PART I
ITEM 1. BUSINESS
General
Stanley Black & Decker, Inc. ("the Company") was founded in 1843 by Fredrick T. Stanley and incorporated in Connecticut in 1852. In March 2010, the Company completed a merger ("the Merger") with The Black & Decker Corporation (“Black & Decker”), a company founded by S. Duncan Black and Alonzo G. Decker and incorporated in Maryland in 1910. At that time, the Company changed its name from The Stanley Works ("Stanley") to Stanley Black & Decker, Inc. The Company is a diversified global provider of power and hand tools, mechanical access solutions (i.e. automatic doors and commercial locking systems), electronic security and monitoring systems, and products and services for various industrial applications with 2012 consolidated annual revenues of $10.2 billion. The Company is continuing to pursue a diversification strategy that involves industry, geographic and customer diversification to foster sustainable revenue, earnings and cash flow growth. The Company has four growth platforms: Security (both Convergent and Mechanical), Engineered Fastening, Infrastructure and Healthcare. The Company intends to focus on organic growth across all of its businesses, with the majority of acquisition-related investments being within the four growth platforms. In addition, the Company plans to increase its presence in Emerging Markets, with a goal of generating greater than 20% of annual revenues from these markets by mid-decade. In 2012, approximately 48% of the Company’s annual revenues were generated in the United States, with the remainder largely from Europe (27%), Emerging Markets (15%) and Canada (6%).
Execution of this diversification strategy has resulted in approximately $5.3 billion of acquisitions since 2002 (excluding the Black & Decker merger) and increased brand investment, enabled by strong cash flow generation. The pending acquisition of Infastech for approximately $850 million, the 2011 acquisition of Niscayah Group AB (“Niscayah”) for a total purchase price of $984.5 million and the July 2010 purchase of CRC-Evans Pipeline International ("CRC-Evans") for $451.6 million demonstrate this strategy. Infastech is a global manufacturer and distributor of specialty engineered fastening technology based in Hong Kong. The pending acquisition of Infastech will add to the Company's strong positioning in specialty engineered fastening, an industry with solid growth prospects particularly in the global electronics, industrial and automotive end markets, and will further expand the Company's global footprint with its strong concentration in fast-growing emerging markets. Niscayah is one of the largest access control and surveillance solutions providers in Europe. The Niscayah acquisition expanded and complemented the Company's existing electronic security offerings and further diversifies the Company's operations and international presence. CRC-Evans is a full line supplier of specialized tools, equipment and services used primarily in the construction of large diameter oil and natural gas transmission pipelines both on and offshore. The acquisition of CRC-Evans served to bolster the beginning of the Infrastructure platform whereby the Company can provide tools and services to a new set of high growth, high margin end markets and channels. Furthermore, the Company sold its Hardware & Home Improvement business ("HHI") in 2012 for approximately $1.4 billion in cash, of which $100 million is being held in escrow pending the close of the Tong Lung portion of the sale, which is expected to occur no later than April 2013. The results for this business are reported as discontinued operations for all periods presented. Refer to Note E, Merger and Acquisitions, and Note T, Discontinued Operations, of the Notes to Consolidated Financial Statements in Item 8 for further discussion.
At
December 29, 2012
, the Company employed
45,327
people worldwide. The Company’s principal executive office is located at 1000 Stanley Drive, New Britain, Connecticut 06053 and its telephone number is (860) 225-5111.
Description of the Business
The Company’s operations are classified into three reportable business segments, which also represent its operating segments: Construction & Do-It-Yourself (“CDIY”), Security, and Industrial. The Company’s consolidated financial statements include Black & Decker’s results of operations and cash flows from March 13, 2010. 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.
Additional information regarding the Company’s business segments and geographic areas 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 Consolidated Financial Statements in Item 8.
CDIY
The CDIY segment is comprised of the Professional Power Tool and Accessories business, the Consumer Power Tool business, which includes outdoor products and the Hand Tools, Fasteners & Storage business. The segment sells its products to professional end users, distributors and retail consumers. The majority of sales are distributed through retailers, including home centers, mass merchants, hardware stores, and retail lumber yards. Annual revenues in the CDIY segment were
$5.2 billion
in
2012
, representing
51%
of the Company’s total revenues.
The Professional Power Tool and Accessories business sells professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders. The business also sells power tool accessories which include drill bits, router bits, abrasives and saw blades.
The Hand Tools, Fasteners & Storage business sells measuring and leveling tools, planes, hammers, demolition tools, knives, saws and chisels. Fastening products include pneumatic tools and fasteners including nail guns, nails, staplers and staples. Storage products include tool boxes, sawhorses and storage units.
The Consumer Power Tool business sells corded and cordless electric power tools sold under the Black & Decker brand, lawn and garden products and home products. Lawn and garden products include hedge trimmers, string trimmers, lawn mowers, edgers, and related accessories. Home products include hand held vacuums, paint tools and cleaning appliances.
Security
The Security segment is comprised of the Convergent Security Solutions ("CSS") and Mechanical Access Solutions ("MAS") businesses. Annual revenues in the Security segment were
$2.4 billion
in
2012
, representing
24%
of the Company’s total revenues.
The CSS business designs, supplies and installs electronic security systems and provides electronic security services, including alarm monitoring, video surveillance, fire alarm monitoring, systems integration and system maintenance. Purchasers of these systems typically contract for ongoing security systems monitoring and maintenance at the time of initial equipment installation. The business also sells healthcare solutions, which includes medical carts and cabinets, asset tracking solutions, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products. The CSS business sells to consumers, retailers, educational, financial and healthcare institutions, as well as commercial, governmental and industrial customers. Products are sold predominantly on a direct sales basis.
The MAS business sells and installs automatic doors, commercial hardware, locking mechanisms, electronic keyless entry systems, keying systems, tubular and mortise door locksets. MAS sells to commercial customers primarily through direct and independent distribution channels.
Industrial
The Industrial segment is comprised of the Industrial and Automotive Repair ("IAR"), Engineered Fastening and Infrastructure businesses. Annual revenues in the Industrial segment were
$2.6 billion
in
2012
, representing
25%
of the Company’s total revenues.
The IAR business sells hand tools, power tools, and engineered storage solution products. The business sells to industrial customers in a wide variety of industries and geographies. The products are distributed through third party distributors as well as a direct sales force.
The Engineered Fastening business primarily sells engineered fastening products and systems designed for specific applications. The product lines include stud welding systems, blind rivets and tools, blind inserts and tools, drawn arc weld studs, engineered plastic fasteners, self-piercing riveting systems and precision nut running systems. The business sells to customers in the automotive, manufacturing, and aerospace industries, amongst others, and its products are distributed through direct sales forces and, to a lesser extent, third party distributors.
The Infrastructure business consists of CRC
-
Evans and the Company’s Hydraulics businesses. The product lines within the Infrastructure business include custom pipe handling machinery, joint welding and coating machinery, weld inspection services and hydraulic tools and accessories. The business sells to the oil and natural gas pipeline industry and other industrial customers. The products and services are primarily distributed through a direct sales force and, to a lesser extent, third party distributors.
Operating Segments – Other Information
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 the CDIY and Industrial segments from both larger and smaller companies that offer the same or similar products and services. Certain large customers offer private label brands (“house brands”) that compete across a wider spectrum of the Company’s CDIY segment product offerings. Competition in the Security segment is generally fragmented via both large international players and regional companies. Competition tends to be based primarily on price, the quality of service and comprehensiveness of the services offered to the customers.
Major Customers
A significant portion of the Company’s CDIY 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 Company’s diversification strategy, sales to U.S. home centers and mass merchants declined from a high of approximately 40% in 2002, to 15% before the Black & Decker merger. In
2012
, sales to U.S. home centers and mass merchants were 18%. As acquisitions in the various growth platforms (Convergent and Mechanical Security, Engineered Fastening, Infrastructure and Healthcare) are made in future years, the proportion of sales to these valued U.S. and international home center and mass merchant customers is expected to continue to decrease to levels prior to the Black & Decker merger.
Working Capital
The Company continues to practice the operating disciplines encompassed by the Stanley Fulfillment System (“SFS”). SFS has five primary elements that work in concert: sales and operations planning, operational lean, complexity reduction, global supply management, and order-to-cash excellence. The Company develops standardized business processes and system platforms to reduce costs and provide scalability. SFS is instrumental in the reduction of working capital evidenced by the improvement in working capital turns for legacy Stanley from 4.6 in 2003 to 8.6 at the end of 2009, directly preceding the merger. Closing out 2010, once blended with the legacy Black & Decker working capital turns of 4.7, working capital turns for the combined company were 5.7 (excluding HHI, working capital turns were 5.9). The continued efforts to deploy SFS across the entire Company and increase turns has created significant opportunities to generate incremental free cash flow. Working capital turns have experienced a 32% improvement from 5.7 at the end of 2010 to 7.5 at the end of 2012. Going forward, the Company plans to further leverage SFS to generate ongoing improvements both in the existing business and future acquisitions in working capital turns, cycle times, complexity reduction and customer service levels, with a goal of achieving 10 working capital turns by mid-decade.
Raw Materials
The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to steel, zinc, copper, brass, aluminum and nickel. The Company also purchases resins, batteries, motors, and electronic components to use in manufacturing and assembly operations. The raw materials required are procured globally and available from multiple sources at competitive prices. As part of the Company's Enterprise Risk Management, the Company has implemented a supplier risk mitigation strategy in order to identify and address any potential supply disruption associated with commodities, components, finished goods and critical services. 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 Company’s CDIY and Industrial segment businesses, backlog is generally not considered a significant indicator of future performance. At February 2, 2013, the Company had approximately $850 million in unfilled orders, which mainly relate to the Company’s Security segment. Substantially all of these orders are reasonably expected to be filled within the current fiscal year. As of February 4, 2012 and February 5, 2011, unfilled orders amounted to $770 million and $705 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 the Company's 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 Company's 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. In the CDIY segment, the STANLEY®, FatMax®, D
E
WALT®, Black & Decker®, Bostitch®, Bailey®, Powerlock®, Tape Rule Case Design®, DustBuster®, Porter-Cable®, and Workmate® of trademarks are material. The STANLEY®, BEST®, Blick™, HSM®, Sargent & Greenleaf®, S&G® Sonitrol®, Niscayah®, and Xmark® trademarks are material to the Security segment. The D
E
WALT®, CRC®, LaBounty®, MAC®, Mac Tools®, Proto®, Vidmar®, Facom®, and Emhart Teknologies™ trademarks are material to the Industrial segment. The terms of these trademarks typically vary 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 Company’s expenditures related to environmental matters.
In the normal course of business, the Company is involved in various lawsuits and claims. In addition, the Company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation. The Company’s 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. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. 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
December 29, 2012
and
December 31, 2011
, the Company had reserves of
$188.0 million
and
$164.8 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
2012
amount,
$6.0 million
is classified as current and
$182.0 million
as long-term, which is expected to be paid over the estimated remediation period. As of December 29, 2012, the Company has recorded an asset of $24.3 million related to funding by EPA and placed in trust in accordance with the Consent Decree associated with the West Coast Loading Corporation ("WCLC") proceedings, as further discussed in Note S, Contingencies, of the Notes to Consolidated Financial Statements in Item 8. Accordingly, the cash obligation as of December 29, 2012 of the Company associated with the aforementioned remediation activities is $163.7 million. The range of environmental remediation costs that is reasonably possible is
$141 million
to
$283 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. Additional information regarding environmental matters is available in Note S, Contingencies, of the Notes to Consolidated Financial Statements in Item 8.
Employees
At
December 29, 2012
, the Company had
45,327
employees, 12,500 of whom are employed in the U.S. Approximately 800 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 Company’s hourly-paid and weekly-paid employees outside the U.S. are not covered by collective bargaining agreements. The Company’s labor agreements in the U.S. expire in 2013 and 2014. There have been no significant interruptions of the Company’s operations in recent years due to labor disputes. The Company believes that its relationship with its employees is good.
Research and Development Costs
Research and development costs, which are classified in SG&A, were
$174.8 million
,
$139.3 million
and
$124.5 million
for fiscal years
2012
,
2011
and
2010
, respectively.
Available Information
The Company’s 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 the Company's website. The information on the Company's 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.
ITEM 1A. RISK FACTORS
The Company’s 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 Company’s business, financial condition, results of operations and future growth prospects could change. Under these circumstances, the trading prices of the Company’s securities could decline, and you could lose all or part of your investment in the Company’s securities.
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 Company’s 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 2012. However, the two largest customers comprised nearly 16% of net sales, with U.S. and international mass merchants and home centers collectively comprising approximately 24% 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 Company’s products related to any such significant customer could have a material adverse impact on the Company’s results of operations and cash flows. In addition, the Company’s 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.
If customers in the Convergent Security Solutions ("CSS") business are dissatisfied with services and switch to competitive services, or disconnect for other reasons, the Company's attrition rates may increase. In periods of increasing attrition rates, recurring revenue and results of operations may be materially adversely affected. The risk is more pronounced in times of economic uncertainty, as customers may reduce amounts spent on the products and services the Company provides.
In times of tough economic condition, the Company has 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 Company’s 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 Company’s future results.
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 Company’s 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 Company’s 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.
SFS is a continuous operational improvement process applied to many aspects of the Company’s 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.
Customer consolidation could have a material adverse effect on the Company’s business.
A significant portion of the Company’s 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 Company’s business until either such customers were replaced or the Company made the necessary adjustments to compensate for the loss of business.
Low demand for new products and the inability to develop and introduce new products at favorable margins could adversely impact the Company’s performance and prospects for future growth.
The Company’s 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 Company’s results of operations. Market acceptance of the new products introduced in recent years and scheduled for introduction in 2013 and beyond 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 Company’s ability to resolve technical and technological challenges in a timely and cost-effective manner, and to achieve manufacturing efficiencies. The Company’s 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 Company’s 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 Company’s product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation.
The Company’s trademarks enjoy a reputation for quality and value and are important to its success and competitive position. Unauthorized use of the Company’s trademark rights may not only erode sales of the Company’s 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 Company’s standards of quality and other contractual requirements could result in loss of revenue, increased litigation, and/or damage to the Company’s reputation and business. There can be no assurance that the Company’s 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 Company’s ability to recruit and retain qualified employees.
The success of the Company’s 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 Company’s ability to implement its growth strategy.
The Company has significant operations outside of the United States, which are subject to political, economic and other risks inherent in operating outside of the United States.
The Company generates revenue outside of the United States and expects it to continue to represent a significant portion of its total revenue. Business operations outside of the United States are subject to political, economic and other risks inherent in operating in certain countries, such as:
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the difficulty of enforcing agreements and protecting assets through legal systems outside the U.S.;
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managing widespread operations and enforcing internal policies and procedures such as compliance with U.S. and foreign anti-bribery and anti-corruption regulations;
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trade protection measures and import or export licensing requirements;
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the application of certain labor regulations outside of the United States;
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compliance with a wide variety of non-U.S. laws and regulations;
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changes in the general political and economic conditions in the countries where the Company operates, particularly in emerging markets;
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the threat of nationalization and expropriation;
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increased costs and risks of doing business in a wide variety of jurisdictions;
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limitations on repatriation of earnings; and
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exposure to wage, price and capital controls.
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Changes in the political or economic environments in the countries in which the Company operates could have a material adverse effect on its financial condition, results of operations or cash flows.
The Company’s business is subject to risks associated with sourcing and manufacturing overseas.
The Company imports large quantities of finished goods, component parts and raw materials. Substantially all of its import operations are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements, bilateral actions or, in some cases unilateral action. In addition, the countries in which the Company’s products and materials are manufactured or imported may from time to time impose additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on manufacturing operations) or adversely modify existing restrictions. Imports are also subject to unpredictable foreign currency variation which may increase the Company’s cost of goods sold. Adverse changes in these import costs and restrictions, or the Company’s suppliers’ failure to comply with customs regulations or similar laws, could harm the Company’s business.
The Company’s operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, and the activities and regulations of the World Trade Organization. Although these trade agreements generally have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect the Company’s business, such as setting quotas on products that may be imported from a particular country into key markets including the U.S. or the European Union, or making it easier for other companies to compete, by eliminating restrictions on products from countries where the Company’s competitors source products.
The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and shipping capacity, labor disputes, severe weather or increased homeland security requirements in the U.S. and other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business and financial condition.
The Company’s success depends on its ability to improve productivity and streamline operations to control or reduce costs.
The Company is committed to continuous productivity improvement and evaluating opportunities to reduce fixed costs, simplify or improve processes, and eliminate excess capacity. The Company has undertaken restructuring actions, the savings of which may be mitigated by many factors, including economic weakness, competitive pressures, and decisions to increase costs in areas such as sales promotion or research and development above levels that were otherwise assumed. Failure to achieve or delays in achieving projected levels of efficiencies and cost savings from such measures, or unanticipated
inefficiencies resulting from manufacturing and administrative reorganization actions in progress or contemplated, would adversely affect the Company’s results.
The performance of the Company may suffer from business disruptions associated with information technology, system implementations, or catastrophic losses affecting distribution centers and other infrastructure.
The Company relies heavily on computer systems to manage and operate its businesses, and record and process transactions. Computer systems are important to production planning, customer service and order fulfillment among other business-critical processes. Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and earnings performance of the various businesses in many countries.
Despite efforts to prevent such situations, insurance policies and loss control and risk management practices that partially mitigate these risks, the Company’s systems may be affected by damage or interruption from, among other causes, power outages, computer viruses, or security breaches. Computer hardware and storage equipment that is integral to efficient operations, such as e-mail, telephone and other functionality, is concentrated in certain physical locations in the various continents in which the Company operates.
In addition, the Company is in the process of system conversions to SAP as well as other applications to provide a common platform across most of its businesses. There can be no assurances that expected expense synergies will be achieved or that there will not be delays to the expected timing of such synergies. It is possible the costs to complete the system conversions may exceed current expectations, and that significant costs may be incurred that will require immediate expense recognition as opposed to capitalization. The risk of disruption to key operations is increased when complex system changes such as the SAP conversions are undertaken. If systems fail to function effectively, or become damaged, operational delays may ensue and the Company may be forced to make significant expenditures to remedy such issues. Any significant disruption in the Company’s computer operations could have a material adverse impact on its business and results.
The Company’s operations are significantly dependent on infrastructure, notably certain distribution centers and security alarm monitoring facilities, which are concentrated in various geographic locations. If any of these were to experience a catastrophic loss, such as a fire, earthquake, hurricane, or flood, it could disrupt operations, delay production, shipments and revenue and result in large expenses to repair or replace the facility. The Company maintains business interruption insurance, but it may not fully protect the Company against all adverse effects that could result from significant disruptions.
Unforeseen events, including war, terrorism and other international conflicts and public health issues, whether occurring in the United States or abroad, could disrupt the Company's operations, disrupt the operations of its suppliers or customers, or result in political or economic instability. These events could reduce demand for its products and make it difficult or impossible for the Company to manufacture its products, deliver products to customers, or to receive materials from suppliers.
The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions which could affect the ability to obtain raw materials, component parts, freight, energy, labor and sourced finished goods in a timely and cost-effective manner.
The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to, steel, zinc, copper, brass, aluminum, nickel and resin. Additionally, the Company uses other commodity-based materials for components and packaging including, but not limited to, plastics, wood and other corrugated products. The Company’s cost base also reflects significant elements for freight, energy and labor. The Company also sources certain finished goods directly from vendors. If the Company is unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives, its profitability may be adversely affected.
Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce prices; there can be no assurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows.
Further, as a result of inflationary or deflationary economic conditions, the Company believes it is possible that a limited number of suppliers may either cease operations or require additional financial assistance from the Company in order to fulfill their obligations. In a limited number of circumstances, the magnitude of the Company’s purchases of certain items is of such significance that a change in established supply relationships with suppliers or increase in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or an inability to market products. Changes in value-added tax rebates currently available to the Company or to its suppliers could also increase the costs of the Company’s manufactured products as well as purchased products and components and could adversely affect the Company’s results.
Uncertainty about the financial stability of several countries in the European Union (EU), the risk that those countries may default on their sovereign debt and related stresses on the European economy could have a significant adverse effect on the Company's business, results of operations and financial condition.
In 2010, a financial crisis emerged in Europe, triggered by high budget deficits and rising direct and contingent sovereign debt in Greece, Ireland, Italy, Portugal and Spain, which created concerns about the ability of these EU “peripheral nations” to continue to service their sovereign debt obligations. These conditions impacted financial markets and resulted in high and volatile bond yields on the sovereign debt of many EU nations. The financial stress experienced by the peripheral nations has decreased, and yields on government-issued bonds and their associated volatilities have come off their recent highs. Despite these improving signs and the extraordinary measures taken by the ECB, through the European Financial Stability Facility, worries about sovereign finances and their potential contagion effect over other economies in the region persist.
Risks and ongoing concerns about the debt crisis in Europe could have a detrimental impact on the global economic recovery, sovereign and non-sovereign debt in these countries and the financial condition of European financial institutions. Market and economic disruptions have affected, and may continue to affect, consumer confidence levels and spending, personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. There can be no assurance that the market disruptions in Europe, including the increased cost of funding for certain governments and financial institutions, will not spread, nor can there be any assurance that future assistance packages will be available or, even if provided, will be sufficient to stabilize the affected countries and markets in Europe or elsewhere. To the extent uncertainty regarding the economic recovery continues to negatively impact consumer confidence and consumer credit factors, the Company's business and results of operations could be significantly and adversely affected.
The Company generates approximately 27% of its revenues from Europe. Each of the Company’s segments generate sales from the European marketplace, with the sales activity being somewhat concentrated within France, the Nordic region, Germany and the UK. While the Company believes any downturn in the European marketplace would be offset to some degree by sales growth in emerging markets and relative stability in North America, the Company’s future growth, profitability and financial liquidity could be affected, in several ways, including but not limited to the following:
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•
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depressed consumer and business confidence may decrease demand for products and services;
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•
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customers may implement cost-reduction initiatives or delay purchases to address inventory levels;
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•
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significant declines of foreign currency values in countries where the Company operates could impact both the revenue growth and overall profitability in those geographies;
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•
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a devaluation of or a break-up of the Euro could have an effect on the credit worthiness (as well as the availability of funds) of customers impacting the collectability of receivables;
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•
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a devaluation of or break of the Euro could have an adverse effect on the value of financial assets of the Company in the effected countries;
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•
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the impact of an event (individual country default or break up of the Euro) could have an adverse impact on the global credit markets and global liquidity potentially impacting the Company’s ability to access these credit markets and to raise capital.
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The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact profitability.
The Company manufactures and sells 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 Company’s predominant exposures are in European, Canadian, British, Asian and Latin America 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 Company’s earnings could be negatively impacted. In 2012, foreign currency fluctuations negatively impacted revenues by approximately $270 million and diluted earnings per share by approximately $0.10. The translation impact will vary over time 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, 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 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 Company’s access to external sources of liquidity. The potential issuance of such securities may limit the Company’s 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 Consolidated Financial Statements in Item 8, the Company has a committed revolving credit agreement expiring in March 2015 supporting borrowings up to $1.2 billion and a $1.0 billion 364 day committed credit facility expiring in July 2013. No amounts were outstanding against these facilities at December 29, 2012.
The instruments and agreements governing certain of the Company’s current indebtedness contain requirements or restrictive covenants that include, among other things:
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•
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a limitation on creating liens on certain property of the Company and its subsidiaries;
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•
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a restriction on entering into certain sale-leaseback transactions;
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•
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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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•
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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 as stock-based compensation expense. 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 14 times EBITDA or higher in each of the 2012 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, options and swap agreements. The failure of one or more counterparties to the Company’s hedging arrangements to fulfill their obligations could adversely affect the Company’s results of operations.
Tight capital and credit markets or the failure to maintain credit ratings could adversely affect the Company by limiting the Company’s ability to borrow or otherwise access liquidity.
The Company’s 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 recent years. 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 on the Company’s businesses, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of the Company’s products and services and/or customer insolvencies.
In addition, the major rating agencies regularly evaluate the Company for purposes of assigning credit ratings. The Company’s ability to access the credit markets, and the cost of these borrowings, is affected by the strength of its credit ratings and current market conditions. Failure to maintain credit ratings that are acceptable to investors may adversely affect the cost and other terms upon which the Company is able to obtain financing, as well as access to the capital markets.
The Company’s acquisitions may result in certain risks for its business and operations.
In 2012, the Company completed seven smaller acquisitions. In 2011, the Company completed the acquisition of Niscayah and nine smaller acquisitions. In 2010, along with the Merger, the Company completed the acquisition of CRC-Evans, as well as nine smaller acquisitions. Prior to 2010, the Company completed a number of acquisitions, including, but not limited to, GdP, Sonitrol and Xmark in 2008. The Company may make additional acquisitions in the future.
Acquisitions involve a number of risks, including:
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•
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the possibility that the acquired companies will not be successfully integrated or that anticipated cost savings, synergies, or other benefits will not be realized,
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•
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the acquired businesses will lose market acceptance or profitability,
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•
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the diversion of Company management’s attention and other resources,
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•
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the incurrence of unexpected liabilities, and
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•
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the loss of key personnel and clients or customers of acquired companies.
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In addition, the success of the Company’s growth and repositioning strategy will depend in part on its ability to:
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•
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identify suitable future acquisition candidates,
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obtain the necessary financing,
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•
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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 Company’s 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 certain smaller acquisitions in 2012. The Company cannot ensure that such integrations will be successfully completed or that all of the planned synergies will be realized.
Expansion of the Company's activity in emerging markets may result in risks due to differences in business practices and cultures.
The Company's growth plans include efforts to increase revenue from emerging markets through both organic sales and acquisitions. Local business practices in these regions may not comply with US laws, local laws or other laws applicable to the Company. When investigating potential acquisitions, the Company seeks to identify historical practices of target companies that would create liability or other exposures for the Company were they to continue post-completion or as a successor to the target. Where such practices are discovered, the Company assesses the risk to determine whether it is prepared to proceed with the transaction. In assessing the risk, the Company looks at, among other factors, the nature of the violation, the potential liability, including any fines or penalties that might be incurred, the ability to avoid, minimize or obtain indemnity for the risks, and the likelihood that the Company would be able to ensure that any such practices are discontinued following completion of the acquisition through implementation of its own policies and procedures. Due diligence and risk assessment are, however, imperfect processes, and it is possible that the Company will not discover problematic practices until after completion, or that the Company will underestimate the risks associated with historical activities. Should that occur, the Company may incur fees, fines, penalties, injury to its reputation or other damage that could negatively impact the Company's earnings.
Sequestration or other actions of the US Government resulting in significant cuts in U.S. government spending could adversely affect the Company's growth initiatives and future results.
The Company's growth initiatives call for increased sales to US Government customers in the Healthcare, Security and Industrial verticals. Should sequestration take effect or other actions be taken that significantly cut US Government spending in those areas, the Company's growth initiatives and future results may be adversely impacted.
A downturn in the U.S. economy could adversely affect the Company's business.
Almost 50% of the Company's 2012 Annual Revenues were from the United States. The Company is targeting a 2-3% increase in organic growth in 2013 and 4-6% organic growth over the long term. Some of this growth will come from the U.S. market. A downturn in the U.S. economy would make it more difficult for the Company to attain these growth objectives, and could adversely impact results.
Income tax payments may ultimately differ from amounts currently recorded by the Company as income tax expense. Future tax law changes may materially increase the Company's prospective income tax expense.
Pursuant to the rules of ASC 740, Accounting for Income Taxes, income tax payments made may differ from the total income tax expense recorded, primarily due to deferred taxes and income tax reserves. The Company is subject to income taxation in the U.S. as well as numerous foreign jurisdictions. Judgment is required in determining the Company's 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 Company's 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 Company's worldwide income tax provision beginning with the period that such legislation becomes enacted. 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 Company’s 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 Company’s 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 Company’s 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 Company’s operations due to increased costs of compliance and potential liability for non-compliance.
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 Company’s reputation could also be adversely affected by such claims, whether or not successful.
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 Company’s estimates for such contingent liabilities.
The Company’s products could be recalled.
The Consumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair or replacement of the Company’s 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 Company’s reputation.
The Company is exposed to credit risk on its accounts receivable.
The Company’s 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 Company’s financial condition and operating results.
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 other acquisitions, the Company has $7.0 billion of goodwill, $1.6 billion of indefinite-lived trade names and $1.3 billion of definite-lived intangible assets at December 29, 2012. The 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 Company’s control, such as worsening economic conditions, technological change, intensified competition or other factors resulting in deleterious consequences.
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 Company’s defined benefit plan assets are currently invested in equity securities, government and corporate bonds and other fixed income securities, money market instruments and insurance contracts. The Company’s 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 2012, the Company made cash contributions to its defined benefit plans of $107 million and it expects to contribute $80 million to its defined benefit plans in 2013.
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 December 29, 2012 was $1.836 billion.
Legal or technological hurdles associated with the expansion of use of RFID and RTLS technologies in Company products could adversely affect the Company's growth initiatives and long term results.
The Company's growth initiatives call for expansions of use of RFID and RTLS technologies both geographically and through incorporation of these technologies into new products. In connection with these activities, the Company may encounter both technological difficulties and legal impediments, including, but not limited to, design requirements, ownership claims and licensing requirements, that could delay or prevent the use of these technologies in certain products and/or in certain geographies. Any such impediments could adversely impact the Company's plans for growth and future results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of
December 29, 2012
, the Company and its subsidiaries owned or leased significant facilities used for manufacturing, distribution and sales offices in 20 states and 17 foreign countries. The Company leases its corporate headquarters in New Britain, Connecticut. The Company has 90 other facilities that are larger than 100,000 square feet. These facilities are broken out by segment as follows:
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Owned
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Leased
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Total
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CDIY
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28
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18
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46
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Security
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11
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12
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23
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Industrial
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18
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3
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21
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Total
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57
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33
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90
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The combined size of these facilities is approximately 23 million square feet. The buildings are in good condition, suitable for their intended use, adequate to support the Company’s operations, and generally fully utilized.
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 Company’s consolidated financial position, results of operations or liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Notes to Consolidated Financial Statements
A. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION —
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 Company’s fiscal year ends on the Saturday nearest to December 31. There were
52
weeks in the fiscal years
2012
,
2011
and
2010
.
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 Company's consolidated financial statements from the time of the consummation of the Merger on March 12, 2010.
In December 2012, the Company sold its Hardware & Home Improvement business ("HHI") to Spectrum Brands Holdings, Inc. ("Spectrum") for approximately
$1.4 billion
in cash, of which
$100 million
is being held in escrow pending the close of the Tong Lung portion of the sale, which is expected to occur no later than April 2013. HHI is a provider of residential locksets, residential builders hardware and plumbing products marketed under the Kwikset, Weiser, Baldwin, Stanley, National and Pfister brands. During 2011, the Company sold
three
small businesses for total cash proceeds of
$27.1 million
. The operating results of these businesses, including the related gain or loss on sale, are reported as discontinued operations in all periods presented. Amounts previously reported have been reclassified to conform to this presentation in accordance with ASC 205 "Presentation of Financial Statements" ("ASC 205") to allow for meaningful comparison of continuing operations. The Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011 aggregate amounts associated with discontinued operations as described above.
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 amounts reported in the financial statements. 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 amounts less discounts, other allowances and provisions for uncollectible accounts. 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, Inventories, 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, at historical cost less accumulated depreciation and amortization. Costs related to maintenance and repairs which do not prolong the asset's useful life are expensed as incurred. Depreciation and amortization are provided using straight-line methods over the estimated useful lives of the assets as follows:
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Useful Life
(Years)
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Land improvements
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10 —20
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Buildings
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40
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Machinery and equipment
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3 — 15
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Computer software
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3 — 5
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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 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 management’s 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 unit’s 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 2012, 2011 or 2010.
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 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 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:
The majority of the Company’s revenues result from the sale of tangible products, where 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.
Multiple Element Arrangements:
Approximately
eight percent
of the Company’s revenues are generated by multiple element arrangements, primarily in the Security segment. When a sales agreement involves multiple elements, deliverables are separately identified and consideration is allocated based on their relative selling price in accordance with ASC 605-25, “Revenue Recognition — Multiple-Element Arrangements.”
Sales of security monitoring systems may have multiple elements, including equipment, installation and monitoring services. For these arrangements, the Company assesses its revenue arrangements to determine the appropriate units of accounting, and with each deliverable provided under the arrangement considered a separate unit of accounting. Amounts assigned to each unit of accounting are based on an allocation of total arrangement consideration using a hierarchy of estimated selling price for the deliverables. The selling price used for each deliverable will be based on Vendor Specific Objective Evidence (“VSOE”) if available, Third Party Evidence (“TPE”) if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available. Revenue recognized for equipment and installation is limited to the lesser of their allocated amounts under the estimated selling price hierarchy or the non-contingent up-front consideration received at the time of installation, since collection of future amounts under the arrangement with the customer is contingent upon the delivery of monitoring services.
The Company’s contract sales for the installation of security intruder systems and other construction-related projects are recorded under the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related total cost of the project at completion. The extent of progress toward completion is generally measured using input methods based on labor metrics. Revisions to these estimates as contracts progress have the effect of increasing or decreasing profits each period. Provisions for anticipated losses are made in the period in which they become determinable. For certain short duration and less complex installation contracts, revenue is recognized upon contract completion and customer acceptance. The revenues for monitoring and monitoring-related services are recognized as services are rendered over the contractual period.
Customer billings for services not yet rendered are deferred and recognized as revenue as the services are rendered. The associated deferred revenue is included in Accrued expenses or Other liabilities on the Consolidated Balance Sheets, as appropriate.
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. 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 Company’s sales force, distribution costs, notably salaries and facility costs, as well as administrative expenses for certain support functions and related overhead.
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
$121.4 million
in
2012
,
$134.4 million
in
2011
, and
$103.0 million
in
2010
. Expense pertaining to cooperative advertising with customers reported as a reduction of net sales was
$159.8 million
in
2012
,
$151.7 million
in
2011
, and
$138.8 million
in
2010
. Cooperative advertising with customers classified as SG&A expense amounted to
$4.4 million
in
2012
,
$7.4 million
in
2011
, and
$5.5 million
in
2010
.
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
$184.1 million
,
$160.5 million
, and
$130.4 million
in
2012
,
2011
, and
2010
, respectively. Distribution costs are classified as SG&A and amounted to
$205.3 million
,
$204.7 million
and
$187.9 million
in
2012
,
2011
and
2010
, 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 —
The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, "Income Taxes" ("ASC 740"), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. Any changes in tax rates on deferred tax assets and liabilities are recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent that it is more likely than not that these assets will be realized. In making this determination, Management considers all available positive and negative evidence, including future reversals of existing temporary differences, estimates of future taxable income, tax-planning strategies, and the realizability of net operating loss carry forwards. In the event that it is determined that an asset is not more likely that not to be realized, a valuation allowance is recorded against the asset. 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. Conversely, 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 that the determination was made.
The Company records uncertain tax positions in accordance with ASC 740, which requires a two step process. First, management determines whether it is more likely than not that a tax position will be sustained based on the technical merits of the position and second, for those tax positions that meet the more likely than not threshold, management recognizes the largest amount of the tax benefit that is greater than
50 percent
likely to be realized upon ultimate settlement with the related taxing authority. The Company maintains an accounting policy of recording interest and penalties on uncertain tax positions as a component of the income tax expense on continuing operations in the Consolidated Statement of Operations.
The Company is subject to tax in a number of locations, including many state and foreign jurisdictions. Significant judgment is required when calculating the worldwide provision for income taxes. Many factors are considered when evaluating and estimating the Company's 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 the Company's
unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlements of ongoing audits or final decisions in transfer pricing matters. The Company periodically assesses its liabilities and contingencies for all tax years still subject to audit based on the most current available information, which involves inherent uncertainty.
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.
NEW ACCOUNTING STANDARDS —
In July 2012, the Financial Accounting Standards Board ("FASB") issued ASU 2012-02, "Intangibles - Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangibles Assets for Impairment (revised standard). The revised standard is intended to reduce the costs and complexity of the annual impairment testing by providing entities an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company did not early adopt this guidance for its 2012 annual impairment testing. The Company will adopt this guidance for its 2013 annual impairment testing.
In the first quarter of 2012, the Company adopted ASU 2011-05, "Comprehensive Income (Topic 220)," which revised the manner in which the Company presents comprehensive income in the financial statements. The new guidance requires entities to report components of comprehensive income in either (1) continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU did not change the items that must be reported in other comprehensive income.
In December 2011, the FASB issued guidance enhancing disclosure requirements on the nature of an entity's right to offset and related arrangements associated with its financial and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, amounts offset in accordance with the accounting standards followed, and the related net exposure. The new disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013 and interim periods therein. Other than requiring additional disclosures, the Company does not expect a material impact to its consolidated financial statements upon adoption.
B. ACCOUNTS AND NOTES RECEIVABLE
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
Trade accounts receivable
|
$
|
1,454.1
|
|
|
$
|
1,356.7
|
|
Trade notes receivable
|
125.9
|
|
|
100.2
|
|
Other accounts receivable
|
24.4
|
|
|
41.7
|
|
Gross accounts and notes receivable
|
1,604.4
|
|
|
1,498.6
|
|
Allowance for doubtful accounts
|
(66.2
|
)
|
|
(53.6
|
)
|
Accounts and notes receivable, net
|
$
|
1,538.2
|
|
|
$
|
1,445.0
|
|
Long-term trade notes receivable, net
|
$
|
146.4
|
|
|
$
|
131.2
|
|
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 of
$146.4 million
and
$131.2 million
at
December 29, 2012
and
December 31, 2011
, respectively, 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. 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.
The Company has an accounts receivable sale program that expires on December 11, 2014. 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, consolidated, 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 Purchaser’s 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”. Receivables are derecognized from the
Company’s Consolidated Balance Sheets when the BRS sells those receivables to the Purchaser. 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
December 29, 2012
, 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.
At
December 29, 2012
and
December 31, 2011
,
$80.0 million
and
$92.1 million
, respectively, of net receivables were derecognized. Gross receivables sold amounted to
$1,151.2 million
(
$1,011.3 million
, net) for the year ended
December 29, 2012
and
$1,094.5 million
(
$966.4 million
, net) for the year ended
December 31, 2011
. These sales resulted in a pre-tax loss of
$3.0 million
and
$2.4 million
for the years ended
December 29, 2012
and
December 31, 2011
, respectively. These pre-tax losses include servicing fees of
$0.5 million
and
$0.3 million
for the years ended
December 29, 2012
and
December 31, 2011
, respectively. Proceeds from transfers of receivables to the Purchaser totaled
$1,001.1 million
and
$925.2 million
for the years ended
December 29, 2012
and
December 31, 2011
, respectively. 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
$1,013.5 million
and
$865.3 million
for the years ended
December 29, 2012
and
December 31, 2011
, respectively.
The Company’s risk of loss following the sale of the receivables is limited to the deferred purchase price receivable, which was
$45.0 million
at
December 29, 2012
and
$17.6 million
at
December 31, 2011
. 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 were
$1.4 million
for the year ended
December 29, 2012
and
$0.8 million
for the year ended
December 31, 2011
. Cash inflows related to the deferred purchase price receivable totaled
$289.5 million
for the year ended
December 29, 2012
and
$254.7 million
for the year ended
December 31, 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.
C. INVENTORIES
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
Finished products
|
$
|
962.6
|
|
|
$
|
914.7
|
|
Work in process
|
124.1
|
|
|
134.8
|
|
Raw materials
|
229.9
|
|
|
221.4
|
|
Total
|
$
|
1,316.6
|
|
|
$
|
1,270.9
|
|
Net inventories in t
he amount of
$401.3 million
at
December 29, 2012
and
$415.2 million
at
December 31, 2011
were valued at the lower of LIFO cost or market. If the LIFO method had not been used, inventories wo
uld have been
$49.3 million
higher than reported at
December 29, 2012
and
$61.3 million
higher than reported at
December 31, 2011
.
D. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
Land
|
$
|
113.5
|
|
|
$
|
103.2
|
|
Land improvements
|
29.9
|
|
|
25.9
|
|
Buildings
|
470.8
|
|
|
423.2
|
|
Leasehold improvements
|
73.9
|
|
|
48.7
|
|
Machinery and equipment
|
1,644.0
|
|
|
1,363.4
|
|
Computer software
|
364.4
|
|
|
293.5
|
|
Property, plant & equipment, gross
|
$
|
2,696.5
|
|
|
$
|
2,257.9
|
|
Less: accumulated depreciation and amortization
|
(1,362.8
|
)
|
|
(1,115.3
|
)
|
Property, plant & equipment, net
|
$
|
1,333.7
|
|
|
$
|
1,142.6
|
|
Depreciation and amortization expense associated with property, plant and equipment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Depreciation
|
$
|
210.6
|
|
|
$
|
194.4
|
|
|
$
|
177.4
|
|
Amortization
|
27.3
|
|
|
34.1
|
|
|
26.0
|
|
Depreciation and amortization expense
|
$
|
237.9
|
|
|
$
|
228.5
|
|
|
$
|
203.4
|
|
The amounts above are inclusive of depreciation and amortization expense for discontinued operations amounting to
$21.2 million
in 2012,
$23.8 million
in 2011 and
$28.9 million
in 2010.
E. MERGER AND ACQUISITIONS
PENDING ACQUISITION
On July 23, 2012, the Company announced that it had entered into a definitive agreement to acquire Infastech, a global manufacturer and distributor of specialty engineered fastening technology based in Hong Kong, for approximately
$850 million
. Infastech will be consolidated into the Company's Industrial segment. The transaction is subject to customary closing conditions and is expected to close in the first quarter of 2013.
2012 ACQUISITIONS
During 2012, the Company completed
seven
acquisitions for a total purchase price of
$696.0 million
, net of cash acquired. The largest of these acquisitions were AeroScout Inc. (“AeroScout”), which was purchased for
$238.8 million
, net of cash acquired, and Powers Fasteners, Inc. (“Powers”), which was purchased for
$220.5 million
, net of cash acquired. AeroScout develops, manufactures, and sells Real-Time Locating Systems ("RTLS") primarily to healthcare and certain industrial customers. Powers distributes fastening products such as mechanical anchors, adhesive anchoring systems, and powered forced-entry systems, mainly for commercial construction end customers. AeroScout was purchased in the second quarter and has been integrated within the Security and Industrial segments. Powers was also purchased in the second quarter and is part of the CDIY segment. The combined assets acquired for these acquisitions, including
$185.4 million
of intangible assets and
$7.1 million
of cash, are approximately
$297.6 million
, and the combined liabilities are approximately
$115.1 million
. The related goodwill associated with these
two
acquisitions is approximately
$283.9 million
. The total purchase price for the acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The purchase accounting for these recent acquisitions is substantially complete with the exception of certain minor items.
Five
smaller acquisitions were completed during 2012 for a total purchase price of
$236.7 million
. The largest of these acquisitions were Lista North America (“Lista”), which was purchased for
$89.7 million
, net of cash acquired, and Tong Lung Metal Industry Co. ("Tong Lung"), which the Company purchased a
89%
controlling share for
$102.8 million
, net of cash acquired, and assumed
$20.1 million
of short term debt. Lista's storage and workbench solutions complement the Industrial & Automotive Repair division's tool, storage, radio frequency identification ("RFID")-enabled systems, and specialty supply product and service offerings. Tong Lung manufactures and sells commercial and residential locksets. The residential portion of the business was part of the HHI sale and is expected to close no later than April 2013. Refer to Note T, Discontinued Operations, for further discussion of divestitures. Lista was purchased in the first quarter and is part of the Industrial segment. Tong Lung was purchased in the third quarter and is part of the Security segment. The purchase accounting for these recent acquisitions is substantially complete with the exception of certain minor items. In January 2013, the Company purchased the remaining outstanding shares of Tong Lung for approximately
$12 million
.
2011 ACQUISITIONS
NISCAYAH
In September 2011, the Company acquired Niscayah, one of the largest access control and surveillance solutions providers in Europe. Niscayah's integrated security solutions include video surveillance, access control, intrusion alarms and fire alarm systems, and its offerings include design and installation services, maintenance and repair, and monitoring systems. The acquisition expands and complements the Company’s existing security product offerings and further diversifies the Company’s operations and international presence.
The initial purchase of
$984.5 million
established a controlling ownership interest of
95%
in Niscayah. This was accomplished as part of an existing tender offer to purchase all Niscayah outstanding shares at a price of
18
SEK per share, whereby the Company increased its ownership interest from
5.8%
of the outstanding shares of Niscayah at
July 2, 2011
to
95%
of the outstanding shares at
September 9, 2011
. Over the remainder of 2011, the Company purchased additional outstanding shares of Niscayah, bringing the Company’s total ownership interest in Niscayah to
99%
at
December 31, 2011
. During the second
quarter of 2012, the Company purchased the remaining outstanding shares of Niscayah for
$11.3 million
, or
18
SEK per share. The total purchase price paid for Niscayah was
$995.8 million
. Niscayah has been consolidated into the Company's Security segment.
The Niscayah acquisition 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 acquisition date. The purchase price allocation for Niscayah was completed during the third quarter of 2012 within the measurement period. The following table summarizes the estimated fair values of major assets acquired and liabilities assumed:
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
Cash and cash equivalents
|
$
|
21.1
|
|
Accounts and notes receivable, net
|
178.0
|
|
Inventories, net
|
55.1
|
|
Prepaid expenses and other current assets
|
45.3
|
|
Property, plant and equipment
|
32.3
|
|
Trade names
|
6.0
|
|
Customer relationships
|
350.0
|
|
Other assets
|
43.1
|
|
Short-term borrowings
|
(202.9
|
)
|
Accounts payable
|
(55.8
|
)
|
Deferred taxes
|
(143.5
|
)
|
Other liabilities
|
(253.9
|
)
|
Total identifiable net assets
|
$
|
74.8
|
|
Goodwill
|
921.0
|
|
Total consideration transferred
|
$
|
995.8
|
|
The weighted average useful lives assigned to the trade names and customer relationships were
4
years and
16
years, respectively.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected cost synergies of the combined business, assembled workforce, and the going concern nature of Niscayah.
OTHER 2011 ACQUISITIONS
During 2011, the Company completed
nine
additional acquisitions for a total purchase price of
$216.2 million
, net of cash acquired. The largest of these acquisitions were Infologix, Inc. ("Infologix") and Microtec Enterprises, Inc. ("Microtec", which operates under the business name "AlarmCap"), which were purchased for
$60.0 million
and
$58.8 million
, respectively. Infologix is a leading provider of enterprise mobility solutions for the healthcare and commercial industries and adds an established provider of mobile workstations and asset tracking solutions. AlarmCap is a full service monitoring provider, which significantly increases the Company's Canadian footprint. Both acquisitions are part of the Company's Security segment. The Company also completed
seven
small acquisitions across all segments for a combined purchase price of
$97.4 million
. The purchase accounting for these
2011
acquisitions has been completed. There were no significant changes to the purchase price allocations made during 2012.
2010 ACQUISITIONS
During 2010, the Company completed
ten
acquisitions for a total purchase price of
$550.3 million
, of which approximately
$451.6 million
related to CRC-Evans. The net assets acquired of CRC-Evans, including
$181.2 million
of intangible assets, were approximately
$233.6 million
and the resulting goodwill was
$218.0 million
. The total purchase price for the acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The purchase price allocations for these acquisitions is complete.
MERGER
The Merger occurred on March 12, 2010 and the total fair value of consideration transferred as part of the Merger was
$4,656.5 million
, inclusive of all former Black & Decker shares outstanding and employee related equity awards. The transaction was accounted for using the acquisition method of accounting which requires, among other things, the assets acquired and liabilities assumed to be recognized at their fair values as of the merger date. The purchase price allocation for Black & Decker was completed during the first quarter of 2011. The measurement period adjustments recorded in the first quarter of 2011 did not have a significant impact on the Company's Consolidated Statements of Operations, Balance Sheet, or Statements of Cash Flows. The following table summarizes the fair values of major assets acquired and liabilities assumed as part of the Merger:
|
|
|
|
|
(Millions of Dollars)
|
|
Cash and cash equivalents
|
$
|
949.4
|
|
Accounts and notes receivable, net
|
907.2
|
|
Inventories, net
|
1,066.3
|
|
Prepaid expenses and other current assets
|
257.7
|
|
Property, plant and equipment
|
545.2
|
|
Trade names
|
1,505.5
|
|
Customer relationships
|
383.7
|
|
Licenses, technology and patents
|
112.3
|
|
Other assets
|
243.4
|
|
Short-term borrowings
|
(175.0
|
)
|
Accounts payable
|
(479.1
|
)
|
Accrued expenses and other current liabilities
|
(849.9
|
)
|
Long-term debt
|
(1,657.1
|
)
|
Post-retirement benefits
|
(775.8
|
)
|
Deferred taxes
|
(808.5
|
)
|
Other liabilities
|
(517.8
|
)
|
Total identifiable net assets
|
$
|
707.5
|
|
Goodwill
|
3,949.0
|
|
Total consideration transferred
|
$
|
4,656.5
|
|
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
. Goodwill was 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
$150.4 million
of goodwill, relating to Black & Decker's pre-merger historical tax basis, will be deductible for tax purposes.
ACTUAL AND PRO-FORMA IMPACT FROM ACQUISITIONS
Actual Impact from Acquisitions
The Company's Consolidated Statement of Operations for the year ended December 29, 2012 includes
$191.6 million
in net sales and
$5.9 million
in net earnings for the 2012 acquisitions. These amounts include charges relating to inventory step-up, fair value adjustments to deferred revenue, and restructuring charges.
Pro-forma Impact from Acquisitions
The following table presents supplemental pro-forma information for continuing operations as if the Niscayah, AeroScout, Powers and other 2012 and 2011 acquisitions had occurred on January 3, 2011. This pro-forma information includes acquisition-related charges for the period. The pro-forma consolidated results are not necessarily indicative of what the Company’s consolidated net earnings would have been had the Company completed these acquisitions on January 3, 2011. In addition, the pro-forma consolidated results do not reflect the expected realization of any cost savings associated with the acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date
|
(Millions of Dollars, except per share amounts)
|
|
2012
|
|
2011
|
Net sales
|
|
$
|
10,297.0
|
|
|
$
|
10,408.6
|
|
Net earnings attributable to common shareowners
|
|
448.4
|
|
|
600.3
|
|
Diluted earnings per share-continuing operations
|
|
2.69
|
|
|
3.53
|
|
The 2012 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2012 acquisitions for their respective pre-acquisition periods. The following adjustments were made to account for certain costs which would have been incurred during this pre-acquisition period:
|
|
•
|
Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the purchase price allocation that would have been incurred from January 1, 2012 to the acquisition dates, adjusted for the applicable tax impact.
|
|
|
•
|
Because the 2012 acquisitions were assumed to occur on January 3, 2011, there were no deal costs, inventory step-up amortization, or deferred revenue fair value amortization factored into the 2012 pro-forma year, as such expenses would have occurred in the first year following the acquisition.
|
|
|
•
|
Because the 2012 acquisitions were funded with existing cash resources and debt acquired was repaid, no additional interest expense was factored into the 2012 pro-forma year.
|
The 2011 pro-forma results were calculated by combining the results of Stanley Black & Decker with the stand-alone results of the 2011 and 2012 acquisitions for their respective pre-acquisition periods. The following adjustments were made to account for certain costs which would have been incurred during this pre-acquisition period:
|
|
•
|
Elimination of the historical pre-acquisition intangible asset amortization expense and the addition of intangible asset amortization expense related to intangibles valued as part of the purchase price allocation that would have been incurred from January 3, 2011 to the acquisition dates.
|
|
|
•
|
Additional expense for deal costs and the inventory step-up, where applicable, which would have been amortized as the corresponding inventory was sold.
|
|
|
•
|
Reduced revenue for fair value adjustments made to deferred revenue for Niscayah and AeroScout.
|
|
|
•
|
The modifications above were adjusted for the applicable tax impact.
|
F. GOODWILL AND INTANGIBLE ASSETS
GOODWILL —
The changes in the carrying amount of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
CDIY
|
|
Industrial
|
|
Security
|
|
Total
|
Balance December 31, 2011
|
$
|
2,919.9
|
|
|
$
|
1,291.4
|
|
|
$
|
2,226.9
|
|
|
$
|
6,438.2
|
|
Reclass to Assets Held for Sale
|
—
|
|
|
—
|
|
|
(38.7
|
)
|
|
(38.7
|
)
|
Addition from acquisitions
|
100.9
|
|
|
59.1
|
|
|
365.8
|
|
|
525.8
|
|
Foreign currency translation and other
|
9.7
|
|
|
43.8
|
|
|
42.3
|
|
|
95.8
|
|
Balance December 29, 2012
|
$
|
3,030.5
|
|
|
$
|
1,394.3
|
|
|
$
|
2,596.3
|
|
|
$
|
7,021.1
|
|
In accordance with ASC 350, portions of the goodwill associated with the CDIY and Security segments were allocated to HHI based on the relative fair value of the business disposed of and the portions of the reporting units that were retained. Accordingly, goodwill for the CDIY and Security segments was reduced by
$84.3 million
and
$397.6 million
, respectively, and included in the gain on sale of HHI.
INTANGIBLE ASSETS —
Intangible assets at
December 29, 2012
and
December 31, 2011
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
(Millions of Dollars)
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
Amortized Intangible Assets — Definite lives
|
|
|
|
|
|
|
|
Patents and copyrights
|
$
|
52.1
|
|
|
$
|
(40.3
|
)
|
|
$
|
51.0
|
|
|
$
|
(36.8
|
)
|
Trade names
|
142.5
|
|
|
(68.8
|
)
|
|
136.3
|
|
|
(54.2
|
)
|
Customer relationships
|
1,707.9
|
|
|
(628.1
|
)
|
|
1,612.8
|
|
|
(473.6
|
)
|
Other intangible assets
|
262.7
|
|
|
(101.4
|
)
|
|
175.3
|
|
|
(81.9
|
)
|
Total
|
$
|
2,165.2
|
|
|
$
|
(838.6
|
)
|
|
$
|
1,975.4
|
|
|
$
|
(646.5
|
)
|
Total indefinite-lived trade names are
$1,608.0 million
at
December 29, 2012
and
$1,615.0 million
at
December 31, 2011
. The change in value is due to fluctuations of currency and an asset impairment recorded in the third quarter of 2012 as it was determined that the carrying value of the asset exceeded its fair value.
Aggregate intangible assets amortization expense by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
CDIY
|
$
|
35.9
|
|
|
$
|
31.8
|
|
|
$
|
27.9
|
|
Security
|
113.2
|
|
|
107.8
|
|
|
95.1
|
|
Industrial
|
58.3
|
|
|
42.0
|
|
|
22.3
|
|
Consolidated
|
$
|
207.4
|
|
|
$
|
181.6
|
|
|
$
|
145.3
|
|
The amounts above are inclusive of amortization expense for discontinued operations amounting to $
17.5 million
in
2012
, $
16.9 million
in
2011
, and $
14.0 million
in
2010
.
Future amortization expense in each of the next five years amounts to
$175.8 million
for
2013
,
$159.4 million
for
2014
,
$141.7 million
for
2015
,
$134.6 million
for
2016
,
$127.9 million
for
2017
and
$587.2 million
thereafter.
G. ACCRUED EXPENSES
Accrued expenses at
December 29, 2012
and
December 31, 2011
were as follows:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
Payroll and related taxes
|
$
|
294.4
|
|
|
$
|
285.9
|
|
Income and other taxes
|
220.0
|
|
|
224.1
|
|
Customer rebates and sales returns
|
77.2
|
|
|
82.1
|
|
Insurance and benefits
|
88.9
|
|
|
84.2
|
|
Accrued restructuring costs
|
125.2
|
|
|
70.0
|
|
Derivative financial instruments
|
78.0
|
|
|
156.9
|
|
Warranty costs
|
78.6
|
|
|
77.9
|
|
Deferred revenue
|
78.6
|
|
|
89.8
|
|
Forward stock purchase contract
|
350.0
|
|
|
—
|
|
Other
|
290.6
|
|
|
319.4
|
|
Total
|
$
|
1,681.5
|
|
|
$
|
1,390.3
|
|
H. LONG-TERM DEBT AND FINANCING ARRANGEMENTS
Long-term debt and financing arrangements at December 29, 2012 and December 31, 2011 follow:
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
2012
|
|
2011
|
Notes payable due 2012
|
4.90%
|
|
—
|
|
|
204.2
|
|
Convertible notes payable due in 2012
|
3 month LIBOR less 3.50%
|
|
—
|
|
|
316.1
|
|
Notes payable due 2013
|
6.15%
|
|
—
|
|
|
259.2
|
|
Notes payable due 2014
|
4.75%
|
|
—
|
|
|
312.7
|
|
Notes payable due 2014
|
8.95%
|
|
—
|
|
|
388.7
|
|
Notes payable due 2016
|
5.75%
|
|
326.8
|
|
|
330.5
|
|
Notes payable due in 2018 (junior subordinated)
|
4.25%
|
|
632.5
|
|
|
632.5
|
|
Notes payable due 2021
|
3.40%
|
|
417.1
|
|
|
402.9
|
|
Notes payable due 2022
|
2.90%
|
|
799.3
|
|
|
—
|
|
Notes payable due 2028
|
7.05%
|
|
169.6
|
|
|
167.5
|
|
Notes payable due 2040
|
5.20%
|
|
404.4
|
|
|
399.7
|
|
Notes payable due 2052 (junior subordinated)
|
5.75%
|
|
750.0
|
|
|
—
|
|
Other, payable in varying amounts through 2021
|
0.00% — 7.14%
|
|
37.2
|
|
|
38.2
|
|
Total long-term debt, including current maturities
|
|
|
$
|
3,536.9
|
|
|
$
|
3,452.2
|
|
Less: Current maturities of long-term debt
|
|
|
(10.4
|
)
|
|
(526.4
|
)
|
Long-term debt
|
|
|
$
|
3,526.5
|
|
|
$
|
2,925.8
|
|
Aggregate annual principal maturities of long-term debt for each of the years from 2013 to 2017 are
$10.4 million
,
$6.7 million
,
$3.6 million
,
$303.0 million
,
$1.9 million
, respectively and
$3,148.7 million
thereafter. These debt maturities represent the principal amounts to be paid and accordingly exclude the remaining
$32.4 million
of unamortized debt fair value adjustment, which increased the Black & Decker debt, as well as
$30.2 million
of fair value adjustments and unamortized interest rate swap termination gains as described in Note I, Derivative Financial Instruments. Interest paid during 2012, 2011 and 2010 amounted to
$167.0 million
,
$135.4 million
and
$76.0 million
, respectively.
In November 2012, the Company issued
$800 million
of senior unsecured term notes, maturing on November 1, 2022 (“2022 Term Notes”) with fixed interest payable semi-annually, in arrears, at a rate of
2.90%
per annum. The 2022 Term Notes are unsecured and rank equally with all of the Company's existing and future unsecured and unsubordinated debt. The 2022 Term Notes are guaranteed on a senior unsecured basis by The Black & Decker Corporation, a subsidiary of the Company, and are not obligations of or guaranteed by any of the Company's other subsidiaries. As a result, the 2022 Term Notes are structurally subordinated to all debt and other liabilities of the Company's subsidiaries, other than The Black & Decker Corporation. The Company received net proceeds of
$793.9 million
which reflects a discount of
$0.7 million
and
$5.4 million
of underwriting expenses and other fees associated with the transaction. The Company used the net proceeds from the offering for general corporate purposes, including repayment of short term borrowings. The 2022 Term Notes include a Change of Control provision that would apply should a Change of Control event (as defined in the Indenture governing the 2022 Term Notes) occur. The Change of Control provision states that the holders of the Term Notes may require the Company to repurchase, in cash, all of the outstanding 2022 Term Notes for a purchase price at
101.0%
of the original principal amount, plus any accrued and unpaid interest outstanding up to the repurchase date.
In July and August 2012, the Company repurchased
$250.0 million
of The Stanley Works
6.15%
senior notes due 2013,
$350.0 million
of The Black & Decker Corporation's
8.95%
senior notes due 2014 and
$300.0 million
of The Black & Decker Corporation's
4.75%
senior notes due 2014 by initiating an open market tender offer to purchase for cash any and all of the notes, followed by exercising its right under the optional redemption provision of each note to repurchase any remaining notes not repurchased in the tender offer. The Company paid a premium of
$91 million
to extinguish the notes, which was offset by gains of
$35 million
from fair value adjustments made in purchase accounting and
$10.5 million
from terminated derivatives, resulting in a net pre-tax loss of
$45.5 million
.
In July 2012, the Company issued
$750.0 million
of junior subordinated debentures, maturing on July 25, 2052 (“2052 Subordinated Debentures”) with fixed interest payable quarterly, in arrears, at a rate of
5.75%
per annum. The 2052 Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all of the Company's existing and future senior debt. The 2052 Subordinated Debentures are not guaranteed by any of the Company's subsidiaries and are therefore, structurally subordinated to all debt and other liabilities of the Company's subsidiaries. The Company received net proceeds of
$729.4 million
and paid
$20.6 million
of fees associated with the transaction. The Company used the net proceeds
from the offering for general corporate purposes, including repayment of debt and refinancing of near term debt maturities. The Company may, so long as there is no event of default with respect to the debentures, defer interest payments on the debentures, from time to time, for one or more Optional Deferral Periods (as defined in the indenture governing the 2052 Subordinated Debentures) of up to
five
consecutive years per period. Deferral of interest payments cannot extend beyond the maturity date of the debentures. Additionally, the 2052 Subordinated Debentures include an optional redemption whereby the Company may elect to redeem the debentures, in whole or in part, at the redemption price plus accrued and unpaid interest if redeemed before July 25, 2017, or at
100%
of their principal amount plus accrued and unpaid interest if redeemed after July 25, 2017.
In May 2012, the Company repaid the
$320.0 million
principal of its Convertible Notes at maturity, in cash. Additionally, the Company settled the conversion option value by delivering
640,018
common shares. The conversion rate was
15.6666
per
$1,000
note (equivalent to a conversion price set at
$63.83
per common share), and the applicable market value of the Company's stock at settlement was
$73.24
. The Company's Bond Hedge also matured May 17, 2012 resulting in the receipt of
640,772
common shares from the counterparties. The aggregate effect of these financial instruments was a
754
share reduction in the Company’s common shares. During August and September 2012,
4,938,624
stock warrants associated with the Convertible Notes expired. No shares were issued upon their expiration as the warrants were out of the money.
In November 2011, the Company issued
$400.0 million
of senior unsecured Term Notes, maturing on
December 1, 2021
(“2021 Term Notes”) with fixed interest payable semi-annually in arrears at a rate of
3.40%
per annum. The 2021 Term Notes rank equally with all of the Company’s existing and future unsecured and unsubordinated debt. The 2021 Term Notes are guaranteed on a senior unsecured basis by The Black & Decker Corporation, a subsidiary of the Company, and are not obligations of or guaranteed by any of the Company’s other subsidiaries. As a result, the 2021 Term Notes are structurally
subordinated to all debt and other liabilities of the Company’s subsidiaries, other than The Black & Decker Corporation. The Company received net proceeds of
$397.0 million
which reflects a discount of
$0.4 million
to achieve a
3.40%
interest rate and paid
$2.6 million
of fees associated with the transaction. The Company used the net proceeds from the offering primarily to reduce its short term borrowings under its existing commercial paper program. The 2021 Term Notes include a Change of Control provision that would apply should a Change of Control event (as defined in the Indenture governing the 2021 Term Notes) occur. The Change of Control provision states that the holders of the Term Notes may require the Company to repurchase, in cash, all of the outstanding 2021 Term Notes for a purchase price at
101.0%
of the original principal amount, plus any accrued and unpaid interest outstanding up to the repurchase date. Additionally, the 2021 Term Notes include a par call whereby the Company, on or after September 1, 2021, may elect to repay the notes at par. The
$417.1 million
of debt reported at December 29, 2012 reflects the fair value adjustment related to a fixed-to-floating interest rate swap entered into in December 2011, as detailed in Note I, Derivative Financial Instruments.
In 2010, the Company acquired
$1.832 billion
of total debt and short-term borrowings in connection with the Merger which included
$157.1 million
to increase the debt balance to its estimated fair value. Principal amounts and maturities of the notes acquired in the Merger were:
$400.0 million
due in 2011,
$300.0 million
due in 2014,
$350.0 million
due in 2014,
$300.0 million
due in 2016 and
$150.0 million
due in 2028. As noted above, in 2012, The Company repurchased the
$300.0 million
notes due 2014 and
$350 million
notes due 2014.
$175.0 million
of assumed short-term borrowings were repaid in April 2010 with the proceeds from additional commercial paper borrowings. The Company executed a full and unconditional guarantee of the existing debt of The Black & Decker Corporation and Black & Decker Holdings, LLC (this guarantee is applicable to all of the Black & Decker outstanding notes payable), and Black & Decker executed a full and unconditional guarantee of the existing debt of the Company, excluding the Company’s Junior Subordinated Debt (redeemed in December 2010), including for payments of principal and interest and as such these notes rank equally in priority with the Company’s unsecured and unsubordinated debt. Refer to Note U, Parent and Subsidiary Debt Guarantees, for additional information pertaining to these debt guarantees.
In August 2010, the Company issued
$400.0 million
of senior unsecured Term Bonds, maturing on
September 1, 2040
(“2040 Term Bonds”) with fixed interest payable semi-annually, in arrears at a rate of
5.20%
per annum. The 2040 Term Bonds rank equally with all of the Company’s existing and future unsecured and unsubordinated debt. The 2040 Term Bonds are guaranteed on a senior unsecured basis by The Black & Decker Corporation, a subsidiary of the Company. The 2040 Term Bonds are not obligations of or guaranteed by any of the Company’s other subsidiaries. As a result, the 2040 Term Bonds are structurally subordinated to all debt and other liabilities of the Company’s subsidiaries other than The Black & Decker Corporation. The Company received net proceeds of
$396.2 million
which reflects a discount of
$0.4 million
to achieve a
5.20%
interest rate and paid
$3.4 million
of fees associated with the transaction. The Company used the net proceeds from the offering primarily to reduce borrowings under its existing commercial paper program. The 2040 Term Bonds include a Change of Control provision that would apply should a Change of Control event (as defined in the Indenture governing the 2040 Term Bonds) occur. The Change of Control provision states that the holders of the Term Bonds may require the Company to
repurchase, in cash, all of the outstanding 2040 Term Bonds for a purchase price at
101.0%
of the original principal amount, plus any accrued and unpaid interest outstanding up to the repurchase date.
At December 29, 2012, the Company's carrying value of the
$300.0 million
notes payable due in 2016 includes increases of
$16.0 million
associated with the fair value adjustment made in purchase accounting and
$10.8 million
pertaining to the unamortized gain on a previously terminated swap.
At December 29, 2012, the Company had a fixed-to-floating interest rate swap on its
$150.0 million
notes payable due in 2028. The carrying value of the notes payable due in 2028 includes
$3.2 million
pertaining to the fair value adjustment of the swap and
$16.4 million
associated with fair value adjustments made in purchase accounting.
At December 29, 2012, the Company had a fixed-to-floating interest rate swaps on its
$400.0 million
notes payable due in 2021. The carrying value of the notes payable due in 2021 includes
$1.1 million
pertaining to the fair value adjustment of the swaps and
$16.3 million
pertaining to the unamortized gain on previously terminated swaps slightly offset by
$0.3 million
unamortized discount on the notes.
Unamortized gains and fair value adjustments associated with interest rate swaps are more fully discussed in Note I, Derivative Financial Instruments.
Commercial Paper and Credit Facilities
At December 29, 2012 and December 31, 2011, the Company had
no
commercial paper borrowings outstanding against the Company’s
$2.0 billion
commercial paper program.
At December 29, 2012, the Company had a
$1.0 billion
364
day committed credit facility ("facility"). The facility contains a
one year
term-out provision and borrowings under the Credit Agreement may include U.S. Dollars up to the
$1.0 billion
commitment or in Euro or Pounds Sterling subject to a foreign currency sublimit of
$400.0 million
and bear interest at a floating rate dependent upon the denomination of the borrowing. Repayments must be made by July 12, 2013, unless the
one
year term-out election is made, or upon an earlier termination date of the Credit Agreement, at the election of the Company. As of December 29, 2012 and December 31, 2011, the Company had not drawn on the commitments provided by the facility. The facility is designated to be a liquidity back-stop for the Company's
$2.0 billion
commercial paper program. In addition, the Company has a
four
year
$1.2 billion
committed credit facility (the “Credit Agreement”). Borrowings under the Credit Agreement may include U.S. Dollars up to the
$1.2 billion
commitment or in Euro or Pounds Sterling subject to a foreign currency sublimit of
$400.0 million
and bear interest at a floating rate dependent upon the denomination of the borrowing. Repayments must be made on
March 11, 2015
or upon an earlier termination date of the Credit Agreement, at the election of the Company. The Company has not drawn on the commitments provided by the Credit Agreement. This credit facility is designated to be a liquidity back-stop for the Company’s
$2.0 billion
commercial paper program. At December 31, 2011, the Company had a
$750 million
364
day credit facility in connection with the Niscayah acquisition which the Company terminated with the concurrent execution of the
$1.0 billion
364
day facility.
In addition, the Company has short-term lines of credit that are primarily uncommitted, with numerous banks, aggregating
$382.3 million
, of which
$337.5 million
was available at December 29, 2012. Short-term arrangements are reviewed annually for renewal.
The aggregate amount of committed and uncommitted, long and short-term lines is
$2.6 billion
, of which
$1.1 million
is recorded as short-term borrowings at December 29, 2012. In addition,
$43.7 million
of the short-term credit lines was utilized primarily pertaining to outstanding letters of credit for which there are no required or reported debt balances. The weighted average interest rates on short-term borrowings, primarily commercial paper, for the fiscal years ended December 29, 2012 and December 31, 2011 were
0.4%
and
0.3%
, respectively.
Convertible Preferred Units
In November 2010, the Company issued
6,325,000
Convertible Preferred Units (the “Convertible Preferred Units”), each with a stated amount of
$100
. The Convertible Preferred Units are initially comprised of a 1/10, or
10%
, undivided beneficial ownership in a
$1,000
principal amount junior subordinated note (the “Note”) and a Purchase Contract (the “Purchase Contract”) obligating holders to purchase
one
share (subject to adjustment under certain circumstances if holders elect to settle their Purchase Contracts early) of the Company’s
4.75%
Series B Perpetual Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”). The Company received
$613.5 million
in cash proceeds from the Convertible Preferred Units offering, net of underwriting fees. These proceeds were used to redeem all of the Company’s outstanding
5.902%
Fixed
Rate/Floating Rate Junior Subordinated Debt Securities due 2045, at a price of
$312.7 million
, to contribute
$150.0 million
to a U.S. pension plan to improve the funded status of the Company’s 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.
Purchase Contracts:
Each Purchase Contract obligates the holder to purchase, on the earlier of (i) November 17, 2015 (the “Purchase Contract settlement date”) or (ii) the triggered early settlement date (as described below), for
$100
, one newly-issued share (subject to adjustment under certain circumstances if holders elect to settle their Purchase Contracts early) of Convertible Preferred Stock. A maximum of
6,325,000
shares of Convertible Preferred Stock may be issued on the Purchase Contract settlement date, resulting in total additional cash proceeds to the Company of up to
$632.5 million
. The Notes, described further below, are pledged as collateral to guarantee the holders’ obligations to purchase Convertible Preferred Stock under the terms of the Purchase Contracts. Purchase Contract holders may elect to settle their obligations under the Purchase Contracts early, in cash, at any time prior to the second business day immediately preceding the Purchase Contract settlement date or the triggered early settlement date, as applicable, subject to certain exceptions and conditions.
Upon early settlement of any Purchase Contracts, except in connection with a “fundamental change” or trigger event, the Company will deliver a number of shares of Convertible Preferred Stock equal to
85%
of the number of Purchase Contracts tendered for early settlement. Upon the occurrence of a fundamental change, holders of Purchase Contracts will have the right, subject to certain exceptions and conditions, to settle their Purchase Contracts early at
100%
of the settlement rate for the Purchase Contracts.
Holders of the Purchase Contracts are paid contract adjustment payments (“contract adjustment payments”) at a rate of
0.50%
per annum, payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing February 17, 2011. The
$14.9 million
present value of the contract adjustment payments reduced Shareowners’ Equity at inception. As each quarterly contract adjustment payment is made, the related liability will be relieved with the difference between the cash payment and the present value of the contract adjustment payment recorded as interest expense (at inception approximately
$0.9 million
accretion over the five year term). At December 29, 2012 the liability reported for the contract adjustment payments amounted to
$9.0 million
. The Company has the right to defer the payment of contract adjustment payments until no later than the Purchase Contract settlement date or the triggered early settlement date (each as described below), as applicable. Any deferred contract adjustment payments will accrue additional contract adjustment payments at the rate of
4.75%
per year until paid, compounded quarterly.
Convertible Preferred Stock:
When issued following a settlement of the Purchase Contract, holders of the Convertible Preferred Stock are entitled to receive cumulative cash dividends at the rate of
4.75%
per annum of the
$100
liquidation preference per share of the Convertible Preferred Stock. Dividends on the Convertible Preferred Stock will be payable, when, as and if declared by the Company’s board of directors, quarterly in arrears on February 17, May 17, August 17 and November 17 of each year.
Following the issuance of Convertible Preferred Stock upon settlement of a holder’s Purchase Contracts, a holder of Convertible Preferred Stock may, at its option, at any time and from time to time, convert some or all of its outstanding shares of Convertible Preferred Stock as described below at a conversion rate of
1.3333
shares of the Company’s common stock per share of Convertible Preferred Stock (subject to customary anti-dilution adjustments), which is equivalent to an initial conversion price of approximately
$75.00
per share of common stock. At December 29, 2012, the conversion rate on the Convertibles Notes due 2012 was
1.3475
(equivalent to a conversion price set at
$74.21
per common share). If a fundamental change occurs, in certain circumstances the conversion rate may be adjusted by a fundamental change make-whole premium.
The Company may redeem some or all of the Convertible Preferred Stock on or after December 22, 2015 at a redemption price equal to
100%
of the liquidation preference per share plus accrued and unpaid dividends to the redemption date. If the Company calls the Convertible Preferred Stock for redemption, holders may convert their Convertible Preferred Stock at any time prior to the close of business on the business day immediately preceding the redemption date.
Upon conversion prior to November 17, 2015, the Company may only deliver shares of common stock, together with cash in lieu of fractional shares. Upon a conversion on or after November 17, 2015, the Company may elect to pay or deliver, as the case may be, solely shares of common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash (“cash settlement”) or a combination of cash and common stock (“combination settlement”). The amount of shares and/or cash that each holder of Convertible Preferred Stock will receive is called the “settlement amount.” If the Company elects physical settlement or any shares of Convertible Preferred Stock are converted prior to November 17, 2015, the Company will deliver to the converting holder a number of shares of common stock (and cash in lieu of any fractional shares) equal to the number of shares of Convertible Preferred Stock to be converted multiplied by the applicable conversion rate. If the Company elects cash
settlement or combination settlement, the settlement amount will be based on the volume weighted average price of the Company’s common stock during a
20
day observation period.
Notes:
The
$632.5 million
principal amount of the Notes is due November 17, 2018. At maturity, the Company is obligated to repay the principal in cash. The Notes bear interest at an initial rate of
4.25%
per annum, initially payable quarterly in arrears on February 17, May 17, August 17 and November 17 of each year, commencing February 17, 2011, subject to the Company’s right to defer interest payments. The Notes are the Company’s direct, unsecured general obligations and are initially subordinated and junior in right of payment to the Company’s existing and future senior indebtedness. The Notes initially rank equally in right of payment with all of the Company’s other junior subordinated debt. The Notes are initially pledged as collateral to guarantee the obligations of holders of Purchase Contracts to purchase Convertible Preferred Stock. The Notes will be released from that pledge arrangement (1) following a successful remarketing, (2) following the substitution of cash to purchase certain treasury unit collateral, (3) following the substitution of cash during certain periods prior to the final remarketing period or triggered remarketed period for the Notes, (4) following the early settlement of the Purchase Contracts or (5) following certain events of bankruptcy, insolvency or reorganization. The unamortized deferred issuance cost of the Notes was
$5.0 million
at December 29, 2012. The remaining unamortized balance will be recorded to interest expense through the Notes maturity in November 2018.
Unless a trigger event (as defined below) has occurred, the Company may elect, at its option, to remarket the Notes during a period (the “optional remarketing window”) beginning on and including August 12, 2015 until October 27, 2015. Such remarketing will include the Notes underlying Convertible Preferred Units that have not been released from the pledge and other Notes of holders that have elected to include those Notes in the remarketing. The Company may attempt to remarket the Notes during multiple optional remarketing periods in the optional remarketing window so long as it gives
15
calendar days notice prior to the first day of any optional remarketing period. Upon a successful optional remarketing of the Notes, the remarketing agent will purchase U.S. Treasury securities as described in the prospectus supplement (the “Treasury portfolio”), and deduct such price from the proceeds of the optional remarketing. Any remaining proceeds will be promptly remitted after the optional remarketing settlement date by the remarketing agent for the benefit of the holders whose Notes were remarketed. The applicable ownership interests in the Treasury portfolio will be substituted for the applicable ownership interests in remarketed pledged Notes and will be pledged to the Company to secure the holders’ obligation under the Purchase Contracts. On the Purchase Contract settlement date, a portion of the proceeds from the Treasury portfolio equal to the aggregate principal amount of the Notes that are components of the Convertible Preferred Units at the time of remarketing will automatically be applied to satisfy the holders’ obligations to purchase Convertible Preferred Stock under the Purchase Contracts. In addition, proceeds from the Treasury portfolio equal to the interest payment (assuming no reset of the interest rate) that would have been attributable to the Notes that were components of the Convertible Preferred Units at the time of remarketing will be paid on the Purchase Contract settlement date to the holders.
If a trigger event occurs prior to the first day in the optional remarketing window, all Purchase Contracts will mandatorily settle early on the date that is
25
calendar days after the occurrence of the trigger event or, if such day is not a business day, the immediately following business day (the “triggered early settlement date”). In connection with the occurrence of a trigger event, the remarketing agent will remarket the Notes that are components of the units and any separate Notes whose holders have elected to participate in the remarketing during each day of the
five
business day period (the “triggered early remarketing period”) ending on the third business day immediately preceding the triggered early settlement date (the “triggered early remarketing”). A “trigger event” will be deemed to have occurred upon the Company’s filing any periodic or annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, in respect of any fiscal quarter with financial statements for such fiscal quarter where the Company’s leverage ratio (as described in the prospectus supplement relating to the Convertible Preferred Units) is equal to or greater than
6.0
(on an annualized basis) for each of the three consecutive fiscal quarters immediately preceding, and including, such fiscal quarter.
Unless the Treasury portfolio has replaced the pledged Notes as part of Convertible Preferred Units as a result of a successful optional remarketing or a triggered early settlement date has occurred, the remarketing agent will remarket the pledged Notes that are components of the Convertible Preferred Units and any separate Notes whose holders have elected to participate in the remarketing during each day of the
five
business day period ending on November 12, 2015 (the third business day immediately preceding the Purchase Contract settlement date) until the remarketing is successful (the “final remarketing”).
In connection with a successful remarketing, all outstanding Notes (whether or not remarketed) will rank senior to all of the Company’s existing and future unsecured junior subordinated obligations and junior to all of its existing and future senior indebtedness, the interest deferral provisions of the Notes will not apply to all outstanding Notes (whether or not remarketed), the interest rate on all outstanding Notes (whether or not remarketed) may be reset and interest will be payable semi-annually in arrears.
Interest expense of
$26.9 million
,
$26.9 million
and
$4.5 million
was recorded for 2012, 2011 and 2010, respectively, related to the contractual interest coupon on the Notes for the periods presented based upon the
4.25%
rate.
Equity Option:
In order to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock, the Company entered into capped call transactions (equity options) with certain major financial institutions (the “capped call counterparties”). The capped call transactions cover, subject to anti-dilution adjustments, the number of shares of common stock equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the Purchase Contracts. Each of the capped call transactions had an original term of approximately five years and initially has a lower strike price of
$75.00
, which corresponds to the initial conversion price of the Convertible Preferred Stock, and an upper strike price of
$97.95
, which is approximately
60%
higher than the closing price of the common stock on November 1, 2010. At December 29, 2012, the capped call transactions had an adjusted lower strike price of
$74.21
and an adjusted upper strike price of
$96.92
. The Company paid
$50.3 million
of cash to fund the cost of the capped call transactions, which was recorded as a reduction of Shareowners’ Equity. The capped call transactions may be settled by net share settlement or, at the Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement (in which case the number of shares the Company will receive will be reduced by a number of shares based on the excess, if any, of the volume-weighted average price of its common stock, as measured under the terms of the capped call transactions, over the upper strike price of the capped call transactions). If the capped call transactions are exercised and the volume-weighted average price per share of common stock, as measured under the terms of the capped call transactions, is greater than the lower strike price of the capped call transactions but not greater than the upper strike price of the capped call transactions, then the value the Company expects to receive from the capped call counterparties will be generally based on the amount of such excess. As a result, the capped call transactions may offset the potential dilution upon conversion of the Convertible Preferred Stock. If, however, the volume-weighted average price per share of common stock, as measured under the terms of the capped call transactions, exceeds the upper strike price of the capped call transactions, the value the Company expects to receive upon the exercise of the capped call transactions (or portions thereof) will be approximately equal to (x) the excess of the upper strike price of the capped call transactions over the lower strike price of the capped call transactions times (y) the number of shares of common stock relating to the capped call transactions (or the portions thereof) being exercised, in each case as determined under the terms of the capped call transactions. As a result, the dilution mitigation under the capped call transactions will be limited based on such capped value.
I. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices and commodity prices. As part of the Company’s risk management program, a variety of financial instruments such as interest rate swaps, currency swaps, purchased currency options, foreign exchange contracts and commodity contracts, are used to mitigate interest rate exposure, foreign currency exposure and commodity price exposure.
Financial instruments are not utilized for speculative purposes. If the Company elects to do so and if the instrument meets the criteria specified in ASC 815, management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges. Generally, commodity price exposures are not hedged with derivative financial instruments and instead are actively managed through customer pricing initiatives, procurement-driven cost reduction initiatives and other productivity improvement projects.
A summary of the fair value of the Company’s derivatives recorded in the Consolidated Balance Sheets are as follows (in millions):
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|
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|
|
Balance Sheet
Classification
|
|
2012
|
|
2011
|
|
Balance Sheet
Classification
|
|
2012
|
|
2011
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Contracts Cash Flow
|
|
Other current assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Accrued expenses
|
|
$
|
—
|
|
|
$
|
86.9
|
|
Interest Rate Contracts Fair Value
|
|
Other current assets
|
|
18.5
|
|
|
21.7
|
|
|
Accrued expenses
|
|
3.3
|
|
|
5.2
|
|
|
|
LT other assets
|
|
6.4
|
|
|
15.2
|
|
|
LT other liabilities
|
|
4.6
|
|
|
—
|
|
Foreign Exchange Contracts Cash Flow
|
|
Other current assets
|
|
—
|
|
|
5.3
|
|
|
Accrued expenses
|
|
2.6
|
|
|
1.4
|
|
|
|
LT other assets
|
|
—
|
|
|
—
|
|
|
LT other liabilities
|
|
—
|
|
|
0.8
|
|
Net Investment Hedge
|
|
Other current assets
|
|
0.2
|
|
|
27.7
|
|
|
Accrued expenses
|
|
25.7
|
|
|
—
|
|
|
|
|
|
$
|
25.1
|
|
|
$
|
69.9
|
|
|
|
|
$
|
36.2
|
|
|
$
|
94.3
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Contracts
|
|
Other current assets
|
|
$
|
73.9
|
|
|
$
|
48.1
|
|
|
Accrued expenses
|
|
$
|
46.4
|
|
|
$
|
63.4
|
|
LT other assets
|
|
|
|
—
|
|
|
24.5
|
|
|
LT other liabilities
|
|
8.9
|
|
|
24.0
|
|
|
|
|
|
$
|
73.9
|
|
|
$
|
72.6
|
|
|
|
|
$
|
55.3
|
|
|
$
|
87.4
|
|
The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The credit risk is limited to the asset amounts noted above. The Company limits its exposure and concentration of risk by contracting with diverse financial institutions and does not anticipate non-performance by any of its counterparties. Further, as more fully discussed in Note M, Fair Value Measurements, the Company considers non-performance risk of its counterparties at each reporting period and adjusts the carrying value of these assets accordingly. The risk of default is considered remote.
In
2012
and
2011
, significant cash flows related to derivatives including those that are separately discussed in Cash Flow Hedges, Fair Value Hedges and Net Investment Hedges below resulted in net cash paid of
$79.8 million
and
$58.9 million
, respectively.
CASH FLOW HEDGES —
There was a
$93.5 million
after-tax loss and a
$75.9 million
after-tax loss as of
December 29, 2012
and
December 31, 2011
, respectively, reported for cash flow hedge effectiveness in Accumulated other comprehensive loss. An after-tax loss of
$15.1 million
is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next twelve months. The ultimate amount recognized will vary based on fluctuations of the hedged currencies and interest rates through the maturity dates.
The tables below detail pre-tax amounts reclassified from Accumulated other comprehensive income (loss) into earnings for active derivative financial instruments during the periods in which the underlying hedged transactions affected earnings for the twelve months ended
December 29, 2012
and
December 31, 2011
(in millions):
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|
|
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|
|
|
|
|
|
|
|
Year-to-date 2012
(In millions)
|
Gain (Loss)
Recorded in OCI
|
|
Classification of
Gain (Loss)
Reclassified from
OCI to Income
|
|
Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion)
|
|
Gain (Loss)
Recognized in
Income
(Ineffective Portion*)
|
Interest Rate Contracts
|
$
|
—
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign Exchange Contracts
|
$
|
(11.2
|
)
|
|
Cost of sales
|
|
$
|
1.9
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date 2011
(In millions)
|
Gain (Loss)
Recorded in OCI
|
|
Classification of
Gain (Loss)
Reclassified from
OCI to Income
|
|
Gain (Loss)
Reclassified from
OCI to Income
(Effective Portion)
|
|
Gain (Loss)
Recognized in
Income
(Ineffective Portion*)
|
Interest Rate Contracts
|
$
|
(69.6
|
)
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
Foreign Exchange Contracts
|
$
|
(2.9
|
)
|
|
Cost of sales
|
|
$
|
(21.1
|
)
|
|
—
|
|
* Includes ineffective portion and amount excluded from effectiveness testing on derivatives.
For
2012
, the hedged items’ impact to the Consolidated Statement of Operations was a loss of
$1.9 million
in Cost of Sales. For
2011
, the hedged items’ impact to the Consolidated Statement of Operations was a gain of
$21.1 million
in Cost of Sales. There was no impact related to the interest rate contracts’ hedged items for any period presented. The impact of de-designated hedges was immaterial for all periods presented.
During
2012
,
2011
and
2010
, an after-tax loss of
$2.9 million
, an after-tax loss of
$15.9 million
and an after-tax loss of
$2.9 million
, respectively, was reclassified from Accumulated other comprehensive income (loss) into earnings (inclusive of the gain/loss amortization on terminated derivative financial instruments) during the periods in which the underlying hedged transactions affected earnings.
Interest Rate Contract:
The Company enters into interest rate swap agreements in order to obtain the lowest cost source of funds within a targeted range of variable to fixed-rate debt proportions. As of December 29, 2012, all interest rate swaps designated as cash flow hedges were terminated as discussed below. At
December 31, 2011
, the Company had
$400 million
of forward starting swaps outstanding fixing the interest rate on the expected refinancing of debt in 2012.
In December
2009
, the Company executed forward starting interest rate swaps with an aggregate notional amount of
$400 million
fixing
10 years
of interest payments at
4.78%
. The objective of the hedge was to offset the expected variability on future payments associated with the interest rate on debt instruments. In 2012, these contracts were terminated. The terminations resulted in cash payments of
$102.6 million
, which was recorded in accumulated other comprehensive loss and will be amortized to earnings over future periods. The cash flows stemming from the termination of such interest rate swaps designated as cash flow hedges are presented within financing activities in the Consolidated Statements of Cash Flows.
In May 2010, the Company executed forward starting interest rate swaps with an aggregate notional amount of
$400 million
fixing interest at
3.95%
. The objective of the hedge was to offset the expected variability on future payments associated with the interest rate on debt instruments. In connection with the August 31, 2010 issuance of the
$400 million
of senior unsecured 2040 Term Bonds, as discussed in Note H, Long Term Debt and Financing Arrangements, these forward-starting interest rate swaps were terminated. The terminations resulted in cash payments of
$48.4 million
. This loss was recorded in Accumulated other comprehensive loss and will be amortized to earnings over future periods. The cash flows stemming from the termination of such interest rate swaps designated as cash flow hedges are presented within financing activities in the Consolidated Statement of Cash Flows.
Foreign Currency Contracts
Forward Contracts:
Through its global businesses, the Company enters into transactions and makes investments denominated in multiple currencies that give rise to foreign currency risk. The Company and its subsidiaries regularly purchase inventory from subsidiaries with non-U.S. dollar functional currencies which creates currency-related volatility in the Company’s results of operations. The Company utilizes forward contracts to hedge these forecasted purchases of inventory. Gains and losses reclassified from Accumulated other comprehensive loss for the effective and ineffective portions of the hedge as well as any amounts excluded from effectiveness testing are recorded in cost of sales. Gains and losses incurred after a hedge has been de-designated are not recorded in Accumulated other comprehensive income, but are recorded directly to the Consolidated Statement of Operations and Comprehensive Income in other-net. At
December 29, 2012
, the notional value of the forward currency contracts outstanding was
$154.0 million
, all of which was designated, and matures at various dates through
2013
. At
December 31, 2011
, the notional value of the forward currency contracts outstanding was
$196.8 million
, of which
$19.8 million
had been de-designated, maturing at various dates through 2013.
Purchased Option Contracts:
The Company and its subsidiaries have entered into various inter-company transactions whereby the notional values are denominated in currencies other than the functional currencies of the party executing the trade. In order to better match the cash flows of its inter-company obligations with cash flows from operations, the Company enters into purchased option contracts. Gains and losses reclassified from Accumulated other comprehensive income (loss) for the effective and ineffective portions of the hedge as well as any amounts excluded from effectiveness testing are recorded in cost of sales. At December 29, 2012, the notional value of option contracts outstanding was
$173.0 million
maturing at various dates through 2013. As of December 31, 2011, there were no purchased option contracts outstanding.
FAIR VALUE HEDGES
Interest Rate Risk:
In an effort to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, the Company enters into interest rate swaps. In October 2012, the Company entered into interest rate swaps with notional values which equaled the Company's
$400 million
3.4%
notes due in 2021 and the Company's
$400 million
5.2%
notes due in 2040. In January 2012, the Company entered into interest rate swaps with notional values which equaled the Company's
$150 million
7.05%
notes due in 2028. These interest rate swaps effectively converted the Company’s fixed rate debt to floating rate debt based on
LIBOR
, thereby hedging the fluctuation in fair value resulting from changes in interest rates.
Previously, the Company entered into interest rate swaps related to certain of its notes payable which were subsequently terminated as discussed below. In January 2012 and December 2011, the Company entered into interest rate swaps related to the Company's
$400 million
3.4%
notes due in 2021. In December
2010
, the Company entered into interest rate swaps with notional values which equaled the Company’s
$300 million
4.75%
notes due in 2014 and
$300 million
5.75%
notes due in 2016. In January 2009, the Company entered into interest rate swaps with notional values which equaled the Company’s
$200 million
4.9%
notes due in 2012 and
$250 million
6.15%
notes due in 2013.
In January 2012, the Company terminated interest rates swaps with notional values equal to the Company's
$300 million
4.75%
notes due in 2014,
$300 million
5.75%
notes due in 2016,
$200 million
4.9%
notes due in 2012 and
$250 million
6.15%
notes due in 2013. In November 2012, the Company terminated interest rate swaps with notional values equal to the Company's
$400 million
notes due in 2021. These terminations resulted in cash receipts of
$58.2 million
. The resulting gain of
$44.7 million
was deferred and will be amortized to earnings over the remaining life of the notes. In July 2012, the Company repurchased the
$250 million
6.15%
notes due in 2013 and
$300 million
4.75%
notes due 2014 and, as a result,
$11.1 million
of the previously deferred gain was recognized in earnings at that time.
The changes in fair value of the interest rate swaps were recognized in earnings as well as the offsetting changes in fair value of the underlying notes. The notional value of open contracts was
$950.0 million
and
$1.250 billion
as of
December 29, 2012
and
December 31, 2011
, respectively. A summary of the fair value adjustments relating to these swaps is as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date 2012
|
|
Year-to-Date 2011
|
Income Statement
Classification
|
Gain/(Loss) on
Swaps
|
|
Gain /(Loss) on
Borrowings
|
|
Gain/(Loss) on
Swaps
|
|
Gain /(Loss) on
Borrowings
|
Interest Expense
|
$
|
27.2
|
|
|
$
|
(27.2
|
)
|
|
$
|
27.8
|
|
|
$
|
(27.8
|
)
|
In addition to the amounts in the table above, the net swap accruals for each period and amortization of the gains on terminated swaps are also reported in interest expense and totaled
$35.1 million
and
$19.3 million
for
2012
and
2011
, respectively. Interest expense on the underlying debt was
$31.4 million
and
$56.0 million
for
2012
and
2011
, respectively.
NET INVESTMENT HEDGES
Foreign Exchange Contracts:
The Company utilizes net investment hedges to offset the translation adjustment arising from re-measurement of its investment in the assets and liabilities of its foreign subsidiaries. The total after-tax amounts in Accumulated other comprehensive loss were losses of
$63.3 million
and
$32.7 million
at
December 29, 2012
and
December 31, 2011
, respectively. As of
December 29, 2012
, the Company had foreign exchange contracts that mature at various dates through October 2013 with notional values totaling
$940.6 million
outstanding hedging a portion of its pound sterling denominated net investment. As of
December 31, 2011
, the Company had foreign exchange contracts with notional values totaling
$925.4 million
outstanding hedging a portion of its pound sterling net investment. For the year ended
December 29, 2012
, maturing foreign exchange contracts resulted in net cash receipts of
$5.8 million
. For the year ended December 31, 2011, maturing foreign exchange contracts resulted in net cash payments of
$36.0 million
. Gains and losses on net investment hedges remain in Accumulated other comprehensive income (loss) until disposal of the underlying assets. The details of the pre-tax amounts are below (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date 2012
|
|
Year-to-Date 2011
|
Income Statement
Classification
|
Amount
Recorded in OCI
Gain (Loss)
|
|
Effective Portion
Recorded in Income
Statement
|
|
Ineffective
Portion*
Recorded in
Income
Statement
|
|
Amount
Recorded in OCI
Gain (Loss)
|
|
Effective Portion
Recorded in Income
Statement
|
|
Ineffective
Portion*
Recorded in
Income
Statement
|
Other-net
|
$
|
(47.6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
*Includes ineffective portion and amount excluded from effectiveness testing.
UNDESIGNATED HEDGES
Foreign Exchange Contracts:
Currency swaps and foreign exchange forward contracts are used to reduce risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (such as affiliate loans, payables and receivables). The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results. The total notional amount of the contracts outstanding at
December 29, 2012
was
$4.3 billion
of forward contracts and
$105.6 million
in currency swaps, maturing at various dates primarily through
2013
with the currency swap maturing in
2014
. The total notional amount of the contracts outstanding at
December 31, 2011
was
$3.9 billion
of forward contracts and
$100.8 million
in currency swaps. The income statement impacts related to derivatives not designated as hedging instruments for 2012 and 2011 are as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
Derivatives Not
Designated as Hedging
Instruments under ASC 815
|
Income Statement
Classification
|
|
Year-to-Date 2012
Amount of Gain (Loss)
Recorded in Income on
Derivative
|
|
Year-to-Date 2011 Amount of Gain (Loss)
Recorded in Income on
Derivative
|
Foreign Exchange Contracts
|
Other-net
|
|
$
|
10.0
|
|
|
$
|
(3.3
|
)
|
J. CAPITAL STOCK
EARNINGS PER SHARE —
The following table reconciles net earnings attributable to common shareowners and the weighted average shares outstanding used to calculate basic and diluted earnings per share for the fiscal years ended December 29, 2012, December 31, 2011, and January 1, 2011.
Earnings per Share Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Numerator (in millions):
|
|
|
|
|
|
Net earnings from continuing operations attributable to common shareowners
|
$
|
449.5
|
|
|
$
|
598.4
|
|
|
$
|
150.6
|
|
Net earnings from discontinued operations
|
434.3
|
|
|
76.2
|
|
|
47.6
|
|
Net earnings attributable to common shareowners
|
$
|
883.8
|
|
|
$
|
674.6
|
|
|
$
|
198.2
|
|
Less: Earnings attributable to participating restricted stock units (“RSU’s”)
|
1.2
|
|
|
1.4
|
|
|
0.5
|
|
Net Earnings — basic
|
$
|
882.6
|
|
|
$
|
673.2
|
|
|
$
|
197.7
|
|
Net Earnings — diluted
|
$
|
883.8
|
|
|
$
|
674.6
|
|
|
$
|
198.2
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Denominator (in thousands):
|
|
|
|
|
|
Basic earnings per share –– weighted-average shares
|
163,067
|
|
|
165,832
|
|
|
147,224
|
|
Dilutive effect of stock options and awards
|
3,634
|
|
|
4,273
|
|
|
2,943
|
|
Diluted earnings per share –– weighted-average shares
|
166,701
|
|
|
170,105
|
|
|
150,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Earnings per share of common stock:
|
|
|
|
|
|
Basic earnings per share of common stock:
|
|
|
|
|
|
Continuing operations
|
$
|
2.75
|
|
|
$
|
3.60
|
|
|
$
|
1.02
|
|
Discontinued operations
|
2.66
|
|
|
0.46
|
|
|
0.32
|
|
Total basic earnings per share of common stock
|
$
|
5.41
|
|
|
$
|
4.06
|
|
|
$
|
1.34
|
|
Diluted earnings per share of common stock:
|
|
|
|
|
|
Continuing operations
|
$
|
2.70
|
|
|
$
|
3.52
|
|
|
$
|
1.00
|
|
Discontinued operations
|
2.61
|
|
|
0.45
|
|
|
0.32
|
|
Total dilutive earnings per share of common stock
|
$
|
5.30
|
|
|
$
|
3.97
|
|
|
$
|
1.32
|
|
The following weighted-average stock options and warrants were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Number of stock options
|
1,825
|
|
|
2,379
|
|
|
2,760
|
|
Number of stock warrants
|
3,419
|
|
|
4,939
|
|
|
4,939
|
|
Number of shares related to May 2010 equity purchase contracts
|
—
|
|
|
—
|
|
|
2,210
|
|
Number of shares related to the convertible preferred units
|
—
|
|
|
8,458
|
|
|
1,054
|
|
During August and September 2012,
4,938,624
stock warrants expired which were associated with the
$320.0 million
convertible notes that matured in May 2012. No shares were issued upon their expiration as the warrants were out of the money.
As of December 31, 2011 and January 1, 2011, there were no shares related to the Convertible Preferred Units included in the calculation of diluted earnings per share because the effect of the conversion option was not dilutive. These Convertible Preferred Units, as well as the equity purchase contracts and convertible note hedge, are discussed more fully in Note H, Long-Term Debt and Financing Arrangements.
COMMON STOCK SHARE ACTIVITY —
Common stock share activity for
2012
,
2011
and
2010
was as follows:
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|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Outstanding, beginning of year
|
169,046,961
|
|
|
166,347,430
|
|
|
80,478,624
|
|
Shares issued as part of the merger
|
—
|
|
|
—
|
|
|
78,497,261
|
|
Shares issued from Equity Units Offering
|
—
|
|
|
—
|
|
|
5,180,776
|
|
Shares issued, other
|
814,693
|
|
|
—
|
|
|
—
|
|
Issued from treasury
|
3,344,163
|
|
|
2,864,564
|
|
|
2,298,603
|
|
Returned to treasury
|
(13,253,790
|
)
|
|
(165,033
|
)
|
|
(107,834
|
)
|
Outstanding, end of year
|
159,952,027
|
|
|
169,046,961
|
|
|
166,347,430
|
|
Shares subject to the forward share purchase contract
|
(5,581,400
|
)
|
|
(5,581,400
|
)
|
|
—
|
|
Outstanding, less shares subject to the forward share purchase contract
|
154,370,627
|
|
|
163,465,561
|
|
|
166,347,430
|
|
In December 2012, upon executing an accelerated share repurchase contract, the Company received
9,345,794
shares. For further detail on this transaction, see "Other Equity Arrangements" below. Additionally, the Company repurchased approximately
three million
shares of common stock during the second quarter of 2012.
In
2011
the Company entered into a forward share purchase contract on its common stock. This contract obligates the Company to pay
$350.0 million
, plus an additional amount related to the forward component of the contract, to the financial institution counterparty not later than August
2013
, or earlier at the Company’s option, for the
5,581,400
shares purchased. The Company elected to prepay the forward share purchase contract for
$362.7 million
during January 2013. The reduction of common shares outstanding was recorded at the inception of the forward share purchase contract and factored into the calculation of weighted average shares outstanding.
COMMON STOCK RESERVED —
Common stock shares reserved for issuance under various employee and director stock plans at
December 29, 2012
and
December 31, 2011
are as follows:
|
|
|
|
|
|
|
|
2012
|
|
2011
|
Employee stock purchase plan
|
2,586,768
|
|
|
2,808,891
|
|
Other stock-based compensation plans
|
505,851
|
|
|
2,643,113
|
|
Total shares reserved
|
3,092,619
|
|
|
5,452,004
|
|
PREFERRED STOCK PURCHASE RIGHTS —
Each outstanding share of common stock has a
1
share purchase right. Each purchase right may be exercised to purchase
one two-hundredth
of a share of Series A Junior Participating Preferred Stock at an exercise price of
$220.00
, subject to adjustment. The rights, which do not have voting rights, expire on
March 10, 2016
, and may be redeemed by the Company at a price of
$0.01
per right at any time prior to the
tenth
day following the public announcement that a person has acquired beneficial ownership of
15%
or more of the outstanding shares of common stock. In the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of a right (other than a holder who is a
14.9%
-or-more shareowner) shall have the right to receive, upon exercise thereof, that number of shares of common stock of the surviving Company having a market value equal to
two
times the exercise price of the right. Similarly, if anyone becomes the beneficial owner of more than
15%
of the then outstanding shares of common stock (except pursuant to an offer for all outstanding shares of common stock which the independent directors have deemed to be fair and in the best interest of the Company), provision will be made so that each holder of a right (other than a holder who is a
14.9%
-or-more shareowner) shall thereafter have the right to receive, upon exercise thereof, common stock (or, in certain circumstances, cash, property or other securities of the Company) having a market value equal to two times the exercise price of the right. At
December 29, 2012
, there were
154.370627
outstanding rights.
STOCK-BASED COMPENSATION PLANS —
The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock units, and other stock-based awards.
The plans are generally administered by the Compensation and Organization Committee of the Board of Directors, consisting of non-employee directors.
Stock Option Valuation Assumptions:
Stock options are granted at the fair market value of the Company’s stock on the date of grant and have a
10
-year term. Generally, stock option grants vest ratably over
4 years
from the date of grant.
The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the strike price of the stock option; expected volatility is based on an average of the market implied volatility and historical volatility for the
5.25
year expected life; the risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option; and a seven percent forfeiture rate is assumed. The Company uses historical data in order to estimate forfeitures and holding period behavior for valuation purposes.
The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used to value grants made in
2012
,
2011
and
2010
. The 2010 weighted average assumptions include one million options that were granted as part of the Merger.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Average expected volatility
|
35.6
|
%
|
|
38.4
|
%
|
|
31.4
|
%
|
Dividend yield
|
2.8
|
%
|
|
2.5
|
%
|
|
2.2
|
%
|
Risk-free interest rate
|
0.8
|
%
|
|
1.1
|
%
|
|
2.7
|
%
|
Expected term
|
5.5 years
|
|
|
5.5 years
|
|
|
6.3 years
|
|
Fair value per option
|
$
|
17.47
|
|
|
$
|
18.29
|
|
|
$
|
16.68
|
|
Weighted average vesting period
|
2.3 years
|
|
|
2.7 years
|
|
|
3.0 years
|
|
As part of the Merger, the Company exchanged the pre-merger stock options of Black & Decker for
5.8 million
Stanley Black & Decker stock options. The following assumptions were used in the valuation of pre-merger Black & Decker stock options:
|
|
|
|
|
|
2010
|
Average expected volatility
|
32.0
|
%
|
Dividend yield
|
0.7
|
%
|
Risk-free interest rate
|
1.4
|
%
|
Expected term
|
2.9 years
|
|
Fair value per option
|
$
|
18.72
|
|
All options had fully vested as of the Merger date. The fair value of the
5.8 million
options exchanged as part of the merger was
$105.8 million
, with
$91.7 million
recorded as consideration paid and
$14.1 million
recognized as future compensation cost. Under ASC 805, the fair value of vested options and the earned portion of unvested options are recognized as consideration paid. The remaining value relating to the unvested and unearned options are recognized as future stock based compensation.
Stock Options:
The number of stock options and weighted-average exercise prices are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
|
Options
|
|
Price
|
Outstanding, beginning of year
|
10,444,660
|
|
|
$
|
52.47
|
|
|
11,641,564
|
|
|
$
|
48.69
|
|
|
5,839,417
|
|
|
$
|
39.75
|
|
Granted
|
1,106,075
|
|
|
70.66
|
|
|
1,150,577
|
|
|
65.05
|
|
|
2,055,942
|
|
|
60.69
|
|
Options assumed from merger
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,843,623
|
|
|
44.41
|
|
Exercised
|
(2,258,598
|
)
|
|
43.07
|
|
|
(2,166,269
|
)
|
|
40.34
|
|
|
(1,720,507
|
)
|
|
34.81
|
|
Forfeited
|
(235,644
|
)
|
|
68.48
|
|
|
(181,212
|
)
|
|
52.19
|
|
|
(376,911
|
)
|
|
54.95
|
|
Outstanding, end of year
|
9,056,493
|
|
|
$
|
56.90
|
|
|
10,444,660
|
|
|
$
|
52.47
|
|
|
11,641,564
|
|
|
$
|
48.69
|
|
Exercisable, end of year
|
5,515,617
|
|
|
$
|
52.97
|
|
|
6,853,838
|
|
|
$
|
49.74
|
|
|
8,100,566
|
|
|
$
|
46.70
|
|
At
December 29, 2012
, the range of exercise prices on outstanding stock options was
$15.06
to
$75.20
. Stock option expense was
$26.6 million
,
$21.5 million
, and
$17.5 million
for the years ended
December 29, 2012
,
December 31, 2011
and
January 1, 2011
, respectively. At
December 29, 2012
, the Company had
$31.6 million
of unrecognized pre-tax compensation expense for stock options. This expense will be recognized over the remaining vesting periods which are
2.9
years on a weighted average basis.
During
2012
, the Company received
$97.3 million
in cash from the exercise of stock options. The related tax benefit from the exercise of these options is
$17.7 million
. During
2012
,
2011
and
2010
, the total intrinsic value of options exercised was
$69.1 million
,
$68.7 million
and
$46.5 million
, respectively. When options are exercised, the related shares are issued from treasury stock.
ASC 718, “Compensation — Stock Compensation,” requires the benefit arising from tax deductions in excess of recognized compensation cost to be classified as a financing cash flow. To quantify the recognized compensation cost on which the excess tax benefit is computed, both actual compensation expense recorded and pro-forma compensation cost reported in disclosures are considered. An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option times the applicable tax rate represents the excess tax benefit. In
2012
,
2011
and
2010
, the Company reported
$15.1 million
,
$14.1 million
and
$10.8 million
, respectively, of excess tax benefits as a financing cash flow within the proceeds from issuance of common stock caption.
Outstanding and exercisable stock option information at
December 29, 2012
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Stock Options
|
|
Exercisable Stock Options
|
Exercise Price Ranges
|
Options
|
|
Weighted-
average
Remaining
Contractual Life
|
|
Weighted-
average
Exercise Price
|
|
Options
|
|
Weighted-
average
Remaining
Contractual Life
|
|
Weighted-
average
Exercise Price
|
$35.00 and below
|
1,356,621
|
|
|
3.97
|
|
$
|
31.39
|
|
|
1,261,445
|
|
|
3.80
|
|
$
|
31.49
|
|
$35.01 — 50.00
|
1,167,090
|
|
|
3.65
|
|
46.41
|
|
|
1,055,715
|
|
|
3.34
|
|
46.18
|
|
$50.01 — higher
|
6,532,782
|
|
|
6.41
|
|
64.07
|
|
|
3,198,457
|
|
|
4.14
|
|
63.68
|
|
|
9,056,493
|
|
|
5.69
|
|
$
|
56.90
|
|
|
5,515,617
|
|
|
1.55
|
|
$
|
52.97
|
|
Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement eligible employees (those aged
55
and over and with
10
or more years of service) is recognized by the date they became retirement eligible, as such employees may retain their options for the
10
year contractual term in the event they retire prior to the end of the vesting period stipulated in the grant.
Employee Stock Purchase Plan:
The Employee Stock Purchase Plan (“ESPP”) enables eligible employees in the United States and Canada to subscribe at any time to purchase shares of common stock on a monthly basis at the lower of
85.0%
of the fair market value of the shares on the grant date (
$48.94
per share for fiscal year
2012
purchases) or
85.0%
of the fair market value of the shares on the last business day of each month. A maximum of
6,000,000
shares are authorized for subscription.
During
2012
,
2011
and
2010
shares totaling
222,123
shares,
147,776
shares and
143,624
shares respectively, were issued under the plan at average prices of
$49.15
,
$49.63
, and
$37.53
per share, respectively and the intrinsic value of the ESPP purchases was
$4.7 million
,
$2.6 million
and
$3.1 million
, respectively. For
2012
, the Company received
$10.9 million
in cash from ESPP purchases, and there is no related tax benefit. The fair value of ESPP shares was estimated using the Black-Scholes option pricing model. ESPP compensation cost is recognized ratably over the
one
-year term based on actual employee stock purchases under the plan. The fair value of the employees’ purchase rights under the ESPP was estimated using the following assumptions for
2012
,
2011
and
2010
, respectively: dividend yield of
2.4%
,
2.1%
and
2.5%
; expected volatility of
34.0%
,
30.0%
and
38.0%
; risk-free interest rates of
0.1%
,
0.2%
and
0.1%
; and expected lives of
one
year. The weighted average fair value of those purchase rights granted in
2012
,
2011
and
2010
was
$25.2
,
$21.0
and
$20.8
, respectively. Total compensation expense recognized for ESPP amounted to
$5.5 million
,
$2.6 million
and $
3.4 million
for
2012
,
2011
and
2010
, respectively.
Restricted Share Units and Awards:
Compensation cost for restricted share units and awards, including restricted shares granted to French employees in lieu of RSU’s, (collectively “RSU’s”) granted to employees is recognized ratably over the vesting term, which varies but is generally
4
years. RSU grants totaled
445,958
shares,
413,330
shares and
1,532,107
shares in
2012
,
2011
and
2010
, respectively. The weighted-average grant date fair value of RSU’s granted in
2012
,
2011
and
2010
was
$70.30
,
$65.20
and
$59.32
per share, respectively. Additionally, the Company assumed
0.4 million
restricted stock units and awards as part of the Merger in March of 2010. These restricted stock units and awards had a fair value of
$57.86
per share or
$25.0 million
in total, with
$12.2 million
recorded as consideration paid and
$12.8 million
recognized as future compensation cost.
Total compensation expense recognized for RSU’s amounted to
$34.8 million
,
$33.1 million
and
$52.7 million
, in
2012
,
2011
and
2010
respectively. The actual tax benefit received in the period the shares were delivered was
$3.7 million
,
$3.8 million
and
$0.3 million
in
2012
,
2011
and
2010
, respectively. As of
December 29, 2012
, unrecognized compensation expense for RSU’s amounted to
$52.9 million
and this cost will be recognized over a weighted-average period of
4.1
years.
A summary of non-vested restricted stock unit and award activity as of
December 29, 2012
, and changes during the
twelve
month period then ended is as follows:
|
|
|
|
|
|
|
|
|
Restricted Share
Units & Awards
|
|
Weighted Average
Grant
Date Fair Value
|
Non-vested at January 1, 2012
|
2,373,108
|
|
|
$
|
57.52
|
|
Granted
|
445,958
|
|
|
70.30
|
|
Vested
|
(523,902
|
)
|
|
72.20
|
|
Forfeited
|
(68,226
|
)
|
|
71.66
|
|
Non-vested at December 29, 2012
|
2,226,938
|
|
|
$
|
61.73
|
|
The total fair value of shares vested (market value on the date vested) during
2012
,
2011
and
2010
was
$37.8 million
,
$32.8 million
and
$14.9 million
, respectively.
Non-employee members of the Board of Directors received restricted share-based grants which must be cash settled and accordingly mark-to-market accounting is applied. Additionally, the Board of Directors were granted restricted share units for which compensation expense of
$1.1 million
was recognized for
2012
and
2011
, and
$0.9 million
was recognized for
2010
.
Long-Term Performance Awards:
The Company has granted Long Term Performance Awards (“LTIPs”) under its 1997, 2001 and 2009 Long Term Incentive Plans to senior management employees for achieving Company performance measures. Awards are payable in shares of common stock, which may be restricted if the employee has not achieved certain stock ownership levels, and generally no award is made if the employee terminates employment prior to the payout date.
Long-Term Performance Awards:
LTIP grants were made in
2010
,
2011
and
2012
. Each grant has separate annual performance goals for each year within the respective three year performance period. Earnings per share and return on capital employed represent
75%
of the share payout of each grant. There is a third market-based element, representing
25%
of the total grant, which measures the Company’s common stock return relative to peers over the performance period. The ultimate delivery of shares will occur in
2013
,
2014
and
2015
for the 2010, 2011 and 2012 grants, respectively. Total payouts are based on actual performance in relation to these goals.
Working capital incentive plan:
In
2010
, the Company initiated a bonus program under its
2009
Long Term Incentive Plan. The program provides executives the opportunity to receive stock in the event certain working capital turn objectives are achieved by June of
2013
and are sustained for a period of at least
six
months. The ultimate issuances of shares, if any, will be determined based on achievement of objectives during the performance period.
Expense recognized for the various performance-contingent grants amounted to
$7.3 million
in
2012
,
$9.2 million
in
2011
, and
$10.1 million
in
2010
. With the exception of the market-based award, in the event performance goals are not met compensation cost is not recognized and any previously recognized compensation cost is reversed.
A summary of the activity pertaining to the maximum number of shares that may be issued is as follows:
|
|
|
|
|
|
|
|
|
Share Units
|
|
Weighted Average
Grant
Date Fair Value
|
Non-vested at January 1, 2012
|
1,357,899
|
|
|
$
|
46.14
|
|
Granted
|
274,614
|
|
|
74.86
|
|
Vested
|
(411,329
|
)
|
|
30.37
|
|
Forfeited
|
(136,265
|
)
|
|
38.89
|
|
Non-vested at December 29, 2012
|
1,084,919
|
|
|
$
|
60.29
|
|
OTHER EQUITY ARRANGEMENTS
In December 2012, the Company entered into a forward starting accelerated share repurchase (“ASR”) contract with certain financial institutions to purchase
$850 million
of the Company's common stock. The Company paid
850 million
to the financial institutions and received an initial delivery of
9,345,794
shares, which reduced the Company's shares outstanding at December 29, 2012. The value of the initial shares received on the date of purchase was
$680 million
, reflecting a
$72.76
price per share which was recorded as a treasury share purchase for purposes of calculating earnings per share. In accordance with ASC 815-40, the Company recorded the remaining
$170 million
as a forward contract indexed to its own common stock in additional paid in capital. The total amount of shares to be ultimately delivered by the financial institutions will be determined by the average price per share paid by the financial institutions during the purchase period which ends in April 2013. The average price is calculated using the volume weighted average price ("VWAP") of the Company's stock (inclusive of a VWAP discount) during that period. In the unlikely event the Company is required to deliver value to the financial institutions at the end of the purchase period, the Company, at its option, may elect to settle in shares or cash.
In November 2012, the Company purchased from certain financial institutions over the counter “out-of-the-money” capped call options, subject to adjustments for standard anti-dilution provisions, on
10,094,144
shares of its common stock for an aggregate premium of
$29.5 million
, or an average of
$2.92
per share. The purpose of the capped call options is to reduce share price volatility on potential future share repurchases. In accordance with ASC 815-40 the premium paid was recorded as a reduction of Shareowners’ equity. The contracts for the options provide that they may, at the Company’s election, be cash settled, physically settled, or net-share settled (the default settlement method). The capped call options have various expiration dates ranging from March
2013
through August
2013
. The average lower strike price is
$71.43
and the average upper strike price is
$79.75
, subject to customary market adjustments. The aggregate fair value of the options at
December 29, 2012
was
$31.1 million
.
In May 2011, the Company purchased from a financial institution over the counter
3
month “in-the-money” capped call options, subject to adjustments for standard anti-dilution provisions, on
2,448,558
shares of its common stock for an aggregate premium of
$19.6 million
, or an average of
$8.00
per option. The initial term of the capped call options was
one
month which was subsequently extended in an addendum to the agreement with the counterparty to a
three
month term. The purpose of the capped call options was to reduce share price volatility on potential future share repurchases by establishing the prices at which the Company could elect to repurchase
2,448,558
shares in the
three
month term. In accordance with ASC 815-40 the premium paid was recorded as a reduction of Shareowners’ equity. The contracts for this series of options generally provided that the options might, at the Company’s election, be cash settled, physically settled or net-share settled (the default settlement method). This series of options had various expiration dates within the month of August
2011
. The applicable lower strike price was
$70.16
and the applicable upper strike price was
$80.35
. The capped calls were terminated in July
2011
. The Company elected to net share settle the transaction and received
3,052
shares valued at
$0.2 million
.
Convertible Preferred Units and Equity Option
As described more fully in Note H, Long-Term Debt and Financing Arrangements, in November
2010
, the Company issued Convertible Preferred Units comprised of
$632,500,000
of Notes due
November 17, 2018
and Purchase Contracts. There have been no changes to the terms of the Convertible Preferred Units. The Purchase Contracts obligate the holders to purchase, on the earlier of (i)
November 17, 2015
(the Purchase Contract Settlement date) or (ii) the triggered early settlement date,
6,325,000
shares, for
$100.00
per share, of the Company’s
4.75%
Series B Cumulative Convertible Preferred Stock (the “Convertible Preferred Stock”), resulting in cash proceeds to the Company of up to
$632.5 million
.
Following the issuance of Convertible Preferred Stock upon settlement of a holder’s Purchase Contracts, a holder of Convertible Preferred Stock may, at its option, at any time and from time to time, convert some or all of its outstanding shares of Convertible Preferred Stock at a conversion rate of
1.3333
shares of the Company’s common stock per share of Convertible Preferred Stock (subject to customary anti-dilution provisions), which is equivalent to an initial conversion price of approximately
$75.00
per share of common stock. Assuming conversion of the
6,325,000
shares of Convertible Preferred Stock at the
1.3333
initial conversion rate a total of
8,433,123
shares of the Company’s common stock may be issued upon conversion. As of
December 29, 2012
, due to the customary anti-dilution provisions, the conversion rate on the Convertible Preferred Stock was
1.3475
(equivalent to a conversion price of approximately
$74.21
per common share). In the event that holders elect to settle their Purchase Contracts prior to
November 17, 2015
, the Company will deliver a number of shares of Convertible Preferred Stock equal to
85%
of the Purchase Contracts tendered, together with cash in lieu of fractional shares. Upon a conversion on or after
November 15, 2017
the Company may elect to pay or deliver, as the case may be, solely shares of common stock, together with cash in lieu of fractional shares (“physical settlement”), solely cash (“cash settlement”), or a combination of cash and common stock (“combination settlement”). The Company may redeem some or all of the Convertible Preferred Stock on or after
December 22, 2015
at a redemption price equal to
100%
of the
$100
liquidation preference per share plus accrued and unpaid dividends to the redemption date.
In November
2010
, contemporaneously with the issuance of the Convertible Preferred Units described above, the Company paid
$50.3 million
, or an average of
$5.97
per option, to enter into capped call transactions (equity options) on
8.43 million
shares of common stock with certain major financial institutions. The purpose of the capped call transactions is to offset the common shares that may be deliverable upon conversion of shares of Convertible Preferred Stock. With respect to the impact
on the Company, the capped call transactions and the Convertible Preferred Stock, when taken together, result in the economic equivalent of having the conversion price on the Convertible Preferred Stock at
$96.92
, the upper strike price of the capped call (as of
December 29, 2012
). Refer to Note H, Long-Term Debt and Financing Arrangements. In accordance with ASC 815-40 the
$50.3 million
premium paid was recorded as a reduction to equity.
The capped call transactions cover, subject to customary anti-dilution adjustments, the number of shares of common stock equal to the number of shares of common stock underlying the maximum number of shares of Convertible Preferred Stock issuable upon settlement of the Purchase Contracts. Each of the capped call transactions has a term of approximately
five
years and initially had a lower strike price of
$75.00
, which corresponded to the initial conversion price of the Convertible Preferred Stock, and an upper strike price of
$97.95
, which was approximately
60%
higher than the closing price of the common stock on
November 1, 2010
. The capped call transactions may be settled by net share settlement (the default settlement method) or, at the Company’s option and subject to certain conditions, cash settlement, physical settlement or modified physical settlement. The aggregate fair value of the options at
December 29, 2012
was
$60.9 million
.
K. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) at the end of each fiscal year was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Currency translation adjustment
|
$
|
29.4
|
|
|
$
|
(87.4
|
)
|
|
$
|
29.1
|
|
Pension loss, net of tax
|
(260.6
|
)
|
|
(153.1
|
)
|
|
(62.5
|
)
|
Fair value of net investment hedge effectiveness, net of tax
|
(63.3
|
)
|
|
(32.8
|
)
|
|
(32.7
|
)
|
Fair value of cash flow hedge effectiveness, net of tax
|
(93.5
|
)
|
|
(75.9
|
)
|
|
(50.2
|
)
|
Accumulated other comprehensive loss
|
$
|
(388.0
|
)
|
|
$
|
(349.2
|
)
|
|
$
|
(116.3
|
)
|
L. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP
”) Most U.S. employees, including Black & Decker employees beginning on
January 1, 2011
, may contribute from
1%
to
25%
of their eligible compensation to a tax-deferred 401(k) savings plan, subject to restrictions under tax laws. Employees generally direct the investment of their own contributions into various investment funds. An employer match benefit is provided under the plan equal to one-half of each employee’s tax-deferred contribution up to the first
7%
of their compensation. Participants direct the entire employer match benefit such that no participant is required to hold the Company’s common stock in their 401(k) account. The employer match benefit totaled
$19.1 million
,
$17.7 million
and
$8.8 million
in
2012
,
2011
and
2010
, respectively.
In addition, approximately
7,900
U.S. salaried and non-union hourly employees are eligible to receive a non-contributory benefit under the Core benefit plan. Core benefit allocations range from
2%
to
6%
of eligible employee compensation based on age. Approximately
5,300
U.S. employees also receive a Core transition benefit, allocations of which range from
1%
—
3%
of eligible compensation based on age and date of hire. Approximately
2,100
U.S. employees are eligible to receive an additional average
1.3%
contribution actuarially designed to replace previously curtailed pension benefits. Allocations for benefits earned under the Core plan were
$29.4 million
in
2012
,
$33.0 million
million in
2011
and
$13.7 million
in 2010. Assets held in participant Core accounts are invested in target date retirement funds which have an age-based allocation of investments.
Shares of the Company's common stock held by the ESOP were purchased with the proceeds of borrowings from the Company in 1991 ("1991 internal loan"). Shareowners' equity reflects a reduction equal to the cost basis of unearned (unallocated) shares purchased with the internal borrowings.
The Company accounts for the ESOP under ASC 718-40, “Compensation — Stock Compensation — Employee Stock Ownership Plans”. Net ESOP activity recognized is comprised of the cost basis of shares released, the cost of the aforementioned Core and 401(k) match defined contribution benefits, less the fair value of shares released and dividends on unallocated ESOP shares. The Company’s net ESOP activity resulted in expense of
$25.9 million
in
2012
,
$28.4 million
in
2011
and
$3.4 million
in
2010
. The increase in net ESOP expense in
2011
is related to the merger of the U.S. Black & Decker 401(k) defined contribution plan into the ESOP and extending the Core benefit to these employees. ESOP expense is affected by the market value of the Company’s common stock on the monthly dates when shares are released. The market value of shares released averaged
$70.98
in
2012
,
$68.12
per share in
2011
and
$58.56
per share in
2010
.
Unallocated shares are released from the trust based on current period debt principal and interest payments as a percentage of total future debt principal and interest payments. Dividends on both allocated and unallocated shares may be used for debt service and to credit participant accounts for dividends earned on allocated shares. Dividends paid on the shares acquired with the
1991
internal loan were used solely to pay internal loan debt service in all periods. Dividends on ESOP shares, which are charged to shareowners’ equity as declared, were
$12.4 million
in
2012
,
$12.2 million
in
2011
and
$9.7 million
in
2010
, net of the tax benefit which is recorded within equity. Dividends on ESOP shares were utilized entirely for debt service in all years. Interest costs incurred by the ESOP on the
1991
internal loan, which have no earnings impact, were
$6.7 million
,
$7.2 million
and
$7.6 million
for
2012
,
2011
and
2010
, respectively. Both allocated and unallocated ESOP shares are treated as outstanding for purposes of computing earnings per share. As of
December 29, 2012
, the cumulative number of ESOP shares allocated to participant accounts was
12,182,342
, of which participants held
3,210,779
shares, and the number of unallocated shares was
3,382,714
. At
December 29, 2012
, there were
25,528
released shares in the ESOP trust holding account pending allocation. The Company made cash contributions totaling
$36.6 million
in
2012
,
$16.2 million
in
2011
and
$1.3 million
in
2010
.
PENSION AND OTHER BENEFIT PLANS
— The Company sponsors pension plans covering most domestic hourly and certain executive employees, and approximately
14,100
foreign employees. Benefits are generally based on salary and years of service, except for U.S. collective bargaining employees whose benefits are based on a stated amount for each year of service.
The Company contributes to a number of multi-employer plans for certain collective bargaining U.S. employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
a. Assets contributed to the multiemployer plan by one employer may be used to provide benefit to employees of other participating employers.
b. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers.
c. If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
In addition, the Company also contributes to a number of multiemployer plans outside of the U.S. The foreign plans are insured, therefore, the Company’s obligation is limited to the payment of insurance premiums.
The Company has assessed and determined that none of the multiemployer plans to which it contributes are individually significant to the Company’s financial statements. The Company does not expect to incur a withdrawal liability or expect to significantly increase its contributions over the remainder of the contract period.
In addition to the multiemployer plans, various other defined contribution plans are sponsored worldwide, including a tax-deferred 401(k) savings plan covering substantially all Black & Decker U.S. employees in 2010.
The expense for such defined contribution plans, aside from the earlier discussed ESOP plans, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Multi-employer plan expense
|
$
|
3.3
|
|
|
$
|
3.0
|
|
|
$
|
0.6
|
|
Other defined contribution plan expense
|
$
|
16.2
|
|
|
$
|
9.9
|
|
|
$
|
16.4
|
|
The increase in other defined contribution plan expense in
2012
relative to
2011
primarily pertains to a full year expense for Niscayah which was acquired in September 2011. The decrease in other defined contribution plan expense in 2011 relative to 2010 primarily pertains to the merger of the Black & Decker U.S. defined contribution plan into the ESOP.
The components of net periodic pension expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Service cost
|
$
|
6.6
|
|
|
$
|
6.5
|
|
|
$
|
18.1
|
|
|
$
|
12.1
|
|
|
$
|
12.6
|
|
|
$
|
12.8
|
|
Interest cost
|
62.9
|
|
|
69.6
|
|
|
61.2
|
|
|
47.3
|
|
|
52.9
|
|
|
44.7
|
|
Expected return on plan assets
|
(67.1
|
)
|
|
(70.0
|
)
|
|
(52.5
|
)
|
|
(44.3
|
)
|
|
(50.5
|
)
|
|
(39.8
|
)
|
Prior service cost amortization
|
1.0
|
|
|
1.0
|
|
|
1.0
|
|
|
0.4
|
|
|
0.3
|
|
|
0.2
|
|
Transition obligation amortization
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Actuarial loss amortization
|
6.2
|
|
|
2.5
|
|
|
2.0
|
|
|
2.1
|
|
|
3.0
|
|
|
4.1
|
|
Settlement / curtailment loss (gain)
|
11.3
|
|
|
1.9
|
|
|
(9.1
|
)
|
|
3.3
|
|
|
(0.5
|
)
|
|
(2.3
|
)
|
Net periodic pension expense
|
$
|
20.9
|
|
|
$
|
11.5
|
|
|
$
|
20.7
|
|
|
$
|
21.0
|
|
|
$
|
17.9
|
|
|
$
|
19.8
|
|
The U.S. settlement loss in 2012 pertains to partial settlements in
two
qualified pension plans arising from the voluntary elections of participants.
The Company provides medical and dental benefits for certain retired employees in the United States and Canada. Approximately
10,600
participants are covered under these plans. Net periodic post-retirement benefit expense was comprised of the following elements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefit Plans
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Service cost
|
$
|
0.9
|
|
|
$
|
0.6
|
|
|
$
|
1.3
|
|
Interest cost
|
3.1
|
|
|
3.6
|
|
|
4.6
|
|
Prior service credit amortization
|
(1.2
|
)
|
|
(1.2
|
)
|
|
(0.2
|
)
|
Actuarial loss amortization
|
(0.2
|
)
|
|
(0.2
|
)
|
|
(0.1
|
)
|
Settlement / curtailment gain
|
0.1
|
|
|
—
|
|
|
(7.2
|
)
|
Net periodic post-retirement benefit expense (income)
|
$
|
2.7
|
|
|
$
|
2.8
|
|
|
$
|
(1.6
|
)
|
Changes in plan assets and benefit obligations recognized in other comprehensive income in
2012
are as follows:
|
|
|
|
|
(Millions of Dollars)
|
2012
|
Current year actuarial loss
|
$
|
148.8
|
|
Amortization of actuarial loss
|
(22.6
|
)
|
Prior service cost from plan amendments
|
1.1
|
|
Amortization of prior service costs
|
(0.3
|
)
|
Amortization of transition obligation
|
(0.1
|
)
|
Currency / other
|
4.3
|
|
|
|
Total loss recognized in other comprehensive income (pre-tax)
|
$
|
131.2
|
|
|
|
The amounts in Accumulated other comprehensive loss expected to be recognized as components of net periodic benefit costs during 2013 total
$10.5 million
, representing amortization of
$10.3 million
of actuarial loss,
$0.1 million
of prior service cost, and
$0.1 million
of transition obligation.
The changes in the pension and other post-retirement benefit obligations, fair value of plan assets, as well as amounts recognized in the Consolidated Balance Sheets, are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Other Benefits
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of prior year
|
$
|
1,501.0
|
|
|
$
|
1,390.5
|
|
|
$
|
965.7
|
|
|
$
|
987.1
|
|
|
$
|
80.1
|
|
|
$
|
86.9
|
|
Service cost
|
6.6
|
|
|
6.5
|
|
|
12.1
|
|
|
12.6
|
|
|
0.9
|
|
|
0.6
|
|
Interest cost
|
62.9
|
|
|
69.6
|
|
|
47.3
|
|
|
52.9
|
|
|
3.1
|
|
|
3.6
|
|
Settlements/curtailments
|
(126.6
|
)
|
|
(44.1
|
)
|
|
(14.6
|
)
|
|
(3.1
|
)
|
|
(0.1
|
)
|
|
(0.9
|
)
|
Actuarial loss (gain)
|
100.2
|
|
|
161.9
|
|
|
127.5
|
|
|
(23.0
|
)
|
|
4.5
|
|
|
0.2
|
|
Plan amendments
|
1.3
|
|
|
0.1
|
|
|
(1.0
|
)
|
|
2.8
|
|
|
0.9
|
|
|
0.7
|
|
Foreign currency exchange rates
|
—
|
|
|
—
|
|
|
41.0
|
|
|
(13.8
|
)
|
|
0.3
|
|
|
(0.2
|
)
|
Participant contributions
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Acquisitions, divestitures and other
|
8.5
|
|
|
4.1
|
|
|
5.3
|
|
|
0.3
|
|
|
7.8
|
|
|
0.1
|
|
Benefits paid
|
(90.5
|
)
|
|
(87.6
|
)
|
|
(48.9
|
)
|
|
(50.4
|
)
|
|
(9.8
|
)
|
|
(10.9
|
)
|
Benefit obligation at end of year
|
$
|
1,463.4
|
|
|
$
|
1,501.0
|
|
|
$
|
1,134.7
|
|
|
$
|
965.7
|
|
|
$
|
87.7
|
|
|
$
|
80.1
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of prior year
|
$
|
1,079.5
|
|
|
$
|
1,032.1
|
|
|
$
|
709.4
|
|
|
$
|
719.1
|
|
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
129.3
|
|
|
99.2
|
|
|
64.8
|
|
|
19.4
|
|
|
—
|
|
|
—
|
|
Participant contributions
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
62.2
|
|
|
83.6
|
|
|
35.0
|
|
|
35.6
|
|
|
9.8
|
|
|
11.8
|
|
Settlements
|
(126.6
|
)
|
|
(44.1
|
)
|
|
(13.9
|
)
|
|
(2.7
|
)
|
|
—
|
|
|
(0.9
|
)
|
Foreign currency exchange rate changes
|
—
|
|
|
—
|
|
|
31.5
|
|
|
(8.3
|
)
|
|
—
|
|
|
—
|
|
Acquisitions, divestitures and other
|
3.2
|
|
|
(3.7
|
)
|
|
0.9
|
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
Benefits paid
|
(90.5
|
)
|
|
(87.6
|
)
|
|
(48.9
|
)
|
|
(50.4
|
)
|
|
(9.8
|
)
|
|
(10.9
|
)
|
Fair value of plan assets at end of plan year
|
$
|
1,057.1
|
|
|
$
|
1,079.5
|
|
|
$
|
779.1
|
|
|
$
|
709.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status — assets less than benefit obligation
|
$
|
(406.3
|
)
|
|
$
|
(421.5
|
)
|
|
$
|
(355.6
|
)
|
|
$
|
(256.3
|
)
|
|
$
|
(87.7
|
)
|
|
$
|
(80.1
|
)
|
Unrecognized prior service cost (credit)
|
4.7
|
|
|
4.5
|
|
|
4.1
|
|
|
5.6
|
|
|
(10.7
|
)
|
|
(12.7
|
)
|
Unrecognized net actuarial loss
|
174.0
|
|
|
153.3
|
|
|
180.4
|
|
|
75.1
|
|
|
6.3
|
|
|
1.7
|
|
Unrecognized net transition obligation
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Net amount recognized
|
$
|
(227.6
|
)
|
|
$
|
(263.7
|
)
|
|
$
|
(170.8
|
)
|
|
$
|
(175.3
|
)
|
|
$
|
(92.1
|
)
|
|
$
|
(91.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Other Benefits
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Amounts recognized in the Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid benefit cost (non-current)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
4.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Current benefit liability
|
(16.4
|
)
|
|
(20.2
|
)
|
|
(8.2
|
)
|
|
(8.0
|
)
|
|
(9.9
|
)
|
|
(9.6
|
)
|
Non-current benefit liability
|
(389.9
|
)
|
|
(401.3
|
)
|
|
(348.5
|
)
|
|
(252.3
|
)
|
|
(77.8
|
)
|
|
(70.5
|
)
|
Net liability recognized
|
$
|
(406.3
|
)
|
|
$
|
(421.5
|
)
|
|
$
|
(355.6
|
)
|
|
$
|
(256.3
|
)
|
|
$
|
(87.7
|
)
|
|
$
|
(80.1
|
)
|
Accumulated other comprehensive loss (pre-tax):
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost (credit)
|
$
|
4.7
|
|
|
$
|
4.5
|
|
|
$
|
4.1
|
|
|
$
|
5.6
|
|
|
$
|
(10.7
|
)
|
|
$
|
(12.7
|
)
|
Actuarial loss
|
174.0
|
|
|
153.3
|
|
|
180.4
|
|
|
75.1
|
|
|
6.3
|
|
|
1.7
|
|
Transition liability
|
—
|
|
|
—
|
|
|
0.3
|
|
|
0.3
|
|
|
—
|
|
|
—
|
|
|
$
|
178.7
|
|
|
$
|
157.8
|
|
|
$
|
184.8
|
|
|
$
|
81.0
|
|
|
$
|
(4.4
|
)
|
|
$
|
(11.0
|
)
|
Net amount recognized
|
$
|
(227.6
|
)
|
|
$
|
(263.7
|
)
|
|
$
|
(170.8
|
)
|
|
$
|
(175.3
|
)
|
|
$
|
(92.1
|
)
|
|
$
|
(91.1
|
)
|
The increase in the projected benefit obligation from actuarial losses in 2012 primarily pertains to the decline in discount rates.
The accumulated benefit obligation for all defined benefit pension plans was
$2,551.1 million
at December 29, 2012 and
$2,430.0 million
at December 31, 2011. Information regarding pension plans in which accumulated benefit obligations exceed plan assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Projected benefit obligation
|
$
|
1,463.4
|
|
|
$
|
1,501.0
|
|
|
$
|
1,125.9
|
|
|
$
|
777.0
|
|
Accumulated benefit obligation
|
$
|
1,460.7
|
|
|
$
|
1,498.0
|
|
|
$
|
1,084.2
|
|
|
$
|
751.2
|
|
Fair value of plan assets
|
$
|
1,057.1
|
|
|
$
|
1,079.5
|
|
|
$
|
769.8
|
|
|
$
|
518.7
|
|
Information regarding pension plans in which projected benefit obligations (inclusive of anticipated future compensation increases) exceed plan assets follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Projected benefit obligation
|
$
|
1,463.4
|
|
|
$
|
1,501.0
|
|
|
$
|
1,134.3
|
|
|
$
|
785.1
|
|
Accumulated benefit obligation
|
$
|
1,460.7
|
|
|
$
|
1,498.0
|
|
|
$
|
1,090.3
|
|
|
$
|
756.1
|
|
Fair value of plan assets
|
$
|
1,057.1
|
|
|
$
|
1,079.5
|
|
|
$
|
777.7
|
|
|
$
|
524.9
|
|
The major assumptions used in valuing pension and post-retirement plan obligations and net costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Other Benefits
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
|
2012
|
|
2011
|
|
2010
|
Weighted-average assumptions used to determine benefit obligations at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
3.75
|
%
|
|
4.25
|
%
|
|
5.25
|
%
|
|
4.00
|
%
|
|
5.00
|
%
|
|
5.25
|
%
|
|
3.00
|
%
|
|
3.75
|
%
|
|
4.50
|
%
|
Rate of compensation increase
|
6.00
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
|
3.25
|
%
|
|
3.50
|
%
|
|
4.00
|
%
|
|
3.50
|
%
|
|
—
|
|
|
3.75
|
%
|
Weighted-average assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
4.25
|
%
|
|
5.25
|
%
|
|
5.75
|
%
|
|
5.00
|
%
|
|
5.25
|
%
|
|
5.75
|
%
|
|
3.75
|
%
|
|
4.50
|
%
|
|
5.50
|
%
|
Rate of compensation increase
|
6.00
|
%
|
|
6.00
|
%
|
|
3.75
|
%
|
|
3.50
|
%
|
|
4.00
|
%
|
|
4.25
|
%
|
|
3.50
|
%
|
|
3.75
|
%
|
|
4.00
|
%
|
Expected return on plan assets
|
6.25
|
%
|
|
7.00
|
%
|
|
7.50
|
%
|
|
6.25
|
%
|
|
7.00
|
%
|
|
6.75
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
The expected rate of return on plan assets is determined considering the returns projected for the various asset classes and the relative weighting for each asset class. The Company will use a
6.00%
weighted-average expected rate of return assumption to determine the 2013 net periodic benefit cost.
PENSION PLAN ASSETS
— Plan assets are invested in equity securities, government and corporate bonds and other fixed income securities, money market instruments and insurance contracts. The Company’s worldwide asset allocations at December 29, 2012 and December 31, 2011 by asset category and the level of the valuation inputs within the fair value hierarchy established by ASC 820 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
2012
|
|
Level 1
|
|
Level 2
|
Cash and cash equivalents
|
$
|
30.1
|
|
|
$
|
27.5
|
|
|
$
|
2.6
|
|
Equity securities
|
|
|
|
|
|
U.S. equity securities
|
285.2
|
|
|
42.5
|
|
|
242.7
|
|
Foreign equity securities
|
400.8
|
|
|
124.1
|
|
|
276.7
|
|
Fixed income securities
|
|
|
|
|
|
Government securities
|
479.4
|
|
|
254.8
|
|
|
224.6
|
|
Corporate securities
|
562.0
|
|
|
—
|
|
|
562.0
|
|
Mortgage-backed securities
|
10.9
|
|
|
—
|
|
|
10.9
|
|
Insurance contracts
|
30.5
|
|
|
—
|
|
|
30.5
|
|
Other
|
37.3
|
|
|
—
|
|
|
37.3
|
|
Total
|
$
|
1,836.2
|
|
|
$
|
448.9
|
|
|
$
|
1,387.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
2011
|
|
Level 1
|
|
Level 2
|
Cash and cash equivalents
|
$
|
35.6
|
|
|
$
|
6.8
|
|
|
$
|
28.8
|
|
Equity securities
|
|
|
|
|
|
U.S. equity securities
|
323.5
|
|
|
62.8
|
|
|
260.7
|
|
Foreign equity securities
|
377.7
|
|
|
76.9
|
|
|
300.8
|
|
Fixed income securities
|
|
|
|
|
|
Government securities
|
468.6
|
|
|
244.5
|
|
|
224.1
|
|
Corporate securities
|
505.3
|
|
|
—
|
|
|
505.3
|
|
Mortgage-backed securities
|
1.9
|
|
|
—
|
|
|
1.9
|
|
Insurance contracts
|
27.7
|
|
|
—
|
|
|
27.7
|
|
Other
|
48.6
|
|
|
—
|
|
|
48.6
|
|
Total
|
$
|
1,788.9
|
|
|
$
|
391.0
|
|
|
$
|
1,397.9
|
|
U.S. and foreign equity securities primarily consist of companies with large market capitalizations and to a lesser extent mid and small capitalization securities. Government securities primarily consist of U.S. Treasury securities and foreign government securities with de minimus default risk. Corporate fixed income securities include publicly traded U.S. and foreign investment grade and to a small extent high yield securities. Mortgage-backed securities predominantly consist of U.S. holdings. Assets held in insurance contracts are invested in the general asset pools of the various insurers, mainly debt and equity securities with guaranteed returns. Other investments include diversified private equity holdings. The level 2 investments are primarily comprised of institutional mutual funds that are not publicly traded; the investments held in these mutual funds are generally level 1 publicly traded securities.
The Company's investment strategy for pension assets focuses on a liability-matching approach with gradual de-risking taking place over a period of many years. The Company utilizes the current funded status to transition the portfolio toward investments that better match the duration and cash flow attributes of the underlying liabilities. Assets approximating
40%
of the Company's current pension liabilities have been invested in fixed income securities, using a liability / asset matching duration strategy, with the primary goal of mitigating exposure to interest rate movements and preserving the overall funded status of the underlying plans. Plan assets are broadly diversified and are invested to ensure adequate liquidity for immediate and medium term benefit payments. The Company’s target asset allocations include
25%
-
45%
in equity securities,
50%
-
70%
in fixed income securities and up to
10%
in other securities.
CONTRIBUTIONS
The Company’s funding policy for its defined benefit plans is to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with federal law and other regulations. The Company expects to contribute approximately
$80 million
to its pension and other post-retirement benefit plans in 2013.
EXPECTED FUTURE BENEFIT PAYMENTS
Benefit payments, inclusive of amounts attributable to estimated future employee service, are expected to be paid as follows over the next
10 years
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
|
Total
|
|
Year 1
|
|
Year 2
|
|
Year 3
|
|
Year 4
|
|
Year 5
|
|
Years 6-10
|
Future payments
|
|
$
|
1,575.6
|
|
|
$
|
156.4
|
|
|
$
|
168.5
|
|
|
$
|
157.9
|
|
|
$
|
154.5
|
|
|
$
|
154.3
|
|
|
$
|
784.0
|
|
These benefit payments will be funded through a combination of existing plan assets and amounts to be contributed in the future by the Company.
HEALTH CARE COST TRENDS
The weighted average annual assumed rate of increase in the per-capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be
7.4%
for 2013, reducing gradually to
4.5%
by
2028
and remaining at that level thereafter. A one percentage point change in the assumed health care cost trend rate would affect the post-retirement benefit obligation as of December 29, 2012 by approximately
$2.5 million
and would have an immaterial effect on the net periodic post-retirement benefit cost.
M. FAIR VALUE MEASUREMENTS
FASB ASC 820 "Fair Value Measurement" defines, establishes a consistent framework for measuring, and expands disclosure requirements about fair value. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1 — Quoted prices for identical instruments in active markets.
Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs and significant value drivers are observable.
Level 3 — Instruments that are valued using unobservable inputs.
The Company holds various derivative financial instruments that are employed to manage risks, including foreign currency and interest rate exposures. These financial instruments are carried at fair value and are included within the scope of ASC 820. The Company determines the fair value of derivatives through the use of matrix or model pricing, which utilizes verifiable inputs such as market interest and currency rates. When determining the fair value of these financial instruments for which Level 1 evidence does not exist, the Company considers various factors including the following: exchange or market price quotations of similar instruments, time value and volatility factors, the Company’s own credit rating and the credit rating of the counter-party.
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring for each of the hierarchy levels (millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Carrying
Value
|
|
Level 1
|
|
Level 2
|
December 29, 2012:
|
|
|
|
|
|
Derivative assets
|
$
|
99.0
|
|
|
$
|
—
|
|
|
$
|
99.0
|
|
Derivatives liabilities
|
$
|
91.5
|
|
|
$
|
—
|
|
|
$
|
91.5
|
|
Money market fund
|
$
|
68.0
|
|
|
$
|
68.0
|
|
|
$
|
—
|
|
December 31, 2011:
|
|
|
|
|
|
Derivative assets
|
$
|
142.5
|
|
|
$
|
—
|
|
|
$
|
142.5
|
|
Derivatives liabilities
|
$
|
181.7
|
|
|
$
|
—
|
|
|
$
|
181.7
|
|
Money market fund
|
$
|
39.0
|
|
|
$
|
39.0
|
|
|
$
|
—
|
|
The Company had no financial assets or liabilities measured using Level 3 inputs, nor any assets measured at fair value on a non-recurring basis during 2012 and 2011.
Refer to Note I, Derivative Financial Instruments, for more details regarding derivative financial instruments, and Note H, Long-Term Debt and Financing Arrangements, for more information regarding carrying values of the long-term debt shown below.
The following table presents the carrying values and fair values of the Company's financial assets and liabilities, as well as the Company's debt, as of December 29, 2012 and December 31, 2011 (millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2012
|
|
December 31, 2011
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
Long-term debt, including current portion
|
$
|
3,536.9
|
|
|
$
|
3,677.3
|
|
|
$
|
3,452.2
|
|
|
$
|
3,623.4
|
|
Derivative assets
|
$
|
99.0
|
|
|
$
|
99.0
|
|
|
$
|
142.5
|
|
|
$
|
142.5
|
|
Derivative liabilities
|
$
|
91.5
|
|
|
$
|
91.5
|
|
|
$
|
181.7
|
|
|
$
|
181.7
|
|
The fair values of long-term debt instruments are considered Level 2 instruments within the fair value hierarchy and are estimated using a discounted cash flow analysis, based on the Company’s marginal borrowing rates. The differences in carrying values in long-term debt are attributable to the stated interest rates differing from the Company's marginal borrowing rates. The fair value of the Company's variable rate short term borrowings approximate their carrying value at December 29, 2012 and December 31, 2011. The fair values of foreign currency and interest rate swap agreements, comprising the derivative assets and liabilities in the table above, are based on current settlement values.
As discussed in Note B, Accounts and Notes Receivable, the Company has a deferred purchase price receivable related to sales of trade receivables. 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 approximates fair value.
N. OTHER COSTS AND EXPENSES
Other-net is primarily comprised of intangible asset amortization expense (See Note F, Goodwill and Intangible Assets, for further discussion), currency related gains or losses, environmental expense and merger, and acquisition-related and other charges primarily consisting of transaction costs, partially offset by pension curtailments and settlements. During the years ended
December 29, 2012
,
December 31, 2011
, and January 1, 2011, Other-net included
$53.3 million
,
$48.8 million
, and
$36.3 million
in merger and acquisition related costs, respectively.
Research and development costs, which are classified in SG&A, were
$174.8 million
,
$139.3 million
and
$124.5 million
for fiscal years
2012
,
2011
and
2010
, respectively.
O. RESTRUCTURING AND ASSET IMPAIRMENTS
A summary of the restructuring reserve activity from
December 31, 2011
to
December 29, 2012
is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2011
|
|
Acquisitions
|
|
Net
Additions
|
|
Usage
|
|
Currency
|
|
12/29/2012
|
2012 Actions
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144.1
|
|
|
$
|
(68.2
|
)
|
|
$
|
2.2
|
|
|
$
|
78.1
|
|
Asset impairments
|
—
|
|
|
—
|
|
|
13.3
|
|
|
(13.3
|
)
|
|
—
|
|
|
—
|
|
Facility closure
|
—
|
|
|
—
|
|
|
16.3
|
|
|
(8.1
|
)
|
|
—
|
|
|
8.2
|
|
Subtotal 2012 actions
|
—
|
|
|
—
|
|
|
173.7
|
|
|
(89.6
|
)
|
|
2.2
|
|
|
86.3
|
|
Pre-2012 Actions
|
|
|
|
|
|
|
|
|
|
|
|
Severance and related costs
|
66.5
|
|
|
—
|
|
|
(0.9
|
)
|
|
(31.9
|
)
|
|
0.3
|
|
|
34.0
|
|
Facility closure
|
3.5
|
|
|
—
|
|
|
2.3
|
|
|
(0.9
|
)
|
|
—
|
|
|
4.9
|
|
Subtotal Pre-2012 actions
|
70.0
|
|
|
—
|
|
|
1.4
|
|
|
(32.8
|
)
|
|
0.3
|
|
|
38.9
|
|
Total
|
$
|
70.0
|
|
|
$
|
—
|
|
|
$
|
175.1
|
|
|
$
|
(122.4
|
)
|
|
$
|
2.5
|
|
|
$
|
125.2
|
|
2012 Actions:
During 2012, the Company continued with restructuring activities associated with the Merger, Niscayah and other acquisitions, and recognized
$61.2 million
of restructuring charges related to activities initiated in the current year. Of those charges,
$39.5 million
relates to severance charges associated with the reduction of approximately
500
employees,
$10.9 million
relates to facility closure costs, and
$10.8 million
relates to asset impairment charges.
In addition, the Company has initiated cost reduction actions in 2012 that were not associated with the Merger or other acquisition activities, resulting in severance charges of
$104.6 million
pertaining to the reduction of approximately
1,600
employees,
$5.4 million
of facility; closure costs, and
$2.5 million
of asset impairment charges.
Of the
$86.3 million
reserves remaining as of December 29, 2012, the majority are expected to be utilized by the end of 2013.
Pre-2012 Actions:
In 2012, the Company released
$0.9 million
of the severance reserve related to remaining liabilities for prior year initiatives. The Company also recorded
$2.3 million
of facility closure costs in 2012 that were associated with prior year initiatives.
The vast majority of the remaining reserve balance of
$38.9 million
relating to pre-2012 actions is expected to be utilized in the first half of 2013.
Segments:
The
$175.1 million
of charges recognized in 2012 includes:
$33.0 million
pertaining to the CDIY segment;
$43.6 million
pertaining to the Security segment;
$94.4 million
pertaining to the Industrial segment; and
$4.1 million
pertaining to Corporate charges.
P. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company classifies its business into
three
reportable segments, which also represent its operating segments: Construction & Do It Yourself (“CDIY”), Security, and Industrial.
The CDIY segment is comprised of the Professional Power Tool and Accessories business, the Consumer Power Tool business and the Hand Tools, Fasteners & Storage business. The Professional Power Tool and Accessories business sells professional grade corded and cordless electric power tools and equipment including drills, impact wrenches and drivers, grinders, saws, routers and sanders. The Consumer Power Tool business sells corded and cordless electric power tools, lawn and garden products and home products. The Hand Tools, Fasteners & Storage business sells measuring and leveling tools, planes, hammers, demolition tools, knives, saws and chisels. Fastening products include pneumatic tools and fasteners including nail guns, nails, staplers and staples. Storage products include tool boxes, sawhorses and storage units.
The Security segment is comprised of the Convergent Security Solutions ("CSS") and the Mechanical Access Solutions ("MAS") businesses. The CSS business designs, supplies and installs electronic security systems and provides electronic security services, including alarm monitoring, video surveillance, fire alarm monitoring, systems integration and system maintenance. Purchasers of these systems typically contract for ongoing security systems monitoring and maintenance at the time of initial equipment installation. The business also includes healthcare solutions, which markets medical carts and cabinets, asset tracking, infant protection, pediatric protection, patient protection, wander management, fall management, and emergency call products. The MAS business sells automatic doors, commercial hardware, locking mechanisms, electronic keyless entry systems, keying systems, tubular and mortise door locksets.
The Industrial segment is comprised of the Industrial and Automotive Repair ("IAR"), Engineered Fastening and Infrastructure businesses. The IAR business sells hand tools, power tools, and engineered storage solution products. The Engineered Fastening business primarily sells engineered fasteners designed for specific applications. The product lines include stud welding systems, blind rivets and tools, blind inserts and tools, drawn arc weld studs, engineered plastic fasteners, self-piercing riveting systems and precision nut running systems. The Infrastructure business consists of the CRC-Evans business and the Company’s Hydraulics business. The product lines include custom pipe handling machinery, joint welding and coating machinery, weld inspection services and hydraulic tools and accessories.
As discussed in Note A, Significant Accounting Policies, the Merger with Black & Decker occurred on the close of business on March 12, 2010. The results of Black & Decker’s operations are presented within each of these segments and reflect activity since the Merger date.
The Company utilizes segment profit, which is defined as net sales minus cost of sales and SG&A inclusive of the provision for doubtful accounts (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, interest income, interest expense, other-net (inclusive of intangible asset amortization expense), restructuring, loss on debt extinguishment and income tax expense. Refer to Note O, Restructuring and Asset Impairments, for the amount of restructuring charges and asset impairments by segment, and to Note F, Goodwill and Intangible Assets, for intangible amortization expense by segment. Corporate overhead is comprised of world headquarters facility expense, cost for the executive management team and cost for certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Transactions between segments are not material. Segment assets primarily include accounts receivable, inventory, other current assets, property, plant and equipment, intangible assets and other miscellaneous assets.
Corporate assets and unallocated assets are cash and deferred income taxes. Geographic net sales and long-lived assets are attributed to the geographic regions based on the geographic location of each Company subsidiary.
BUSINESS SEGMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Net Sales
|
|
|
|
|
|
CDIY
|
$
|
5,193.7
|
|
|
$
|
5,007.6
|
|
|
$
|
4,147.6
|
|
Security
|
2,428.9
|
|
|
1,926.5
|
|
|
1,457.6
|
|
Industrial
|
2,567.9
|
|
|
2,501.4
|
|
|
1,891.7
|
|
Consolidated
|
$
|
10,190.5
|
|
|
$
|
9,435.5
|
|
|
$
|
7,496.9
|
|
Segment Profit
|
|
|
|
|
|
CDIY
|
$
|
720.7
|
|
|
$
|
634.8
|
|
|
$
|
422.6
|
|
Security
|
305.6
|
|
|
297.1
|
|
|
252.9
|
|
Industrial
|
410.2
|
|
|
400.7
|
|
|
255.5
|
|
Segment Profit
|
1,436.5
|
|
|
1,332.6
|
|
|
931.0
|
|
Corporate overhead
|
(252.3
|
)
|
|
(245.3
|
)
|
|
(244.7
|
)
|
Other-net
|
(301.9
|
)
|
|
(255.7
|
)
|
|
(184.9
|
)
|
Restructuring charges and asset impairments
|
(175.1
|
)
|
|
(69.3
|
)
|
|
(231.7
|
)
|
Loss on debt extinguishment
|
(45.5
|
)
|
|
—
|
|
|
—
|
|
Interest income
|
10.1
|
|
|
26.5
|
|
|
8.7
|
|
Interest expense
|
(144.2
|
)
|
|
(140.4
|
)
|
|
(109.8
|
)
|
Earnings from continuing operations before income taxes
|
$
|
527.6
|
|
|
$
|
648.4
|
|
|
$
|
168.6
|
|
Capital and Software Expenditures
|
|
|
|
|
|
CDIY
|
$
|
199.0
|
|
|
$
|
160.7
|
|
|
$
|
97.4
|
|
Security
|
65.3
|
|
|
49.3
|
|
|
27.8
|
|
Industrial
|
109.9
|
|
|
73.4
|
|
|
46.2
|
|
Discontinued operations
|
11.8
|
|
|
18.7
|
|
|
14.1
|
|
Consolidated
|
$
|
386.0
|
|
|
$
|
302.1
|
|
|
$
|
185.5
|
|
Depreciation and Amortization
|
|
|
|
|
|
CDIY
|
$
|
139.7
|
|
|
$
|
132.2
|
|
|
$
|
114.4
|
|
Security
|
150.2
|
|
|
130.9
|
|
|
116.2
|
|
Industrial
|
116.7
|
|
|
106.3
|
|
|
75.2
|
|
Discontinued operations
|
38.7
|
|
|
40.7
|
|
|
42.9
|
|
Consolidated
|
$
|
445.3
|
|
|
$
|
410.1
|
|
|
$
|
348.7
|
|
Segment Assets
|
|
|
|
|
|
CDIY
|
$
|
7,439.7
|
|
|
$
|
7,474.4
|
|
|
$
|
7,392.6
|
|
Security
|
4,728.9
|
|
|
4,152.1
|
|
|
2,327.2
|
|
Industrial
|
3,456.9
|
|
|
3,282.9
|
|
|
3,128.5
|
|
|
15,625.5
|
|
|
14,909.4
|
|
|
12,848.3
|
|
Discontinued operations
|
133.4
|
|
|
1,050.2
|
|
|
1,201.4
|
|
Corporate assets
|
85.1
|
|
|
(10.6
|
)
|
|
1,089.7
|
|
Consolidated
|
$
|
15,844.0
|
|
|
$
|
15,949.0
|
|
|
$
|
15,139.4
|
|
Corporate assets primarily consist of cash, deferred taxes, and property, plant and equipment. The decrease in 2011 corporate assets from 2010 was primarily due to the cash spent to fund the acquisition of Niscayah.
Sales to the Home Depot were
14%
,
13%
and
14%
of the CDIY segment net sales in 2012, 2011 and 2010, respectively. Sales to Lowes were
18%
,
17%
and
14%
of the CDIY segment net sales in 2012, 2011 and 2010, respectively.
In 2012 the Company recorded
$168 million
of facility closure-related and other charges associated with the merger and other acquisitions across all segments, impacting segment profit by
$42 million
in CDIY,
$41 million
in Security, and
$8 million
in Industrial for the year ended December 29, 2012, with the remainder residing in corporate overhead.
In 2011 the Company recorded
$120 million
of facility closure-related and other charges associated with the merger and other acquisitions across all segments, impacting segment profit by
$20 million
in CDIY,
$15 million
in Security, and
$9 million
in Industrial for the year ended December 31, 2011, with the remainder residing in corporate overhead.
In 2010 the Company recorded
$228 million
of facility closure-related and other charges associated with the Merger and other acquisitions across all segments, impacting segment profit by
$120 million
in CDIY and
$26 million
in Industrial for the year ended January 1, 2011, with the remainder residing in corporate overhead. There were no charges impacting the Security segment for the year ended January 1, 2011.
GEOGRAPHIC AREAS
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Net Sales
|
|
|
|
|
|
United States
|
$
|
4,873.2
|
|
|
$
|
4,517.2
|
|
|
$
|
3,965.6
|
|
Canada
|
579.3
|
|
|
548.9
|
|
|
461.0
|
|
Other Americas
|
805.3
|
|
|
753.6
|
|
|
354.8
|
|
France
|
703.3
|
|
|
706.6
|
|
|
671.6
|
|
Other Europe
|
2,444.7
|
|
|
2,208.2
|
|
|
1,325.7
|
|
Asia
|
784.7
|
|
|
701.0
|
|
|
718.2
|
|
Consolidated
|
$
|
10,190.5
|
|
|
$
|
9,435.5
|
|
|
$
|
7,496.9
|
|
Property, Plant & Equipment
|
|
|
|
|
|
United States
|
$
|
572.9
|
|
|
$
|
503.6
|
|
|
$
|
433.2
|
|
Canada
|
19.3
|
|
|
19.9
|
|
|
16.6
|
|
Other Americas
|
88.5
|
|
|
94.8
|
|
|
183.8
|
|
France
|
71.1
|
|
|
60.1
|
|
|
56.7
|
|
Other Europe
|
329.5
|
|
|
264.2
|
|
|
182.7
|
|
Asia
|
252.4
|
|
|
200.0
|
|
|
188.4
|
|
Consolidated
|
$
|
1,333.7
|
|
|
$
|
1,142.6
|
|
|
$
|
1,061.4
|
|
Q. INCOME TAXES
Significant components of the Company’s deferred tax assets and liabilities at the end of each fiscal year were as follows:
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
$
|
53.2
|
|
|
$
|
57.3
|
|
Amortization of intangibles
|
915.8
|
|
|
933.6
|
|
Liability on undistributed foreign earnings
|
436.9
|
|
|
421.8
|
|
Discharge of indebtedness
|
15.5
|
|
|
26.1
|
|
Inventories
|
22.2
|
|
|
24.2
|
|
Deferred revenue
|
12.4
|
|
|
20.6
|
|
Other
|
67.6
|
|
|
54.8
|
|
Total deferred tax liabilities
|
$
|
1,523.6
|
|
|
$
|
1,538.4
|
|
Deferred tax assets:
|
|
|
|
Employee benefit plans
|
$
|
413.0
|
|
|
$
|
408.4
|
|
Doubtful accounts
|
7.0
|
|
|
16.0
|
|
Accruals
|
109.5
|
|
|
133.7
|
|
Restructuring charges
|
32.9
|
|
|
4.4
|
|
Debt amortization
|
31.3
|
|
|
24.7
|
|
Operating loss, capital loss and tax credit carry forwards
|
635.0
|
|
|
353.2
|
|
Currency and derivatives
|
49.1
|
|
|
43.2
|
|
Other
|
89.7
|
|
|
120.9
|
|
Total deferred tax assets
|
$
|
1,367.5
|
|
|
$
|
1,104.5
|
|
Net Deferred Tax Liabilities before Valuation Allowance
|
$
|
156.1
|
|
|
$
|
433.9
|
|
Valuation allowance
|
$
|
552.6
|
|
|
$
|
300.4
|
|
Net Deferred Tax Liabilities after Valuation Allowance
|
$
|
708.7
|
|
|
$
|
734.3
|
|
Net operating loss carry forwards of
$891.0 million
as of December 29, 2012, are available to reduce future tax obligations of certain U.S. and foreign companies. The net operating loss carry forwards have various expiration dates beginning in 2013 with certain jurisdictions having indefinite carry forward periods. The U.S. federal capital loss carry forward of
$808.5 million
begins expiring in
2015
. The increase in the capital loss carry forward is attributable to the sale of shares for the U.S. HHI business. The U.S. foreign tax credit carry forwards of
$69.6 million
and research and development tax credit carry forwards of
$7.2 million
begin expiring in 2019 and 2030, respectively.
A valuation allowance is recorded on certain deferred tax assets if it has been determined it is more likely than not that all or a portion of these assets will not be realized. The Company recorded a valuation allowance of
$552.6 million
and
$300.4 million
for deferred tax assets existing as of December 29, 2012 and December 31, 2011, respectively. The valuation allowance is primarily attributable to foreign and state net operating loss carry forwards and a U.S. federal capital loss carry forward. A significant portion of the increase in the valuation allowance for the period ended December 29, 2012 pertains to the U.S. capital loss realized upon the sale of the HHI business. Capital losses are only allowed to offset capital gains, of which none are expected to be realized as of December 29, 2012.
The classification of deferred taxes as of December 29, 2012 and December 31, 2011 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
Deferred
Tax Asset
|
|
Deferred
Tax Liability
|
|
Deferred
Tax Asset
|
|
Deferred
Tax Liability
|
Current
|
$
|
(142.1
|
)
|
|
$
|
36.3
|
|
|
$
|
(102.0
|
)
|
|
$
|
56.0
|
|
Non-current
|
(132.4
|
)
|
|
946.9
|
|
|
(70.7
|
)
|
|
851.0
|
|
Total
|
$
|
(274.5
|
)
|
|
$
|
983.2
|
|
|
$
|
(172.7
|
)
|
|
$
|
907.0
|
|
Income tax expense (benefit) attributable to continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Current:
|
|
|
|
|
|
Federal
|
$
|
11.6
|
|
|
$
|
(149.8
|
)
|
|
$
|
(90.9
|
)
|
Foreign
|
107.5
|
|
|
200.1
|
|
|
91.0
|
|
State
|
8.8
|
|
|
9.3
|
|
|
5.4
|
|
Total current
|
$
|
127.9
|
|
|
$
|
59.6
|
|
|
$
|
5.5
|
|
Deferred:
|
|
|
|
|
|
Federal
|
$
|
15.8
|
|
|
$
|
27.8
|
|
|
$
|
44.3
|
|
Foreign
|
(57.7
|
)
|
|
(31.0
|
)
|
|
(28.4
|
)
|
State
|
(7.1
|
)
|
|
(6.3
|
)
|
|
(3.4
|
)
|
Total deferred
|
(49.0
|
)
|
|
(9.5
|
)
|
|
12.5
|
|
Income taxes on continuing operations
|
$
|
78.9
|
|
|
$
|
50.1
|
|
|
$
|
18.0
|
|
Net income taxes paid during 2012, 2011 and 2010 were
$248.4 million
,
$114.7 million
and
$83.6 million
, respectively. The 2012 amount includes refunds of
$50.6 million
primarily related to a U.S. NOL carryback claim. The 2011 amount includes refunds of
$74.6 million
primarily relating to prior year overpayments and prepaid taxes. The 2010 amount includes U.S. Federal refunds of
$77.4 million
primarily relating to an NOL carry back, an audit settlement and a prior year overpayment. During 2012, 2011 and 2010, the Company had tax holidays in the Czech Republic and China resulting in a reduction of tax expense amounting to
$3.1 million
,
$3.5 million
, and
$2.9 million
, respectively. The tax holiday in the Czech Republic expired during 2011 while a portion of the tax holiday in China expires in
2015
.
The reconciliation of the U.S. federal statutory income tax to the income taxes on continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Tax at statutory rate
|
$
|
184.5
|
|
|
$
|
226.9
|
|
|
$
|
56.4
|
|
State income taxes, net of federal benefits
|
1.5
|
|
|
(2.2
|
)
|
|
1.6
|
|
Difference between foreign and federal income tax
|
(110.2
|
)
|
|
(91.2
|
)
|
|
(64.4
|
)
|
Tax accrual reserve
|
48.4
|
|
|
19.4
|
|
|
7.3
|
|
Audit settlements
|
(49.0
|
)
|
|
(73.4
|
)
|
|
(36.0
|
)
|
NOL & Valuation Allowance related items
|
3.2
|
|
|
(1.8
|
)
|
|
12.4
|
|
Foreign dividends and related items
|
15.0
|
|
|
(10.9
|
)
|
|
7.8
|
|
Merger related costs
|
(6.9
|
)
|
|
6.4
|
|
|
50.1
|
|
Change in deferred tax liabilities on undistributed foreign earnings
|
(17.2
|
)
|
|
(26.2
|
)
|
|
(10.6
|
)
|
Statutory income tax rate change
|
(5.2
|
)
|
|
(1.3
|
)
|
|
1.5
|
|
Other-net
|
14.8
|
|
|
4.4
|
|
|
(8.1
|
)
|
Income taxes on continuing operations
|
$
|
78.9
|
|
|
$
|
50.1
|
|
|
$
|
18.0
|
|
The components of earnings from continuing operations before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
United States
|
$
|
271.6
|
|
|
$
|
171.9
|
|
|
$
|
(201.3
|
)
|
Foreign
|
256.0
|
|
|
476.5
|
|
|
369.9
|
|
Earnings from continuing operations before income taxes
|
$
|
527.6
|
|
|
$
|
648.4
|
|
|
$
|
168.6
|
|
Except for certain legacy Black & Decker foreign earnings as described below, all undistributed foreign earnings of the Company at December 29, 2012, in the amount of approximately
$3,902.0 million
are considered to be invested indefinitely or will be remitted substantially free of additional tax. Accordingly, no provision has been made for tax that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of this liability. As of March 12, 2010, the Company made a determination to repatriate
$1,636.1 million
of legacy Black & Decker foreign earnings on which U.S. income taxes had not previously been provided. As a result of this repatriation decision, in conjunction with the purchase accounting and ASC 805, the Company has recorded deferred tax liabilities of
$436.9 million
at December 29, 2012.
The Company’s liabilities for unrecognized tax benefits relate to U.S. and various foreign jurisdictions. The following table summarizes the activity related to the unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Balance at beginning of year
|
$
|
214.2
|
|
|
$
|
273.1
|
|
|
$
|
30.3
|
|
Adjustment for 2010 Merger and acquisitions
|
—
|
|
|
—
|
|
|
317.6
|
|
Additions based on tax positions related to current year
|
21.5
|
|
|
46.3
|
|
|
18.4
|
|
Additions based on tax positions related to prior years
|
46.5
|
|
|
26.7
|
|
|
0.7
|
|
Reductions based on tax positions related to prior years
|
(69.6
|
)
|
|
(96.6
|
)
|
|
(36.3
|
)
|
Settlements
|
(1.0
|
)
|
|
(22.4
|
)
|
|
(41.0
|
)
|
Statute of limitations expirations
|
(4.4
|
)
|
|
(12.9
|
)
|
|
(16.6
|
)
|
Balance at end of year
|
$
|
207.2
|
|
|
$
|
214.2
|
|
|
$
|
273.1
|
|
The gross unrecognized tax benefits at December 29, 2012 and December 31, 2011 includes
$179.4 million
and
$185.4 million
, respectively, of tax benefits that, if recognized, would impact the effective tax rate. The liability for potential penalties and interest related to unrecognized tax benefits was increased by
$7.6 million
in 2012, decreased by
$14.2 million
in 2011 and decreased by
$6.5 million
in 2010. The liability for potential penalties and interest totaled
$33.5 million
as of December 29, 2012 and
$25.9 million
as of December 31, 2011. The Company classifies all tax-related interest and penalties as income tax expense. During 2012, 2011 and 2010, the Company recognized tax benefits of
$49.0 million
,
$73.4 million
and
$36.0 million
attributable to favorable settlements of certain tax contingencies, due to a change in the facts and circumstances that did not exist at the acquisition date related to the resolution of legacy Black & Decker income tax audits.
The Company considers many factors when evaluating and estimating its tax positions and the impact on income tax expense, 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 the Company's 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. At this time, an estimate of the range of reasonably possible outcomes is
$3 million
to
$8 million
.
The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. For The Black & Decker Corporation, tax years 2008, 2009 and March 12, 2010 have been settled with the Internal Revenue Service as of December 29, 2012. For Stanley Black & Decker, Inc. tax years 2008 and 2009 are currently under audit. The Company also files many state and foreign income tax returns in jurisdictions with varying statutes of limitations. Tax years 2008 and forward generally remain subject to examination by most state tax authorities. In significant foreign jurisdictions, tax years 2003 and forward generally remain subject to examination, while in Germany tax years 1999 and forward remain subject to examination.
R. COMMITMENTS AND GUARANTEES
COMMITMENTS —
The Company has non-cancelable operating lease agreements, principally related to facilities, vehicles, machinery and equipment. Minimum payments have not been reduced by minimum sublease rentals of
$4.2 million
due in the future under non-cancelable subleases. Rental expense, net of sublease income, for operating leases was
$148.7 million
in 2012,
$145.7 million
in 2011, and
$142.0 million
in 2010.
The following is a summary of the Company’s future commitments which span more than one future fiscal year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Total
|
|
2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
Thereafter
|
Operating lease obligations
|
$
|
393.9
|
|
|
$
|
112.4
|
|
|
$
|
78.9
|
|
|
$
|
55.8
|
|
|
$
|
41.4
|
|
|
$
|
30.6
|
|
|
$
|
74.8
|
|
Marketing commitments
|
50.0
|
|
|
27.0
|
|
|
8.0
|
|
|
6.0
|
|
|
4.0
|
|
|
—
|
|
|
5.0
|
|
Total
|
$
|
443.9
|
|
|
$
|
139.4
|
|
|
$
|
86.9
|
|
|
$
|
61.8
|
|
|
$
|
45.4
|
|
|
$
|
30.6
|
|
|
$
|
79.8
|
|
The Company has numerous assets, predominantly real estate, vehicles and equipment, under various lease arrangements. The Company routinely exercises various lease renewal options and from time to time purchases leased assets for fair value at the end of lease terms.
The Company is a party to a synthetic lease for one of its major distribution centers. The program qualifies as an operating lease for accounting purposes, where only the monthly lease cost is recorded in earnings and the liability and value of underlying assets are off-balance sheet. As of
December 29, 2012
, the estimated fair value of assets and remaining obligation for the property were
$30.8 million
and
$26.6 million
, respectively.
GUARANTEES —
The Company's financial guarantees at
December 29, 2012
are as follows:
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
Term
|
|
Maximum
Potential
Payment
|
|
Carrying
Amount of
Liability
|
Guarantees on the residual values of leased properties
|
One to four years
|
|
$
|
26.6
|
|
|
$
|
—
|
|
Standby letters of credit
|
Up to three years
|
|
71.5
|
|
|
—
|
|
Commercial customer financing arrangements
|
Up to six years
|
|
17.2
|
|
|
13.0
|
|
Total
|
|
|
$
|
115.3
|
|
|
$
|
13.0
|
|
The Company has guaranteed a portion of the residual value arising from its previously mentioned synthetic lease. The lease guarantees aggregate
$26.6 million
while the fair value of the underlying assets is estimated at
$30.8 million
. The related assets would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss associated with these lease guarantees.
The Company has issued $
71.5 million
in standby letters of credit that guarantee future payments which may be required under certain insurance programs.
The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and Canadian Mac Tool distributors and franchisees for their initial purchase of the inventory and truck necessary to function as a distributor and franchisee. In addition, the Company provides limited and full recourse guarantees to financial institutions that extend credit to certain end retail customers of its U.S. Mac Tool distributors and franchisees. The gross amount guaranteed in
these arrangements is $
17.2 million
and the $
13.0 million
carrying value of the guarantees issued is recorded in debt and other liabilities as appropriate in the Consolidated Balance Sheet.
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.
Following is a summary of the warranty liability activity for the years ended
December 29, 2012
,
December 31, 2011
, and
January 1, 2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Balance beginning of period
|
$
|
124.9
|
|
|
$
|
114.9
|
|
|
$
|
66.9
|
|
Warranties and guarantees issued
|
86.3
|
|
|
88.4
|
|
|
85.7
|
|
Liability assumed from Merger and acquisitions
|
0.2
|
|
|
10.5
|
|
|
52.7
|
|
Warranty payments and currency
|
(87.4
|
)
|
|
(88.9
|
)
|
|
(90.4
|
)
|
Balance end of period
|
$
|
124.0
|
|
|
$
|
124.9
|
|
|
$
|
114.9
|
|
S. CONTINGENCIES
The Company is involved in various legal proceedings relating to environmental issues, employment, product liability, workers’ compensation claims and other matters. The Company periodically reviews the status of these proceedings with both inside and outside counsel, as well as an actuary for risk insurance. Management believes that the ultimate disposition of these matters will not have a material adverse effect on operations or financial condition taken as a whole.
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.
In connection with the Merger, the Company assumed certain commitments and contingent liabilities. Black & Decker is a party to litigation and administrative proceedings with respect to claims involving the discharge of hazardous substances into the environment. Some of these assert claims for damages and liability for remedial investigations and clean-up costs with respect to sites that have never been owned or operated by Black & Decker but at which Black & Decker has been identified as a potentially responsible party. Other matters involve current and former manufacturing facilities.
The Environmental Protection Agency (“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 EPA and 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 the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“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. The City of Riverside has a similar suit in California State Court with similar claims and the same parties. Both of these cases are currently stayed for all purposes. Certain defendants in that case have cross-claims against other defendants and have 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's settlement discussions among the EPA and numerous other parties progressed throughout late 2012, culminating in the settlement of the EPA's claims against the Company, as well as all other administrative proceedings and lawsuits involving Black & Decker related to the WCLC site, except for the City of Riverside's state court lawsuit. (That lawsuit has been stayed and will, the Company believes, ultimately be mooted by the implementation of an interim and final remedy at the site.) This settlement is embodied in a Consent Decree that was filed with the United States District Court for the Central District of California on or about December 4, 2012. The Consent Decree is a public document, subject to public comment and ultimately, court approval. In substance, Emhart Industries, Inc. (a dissolved, former indirectly wholly-owned subsidiary of The Black & Decker Corporation) (“Emhart”) has
agreed to be responsible for an interim remedy at the site, which remedy will be funded by (i) amounts gathered by EPA from multiple parties and placed in trust, and, to the extent necessary, (ii) Emhart's affiliate. The interim remedy requires the construction of a water treatment facility and the filtering of ground water at or around the Rialto property for a period of approximately
30
years or more.
The EPA has asserted claims in federal court in Rhode Island against certain current and former affiliates of Black & Decker 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 alleges that Black & Decker and certain of its current and former affiliates are liable for site clean-up costs under CERCLA as successors to the liability of Metro-Atlantic, Inc., a former operator at the site, and demanded reimbursement of the EPA’s costs related to this site. Black & Decker and certain of its current and former affiliates contest the EPA's allegation that they are responsible for the contamination, and have asserted contribution claims, counterclaims and cross-claims against a number of other potentially responsible parties, including the federal government as well as insurance carriers. The EPA released its Record of Decision ("ROD") in September 2012, which identified and described the EPA's selected remedial alternative for the site. Black & Decker and certain of its current and former affiliates are contesting the EPA's selection of the remedial alternative set forth in the ROD, on the grounds that the EPA's actions were arbitrary and capricious and otherwise not in accordance with law, and have proposed other equally-protective, more cost-effective alternatives. The Company's estimated remediation costs related to this Centredale site (including the EPA’s past costs as well as costs of additional investigation, remediation, and related costs such as EPA’s 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
$68.1 million
to
$139.7 million
, with no amount within that range representing a more likely outcome until such time as the litigation is resolved through judgment of compromise. The Company’s reserve for this environmental remediation matter of
$68.1 million
reflects the fact that the EPA considers Metro-Atlantic, Inc. to be a primary source of contamination at the site. As the specific nature of the environmental remediation activities that may be mandated by the EPA at this site have not yet been finally determined through the on-going litigation, the ultimate remedial costs associated with the site may vary from the amount accrued by the Company at December 29, 2012.
In the normal course of business, the Company is involved in various lawsuits and 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
31
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 Company’s volumetric contribution at these sites.
The Company’s 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. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued. 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 December 29, 2012 and December 31, 2011, the Company had reserves of
$188.0 million
and
$164.8 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 2012 amount,
$6.0 million
is classified as current and
$182.0 million
as long-term which is expected to be paid over the estimated remediation period. As of December 29, 2012, the Company has recorded an asset of
$24.3 million
related to funding by EPA and placed in trust in accordance with the Consent Decree associated with WCLC, as previously discussed. Accordingly, the cash obligation as of December 29, 2012 of the Company associated with the aforementioned remediation activities is
$163.7 million
. The range of environmental remediation costs that is reasonably possible is
$141.3 million
to
$282.5 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 environmental liability for certain sites that have cash payments beyond the current year that are fixed or reliably determinable have been discounted using a rate of
1.6%
to
2.8%
, depending on the expected timing of disbursements. The discounted and undiscounted amount of the liability relative to these sites is
$20.0 million
and
$31.0 million
, respectively. The payments relative to these sites are expected to be
$1.8 million
in 2013,
$1.5 million
in 2014,
$2.2 million
in 2015,
$1.4 million
in 2016,
$1.0 million
in 2017 and
$23.1 million
thereafter.
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.
T. DISCONTINUED OPERATIONS
In October 2012, the Company entered into a definitive agreement to sell its Hardware & Home Improvement business ("HHI") to Spectrum Brands Holdings, Inc. ("Spectrum") for approximately
$1.4 billion
in cash, with the price subject to revision for the level of working capital at the date of sale. The purchase and sale agreement stipulates that the sale occur in a First and Second Closing, for approximately
$1.3 billion
and
$100 million
, respectively. HHI is a provider of residential locksets, residential builders hardware and plumbing products marketed under the Kwikset, Weiser, Baldwin, Stanley, National and Pfister brands. The majority of the HHI business was part of the Company's Security segment, with the remainder being part of the Company's CDIY segment. The divestiture of the HHI business is part of the continued diversification of the Company's revenue streams and geographic footprint. The HHI sale also includes the residential portion of the Tong Lung hardware business, which the Company acquired in the third quarter of 2012. The First Closing occurred on December 17, 2012 in which HHI, excluding the residential portion of the Tong Lung business, was sold for
$1.261 billion
in cash. The First Closing of the HHI sale resulted in an after-tax gain of
$358.9 million
. The Second Closing to sell the residential Tong Lung business for approximately
$100 million
is expected to occur no later than April 2013. The
$100 million
payment relating to the Second Closing has been held in escrow at December 29, 2012.
As part of the purchase and sale agreement, the Company will perform transition services relating to certain administrative functions for Spectrum primarily for a period of
one
year or less, pending Spectrum's integration of these functions into their pre-existing business processes. Spectrum will pay a transition service fee to the Company as reimbursement for transition service costs incurred. As discussed above, the divestiture of the residential Tong Long portion of the HHI business for
$100 million
is expected to occur no later than April 2013 and accordingly, there will be continuing cash flows associated with Tong Long. The Company evaluated the transition services and other continuing involvement and concluded that the expected continuing cash flows are not a significant portion of the disposed business.
During 2011, the Company sold
three
small businesses for total cash proceeds of
$27.1 million
and a cumulative after-tax loss of
$18.8 million
. These businesses were sold as the related product lines provided limited growth opportunity or were not considered part of the Company's core offerings.
As a result of these actions, the operating results of the businesses above, including the related gain and loss, are reported as discontinued operations. Amounts previously reported have been reclassified to conform to this presentation in accordance with ASC 205 to allow for meaningful comparison of continuing operations. The Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011 aggregate amounts associated with discontinued operations as described above. Summarized operating results of discontinued operations are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Millions of Dollars)
|
2012
|
|
2011
|
|
2010
|
Net Sales
|
$
|
930.6
|
|
|
$
|
1,001.9
|
|
|
$
|
913.0
|
|
Earnings from discontinued operations before income taxes (including pretax gain on HHI sale of $384.7 million in 2012)
|
$
|
503.5
|
|
|
$
|
114.9
|
|
|
$
|
68.4
|
|
Income taxes on discontinued operations (including income taxes for gain on HHI sale of $25.8 million in 2012)
|
69.2
|
|
|
38.7
|
|
|
20.8
|
|
Net earnings from discontinued operations
|
$
|
434.3
|
|
|
$
|
76.2
|
|
|
$
|
47.6
|
|
As of December 29, 2012, assets and liabilities held for sale relating to the residential portion of the Tong Lung business totaled
$133.4 million
and
$30.3 million
, respectively. The carrying amounts of the assets and liabilities that were aggregated in assets held for sale and liabilities held for sale as of December 31, 2011 are presented in the following table:
|
|
|
|
|
(Millions of Dollars)
|
|
2011
|
Accounts and notes receivable, net
|
|
108.2
|
|
Inventories, net
|
|
167.7
|
|
Property, Plant and Equipment, net
|
|
108.3
|
|
Goodwill and other intangibles, net
|
|
655.0
|
|
Other Assets
|
|
11.0
|
|
Total assets
|
|
1,050.2
|
|
|
|
|
Accounts payable and accrued expenses
|
|
152.5
|
|
Other liabilities
|
|
61.4
|
|
Total liabilities
|
|
213.9
|
|
U. PARENT AND SUBSIDIARY DEBT GUARANTEES
The following debt obligations were issued by Stanley Black & Decker, Inc. (“Stanley”) and are fully and unconditionally guaranteed by The Black & Decker Corporation (“Black & Decker”), a
100%
owned direct subsidiary of Stanley:
4.90%
Notes due 2012;
6.15%
Notes due 2013;
3.40%
Notes due 2021;
2.90%
Notes due 2022; and the 2040 Term Bonds (collectively, the “Stanley Notes”).
The following notes were issued by Black & Decker and are fully and unconditionally guaranteed by Stanley:
8.95%
Notes due 2014;
4.75%
Notes due 2014; and
5.75%
Notes due 2016; (collectively, the “Black & Decker Notes”).
The following Stanley Notes and Black & Decker Notes are no longer issued and outstanding, and accordingly, not included in the condensed consolidating balance sheet for the year ended December 29, 2012:
4.90%
Notes due 2012;
6.15%
Notes due 2013;
8.95%
Notes due 2014; and
4.75%
Notes due 2014.
The Stanley Notes and the Black & Decker Notes were issued under indentures attached as Exhibits to the Company’s Annual Report on Form 10-K. Each of the Black & Decker Notes and Black & Decker’s guarantee of the Stanley Notes rank equally with all of Black & Decker’s other unsecured and unsubordinated indebtedness. The Stanley Guarantees of the Black & Decker Notes are unsecured obligations of the Company, ranking equal in right of payment with all the Company’s existing and future unsecured and unsubordinated indebtedness.
The following tables, in accordance with Rule 3-10(e) of Regulation S-X for the Stanley Notes, and Rule 3-10(c) of Regulation S-X for the Black & Decker Notes, present the condensed consolidating statements of operations and comprehensive income for the years ended December 29, 2012, December 31, 2011, and January 1, 2011; the condensed consolidating balance sheets as of December 29, 2012 and December 31, 2011; and the condensed consolidating statements of cash flows for the years ended December 29, 2012, December 31, 2011, and January 1, 2011. The condensed consolidated financial statements for the year ended January 1, 2011 include the results of Black & Decker from the Merger date. In the condensed consolidating statement of cash flow for the year ended December 31, 2011, certain changes were made to the prior year presentation for cash provided by investing activities.
Stanley Black & Decker, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income
(Unaudited, Millions of Dollars)
Year Ended December 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black
& Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
NET SALES
|
$
|
1,396.2
|
|
|
$
|
—
|
|
|
$
|
9,163.2
|
|
|
$
|
(368.9
|
)
|
|
$
|
10,190.5
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
972.5
|
|
|
—
|
|
|
5,812.3
|
|
|
(298.9
|
)
|
|
6,485.9
|
|
Selling, general and administrative
|
696.7
|
|
|
19.6
|
|
|
1,874.1
|
|
|
(70.0
|
)
|
|
2,520.4
|
|
Other-net
|
(50.5
|
)
|
|
(100.2
|
)
|
|
452.6
|
|
|
—
|
|
|
301.9
|
|
Restructuring charges and asset impairments
|
3.4
|
|
|
—
|
|
|
171.7
|
|
|
—
|
|
|
175.1
|
|
Loss on debt extinguishment
|
9.2
|
|
|
36.3
|
|
|
—
|
|
|
—
|
|
|
45.5
|
|
Interest expense, net
|
93.1
|
|
|
38.7
|
|
|
2.3
|
|
|
—
|
|
|
134.1
|
|
|
1,724.4
|
|
|
(5.6
|
)
|
|
8,313.0
|
|
|
(368.9
|
)
|
|
9,662.9
|
|
(Loss) earnings from continuing operations before income taxes (benefit) and equity in earnings of subsidiaries
|
(328.2
|
)
|
|
5.6
|
|
|
850.2
|
|
|
—
|
|
|
527.6
|
|
Income taxes (benefit) on continuing operations before equity in earnings of subsidiaries
|
(105.9
|
)
|
|
2.8
|
|
|
182.0
|
|
|
—
|
|
|
78.9
|
|
Equity in earnings of subsidiaries
|
671.8
|
|
|
567.3
|
|
|
—
|
|
|
(1,239.1
|
)
|
|
—
|
|
Earnings from continuing operations
|
449.5
|
|
|
570.1
|
|
|
668.2
|
|
|
(1,239.1
|
)
|
|
448.7
|
|
Less: Net (loss) attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
(0.8
|
)
|
|
—
|
|
|
(0.8
|
)
|
Net earnings from continuing operations attributable to common shareowners
|
449.5
|
|
|
570.1
|
|
|
669.0
|
|
|
(1,239.1
|
)
|
|
449.5
|
|
Net earnings from discontinued operations
|
434.3
|
|
|
458.7
|
|
|
460.4
|
|
|
(919.1
|
)
|
|
434.3
|
|
NET EARNINGS ATTRIBUTABLE TO COMMON SHAREOWNERS
|
$
|
883.8
|
|
|
$
|
1,028.8
|
|
|
$
|
1,129.4
|
|
|
$
|
(2,158.2
|
)
|
|
$
|
883.8
|
|
Total Comprehensive Income Attributable to Common Shareowners
|
$
|
845.0
|
|
|
$
|
570.0
|
|
|
$
|
1,163.7
|
|
|
$
|
(1,733.7
|
)
|
|
$
|
845.0
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income
(Unaudited, Millions of Dollars)
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black
& Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
NET SALES
|
$
|
1,380.2
|
|
|
$
|
—
|
|
|
$
|
8,420.2
|
|
|
$
|
(364.9
|
)
|
|
$
|
9,435.5
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
942.3
|
|
|
—
|
|
|
5,318.5
|
|
|
(293.5
|
)
|
|
5,967.3
|
|
Selling, general and administrative
|
647.3
|
|
|
3.0
|
|
|
1,802.0
|
|
|
(71.4
|
)
|
|
2,380.9
|
|
Other-net
|
(10.4
|
)
|
|
(87.7
|
)
|
|
353.8
|
|
|
—
|
|
|
255.7
|
|
Restructuring charges and asset impairments
|
7.0
|
|
|
—
|
|
|
62.3
|
|
|
—
|
|
|
69.3
|
|
Interest expense, net
|
76.0
|
|
|
49.8
|
|
|
(11.9
|
)
|
|
—
|
|
|
113.9
|
|
|
1,662.2
|
|
|
(34.9
|
)
|
|
7,524.7
|
|
|
(364.9
|
)
|
|
8,787.1
|
|
(Loss) earnings from continuing operations before income taxes (benefit) and equity in earnings of subsidiaries
|
(282.0
|
)
|
|
34.9
|
|
|
895.5
|
|
|
—
|
|
|
648.4
|
|
Income taxes (benefit) on continuing operations before equity in earnings of subsidiaries
|
(90.9
|
)
|
|
13.4
|
|
|
127.6
|
|
|
—
|
|
|
50.1
|
|
Equity in earnings of subsidiaries
|
789.5
|
|
|
525.0
|
|
|
—
|
|
|
(1,314.5
|
)
|
|
—
|
|
Earnings from continuing operations
|
598.4
|
|
|
546.5
|
|
|
767.9
|
|
|
(1,314.5
|
)
|
|
598.3
|
|
Less: Net (loss) attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Net earnings from continuing operations attributable to common shareowners
|
598.4
|
|
|
546.5
|
|
|
768.0
|
|
|
(1,314.5
|
)
|
|
598.4
|
|
Net earnings from discontinued operations
|
76.2
|
|
|
43.3
|
|
|
76.2
|
|
|
(119.5
|
)
|
|
76.2
|
|
NET EARNINGS ATTRIBUTABLE TO COMMON SHAREOWNERS
|
$
|
674.6
|
|
|
$
|
589.8
|
|
|
$
|
844.2
|
|
|
$
|
(1,434.0
|
)
|
|
$
|
674.6
|
|
Total Comprehensive Income Attributable to Common Shareowners
|
$
|
441.7
|
|
|
$
|
521.7
|
|
|
$
|
620.2
|
|
|
$
|
(1,141.9
|
)
|
|
$
|
441.7
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Statement of Operations and Comprehensive Income
(Millions of Dollars)
Year Ended January 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black
& Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
NET SALES
|
$
|
1,565.4
|
|
|
$
|
—
|
|
|
$
|
6,328.0
|
|
|
$
|
(396.5
|
)
|
|
$
|
7,496.9
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
1,043.1
|
|
|
—
|
|
|
4,086.1
|
|
|
(322.6
|
)
|
|
4,806.6
|
|
Selling, general and administrative
|
560.9
|
|
|
96.3
|
|
|
1,420.7
|
|
|
(73.9
|
)
|
|
2,004.0
|
|
Other-net
|
38.4
|
|
|
(207.7
|
)
|
|
354.2
|
|
|
—
|
|
|
184.9
|
|
Restructuring charges and asset impairments
|
25.4
|
|
|
91.3
|
|
|
115.0
|
|
|
—
|
|
|
231.7
|
|
Interest expense, net
|
56.0
|
|
|
89.5
|
|
|
(44.4
|
)
|
|
—
|
|
|
101.1
|
|
|
1,723.8
|
|
|
69.4
|
|
|
5,931.6
|
|
|
(396.5
|
)
|
|
7,328.3
|
|
(Loss) earnings from continuing operations before income taxes (benefit) and equity in earnings of subsidiaries
|
(158.4
|
)
|
|
(69.4
|
)
|
|
396.4
|
|
|
—
|
|
|
168.6
|
|
Income taxes (benefit) on continuing operations before equity in earnings of subsidiaries
|
(35.6
|
)
|
|
(29.2
|
)
|
|
82.8
|
|
|
—
|
|
|
18.0
|
|
Equity in earnings of subsidiaries
|
273.4
|
|
|
138.7
|
|
|
—
|
|
|
(412.1
|
)
|
|
—
|
|
Earnings from continuing operations
|
150.6
|
|
|
98.5
|
|
|
313.6
|
|
|
(412.1
|
)
|
|
150.6
|
|
Less: Net earnings attributable to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net earnings from continuing operations attributable to common shareowners
|
150.6
|
|
|
98.5
|
|
|
313.6
|
|
|
(412.1
|
)
|
|
150.6
|
|
Net earnings from discontinued operations
|
47.6
|
|
|
24.0
|
|
|
47.6
|
|
|
(71.6
|
)
|
|
47.6
|
|
NET EARNINGS ATTRIBUTABLE TO COMMON SHAREOWNERS
|
$
|
198.2
|
|
|
$
|
122.5
|
|
|
$
|
361.2
|
|
|
$
|
(483.7
|
)
|
|
$
|
198.2
|
|
Total Comprehensive Income Attributable to Common Shareowners
|
$
|
158.4
|
|
|
$
|
(51.8
|
)
|
|
$
|
470.4
|
|
|
$
|
(418.6
|
)
|
|
$
|
158.4
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Balance Sheet
(Millions of Dollars)
December 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black &
Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
83.5
|
|
|
$
|
1.5
|
|
|
$
|
631.0
|
|
|
$
|
—
|
|
|
$
|
716.0
|
|
Accounts and notes receivable, net
|
111.5
|
|
|
0.7
|
|
|
1,426.0
|
|
|
—
|
|
|
1,538.2
|
|
Inventories, net
|
139.9
|
|
|
—
|
|
|
1,176.7
|
|
|
—
|
|
|
1,316.6
|
|
Assets held for sale
|
—
|
|
|
—
|
|
|
133.4
|
|
|
—
|
|
|
133.4
|
|
Other current assets
|
46.8
|
|
|
—
|
|
|
347.3
|
|
|
—
|
|
|
394.1
|
|
Total Current Assets
|
381.7
|
|
|
2.2
|
|
|
3,714.4
|
|
|
—
|
|
|
4,098.3
|
|
Property, plant and equipment, net
|
217.4
|
|
|
—
|
|
|
1,116.3
|
|
|
—
|
|
|
1,333.7
|
|
Goodwill and intangible assets, net
|
148.2
|
|
|
1,415.1
|
|
|
8,392.4
|
|
|
—
|
|
|
9,955.7
|
|
Investment in subsidiaries
|
10,530.1
|
|
|
2,861.9
|
|
|
—
|
|
|
(13,392.0
|
)
|
|
—
|
|
Intercompany receivables
|
—
|
|
|
7,763.2
|
|
|
8,916.7
|
|
|
(16,679.9
|
)
|
|
—
|
|
Other assets
|
57.8
|
|
|
70.1
|
|
|
328.4
|
|
|
—
|
|
|
456.3
|
|
Total Assets
|
$
|
11,335.2
|
|
|
$
|
12,112.5
|
|
|
$
|
22,468.2
|
|
|
$
|
(30,071.9
|
)
|
|
$
|
15,844.0
|
|
LIABILITIES AND SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
|
$
|
—
|
|
|
$
|
1.1
|
|
Current maturities of long-term debt
|
5.3
|
|
|
2.8
|
|
|
2.3
|
|
|
—
|
|
|
10.4
|
|
Accounts payable and accrued expenses
|
288.6
|
|
|
37.7
|
|
|
2,705.3
|
|
|
—
|
|
|
3,031.6
|
|
Liabilities held for sale
|
—
|
|
|
—
|
|
|
30.3
|
|
|
—
|
|
|
30.3
|
|
Total Current Liabilities
|
293.9
|
|
|
40.5
|
|
|
2,739.0
|
|
|
—
|
|
|
3,073.4
|
|
Long-term debt
|
3,028.0
|
|
|
324.0
|
|
|
174.5
|
|
|
—
|
|
|
3,526.5
|
|
Other liabilities
|
(54.5
|
)
|
|
619.8
|
|
|
1,951.7
|
|
|
—
|
|
|
2,517.0
|
|
Intercompany payables
|
1,400.7
|
|
|
9,291.8
|
|
|
5,987.4
|
|
|
(16,679.9
|
)
|
|
—
|
|
Accumulated other comprehensive loss
|
(388.0
|
)
|
|
(701.2
|
)
|
|
(133.8
|
)
|
|
835.0
|
|
|
(388.0
|
)
|
Other shareowners’ equity
|
7,055.1
|
|
|
2,537.6
|
|
|
11,689.4
|
|
|
(14,227.0
|
)
|
|
7,055.1
|
|
Non-controlling interests
|
—
|
|
|
—
|
|
|
60.0
|
|
|
—
|
|
|
60.0
|
|
Total Shareowners' Equity
|
6,667.1
|
|
|
1,836.4
|
|
|
11,615.6
|
|
|
(13,392.0
|
)
|
|
6,727.1
|
|
Total Liabilities and Shareowners’ Equity
|
$
|
11,335.2
|
|
|
$
|
12,112.5
|
|
|
$
|
22,468.2
|
|
|
$
|
(30,071.9
|
)
|
|
$
|
15,844.0
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Balance Sheet
(Millions of Dollars)
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black &
Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-
Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
56.2
|
|
|
$
|
1.4
|
|
|
$
|
849.3
|
|
|
$
|
—
|
|
|
$
|
906.9
|
|
Accounts and notes receivable, net
|
97.8
|
|
|
—
|
|
|
1,347.2
|
|
|
—
|
|
|
1,445.0
|
|
Inventories, net
|
117.2
|
|
|
—
|
|
|
1,153.7
|
|
|
—
|
|
|
1,270.9
|
|
Assets held for sale
|
—
|
|
|
—
|
|
|
1,050.2
|
|
|
—
|
|
|
1,050.2
|
|
Other current assets
|
90.7
|
|
|
10.4
|
|
|
315.4
|
|
|
—
|
|
|
416.5
|
|
Total Current Assets
|
361.9
|
|
|
11.8
|
|
|
4,715.8
|
|
|
—
|
|
|
5,089.5
|
|
Property, plant and equipment, net
|
193.1
|
|
|
—
|
|
|
949.5
|
|
|
—
|
|
|
1,142.6
|
|
Goodwill and intangible assets, net
|
181.9
|
|
|
1,623.5
|
|
|
7,576.7
|
|
|
—
|
|
|
9,382.1
|
|
Investment in subsidiaries
|
10,196.8
|
|
|
3,978.4
|
|
|
—
|
|
|
(14,175.2
|
)
|
|
—
|
|
Intercompany receivables
|
—
|
|
|
9,210.6
|
|
|
8,700.4
|
|
|
(17,911.0
|
)
|
|
—
|
|
Other assets
|
35.8
|
|
|
55.2
|
|
|
243.8
|
|
|
—
|
|
|
334.8
|
|
Total Assets
|
$
|
10,969.5
|
|
|
$
|
14,879.5
|
|
|
$
|
22,186.2
|
|
|
$
|
(32,086.2
|
)
|
|
$
|
15,949.0
|
|
LIABILITIES AND SHAREOWNERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
Current maturities of long-term debt
|
523.8
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
|
526.4
|
|
Accounts payable and accrued expenses
|
382.3
|
|
|
(0.8
|
)
|
|
2,207.9
|
|
|
—
|
|
|
2,589.4
|
|
Liabilities held for sale
|
—
|
|
|
—
|
|
|
213.9
|
|
|
|
|
|
213.9
|
|
Total Current Liabilities
|
906.1
|
|
|
(0.8
|
)
|
|
2,424.6
|
|
|
—
|
|
|
3,329.9
|
|
Long-term debt
|
1,722.2
|
|
|
1,031.9
|
|
|
171.7
|
|
|
—
|
|
|
2,925.8
|
|
Other liabilities
|
(32.3
|
)
|
|
167.2
|
|
|
2,491.6
|
|
|
—
|
|
|
2,626.5
|
|
Intercompany payables
|
1,369.9
|
|
|
8,502.6
|
|
|
8,038.5
|
|
|
(17,911.0
|
)
|
|
—
|
|
Accumulated other comprehensive loss
|
(349.2
|
)
|
|
(242.4
|
)
|
|
(168.1
|
)
|
|
410.5
|
|
|
(349.2
|
)
|
Other shareowners’ equity
|
7,352.8
|
|
|
5,421.0
|
|
|
9,164.7
|
|
|
(14,585.7
|
)
|
|
7,352.8
|
|
Non-controlling interests
|
—
|
|
|
—
|
|
|
63.2
|
|
|
—
|
|
|
63.2
|
|
Total Shareowners' Equity
|
7,003.6
|
|
|
5,178.6
|
|
|
9,059.8
|
|
|
(14,175.2
|
)
|
|
7,066.8
|
|
Total Liabilities and Shareowners’ Equity
|
$
|
10,969.5
|
|
|
$
|
14,879.5
|
|
|
$
|
22,186.2
|
|
|
$
|
(32,086.2
|
)
|
|
$
|
15,949.0
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Statement of Cash Flow
(Millions of Dollars)
Year Ended December 29, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black
& Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash (used in) provided by operating activities
|
$
|
(791.8
|
)
|
|
$
|
(67.9
|
)
|
|
$
|
1,825.9
|
|
|
$
|
—
|
|
|
$
|
966.2
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(63.0
|
)
|
|
—
|
|
|
(323.0
|
)
|
|
—
|
|
|
(386.0
|
)
|
Proceeds from sales of assets
|
0.9
|
|
|
—
|
|
|
8.7
|
|
|
—
|
|
|
9.6
|
|
Business acquisitions, net of cash acquired
|
(453.8
|
)
|
|
(2.5
|
)
|
|
(251.0
|
)
|
|
—
|
|
|
(707.3
|
)
|
Proceeds from sales of businesses, net of cash sold
|
146.0
|
|
|
10.0
|
|
|
1,104.6
|
|
|
—
|
|
|
1,260.6
|
|
Intercompany payables and receivables
|
1,797.1
|
|
|
1,686.8
|
|
|
—
|
|
|
(3,483.9
|
)
|
|
—
|
|
Other investing activities
|
3.8
|
|
|
2.0
|
|
|
—
|
|
|
—
|
|
|
5.8
|
|
Cash (used in) provided by investing activities
|
1,431.0
|
|
|
1,696.3
|
|
|
539.3
|
|
|
(3,483.9
|
)
|
|
182.7
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
(771.3
|
)
|
|
(650.0
|
)
|
|
(1.0
|
)
|
|
—
|
|
|
(1,422.3
|
)
|
Proceeds from debt issuance
|
1,523.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,523.5
|
|
Net repayments on short-term borrowings
|
—
|
|
|
—
|
|
|
(19.0
|
)
|
|
—
|
|
|
(19.0
|
)
|
Stock purchase contract fees
|
(3.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.2
|
)
|
Purchase of common stock for treasury
|
(1,073.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,073.9
|
)
|
Net premium paid for equity option
|
(29.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29.5
|
)
|
Premium paid on debt extinguishment
|
(14.9
|
)
|
|
(76.1
|
)
|
|
—
|
|
|
—
|
|
|
(91.0
|
)
|
Termination of interest rate swaps
|
37.6
|
|
|
20.6
|
|
|
—
|
|
|
—
|
|
|
58.2
|
|
Termination of forward starting interest rate swaps
|
(102.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(102.6
|
)
|
Proceeds from issuances of common stock
|
126.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
126.4
|
|
Cash dividends on common stock
|
(304.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(304.0
|
)
|
Intercompany payables and receivables
|
—
|
|
|
(922.8
|
)
|
|
(2,561.1
|
)
|
|
3,483.9
|
|
|
—
|
|
Cash (used in) provided by financing activities
|
(611.9
|
)
|
|
(1,628.3
|
)
|
|
(2,581.1
|
)
|
|
3,483.9
|
|
|
(1,337.4
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
|
—
|
|
|
(2.4
|
)
|
Increase (decrease) in cash and cash equivalents
|
27.3
|
|
|
0.1
|
|
|
(218.3
|
)
|
|
—
|
|
|
(190.9
|
)
|
Cash and cash equivalents, beginning of year
|
$
|
56.2
|
|
|
$
|
1.4
|
|
|
$
|
849.3
|
|
|
$
|
—
|
|
|
$
|
906.9
|
|
Cash and cash equivalents, end of year
|
$
|
83.5
|
|
|
$
|
1.5
|
|
|
$
|
631.0
|
|
|
$
|
—
|
|
|
$
|
716.0
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Statement of Cash Flow
(Millions of Dollars)
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black
& Decker, Inc.
|
|
The Black &
Decker
Corporation
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash (used in) provided by operating activities
|
$
|
(431.7
|
)
|
|
$
|
(92.6
|
)
|
|
$
|
1,523.2
|
|
|
$
|
—
|
|
|
$
|
998.9
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(61.9
|
)
|
|
—
|
|
|
(240.2
|
)
|
|
—
|
|
|
(302.1
|
)
|
Proceeds from sales of assets
|
—
|
|
|
—
|
|
|
29.4
|
|
|
—
|
|
|
29.4
|
|
Business acquisitions, net of cash acquired
|
—
|
|
|
—
|
|
|
(1,179.6
|
)
|
|
—
|
|
|
(1,179.6
|
)
|
Proceeds from sales of businesses, net of cash sold
|
—
|
|
|
—
|
|
|
27.1
|
|
|
—
|
|
|
27.1
|
|
Intercompany payables and receivables
|
342.8
|
|
|
1,563.6
|
|
|
—
|
|
|
(1,906.4
|
)
|
|
—
|
|
Other investing activities
|
(17.9
|
)
|
|
(18.1
|
)
|
|
(3.1
|
)
|
|
—
|
|
|
(39.1
|
)
|
Cash (used in) provided by investing activities
|
263.0
|
|
|
1,545.5
|
|
|
(1,366.4
|
)
|
|
(1,906.4
|
)
|
|
(1,464.3
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
—
|
|
|
(400.0
|
)
|
|
(3.2
|
)
|
|
—
|
|
|
(403.2
|
)
|
Proceeds from debt issuance
|
420.1
|
|
|
—
|
|
|
0.9
|
|
|
—
|
|
|
421.0
|
|
Net repayments on short-term borrowings
|
—
|
|
|
—
|
|
|
(199.4
|
)
|
|
—
|
|
|
(199.4
|
)
|
Stock purchase contract fees
|
(3.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.2
|
)
|
Purchase of common stock from treasury
|
(11.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.1
|
)
|
Net premium paid for equity option
|
(19.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19.6
|
)
|
Proceeds from issuance of common stock
|
119.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
119.6
|
|
Cash dividends on common stock
|
(275.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(275.9
|
)
|
Intercompany payables and receivables
|
—
|
|
|
(1,055.0
|
)
|
|
(851.4
|
)
|
|
1,906.4
|
|
|
—
|
|
Cash (used in) provided by financing activities
|
229.9
|
|
|
(1,455.0
|
)
|
|
(1,053.1
|
)
|
|
1,906.4
|
|
|
(371.8
|
)
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
Increase (decrease) in cash and cash equivalents
|
61.2
|
|
|
(2.1
|
)
|
|
(895.0
|
)
|
|
—
|
|
|
(835.9
|
)
|
Cash and cash equivalents, beginning of year
|
(5.0
|
)
|
|
3.5
|
|
|
1,744.3
|
|
|
—
|
|
|
1,742.8
|
|
Cash and cash equivalents, end of year
|
$
|
56.2
|
|
|
$
|
1.4
|
|
|
$
|
849.3
|
|
|
$
|
—
|
|
|
$
|
906.9
|
|
Stanley Black & Decker, Inc.
Condensed Consolidating Statement of Cash Flow
(Millions of Dollars)
Year Ended January 1, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Stanley Black &
Decker, Inc.
|
|
The Black
& Decker
Corporation
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Cash (used in) provided by operating activities
|
$
|
(520.5
|
)
|
|
$
|
55.4
|
|
|
$
|
1,204.4
|
|
|
$
|
—
|
|
|
$
|
739.3
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
(38.1
|
)
|
|
(2.6
|
)
|
|
(144.8
|
)
|
|
—
|
|
|
(185.5
|
)
|
Proceeds from sales of assets
|
5.7
|
|
|
0.9
|
|
|
4.4
|
|
|
—
|
|
|
11.0
|
|
Business acquisitions, net of cash acquired
|
(457.1
|
)
|
|
(15.1
|
)
|
|
(78.1
|
)
|
|
—
|
|
|
(550.3
|
)
|
Cash acquired from Black & Decker
|
—
|
|
|
1.8
|
|
|
947.6
|
|
|
—
|
|
|
949.4
|
|
Intercompany payables and receivables
|
498.0
|
|
|
453.5
|
|
|
—
|
|
|
(951.5
|
)
|
|
—
|
|
Other investing activities
|
(1.5
|
)
|
|
46.5
|
|
|
—
|
|
|
—
|
|
|
45.0
|
|
Cash (used in) provided by investing activities
|
7.0
|
|
|
485.0
|
|
|
729.1
|
|
|
(951.5
|
)
|
|
269.6
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
(512.7
|
)
|
|
—
|
|
|
(3.1
|
)
|
|
—
|
|
|
(515.8
|
)
|
Proceeds from debt issuance
|
1,009.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,009.8
|
|
Net repayments on short-term borrowings
|
(88.7
|
)
|
|
(175.0
|
)
|
|
0.1
|
|
|
—
|
|
|
(263.6
|
)
|
Stock purchase contract fees
|
(7.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.7
|
)
|
Purchase of common stock from treasury
|
(4.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.9
|
)
|
Net premium paid for equity option
|
(50.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50.3
|
)
|
Termination of forward starting interest rate swaps
|
(48.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48.4
|
)
|
Proceeds from issuance of common stock
|
396.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
396.1
|
|
Cash dividends on common stock
|
(193.9
|
)
|
|
(7.7
|
)
|
|
—
|
|
|
—
|
|
|
(201.6
|
)
|
Intercompany payables and receivables
|
—
|
|
|
(354.2
|
)
|
|
(597.3
|
)
|
|
951.5
|
|
|
—
|
|
Cash (used in) provided by financing activities
|
499.3
|
|
|
(536.9
|
)
|
|
(600.3
|
)
|
|
951.5
|
|
|
313.6
|
|
Effect of exchange rate changes on cash and cash equivalents
|
—
|
|
|
—
|
|
|
22.2
|
|
|
—
|
|
|
22.2
|
|
Increase (decrease) in cash and cash equivalents
|
(14.2
|
)
|
|
3.5
|
|
|
1,355.4
|
|
|
—
|
|
|
1,344.7
|
|
Cash and cash equivalents, beginning of year
|
9.2
|
|
|
—
|
|
|
388.9
|
|
|
—
|
|
|
398.1
|
|
Cash and cash equivalents, end of year
|
$
|
(5.0
|
)
|
|
$
|
3.5
|
|
|
$
|
1,744.3
|
|
|
$
|
—
|
|
|
$
|
1,742.8
|
|
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
|
(Millions of Dollars, except per share amounts)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Year
|
2012
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,427.1
|
|
|
$
|
2,568.0
|
|
|
$
|
2,526.9
|
|
|
$
|
2,668.5
|
|
|
$
|
10,190.5
|
|
Gross profit
|
|
912.2
|
|
|
930.5
|
|
|
913.7
|
|
|
948.2
|
|
|
3,704.6
|
|
Selling, general and administrative expenses
|
|
637.8
|
|
|
626.4
|
|
|
614.0
|
|
|
642.2
|
|
|
2,520.4
|
|
Net earnings from continuing operations
|
|
105.4
|
|
|
126.1
|
|
|
86.7
|
|
|
130.5
|
|
|
448.7
|
|
Less: (Loss) earnings from non-controlling interest
|
|
(0.7
|
)
|
|
(0.3
|
)
|
|
(0.2
|
)
|
|
0.4
|
|
|
(0.8
|
)
|
Net earnings from continuing operations attributable to Stanley Black & Decker, Inc.
|
|
106.1
|
|
|
126.4
|
|
|
86.9
|
|
|
130.1
|
|
|
449.5
|
|
Net earnings from discontinued operations
|
|
15.7
|
|
|
28.4
|
|
|
28.3
|
|
|
362.0
|
|
|
434.3
|
|
Net earnings attributable to Stanley Black & Decker, Inc.
|
|
$
|
121.8
|
|
|
$
|
154.8
|
|
|
$
|
115.2
|
|
|
$
|
492.1
|
|
|
$
|
883.8
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.64
|
|
|
$
|
0.77
|
|
|
$
|
0.53
|
|
|
$
|
0.81
|
|
|
$
|
2.75
|
|
Discontinued operations
|
|
0.10
|
|
|
0.17
|
|
|
0.17
|
|
|
2.24
|
|
|
2.66
|
|
Total basic earnings per common share
|
|
$
|
0.74
|
|
|
$
|
0.94
|
|
|
$
|
0.71
|
|
|
$
|
3.05
|
|
|
$
|
5.41
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.63
|
|
|
$
|
0.75
|
|
|
$
|
0.52
|
|
|
$
|
0.79
|
|
|
$
|
2.70
|
|
Discontinued operations
|
|
0.09
|
|
|
0.17
|
|
|
0.17
|
|
|
2.20
|
|
|
2.61
|
|
Total diluted earnings per common share
|
|
$
|
0.72
|
|
|
$
|
0.92
|
|
|
$
|
0.69
|
|
|
$
|
2.99
|
|
|
$
|
5.30
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
2,142.7
|
|
|
$
|
2,348.2
|
|
|
$
|
2,379.2
|
|
|
$
|
2,565.4
|
|
|
$
|
9,435.5
|
|
Gross profit
|
|
803.9
|
|
|
871.6
|
|
|
882.3
|
|
|
910.4
|
|
|
3,468.2
|
|
Selling, general and administrative expenses
|
|
554.8
|
|
|
589.7
|
|
|
596.7
|
|
|
639.7
|
|
|
2,380.9
|
|
Net earnings from continuing operations
|
|
141.9
|
|
|
165.9
|
|
|
137.2
|
|
|
153.3
|
|
|
598.3
|
|
Less: (Loss) earnings from non-controlling interest
|
|
(0.3
|
)
|
|
—
|
|
|
0.7
|
|
|
(0.5
|
)
|
|
(0.1
|
)
|
Net earnings from continuing operations attributable to Stanley Black & Decker, Inc.
|
|
142.2
|
|
|
165.9
|
|
|
136.5
|
|
|
153.8
|
|
|
598.4
|
|
Net earnings from discontinued operations
|
|
16.5
|
|
|
31.4
|
|
|
18.1
|
|
|
10.2
|
|
|
76.2
|
|
Net earnings attributable to Stanley Black & Decker, Inc.
|
|
$
|
158.7
|
|
|
$
|
197.3
|
|
|
$
|
154.6
|
|
|
$
|
164.0
|
|
|
$
|
674.6
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.85
|
|
|
$
|
0.99
|
|
|
$
|
0.83
|
|
|
$
|
0.94
|
|
|
$
|
3.60
|
|
Discontinued operations
|
|
0.10
|
|
|
0.19
|
|
|
0.11
|
|
|
0.06
|
|
|
0.46
|
|
Total basic earnings per common share
|
|
$
|
0.95
|
|
|
$
|
1.17
|
|
|
$
|
0.94
|
|
|
$
|
1.00
|
|
|
$
|
4.06
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.83
|
|
|
$
|
0.96
|
|
|
$
|
0.81
|
|
|
$
|
0.92
|
|
|
$
|
3.52
|
|
Discontinued operations
|
|
0.10
|
|
|
0.18
|
|
|
0.11
|
|
|
0.06
|
|
|
0.45
|
|
Total diluted earnings per common share
|
|
$
|
0.92
|
|
|
$
|
1.14
|
|
|
$
|
0.92
|
|
|
$
|
0.98
|
|
|
$
|
3.97
|
|
The quarterly amounts above have been adjusted for the divestiture of HHI, which has been excluded from continuing operations and is reported as a discontinued operation. Refer to Note T, Discontinued Operations, of the Notes to Consolidated Financial Statements in Item 8 for further discussion.
During 2012, the Company recognized
$442 million
(
$329 million
after tax), or
$1.97
per diluted share, in charges on continuing operations primarily related to merger and acquisitions-related charges (including facility closure-related charges, integration-related administration costs and consulting fees, as well as transaction cost), the charges associated with the
$200
million
in cost actions implemented in 2012, as well as the charges associated with the extinguishment of debt during the third quarter of 2012. The impact of these merger and acquisition-related charges and effect on diluted earnings per share by quarter was as follows:
|
|
|
|
|
|
|
Merger and Acquisition-Related Charge
|
|
Diluted EPS Impact
|
• Q1 2012 — $80 million ($59 million after-tax)
|
|
$0.35 per diluted share
|
• Q2 2012 — $74 million ($62 million after-tax)
|
|
$0.37 per diluted share
|
• Q3 2012 — $157 million ($113 million after-tax)
|
|
$0.68 per diluted share
|
• Q4 2012 — $131 million ($95 million after-tax)
|
|
$0.58 per diluted share
|
In the third and fourth quarter of 2012, the Company recognized an income tax benefit attributable to the settlement of certain tax contingencies of
$7 million
, or
$0.04
per diluted share, and
$42 million
, or
$0.25
per diluted share, respectively.
During 2011, the Company recognized
$236 million
(
$186 million
after tax), or
$1.09
per diluted share, in charges on continuing operations primarily related to the Black & Decker merger which included facility closure-related charges, integration-related administrative costs and consulting fees, transaction costs and severance. The impact of these merger and acquisition-related charges and effect on diluted earnings per share by quarter was as follows:
|
|
|
|
|
|
|
Merger and Acquisition-Related Charge
|
|
Diluted EPS Impact
|
• Q1 2011 — $32 million ($25 million after-tax)
|
|
$0.14 per diluted share
|
• Q2 2011 — $48 million ($54 million after-tax)
|
|
$0.31 per diluted share
|
• Q3 2011 — $77 million ($57 million after-tax)
|
|
$0.34 per diluted share
|
• Q4 2011 — $79 million ($50 million after-tax)
|
|
$0.30 per diluted share
|
In the first and second quarter of 2011, the Company recognized an income tax benefit attributable to the settlement of certain tax contingencies of
$21 million
, or
$0.12
per diluted share, and
$49 million
, or
$0.29
per diluted share, respectively.