Black & Decker 2012 Annual Report Download - page 44

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FINANCIAL CONDITION
Liquidity, Sources and Uses of Capital: The Company’s primary sources of liquidity are cash flows generated from operations
and available lines of credit under various credit facilities. The Company's cash flows are presented on a consolidated basis
and include cash flows from discontinued operations.
Operating Activities: Cash flows from operations were $966 million in 2012 compared to $999 million in 2011, representing a
$33 million decrease. Operating cash flows were negatively impacted by merger and acquisition-related charges and payments
of $357 million in 2012 and $218 million in 2011. Excluding these charges, cash flows from operations were $1.323 billion
and $1.217 billion in 2012 and 2011, respectively. Inflows from working capital (accounts receivable, inventory, accounts
payable and deferred revenue) were $48 million in 2012, compared with inflows of $170 million in 2011. The 2012 inflows
were primarily driven by higher payable balances due to an extension of payment terms, partially offset by higher receivables
balances due to the timing of cash payments from customers as a result of the Company's fiscal year-end differing from the
calendar year-end as well as inventory reductions associated with improved 2012 sales volume. As previously discussed,
working capital turns improved to 7.5 times at December 29, 2012, as compared to 7.2 times for 2011, which reflects process-
driven improvements from SFS.
In 2011, cash flow from operations was $999 million, a $260 million increase compared to $739 million million in 2010. Cash
flows from operations was negatively impacted by merger and acquisition-related charges and payments of $218 million and
$382 million in 2011 and 2010, respectively. After adjusting for the impact of the decrease in these charges and payments,
cash flows from operations improved in 2011 by a net amount of $312 million due to an increase in earnings. Operating cash
flows reflected a continued focus on working capital, resulting in $134 million of inflows in 2011 and $135 million of inflows
in 2010. Working capital turns improved to 7.0 times (excluding Niscayah) at December 31, 2011, as compared to 5.7 times for
2010 (5.9 times excluding HHI), which reflected improvements in both days outstanding of accounts receivable and accounts
payable, while inventory turns remained consistent. The improvement in overall working capital turns reflected the process-
driven improvements from SFS.
Free Cash Flow: Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund
future growth and provide dividends to shareowners. As previously discussed, operating cash flow was affected by
$357 million and $218 million of merger and acquisition-related charges and payments in 2012 and 2011, respectively.
Additionally, capitalized expenditures included $122 million and $89 million of merger and integration spending in 2012 and
2011, respectively. Free cash flow does not include deductions for mandatory debt service, other borrowing activity,
discretionary dividends on the Company’s common stock and business acquisitions, among other items.
(Millions of Dollars) 2012 2011 2010
Net cash provided by operating activities……………………………….. $ 966 $
999
$
739
Less: capital expenditures……………………………………………….. (386) (302) (186)
Free cash flow…………………………………………………………… $ 580 $
697
$
553
When merger and acquisition-related charges and payments, along with capital expenditures related to merger and acquisition
activity, are added back to the Company’s free cash flow, the resulting amounts are $1,059 million in 2012 and $1,004 million
in 2011. The Company expects free cash flow, excluding merger & acquisition-related charges and payments, to approximate
$1.0 billion in 2013.
Based on its ability to generate cash flow from operations as well as its strong balance sheet and credit position at December
29, 2012, 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: Cash flows provided by investing activities were $182.7 million in 2012 compared to cash flows used by
investing activities of $1.464 billion in 2011 and cash flows provided by $269.6 million in 2010. The cash inflow in 2012 was
driven by the net proceeds received from the sale of HHI of $1.3 billion, as previously discussed. Acquisition spending in 2012
totaled $707.3 million, which included the purchase of Powers, AeroScout, Tong Lung, Lista, and the remaining outstanding
shares of Niscayah. Cash outflows for business acquisitions were $1.180 billion in 2011, which was largely a result of the
Company's acquisition of Niscayah, and $550 million in 2010, which mainly related to the acquisition of CRC-Evans within
the Industrial segment, and Stanley Solutions de Sécurité (SSDS) and GMT within the Security segment. The cash flow
provided by investing activities in 2010 also includes $949 million of cash acquired as part of the Merger.
Capital and software expenditures were $386.0 million in 2012, $302.1 million in 2011, and $185.5 million in 2010. The
increase in capital expenditures in 2012 was mainly due to several consolidations of distribution centers as well as minor
facility improvements. The capital expenditures in 2011 included $89 million of Merger and integration related capital
expenditures, which drove most of the increase from 2010.