Black & Decker 2011 Annual Report Download - page 35

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Organic sales volume increased 4% in CDIY, 10% in Industrial and 1% in Security. CDIY’s organic volume growth was primarily
driven by strength in professional power tools via new product introductions and increased promotional activity on older generation
products. This growth was offset by lower sales volume in hand tools and fastening largely due to soft end markets in the retail
channels, the ongoing impact of lower volume from Pfister resulting from the loss of business at a major customer in the first quarter
of 2011 and lower sales of outdoor products in the first half of the year due to inclement weather in North America. Organic sales
volume growth in the Industrial segment was strong in each major business component and in most geographic regions due primarily
to the success of new products and increased market share gains. Within the Security segment, limited overall organic sales growth
reflects 6% organic sales growth from healthcare solutions due to strong sales in the patient security and radio frequency identification
(“RFID”)-enabled systems, offset by lower electronic security solutions installation revenues and delays in the remodeling
expenditures at a large mechanical access solutions customer.
Net sales were $8.344 billion in 2010, as compared to $3.683 billion in 2009, a 127% increase. The Merger provided a 115% increase
to sales, along with 7% from other acquisitions, primarily SSDS and CRC-Evans. Organic unit volume increased 5%, while price and
currency were both flat compared to the prior year. Organic sales growth was driven by the successful launch of various new products
which generally have been well received by customers, and overall improvement in end market demand, especially in industrial and
emerging markets. By segment, legacy Stanley unit volume increased 3% in CDIY, decreased 3% in Security, which was negatively
impacted by the continued weakness in U.S. commercial construction markets along with a large U.S. retailer’s inventory correction,
and increased 25% in Industrial. The Industrial segment benefited from strong end user demand, market share gain, and global
customer re-stocking in certain distribution channels which subsided by the fourth quarter. On a geographic basis, legacy Stanley unit
volume sales increased 3% in the Americas (17% in Latin America), 6% in Europe, and 12% in the Asian region. On a pro forma
basis, the legacy Black & Decker business achieved strong unit volume growth of 11%, reflecting positive end market demand
including robust sales growth in emerging markets, along with strong new product performance, particularly the 12-volt lithium ion
power tools.
Gross Profit: The Company reported gross profit of $3.794 billion, or 36.6% of net sales, in 2011, compared to $2.935 billion, or
35.2% of net sales, in 2010. The inclusion of a full year of Black & Decker as well as acquisition activity (specifically Niscayah and
CRC-Evans) were the main drivers behind the overall increase in gross profit. Further, gross profit was negatively impacted by
$37 million of merger and acquisition-related charges in 2011 related largely to facility closures and $195 million in 2010, pertaining
to the inventory step-up amortization from the initial turn of Black & Decker and CRC-Evan’s inventories and facility closure costs.
The gross profit rates excluding these charges were 36.9% in 2011 as compared to 37.5% of net sales in 2010. The lower gross profit
margin rate in 2011, excluding merger and acquisition-related charges, is primarily due to the effect of commodity inflation, and
CDIY promotional discounting on older generation products, all of which combined, outweighed the positive impacts of organic
volume-related increases, price increases in response to commodity inflation, cost synergies and productivity initiatives.
The Company reported gross profit of $2.935 billion, or 35.2% of net sales, in 2010, compared to $1.492 billion, or 40.5% of net sales,
in 2009. The addition of Black & Decker and acquisition activity were the main drivers to the overall increase in gross profit. Gross
profit in 2010 was negatively impacted by $195 million of merger and acquisition-related charges as previously discussed. Aside from
merger and acquisition-related charges, gross profit increased to $3.130 billion, or 37.5% of net sales, in 2010. This performance was
driven by sales volume leverage, benefits from prior year restructuring actions, and the continued execution of productivity initiatives,
partially offset by unfavorable commodity inflation.
SG&A Expense: Selling, general and administrative expenses, inclusive of the provision for doubtful accounts (“SG&A”), were
$2.552 billion, or 24.6% of net sales, in 2011 as compared $2.153 billion, or 25.8% of net sales, in 2010. Merger and acquisition-
related charges totaled $99 million in 2011 and $82 million in 2010 for certain executive and merger-related compensation costs and
integration-related consulting fees. Excluding merger and acquisition-related charges, SG&A was 23.6% of net sales in 2011
compared with 24.8% of net sales in the prior year. The favorable SG&A rate primarily reflects sales volume leverage and cost
synergies partially offset by the impact of acquisitions. On a pro forma basis, including merger and acquisition-related charges, SG&A
expense was $2.373 billion, or 25.6% of net sales, in 2010.
SG&A expenses were $2.153 billion, or 25.8% of net sales, in 2010 as compared with $1.016 billion, or 27.6% of net sales in 2009.
Merger and acquisition-related charges totaled $82 million in 2010 and $5 million in 2009 for certain executive and merger-related
compensation costs and integration-related consulting fees. Black & Decker and acquisitions contributed an additional $985 million of
operating SG&A. The remaining increase in SG&A primarily relates to corporate overhead, discussed below, investments to fund
future growth, and the reinstatement of certain U.S. retirement benefits that were temporarily suspended in 2009 as part of cost saving
measures. Excluding merger and acquisition-related charges, SG&A for 2010 was $2.071 billion, or 24.8% of net sales. The
improvement in the SG&A rate (as a percentage of sales) mainly reflects sales volume leverage, savings from restructuring actions
and cost synergies, along with the other aforementioned factors.