Black & Decker 2010 Annual Report Download - page 38

$145 million; purchasing (materials, freight etc.) $100 million; corporate overhead $95 million; and manufac-
turing and distribution facility consolidation, $85 million. The Company is ahead of plan on the integration of
the two companies and realized $135 million of the cost synergies in 2010, which is $45 million more than
originally forecasted for the nine month period that followed the merger. An additional $165 million of cost
synergies are anticipated in 2011, and an incremental $125 million in 2012 to achieve the total cumulative
$425 million in cost synergies in 2012. Of the $330 million in cost synergies pertaining to operations (all but
the $95 million of corporate overhead), the benefit by segment is estimated to be 70% in CDIY, 20% in
Security (mechanical access solutions), and 10% in Industrial. Management estimates there will be an
additional $200 million in total costs, incurred over the next two years, to achieve these synergies from the
Merger.
Additionally, it is projected that revenue synergies from the Merger will be in the range of $300 million to
$400 million by 2013, which implies a benefit of $0.35 — $0.50 of earnings per diluted share. Revenue
synergies are expected to add an incremental 50 basis points (approximately $50 million) to 2011 revenue
growth and have a modest earnings impact, with remaining revenue synergies to be achieved in 2012 and
2013. The anticipated revenue synergies will come from: geographic expansion into Latin America and other
emerging markets, leveraging pre-existing infrastructure (30%); channel and cross-selling of existing products,
such as the sale of power tools through the Company’s industrial and automotive repair distributors (30%);
brand expansion, i.e. utilizing the array of powerful brands in different product categories and channels and
expanding across the globe, as exemplified by the recent introduction of DeWalt hand tools in certain
channels, (30%); and joint new product development, which entails leveraging development expertise from
both legacy companies to pursue new product opportunities (10%). The CDIY segment is expected to realize
approximately two-thirds of the revenue synergies, and the remainder will be split evenly in the Industrial and
Security segments. In 2011, the Company intends to increase capital expenditures to 2.5% — 2.8% of revenues
partially as a result of infrastructure improvements to foster attainment of the revenue synergies. In 2012 and
beyond, the capital expenditure ratio is expected to return to more historical levels (2.0% — 2.5% of revenues)
in 2012.
Industrial Segment — Acquisition of CRC-Evans Pipeline International
On July 29, 2010, the Company acquired CRC-Evans Pipeline International (“CRC-Evans”) for a purchase
price of $451.6 million, net of cash acquired. With fiscal 2010 revenues of approximately $250 million, CRC-
Evans immediately established a scalable, global growth business platform for the Company to capitalize on
favorable end-market trends in the oil and gas infrastructure area. CRC-Evans is a supplier of specialized
tools, equipment and services used in the construction of large diameter oil and natural gas transmission
pipelines. CRC- Evans also sells and rents custom pipe handling and joint welding and coating equipment
used in the construction of large and small diameter pipelines. The acquisition of CRC-Evans diversifies the
Company’s revenue base and provides the Company with a strategic and profitable growth platform. CRC-
Evans has been consolidated into the Company’s Industrial segment. The Company funded the acquisition with
its existing sources of liquidity. This acquisition was slightly accretive to earnings in 2010 and the Company
expects that it will be over $0.10 accretive to diluted earnings per share by 2013.
Continued Growth in the Security Segment
During 2010, the Company further advanced its strategy of becoming a global market leader in the commercial
security industry. Annual revenues of the Security segment have grown to $2.113 billion, or 25% of 2010
sales, up from $216 million, or 10% of 2001 sales (the year the security expansion strategy was launched).
Key recent events pertaining to the growth of this segment include the following:
• As a result of the Merger, legacy Black & Decker’s hardware and home improvement (“HHI”)
business contributed an additional 29% in sales in 2010, and on a pro-forma basis HHI sales grew
7% over 2009. The HHI Kwikset»and Baldwin»new product introductions fueled the higher sales.
25