Black & Decker 2010 Annual Report Download - page 46

Security segment sales from continuing operations increased 35% in 2010 reflecting a 29% contribution from
the Merger and 8% from acquisitions, principally the March 2010 SSDS acquisition and the fourth quarter
2010 GMT Chinese hardware business. Modest price and favorable foreign currency translation provided a
combined 1% sales benefit. Organic sales volume decreased 3%, and was more pronounced in mechanical
access than in convergent security solutions. Mechanical access sales volume decline was associated with
continued slow commercial construction markets and a large U.S. retailer’s inventory reduction that affected
the hardware business. On a pro forma basis, the Black & Decker hardware and home improvement (“HHI”)
business achieved 7% higher sales, with 6% unit volume growth, 2% favorable foreign currency translation
and a 1% price decline. The HHI Kwikset»and Baldwin»new product introductions fueled the higher sales,
overcoming the unfavorable impact of a residential hardware customer’s inventory destocking. Convergent
security had a low single digit sales volume decrease as a solid performance by the healthcare solutions
business was more than offset by weakness in commercial installations in the U.S. and U.K. security
businesses. Segment profit reflects $43 million of merger and acquisition-related charges, comprised of facility
closure-related costs and inventory step-up amortization from the initial turn of the Black & Decker inventory.
Segment profit amounted to $349 million, or 16.5% of sales, aside from these costs. This 16.5% segment
profit rate reflects 40 basis points of dilution from Black & Decker and acquired companies, such that legacy
Stanley achieved a 16.9% segment profit rate excluding merger and acquisition-related charges. The increase
in the total segment profit amount is attributable to Black & Decker and acquisitions which more than offset
lower profits in the legacy Stanley business. The legacy Stanley performance pertained to lower absorption
from reduced sales volume, due to weak construction markets and the previously mentioned customer
inventory correction, along with inflation that pressured the segment profit rate. These factors more than offset
the benefits fromproductivity improvements and restructuring actions with respect to legacy Stanley.
Security segment sales from continuing operations increased 4% in 2009 reflecting a 12% contribution from
acquisitions, mainly Sonitrol (acquired in July 2008) and GdP (acquired in October 2008). Price provided a
2% sales benefit which was offset by nearly 2% of unfavorable foreign currency translation. Organic sales
volume decreased 8% as the segment was affected by the contraction in U.S. commercial construction and
other capital spending delays associated with weak economic conditions. Mechanical access had somewhat
steeper volume declines than convergent security, but was aided by stabilization in the residential hardware
markets and a hardware products roll-out at a major North American retailer in the second half of the year.
Additionally, cross selling of mechanical products to convergent customers, retention of national account
customers and select new product introductions helped alleviate mechanical access sales volume pressures.
Lower organic volume in convergent (electronic) security pertained primarily to weakness in system installa-
tions, although there were some signs of improvement with national accounts late in the year. As a result there
was a favorable mix shift in convergent security and the overall segment to higher margin recurring monthly
service revenue (including security monitoring and maintenance) which grew organically in a high single digit
percentage range. This improved sales mix shift in the segment was partially attributable to the recent
expansion of the core commercial account sales force as well as a strategic emphasis on recurring service
revenue and away from certain installation-only jobs. The increase in the segment profit amount was
attributable to acquisitions, while the sustainment of organic profit at the prior year level is notable considering
the headwinds from lower sales. The robust 180 basis point segment profit rate expansion was enabled by the
ongoing successful integration of accretive acquisitions, the previously mentioned mix shift to higher margin
recurring monthly service revenues, the benefits of customer pricing and proactive cost reductions.
Industrial:
(Millions of Dollars) 2010 2009 2008
Net sales from continuing operations ......................... $1,851 $882 $1,274
Segment profit from continuing operations ..................... $243 $89 $164
% of Net sales .......................................... 13.1% 10.1% 12.9%
Industrial segment net sales from continuing operations rose 110% in 2010 compared with 2009. Black &
Decker provided 77% of the sales increase and the CRC-Evans acquisition contributed 14%. Unfavorable
foreign currency translation, driven by Europe, reduced sales by 2% while price provided a 1% increase in
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