Black & Decker 2011 Annual Report Download - page 40

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Of the $71.5 million recognized for 2011 actions, $21.8 million has been utilized to date, with $54.1 million of reserves remaining as
of December 31, 2011. The Company expects the vast majority to be utilized in 2012.
Pre-2011 Actions: For the year ended January 1, 2011 the Company initiated restructuring activities associated with the Merger and
acquisition of Stanley Solutions de Sécurité (“SSDS”). Charges recognized in 2011 associated with these prior year initiatives
amounted to $7.2 million, offset by $7.7 million of releases of reserves related to residual liabilities, which included $0.5 million of
reserve releases not associated with the Merger and other acquisitions.
As of January 1, 2011, the reserve balance related to these pre-2011 actions totaled $101.2 million. Utilization of the reserve balance
related to pre-2011 actions was $72.5 million in 2011. The vast majority of the remaining reserve balance of $30.0 million is expected
to be utilized in 2012.
Segments: The $71.0 million of charges recognized in 2011 includes $31.0 million pertaining to CDIY; $30.1 million pertaining to
Security; and $9.9 million pertaining to Industrial.
In addition to the restructuring charges described in the preceding paragraphs, the Company recognized $136.0 million and $277.9
million of restructuring-related costs in 2011 and 2010, respectively, pertaining to the Merger and other acquisition related activity.
All of these charges impact gross profit or selling, general and administrate expenses, and include accelerated depreciation and other
charges associated with facility closures as well as certain integration-related administration and consulting costs.
FINANCIAL CONDITION
Liquidity, Sources and Uses of Capital: The Company’s primary sources of liquidity are cash flows generated from operations and
available lines of credit under various credit facilities.
Operating Activities: Cash flow from operations was $999 million in 2011 compared to $739 million in 2010, representing a $260
million increase. Cash flow from operations was negatively impacted by merger and acquisition-related charges and payments of $218
million and $382 million for 2011 and 2010, respectively. After adjusting for the impact of the decrease in merger and acquisition-
related charges and payments, cash flows from operations improved in 2011 by a net amount of $312 million due to increases in
earnings. Cash flow from operations reflects a continued focus on working capital (receivables, inventories and accounts payable),
resulting in $134 million of inflows in 2011 and $135 million of inflows in 2010. Working capital turns improved to 7.0 times
(excluding Niscayah) at December 31, 2011, as compared to 5.7 times for 2010, which reflects improvements in both days outstanding
of accounts receivable and accounts payable, while inventory turns remained consistent. The improvement in overall working capital
turns reflects the process-driven improvements from SFS. SFS principles continue to be deployed across all businesses and regions to
improve working capital efficiency over time.
In 2010, cash flow from operations was $739 million, a $202 million increase compared to $537 million in 2009. Cash flows from
operations improved in 2010 primarily due to an increase in various non-cash expenses associated with the Merger and the other 2010
acquisitions. Such expenses include, among other items, $174 million of inventory step-up amortization, a $41 million increase in
intangible asset amortization, and a $108 million increase in other depreciation and amortization. Inflows from working capital
(receivables, inventories and accounts payable) were $135 million in 2010, compared with inflows of $226 million in 2009. The
change from 2009 is driven by higher receivables and inventory associated with improved 2010 sales volume. Working capital turns
improved to 5.7 times at January 1, 2011 as compared to 5.2 times for 2009 (pro forma with Black & Decker) due to improvements in
days outstanding accounts receivable, inventory and accounts payable. Cash flow from operations in 2010 was also negatively
impacted by approximately $382 million in payments for merger and acquisition-related items including $182 million in discretionary
cash contributions to improve the funded status of legacy Black & Decker pension plans.
Free Cash Flow: Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future
growth and provide a dividend to shareowners. As previously discussed, operating cash flow was affected by $218 million and $382
million of merger and integration related charges and payments in 2011 and 2010, respectively. Additionally, capitalized expenditures
include $89 million of Merger and integration spending in 2011. Free cash flow does not include deductions for mandatory debt
service, other borrowing activity, discretionary dividends on the Company’s common stock and business acquisitions, among other
items.
(Millions of Dollars)
2011
2010
2009
Net cash provided by operating activities
................................
............................
$ 999
$ 739
$ 537
Less: capital expenditures ................................................................
....................
(302) (185
)
(94)
Free cash flow ................................................................................................
......
$ 697
$ 554
$ 443
When merger and acquisition-related charges and payments, along with capital expenditures related to merger and acquisition activity,
are added back to the Company’s free cash flow, the resulting amounts are $1,004 million in 2011 and $936 million in 2010.