Black & Decker 2010 Annual Report Download - page 50

Based on its demonstrated ability to generate cash flow from operations as well as its strong balance sheet and
credit position at January 1, 2011, the Company believes over the long term it has the financial flexibility to
deploy capital to its shareowners’ advantage through a combination of acquisitions, dividends, and potential
future share repurchases.
Investing Activities: Capital expenditures were $186 million in 2010, $93 million in 2009, and $141 million
in 2008. The run rate for 2010 capital expenditures was slightly higher than the combined 2009 spend of
Stanley and Black & Decker due to incremental capital and software expenditures associated with the Merger.
The lower capital expenditures in 2009 compared to 2008 pertain to reduced capitalized software investments
and the prior year purchase of a previously leased distribution facility that did not re-occur. The Company will
continue to make capital investments that are necessary to drive productivity and cost structure improvements
as well as achieve merger and acquisition-related cost synergies while ensuring that such investments deliver
an appropriate risk-adjusted return on capital employed.
In 2010, aside from the Merger, the Company expended $547 million for ten acquisitions, mainly for CRC-
Evans within the Industrial segment, and SSDS and GMT within the Security segment. Additionally the
Company acquired $949 million of cash as part of the Merger. In 2009, the Company expended $24 million
for several small acquisitions. In 2008, acquisition spending totaled $575 million, mainly for the GdP, Scan
Modul, Sonitrol and Xmark businesses within the Security segment.
Investing cash flows in 2010, aside from the previously discussed capital expenditures and acquisition activity,
primarily related to derivative settlements and terminations. The Company realized $30 million of cash
proceeds from the termination of the Black & Decker interest rate swaps that had been entered into prior to
the Merger, and became undesignated at the merger date. Additionally the Company had a net inflow on the
settlement of net investment hedges of $15 million in 2010. Other investing cash flows were minor in 2009.
Other investing cash flows in 2008 include $205 million in gross proceeds from sales of businesses, after
transaction costs, primarily pertaining to the divestiture of the CST/berger laser measuring tool business in
July 2008. As previously mentioned, the $46 million of income taxes paid on the gain are reported as an
operating cash outflow and thus the total cash inflow from the 2008 divestitures amounts to $159 million.
Financing Activities: Payments on long-term debt amounted to $516 million in 2010, $65 million in 2009,
and $45 million in 2008. The 2010 repayments primarily relate to the maturing of the $200 million term notes
in March 2010 and the $313 million of payments associated with the remarketing of the Convertible Notes.
Net repayments of short-term borrowings totaled $264 million in 2010, $120 million in 2009 and $74 million
in 2008.
On August 10, 2010, the Company received debt proceeds of $396.2 million relating to the $400 million in
senior unsecured 2040 Term Bonds with a 5.2% fixed coupon rate. In connection with this debt offering the
Company paid $48 million for the termination of two forward starting floating-to-fixed interest rate swaps.
On November 5, 2010, the Company completed a security offering of Convertible Preferred Units (the
“Convertible Preferred Units”) which consisted of $632.5 million of eight-year junior subordinated notes (the
“Notes”) bearing interest at an initial fixed rate of 4.25% per annum and $632.5 million of five-year forward
Purchase Contracts (the “Purchase Contracts”) that obligate investors to purchase 6,325,0000 shares of the
Company’s 4.75% Series B Convertible Preferred Stock (the “Convertible Preferred Stock”) for a price of
$100 per share on November 17, 2015. The Notes initially rank equal in right of payment with all of the
Company’s other junior subordinated debt. With respect to the offering, in November 2010 the Company
received $613.5 million of cash proceeds, net of underwriting fees, and will not receive cash pertaining to the
Purchase Contracts until November 2015. The cash proceeds of this offering received in November 2010 was
used to redeem all of the Company’s outstanding 5.902% Fixed Rate/Floating Rate Junior Subordinated Debt
Securities due 2045 of $312.7 million, to contribute $150.0 million to a U.S. pension plan to improve the
funded status of the Company’s pension obligations, to fund the $50.3 million cost of the capped call
transaction as more fully described below, and the remainder to reduce outstanding short-term borrowings and
for other general corporate purposes.
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