Black & Decker 2010 Annual Report Download - page 40

Continuous Improvement from the Stanley Fulfillment System
The Company continues to practice the operating disciplines encompassed by the Stanley Fulfillment System
(“SFS”) and has made further enhancements to it. As the SFS disciplines take hold, they will improve working
capital turns / cash flow, and other efficiencies that will foster improved profitability. SFS employs continuous
improvement techniques to streamline operations and drive efficiency throughout the supply chain. The newly
enhanced SFS has six primary elements that work in concert: sales and operations planning (“S&OP”),
operational lean, complexity reduction, global supply management, order-to-cash excellence and common
platforms. S&OP is a dynamic and continuous unified process that links and balances supply and demand in a
manner that produces world-class fill rates while minimizing DSI (Days Sales of Inventory). Operational lean
is the systemic application of lean principles in progressive steps throughout the enterprise to optimize flow
toward a pre-defined end state by eliminating waste, increasing efficiency and driving value. Complexity
reduction is a focused and overt effort to eradicate costly and unnecessary complexity from our products,
supply chain and back room process and organizations. Complexity reduction enables all other SFS elements
and, when successfully deployed, results in world-class cost, speed of execution and customer satisfaction.
Global supply management focuses on strategically leveraging the company’s scale to achieve the best possible
price and payment terms with the best possible quality, service and delivery among all categories of spend.
Order-to-cash excellence is a methodical, process-based approach that provides a user-friendly, automated and
error-proof customer experience from intent-to-purchase to shipping and billing to payment, while minimizing
cash collection cycle time and DSO (Days Sales Outstanding). Common platforms are an essential component
of leveraging technology to facilitate organic growth and integration of acquired companies. The Company
develops standardized business processes and system platforms to reduce costs and provide scalability. Other
benefits of SFS include reductions in lead times, rapid realization of synergies during acquisition integrations,
and focus on employee safety. SFS disciplines helped to mitigate the substantial impact of material and energy
price inflation that was experienced in recent years. It was instrumental in the reduction of working capital
during 2010 as evidenced by the improvement in working capital turns for legacy Stanley from 4.6 in 2003 to
8.6 in 2010. Furthermore, working capital turns experienced a 10% improvement from 5.2 (including Black
and Decker for the full year of 2009) at the end of 2009 to 5.7 at the end of 2010. In 2011 and beyond, the
Company plans to further leverage SFS to generate ongoing improvements in working capital turns, cycle
times, complexity reduction and customer service levels.
Certain Items Impacting Earnings
Merger and Acquisition-Related Charges Impacting 2010 and 2009 Earnings
The Company reported $538 million in pre-tax charges in 2010, pertaining to the Merger and acquisitions
which were comprised of the following:
• $195 million in Cost of sales. Inventory step-up amortization stemming from the initial turn of the
Black & Decker and CRC-Evans acquired inventories, which were written-up in purchase accounting
to fair value, amounted to $174 million. Additionally, Cost of sales includes $21 million of facility
closure-related charges;
• $82 million in Selling, general & administrative (“SG&A”) for certain executive and merger-related
compensation costs and integration-related consulting fees;
• $37 million in Other, net for transaction costs inclusive of $20 million of pension curtailment gains.
• $224 million in Restructuring and asset impairment charges primarily for severance (including costs
for certain Black & Decker executives triggered by the change in control), as well as charges
associated with the closure of facilities.
The tax effect on the above charges during 2010, some of which were not tax deductible, was $117 million,
resulting in after-tax merger and acquisition-related charges of $421 million, or $2.80 per diluted share
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