts and
product repair services are available through a network of
company-operated service centers. At January 1, 2011, there
were approximately 100 such service centers, of which
approximately 80 were located in the United States of America.
The remaining centers are located around the world, primarily in
Canada, Europe and Asia. These company-operated service centers
are supplemented by several hundred authorized service centers
operated by independent local owners. The Company also operates
reconditioning centers in which power tools, lawn and garden
products, and electric cleaning and lighting products are
reconditioned and then resold through various company-operated
factory outlets and service centers and various independent
distributors.
Security
The Security segment provides access and security solutions
primarily for consumers, retailers, educational, financial and
healthcare institutions, as well as commercial, governmental and
industrial customers. The Company provides an extensive suite of
mechanical and electronic security products and systems, and a
variety of security services. These include security integration
systems, software, related installation, maintenance, and
monitoring services, automatic doors, door closers, electronic
keyless entry systems, exit devices, healthcare storage and
supply chain solutions, patient protection products, hardware
(including door and cabinet knobs and hinges, door stops, kick
plates, house numbers, gate hardware, cabinet pulls, hooks,
braces and shelf brackets), locking mechanisms, electronic
keyless entry systems, keying systems, tubular and mortise door
locksets. Security products are sold predominantly on a direct
sales basis, distributed through retailers (including home
centers) and in certain instances, through third party
distributors.
Industrial
The Industrial segment manufactures and markets professional
industrial and automotive mechanics tools and storage systems,
metal and plastic fasteners and engineered fastening systems,
hydraulic tools and accessories, and specialty tools. These
products are sold to industrial customers including automotive,
transportation, electronics, aerospace, machine tool and
appliance industries and are distributed through third party
distributors as well as through direct sales forces. Through its
acquisition of CRC-Evans Pipeline International
(CRC-Evans) in 2010, the Industrial segment also
provides services and specialized tools and equipment such as
custom pipe handling, joint welding and coating equipment used
in the construction of large and small diameter pipelines.
Professional and automotive mechanics tools and storage systems
include wrenches, sockets, electronic diagnostic tools, power
tools, tool boxes and high-density industrial storage and
retrieval systems. Metal and plastic fasteners and engineered
fastening systems include blind riveting, stud welding,
specialty screws, prevailing torque nuts and assemblies, insert
systems, metal and plastic fasteners, and self-piercing riveting
systems, as well as electric and pneumatic assembly tools. These
are high performance precision tools, controllers and systems
for tightening threaded fasteners used chiefly by vehicle
manufacturers. Hydraulic tools and accessories are comprised of
hand-held hydraulic tools and mounted hydraulic tools used by
scrap yards, contractors, utilities, railroads and public works
as well as mounted demolition hammers and compactors designed to
work on skid steer loaders, mini-excavators, backhoes and large
excavators. Specialty tools are used for assembling, repairing
and testing electronic equipment.
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Competition
The Company competes on the basis of its reputation for product
quality, its well-known brands, its commitment to customer
service, strong customer relationships, the breadth of its
product lines and its innovative products and customer value
propositions.
The Company encounters active competition in all of its
businesses from both larger and smaller companies that offer the
same or similar products and services or that produce different
products appropriate for the same uses. The Company has a large
number of competitors; however, aside from a small number of
competitors in the consumer hand tool and consumer hardware
businesses who produce a range of products somewhat comparable
to the Companys, the majority of its competitors compete
only with respect to one or more individual products or product
lines in that segment. Certain large customers offer private
label brands (house brands) that compete across a
wider spectrum of the Companys CDIY segment product
offerings. The Company is one of the largest manufacturers of
hand and power tools in the world. The Company is a significant
manufacturer of pneumatic fastening tools and related fasteners
for the construction, furniture and pallet industries as well as
a leading manufacturer of hydraulic tools used for heavy
construction, railroad, utilities and public works. The Company
also believes that it is among the larger direct providers of
commercial access security integration and alarm monitoring
services in North America and France.
Customers
A significant portion of the Companys products are sold to
home centers and mass merchants in the U.S. and Europe. A
consolidation of retailers both in North America and abroad has
occurred over time. While this consolidation and the domestic
and international expansion of these large retailers has
provided the Company with opportunities for growth, the
increasing size and importance of individual customers creates a
certain degree of exposure to potential sales volume loss. As a
result of the Companys diversification strategy, legacy
Stanley sales to U.S. home centers and mass merchants
declined from a high of approximately 40% in 2002 to 14% in
2010. On a pro-forma combined basis (as if combined the entire
year), Stanley and Black & Decker 2010 sales to
U.S. home centers and mass merchants were approximately
31%, including nearly 21% of sales to the combined
Companys two largest customers. As acquisitions in the
various growth platforms (electronic/convergent Security,
mechanical security, engineered fastening, infrastructure
solutions and healthcare solutions) are made in future years,
the proportion of sales to these valued U.S. home center
and mass merchant customers is expected to decrease.
Raw Materials
The Companys products are manufactured using both ferrous
and non-ferrous metals including, but not limited to steel,
zinc, copper, brass, aluminum and nickel, and resin also
represents a significant commodity used in production.
Additionally, the Company uses other commodity-based materials
for components and packaging including, but not limited to,
plastics, wood, and other corrugated products. The raw materials
required are procured globally and available from multiple
sources at competitive prices. The Company does not anticipate
difficulties in obtaining supplies for any raw materials or
energy used in its production processes.
Backlog
Due to short order cycles and rapid inventory turnover in most
of the Companys CDIY and Industrial segment businesses,
backlog is generally not considered a significant indicator of
future performance. At February 5, 2011, the Company had
approximately $705 million in unfilled orders.
Substantially all of these orders are reasonably expected to be
filled within the current fiscal year. As of February 6,
2010 and February 2, 2009, unfilled orders amounted to
$320 million and $348 million, respectively.
Patents and Trademarks
No business segment is dependent, to any significant degree, on
patents, licenses, franchises or concessions and the loss of
these patents, licenses, franchises or concessions would not
have a material adverse effect on any of the business segments.
The Company owns numerous patents, none of which individually is
material to
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the Companys operations as a whole. These patents expire
at various times over the next 20 years. The Company holds
licenses, franchises and concessions, none of which individually
or in the aggregate are material to the Companys
operations as a whole. These licenses, franchises and
concessions vary in duration, but generally run from one to
40 years.
The Company has numerous trademarks that are used in its
businesses worldwide. The
STANLEY®
and STANLEY in a Notched
Rectangle®
trademarks are material to all three business segments. These
well-known trademarks enjoy a reputation for quality and value
and are among the worlds most trusted brand names. The
Companys tagline, Make Something
Great®
is the centerpiece of the brand strategy for all segments. In
the CDIY segment, the
Bostitch®,
Bailey®,
Powerlock®,
Tape Rule Case
Design®,
FatMax®,
Black &
Decker®,
DeWalt®,
DustBuster®,
Porter-Cable®,
Workmate®
and
Pfister®
family of trademarks are material. The
BEST®,
Blicktm,
HSM®,
National®,
Sargent &
Greenleaf®,
S&G®
Sonitrol®,
Xmark®,
Kwikset®,
Weiser®,
and
Baldwin®
trademarks are material to the Security segment. The
CRC®,
LaBounty®,
MAC®,
Mac
Tools®,
Proto®,
Vidmar®,
Facom®,
Virax®,
USAG®,
and Emhart
Teknologiestm
trademarks are material to the Industrial segment. The terms of
these trademarks vary, typically, from 10 to 20 years, with
most trademarks being renewable indefinitely for like terms.
Environmental Regulations
The Company is subject to various environmental laws and
regulations in the U.S. and foreign countries where it has
operations. Future laws and regulations are expected to be
increasingly stringent and will likely increase the
Companys expenditures related to environmental matters.
The Environmental Protection Agency (EPA) has
provided an affiliate of Black & Decker a Notice
of Potential Liability related to environmental
contamination found at the Centredale Manor Restoration Project
Superfund site, located in North Providence, Rhode Island. The
EPA has discovered a variety of contaminants at the site,
including but not limited to, dioxins, polychlorinated
biphenyls, and pesticides. The EPA alleged that an affiliate of
Black & Decker is liable for site
clean-up
costs under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) as a
successor to the liability of Metro-Atlantic, Inc., a former
operator at the site, and demanded reimbursement of the
EPAs costs related to this site. The EPA released a draft
Feasibility Study Report in May 2010, which identified and
evaluated possible remedial alternatives for the site. The
estimated remediation costs related to this Centredale site
(including the EPAs past costs as well as costs of
additional investigation, remediation, and related costs such as
the EPAs oversight costs, less escrowed funds contributed
by primary potentially responsible parties (PRPs) who have
reached settlement agreements with the EPA), which the Company
considers to be probable and reasonably estimable, range from
approximately $68.3 million to $212.8 million, with no
amount within that range representing a more likely outcome
until such time as the EPA completes its remedy selection
process for the site. The Companys reserve for this
environmental remediation matter of $68.3 million reflects
the fact that the EPA considers Metro-Atlantic, Inc. to be a
primary source of contamination at the site. The Company has
determined that it is likely to contest the EPAs claims
with respect to this site. Further, to the extent that the
Company agrees to perform or finance additional remedial
activities at this site, it intends to seek participation or
contribution from additional PRPs and insurance carriers. As the
specific nature of the environmental remediation activities that
may be mandated by the EPA at this site have not yet been
determined, the ultimate remedial costs associated with the site
may vary from the amount accrued by the Company at
January 1, 2011.
The EPA and the Santa Ana Regional Water Quality Control Board
have each initiated administrative proceedings against
Black & Decker and certain of its current or former
affiliates alleging that Black & Decker and numerous
other defendants are responsible to investigate and remediate
alleged groundwater contamination in and adjacent to a
160-acre
property located in Rialto, California. The cities of Colton and
Rialto, as well as Goodrich Corporation, also initiated lawsuits
against Black & Decker and certain of its former or
current affiliates in the Federal District Court for California,
Central District alleging similar claims that Black &
Decker is liable under CERCLA, the Resource Conservation and
Recovery Act, and state law for the discharge or release of
hazardous substances into the environment and the contamination
caused by those alleged releases. The City of Colton also has a
companion case in California State court, which is currently
stayed for all purposes. Certain defendants in that case have
cross-claims against other defendants and have
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asserted claims against the State of California. The
administrative proceedings and the lawsuits generally allege
that West Coast Loading Corporation (WCLC), a
defunct company that operated in Rialto between 1952 and 1957,
and an as yet undefined number of other defendants are
responsible for the release of perchlorate and solvents into the
groundwater basin, and that Black & Decker and certain
of its current or former affiliates are liable as a
successor of WCLC. The Company believes that neither
the facts nor the law support an allegation that
Black & Decker is responsible for the contamination
and is vigorously contesting these claims.
In addition, the Company is a party to a number of proceedings
before federal and state regulatory agencies relating to
environmental remediation. Also, the Company, along with many
other companies, has been named as a PRP in a number of
administrative proceedings for the remediation of various waste
sites, including 36 active Superfund sites. Current laws
potentially impose joint and several liabilities upon each PRP.
In assessing its potential liability at these sites, the Company
has considered the following: whether responsibility is being
disputed, the terms of existing agreements, experience at
similar sites, and the Companys volumetric contribution at
these sites.
The Companys policy is to accrue environmental
investigatory and remediation costs for identified sites when it
is probable that a liability has been incurred and the amount of
loss can be reasonably estimated. The amount of liability
recorded is based on an evaluation of currently available facts
with respect to each individual site and includes such factors
as existing technology, presently enacted laws and regulations,
and prior experience in remediation of contaminated sites. The
liabilities recorded do not take into account any claims for
recoveries from insurance or third parties. As assessments and
remediation progress at individual sites, the amounts recorded
are reviewed periodically and adjusted to reflect additional
technical and legal information that becomes available. As of
January 1, 2011 and January 2, 2010, the Company had
reserves of $173.0 million and $29.7 million,
respectively, for remediation activities associated with
Company-owned properties, as well as for Superfund sites, for
losses that are probable and estimable. Of the 2010 amount,
$25.9 million is classified as current and
$147.1 million as long-term which is expected to be paid
over the estimated remediation period. The range of
environmental remediation costs that is reasonably possible is
$157 million to $349 million which is subject to
change in the near term. The Company may be liable for
environmental remediation of sites it no longer owns.
Liabilities have been recorded on those sites in accordance with
policy.
The amount recorded for identified contingent liabilities is
based on estimates. Amounts recorded are reviewed periodically
and adjusted to reflect additional technical and legal
information that becomes available. Actual costs to be incurred
in future periods may vary from the estimates, given the
inherent uncertainties in evaluating certain exposures. Subject
to the imprecision in estimating future contingent liability
costs, the Company does not expect that any sum it may have to
pay in connection with these matters in excess of the amounts
recorded will have a materially adverse effect on its financial
position, results of operations or liquidity.
Employees
At January 1, 2011, the Company had approximately
36,700 employees, nearly 14,400 of whom were employed in
the U.S. Approximately 950 U.S. employees are covered
by collective bargaining agreements negotiated with 21 different
local labor unions who are, in turn, affiliated with
approximately 6 different international labor unions. The
majority of the Companys hourly-paid and weekly-paid
employees outside the U.S. are not covered by collective
bargaining agreements. The Companys labor agreements in
the U.S. expire in 2011, 2012, 2013 and 2014. There have
been no significant interruptions or curtailments of the
Companys operations in recent years due to labor disputes.
The Company believes that its relationship with its employees is
good.
1(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
Financial information regarding the Companys geographic
areas is incorporated herein by reference to Note P,
Business Segments and Geographic Areas, of the Notes to the
Consolidated Financial Statements in Item 8.
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1(e) AVAILABLE INFORMATION
The Companys website is located at
http://www.stanleyblackanddecker.com.
This URL is intended to be an inactive textual reference only.
It is not intended to be an active hyperlink to our website. The
information on our website is not, and is not intended to be,
part of this
Form 10-K
and is not incorporated into this report by reference. The
Company makes its
Forms 10-K,
10-Q,
8-K and
amendments to each available free of charge on its website as
soon as reasonably practicable after filing them with, or
furnishing them to, the U.S. Securities and Exchange
Commission.
The Companys business, operations and financial
condition are subject to various risks and uncertainties. You
should carefully consider the risks and uncertainties described
below, together with all of the other information in this Annual
Report on
Form 10-K,
including those risks set forth under the heading entitled
Cautionary Statements Under the Private Securities
Litigation Reform Act of 1995, and in other documents that
the Company files with the U.S. Securities and Exchange
Commission, before making any investment decision with respect
to its securities. If any of the risks or uncertainties actually
occur or develop, the Companys business, financial
condition, results of operations and future growth prospects
could change. Under these circumstances, the trading prices of
the Companys securities could decline, and you could lose
all or part of your investment in the Companys
securities.
If the
pace of recovery in the retail, residential and commercial
markets in the Americas, Europe or Asia is sluggish, or general
economic conditions do not improve, it could have a material
adverse effect on the Companys business.
The Company conducts 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, the Companys businesses could be
adversely affected by a decline in the U.S. and
international economies, particularly with respect to
residential and commercial markets, including, but not limited
to recession, inflation or deflation. It is possible any such
softness may result in an unfavorable impact on sales, earnings
and cash flows. Also, any deterioration of retail, automotive,
residential or commercial construction markets, changes in
consumer purchasing power or in general economic conditions,
could reduce demand for Company products and therefore have a
material adverse effect on sales, earnings and cash flows. In
addition, due to such economic conditions, it is possible
certain customers credit-worthiness may erode resulting in
increased write-offs of customer receivables.
The
failure to successfully integrate the businesses of Stanley and
Black & Decker in the expected time frame could
adversely affect the Companys future
results.
The success of the Merger will depend, in large part, on the
ability of the Company to realize the anticipated benefits,
including cost savings, from combining the businesses of Stanley
and Black & Decker. To realize these anticipated
benefits, the businesses of Stanley and Black & Decker
must be successfully integrated. This integration is complex and
time-consuming. The failure to integrate successfully and to
manage successfully the challenges presented by the integration
process may result in the combined company not achieving the
anticipated benefits of the Merger;
Potential difficulties that may be encountered in the
integration process include the following:
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the inability to successfully integrate the businesses of
Stanley and Black & Decker in a manner that permits
the combined company to achieve the cost savings anticipated to
result from the Merger;
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the inability to implement information technology system changes
to get the combined businesses on common platforms;
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lost sales and customers as a result of customers of either of
the two companies deciding not to do business with the combined
company;
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complexities associated with managing the larger, more complex,
combined business;
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integrating personnel from the two companies while maintaining
focus on providing consistent, high quality products;
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potential unknown liabilities and unforeseen expenses, delays or
regulatory conditions associated with the Merger; and
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performance shortfalls at one or both of the companies as a
result of the diversion of managements attention caused by
integrating the companies operations.
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The
Company has incurred, and will continue to incur, substantial
integration-related expenses resulting from the
Merger.
The Company will continue to incur substantial expenses in
connection with the Merger and the integration of
Black & Decker including certain restructuring actions
that may be taken to achieve synergies. Approximately
$200 million of pre-tax restructuring and integration
expense pertaining to the Merger is expected to be incurred over
the next two years, in order to achieve an additional estimated
$290 million of pre-tax annualized synergy benefits. There
are a large number of processes, policies, procedures,
operations, technologies and systems that must be integrated,
including purchasing, accounting and finance, sales, billing,
payroll, manufacturing, marketing and benefits. While the
Company has assumed an estimated $200 million of expenses
will be incurred, there are many factors beyond its control that
could affect the total amount or the timing of the integration
expenses. Moreover, many of the expenses that will be incurred
are, by their nature, difficult to estimate accurately. These
expenses could, particularly in the near term, exceed the
savings that the Company expects to achieve from the elimination
of duplicative expenses and the realization of economies of
scale and cost savings. During 2010 the Company incurred
$538 million of pre-tax merger and acquisition-related
charges primarily related to restructuring costs associated with
facility closures, employee severance charges, certain executive
compensation charges, investment banking fees, and integration
related advisory and consulting fees. While management believes
the $200 million estimate is reasonable, the amount of
future integration expense is not certain and could result in
the Company taking significant additional charges against
earnings in future periods.
The
Companys growth and repositioning strategies include
acquisitions. The Company may not be able to successfully
integrate the operations of recent acquisitions and the Company
may not be able to identify suitable future acquisition
candidates.
In 2002, the Company embarked on a growth strategy to shift its
business portfolio toward favored growth markets through
acquisitions and divestitures. The strategy has been advanced
over the last several years with the Merger and the acquisition
of a number of companies, including Stanley Solutions de
Sécurité (SSDS), CRC-Evans Pipeline
International (CRC-Evans), GMT, Infologix,
Générale de Protection (GdP), Xmark
Corporation (Xmark), Sonitrol Corporation
(Sonitrol), and HSM Electronic Protection Services,
Inc. (HSM).
The Company expends significant resources identifying
opportunities to acquire new lines of business and companies
that could contribute to its success and expansion into existing
and new markets. Although the Company has extensive experience
with acquisitions, there can be no assurance that recently
acquired companies will be successfully integrated or that
anticipated cost savings, synergies, or other benefits will be
realized. If the Company successfully integrates the acquired
companies and effectively implements its repositioning strategy,
there can be no assurance that these acquired businesses will
enjoy continued market acceptance or profitability.
In addition, there can be no assurance that the Company will be
able to successfully identify suitable future acquisition
candidates, negotiate appropriate terms, obtain the necessary
financing, complete the transactions or successfully integrate
the new companies as necessary to continue its growth and
repositioning strategies. If the Company is unable to
successfully integrate acquisitions, it could have a material
adverse affect on its business, financial condition and future
growth.
9
The
Companys acquisitions may result in certain risks for its
business and operations.
In addition to the Merger, the Company made one other
significant acquisition of CRC-Evans in 2010 in addition to nine
smaller acquisitions, six small acquisitions in 2009, and a
number of more significant acquisitions in 2008, including, but
not limited to: GdP in October 2008 and Sonitrol and Xmark in
July 2008. The Company may make additional acquisitions in the
future. Acquisitions involve a number of risks, including:
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the diversion of Company managements attention and other
resources,
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the incurrence of unexpected liabilities, and
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the loss of key personnel and clients or customers of acquired
companies.
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Any intangible assets that the Company acquires may have a
negative effect on its earnings and return on capital employed.
In addition, the success of the Companys future
acquisitions will depend in part on its ability to:
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combine operations,
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integrate departments, systems and procedures, and
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obtain cost savings and other efficiencies from the acquisitions.
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Failure to effectively consummate or manage future acquisitions
may adversely affect the Companys existing businesses and
harm its operational results due to large write-offs, contingent
liabilities, substantial depreciation, adverse tax or other
consequences. The Company is still in the process of integrating
the businesses and operations of Black & Decker,
CRC-Evans, SSDS and certain other smaller acquisitions made in
the past two years. The Company cannot ensure that such
integrations will be successfully completed, or that all of the
planned synergies will be realized.
The
Company has incurred, and may incur in the future, significant
indebtedness, or issue additional equity securities, in
connection with mergers or acquisitions which may impact the
manner in which it conducts business or the Companys
access to external sources of liquidity. The potential issuance
of such securities may limit the Companys ability to
implement elements of its growth strategy and may have a
dilutive effect on earnings.
As described in Note H, Long-Term Debt and Financing
Arrangements, of the Notes to the Consolidated Financial
Statements in Item 8, the Company has a committed revolving
credit agreement, expiring in February 2013, supporting
borrowings up to $800 million. Upon closing of the Merger,
the Company entered into a $700 million revolving credit
agreement that became effective on March 12, 2010 and will
expire in March 2011. These agreements include provisions that
allow designated subsidiaries to borrow up to $250 million
in Euros and Pounds Sterling, which may be available to, among
other things, fund acquisitions.
The instruments and agreements governing certain of the
Companys current indebtedness contain requirements or
restrictive covenants that include, among other things:
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a limitation on creating liens on certain property of the
Company and its subsidiaries;
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a restriction on entering into certain sale-leaseback
transactions;
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customary events of default. If an event of default occurs and
is continuing, the Company might be required to repay all
amounts outstanding under the respective instrument or
agreement; and
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maintenance of a specified financial ratio. The Company has an
interest coverage covenant that must be maintained to permit
continued access to its committed revolving credit facilities.
The interest coverage ratio tested for covenant compliance
compares adjusted Earnings Before Interest, Taxes, Depreciation
and Amortization to adjusted Interest Expense (adjusted
EBITDA/adjusted Interest Expense); such
adjustments to interest or EBITDA include, but are not limited
to, removal of non-cash interest expense, certain restructuring
and other merger and acquisition-related charges as well
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as stock-based compensation expense. The adjustments to interest
expense and EBITDA for purposes of this interest coverage ratio
computation are defined in the debt agreements included as
Exhibits 10.1, 10.2(a), 10.2(b) and 10.2(c) of this Form
10K. The ratio required for compliance is 3.5 EBITDA to 1.0
Interest Expense and is computed quarterly, on a rolling twelve
months (last twelve months) basis. Under this covenant
definition, the interest coverage ratio was approximately 11
times EBITDA or higher in each of the 2010 quarterly measurement
periods. Management does not believe it is reasonably likely the
Company will breach this covenant. Failure to maintain this
ratio could adversely affect further access to liquidity.
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Future instruments and agreements governing indebtedness may
impose other restrictive conditions or covenants. Such covenants
could restrict the Company in the manner in which it conducts
business and operations as well as in the pursuit of its growth
and repositioning strategies.
The
Company is exposed to counterparty risk in its hedging
arrangements.
From time to time the Company enters into arrangements with
financial institutions to hedge exposure to fluctuations in
currency and interest rates, including forward contracts and
swap agreements. The failure of one or more counterparties to
the Companys hedging arrangements to fulfill their
obligations could adversely affect the Companys results of
operations.
The
Companys 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 Companys products are manufactured using both ferrous
and non-ferrous metals including, but not limited to steel,
zinc, copper, brass, aluminum and nickel, and resin also
represents a significant commodity used in production.
Additionally, the Company uses other commodity-based materials
for components and packaging including, but not limited to:
plastics, wood, and other corrugated products. The
Companys 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 Companys 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. An increase in value-added tax
rebates currently available to the Company or to its suppliers,
could also increase the costs of the Companys manufactured
products as well as purchased products and components and could
adversely affect the Companys results of operations.
Tight
capital and credit markets could adversely affect the Company by
limiting the Companys or its customers ability to
borrow or otherwise access liquidity.
The Companys growth plans are dependent on, among other
things, the availability of funding to support corporate
initiatives and complete appropriate acquisitions and the
ability to increase sales of existing product lines. While the
Company has not encountered financing difficulties to date, the
capital and credit markets experienced extreme volatility and
disruption in late 2008 and in early 2009. Market conditions
could make it more difficult for the Company to borrow or
otherwise obtain the cash required for significant new corporate
initiatives and acquisitions. In addition, there could be a
number of follow-on effects from such a credit crisis
11
on the Companys businesses, including: insolvency of key
suppliers resulting in product delays; inability of customers to
obtain credit to finance purchases of the Companys
products
and/or
customer insolvencies; and failure of derivative counterparties
and other financial institutions negatively impacting the
Companys treasury operations.
The
Company is exposed to market risk from changes in foreign
currency exchange rates which could negatively impact
profitability.
The Company manufactures and sell its products in many countries
throughout the world. As a result, there is exposure to foreign
currency risk as the Company enters into transactions and makes
investments denominated in multiple currencies. The
Companys predominant exposures are in European, Canadian,
British, and Asian currencies, including the Chinese Renminbi
(RMB). In preparing its financial statements, for
foreign operations with functional currencies other than the
U.S. dollar, asset and liability accounts are translated at
current exchange rates, and income and expenses are translated
using weighted-average exchange rates. With respect to the
effects on translated earnings, if the U.S. dollar
strengthens relative to local currencies, the Companys
earnings could be negatively impacted. In 2010, foreign currency
translation positively impacted earnings by $0.04 per diluted
share. The translation impact has been more material in the past
and may be more material in the future. Although the Company
utilizes risk management tools, including hedging, as it deems
appropriate, to mitigate a portion of potential market
fluctuations in foreign currencies, there can be no assurance
that such measures will result in all market fluctuation
exposure being eliminated. The Company does not make a practice
of hedging its
non-U.S. dollar
earnings.
The Company sources many products from China and other Asian
low-cost countries for resale in other regions. To the extent
the RMB or other currencies appreciate with respect to the
U.S. dollar, the Company may experience cost increases on
such purchases. The Company may not be successful at
implementing customer pricing or other actions in an effort to
mitigate the related cost increases and thus its profitability
may be adversely impacted.
The
Companys 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 Companys 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 Companys cost of goods sold.
Adverse changes in these import costs and restrictions, or the
Companys suppliers failure to comply with customs
regulations or similar laws, could harm the Companys
business.
The Companys 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 Companys 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
Companys competitors source products.
The Companys 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
12
short notice or could result in higher transit costs, which
could have an adverse impact on the Companys business and
financial condition.
The
Companys 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 also 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
Companys results of operations.
Changes
in customer preferences, the inability to maintain mutually
beneficial relationships with large customers, inventory
reductions by customers, and the inability to penetrate new
channels of distribution could adversely affect the
Companys business.
The Company has certain significant customers, particularly home
centers and major retailers, although no one customer
represented more than 10% of consolidated net sales in 2010.
However, on a pro-forma basis (as if Black & Decker
were part of the Companys results for the entire year
2010), the two largest customers comprised nearly 21% of net
sales and U.S. mass merchants and home centers collectively
comprised approximately 31% of net sales. The loss or material
reduction of business, the lack of success of sales initiatives,
or changes in customer preferences or loyalties, for the
Companys products related to any such significant customer
could have a material adverse impact on the Companys
results of operations and cash flows. In addition, the
Companys major customers are volume purchasers, a few of
which are much larger than the Company and have strong
bargaining power with suppliers. This limits the ability to
recover cost increases through higher selling prices.
Furthermore, unanticipated inventory adjustments by these
customers can have a negative impact on sales.
During 2009 the Company experienced significant distributor
inventory corrections reflecting de-stocking of the supply chain
associated with difficult credit markets. Such distributor
de-stocking exacerbated sales volume declines pertaining to weak
end user demand and the broader economic recession. The
Industrial segment generally sells to distributors where the
Company does not have point of sale data to see end user demand
trends; however, a substantial portion of the overall volume
declines within the Industrial segment was believed to be
attributable to such de-stocking or customer inventory
adjustments. The Companys results may be adversely
impacted in future periods by such customer inventory
adjustments. Further, the inability to continue to penetrate new
channels of distribution may have a negative impact on the
Companys future results.
Customer
consolidation could have a material adverse effect on the
Companys business.
A significant portion of the Companys products are sold
through home centers and mass merchant distribution channels in
the U.S. and Europe. A consolidation of retailers in both
North America and abroad has occurred over time and the
increasing size and importance of individual customers creates
risk of exposure to potential volume loss. The loss of certain
larger home centers as customers would have a material adverse
effect on the Companys business until either such
customers were replaced or the Company made the necessary
adjustments to compensate for the loss of business.
If the
Company were required to write down all or part of its goodwill,
indefinite-lived trade names, or other definite-lived intangible
assets, its net income and net worth could be materially
adversely affected.
As a result of the Merger and previous acquisitions, the Company
has $5.942 billion of goodwill, $1.652 billion of
indefinite-lived trade names, and $1.220 billion of
definite-lived intangible assets at January 1, 2011. The
13
Company is required to periodically, at least annually,
determine if its goodwill or indefinite-lived trade names have
become impaired, in which case it would write down the impaired
portion of the intangible asset. The definite-lived intangible
assets, including customer relationships, are amortized over
their estimated useful lives; such assets are also evaluated for
impairment when appropriate. Impairment of intangible assets may
be triggered by developments outside of the Companys
control, such as worsening economic conditions, technological
change, intensified competition or other factors resulting in
deleterious consequences.
Income
tax payments may ultimately differ from amounts currently
recorded by the Company. Future tax law changes may materially
increase the Companys prospective income tax
expense.
The Company is subject to income taxation in the U.S. as
well as numerous foreign jurisdictions. Judgment is required in
determining the Companys worldwide income tax provision
and accordingly there are many transactions and computations for
which the final income tax determination is uncertain. The
Company is routinely audited by income tax authorities in many
tax jurisdictions. Although management believes the recorded tax
estimates are reasonable, the ultimate outcome from any audit
(or related litigation) could be materially different from
amounts reflected in the Companys income tax provisions
and accruals. Future settlements of income tax audits may have a
material effect on earnings between the period of initial
recognition of tax estimates in the financial statements and the
point of ultimate tax audit settlement. Additionally, it is
possible that future income tax legislation may be enacted that
could have a material impact on the Companys worldwide
income tax provision beginning with the period that such
legislation becomes effective. Also, while a reduction in
statutory rates would result in a favorable impact on future net
earnings, it would require an initial write down of any deferred
tax assets in the related jurisdiction.
The
Companys failure to continue to successfully avoid,
manage, defend, litigate and accrue for claims and litigation
could negatively impact its results of operations or cash
flows.
The Company is exposed to and becomes involved in various
litigation matters arising out of the ordinary routine conduct
of its business, including, from time to time, actual or
threatened litigation relating to such items as commercial
transactions, product liability, workers compensation, the
Companys distributors and franchisees, intellectual
property claims and regulatory actions.
In addition, the Company is subject to environmental laws in
each jurisdiction in which business is conducted. Some of the
Companys products incorporate substances that are
regulated in some jurisdictions in which it conducts
manufacturing operations. The Company could be subject to
liability if it does not comply with these regulations. In
addition, the Company is 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 the Company but at which it has 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 the Companys
operations due to increased costs of compliance and potential
liability for non-compliance.
There can be no assurance that the Company will be able to
continue to successfully avoid, manage and defend such matters.
In addition, given the inherent uncertainties in evaluating
certain exposures, actual costs to be incurred in future periods
may vary from the Companys estimates for such contingent
liabilities.
The
Companys brands are important assets of its businesses and
violation of its trademark rights by imitators, or the failure
of its licensees or vendors to comply with the Companys
product quality, manufacturing requirements, marketing
standards, and other requirements could negatively impact
revenues and brand reputation.
The Companys trademarks enjoy a reputation for quality and
value and are important to its success and competitive position.
Unauthorized use of the Companys trademark rights may not
only erode sales of the Companys products, but may also
cause significant damage to its brand name and reputation,
interfere with its ability to effectively represent the Company
to its customers, contractors, suppliers,
and/or
licensees, and increase litigation costs. Similarly, failure by
licensees or vendors to adhere to the Companys standards
of
14
quality and other contractual requirements could result in loss
of revenue, increased litigation,
and/or
damage to the Companys reputation and business. There can
be no assurance that the Companys on-going effort to
protect its brand and trademark rights and ensure compliance
with its licensing and vendor agreements will prevent all
violations.
Successful
sales and marketing efforts depend on the Companys ability
to recruit and retain qualified employees.
The success of the Companys efforts to grow its business
depends on the contributions and abilities of key executives,
its sales force and other personnel, including the ability of
its sales force to adapt to any changes made in the sales
organization and achieve adequate customer coverage. The Company
must therefore continue to recruit, retain and motivate
management, sales and other personnel sufficiently to maintain
its current business and support its projected growth. A
shortage of these key employees might jeopardize the
Companys ability to implement its growth strategy.
The
Company faces active global competition and if it does not
compete effectively, its business may suffer.
The Company faces active competition and resulting pricing
pressures. The Companys products compete on the basis of,
among other things, its reputation for product quality, its
well-known brands, price, innovation and customer service
capabilities. The Company competes with both larger and smaller
companies that offer the same or similar products and services
or that produce different products appropriate for the same
uses. These companies are often located in countries such as
China, Taiwan and India where labor and other production costs
are substantially lower than in the U.S., Canada and Western
Europe. Also, certain large customers offer house brands that
compete with some of the Companys product offerings as a
lower-cost alternative. To remain profitable and defend market
share, the Company must maintain a competitive cost structure,
develop new products and services, lead product innovation,
respond to competitor innovations and enhance its existing
products in a timely manner. The Company may not be able to
compete effectively on all of these fronts and with all of its
competitors, and the failure to do so could have a material
adverse effect on its sales and profit margins.
The Stanley Fulfillment System (SFS) is a continuous
operational improvement process applied to many aspects of the
Companys business such as procurement, quality in
manufacturing, maximizing customer fill rates, integrating
acquisitions and other key business processes. In the event the
Company is not successful in effectively applying the SFS
disciplines to its key business processes, including those of
acquired businesses, its ability to compete and future earnings
could be adversely affected.
In addition, the Company may have to reduce prices on its
products and services, or make other concessions, to stay
competitive and retain market share. Price reductions taken by
the Company 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 its business. The Company engages
in restructuring actions, sometimes entailing shifts of
production to low-cost countries, as part of its efforts to
maintain a competitive cost structure. If the Company does not
execute restructuring actions well, its ability to meet customer
demand may decline, or earnings may otherwise be adversely
impacted; similarly if such efforts to reform the cost structure
are delayed relative to competitors or other market factors the
Company may lose market share and profits.
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.
15
Despite efforts to prevent such situations, insurance policies
and loss control and risk management practices, that partially
mitigate these risks, the Companys 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 implementing
system conversions to SAP 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. 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 Companys computer operations
could have a material adverse impact on its business and results
of operations.
The Companys 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 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 materials from
suppliers.
If the
investments in employee benefit plans do not perform as
expected, the Company may have to contribute additional amounts
to these plans, which would otherwise be available to cover
operating expenses or other business purposes.
The Company sponsors pension and other post-retirement defined
benefit plans. The Companys defined benefit plan assets
are currently invested in equity securities, bonds and other
fixed income securities, and money market instruments. The
Companys funding policy is generally to contribute amounts
determined annually on an actuarial basis to provide for current
and future benefits in accordance with applicable law which
require, among other things, that the Company make cash
contributions to under-funded pension plans. During 2010, the
Company made cash contributions to its defined benefit plans of
$277 million and it expects to contribute approximately
$140 million to its defined benefit plans in 2011.
There can be no assurance that the value of the defined benefit
plan assets, or the investment returns on those plan assets,
will be sufficient in the future. It is therefore possible that
the Company may be required to make higher cash contributions to
the plans in future years which would reduce the cash available
for other business purposes, and that the Company will have to
recognize a significant pension liability adjustment which would
decrease the net assets of the Company and result in higher
expense in future years. The fair value of these assets at
January 1, 2011 was $1.751 billion.
The
Company is exposed to credit risk on its accounts
receivable.
The Companys outstanding trade receivables are not
generally covered by collateral or credit insurance. While the
Company has procedures to monitor and limit exposure to credit
risk on its trade and non-trade receivables, there can be no
assurance such procedures will effectively limit its credit risk
and avoid losses, which could have an adverse affect on the
Companys financial condition and operating results.
16
Low
demand for new products and the inability to develop and
introduce new products at favorable margins could adversely
impact the Companys performance and prospects for future
growth.
The Companys competitive advantage is due in part to its
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. Introduction of new technology may result in
higher costs to the Company than that of the technology
replaced. That increase in costs, which may continue
indefinitely or until and if increased demand and greater
availability in the sources of the new technology drive down its
cost, could adversely affect the Companys results of
operations. Market acceptance of the new products introduced in
recent years and scheduled for introduction in 2011 may not
meet sales expectations due to various factors, such as the
failure to accurately predict market demand, end-user
preferences, and evolving industry standards. Moreover, the
ultimate success and profitability of the new products may
depend on the Companys ability to resolve technical and
technological challenges in a timely and cost-effective manner,
and to achieve manufacturing efficiencies. The Companys
investments in productive capacity and commitments to fund
advertising and product promotions in connection with these new
products could erode profits if those expectations are not met.
The
Companys products could be subject to product liability
claims and litigation.
The Company manufactures products, configures and installs
security systems and performs various services that create
exposure to product and professional liability claims and
litigation. If such products, systems and services are not
properly manufactured, configured, installed, designed or
delivered, personal injuries, property damage or business
interruption could result, which could subject the Company to
claims for damages. The costs associated with defending product
liability claims and payment of damages could be substantial.
The Companys reputation could also be adversely affected
by such claims, whether or not successful.
The
Companys products could be recalled.
The Consumer Product Safety Commission or other applicable
regulatory bodies may require the recall, repair or replacement
of the Companys products if those products are found not
to be in compliance with applicable standards or regulations. A
recall could increase costs and adversely impact the
Companys reputation.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
As of January 1, 2011, the Company and its subsidiaries
owned or leased material facilities for manufacturing,
distribution and sales offices in 17 states and 16 foreign
countries. The Company believes that its material facilities are
suitable and adequate for its business.
Certain properties are utilized by more than one segment and in
such cases the property is reported in the segment with highest
usage.
17
Material facilities owned and leased by the Company and
its subsidiaries follow:
Corporate Offices
|
|
|
Owned by the Company
|
|
Leased by the Company
|
|
None
|
|
New Britain, Connecticut, United States of America
|
CDIY
|
|
|
Owned by the Company
|
|
Leased by the Company
|
|
New Britain, Connecticut, United States of America
|
|
Rialto, California, United States of America
|
Shelbyville, Kentucky, United States of America
|
|
Miramar, Florida, United States of America
|
Towson, Maryland, United States of America
|
|
Riverview, Florida, United States of America
|
East Greenwich, Rhode Island, United States of America
|
|
Greenfield, Indiana, United States of America
|
Cheraw, South Carolina. United States of America
|
|
Kannapolis, North Carolina United States of America
|
Fort Mill, South Carolina, United States of America
|
|
Epping, Australia
|
Jackson, Tennessee, United States of America
|
|
Aarschot, Belgium
|
Uberaba, Brazil
|
|
Mechelen, Belgium
|
Jiashan City, China
|
|
Tongeren, Belgium
|
Langfang, China
|
|
Brockville, Canada
|
Suzhou, China
|
|
Oakville, Canada
|
Arbois, France
|
|
Shenzhen City, China
|
Besancon, France
|
|
Suzhou, China
|
Buchlberg, Germany
|
|
Trmice, Czech Republic
|
Perugia, Italy
|
|
Dole, France
|
Puebla, Mexico
|
|
Biassono, Italy
|
Reynosa, Mexico
|
|
Reynosa, Mexico
|
Wroclaw, Poland
|
|
Gliwice, Poland
|
Taichung, Taiwan
|
|
Dubai, United Arab Emirates
|
Bangpakong, Thailand
|
|
Spennymoor, United Kingdom
|
Brackmills, United Kingdom
|
|
|
Hellaby, United Kingdom
|
|
|
Security
|
|
|
Owned by the Company
|
|
Leased by the Company
|
|
Farmington, Connecticut, United States of America
|
|
Lake Forest, California, United States of America
|
Rock Falls, Illinois, United States of America
|
|
Mira Loma, California, United States of America
|
Indianapolis, Indiana, United States of America
|
|
Kentwood, Michigan, United States of America
|
Nicholasville, Kentucky, United States of America
|
|
Charlotte, North Carolina, United States of America
|
Reading, Pennsylvania, United States of America
|
|
Xiamen, China
|
Denison, Texas, United States of America
|
|
Mexicali, Mexico
|
Xiaolan, China
|
|
|
Nogales, Mexico
|
|
|
Nueva Leon, Mexico
|
|
|
18
Industrial
|
|
|
Owned by the Company
|
|
Leased by the Company
|
|
Danbury, Connecticut, United States of America
|
|
Milwaukie, Oregon, United States of America
|
Montpelier, Indiana, United States of America
|
|
Paris, France
|
Campbellsville, Kentucky, United States of America
|
|
|
Hopkinsville, Kentucky, United States of America
|
|
|
Mt Clemens, Michigan, United States of America
|
|
|
Columbus, Ohio, United States of America
|
|
|
Georgetown, Ohio, United States of America
|
|
|
Tulsa, Oklahoma, United States of America
|
|
|
Allentown, Pennsylvania, United States of America
|
|
|
Farmers Branch, Texas, United States of America
|
|
|
Pecky, Czech Republic
|
|
|
Epernay, France
|
|
|
Feuquieres en Vimeu, France
|
|
|
Paris, France
|
|
|
Giessen, Germany
|
|
|
Gemonio, Italy
|
|
|
Toyohashi, Japan
|
|
|
Birmingham, United Kingdom
|
|
|
Material Facilities not being Used by the Company
|
|
|
Owned by the Company
|
|
Leased by the Company
|
|
Clinton, Connecticut, United States of America
|
|
None
|
New Britain, Connecticut, United States of America
|
|
|
Sterling, Illinois, United States of America
|
|
|
Smiths Falls, Canada
|
|
|
Villeneuve le Roi, France
|
|
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
In the normal course of business, the Company is involved in
various lawsuits and claims, including product liability,
environmental and distributor claims, and administrative
proceedings. The Company does not expect that the resolution of
these matters will have a materially adverse effect on the
Companys consolidated financial position, results of
operations or liquidity.
|
|
ITEM 4.
|
[REMOVED
AND RESERVED]
|
19
PART II
|
|
ITEM 5.
|
MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The Companys common stock is listed and traded on the New
York Stock Exchange, Inc. (NYSE) under the
abbreviated ticker symbol SWK, and is a component of
the Standard & Poors (S&P) 500
Composite Stock Price Index. The Companys high and low
quarterly stock prices on the NYSE for the years ended
January 1, 2011 and January 2, 2010 follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
Per
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
High
|
|
|
Low
|
|
|
Share
|
|
|
High
|
|
|
Low
|
|
|
Share
|
|
|
QUARTER:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
$59.90
|
|
|
|
$51.25
|
|
|
|
$0.33
|
|
|
|
$36.38
|
|
|
|
$22.75
|
|
|
|
$0.32
|
|
Second
|
|
|
$65.07
|
|
|
|
$49.58
|
|
|
|
$0.33
|
|
|
|
$40.01
|
|
|
|
$29.91
|
|
|
|
$0.32
|
|
Third
|
|
|
$62.02
|
|
|
|
$49.62
|
|
|
|
$0.34
|
|
|
|
$42.69
|
|
|
|
$31.28
|
|
|
|
$0.33
|
|
Fourth
|
|
|
$67.29
|
|
|
|
$58.71
|
|
|
|
$0.34
|
|
|
|
$53.13
|
|
|
|
$40.97
|
|
|
|
$0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$1.34
|
|
|
|
|
|
|
|
|
|
|
|
$1.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 15, 2011 there were 11,935 holders of record
of the Companys common stock.
Information required by Item 201(d) of
Regulation S-K
concerning securities authorized for issuance under equity
compensation plans can be found under Item 12 of this
Annual Report on
Form 10-K.
The following table provides information about the
Companys purchases of equity securities that are
registered by the Company pursuant to Section 12 of the
Exchange Act for the three months ended January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
|
Of Shares
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Purchased As
|
|
|
Number
|
|
|
|
(a)
|
|
|
|
|
|
Part Of A
|
|
|
Of Shares That
|
|
|
|
Total
|
|
|
Average
|
|
|
Publicly
|
|
|
May
|
|
|
|
Number
|
|
|
Price
|
|
|
Announced
|
|
|
Yet Be Purchased
|
|
|
|
Of Shares
|
|
|
Paid
|
|
|
Plan
|
|
|
Under The
|
|
2010
|
|
Purchased
|
|
|
Per Share
|
|
|
or Program
|
|
|
Program
|
|
|
October 3 November 6
|
|
|
553
|
|
|
|
$62.65
|
|
|
|
|
|
|
|
|
|
November 7 December 4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 5 January 1
|
|
|
41,831
|
|
|
|
$63.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,384
|
|
|
|
$63.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2011, 7.8 million shares of common
stock remain authorized for repurchase, associated with the
prior authorization of the repurchase of 10.0 million
shares on December 12, 2007. The Company may continue to
repurchase shares in the open market or through privately
negotiated transactions from time to time pursuant to this prior
authorization to the extent management deems warranted based on
a number of factors, including the level of acquisition
activity, the market price of the Companys common stock
and the current financial condition of the Company.
|
|
|
(a) |
|
The shares of common stock in this column were deemed
surrendered to the Company by participants in various benefit
plans of the Company to satisfy the participants taxes
related to vesting or delivery of time vesting restricted share
units under those plans. |
20
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The Merger and other significant acquisitions made by the
Company during the five-year period presented below affect
comparability of results. Refer to Note E, Merger and
Acquisitions, of the Notes to Consolidated Financial Statements
for further information. Additionally, as detailed in
Note T, Discontinued Operations, and prior year
10-K
filings, the results in 2006 through 2008 were recast for
certain discontinued operations for comparability (in millions,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010(b)
|
|
|
2009(d)
|
|
|
2008(h)
|
|
|
2007
|
|
|
2006(i)
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$8,410
|
|
|
|
$3,737
|
|
|
|
$4,426
|
|
|
|
$4,360
|
|
|
|
$3,897
|
|
Net earnings attributable to Stanley Black & Decker,
Inc.
|
|
|
$198
|
(a)
|
|
|
$227
|
|
|
|
$219
|
|
|
|
$321
|
|
|
|
$279
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$1.34
|
(a)
|
|
|
$2.84
|
|
|
|
$2.77
|
|
|
|
$3.89
|
|
|
|
$3.40
|
|
Discontinued operations(c)
|
|
|
$
|
|
|
|
$(0.03
|
)
|
|
|
$1.11
|
|
|
|
$0.14
|
|
|
|
$0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings per share
|
|
|
$1.34
|
|
|
|
$2.81
|
|
|
|
$3.88
|
|
|
|
$4.03
|
|
|
|
$3.53
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$1.32
|
(a)
|
|
|
$2.82
|
|
|
|
$2.74
|
|
|
|
$3.82
|
|
|
|
$3.33
|
|
Discontinued operations(c)
|
|
|
$
|
|
|
|
$(0.03
|
)
|
|
|
$1.10
|
|
|
|
$0.13
|
|
|
|
$0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted earnings per share
|
|
|
$1.32
|
|
|
|
$2.79
|
|
|
|
$3.84
|
|
|
|
$3.95
|
|
|
|
$3.46
|
|
Percent of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
64.9%
|
(a)
|
|
|
59.6%
|
|
|
|
62.2%
|
|
|
|
62.1%
|
|
|
|
63.7%
|
|
Selling, general and administrative(e)
|
|
|
25.8%
|
(a)
|
|
|
27.5%
|
|
|
|
25.0%
|
|
|
|
23.8%
|
|
|
|
23.9%
|
|
Other, net
|
|
|
2.4%
|
(a)
|
|
|
3.7%
|
|
|
|
2.3%
|
|
|
|
1.9%
|
|
|
|
1.3%
|
|
Interest, net
|
|
|
1.2%
|
|
|
|
1.6%
|
|
|
|
1.9%
|
|
|
|
2.0%
|
|
|
|
1.7%
|
|
Earnings before income taxes
|
|
|
2.8%
|
(a)
|
|
|
7.6%
|
|
|
|
6.6%
|
|
|
|
9.8%
|
|
|
|
9.0%
|
|
Net earnings attributable to Stanley Black & Decker,
Inc.
|
|
|
2.4%
|
(a)
|
|
|
6.1%
|
|
|
|
4.9%
|
|
|
|
7.4%
|
|
|
|
7.2%
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets(f)
|
|
|
$15,139
|
|
|
|
$4,769
|
|
|
|
$4,867
|
|
|
|
$4,741
|
|
|
|
$3,926
|
|
Long-term debt
|
|
|
$3,018
|
|
|
|
$1,085
|
|
|
|
$1,384
|
|
|
|
$1,165
|
|
|
|
$679
|
|
Stanley Black & Decker, Inc.s Shareowners
Equity(g)
|
|
|
$7,017
|
|
|
|
$1,986
|
|
|
|
$1,706
|
|
|
|
$1,754
|
|
|
|
$1,548
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio
|
|
|
1.8
|
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Total debt to total capital
|
|
|
32.9%
|
|
|
|
41.1%
|
|
|
|
48.6%
|
|
|
|
45.4%
|
|
|
|
39.2%
|
|
Income tax rate continuing operations
|
|
|
16.4%
|
(a)
|
|
|
19.2%
|
|
|
|
24.7%
|
|
|
|
24.9%
|
|
|
|
19.8%
|
|
Return on average equity continuing operations
|
|
|
4.4%
|
(a)
|
|
|
12.4%
|
|
|
|
12.8%
|
|
|
|
19.5%
|
|
|
|
18.9%
|
|
Common stock data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
|
$1.34
|
|
|
|
$1.30
|
|
|
|
$1.26
|
|
|
|
$1.22
|
|
|
|
$1.18
|
|
Equity per share at year-end
|
|
|
$42.18
|
|
|
|
$24.68
|
|
|
|
$21.63
|
|
|
|
$21.82
|
|
|
|
$18.92
|
|
Market price per share high
|
|
|
$67.29
|
|
|
|
$53.13
|
|
|
|
$52.18
|
|
|
|
$64.25
|
|
|
|
$54.59
|
|
Market price per share low
|
|
|
$49.58
|
|
|
|
$22.75
|
|
|
|
$24.19
|
|
|
|
$47.01
|
|
|
|
$41.60
|
|
Average shares outstanding (in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
147,224
|
|
|
|
79,788
|
|
|
|
78,897
|
|
|
|
82,313
|
|
|
|
81,866
|
|
Diluted
|
|
|
150,167
|
|
|
|
80,396
|
|
|
|
79,874
|
|
|
|
84,046
|
|
|
|
83,704
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of employees
|
|
|
36,939
|
|
|
|
17,393
|
|
|
|
17,862
|
|
|
|
17,344
|
|
|
|
16,699
|
|
Shareowners of record at end of year
|
|
|
11,964
|
|
|
|
12,315
|
|
|
|
12,593
|
|
|
|
12,482
|
|
|
|
12,755
|
|
|
|
|
(a)
|
|
The Companys 2010 results
include $538 million (pre-tax) of merger and
acquisition-related charges incurred in connection with the
Merger. Such charges include amortization of inventory
step-up,
facility closure-related charges, certain executive compensation
and severance costs, transaction and integration costs,
partially offset by pension curtailment gains. As a result of
these charges, Net earnings attributable to Stanley
Black & Decker, Inc. were reduced by
$421 million, Basic earnings per share were reduced by
$2.86, Diluted earnings per share were reduced by $2.80, Cost of
sales as a % of Net sales was 230 basis points higher,
Selling,
|
21
|
|
|
|
|
general & administrative
as a % of Net sales was 100 basis points higher, Other, net
as a % of Net sales was 50 basis points higher, Earnings
before income taxes as a % of Net sales was 640 basis
points lower, Net earnings attributable to Stanley
Black & Decker, Inc. as a % of Net sales was
500 basis points lower, Income tax rate
continuing operations ratio was 370 basis points lower and
the Return on average equity-continuing operations ratio was
940 basis points lower.
|
|
|
|
In the second quarter of 2010, the
Company recognized an income tax benefit attributable to the
settlement of certain tax contingencies of $36 million, or
$0.21 per diluted share.
|
|
(b)
|
|
As further discussed in
Note E, Merger and Acquisitions, of the Notes to the
Consolidated Financial Statements in Item 8, on
March 12, 2010, Stanley completed the Merger. The 2010
selected financial data includes Black & Deckers
results of operations and cash flows from March 13, 2010.
|
|
(c)
|
|
Amounts in 2008 reflect an
$84 million, or $1.05 per diluted share, after-tax gain
recorded in discontinued operations for the sale of the
CST/berger laser measuring business.
|
|
(d)
|
|
In the second quarter of 2009, the
Company recognized a $0.34 per diluted share gain on debt
extinguishment from the repurchase of $103.0 million of
junior subordinated debt securities. In the fourth quarter of
2009, the Company incurred $0.22 per diluted share in charges
related to the transaction and integration planning costs
associated with the Merger.
|
|
(e)
|
|
SG&A is inclusive of the
Provision for Doubtful Accounts.
|
|
(f)
|
|
Item includes assets held for sale
related to discontinued operations as of the fiscal years ended
2007 and 2006.
|
|
(g)
|
|
Stanley Black & Decker,
Incs Shareowners Equity was reduced by
$14 million in fiscal 2007 for the adoption of Financial
Accounting Standards Board (FASB) Interpretation No.
48, Accounting for Uncertainty in Income Taxes
an Interpretation of Statement of Financial Accounting Standards
(SFAS) No. 109, codified in FASB
Accounting Standards Codification (ASC) 740
Income Taxes.
|
|
(h)
|
|
In the fourth quarter of 2008, the
Company recognized $61 million, or $0.54 per diluted share,
of pre-tax restructuring and asset impairment charges from
continuing operations pertaining to cost actions taken in
response to weak economic conditions.
|
|
(i)
|
|
Diluted earnings per share in 2006
reflect $0.07 of expense for stock options related to the
adoption of SFAS No. 123(R), Share Based
Payment, codified in ASC 718
Compensation Stock Compensation, under
the modified prospective method.
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The financial and business analysis below provides information
which the Company believes is relevant to an assessment and
understanding of its consolidated financial position, results of
operations and cash flows. This financial and business analysis
should be read in conjunction with the consolidated financial
statements and related notes. All references to
Notes in this Item 7 refer to the Notes to
Consolidated Financial Statements included in Item 8 of
this Annual Report.
The following discussion and certain other sections of this
Annual Report on
Form 10-K
contain statements reflecting the Companys views about its
future performance that constitute forward-looking
statements under the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are based on
current expectations, estimates, forecasts and projections about
the industry and markets in which the Company operates and
managements beliefs and assumptions. Any statements
contained herein (including without limitation statements to the
effect that Stanley Black & Decker, Inc. or its
management believes, expects,
anticipates, plans and similar
expressions) that are not statements of historical fact should
be considered forward-looking statements. These statements are
not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict.
There are a number of important factors that could cause actual
results to differ materially from those indicated by such
forward- looking statements. These factors include, without
limitation, those set forth, or incorporated by reference, below
under the heading Cautionary Statements. The Company
does not intend to update publicly any forward-looking
statements whether as a result of new information, future events
or otherwise.
BUSINESS OVERVIEW
Strategic
Objectives
The Company has maintained a consistent strategic framework
since 2004:
|
|
|
|
|
Maintaining portfolio transition momentum by continuing
diversification toward higher growth businesses, increasing
relative weighting of emerging markets and opportunistically
consolidating the tool industry;
|
|
|
|
Being selective and operating in markets where brand is
meaningful, value proposition is definable and sustainable
through innovation and global cost leadership is achievable;
|
22
|
|
|
|
|
Pursuing growth on multiple fronts through building existing
growth platforms such as convergent security, mechanical
security and engineered fastening and developing new growth
platforms over time such as infrastructure and healthcare;
|
|
|
|
Accelerating progress via Stanley Fulfillment System
(SFS).
|
Stanley has pursued this strategy which involves industry,
geographic and customer diversification in order to pursue
sustainable revenue, earnings and cash flow growth. In addition,
the Companys desire to be a consolidator of the tool
industry and to increase its relative weighting in emerging
markets has been significantly enhanced by the Merger. The
impact of this diversification strategy is evident in the
performance of the Company. Sales outside the
U.S. represented 45% of the total in 2010, up from 29% in
2002. When we embarked on the diversification strategy, legacy
Stanley sales to U.S. home centers and mass merchants
declined from a high of approximately 40% in 2002 to 14% in
2010. On a pro-forma combined basis (as if combined the entire
year), Stanley and Black & Decker 2010 sales to
U.S. home centers and mass merchants were approximately
31%, including nearly 21% in sales to the combined
Companys two largest customers. As acquisitions in the
various growth platforms (electronic/convergent Security,
mechanical security, engineered fastening, infrastructure
solutions and healthcare solutions) are made in future years,
the proportion of sales to these valued U.S. home center
and mass merchant customers is expected to decrease. Execution
of this strategy has entailed approximately $3.4 billion of
acquisitions since 2002 (aside from the Merger), several
divestitures and increased brand investment, enabled by strong
cash flow generation and proceeds from divestitures.
The Companys long-term financial objectives are:
|
|
|
|
|
4-6% organic revenue growth;
10-12% total
revenue growth;
|
|
|
|
Mid-teens EPS growth;
|
|
|
|
Free cash flow greater than equal to net income;
|
|
|
|
Return on capital employed (ROCE) between
12-15%;
|
|
|
|
Continued dividend growth;
|
|
|
|
Strong investment grade credit rating.
|
The Companys long-term capital allocation objectives
pertaining to the deployment of free cash flow are:
|
|
|
|
|
Invest approximately
2/3
in acquisitions and growth;
|
|
|
|
Return approximately
1/3
to shareowners as the Company remains committed to continued
dividend growth and opportunistic share buy backs.
|
The long-term capital allocation strategy with respect to growth
is focused on its growing existing platforms:
electronic / convergent security, mechanical security,
engineered fastening, infrastructure solutions, and healthcare
solutions as well as further consolidating the tool industry.
The Company plans to expand these existing platforms through
both organic growth and primarily international acquisitions.
The Merger rounded out the mechanical security product
offerings, and brought with it another strong growth platform in
engineered fastening.
Business
Segments
The Company classifies its business into three reportable
segments: Construction & Do It Yourself
(CDIY), Security, and Industrial.
The CDIY segment manufactures and markets hand tools, corded and
cordless electric power tools and equipment, lawn and garden
products, consumer portable power products, home products,
accessories and attachments for power tools, plumbing products,
consumer mechanics tools, storage systems, and pneumatic tools
and fasteners. These products are sold to professional end
users, distributors, and consumers, and are
23
distributed through retailers (including home centers, mass
merchants, hardware stores, and retail lumber yards).
The Security segment provides access and security solutions
primarily for consumers, retailers, educational, financial and
healthcare institutions, as well as commercial, governmental and
industrial customers. The Company provides an extensive suite of
mechanical and electronic security products and systems, and a
variety of security services. These include security integration
systems, software, related installation, maintenance, monitoring
services, automatic doors, door closers, electronic keyless
entry systems, exit devices, healthcare storage and supply chain
solutions, patient protection products, hardware (including door
and cabinet knobs and hinges, door stops, kick plates, house
numbers, gate hardware, cabinet pulls, hooks, braces and shelf
brackets), locking mechanisms, electronic keyless entry systems,
keying systems, tubular and mortise door locksets. Hardware and
locking mechanisms are manufactured whereas certain other
product offerings are sourced. Security products are sold
primarily on a direct sales basis, and in certain instances,
through third party distributors.
The Industrial segment manufactures and markets professional
industrial and automotive mechanics tools and storage systems,
metal and plastic fasteners and engineered fastening systems,
hydraulic tools and accessories, and specialty tools. These
products are sold to industrial customers including automotive,
transportation, electronics, aerospace, machine tool, and
appliance industries and are distributed through third party
distributors as well as direct sales forces. The industrial
segment also provides services and specialized tools and
equipment such as custom pipe handling, joint welding and
coating equipment used in the construction of large and small
diameter pipelines.
After consummation of the Merger, the Black & Decker
businesses were assessed and integrated into the Companys
existing reportable segments. The legacy Black &
Decker segments: Power Tools and Accessories,
Hardware & Home Improvement (HHI) and
Fastening and Assembly Systems, were integrated into the
Companys CDIY, Security and Industrial segments,
respectively, with the exception of the Pfister plumbing
products business which was formerly part of HHI but is now
included in the CDIY segment. The results of Black &
Deckers operations are presented within each of these
segments and reflect activity since the merger date.
Significant areas of tactical emphasis related to execution
of the Companys strategic objectives, as well as events
impacting the Companys financial performance in 2010 and
2009, are discussed below.
Merger
As discussed in Item 1 above, on March 12, 2010,
Stanley completed the Merger. In connection with the Merger,
Stanley changed its name to Stanley Black & Decker,
Inc. Throughout this MD&A, references to the
Company refer to Stanley Black & Decker,
Inc. The Companys consolidated financial statements
include Black & Deckers results of operations
and cash flows from March 13, 2010.
As detailed in Note E, Merger and Acquisitions,
Black & Decker stockholders received 1.275 shares
of Stanley common stock for each share of Black &
Decker common stock outstanding as of the merger date.
Outstanding Black & Decker equity awards (primarily
stock options) were similarly exchanged for Stanley equity
awards. After the exchange was completed, pre-merger Stanley
shareowners retained ownership of 50.5% of the newly combined
company. Based on the $57.86 closing price of Stanley common
stock on March 12, 2010, the aggregate fair value of the
consideration transferred to consummate the Merger was
$4.657 billion.
Management believes the Merger is a transformative event
bringing together two highly complementary companies, with
iconic brands, rich histories and common distribution channels,
yet with minimal product overlap. The Merger also enables a
global offering in hand and power tools, as well as hardware,
thus enhancing the Companys value proposition to
customers. Management believes the value unlocked by the
anticipated $425 million in cost synergies, expected to be
achieved by the end of 2012, will help fuel future growth and
facilitate global cost leadership. This updated cost synergy
estimate represents a $75 million increase from the
original $350 million by March, 2013 at the time of the
Merger. The cost synergy drivers are: business unit and regional
consolidation (management, sales force and shared services
integration),
24
$145 million; purchasing (materials, freight etc.)
$100 million; corporate overhead $95 million; and
manufacturing and distribution facility consolidation,
$85 million. The Company is ahead of plan on the
integration of the two companies and realized $135 million
of the cost synergies in 2010, which is $45 million more
than originally forecasted for the nine month period that
followed the merger. An additional $165 million of cost
synergies are anticipated in 2011, and an incremental
$125 million in 2012 to achieve the total cumulative
$425 million in cost synergies in 2012. Of the
$330 million in cost synergies pertaining to operations
(all but the $95 million of corporate overhead), the
benefit by segment is estimated to be 70% in CDIY, 20% in
Security (mechanical access solutions), and 10% in Industrial.
Management estimates there will be an additional
$200 million in total costs, incurred over the next two
years, to achieve these synergies from the Merger.
Additionally, it is projected that revenue synergies from the
Merger will be in the range of $300 million to
$400 million by 2013, which implies a benefit of
$0.35 $0.50 of earnings per diluted share. Revenue
synergies are expected to add an incremental 50 basis
points (approximately $50 million) to 2011 revenue growth
and have a modest earnings impact, with remaining revenue
synergies to be achieved in 2012 and 2013. The anticipated
revenue synergies will come from: geographic expansion into
Latin America and other emerging markets, leveraging
pre-existing infrastructure (30%); channel and cross-selling of
existing products, such as the sale of power tools through the
Companys industrial and automotive repair distributors
(30%); brand expansion, i.e. utilizing the array of powerful
brands in different product categories and channels and
expanding across the globe, as exemplified by the recent
introduction of DeWalt hand tools in certain channels, (30%);
and joint new product development, which entails leveraging
development expertise from both legacy companies to pursue new
product opportunities (10%). The CDIY segment is expected to
realize approximately two-thirds of the revenue synergies, and
the remainder will be split evenly in the Industrial and
Security segments. In 2011, the Company intends to increase
capital expenditures to 2.5% 2.8% of revenues
partially as a result of infrastructure improvements to foster
attainment of the revenue synergies. In 2012 and beyond, the
capital expenditure ratio is expected to return to more
historical levels (2.0% 2.5% of revenues) in 2012.
Industrial
Segment Acquisition of CRC-Evans Pipeline
International
On July 29, 2010, the Company acquired CRC-Evans Pipeline
International (CRC-Evans) for a purchase price of
$451.6 million, net of cash acquired. With fiscal 2010
revenues of approximately $250 million, CRC-Evans
immediately established a scalable, global growth business
platform for the Company to capitalize on favorable end-market
trends in the oil and gas infrastructure area. CRC-Evans is a
supplier of specialized tools, equipment and services used in
the construction of large diameter oil and natural gas
transmission pipelines. CRC- Evans also sells and rents custom
pipe handling and joint welding and coating equipment used in
the construction of large and small diameter pipelines. The
acquisition of CRC-Evans diversifies the Companys revenue
base and provides the Company with a strategic and profitable
growth platform. CRC-Evans has been consolidated into the
Companys Industrial segment. The Company funded the
acquisition with its existing sources of liquidity. This
acquisition was slightly accretive to earnings in 2010 and the
Company expects that it will be over $0.10 accretive to diluted
earnings per share by 2013.
Continued
Growth in the Security Segment
During 2010, the Company further advanced its strategy of
becoming a global market leader in the commercial security
industry. Annual revenues of the Security segment have grown to
$2.113 billion, or 25% of 2010 sales, up from
$216 million, or 10% of 2001 sales (the year the security
expansion strategy was launched). Key recent events pertaining
to the growth of this segment include the following:
|
|
|
|
|
As a result of the Merger, legacy Black &
Deckers hardware and home improvement (HHI)
business contributed an additional 29% in sales in 2010, and on
a pro-forma basis HHI sales grew 7% over 2009. The HHI
Kwikset®
and
Baldwin®
new product introductions fueled the higher sales.
|
25
|
|
|
|
|
The Company acquired Stanley Solutions de Sécurité
(SSDS), formerly known as ADT France, on
March 9, 2010 for $8 million, net of cash acquired.
SSDS had approximately $175 million in 2009 sales. The
acquisition is an indication of the Companys continuing
strategic intent to expand the security segment internationally
and is highly complementary to the Companys existing
French security platform, Générale de Protection,
acquired in 2008. Aside from restructuring charges, SSDS was
neutral to earnings in 2010 as the majority of the integration
benefits will begin to occur in early 2011.
|
|
|
|
In November 2010 the Company purchased 70% of the outstanding
shares of GMT for $44 million, net of cash acquired. GMT is
a leading commercial hardware manufacturer and distributor in
China. The acquisition of GMT provides the Company with a low
cost manufacturing source and also serves as a platform for
international commercial hardware expansion. GMT had
approximately $40 million in 2009 sales.
|
|
|
|
The Company acquired InfoLogix, Inc. in January 2011 for
$61 million, net of cash acquired. Infologix is a leading
provider of enterprise mobility solutions for the healthcare and
commercial industries and will add an established provider of
mobile workstations and asset tracking solutions to
Stanleys existing Healthcare Solutions growth platform.
Infologix had $87 million sales in 2009.
|
The additions of the HHI business and the acquisitions discussed
above complement the existing Security segment product
offerings, increase its scale and strengthen the value
proposition offered to customers as industry dynamics favor
multi-solution providers that offer one-stop
shopping.
Drive
Further Profitable Growth in Branded Tools and
Storage
While diversifying the business portfolio through expansion in
the Companys specified growth platforms is important,
management recognizes that the branded tool and storage product
offerings in the CDIY and Industrial segment businesses are
important foundations of the Company that provide strong cash
flow generation and growth prospects. Management is committed to
growing these businesses through innovative product development,
as evidenced by the success of the 12-volt max subcompact
lithium ion cordless power tool products in the CDIY segment and
the EXPERT tool product launch in the Industrial segment, brand
support, an increased weighting in emerging markets, and
relentless focus on global cost competitiveness to foster
vitality over the long term. Acquisition-related growth will
also be pursued where appropriate. The Merger is clearly an
indicator of the Companys commitment to this strategic
objective.
Continue
to Invest in the Stanley Black & Decker
Brands
The Company has a strong portfolio of brands associated with
high-quality products including
Stanley®,
Black &
Decker®,
DeWalt®,
Facom®,
Mac®,
Proto®,
Vidmar®,
Bostitch®
and
FatMax®.
The
Stanley®
and Black &
Decker®,
brands are recognized as two of the worlds great brands
and are one of the Companys most valuable assets. Brand
support spending has averaged approximately $21 million
annually since 2007, up from the preceding years. This sustained
brand support has yielded a steady improvement across the
spectrum of legacy Stanley brand awareness measures, notably a
climb in unaided Stanley hand tool brand awareness from 27% in
2005 to 48% in 2010. Stanley and DeWalt had prominent signage at
12 major league baseball stadiums throughout 2010 and is
continuing its program in the coming season. The Company is also
maintaining long-standing NASCAR racing sponsorships which will
entail brand exposure over 36 race weekends in 2011. The Company
is in year 3 of a ten year alliance agreement with the Walt
Disney World
Resort®
whereby
Stanley®
logos are displayed on construction walls throughout the theme
parks and
Stanley®,
Mac®,
Proto®,
and
Vidmar®
brand logos
and/or
products are featured in various attractions where they will be
seen by millions of visitors each year. Additionally, Stanley is
The Official Tool Provider of the Walt Disney World
Resort®.
In 2009 the Company also began advertising in the English
Premier League which is the number one soccer league in the
world, watched weekly by 650 million people around the
world. From
2011-2012,
the Company will increase its advertising to approximately 195
televised matches. The company has added brand development
programs in Moto GP, the worlds premiere motorcycle racing
series and 60 televised Professional Bull Riders events in the
US and Brazil. The Company will continue to allocate its brand
and advertising spend wisely generating more than
25 billion brand impressions annually.
26
Continuous
Improvement from the Stanley Fulfillment System
The Company continues to practice the operating disciplines
encompassed by the Stanley Fulfillment System (SFS)
and has made further enhancements to it. As the SFS disciplines
take hold, they will improve working capital
turns / cash flow, and other efficiencies that will
foster improved profitability. SFS employs continuous
improvement techniques to streamline operations and drive
efficiency throughout the supply chain. The newly enhanced SFS
has six primary elements that work in concert: sales and
operations planning (S&OP), operational lean,
complexity reduction, global supply management,
order-to-cash
excellence and common platforms. S&OP is a dynamic and
continuous unified process that links and balances supply and
demand in a manner that produces world-class fill rates while
minimizing DSI (Days Sales of Inventory). Operational lean is
the systemic application of lean principles in progressive steps
throughout the enterprise to optimize flow toward a pre-defined
end state by eliminating waste, increasing efficiency and
driving value. Complexity reduction is a focused and overt
effort to eradicate costly and unnecessary complexity from our
products, supply chain and back room process and organizations.
Complexity reduction enables all other SFS elements and, when
successfully deployed, results in world-class cost, speed of
execution and customer satisfaction. Global supply management
focuses on strategically leveraging the companys scale to
achieve the best possible price and payment terms with the best
possible quality, service and delivery among all categories of
spend.
Order-to-cash
excellence is a methodical, process-based approach that provides
a user-friendly, automated and error-proof customer experience
from
intent-to-purchase
to shipping and billing to payment, while minimizing cash
collection cycle time and DSO (Days Sales Outstanding). Common
platforms are an essential component of leveraging technology to
facilitate organic growth and integration of acquired companies.
The Company develops standardized business processes and system
platforms to reduce costs and provide scalability. Other
benefits of SFS include reductions in lead times, rapid
realization of synergies during acquisition integrations, and
focus on employee safety. SFS disciplines helped to mitigate the
substantial impact of material and energy price inflation that
was experienced in recent years. It was instrumental in the
reduction of working capital during 2010 as evidenced by the
improvement in working capital turns for legacy Stanley from 4.6
in 2003 to 8.6 in 2010. Furthermore, working capital turns
experienced a 10% improvement from 5.2 (including Black and
Decker for the full year of 2009) at the end of 2009 to 5.7
at the end of 2010. In 2011 and beyond, the Company plans to
further leverage SFS to generate ongoing improvements in working
capital turns, cycle times, complexity reduction and customer
service levels.
Certain
Items Impacting Earnings
Merger and Acquisition-Related Charges Impacting 2010 and 2009
Earnings
The Company reported $538 million in pre-tax charges in
2010, pertaining to the Merger and acquisitions which were
comprised of the following:
|
|
|
|
|
$195 million in Cost of sales. Inventory
step-up
amortization stemming from the initial turn of the
Black & Decker and CRC-Evans acquired inventories,
which were
written-up
in purchase accounting to fair value, amounted to
$174 million. Additionally, Cost of sales includes
$21 million of facility closure-related charges;
|
|
|
|
$82 million in Selling, general & administrative
(SG&A) for certain executive and merger-related
compensation costs and integration-related consulting fees;
|
|
|
|
$37 million in Other, net for transaction costs inclusive
of $20 million of pension curtailment gains.
|
|
|
|
$224 million in Restructuring and asset impairment charges
primarily for severance (including costs for certain
Black & Decker executives triggered by the change in
control), as well as charges associated with the closure of
facilities.
|
The tax effect on the above charges during 2010, some of which
were not tax deductible, was $117 million, resulting in
after-tax merger and acquisition-related charges of
$421 million, or $2.80 per diluted share
27
In the fourth quarter of 2009, the Company incurred
$18 million in after-tax charges, or $0.22 per diluted
share, primarily related to the transaction and integration
planning costs associated with the Merger.
Throughout this MD&A, the Company has provided a discussion
of the outlook and results both inclusive and exclusive of the
merger and acquisition-related charges. The amounts and
measures, including gross profit and segment profit, on a basis
excluding such charges are considered relevant to aid analysis
and understanding of the Companys results aside from the
material impact of the merger and acquisition-related charges;
the measures are utilized internally by management to understand
business trends, as once the aforementioned anticipated cost
synergies from the Black & Decker integration are
realized such charges are expected to subside.
Other
Items
Aside from the costs associated with the Merger and acquisitions
discussed above, other matters having a significant impact on
the Companys results in the 2008 2010 period
were inflation, currency exchange rate fluctuations, debt
extinguishment gains, and other restructuring actions.
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The Company experienced inflation (primarily commodity and
freight) of approximately $70 million and $140 million
in 2010 and 2008, respectively, while it experienced mild
deflation in 2009. Cumulatively, during 2008 2010
the Company recovered more than two thirds of inflation through
customer pricing. However, price erosion occurred in 2010 and
the net unfavorable price / inflation impact for 2010
was over $120 million. There is typically a several month
lag between when inflation impacts costs and subsequent recovery
through pricing actions. Management anticipates approximately
one-third to one-half of inflation will be recovered through
price in 2011. This lower recovery rate compared to historical
levels reflects the more challenging competitive dynamics
following the combination with Black & Decker, as well
as the fact that the more rigorous legacy Stanley approach to
pricing disciplines and rhythms is in the process of being
implemented at legacy Black & Decker. The successful
introduction of lithium ion power tools represents a catch up of
the technology with several key competitors, and as a result it
may be more difficult to implement pricing actions for certain
products in the near term. The Company has recently experienced
10-20%
increases in various commodity costs, particularly steel, resin,
and copper. Inflationary trends are expected to continue in 2011
with an expected negative 100 basis point impact to
aggregate segment profit. This impact includes managements
expectations for commodity inflation, as well as wages, and
approximately 3% appreciation of the Chinese RMB which affects
the cost of products and components sourced from China.
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In the second quarter of 2010, the Company recognized an income
tax benefit attributable to the settlement of certain tax
contingencies of $36 million, or $0.21 per diluted share.
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The fluctuation of foreign currencies impacts the translation of
foreign currency-denominated operating results into
U.S. dollars. Foreign currency translation contributed an
estimated favorable impact of $0.04 of diluted earnings per
share from continuing operations in 2010, an unfavourable impact
of $0.04 in 2009 and a favorable impact of $0.09 in 2008.
Fluctuations in foreign currency exchange rates relative to the
U.S. dollar may have a significant impact, either positive
or negative, on future earnings. Refer to the Market Risk
section of this Managements Discussion and Analysis
(MD&A) for further discussion.
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In 2009 the Company realized a $0.34 per diluted share gain on
debt extinguishment, as compared with an $0.08 per diluted share
gain in 2008.
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The Company took decisive action to right-size its cost
structure in response to slowing demand due to the recessionary
environment in 2008 and 2009. Refer to the previously discussed
merger and acquisition-related charges for the 2010
restructuring impact. Restructuring, asset impairment and
related pre-tax charges totalled $45 million and
$92 million in 2009 and 2008, respectively. Employee
headcount was reduced by approximately 3,000 as a result of
restructuring actions taken in the fourth quarter of 2008 and
through year end 2009. The total 2009 cost savings from the
various actions taken were approximately $265 million,
pre-tax, of which approximately $150 million pertained to
selling, general and administrative functions.
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28
Outlook
for 2011
This outlook discussion is intended to provide broad insight
into the Companys near-term earnings prospects, and not to
discuss the various factors affecting such projections.
Management expects earnings per diluted share (EPS)
to be in the range of $4.29 to $4.54 in 2011. Excluding the
effects of merger and acquisition-related charges, 2011 EPS is
expected to be in the range of $4.75 to $5.00.
RESULTS
OF OPERATIONS
Below is a summary of the Companys operating results at
the consolidated level, followed by an overview of business
segment performance.
Terminology: The terms legacy
Stanley, organic and core are
utilized to describe results aside from the impact of the Merger
and acquisitions during their initial 12 months of
ownership. This ensures appropriate comparability to operating
results of prior periods.
The Company has included information as if the Merger had
occurred on January 3, 2010 for the year ended
January 1, 2011 (pro forma information) which
also includes a discussion regarding legacy Black &
Deckers performance in relation to the prior year on a
basis reflecting the post-merger segment organization. This
pro forma analysis is provided to aid understanding
of the Black & Decker business trends compared to the
prior year since the Merger occurred March 12, 2010, and
accordingly the Companys 2009 reported results solely
reflect legacy Stanley.
Net Sales: Net sales from continuing
operations were $8.410 billion in 2010, as compared to
$3.737 billion in 2009, a 125% increase. The Merger
provided a 114% increase to sales, along with 6% from other
acquisitions, primarily SSDS and CRC-Evans. Organic unit volume
increased 5%, while price and currency were both flat compared
to the prior year. Organic sales growth was driven by the
successful launch of various new products which generally have
been well received by customers, and overall improvement in end
market demand, especially in industrial and emerging markets. By
segment, legacy Stanley unit volume increased 3% in CDIY,
decreased 3% in Security, which was negatively impacted by the
continued weakness in U.S. commercial construction markets
along with a large U.S. retailers inventory
correction, and increased 21% in Industrial. The Industrial
segment benefited from strong end user demand, market share
gain, and global customer re-stocking in certain distribution
channels which subsided by the fourth quarter. On a geographic
basis, legacy Stanley unit volume sales increased 3% in the
Americas (17% in Latin America), 6% in Europe, and 20% in the
Asian region. On a pro forma basis, the legacy Black &
Decker business achieved strong unit volume growth of 11%,
reflecting positive end market demand including robust sales
growth in emerging markets, along with strong new product
performance, particularly the 12-volt lithium ion power tools.
Net sales from continuing operations were $3.737 billion in
2009, as compared to $4.426 billion in 2008, a 16%
decrease. Price increases provided a 2% sales benefit in 2009,
which was offset by 2% from unfavorable foreign currency
translation in all regions, with the largest impact in Europe.
Acquisitions within the Security segment, primarily the
carryover effect from the 2008 Sonitrol, GdP and Scan Module
acquisitions, contributed a 4% increase in net sales. Organic
unit volume declined 20% reflecting weak global economic
conditions. Geographically, 2009 volume decrease was most severe
in Europe at 24%, as compared with 18% in the Americas and 11%
in the less significant Asian region. The Industrial and CDIY
segments, with their high European content, experienced 31% and
21% unit volume declines, respectively, while the Security
segment had the best performance with only an 8% drop in organic
volume. Aside from reduced end user demand, the Industrial
segment was adversely affected by inventory de-stocking
throughout the supply chain which abated by the end of the
fourth quarter. The consolidated organic sales unit volume
decline was 19% in the first quarter of 2009, deteriorated to
24% in the second quarter, and improved sequentially to 20% in
the third quarter and again to 16% in the fourth quarter. The
sequential percentage improvements in the 2009 fiscal quarters
partly relate to easier comparisons to 2008, which had a
challenging second half when the recession deepened, but also
reflected some encouraging macro-economic trends. The CDIY
segment was most affected by the residential construction
market, which appeared to have stabilized, as well as consumer
confidence which improved in the U.S. and Europe in the
second half of 2009.
29
Gross Profit: The Company reported gross
profit from continuing operations of $2.949 billion, or 35%
of net sales, in 2010, compared to $1.508 billion, or 40%
of net sales, in 2009. The addition of Black & Decker
and acquired companies results was a main driver to the overall
increase in gross margin. Gross margin was negatively impacted
by $195 million of merger and acquisition-related charges
as previously discussed, pertaining to the inventory
step-up
amortization from the initial turn of Black & Decker
and CRC-Evans inventories and facility closure costs.
Aside from merger and acquisition-related charges, legacy
Stanley gross margin increased to $1.538 billion, or 39% of
net sales, in 2010. This performance by legacy Stanley was
driven by sales volume leverage, benefits from prior year
restructuring actions, and the continued execution of
productivity initiatives, partially offset by unfavorable
commodity inflation. The Company expects continued commodity
inflation pressures and that such inflation net of partial
customer pricing recoveries will negatively impact gross margin
by approximately 100 basis points in 2011. Despite
inflation, an overall expansion of gross margin rates is
expected in 2011 as integration cost synergies, integration and
other productivity project benefits are realized.
The Company reported gross profit from continuing operations of
$1.508 billion, or 40% of net sales, in 2009, compared to
$1.671 billion, or 38% of net sales, in 2008. Acquisitions
within the Security segment contributed $100 million of
gross profit in 2009. Core gross profit for 2009 was
$1.408 billion, down $186 million from the prior year
due to the previously discussed sales volume pressures
pertaining to broad economic weakness, and to a much smaller
extent unfavorable foreign currency translation. The 40% core
gross margin rate represented a record rate for the Company, up
nearly 200 basis points versus the prior year. Several
factors enabled the strong performance with respect to the gross
margin rate, including the carryover effect of customer pricing
increases implemented to help recover the significant inflation
experienced in 2008. Inflation abated in 2009 such that lower
commodity costs offset the gross margin rate impact of cost
under-absorption associated with lower volume. Tight operational
management, reflecting the disciplines of the previously
discussed Stanley Fulfillment System, enabled substantial
benefits from productivity projects and the execution of cost
reduction actions taken in response to slower demand. The gross
margin rate was further bolstered by improved sales mix
associated with the Security segment.
SG&A Expense: Selling, general and
administrative expenses, inclusive of the provision for doubtful
accounts (SG&A), were $2.169 billion, or
25.8% of net sales, in 2010 as compared with
$1.028 billion, or 27.5% of net sales in 2009. Merger and
acquisition-related charges totaled $82 million in 2010 and
$5 million in 2009 for certain executive and merger-related
compensation costs and integration-related consulting fees.
Black & Decker and acquisitions contributed an
additional $985 million of operating SG&A. The
remaining increase in SG&A primarily relates to corporate
overhead, discussed below, investments to fund future growth,
and the reinstatement of certain U.S. retirement benefits
that were temporarily suspended in 2009 cost saving measures.
Excluding merger and acquisition-related charges, SG&A for
2010 was $2.087 billion, or 24.8% of net sales. The
improvement in the SG&A rate (as a percentage of sales)
mainly reflects sales volume leverage, savings from
restructuring actions and cost synergies, along with the other
aforementioned factors.
SG&A was $1.028 billion, or 27.5% of net sales, in
2009 as compared with $1.108 billion, or 25.0% of net sales
in 2008. Aside from acquisitions, SG&A was
$142 million lower than 2008. The decrease in SG&A
pertains to headcount reductions and various cost containment
actions such as temporarily suspending certain
U.S. retirement benefits in 2009 and sharply curtailing
travel and other discretionary spending. There was also a
reduction in variable selling and other costs, as well as
favorable foreign currency translation. Partially offsetting
these decreases was $22 million of increased spending to
expand the convergent security business sales force and various
brand awareness advertising campaigns, and $5 million for
Black & Decker integration planning.
The corporate overhead element of SG&A, which is not
allocated to the business segments, amounted to
$245 million in 2010, $71 million in 2009 and
$60 million in 2008. The previously discussed merger and
acquisition-related charges, that unfavorably impacted corporate
overhead, totaled $81 million in 2010 and $5 million
in 2009. Corporate overhead, excluding merger and acquisition-
related costs, represented 1.9%, 1.8% and 1.4% of net sales in
2010, 2009 and 2008, respectively.
30
Distribution center costs (i.e. warehousing and fulfillment
facility and associated labor costs) are classified within
SG&A. This classification may differ from other companies
who may report such expenses within cost of sales. Due to
diversity in practice, to the extent the classification of these
distribution costs differs from other companies, the
Companys gross margins may not be comparable. Such
distribution costs classified in SG&A amounted to
$198 million, $102 million and $122 million in
2010, 2009 and 2008, respectively.
Other-net: Other-net
from continuing operations totaled $200 million of expense
in 2010 compared to $139 million of expense in 2009. The
increase is primarily related to higher intangible asset
amortization expense and $37 million of merger and
acquisition-related charges inclusive of $20 million of
defined benefit plan curtailment gains.
Other-net
from continuing operations amounted to $139 million of
expense in 2009 compared to $112 million of expense in
2008. The increase pertained primarily to higher intangible
asset amortization expense, mainly associated with the 2008
Sonitrol and GdP acquisitions. Additionally, the Company
incurred $20 million in acquisition deal costs, primarily
for Black & Decker, which are required to be expensed
rather than capitalized in goodwill under new accounting rules
that became effective in January 2009.
Gain on Debt Extinguishment: In May 2009, the
Company repurchased $103 million of its junior subordinated
debt securities for $59 million in cash and recognized a
$44 million pre-tax gain on extinguishment. In October
2008, $34 million of these securities were repurchased for
$25 million in cash resulting in a $9 million pre-tax
gain thereon. In December 2010, the Company redeemed the
remaining junior subordinated debt at par without penalty.
Interest, net: Net interest expense from
continuing operations in 2010 was $101 million, compared to
$61 million in 2009 and $83 million in 2008. The
increase in 2010 relates to higher long-term borrowing levels
resulting primarily from the $1.832 billion debt acquired
in connection with the Merger. The decrease in 2009 versus
2008 net interest expense is primarily due to reduced
short-term borrowing levels along with sharply lower applicable
interest rates. Additionally, the favorable effects of
fixed-to-floating
interest rate swaps, coupled with the reduction in interest
expense from early retirement of $137 million of junior
subordinated debt securities, more than offset the increased
interest expense from the September 2008 $250 million debt
issuance.
Income Taxes: The Companys effective
income tax rate from continuing operations was 16% in 2010
compared to 19% in 2009 and 25% in 2008. During the second
quarter 2010 the Company recorded a tax benefit of
$36 million attributable to a favorable settlement of
certain tax contingencies, due to a change in facts and
circumstances that did not exist at the acquisition date related
to the resolution of a legacy Black & Decker income
tax audit. In addition, the effective tax rate for 2010 differs
from the statutory rate primarily due to various non-deductible
transactions and other restructuring associated with the Merger.
The tax rate for 2010, excluding the impact of merger and
acquisition-related charges as well as the tax settlement
benefit, was 25%. The lower effective tax rate in 2009 primarily
relates to benefits realized upon resolution of tax audits. The
effective tax rate may vary in future periods based on the
distribution of domestic and foreign earnings or changes in tax
law in the jurisdictions the Company operates, among other
factors.
Discontinued Operations: The $3 million
net loss from discontinued operations in 2009 is associated with
the wind-down of one small divestiture and purchase price
adjustments for CST/berger and the other small businesses
divested in 2008. The $88 million of net earnings from
discontinued operations in 2008 is attributable to the
$84 million net gain from the sale of the CST/berger
business along with three other small businesses divested in
2008, and also reflects the operating results of these
businesses through the dates of disposition.
Business
Segment Results
The Companys reportable segments are aggregations of
businesses that have similar products, services and end markets,
among other factors. The Company utilizes segment profit (which
is defined as net sales minus cost of sales, and SG&A aside
from corporate overhead expense), and segment profit as a
percentage of net sales to assess the profitability of each
segment. Segment profit excludes the corporate overhead expense
element of SG&A,
other-net
(inclusive of intangible asset amortization expense),
restructuring and asset
31
impairments, interest income, interest expense, and income tax
expense. Corporate overhead is comprised of world headquarters
facility expense, cost for the executive management team and the
expense pertaining to certain centralized functions that benefit
the entire Company but are not directly attributable to the
businesses, such as legal and corporate finance functions. Refer
to Note O, Restructuring and Asset Impairments, and
Note F, Goodwill and Other Intangible Assets, of the Notes
to the Consolidated Financial Statements for the amount of
restructuring charges and asset impairments, and intangibles
amortization expense, respectively, attributable to each
segment. As discussed previously, the Companys operations
are classified into three business segments: CDIY, Security, and
Industrial.
CDIY:
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|
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|
(Millions of Dollars)
|
|
2010
|
|
2009
|
|
2008
|
|
Net sales from continuing operations
|
|
$4,446
|
|
$1,295
|
|
$1,656
|
Segment profit from continuing operations
|
|
$476
|
|
$154
|
|
$191
|
% of Net sales
|
|
10.7%
|
|
11.9%
|
|
11.5%
|
CDIY net sales from continuing operations increased
$3.151 billion, or 243%, in 2010 compared with 2009.
Black & Decker generated 241% of the increase.
Favorable foreign currency translation contributed 1% to sales
and price had a negative 1% impact. Segment unit volume
increased over 2%, reflecting a 3% increase in the Americas and
14% in Asia, which was partially offset by a 2% decline in
Europe. Organic sales growth was aided by new product
introductions including Bostitch hand tools and Stanley-branded
storage units, and strength in Latin America. These factors more
than offset sluggish market conditions in developed countries in
North America, Western Europe and Australia. Additionally, CDIY
further improved service levels (fill rates) over 2009. Pro
forma Black & Decker sales increased 8% over 2009 with
negative 1% price offset by 1% favorable currency translation.
Black & Decker benefited from the successful global
launch of the 12-volt compact lithium ion power tools marketed
under the DeWalt, Porter Cable and Black & Decker
brands, other new product introductions in home products, and
strength in emerging markets. Segment profit increased
$322 million and reflects $128 million of merger and
acquisition-related charges comprised of inventory
step-up
amortization from the initial turn of the Black &
Decker inventory and facility closure-related costs. Excluding
the merger and acquisition-related charges, segment profit was
$603 million, or 13.6% of sales. The expansion of the
segment profit amount and rate, excluding merger and
acquisition-related charges, was attributable to achievement of
integration cost synergies, sales volume leverage and annual
productivity initiatives. Negative inflation/ price arbitrage
partially offset this profit rate expansion.
CDIY net sales from continuing operations decreased 22% in 2009
from 2008. Customer pricing contributed 2% to sales which was
more than offset by 3% of unfavorable foreign currency
translation in all regions. Segment unit volumes declined 21%
overall, comprised of 22% in both the Americas and Europe and
16% in Asia. The sales volume declines were more pronounced in
fastening systems (Bostitch), which has higher commercial
construction and industrial channel content, than in consumer
tools and storage. However the majority of this segment is
driven by consumer and residential construction channels which
were largely stabilized. Key customer point of sale data
remained steady. Segment profit declined $37 million
attributable to the sales volume pressure. The ongoing
integration of the Bostitch business into consumer tools and
storage generated efficiencies that significantly aided the
segment profit rate recovery from a trough of 6.4% in the fourth
quarter of 2008. The aforementioned Bostitch integration, along
with other cost actions and productivity initiatives, as well as
the carryover effect of price increases and lower commodity
costs, enabled the 40 basis point improvement in the
segment profit rate despite sharply lower sales.
Security:
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(Millions of Dollars)
|
|
2010
|
|
2009
|
|
2008
|
|
Net sales from continuing operations
|
|
$2,113
|
|
$1,560
|
|
$1,497
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Segment profit from continuing operations
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|
$306
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|
$307
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|
$269
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% of Net sales
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14.5%
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|
19.7%
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|
17.9%
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32
Security segment sales from continuing operations increased 35%
in 2010 reflecting a 29% contribution from the Merger and 8%
from acquisitions, principally the March 2010 SSDS acquisition
and the fourth quarter 2010 GMT Chinese hardware business.
Modest price and favorable foreign currency translation provided
a combined 1% sales benefit. Organic sales volume decreased 3%,
and was more pronounced in mechanical access than in convergent
security solutions. Mechanical access sales volume decline was
associated with continued slow commercial construction markets
and a large U.S. retailers inventory reduction that
affected the hardware business. On a pro forma basis, the
Black & Decker hardware and home improvement
(HHI) business achieved 7% higher sales, with 6%
unit volume growth, 2% favorable foreign currency translation
and a 1% price decline. The HHI
Kwikset®
and
Baldwin®
new product introductions fueled the higher sales, overcoming
the unfavorable impact of a residential hardware customers
inventory destocking. Convergent security had a low single digit
sales volume decrease as a solid performance by the healthcare
solutions business was more than offset by weakness in
commercial installations in the U.S. and U.K. security
businesses. Segment profit reflects $43 million of merger
and acquisition-related charges, comprised of facility
closure-related costs and inventory
step-up
amortization from the initial turn of the Black &
Decker inventory. Segment profit amounted to $349 million,
or 16.5% of sales, aside from these costs. This 16.5% segment
profit rate reflects 40 basis points of dilution from
Black & Decker and acquired companies, such that
legacy Stanley achieved a 16.9% segment profit rate excluding
merger and acquisition-related charges. The increase in the
total segment profit amount is attributable to Black &
Decker and acquisitions which more than offset lower profits in
the legacy Stanley business. The legacy Stanley performance
pertained to lower absorption from reduced sales volume, due to
weak construction markets and the previously mentioned customer
inventory correction, along with inflation that pressured the
segment profit rate. These factors more than offset the benefits
fromproductivity improvements and restructuring actions with
respect to legacy Stanley.
Security segment sales from continuing operations increased 4%
in 2009 reflecting a 12% contribution from acquisitions, mainly
Sonitrol (acquired in July 2008) and GdP (acquired in
October 2008). Price provided a 2% sales benefit which was
offset by nearly 2% of unfavorable foreign currency translation.
Organic sales volume decreased 8% as the segment was affected by
the contraction in U.S. commercial construction and other
capital spending delays associated with weak economic
conditions. Mechanical access had somewhat steeper volume
declines than convergent security, but was aided by
stabilization in the residential hardware markets and a hardware
products roll-out at a major North American retailer in the
second half of the year. Additionally, cross selling of
mechanical products to convergent customers, retention of
national account customers and select new product introductions
helped alleviate mechanical access sales volume pressures. Lower
organic volume in convergent (electronic) security pertained
primarily to weakness in system installations, although there
were some signs of improvement with national accounts late in
the year. As a result there was a favorable mix shift in
convergent security and the overall segment to higher margin
recurring monthly service revenue (including security monitoring
and maintenance) which grew organically in a high single digit
percentage range. This improved sales mix shift in the segment
was partially attributable to the recent expansion of the core
commercial account sales force as well as a strategic emphasis
on recurring service revenue and away from certain
installation-only jobs. The increase in the segment profit
amount was attributable to acquisitions, while the sustainment
of organic profit at the prior year level is notable considering
the headwinds from lower sales. The robust 180 basis point
segment profit rate expansion was enabled by the ongoing
successful integration of accretive acquisitions, the previously
mentioned mix shift to higher margin recurring monthly service
revenues, the benefits of customer pricing and proactive cost
reductions.
Industrial:
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|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
2009
|
|
2008
|
|
Net sales from continuing operations
|
|
$1,851
|
|
$882
|
|
$1,274
|
Segment profit from continuing operations
|
|
$243
|
|
$89
|
|
$164
|
% of Net sales
|
|
13.1%
|
|
10.1%
|
|
12.9%
|
Industrial segment net sales from continuing operations rose
110% in 2010 compared with 2009. Black & Decker
provided 77% of the sales increase and the CRC-Evans acquisition
contributed 14%. Unfavorable foreign currency translation,
driven by Europe, reduced sales by 2% while price provided a 1%
increase in
33
sales. Sales unit volume gains were 21% primarily attributable
to customer supply chain restocking, which subsided in the third
quarter, market share gains, and strong end user demand fueled
by higher global production levels and new product
introductions. The Americas and Europe each posted robust 20%
volume growth, and were outpaced by Asia. The industrial and
automotive repair business enjoyed significant market share
gains, end user market growth in all North American sales
channels, particularly through industrial distribution. The
hydraulic tools business also attained strong volume gains
further aided by favorable steel scrap markets. On a pro forma
basis, the Black & Decker engineered fastening
business grew a substantial 30% associated with significantly
higher automotive vehicle production in the Americas and Japan
and increased customer penetration. The pro forma
Black & Decker sales were comprised of 27% unit
volume, negative 1% price, 1% favorable foreign currency
translation and 3% from an acquisition. Merger and
acquisition-related charges, primarily inventory
step-up
amortization from the initial turn of the Black &
Decker and CRC-Evans inventories, amounted to $26 million
in 2010. Excluding the merger and acquisition-related charges,
segment profit was $269 million, or 14.5% of net sales,
representing a robust 440 basis point expansion of the
segment profit rate. This strong performance was enabled by the
accretive impact of Black & Decker and CRC-Evans,
along with favorable operating leverage and a reduced cost
structure in the legacy Stanley businesses. Over one third of
the segment profit rate improvement pertains to the legacy
Stanley business and the remainder to the inclusion of
Black & Decker and CRC-Evans.
Industrial segment net sales from continuing operations
decreased 31% in 2009 compared with 2008. Price provided a 2%
benefit which was offset by 2% of unfavorable foreign currency
translation. Unit volume fell 31%, about evenly in the Americas
and Europe which was partially offset by growth in the
Companys relatively less significant Asian region.
Industrial channels were down more severely than automotive
repair channels. The unit volume declines reflected ongoing
severe economic weakness in the U.S. and Europe. In
addition to broad-based, reduced end market demand, the segment
was adversely impacted by pervasive inventory corrections
throughout the supply chain which abated in the fourth quarter.
There were signs of stabilization in the channels this business
segment serves. Segment profit fell $75 million from the
prior year due to the precipitous sales volume decline which was
also reflected in the segment profit rate contraction. However,
price realization partially mitigated the sales volume and
related negative manufacturing productivity effects, along with
a solid improvement in Mac Tools profit reflecting
disciplined cost and other actions. The Company initiated
extensive cost actions throughout the segment in late 2008, but
they took longer to implement in Europe due to the
country-specific works council process. Those actions were
largely complete and were supplemented by other ongoing
restructuring initiatives in 2009, as reflected in the quarterly
segment profit rate that hit a trough of 9.2% in the third
quarter and recovered to 11.3% in the fourth quarter.
34
RESTRUCTURING
ACTIVITIES
At January 1, 2011, restructuring reserves totaled
$101.2 million. A summary of the restructuring reserve
activity from January 2, 2010 to January 1, 2011 is as
follows (in millions):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
1/2/10
|
|
|
Acquisitions
|
|
|
Additions
|
|
|
Usage
|
|
|
Currency
|
|
|
1/1/11
|
|
|
2010 Actions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
205.8
|
|
|
$
|
(124.6
|
)
|
|
$
|
0.5
|
|
|
$
|
81.7
|
|
Asset impairments
|
|
|
|
|
|
|
|
|
|
|
24.0
|
|
|
|
(24.0
|
)
|
|
|
|
|
|
|
|
|
Facility closure
|
|
|
|
|
|
|
|
|
|
|
2.7
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
1.6
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
7.0
|
|
|
|
(6.0
|
)
|
|
|
0.1
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal 2010 actions
|
|
|
|
|
|
|
|
|
|
|
239.5
|
|
|
|
(155.7
|
)
|
|
|
0.6
|
|
|
|
84.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-2010 Actions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs
|
|
|
44.3
|
|
|
|
3.5
|
|
|
|
(0.9
|
)
|
|
|
(27.1
|
)
|
|
|
(3.7
|
)
|
|
|
16.1
|
|
Asset impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility closure
|
|
|
1.9
|
|
|
|
|
|
|
|
3.9
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
0.7
|
|
Other
|
|
|
0.2
|
|
|
|
|
|
|
|
0.1
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Pre-2010 actions
|
|
|
46.4
|
|
|
|
3.5
|
|
|
|
3.1
|
|
|
|
(32.5
|
)
|
|
|
(3.7
|
)
|
|
|
16.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46.4
|
|
|
$
|
3.5
|
|
|
$
|
242.6
|
|
|
$
|
(188.2
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
101.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Actions: During 2010, the Company
recognized $224.3 million of restructuring charges and
asset impairments associated with the Merger and acquisition of
SSDS. Of those charges, $194.4 million relates to severance
charges associated with the reduction of 3,000 employees,
$20.2 million relates to asset impairments,
$2.7 million relates to facility closure costs, and
$7.0 million represents other charges.
In addition, the Company continued to initiate cost reduction
actions in 2010 that were not associated with the Merger and
SSDS acquisition, resulting in severance and related charges of
$11.4 million pertaining to the reduction of approximately
300 employees, and asset impairment charges of
$3.8 million.
Of the $239.5 million recognized for these 2010 actions,
$155.7 million has been utilized to date, with
$84.4 million of reserves remaining as of January 1,
2011, the majority of which are expected to be utilized in 2011.
Usage includes $15.0 million the majority of which
ultimately will entail cash payment in a future period as it
relates to a defined benefit plan for severed Black &
Decker executives which is classified in Accrued Pension and
Post-Retirement Benefits on the Consolidated Balance Sheet.
Pre-2010 Actions: During 2009 and 2008 the
Company initiated cost reduction actions in various businesses
in response to sales volume declines associated with the
economic recession. Charges recognized in 2010 associated with
these initiatives amounted to $3.1 million.
As of January 2, 2010, the reserve balance related to these
pre-2010 actions totaled $46.4 million. As a result of the
Merger and the acquisition of SSDS, the Company has assumed
$3.5 million of restructuring reserves recorded by those
companies prior to the Merger and acquisition.
Utilization of the reserve balance related to Pre-2010 actions,
including usage of those reserves acquired as part of the
Merger, was $32.5 million in 2010. The remaining reserve
balance of $16.8 million is expected to be utilized
predominantly in 2011.
Segments: The $242.6 million of charges
recognized in 2010 includes: $126.4 million pertaining to
the CDIY segment; $64.2 million pertaining to the Security
segment; $12.2 million pertaining to the Industrial
segment; and $39.8 million pertaining to non-operating
entities.
In addition to the restructuring charges described in the
preceding paragraphs, the Company recognized $21.4 million
of restructuring-related costs in 2010 pertaining to the Merger.
Those costs are classified in Cost of Sales and include
accelerated depreciation and other charges associated with
facility closures.
35
FINANCIAL
CONDITION
Liquidity, Sources and Uses of
Capital: The Companys primary sources
of liquidity are cash flows generated from operations and
available lines of credit under various credit facilities.
Operating Activities: In 2010, cash flow from
operations was $739 million, a $200 million increase
compared to $539 million in 2009. Cash flow from operations
in 2010 was unfavorably impacted by approximately
$382 million in payments for merger and acquisition-related
items. Cash flows from operations improved in 2010 primarily due
to an increase in various non-cash expenses associated with the
Merger and the other 2010 acquisitions. Such expenses include,
among other items, $174 million of inventory
step-up
amortization, a $41 million increase in intangible asset
amortization, and a $108 million increase in other
depreciation / amortization. Inflows from working
capital (receivables, inventories and accounts payable) were
$135 million in 2010, compared with inflows of
$226 million in 2009. The change from 2009 is driven by
higher receivables and inventory associated with improved 2010
sales volume. Working capital turns improved to 5.7 times at
January 1, 2011 as compared to 5.2 times for 2009 (pro
forma with Black & Decker) due to improvements in days
outstanding accounts receivable, inventory and accounts payable,
reflecting the process-driven improvements from the Stanley
Fulfillment System (SFS). SFS principles continue to
be deployed across all businesses and regions including the
Black & Decker operations to improve its working
capital efficiency over time. During 2010 the Company
contributed $277 million to defined benefit retirement
plans, as compared to $17 million in 2009; this includes
$182 million in discretionary cash contributions to improve
the funded status of legacy Black & Decker plans that
are reflected in the merger and acquisition-related payments
previously discussed.
In 2009, cash flow from operations totaled $539 million, up
over $22 million compared to 2008. Working capital
(receivables, inventories and accounts payable) generated
$226 million of cash inflows, driven by inventory and
accounts receivable reductions which were partially offset by
lower accounts payable. These working capital reductions, while
partially attributable to lower sales volumes, were engendered
by broadly practiced SFS disciplines including effective sales
and operations planning, a deliberate focus on reducing slow
moving inventories, and vigilant receivable collections.
Additionally, the Company implemented a receivable
securitization facility in December 2009 which enabled a
$35 million cash inflow. This strong working capital
performance is apparent from the improvement in working capital
turns from 5.9 in 2008 to a record 7.9 at year-end 2009. Cash
outflows for restructuring activities totaled $58 million
in 2009, an increase of $25 million over 2008, arising from
the significant cost reduction actions initiated in the fourth
quarter of 2008 and the first half of 2009 as the Company
right-sized its cost structure amidst sales pressures associated
with weak macro-economic conditions.
Other non-cash operating cash flows represent items necessary to
reconcile net earnings to net cash provided by operating
activities. The other non-cash element of cash provided by
operating activities is comprised of various items including
non-cash gains on debt extinguishments (applicable in 2009
only), inventory losses, interest accretion on the convertible
notes, and loan cost amortization among other factors.
Free Cash Flow: Free cash flow, as defined in
the following table, was $554 million in 2010,
$446 million in 2009, and $422 million in 2008,
considerably exceeding net earnings. As previously discussed,
2010 operating cash flow was affected by $382 million of
merger-related payments. Management considers free cash flow an
important indicator of its liquidity, as well as its ability to
fund future growth and provide a dividend to shareowners. In
2008, free cash flow also excludes the income taxes paid on the
CST/berger divestiture due to the fact the taxes are
non-recurring and the directly related gross cash proceeds are
classified in investing cash flows. Free cash flow does not
include deductions for mandatory debt service, other borrowing
activity, discretionary dividends on the Companys common
stock and business acquisitions, among other items.
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
|
$739
|
|
|
|
$539
|
|
|
|
$517
|
|
Less: capital expenditures
|
|
|
(165)
|
|
|
|
(73)
|
|
|
|
(95)
|
|
Less: capitalized software
|
|
|
(20)
|
|
|
|
(20)
|
|
|
|
(46)
|
|
Add: taxes paid on CST/berger divestiture included in operating
cash flow
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
$554
|
|
|
|
$446
|
|
|
|
$422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Based on its demonstrated ability to generate cash flow from
operations as well as its strong balance sheet and credit
position at January 1, 2011, the Company believes over the
long term it has the financial flexibility to deploy capital to
its shareowners advantage through a combination of
acquisitions, dividends, and potential future share repurchases.
Investing Activities: Capital expenditures
were $186 million in 2010, $93 million in 2009, and
$141 million in 2008. The run rate for 2010 capital
expenditures was slightly higher than the combined 2009 spend of
Stanley and Black & Decker due to incremental capital
and software expenditures associated with the Merger. The lower
capital expenditures in 2009 compared to 2008 pertain to reduced
capitalized software investments and the prior year purchase of
a previously leased distribution facility that did not re-occur.
The Company will continue to make capital investments that are
necessary to drive productivity and cost structure improvements
as well as achieve merger and acquisition-related cost synergies
while ensuring that such investments deliver an appropriate
risk-adjusted return on capital employed.
In 2010, aside from the Merger, the Company expended
$547 million for ten acquisitions, mainly for CRC-Evans
within the Industrial segment, and SSDS and GMT within the
Security segment. Additionally the Company acquired
$949 million of cash as part of the Merger. In 2009, the
Company expended $24 million for several small
acquisitions. In 2008, acquisition spending totaled
$575 million, mainly for the GdP, Scan Modul, Sonitrol and
Xmark businesses within the Security segment.
Investing cash flows in 2010, aside from the previously
discussed capital expenditures and acquisition activity,
primarily related to derivative settlements and terminations.
The Company realized $30 million of cash proceeds from the
termination of the Black & Decker interest rate swaps
that had been entered into prior to the Merger, and became
undesignated at the merger date. Additionally the Company had a
net inflow on the settlement of net investment hedges of
$15 million in 2010. Other investing cash flows were minor
in 2009. Other investing cash flows in 2008 include
$205 million in gross proceeds from sales of businesses,
after transaction costs, primarily pertaining to the divestiture
of the CST/berger laser measuring tool business in July 2008. As
previously mentioned, the $46 million of income taxes paid
on the gain are reported as an operating cash outflow and thus
the total cash inflow from the 2008 divestitures amounts to
$159 million.
Financing Activities: Payments on long-term
debt amounted to $516 million in 2010, $65 million in
2009, and $45 million in 2008. The 2010 repayments
primarily relate to the maturing of the $200 million term
notes in March 2010 and the $313 million of payments
associated with the remarketing of the Convertible Notes.
Net repayments of short-term borrowings totaled
$264 million in 2010, $120 million in 2009 and
$74 million in 2008.
On August 10, 2010, the Company received debt proceeds of
$396.2 million relating to the $400 million in senior
unsecured 2040 Term Bonds with a 5.2% fixed coupon rate. In
connection with this debt offering the Company paid
$48 million for the termination of two forward starting
floating-to-fixed
interest rate swaps.
On November 5, 2010, the Company completed a security
offering of Convertible Preferred Units (the Convertible
Preferred Units) which consisted of $632.5 million of
eight-year junior subordinated notes (the Notes)
bearing interest at an initial fixed rate of 4.25% per annum and
$632.5 million of five-year forward Purchase Contracts (the
Purchase Contracts) that obligate investors to
purchase 6,325,0000 shares of the Companys 4.75%
Series B Convertible Preferred Stock (the Convertible
Preferred Stock) for a price of $100 per share on
November 17, 2015. The Notes initially rank equal in right
of payment with all of the Companys other junior
subordinated debt. With respect to the offering, in November
2010 the Company received $613.5 million of cash proceeds,
net of underwriting fees, and will not receive cash pertaining
to the Purchase Contracts until November 2015. The cash proceeds
of this offering received in November 2010 was used to redeem
all of the Companys outstanding 5.902% Fixed Rate/Floating
Rate Junior Subordinated Debt Securities due 2045 of
$312.7 million, to contribute $150.0 million to a
U.S. pension plan to improve the funded status of the
Companys pension obligations, to fund the
$50.3 million cost of the capped call transaction as more
fully described below, and the remainder to reduce outstanding
short-term borrowings and for other general corporate purposes.
37
The Notes are pledged and held as collateral to guarantee the
Convertible Preferred Unit investors obligation to
purchase the aforementioned Convertible Preferred Stock in
November 2015 under the terms of the Purchase Contracts. In
order to meet that obligation, investors may elect to
participate in a remarketing in which the investor effectively
sells the Note to another third party investor in order to
generate cash proceeds sufficient to settle the Purchase
Contract obligation. The remarketing may occur, at the option of
the Company, as early as August 12, 2015, but no later than
November 10, 2015. In conjunction with that remarketing the
interest rate on the notes may be reset in order to generate
sufficient proceeds to settle the investors purchase
contract obligation. Additionally, upon remarketing, the notes
will improve in ranking to be senior to all of the
Companys existing and future unsecured junior subordinated
obligations and junior to all of the Companys existing and
future senior indebtedness.
The Convertible Preferred Stock deliverable upon settlement of
the Purchase Contracts may be converted at a rate of 1.3333,
which is equivalent to a conversion price of approximately
$75.00 per share of common stock or a 23% premium at the date of
issuance. The Company may settle any conversion occurring on or
after November 17, 2015 in cash, shares of the
Companys common stock, or a combination thereof. In the
event that investors elect to settle Purchase Contracts prior to
November 17, 2015, the company will be obligated to deliver
shares of Convertible Preferred Stock equal to 85% of the number
of Purchase Contracts tendered and if the Convertible Preferred
Stock is converted prior to November 17, 2015 the Company
will settle in shares of its common stock together with cash in
lieu of fractional shares.
Prior to settlement and delivery of the Convertible Preferred
Stock, the Purchase Contracts are not dilutive to earnings per
share unless the average market price of the Companys
common stock during the period is above the conversion price of
approximately $75.00 per share.
Simultaneous with the offering of the Convertible Preferred
Units, the Company entered into capped call transactions (equity
options) with counterparties. The total premium paid in 2010 for
the capped call transactions was $50.3 million and was
classified as a financing activity in the consolidated
statements of cash flows. Each of the capped call transactions
has a term of approximately five years and in aggregate the
transactions cover, subject to anti-dilution adjustments, the
maximum number of the Companys common shares issuable upon
settlement of the Convertible Preferred Stock. These
transactions provide the Company the right to buy shares of its
own common stock from the counterparties at a strike price of
$75.00 per share, which corresponds to the initial conversion
price of the Convertible Preferred Stock, and also obligate the
Company to sell shares of its own common stock to the
counterparties at a strike price of $97.95. The capped call
transactions may be settled by net share settlement or, at the
Companys option and subject to certain conditions, cash
settlement, or physical settlement. The value received by the
Company if the capped call transactions are exercised when the
Companys common stock price is above $75.00 can be
utilized to offset the dilution that may occur should holders of
the Convertible Preferred Stock elect to convert. Refer to
Note H, Long Term Debt and Financing Arrangements, for
further detail.
On September 29, 2008 the Company issued
$250.0 million of unsecured Term Notes maturing
October 1, 2013 (the 2013 Term Notes) with
fixed interest payable semi-annually, in arrears at a rate of
6.15% per annum. The 2013 Term Notes rank equally with all of
the Companys existing and future unsecured and
unsubordinated debt. The Company received net proceeds of
$248.0 million which includes a discount of
$0.5 million to achieve a 6.15% interest rate and
$1.5 million of fees associated with the transaction. The
proceeds were utilized to repay short-term borrowings.
In 2008, the Company utilized the proceeds from the
$250 million of long-term debt issued in September 2008 as
well as the $159 million in net proceeds from divestitures
to repay short-term borrowings, which was partially offset by
the cash outflows for business acquisitions and other matters.
On February 27, 2008, the Company amended its credit
facility to provide for an increase and extension of its
committed credit facility to $800 million from
$550 million. In May 2008, the Companys commercial
paper program was also increased to $800 million. Following
the merger the Company increased its committed credit facilities
to $1.5 billion from $800 million. The credit
facilities are diversified amongst twenty five financial
institutions. The credit facilities are designated as a
liquidity back-stop for the Companys commercial paper
program. The 5 year amended and restated facility expires
in February 2013, the 364 days revolving credit
38
facility expires in March 2011. As of January 1, 2011,
there were no outstanding loans under these facilities or any
commercial paper outstanding.
The Company increased its cash dividend per common share to
$1.34 in 2010. Dividends per common share increased 3.1% in
2010, 3.2% in 2009, and 3.3% in 2008. In continuing its trend of
dividend growth to its shareowners, the Company announced on
February 15, 2011 that it will increase its quarterly
dividend to $0.41 per common share which represents a 21%
increase over 2010 quarterly dividend rates.
The Company repurchased $5 million of common stock in 2010.
In 2009, the Company repurchased $3 million of common stock
and in 2008, the Company repurchased 2.2 million shares of
its common stock for $103 million (an average of $46.11 per
share). Proceeds from the issuance of common stock totaled
$396 million in 2010, $61 million in 2009 and
$19 million in 2008. The Company received $320 million
of cash proceeds in May, 2010 from the forward stock purchase
contracts element of the Equity Units. The remaining amounts in
each year mainly relate to employee and retiree stock option
exercises.
Credit Ratings and Liquidity: The Company has
strong investment grade credit ratings from all major
U.S. rating agencies on its senior unsecured debt (average
A-) as well as its short-term commercial paper borrowings. While
the ratings from certain agencies were unfavorably changed
following the Merger, the current credit ratings are investment
grade and the Company continues to have full access to credit
markets. Based on its current standing and historically strong
cash flows from operations which are expected to further improve
in 2011 and future years, as the cash outflows pertaining to
restructuring and Merger integration actions subside among other
positive factors, the Company expects it will continue to have
strong investment grade credit ratings. As detailed in
Note H, Long-Term Debt and Financing Arrangements, the
Company has $3.434 billion of debt, including
$416 million of current maturities, and $1.6 million
of short-term borrowings at January 1, 2011; the debt has
well-staggered maturities over many years. Cash and cash
equivalents total $1.745 billion at January 1, 2011.
Concurrent with the Merger, the Company has made a determination
to repatriate $1.636 billion (an estimated
$1.193 billion after taxes) of legacy Black &
Decker foreign earnings in the future. Management believes the
Company has ample liquidity and a healthy capital structure for
both the near and long-term. Failure to maintain strong
investment grade rating levels could adversely affect the
Companys cost of funds, liquidity and access to capital
markets, but would not have an adverse effect on the
Companys ability to access the $1.5 billion committed
credit facilities.
Contractual Obligations: The following
summarizes the Companys significant contractual
obligations and commitments that impact its liquidity:
Payments
Due by Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
Total
|
|
|
2011
|
|
|
2012 2013
|
|
|
2014 2015
|
|
|
Thereafter
|
|
|
Long-term
debt(a)
|
|
|
$3,323
|
|
|
|
$407
|
|
|
|
$779
|
|
|
|
$654
|
|
|
|
$1,483
|
|
Interest payments on long-term
debt(b)
|
|
|
1,396
|
|
|
|
161
|
|
|
|
283
|
|
|
|
197
|
|
|
|
755
|
|
Operating leases
|
|
|
309
|
|
|
|
97
|
|
|
|
125
|
|
|
|
52
|
|
|
|
35
|
|
Derivatives(c)
|
|
|
60
|
|
|
|
42
|
|
|
|
2
|
|
|
|
9
|
|
|
|
7
|
|
Equity purchase contract fees
|
|
|
16
|
|
|
|
3
|
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
Inventory purchase
commitments(d)
|
|
|
329
|
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
18
|
|
|
|
2
|
|
|
|
4
|
|
|
|
2
|
|
|
|
10
|
|
Marketing and other
obligations(e)
|
|
|
72
|
|
|
|
56
|
|
|
|
7
|
|
|
|
4
|
|
|
|
5
|
|
Pension funding
obligations(f)
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
|
$5,663
|
|
|
|
$1,237
|
|
|
|
$1,206
|
|
|
|
$925
|
|
|
|
$2,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Future payments on long-term debt
above encompass all payments related to aggregate debt
maturities, excluding certain fair value adjustments included in
long-term debt, as discussed further in Note H, Long-Term
Debt and Financing Arrangements.
|
|
(b)
|
|
Future interest payments on
long-term debt reflect the applicable fixed interest rate or the
variable rate in effect at January 1, 2011 for floating
rate debt.
|
39
|
|
|
(c)
|
|
Future cash flows on derivative
financial instruments reflect the fair value as of
January 1, 2011. The ultimate cash flows on these
instruments will differ, perhaps significantly, based on
applicable market interest and foreign currency rates at their
maturity.
|
|
(d)
|
|
Inventory purchase commitments
primarily consist of commitments to purchase raw materials,
components, and sourced products.
|
|
(e)
|
|
To the extent the Company can
reliably determine when payments will occur pertaining to
unrecognized tax benefit liabilities, the related amount will be
included in the table above. However, due to the high degree of
uncertainty regarding the timing of potential future cash flows
associated with the $306 million of such liabilities at
January 1, 2011, the Company is unable to make a reliable
estimate of when (if at all) amounts may be paid to the
respective taxing authorities.
|
|
(f)
|
|
The Company anticipates that
funding of its pension and post-retirement benefit plans in 2011
will approximate $140 million. That amount principally
represents contributions either required by regulations or laws
or, with respect to unfunded plans, necessary to fund current
benefits. The Company has not presented estimated pension and
post-retirement funding in the table above beyond 2011 as
funding can vary significantly from year to year based upon
changes in the fair value of the plan assets, actuarial
assumptions, and curtailment/settlement actions.
|
Aside from debt payments, for which there is no tax benefit
associated with repayment of principal, tax obligations and the
equity purchase contract fees, payment of the above contractual
obligations will typically generate a cash tax benefit such that
the net cash outflow will be lower than the gross amounts
indicated.
Other Significant Commercial Commitments:
Amount of
Commitment Expirations Per Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
Total
|
|
2011
|
|
2012 2013
|
|
2014 2015
|
|
Thereafter
|
|
U.S. lines of credit
|
|
$
|
1,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,500
|
|
|
$
|
|
|
Short-term borrowings, long-term debt and lines of credit are
explained in detail within Note H, Long-Term Debt and
Financing Arrangements, of the Notes to the Consolidated
Financial Statements.
MARKET
RISK
Market risk is the potential economic loss that may result from
adverse changes in the fair value of financial instruments,
currencies, commodities and other items traded in global
markets. The Company is exposed to market risk from changes in
foreign currency exchange rates, interest rates, stock prices,
and commodity prices. Exposure to foreign currency risk results
because the Company, through its global businesses, enters into
transactions and makes investments denominated in multiple
currencies. The Companys predominant exposures are in
European, Canadian, British, Australian, and Asian currencies,
including the Chinese Renminbi (RMB) and the Taiwan
Dollar. Certain cross-currency trade flows arising from sales
and procurement activities as well as affiliate cross-border
activity are consolidated and netted prior to obtaining risk
protection through the use of various derivative financial
instruments which may include: purchased basket options;
purchased options; and currency forwards. The Company is thus
able to capitalize on its global positioning by taking advantage
of naturally offsetting exposures and portfolio efficiencies to
reduce the cost of purchasing derivative protection. At times,
the Company also enters into forward exchange contracts and
purchased options to reduce the earnings and cash flow impact of
non-functional currency denominated receivables and payables,
predominately for affiliate transactions. Gains and losses from
these hedging instruments offset the gains or losses on the
underlying net exposures, assets and liabilities being hedged.
Management determines the nature and extent of currency hedging
activities, and in certain cases, may elect to allow certain
currency exposures to remain un-hedged. The Company has also
entered into cross-currency swaps and forward contracts, to
provide a partial hedge of the net investments in certain
subsidiaries and better match the cash flows of operations to
debt service requirements. Management estimates the foreign
currency impact from these financial instruments at the end of
2010 would have been approximately a $62 million pre-tax
loss based on a hypothetical 10% adverse movement in all net
derivative currency positions; this effect would occur from
depreciation of the foreign currencies relative to the
U.S. dollar. The Company follows risk management policies
in executing derivative financial instrument transactions, and
does not use such instruments for speculative purposes. The
Company does not hedge the translation of its
non-U.S. dollar
earnings in foreign subsidiaries.
40
As mentioned above, the Company routinely has cross-border trade
and affiliate flows that cause a transactional
impact on earnings from foreign exchange rate movements. The
Company is also exposed to currency fluctuation volatility from
the translation of foreign earnings into U.S. dollars, as
previously discussed. It is more difficult to quantify the
transactional effects from currency fluctuations than the
translational effects. Aside from the use of derivative
instruments which may be used to mitigate some of the exposure,
transactional effects can potentially be influenced by actions
the Company may take; for example, if an exposure occurs from a
European entity sourcing product from a U.S. supplier it
may be possible to change to a European supplier. Management
estimates the combined translational and transactional impact of
a 10% overall movement in exchange rates is approximately
$81 million, or $0.47 per diluted share. With respect to
transactional foreign currency market risk, the Company sources
significant products from China and other Asian low cost
countries for resale in other regions. To the extent the Chinese
RMB or these other currencies appreciate with respect to the
U.S. dollar, the Company may experience cost increases on
such purchases which could adversely impact profitability. In
the event significant RMB or other currency appreciation occurs,
the Company would initiate customer pricing or other actions in
an effort to mitigate the related cost increases, but it is
possible such actions would not fully offset the potential
unfavorable impact. Based on current exchange rates, management
does not anticipate that foreign exchange will have a
significant impact on 2011 results. Additionally, management has
allowed for an approximately 3% appreciation of the RMB relative
to the U.S. dollar in providing 2011 earnings guidance as
discussed in the 2011 Outlook section of this MD&A.
The Companys exposure to interest rate risk results from
its outstanding debt obligations, short-term investments, and
derivative financial instruments employed in the management of
its debt portfolio. The debt portfolio including both trade and
affiliate debt, is managed to achieve capital structure targets
and reduce the overall cost of borrowing by using a combination
of fixed and floating rate debt as well as interest rate swaps,
and cross-currency swaps.
The Companys primary exposure to interest rate risk comes
from its floating rate debt in the U.S. and Europe and is
fairly represented by changes in LIBOR and EURIBOR rates. At
January 1, 2011, the impact of a hypothetical 10% increase
in the interest rates associated with the Companys
floating rate derivative and debt instruments would have an
immaterial effect on the Companys financial position and
results of operations.
The Company has exposure to commodity prices in many businesses,
particularly brass, nickel, resin, aluminum, copper, zinc,
steel, and energy used in the production of finished goods.
Generally, commodity price exposures are not hedged with
derivative financial instruments, but instead are actively
managed through customer product and service pricing actions,
procurement-driven cost reduction initiatives and other
productivity improvement projects. The Company experienced
inflation (primarily commodity and freight) of approximately
$70 million and $140 million in 2010 and 2008,
respectively, while it experienced mild deflation in 2009.
Cumulatively, during 2008 2010 the Company recovered
more than two thirds of inflation through customer pricing.
However, price erosion occurred in 2010 and the net unfavorable
price / inflation impact for 2010 was over
$120 million. Management estimates inflation in 2011 will
adversely impact profits by 100 basis points, inclusive of
approximately 3% Chinese RMB currency appreciation effect.
Commodity and sourced product costs may increase in the future,
and in that event there would be an unfavorable impact on
earnings to the extent not recovered through customer pricing
and other cost reduction actions.
Fluctuations in the fair value of the Companys common
stock affect domestic retirement plan expense as discussed in
the ESOP section of MD&A. Additionally, the Company has
$23 million of liabilities as of January 1, 2011
pertaining to unfunded defined contribution plans for certain
U.S. employees for which there is
mark-to-market
exposure.
The assets held by the Companys defined benefit plans are
exposed to fluctuations in the market value of securities,
primarily global stocks and fixed-income securities. The funding
obligations for these plans would increase in the event of
adverse changes in the plan asset values, although such funding
would occur over a period of many years. In 2010 and 2009, there
were $138 million and $48 million in investment
returns on pension plan assets, respectively, compared with a
$71 million loss on plan assets in 2008 due to volatile
financial markets. The Company expects funding obligations on
its defined benefit plans to be approximately $140 million
in 2011. The Company employs diversified asset allocations to
help mitigate this risk.
41
Management has worked to minimize this exposure by freezing and
terminating defined benefit plans where appropriate.
The Company has access to financial resources and borrowing
capabilities around the world. There are no instruments within
the debt structure that would accelerate payment requirements
due to a change in credit rating.
The Companys existing credit facilities and sources of
liquidity, including operating cash flows, are considered more
than adequate to conduct business as normal. Accordingly, based
on present conditions and past history, management believes it
is unlikely that operations will be materially affected by any
potential deterioration of the general credit markets that may
occur. The Company believes that its strong financial position,
operating cash flows, committed long-term credit facilities and
borrowing capacity, and ready access to equity markets provide
the financial flexibility necessary to continue its record of
annual dividend payments, to invest in the routine needs of its
businesses, to make strategic acquisitions and to fund other
initiatives encompassed by its growth strategy and maintain its
strong investment grade credit ratings.
OTHER
MATTERS
Employee Stock Ownership Plan As detailed in
Note L, Employee Benefit Plans, of the Notes to the
Consolidated Financial Statements, the Company has an Employee
Stock Ownership Plan (ESOP) under which the ongoing
U.S. Cornerstone and 401(K) defined contribution plans are
funded. Overall ESOP expense is affected by the market value of
the Companys stock on the monthly dates when shares are
released, among other factors. Net ESOP activity amounted to
expense of $3 million in 2010, and $8 million of
income and $11 million of expense in 2009 and 2008,
respectively. The ESOP income in 2009 stems from the suspension
of the Cornerstone benefits and the reduction of the 401(K)
match, as a percentage of employee contributions, as part of
cost saving actions. The Company reinstated these benefits for
2010 and as a result, there was an increase in expense in 2010
more aligned with 2008 and prior years. ESOP expense could
increase in the future if the market value of the Companys
common stock declines.
CUSTOMER-RELATED RISKS The Company has
significant customers, particularly home centers and major
retailers, though individually there are none that exceed 10% of
consolidated sales. The loss or material reduction of business
from any such significant customer could have a material adverse
impact on the Companys results of operations and cash
flows, until either such customers were replaced or the Company
made the necessary adjustments to compensate for the loss of
business.
There are no individually material credit exposures from
particular customers. While the Company has strong credit
policies and disciplined management of receivables, due to weak
economic conditions or other factors it is reasonably possible
that certain customers creditworthiness may decline and
losses from receivable write-offs may increase.
NEW ACCOUNTING STANDARDS Refer to
Note A, Significant Accounting Policies, of the Notes to
the Consolidated Financial Statements for a discussion of new
accounting pronouncements and the potential impact to the
Companys consolidated results of operations and financial
position.
CRITICAL ACCOUNTING ESTIMATES Preparation of
the Companys Consolidated Financial Statements requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses.
Significant accounting policies used in the preparation of the
Consolidated Financial Statements are described in Note A,
Significant Accounting Policies. Management believes the most
complex and sensitive judgments, because of their significance
to the Consolidated Financial Statements, result primarily from
the need to make estimates about the effects of matters with
inherent uncertainty. The most significant areas involving
management estimates are described below. Actual results in
these areas could differ from managements estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS The Companys
estimate for its allowance for doubtful accounts related to
trade receivables is based on two methods. The amounts
calculated from each of these methods are combined to determine
the total amount reserved. First, a specific reserve is
established for individual accounts where information indicates
the customers may have an inability to meet financial
42
obligations. In these cases, management uses its judgment, based
on the surrounding facts and circumstances, to record a specific
reserve for those customers against amounts due to reduce the
receivable to the amount expected to be collected. These
specific reserves are reevaluated and adjusted as additional
information is received. Second, a reserve is determined for all
customers based on a range of percentages applied to receivable
aging categories. These percentages are based on historical
collection and write-off experience.
If circumstances change, for example, due to the occurrence of
higher than expected defaults or a significant adverse change in
a major customers ability to meet its financial obligation
to the Company, estimates of the recoverability of receivable
amounts due could be reduced.
INVENTORIES LOWER OF COST OR MARKET, SLOW MOVING AND
OBSOLETE Inventories in the U.S. are
predominantly valued at the lower of LIFO cost or market, while
non-U.S. inventories
are valued at the lower of FIFO cost or market. The calculation
of LIFO reserves, and therefore the net inventory valuation, is
affected by inflation and deflation in inventory components. The
Company ensures all inventory is valued at the lower of cost or
market, and continually reviews the carrying value of
discontinued product lines and stock-keeping-units
(SKUs) to determine that these items are properly
valued. The Company also continually evaluates the composition
of its inventory and identifies obsolete
and/or
slow-moving inventories. Inventory items identified as obsolete
and/or
slow-moving are evaluated to determine if write-downs are
required. The Company assesses the ability to dispose of these
inventories at a price greater than cost. If it is determined
that cost is less than market value, cost is used for inventory
valuation. If market value is less than cost, the Company writes
down the related inventory to that value. If a write down to the
current market value is necessary, the market value cannot be
greater than the net realizable value, or ceiling (defined as
selling price less costs to sell and dispose), and cannot be
lower than the net realizable value less a normal profit margin,
also called the floor. If the Company is not able to achieve its
expectations regarding net realizable value of inventory at its
current value, further write-downs would be recorded.
PROPERTY, PLANT AND EQUIPMENT The Company generally
values Property, Plant and Equipment (PP&E) at
historical cost less accumulated depreciation. Impairment losses
are recorded when indicators of impairment, such as plant
closures, are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying
amount. The impairment loss is quantified by comparing the
carrying amount of the assets to the weighted average discounted
cash flows, which consider various possible outcomes for the
disposition of the assets (i.e. sale, leasing, etc.). Primarily
as a result of plant rationalization, certain facilities and
equipment are not currently used in operations. The Company
recorded $24 million in asset impairment losses in 2010
primarily as a result of restructuring initiatives, and such
losses may occur in the future.
GOODWILL AND INTANGIBLE ASSETS The Company acquires
businesses in purchase transactions that result in the
recognition of goodwill and other intangible assets. The
determination of the value of intangible assets requires
management to make estimates and assumptions. In accordance with
Accounting Standards Codification (ASC)
350-20
Goodwill acquired goodwill and indefinite-lived
intangible assets are not amortized but are subject to
impairment testing at least annually and when an event occurs or
circumstances change that indicate it is more likely than not an
impairment exists. Other intangible assets are amortized and are
tested for impairment when appropriate. The Company completed
the Merger and acquisitions in 2010 and 2009 valued at
$5.2 billion and $24 million, respectively. The assets
and liabilities of acquired businesses are recorded at fair
value at the date of acquisition. Goodwill represents costs in
excess of fair values assigned to the underlying net assets of
acquired businesses. The Company reported $5.942 billion of
goodwill and $1.652 billion of indefinite-lived trade names
at January 1, 2011.
In accordance with
ASC 350-20,
management tests goodwill for impairment at the reporting unit
level. A reporting unit is a reportable operating segment as
defined in ASC 280, Segment Reporting, or one
level below a reportable operating segment (component level) as
determined by the availability of discrete financial information
that is regularly reviewed by operating segment management or an
aggregate of component levels of a reportable operating segment
having similar economic characteristics. As a result of
organization structure simplification effective in the beginning
of fiscal 2010, the Company modified the number of reporting
units from seven (pre-merger) to six. If the carrying value of a
reporting unit (including the value of goodwill) is
43
greater than its fair value, an impairment may exist. An
impairment charge would be recorded to the extent that the
recorded value of goodwill exceeded the implied fair value.
The Company assesses the fair value of its reporting units based
on a discounted cash flow valuation model. The key assumptions
used are discount rates and perpetual growth rates applied to
cash flow projections. Also inherent in the discounted cash flow
valuation are near-term revenue growth rates over the next five
years. These assumptions contemplate business, market and
overall economic conditions. The fair value of indefinite-lived
trade names is also assessed using a discounted cash flow
valuation model. The key assumptions used include discount
rates, royalty rates, and perpetual growth rates applied to the
projected sales.
As required by the Companys policy, goodwill and
indefinite-lived trade names were tested for impairment in the
third quarter of 2010. Based on this testing, the Company
determined that the fair value of its reporting units and
indefinite-lived trade names exceeded their carrying values. The
discount rate used in testing goodwill for impairment in the
third quarter of 2010 was 9.5% for all reporting units. The
near-term revenue growth rates and the perpetual growth rates,
which varied for each reporting unit, ranged from -4% to 8%, and
2% to 4%, respectively. In 2010 as compared with 2009, in
consideration of market conditions, the discount rate assumption
decreased 100 basis points, and perpetual growth rates
decreased 100 basis points in some reporting units, which
had the effect of reducing the estimated fair values. Management
performed sensitivity analyses on the fair values resulting from
the discounted cash flows valuation utilizing more conservative
assumptions that reflect reasonably likely future changes in the
discount rate, perpetual and near-term revenue growth rates in
all reporting units. The discount rate was decreased by
100 basis points with no impairment indicated. The
perpetual growth rates were decreased by 100 basis points
with no impairment indicated. The near-term revenue growth rates
were reduced by 150 basis points with no impairment
indicated. Based upon the Companys 2010 annual impairment
testing analysis, including the consideration of reasonably
likely adverse changes in assumptions described above,
management believes it is not reasonably likely that an
impairment will occur in any of the reporting units over the
next twelve months.
In the event that the Companys operating results in the
future do not meet current expectations, management, based upon
conditions at the time, would consider taking restructuring or
other actions as necessary to maximize profitability.
Accordingly, the above sensitivity analysis, while a useful
tool, should not be used as a sole predictor of impairment. A
thorough analysis of all the facts and circumstances existing at
that time would need to be performed to determine if recording
an impairment loss was appropriate.
DEFINED BENEFIT OBLIGATIONS The valuation of pension
and other postretirement benefits costs and obligations is
dependent on various assumptions. These assumptions, which are
updated annually, include discount rates, expected return on
plan assets, future salary increase rates, and health care cost
trend rates. The Company considers current market conditions,
including interest rates, to establish these assumptions.
Discount rates are developed considering the yields available on
high-quality fixed income investments with maturities
corresponding to the duration of the related benefit
obligations. The Companys weighted-average discount rate
for both the United States and international pension plans was
5.25% and 5.75% at January 1, 2011 and January 3,
2010, respectively. As discussed further in Note L,
Employee Benefit Plans, of the Notes to Consolidated Financial
Statements, the Company develops the expected return on plan
assets considering various factors, which include its targeted
asset allocation percentages, historic returns, and expected
future returns. For 2010 net periodic benefit cost the
Companys long-term rate of return assumption was 7.5% and
6.75% for United States and international plans, respectively.
The Company will use a 7% expected rate of return assumption for
2011 net periodic benefit cost reflecting a relatively
higher proportion of fixed income plan assets.
The Company believes that the assumptions used are appropriate;
however, differences in actual experience or changes in the
assumptions may materially affect the Companys financial
position or results of operations. To the extent that actual
(newly measured) results differ from the actuarial assumptions,
the difference is recognized in accumulated other comprehensive
income, and, if in excess of a specified corridor, amortized
over future periods. The expected return on plan assets is
determined using the expected rate of return and the fair value
of plan assets. Accordingly, market fluctuations in the fair
value of plan assets can affect the net
44
periodic benefit cost in the following year. The projected
benefit obligation for defined benefit plans exceeded the fair
value of plan assets by $713 million at January 1,
2011. The Merger resulted in a significant increase in defined
benefit plan obligations and related expense. The primary
Black & Decker U.S pension and post employment benefit
plans were curtailed in late 2010, as well as the only material
Black & Decker international plan, and the Company
implemented defined contribution benefit plans. As of
January 1, 2011, 83% of the projected benefit obligation
pertains to plans that have been frozen; the remaining defined
benefit plans that are not frozen are predominantly small
domestic union plans and those that are statutorily mandated in
certain international jurisdictions. The Company recognized
$39 million of defined benefit plan expense in 2010,
inclusive of $20 million in net curtailment/ settlement
gains; management expects the expense for these plans will
decrease by approximately $10 million in 2011.
ENVIRONMENTAL The Company incurs costs related to
environmental issues as a result of various laws and regulations
governing current operations as well as the remediation of
previously contaminated sites. Future laws and regulations are
expected to be increasingly stringent and will likely increase
the Companys expenditures related to routine environmental
matters.
The Companys policy is to accrue environmental
investigatory and remediation costs for identified sites when it
is probable that a liability has been incurred and the amount of
loss can be reasonably estimated. The amount of liability
recorded is based on an evaluation of currently available facts
with respect to each individual site and includes such factors
as existing technology, presently enacted laws and regulations,
and prior experience in remediation of contaminated sites. The
liabilities recorded do not take into account any claims for
recoveries from insurance or third parties. As assessments and
remediation progress at individual sites, the amounts recorded
are reviewed periodically and adjusted to reflect additional
technical and legal information that becomes available.
As of January 1, 2011, the Company had reserves of
$173 million for remediation activities associated with
Company-owned properties as well as for Superfund sites, for
losses that are probable and estimable. The Merger resulted in a
significant increase in environmental reserves and related
expense. The range of environmental remediation costs that is
reasonably possible is $157 million to $349 million
which is subject to change in the near term. The Company may be
liable for environmental remediation of sites it no longer owns.
Liabilities have been recorded on those sites in accordance with
this policy.
INCOME TAXES Income taxes are accounted for in
accordance with ASC 740, Accounting for Income Taxes, which
requires that deferred tax assets and liabilities be recognized,
using enacted tax rates, for the effect of temporary differences
between the book and tax bases of recorded assets and
liabilities. Deferred tax assets, including net operating
losses, are reduced by a valuation allowance if it is
more likely than not that some portion or all
of the deferred tax assets will not be realized.
In assessing the need for a valuation allowance, the Company
estimates future taxable income, considering the feasibility of
ongoing tax planning strategies, the realizability of tax loss
carry-forwards and the future reversal of existing temporary
differences. Valuation allowances related to deferred tax assets
can be impacted by changes to tax laws, changes to statutory tax
rates and future taxable income levels. In the event the Company
were to determine that it would not be able to realize all or a
portion of its deferred tax assets in the future, the
unrealizable amount would be charged to earnings in the period
in which that determination is made. By contrast, if the Company
were to determine that it would be able to realize deferred tax
assets in the future in excess of the net carrying amounts, it
would decrease the recorded valuation allowance through a
favorable adjustment to earnings in the period in which that
determination is made.
The company is subject to tax in a number of locations,
including many state and foreign jurisdictions. Significant
judgment is required when calculating our worldwide provision
for income taxes. We consider many factors when evaluating and
estimating our tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate
actual outcomes. It is reasonably possible that the amount of
the unrecognized benefit with respect to certain of our
unrecognized tax positions will significantly increase or
decrease within the next 12 months. These changes may be
the result of settlement of ongoing audits or final decisions in
transfer pricing matters. The Company periodically assesses its
liabilities and contingencies for all tax years still under
audit based on the most current available information, which
involves inherent
45
uncertainty. For those tax positions where it is more likely
than not that a tax benefit will be sustained, we have recorded
the largest amount of tax benefit with a greater than 50%
likelihood of being realized upon ultimate settlement with a
taxing authority that has full knowledge of all relevant
information. For those income tax positions where it is not more
likely than not that a tax benefit will be sustained, no tax
benefit has been recognized in the financial statements. The
Company recognizes interest and penalties associated with
uncertain tax positions as a component of income taxes in the
Consolidated Statement of Operations. See Note Q, Income
Taxes, of the Notes to the Consolidated Financial Statements for
further discussion.
RISK INSURANCE To manage its insurance costs
efficiently, the Company self insures for certain
U.S. business exposures and generally has low deductible
plans internationally. For domestic workers compensation,
automobile and product liability (liability for alleged injuries
associated with the Companys products), the Company
generally purchases outside insurance coverage only for severe
losses (stop loss insurance) and these lines of
insurance involve the most significant accounting estimates.
While different stop loss deductibles exist for each of these
lines of insurance, the maximum stop loss deductible is set at
no more than $5 million per occurrence and $49 million
in the aggregate per annum. The process of establishing risk
insurance reserves includes consideration of actuarial
valuations that reflect the Companys specific loss
history, actual claims reported, and industry trends among
statistical and other factors to estimate the range of reserves
required. Risk insurance reserves are comprised of specific
reserves for individual claims and additional amounts expected
for development of these claims, as well as for incurred but not
yet reported claims discounted to present value. The cash
outflows related to risk insurance claims are expected to occur
over a maximum of 13 years. The Company believes the
liabilities recorded for these U.S. risk insurance
reserves, totaling $106 million and $42 million as of
January 1, 2011 and January 2, 2010, respectively, are
adequate. The Merger resulted in a significant increase in
U.S. risk insurance reserves and related expense. Due to
judgments inherent in the reserve estimation process it is
possible the ultimate costs will differ from this estimate.
WARRANTY The Company provides product and service
warranties which vary across its businesses. The types of
warranties offered generally range from one year to limited
lifetime, while certain products carry no warranty. Further, the
Company sometimes incurs discretionary costs to service its
products in connection with product performance issues.
Historical warranty and service claim experience forms the basis
for warranty obligations recognized. Adjustments are recorded to
the warranty liability as new information becomes available. The
Company believes the $120 million and $67 million
reserves for expected warranty claims as of January 1, 2011
and January 2, 2010, respectively, is adequate, but due to
judgments inherent in the reserve estimation process, including
forecasting future product reliability levels and costs of
repair as well as the estimated age of certain products
submitted for claims, the ultimate claim costs may differ from
the recorded warranty liability. The Merger resulted in a
significant increase in warranty reserves and related expense.
The Company also establishes a reserve for product recalls on a
product-specific basis during the period in which the
circumstances giving rise to the recall become known and
estimable for both company initiated actions and those required
by regulatory bodies.
OFF-BALANCE
SHEET ARRANGEMENT
SYNTHETIC LEASES The Company is a party to synthetic
leasing programs for one of its major distribution centers and
certain U.S. personal property, predominately vehicles and
equipment. The programs qualify as operating leases for
accounting purposes, such that only the monthly rent expense is
recorded in the Statement of Operations and the liability and
value of the underlying assets are off-balance sheet.
These lease programs are utilized primarily to reduce overall
cost and to retain flexibility. The cash outflows for lease
payments approximate the $9 million of rent expense
recognized in fiscal 2010. As of January 1, 2011, the
estimated fair value of assets and remaining obligations for
these properties were $41 million and $35 million,
respectively.
46
CAUTIONARY
STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements contained in this Annual Report on
Form 10-K
that are not historical, including but not limited to those
regarding the Companys ability to: (i) achieve
$425 million or more in cost synergies by the end of 2012
in connection with the integration of Black & Decker:
$165 million in 2011 and $125 million in 2012;
(ii) achieve $300 million to $400 million in
revenue synergies by 2013 resulting from the Merger, which
implies a benefit of $0.35 to $0.50 of earnings per diluted
share; (iii) utilize merger related cost synergies to fuel
future growth and facilitate global cost leadership;
(iv) add an incremental 50 basis points to 2011
revenues (approximately $50 million) as a result of Merger
related revenue synergies and achieve a modest earnings impact,
with remaining revenue synergies to be achieved in 2012 and
2013; (v) reduce the proportion of sales to U.S. home
centers and mass merchant customers; (vi) meet its long
term financial objectives including: 4-6% organic revenue
growth;
10-12% total
revenue growth; mid-teens EPS growth; free cash flow greater
than equal to net income; ROCE between
12-15%;
continued dividend growth; and a strong investment grade credit
rating; (vii) meet its long term capital allocation
objectives pertaining to free cash flow including, targeting a
strong investment grade credit rating, investing approximately
2/3
in acquisitions and growth and returning approximately
1/3
to shareowners; (viii) further leverage SFS to generate
ongoing improvements in working capital turns, cycle times,
complexity reduction and customer service levels; and
(ix) generate full year 2011 EPS in the range of $4.29 to
$4.54 per diluted share, and excluding the effects of merger and
acquisition related charges, in the range of $4.75 to $5.00 per
diluted share (collectively, the Results); are
forward looking statements and subject to risk and
uncertainty.
These forward looking statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. There are a number of
risks, uncertainties and important factors that could cause
actual results to differ materially from those indicated by such
forward-looking statements. In addition to any such risks,
uncertainties and other factors discussed elsewhere herein, the
risks, uncertainties and other factors that could cause or
contribute to actual results differing materially from those
expressed or implied in the forward looking statements include,
without limitation, those set forth under Item 1A Risk
Factors hereto and any material changes thereto set forth in any
subsequent Quarterly Reports on
Form 10-Q,
the Companys other filings with the Securities and
Exchange Commission, and those set forth below.
The Companys ability to deliver the Results is dependent,
or based, upon: (i) the Companys ability to
effectively execute its integration plans to identify and
estimate key synergy drivers; achieve the cost and revenue
synergies, capitalize on growth opportunities and achieve the
anticipated results of the Merger; (ii) the Companys
success in driving brand expansion, achieving increased access
to global markets through established distribution channels and
cross selling opportunities; (iii) the ability of the
Company to generate organic net sales increase of 5-6%, from a
combined Company pro-forma level of $9.3 billion;
(iv) the Companys ability to achieve revenue synergy
increase of 50 bps to 2011 revenues with modest EPS impact;
(v) the Company achieving operating margin rate expansion
of approximately 150 bps versus 2010; (vi) achieving a
tax rate of approximately 25% 26%;
(vii) non-merger and acquisition related restructuring,
impairment and related charges remaining relatively flat to
those in 2010; (viii) the Companys success at
limiting the cost to achieve cost synergies to $200 million
over the next two years; (ix) the Companys ability to
limit costs associated with severance and facilities closures to
$90 million in 2011; (x) one-time costs to be recorded
in SG&A and
other-net
being $15 million for certain compensation charges,
advisory and consulting fees; (xi) almost no impact from
price and inflation based on no significant increase in
commodity levels; (xii) successful identification,
consummation and of acquisitions, as well as integration of
existing businesses, that enhance the Companys growth and
long term objectives; (xiii) the continued acceptance of
technologies used in the Companys products and services;
(xiv) the Companys ability to manage existing
Sonitrol franchisee and Mac Tools distributor relationships;
(xv) the Companys ability to minimize costs
associated with any sale or discontinuance of a business or
product line, including any severance, restructuring, legal or
other costs; (xvi) the proceeds realized with respect to
any business or product line disposals; (xvii) the extent
of any asset impairments with respect to any businesses or
product lines that are sold or discontinued as well as the
Companys ability to test and analyze the possibility of
asset impairment; (xviii) the success of the
47
Companys efforts to manage freight costs, steel and other
commodity costs; (xix) the Companys ability to
sustain or increase prices in order to, among other things,
offset or mitigate the impact of steel, freight, energy,
non-ferrous commodity and other commodity costs and any
inflation increases; (xx) the Companys ability to
generate free cash flow and maintain a strong debt to capital
ratio; (xxi) the Companys ability to identify and
effectively execute productivity improvements and cost
reductions, while minimizing any associated restructuring
charges; (xxii) the Companys ability to obtain
favorable settlement of routine tax audits; (xxiii) the
ability of the Company to generate earnings sufficient to
realize future income tax benefits during periods when temporary
differences become deductible; (xxiv) the continued ability
of the Company to access credit and equity markets under
satisfactory terms; and (xxv) the Companys ability to
negotiate satisfactory payment terms under which the Company
buys and sells goods, services, materials and products.
The Companys ability to deliver the Results is also
dependent upon: (i) the success of the Companys
marketing and sales efforts; (ii) the ability of the
Company to maintain or improve production rates in the
Companys manufacturing facilities, respond to significant
changes in product demand and fulfill demand for new and
existing products; (iii) the Companys ability to
continue improvements in working capital through effective
management of accounts receivable and inventory levels;
(iv) the ability to continue successfully managing and
defending claims and litigation, including environmental claims
and expenses; (v) the success of the Companys efforts
to mitigate any cost increases generated by, for example,
increases in the cost of energy or significant Chinese Renminbi
or other currency appreciation; (vi) the geographic
distribution of the Companys earnings; (vii) the
Companys investment of revenues in infrastructure
improvements; (viii) the commitment to and success of the
Stanley Fulfillment System.
The Companys ability to achieve the Results will also be
affected by external factors. These external factors include:
pricing pressure and other changes within competitive markets;
the continued consolidation of customers particularly in
consumer channels; inventory management pressures on the
Companys customers; the impact the tightened credit
markets may have on the Company or its customers or suppliers;
the extent to which the Company has to write off accounts
receivable or assets or experiences supply chain disruptions in
connection with bankruptcy filings by customers or suppliers;
increasing competition; changes in laws, regulations and
policies that affect the Company, including, but not limited to
trade, monetary, tax and fiscal policies and laws; the timing
and extent of any inflation or deflation; currency exchange
fluctuations; the impact of dollar/foreign currency exchange and
interest rates on the competitiveness of products and the
Companys debt program; the strength of the U.S. and
European economies; the extent to which world-wide markets
associated with homebuilding and remodeling stabilize and
rebound; the impact of events that cause or may cause disruption
in the Companys manufacturing, distribution and sales
networks such as war, terrorist activities, and political
unrest; and recessionary or expansive trends in the economies of
the world in which the Company operates, including, but not
limited to, the extent and duration of the current recession in
the US economy and fluctuations in the securities markets.
Unless required by applicable federal securities laws, the
Company undertakes no obligation to publicly update or revise
any forward looking statements to reflect events or
circumstances that may arise after the date hereof. Investors
are advised, however, to consult any further disclosures made on
related subjects in the Companys reports filed with the
Securities and Exchange Commission.
In addition to the foregoing, some of the agreements included as
exhibits to this Annual Report on
Form 10-K
(whether incorporated by reference to earlier filings or
otherwise) may contain representations and warranties, recitals
or other statements that appear to be statements of fact. These
agreements are included solely to provide investors with
information regarding their terms and are not intended to
provide any other factual or disclosure information about the
Company or the other parties to the agreements. Representations
and warranties, recitals, and other common disclosure provisions
have been included in the agreements solely for the benefit of
the other parties to the applicable agreements and often are
used as a means of allocating risk among the parties.
Accordingly, such statements (i) should not be treated as
categorical statements of fact; (ii) may be qualified by
disclosures that were made to the other parties in connection
with the negotiation of the applicable agreements, which
disclosures are not necessarily reflected in the agreement or
included as exhibits hereto;
48
(iii) may apply standards of materiality in a way that is
different from what may be viewed as material by or to investors
in or lenders to the Company; and (iv) were made only as of
the date of the applicable agreement or such other date or dates
as may be specified in the agreement and are subject to more
recent developments. Accordingly, representations and
warranties, recitals or other disclosures contained in
agreements may not describe the actual state of affairs as of
the date they were made or at any other time and should not be
relied on by any person other than the parties thereto in
accordance with their terms. Additional information about the
Company may be found in this Annual Report on
Form 10-K
and the Companys other public filings, which are available
without charge through the SECs website at
http://www.sec.gov.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Company incorporates by reference the material captioned
Market Risk in Item 7 and the material in
Note I, Derivative Financial Instruments, of the Notes to
Consolidated Financial Statements in Item 8.
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
See Item 15 for an index to Financial Statements and
Financial Statement Schedules. Such Financial Statements and
Financial Statement Schedules are incorporated herein by
reference.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
The management of Stanley Black & Decker (the
Company) is responsible for establishing and
maintaining adequate internal control over financial reporting.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external reporting purposes in accordance with accounting
principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Management has assessed the effectiveness of the Companys
internal control over financial reporting as of January 1,
2011. In making its assessment, management has utilized the
criteria set forth by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission in Internal
Control Integrated Framework. Management concluded
that based on its assessment, the Companys internal
control over financial reporting was effective as of
January 1, 2011. Ernst & Young LLP, the auditor
of the financial statements included in this annual report, has
issued an attestation report on the registrants internal
control over financial reporting, a copy of which appears on
page 56.
Under the supervision and with the participation of management,
including the Companys President and Chief Executive
Officer and its Senior Vice President and Chief Financial
Officer, the Company has, pursuant to
Rule 13a-15(b)
of the Securities Exchange Act of 1934, as amended (the
Exchange Act), evaluated the effectiveness of the
design and operation of its disclosure controls and procedures
(as defined under
Rule 13a-15(e)
of the Exchange Act). Based upon that evaluation, the
Companys President and Chief Executive Officer and its
Senior Vice President and Chief Financial Officer have concluded
that, as of January 1, 2011, the Companys disclosure
controls and procedures are effective. There has been no change
in the Companys internal control over financial reporting
that occurred during the fiscal year ended January 1, 2011
that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None
49
PART III
|
|
ITEM 10.
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
|
The information required by this Item, except for certain
information with respect to the Companys Code of Ethics,
the identification of the executive officers of the Company and
any material changes to the procedures by which security holders
may recommend nominees to the Companys Board of Directors,
as set forth below, is incorporated herein by reference to the
information set forth in the section of the Companys
definitive proxy statement (which will be filed pursuant to
Regulation 14A under the Exchange Act within 120 days
after the close of the Companys fiscal year) under the
headings Information Concerning Nominees for Election as
Directors, Information Concerning Directors
Continuing in Office, Board of Directors, and
Section 16(a) Beneficial Ownership
Reporting Compliance.
In addition to Business Conduct Guidelines that apply to all
directors and employees of the Company, the Company has adopted
a Code of Ethics that applies to the Companys Chief
Executive Officer and all senior financial officers, including
the Chief Financial Officer and principal accounting officer. A
copy of the Companys Code of Ethics is available on the
Companys website at www.stanleyworks.com.
The following is a list of the executive officers of the Company
as of February 18, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Elected to
|
Name and Age
|
|
|
Office
|
|
|
Office
|
John F. Lundgren (59)
|
|
|
President and Chief Executive Officer since March 2010. Chairman
and Chief Executive officer (2004). President, European Consumer
Products, Georgia-Pacific Corporation (2000).
|
|
|
03/01/04
|
Donald Allan, Jr. (46)
|
|
|
Senior Vice President & Chief Financial Officer since March
2010. Vice President & Chief Financial Officer (2009); Vice
President & Corporate Controller (2002); Corporate
Controller (2000); Assistant Controller (1999).
|
|
|
10/24/06
|
Jeffery D. Ansell (43)
|
|
|
Senior Vice President and Group Executive, Construction and DIY
since March 2010. Vice President & President, Stanley
Consumer Tools Group; President Consumer Tools and
Storage (2004); President of Industrial Tools & Storage
(2002); Vice President Global Consumer Tools
Marketing (2001); Vice President Consumer Sales America (1999).
|
|
|
02/22/06
|
Nolan D. Archibald (67)
|
|
|
Executive Chairman since March 2010. President and Chief
Executive Officer and Chairman of the Board of The Black &
Decker Corporation (1990-2010).
|
|
|
03/12/10
|
Michael A. Bartone (51)
|
|
|
Vice President, Corporate Tax since January 2002.
|
|
|
07/17/09
|
Bruce H. Beatt (58)
|
|
|
Senior Vice President, General Counsel and Secretary since March
2010. Vice President, General Counsel and Secretary (2000).
|
|
|
10/09/00
|
D. Brett Bontrager (48)
|
|
|
Senior Vice President and Group Executive, Convergent Security
Solutions since March 2010. President, Convergent Security
Solutions and Vice President, Business Development (2007); Vice
President, Business Development (2004); Director, Business
Development (2003).
|
|
|
08/01/08
|
Justin C. Boswell (43)
|
|
|
Senior Vice President and Group Executive, Mechanical Security
since March 2010. Vice President & President, Mechanical
Access Solutions (2007); President, Stanley Securities Solutions
(2003); President Stanley Access Technologies (2000).
|
|
|
07/26/05
|
Jeff Chen (52)
|
|
|
Vice President & President, Asia. Director, Asia Operations
(2002); Managing Director, Thailand (1999).
|
|
|
04/27/05
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
Date Elected to
|
Name and Age
|
|
Office
|
|
Office
|
Hubert Davis, Jr. (62)
|
|
Senior Vice President & Chief Information Officer/SFS since
March 2010. Senior Vice President, Business Transformation
(2006); Vice President, Chief Information Officer (June 2000);
Chief Information Officer and
e-commerce
Leader (2000).
|
|
05/25/04
|
Craig A. Douglas (56)
|
|
Vice President & Treasurer since January 2002.
|
|
07/17/09
|
Massimo Grassi (49)
|
|
President, Industrial & Auto Repair. President, Industrial
& Automotive Tools (2009); President, Stanley Europe and
President Directeur General, Facom (2007); President of Pentair
Water EMEA (Pentair Inc. PNR) (2006).
|
|
03/12/10
|
James M. Loree (52)
|
|
Executive Vice President and Chief Operating Officer since
January 2009; Executive Vice President Finance and Chief
Financial Officer (1999).
|
|
07/19/99
|
Mark J. Mathieu (58)
|
|
Senior Vice President, Human Resources since March 2010. Vice
President, Human Resources (1997).
|
|
09/17/97
|
Jamie Ramirez (43)
|
|
President, Construction & DIY, Latin America.
President-Latin America, The Black & Decker Corporation
(2010); Vice President and General Manager Latin
America The Black & Decker Corporation (2008); Vice
President and General Manager Andean Region The
Black & Decker Corporation (2007).
|
|
03/12/10
|
Ben S. Sihota (52)
|
|
President, Emerging Markets and Pacific Group.
President-Asia/Pacific, The Black & Decker Corporation
(2010); President-Asia, The Black & Decker Corporation
(2006).
|
|
03/12/10
|
William S. Taylor (55)
|
|
President, Professional Power Tools & Products. Vice
President-Global Product Development of the Industrial Products
Group, The Black & Decker Corporation (2010); Vice
President-Industrial Product Group Development, The Black &
Decker Corporation (2009); Vice President-Industrial Products
Group Product Development, The Black & Decker Corporation
(2008); Vice President/General Manager Industrial Accessories
Business, The Black & Decker Corporation (2008); Vice
President and General Manager Woodworking Tools, The Black
& Decker Corporation (2005).
|
|
03/12/10
|
Michael A. Tyll (54)
|
|
President, Engineered Fastening. President, Fastening and
Assembly Systems, The Black & Decker Corporation (2010);
President, Automotive Division, The Black & Decker
Corporation (2006).
|
|
03/12/10
|
John H. Wyatt (52)
|
|
President, Construction & DIY EMEA. President-Europe,
Middle East, and Africa of the Power Tools and Accessories, The
Black & Decker Corporation (2010); Vice President-Consumer
Products (Europe, Middle East and Africa), The Black &
Decker Corporation (2008); Managing Director Scotts UK and
Iceland for Scotts Miracle Gro (2006).
|
|
03/12/10
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item is incorporated herein by
reference to the information set forth under the section
entitled Executive Compensation of the
Companys definitive proxy statement, which will be filed
pursuant to Regulation 14A under the Exchange Act within
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
51
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS
|
The information required by Item 403 of
Regulation S-K,
is incorporated herein by reference to the information set forth
under the sections entitled Security Ownership of Certain
Beneficial Owners, Security Ownership of Directors
and Officers, and Executive Compensation, of
the Companys definitive proxy statement, which will be
filed pursuant to Regulation 14A under the Exchange Act
within 120 days after the end of the fiscal year covered by
this Annual Report on
Form 10-K.
EQUITY
COMPENSATION PLAN INFORMATION
Compensation plans under which the Companys equity
securities are authorized for issuance at January 1, 2011
follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
|
(B)
|
|
|
(C)
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
|
|
|
|
|
|
|
future issuance under
|
|
|
|
Number of securities to
|
|
|
|
|
|
equity compensation
|
|
|
|
be issued upon exercise of
|
|
|
Weighted-average
|
|
|
plans (excluding
|
|
|
|
outstanding options
|
|
|
exercise price of
|
|
|
securities reflected in
|
Plan category
|
|
|
and stock awards
|
|
|
outstanding options
|
|
|
column (A))
|
Equity compensation plans approved by security holders
|
|
|
15,369,387(1)
|
|
|
$48.69(2)
|
|
|
7,992,242(3)
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,369,387
|
|
|
$48.69
|
|
|
7,992,242(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of 11,641,564 shares
underlying outstanding stock options (whether vested or
unvested) with a weighted average exercise price of $48.69 and a
weighted average term of 5.81 years; 3,547,213 shares
underlying time-vesting restricted stock units that have not yet
vested and the maximum number of shares that will be issued
pursuant to outstanding long term performance awards if all
established goals are met; and 180,610 of shares earned but
related to which participants elected deferral of delivery. All
stock-based compensation plans are discussed in Note J,
Capital Stock, of the Notes to the Consolidated Financial
Statements in Item 8.
|
|
(2)
|
|
There is no cost to the recipient
for shares issued pursuant to time-vesting restricted stock
units or long term performance awards. Because there is no
strike price applicable to these stock awards they are excluded
from the weighted-average exercise price which pertains solely
to outstanding stock options.
|
|
(3)
|
|
Consists of 2,956,667 of shares
available for purchase under the employee stock purchase plan
(ESPP) at the election of employees, and 5,035,575
securities available for future grants by the board of directors
under stock-based compensation plans. Note that the comparable
figures presented on page 130 of the Companys
Registration Statement on
Form S-4,
filed February 2, 2010, do not include the
2,956,667 shares of common stock available for issuance
under the ESPP which are included in the figures presented
herein. In accordance with the terms of such Registration
Statement, the figures presented herein are automatically
incorporated by reference into such Registration Statement and
supersede and update the data presented therein.
|
|
(4)
|
|
There is a non-qualified deferred
tax savings plan for highly compensated salaried employees which
mirrors the qualified plan provisions, but was not specifically
approved by security holders. U.S. employees are eligible to
contribute from 1% to 15% of their salary to a tax deferred
savings plan as described in the ESOP section of Item 8
Note L, Employee Benefit Plans, to the Consolidated
Financial Statements of this
Form 10-K.
Prior to 2009 and in 2010, Stanley contributed an amount equal
to one half of the employee contribution up to the first 7% of
salary. In 2009, an employer match benefit was provided under
the plan equal to one-quarter of each employees
tax-deferred contribution up to the first 7% of their
compensation. The investment of the employees contribution
and the Companys contribution was controlled by the
employee participating in the plan and may include an election
to invest in Company stock. The same matching arrangement was
provided for highly compensated salaried employees in the
non-qualified plan, except that the arrangement for
these employees is outside of the ESOP, and is not funded in
advance of distributions. Shares of the Companys common
stock may be issued at the time of a distribution from the plan.
The number of securities remaining available for issuance under
the plan at January 1, 2011 is not determinable, since the
plan does not authorize a maximum number of securities.
|
52
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by Items 404 and 407(a) of
Regulation S-K
is incorporated by reference to the information set forth under
the section entitled Board of Directors
Related Party Transactions of the Companys
definitive proxy statement, which will be filed pursuant to
Regulation 14A under the Exchange Act within 120 days
after the end of the fiscal year covered by this Annual Report
on
Form 10-K.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by Item 9(e) of Schedule 14A
is incorporated herein by reference to the information set forth
under the section entitled Fees of Independent
Auditors of the Companys definitive proxy statement,
which will be filed pursuant to Regulation 14A under the
Exchange Act within 120 days after the end of the fiscal
year covered by this Annual Report on
Form 10-K.
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) Index to documents filed as part of this report:
1. and 2. Financial Statements and Financial Statement
Schedules.
The response to this portion of Item 15 is submitted as a
separate section of this report beginning with an index thereto
on page 53.
3. Exhibits
See Exhibit Index in this
Form 10-K
on page 128.
(b) See Exhibit Index in this
Form 10-K
on page 128.
(c) The response in this portion of Item 15 is
submitted as a separate section of this
Form 10-K
with an index thereto beginning on page 53.
53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STANLEY BLACK & DECKER, INC.
John F. Lundgren, President
and Chief Executive Officer
Date: February 18, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ John
F. Lundgren
John
F. Lundgren
|
|
President and Chief Executive Officer and Director
|
|
February 18, 2011
|
|
|
|
|
|
/s/ Donald
Allan, Jr.
Donald
Allan, Jr.
|
|
Senior Vice President and Chief Financial Officer
|
|
February 18, 2011
|
|
|
|
|
|
/s/ Jocelyn
S. Belisle
Jocelyn
S. Belisle
|
|
Chief Accounting Officer
|
|
February 18, 2011
|
|
|
|
|
|
*
Nolan
D. Archibald
|
|
Executive Chairman
|
|
February 18, 2011
|
|
|
|
|
|
*
John
G. Breen
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
George
W. Buckley
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Patrick
D. Campbell
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Carlos
M. Cardoso
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Virgis
W. Colbert
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Robert
B. Coutts
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Manuel
A. Fernandez
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Benjamin
H. Griswold, IV
|
|
Director
|
|
February 18, 2011
|
54
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
*
Eileen
S. Kraus
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Anthony
Luiso
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Marianne
M. Parrs
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Robert
L. Ryan
|
|
Director
|
|
February 18, 2011
|
|
|
|
|
|
*
Lawrence
A. Zimmerman
|
|
Director
|
|
February 18, 2011
|
*By: /s/ Bruce H. Beatt
Bruce H. Beatt
(As
Attorney-in-Fact)
55
FORM 10-K
ITEM 15(a) (1) AND (2)
STANLEY BLACK & DECKER, INC. AND SUBSIDIARIES
INDEX TO
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
All other schedules are omitted because either they are not
applicable or the required information is shown in the financial
statements or the notes thereto.
56
Schedule
Valuation and Qualifying Accounts
Schedule II
Valuation and Qualifying Accounts
Stanley Black & Decker, Inc. and Subsidiaries
Fiscal years ended January 1, 2011, January 2, 2010,
and January 3, 2009
(Millions of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONS
|
|
|
|
|
|
|
|
|
Charged to
|
|
Charged
|
|
|
|
|
|
|
Beginning
|
|
Costs and
|
|
To Other
|
|
(a)
|
|
Ending
|
Description
|
|
Balance
|
|
Expenses
|
|
Accounts(b)(c)
|
|
Deductions
|
|
Balance
|
|
Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
$31.9
|
|
|
|
$11.7
|
|
|
|
$23.6
|
|
|
|
$10.9
|
|
|
|
$56.3
|
|
Non-current
|
|
|
3.2
|
|
|
|
0.6
|
|
|
|
(0.1)
|
|
|
|
|
|
|
|
3.7
|
|
Year Ended 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
$39.8
|
|
|
|
$13.7
|
|
|
|
$0.2
|
|
|
|
$21.8
|
|
|
|
$31.9
|
|
Non-current
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
2.4
|
|
|
|
|
|
|
|
3.2
|
|
Year Ended 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
$40.3
|
|
|
|
$17.5
|
|
|
|
$6.1
|
|
|
|
$24.1
|
|
|
|
$39.8
|
|
Non-current
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
(0.4)
|
|
|
|
|
|
|
|
0.5
|
|
Tax Valuation Allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended 2010
|
|
|
$24.4
|
|
|
|
$46.9
|
|
|
|
$199.1
|
|
|
|
$4.6
|
|
|
|
$265.8
|
|
Year Ended 2009
|
|
|
23.5
|
|
|
|
2.4
|
|
|
|
0.7
|
|
|
|
2.2
|
|
|
|
24.4
|
|
Year Ended 2008
|
|
|
27.3
|
|
|
|
2.5
|
|
|
|
(2.1)
|
|
|
|
4.2
|
|
|
|
23.5
|
|
|
|
|
(a) |
|
With respect to the allowance for doubtful accounts, represents
amounts charged-off, less recoveries of accounts previously
charged-off. |
|
(b) |
|
Amount represents foreign currency translation impact,
acquisitions, and net transfers to /from other accounts. |
|
(c) |
|
For 2010, amount primarily represents beginning tax valuation
allowance as adjusted from the Merger. |
57
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Stanley Black & Decker, Inc. is
responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States of America. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Management has assessed
the effectiveness of Stanley Black & Decker
Inc.s internal control over financial reporting as of
January 1, 2011. In making its assessment, management has
utilized the criteria set forth by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission in
Internal Control Integrated Framework. Management
concluded that based on its assessment, Stanley
Black & Decker, Inc.s internal control over
financial reporting was effective as of January 1, 2011.
Ernst & Young LLP, the auditor of the financial
statements included in this annual report, has issued an
attestation report on the registrants internal control
over financial reporting, a copy of which appears on
page 49.
/s/ John F. Lundgren
John F. Lundgren, President and Chief Executive Officer
/s/ Donald Allan Jr.
Donald Allan Jr., Senior Vice President and Chief Financial
Officer
58
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Stanley
Black & Decker, Inc.
We have audited the accompanying consolidated balance sheets of
Stanley Black & Decker, Inc. and subsidiaries (the
Company) as of January 1, 2011 and
January 2, 2010, and the related consolidated statements of
operations, changes in shareowners equity, and cash flows
for each of the three fiscal years in the period ended
January 1, 2011. Our audits also included the financial
statement schedule listed in the Index at Item 15. These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at January 1, 2011 and
January 2, 2010, and the consolidated results of their
operations and their cash flows for each of the three fiscal
years in the period ended January 1, 2011, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note A to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board Statement No. 141(R), Business Combinations
(codified in ASC 805, Business Combinations),
effective for the Company on January 4, 2009.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
January 1, 2011, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated February 18, 2011 expressed an unqualified
opinion thereon.
/s/ Ernst & Young, LLP
Hartford, Connecticut
February 18, 2011
59
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Stanley
Black & Decker, Inc.
We have audited Stanley Black & Decker, Inc. and
subsidiaries (the Company) internal control
over financial reporting as of January 1, 2011, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). The Companys
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of January 1, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of January 1,
2011 and January 2, 2010, and the related consolidated
statements of operations, changes in shareowners equity,
and cash flows for each of the three fiscal years in the period
ended January 1, 2011 and our report dated
February 18, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young, LLP
Hartford, Connecticut
February 18, 2011
60
Consolidated
Statements of Operations
Fiscal years ended January 1,
2011, January 2, 2010 and January 3, 2009
(In Millions of Dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net Sales
|
|
|
$8,409.6
|
|
|
|
$3,737.1
|
|
|
|
$4,426.2
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
$5,460.8
|
|
|
|
$2,228.8
|
|
|
|
$2,754.8
|
|
Selling, general and administrative
|
|
|
2,156.6
|
|
|
|
1,014.4
|
|
|
|
1,090.0
|
|
Provision for doubtful accounts
|
|
|
12.3
|
|
|
|
14.0
|
|
|
|
17.6
|
|
Other-net
|
|
|
199.6
|
|
|
|
139.1
|
|
|
|
111.6
|
|
Restructuring charges and asset impairments
|
|
|
242.6
|
|
|
|
40.7
|
|
|
|
85.5
|
|
Gain on debt extinguishment
|
|
|
|
|
|
|
(43.8)
|
|
|
|
(9.4)
|
|
Interest income
|
|
|
(9.4)
|
|
|
|
(3.1)
|
|
|
|
(9.2)
|
|
Interest expense
|
|
|
110.0
|
|
|
|
63.7
|
|
|
|
92.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$8,172.5
|
|
|
|
$3,453.8
|
|
|
|
$4,133.0
|
|
Earnings from continuing operations before income taxes
|
|
|
237.1
|
|
|
|
283.3
|
|
|
|
293.2
|
|
Income taxes on continuing operations
|
|
|
38.9
|
|
|
|
54.5
|
|
|
|
72.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
$198.2
|
|
|
|
$228.8
|
|
|
|
$220.7
|
|
Less: Net earnings attributable to non-controlling interests
|
|
|
|
|
|
|
2.0
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings from continuing operations attributable to Stanley
Black & Decker, Inc
|
|
|
198.2
|
|
|
|
226.8
|
|
|
|
219.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from discontinued operations before income taxes
|
|
|
|
|
|
|
(5.8)
|
|
|
|
132.8
|
|
Income taxes (benefit) on discontinued operations
|
|
|
|
|
|
|
(3.3)
|
|
|
|
44.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) earnings from discontinued operations
|
|
|
$
|
|
|
|
$(2.5)
|
|
|
|
$87.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings Attributable to Stanley Black &
Decker, Inc
|
|
|
$198.2
|
|
|
|
$224.3
|
|
|
|
$306.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$1.34
|
|
|
|
$2.84
|
|
|
|
$2.77
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.03)
|
|
|
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings per share of common stock
|
|
|
$1.34
|
|
|
|
$2.81
|
|
|
|
$3.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
$1.32
|
|
|
|
$2.82
|
|
|
|
$2.74
|
|
Discontinued operations
|
|
|
|
|
|
|
(0.03)
|
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted earnings per share of common stock
|
|
|
$1.32
|
|
|
|
$2.79
|
|
|
|
$3.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
61
Consolidated
Balance Sheets
January 1, 2011 and
January 2, 2010
(Millions of Dollars)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$1,745.4
|
|
|
|
$400.7
|
|
Accounts and notes receivable, net
|
|
|
1,417.1
|
|
|
|
532.0
|
|
Inventories, net
|
|
|
1,272.0
|
|
|
|
366.2
|
|
Prepaid expenses
|
|
|
224.0
|
|
|
|
73.2
|
|
Other current assets
|
|
|
157.1
|
|
|
|
39.8
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
4,815.6
|
|
|
|
1,411.9
|
|
Property, Plant and Equipment, net
|
|
|
1,166.5
|
|
|
|
575.9
|
|
Goodwill
|
|
|
5,941.9
|
|
|
|
1,818.4
|
|
Customer Relationships, net
|
|
|
889.8
|
|
|
|
413.4
|
|
Trade Names, net
|
|
|
1,839.4
|
|
|
|
331.1
|
|
Other Intangible Assets, net
|
|
|
143.0
|
|
|
|
31.9
|
|
Other Assets
|
|
|
343.2
|
|
|
|
186.5
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$15,139.4
|
|
|
|
$4,769.1
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareowners Equity
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
|
$1.6
|
|
|
|
$90.4
|
|
Current maturities of long-term debt
|
|
|
416.1
|
|
|
|
208.0
|
|
Accounts payable
|
|
|
998.6
|
|
|
|
410.1
|
|
Accrued expenses
|
|
|
1,325.9
|
|
|
|
483.5
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
2,742.2
|
|
|
|
1,192.0
|
|
Long-Term Debt
|
|
|
3,018.1
|
|
|
|
1,084.7
|
|
Deferred Taxes
|
|
|
901.1
|
|
|
|
120.4
|
|
Post-retirement Benefits
|
|
|
642.8
|
|
|
|
136.7
|
|
Other Liabilities
|
|
|
765.5
|
|
|
|
223.8
|
|
Commitments and Contingencies (Notes R and S)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareowners Equity
|
|
|
|
|
|
|
|
|
Stanley Black & Decker, Inc. Shareowners
Equity
|
|
|
|
|
|
|
|
|
Preferred stock, without par value:
|
|
|
|
|
|
|
|
|
Authorized and unissued 10,000,000 shares
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50 per share:
|
|
|
|
|
|
|
|
|
Authorized 300,000,000 shares in 2010 and
200,000,000 shares in 2009
|
|
|
|
|
|
|
|
|
Issued 176,091,572 shares in 2010 and
92,343,410 shares in 2009
|
|
|
440.7
|
|
|
|
230.9
|
|
Retained earnings
|
|
|
2,301.8
|
|
|
|
2,295.5
|
|
Additional paid in capital
|
|
|
4,885.7
|
|
|
|
126.7
|
|
Accumulated other comprehensive loss
|
|
|
(116.3)
|
|
|
|
(76.5)
|
|
ESOP
|
|
|
(74.5)
|
|
|
|
(80.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,437.4
|
|
|
|
2,495.8
|
|
Less: cost of common stock in treasury (9,744,142 shares in
2010 and 11,864,786 shares in 2009)
|
|
|
(420.4)
|
|
|
|
(509.7)
|
|
|
|
|
|
|
|
|
|
|
Stanley Black & Decker, Inc. Shareowners
Equity
|
|
|
7,017.0
|
|
|
|
1,986.1
|
|
Non-controlling interests
|
|
|
52.7
|
|
|
|
25.4
|
|
|
|
|
|
|
|
|
|
|
Total Shareowners Equity
|
|
|
7,069.7
|
|
|
|
2,011.5
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareowners Equity
|
|
|
$15,139.4
|
|
|
|
$4,769.1
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
62
Consolidated
Statements of Cash Flows
Fiscal years ended January 1,
2011, January 2, 2010 and January 3, 2009
(Millions of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
$198.2
|
|
|
|
$226.3
|
|
|
|
$308.6
|
|
Less: net earnings attributable to non-controlling interests
|
|
|
|
|
|
|
2.0
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Stanley Black & Decker,
Inc
|
|
|
$198.2
|
|
|
|
$224.3
|
|
|
|
$306.9
|
|
Adjustments to reconcile net earnings to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
348.7
|
|
|
|
200.1
|
|
|
|
183.0
|
|
Inventory
step-up
amortization
|
|
|
173.5
|
|
|
|
|
|
|
|
|
|
Pre-tax loss (gain) on sale of businesses
|
|
|
|
|
|
|
1.6
|
|
|
|
(126.5)
|
|
Asset impairments
|
|
|
24.1
|
|
|
|
6.8
|
|
|
|
17.1
|
|
Stock-based compensation expense
|
|
|
85.1
|
|
|
|
20.7
|
|
|
|
13.9
|
|
Provision for doubtful accounts
|
|
|
12.3
|
|
|
|
14.0
|
|
|
|
17.6
|
|
Debt-fair value amortization
|
|
|
(37.9)
|
|
|
|
|
|
|
|
|
|
Other non-cash items
|
|
|
(0.1)
|
|
|
|
(9.4)
|
|
|
|
36.9
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
22.5
|
|
|
|
130.5
|
|
|
|
129.1
|
|
Inventories
|
|
|
35.3
|
|
|
|
152.8
|
|
|
|
26.5
|
|
Accounts payable
|
|
|
77.3
|
|
|
|
(57.3)
|
|
|
|
(32.9)
|
|
Accrued expenses
|
|
|
52.9
|
|
|
|
(62.0)
|
|
|
|
12.7
|
|
Income taxes
|
|
|
(25.0)
|
|
|
|
16.2
|
|
|
|
(17.3)
|
|
Other current assets
|
|
|
18.7
|
|
|
|
(24.8)
|
|
|
|
(12.7)
|
|
Long-term receivables
|
|
|
(14.6)
|
|
|
|
(24.4)
|
|
|
|
(16.6)
|
|
Defined benefit liabilities
|
|
|
(276.9)
|
|
|
|
(17.4)
|
|
|
|
(22.9)
|
|
Other long-term liabilities
|
|
|
28.0
|
|
|
|
(6.7)
|
|
|
|
34.2
|
|
Other
|
|
|
17.2
|
|
|
|
(25.6)
|
|
|
|
(32.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
739.3
|
|
|
|
539.4
|
|
|
|
516.6
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(165.4)
|
|
|
|
(72.9)
|
|
|
|
(94.6)
|
|
Capitalized software
|
|
|
(20.1)
|
|
|
|
(20.5)
|
|
|
|
(46.2)
|
|
Proceeds from sales of assets
|
|
|
11.0
|
|
|
|
2.5
|
|
|
|
4.3
|
|
Business acquisitions
|
|
|
(550.3)
|
|
|
|
(24.3)
|
|
|
|
(575.0)
|
|
Proceeds from sales of businesses
|
|
|
|
|
|
|
|
|
|
|
204.6
|
|
Cash acquired from Black & Decker
|
|
|
949.4
|
|
|
|
|
|
|
|
|
|
Undesignated interest rate swap terminations
|
|
|
30.1
|
|
|
|
|
|
|
|
|
|
Proceeds from net investment hedge settlements
|
|
|
43.9
|
|
|
|
|
|
|
|
19.1
|
|
Payments on net investment hedge settlements
|
|
|
(29.0)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
23.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
269.6
|
|
|
|
(115.2)
|
|
|
|
(464.6)
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(515.8)
|
|
|
|
(64.5)
|
|
|
|
(44.9)
|
|
Proceeds from debt issuance
|
|
|
1,013.2
|
|
|
|
|
|
|
|
249.7
|
|
Net repayments on short-term borrowings
|
|
|
(263.6)
|
|
|
|
(119.9)
|
|
|
|
(73.5)
|
|
Debt issuance costs
|
|
|
(3.4)
|
|
|
|
|
|
|
|
(1.5)
|
|
Interest rate swap terminations
|
|
|
|
|
|
|
|
|
|
|
16.2
|
|
Stock purchase contract fees
|
|
|
(7.7)
|
|
|
|
(15.2)
|
|
|
|
(11.1)
|
|
Purchase of common stock for treasury
|
|
|
(4.9)
|
|
|
|
(2.6)
|
|
|
|
(103.3)
|
|
Net premium paid for equity option
|
|
|
(50.3)
|
|
|
|
(9.2)
|
|
|
|
|
|
Termination of forward starting interest rate swap
|
|
|
(48.4)
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
396.1
|
|
|
|
61.2
|
|
|
|
19.2
|
|
Cash dividends on common stock
|
|
|
(201.6)
|
|
|
|
(103.6)
|
|
|
|
(99.0)
|
|
Other
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
313.6
|
|
|
|
(249.0)
|
|
|
|
(48.2)
|
|
Effect of exchange rate changes on cash
|
|
|
22.2
|
|
|
|
13.9
|
|
|
|
(32.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash equivalents
|
|
|
1,344.7
|
|
|
|
189.1
|
|
|
|
(28.8)
|
|
Cash and cash equivalents, beginning of year
|
|
|
400.7
|
|
|
|
211.6
|
|
|
|
240.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
$1,745.4
|
|
|
|
$400.7
|
|
|
|
$211.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
63
Consolidated
Statements of Changes in Shareowners Equity
Fiscal years ended January 1,
2011, January 2, 2010 and January 3, 2009
(Millions of Dollars, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common
|
|
|
Paid In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
Treasury
|
|
|
Controlling
|
|
|
Shareowners
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
ESOP
|
|
|
Stock
|
|
|
Interests
|
|
|
Equity
|
|
|
Balance December 29, 2007
|
|
|
$230.9
|
|
|
|
$68.7
|
|
|
|
$2,005.8
|
|
|
|
$47.2
|
|
|
|
$(93.8)
|
|
|
|
$(504.8)
|
|
|
|
$18.2
|
|
|
|
$1,772.2
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
306.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
308.6
|
|
Less: Redeemable interest reclassified to liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5)
|
|
|
|
(0.5)
|
|
Currency translation adjustment and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(158.1)
|
|
Cash flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3)
|
|
Change in pension, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
306.9
|
|
|
|
(199.2)
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
108.9
|
|
Cash dividends declared $1.26 per share
|
|
|
|
|
|
|
|
|
|
|
(99.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99.0)
|
|
Cash dividends declared to non-controlling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9)
|
|
|
|
(0.9)
|
|
Issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
(16.0)
|
|
|
|
|
|
|
|
|
|
|
|
31.3
|
|
|
|
|
|
|
|
15.3
|
|
Repurchase of common stock (2,240,451 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.3)
|
|
|
|
|
|
|
|
(103.3)
|
|
Tax benefit on convertible notes hedge
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Equity unit repurchase
|
|
|
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.7
|
|
Other, stock-based compensation related
|
|
|
|
|
|
|
13.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.9
|
|
Tax benefit related to stock options exercised
|
|
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
ESOP and related tax benefit
|
|
|
|
|
|
|
|
|
|
|
2.2
|
|
|
|
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 3, 2009
|
|
|
230.9
|
|
|
|
91.5
|
|
|
|
2,199.9
|
|
|
|
(152.0)
|
|
|
|
(87.2)
|
|
|
|
(576.8)
|
|
|
|
18.5
|
|
|
|
1,724.8
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
224.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
226.3
|
|
Currency translation adjustment and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77.1
|
|
Change in pension, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
224.3
|
|
|
|
75.5
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
301.8
|
|
Cash dividends declared $1.30 per share
|
|
|
|
|
|
|
|
|
|
|
(103.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(103.6)
|
|
Issuance of common stock
|
|
|
|
|
|
|
(6.9)
|
|
|
|
(27.1)
|
|
|
|
|
|
|
|
|
|
|
|
95.1
|
|
|
|
|
|
|
|
61.1
|
|
Repurchase of common stock (62,336 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6)
|
|
|
|
|
|
|
|
(2.6)
|
|
Net premium paid and settlement of equity option
|
|
|
|
|
|
|
16.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.4)
|
|
|
|
|
|
|
|
(9.2)
|
|
Formation of joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
|
|
4.9
|
|
Other, stock-based compensation related
|
|
|
|
|
|
|
20.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20.7
|
|
Tax benefit related to stock options exercised
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.2
|
|
ESOP and related tax benefit
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 2, 2010
|
|
|
230.9
|
|
|
|
126.7
|
|
|
|
2,295.5
|
|
|
|
(76.5)
|
|
|
|
(80.8)
|
|
|
|
(509.7)
|
|
|
|
25.4
|
|
|
|
2,011.5
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
198.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198.2
|
|
Currency translation adjustment and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.9)
|
|
Cash flow hedge, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54.9)
|
|
Change in pension, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
198.2
|
|
|
|
(39.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158.4
|
|
Cash dividends declared $1.34 per share
|
|
|
|
|
|
|
|
|
|
|
(193.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(193.9)
|
|
Equity purchase contracts stock issuance
|
|
|
12.9
|
|
|
|
307.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
320.0
|
|
Issuance of common stock
|
|
|
|
|
|
|
(30.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95.5
|
|
|
|
|
|
|
|
65.3
|
|
Black & Decker consideration paid
|
|
|
196.9
|
|
|
|
4,458.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
4,656.2
|
|
Repurchase of common stock (79,357 shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.9)
|
|
|
|
|
|
|
|
(4.9)
|
|
Convertible equity offering fees
|
|
|
|
|
|
|
(13.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.6)
|
|
Convertible equity non-cash stock contract fees
|
|
|
|
|
|
|
(14.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.9)
|
|
Net premium paid and settlement of equity option
|
|
|
|
|
|
|
(48.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7)
|
|
|
|
|
|
|
|
(50.3)
|
|
Non-controlling interest buyout
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6)
|
|
|
|
(0.9)
|
|
Non-controlling interests of acquired businesses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.9
|
|
|
|
28.9
|
|
Other, stock-based compensation related
|
|
|
|
|
|
|
85.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85.0
|
|
Tax benefit related to stock options exercised
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.6
|
|
ESOP and related tax benefit
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
|
|
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2011
|
|
|
$440.7
|
|
|
|
$4,885,7
|
|
|
|
$2,301.8
|
|
|
|
$(116.3)
|
|
|
|
$(74.5)
|
|
|
|
$(420.4)
|
|
|
|
$52.7
|
|
|
|
$7,069.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
64
Notes to
Consolidated Financial Statements
|
|
A.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
BASIS OF PRESENTATION On March 12, 2010
a wholly owned subsidiary of The Stanley Works was merged with
and into The Black & Decker Corporation
(Black & Decker), with the result that
Black & Decker became a wholly owned subsidiary of The
Stanley Works (the Merger). In connection with the
Merger, The Stanley Works changed its name to Stanley
Black & Decker, Inc. The results of the operations and
cash flows of Black & Decker have been included in the
Companys consolidated financial statements from the time
of the consummation of the Merger on March 12, 2010 (see
Note E, Merger and Acquisitions).
The Consolidated Financial Statements include the accounts of
Stanley Black & Decker, Inc. and its majority-owned
subsidiaries (collectively the Company) which
require consolidation, after the elimination of intercompany
accounts and transactions. The Companys fiscal year ends
on the Saturday nearest to December 31. There were 52, 52
and 53 weeks in the fiscal years 2010, 2009 and 2008,
respectively.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenues and expenses, as well as certain financial statement
disclosures. While management believes that the estimates and
assumptions used in the preparation of the financial statements
are appropriate, actual results could differ from these
estimates.
FOREIGN CURRENCY For foreign operations with
functional currencies other than the U.S. dollar, asset and
liability accounts are translated at current exchange rates;
income and expenses are translated using weighted-average
exchange rates. Translation adjustments are reported in a
separate component of shareowners equity and exchange
gains and losses on transactions are included in earnings.
CASH EQUIVALENTS Highly liquid investments
with original maturities of three months or less are considered
cash equivalents.
ACCOUNTS AND FINANCING RECEIVABLE Trade
receivables are stated at gross invoice amount less discounts,
other allowances and provision for uncollectible accounts and
financing receivables are initially recorded at fair value, less
impairments or provisions for credit losses. Interest income
earned from financing receivables that are not delinquent is
recorded on the effective interest method. The Company considers
any financing receivable that has not been collected within
90 days of original billing date as past-due or delinquent.
Additionally, the Company considers the credit quality of all
past-due or delinquent financing receivables as nonperforming.
ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company
estimates its allowance for doubtful accounts using two methods.
First, a specific reserve is established for individual accounts
where information indicates the customers may have an inability
to meet financial obligations. Second, a reserve is determined
for all customers based on a range of percentages applied to
aging categories. These percentages are based on historical
collection and write-off experience. Actual write-offs are
charged against the allowance when collection efforts have been
unsuccessful.
INVENTORIES U.S inventories are predominantly
valued at the lower of
Last-In
First-Out (LIFO) cost or market because the Company
believes it results in better matching of costs and revenues.
Other inventories are valued at the lower of
First-In,
First-Out (FIFO) cost or market because LIFO is not
permitted for statutory reporting outside the U.S. See
Note C, Inventory, for a quantification of the LIFO impact
on inventory valuation.
PROPERTY, PLANT AND EQUIPMENT The Company
generally values property, plant and equipment
(PP&E), including capitalized software, on the
basis of historical cost less accumulated depreciation and
amortization. Costs related to maintenance and repairs which do
not prolong the assets useful lives are
65
expensed as incurred. Depreciation and amortization are provided
using straight-line methods over the estimated useful lives of
the assets as follows:
|
|
|
|
|
Useful Life
|
|
|
(Years)
|
|
Land improvements
|
|
10 20
|
Buildings
|
|
40
|
Machinery and equipment
|
|
3 15
|
Computer software
|
|
3 5
|
Leasehold improvements are depreciated over the shorter of the
estimated useful life or the term of the lease.
The Company reports depreciation and amortization of property,
plant and equipment in cost of sales and selling, general and
administrative expenses based on the nature of the underlying
assets. Depreciation and amortization related to the production
of inventory and delivery of services are recorded in cost of
sales. Depreciation and amortization related to distribution
center activities, selling and support functions are reported in
selling, general and administrative expenses.
The Company assesses its long-lived assets for impairment when
indicators that the carrying values may not be recoverable are
present. In assessing long-lived assets for impairment, the
Company groups its long-lived assets with other assets and
liabilities at the lowest level for which identifiable cash
flows are generated (asset group) and estimates the
undiscounted future cash flows that are directly associated with
and expected to be generated from the use of and eventual
disposition of the asset group. If the carrying value is greater
than the undiscounted cash flows, an impairment loss must be
determined and the asset group is written down to fair value.
The impairment loss is quantified by comparing the carrying
amount of the asset group to the estimated fair value, which is
determined using weighted-average discounted cash flows that
consider various possible outcomes for the disposition of the
asset group.
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill
represents costs in excess of fair values assigned to the
underlying net assets of acquired businesses. Intangible assets
acquired are recorded at estimated fair value. Goodwill and
intangible assets deemed to have indefinite lives are not
amortized, but are tested for impairment annually during the
third quarter, and at any time when events suggest an impairment
more likely than not has occurred. To assess goodwill for
impairment, the Company determines the fair value of its
reporting units, which are primarily determined using
managements assumptions about future cash flows based on
long-range strategic plans. This approach incorporates many
assumptions including future growth rates, discount factors and
tax rates. In the event the carrying value of a reporting unit
exceeded its fair value, an impairment loss would be recognized
to the extent the carrying amount of the reporting units
goodwill exceeded the implied fair value of the goodwill.
Indefinite-lived intangible asset carrying amounts are tested
for impairment by comparing to current fair market value,
usually determined by the estimated cost to lease the asset from
third parties. Intangible assets with definite lives are
amortized over their estimated useful lives generally using an
accelerated method. Under this accelerated method, intangible
assets are amortized reflecting the pattern over which the
economic benefits of the intangible assets are consumed.
Definite-lived intangible assets are also evaluated for
impairment when impairment indicators are present. If the
carrying value exceeds the total undiscounted future cash flows,
a discounted cash flow analysis is performed to determine the
fair value of the asset. If the carrying value of the asset were
to exceed the fair value, it would be written down to fair
value. No goodwill or other significant intangible asset
impairments were recorded during 2010, 2009 or 2008.
FINANCIAL INSTRUMENTS Derivative financial
instruments are employed to manage risks, including foreign
currency, interest rate exposures and commodity prices and are
not used for trading or speculative purposes. The Company
recognizes all derivative instruments, such as interest rate
swap agreements, foreign currency options, commodity contracts
and foreign exchange contracts, in the Consolidated Balance
Sheets at fair value. Changes in the fair value of derivatives
are recognized periodically either in earnings or in
Shareowners Equity as a component of other comprehensive
income, depending on whether the derivative financial instrument
is undesignated or qualifies for hedge accounting, and if so,
whether it represents a fair value, cash flow, or net investment
hedge. Changes in the fair value of derivatives accounted for as
fair value
66
hedges are recorded in earnings in the same caption as the
changes in the fair value of the hedged items. Gains and losses
on derivatives designated as cash flow hedges, to the extent
they are effective, are recorded in other comprehensive income,
and subsequently reclassified to earnings to offset the impact
of the hedged items when they occur. In the event it becomes
probable the forecasted transaction to which a cash flow hedge
relates will not occur, the derivative would be terminated and
the amount in other comprehensive income would generally be
recognized in earnings. Changes in the fair value of derivatives
used as hedges of the net investment in foreign operations, to
the extent they are effective, are reported in other
comprehensive income and are deferred until the subsidiary is
sold. Changes in the fair value of derivatives not designated as
hedges under FASB Accounting Standards Codification,
(ASC) 815 Derivatives and Hedging
(ASC 815), and any portion of a hedge that is
considered ineffective, are reported in earnings in the same
caption where the hedged items are recognized.
The net interest paid or received on interest rate swaps is
recognized as interest expense. Gains and losses resulting from
the early termination of interest rate swap agreements are
deferred and amortized as adjustments to interest expense over
the remaining period of the debt originally covered by the
terminated swap.
REVENUE RECOGNITION
General: Revenue is recognized when the earnings
process is complete, collectability is reasonably assured, and
the risks and rewards of ownership have transferred to the
customer, which generally occurs upon shipment of the finished
product but sometimes is upon delivery to customer facilities.
Provisions for customer volume rebates, product returns,
discounts and allowances are recorded as a reduction of revenue
in the same period the related sales are recorded. Consideration
given to customers for cooperative advertising is recognized as
a reduction of revenue except to the extent that there is an
identifiable benefit and evidence of the fair value of the
advertising, in which case the expense is classified as Selling,
general, and administrative expense (SG&A).
Multiple Element Arrangements: In 2010, 2009 and
2008, approximately $900 million, $900 million and
$1 billion, respectively, in revenues were generated by
multiple element arrangements, primarily in the Security
segment. These sales contracts typically consist of products
sold and installed by the Company at the customer location.
Revenue from equipment sales is generally recognized once
installation is complete. Certain sales agreements also include
maintenance and monitoring services pertaining to the installed
equipment. Service revenue is recognized ratably over the
contract term as services are rendered. Customer billings for
equipment not yet installed and for monitoring services not yet
rendered are deferred to the extent paid in advance by customers.
When a sales agreement involves multiple elements, deliverables
are separately identified and consideration is allocated based
on their relative fair values in accordance with
ASC 605-25,
Revenue Recognition Multiple-Element
Arrangements. Fair value is generally determined by
reference to the prices charged in stand-alone transactions.
COST OF SALES AND SELLING, GENERAL &
ADMINISTRATIVE Cost of sales includes the cost
of products and services provided reflecting costs of
manufacturing and preparing the product for sale. These costs
include expenses to acquire and manufacture products to the
point that they are allocable to be sold to customers and costs
to perform services pertaining to service revenues (e.g.
installation of security systems, automatic doors, and security
monitoring costs). Cost of sales is primarily comprised of
inbound freight, direct materials, direct labor as well as
overhead which includes indirect labor, facility and equipment
costs. Cost of sales also includes quality control, procurement
and material receiving costs as well as internal transfer costs.
Selling general and administrative (SG&A) costs
include the cost of selling products as well as administrative
function costs. These expenses generally represent the cost of
selling and distributing the products once they are available
for sale and primarily include salaries and commissions of the
Companys sales force, distribution costs, notably salaries
and facility costs, as well as administrative expenses for
certain support functions and related overhead.
67
ADVERTISING COSTS Television advertising is
expensed the first time the advertisement airs, whereas other
advertising is expensed as incurred. Advertising costs are
classified in SG&A and amounted to $120.7 million in
2010, $30.8 million in 2009 and $39.3 million in 2008.
Expense pertaining to cooperative advertising with customers
reported as a reduction of net sales was $200.0 million in
2010, $23.3 million in 2009 and $29.0 million in 2008.
Cooperative advertising with customers classified as SG&A
expense amounted to $5.8 million in 2010, $5.7 million
in 2009 and $6.6 million in 2008.
ACQUISITION COSTS In fiscal 2010 and 2009
costs associated with new business acquisitions are expensed as
incurred as required under SFAS No. 141(R),
Business Combinations, (FAS 141(R))
codified in ASC 805, Business Combinations
(ASC 805). Refer to the section entitled New
Accounting Standards also included within Note A for
further details. Prior to 2009, certain costs directly related
to acquisitions including legal, audit and other fees, were
recorded to goodwill.
SALES TAXES Sales and value added taxes
collected from customers and remitted to governmental
authorities are excluded from Net sales reported in the
Consolidated Statements of Operations.
SHIPPING AND HANDLING COSTS The Company
generally does not bill customers for freight. Shipping and
handling costs associated with inbound freight are reported in
cost of sales. Shipping costs associated with outbound freight
are reported as a reduction of Net sales and amounted to
$161.6 million, $87.1 million and $129.7 million
in 2010, 2009 and 2008, respectively. Distribution costs are
classified as SG&A and amounted to $198.1 million,
$102.2 million and $122.2 million in 2010, 2009 and
2008, respectively.
STOCK-BASED COMPENSATION Compensation cost
relating to stock-based compensation grants is recognized on a
straight-line basis over the vesting period, which is generally
four years. The expense for stock options and restricted stock
units awarded to retirement eligible employees (those aged 55
and over, and with 10 or more years of service) is recognized on
the grant date, or (if later) by the date they become
retirement-eligible.
POSTRETIREMENT DEFINED BENEFIT PLAN The
Company uses the corridor approach to determine expense
recognition for each defined benefit pension and other
postretirement plan. The corridor approach defers actuarial
gains and losses resulting from variances between actual and
expected results (based on economic estimates or actuarial
assumptions) and amortizes them over future periods. For pension
plans, these unrecognized gains and losses are amortized when
the net gains and losses exceed 10% of the greater of the
market-related value of plan assets or the projected benefit
obligation at the beginning of the year. For other
postretirement benefits, amortization occurs when the net gains
and losses exceed 10% of the accumulated postretirement benefit
obligation at the beginning of the year. For ongoing, active
plans, the amount in excess of the corridor is amortized on a
straight-line basis over the average remaining service period
for active plan participants. For plans with primarily inactive
participants, the amount in excess of the corridor is amortized
on a straight-line basis over the average remaining life
expectancy of inactive plan participants.
INCOME TAXES Income tax expense is based on
reported earnings before income taxes. Interest and penalties
related to income taxes are classified as Income taxes on
continuing operations in the Consolidated Statements of
Operations. Deferred income taxes reflect the impact of
temporary differences between assets and liabilities recognized
for financial reporting purposes and such amounts recognized for
tax purposes, and are measured by applying enacted tax rates in
effect in years in which the differences are expected to
reverse. A valuation allowance is recorded to reduce deferred
tax assets to the amount that is more likely than not to be
realized.
EARNINGS PER SHARE Basic earnings per share
equals net earnings attributable to Stanley Black &
Decker, Inc., less earnings allocated to restricted stock units
with non-forfeitable dividend rights, divided by
weighted-average shares outstanding during the year. Diluted
earnings per share include the impact of common stock
equivalents using the treasury stock method when the effect is
dilutive.
SUBSEQUENT EVENTS The Company has evaluated
subsequent events through the date of issuance of the
Companys annual financial statements.
68
NEW
ACCOUNTING STANDARDS
Implemented: In September 2006, the FASB
issued SFAS No. 157, Fair Value
Measurements, (SFAS 157) codified in
ASC 820, Fair Value Measurement and Disclosure
(ASC 820). SFAS 157 establishes a single
definition of fair value and a framework for measuring fair
value, sets out a fair value hierarchy to be used to classify
the source of information used in fair value measurements, and
requires new disclosures of assets and liabilities measured at
fair value based on their level in the hierarchy. SFAS 157
indicates that an exit value (selling price) should be utilized
in fair value measurements rather than an entrance value, or
cost basis, and that performance risks, such as credit risk,
should be included in the measurements of fair value even when
the risk of non-performance is remote. SFAS 157 also
clarifies the principle that fair value measurements should be
based on assumptions the marketplace would use when pricing an
asset whenever practicable, rather than company-specific
assumptions. In February 2008, the FASB issued FSP
No. 157-1
and 157-2,
which respectively removed leasing transactions and deferred its
effective date for one year relative to nonfinancial assets and
nonfinancial liabilities except for items that are recognized or
disclosed at fair value in the financial statements on a
recurring basis (at least annually). Accordingly, in fiscal 2008
the Company applied SFAS 157 guidance to: (i) all
applicable financial assets and liabilities; and
(ii) nonfinancial assets and liabilities that are
recognized or disclosed at fair value in the Companys
financial statements on a recurring basis (at least annually).
In January 2009, the Company applied this guidance to all
remaining assets and liabilities measured on a non-recurring
basis at fair value. The adoption of SFAS 157 for these
items did not have an effect on the Company. Refer to
Note M, Fair Value Measurements, for disclosures relating
to ASC 820.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations,
(SFAS 141(R)) codified in ASC 805,
Business Combinations. SFAS 141(R) requires the
acquiring entity in a business combination to recognize the full
fair value of assets acquired and liabilities assumed in the
transaction (whether a full or partial acquisition), establishes
the acquisition-date fair value as the measurement objective for
all assets acquired and liabilities assumed, and requires the
acquirer to disclose the information needed to evaluate and
understand the nature and effect of the business combination.
This statement applies to all transactions or other events in
which the acquirer obtains control of one or more businesses,
including those sometimes referred to as true
mergers or mergers of equals and combinations
achieved without the transfer of consideration, for example, by
contract alone or through the lapse of minority veto rights. For
new acquisitions made following the adoption of
SFAS 141(R), significant costs directly related to the
acquisition including legal, audit and other fees, as well as
most acquisition-related restructuring, must be expensed as
incurred. For the years ended January 1, 2011 and
January 2, 2010 the Company expensed $83.5 million and
$24.1 million of acquisition-related costs, respectively.
Additionally, as part of SFAS 141(R) contingent purchase
price arrangements (also known as earn-outs) must be re-measured
to estimated fair value with the impact reported in earnings.
With respect to all acquisitions, including those consummated in
prior years, changes in tax reserves pertaining to resolution of
contingencies or other post acquisition developments are
recorded to earnings rather than goodwill. SFAS 141(R) was
applied to the Companys business combinations completed in
fiscal 2010 and 2009.
In December 2009, the FASB issued Accounting Standards Update
(ASU)
No. 2009-16,
Accounting for Transfers of Financial Assets. This
ASU eliminates the concept of a qualifying special-purpose
entity, clarifies when a transferor of financial assets
has surrendered control over the transferred financial assets,
defines specific conditions for reporting a transfer of a
portion of a financial asset as a sale, requires that a
transferor recognize and initially measure at fair value all
assets obtained and liabilities incurred as a result of a
transfer of financial assets accounted for as a sale, and
requires enhanced disclosures to provide financial statement
users with greater transparency about a transferors
continuing involvement with transferred financial assets. The
adoption of this ASU did not have any impact on the consolidated
financial statements.
In December 2009, the FASB issued ASU
No. 2009-17,
Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This ASU
eliminates the concept of a qualifying special-purpose
entity, replaces the quantitative approach for determining
which enterprise has a controlling financial interest in a
variable interest entity with a qualitative approach focused on
identifying which enterprise has a controlling financial
interest through the power to direct the activities of a
variable interest entity that most significantly impact the
entitys economic performance. Additionally, this ASU
requires enhanced disclosures
69
that provide users of financial statements with more information
about an enterprises involvement in a variable interest
entity. In January 2010, the Company applied this guidance and
the adoption of the ASU did not have a significant impact on the
consolidated financial statements.
In July 2010, the FASB issued ASU
No. 2010-20,
Disclosures About the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. This ASU
amends existing disclosures to require a company to provide a
greater level of disaggregated information about the credit
quality of its financing receivables and its allowance for
credit losses. In December 2010, the Company applied this
guidance to its financing receivables. Refer to Note B,
Accounts and Notes Receivable.
Not Yet Implemented: In October 2009, the FASB
issued ASU
2009-13,
Revenue Recognition
(Topic 605) Multiple-Deliverable Revenue
Arrangements. This ASU eliminates the requirement that all
undelivered elements must have objective and reliable evidence
of fair value before a company can recognize the portion of the
consideration that is attributable to items that already have
been delivered. This may allow some companies to recognize
revenue on transactions that involve multiple deliverables
earlier than under the current requirements. Additionally, under
the new guidance, the relative selling price method is required
to be used in allocating consideration between deliverables and
the residual value method will no longer be permitted. This ASU
is effective prospectively for revenue arrangements entered into
or materially modified beginning in fiscal 2011 although early
adoption is permitted. A company may elect, but will not be
required, to adopt the amendments in this ASU retrospectively
for all prior periods. The Company has evaluated the ASU and
does not believe it will have a material impact on the
consolidated financial statements.
In December 2010, the FASB issued ASU
2010-28,
Intangibles Goodwill and Other (Topic
350). This ASU modifies the first step of the goodwill
impairment test to include reporting units with zero or negative
carrying amounts. For these reporting units, the second step of
the goodwill impairment test shall be performed to measure the
amount of impairment loss, if any, when it is more likely than
not that a goodwill impairment exists. This ASU is effective for
fiscal years and interim periods beginning after
December 15, 2010. The Company has evaluated the ASU and
does not believe it will have a material impact on the
consolidated financial statements.
In December 2010, the FASB issued ASU
2010-29,
Business Combinations (Topic 805). This ASU
specifies that if a company presents comparative financial
statements, the company should disclose revenue and earnings of
the combined entity as though the business combination that
occurred during the year had occurred as of the beginning of the
comparable prior annual reporting period only. The ASU also
expands the supplemental pro forma disclosures under Topic 805
to include a description of the nature and amount of material,
nonrecurring pro forma adjustments directly attributable to the
business combination included in the pro forma revenue and
earnings. This ASU is effective prospectively for business
combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or
after December 15, 2010. Effective January 1, 2011,
the Company will adopt this ASU and include all required
disclosures in the notes to its consolidated financial
statements.
|
|
B.
|
ACCOUNTS
AND FINANCING RECEIVABLE
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
|
2009
|
|
|
Trade accounts receivable
|
|
|
$1,333.2
|
|
|
|
$486.4
|
|
Trade notes receivable
|
|
|
61.9
|
|
|
|
45.7
|
|
Other accounts receivables
|
|
|
78.3
|
|
|
|
31.8
|
|
|
|
|
|
|
|
|
|
|
Gross accounts and notes receivable
|
|
|
1,473.4
|
|
|
|
563.9
|
|
Allowance for doubtful accounts
|
|
|
(56.3)
|
|
|
|
(31.9)
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable, net
|
|
|
$1,417.1
|
|
|
|
$532.0
|
|
|
|
|
|
|
|
|
|
|
Long-term trade notes receivable, net
|
|
|
$114.9
|
|
|
|
$93.2
|
|
|
|
|
|
|
|
|
|
|
70
Trade receivables are dispersed among a large number of
retailers, distributors and industrial accounts in many
countries. Adequate reserves have been established to cover
anticipated credit losses. Long-term trade financing receivables
are reported within Other assets in the Consolidated Balance
Sheets. Financing receivables and long-term financing
receivables are predominately related to certain security
equipment leases with commercial businesses. Generally, the
Company retains legal title to any equipment leases and bears
the right to repossess such equipment in an event of default.
All financing receivables are interest bearing and the Company
has not classified any financing receivables as
held-for-sale.
In December 2009, the Company entered into an accounts
receivable sale program that was scheduled to expire on
December 28, 2010. On December 13, 2010, the Company
extended the term of that program for one year and the program
is now scheduled to expire on December 12, 2011. According
to the terms of that program the Company is required to sell
certain of its trade accounts receivables at fair value to a
wholly owned, bankruptcy-remote special purpose subsidiary
(BRS). The BRS, in turn, must sell such receivables
to a third-party financial institution (Purchaser)
for cash and a deferred purchase price receivable. The
Purchasers maximum cash investment in the receivables at
any time is $100.0 million. The purpose of the program is
to provide liquidity to the Company. The Company accounts for
these transfers as sales under ASC 860 Transfers and
Servicing. The Company has no retained interests in the
transferred receivables, other than collection and
administrative responsibilities and its right to the deferred
purchase price receivable. At January 1, 2011 the Company
did not record a servicing asset or liability related to its
retained responsibility, based on its assessment of the
servicing fee, market values for similar transactions and its
cost of servicing the receivables sold.
As of January 1, 2011 and January 2, 2010,
$31.5 million and $35.2 million of net receivables
were derecognized. Gross receivables sold amounted to
$552.1 million ($492.9 million, net) for the year
ended January 1, 2011. These sales resulted in a pre-tax
loss of $1.4 million for the year ended January 1,
2011. Proceeds from transfers of receivables to the Purchaser
totaled $495.3 million for the year ended January 1,
2011. Collections of previously sold receivables, including
deferred purchase price receivables, and all fees, which are
settled one month in arrears, resulted in payments to the
Purchaser of $498.8 million for the year ended
January 1, 2011. Servicing fees amounted to
$0.3 million for the year ended January 1, 2011. The
Companys risk of loss following the sale of the
receivables is limited to the deferred purchase price, which was
$13.8 million at January 1, 2011 and
$17.7 million at January 2, 2010. The deferred
purchase price receivable will be repaid in cash as receivables
are collected, generally within 30 days, and as such the
carrying value of the receivable recorded approximates fair
value. Delinquencies and credit losses on receivables sold in
2010 were less than $0.2 million for the year ended
January 1, 2011. Cash inflows related to the deferred
purchase price receivable totaled $174.4 million for the
year ended January 1, 2011. All cash flows under the
program are reported as a component of changes in accounts
receivable within operating activities in the consolidated
statements of cash flows since all the cash from the Purchaser
is either: 1) received upon the initial sale of the
receivable; or 2) from the ultimate collection of the
underlying receivables and the underlying receivables are not
subject to significant risks, other than credit risk, given
their short-term nature.
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
2009
|
|
Finished products
|
|
|
$915.1
|
|
|
|
$252.8
|
|
Work in process
|
|
|
117.5
|
|
|
|
49.0
|
|
Raw materials
|
|
|
239.4
|
|
|
|
64.4
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$1,272.0
|
|
|
|
$366.2
|
|
|
|
|
|
|
|
|
|
|
Net inventories in the amount of $516.6 million at
January 1, 2011 and $116.0 million at January 2,
2010 were valued at the lower of LIFO cost or market. If the
LIFO method had not been used, inventories would have been
$67.0 million higher than reported at January 1, 2011
and $64.6 million higher than reported at January 2,
2010. During 2010, inventory quantities increased due to the
Merger and resulting addition of Black & Decker
inventories ($1.070 billion) resulting in an increment at
January 1, 2011. During 2009, inventory quantities were
reduced resulting in a liquidation of LIFO inventory quantities
carried at lower costs
71
prevailing in prior years as compared with the cost of 2009
purchases, the effect of which increased Cost of sales by
approximately $6.5 million and decreased Net earnings
attributable to Stanley by approximately $4.0 million.
|
|
D.
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
|
$113.9
|
|
|
|
$44.1
|
|
Land improvements
|
|
|
40.6
|
|
|
|
23.8
|
|
Buildings
|
|
|
464.2
|
|
|
|
284.2
|
|
Leasehold improvements
|
|
|
43.0
|
|
|
|
29.8
|
|
Machinery and equipment
|
|
|
1,300.2
|
|
|
|
902.7
|
|
Computer software
|
|
|
225.1
|
|
|
|
209.9
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment, gross
|
|
|
$2,187.0
|
|
|
|
$1,494.5
|
|
Less: accumulated depreciation and amortization
|
|
|
(1,020.5)
|
|
|
|
(918.6)
|
|
|
|
|
|
|
|
|
|
|
Property, plant & equipment, net
|
|
|
$1,166.5
|
|
|
|
$575.9
|
|
|
|
|
|
|
|
|
|
|
As more fully disclosed in Note E. Merger and Acquisitions,
in connection with the Merger, the Company acquired property,
plant and equipment with a fair value of $569.9 million.
Depreciation and amortization expense associated with property,
plant and equipment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Depreciation
|
|
|
$177.4
|
|
|
|
$76.1
|
|
|
|
$74.0
|
|
Amortization
|
|
|
26.0
|
|
|
|
19.4
|
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
$203.4
|
|
|
|
$95.5
|
|
|
|
$92.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts above are inclusive of discontinued operations
depreciation and amortization expense of $0.5 million in
2008.
|
|
E.
|
MERGER
AND ACQUISITIONS
|
MERGER
On March 12, 2010 (the merger date), a wholly
owned subsidiary of The Stanley Works (Stanley) was
merged with and into Black & Decker, with the result
that Black & Decker became a wholly owned subsidiary
of Stanley. As part of the Merger, Black & Decker
stockholders received 1.275 shares of Stanley stock for
each share outstanding as of the merger date. All of the
outstanding Black & Decker shares and equity based
awards were exchanged for Stanley shares and equity awards as
part of the Merger. Fractional shares generated by the
conversion ratio were cash settled for $0.3 million. After
the exchange was completed, pre-merger Stanley shareowners
retained ownership of 50.5% of the combined Company. In
conjunction with consummating the Merger, the name of the
combined Company was changed to Stanley Black &
Decker, Inc.
Black & Decker is a global manufacturer and marketer
of power tools and accessories, hardware and home improvement
products, and technology-based fastening systems. The Merger
creates a larger and more globally diversified company with a
broad array of products and services with significant exposure
to growing and profitable product areas. Stanley and
Black & Deckers product lines are generally
complementary, and do not present areas of significant overlap.
By combining the two companies, there are significant cost
saving opportunities through reductions in corporate overhead,
business unit and purchasing consolidation, and by combining
elements of manufacturing and distribution.
72
Based on the closing price of Stanley common stock on the merger
date, the consideration received by Black & Decker
shareholders in the Merger had a value of $4.657 billion as
detailed below.
|
|
|
|
|
|
|
|
|
|
|
Conversion
|
|
|
|
|
(In millions)
|
|
Calculation
|
|
|
Fair Value
|
|
|
Black & Decker common stock outstanding as of the
merger date
|
|
|
61.571
|
|
|
|
|
|
Multiplied by Stanleys stock price as of the merger date
multiplied by the exchange ratio of 1.275 ($57.86 * 1.275)
|
|
|
$73.77
|
|
|
|
$4,542.2
|
|
|
|
|
|
|
|
|
|
|
Fair value of the vested and unvested stock options pertaining
to pre-merger service issued to replace existing grants at
closing (a)
|
|
|
|
|
|
|
91.7
|
|
Fair value of unvested restricted stock and restricted stock
units pertaining to pre-merger service issued to replace
existing grants at closing (a)
|
|
|
|
|
|
|
12.2
|
|
Other vested equity awards (a)
|
|
|
|
|
|
|
10.1
|
|
Cash paid to settle fractional shares
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
Total fair value of consideration transferred
|
|
|
|
|
|
|
$4,656.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As part of the Merger the Company exchanged the pre-merger
equity awards of Black & Decker for Stanley
Black & Decker equity awards. Under ASC 805, the
fair value of vested options and the earned portion of unvested
options, restricted stock awards and restricted stock units are
recognized as consideration paid. The remaining value relating
to the unvested and unearned options, restricted stock awards
and restricted stock units will be recognized as future
stock-based compensation. The allocation of the pre-merger
equity awards between consideration paid and future stock-based
compensation is as follows (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
Recognized as
|
|
|
Fair Value to be
|
|
Award type
|
|
Number of
|
|
|
Consideration
|
|
|
Recognized as Future
|
|
(In millions)
|
|
Awards
|
|
|
Paid
|
|
|
Compensation Cost
|
|
|
Stock options
|
|
|
5.8
|
|
|
|
$91.7
|
|
|
|
$14.1
|
|
Restricted stock units and awards
|
|
|
0.4
|
|
|
|
12.2
|
|
|
|
12.8
|
|
Other vested equity awards
|
|
|
0.2
|
|
|
|
10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6.4
|
|
|
|
$114.0
|
|
|
|
$26.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following assumptions were used for the Black-Scholes
valuation of the pre-merger Black & Decker stock
options in the determination of consideration paid:
|
|
|
Stock price
|
|
$57.86
|
Post conversion strike price
|
|
$23.53 $74.11
|
Average expected volatility
|
|
32%
|
Dividend yield
|
|
0.7%
|
Weighted-average risk-free interest rate
|
|
1.4%
|
Weighted-average expected term
|
|
2.9 years
|
Weighted-average fair value per option
|
|
$18.72
|
The expected volatility is based on two equally weighted
components: the first component is the average historical
volatility which is based on daily observations and duration
consistent with the expected life assumption; the second
component is the market implied volatility of traded options.
The average expected term of the option is based on historical
employee stock option exercise behavior as well as the remaining
contractual exercise term. The risk-free interest rate is based
on U.S. treasury securities with maturities equal to the
expected life of the option. The fair value of restricted stock
and restricted stock units and other vested equity awards was
$57.86 per share. Total compensation expense recognized during
the year ended January 1, 2011 for the options, restricted
stock, and restricted stock awards that were assumed as part of
the Merger was $8.8 million.
73
The transaction has been accounted for using the acquisition
method of accounting which requires, among other things, the
assets acquired and liabilities assumed be recognized at their
fair values as of the merger date. The following table
summarizes the estimated fair values of major assets acquired
and liabilities assumed as part of the Merger:
|
|
|
|
|
(Millions of Dollars)
|
|
2010
|
|
|
Cash
|
|
|
$949.4
|
|
Accounts and notes receivable
|
|
|
907.3
|
|
Inventory
|
|
|
1,070.1
|
|
Prepaid expenses and other current assets
|
|
|
257.5
|
|
Property, plant and equipment
|
|
|
569.9
|
|
Trade names
|
|
|
1,505.5
|
|
Customer relationships
|
|
|
383.7
|
|
Licenses, technology and patents
|
|
|
112.3
|
|
Other assets
|
|
|
200.1
|
|
Short-term borrowings
|
|
|
(175.0
|
)
|
Accounts payable
|
|
|
(479.6
|
)
|
Accrued expenses and other current liabilities
|
|
|
(830.9
|
)
|
Long-term debt
|
|
|
(1,657.1
|
)
|
Post-retirement benefits
|
|
|
(768.8
|
)
|
Deferred taxes
|
|
|
(703.6
|
)
|
Other liabilities
|
|
|
(513.3
|
)
|
|
|
|
|
|
Total identifiable net assets
|
|
|
$827.5
|
|
Goodwill
|
|
|
3,829.0
|
|
|
|
|
|
|
Total consideration transferred
|
|
|
$4,656.5
|
|
|
|
|
|
|
As of the merger date, the expected fair value of accounts
receivable approximated the historical cost. The gross
contractual receivable was $951.7 million, of which
$44.4 million was not expected to be collectible.
The amount allocated to trade names includes $1.362 billion
for indefinite-lived trade names. The weighted-average useful
lives assigned to the finite-lived intangible assets are trade
names 14 years; customer
relationships 15 years; and licenses,
technology and patents 12 years.
Black & Decker has three primary areas of contingent
liabilities: environmental, risk insurance (predominantly
product liability and workers compensation) and uncertain tax
liabilities. Additionally, Black & Decker is involved
in various lawsuits in the ordinary course of business,
including litigation and administrative proceedings involving
commercial disputes and employment matters. Some of these
lawsuits include claims for punitive as well as compensatory
damages. The majority of the contingent liabilities are recorded
at fair value in purchase accounting, aside from those
pertaining to uncertainty in income taxes which are an exception
to the fair value basis of accounting; however certain
environmental matters that are more legal in nature are recorded
at the probable and estimable amount.
Goodwill is calculated as the excess of the consideration
transferred over the net assets recognized and represents the
expected revenue and cost synergies of the combined business,
assembled workforce, and the going concern nature of
Black & Decker. It is estimated that
$167.7 million of goodwill, relating to Black &
Deckers pre-merger historical tax basis, will be
deductible for tax purposes.
The purchase price allocation for Black & Decker is
substantially complete. As the Company finalizes its purchase
price allocation, it is anticipated that additional purchase
price adjustments will be recorded relating to certain
environmental remediation liabilities for ongoing feasibility
study results, tax matters, and for other minor items. Such
adjustments will be recorded during the measurement period in
the first quarter of 2011. A single estimate of fair value
results from a complex series of judgments about future events
and uncertainties and relies heavily on estimates and
assumptions. The Companys judgments used to determine the
estimated fair value assigned to each class of assets acquired
and liabilities assumed, as well as asset lives, can materially
impact the Companys results from operations. The
finalization of the Companys purchase accounting
74
assessment will result in changes in the valuation of assets and
liabilities acquired which is not expected to have a material
impact on the Companys consolidated statement of
operations, balance sheet or cash flows.
ACQUISITIONS
The Company completed thirty acquisitions during 2010, 2009, and
2008. These businesses were acquired pursuant to the
Companys growth and portfolio repositioning strategy. The
2010 and 2009 acquisitions were accounted for in accordance with
ASC 805 while 2008 acquisitions were accounted for as
purchases in accordance with SFAS No. 141
Business Combinations. During 2010, the Company
completed ten acquisitions for an aggregate value of
$547.3 million aside from the Merger. During 2009, the
Company completed six acquisitions for an aggregate value of
$24.2 million. During 2008, the Company completed fourteen
acquisitions for an aggregate value of $572.4 million. The
results of the acquired companies are included in the
Companys consolidated operating results from the
respective acquisition dates. All of the acquisitions have
resulted in the recognition of goodwill. Goodwill reflects the
future earnings and cash flow potential of the acquired business
in excess of the fair values that are assigned to all other
identifiable assets and liabilities. Goodwill arises because the
purchase price paid reflects numerous factors including the
strategic fit and expected synergies these targets bring to
existing operations, the competitive nature of the bidding
process and the prevailing market value for comparable
companies. ASC 805 requires all identifiable assets and
liabilities acquired to be reported at fair value and the excess
is recorded as goodwill. The Company obtains information during
due diligence and from other sources which forms the basis for
the initial allocation of purchase price to the estimated fair
value of assets and liabilities acquired. In the months
following an acquisition, intangible asset valuation reports,
asset appraisals and other data are obtained in order for
management to finalize the fair values assigned to acquired
assets and liabilities.
In November 2010 the Company purchased 70% of the outstanding
shares of GMT for $44.2 million, net of cash acquired. GMT
is a leading commercial hardware manufacturer and distributor in
China. The acquisition of GMT provides the Company with a low
cost manufacturing source and also serves as a platform for
international commercial hardware expansion. The Company has the
option to purchase the remaining 30% of GMT outstanding shares
over the next five years. GMT is included in the Companys
Security segment.
In July 2010 the Company completed the acquisition of CRC-Evans
Pipeline International (CRC-Evans) for
$451.6 million, net of cash acquired and subject to certain
adjustments including an earn-out provision with the previous
CRC-Evans shareholders. The net assets acquired, including
$181.2 million of other intangible assets, are
approximately $233.6 million and the related Goodwill is
approximately $218.0 million. CRC-Evans is a full line
supplier of specialized tools, equipment and services used in
the construction of large diameter oil and natural gas
transmission pipelines. CRC-Evans also sells and rents custom
pipe handling and joint welding and coating equipment used in
the construction of large and small diameter pipelines. The
acquisition of CRC Evans diversifies the Companys
revenue base and provides the Company with a strategic and
profitable growth platform. CRC-Evans is included in the
Companys Industrial segment.
Under the earn-out provision, the total purchase price for
CRC-Evans was contingent upon 2010 earnings before interest,
income taxes, depreciation and amortization and the earn-out
performance period ended on December 31, 2010. As of the
acquisition date it was estimated that there would be no
purchase price adjustment occurring at the end of the
performance period as the probability of a significant increase
or decrease in total consideration was been deemed to be equally
unlikely. Accordingly, the Company did not recognize an asset or
liability relating to contingent consideration at the
acquisition date. The performance period ended in 2010 with no
additional adjustment to purchase price required.
In March 2010, the Company completed the acquisition of Stanley
Solutions de Sécurité (SSDS) (formerly
known as ADT France) for $8.0 million, net of cash
acquired. SSDS is a leading provider of security services,
primarily for commercial businesses located in France. SSDS has
been consolidated into the Companys Security segment. This
acquisition added to the Companys current business gives
the Company the leading market share in France and expands its
security footprint in Europe.
During 2010, the Company also completed seven minor
acquisitions, relating to the Companys Industrial and
Security segments. The combined purchase price of these
acquisitions was $43.5 million.
75
The purchase accounting for the 2010 acquisitions is
preliminary, principally with respect to finalization of
intangible asset valuations, contingencies, deferred taxes, the
valuation of property, plant and equipment and certain other
items.
ACTUAL
AND PRO FORMA IMPACT OF THE MERGER AND ACQUISITIONS
The following table presents information for the
Black & Decker Merger and other 2010 acquisitions that
is included in the Companys consolidated statement of
operations from the merger and acquisition dates through
January 1, 2011 (in millions):
|
|
|
|
|
|
|
Year Ended
|
|
|
2010
|
|
Net sales
|
|
|
$4,507.3
|
|
Loss attributable to the Merger and acquisitions
|
|
|
$(38.2
|
)(A)
|
|
|
|
(A) |
|
The net loss attributable to the Merger and acquisitions
includes amortization of inventory
step-up,
restructuring charges and other merger and acquisition-related
items. |
The following table presents supplemental pro forma information
as if the Merger and acquisitions had occurred on
January 3, 2010 for the year ended January 1, 2011.
The comparative 2009 columns were prepared as if the Merger and
acquisitions had occurred at the beginning of fiscal 2009. As
such, both years presented include merger and acquisition
related charges. The pro forma consolidated results are not
necessarily indicative of what the Companys consolidated
net earnings would have been had the Company completed the
Merger and acquisitions at the beginning of each fiscal year. In
addition the pro forma consolidated results do not purport to
project the future results of the combined Company nor do they
reflect the expected realization of any cost savings associated
with the Merger and acquisitions.
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date
|
(Millions of Dollars, except per share amounts)
|
|
2010
|
|
2009
|
|
Net sales
|
|
$
|
9,552.6
|
|
|
$
|
8,958.5
|
|
Net earnings (loss)
|
|
$
|
216.1
|
|
|
$
|
(56.2
|
)
|
Diluted earnings (loss) per share
|
|
$
|
1.44
|
|
|
$
|
(0.36
|
)
|
2010 Pro
Forma Results
The 2010 pro forma results were calculated by combining the
results of Stanley Black & Decker with
Black & Deckers stand-alone results from
January 3, 2010 through March 12, 2010. The
pre-acquisition results of the acquisitions were also combined
for their respective pre-acquisition periods. The following
adjustments were made to account for certain costs which would
have been incurred during this pre-Merger and pre-acquisition
period.
|
|
|
|
|
Elimination of the historical pre-Merger and pre-acquisition
intangible asset amortization expense and the addition of
intangible asset amortization expense related to intangibles
valued as part of the Merger and acquisitions that would have
been incurred from January 3, 2010 to the merger
and/or
acquisition dates.
|
|
|
|
Additional expense for the inventory
step-up
which would have been amortized as the corresponding inventory
was sold.
|
|
|
|
Additional expense relating to Merger-related compensation for
key executives which would have been incurred from
January 3, 2010 to March 12, 2010.
|
|
|
|
Reduced interest expense for the Black & Decker debt
fair value adjustment which would have been amortized from
January 3, 2010 to March 12, 2010.
|
|
|
|
Additional depreciation related to property, plant and equipment
fair value adjustments that would have been expensed prior to
the Merger and acquisitions commencement dates.
|
|
|
|
The modifications above were adjusted for the applicable tax
impact.
|
76
2009 Pro
Forma Results
The 2009 pro forma results were calculated by taking the
historical financial results of Stanley and adding the
historical results of Black & Decker and the
acquisitions. Additionally the following adjustments were made
to account for certain costs that would have been incurred in
2009 had the Merger and acquisitions occurred on January 4,
2009.
|
|
|
|
|
Elimination of historical Black & Decker and
acquisitions intangible asset amortization expense and
addition of intangible asset amortization expense relating to
intangibles valued as part of the Merger and acquisitions.
|
|
|
|
Added expense for the inventory
step-up
which would have been amortized as the corresponding inventory
was sold.
|
|
|
|
Added the costs that were incurred to consummate the Merger and
acquisitions during 2010.
|
|
|
|
Added the Merger and acquisition-related restructuring charges
which were incurred during 2010.
|
|
|
|
Added compensation expense for Merger-related compensation for
key executives.
|
|
|
|
Added depreciation expense related to property, plant, and
equipment fair value adjustments.
|
|
|
|
Reduced interest expense for the debt fair value adjustment
which would have been amortized during 2009.
|
|
|
|
The modifications above were adjusted for the applicable tax
impact.
|
2009 ACQUISITIONS During 2009, the Company
completed six minor acquisitions, primarily relating to the
Companys convergent security solutions business, for a
combined purchase price of $24.2 million. Amounts allocated
to the assets acquired and liabilities assumed were based on
their estimated fair values at the acquisition dates. The
purchase price allocations of these acquisitions are complete.
2008 ACQUISITIONS In July 2008, the Company
completed the acquisition of Sonitrol Corporation
(Sonitrol) for $282.3 million in cash. Sonitrol
is a market leader in North American commercial security
monitoring services, access control and fire detection systems.
The acquisition has complemented the product offering of the
pre-existing security integration businesses including HSM
acquired in early 2007.
Also in July 2008, the Company completed the acquisition of
Xmark Corporation (Xmark) for $47.0 million in
cash. Xmark, headquartered in Canada, markets and sells radio
frequency identification-based systems used to identify, locate
and protect people and assets. The acquisition expanded the
Companys personal security business.
In October 2008, the Company completed the acquisition of
Generale de Protection (GdP) for $168.8 million
in cash. GdP, headquartered in Vitrolles, France, is a leading
provider of audio and video security monitoring services,
primarily for small and mid-sized businesses located in France
and Belgium.
The Company also made eleven small acquisitions relating to its
mechanical access systems, convergent security solutions,
including healthcare storage systems, and fastening businesses
during 2008. These eleven acquisitions were completed for a
combined purchase price of $74.3 million.
The total purchase price of $572.4 million reflects
transaction costs and is net of cash acquired; amounts allocated
to the assets acquired and liabilities assumed were based on
their estimated fair values at the acquisition dates. Goodwill
associated with the 2008 acquisitions that is deductible for
income tax purposes amounts to $40.7 million. The purchase
price allocation of these acquisitions has been completed.
77
The following table summarizes the estimated fair values of
major assets acquired and liabilities assumed for the 2008
acquisitions in the aggregate:
|
|
|
|
|
(Millions of Dollars)
|
|
2008
|
|
|
Current assets, primarily accounts receivable and inventories
|
|
|
$64.3
|
|
Property, plant, and equipment
|
|
|
7.6
|
|
Goodwill
|
|
|
367.8
|
|
Trade names
|
|
|
21.1
|
|
Customer relationships
|
|
|
238.5
|
|
Technology
|
|
|
14.1
|
|
Other intangible assets
|
|
|
1.0
|
|
Other assets
|
|
|
6.6
|
|
|
|
|
|
|
Total assets
|
|
|
$721.0
|
|
|
|
|
|
|
Current liabilities
|
|
|
$74.6
|
|
Deferred tax liabilities and other
|
|
|
74.0
|
|
|
|
|
|
|
Total liabilities
|
|
|
$148.6
|
|
|
|
|
|
|
The weighted average useful lives assigned to the amortizable
assets identified above are trade names
10 years; customer relationships 13 years;
technology 8 years; and other intangible
assets 1 year.
|
|
F.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
GOODWILL The changes in the carrying amount
of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
CDIY
|
|
|
Industrial
|
|
|
Security
|
|
|
Total
|
|
|
Balance January 2, 2010
|
|
|
$206.6
|
|
|
|
$367.8
|
|
|
|
$1,244.0
|
|
|
|
$1,818.4
|
|
Addition from Merger
|
|
|
2,868.9
|
|
|
|
474.5
|
|
|
|
485.6
|
|
|
|
3,829.0
|
|
Addition from other acquisitions
|
|
|
|
|
|
|
224.9
|
|
|
|
54.1
|
|
|
|
279.0
|
|
Foreign currency translation and other
|
|
|
11.2
|
|
|
|
4.7
|
|
|
|
(0.4)
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2011
|
|
|
$3,086.7
|
|
|
|
$1,071.9
|
|
|
|
$1,783.3
|
|
|
|
$5,941.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INTANGIBLE ASSETS Other intangible assets at
January 1, 2011 and January 2, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
(Millions of Dollars)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amortized Intangible Assets Definite lives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and copyrights
|
|
|
$56.2
|
|
|
|
$(40.3)
|
|
|
|
$53.1
|
|
|
|
$(38.7)
|
|
Trade names
|
|
|
236.9
|
|
|
|
(49.6)
|
|
|
|
61.6
|
|
|
|
(35.1)
|
|