Black & Decker 2015 Annual Report Download - page 38

24
effectiveness via the Company's support functions, and improving revenues and margins via customer-facing
opportunities.
• Commercial Excellence is about how the Company becomes more effective and efficient in its customer-facing
processes resulting in continued share gains and margin expansion throughout its businesses. The Company views
Commercial Excellence as world-class execution across seven areas: customer insights, innovation and portfolio
management, pricing and promotion, brand and marketing, sales force deployment and effectiveness, channel
programs, and the customer experience.
• Breakthrough Innovation is aimed at developing a breakthrough innovation culture to identify market disruptive
technologies. Although the Company has a track record of being highly innovative, opportunities exist to be even
more innovative. The Company's breakthrough innovation focus is on coming up with the next major breakthrough in
the industries in which the Company operates which, when combined with its existing strong core innovation machine,
will drive outsized share gains and margin expansion.
These five pillars will serve as a powerful value driver in the years ahead, feeding the Company's new product innovation
machine, embracing outstanding commercial and supply chain excellence, embedding digital into the various business models,
and funding it all with world-class functional efficiency. Taken together, these pillars will directly support achievement of the
Company's long-term financial objectives and further enable its shareholder-friendly capital allocation approach, which has
served the Company well in the past and will continue to do so in the future.
Certain Items Impacting Earnings
Merger and Acquisition-Related and Other Charges Impacting 2013 Earnings
Throughout MD&A, the Company has provided a discussion of its 2013 results both inclusive and exclusive of merger and
acquisition-related and other charges. Merger and acquisition-related charges in 2013 related primarily to the Black & Decker
merger and Niscayah and Infastech acquisitions, while other charges related to the extinguishment of debt. The amounts and
measures, including gross profit and segment profit, on a basis excluding such charges are considered relevant to aid analysis
and understanding of the Company’s 2013 results aside from the material impact of these charges. In addition, these measures
are utilized internally by management to understand business trends, as once the anticipated cost synergies from the Black &
Decker merger and other acquisitions were realized, such charges are not expected to recur. Merger and acquisition-related
charges were not significant in 2015 or 2014 and therefore, are not discussed separately in MD&A for those years.
During 2013, the Company reported $390 million in pre-tax merger and acquisition-related and other charges, which were
comprised of the following:
• $29 million reducing Gross profit primarily pertaining to integration-related matters and amortization of the inventory
step-up adjustment for the Infastech acquisition;
• $136 million in Selling, general & administrative expenses primarily for integration-related administrative costs and
consulting fees, as well as employee related matters;
• $30 million in Other-net primarily related to deal transaction costs;
• $21 million pre-tax loss on the extinguishment of $300 million of debt in the fourth quarter of 2013; and
• $174 million in net Restructuring charges, which primarily represent Niscayah integration-related restructuring
charges and cost reduction actions associated with the severance of employees.
The tax effect on the above charges, some of which were not tax deductible, in 2013 was $120 million, resulting in an after-tax
charge of $270 million, or $1.70 per diluted share.
Outlook for 2016
This outlook discussion is intended to provide broad insight into the Company’s near-term earnings and cash flow generation
prospects. The Company expects diluted earnings per share to approximate $6.00 to $6.20 in 2016, with free cash flow
conversion, defined as free cash flow divided by net income, approximating 100%. The 2016 outlook assumes organic sales
growth of 3% resulting in approximately $0.45 to $0.50 of diluted earnings per share accretion. Commodity deflation, cost
actions and productivity initiatives are expected to yield approximately $0.45 to $0.50 of diluted earnings per share accretion.
The Company anticipates approximately $0.13 of diluted EPS accretion resulting from lower average share count, including
approximately $300 million of share repurchases in 2016. Foreign exchange headwinds are expected to continue to negatively
impact earnings by approximately $170 to $190 million, or $0.85 to $0.95 of diluted earnings per share. Restructuring charges
and the tax rate are expected to be relatively consistent with 2015 levels.