Black & Decker 2012 Annual Report Download - page 38

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2010
The Company reported $478 million in pre-tax charges in 2010, pertaining to the Merger and other acquisition activities, which
were comprised of the following:
• $146 million in Cost of sales related primarily to 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, by
$142 million. Additionally, Cost of sales includes $4 million of facility closure-related charges;
• $82 million in Selling, general & administrative expenses for certain executive and merger-related compensation costs
and integration-related consulting fees;
• $36 million in Other-net for transaction costs, inclusive of $20 million of pension curtailment gains; and
• $214 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 $98 million, resulting in after-tax
merger and acquisition-related charges of $380 million, or $2.53 per diluted share.
Outlook for 2013
This outlook discussion is intended to provide broad insight into the Company’s near-term earnings and cash flow generation
prospects. The Company expects diluted earnings per share to approximate $4.62 to $4.87 in 2013, inclusive of $125 million of
merger and acquisition-related charges, net of tax, which includes $30 million for the Infastech acquisition. Excluding such
charges, 2013 earnings per dilutive share is expected to be in the range of $5.40 to $5.65. The Company expects free cash flow,
excluding merger & acquisition-related charges and payments, to approximate $1.0 billion. The 2013 outlook assumes that
organic net sales will increase 2-3% from 2012 driving $0.00 to $0.15 of diluted earnings per share accretion. The core
business is expected to grow 1% - 2% driving $0.15 to $0.30 of diluted earnings per share and organic growth initiatives are
expected to yield 1% growth but will be approximately $0.15 dilutive to earnings per share. The Company expects to realize
final cost synergies in 2013 related to the Black & Decker merger and Niscayah acquisition of $50 million and $35 million,
respectively, which together should drive approximately $0.40 of EPS. The Infastech acquisition is expected to add $0.20 of
EPS accretion in 2013. The share repurchases enacted in 2012 with $850 million of the proceeds from the HHI sale should
yield an incremental $0.37 of EPS. Cost containment actions taken in 2012 will have a positive carryover impact of
approximately $0.15 of diluted EPS. An increase in tax rates and Interest/Other-net combined is expected to drive headwinds of
approximately $0.30 to $0.40 of diluted EPS.
As mentioned previously, the Company has decided to intensify its focus on increasing organic growth, concentrated in six
major areas during the next few years: (1) increase presence in emerging markets in the Power Tools, Hand Tools and
Commercial Hardware mid-price point categories, (2) create a "smart" tools and storage market using radio frequency
identification ("RFID") and real-time locating system ("RTLS") technology, (3) leverage the AeroScout RTLS capability into
the electronic security market including the acute care vertical within the Company's Healthcare business, (4) expand the
Company's market penetration with U.S. government customers in the Healthcare, Security, and Industrial verticals, (5)
offshore oil and gas pipeline service revenue in the Company's CRC-Evan's business, and (6) continue to identify and realize
revenue synergies associated with the Black & Decker Merger. Over the next three years the Company will invest
approximately $150 million ($100 million of recurring operating expense and $50 million of capital) to support these
initiatives. The Company expects that investment and achievement in these growth areas will generate approximately $850
million of incremental revenue over the same three year period and should increase its organic growth rate commensurately.
RESULTS OF OPERATIONS
Below is a summary of the Company’s operating results at the consolidated level, followed by an overview of business
segment performance.
Terminology: The terms “organic” and “core” are utilized to describe results aside from the impact of acquisitions during their
initial 12 months of ownership. This ensures appropriate comparability to operating results of prior periods. The Company has
included information as if the Black & Decker merger had occurred on January 3, 2010 for the year ended January 1, 2011
(“pro forma” information). This “pro forma” analysis is provided to aid understanding of the 2011 and 2010 trends since the
Merger occurred March 12, 2010.
Net Sales: Net sales were $10.191 billion in 2012, up 8% compared to $9.436 billion in 2011. Organic sales volume provided a
2% increase in net sales and the impact of acquisitions provided an additional 8% increase, while unfavorable effects of foreign
currency translation resulted in a decrease of 2% to net sales. The CDIY segment grew 5% organically in comparison to 2011,
which was driven by successful new products and market share gains under the D
E WALT and Black & Decker brands. In the
Industrial segment, organic sales grew 1% relative to 2011 due to strong organic growth in the Engineered Fastening business,
which was partially offset by IAR exposure to weakening European markets and declines in the Infrastructure business due to